Transcript: Applied Digital Q1 2027 Earnings Conference Call

Applied Digital (NASDAQ: APLD ) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

View the webcast at Summary Full Transcript Matt, Investor Relations 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 I would 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 Chairman and CEO Wes Cummins.

Wes Cummins, Founder, CEO and Chairman 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 five- to six-year life cycle of a GPU. We've 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 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'd 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, and 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 United States. 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. The agreement provides meaningful long-term potential while limiting our initial exposure and protecting downside risk, while our near-term execution priorities remain centered on the United States. Turning to our data center hosting business, our 286 megawatts of capacity for Bitcoin mining across our two North Dakota sites continues to operate efficiently and provide steady, high-margin revenue with minimal ongoing capital investment. And now to Chronoscale, in which we have an approximately 96% ownership stake.

NEO Clouds continue to represent one of the fastest growing segments in this market. NVIDIA expects NEO Clouds to exit this year with 8 gigawatts of installed capacity, up from 3 gigawatts at the end of 2025. During the quarter, Chronoscale announced plans with Microsoft for a 50-megawatt AI compute deployment in North America featuring NVIDIA GB300 NVL72 systems. This deployment is expected to significantly expand Chronoscale's existing business with a tier 1 investment-grade customer and represents another important step in scaling the platform.

With recent new contracts, Chronoscale is on track to reach 1 billion of ARR in 2027, and momentum for additional contracts continues to build. With that, I'll turn the call over to our CFO, Sedal Momond, for a detailed review of the financials. Sedol Thank you, Wes, and good afternoon, everybody. This quarter we completed the financing of our first campus.

Earlier this year we had only one remaining tranche of debt to place for the final 150 megawatt building at Polaris Forge 1. 59 billion offering of 7% senior secured notes due 2031 issued at par. With the proceeds of the offering, we have funded construction of the third HPC building at Polaris Forge 1 and have repaid the $300 million bridge facility we put in place in May. With that, the full 400 megawatts of the CoreWeave campus at Polaris Forge 1 and the 200 megawatts of contracted capacity at Polaris Forge 2 are now fully funded.

The pricing of that deal is worth pointing out. 25% coupon. This tranche priced at 7%. We believe the pricing reflects the credit enhancements we secured with CoreWeave earlier this year and growing investor confidence in our platform.

We are earning that confidence by executing and delivering our buildings on track and on budget, and we expect the first building of Polaris Forge 2 to similarly be on track and on budget. This success supports market confidence in our ability to execute. It drives us to reach our previously stated goal to keep bringing our cost of capital down, first at the project level and over time by refinancing operating buildings into lower-cost markets such as ABS. We also added flexibility at the corporate level.

In June we upsized a revolving credit facility to $430 million of commitments with an additional $120 million accordion remaining available. Looking ahead, the next campuses we need to finance are Polaris Forge 3, Delta Forge 1 and Delta Forge 2. All of these are leased to the same Tier 1 investment-grade hyperscaler under 15-year take-or-pay leases. We believe this fact changes the financing conversations of potential creditors.

Recall Tier 1 investment-grade tenants open access to a deeper pool of capital, which we believe supports more attractive terms. We are following the same framework: preferred equity from Macquarie Asset Management followed by project-level debt, which allows Applied Digital shareholders to retain a majority ownership stake in each site. We are already in active discussions with leading lending institutions and, given the credit quality of this customer, we have a high level of confidence in our ability to fund these campuses at favorable rates and terms. Now let's turn to the quarter.

As a reminder, Chronoscale is included in our GAAP consolidated results but is excluded from our non-GAAP financial measures. 9 million in the prior-year quarter. 3 million of tenant recoveries. 8 million in revenue, in line with the prior-year quarter.

9 million of segment assets. Segment operating profit this quarter more than doubled from $6 million in the prior quarter driven by favorable power pricing. 5 million this quarter, including approximately $23 million of GPU hardware sales. 6 million in depreciation and amortization.

8 million in personnel and other operating costs supporting our facilities. 7 million this quarter. 8 million of lease expenses. 3 million tied to one-time performance stock units.

5 million of a non-cash loss from the change in fair value of our Babcock & Wilcox warrants and the common stock investment. Both are marked to market every quarter as B&W's stock price changes. 76 per share. 01 per diluted share.

4 million, up from $500,000 in the prior-year quarter. 8 million, representing an 89% margin. From a balance sheet perspective, we believe we remain well positioned. 4 billion of debt.

Note more than 80% of that principal does not come due until fiscal 2031 or later. 6 billion. Our goal remains to maintain one of the strongest balance sheets in the industry through the majority of the construction phase, and we'll execute as such. With that, I'll turn the call back over to Wes for closing remarks.

Thank you. Wes Cummins, Founder, CEO and Chairman Thank you, Sedol. Before we open the call for questions, I want to close on something that comes up in nearly every investor conversation we have today: the growing scrutiny around data center development. Across the country, we are seeing more local moratoriums, tighter zoning requirements, longer permitting timelines and greater community resistance in certain markets.

Some may view this as a risk to our industry. We see it differently. We believe it actually increases the strategic value of our campuses that are already powered, operating and supported by their communities. We think the reason is straightforward.

At our campuses, once they are established, we believe much of the hardest work has already been done. The land is controlled, power and interconnection are in place, permits have been secured, fiber, workforce and local supply chains have been established. And perhaps most importantly to us, the community knows who we are and sees how we operate.