Applied Digital Corporation (APLD) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects strong financial performance, with significant expansion plans and robust demand in the AI infrastructure market. The Q&A section highlights confidence in future projects and favorable contract terms. Despite increased interest expenses and a net loss, the optimistic guidance and strategic growth initiatives, including the ChronoScale spinout, suggest positive stock movement. The market's focus on AI infrastructure and Applied Digital's positioning in this sector further support a positive outlook.
Key Financial Performance
Revenues for the fiscal second quarter of fiscal '26 $126.6 million, up 250% from $36.2 million in the prior year. The increase is primarily due to a $73 million of revenue generated from tenant fit-out services associated with our HPC Hosting Business, along with $12 million of recognized revenue in connection with the commencement of the first CoreWeave lease at Polaris Forge 1.
Applied Digital's Data Center Hosting segment revenue $41.6 million, up 15% compared to the prior year. This growth was primarily driven by increased capacity online across the company's hosting facilities.
Cost of revenues $100.6 million compared to $22.7 million in the prior quarter. Approximately $69.5 million of the increase in the cost of revenue was associated with the tenant fit-out services for our HPC Hosting Business, while the remaining increase was associated with our Data Center Hosting business and other expenses directly attributable to generating revenue.
SG&A (Selling, General, and Administrative expenses) $57 million compared to $26 million. This increase was due to an increase of $23.8 million in stock-based comp due to accelerated vesting of certain employee stock awards, $4.7 million in professional service expenses primarily related to an increase in legal services, and $1.2 million in personnel expense for employee costs and other costs attributable to supporting the growth of the business.
Interest expenses $11.5 million compared to $2.9 million. The increase reflects higher project-level debt financing costs.
Net loss $31.2 million or $0.11 per share. On an adjusted basis, adjusted net income was a positive $100,000 or $0.00 per share.
Adjusted EBITDA $20.2 million for the quarter.
Cash, cash equivalents, and restricted cash $2.3 billion versus $2.6 billion in debt, most of which does not mature until 2030. Additionally, approximately $2.1 billion in total equity was reported.
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Operating Highlights
Polaris Forge 1: Reached ready-for-service, energizing 100 megawatts on schedule. The remainder of the AI factory campus will host 400 megawatts for CoreWeave, representing approximately $11 billion in prospective lease revenue over 15 years.
Polaris Forge 2: Announced a $5 billion 15-year lease with a U.S.-based hyperscaler for 200 megawatts. The project is advancing on schedule with initial capacity expected in 2026 and full build-out in 2027.
Data Center Design: Evolved to modular and highly efficient designs, reducing construction timelines and costs. Expanded flexibility to support different GPU and ASIC chip architectures for AI and cloud workloads.
Hyperscaler Demand: Secured two hyperscale leases in North Dakota, representing 600 megawatts and $16 billion in prospective lease revenue. Advanced discussions with another hyperscaler for additional locations in the Dakotas and Southern U.S. markets.
Strategic Location Advantage: Dakotas chosen for low-cost energy, natural cooling, and ample land, providing a competitive edge for AI and cloud infrastructure.
Revenue Growth: Fiscal Q2 2026 revenue was $126.6 million, up 250% from the prior year, driven by tenant fit-out services and lease revenue commencement.
Financial Framework: Utilized a $100 million development loan facility and $5 billion preferred equity facility to fund construction. Completed a $2.35 billion private offering of senior secured notes to finance Polaris Forge 1.
Applied Digital Cloud Spin-off: Entered a non-binding Letter of Intent to spin off Applied Digital Cloud into ChronoScale, a GPU-accelerated compute platform for AI workloads. Expected to close in the first half of 2026, with Applied Digital owning over 80% of ChronoScale.
Community Initiative: Launched Applied Digital Cares to fund education, health, innovation, and local development in operational regions.
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Risk or Challenges
Market Conditions: Hyperscalers are competing aggressively to secure sites for AI demand, highlighting significant shortfalls in global power capacity. Energy may take years to come online and could cost more than anticipated.
Regulatory Environment: The Dakota campuses are expected to provide a supportive regulatory environment, but any changes in regulations could impact operations.
Debt and Financing Risks: The company has significant debt, including a $2.35 billion private offering of senior secured notes with high interest rates. Project-level debt carries higher initial interest rates, and refinancing at lower rates is a goal but not guaranteed.
Construction and Operational Risks: The company is managing simultaneous construction of two campuses, representing 600 megawatts. Delays or cost overruns could impact financial performance.
Economic Uncertainties: The company relies on agreements with financial institutions and third-party capital for upfront investments. Economic downturns or changes in financial markets could affect these agreements.
Competitive Pressures: Cloud computing is increasingly competing for data center capacity, which could impact the company's ability to secure long-term leases.
Strategic Execution Risks: The spin-off of Applied Digital Cloud into ChronoScale introduces execution risks, including the ability to scale independently and maintain strategic focus.
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Guidance & Outlook
Completion of AI Factory Campus: The remainder of the AI factory campus is expected to be completed by the end of 2027, hosting 400 megawatts for CoreWeave, representing approximately $11 billion in prospective lease revenue over 15 years.
Polaris Forge 2 Project: A $3 billion project near Harwood, North Dakota, advancing on schedule with initial capacity expected in 2026 and full build-out in 2027. This project includes a $5 billion 15-year lease with a U.S.-based investment-grade hyperscaler for 200 megawatts.
Future Construction Plans: Advanced discussions with another investment-grade hyperscaler across multiple regions, including additional locations in the Dakotas and select Southern U.S. markets. Potential for construction of additional campuses in the near term.
Market Trends and AI Demand: Hyperscalers are aggressively competing to secure sites for massive AI demand, with significant shortfalls in global power capacity. The Dakotas are highlighted as a strategic location due to low-cost energy, favorable climate, and ample land for expansion.
Revenue Growth Projections: Lease revenues are expected to ramp over the next quarter, with meaningful revenue growth anticipated over the next 18 to 24 months as 600 megawatts of capacity come online during 2026 and 2027.
Financial Strategy: Plans to refinance project-level debt at lower rates once buildings are operational. A multilayered financing framework is in place to leverage third-party capital for upfront investments while retaining majority ownership of sites.
Long-term Financial Goals: The company expects to surpass its long-term goal of $1 billion in NOI within 5 years.
Spin-off of Cloud Business: The company plans to spin off its cloud business into ChronoScale, a dedicated GPU-accelerated compute platform for AI workloads, expected to close in the first half of 2026. Applied Digital will own over 80% of ChronoScale.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the growth appetite in the cloud business and the role of Applied platform for GPU purchases?
A:ChronoScale's relationship with Applied Digital and access to large-scale data center facilities is a key advantage. Deploying accelerated compute like GPUs, TPUs, or LPUs is part of the equation, but the larger advantage is the access to these facilities. Management avoided detailing how this will work in the future.
Q:What is the opportunity with the limited notice to proceed agreement with Babcock & Wilcox?
A:The BW solution uses proven older technology like steam turbines with natural gas, allowing earlier market entry compared to traditional natural gas turbines. This provides a significant advantage for utilities and Applied Digital to expand campuses faster. More details are expected in Q1.
Q:What is the current landscape for leases and pricing over the last 6 months?
A:Pricing has been stable to slightly better, with robust demand. Contracts now include more favorable terms like non-cancelable 15-year agreements with make-whole provisions. The contracting environment has improved.
Q:What does the pre-lease financing indicate about confidence in progressing on sites without signed leases?
A:The company has a high degree of confidence in signing leases with new customers, as evidenced by their actions like starting construction on new campuses before finalizing leases. They aim to diversify locations and customers.
Q:What steps are required for the ChronoScale spinout to close by midyear?
A:The spinout will technically be a merger, requiring a definitive agreement, shareholder vote, and other processes. The expected timeline is April-May 2026.
Q:What is the growth opportunity for ChronoScale as a stand-alone business?
A:ChronoScale has significant growth potential in the compute market, with opportunities to secure contracts and deploy data center capacity. Spinning out allows it to raise its own capital and focus on growth.
Q:How many sites are in advanced discussions and what is the megawatt capacity?
A:The company is in advanced discussions on 3 sites with a total capacity of 900 megawatts.
Q:What is the current pipeline and focus for the company?
A:The pipeline remains robust, with the focus shifting from demand to scaling and executing projects across multiple sites. The company is working on its ability to deliver on time and on budget.
Q:What does being qualified by investment-grade hyperscalers mean for the company?
A:Being qualified simplifies the process of signing contracts for new buildings or campuses, reducing the time frame significantly compared to starting from scratch.
Q:What are the learnings from the first CoreWeave build and how will they ensure future execution?
A:The company has streamlined processes, standardized supply chains, and refined designs to ensure timely and budgeted delivery. They are confident in their ability to execute future projects.
Q:Are there still opportunities for acquiring near-term power?
A:Yes, the company continues to find opportunities for acquiring power, evaluating them regularly, though current projects are organic.
Q:What are the expansion opportunities at PF-1 and PF-2?
A:Both campuses have the potential to reach at least 1 gigawatt, with some campuses capable of scaling to 2 gigawatts or more. The company has a clear path to 5 gigawatts of capacity by 2030-2032.
Q:What makes Corintis a competitive solution in liquid-cooling technology?
A:Corintis uses a specially designed cold plate technology that can efficiently cool next-generation chips with higher power density, helping future-proof data center infrastructure.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on how the Applied platform will work with ChronoScale in the future, and they did not commit to a timeline or specifics for the 900 megawatts across 3 sites, emphasizing that nothing is finalized until contracts are signed.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI cloud
AI demand
AI use
ASC lease
ASIC
Center Hosting
CoreWeave lease
Dakotas
HPC Hosting
Macquarie
Note
Polaris Forge
Relations section
advantage
asset
basis
capacity facility
capital
cloud workload
construction megawatt
design
difference
energy
equity
flexibility
framework
goal
grade hyperscaler
infrastructure AI
investment grade
lease investment
lease revenue
majority
plant
rate
region
schedule
service HPC
step
stock
tenant service
APLD Transcript
Applied Digital Corporation (APLD) Q3 2026 Earnings Call Transcript
Positive4-8
The earnings call highlighted strong revenue growth projections with significant lease revenues expected. The company is advancing major projects, like Polaris Forge 2, with strategic geographic expansions. The spin-off of the cloud business could unlock additional value. While there are some uncertainties in lease negotiations, the company's focus on securing favorable terms and the completion of major projects suggests optimism. The Q&A session reflected confidence in managing challenges and maintaining high NOI margins. Overall, the strategic initiatives and positive guidance outweigh the concerns, indicating a positive stock price movement.
Applied Digital Corporation (APLD) Q2 2026 Earnings Call Transcript
Positive1-7
The earnings call reflects strong financial performance, with significant expansion plans and robust demand in the AI infrastructure market. The Q&A section highlights confidence in future projects and favorable contract terms. Despite increased interest expenses and a net loss, the optimistic guidance and strategic growth initiatives, including the ChronoScale spinout, suggest positive stock movement. The market's focus on AI infrastructure and Applied Digital's positioning in this sector further support a positive outlook.
Applied Digital Corporation (APLD) Q1 2026 Earnings Call Transcript
Positive10-9
The earnings call summary indicates strong financial metrics, optimistic guidance, and strategic growth plans, particularly with the development of Polaris Forge facilities and expected significant revenue. The Q&A section highlights management's confidence in financing and power infrastructure, although some details were vague. Positive factors like the $5 billion MAM financing and no additional funding needed for Polaris Forge 1 bolster the sentiment. Despite some uncertainties, the overall outlook is positive, suggesting a stock price increase in the 2% to 8% range.
Applied Digital Corporation (APLD) Q4 2025 Earnings Call Transcript
Unknown7-30
The earnings call presents a mixed picture. While revenue and adjusted EBITDA have increased, there are significant expenses and a notable net loss. The Q&A reveals positive developments, such as advanced negotiations with a hyperscaler and potential expansion, but also highlights uncertainties, like industry slowdowns and vague management responses. The lack of a clear market cap and the absence of new partnerships or guidance changes suggest a neutral sentiment, with no strong catalysts for significant stock movement in the short term.
APLD Report
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