Applied Digital Corporation

Good afternoon and welcome to Applied Digital's fiscal third quarter 2024 conference call. My name is Doug and I will be your operator today. Before this call, Applied Digital issued its financial results for the fiscal third quarter ended February 29th, 2024. 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 Covton from Gateway Group will make a brief introductory statement. Mr. Covton, please proceed. Great. Thank you, operator.

Good afternoon, everyone, and welcome to Apply Digital's fiscal third quarter 2024 conference call. Before management begins our 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 of different materially from those described in the forward-looking statements. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, policing disclosures, and 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 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 and our quarterly report on Form 10-Q. You may get Applied Digital's 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 afternoon, everyone. Thank you for joining our fiscal third 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 purpose-built infrastructure 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 share some recent developments across our business. During the quarter, we encountered several challenges that impacted our financial performance due to facility power outages in our data center hosting business. Despite these short-term setbacks, the company has made significant progress with our key growth initiatives in the development of our cloud services business and the establishment of our special purpose built 100 megawatt HPC data center in Ellendale. Our achievements include welcoming our newest cloud service customer, Together AI, and the strategic decision to divest our Garden City facility. We are also pleased to announce that we have entered into exclusivity and executed an LOI with a US-based hyperscaler for 400 megawatts of capacity at our Ellendale campus, inclusive of our current 100 megawatt facility and two forthcoming buildings. We're in discussions for project level financing for this investment grade tenant, and we hope to have construction financing in place coinciding with the site signed lease. We also significantly strengthened our balance sheet after the quarter closed with 160 million of announced asset sales and financing transactions. Now I will provide an update on each of our business units. Let's begin by discussing our data center hosting business. Our 100 megawatt Jamestown facility has consistently met expectations. operating at full capacity with uninterrupted uptime throughout the quarter. This achievement marks the sixth consecutive quarter of full capacity operation for the Jamestown facility. While we are pleased with Jamestown's performance, we encountered challenges at our other facilities. As previously disclosed, our 180 megawatt Allendale facility in North Dakota experienced a power outage starting in January. In response to these challenges, our utility provider installed additional equipment to enable us to selectively power down the affected portions of our site. Upon re-energization, we have determined that the failures were due to transformers not meeting industry standards. We have now successfully procured replacement transformers and related components from North American industry-leading manufacturers. As of today, the Ellendale facility has been re-energized to approximately 14% of its full capacity, or 25 megawatts. Additionally, we anticipate that as the new transformers are received and installed, the Ellendale facility will be operating at 65 to 75% of full capacity by the end of May 2024. The company is also pursuing remedies to recoup lost revenues and additional costs incurred to identify and rectify the outages. Furthermore, we made the strategic decision to sell Garden City as it was not compatible with our HPC growth strategy. This divestment enables us to redirect financial and operational resources towards our strategic sites in North Dakota, bolstering our growth initiatives in HPC and cloud service applications. The decision to sell this facility underscores our commitment to optimizing our asset portfolio while focusing on our core growth areas. As a result of this sale, we will maintain 280 megawatts of data center hosting capacity across our two fully contracted locations in North Dakota. This positions us to be insulated from volatility in the crypto markets leading up to the halving event. Let's move on to our cloud services business, which provides high performance computing power for AI applications. Despite a lack of significant sequential revenue growth due to delays in clusters entering revenue generation, this segment continues to experience rapid growth as we advance in fulfilling our existing contracts and exploring new opportunities in our pipeline. We've recently seen positive developments, including the enrollment of clients like Together AI, and we have exited this quarter with positive momentum. The newly deployed clusters were turned over to customers late in the quarter, which will provide a significant positive inflection to revenue and EBITDA in our fiscal fourth quarter. Lastly, let me provide an update on our purpose-built HPC data centers. We currently have 400 megawatts of capacity in development across North Dakota. not including the 9 megawatts of capacity we have at our HPC facility in Jamestown to support cloud service customers. During the quarter, we continued to make significant strides in the construction of our 100 megawatt high-performance computing facility in Ellendale, North Dakota. This state-of-the-art facility will feature cost-effective, highly efficient liquid-cooled infrastructure specifically designed for the most demanding HPC applications. Construction is proceeding as expected, and we are proud of the progress to date. We encourage you to visit our social media channels for some recent images of the facility. As previously mentioned, we have entered into exclusivity and executed a letter of intent with a US-based hyperscaler for a 400-megawatt capacity lease and are progressing with project-level financing tailored for this investment-grade tenant. In summary, we are encouraged by the positive trends we are witnessing across our business and remain confident in our growth trajectory. We are excited about the numerous potential catalysts on the horizon and will continue to allocate our capital strategically to achieve the highest risk-adjusted returns and maximize shareholder value. With that, I will now turn the call over to our CFO, David Wrench, to walk you through our financials and provide an update on guidance.