Applied Digital Corporation Common Stock 2027 Q1 Earnings Call

Thank you, Pascal. Hello, everyone, and welcome to Applied Digital's Fiscal First Quarter 2027 conference call. Before management begins formal remarks, we'd 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 and uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in earnings release and public filings made with the SEC. 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 also discussed non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables to the applicable GAAP measures and earnings release carefully as you consider these metrics. Refer to our filings with the SEC 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 reports on Form 10-Q. You may access Applied Digital's SEC filings for free by visiting the SEC website at www.sec.gov. I'd also like to remind everyone that the call is being recorded and made available for replay via a link in the investor relations section of Applied Digital's website. Now I'll turn the call over to Applied Digital's Chairman and CEO, Wes Cummins.

Wes. Thanks, Matt, and good afternoon, everyone.

Thank you for joining our fiscal first quarter 2027 earnings conference call. As we begin fiscal 2027, I'd like to provide an update on our vision, our strategy, and most importantly, our execution. Today, we have approximately $36 billion in contracted revenue across five campuses, three states, and two very different geographic regions of the country. Our focus is on converting our contracted portfolio into sustainable, profitable growth while continuing to selectively pursue new opportunities across our expansive land and power portfolios. During the past year, success was primarily measured by aggressively growing our portfolio of campuses and our total contracted value associated with those campuses. Over the near to medium term, we expect to continue expanding our existing campuses and selectively adding new locations with a strong focus on execution and bringing contracted capacity online for our customers.

Over the next 12 months, we expect to place over 600 megawatts into service versus the 250 megawatts over the past 12 months. Let me turn to our vision and strategy, which remains unchanged. Our goal is to become the category leader in design, build, deployment, and operation of our purpose-built AI factories. Achieving that requires us to balance several things well. Selecting the right customers, matching those customers with a funding strategy that optimizes our financial returns, and executing consistently on our builds. We believe we are well positioned to do all three. We have a proprietary and proven data center design that has gained acceptance by the leading top-tier hyperscalers. We have a well-honed supply chain, deep energy partnerships, and a demonstrated ability to deliver on our lease commitments. Importantly, our data center design is different from many of our competitors.

Some competitors' facilities are designed primarily around the typical 5-6 year life cycle of a GPU. We have taken a different approach and are building for the long term with 30-plus year horizons. We believe our AI factories are designed to be substantially more adaptable as compute architectures, network configurations, and electrical and mechanical requirements evolve over time. Our design and our investment strategy are based on a set of core principles intended to extend the useful life of our AI factories and campuses well beyond any single generation of compute architecture. That matters because we believe the customers signing long-term leases with us expect these facilities to continue serving their needs well beyond the initial lease term. As a result, we believe our design and build strategy, together with our franchise model, are highly differentiated and will generate outsized returns for our stockholders over the long term.

Our primary focus remains straightforward. Build large, sustainable AI factory campuses and sign durable, high-quality long-term contracts. We target take-or-pay contracts of at least 15 years with proven tier 1 investment-grade hyperscalers that are leaders in the AI industry and are well positioned to convert their investment into sustainable and profitable growth. We view our customers' ability to convert their AI investments into durable and sustainable earnings as an important metric as we make decisions on who we will build for. This is a relatively narrow group of customers who represent enormous demand and significant long-term spending potential. These customers have told us that they value our quality of design, the quality of our builds, and the strength of our world-class team. In addition to signing new contracts, one of our priorities is to continue to expanding our existing campuses.

We also see opportunity to capture premium pricing as demand grows, and we realize the economies of scale inherent in large AI campus developments. We have continued to make progress on expansion opportunities with our existing customers while also advancing discussions around additional campuses. We currently expect approximately 250 megawatts of expansion leases to be executed by calendar year-end at materially higher pricing compared to prior leases. As we continue to expand our existing campuses and seek to lock in premium pricing, we believe these campuses contain significant and underappreciated embedded value. We expect that value to grow over time as we execute against our contract portfolio and focus on delivering outsized long-term returns to our stockholders. I would like now to turn to our execution in North Dakota, where we are currently building multiple AI factories across three campuses.

North Dakota is our largest operating region and remains core to our strategy. We have repeatedly said its low cost of power, abundant energy resources, low population density, and favorable climate make it one of the most compelling regions in North America for large-scale AI factory development. We expect additional tier 1 hyperscalers to recognize those advantages over time. It is also the place where we have made the majority of our investments to date, both in the campuses we are building and in the communities with which we have partnered. Power remains the single largest gating factor in our industry, and North Dakota is one of the few regions where we believe new generation can be added at meaningful scale.

Speaking to that scale, we recently took a significant step in expanding our power position in North Dakota by entering into a long-term power purchase agreement with Base Electron, an independent power producer in which we hold an approximate 10% equity stake. The agreement covers an approximately 1,200-megawatt natural gas facility that Base Electron is developing in central North Dakota adjacent to our Polaris Forge 3 campus, with deliveries expected to begin in 2030. This is exactly the kind of outcome our model is built to produce. While many operators are waiting in interconnection queues for capacity they do not control, we are contracting for dedicated generation at the scale of our campuses with an agreement that can follow our tenants and a timeline aligned with our future development needs.

We believe this dedicated supply substantially strengthens our ability to expand our North Dakota campus on our own timeline rather than the grid's and gives us greater visibility into the power resources that will support our future growth in the region. To put the pace of our execution in North Dakota in perspective, we signed our first lease with CoreWeave in May of 2025 for our first two buildings at Polaris Forge 1, the first of which was then under construction. By the end of calendar year 2025, the first building was fully operational, capable of supporting more than 40,000 liquid-cooled NVIDIA GB300s. The second building, which broke ground in summer 2025, became operational approximately one year later. As of today, we have achieved full ready for service, or RFS, across our first two buildings at our Polaris Forge 1 campus, with our third building progressing on schedule.

The operational buildings encompass 10 data halls and are supported by 250 megawatts of critical IT load. This represents a 150% increase in delivered capacity. At Ellendale alone, we believe we are substantially ahead of our closest competitors in delivered capacity. With the expected initial operation of our Harwood, North Dakota campus, we anticipate having 300 megawatts of total critical IT online across North Dakota by the end of this calendar year. We believe this level of delivered capacity places us among the leading companies in our category, regardless of geography. In the United States, beyond North Dakota, we are developing campuses with substantial expansion potential in Louisiana and Alabama. These markets offer compelling characteristics, including access to power and strong state and local support for the build-out of national AI capacity.

We view the presence of other top-tier hyperscalers developing large-scale AI campuses in these regions as further reinforcing their strategic importance. Our development activity in Louisiana and Alabama continues to progress, and we remain encouraged by the scale of customer demand across the region. We expect revenue contribution from this region of the country to begin in the first half of calendar year 2027. We recently took our first steps outside the U.S. While our focus remains firmly on executing our domestic projects, we believe select European markets may provide attractive opportunities to leverage our expertise and extend our platform over time as we continue to build Applied Digital into a category leader. As part of that early look, we signed an agreement for up to 1 gigawatt of potential power capacity in Finland. We view this as a measured first step.