Q3 2024 Summary
Published Jan 21, 2025, 9:58 PM UTC- Applied Digital has executed a Letter of Intent (LOI) with a U.S.-based hyperscaler for a 15-year lease of 400 megawatts (MW) of capacity at their Ellendale campus, demonstrating strong demand for their high-performance computing (HPC) data center services and providing significant long-term revenue potential. ,
- The company is rapidly expanding its Cloud Services business, with 4,000 GPUs currently generating revenue and plans to deploy an additional 2,000 GPUs by the end of May, indicating accelerating growth in this segment. ,
- Applied Digital is advancing negotiations with large enterprise customers for their AI Cloud Services, which will diversify its customer base and open new revenue streams, enhancing the overall robustness and sustainability of its business model. ,
- Operational Challenges at Ellendale Facility: The company experienced power outages at its Ellendale data center, resulting in unexpected expenses estimated at $4.5 million in operating loss during the quarter. Additionally, they need to replace approximately 45 transformers at a cost of around $200,000 each, totaling about $9 million in additional capital expenditures. There is uncertainty about recouping these losses from suppliers or insurance, which could negatively impact future financial performance.
- Reliance on a Limited Customer Base in Cloud Services: Currently, the company has only two major customers generating revenue for its Cloud Services business. This heavy reliance on a small number of customers poses a customer concentration risk, and any loss of these customers could materially affect the company's revenues. Efforts to diversify into enterprise customers are ongoing but are progressing slowly due to longer sales cycles.
- Uncertainties in Securing Financing and Contracts: The company's site-level financing for the Ellendale facility is contingent upon converting a letter of intent (LOI) with a hyperscale customer into a signed contract. Any delays or failure to finalize this contract could impact the availability of capital and delay project timelines. Additionally, a previous customer for a 100-megawatt capacity did not proceed, indicating potential challenges in securing long-term contracts.
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400MW Hyperscaler Contract
Q: What's the status of the new 400MW hyperscaler contract?
A: The company is progressing with a 400MW contract with a hyperscaler, which includes the previous 100MW agreement that didn't proceed. They expect to finalize this contract within 60-90 days from when discussions started about 3-4 weeks ago. Financing isn't a concern due to the hyperscaler's high creditworthiness. ( , , , , , , ) -
Financing Ease with Hyperscaler
Q: Will financing be easier with the hyperscaler customer?
A: Yes, financing should be substantially easier because the hyperscaler is a very high creditworthy customer, reducing financing challenges compared to the prior 10-year contract. ( ) -
Project Pipeline Expansion
Q: Can you expand on your 1.6GW project pipeline?
A: The company has a pipeline of approximately 1.6 gigawatts, beyond the Ellendale site. This includes sites in the Midwest and northern regions, with capacities from 100MW to 500MW, expected to come online in 2025. Power costs are expected to be similar to Ellendale and Jamestown. ( , ) -
Timeline for Contract Finalization
Q: When will the 400MW hyperscaler contract be finalized?
A: The contract is expected to be finalized within 60-90 days from when discussions started, which was about 3-4 weeks ago, so they might have a contract and financing in place within that timeframe. ( , ) -
GPU Supply and Deployment
Q: What's the update on GPU orders and deployment?
A: The company has 4,000 GPUs generating revenue now and expects to have between 6,000 and 8,000 GPUs generating revenue by the end of May. They feel good about GPU supply, including InfiniBand components. Deployment is somewhat slowed to focus on diversifying the customer base towards enterprise customers. There are no supply chain issues affecting this goal. ( , , , , , , ) -
Transformer Replacement at Ellendale
Q: What's the status of transformer replacements at Ellendale?
A: All transformers have been procured and will be on-site within the next few weeks. They needed about 45 transformers at a cost of approximately $200,000 each. The new transformers are performing well, and the company expects a smooth ramp-up. The prior transformers from a non-America-based company failed to meet specifications. ( , , ) -
Customer Base Diversification
Q: How is the company diversifying its customer base?
A: The company is focusing on securing enterprise customers, moving away from reliance on start-up clients. Contracts with enterprise customers are in advanced stages, including contract negotiations. Diversification is prioritized over rapidly reaching GPU deployment goals. ( , , ) -
Contract Economics
Q: Are the economics of the new 400MW contract similar to previous deals?
A: Yes, the economics per megawatt are expected to be similar to past agreements, even though the new contract involves 15-year commitments instead of 10 years. ( ) -
AI Cloud Pricing Stability
Q: Has AI cloud pricing changed since the last call?
A: Pricing has remained stable, with both prepayment percentages and price per hour on GPUs staying steady since the last quarter. ( ) -
Financing and Capital Expenditures
Q: What's the status of financing and CapEx for ongoing projects?
A: Jamestown is fully paid for, and the company has invested about $100 million in the 100MW site. They expect financing with an 80-85% loan-to-cost ratio. Current funds, including proceeds from the Garden City sale, should cover expenditures until site-level financing is secured for Ellendale in about 6-8 weeks. ( , )