Applied Digital Corporation

Good afternoon and welcome to Applied Digital's second fiscal quarter 2023 conference call. My name is Doug and I will be your operator today. Before this call, Applied Digital issued its financial results for the second quarter of fiscal 2023 ended November 30th, 2022 in a press release, a copy of which will be furnished in a report on Form 8K filed with the SEC and will be available in the investor relations section of the company's websites. 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. Before we begin, Jeff Gramp from Gateway Group will make a brief introductory statement. Mr. Gramp, please proceed.

Thank you. Good afternoon, everyone, and welcome to Applied Digital's fiscal second quarter 2023 conference call. Before management begins their formal remarks, we would like to remind everyone that some statements we're making today may be considered forward-looking statements 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 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. We disclaim any obligation or 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 read our disclosures and the reconciliation tables to applicable GAAP measures in our earnings release carefully as you consider these metrics. We refer you to our filings with the Securities and Exchange Commission 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-K. You may get applied digital Securities and Exchange Commission filings for free by visiting the SEC website at www.sec.gov. I would also 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 will turn the call over to Applied Digital's chairman and CEO, Wes Cummins. Wes?

Thanks, Jeff, and good afternoon, everyone. Thank you for joining us for our fiscal second quarter 2023 conference call. Our top line results exceeded expectations with revenue of $12.3 million in the quarter, above the $12 million we discussed on last quarter's call that represents the steady state capabilities of our 100 megawatt Jamestown facility, which continues to perform as expected. When we couple that strong performance of our Jamestown facility with our Allendale and Garden City facilities that are expected to be energized in the near term, we are confident in our ability to deliver long-term, high-margin, sustainable cash flow for our companies. So now let me update you on the progress of our two upcoming facilities, our 200 megawatt facility in Garden City, Texas, and our 180 megawatt facility in Ellendale, North Dakota. In Garden City, construction of the facility is complete and we're actively installing miners at the facility. We've received regulatory approval and are working through final technical details with the utility and our wind partner. We expect to energize by the end of our current fiscal quarter. Our Ellendale facility has made great strides on construction in spite of the harsh winter weather of North Dakota. All concrete has been poured, which was the key gating item determining the construction timeline, and the buildings are being actively stood up. We expect Ellendale to be energized towards the end of the current fiscal quarter as well. Recall, Ellendale is fully contracted by Marathon for five years. In addition to the build-out of our next generation data centers, we have also made an important branding update, changing the name of our company from Applied Blockchain to Applied Digital. The name change more accurately reflects Applied's mission, services, and broad business offerings to serve customers who require low-cost power for their high-performance computing needs. Ultimately, our core assets are low-cost and reliable power contracts and our next-generation data centers, which we have wide-ranging use cases beyond cryptocurrency, including applications in machine learning, artificial intelligence, image processing, graphics rendering, and various Web3 applications. We will remain a premier provider of digital infrastructure for cryptocurrency miners, but it's important for us as a company to distinguish that our next-generation data centers support many other HPC applications as we look to capitalize on the rapidly growing high-performance computing market, which is set to reach $65 billion globally by 2030. To be clear, we still continue to see robust demand from cryptocurrency miners that exceeds our capacity. Irrespective of the macro dynamics in the sector, as low-cost hosting capacity remains the bottleneck in the system. However, we believe it is in the best interest of our shareholders to diversify our customer base and grow our exposure to other high-growth segments of the HPC market. We're beginning to capitalize on this broader HPC market opportunity. As we announced last month, we broke ground on a 5-megawatt standalone facility adjacent to our Jamestown site that will host several hundred graphics processing units for machine learning application with a new customer. Concurrently, we also retrofitted a small portion of our existing facility in Jamestown to support a Web3 application with another non-crypto customer, which demonstrates our ability to modify existing locations to accommodate various HPC customer needs. We're optimistic about our growth opportunities in the HPC market, where our next-generation data centers offer a more purpose-built solution than traditional data centers that are generally higher cost and more focused on delivering low latency than high compute power. Before I turn the call over to David, I want to address a few line items that are financials. First, our stock-based compensation expense was extremely high in the quarter. This is a result of almost two years of stock-based comp being recognized in a single quarter, which was triggered by our resale registration statement becoming effective in October. In addition to the multi-quarters being recognized in a single quarter, the value of the RSUs in many cases were significantly higher than any price our stock has traded at since our NASDAQ listing. This was due to the RSUs having been granted when the stock was thinly traded on the OTC. Second, our gross margin was lower in Q2, partially due to billing adjustments that happened in September from the partial outage of the Jamestown site that occurred in the first fiscal quarter. Gross margins are expected to be significantly higher in our current fiscal quarter, as you will see in David's guidance. This is a more normalized level. I'll now turn the call over to our CFO, David Wrench, to walk you through our financials before providing my closing remarks.