Applied Digital Corporation

Good morning and welcome to Applied Digital's fiscal second quarter 2024 conference call. My name is Shari and I will be your operator today. Before this call, Applied Digital issued a financial results for the fiscal second quarter ended November 30th, 2023 in a press release, a copy of which will be furnished in a report on a 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 Cummings, and CFO, David Renz. Following the remarks, we will open the call for questions. Before we begin, Alex Colton from Gateway Group will make a brief introductory statement. Mr. Colton, please proceed.

Thank you, operator. Good morning, everyone, and welcome to Applied Digital's fiscal second quarter 2024 conference call. Before management begins with 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 different 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 release and public filings made with the Securities 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, the applicable GAAP measures, and 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 for 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 quarterly report on Form 10-Q. You may get Applied Digital Securities and Exchange Commission filing 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 second quarter 2024 conference call. I want to start by thanking our employees for their ongoing hard work and service in supporting our mission of providing digital infrastructure solutions 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 discuss some recent developments across our business. Let's start with our data center hosting operations. Our 100 megawatt Jamestown facility continues to perform as expected and operated at full capacity with consistent uptime throughout the quarter. This marks the fifth consecutive quarter in which the Jamestown facility has operated at full capacity. Our 180 megawatt Ellendale facility in North Dakota also operated at full capacity with consistent uptime during the quarter, bringing our total hosting capacity to 280 megawatts across our North Dakota facilities. Both facilities are contracted out to customers on multi-year terms. During the quarter, we announced the initial energization of our 200-megawatt Garden City facility in Texas. This is a significant milestone in Applied Digital's ongoing efforts to meet the growing demand for low-cost, scalable digital infrastructure. The Garden City facility had a small contribution to our results this quarter and is currently operating at approximately 132 megawatts with the remainder of the capacity expected to come online in the next several months. As we brought on the facility, we realized there were additional infrastructure improvements needed for the grid. We expect these improvements to be made no later than April. Our customers continue to send miners to the facility, and we are actively installing them. With the increase in the cost of Bitcoin, we are seeing demand increase significantly for hosting services. As a reminder, our Garden City facility is fully contracted with fixed prices, so we are not exposed to volatility in the crypto markets heading into the halving event this year. Once our Garden City facility becomes fully energized, we will have approximately 500 megawatts of hosting capacity across our three data center hosting facilities. We expect our three sites to deliver up to 300 million in revenue and 100 million of adjusted EBITDA on an annualized basis. Operating cash flow from data center hosting services will ramp up significantly in March as the majority of our prepayments burn off in February. Let's move on to cloud services, which provide high performance computing power for primarily AI applications. It continues to grow quickly as we progress further in supporting our existing contracts and pursue additional opportunities in our pipeline. Since our last earnings announcement, we have added an additional cloud customer, which brings our total annual contract value of cloud service contracts at full capacity to approximately $398 million. We tailor our agreements to our customers so that as they raise money, we can exercise options embedded in the contract to deploy GPUs and ramp up hosting capacity over time. While the typical customers for our cloud service have been private VC-backed companies, we are now also seeing strong demand from the enterprise market for large amounts of GPU compute capacity. We are excited to see demand increasing from this important segment of the market and have plans to hire sales talent to enhance our outreach efforts. We continue to secure access to GPUs. However, there have been some delays in installations attributable to pending deliveries of networking components. We believe it's prudent to receive GPU deliveries only when all associated equipment is onsite and ready for installation, which is how we structure our client deposits. Additionally, we continue to actively explore vendor financing and other tailored financing options to support the capital requirements for the 34,000 H100 GPUs we have on order to support our current customer demand. To date, we have four 1,024 clusters installed and are planning to ship an additional four in the next two weeks. These clusters, as they are currently configured, put us in an elite class of next generation supercomputers in terms of raw compute power or petaflops for the most demanding AI applications. We expect to reach a minimum of 10 before the end of the fiscal year with the Jamestown cluster representing the opportunity to put us in the top 10 supercomputers for AI workloads. The fully commissioned clusters are expected to generate over 200 million of annualized revenue. Lastly, let me provide an update on our purpose-built HPC data centers. During the quarter, we broke ground on our first 100 megawatt high-performance compute facility in Ellendale, North Dakota. This facility will offer low cost, high efficiency liquid cooled infrastructure designed for HPC applications. Construction is proceeding as expected. Our unique proprietary architecture and design implementation, together with the strategic placement of the Ellendale facility near sources of abundant and renewable power, will offer scalable infrastructure for these workloads. It will offer a significant cost reduction to our customers and deliver best-in-class performance that maximizes high power density compute. We believe that this advantage is sustainable in this emerging market for data centers specialized in running AI workloads. Our contracted power and adjoining land at our facilities will become valuable assets over the next 18 months. We believe there will be a significant supply constraint for power in the data center market. We have already seen the robust demand for our data centers, which driven by the burgeoning AI landscape has exceeded our initial expectations. We believe we'll be in a strong competitive position to support this demand. As a reminder, we have 400 megawatts of capacity in development across North Dakota and Utah. This does not include the current nine megawatts of capacity we have at our standalone facility in Jamestown to support cloud service customers. As we enter the second half of fiscal 2024, we're well positioned to capitalize on the demand we're seeing across both our cloud service and HPC data center business, and we will continue to allocate our capital appropriately to the highest risk-adjusted returns to maximize shareholder value. With that, I now turn the call over to our CFO, David Wrench, to walk you through our financials and provide an update on guidance.