Applied Digital Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 14, 2025
Skip to Participants
Operator

Good afternoon, and welcome to Applied Digital's Fiscal Third Quarter twenty twenty five Conference Call. My name is Jerome, and I'll be your operator today. Before this call, Applied Digital issued its financial results for the fiscal third quarter ended 02/28/2025, in a press release, a copy of which will be furnished in a report on a Form eight 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, Seidl Moomed. 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, you may begin.

Matt Glover
Senior MD at Gateway Investor Relations

Thank you, Jerome. Good afternoon, everyone, and welcome to Applied Digital's fiscal third quarter twenty twenty five conference call. Before management begins formal remarks, we would like to remind everyone that some statements we're making today may be considered forward looking statements under the 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 and events to differ materially from those described in the forward looking statements. For more detailed risks, uncertainties and assumptions relating to our forward looking statements, please see the disclosures in our earnings release and public filings made with the Securities and Exchange Commission or SEC.

Matt Glover
Senior MD at Gateway Investor Relations

We disclaim any obligation or any undertaking to update forward looking statements to reflect circumstances or events that occur after the date the forward looking statements are made except as required by law. We will also discuss non GAAP financial metrics and encourage you to carefully read our disclosures and the reconciliation tables to the applicable GAAP measures in our earnings release as you consider these metrics. We refer you to our filings with the SEC for detailed disclosures and descriptions of 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 and our quarterly report on Form 10 Q. You may get Applied Digital's SEC filings for free by visiting the SEC website at www.sec.gov. I would like to remind everyone that the call is being recorded and will be made available for replay via link available in the Investor Relations section of Applied Digital's website.

Matt Glover
Senior MD at Gateway Investor Relations

Now I'd like to turn the call over to Applied Digital's Chairman and CEO, Wes Cumming. Wes?

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Thanks, Matt, and good afternoon, everyone. Thank you for joining our third quarter twenty twenty five conference call. I want to start by expressing gratitude to our employees for their continued 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, Saddam Momand, for a detailed review of our financial results, I'd like to share some recent developments across our business. Starting with our data center hosting business, we currently operate two eighty six megawatts of fully contracted data center hosting capacity for our cryptocurrency clients across two locations in North Dakota, both of which are running at full capacity.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Bitcoin prices remain strong, which is positive for our customers, and we remain optimistic about the business and its future prospects. In our HPC hosting segment, we have achieved significant milestones in advancing our strategic objectives, including two transactions with globally renowned financial institutions. The first transaction with Macquarie Asset Management, one of the world's largest infrastructure investors, upon closing will allow Macquarie to invest up to $5,000,000,000 in capital to support the development of Applied Digital's next generation data centers. We believe this investment underscores Macquarie's strong confidence in the scalability and value of our platform. The second was a $375,000,000 financing arrangement with Sumitomo Mutsi Bank Corporation, one of Japan's top three banking groups and a global leader in data center financing.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

We believe this arrangement reflects the trust and leading financial institutions placed in the value of our data centers, land assets and power infrastructure pipeline. Quarry and SMBC are playing instrumental roles in ongoing discussions with customers to lease the Ellendale campus. Their support is especially valuable amid the current cross currents in the industry and broader economy. We believe the Ellendale campus represents a highly strategic industry asset with significant expansion opportunities beyond the initial 400 megawatts of critical IT load. Importantly, our construction remains on schedule for our first building and we expect it to be ready for service and ready to begin generating revenue in the calendar fourth quarter of twenty twenty five.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Nearly all the equipment for this building has landed, giving us not only confidence in the schedule, but it also means tariffs will not materially impact our build cost. Construction is underway for the second building, which will be a 50 megawatts of critical IT load. This building is expected to be ready for service at the end of calendar q two of twenty twenty six and ready to begin generating revenue. Building 3, also 150 megawatts, is in planning stages and is expected to be ready for service in calendar Q1 of twenty twenty seven. The power is secured for all three buildings as is the supply chain.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Lastly, we expect to provide an update on leasing discussions in the near term. At that time, we will share updated views on the potential economics of the campus. Next, let's discuss our cloud services business, which provides high performance computing power for AI applications. After careful consideration, our board of directors has determined that reviewing strategic options for this business is in the best interest of shareholders. This decision is driven by several factors.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

First, our discussions with potential customers regarding leasing our data center business is it is clear that our cloud business is typically viewed as a competitor. While this has not derailed any discussions, it is a point of friction. We also believe that if we were to transition to a data center REIT in the future, this would lower our cost of capital as investors typically assign higher multiples to data center businesses due to their stability and long term growth potential. Further recent industry developments, including a large competitor completing their IPO, make this an opportune time for us to explore strategic options. In summary, we're encouraged by the positive trends across our business and remain confident in our growth trajectory.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

With that, I'll turn the call over to our CFO, Saddal Momon, to walk you through our financials. Saddal?

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

Thanks, Wes, and good afternoon, everyone. Let me begin by highlighting some of our recent financial announcements before providing a detailed overview of the quarter. Over the past year, the company has deployed nearly $1,000,000,000 in assets with a significant portion allocated to the construction of our data centers. While our construction teams have done a tremendous job delivering projects on time and within budget, one of the key challenges has been a high cost of capital. Reducing our cost of capital has been one of my top priorities since stepping in as CFO.

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

We began this process with a $450,000,000 convertible note at 2.75%, followed by the strategic transaction of Macquarie Asset Management, providing potential access to up to $5,000,000,000 in capital. Most recently, we secured a $375,000,000 financing arrangement with SMBC at highly attractive rates. We believe these transactions have not only strengthened our financial position, but have also ensured we have the necessary capital to continue funding our data center build out as well as positioning us as a strong strategic partner for potential customers Now let's turn to the quarter. Revenues for the fiscal third quarter of twenty twenty five were $52,900,000 up 22% over the prior comparable period. This increase was primarily driven by continued growth of our cloud services business due to the deployment of additional GPU clusters.

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

In total, our data center hosting segment generated $35,200,000 in revenue, while our cloud services segment contributed 17,800,000.0 Our Cloud Services business revenue declined sequentially from last quarter due to us placing some of our capacity into an on demand model as shipped from reserve contracts. With this change, we experienced some technical hurdles as we moved from a single tenant to a multi tenant configuration. Importantly, those technical issues are now resolved. Cost of revenues increased $2,100,000 to $49,100,000 from the prior comparable period, primarily driven by the growth in the business as more facilities were energized and additional services were provided to customers. SG and A expense decreased to $7,300,000 to $22,700,000 primarily due to GPU cluster deployments as they are now revenue generating and the associated depreciation and amortization is now captured as a part of cost of revenues.

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

This quarter, our depreciation and amortization expense decreased to $18,800,000 compared to $26,200,000 in the same period in 2024. Of the current quarter amount, 14,400,000.0 was attributable to D and A and our Cloud segment. Interest expense increased $4,100,000 to $8,900,000 primarily driven by an increase in finance leases and interest bearing loans between periods. Net loss attributable to common stockholders was $36,100,000 or $0.16 per basic and diluted share. Adjusted net loss attributable to common stockholders was $17,800,000 or $08 per diluted share.

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

Our adjusted EBITDA increased 878% to $10,000,000 Now a few items impacted our adjusted EBITDA this quarter compared to Q2 of this year. As early in the quarter, we transitioned some of the GPU capacity to on demand but encountered technical issues moving from

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

a single tenant to a

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

multi tenant environment. Those issues have since been resolved. We also experienced margin compression in our data center hosting business due to expected seasonal fluctuations in power cost. Now moving on to our balance sheet. We ended the fiscal third quarter with $261,200,000 in cash, cash equivalents and restricted cash along with $689,100,000 in debt.

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

Now with that, I'll turn over the call to Watts for closing remarks.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Thank you, Sato. While securing our lease for our Ellendale campus is taking longer than expected, Customer interest remains high. Additionally, the Macquarie and SMBC transactions have elevated our status in the industry. Although we cannot control the macro environment, we can continue to build our campus on time and within budget. We believe our 100 megawatt megawatt liquid cooled data center is uniquely positioned to come online as industry demand accelerates.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Furthermore, our 1.4 gigawatt pipeline remains one of the most compelling offerings in the market as customers continue to invest heavily in future capacity. We're proud of the progress achieved this quarter and look forward to sharing further updates as the year unfolds. We welcome your questions at this time. Operator?

Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Riley Securities.

Nick Giles
Senior Research Analyst at B.Riley Securities

First,

Nick Giles
Senior Research Analyst at B.Riley Securities

on the sale of the cloud services business, can you remind us what the updated split would be between on demand versus contracted and how you're thinking about total value there?

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Nick, in the quarter, so we had four of our six clusters in remaining in reserve contracts and two moved to on demand. And the two in on demand generated a small amount of revenue later in the quarter. But as Saddal had mentioned, we've rectified the technical issues there and expect that to to ramp up in the current quarter, but that that's the split currently.

Nick Giles
Senior Research Analyst at B.Riley Securities

Got it. And just to clarify, none of the clusters today are in applied data centers, so there wouldn't be a a structure where you would, where where you would still operate some of the capacity for those GPUs. Correct?

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

That's correct.

Nick Giles
Senior Research Analyst at B.Riley Securities

Great. And my my second question was just on the BTC hosting business. Where does this business fit in the long term and especially as you remain focused on converting to a a restructure later down the road?

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Yes. So I I think the the the BTC assets will fit in a restructure. And I think there is is a long term match between HPC data center capacity and Bitcoin hosting capacity. Nick, when you when you look at the sites that we're operating, so let's look at Ellendale just specifically. So 400 megawatts of critical IT load that, you know, moves to 530 of total utility load.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

But that won't be that all of that power needs to be be available at all times. But typically, these run-in the 70, maybe at the high end 80% of capacity, on an on an average basis. And so that leaves a significant amount of power that that would go unused. And I think that's a really great match for Bitcoin facilities that have, you know, that ability to dynamically adjust the load at a at a site. So I would expect that to remain at Ellendale for us.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

And I would expect, you know, actually for us to take a hard look at that at new sites as well to potentially add some Bitcoin capacity, to to be matched with the HPC capacity. But I I look at those businesses as as effectively one business.

Nick Giles
Senior Research Analyst at B.Riley Securities

Got it. That's that's very helpful, Wes. I'll turn it over for now, but continue best of luck.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Thanks.

Operator

Thank you. Your next question comes from the line of Brett Knoblatch from Cantor Fitzgerald. Your line is now open.

Thomas Shinske
Equity Research Associate at Cantor Fitzgerald

Hi, guys. This is, Thomas Schinsky on for Brett. Thank you for taking my question. So first, I guess, you mentioned Macquarie and SMBC are playing an instrumental role in in finding potential leasing partners for Ellendale. I guess, with their involvement, are you seeing faster diligence timelines or improved leasing momentum, because of their support?

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

I I think the way I would, excuse me, phrase that is that we've we've seen more interest and but but with the people who are already there, I think that it has significantly increased the comfort level with our of our ability to complete construction and operate facilities, with kind of world class, financing partners in the in the mix.

Thomas Shinske
Equity Research Associate at Cantor Fitzgerald

Awesome. Great. And then, just on CapEx, I guess, can you provide an update on your expected capital needs over the next twelve to eighteen months, and whether the current construction of Ellendale is being built in line with, past projections of CapEx?

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

Yep. So this is Saddell speaking. So in terms of CapEx projections, you are correct. It's in line with, past projections. Now we will always, you know, measure the whatever impact, if any, tariffs will have for the second and third buildings and adjust accordingly.

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

But as of now, it is in line. And then, you know, we've we've prior prior have kind of pointed out in terms of the CapEx cadence, you know, you're running anywhere from 30 to 50,000,000 a month in terms of actual CapEx for the first building.

Thomas Shinske
Equity Research Associate at Cantor Fitzgerald

Awesome. And then one more, if I may, on the Bitcoin hosting business. Guess, could you provide clarity on when those contracts are up for expiration and if you see any risk in your large client potentially rolling off at the expiration of those contracts?

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

You know, there's there's always risk of of nonrenewal. I don't expect that to be the case, but I believe it at Ellendale, we have roughly two years left, on those contracts. I have to double check that and Jamestown is roughly the same.

Thomas Shinske
Equity Research Associate at Cantor Fitzgerald

Awesome. Thank you, guys.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Thanks.

Operator

Thank you. Your next question comes from the line of Rob Brom from Lake Street Capital Markets. Your line is now open.

Rob Brown
Founding Partner, Senior Equity Research Analyst at Lake Street Capital Markets, LLC

Hi. My first question is on the kind of the remaining steps to complete the El Nayo facility. Think you said that kind of fourth quarter would be running, but but what's sort of left there and how much CapEx is left to go just in that facility?

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

Yeah. I think so. You know, the the good guidepost, for for CapEx spend know, it's generally for tier three data center anywhere in the range of 10 to 13,000,000 per megawatt. So, you know, we're building a hundred megawatts of critical IT load, for for the Ellendale, the first building. When I think about, you know, what's left, as you can see from, you know, some of our social media updates, you know, the building and a lot of the OFCI, the equipment is landed.

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

Right now, it's a lot of the what I'd like to call the the finishing touches as well as building out the generator plant, the backup power gen, etcetera. I'd refer to, you know, our q, we a lot of PP and E, particularly from the segment disclosures, showed the spend in the assets, as of February, on the balance sheet.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

And, Rob, just to add to that. So we have been, I believe, since February, commissioning, equipment at the facility. So you go through, you know, a fairly lengthy commissioning process. The facility will start, landing IT equipment in either the July, August time frame. And then you have the, you know, the deployment of the IT equipment.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

And this equipment is as you probably know, requires a significant amount of cabling and networking. So you have that piece of it as well, to go for, you know, our our customer. And but but we will just to think about that that, you know, we should start landing equipment, like I said, July, August, and then start cabling, racking, cabling, and have this ready to go. The expectation is to start actually turning on in October.

Rob Brown
Founding Partner, Senior Equity Research Analyst at Lake Street Capital Markets, LLC

Okay. Excellent. And then in terms of selling the cloud business, what's sort of your sense on on the the plans there? You know, you start marketing it now and and hope to have it sold by by kinda year end or any kind of inside outside in terms of timeline there?

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

That that process, Rob, has just started. I I don't think we're prepared to give any update or any expectation on what that might be. I think there there's a lot of different ways that could go and a lot of different structures that we could participate in. I I I wouldn't think of it as just a sale. We we're evaluating everything there, But I think it's just too early for us to give any real meaningful comments on that.

Rob Brown
Founding Partner, Senior Equity Research Analyst at Lake Street Capital Markets, LLC

Okay. Understand. Okay. Thank you. I'll turn it over.

Operator

Thank you. Your next question comes from the line of Darren Aftahi of ROTH Capital Partners. Your line is now open.

Darren Aftahi
Senior Research Analyst-Internet, Media and Enabling Technologies at Roth Capital Partners, LLC

Hey, guys. Thanks for taking my questions. On the AI cloud business, did you give any inbounds pre making this announcement about, putting the asset up for sale?

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

I can't make

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

a comment on that, Darren.

Darren Aftahi
Senior Research Analyst-Internet, Media and Enabling Technologies at Roth Capital Partners, LLC

Fair enough. And then, a clarification, moving from single tenant to multi tenant and the technical issues, was was that a prior inter quarter in the Feb core you guys just reported? Meaning, is is kind of trued up starting the, the May?

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Yes. The issues were resolved there in, I think, the March. So it's it should be resolved for the majority of the May.

Darren Aftahi
Senior Research Analyst-Internet, Media and Enabling Technologies at Roth Capital Partners, LLC

Got it. And then just one last one, if I may. The existing hyperscalers you've been talking to sort of post Macquarie, has disposition about data center build changed at all just given kind of the current macro environment? Maybe has anything changed in the last three to four, five weeks? Thanks.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Yep. I wouldn't say

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

it changed in that time frame necessarily. What I would say in general, Darren, is, you know, for the last year for us, and then I've I've talked to a lot of, CEOs that have been operating in this space for a lot longer than we have. But, you know, when when you're dealing with a group of, you know, five or six, potential customers, maybe seven potential customers, what you know, it's a it's a fairly concentrated market from that perspective. And you have just kind of patterns of, you know, one of those companies is very aggressive and one is, you know, not not very aggressive in the market. So I would say what we have have seen over the past year and one of the things, you know, that has taken longer for us to to get to where we wanna be on the on the the final lease is just you you see demand rotate between the hyperscalers.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

And what I would say overall is we see, demand at least what it was, if not higher than it was, three months ago when we had our call in January, but it's not always the same players. So you just see it kind of rotate between, and there's a lot of, I think, pretty obvious dynamics in the market where you could guess as to why that is. There's some really big end users of, of GPU capacity that have, you know, have a lot of plans that have been announced, over over the past few months. So I think that's one of the things that drives it, but, my understanding is it's also just not uncommon for, you know, some of these to to consume a lot of data center capacity, take a break, and then come back. Thanks.

Operator

Thank you. Your next question comes from the line of Mike Grondahl of Northland Securities. Your line is now open.

Mike Grondahl
Head of Equities & Director of Research at Northland Capital Markets

Hey, guys. Thanks. And, you know, while you covered demand a little bit, Wes, for the hundred megawatts, are you still talking to multiple hyperscalers for that? Or has that been kinda narrowed down to to one hyperscaler you're negotiating with? And if you could talk a little bit about pricing trends the last ninety days, what are you seeing?

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

So I would say so let me let me let me hit pricing first. So on pricing, I would say the last ninety days have been, you know, fairly stable. I would say if you look on a year over year basis, you know, it's it's increased year over year and that's, you know, to our comment of updating kind of our financial expectations for the campus versus what I think the last time we talked about that was roughly a year ago when we give an update on the leasing activity there. So pricing up year over year, but I would say generally stable, on the data center front in the last ninety days. And then on, to to the other question about, who we're talking to, I'd just defer that, you know, we've we've made a lot of progress over the past, three months since our last call, but but we we continue to have multiple discussions.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

And and and what I would say about that is there's ongoing discussions with basically all of the hyperscalers, and it's not necessarily just Ellendale. We have discussions about our campus in South Dakota as well as other campuses, where we've also made a significant amount of progress on on pushing forward with with campus number two for ourselves. So those conversations are just constant. I won't I won't comment on how far down the path we are with one in particular.

Mike Grondahl
Head of Equities & Director of Research at Northland Capital Markets

Got it. And then, you know, the the decision to pursue a sale of the cloud business, you kinda talked about some of your hyperscale customers kind of view that as a friction point or potential competition. And you talked about how it doesn't fit into the REIT structure and the recent core we've IPO. Would you say there was a fair bit of pressure from your hyperscale potential customers to exit that business? I'm I'm just trying to understand if that was a little bit more external driven or internal driven.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

So I would say your your last comment there is a fair comment. But also, you know, we've we've spoken publicly about this a fair amount that the you know, these are we've structured these as two separate businesses. They're two separate businesses. It's two different customer bases. And now we think it's it's the time to to separate those businesses, you know, whether that be from from those types of pressures or just what's going on in, you know, in the market from you've you've had a a couple of, of GPU cloud businesses come public, in in the past six months.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

So I think it's just the right time for us, but but we've we've always structured these that, you know, they would eventually be separate businesses, and we just think it's the time to move towards the that separation.

Mike Grondahl
Head of Equities & Director of Research at Northland Capital Markets

Got it. And then do you still see that cloud business is roughly a hundred and 10 to a hundred and 20 million dollar annual business at FDA?

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Okay. After the on demand portion, ramps back up, you know, it it should be I expect it to be in that that neighborhood where it was back in the in the previous quarter. And as, you know, the the piece of on demand is increasing the customer base and then also typically you get higher pricing for on demand versus reserve contracts. And I do think is if you look at the H100s that we have as those reserve contracts all roll off, those will go into an on demand model. You can do reserve contracts, in my opinion, on newer generation.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

There's you could do some reserve contracts. You're not doing two years again, but you could probably do six months or maybe one year of additional reserve contracts. But I think this market is just moving more and more to an on demand model. And so, you know, we're we're we've started adapting to to react to that.

Mike Grondahl
Head of Equities & Director of Research at Northland Capital Markets

Got it. Hey. Thank you.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Absolutely.

Operator

Thank you. Your next question comes from the line of George Sutton from Craig Hallum. Your line is now open.

George Sutton
Partner- Co-Director of Research at Craig-Hallum

Thank you. Just a question on the sale process. With your potential lessors having issues with the ownership, are they good with an in process sale? Would they require a definitive agreement? I'm just curious how significant they would view this.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Sure. There's there's there's no there's I I will be clear. There's no hard requirements on any of this. But, you know, like I said, I think this is just the right time for us to to do this, for for both both of the businesses, quite frankly. So, you know, enable the the cloud business to continue to grow whether, you know, in a in a separate form from, you know, the combined company and then, allow us to to really focus on the large scale data center business.

George Sutton
Partner- Co-Director of Research at Craig-Hallum

Gotcha. I know you've been carrying some third party data center capacity that was unused. I'm curious how that part is involved in this process.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Yeah. Well, you know, that can go or I I will tell you that that third party data center capacity that's at, you know, $20.23 pricing, in my view, is a very valuable asset that we have. You know, we've been asked about from from third parties about getting that that capacity from us. So I I view that as, you know, one of the big assets of of this of this business is, you know, anyone who takes that business has immediate growth potential with available data center capacity, that that is at attractive pricing. Like I said, it's $20.23 pricing versus 25 pricing.

George Sutton
Partner- Co-Director of Research at Craig-Hallum

Gotcha. Okay. Appreciate it. Thank you.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Absolutely.

Operator

Thank you. Your next question comes from the line of John Todaro of Needham. Your line is now open.

John Todaro
Senior Analyst at Needham & Company

Hey, guys. Thanks for taking my question. Two here, and maybe we'll start with the the AI cloud business. So 2020 '3 pricing, that's interesting. How long is, I guess, left on those leases?

John Todaro
Senior Analyst at Needham & Company

And then what other what other piece would effectively be the the GPUs. Is there any anything else that would kinda get sold off in that process?

Saidal Mohmand
Saidal Mohmand
CFO at Applied Digital

So does that also on the on the data center leases, they're generally five to seven years, with extensions. So that's, perception on that. And then I'll let Wes talk about the the other assets.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Those those are the primary assets, the the GPUs and the data center capacity. And and then, obviously, you know, teams from software to to to like I said, the business, we built it. It's separate from the data center business. There's no real overlap in in the working. So, you know, it it from from that perspective of separating it out, it'll

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

be gonna be easy for for for us as

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

a seller and a potential buyer.

John Todaro
Senior Analyst at Needham & Company

Got it. Understood. And then, on the HPC side of things, it sounds like you guys are are pretty close to a lease just with those expectations for generating revenue. Is the thinking still that whoever takes the 100 megawatts at Ellendale, does the full 400 megawatts for the campus? Is that still thinking?

John Todaro
Senior Analyst at Needham & Company

And if not, kind of that expectation for Building 2, I I it seems like you're far along with with someone, given that that timeline, seems a bit aggressive with, what, like q two twenty six generating revenue?

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Oh, so think of that as q three twenty six. It it ready for service at the end of q two, and then q three twenty six for RevGen. But but, John, my expectation is it remains that that, one one customer takes that campus.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

No?

John Todaro
Senior Analyst at Needham & Company

Got it. Yes.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

That the Ellendale campus does grow beyond that 400 megawatts, out in 2028 and beyond. So I wouldn't necessarily say that that one customer is gonna take all of that, but it but but I do think for the for the for the 400, they do.

John Todaro
Senior Analyst at Needham & Company

Understood. That's helpful. I'll hop back

John Todaro
Senior Analyst at Needham & Company

in the queue. Thank you.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Thanks.

Operator

Thank you. And there are no further questions at this time. Turning over back to Wes Cummings for closing remarks.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Thank you everyone for joining our earnings conference call. Look forward to speaking with you. I believe this year it will be in July on the next earnings call. And again, thanks to all of our employees for all their hard work in the past quarter. Thanks again.

Wes Cummins
Wes Cummins
Chairman and CEO at Applied Digital

Speak to you soon.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Thank you.

Executives
Analysts
Powered by Quartr
Earnings Conference Call
Applied Digital Q3 2025
00:00 / 00:00

Transcript Sections