Overview of Financial Performance

Applied Digital Corporation is a U.S. designer, developer, and operator of next-generation digital infrastructure across North America. The company operates in three distinct business segments: Blockchain data center hosting, cloud services, and HPC (High-Performance Computing) data center hosting.

Revenue and Profit Trends

• Revenue increased 66% from $38.6 million to $63.9 million in the three months ended November 30, 2024, driven by growth in the Cloud Services Business.
• Related party revenue decreased 100% from $3.6 million to $0 million as certain related parties terminated their contracts.
• Cost of revenues increased 76% from $29.8 million to $52.4 million, primarily due to higher depreciation, lease expenses, and personnel costs to support revenue growth.
• Selling, general and administrative expenses increased 47% from $20.3 million to $29.8 million, mainly due to higher professional service fees and personnel costs.
• The company reported a net loss of $138.7 million in the three months ended November 30, 2024, compared to a net loss of $10.5 million in the prior year period. This was driven by significant losses on debt conversion and changes in fair value of debt.

Segment Performance

• The Data Center Hosting Business saw operating profit increase 15% from $10.9 million to $12.5 million, due to operational improvements and favorable power prices.
• The Cloud Services Business operating loss decreased from $11.6 million to $5.8 million, as revenue grew from the deployment of additional GPU clusters, partially offset by higher costs.
• The HPC Hosting Business operating loss increased from $0.9 million to $5.8 million, due to higher legal, stock-based compensation, and amortization expenses as the segment ramps up operations.

Strengths and Weaknesses

Strengths:

• Diversified business model across data center hosting, cloud services, and HPC
• Strong growth in Cloud Services Business
• Operational improvements in Data Center Hosting Business

Weaknesses:

• Significant losses on debt-related items
• Increasing costs and expenses as the business expands
• Reliance on external financing to fund operations and growth

Outlook

The company expects to have sufficient liquidity to support operations and meet working capital needs for at least the next 12 months, with access to cash on hand, customer payments, debt financing, and public capital markets. However, the company may need to raise additional funds in the future to support its growth plans, which could be challenging if market conditions deteriorate. The regulatory environment surrounding the company’s industries continues to evolve, presenting both opportunities and risks that the company must navigate carefully.