Applied Digital Corporation

Good morning and welcome to Applied Digital's fiscal fourth quarter and full year 2023 conference call. My name is Donna and I will be your operator today. Before this call, Applied Digital issued its financial results for the fiscal fourth quarter and full year ended May 31st, 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 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. Before we begin, Alex Kovtun from Gateway Group will make a brief introductory statement. Mr. Kovtun, please proceed.

Great. Thank you, operator. Good morning, everyone, and welcome to Applied Digital's fiscal fourth quarter and full year 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 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 read our disclosures and the reconciliation tables applicable gap 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, Alex, and good morning, everyone. Thank you for joining our fiscal fourth quarter and full year 2023 conference call. I want to start by thanking our employees for their ongoing hard work and service in advancing our mission. 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 recent developments across our business. I will also share why we remain confident about the future and our ability to deliver long-term growth. Over the last year, we've been working toward providing digital infrastructure solutions that provide differentiated services from traditional data centers. Demand for our services from both traditional customers and emerging HPC applications remains robust, and we're excited about the year ahead. As we enter fiscal 2024, we are focused on three key strategic goals. First, we aim to have all three of our crypto hosting facilities fully online with high reliability and performance for our customers. Our 100 megawatt Jamestown facility continues to perform as expected and operated at full capacity with improved uptime throughout the quarter. We announced the initial energization of our 180 megawatt facility in Ellendale, North Dakota in March, and today it's fully energized. This brings 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. The high voltage interconnection work began last week at our Garden City site and is expected to finish this week. Energization is expected after completion and approval of the facility's extension agreement, which is imminent. We expect these facilities to generate approximately 300 million in revenue and 100 million of EBITDA on an annualized basis. Having three facilities online with high uptime will provide us with steady cash flow. This will aid in the capital needed to fund the build out of our HPC data centers, as well as the purchase of GPUs to service our AI cloud customers. The second goal is to expand our AI cloud service business to support the next wave of AI powered applications. With the launch of this service, we can expand our offerings and capitalize on the unprecedented demand we're seeing from customers. We initially provide this service from our nine megawatt HPC Jamestown facility, along with third party co-location space as we continue to execute on the development of our dedicated next gen HPC data centers. We continue to see extraordinary demand for our new cloud service offering. We recently announced two AI customers solidifying our position as a key player in the new cloud service provider landscape. During the quarter, we announced the signing and successful onboarding of our first customer character AI with an agreement worth up to 180 million over 24 months. This includes the activation of the first compute cluster. We anticipate the service to be fully ramped by the end of 2023. This customer has already executed their option for the full 180 million agreement and made a significant prepayment. They have also signed an option agreement for an additional $180 million, which would bring the total value of the contract to $360 million if executed. We also secured our second AI Cloud agreement in June, which is worth up to $460 million over 36 months. To help support these contracts and our go-forward capabilities, we have ordered over 26,000 GPUs and have secured the capacity to bring these online between now and April of next year. The GPUs will be financed through customer prepayments, vendor financing options, and other financing options that have been structured specifically for this market. To ensure seamless service delivery, we have collaborated with industry-leading OEMs such as Supermicro and Hewlett Packard Enterprise to leverage their HPC expertise and support the execution of our cloud service for AI-powered applications. Our services are made available to customers through two distinct models, reserved capacity and on-demand capacity. Under the reserve capacity model, customers pay a predetermined amount for the entire contracted duration of the GPU usage. This option provides stability and allows customers to reserve capacity in advance at a discount to on-demand capacity. For on-demand capacity, customers have more flexibility in terms of usage but pay higher rates. The typical customers for our AI cloud service are private VC-backed companies that have raised significant funding and will likely raise additional funding to help scale their AI applications. We tailor our agreements to these customers so that as they raise money, they can exercise options embedded in the contract to deploy GPUs and ramp up hosting capacity over time. Customers will typically make a prepayment on the contract, which helps fund a significant portion of the purchase price of the GPUs. Pipeline of business opportunities for AI cloud service remains robust and we have significant opportunity in front of us. Our third priority is the development of our next gen HPC data centers. We are well positioned for success in the space and 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 high computing power compared to traditional data centers that are typically focused on delivering low latency applications. We have 300 megawatts of capacity in development, which represents an additional 100 megawatts of capacity to what we previously disclosed. This capacity pipeline does not include the current 9 megawatts of capacity we have at our standalone HPC facility in Jamestown, which was initially commissioned in May to begin supporting our AI cloud service customers. This facility will be brought online in phases over the next few months. The 300 megawatts of capacity includes 200 megawatts of capacity available in North Dakota and a new facility we plan to build in Utah. We have a significant customer lined up for our new HPC facility in North Dakota and are currently planning to break ground in the coming months. We will continue to target states that have favorable laws and regulations for HPC application industries. We believe this further minimizes the associated risks with scaling our operations. To finance the build out of these facilities, we're working with traditional data center lenders along with alternative funding options. I will now turn the call over to CFO David Wrench to walk you through our financials and provide guidance for the upcoming 2024 fiscal year before providing my closing remarks. David?