Applied Digital Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 28, 2024

There are 10 speakers on the call.

Operator

Good afternoon, and welcome to Applied Digital's Fiscal Fourth Quarter 2024 Conference Call. My name is Shamali, and I will be your operator today. Before this call, Applied Digital issued its financial results for the fiscal Q4 ended May 31, 2024 in a press release, a copy of which will be furnished in a report on a Form 8 ks filed with the SEC and will be available in the Investor Relations section of the company's website. Joining us on today's call are Applied Digital's Chairman and CEO, Wes Cummins and CFO, David Wrench. Following their remarks, we will open the call for questions.

Operator

Before we begin, Matt Glover from Gateway Group will make a brief introductory statement. Mr. Glover, please proceed.

Speaker 1

Great. Thank you, Shmali. Good afternoon, everyone, and welcome to Applied Digital's 4th quarter 2024 conference call. Before management begins their formal remarks, we'd like to remind everyone that some statements we're making today may be considered forward looking under securities laws and involve a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results to differ materially from those described in the forward looking statements.

Speaker 1

For more detailed risks, uncertainties, assumptions relating to our forward looking filings made with the Securities and Exchange Commission. We disclaim any obligation or any undertaking to update forward looking statements to reflect circumstances or events that occur after the date, except as required by law. We will also discuss non GAAP financial metrics and encourage you to read our disclosures in the reconciliation tables, the applicable GAAP measures and earnings release, which can be found on the Investor Relations section of our website carefully as you consider these metrics. We refer you to our filings with the SEC for detailed disclosures and descriptions for our business as well as uncertainties and other variable circumstances, including, but not limited to, risks and uncertainties identified under the caption Risk Factors in our annual report on Form 10 ks, our quarterly report on Form 10 Q. You may get Applied Digital's Security and Exchange Commission filings for free by visiting the SEC website at www.sec.gov.

Speaker 1

I would like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of Applied Digital's website. Now I'd like to turn the call over to Applied Digital's Chairman and CEO, Wes Cummins. Wes?

Speaker 2

Thanks, Matt, and good afternoon, everyone. Thank you for joining our fiscal Q4 2024 conference call. I want to start by expressing gratitude to our employees for their ongoing hard work and service in supporting our mission of providing purpose built infrastructure to the rapidly growing high performance computing industry. Before turning the call over to our CFO, David Wrench, for a detailed review of our financial results, I'd like to share some recent developments across our business. During the quarter, we faced several challenges that impacted our financial performance due to the facility power outages in our data center hosting business.

Speaker 2

Despite these short term setbacks, the company has made significant progress with our key growth initiatives, including the development of our cloud services business and the construction of our purpose built 100 Megawatt HPC data center in Ellendale. As previously announced, we executed an LOI with the U. S.-based hyperscaler for 400 Megawatts at our Ellendale campus, inclusive of our current 100 Megawatt facility and 2 forthcoming buildings. Now I will provide an update on each of our business units. Let's begin by discussing our data center hosting business.

Speaker 2

Our 106 Megawatt Jamestown facility has consistently met expectations operating at full capacity with uninterrupted uptime throughout the quarter. This achievement marks the 7th consecutive quarter of full capacity operation for this facility. While we are pleased with Jamestown's performance, we encountered challenges at other facilities. As previously disclosed, our 180 Megawatt Ellendale facility in North Dakota experienced a power outage starting in January, which we determined was caused by transformer failures. By the end of the Q4, we had successfully replaced transformers and related components with equipment from industry leading North American manufacturers.

Speaker 2

As a result of the transformers being replaced, we now have 286 megawatts of data center hosting capacity for our blockchain clients across our 2 fully contracted locations in North Dakota. Let's move on to our cloud services business, which provides high performance computing power for AI applications. This segment continues to experience growth as we advance in fulfilling our existing contracts and exploring new opportunities in our pipeline. As of the end of Q4, we had 4 clusters online and we brought another 2 clusters online in the Q1 of 2025. Lastly, let me provide an update on our HPC data centers.

Speaker 2

We currently have 400 megawatts of capacity under development across North Dakota. This is in addition to the 7.5 megawatts of IT capacity at our HPC facility in Jamestown, which due to its proximity to Ellendale should allow a low latency interconnected extended campus in North Dakota. During the quarter, we continued to make significant strides in the construction of our first proprietary 100 Megawatt high performance computing facility in Ellendale, North Dakota. This state of the art facility will feature cost effective, highly efficient liquid cooled infrastructure specifically designed for the most demanding HPC applications. We have made substantial progress in the construction of the 369,000 square foot facility.

Speaker 2

I encourage you to visit our new website for some recent images of the facility. As previously mentioned, we have entered into exclusivity and executed a letter of intent with a U. S.-based hyperscaler for a 400 Megawatt capacity lease. We believe the hyperscaler has completed their technical and site due diligence on the location and are now working to finalize the details of the lease. This will be followed by finalizing the project level financing for this investment grade tenant.

Speaker 2

We are focused on finalizing the lease and project financing for Ellendale campus and we have started marketing 3 additional campuses totaling 1.4 gigawatts. All of these campuses have power available in 2026. In summary, we are encouraged by the positive trends we are witnessing across our business and remain confident in our growth trajectory. We're excited about the numerous potential catalysts on the horizon and are committed to strategically allocating our capital to achieve the highest risk adjusted returns and maximize shareholder value. With that, I will now turn the call over to our CFO, David Wrench to walk you through our financials and provide an update on guidance.

Speaker 2

David?

Speaker 3

Thanks, Wes, and good afternoon, everyone. Let me begin by addressing the complexity of this quarter's financial reporting. We reported an adjusted EBITDA of approximately $4,800,000 However, several one time items significantly impacted our financial performance and comparability to prior quarters. Notably, a large portion of the power was out in our data center hosting facility in Ellendale, North Dakota, which then largely came online right at the end of the quarter. Additionally, we incurred many one time professional service expenses, primarily related to our capital raising initiatives, financial analysis for data center financing and strategic transactions.

Speaker 3

We continue to pursue all available remedies to recoup lost revenues and additional costs incurred from the transformer outages. Let's delve into the results of the quarter. Revenues for the fiscal Q4 of 2024 were $43,700,000 compared to $22,000,000 for the same period in 2023. The increase was primarily driven by expanded capacity across our data center hosting facilities and revenue contributions from the cloud service contracts. Specifically, our data center hosting segment generated $26,900,000 in revenue while our cloud services segment contributed $16,800,000 Turning to cost of revenue for the fiscal Q4 of 2024, it amounted to $46,300,000 up from $15,900,000 in the same quarter of 2023.

Speaker 3

This increase can be attributed to higher energy costs resulting from the increased number of megawatts used to generate hosting revenues. Additionally, depreciation and amortization expenses along with personnel costs rose due to the growth of the business as more facilities came online. Selling and general administrative expenses for the fiscal Q4 of 2024 were $31,300,000 compared to $12,300,000 in the prior year's comparable period. The increase was primarily due to start up costs as we ramped up the cloud service business. This included higher depreciation, amortization and lease costs on assets not yet supporting revenue as well as personnel costs to support the overall growth of the business.

Speaker 3

The net loss for the fiscal Q4 of 2024 was $64,800,000 or $0.52 per basic and diluted share. This calculation is based on a weighted average share count during the quarter of approximately 124,700,000 in comparison the net loss for the fiscal Q4 of 2023 was 6,500,000 or 0 point 0 $7 per basic and diluted share based on a weighted average share count during the quarter of approximately 94 point $1,000,000 Adjusted net loss, a non GAAP measure for the fiscal Q4 of 2024 was $45,300,000 or adjusted net loss per basic and diluted share of $0.36 based on a weighted average share count during the quarter of approximately $124,700,000 This compares to an adjusted net loss of $0.01 per 1,000,000 I'm sorry, adjusted net loss of $100,000 or less than a $0.01 per basic and diluted share for the Q4 of 2023 based on a weighted average share count of approximately 94,100,000 during the quarter. Adjusted EBITDA, another non GAAP measure for the fiscal Q4 of 2024 was 4,800,000 compared to adjusted EBITDA for the fiscal Q4 of 2023, which stood at 3,400,000. Dollars The significant difference between our adjusted earnings and our adjusted EBITDA is largely driven by our accelerated depreciation schedule of our GPU hardware.

Speaker 3

Moving to our balance sheet, we ended the fiscal Q4 with $31,700,000 in cash, cash equivalents and restricted cash along with $125,400,000 in debt. Subsequent to the fiscal year end, we secured over $150,000,000 in funding from various finances in the settlement of the Garden City contingency. We continue to explore additional financing for the cloud service business, which will better align the economics of that business with the life of the assets by extending the depreciation from 2 to 6 years, the industry norm. I would like to reiterate that we are focused on project level financing for the Ellendale HPC campus, which we expect to fund shortly after the finalization of the lease agreement with the U. S.-based hyperscale.

Speaker 3

Now I'll turn the call over to Wes for closing remarks.

Speaker 2

Thank you, David. We understand the past year had seen challenges as the company has faced a multi month outage at our Ellendale hosting facility and the financial burden of funding a $1,000,000,000 data center while funding our cloud business. Nevertheless, we've made substantial progress towards securing greater than a decade long lease agreement with a Fortune 50 company for our Ellendale campus. Finalizing this lease will solidify our position as a leader in the HPC data center market and have a cascading effect on our ability to secure asset level financing and develop additional sites. Throughout this process, we've diligently worked to secure project level debt for our facility with multiple interested parties.

Speaker 2

Upon execution of the lease with the hyperscaler, we anticipate our financing partner, SemGroup, will release additional capital to support ongoing construction

Speaker 3

while we continue to work

Speaker 2

toward project level to support ongoing construction while we continue to work toward project level finance. In summary, despite significant challenges this quarter, largely due to external factors, we remain fully committed to delivering strong long term shareholder value. Our vision is to become a development platform capable of building and operating multiple HPC data centers. This starts with our Ellendale campus and continues with 3 additional campuses we're actively marketing today, totaling 1.4 Datawatts. To support this vision, we have added several industry veterans to our team and we're already working on the design of our next two buildings, which will provide 300 megawatts of capacity.

Speaker 2

We are incredibly proud of the progress made this quarter and look forward to providing further updates as we move into fiscal 2025. Looking ahead, we believe Q4 marked bottom for our revenues and anticipate sequential improvements in the top line as we enter the Q1. We now welcome your questions. Operator?

Speaker 4

Thank you.

Operator

We will now be conducting a question and answer session. Our first question comes from the line of Lucas Pipes with B. Riley Securities. Please proceed with your question.

Speaker 5

Thank you very much, operator. Good afternoon, everyone. Wes and T, my first question is on the Ellendale HBC campus. And I wondered if you could speak to the percentage completion on the first 100 megawatts and the remaining capital requirements from here. Thank you very much.

Speaker 2

Sure, Lucas. So we have a little over $200,000,000 into the facility as it stands today. The building, I'm sure you've seen some of the video footage is fully enclosed. We're progressing with MEP at this point and then we'll do the final fit out later this year, early next year. And we go back to so this facility will be roughly one $1,000,000,000 a little over $1,000,000,000 for the first 100 megawatts, which is on par with standard Tier 3 data center capacity.

Speaker 2

And so with the 200 in, I think I've talked about this in the past. We're working with banks that typically provide project level finance in this space. We have term sheets and we've actually selected a bank that we're moving forward with. And the expectation is that they'll fund the remainder and we've seen 80% to 90% loan to cost quotations from this. We just need to get past the lease finalization and the project level finance process is already running at this point.

Speaker 2

So we'd hope to close that shortly thereafter.

Speaker 5

Thank you very much for the detail. And Wes, did I hear it right that you said kind of fit out early next year?

Speaker 6

And

Speaker 5

would that include completion or how would you frame that up in terms of that timeline? Thank you.

Speaker 2

So Lucas, there's a couple of different timelines that we work through here as we've gone through the process. There's our build timeline and then there's when our customer wants the facility ready for service. That's not completely locked in at this point. But our schedule from the build perspective is what we've talked about in the past being ready late this year or early next year.

Speaker 5

Thank you. Thank you very much for this. And changing topics really quickly on the cloud services business. Can you speak to the ramp in your fiscal Q1? How many clusters did you have online?

Speaker 5

And how would you kind of frame up the revenue opportunity Q1 fiscal Q1 here versus just this fiscal Q4 period that you just reported? Thank you.

Speaker 2

Sure, Lucas. So where we are there is, as we said in the prepared remarks, we're 6 clusters online in Q1 and it won't be for the full Q1, but those came online I believe in June, so it will be for the majority of it. So with the 6 clusters up that business is at roughly $109,000,000 revenue run rate on an annual basis. And right now, I've talked about on previous calls that our team is very focused on the enterprise market. We started with the AI labs and AI startups.

Speaker 2

We're very focused on the enterprise market at this point. We have been working on it for 7 or 8 months now. And we've probably seen recently we've hired a new CRO that came from IBM that's very focused on that market. And so we see the demand there and we'll continue to ramp that. The other piece of the puzzle here is we have been working on financing that we're putting in place that it finances this deployment, this equipment in a way that makes it run through our income statement more fairly versus what it does today.

Speaker 2

So we don't want to keep adding a lot with the capital lease structure that we currently have just because of you see what it does to the financials because we're forced to do the depreciation over 2 years versus the industry standard of 5 or 6. So those two pieces are coming together and then but we do still see a significant amount of demand, but really growing demand from the enterprise side of the market.

Speaker 5

Wes, I appreciate your details to you and the team. Best of luck.

Speaker 2

Thanks Lucas.

Speaker 4

Thank you. Our next question comes from the line of Rob Brown with Lake Street Capital. Please proceed.

Speaker 2

Good afternoon.

Speaker 6

Just following up on the AI cloud business, I think the 6 clusters, what sort of the range of clusters you think you can grow that business into? And how do you think about that versus the data center business in terms of need

Speaker 2

to have need to have the right mechanisms in place to do asset level financing for both of them. And so we've talked about that on the data center side. We're almost there. We've talked about it pretty extensively on the GPU side. I think we're almost there as well.

Speaker 2

And so when we have the correct asset level financing mechanisms in place, I think we'll be able to grow significantly on both sides of that business. On the AI cloud portion of the business with the data center capacity that we have in place today and what's available to us as we go through 2025, we can generate significant growth in that business and we see the demand for it, but we need to get the right capital base in that business to grow it aggressively. Right now, we're kind of feeding both of them and we need to move that financing down to an asset level from a company level.

Speaker 6

Okay, great. Thank you. And then on your hyperscaler contract, I assume the just in terms of the timeline, the long lead items there are the due diligence, I assume, in the site and the technical due diligence, but sort of what percentage of completion are you at in terms of getting the contract through its process?

Speaker 2

It's hard to handicap that, but I would say we're north of 90% of the way there.

Speaker 6

Okay, great. Thank you. I'll turn it over.

Speaker 4

Thank you. Our next question comes from the line of Darren Aftahi with ROTH Capital Partners LLC. Please proceed with your question.

Speaker 7

Thanks. Just following up on the lease. I guess from a big picture perspective, like how much of this is small details being ironed out versus a larger framework? And then I guess my other question in regards to the lease is just how much is a backlog in the law firm that's actually doing this for the COPDAS process?

Speaker 2

That's a good question, Darren. So as far as the details, there's large items and then there's very small items and sometimes the small items can take as long as the large items there. But there's an extensive process around fiber connectivity, power, firm power, redundancy on power that took a significant amount of time to complete. But there's a lot of small details. So I would say it's a split between those and it's funny sometimes some of the smaller details take longer.

Speaker 2

But the question on the it's hard to get a view on the law firm, but there's only a few that deal with most of these contracts. And so there definitely is a backlog out there, but I can't handicap or just talk about how much slowdown is due to that. This is our first time through. So this is the only environment we've experienced.

Speaker 7

Got it. And just one more on your pipeline of other campuses. I guess, 1, where are you in the marketing process? And then 2, what's your propensity to diversify your customer base with those other campuses versus say, if the existing U. S.

Speaker 7

Hyperscaler, the LOI with more interest in capacity, if they wanted to take that down just to be kind of comparing to trash those thoughts? Thanks.

Speaker 2

Sure. So we've just recently kicked that process off. There's we send out pair sheets and binders for these sites. And we have a more refined process, I would say, at this point than we did

Speaker 3

for the Ellendale

Speaker 2

campus. But we're still there. We're still pretty focused on hyperscalers for these sites. We're focusing on sites that are at least 200 plus megawatts of critical IT capacity. So that is going to equate to depending on what part of the country you're in somewhere between 250 to 300 megawatts of utility power.

Speaker 2

So those are the types of sites and customers that we're focused on. There's other customers in the market, but we have a pretty narrow focus of how we go to market with these new sites.

Speaker 7

Great. Thank you.

Speaker 4

Thank you. Our next question comes from the line of Mike Grondahl with Northland Securities. Please proceed with your question.

Speaker 8

Hey, thanks guys. Wes, could you repeat what you said? The 6 clusters are driving an annualized run rate of how much revenue? I heard $100,000,000 but it kind of came through a little garbled.

Speaker 2

Yes, it's about $100,000,000 to $110,000,000 Mike.

Speaker 8

Okay. Dollars 100,000,000 to $110,000,000 And I think what you were saying is, hey, there's a lot of demand for that business, but you're kind of going to stay at about 6 clusters until you get a better financing structure in place and then you would expect to see more growth. Is that a fair summary?

Speaker 2

Yes. That's a good summary is we're working on a better financing structure because you see and you can look at kind of where our adjusted EBITDA is versus where our earnings are and that's driven largely by the accelerated depreciation schedule on those GPUs. And so we need to have the type of financing, 1, that is at the right cost for us. And then 2, allows us to depreciate these over the useful life rather than during the financing period, if that makes sense.

Speaker 7

Sure, sure.

Speaker 8

And hey, in the press release, you kind of referred to this development platform on the HPC side, with the potential to go from 400 Megawatts to 1.4 Gigawatts. Do you think that first hyperscaler customer is interested in more than the existing 400 you're talking to them about? Could you end up being a one stop shop for them for another big project or 2?

Speaker 2

I definitely think we could, but there's other demand in the market as well from similar type customers. There's just a significant amount of demand for this capacity, especially near term power. So 2025 power 2025 power is done, unless we have that for Ellendale. Now we're focused on 2026 power and then 2027 power, but I think near term power is key and you need to have the right type of power. Again, one of the reasons when we talked about selling our Texas facility, we don't believe that facility works for HPC, at least not the way we want to develop it.

Speaker 2

So you need the right type of power. So we're really focused on near term power. And Mike, just to clarify, the 1.4 gigawatts is just the additional three sites. It doesn't include Allendale. So, that's what we're focused on the market there.

Speaker 2

But I think the potential current customer as well as others like them, there's a significant amount of demand for near term power in the market. Got

Speaker 8

it. Great. Hey, thanks a lot.

Speaker 4

Thank you. Our next question comes from the line of George Sutton with Craig Hallum. Please proceed with your question.

Speaker 7

Thank you. Wes, nothing on the call has surprised me except for one statement. You mentioned it's not clear when the customer might want to go live with the lease. Can you just clarify that statement? Yes.

Speaker 7

My assumption has been we want to get this up and running as fast as humanly possible and that's why you're building out as rapidly as you are.

Speaker 2

Yes. So that's correct, George, a correct way to look at it. But there's different stages for this as far as when you're doing fit out, what we're adding in for the fit out. So there's a lot of moving parts there. I mean, it's fairly buttoned down, but we'll save the details of that for when this is finished and we can share that publicly.

Speaker 7

Okay. And relative to the GPU financing structure, our understanding knowing that market pretty well is it's gotten a lot better. It's gotten a lot more financeable. Can you just talk about the level of interest you've had from folks in putting a structure together there? Kind of where does that stand?

Speaker 2

Yes. So we started this process a while ago and you are correct in that just the interest level has grown and the cost of capital has come down. It really, George, depends on the kind of the off taker here just like on the data center side. So the financing pricing depends a lot on the off taker. And so your highest costs are going to be AI labs and startups and then enterprise is going to be significantly lower.

Speaker 2

And then if you were doing the deployment with a hyperscaler, it's going to go even lower from there. But we're seeing a significant amount of new entrants into that market and we've seen a lot of interest. And I think we'll have been successful in putting that structure in place for ourselves.

Speaker 7

So just to clarify on that, the financiers are saying we're happy to put something together. We want to see the customer names. And once you provide a high quality enough name, we would want to fund this. Is that

Speaker 2

chicken and egg to some extent? Yes. It kind of is, George. What you should think of is a facility that gets put in place and it's a drawdown facility as you buy equipment. And you do show customer contracts and typically the kind of the structures that we see in this is you'll feel form like a bankruptcy remote SPV.

Speaker 2

And then the loans go into that, the GPUs go into that and the customer contracts go into that. And in some cases, the co location contracts go into that as well. And so it's kind of a self contained financing solution. Got you. Okay.

Speaker 2

Thank you.

Speaker 4

Thank you. Our next question comes from the line of John DeGaro with Needham and Company. Please proceed with your question.

Speaker 5

Hey, Wes. Thanks for taking my question. 2 for you. First, just trying to do diligence as much as possible kind of the timeline for that lease agreement. So you had mentioned they finalized their technical requirements.

Speaker 5

Is that kind of you think about it the first stage and how many stages would you say there are or is it really now just kind of done down to some final details? And then, second question, you had mentioned that the Garden City site that you didn't think it was suitable for HPC. Obviously, a lot of the Bitcoin miners out there are kind of trying to go down that West Texas route. It hasn't been done yet. Just curious why did you think that that site and maybe that region wouldn't really be possible for HCC?

Speaker 2

So, hey, John. On the I would not say, I mean, it's all kind of when you say is that the first step of the process on the lease side, it all kind of goes together. But I would say we're finalizing the last details of that is the way I would characterize it. And then on what we've learned through this process and what we have seen previously, but especially through this process is the I don't think for us, for our company, everyone else has their own strategy, but I don't think for us having a large flexible load in the ERCOT market is going to be suitable for the kind of customers that we are pursuing in that business. I don't know what changes will happen, but I know there are changes in the legislature that have been proposed in the legislature in the state of Texas that will make it even harder with the large flexible load structure to serve again the type of customers we're looking at serving.

Speaker 2

So right now, we're not pursuing anything in the state of Texas at the moment that could change in the future. But there's firm power redundancy and not just redundancy of what you build on the site like UPS or backup gen, redundancy in having multiple power lines or feeds in from different directions into the substation or switching station that you're drawing power from. There's a lot of pieces that we've learned going through this process and that's the type of sites that we have locked up and are locking up in marketing. But there's I'm not that bullish on just specifically the large flexible load in the state of Texas.

Speaker 5

Okay. That's helpful, Wes. Appreciate that. Thank you.

Operator

Thank you. And our next question comes from the line of Kevin Haid with H. C. Wainwright.

Speaker 4

Please proceed with your question.

Speaker 9

Thanks. Hi, Wes. I was wondering if you could take a little time just to characterize the overall environment. Understand you're targeting 1.4 gigawatts. What's the competitive environment like?

Speaker 9

And how are you confident that Applied wins versus

Speaker 2

your competitors? Sure. So, there's 2 parts of that. So from the environment, as I mentioned earlier, we see a very strong demand for near term power. So we're very focused on power that can come online through the end of 'twenty seven.

Speaker 2

So power is the number one bottleneck at the moment. And then when you step back to what I believe is the number 2 bottleneck, it's supply chain. And there are a lot of stretched components in the supply chain. I'm happy to walk through those, but that's the second part. So we have a significant amount of experience in the supply chain.

Speaker 2

A lot of the things we for the 1st data center build we had ordered last year, we bought our places in line for switchgear transformers, a lot of the key components that are needed to build these. So those are the two pieces and I think we're in a great position from both of those kind of competitive dynamics. I think the biggest thing for us is getting through this first lease that will be something that validates what we're doing as a company in North Dakota and our ability to go and find these sites, develop them and bring them online for very large companies and demanding companies. And so, there's a lot of competition in the market. We see the majority of our competition being private data center companies that have been building for hyperscalers for years already, decade even.

Speaker 2

So those are the ones that we see as the majority of the competition in the market. And there's a handful of those platforms out there that are building 100 of megawatts or in some cases over gigawatt of power out for hyperscalers. So this is not necessarily a new market. It's just a new style of data center.

Speaker 9

Well, as you go up to bid for a site and you see these other private companies that have been doing this a little bit longer than Applied has, why would you win that contract? Why should we believe that you're going to have a foot up in that competition?

Speaker 2

So I think it's important to understand that the companies that we have historically or that have historically been in this market, and the way kind of data center the industry has been historically is when a company wants to build new capacity, they typically look for the region they want to be in. So let's just I'm sitting in Dallas. Let's say they want to be in Dallas. And so there's a couple of different tools that you can license for locating data center space in the DFW area. And those tools really focus on the fiber maps.

Speaker 2

And so what it will do is basically match the type of fiber connectivity you need and then available real estate on the map. And then you'll find a location, purchase that location and then you'll make a request to the utility for power. And so what's happened in the market now is companies are still doing that, but those power requests goes in a queue and in a lot of the most popular markets that is stretching out 5 plus and in some cases over 10 years before you're going to get that power, especially at the amounts of power that are needed for these new style facilities. And so that's the big gating item. Now us, on the other hand, we go about it kind of the inverse way.

Speaker 2

We find power availability and then we make sure that that power is the type of power that can be used for our type of development. So, what I've mentioned before on redundancy. And then we make sure that the fiber connectivity is there. And now we've refined that even further to include kind of latencies to different locations. And then we can go and then either start developing that site like we did in Ellendale or marketing some of our other locations.

Speaker 2

So, I think we're unique and one of the few companies that goes about it that way and is this far along. If you look back at our history, we started down this path in 2022. And so, we have a few years of experience doing this and now our knowledge level has went up dramatically in the last 6 months inside the company about how to go about this. So I think just the availability of power and the right kind of power at the right type of sites with the right type of fiber connectivity are what really give us an advantage.

Speaker 9

Would you think it's also fair to say that you're looking under rocks and perhaps more rural locations with less concern of latent on latency?

Speaker 2

So we are for sure. That's what I was mentioning earlier about how traditional data center companies go about it and we go about it in a very different way. We've definitely tightened the bands on what we know about kind of the latency requirements. So we're not necessarily going to be looking at really far flung locations, but

Speaker 7

we have

Speaker 2

a lot more knowledge base around the type of latency requirements in North America that we will need to meet for the site. So it's helped us with our site selection even more.

Speaker 9

Can you talk a little bit about where Applied stands now on the Cloud AI biz? How many sites do you have? And what's active? And what do you think once you're financing your structured financing in place, how you'll be able to access those this fiscal year?

Speaker 2

Yes. So we have a lot of the same locations where we have Minnesota, we have our site in Jamestown, we have a close capacity in Denver and Salt Lake City. Those are the primary large ones. We have a smaller one in Las Vegas. So we have that capacity.

Speaker 2

There's open capacity, which is, I think, a very big asset in the market. It's extremely difficult to find, and ready for deployment. We have demand that's coming through on the enterprise side, and there still is strong demand in that market. So when we get the right type of financing in place, we'll be able to reaccelerate the growth of that business.

Speaker 9

So all told, can you give us rough ballpark on the megawatts that you have access to?

Speaker 2

We have megawatt capacity secured of just over for deployment just over 30 megawatts. Perfect.

Speaker 9

Thanks very much, Wes.

Speaker 2

Yes. And Kevin, that's ready now. That's not for in the future.

Speaker 5

Yes. No, that's yes, that was

Speaker 9

the nature of my question. I appreciate the color, Wes. Appreciate the color. Thank you very much.

Speaker 4

Thank you. And we

Operator

have reached the end of the question and answer session. Therefore, I'll turn the call back over to Wes Cummings for closing remarks.

Speaker 2

Thanks, operator. Thanks, everyone, for joining the call and look forward to speaking to you next quarter.

Operator

And this concludes today's conference. You may disconnect your lines at this time. Thank you for your cooperation.

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Earnings Conference Call
Applied Digital Q4 2024
00:00 / 00:00