APLD Applied Digital: A Staircase to Profitability Ticker: NASDAQ: APLD CEO Wes Cummins

Kenny, I appreciate you having me back. Uh, so, so thanks for that. But, and, and I really appreciate you having me on the first time back in March. So from our conversation in March until now, we've made a lot of progress, but it's great to come on where we, you know, we've done a lot of the work already when you and I spoke in March. It just, you know, I think I talked about then a little bit of patience. These things take time. And so, you know, we started building our AI campus, our AI factory campus back in 2023. We'd worked through the process with a couple of hyperscalers and then we finally landed with a big contract with CoreWeave for two buildings that eventually expanded to three buildings for that campus. Uh, total of approximately 11 billion in contracted revenue over 15 years, and that's really what was a game changer for our company. Uh, but I've said this internally inside of our company, you know, we worked really hard to get there, but once we had signed that, even before we had announced it, there was a few days in between, uh, I told everyone that, you know, this is not a time to sit back, congratulate yourself, we did it. This was a time to really press. It was going to give a lot of momentum to our company and our business, and we have a great team in place. And so while we were doing all of that, that everyone has seen, we're also working on other campuses because we think this market was, you know, significantly larger. So that means more power, more building. And from when you and I last spoke till now, so not only did we sign that contract, but we've spent a lot of time on how we scale construction, how we scale operations because we were, you know, we started out building a single 100 megawatt building that will turn on, uh, 10 days from now. Uh, the first one, it's the 14th. I don't know when you publish this, but, you know, this is scheduled to go live the 24th and then be that building fully live by the end of the year. Uh, but then we have a second building right behind that that'll start to go on in the first half of calendar 26, and then a third building at that campus goes online in the early part of 27. But we've since sent out another campus to Harwood, North Dakota, that will start to go online mid-26 and fully online by mid-27. Uh, and we have 700 megawatts of critical IT load under construction, and at the same time, but we need to go bigger, and we're, you know, we're negotiating for that campus. Uh, we've said we're in advanced negotiations with an investment-grade hyperscaler. And so when you think investment-grade hyperscaler, I always clarify this is, you know, this is five companies that are really investment-grade hyperscalers that we go after, and that's Microsoft, Amazon, Google, Meta, Oracle, right? So those are the investment-grade hyperscalers that we're working with. We work with CoreWeave, you know, I think there's more to do there. That's been a great partnership to start. And then there's other companies that are coming in that we look at as well. Uh, and so we have that in Harwood. And then we have, as I mentioned on our earnings call last week, two separate campuses besides Ellendale, besides Harwood, two that we're in negotiations with other hyperscalers for those campuses. So you can just see how we're expanding, and our business has really caught a lot of momentum. You know, we got that stamp with the first hyperscaler. We're going to, you know, we're close to getting a second really big stamp with a different investment-grade hyperscaler, and it's just accelerating our business. And, you know, one of the narratives I really talked about on our earnings call, which I think is important for us, but really important for the industry, for the last 12 or 18 months, there's been just a lot of talk about power, power, power. If you have power, you have contracted power. There's a lot of people who talk about power. And if you dig into this stuff, everyone talks about it differently. Maybe you have a load study in and you're going to get power, you know, in this amount of power over the next five years or the next 10 years. Um, and we have a lot of that. So I mentioned that we have 4 gigawatts under active development in our power portfolio, but what we're seeing with our ability to execute, with the fact that we went and put a locked supply chain in place, because that's a really big deal, supply chain for a lot of the key components for power and cooling, uh, you know, a couple of years ago, and we've really created a lot of efficiencies in our process. So what took us initially 24 months to build, now we've shrunk that down to 12 to 14 months, and we did that by lowering the number of SKUs, lowering the number of suppliers. We have a standard design that's much more flexible for the future. Uh, so we've done a lot of work since you and I talked back in March. We've hit that big milestone, uh, which is fantastic. I think we're going to stamp a few more of those milestones, but what we'll really, you know, I think evolve into here is not just, hey, what's the next big announcement for the platform? When's the next big contract? We're constantly in those negotiations. We're constantly developing new campuses, and this is turning into a platform. Uh, and what we're really creating is a category leader of not just, hey, we have power. It's not only we have power, we've been qualified, our design's been qualified with four hyperscalers. Uh, we're through the process, we're known, we have different kinds of conversations with hyperscalers than we had a year ago. Uh, we really are turning into a trusted partner in the ecosystem that knows how to build, uh, that can execute, that does deliver, that does operate. Uh, and we can do it, you know, with our design that's been vetted and the flexibility of our design, we can do it for any of these hyperscalers plus, you know, the up-and-coming neo-clouds. Uh, so I feel like, Kenny, that we're just, you know, we're in a really good position, uh, and our business is just accelerating, and there just, you know, there's never been this amount of excitement inside of the company.

So for us, when I look at the next three years, and I do talk about the next three years, I think, you know, in the AI world, I jokingly refer to it as dog years, uh, because everything is moving so fast. So looking out three years, I do think we have reasonable visibility into three years. And for us, the goal is, and it's what we're doing already, scale construction, scale across geographies. And one of these is important. I know that like every interview I do feels like everyone wants to talk about AI bubble. And when you look at our company, the goal for us is over those next three years, build and deliver as much capacity as we can on long-term. So we're signing 15-year-plus contracts. That's typically 15 years plus renewals, long-term contracts with high-quality companies as the counterparty. So, you know, this just blows through the waves of bubble talk. You know, we're really focused on not kind of what I would say is FOMOing ourselves into bad deals because there's a ton of things that you can do out there right now because everybody's ready to do something. We're very focused on high-quality counterparties, long-term contracts, and over those three years, building and delivering as much AI infrastructure capacity as we can possibly do in the US and, you know, really being an integral player in the United States, winning in the AI race, our customers winning and lowering costs and making things more efficient. We do a lot of work around design to create efficiency because, you know, generally in tech, if you look back in history, you know, there's a cost curve in tech, and as tech gets adopted and gets more widespread and bigger scale, you know, costs come down. We want to be a leader in driving costs down for our customers for AI functionality and AI applications to be much, much more widespread and more economical.

So, Ken, if you look at our business right now, so just what we've contracted, what we've contracted, and we've stated this goal publicly. Our goal is to get to a billion dollars of net operating income, standard data center industry metric, a billion dollars of contracted net operating income. And we're over halfway there. So we're 500 million of contracted net operating income. If we as a company, if we don't sign another contract over the next 18 months, you'll see our revenue ramp up significantly and our net operating income ramp up significantly as we bring just what we've contracted online. Now, we've already said that, you know, we're in advanced stage negotiations for one for our Harwood campus. That'll get us, you know, 75, 80% to where we're going. Uh, and then, you know, we expect to have more in the future. So when we look at ours, it's get this locked in, and you just are going to see these, and it's going to come kind of a stair function. So you saw our revenue up pretty significantly last quarter. We reported last week, we guided to another, you know, significant sequential increase in the current quarter, which is the November quarter. But you're going to see these big step-ups because I just want everyone to remember that our business is we spend a lot of money on capex to build these buildings, and then they turn on, you know, and you get this big revenue jump up when they turn on. So it's not going to be linear. It's going to be stair steps for our business. But we have locked in, you know, that 500-plus million of NOI. And, you know, I think we're well on the way to our goal of that five-year goal that I think we can kind of significantly accelerate that five-year goal, but that's the stated goal for us. And then where can we go beyond that? But it gives us tremendous visibility for a long period of time in our business to have these long-term contracts with high-quality offtakers.

So when we just look at the two that we've talked about already. So our Ellendale campus, Claris Forge One, uh, we have 400 megawatts under construction there. 100 megawatts starts to go live this month, uh, until the, again, back to kind of the stair step up in revenue and earnings. Uh, and but that campus goes to right now a total of 1.4 gigawatts over time over the next, you know, call it three or four years and take us that to build it as well. So you have 1.4 gigawatts at that campus. Uh, we have a little over a gigawatt we think the expansion possibility is for Harwood. Uh, and then really every campus that we're looking at, what we're seeing from a demand perspective is the customers that are coming to us are how fast can I get 200 megawatts and I need it on a campus that can scale at least to a gigawatt. And so I've mentioned two others beyond that. You know, that kind of easily folds into that 4 gigawatt. So, uh, the Polaris one, and then you got Polaris 2. You got Polaris Forge One, Polaris Forge 2, and then two others that we haven't talked about other than what I've said. So we haven't really announced, you know, the name or the location of those sites. You do have two others. That's pretty active that we're developing.