Applied Digital (APLD) Q3 2026 Earnings Transcript

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Date

Wednesday, April 8, 2026 at 5 p.m. ET

Call participants

• Chairman and Chief Executive Officer — Wes Cummins
• Chief Financial Officer — Saidal Mohmand
• Managing Director, Gateway Group (Moderator) — Matt Glover

Takeaways

• Total Revenue -- $126.6 million, representing a 139% increase compared to the previous quarter and reflecting a full quarter of lease revenue from the 100 megawatt HPC facility.
• HPC Hosting Revenue -- $71 million, consisting of $44.1 million in base rents, $18.9 million in tenant fit-out services, and $8.1 million in power pass-through and ancillary revenue.
• HPC Segment Operating Profit -- $17.6 million driven by facility operations and lease structure.
• Data Center Segment Revenue -- $37.5 million, with year-over-year growth of 7%, producing $13.9 million in operating profit on $119.6 million in segment assets.
• Cloud Segment Revenue -- $18.1 million consolidated, paired with a $59.7 million non-cash write-down due to reclassification from held for sale, resulting in a segment loss of $52.2 million for the quarter.
• Adjusted EBITDA -- $44.1 million representing early phase financial realization from core business activities.
• Net Loss Attributable to Common Stockholders -- $100.9 million, or $0.60 per share; Adjusted Net Income -- $33.2 million, or $0.09 per share, with all Cloud business impacts excluded from non-GAAP results.
• Balance Sheet -- $2.1 billion in cash and equivalents versus $2.7 billion in debt, and about $1.6 billion in equity; company stated no significant maturities in the next two years.
• Debt and Financing Update -- $2.15 billion of 6.75% senior secured notes due 2031 completed for 200 megawatt Polaris Forge 2 campus; only one remaining tranche for 150 megawatts at Polaris Forge 1 pending placement.
• Credit Enhancements -- CFO Mohmand said, "We executed amendments ... delivering an unconditional springing parent guarantee from CoreWeave Inc. and securing a $50 million letter of credit ... CoreWeave’s SPV receiving an investment grade A3 rating, a meaningful improvement from its previous BB rating."
• Development Pipeline -- Four sites actively marketed including Delta Forge One, with projects totaling approximately 1 gigawatt in various negotiation stages; company also confirmed a delayed South Dakota project offset by two additional sites entering the pipeline.
• Power Strategy Initiative -- Support for Base Electron, an IPP collaborating with Babcock & Wilcox, to provide up to 1.2 gigawatts of new natural gas-fired grid capacity in the Dakotas; Applied Digital Corporation to receive 10% equity in Base Electron for limited credit support until at least $50 million is raised or an IPO occurs or is completed for Base Electron.
• Contracted Lease Revenue -- CEO Cummins stated, "we have secured approximately $16 billion in contracted lease revenue," split as $11 billion CoreWeave and $5.5 billion investment grade hyperscaler, forming the majority of existing contractual backlog.
• Strategic Transactions -- Board-approved plan to separate Applied Digital Cloud and merge it with Exo Bionic Holdings to form ChronoScale Corporation, thereby enabling focused capital raising and planned spin-off to shareholders.
• Future Capacity Plans -- Ongoing construction on nearly 900 megawatts across multiple sites, with a visible roadmap to expand beyond 5 gigawatts of critical IT load over time as negotiation processes are completed.
• NOI Growth Target -- Internal leadership targets established for $1 billion and $2 billion in annual NOI, with the company expecting to surpass the $1 billion mark within five years.
• Upcoming Revenue Ramps -- Next revenue inflection anticipated as new buildings at Polaris Forge 1 and Polaris Forge 2 are energized in stages set across the remainder of 2026 and into 2027; additional contribution forecast from Delta Forge One as initial operations commence in mid-2027.
• Preferred Equity Access -- $4.1 billion available from Macquarie Asset Management upon execution of a lease with an investment grade hyperscaler and use of a similar debt structure to maintain over 80% ownership for Applied Digital Corp. common equity holders in future sites.

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Risks

• Cloud segment recorded a $59.7 million non-cash write-down and a $52.2 million operating loss; management stated this business is being separated and excluded from non-GAAP results.
• Cost of revenues increased $23.7 million for the quarter, driven mainly by $18 million in tenant fit-out services, higher energy and personnel expenses, and $2 million in increased depreciation and amortization.
• CEO Cummins said, "there are many variables and uncertainty involved in developing large-scale power infrastructure, such as new power plant construction, transmission lines, and regulatory approvals."
• SG&A expense increased by $57 million to $79.7 million, with $39.3 million attributed to stock-based compensation, reflecting higher headcount and performance awards.

Summary

Applied Digital Corporation (NASDAQ:APLD) demonstrated significant revenue growth and strong initial adjusted EBITDA, underpinned by the full lease-up of its flagship 100 megawatt data center and accelerated construction activity across multiple large-scale projects. The company executed high-profile lease restructurings and achieved an investment grade credit rating for its CoreWeave SPV partnership, improving financing terms for future debt placements. Management introduced a multi-pronged expansion strategy: actively marketing four development sites totaling approximately 1 gigawatt, pursuing the separation and merger of its Cloud business to form ChronoScale Corporation, and launching a grid power growth initiative through equity participation in Base Electron, an independent power producer. Leadership indicated visibility toward five to six gigawatts of contracted critical IT load supported by a $16 billion contracted lease backlog and focused on raising investment grade mix to over 70% of total contract value. The company cited an intent to maintain prudent leverage at 5x-6x NOI as the business scales, with capital stack flexibility to adapt as each project transitions from construction to cash generation.

• CEO Cummins said, "Every new campus we secure is intended to create one of the most valuable annuity streams available, a 15- to 30-year revenue stream backed by some of the strongest credits in the world."
• The Base Electron initiative is structured outside the core company to shield shareholders from generation risk while allowing Applied Digital Corporation to share in upside via its 10% equity stake.
• Management confirmed all current North Dakota and southern U.S. construction projects remain on budget and on schedule, with staged energization set for calendar 2026 and 2027.
• Company expects to contract the remaining 100 megawatts at Polaris Forge 2 in the near term, with formal announcements forthcoming upon lease signing.

Industry glossary

• IPP (Independent Power Producer): A non-utility entity that develops, owns, and operates facilities for electricity generation and sells power to wholesale or retail customers, often enhancing grid reliability.
• SPV (Special Purpose Vehicle): A subsidiary company with legal and financial separation from its parent, created for a specific financial arrangement or asset ownership to isolate risk.
• Data Hall: A segregated room within a data center containing server racks, cooling systems, and networking infrastructure, typically energized in phases as part of large facility build-outs.
• Critical IT Load: The amount of electrical power dedicated to core information technology equipment (such as servers and networking hardware) within a data center, excluding ancillary facility consumption.

Full Conference Call Transcript

Operator: Ladies and gentlemen, good afternoon, and welcome to Applied Digital Corporation’s fiscal third quarter 2026 conference call. My name is Abby, and I will be your operator today. Before this call, Applied Digital Corporation issued its financial results for the fiscal third quarter ended 02/28/2026 in a press release, a copy of which has been furnished in a report on Form 8-K filed with the Securities and Exchange Commission, or SEC, and will be available in the Investor Relations section of the company’s website. Joining us on today’s call are Applied Digital Corporation Chairman and CEO, Wes Cummins, and CFO, Saidal Mohmand. Following their remarks, we will open the call for questions.

Before we begin, Matt Glover from Gateway Group will make a brief introductory statement. Mr. Glover, you may begin.

Matt Glover: Thank you, Abby. Hello, everyone, and welcome to Applied Digital Corporation’s fiscal third quarter 2026 conference call. Before management begins formal remarks, we would like to remind everyone that some statements we are 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 forward-looking statements. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our 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 discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables to the applicable GAAP measures in our earnings release carefully as you consider these metrics. We refer you 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 Corporation’s SEC filings for free by visiting www.sec.gov. I would like to remind everyone that this call is being recorded and will be available for replay via a link available in the Investor Relations section of Applied Digital Corporation’s website. I will now turn the call over to Applied Digital Corporation’s Chairman and CEO, Wes Cummins.

Wes Cummins: Thanks, Matt, and good afternoon, everyone. Thank you for joining our fiscal third quarter 2026 earnings conference call. This quarter, we continued to differentiate ourselves in the industry. Over two years ago, we were one of the first companies to recognize the surging demand for large-scale, high-power-density AI data centers and broke ground on our first 100 megawatt facility. This early investment is now paying off in two important ways. First, we now operate one of the only 100 megawatt direct-to-chip liquid-cooled data centers in the world online today. This, coupled with key learnings, gives us the experience and the ability to demonstrate to major hyperscalers and others that we can execute on time and deliver fully functional, state-of-the-art facilities.

Second, what investors are seeing today in our reported financials, including over $44 million in adjusted EBITDA for the quarter across our core businesses, is just the early stage of what we expect to achieve. In the HPC segment, this first 100 megawatt building represents only one-tenth of the total capacity we currently have under construction. While there are many variables and uncertainty involved in developing large-scale power infrastructure, such as new power plant construction, transmission lines, and regulatory approvals, we currently estimate that we have contracted only a small fraction of our long-term power potential. Turning to execution, all buildings under construction at One and Two are progressing on time and on budget.

Building large-scale data centers through a North Dakota winter is no small task, but with years of experience and thousands of skilled professionals on-site, along with trusted partners such as McGough, ABB, Adolfson & Peterson, and Basix, we are executing effectively. At Polaris Forge 1, the 400 megawatt CoreWeave campus, the first 100 megawatt building is now operating, and our 1,200 skilled craft professionals are progressing in parallel on two new 150 megawatt facilities. At Polaris Forge 2, the 200 megawatt investment-grade hyperscaler campus, both buildings are advancing well, with foundations largely complete and work now shifting to precast erection as well as mechanical, electrical, and plumbing trades mobilizing for interior fit-out.

During the quarter, we also broke ground on Delta Forge One, a 300 megawatt critical IT load AI factory campus spanning more than 600 acres in a strategic Southern U.S. market, with initial operations expected in mid-2027. We have some great videos reflecting our progress on X and LinkedIn pages. Last quarter, we shared we were actively marketing three potential sites. During the quarter, we made the decision to delay the South Dakota site as we evaluated long-term viability and explored opportunities to reallocate the associated power agreements. As a result, we have brought two additional sites into the pipeline and are now actively marketing four development sites in total.

These include Delta Forge One in the Southern U.S., an additional site in North Dakota, and two sites in unnamed states. Subject to receiving all necessary approvals for these sites and total grid power capacity across these locations, the total grid power capacity across these locations is approximately 1 gigawatt, and the campuses are in various stages of negotiation, with some in advanced stages of negotiation. While there can be no assurances we will successfully match any specific site with a customer, and many variables must align to bring a new data center campus to fruition, we believe it is helpful to provide investors with visibility into our expanding development pipeline and future growth opportunities.

Turning to our data center hosting business, where we host two sites for Bitcoin mining, this segment has our highest return on assets, and we had another strong quarter. Many of the sites in the U.S. are being converted to data centers, and thus anyone who has high-performance powered sites is sitting on very valuable assets, especially in lower-cost regions with a great climate like the Dakotas. Now turning to Cloud. As discussed last quarter, after reviewing strategic options, the Board announced plans to separate Applied Digital Cloud and combine it with Exo Bionic Holdings through our proposed business combination to form ChronoScale Corporation, a dedicated accelerated compute platform for GPU-optimized AI infrastructure.

We believe this is an ideal time to pursue this transaction, particularly in light of the significant recent increases in demand and GPU rental rates we are observing in the market. This move positions the Cloud business to raise capital independently, create differentiation, and drive accelerated growth with the long-term goal of spinning the business to our shareholders. I will now turn the call over to our CFO, Saidal Mohmand, for a detailed review of financials.

Saidal Mohmand: Thank you, Wes, and good afternoon, everyone. This quarter, we realized a full quarter of lease revenue from our 100 megawatt data center in the HPC hosting business. Going forward, we expect revenues to ramp significantly over the next 12 months as our 250 megawatt buildings come online. We have also completed the majority of our equity and debt financing for our first two campuses. Note, this past March, we disclosed a $2.15 billion private offering of 6.75% senior secured notes due 2031 to support our 200 megawatts of critical IT load at our Polaris Forge 2 campus.

We now have only one remaining tranche of debt to place, for the final 150 megawatt building at our Polaris Forge 1 site. We have some very positive news for our debt and equity investors. On 03/30/2026, we executed amendments and related agreements with CoreWeave that included restructuring portions of the ELN-02 and ELN-03 leases through a special purpose vehicle, or SPV, subsidiary wholly owned by CoreWeave. This included delivering an unconditional springing parent guarantee from CoreWeave Inc., and securing a $50 million letter of credit. These enhancements were supported by CoreWeave’s SPV receiving an investment grade A3 rating, a meaningful improvement from its previous BB rating.

We believe this improved credit supports not only the existing 250 megawatts leased capacity, but should also help lower our cost of capital when placing the remaining 150 megawatt tranche, although there can be no guarantees on timing or pricing. Longer term, we expect these enhancements to position us well to refinance that debt at more attractive rates in the future. We are actively working with top institutions to place that debt at the right time and at the lowest possible cost of capital. From here, we believe we have a straightforward financing model. We have access to $4.1 billion in preferred equity from Macquarie Asset Management following a mutually agreed upon executed lease with an investment grade hyperscaler.

We would then follow a similar approach for the debt financing. This structure allows Applied Digital Corporation shareholders to retain over 80% common equity ownership of future sites, while significantly reducing reliance on the public capital markets. Now let’s turn to the quarter. We reported total revenues of $126.6 million, a 139% increase from the comparative prior quarter. Our HPC hosting business generated $71 million of revenue, consisting of $44.1 million related to base rents, $18.9 million related to tenant fit-out services, and $8.1 million related to power pass-through arrangements and other ancillary revenue streams. This resulted in segment operating profit of $17.6 million.

The data center segment, which operates our crypto data centers, had another strong quarter with $37.5 million in revenue, up 7% year over year. We are very pleased with this business, which continues to deliver the highest return in the company, generating $13.9 million in operating profit in just one quarter, and that is on $119.6 million in reported assets. Given that the Cloud business is merging with Exo, and that we will be a majority holder, we have consolidated revenues of $18.1 million for the quarter. We also recorded a $59.7 million non-cash write-down in the business due to reclassification from held for sale. As a result, this segment reported a loss of $52.2 million.

As the Cloud business is pursuing a separate strategy from our core business and will be placed in a separately publicly traded company, we have excluded the segment from our non-GAAP results. Cost of revenues increased by $23.7 million for the quarter. This increase was primarily driven by $18 million in tenant fit-out services, an increase of $4.8 million in personnel expenses, an increase of $4.1 million of energy costs associated with our data center hosting business, and an increase of $2 million in D&A expense. These increases were partially offset by a decrease of $5.2 million in lease and lease-related expenses. SG&A expense increased $57 million to $79.7 million.

This increase was primarily driven by $39.3 million in stock-based compensation due to increased headcount and performance rewards, $8.6 million in professional service expenses mainly related to legal support for one-time transactions and business growth, $5.1 million in personnel expenses also related to the increase in headcount, and $8 million in other SG&A expenses. These increases were partially offset by a decrease of $3.9 million in lease and lease-related expenses. Net interest income was a positive $2.4 million this quarter. This was primarily driven by a $19.3 million increase in interest income from our money market accounts. Net loss attributable to common stockholders was $100.9 million, or $0.60 per share.

Adjusted net income was $33.2 million, or a positive $0.09 per share. Depreciation for the quarter was approximately $18.5 million, and adjusted EBITDA for the quarter was $44.1 million. Turning to the balance sheet, we are exceptionally well positioned. We ended the quarter with $2.1 billion in cash and cash equivalents, against $2.7 billion in debt, with no significant maturities due in the next two years, and approximately $1.6 billion in equity. Our goal is to maintain one of the strongest balance sheets in the industry throughout the majority of the construction phase, and we believe we are achieving those goals. I will now turn the call over to Wes for closing remarks.

Wes Cummins: Thanks. We are seeing a clear acceleration in demand for high-performance AI data center capacity, as hyperscalers are as aggressive as we have ever seen them. While some have questioned the slower pace of new lease signings industry-wide, I want to be clear there is significant demand for credible, well-located data center sites almost anywhere in the world. Just three months ago, we referenced approximately $400 billion in annual capital expenditures from the largest U.S. hyperscalers. That figure has now been reported to have increased to nearly $700 billion. This represents one of the largest investment cycles in U.S. history compressed into an extremely short time frame. These enormous investments highlight the intense pressure on power and infrastructure.

Leaders such as Elon Musk have publicly stated that even if we utilize all available excess power on the grid, it will still not be enough to meet the demand for new data centers. This concern is so significant it has driven major strategic moves across the industry, including efforts to develop data centers in space. We believe these trends only increase the long-term value of high-quality, low-cost sites like those that we operate today. Recognizing this dynamic early, we are advancing our own power strategy through support of Base Electron, an independent power producer.

Base Electron will work with Babcock & Wilcox to build a power plant that will supply initially roughly 1.2 gigawatts of natural gas-fired generation capacity to the grid in the Dakotas region. This power will be in front of the meter and developed in partnership with regional utilities. We are providing the support based on insights gained from discussions with some of the largest hyperscalers in the world. We believe that if we build it, they will continue to come to our region. The objective is to add reliable power to the Dakotas and help contain electricity costs for consumers, reduce the need for utilities to raise capital, and allow for the development of new large-scale sites in the region.

Applied Digital Corporation is providing limited credit support through a guarantee on the project. As Base Electron successfully raises at least $50 million in financing or completes an IPO, Applied Digital Corporation’s guarantee will be terminated. In exchange for the guarantee, Applied Digital Corporation shareholders will own approximately 10% of this new company. We believe we are once again ahead of the curve by supporting an IPP, just as we were two years ago when we began building one of the first state-of-the-art liquid-cooled AI data centers. We expect to see more companies follow this model of developing dedicated power solutions in the coming years.

We are not only investing in infrastructure and power, we are also investing in our communities through Applied Digital Cares, where we recently awarded our first round of grants supporting important local initiatives in education, health, wellness, innovation, and public safety, including upgrades for local fire departments. In closing, we recently celebrated our five-year anniversary. In that short time, we have successfully navigated multiple business lines, built billion-dollar state-of-the-art data centers in remote locations, and secured approximately $16 billion in contracted lease revenue. Given the significant demand we are seeing, our focus is on scaling the platform, where new leases will continue to be a natural outcome as we expand across campuses in a disciplined, repeatable way.

Our long-term vision is to build a dominant data center region in the Dakotas with multiple hyperscalers while also expanding into strategic locations across the United States. Every new campus we secure is intended to create one of the most valuable annuity streams available, a 15- to 30-year revenue stream backed by some of the strongest credits in the world. Once the site is secured, we will focus on growing that site. Then from a financial perspective, we know that today our cost of capital is higher than it should be, but we plan to refinance that down over time as we shift from project finance loans into ABS or equivalent markets at lower rates.

We believe that should be the key tipping point where shareholder return on investment will significantly ramp and the majority of our shareholder value will be unlocked. We believe our first two hyperscaler partnerships are just the beginning. We remain confident in our ability to exceed our long-term goal of $1 billion of NOI within five years. To drive accountability, we have implemented new internal targets for our leadership team at both $1 billion and $2 billion of NOI levels. We will now open for questions.

Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press 1 a second time. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, it is 1 to join the queue. Our first question comes from the line of Mike Grondahl with Northland Securities. Your line is open.

Mike Grondahl: Hey, guys. Thank you. Two questions. One, Saidal, could you give us a little bit more insight into the restructured leases at One? If you would estimate, what kind of cost savings when you go to refinance do you think you could see? And then maybe secondly, Wes, drilling down a little bit on the demand environment, how would you say it has changed over the last 90 days, and what is the breadth of your discussion with various hyperscalers?

Wes Cummins: Saidal, why do you not go first?

Saidal Mohmand: Yep. So on the lease restructuring, as you can see, based on the observable trading of the bonds that are outstanding today, there has been a significant improvement in pricing, and there are a number of changes that are driving that. One, the offtake for CoreWeave is a high, investment-grade offtake, so there is a look-through benefit. There is also a lockbox structure whereby operating expenses such as lease payments are really the fulcrum to run the GPUs; they are 100% required. We are first in the waterfall and contractually obligated to get those payments through their own financing facility.

So there is a payment benefit from that, while at the same time, we also retain the springing parent guarantee from CoreWeave. Effectively, we have improved our position on the lease with minimum credit enhancement, and then there are other structural protections such as the letter of credit, etc. It is a significant improvement. In terms of rate, we have seen that CoreWeave, through their DTO, has been able to lower their financing cost significantly. We expect—obviously no guarantee—but we expect to continue to move our borrowing cost more in line for an investment-grade tenant under the structure as we go forward. Obviously, no assurances, but from looking at trading levels of our bonds today, it appears quite favorable.

Wes Cummins: And, Mike, on the demand side, we always see shifts in demand quarter to quarter—who is super aggressive and who steps back. Sometimes that will go six months, maybe 12 months. But we still see every hyperscaler that we target engaged pretty aggressively in the market, and it just depends also location by location, so it is hard to give a total market view. What I always give you is what we see. For the locations that we are marketing, we see multiple hyperscalers at every location with interest. When I think about how we go and contract the capacity that is available—first, you have Polaris Forge 1 and 2, then we have Delta Forge One.

We have two customers at those separate campuses. One thing that I think about a lot is two things: diversifying customers—so we have those two customers; instead of signing additional with those customers, get a new customer at those campuses—even if it were very easy for me, for example, to sign more with one of my current customers, my preference right now is to continue to diversify the business. This is, again, very Applied Digital Corporation specific. We also have a pretty clear goal of getting our total contracted revenue to 70% investment grade. Today we have $16 billion of total contracted revenue, and that splits $11 billion to CoreWeave and $5.5 billion to an investment-grade hyperscaler.

You can just do the math of how we get to that split that I am looking for, and we have those campuses in play. We are marketing those campuses, more than in advanced stages of negotiation with some of those campuses. We feel good about the assets that we have, which it is important to distinguish versus some of the other assets that we see in the market. Everything that we are marketing is grid power, and that is always top priority, so that is going to go in front of almost anything that is behind the meter or on-site generation.

We feel really good about our assets now; it is just making sure that we get the right tenant and the right contract in place. I know on the side of a lot of investors, it is just how quickly can you sign these and announce them. On our side, we do not put these deadlines on ourselves. We just make sure that we end up with the right customer and the right contract, and I am really confident that we will end up with that at the campuses that we are marketing because they are great assets.

Mike Grondahl: Okay. Thank you, and good luck. Thanks.

Operator: And our next question comes from the line of Darren Aftahi with Roth Capital. Your line is open.

Darren Aftahi: Congrats on all your progress. Two things, if I may. So Delta Forge One—your commentary about potentially being operational mid-2027—I guess, what does that say or infer about when a lease effectively needs to be signed? And then on your last call, you talked a fair amount about being in exclusivity with a hyperscaler—three sites, 900 megawatts if my memory serves me correct. Are you still in exclusivity with that potential tenant, and is there any update on that project in general? Thanks.

Wes Cummins: Yes. So, Darren, on the first question, with Delta Forge One, you should expect—I will say that I expect—a lease in the near term on that for hitting that goal. As everyone knows, we have been working on that for a few months now. We have made a lot of great progress there and feel good about getting the lease and the time frame to hit that RFS date as well. We had some shifting around, as I mentioned in the script, from the South Dakota campus. We did not get the tax exemption we were looking for from the legislature this session, and so we have paused that development.

We are working on two other sites that we had somewhat previously, and we have gotten a lot more active on those. We still have three sites in exclusivity with a hyperscaler, and we will see how all of that plays out, but we feel really good again about those assets and getting those leases signed. At minimum, I would say during this year, but I am more optimistic that it would be more near term. We are not going to sign a bad lease just to get an announcement on the tape, but we feel really, really good about the progress we have made on those sites.

Darren Aftahi: Appreciate it. Thank you.

Operator: And our next question comes from the line of George Sutton with Craig-Hallum. Your line is open.

George Sutton: Thank you. Saidal, for those of us that are non–fixed income guys, I wondered if you could just walk through what it generally means if you go from double-B to single-A. If you were to go into the refinance market, what kind of spread differential is there?

Saidal Mohmand: Great question. Single-A is investment grade. Spreads are anywhere from the low 200s to mid-200s basis points, depending on structure, remaining term, how the lease is placed, etc. Generally, think about mid-200s, historically. For the double-Bs—single-Bs to double-Bs—spreads can be anywhere from 350 to 450 basis points, once again depending on the offtake and the structure of the contract.

George Sutton: Okay. So pretty significant. Wes, I am curious: I know there are certain sites that you are working on. Some of them have the six-month moratoriums put on by local counties. My sense is—correct me if I am wrong—but as time goes on, the ultimate value that you would get from the same contract, same properties continues to rise. In other words, we are all waiting for the near-term deals and all of that, but to the extent that these actually extend out a little further, the value capture for you is ultimately greater. Is that a correct statement?

Wes Cummins: George, it has been the trend we have seen so far. I think that is directionally correct. On the moratoriums and those things, we are working through those, and we feel really good about getting through just in an education process. If you look at what we have done in North Dakota specifically, because we have a site that is operating, we went through the process and we have very specific evidence to point to on the Polaris Forge 1 campus in Ellendale—both the economic benefits and our impact on ratepayers on the grid. As you have seen, there has been some news on that recently.

Since that site has been operational, we have saved ratepayers about $31 million because of the use of the infrastructure there and how we site our campuses and where we take these. With the work with the community, we get a lot of great reviews. It is easier for us to continue to do things in that state, educate people, and get through the moratoriums, the zoning, and all of those pieces. We feel really good about doing that in North Dakota and continuing to expand there.

Back to big picture on these: the sites that we have are premium in that they are utility power that is available in 2027, and we see a lot of demand for those types of assets. The goal for us this year—one goal—was total contract value, getting 70% investment grade and 30% other or over that number, so you can imagine the type of growth in total contracted value we would need to hit that. We are marketing four new campuses. If we can get to five total campuses or six total campuses, then all of those campuses grow over time—some of them grow immensely over time.

It gives us a really good path to five-plus gigawatts of critical IT load across all of our campuses over time. For us, it is easier once you have landed a customer at a campus—it is an established location—to either expand to that customer at the campus or bring other customers on that campus. When I look to the future, I look at not only new sites but expansion of our current campuses.

If we can put ourselves in a position where we have a clear view to five or six gigawatts just across the campuses that we have already contracted and are looking to contract here this year, it is going to be a really great growth runway for the company and fairly locked in, and probably easier for us to do than just continue to add new campuses.

George Sutton: Got it. Thank you.

Operator: And our next question comes from the line of Nick Giles with B. Riley. Your line is open.

Nick Giles: Hey. Thanks, operator. Nice job, guys. Wes, I think you mentioned you are marketing four sites, one of which is Delta Forge One, two unnamed sites. Other than maybe Garden City way back when, this is new geographic exposure for you. What drew you to the South, and what kind of contrast would you draw between it and your Dakota sites? Was this really a result of customer indications, or more Applied-led? Thanks. And then it sounds like things are on track, but it would be nice to get an update on the next building at One. Can you just remind us when we would first see revenue recognition? I think the guide is sometime in 2026.

Wes Cummins: So, Nick, what always drives us first is where power is available. That is always first when we find our sites. Then it goes to fiber, and then there are a lot of other variables that we look at. Those variables include how crowded the market is. That is one we definitely look at. The more density you have, it is easier to get more customers there and there is a lot more infrastructure. Right now, it is hard to be in crowded markets because of labor force. We look at markets where we think we can definitely secure the labor force to go and build these.

For example, we are not looking at something in West Texas right now; we are in states that are outside of that so that we can attract a different labor force and make sure that we can build these. We look at states that are pro-business and business friendly, have governors and legislatures that want data centers in their state and are looking to expand business. It is a lot of different variables, but it is always first driven by power and power availability and when it is available, and we are still very focused on grid power.

We have looked at a lot of projects where people have what they call “powered land.” What they really have is land and a gas pipeline that runs nearby where you can do offtake for gas, and then you need to figure out power generation, and you typically do off-grid. We are seeing some of those projects happen. What we see is the preference—by far—for the hyperscalers that we are looking to work with is that grid power is definitely still the preferred solution. Those are the kinds of sites we keep developing, and that is what we continue to market. RFS date for PF1 is July 1, I believe.

Just to remind you how these buildings energize, they have six data halls in each building; you do not energize all six at the same time. In July, you will energize some of the data halls, and then they will all be energized across July, August, and September. They will be fully energized. Later in the year, the first building at PF2 comes online, and you will get the same type of energization ramp on that building. You will see some revenue step-up in the August quarter from the new building and then basically close to a full quarter of it in the November quarter, and then a partial from the next.

That is how it will start to ramp up. As you start into 2027, you will have those buildings continue to ramp, the third building of Polaris Forge 1, and then Delta Forge, and then whatever else we start contracting as well. You have pretty clear step-ups. This was a really great quarter for us from a revenue results perspective because you start to see the earnings power of what we are building.

It is still subscale versus all of the people that we employ because we are building so much—we have almost a gigawatt under construction, 900 megawatts under construction—so it is still a little bit top heavy from that perspective, but you get to start to see the flow-through and it is easier for you to model out what the earnings power of the platform looks like.

Nick Giles: Appreciate it, guys. Best of luck. Thanks.

Operator: And our next question comes from the line of Rob Brown with Lake Street. Your line is open.

Rob Brown: Good afternoon. Congratulations on all the progress. I wanted to follow up on the power availability commentary and, I guess, the Base Electron strategy. When do you think you start to run into constraints in the North Dakota market, and how do you see that playing out?

Wes Cummins: Sure. We have the Polaris Forge 1, Polaris Forge 2, and another site in North Dakota—three sites that we will be building through 2028 on all of those. That is going to take up a significant amount of the excess power that we see right now in North Dakota. Towards the end of 2028, we will start to commission some of these Base Electron new power generation assets. What that is really designed to do is to meet when we feel like we start to tap out of the available grid power, and then we are adding—Base Electron is adding—more power to the grid.

As we said in the prepared remarks, but it is worth reiterating, the Base Electron business model is actually adding grid power. It is not building on-site generation specifically for the Applied Digital Corporation data centers, but strategically adding it in places on the grid in North Dakota that will definitely feed the Applied Digital Corporation sites, while making the grid overall better and more resilient and being a benefit to all of the stakeholders and the ratepayers in the state. It is not just putting it on-site to generate electricity for Applied Digital Corporation. That is really the timing.

We have spaced out when we start to run out of what we think is available grid power for us, and then we need to add more to the grid to continue to expand these campuses. As we have mentioned previously, the Ellendale—Polaris Forge 1—campus, the new campus in North Dakota, they all have the ability to expand significantly from an electrical infrastructure delivery perspective. We just want to make sure that we enable that.

Rob Brown: Okay. Great. Thank you.

Operator: Thank you, Rob. And our next question comes from the line of John Todaro with Needham & Company. Your line is open.

John Todaro: Hey, guys. Congrats on all the progress. First question, Wes, you made a couple comments about not just signing any deal—you want the right term—and also it taking maybe a little bit longer than you had hoped or expected. While appreciating that the demand is quite strong, has there been any aspect, whether terms or rates, that have changed that have maybe made conversations a little bit more difficult in getting the leases done? Is there any kind of sticking point that is coming up?

Wes Cummins: Every lease is different, John, and so there are always different parties in the lease and what needs to happen. In some instances, there is a lot of stuff that needs to happen for the utility as far as guarantees and what gets negotiated in the entire package, and that has been newer for us. That is definitely one aspect, but it is not in every lease; it is just in certain ones. I cannot say that the entire landscape has changed because every campus—when you are dealing with a different utility and a different counterparty—they all have their own nuances. If you asked my team, I would say every lease takes longer than I would like.

I wish we could get to the terms that were great for us and we would sign it. I feel like these are all on track for us. We feel really good about where they are and signing a lot of these campuses up this year. We will make sure that we get these right and with the right tenant and the right structure. It is hard to say market-wide if there is anything different, but there are always different details and nuances in every single site.

John Todaro: Understood. Appreciate that. And then maybe one for Saidal. Just trying to reconfirm the cadence of the fit-out service revenue. Has all that been recognized now, or should we expect some more in the coming quarter to contribute?

Saidal Mohmand: For ELN-02, a majority of the fit-out revenue has been recognized. There will be a small amount remaining for the first building. Towards the end, you will see some ramp on ELN-03—or the second building in PF1—start to ramp up. Timing can be lumpy from quarter to quarter, and it is a low-margin line item that is nonrecurring.

John Todaro: Correct. Around 5% or so, right?

Saidal Mohmand: That is fair. Yep. Correct.

John Todaro: Thank you.

Operator: And our next question comes from the line of Michael Donovan with Compass Point. Your line is open.

Michael Donovan: Hi. Thanks for taking my question, and congrats on the progress. Saidal, could you walk us through what still needs to happen between now and June 30 for the PF2 financing escrow tied to the $2.15 billion of 2031 notes to be released?

Saidal Mohmand: Great question. Effectively, the ESA needs to be finalized between the utility and the counterparties involved, and that has been progressing as scheduled. For instance, there was a recent milestone on the substation construction. The longest pole in the tent has been the substation construction items. We had a contractor sign a construction agreement to build that last October, and we are in really great shape on the substation progress there.

Michael Donovan: Appreciate that, Saidal. And I guess for Wes, what is the strategic rationale for structuring Base Electron outside of Applied rather than owning the generation directly?

Wes Cummins: We thought a lot about this—it is a great question. The power generation business is fundamentally different than the data center business. We did not think it was the right thing to take a lot of risk inside of Applied Digital Corporation to go and build the power generating assets that will help expand the data center capacity for Applied Digital Corporation. When you think about the different risk profiles: at Applied Digital Corporation, we sign long-term data center leases; we get 15 years of lease payments, and if our customer does not use the facility, they still owe us the lease payments.

On the power side of the business, the power will feed into the data center, but if the customer is not using the data center, they still pay the lease payments to the data center, but there is no power being drawn into the data center. So it is fundamentally different risk and return profiles. It has been created as a separate company. Applied Digital Corporation will have ownership in that company, so the Applied Digital Corporation shareholders get upside of the success in Base Electron but take no risk on the downside of any catastrophe that happens inside of that.

We expect it to eventually trade publicly as well, so people can choose if they want to have power generation exposure, if they want to have data center exposure, and now as ChronoScale spins out, do you want to have GPU Cloud exposure. You really get those choices instead of us forcing it into Applied Digital Corporation, where there could be some upside to shareholders but it creates a totally different risk profile for the company in our opinion. I think it was the right choice to put it outside, let it create its own capital stack. Investors will come in and put capital into the business. It will need to raise its own capital to go build these assets.

That was really the fundamental choice as to why it is not just folded as another unit inside of Applied Digital Corporation.

Michael Donovan: Thanks, Wes. Appreciate that added color. I will hop back in queue.

Operator: And our next question comes from the line of Paul Meeks with Freedom Capital Markets. Your line is open.

Paul Meeks: Thank you, guys. Excuse me if this was asked and answered, but do we still have 100 megawatts at Two that is still uncontracted? And going forward, you will make an announcement—not to who the hyperscaler may or may not be; those are always easy to figure out—but you will make an announcement when it is contracted? For both PF1 and PF2, are you sticking with the site NOI margins that I think you last showed in the presentation last fall? And last quick one: when you meet this five-year NOI target—you are going to start with project financing and then switch over time—but once we get there, five years out, what does your firm’s capital structure look like?

Saidal Mohmand: That is correct on the 100 megawatts at PF2. We will make an announcement when it is contracted.

Wes Cummins: We do expect that to be contracted in the near term.

Saidal Mohmand: On the site NOI margins, that is correct—high 80s to 90s, the range that we have been operating at on a cash basis. And there are a couple of different ways to think about the capital structure. As you complete the construction period and construction risk is removed from the overall financing, your cost of capital comes down. If you look at some of the private peers, leverage tends to be very high, in excess of 10 times NOI. We feel it is prudent to be in that five to six times NOI leverage, which—when you are against high investment-grade and investment-grade credits for long-term leases with escalators—is very prudent.

As you get to that five-year mark, once our platform is fully humming and as we surpass our NOI goals of $1 billion and $2 billion of NOI, five to six turns of leverage is prudent. The caveat being there will always be new potential opportunities that we are building out, and we are also opportunistic across the spectrum for financing, with the view of always having paper that is constructive both for shareholders and for other stakeholders in the company as well.

Operator: Ladies and gentlemen, that concludes our question and answer session. I will now turn the conference back over to Wes Cummins for closing remarks.

Wes Cummins: Thank you, everyone, for joining us today, and I want to make sure that I thank all of our employees who are working overtime to make all of this a reality for the company and its shareholders, and we look forward to speaking with you in July.

Operator: Ladies and gentlemen, that concludes today’s call, and we thank you for your participation. You may now disconnect.

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