Applied Digital Corporation

My name is Melissa, and I will be your operator today. Before the call, Applied Digital issued its financial results for the third quarter of fiscal 2023 and did February 28, 2023, 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 on the Investor Relations section of the company's website. Joining us on today's call are Applied Digital's Chairman and CEO, Wes Cummings, and CFO David Wrench. Following their remarks, we will open the call for questions. Before we begin, Alex Covden from Gateway Group will make a brief introductory statement. Mr. Covden, please go ahead.

Thank you, operator. Good morning, everyone, and welcome to Applied Digital's fiscal third 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 filing to 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's 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 link available in the Investor Relations section of Applied Digital's website. Now, I will turn the call over to Applied Digital Chairman and CEO, Wes Cummings.

Wes? Thanks, Alex, and good morning, everyone. Thank you for joining us for our fiscal third quarter 2023 conference call. I want to start by thanking our employees for their ongoing hard work, including our construction and operations team for getting through the winter and keeping our facilities operational and construction timeline reasonable. Before turning the call over to our CFO, David Wrench, for a detailed review of our financial results, I'd like to touch on some updates from our business over the last quarter and why we remain excited about the future and in our ability to deliver long-term, high-margin, sustainable cash flow. Let's start with an update on our two newest facilities, Ellendale and Garden City. We successfully completed energization of our 180 megawatt facility in Ellendale, North Dakota in early March. This marks the second facility that we energized within North Dakota following the successful 100 megawatt facility in Jamestown that was energized in 2022. Recall that we broke ground on Ellendale in September 22 and are now powering and operating the new site only six months after initial work began. This is a tremendous accomplishment given the harsh winter weather we experienced in North Dakota over the last several months along with some construction delays. We continue to ramp up our capacity and anticipate the first half of capacity will be turned on by the end of April and the rest to be turned on by the end of June. The facility is fully contracted by Marathon for five years with a flat rate agreement and our agreement begins upon energization. Once fully energized, this location will bring applied digital to 280 megawatts of hosting capacity across all our facilities in North Dakota, all of which are contracted out to customers on multi-year terms. In addition to Ellendale, we're making great progress on our 200 megawatt Garden City facility in Texas. The construction of Garden City is complete, and over 130 megawatts of miners are installed and ready to turn on. Our customers are continuing to send miners to the facility, and we are actively installing them. given the unique behind the meter aspect of this facility we are awaiting final approval on some final technical details and expect to resolve these issues these issues in the coming weeks to begin energizing the facility once we energize our garden city facility we anticipate it ramping faster than our ellendale facility due to the amount of miners already installed as a reminder both our ellendale and garden city facilities are fully contracted with fixed prices and we are not exposed to any volatility in the cryptocurrency markets Our 100-megawatt Jamestown facility continues to perform as expected and operated at full capacity throughout the quarter as we delivered revenue of $14.1 million in the quarter, exceeding the $12 million steady-state capabilities of the facility that we previously discussed. As mentioned on our last call, we successfully retrofitted a small portion of our existing facility in Jamestown to accommodate HPC requirements to support a Web3 application with a non-crypto customer. We have decided rather than to use the GPU capacity for the Web3 application, it would be better used for machine learning and AI applications and have onboarded multiple customers and recognized our first HPC revenue in the quarter. We also broke ground on a five megawatt standalone facility adjacent to our Jamestown site in December that will host several hundred graphics processing units for a machine learning application with a new customer. Our first GPUs in the new facility are expected to be operational later this month or in early May. The build-out will be completed in two additional stages, with the first scheduled to come online this summer and the second later in the year. When finalized, we expect to have over 7,000 NVIDIA A100-class GPUs in the building, making it one of the largest GPU clusters of its kind in the world. Importantly, it's worth noting that demand for hosting capacity across our facilities has not been impacted during the last several months, and we're exploring numerous opportunities. Now let's discuss the HPC opportunity in front of us and why we're excited about the year ahead. While we continue to see robust demand from cryptocurrency miners, we aim to diversify our customer base and exposure to the growing segments of the HPC market as we believe that will be the highest return of capital in the long term for our shareholders. Our goal remains to get at least 10% of our revenue from HPC by the end of this calendar year and ultimately diversify our revenue to a 50-50 split by 2025. We remain optimistic about the growth opportunities in HPC, which is expected to reach $900 billion globally by 2030, and remain well-positioned to capitalize on this opportunity. As data continues to grow at an exponential rate, more data centers will be required to store the data, and we believe our next-generation facilities are ideal hosting sites for HPC applications, as they can accommodate the unique demands for this growing industry. Our data centers offer a more purpose-built solution offering lower costs combined with higher computing power compared to traditional data centers that are typically focused on delivering low latency and high computing power. We are well positioned for success in this space given our expertise in hosting Bitcoin mining and realize that HPC applications require a different type of engineering that more resembles what you would see in the ASIC world of Bitcoin mining because of its dense power. The density of racks is a key point as HPC applications require a different setup that provides sufficient power and cooling to handle those unique needs and properly scale efficiently. These applications don't require ultra low latency and so we believe that the deciding factor on whether these applications will be hosted comes down to the cost of compute. Our next generation data centers are optimized for green computing and we aim to be the lowest cost compute provider with our access to renewable energy and air cooling. To close, we remain confident that Applied Digital will continue to be a leader in digital infrastructure with our next-generation data centers. Demand for our services from both traditional customers and emerging HPC applications remains robust, which validates our position as a financially strong and leading digital infrastructure provider to serve various hosting needs. With that update, I'll pass it over to our CFO, David Wrench, for a financial update.