Applied Digital Stock

Good afternoon, and welcome to Applied Digital's Fiscal First Quarter 2027 Conference Call. My name is Pascal Berman, and I will be your operator today.

Before this call, Applied Digital issued its financial results for the fiscal first quarter ended August 31, 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's Chairman and CEO, Wes Cummins; and CFO, Saidal Mohmand. Following their remarks, we will open the call for discussions. Before we begin, Matt Glover from Gateway Group will make a brief introductory statement. Mr. Glover, you may begin.

Thank you, Pascal. Hello, everyone, and welcome to Applied Digital's Fiscal First Quarter 2027 Conference Call. Before management begins remarks, we would like to remind everyone that some statements we're 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 the forward-looking statements. For more detailed risks and uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in 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 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 to Applied Digital's SEC filings for free by visiting the SEC website at www.sec.gov. I would also like to remind everyone that the call is being recorded and made available for replay via in the Investor Relations section of Applied Digital's website.

I'll turn the call over to Applied Digital's Chairman and CEO, Wes Cummins, Wes?

Thanks, Matt, and good afternoon, everyone. Thank you for joining our Fiscal First Quarter 2027 Earnings Conference Call. As we begin fiscal 2027, I'd like to provide an update on our vision, our strategy and most importantly, our execution. Today, we have approximately $36 billion in contracted revenue across 5 campuses, 3 states and 2 very different geographic regions of the country. Our focus is on converting our contracted portfolio in profitable growth while continuing to selectively pursue new opportunities across our expansive land and power portfolios.

During the past year, success was primarily measured by aggressively growing our portfolio of campuses and our total contracted value associated with those campuses. Over the near to medium term, we expect to continue expanding our existing campuses and selectively adding new locations with a strong focus on execution and bringing contracted capacity online for our customers. Over the next 12 months, we expect to place over 600 megawatts into service versus the 250 megawatts over the past 12 months.

Let me turn to our vision and strategy, which remains unchanged. Our goal is to become the category leader in design, build, deployment and operation of our purpose-built AI factories. Achieving that requires us to balance several things well. Selecting the right customers, matching those customers with a funding strategy that optimizes our financial returns and executing consistently on our bills. We believe we are well positioned to do all 3. We have a proprietary and proven data center design that has gained acceptance by the leading top-tier hyperscalers. We have a well-honed supply chain, deep energy partnerships and a demonstrated ability to deliver on our lease commitments.

Importantly, our data center design is different from many of our competitors. Some competitors' facilities are designed primarily around the typical 5- to 6-year life cycle of the GPU. We've taken a different approach and are building for the long term with 30-plus year horizons. We believe our AI factories are designed to be substantially more adaptable as compute architectures, network configurations and electrical and mechanical requirements evolve over time. Our design and our investment strategy are based on a set of core principles intended to extend the useful life of our AI factories and campuses well beyond any single generation of compute architecture. That matters because we believe the customer signing long-term leases with us expect these facilities to continue serving their needs well beyond the initial lease term. As a result, we believe our design and build strategy, together with our franchise model are highly differentiated and will generate outsized returns for our stockholders over the long term.

Our primary focus remains straightforward, build large, sustainable AI factory campuses and signed durable, high-quality long-term contracts. We target take-or-pay contracts of at least 15 years with proven Tier 1 investment-grade hyperscalers that are leaders in the AI industry and are well positioned to convert their investment into sustainable and profitable growth. We view our customers' ability to convert their AI investments into durable and sustainable earnings is an important metric as we make decisions on who we will build for. This is a relatively narrow group of customers who represent enormous demand and significant long-term spending potential. These customers have told us that they value our quality of design, the quality of our bills and the strength of our world-class team.

In addition to signing new contracts, one of our priorities is to continue to expanding our existing campuses. We also see opportunity to capture premium pricing as demand grows and we realize the economies of scale inherent in large AI campus developments. We have continued to make progress on expansion opportunities with our existing customers while also advancing discussions around additional campuses. We currently expect approximately 250 megawatts of expansion leases to be executed by calendar year-end of materially higher pricing compared to prior leases. As we continue to expand our existing campuses and seek to lock in premium pricing, we believe these campuses contain significant and underappreciated embedded value. We expect that value to grow over time as we execute against our contract portfolio and focus on delivering outsized long-term returns to our stockholders.

I'd like now to turn to our execution in North Dakota where we are currently building multiple AI factories across 3 campuses. North Dakota is our largest operating region and remains core to our strategy. We have repeatedly said its low cost of power and abundant energy resources, low population density and favorable climate make it one of the most compelling regions in North America for large-scale AI factory development. We expect additional Tier 1 hyperscalers to recognize those advantages over time. This is also the place where we have made the majority of our investments to date [ bolt ] in the campuses and the campuses we are building and in the communities with which we have partnered.

Power remains the single largest gating factor in our industry, and North Dakota is one of the few regions where we believe new generation can be added at meaningful scale. Speaking to that scale, we recently took a step a significant step in expanding our power position in North Dakota by entering into a long-term power purchase agreement with Base Electron, an independent power producer in which we hold an approximate 10% equity stake. The agreement covers an approximately 1,200 megawatt natural gas facility that Base Electron is developing in Center North Dakota adjacent to our Polaris Forge 3 campus with deliveries expected to begin in 2030. This is exactly the kind of outcome our model is well produce. While many operators are waiting in interconnection [ cues ] for capacity, they do not control, we are contracting for dedicated generation at the scale of our campuses with an agreement that can follow our tenants and a time line aligned with our future development needs.

We believe this dedicated supply substantially strengthens our ability to expand our North Dakota campus on our own time line rather than the grids and gives us greater visibility into the power resources that will support our future growth in the region.

To put the pace of our execution North Dakota in perspective, we signed our first lease with CoreWeave in May of 2025 for our first 2 buildings at Polaris Forge 1 the first of which was then under construction. By the end of calendar year 2025, the first building was fully operational, capable of sorting more than 40,000 liquid cooled NVIDIA GV-300. The second building, which broke ground in summer 2025 became operational approximately 1 year later. As of today, we have achieved full ready-for-service or RFS across our first 2 buildings at our Polaris Forge 1 campus. With our third building progressing on schedule. The operational buildings encompass 10 data halls and are supported by 250 megawatts of critical IT load. This represents a 150% increase in delivered capacity.

At [ land ] alone, we believe we are substantially ahead of our closest competitors in delivered capacity. And with the expected initial operation of our Harwood North Dakota campus, we anticipate having 300 megawatts of critical -- total critical IT online across North Dakota by the end of this calendar year. We believe this level of delivered capacity places us among the leading companies in our category regardless of geography.

In the United States, beyond North Dakota, we are developing campuses with substantial expansion potential in Louisiana and Alabama. These markets offer compelling characteristics, including access to power and strong state and local support for the build-out of national AI capacity. We view the presence of other top-tier hyperscalers developing large-scale AI campuses in these regions is further reinforcing their strategic importance. Our development activity in Louisiana and Alabama continue to progress, and we remain encouraged by the scale of customer demand across the region. We expect revenue contribution from this region of the country to begin in the first half of calendar year 2027.

We recently took our first steps outside the United States. While our focus remains firmly on executing our domestic projects, we believe select European markets may provide attractive opportunities to leverage our expertise and extend our platform over time as we continue to build Applied Digital into a category leader. As part of that early look, we signed an agreement for up to 1 gigawatt of potential power capacity in Finland. We view this as a measured first step. The agreement provides meaningful long-term potential while limiting our initial exposure and protecting downside risk while our near-term execution priorities remain centered on the United States.

Turning to our data center hosting business. Our 286 megawatts of capacity for Bitcoin mining across our 2 North Dakota sites continues to operate efficiently and provide steady high-margin revenue with minimal ongoing capital investment. And now to ChronoScale in which we have an approximately 96% ownership stake. [ Neo Clouds ] continue to represent one of the fastest-growing segments in this market. NVIDIA expects [ Neo clouds ] to exit this year with 8 gigawatts of installed capacity up from 3 gigawatts at the end of 2025. During the quarter, ChronoScale announced plans with Microsoft for a 50-megawatt AI compute deployment in North America featuring NVIDIA [ GB-300-NVL72 ] systems. This deployment is expected to significantly expand ChronoScale's existing business with a Tier 1 investment grade customer and represents another important step in scaling the platform. With recent new contracts, ChronoScale is on track to reach $1 billion of ARR in 2027 and momentum for additional contracts continues to build.

With that, I'll turn the call over to our CFO, Saidal Mohmand for a detailed review of the financials. Saidal?

Thank you, Wes, and good afternoon, everybody. This quarter, we completed the financing of our first campus. Earlier this year, we had only one remaining tranche of that to place for the final 150-megawatt building at Polaris Forge 1. In June, as we discussed on our last call, we closed that tranche, a $1.59 billion offering of 7% senior secured notes due 2031 issued at par. With the proceeds of the offering, we have funded construction on the third HPC building at Polaris Forge 1 and have repaid the $300 million bridge facility we put in place in May. With that, the full 400 megawatts of the CoreWeave campus of Polaris Forge 1 and the 200 megawatts of contracted capacity at Polaris Forge 2 are now fully funded.

The pricing of that deal is worth pointing now. Our first Polaris Forge 1 related notes placed last year carried a [ 9.25% ] coupon. This tranche priced at 7%. We believe the pricing reflects the credit enhancements we secured with CoreWeave earlier this year and growing investor confidence in our platform. We are earning that confidence by executing and delivering our buildings on track and on budget, and we expect the first [indiscernible] Polaris Forge 2 similarly be on track and on budget. This success supports market confidence in our ability to execute. It drives us to reach our previously stated goal to keep bringing our cost of capital down, first at the project level and over time by refinancing operating buildings into lower cost markets such as ABS.

We also added flexibility at the corporate level. In June, we upsized our revolving credit facility to $430 million of commitments with an additional $120 million accordion remaining available. Looking ahead, the next campuses we need to finance are Polaris Forge 3, Delta Forge 1 and Delta Forge 2. All of these are leased to the same Tier 1 investment-grade hyperscaler under 15-year take-or-pay leases. We believe this fact changes the financing conversations of potential creditors. Recall, Tier 1 investment-grade tenants open access to a deeper pool of capital, which we believe supports more attractive terms. We are following the same framework preferred equity from Macquarie Asset Management, followed by project level debt, which allows Applied Digital shareholders to retain a majority ownership stake in each site. We are already in active discussions with [indiscernible] lending institutions and given the credit quality of this customer, we have a high level of confidence in our ability to fund these campuses at favorable rates and terms.

Now let's turn to the quarter. As a reminder, ChronoScale's is included in our GAAP consolidated results, but is excluded from our non-GAAP financial measures. We reported total revenue of $341.9 million, up 322% from $80.9 million in the prior year quarter. Our HPC hosting business generated $262.6 million of revenue, consisting of [ $65.8 ] million of base rent, $183.5 million of tenant fit-out services and $13.3 million of tenant recoveries. Our data center hosting segment, which operates our 2 Bitcoin hosting sites generated $37.8 million in revenue, in line with the prior year quarter. We continue to be very pleased with this business which generated $13.3 million of operating profit in a single quarter on approximately $111.9 million of segment assets. Segment operating profit this quarter more than doubled from $6 million in the prior quarter, driven by a favorable power pricing.

ChronoScale's revenue was $41.5 million this quarter, including approximately $23 million of GPU hardware sales. Services and other cost of revenues was $245.7 million, primarily consisting of $176.1 million and tenant fit-out services performed within our HPC [ Ocean ] business, $22.4 million associated with ChronoScale's GPU hardware sales, $19.8 million in energy costs and $17.6 million in depreciation and amortization. Data center rental and other cost of revenues was $43.9 million, primarily due to $22.4 million in depreciation and amortization expense on our operational AI factories at our Polaris Forge 1 campus. [indiscernible] in expenses, which are reimbursable as tenant recoveries and $7.8 million in personnel and other operating costs supporting our facilities.

SG&A was $114.7 million this quarter. This was primarily due to $65.4 million in stock-based comp, $16 million of professional services mainly related to transactions, $15.6 million of personnel expenses and $4.8 million of lease expenses. One item worth calling out in the quarter. Our stock-based compensation expense included $41.3 million tied to onetime performance stock units. We also recorded $67.5 million of a noncash loss from the change in fair value of our Babcock and Wilcox warrants and the common stock investment. Both are mark-to-market every quarter as B&W stock price changes. Net loss from continuing operations attributable to common stockholders was $221 million or $0.76 per share. Adjusted net loss was $4.1 million or $0.01 per diluted share. Adjusted EBITDA was $64.4 million, up from $500,000 in the prior year quarter. Net operating income, or NOI, which is exclusive to our HPC hosting business was [ $58.8 ] million, representing an 89% margin.

From a balance sheet perspective, we believe we remain well positioned. We ended the quarter with approximately $2.9 billion in cash and cash equivalents plus $0.7 billion of restricted cash and approximately -- against approximately $6.4 billion of debt. Note, more than 80% of that principal does not come due until fiscal 2031 or later. Stockholders' equity was approximately $1.6 billion. Our goal remains to maintain one of the strongest balance sheets in the industry through the majority of the construction phase and will execute as such.

With that, I'll turn the call back over to Wes for closing remarks. Thank you.

Thank you, Saidal. Before we open the call for questions, I want to close on something that comes up in nearly every investor conversation we have today, the growing scrutiny around data center development across the country. We are seeing more local moratoriums, tighter selling requirements, longer permitting time lines and greater community resistance in certain markets. Some may view this as a risk to our industry. We see it differently. We believe it actually increases the strategic value of our campuses that are already powered operating and supported by their communities.

We think the reason is straightforward. At our campuses, once they're established we believe much of the hardest work has already been done. The land is controlled, power and interconnection are in place, permits have been secured, fiber, workforce and local supply chains have been established and perhaps most importantly to us, the community knows who we are and sees how we operate. This is why we think expanding at existing campuses is materially different than starting from scratch in a new market. We are already seeing this dynamic across our portfolio. Customers tell us they want additional capacity in places where they have confidence it can actually be delivered. As new data center development becomes more difficult in certain markets, we believe the scarcity value of established power and community supported campuses increases. We think that dynamic creates meaningful barriers to entry and can support stronger economics on expansions and renewals. And over the long term, higher terminal values for our assets.

Put simply, our view is that every new restriction elsewhere meets what we already own, harder to replicate and more valuable. This is also important when we think about the long-term value of these assets. Our leases have 15-year based terms, but the land, power, interconnection and community support behind these campuses have the capacity to last far longer than any single lease. When a base term ends when we see that a tenant with tens of thousands of GPUs deployed and a powered liquid cool campus faces a simple choice renew with us or try finding comparable power and approval somewhere else in a market where new sites are becoming increasingly difficult to approve.

We believe that makes renewals more likely support stronger renewal pricing and allows our tenants to continue refreshing their technology within the same facility for decades. This is why we believe in the durability of our leases and that the terminal value of these campuses is meaningfully higher than a traditional real estate model would have so. We also believe that the value should continue to grow as new supply becomes harder to build and [ locales ] have told us the reason our communities want us to expand is because we have worked hard to earn their trust.

Our approach has always been simple, do it the right way. In North Dakota, MDU's customers have saved about $45 million since our Ellendale project began because we use excess grid capacity and help spread fixed costs across more load. In Harwood, we paid for over $100 million of substation and grid upgrades ourselves, which benefit the entire community. And our model already meets the rate payer protection pledge, the Governor [ Armstrong ] joined alongside 21 other governors. Local leaders have also shared with us that the positive economic impact on these communities has been significant, the strong national attention, including coverage on Fox Business News and the all-in podcast.

Ellendale is a great example. Since we began our partnership with the community, local tax revenues expanded roughly tenfold from approximately $400,000 a year to nearly $4 million. These tax dollars are helping fund schools, infrastructure and emergency services. Construction workers on our sites are in 6-figure incomes on average than many of those dollars stay in the local economy. We were honored that [ Mid-Arica ] Economic Development Counsel recently named Polaris Forge 1 its Project of the Year, recognizing the campus for its economic impact, community investment, partnerships and technological innovation. That award belongs as much to the Ellendale community as it does to us. and we are incredibly grateful to everyone who continues to make Polaris Forge 1 possible.

We also invest directly in our local communities. Through Applied Digital Cares, we recently committed $350,000 across 5 organizations in Oliver County home to Polaris Forge 3. That includes funding the new Sheriff Deputy, a new life pack for the county ambulance repairs to 2 fire trucks, computers so every student in grade 7 to 12 at [ Center Statin ] has a device and repairs to the community center and pool in [indiscernible]. As Governor Armstrong put it, North Dakota wins when companies like Applied Digital choose to be more than an employer. We don't just build in communities we build with them and that is why they are welcoming us back to grow and we believe each of our campuses have significant embedded value that will continue to build over time.

In closing, we believe we're in the right place at the right time and doing this the right way. More than ever, we are in control of our own destiny across the full stack. We own the land, we design, we build and operate the AI factories. Through ChronoScale, we reach all the way to GPU compute and through partners like Base Electron, we have visibility into the power of the feeds at all. If demand continues on its current path, and we continue to execute and deliver for our customers and our communities as we've been doing. We believe we have the ability to grow our operating portfolio to 3.5 to 4 gigawatts by the end of calendar year 2030.

With that, operator, we're happy to open the call for questions.

[Operator Instructions] Your first question is from the line of Mike Grondahl with Northland Securities.

Applied clearly as a first mover advantage in North Dakota. Can you talk a little bit about the perception of North Dakota as a market and the receptivity you're seeing from hyperscalers?

Sure, Mike. Thanks for the question. So what we're seeing in North Dakota, obviously, we have 3 customers there ourselves already. We're aware of a self-build project at roughly 1 gigawatt self-build project from the Tier 1 hyperscalers in the state as well. And we've been speaking -- that is outside of the ones that we already have in the state and we're having multiple conversations with other the Tier 1 hyperscalers for additional capacity in the state of North Dakota.

The answer is I think all of them will eventually be there. And that's a state that has one of the most attractive things about the state beyond the power and the climate and the population density is they have a framework for how data centers are treated in the state. And so everyone knows exactly what to expect as you go through a process in that state. And as long as you do the development the right way, it's an extraordinarily attractive state to be in, and I think it's just going to become more so over the remainder of this year in '27 and '28.

Got it. And then maybe for Saidal, the bond market has been challenging to say the least. Can you talk about current options you're seeing for investment-grade hyperscaler debt funding?

Thanks for the question, Mike. And it's a great question. As you can recall, we completed the Polaris Forge 2 and the Polaris Forge 1 financings, which you could argue are not the same credit quality with great customers. They execute great, great tenants to have.

So when you think about the go-forward with Polaris Forge 3 and Delta Forge 1 and 2, given that it is in high investment-grade hyperscaler, there is multiple options beyond the high-yield bond market, which we have liked and we are -- we've been an issuer in with the past projects. So for instance, the project finance market is well open for high investment-grade offtakes, as well as there's some new innovations within the investment-grade bond market. So what we have seen, there's flexibility amongst various products that we can tap. Obviously, we weigh those and find a mix that works for our profile. But what we are focused on in a rate environment that can move around 50 to 100 basis points. One, we don't underwrite leases where a 100 basis point move would impact our economics really.

But then two, we focus then on terms where we can refinance in a year or 2 years with minimal penalties. So once that construction risk, which generally is anywhere from 25 to 100 basis points of construction risk premium on a debt instrument. Once we go past the construction space, we have the flexibility to lower our costs relatively quick into a more permanent financing. That is our focus. We're nimble and it's a great thing having a high investment-grade hyperscaler with multiple options to run at.

Your next question comes from the line of Nick Giles with B. Riley Securities.

Yes. Thanks, operator. Congrats on the recent execution. I just wanted to ask about this Finland announcement. I think in the release, you highlighted limited initial exposure. And I was just hoping you could expand on that point, what kind of options are embedded in the current agreement and how you kind of see the commercial side of that site progressing?

Sure, Nick. Thanks. So the for the site, we purchased the site and then we have the option. So the initial power of that site comes in 2028 and then additional power, which is typical of almost any site that's going to scale [ 2 ] gigawatt, there's breakpoints where get approvals for additional power ads. There's pretty good line of sight to that. But then there would be additional payments at that point, but there's an off-ramp for us prior to those additional payments. So it's a pretty minimal amount for us to have this kind of exposure in a market that we think has become pretty attractive as far as the European market goes. And we've spent the last, I don't know, 12 months looking into that market. And we've looked at probably 30 to 40 different sites, and we landed on this one. We think it's a good site and it's kind of coincided nicely to a point where our existing and the other potential customers that we talk to sort of asking more in the last 4 months about European capacity.

So those things kind of go pretty well together, but it gives us a lot of optionality to the upside with pretty minimal financial risk.

Got it. And maybe just switching gears. In your prepared remarks, I think you really highlighted the longevity of these data center campuses today and I heard it as kind of a change in tone or maybe highlighting that more so than you have in the past. So I was just wondering if there's -- what were -- the genesis of those comments. I mean, obviously, GPU refresh cycles continue to be part of the discussion here. But yes, anything that you'd highlight from that perspective, I'd appreciate.

Sure, Nick. So a couple of things. We've talked since we started the design that we use today, right, we why call it our fourth generation data center design. With this design, we made it extraordinarily flexible with all of the learnings we had gathered through the processes that we've gone through with all of the hyperscalers. So 1 one flexible enough to work for any of the hyperscalers. But two, we make it flexible to future proof of as much as possible. And some of that comes into how we do the electrical, some of it in the cooling. A big part of it is the amount of space that we put inside of the data hall so that the trend is for higher power densities, and that's the foreseeable future. But if it goes to much lower power densities, we have the space inside of the facility to accommodate that as well. So we just built maximum flexibility. We've talked about this for a few years now.

But what I'm seeing in the market is a lot of things happening that are just hyper-focused on how quickly something can come online and doing close to unnatural act, I would say, to just put capacity online as quickly as possible. And while I'm not saying that's a good or a bad business strategy, I just want to differentiate from what we're doing, which is a much more longer-term view of how we build the data centers so that they're very long-term assets. You can never fully know what the future brings, but that's the view that we have as a company. That's how we design them. That's how we design them from a redundancy from both a power and cooling perspective, because we could build a slightly cheaper product. We do have to make sure that we can operate this product for at least 15 years on our current leases within the SLAs, but we want to operate them longer than that. But it's just really more insight into kind of the thought process and the longer-term thinking behind our data center design and building the operations versus some of the other things that we're seeing just overall going on in the market.

Your next question is from the line of Derrick Whitfield with Texas Capital.

Good afternoon, and congrats on your continued commercial and execution progress. Wes, I wanted to start with the 1.3 gigawatts of U.S. capacity that you're currently marketing. During the last call, you noted you're experiencing a healthy market at present, and would expect base rates to improve on a risk-adjusted basis. How would you characterize what you're seeing in the market today since really the last call? Evenly everything that's happening from a regulatory moratorium perspective is playing your benefit, but would just let your perspective and color on that.

Sure. So from a demand perspective in the market we're seeing no -- I wouldn't say big change either way. I mean it feels like we're at [ MAX ]. I've thought of that kind of the last 2 years and it continues to notch up but demand remains extremely robust for right now. People are still pushing for things they can get in 2027 really almost everything in '27 should be fairly contracted at this point. We'll start moving into '28 and '29. We have stuff is contracted into '28 but we're seeing a lot of demand for that as well. And really, these locations, like we keep pointing to North Dakota, but Louisiana is a great market for us as well. And so is Alabama we've got a great experience there with the community.

And the certainty of being able to continue to get the permits of existing power that we have in campus. But the supply chain for us to continue to execute. I would just reiterate those comments about we fully expect to do some lease expansion and new campuses at materially higher rates versus what we signed our last contracts for in the first half of 2026.

Very good. And then for my follow-up, I wanted to come back to Finland. While I realize you're early in the process with the emerging European AI market, I wanted to ask to give us [ Bill ] on how build costs might compare versus the U.S. as you think about the labor, building and equipment supplies?

Yes. So we've actually went through that exercise and the build cost is we expect it to be very similar on a dollars basis versus euro. And so -- and by that, I mean, if we converted the euros back, it would be roughly the same dollars. What I would expect there is a more elongated delivery time line in Europe, just kind of how it works versus what we do here in the U.S. the goal is to replicate the same thing from the supply chain and design and build perspective in the markets when we enter Europe versus year, but we've done that work and expect a very similar cost.

Your next question comes from the line of Rob Brown with Lake Street Capital Markets.

Good afternoon. Congratulations on all the progress. Just follow a little bit more on the North Dakota and the ability to expand there and how Base Electron fits into that given your PPA? How does that sort of start to enable the expansion there and what years are most affected by that?

Sure. So we start to think about 23, Rob, primarily on Base Electrons. So Base Electrons building the 1.2 gigawatts in center expect Base Electron to build a significant amount of capacity on the eastern side of the state as well. We'll help campus expansion over in the Harwood campus and then potentially in the middle part of the state around James town. So there's a new WBI pipeline that WBI is owned by MDU that they approved and are moving forward with the pipeline. It's been in the works for years. And so we'll be an offtaker of gas at Center and at Harwood for certain and possibly in Jamestown.

The way we have worked that with the gas pipeline is to have almost unlimited capacity for expansion in Center. It's going to be the closest location to the beginning of the pipeline, and then these pipelines typically taper the further they go out. So to have a really big expansion capability at Center. This will all be front of the meter grid connected, but also expanded different locations across the state.

From an equipment perspective, we're looking at procured equipment. It's roughly 2.4, 2.5 gigawatts of generation capacity there already but we expect it to go significantly larger given the demand that we're seeing in the future there in North Dakota.

Okay. And then just a quick follow-up on the supply chain work you've done. You've executed very well on plan. How have you mitigated any supply chain constraints where do you think in terms of supply chain?

Sure. I mean supply chain, I think, is tight across the industry and some components more so than others. The biggest we've talked about this before from a supply chain perspective. The biggest thing we did was almost 2 years ago, locked in key components in the supply chain with certain of our suppliers. And in some of those instances, we actually purchased full factory capacity output from certain factories for, I believe, a 4-year time frame to make sure that we had those key components locked in. So that's been a big help to us. We're pushing to upsize upside that amount that we can take because we think as we go out into '27 and '28 and '29, we're going to need more supply chain to continue to build to the demand that we're seeing in the marketplace.

But that was the key piece for us is putting those relationships, those key relationships in place quite some time ago to make sure that we are locked into our places in the supply chain for key components.

Your next question is from the line of George Sutton with Craig Hallum.

Wes, you used the term selective when you were talking about the future build. I want to make sure I understand the term selective you're referring to. I think you're referring to the quality of folks that you'll work with versus the amount of capacity that you'll ultimately be able to build? Is that a fair conclusion?

Yes. That's right, George. The company today is in a different place versus what it was a year ago. And we have a limited amount of capacity to build. And so we're being more selective with the customers that we'll build for and you're right on the credit quality aspect of that.

So relative to the 250 megawatts of expansion, you basically define them as likely coming at premium pricing. Can you just give us a sense of how you're defining premium pricing? How broad is that statement versus the base rent, what might else be involved?

Well, we're pushing for on that, George, we're not to get into too much detail, but we've talked about this before, which is potentially longer duration and higher -- significantly higher lease rates don't to pin that, but as you can think of definitely north of up 15%-plus increases on the lease rate, but also could include longer duration on the leases. That's how we're defining that.

Your next question comes from the line of Darren Aftahi with Lucid Capital Markets.

Congrats on the progress. Just on Finland, I had a couple of points of clarification I wanted to get answered. So is there any way, Wes, you can elaborate on how much power initially is going to be at the site? Second point, what kind of community or governmental risk is there in that region either kind of near term or longer term? And then lastly, was the site sort of procured on an absolute basis? Or is this sort of procured with a specific customer or customer [indiscernible] in mind?

Sure. So we view the location that we found in Finland. It felt a lot like the communities that we build in, in North Dakota. So there's a really positive receptivity from a local level on the community level. The country as a whole has been fairly receptive to data center. So we really focused on that for our to make this decision on the site plus the land availability, the fiber, this site happens to be about 30 kilometers from a self-build of one of the large hyperscalers. And then as far as the staging of the power, the first 100 megawatts is available in 2028 and it continues to ramp up through 2031 to the full gigawatt.

Your next question comes from the line of John Todaro with Needham & Company.

As we look after the 4 gigawatts or so by year-end 2030, I guess just what steps do you need to take to ensure you kind of get there. How much is reliant on Base Electron? And then also in Europe, too, it seems like some of that's going to come a little bit later in 2031, as you said. So is there other sites in your effect you need to get to as well?

Yes. So thanks, John. And I'll just clarify, I saw how you went right to the 4 gigawatts, it was 3.5 to 4 gigawatts that we talked about by the end of 2030. So that's really from a power perspective, we have power in the power pipeline. Some of that includes the additional capacity from Base Electron that comes on in 2030. But from a power perspective, we believe we have that in the pipeline. This was really an exercise around how much more can we ramp up our build and delivery. And if you kind of work through the math, for us internally. If you want to get to the high end of that number, to get to the high end of that number, that really has us delivering about 1 gigawatt per year in '29 and '30, right? So that kind of if you take a bridge to the end of calendar year '28, getting to around 2 gigawatts. We, as a company, think that, that kind of the level we can ramp our construction and delivery up to.

So it's really those 2 things combined, but much more so on the ability and capacity to do construction and deliver for customers.

Okay. Understood. That's helpful. And then a follow-up just on ChronoScale, signed the 50 megawatts. Obviously, it seems like you could start ramping quite a bit from here. Just wondering kind of as we look out a few years, could we almost expect ChronoScale to be at 400 megawatts or so in Applied sites, almost like what CoreWeave did or less so just curious if ChronoScale [indiscernible] downline as they were?

Yes. So thanks for that question. That's a great question. So when we look at that right now and you've seen over the coming month or so, the strategy we're using data center capacity of ChronoScale is outside of the large-scale Applied Digital sites. Those sites we contract to what we have said, which is Tier 1 investment-grade hyperscalers. The ability to secure other capacity, we have found a nice strategy for securing more near-term grid capacity that isn't it that scale at a single location, but at multiple locations, but I think you could see ChronoScale moving up to multiple hundreds of megawatts in capacity online outside the core Applied Digital data center builds with over '27 and '28.

But I want to bifurcate this where it is 2-step strategies where Applied Digital strategy is it remains the same, build for high-quality tenants at large scale. And then we're using our knowledge base to help ChronoScale secure capacity at sites that are more -- like you see the first Microsoft side of 50 megawatts that are kind of 50 to 100-megawatt sites that have been passed over because they don't scale to the gigawatt side or the multi-hundred megawatt side. But there's a lot of those around the country that are grid-tied that we think we can help them bring online over the next 2 or 3 years, a significant amount actually in 2027. So that's really -- I appreciate you letting me make that clarification around the strategy.

Your next question comes from the line of Michael Donovan with Compass Point.

Is it fair to see your existing Macquarie relationship would extend to Finland?

So CoreWeave has been -- I couldn't have asked for better.

Macquarie, Macquarie.

Macquarie, I thought I said CoreWeave I was going to talk about the partnership there. Macquarie is North America that partnership is in North America. I'm not saying we couldn't have something similar, but the current agreement we have is just North America.

Appreciate that. And if you had a big interest in CoreWeave, I will not stop you there. But...

[indiscernible] CoreWeave that's what I have for that.

Excellent. And then to follow up on Nick's question. As [ Infra ] becomes a larger share of customer workloads, are you seeing changes in the mix of GPUs, CPU, storage requirements? And if so, are any of those changes contributing to the premium lease rates that you mentioned or expecting?

So I'll tell you where we're seeing a change. So we're seeing a change over the past 18 months on the tenant fit out or the technical fit out TFO. And what we're seeing in -- because we execute that in almost actually every lease that we have, we execute that. The TFO is becoming much more flexible than what I would say. So if you roll back a year ago or especially 18 months ago, the TFO, we would know exactly what was going into our data center based on the TFO. And now we can't really tell. And the become a larger dollar amount for our customers, but I think they're building a significant amount of flexibility inside the facilities to be able to accommodate whatever workloads they want to deploy and that between -- we'd always talk it like GPU TPU, but I think it's also in the amount of CPU mix, the storage, all of those pieces, network topology. But that's really where we're seeing that.

Appreciate that. And then one more, if I may. You mentioned economies of scale for your current builds. Are there any circumstances where you would consider smaller modular build-outs?

I think that's a great place for ChronoScale. Now just to clarify on that, are you talking about like the containerized solutions that people are talking about for edge compute or just like a 20, 50, 100-megawatt containerized solution.

More in line with 20 to 50, not so much containerized one, but or like small [indiscernible].

We're looking at those. That's one of the ways we're securing data center capacity at ChronoScale is those types of modular builds on a smaller scale.

This concludes our Q&A. I will now turn the call back to Wes Cummins for closing remarks.

Thanks, everyone, for joining our call, and we'll look forward to speaking to you again in January.

This concludes today's call. Thank you for attending. You may now disconnect.

Good afternoon, and welcome to Applied Digital's Fiscal Fourth Quarter 2026 Conference Call. My name is Pascal Berman, and I will be your operator today.

Before this call, Applied Digital issued its financial results for the fiscal fourth quarter ended May 31, 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's 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.

Thank you, operator. Hello, everyone, and welcome to Applied Digital's Fiscal Fourth Quarter 2026 Conference Call. Before management begins formal remarks, we'd like to remind everyone that some statements we are making today may be considered forward-looking statements under the 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 the 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's SEC filings for free by visiting the SEC website at www.sec.gov. I would like to also remind everyone that this call is being recorded and made available for replay via link in the IR section of Applied Digital's website.

Now I'd like to turn the call over to Applied Digital's Chairman and CEO, Wes Cummins. Wes?

Thanks, Matt, and good afternoon, everyone. Thank you for joining our fiscal fourth quarter 2026 earnings conference call. This was a defining quarter for Applied Digital, capping a transformational year for the company. We signed leases for 5 campuses, including 3 in just the past 4 months. We created $36 billion of total contracted long-term lease value and approximately $20 billion of that in the last quarter. This represents a 125% increase in contracted lease value underpinned by 1.41 gigawatts of contracted critical IT load for all campuses.

As previously mentioned, we recently signed 3 new campuses, Delta Forge 1, Polaris Forge 3 and Delta Forge 2 with the same high investment-grade hyperscaler. These campuses span 3 states across 2 distinct regions of the country. Delta Forge 1 and Polaris Forge 3 are each approximately $7.5 billion in base term contracted lease revenue and Delta Forge 2 adds approximately $5.2 billion, together representing approximately $20 billion in long-term contracted revenue from a single world-class customer.

Over the course of the year, we delivered 100 megawatts of Polaris Forge 1 on time and on budget. We also achieved strong financial results, which you will hear about in a few moments. Just as importantly, we deepened our partnerships with local communities, building trust, making lasting investments and helping improve residents' quality of life. We are currently constructing 5 multibillion-dollar AI factory campuses for 3 separate hyperscalers at a scale we believe speaks both to the quality of our platform and to the trust these customers place in our ability to execute. We achieved this kind of scale by leveraging our proprietary data center design and world-class supply chain to efficiently replicate our builds across a diverse set of geographies and climate conditions.

At the center of our approach is what we call our franchise model. When we begin development at a new campus, we established the same core group of approximately 15 to 20 leadership positions, each reporting directly to headquarters. This repeatable operating structure, combined with the strength of our supply chain and our status as an approved supplier with every major hyperscaler positions us to deliver a platform that is both differentiated and scalable. We believe this model is one of the key reasons we have emerged as a clear leader in the industry.

Together, we believe these capabilities provide a strong foundation for creating significant long-term value to our customers, shareholders and communities we serve. I'm even more excited about our pipeline beyond the 1.41 gigawatts currently under construction, particularly as rental rates have moved higher over the past 6 months. We are actively marketing an additional 1.7 gigawatts across multiple states and expect this new capacity to command higher pricing. We're seeing demand not only for entirely new campuses, but also for additional capacity at our existing locations. We are currently in advanced negotiations with 2 existing investment-grade customers to finalize leases associated with their respective expansion options for approximately 100 megawatts and 150 megawatts at these locations.

We expect these expansion leases to be executed on substantially the same terms as the customers' current lease agreements, but at materially higher lease rates than the existing leases and possibly longer duration. If executed, these leases would bring our total capacity to 1.66 gigawatts and over $6 billion of additional contracted revenue based on existing rates and duration. We expect the ultimate amount to be even greater, reflecting the anticipated higher rates and potentially longer duration. Importantly, we believe the opportunity extends beyond simply adding contracted megawatts. As we continue to expand our platform, we see an opportunity to increase operating leverage through premium pricing as well as further diversifying our customer base across both our existing and future campuses.

As it relates to our power pipeline, I'm especially excited about our strategy and our work with Base Electron, an independent power producer collaborating with Babcock & Wilcox for regional utilities and regional utilities to develop roughly 1.2 gigawatts of front-of-the-meter natural gas-fired generation in the Dakotas. We're seeking to position our shareholders to benefit from Base Electron's success as we currently own approximately 10% of the company. However, we believe that even more compelling opportunity is the power itself, which is the single most valuable and constrained resource in our industry. This generation is expected to unlock expansion at existing campuses, enable the development of new ones and deepen our access to one of the country's most advantaged energy regions.

North Dakota's Bakken Shale is among the most abundant low-cost energy sources in the United States. Combined with the region's natively cool climate and business-friendly environment, we believe the region is exceptionally well suited for data center development. Our core belief is that this combination creates a significant competitive advantage and a barrier to entry that is very difficult to replicate. We believe that if we continue to build the power that hyperscalers will continue to come to our regions. Turning to execution. Last fall, we delivered our first 100 megawatts at Polaris Forge 1 on time and just recently, we delivered 75 additional megawatts at the same campus, again, on schedule.

On-time delivery is a meaningful differentiator in the industry, and we strongly believe our track record sets us apart from our competitors. Industry data shows roughly 90% of industry-wide projects costing more than $1 billion are delivered late or over budget. We are proud to be among the remaining 10% category and are committed to maintaining that performance. Today, all of our construction projects are on time and on budget. Turning to our data center hosting business. This segment provides energized space for Bitcoin mining across our 2 sites in North Dakota. It continues to perform well and remains the highest return on asset business in our portfolio.

Importantly, we are paid based on the data center capacity provided to our customers. So as long as they are mining, we are paid regardless of where the price of Bitcoin trades, which makes this a steady high-margin source of cash flow. Turning to ChronoScale. During the quarter, we completed the separation of our cloud business, which began trading on NASDAQ under the ticker CHRN in early May. Applied Digital currently holds 96% ownership, so our shareholders continue to participate in the upside of that business as it seeks to scale independently as a dedicated accelerated compute platform.

ChronoScale has already made meaningful progress building out its leadership team, most notably the appoint of Raj as Chief Technology Officer. Raj joins after more than 13 years at Tesla, where he served as Vice President reporting directly to Elon Musk and led a broad portfolio spanning AI infrastructure and one of the largest GPU clusters in the world. ChronoScale also named Florence Lamb, who brings more than 20 years of scaling global cloud and AI platforms at companies, including Supermicro as Chief Product Officer. We believe attracting talent of this caliber underscores the scale of the opportunity in front of ChronoScale as an independent company.

During the quarter, ChronoScale extended the customer contract at higher pricing for its deployed fleet of GPUs. The company also began demonstrating its secure enterprise environment to select partners. The company's platform allows enterprises to deploy AI in a secure, controlled environment regardless of whether the data resides on-premise or at one of several large cloud providers. The platform supports a multitude of AI models, allowing partners to choose which is best for their enterprise. In addition to the enterprise cloud, ChronoScale is also pursuing multiple large reserve contract opportunities that if secured on favorable terms will allow the company to deploy hundreds of megawatts of compute on a take-or-pay long-term contract.

With that, I'll turn the call over to our CFO, Saidal Mohmand, for a detailed review of the financials. Saidal?

Thank you, Wes. Before I turn to the quarter, I want to spend a moment on financing because our team did a tremendous amount of work over the past several months to secure lower cost of capital. During and shortly after the quarter, we closed our $2.15 billion of 6.75% senior secured notes to fund our Polaris Forge 2 campus. We closed a $300 million senior secured bridge facility led by Goldman Sachs. We secured a revolving credit facility of up to $550 million and closed our $1.59 billion 7% senior secured notes to fund our fourth building at the Polaris Forge 1 campus.

Continuing to drive down our overall cost of capital remains one of my highest priorities. A key driver of that progress has been our work with CoreWeave at Polaris Forge 1. By restructuring the leases at that campus through a special purpose vehicle and by establishing a memorandum of understanding around the credit supporting our debt financing, we were able to place our recent $1.5 billion notes at 7%, 225 basis points inside our first placement, which priced at roughly 9.25%. Just as encouraging, that placement, the notes on our initial 2 HPC buildings at Polaris Forge 1 is now trading at a meaningful tighter spread in the secondary market, which we believe positions us well to refinance that debt at a lower cost in the future.

With these transactions, we have now secured the financing needs for the full 400 megawatts at Polaris Forge I and the 200 megawatts of Polaris Forge 2. Looking ahead, we expect the financing for our next 3 campuses to be relatively straightforward. Under our arrangement with Macquarie, they fund 3/4 of the equity. And because these campuses are leased to a high investment-grade hyperscaler, we anticipate favorable rates on our future debt placements. Additionally, signing direct investment-grade hyperscaler leases allows us to maintain a favorable cost of capital through the entire lease term as opposed to indirect or backstop leases, which face uncertainty after the initial 5-year tenor. Taken together, this is a financing model we believe is both repeatable and increasingly efficient as our cost of capital continues to improve.

Now let's turn to the quarter. I'll cover the fourth quarter numbers in my comments. Please note that unless otherwise specified, these figures reflect only our continuing operations. In the fourth quarter, total revenues were $258.7 million with $208.2 million of services revenue and $50.6 million of data center rental and other revenue. Overall, total revenues increased 407% from the comparative prior quarter. For the quarter, our HPC hosting business generated $203 million in revenue, consisting of $152.4 million related to tenant fit-out services, $44.1 million related to base rent and $6.5 million related to tenant recoveries. The data center hosting segment, which operates our crypto data centers, had another strong quarter with $37.3 million in revenue, materially consistent year-over-year with stable operating conditions. We are very pleased with this business, which continues to deliver the highest return on assets in the company, generating $12.5 million in segment operating profit in just 1 quarter on $113.8 million in reported assets.

Because we own the majority of ChronoScale, we consolidated its $18.8 million of revenues for this quarter. As ChronoScale is pursuing a separate strategy from our core business and now operates as a separate publicly traded company, we have excluded this segment from our non-GAAP results. Services cost of revenues increased by $138.9 million to $208.2 million this quarter. The increase was driven primarily by the $145.6 million in tenant fit-out services performed within our HPC hosting business. Data center rental and other cost of revenues were $25.1 million for the fourth quarter, primarily driven by approximately $14.1 million in depreciation and amortization associated with our first HPC data center at Polaris Forge 1, $6.4 million in expenses, which are reimbursable as tenant recoveries and $4.5 million in personnel and other operating costs supporting our facilities.

SG&A expense increased $124.3 million to $165.3 million this quarter. The increase was primarily driven by $116.8 million in stock-based compensation due to accelerated vesting of certain employee stock awards as well as grant activity associated with the separation of the cloud service business and an increase in headcount as well as $7.3 million in personnel expenses also related to the increase in headcount.

One item worth calling out this quarter. Our stock-based compensation included $47.9 million tied to onetime awards connected to the ChronoScale transaction and $65.1 million tied to performance stock units. Net loss attributable to common shareholders was $111.6 million or $0.39 per share. Adjusted net income was $12.9 million or $0.04 per diluted share. Depreciation for the quarter was approximately $18.2 million. Adjusted EBITDA was $42.4 million, up from $1 million in the comparative prior quarter. Net operating income, or NOI, was $39.9 million, representing a 91% margin, and we define it as our HBC base rental revenue less our rental property operating expenses, property taxes and insurance expenses. From a balance sheet perspective, we believe we are very well positioned. We ended the quarter with $4.2 billion in cash, $5 billion in debt and approximately $1.7 billion in equity.

As you evaluate these results, keep in mind that our current financials on the HPC data center side primarily reflect only the initial 100 megawatts that are online and contributing during the quarter. Looking ahead, as we bring additional capacity online, investors should expect to see a significant step-up in our numbers over the coming quarters and years. We are currently building towards a 1.5 gigawatts of HPC AI infrastructure, and we expect this ramp will drive meaningful growth in revenue, EBITDA and NOI as those megawatts come into service.

Now I'll turn over the call to Wes for closing remarks.

Thank you, Sid. We're seeing the AI infrastructure build-out enter a powerful new phase. Hyperscalers are no longer just investing in AI infrastructure. They're accelerating their commitments at an unprecedented scale. U.S. technology companies have now committed to approximately $850 billion of data center lease obligations over the next several years, an increase of roughly $570 billion year-over-year, more than triple prior levels.

These are not forecasts. These are long-term contractual commitments backed by many of the world's largest technology companies with the largest and strongest balance sheets and credit ratings. AI infrastructure spending at the major hyperscalers is projected to reach approximately 3.2% of U.S. GDP in 2027, surpassing projected U.S. national defense spending for the first time. Taken together, these long-term commitments reinforce our conviction that we remain in the early stages of what we believe could be one of the largest infrastructure investment cycles in the modern economic history, and we believe Applied Digital is well positioned to capitalize on that opportunity.

As I wrap up, I would like to leave you with a few final thoughts. Building AI infrastructure at scale is incredibly complex. Balancing aggressive construction schedules, customer expectations, power infrastructure and community partnerships is no small task. Through it all, our guiding principles have remained remarkably simple, do it the right way. For our customers, that means delivering high-quality GPU-ready data center capacity on time. That commitment is reflected in both the customer relationships we're building and the industry recognition we've received. For our communities, it means being a trusted partner who creates lasting economic value.

From the beginning, we believed in building with our communities, not simply in them. We engaged early, listened often and strive to ensure every project leaves a lasting positive impact. The jobs, tax revenue and long-term investment we bring help strengthen local infrastructure, support schools, first responders and create opportunities that can be truly transformational for these communities. Our operations are delivering measurable benefits today. At Polaris Forge 1, our use of excess regional grid capacity has already returned more than $45 million in electricity credits to local ratepayers.

If you'd like to see our approach firsthand, I encourage you to watch our behind-the-build docuseries, where we share the town hall meetings and community conversations and an important part of every project we undertake. Finally, a year ago, we set a goal for $1 billion of net operating income within 5 years. We now expect to achieve that run rate goal a year from now or 3 years ahead of schedule. Our platform is now supported by approximately $36 billion of long-term contracted lease revenue.

More importantly, we believe the structure of our contracts, the majority being directly with investment-grade customers establish a durable earnings and cash flow foundation from which we can continue to expand as our customer demand continues to grow. We cannot overstate the competitive advantage our established footprint provides. Our current campuses have the ability to expand and in some cases, expand dramatically. We believe expansion on current campuses alone provides us visibility to expand to over 5 gigawatts of critical IT load through 2032.

Utilizing existing campus infrastructure will not only shorten economies -- not only shorten development timelines, but will improve returns via economies of scale and establishing regions of excellence. Our collaboration with Base Electron is intended to augment the power to support this expansion. We do expect to continue to add new campuses this year and next year, compounding the growth potential and diversification. Since our call this time last year, we've expanded from 1 campus to 5, increased contracted revenue from $7 billion to $36 billion and added over 1 gigawatt of capacity with investment-grade customers with over 80% of that leased to a high investment-grade customer. We have delivered significant capacity on time and on budget. We have also dramatically lowered our cost of capital. I'm extremely proud of our team and their accomplishments. Our opportunity is significant, but our focus remains unchanged: Execute with discipline, deliver for our customers and our communities and create long-term value for our shareholders.

With that, operator, we're happy to open the call for questions.

[Operator Instructions]

Your first question is from the line of Mike Grondahl with Northland Securities.

Some of the questions we've been getting lately really revolve around the 3 recent leases for 810 megawatts and the lower yields or yield development cost kind of in relation to your peers. Can you talk about Applied's strategy in signing those 3 leases?

Sure, Mike. So when we go back to the goal of what we have been seeking to achieve for the past 12 months, it was to put a solid foundation in place for Applied Digital, and we walked through this for many quarters. We signed CoreWeave first in an investment-grade hyperscaler. And after we signed CoreWeave, we made a commitment to get to 70% of our contracted lease revenue to investment-grade hyperscalers. And so that's been a big accomplishment for us. We signed 2 investment-grade hyperscalers. We're over 70% soon to be, I think we'll be close to 80%, 76% of that on investment grade. So we made that achievement. And what I would say about the yields, I think from a cost perspective, we're fairly conservative.

We want to set expectations that we can at least meet, if not beat. So from a margin and cost perspective, I think we're fairly conservative. From a pricing perspective, these discussions were going on for a significant amount of time. I do think the prices have increased, as I mentioned in the script. And I think you'll see that flow through for us on what we have in front of us. But I do think we're hitting on our lease return rates, I think if you comp the entire industry, now there's a very small portion of the industry that's public companies. But if you comp the entire industry and you look at companies that were doing leases of this scale with these types of customers directly, we would be right in the band, if not at the middle towards the higher end of that band of contracted lease rates, again, for these types of customers with this kind of duration and this kind of scale. And I think we'll be able to drive our financing costs significantly lower. But I think the important part, Mike, is we have a very solid foundation to get -- you can do the math and kind of walk through that we have about $2-plus billion of net operating income contracted on an annual basis at this point.

So we'll be able to grow from there, but with very solid customers. And when you look at how those returns flow through, and this is kind of how our team, myself and our team has thought about this from the beginning, when we enter this business, these businesses, whether they're public or in the private markets when they transact kind of go for 20 to 25x that NOI number. And so that's really what the goal was for us is to get into very solid leases and really good SLAs. I've talked about that a significant amount because lease yields over time really depend on your SLAs once you have the building operating. And I think we have those locked in from a contract perspective. So I'm really proud of the achievement there.

Got it. And then maybe a question for Sidal. Can you talk about your strategy around managing cost of capital really on both the debt and the equity side?

Yes. Great question. So one, I think, as Wes alluded to, the type of hyperscaler that we contract with, going direct with the end high-grade investment-grade hyperscaler, particularly at rates that are in the high end of the band where we see these types of leases transact and where our peers come to, that acts as a function that you can actually lower your cost to the initial if it's 15 years or even longer. So I think versus -- and I talked to in the transcript, some of these longer duration or shorter duration backstop leases where the guarantees run off after 5 years. So that's one portion of mitigating and creating a consistent return. But then if you think about it, we talked about our flywheel. And our flywheel really has 3 components.

So the first component, as Macquarie funds 3/4 of the equity, the first component comes from the Applied's balance sheet. So between our corporate cash flows, our low-cost revolver, which we recently secured, we can fund the initial portion at a very attractive cost. Our revolver currently is SOFR plus 225. But the MAM equity, I think, is one part where I think people tend to overlook and how that's an attractive form of capital. So Macquarie funds through their $5 billion JV with us, 3/4 of the equity that's required. If you look at the 1.8 MOIC in that -- for that transaction, it's roughly a mid-teens IRR throughout. Now if you compare that versus just common stock issuance, right, which can be highly dilutive if you think the current and past prices are extremely undervalued or even a more attractive option versus large convertible debt offerings, which is one popular form to plug in the equity. And I think looking at the convert, for instance, despite the convert being portrayed as a cheap cost of debt, there is disadvantage of having it in a large scale.

One, it's negative from a credit ratings perspective, which can negatively impact your cost of capital. And then also can create an overhang on the equity if you ever hit times of turbulence when you need to refinance it and it's truly treated as debt. So that's one thing. And if you look at the capped call math, too, right, the cost of capital on issuing equity when it's severely undervalued, or going to a convert can be well excess or north of 20%. So we think the MAM is a programmatic consistent approach for funding the majority of the equity. And then the third portion of the flywheel, which we have is effectively the site-specific debt. So the first form is through construction. We tap it predominantly through the project bond markets as of today. The project finance markets have also been available, which is through the banks, generally low cost. And then what you'll see 2 years for the bond or if it's within a -- as RFS occurs for the project finance market, you can roll into more of a permanent financing, be it CMBS, ABS or still the 144A IG market. And with that, your construction cost and your cost of financing decreases, right, as construction risk is taken off the table.

So we approach it from, I think, 3 different forms and all through managing leverage at a very conservative level. So if you take an 80% LTC and what we need to build out for our 1.4 gigs that's contracted and take our average annualized NOI of $2 billion, you're sub 7x levered, which is well below comps in the -- particularly in the private markets, which operate in excess of 10 turns of leverage. So that's how we handle financing, and we try to do it in a conservative, programmatic, stable manner.

Your next question comes from the line of Nick Giles with B. Riley Securities.

I wanted to ask about the cadence of CapEx spend for the balance of the calendar year. It seems like quarter-over-quarter spend took a significant step-up as expected. But curious if you have any sort of run rate or kind of where that should go quarter-over-quarter as we try and model out '26 and '27?

Yes, Nick. So CapEx, so you should expect it around $600-ish million for the upcoming quarter, and that will take a step up as we enter more advanced stages of construction at the new campuses. I would note, though, as you see, what we have done is we've tapped the financing markets for these sites earlier on the construction versus the first 2 Ellendale buildings, which were well more advanced versus where we were at with PF2, for instance.

Got it. And maybe just on the restricted cash balance, over $2 billion, can you just remind us what the split is between debt service reserve, letters of credit and then kind of what we should expect on the release of that cash?

Yes. Let me -- so vast majority of the restricted cash was the Polaris Forge 2 bond. So that was held in escrow until the ESA was released, which we released that, I believe, in June. So that cash has since been unrestricted. And our K will have greater detail of the actual their accounts.

Your next line of questioning is from Rob Brown with Lake Street Capital Markets.

Congrats on all the progress. I just wanted to dive in a little bit on the 2 customers. You mentioned that you were looking at expanding, I think, 100 and 150 megawatts. Could you give us a little color on just sort of how that would play out? Would these be the existing sites and maybe some color on the comments about the rate increases?

Sure, Rob. So on the expansions, we -- when we started building Palars Forge 2, we started building 2 buildings, 300 megawatts. We contracted 200 megawatts. We expect in the near term to contract that additional 100 megs with the same tenant at that campus. And then on one of our Delta Forge campuses, we're negotiating, as we mentioned, in advanced stage negotiation with the tenant there for a third building on one of those campuses.

And as I mentioned in my prepared remarks, we do expect materially higher pricing on both of those expansions as well as new campuses or new capacity that we sign in the future. It's been -- we've seen other contracts out. It's great to see pricing moving up in the industry, just gives a really strong indicator of the demand that's out there.

Okay. Great. And then on Base Electron, how do you sort of see that driving incremental kind of customer demand as that -- you have the power available in North Dakota that will allow you to sort of add capacity there, just a sense of what base Electron sort of does for you?

Yes. So as we mentioned, we've announced that there's 1.2 gigawatts being built in North Dakota. This is all front of the meter on-grid capacity. We're working on another project there in a different part of the state as well. But these will go with the utilities that we work with already. They'll deliver that capacity for our data center campuses, but also for other ratepayers on the regional system. But that's a start for Base Electron, and we expect that to expand significantly.

And we talked about our campuses when we first started with them. we signed initial capacity. The physical infrastructure transmission infrastructure is there to significantly expand the campuses. We need to add some additional electrons. And it won't just be us -- or it won't just be -- sorry, Base Electron that adds additional power generation to the network. We expect a lot of other power generation projects in the region as well. But as that additional generation comes online over the next few years, we'll be able to expand all of those campuses. They all go north of 1 gigawatt. And as I mentioned, one of those campuses go significantly north of 1 gigawatt. And so we're excited about that entire region. We started there. We've had great success building up in North Dakota, and we look forward to just continuing to build that. And Rob, last, as I mentioned in the prepared remarks, we see clear line of sight to with our existing campuses to over 5 gigawatts of critical IT load capacity and a big part of that is the base Electron generation additions.

Your next question is from the line of Derrick Whitfield with Texas Capital.

Congrats on your commercial progress over the last year. I want to start first with just what you're seeing on the demand side. Maybe with regard to the high investment-grade hyperscalers and the next lower tier, are you guys sensing any change in demand based on inflationary pressures?

We haven't seen that. As you see -- as we mentioned or as I mentioned in my prepared remarks, we've seen pricing moving higher in the market. I think that's a good indicator of demand versus supply, but we still see extraordinarily robust demand in the market across both of the categories that you mentioned.

Great. And then just based on your prepared comments, it appears your projects are still tracking in that $11 million to $13 million per megawatt range. With that said, I mean, what are the general conditions that would lead you to the lower end versus higher end of that range? And are you expecting any regional differences based on labor conditions in those areas?

Labor is a big issue that we have been solving and I expect us to continue to solve in almost every region. But one of the things that we do on labor -- so let me back up and start with kind of the high and low end of the band. The high end of the band, there's some site-specific things that typically go into that. So when we start a new campus, you'll typically see our builds at the higher end of that band because we include all campus costs in that the first building, first 2 buildings.

So that typically includes new substations, some transmission on campus, the land and the power site itself. So that tends to drive it towards the high end. And then as we try to work it down over time as we add additional buildings on those campuses and mentioned kind of the economies of scale as we go at each individual campus. And then there's other things depending on, for example, one of our sites in the South will be slightly higher because of additional dirt work and site prep, because of the type of soil that we're dealing with. So there's some very specific things that happen from a location-by-location basis. But the remainder of what we do is really dialed in at this point from supply chain from construction process and construction, labor rates have been fairly steady over the past 6 months. But we do a lot of work in 2 ways on labor.

One, we try to stay out of the most crowded markets. And so you see we're the only ones that are really building right now in North Dakota. We have a few other markets that are not as crowded as, say, like Texas or West Texas or some of the other markets that we have 100-plus projects happening. So we try to stay in less competitive markets from a labor perspective. And then also, we do a lot of education in those markets. We work with local technical college and vocational schools. We do that right at the beginning. We've been doing that for a while in the Dakotas. And when we move into other states, one of the first things we do is work with the local vocational technical colleges. We even work with them to set curriculum. We typically make some donations, but we want to train people up that will work construction and operations of our facilities.

Great update and congrats on your success again.

Your next question comes from the line of George Sutton with Craig-Hallum Capital Group.

Wes, I wondered if you could just talk about the governors to your growth. Obviously, demand does not seem to be one of those governors. But when we think through power and supply chain and the number of teams you could handle at any one time, where do you see the governor being?

Yes. So I think, George, that's a great question. So power is definitely top of the list as far as when power is available and how much as we've contracted, I think 2.1 gigawatts of utility power over the past year. And so that's definitely one. And it's when is power available and then timing our building to start to match when power becomes available at the location.

So that's one. Supply chain is another. As we've talked about many times in the past, we worked really well on supply chain a few years ago, locking in a lot of capacity for electrical -- for all of the NEP, the mechanical, electrical and plumbing. But it always does have limits. I think at one point, I mentioned we had about 700 megawatts per year. That's critical IT load. And so we have contracted to build over the next couple of years, 1.5. So we're definitely exceeding that a little bit. But those are 2 definitely of the biggest governors. We have great process from a construction perspective in place. Our first building on Polaris Forge took us about 24 months from start of construction to RFS.

Our second building on that site was under 12 months. We've really dialed in, and we're just getting better. The team is getting better with every iteration that we do in just how we sequence things, how we just make everything much more efficient from a construction process. So I feel really good about that piece. Managing supply chain and power are probably the 2 biggest constraints at the moment.

So I wondered, we're obviously in a market that's gotten very cautious relative to AI. Your stock has gotten brought into that. And none of what you're talking about on this call represents some of the concerns out there relative to the NIM and the open model concern. I'm just wondering if you can give us a bigger picture AI thesis as you see it today relative to what the market is thinking.

Sure. Just from the demand side, this is -- I think this might sound a little strange, but I think I'm a fairly conservative person. And so that's why over the past year, we really focused on high-quality customers, durable contracts. That was really our mantra was durable contracts, both from an ability for us to deliver an ability for our customers to cancel and then also from an SLA perspective, because if you don't operate the sites well, then in almost every instance that I came and talk to people in the industry, your customers will have the right cancel.

So that's really been the focus to make sure we get those types of contracts. We build the right type of buildings -- so we try to make it as absolutely as efficient as possible, but we don't want to skip over things just because it could lower cost because remember, we need to operate these buildings for at least 15 years on the contract, but we think they're 30-plus year assets. So we build buildings that we could operate and we think we will meet all those SLAs for a really long period of time. And so that was the focus was making sure that we've had that type of a platform. And then as far as we focused on high investment-grade hyperscalers and investment-grade hyperscalers and those types of companies. So what did we purposely avoid? We avoided signing leases with the very large model companies.

Those are great companies, but I don't think that -- I don't know how that plays out over time. We see this volatility we saw with DeepSek in 2025. We see it with Ki in 2026 now. And so we see this volatility. And then outside of those models, you see the volatility just with the U.S.-based companies. So if we were speaking this time last year, OpenAI was absolutely the best. They had introduced GPC 4.0 in April of '25, and they were doing extraordinarily well and then have rolled to Google and now to Anthropic. And so we just really had a focus on the highest quality companies that have high investment-grade ratings.

But what appears, George, is happening, whether it's open source or closed model, that's a totally different debate, but they seem to all need a significant amount of compute. And they seem to use the same amount on inference or a little bit more on inference. So compute still is the foundational layer. I feel really good about our positioning in that market and demand for compute regardless of which way kind of the world goes from a technology perspective over the next few years.

Your next question comes from the line of John Todaro with Needham & Company.

Congrats on the progress here. I guess just going back to that earlier question on the growth governor. Wes, I think you've mentioned in the past, you could work on 7 campuses simultaneously. You're at 5 now. I imagine some get completed, you add other ones. Is that number pushed higher even above 7? And is the currently marketed 1.7 gigawatts, will that be kind of captured within what you could do simultaneously?

Yes. So great question. So yes, I mentioned 7 before. I will say I think we can go higher than that. Let us get there and see how it's working because one thing, John, that we don't want to do is overextend ourselves. We want to make sure that we always are in the right position to execute and deliver. That's number one. When I go through the risks we're initially signing contracts. And then second is delivery. We've got those 2 dialed in. And then the third is operations. We've been operating the first building for roughly 8 months now that's going extremely well.

So we're getting all of those things dialed in really well. I just want to make sure that we continue to execute and deliver on time for our customers because it's such a key thing. So I'd rather -- if we need to stop at 7, we'll stop at 7, but we'll see when we get there and how far we think we can go with managing the construction process. And then again, as I mentioned, there's definitely some limits on supply chain. We continue to be -- we've been able to continue to keep expanding that limit. So I don't know where that is for certain, but it definitely does exist out there as far as that supply chain limitation. But I still -- we'll see if we get to the 7 campuses. We're obviously marketing to that now. But we feel comfortable with that. And then once we get there, we'll see if we feel comfortable going above it.

Understood. And then Sid, I think you had mentioned the NOI margin at 91%. Just wondering if that's kind of more so the target number we should go with for all the contracted capacity or like the mid-80s, which is I think where we're at, at least, is more fair.

So I would -- so we -- as Wes mentioned earlier, right, we try to aim conservative with our margin targets and then obviously deliver to the high end. there's a mix of it, right? One, you'll see us as we get a site up and running post the initial RFS state, you should see margins continue to increase, just one, we get better operating the site. And then secondly, there's also -- you should see some economies of scale as we have more buildings on within a specific campus. So that's definitely the goal. The time line of how we get there for every campus, right, could differ depending on the region, but that's where we're marching towards as well.

Your next question comes from Darren Aftahi with Lucid Capital Markets.

Two, if I may. So on Base Electron, can you just give us a general sense for when that capacity might come online? And then, West, to your comments about your North Dakota properties being able to expand to various levels, how much of that is contingent on Base Electron versus just utility growth?

And then second question, aside from the 250 megawatts you guys talked about, the marketing of the, I guess, the remaining 1.5, how would you kind of characterize that between existing customers that have taken down capacity versus maybe some folks who have been left to alter in negotiations?

Sure. So on B Electron, the timing, so that's in '29 and '30 for that initial capacity and then continue to ramp from there. In North Dakota, there's some other projects. There's some transmission projects plus some generation projects that will fill in nicely. So we've got a lot to build for '26, '27 and some '28, and then we'll have additional power capacity, we think, coming online at that time to just continue to expand those campuses. But they're both important to meeting that goal, both in Base Electron and then additional power projects that are going on in the region and transmission projects. There's a JetX line that runs between Ellendale and Jamestown that will come online and expand the Ellendale power capacity for us as well.

Darren, remind me your last question?

It was more around the power you're marketing right now, like relative to existing customers versus others.

Yes. Right now, Darren, just given what we have going on, I would expect that to be new customers.

Your final question comes from the line of Michael Donovan with Compass Point Research.

On the execution. So your AI factors are designed to support flexibility and the type and density of compute deployed. What changes are you seeing in recent customer requirements beyond GPUs, particularly for CPUs, memory and networking?

Yes. So just -- you made a good point about we've made this very flexible architecture that will handle GPUs, CPUs, CPUs. When you get down to that level of detail, though, it really goes customer by customer, and we don't see like that type of granularity all the time in what we do. So we get specs of how to do -- just because we're doing the fit out, how we do fit out. And so we have kind of a general idea of what they're doing, but not enough that I want to give you insights that you should rely on as far as trends of CPUs versus GPUs and storage amounts. But we do build very flexible facilities, and we work through that on a design perspective to where you can put almost anything that you want to, even if you were back to a standard cloud format with much lower power densities, our facilities would still work for that as well.

There are no further questions at this time. I will now turn the call back to Wes Cummins for some closing remarks.

Thanks, everyone, for joining our Q4 call and look forward to speaking with you in October. Thanks.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, good afternoon, and welcome to Applied Digital's Fiscal Third Quarter 2026 Conference Call. My name is Abby, and I will be your operator today. Before this call, Applied Digital issued its financial results for the fiscal third quarter ended February 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's 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.

Thank you, Abby. Hello, everyone, and welcome to Applied Digital'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 the 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 will 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's SEC filings for free by visiting the SEC website at www.sec.gov. I would like to remind everyone that this call is being recorded and will be available for replay via link available in the Investor Relations section of Applied Digital's website. Now I'd like to turn the call over to Applied Digital's Chairman and CEO, Wes Cummins. Wes?

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 2 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 2 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 stages of what we expect to achieve.

In the HPC segment, this first 100-megawatt building represents only 1/10 of the total capacity we currently have under construction. While many variables and uncertainty involved in developing large-scale power infrastructure such as new power plant construction, transmission lines and regulatory approvals, we're currently -- 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 PF1 and PF2 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 and Peterson and BASX, we're 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 2 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 direction as well as mechanical, electrical and plumbing trades mobilizing for interior fit-out.

During the quarter, we also broke ground on Delta Forge 1, 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 3 potential sites. During the quarter, we made the decision to delay the South Dakota site as we evaluate its long-term viability and explore opportunities to reallocate the associated power agreements. As a result, we have brought 2 additional sites into the pipeline and are now actively marketing 4 development sites in total. These include Delta Forge 1 in the Southern U.S., an additional site in North Dakota and 2 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 2 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 EKSO 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. With that, I'll turn the call over to our CFO, Saidal Mohmand, for a detailed review of financials. Saidal?

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 2 [ 150-megawatt ] buildings come online.

We have also completed the majority of our equity and debt financing for our first 2 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 March 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 guarantees 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 support not only derisk the existing 250 megawatts lease 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 will 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 shareholders to retain over 85% 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 on assets in the company, generating $13.9 million in operating profit in just 1 quarter, and that's on $119.6 million in reported assets.

Given that the cloud business is merging with EKSO and that we will be a majority holder, we have consolidated cloud's revenues of $18.1 million for the quarter. We also recorded a $59.7 million noncash write-down of the business due to the 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 have -- 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 in $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 in $5.2 million in lease and lease-related expenses. SG&A expense increased $57 million to $79.7 million this quarter. The 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 onetime 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 $0.36 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 2 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. Now I'll turn over the call to Wes for closing remarks.

Thanks, Saidal. We are seeing a clear acceleration in demand for high-performance AI data center capacity as hyperscalers are as aggressive as we've 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 3 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 and 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, reduces the need for utilities to raise capital and allows for the development of new large-scale sites in the region.

Applied Digital 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's guarantee will be terminated. In exchange for the guarantee, Applied Digital 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 2 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're not only investing in infrastructure and power, we're 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 5-year anniversary. In that short time, we have successfully navigated multiple business lines, built billion 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 market at lower rates.

We believe that should be the key tipping point where shareholders' return on investment will significantly ramp and the majority of our shareholder value will be unlocked. We believe our first 2 hyperscaler partnerships are just the beginning. We remain confident in our ability to exceed our long-term goal of $1 billion of NOI within 5 years. To drive accountability, we've implemented new internal targets for our leadership team at both $1 billion and $2 billion of NOI levels. With that, operator, we're happy to open the call for questions.

[Operator Instructions]. And our first question comes from the line of Mike Grondahl with Northland Securities.

Two questions. One, Saidal, could you give us a little bit maybe more insight into the restructured leases at PF1? Is -- if you had to 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's changed over the last 90 days? And what's kind of the breadth of your discussion with various hyperscalers?

Saidal, why don't you go first?

Yes. So on the lease restructuring, so there is -- as you can see, obviously, the observable trading of the bonds that are outstanding today, there's been a significant improvement in pricing. And there's really a couple 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, which are really the fulcrum to run the GPUs, they're 100% required. We are first in the waterfall and contractually obligated to get those payments through their own financing facilities. So there is a payment benefit from that. While at the same time, we also retain the parent or a springing parent guarantee from CoreWeave. So effectively, we have improved our positioning of the lease where we get a minimum credit enhancement.

And then there's other structural protections, letter of credit, et cetera. So it's a significant improvement. In terms of rate, we've seen that CoreWeave through their DTL, they've been able to lower their financing costs significantly. We expect, obviously, no guarantee, but we expect to continue to move our borrowing costs more in line with 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.

And Mike, on the demand side, so you always see -- we always see shifts in demand quarter-to-quarter, who's super aggressive and who steps back and sometimes that will go 6 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's hard to give a total market view.

So what I always give you is what we see, right? And so what we see is for the locations that we're marketing. But we see multiple hyperscalers at every location with interest. And when you -- when I think about how we go and contract the capacity that is available, right? So first, you have Polaris Forge 1 and 2, now we have Delta Forge 1. We have 2 customers at those separate campuses.

And thing that I think about a lot is 2 things: diversifying customers. So we have those 2 customers instead of signing additional with those customers, get a new customer at those campuses. So 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. So this is, again, very Applied Digital specific. And then we also have a pretty clear goal of getting our total contracted revenue to 70% investment grade.

So today, we have $16 billion of total contracted revenue, and that splits $11 billion of CoreWeave and $5 billion to an investment-grade hyperscaler. And so you can just do the math of how we get to that -- the split that I'm looking for -- and we have those campuses in play, and we're marketing those campuses, and we're in advanced stages of negotiation with some of those campuses. But we feel good about the assets that we have, which it's important to distinguish the assets we have versus some of the other assets that we see in the market.

Everything that we're marketing is grid power, and that's always top priority. So that's going to go in front of almost anything that is behind the meter on-site generation. So we feel really good about our assets. Now it's just making sure that we get the right tenant and the right contract in place. And I know on the side of a lot of investors, it's just how quickly can you sign these and announce them. But on our side, we don't put these deadlines on ourselves. We just make sure that we end up with the right customer and the right contract, and I'm really confident that we'll end up with that at the campuses that we're marketing because they're great assets.

And our next question comes from the line of Darren Aftahi with ROTH Capital.

Congrats on all your progress. Two things, if I may. So Delta Forge 1, 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, 3 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?

Yes. So Darren, on the first question, so with Delta Forge 1, you should expect -- I expect -- I'll say that, I expect a lease in the near term on that for hitting that goal. As you -- as everyone knows, we've been working on that for a few months now. We've made a lot of great progress there. And so feel good about getting the lease in the time frame to hit that RFS date as well.

And then we had some shifting around, as I mentioned in the script, from the South Dakota campus, we didn't get the tax exemption we were looking for from the legislature this session. And so we've paused that development. We're working on 2 other sites that we had somewhat previously, and we've gotten a lot more active on those. But we have still 3 sites in exclusivity with hyperscaler, and we'll see how all of that plays out.

But we feel really good, again, about those assets and getting those leases signed at a minimum, I would say, during this year, but I'm more optimistic that it will be more near term. But I don't -- we're not going to sign a bad lease just to get an announcement on the tape. So -- but we feel really good about the progress we've made on those sites.

And our next question comes from the line of George Sutton with Craig-Hallum.

So for those of us that are nonfixed income guys, I wondered if you could just walk through what it generally means if you go from BB to single A, if you were to go into the refinance market, what kind of spread differential is there?

Yes. Great question. So right now, so for -- obviously, single A is investment grade. Spreads are anywhere from -- they're sub-300 basis points, so low 2s to mid-2s depends on obviously structure remaining, how the lease is placed, et cetera. But generally, think about it mid-2s historically. And then for the BBs, right, they're generally -- single Bs to BBs can be anywhere from 350 to 450 basis points, once again, depending on the offtake and the structure of the contract.

Okay. So pretty significant. Wes, I'm curious, I know there are certain sites that you're working on. Some of them have the 6-month moratoriums put on by local counties. My sense is, correct me if I'm wrong, but as time goes on, the ultimate value that you'd get from these same contracts, same properties continues to rise. Is that -- in other words, we're 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?

George, it's been the trend we've seen so far. So I think that's directionally correct. And on those -- on the moratoriums on those things, we're working through those, and we feel really good about getting through just in an education process. If you look at what we've done in North Dakota specifically, because we have a site that's operating, we went through the process that we have very specific evidence to point to on the Polaris Forge 1 campus in Ellendale, both the economic benefits, but also our impact on ratepayers on the grid.

As you've seen, there's been some news on that recently. So since that site has been operational, we've saved ratepayers about $31 million because of the use of the infrastructure there and how we site our campuses and where we take these and then the work with the community, you get -- we get a lot of great reviews. So it's easier for us to continue to do things in that state and educate people and get through those, the moratoriums and the zoning and all of those pieces. So we feel really good about doing that in North Dakota and continuing to expand there.

But -- but George, back to the big picture on these, again, the sites that we have, I think, are premium in that their utility power that's available in '27. And we see a lot of demand for those types of assets. And the goal for us this year, as I stated, the one goal was total contract value, getting 70% investment grade and 30% other over that number.

So you can imagine the type of growth in total contracted value we would need to hit that. But then the goal is really get to -- we're marketing 4 new campuses, we can get to 5 total campuses or 6 total campuses and all of those campuses grow over time.

Some of them grow immensely over time. And so it gives us a really good path to 5-plus gigawatts of critical IT load across all of our campuses over time. And for us, I think it's easier once you've landed a customer at a campus, it's an established location to either expand that customer at the campus or bring other customers on that campus. So when I look to the future, I look at not only new sites, but expansion in our current campuses. And if we can put ourselves in a position where we have a clear view to 5 or 6 gigawatts just across the campuses that we have already contracted and are looking to contract here this year, it's 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.

And our next question comes from the line of Nick Giles with B. Riley.

Nice job, guys. So Wes, I think you mentioned you're marketing 4 sites, one of which is Delta Forge 1, 2 unnamed sites. And I think other than maybe Garden City way back when this is new geographic exposure for you. So what drew you to the south? And what kind of contrast would you draw between it in your Dakota sites? And was this really a result of customer indications or more applied led?

So Nick, what always drives us first is where power is available. So that's always first when we find our sites. And then it goes to fiber. And then there's a lot of other variables that we look at. And those variables include how crowded is that market. That's one we definitely look at. So -- why do you want to look at how crowded the market is? One aspect that's good because the more density you have, it's easier to get more customers there. There's a lot more infrastructure.

Right now, it's hard to be in crowded markets because of labor force. So we look at markets where we think we can definitely secure the labor force to go and build these. So like for example, on these, like we're not looking at something in West Texas right now. We're 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 definitely pro-business and business-friendly, have governors and legislatures that want data centers in their state. They're looking to expand business. So it's a lot of different variables, but it's always first driven by power and power availability and when it's available.

And we're still very focused on grid power. We've looked at a lot of projects where people have what they call powered land, what they really have is they have land and then they have 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're seeing some of those projects happen.

I think that -- but what we see is the preference by far for the hyperscalers that we're looking to work with is that the grid power is definitely still the preferred solution. And so those are the kind of sites we keep developing, and that's what we continue to market.

Got it. Makes sense. I appreciate that, Wes. And then it sounds like things are on track, but just would be nice to get an update on the next building at PF1. Can you just remind us when we would first see revenue recognition? I think the guide is sometime 2026.

Yes. RFS date for PF1 is July 1, I believe. And so -- and Nick, just to remind you how these buildings energize -- so they have 6 data halls in each building. You don't energize all 6 at the same time. So in July, you'll energize some of the data halls, and I believe they're all energized, so it goes July, August, September, and then they'll be fully energized. And then later in the year, the first building at PF2 comes online.

And so you'll get the same type of energization ramp on that building. And so you'll see some revenue step-up in the August quarter from the new building and then you should get basically close to a full quarter of it in the November quarter and then a partial from the Polaris Forge 2 building and then getting close to full quarters in the February quarter of fiscal '27.

So that's how those will start to ramp up. And then as you start into '27, you'll have those buildings continue to ramp the third building, the Polaris Forge 1 and then Delta Forge and then whatever else we start contracting as well. So you kind of have those pretty clear step-ups. And this was -- I think this was a really great quarter for us from a revenue results perspective because you start to see the earnings power of what we're building. We're still -- it's still subscale versus all of the people that we employ because we're building so much, right? We have almost a gigawatt under construction, 900 megawatts under construction.

So it's still a little bit top heavy from that perspective, but you going to start to see the flow-through and then easier for you guys to model out what the earnings power of the platform looks like.

And our next question comes from the line of Rob Brown with Lake Street.

Congratulations on all the progress. Just wanted to follow up on the power availability commentary and I guess, the base electron strategy. Just a sense of when you think you start to run into constraints in, I guess, the North Dakota market and how you see that -- maybe when you see constraints and how you see that playing out?

Sure. So we have the Polaris Forge 1, Polaris Forge 2 and another site in North Dakota. So we have the 3 sites that we'll be building through '28 on all of those. And that's going to take up the significant amount of the excess power that we see right now in North Dakota. And then towards the end of '28, we'll start to commission some of these. Base Electron will start to commission some of these new power generation assets.

And so what that's really designed to do is to meet when we feel like we start to tap out of the available grid power and then we're adding -- Base Electron is adding more power to the grid. And we said this, Rob, in the prepared remarks, but I think it's worth reiterating the Base Electron business model is actually adding grid power. It's not building on-site generation specifically for the Applied Digital data centers, but it's strategically adding it in places on the grid in North Dakota that will definitely feed the Applied Digital sites, but it's meant to make the grid overall better and more resilient and be a benefit to all of the stakeholders and the ratepayers in the state and not just putting it on site to generate electricity for Applied Digital.

But that's really the timing and what we've spaced out is, okay, here's when we start to run out of what we think is available grid power for us. And so we need to add more to the grid to continue to expand these campuses. And as we've mentioned previously, the Ellendale, the Players 4:1 campus and the new campus in North Dakota, they all have the ability to expand significantly from an electrical infrastructure delivery perspective, and we just want to make sure that we enable that.

And our next question comes from the line of John Todaro with Needham & Company.

Congrats on all the progress. First question, Wes, you made a couple of comments about not just signing any deal, you want the right terms. And also, it's taken maybe a little bit longer than you had hoped or expected. While appreciating that the demand is quite strong, has there just 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 like sticking point that is coming up?

Every lease is different, John. And so there's always different parties in the lease and what needs to happen. And in some instances, there's 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's been newer for us.

So that's definitely one aspect. But it's not in every lease. It's just in certain ones. But it's -- I can't say that the entire landscape has changed because it's just every campus when you're dealing with a different utility and a different counterparty, they all have their own nuances. And of course, I would -- if you ask my team, I would say every lease takes longer than I would like. I just wish we get to the terms that were great for us and we would sign it. But I feel like these are all on track for us. And I would just say that I think we feel really good about where they are and signing a lot of these campuses up this year. But we will make sure that we get these right and with the right tenant and the right structure. But it's hard to say market-wide if there's anything different, but there's always different details and nuances in every single site.

Understood. Appreciate that. And then maybe one for Saidal. Just trying to maybe 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?

Yes. So for ELN-02, a majority of the fit-out revenue has been recognized. There will be a small amount remaining for the first building. And then towards the end, you'll see some ramp on ELN-03 or the second building in PF1 start to ramp up. Once again, timing, right, timing can be lumpy from quarter-to-quarter, and it's a low-margin line item that's nonrecurring.

Correct, around like 5% or so, right?

That's fair. Yes, correct.

And our next question comes from the line of Michael Donovan with Compass Point.

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?

Yes, exactly. 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 recently on the substation construction. So the longest pole in the tent has been the substation construction items. So -- and we had a [indiscernible] signed a construction agreement to build that last October, and we're in a good -- really great shape on the substation progress there.

Appreciate that, Saidal. And I guess for Wes, what was the strategic rationale for structuring base Electron outside of Applied rather than owning the generation directly?

Yes. So we thought a lot about this. It's a great question. And what we landed on with this was that the power generation aspect, the power generation business is fundamentally different than the data center business. And so we did not think that it was the right thing to take a lot of risk inside of Applied Digital to go and build the power generating assets that will help expand the data center capacity for Applied Digital. But -- and when you think about the different risk profiles, so on Applied Digital, we signed long-term data center leases. We get 15 years of lease payments.

And if our customer doesn't use the facility, they still owe us the lease payments. But when you look 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's no power being drawn into the data center.

So it's fundamentally different risk and return profiles for those. So it's been created as a separate company. Applied Digital have ownership in that company. So the Applied Digital shareholders get upside of the success in Base Electron but take no risk on the downside of any catastrophe that happens inside of that.

So 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. So you really get those choices instead of us just forcing it into Applied Digital where there could be some upside to shareholders, but it creates a totally different risk profile for the company in our opinion.

And so I think it was the right choice to put it outside, let it create its own capital stack. Investors come in and put capital into the business. It will need to raise its own capital to go build these assets. But that was really the fundamental choice as to why it's not just folded as another unit inside of Applied Digital.

And our next question comes from the line of Paul Meeks with Freedom Capital Markets.

Excuse me if this was asked and answered, but do we still have 100 megawatts at PF2 that is still uncontracted?

That's correct.

And going forward, you'll 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.

Yes. And we do expect that to be contracted in the near term.

Next question is for both PF1 and PF2. Are you sticking with the site NOI margins that I think you last showed in the presentation last fall?

That is correct. Yes, that is correct. So high 80s to 90s is the range that we've been operating at on a cash basis.

Right. And last quick one. When you meet this 5-year NOI target, you're going to start with the project financing and then switch over time. But once we get there, 5 years out, what is your firm's capital structure look like?

So this is Saidal. So there's a couple of different ways. So one, 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 10x NOI.

We feel it's a prudent way to be in that 5 to 6x NOI leverage, which when you're against, call it, high investment grade and investment-grade credits for long-term leases with escalators, that's very prudent. So I think as you get to that 5-year mark, once our platform is fully humming. And as we surpass our NRI goals of $1 billion and $2 billion of NOI, that, call it, 5 to 6 turns of leverage is prudent.

Now once again, the caveat being there's always going to be new potential opportunities that we're 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 obviously, for other stakeholders in the company as well.

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

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

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

Good afternoon, and welcome to Applied Digital's Fiscal Second Quarter 2026 Conference Call. My name is Constantine team, and I will be your operator for today. Before this call, Applied Digital issued its financial results for the fiscal second quarter ended November 30, 2025 in a press release, a copy of which has been furnished in a report on a 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's Chairman and CEO, Wes Cummins, and CFO, Saidal Mohmand. Following the 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.

Thank you, operator. Hello, everyone, and welcome to Applied Digital's Fiscal Second Quarter 2026 Conference Call. Before management begins formal remarks, we'd like to remind everyone that some statements we're 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 the forward-looking statements. More detailed risks, uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in 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 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's SEC filings for free by visiting the SEC website at www.sec.gov. I'd like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of Applied Digital's website.

Now I'd like to turn the call over to Applied Digital's Chairman and CEO, Wes Cummins. Wes?

Thanks, Matt, and good afternoon, everyone. Thank you for joining our fiscal second quarter 2026 conference call. I'd like to begin by thanking our employees for their dedication to delivering high-performance, sustainably engineered infrastructure for AI, cloud and blockchain workloads. Their execution and commitment continue to be foundational to our success. This quarter marked several important milestones across our HPC data center and hosting business.

Polaris Forge 1 reached ready-for-service, energizing 100 megawatts on schedule and completing the first of 3 contracted buildings. The remainder of this AI factory campus is expected to be completed by the end of 2027, and will host 400 megawatts for CoreWeave, representing approximately $11 billion in prospective lease revenue over approximately 15 years.

We also announced a roughly $5 billion 15-year lease with a U.S.-based investment-grade hyperscaler for 200 megawatts at Polaris Forge 2. This is a $3 billion project near Harwood, North Dakota that is advancing on schedule with initial capacity expected in 2026 and full build-out in 2027. Together, these agreements represent 600 megawatts of lease capacity and approximately $16 billion in prospective lease revenue across our North Dakota campuses.

Having secured two hyperscale leases in the region, inbound demand has increased meaningfully. As a result, we are in advanced discussions with another investment-grade hyperscaler across multiple regions, including additional locations in the Dakotas and select Southern U.S. markets. While there can be no assurance of future contracts, we believe we are well positioned to begin construction of additional campuses in the near term.

Hyperscalers are competing aggressively to secure sites that can support massive AI demand, responding to data highlighting significant shortfalls in global power capacity. Many are being asked to commit capital to 30-year power plant developments, meaning energy may take years to come online, it could cost more than anticipated. Beyond the immediate rush, AI infrastructure is ultimately a cost of capital business where every input matters. In this context, we chose the Dakotas because we believe they provide a durable competitive advantage with low cost of abundant energy, [ new ] climate, ample land for expansion of existing sites and potential for future large-scale super sites that could align with regional energy developments, making Applied Digital sites not only immediately valuable but we believe also more efficient and cost-effective over the long term compared with other regions in the U.S. and globally.

Building on this advantage, we have significantly evolved our construction and design capabilities. our current data center designs are modular and highly efficient, allowing us to run numerous concrete plants simultaneously and leverage prefabricated components delivered by 18-wheelers. The approach reduces construction time lines and lowers overall cost. We've expanded the footprint and flexibility of our buildings designed to allow for different GPU and ASIC chip architectures and networking infrastructure to support multipurpose AI use cases and traditional cloud workloads. While AI is driving significant demand, cloud computing continues to grow and increasingly competes for data center capacity. Our facilities are purpose-built to support training, inference and traditional cloud workloads intended to give hyperscalers maximum flexibility over the life of the asset. Looking ahead, we expect to maintain a meaningful competitive advantage in the Dakotas and intend to announce additional locations in other advantaged regions.

With that, I'll turn the call over to our CFO, Saidal Mohmand, for a detailed review of our financials. Saidal?

Thanks, Wes, and good afternoon, everyone. This quarter represents a major inflection point for Applied Digital. After two years of construction and over $1 billion invested in our first 100-megawatt data center, we have now begun to generate lease revenues. We expect lease revenues to ramp over the next quarter, and it's important to note that we currently have two different campuses under construction simultaneously representing 600 megawatts. These buildings are expected to come online over the course of calendar 2026 and 2027, where we anticipate meaningful revenue growth over the coming 18 to 24 months. This does not include any additional campuses currently under advanced discussions with customers, which would be layered into these numbers according to their respective design and build time lines. From a high-level finance perspective, we have agreements in place of top-tier financial institutions that allow us to execute this repeatable and capital-efficient framework.

The first step of this process is to draw on our development loan facility with Macquarie Equipment Capital, which allows us to fund pre-leased construction for new sites. Subsequent to the second first quarter end, we made our first draw under this $100 million facility.

The second step, following a mutually agreed upon executed lease with an investment-grade hyperscaler is to access the Macquarie Asset Management's $5 billion preferred equity facility. To date, we have drawn $900 million from this facility to support our Polaris Forge 1 and 2 campuses. We expect a similar financial structure will be used going forward for future development projects. This multilayered financing framework allows Applied Digital to leverage third-party capital for a majority of the upfront investment, while retaining majority ownership of each site, providing financial flexibility and reducing reliance on public capital markets.

On the debt front this quarter, we completed a $2.35 billion private offering of our 9.25% senior secured notes due 2030 to finance the first -- 2 of the 3 buildings at our Polaris Forge 1 site, supporting the core releases allowing us to refinance existing debt. No project level debt typically carries higher interest rates initially as it finances the riskier portion of development. But once the buildings are operational, our goal is to refinance at lower rates.

Additionally, our team is actively exploring and working on options to reduce the cost of debt for the third building, ensuring we continue to optimize our capital structure.

Now let's turn to the quarter. Revenues for the fiscal second quarter of fiscal '26 were $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, reflecting partial quarter lease revenue.

On a cash basis for the leases, revenues were approximately $8 million. The difference between cash received and the revenue recognized reflects ASC 842 lease accounting, which requires lease revenue to be recognized on a straight-line basis over 15 years. We will aim to provide clarity on this difference on an annual basis going forward.

Applied Digital's Data Center Hosting segment, which operates 286 megawatts of customer ASICs across two North Dakota facilities had an exceptionally strong quarter, contributing $41.6 million of revenue, up 15% compared to the prior year. This growth was primarily driven by increased capacity online across the company's hosting facilities. We are very pleased with this business, which generated roughly $16 million in segment operating profit in just one quarter on a $131 million asset base. Cost of revenues in total were $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 was $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 is $11.5 million compared to $2.9 million, while net loss was $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 for the quarter totaled $20.2 million. From a balance sheet perspective, Applied Digital is expectionally well positioned. We ended with the second fiscal quarter with $2.3 billion in cash, cash equivalents and restricted cash versus $2.6 billion in debt, most of which does not mature until 2030 and approximately $2.1 billion in total equity. Note, these figures do not include the $382.5 million in proceeds from financings completed subsequent to the quarter end.

Our goal is to maintain one of the strongest balance sheets in the industry throughout the majority of the construction phases, intentionally holding a robust liquidity position to preserve a strong credit profile while enabling additional investments in equipment and new sites then reassessing as buildings come online as our cash flow increases.

With that, I'll turn over the call to Wes for closing remarks. Thank you.

Thank you, Saidal. Applied Digital is executing in a market defined by extraordinary hyperscaler investment now exceeding $400 billion annually. With our first two hyperscalers under contract for 600 megawatts in additional sites in advanced discussions, we are well positioned to scale rapidly. We now expect to surpass our long-term goal of $1 billion in NOI within 5 years. The Dakota campuses are expected to provide a durable strategic advantage through low-cost synergy, natural cooling and a supportive regulatory environment. We remain committed to responsible development, strong community partnerships and environmental stewardship.

We continue to invest ahead of the curve. This quarter, we led and invested $15 million in a $25 million funding round for Corintis supporting advanced liquid cooling solutions for high-density AI workloads. We are also working with utilities and strategic partners, including Babcock & Wilcox enterprises to explore ways to add power to the grid without increasing costs to our customers. These initiatives reinforce our leadership in next-generation data center design, responsible grid management and a long-term shareholder value creation. We plan to continue advancing our thought leadership at the forefront of data center technology and deepening our influence across the broader ecosystem.

I'm also proud to announce the launch of Applied Digital Cares, a community initiative funding brands that support education, health, innovation and local development in the regions where we operate. Through this initiative, we aim to improve the standard of living in these focused communities because of our success -- because our success depends on theirs.

Finally, as noted earlier, I want to expand on the Board's decision to spin out Applied Digital Cloud. We've entered a nonbinding letter of intent to combine Applied Digital Cloud with EKSO Bionics to form ChronoScale, a dedicated GPU accelerated compute platform for demanding AI workloads. This transition separates our cloud platform from our data center business intended to allow each to scale independently with greater strategic and capital flexibility. ChronoScale is set up to leverage an improvement of Applied Digital cloud platform among the first to deploy NVIDIA H100 GPUs at scale. On an anticipated closing in the first half of 2026, Applied Digital is expected to own over 80% of ChronoScale. Today, the cloud business generates roughly generates over $60 million in trailing 12-month revenue with $313 million in assets. We believe spinning off our cloud business best positions us to serve the accelerated AI accelerating AI market while enhancing long-term shareholder value.

With that, operator, we'll open the call for questions.

[Operator Instructions] Your first question comes from the line of Nick Giles from B. Riley Securities.

My first question was just -- I was hoping to get a sense for your growth appetite in the cloud business. Good to see the announcement there for ChronoScale. Should we expect the Applied platform to be a host for any future GPU purchases? Or how could Applied ultimately help attract incremental customers for ChronoScale?

Thanks, Nick. We've had a lot of discussions around that. So I think one of the key advantages that ChronoScale will have is the relationship with Applied Digital and access to large-scale data center facilities, deploying the accelerated compute, whether it be GPUs or TPUs or LPUs is part of the equation, but having access to large-scale data center facilities to actually make those deployments is a bigger part of the equation right now. And I think that's going to give that platform an advantage having the relationship with Applied Digital. We've had some of those discussions. We don't really want to get into how that will work in the future, but I do think that's a big advantage for the cloud business as it spins out.

Got it. I appreciate that, Wes. My second one was just you signed an agreement for a limited notice to proceed with Babcock & Wilcox and I was just wondering if you could touch on the opportunity there. What kind of optionality does this really give you going forward? And what should we be looking for in the upcoming contract release?

The -- so for us, with the BW solution is a very unique solution and an exciting solution in the market because it uses older technology or an older process, which has been proven out for 100-plus years. It's using steam turbines, think of coal plant boilers, but we're using natural gas. That company has actually made a lot of coal and natural gas conversions over the past decade plus and what it allows us to do is go to market earlier. If you get in line for natural gas -- traditional natural gas turbine right now, if we put an order in today, we're probably not getting delivery until 2031, 2032. For that equipment, we need power earlier than that. We are working with our utility partners, specifically now in the Dakotas, but expect to in other states as well, the initial reaction from those utilities has been overwhelmingly positive and really interested in the solution that the utilities -- any utility in the country knows who BW is. The company has been around for a long time, very good reputation. And for us to be able to bring a product forward 3, 4-plus years to be able to generate power in the near term is the big advantage for those utilities and for us. And I think you should expect to see more information about that in the first quarter as we proceed with site and an actual schedule for build on that equipment. But it provides a really good option for Applied Digital to expand its current campuses and future campuses faster than we would be able to otherwise.

Next question comes from the line of Darren Aftahi from Roth Capital.

Congrats on the progress. Two, if I may, Wes, can you just talk generally about the landscape for leases and how pricing may have changed over the last 6 months? Like is it improving, staying the same, going down? And then second question, can you just talk a little bit about the pre-lease financing? I appreciate what it's actually doing. But like what does that say about your confidence when you're progressing on sites where you don't have signed leases? Just any kind of commentary and context would be great.

Sure. So I'll start with pricing and Darren, I'll keep it specifically to us. I don't want to speak for the market at large. But I would say, generally, pricing has been stable to slightly better over the past 6 months, the demand profile for the past 6 months has been extraordinarily robust. There's -- I always want to expand a little bit on this with contracting. There's the headline price that you'll see in contracts and a calculated yield, which is using an estimated cost to build. That's one aspect of it. What I would say, though, that's as important or even more important is we're getting more favorable terms in other aspects of the contract that we focus on very acutely for things like cancellation of transferability, A lot of the things that make these contracts for us, much more rock solid over that 15-year time frame. And we're getting a lot more favorable treatment in those aspects as an example, our [ current ] contracts or really noncancelable for 15 years. The customer can cancel for convenience. However, they owe us the 15 years of payments if they do, so that's typically referred to as a make-whole or a cancellation in the contract. So we've been able to get that 100% make whole transferability that doesn't allow them to transfer to a credit rating. It's either equal or higher. There's a lot of things that go into the contracting. So I would just say, in general, the contracting environment has gotten more favorable over the past 6 months.

And then on the Macquarie equipment facility and us announcing that, I think you should think back to what we did for our facility in Harwood, North Dakota. We did something very similar. And at the time, I spoke about that as well as we will go forward with groundwork breaking ground, getting the project moving when we have a high degree of confidence that we're going to find a lease at a new campus or new campuses and that facility. We use that same style of facility. Now we've made that facility effectively at Evergreen so that we can continue to draw and pay it back. But we use that in hardwood. We paid that back with the draw on Macquarie Asset Management. We've now drawn down again. We purchased some land and some other equipment. We'll start construction on at least one new campus but -- by the end of January. And that's because we have a high degree of confidence that we're going to sign a lease with a new customer that is different. And we've set investment-grade hyperscaler, it's different than the original one we signed in Harwood. And that's the goal for us. Darren, we have a lot of momentum. So we've talked a lot about this before, where we're qualified with most of the investment-grade hyperscalers are really focused on fixed companies total here. And so we want to add new locations, and we want to add new customers. So we diversify both in location and by customer and we expect to have a lot of success on that in 2026 and with what we're doing and what you're seeing the actions are now, you should expect that we think it's going to be in very early '26.

Your next question comes from the line of Rob Brown from Lake Street Capital Markets.

Congratulations as well on all the progress. Just back to the ChronoScale spinout, I think you said midyear for kind of closing. What's the -- give us a sense of what steps have to happen between now and then in terms of getting finalized agreement and a closing step? What sort of has to happen here?

Sure. So it technically will be a merger, Rob. And so we'll get to a definitive hopefully later this month or early in February. And then there would just be a process for a shareholder vote to complete the merger. I think in the first half of '26 is the expectation. I think if I were handicapping it, on the very, very early side in March, but I would expect kind of the April, May time frame as we go forward with that.

Okay. Great. And then as you kind of think about that business and the growth possibly there, I think you said $60 million trailing or $75 million, I think, [ if all said ] sort of perspective. What's sort of the growth opportunity? Is there additional capacity that can get leased out as a stand-alone business? Or do you expect -- I assume you expect some growth in capacity as well, but just a sense of the growth opportunity there?

Yes. So just for context on this, Rob, when we announced back in April, we were we put that into discontinued ops. We are seeking strategic alternatives. We evaluated a lot of alternatives. But while we were evaluating those alternatives, I think that market changed pretty significantly. And what we're seeing is a big opportunity in the compute side of the market, obviously, the data center side as well, but the compute side of the market, you're seeing a lot of deals happen over the past 3 or 4 months in that part of the market. We're involved in -- with a lot of those counterparties and discussions that have been, and we think there's a really large opportunity for our cloud business as we spin it out into ChronoScale to get some of those types of contracts. And we're working with us. We think there's a really unique relationship there where we can get data center capacity to be able to deploy significant scale for those style of contracts with those customers. And so we think this is the absolute best path for value creation for our shareholders to let this company spin out and capture that opportunity and raise its own capital and get on its own growth trajectory, which we just haven't focused on for the past 8 months. So we think there's a huge opportunity there, and you can see the stuff that's going on in the market, and we're really well positioned to capture some of those opportunities.

Next question comes from the line of Mike Grondahl from Northland Securities.

You've mentioned a couple of times advanced discussions. Can you talk a little bit about how many sites you're having advanced discussions about like how many megawatts just so we can get a feel kind of a sense of the breadth that you're talking about?

Sure. I think we've talked about 2 or 3 sites. So I'll tell you, it's -- we're in advanced discussion on 3 sites in 900 megawatts.

Great. 3 sites in 900 megawatts. And then Wes, how are you thinking about the pipeline today? How would you characterize that pipeline?

The pipeline remains robust. I will say, Mike, when I think about the business, and it's been like this for the past few months, I'm thinking less about the demand side of the equation, and I talked about this a lot on the last call, which is our ability to scale, our ability to scale across multiple sites then do construction across multiple sites and how many sites can we do construction across and the team spent a lot of time in 2025, and we'll continue working on our ability to scale and execute these projects at the size that we're doing across multiple sites. So it's less on the demand side because that's not been really the issue for us or really, I think the issue for the industry. we'll focus more on how much can we do and how much can we build from a supply chain perspective, from a personnel perspective, on an annualized basis. And so I don't think demand is going to be the limiter for us, but I want to make sure -- we always want to make sure that we're delivering on time and on budget for our customers. And I don't want to go too far out. We haven't hit that limit yet but it's the piece that I think about a lot, and we internally think about a lot is what is the limit for us on an annual basis. It's a large number but that's really more of the limiting factor for us and not what the demand picture looks like.

Next question comes from the line of George Sutton from Craig-Hallum.

Wes, you mentioned having been qualified by a few of the investment-grade hyperscalers, can you just talk about what that means when we talk about being in advanced discussions, I mean, how much more simplicity of getting something across the finish line is there once you've gone through that process versus hypothetically someone new in the market?

So what I would say generally and I'm going to only be able to reference our experience. So getting onboarded, getting to the point where you signed a master agreement that governs typically work orders or service orders you'll sign underneath of that can be anywhere from on the low end, 3 months to -- on the high end 9 months to a year and so we've been through the process there for most of these hyperscalers. So there's the 6 that we target, which are the 5 investment-grade hyperscale and then CoreWeave. So we're through -- out of those 6, we're through that process with 5 of those. And so I think we're in a really good position. And so if we've already been through that process, doing a new building even if -- a new building on the same campus or expansion in the current building or doing even a new campus if you're through that with one of those hyperscalers is a much shortened time frame, abbreviated time frame to get to that actual contract versus starting from scratch.

Got you. So I want to put a couple of things together, and if you can help me. You were on CNBC the other day, mentioned, by the way, movie star quality experience, frankly. But you mentioned you had done $16 billion of deals in '25 and that you would anticipate doing that or potentially better in '26. And I want to dovetail that with what you just said on we're late stage with 3 sites in 900 megawatts. Am I kind of putting these things all together correctly?

Yes, I think that's correct. What I would just add to that on the -- George, on the 900 megawatts, I don't want to set the expectation that all of that is done at the same time. That could be one at a time. It could be on -- we've been through enough of this. George, you've been through this with us as we've gone through the last few years. Nothing is done until it's done. That's just what we're working through right now. But that's -- those two going together, I think, you're reading that correctly.

Next question comes from the line of John Todaro from Needham & Company.

Wes, you spent a good amount of time talking about how, I guess, supply and execution is a little bit more of the difficulty part than demand. I think you ultimately ended ahead of schedule in that first build for CoreWeave. Can you just walk us through maybe what you learned from that execution and give us confidence in how you'd be able to continue to execute on those builds on the development side? And then I have a follow-up.

Yes. So we learned a lot going through that process on that first building, and we've made a lot of refinements Typically, John, I think you've probably heard me talk about this before. So for us, one of the things I think differentiates us in the market is we started on this path back in 2022. We've stubbed our toe in a lot of different ways through the years. Luckily, we did most of that at a very small scale, but we had a lot of lessons on that first building, and you see that reflected in design change. And then construction change and how we operate all the way through our supply chain and standardizing a lower amount of SKUs, lower amount of suppliers, all of these things that streamline the process that we do to build these facilities. And so we feel like we have a really good handle on our construction time lines. There's always things that can cause a problem that are out of our control on construction. One of the things I always worry about is weather, but we've built -- I think this is our fourth year in a row building in North Dakota in the wintertime. So we're pretty accustomed to that as well. But we have -- we went back securing supply chain well over a year ago, 18 months plus ago, and we thought we were really forward thinking on locking in 600, 700 megawatts of MEP per year that we have for us. Now we're working to expand that. That fits what we're doing right now, but I think that needs to go larger for us. So -- but we feel good about our processes we have in place and kind of the maturation of the construction and development group versus what we did on building 1. I'm proud of them, I'm really proud for the entire team that we delivered that on time and on budget for our customer. But we have to continue to do that. We feel really good about where we are for the CoreWeave building that we're expecting to deliver in the middle part of this year and the building in Harwood we're expecting to deliver shortly after that. And then the next two buildings after that, both in Ellendale and then in Harwood. So we're feeling really good about where we are on schedule. But it's about the fact that we have streamlined this and we're on what I call our fourth generation design has really helped us in simplifying the process and streamlining the process and being one of the companies that does deliver on time.

That's great. And then just a quick follow-up. I think you've mentioned in the past getting calls from entities with sort of stranded power. And it sounded like there might be a little bit more pockets of available power out there than some of us in the industry had initially thought. Could you just maybe frame that up? Is there still additional kind of pockets to acquire more fairly near-term power? And maybe talk to your color on that?

Yes. We keep finding more opportunities, more and more opportunities. Everything we're in process with right now is organic. So we have a large amount in-flight that is organic. But we continue to see opportunities, third-party opportunities. We continue to evaluate those opportunities. And some of those, really, for us, it could be in a different geographic market for us that is a really attractive market. But we continue to look at that. But everything we're doing right now is organic, but we see those I would say, daily, weekly at least, but typically multiple times in a week.

Your last question comes from the line of Michael Donovan from Compass Point.

Congrats on the quarter. Following up on Mike's pipeline question, can you touch upon expansion opportunities at PF-1 and PF-2? Do you still have confidence in those reaching 1.4 gigawatts and 1 gigawatt, respectively? And I have a follow-up.

Yes. So every one of our campuses, I think this is an important point. Every one of our campuses has the potential to go to at least a gigawatt. And some significantly beyond a gigawatt. But when we think about our goals inside the company, we have two campuses now that can each go to 2 gigawatt or more. So we have that pipeline in the future for ourselves, we're working on three additional campuses. We're working on a lot more than that. But think of -- things we're in advanced stage on three more campuses. Each one of them can scale to 2 gigawatt capacity. So for us, if we put those in place, those contracts in place, we have different customers on those campuses.

We have a view and a pretty clear path to whether it's by 2030 or 2031 or 2032 to growing our capacity to 5 gigawatts, if we don't add another campus after that. We would expect that we would, but it puts a really good growth path out for the company just having these campuses in place, just getting the 2 gigawatts, if we were talking about this a year ago, would be monumental for us. But if we can expand to 5 campuses and have a clear path to 5 gigawatts plus of capacity over the next 5 years, that's a really great position for [indiscernible] but all of those caps that expansion potential.

Great. I appreciate that. And with the discussions around NVIDIA this week with liquid cooling for [indiscernible] Rubins, can you discuss a bit on what makes Corintis a competitive solution?

So Corintis is really interesting. You could go and look at their technology. They had a very nice announcement with Microsoft, I think, a couple of months ago. What we like about it is Corintis has a cold plate technology that I liken to semiconductor and then module. A lot of semiconductors are built into modules. So they have the technology that I would classify in this case, a semiconductor, which is a specially designed patterned cold plate that is dependent on each chip individually. So whether it's [ B200, B300 ], Rubin, whatever it might be, they map that chip. They make the heat points of that chip. They design the cold plate with a lot of micro channels through it. And then it goes into a full cold plate and it sits on top right now. But this technology is designed to go inside the semiconductor packaging in the future and then actually inside the manufacturing process in the [ epi ] for semiconductors and the goal for this technology and a lot of this has proven out for them is that you can use -- if a chip goes, say, it's using 1 kilowatt down, but the next-generation chip uses 3 kilowatts or 5 kilowatts, this technology can use the same amount of liquid to chill chips as they go up. Now there's a point where that breaks and there's a change where we need more liquid. But from a data center operator perspective, when having that efficiency inside is always great for our customers, but to be able to deliver the same amount of liquid on the data center side for a chip that's 3x the power density of what we're currently running really helps us future-proof our infrastructure. And so we're really excited about that technology.

There are no further questions at this time. I'd like to turn the call back to Wes Cummins for closing comments. Sir, please go ahead.

Thanks, everyone, for joining us for our Q2 earnings call. I appreciate all of the support and look forward to speaking to you in April. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Good afternoon, and welcome to Applied Digital's Fiscal First Quarter 2026 Conference Call. My name is Constantin and I will be your operator for today. Before this call, Applied Digital issued its financial results for the fiscal first quarter ended August 31, 2025, and a press release a copy of which has been furnished in a report on a 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 to Digital's Chairman and CEO, Wes Cummins; and CFO, Saidal Mohmand. Following their remarks, we will be opening the call for questions. Before we begin, Matt Glover from Gately Group will make a brief introductory statement. Mr. Glover, you may begin.

Thank you, operator. Hello, everyone, and welcome to Applied Digital's Fiscal First Quarter 2026 Conference Call. Before management begins formal remarks, we'd like to remind everyone that some statements we're 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 the forward-looking statements. For more detailed risks, uncertainties and assumptions related 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 any 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 in the reconciliation tables, 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 with the caption Risk Factors in our annual report on Form 10-K and our quarterly reports on Form 10-Q. You may access play digital SEC filings for free by visiting the SEC website at www.sec.gov.

I'd like to remind everyone that this call is being recorded and will be made available for replay the link available in the Investor Relations section of Applied Digital's website.

Now I'd like turn the call over to Applied Digital's Chairman and CEO of West Cummins. Wes?

Thanks, Matt, and good afternoon, everyone. Thank you for joining our first quarter fiscal 2026 conference call. I'd like to begin by expressing my sincere appreciation to our employees for their continued dedication to our mission. -- delivering purpose-built infrastructure for the rapidly expanding artificial intelligence and high-performance computing sectors. Their commitment remains foundational with our success.

Before I turn the call over to our CFO, Saidal Mohmand, I want to highlight several key developments across the business, beginning with our HPC data center hosting segment. This quarter, we expanded our long-term lease agreements with CoreWeave, a publicly traded AI hyperscaler. Previously, we had 250 megawatts under contract or our L&D North Dakota campus, Alaris Forge One. That agreement represents approximately $7 billion in contracted revenue over 15 years. CoreWeave has since exercised its option and our leases now cover the full 400 megawatts of capacity currently under construction at Polaris Forge 1, increasing the total contract value to approximately $11 billion.

In addition to the underlying leases, CoreWeave has engaged us to perform the tenant fit out for the first 100 megawatts of the 400-megawatt campus. This further deepens our operational integration and demonstrates the added value we bring as a strategic partner to our tenants. We will continue to invest in new technologies and continue to grow our technical expertise as we believe that we can replicate this value-added business model to other tenants.

As a reminder, we believe Polaris Forge 1 has the potential to scale beyond 1 gigawatt starting in 2028 to 2030 when new transmission capabilities are expected to come online. We also broke ground on a new campus, Polaris Forge 2, near Hardwood North Dakota, where we are initially constructing 2 buildings totaling 300 megawatts of critical IT load. Over time, we believe this campus can scale to 1 gigawatt as additional generation capacity is added to the grid. We are already in early discussions with multiple parties to support that expansion.

Initial funding for Polaris Forge 2 has been secured by our financial partner, Macquarie Equipment Capital and construction is underway. We expect the first building to start coming online in late 2026 and reached full capacity in 2027. With that, the campus designed for future expansion. The initial development cost is projected to be approximately $3 billion with the potential to increase as additional power becomes available. We remain in finance discussions with an investment-grade hyperscaler regarding lease for this campus. We have also entered negotiations with 2 additional hyperscalers for 2 new locations.

Across the industry, the scale of investment in AI infrastructure is unprecedented. Publicly traded hyperscalers are projected to invest over $350 billion in AI data centers this year alone. To put this in historical perspective, the U.S. interstate highway system launched under President Eisenhower in our 1956 cost approximately $500 billion in inflation-adjusted dollars but took 30 years to complete. The Apollo program costs for roughly $150 billion to send humans to come on and spend more than a decade.

In contrast, public hyperscalers are projected to invest over $350 million in AI infrastructure in just a single year, an extraordinary concentration of capital that rivals the scale of America's most ambitious infrastructure efforts were compressed to a fraction of the time.

This surge in demand has made speed, reliability and readiness absolutely critical. The industry has come to recognize that the limiting factor in AI infrastructure employment is no longer GPU availability if lack of data centers capable of supporting those GPUs commonly referred to as AI factories. Simply, put the supply of suitable data centers, which can handle the technical requirements on most advanced AI silicon is falling short of demand.

We feel Applied Digital is uniquely positioned to meet this challenge. We were among the first to break ground in 2023 on next-generation data center designs capable of supporting the advanced power and cooling requirements of modern GPUs. We secured construction crews early assembled a team with deep expertise in power, land and supply chain logistics and build strong relationships with local communities through proactive engagement and education.

We also recruited top-tier data center talent well before the industry recognized the limitations of legacy designs. During the construction of our first 100-megawatt data center, leading hyperscaler sent teams to evaluate our campus working alongside us and ultimately validating our approach through what we believe was the most rigorous technical due diligence in the industry. At the same time, we cultivated relationships with major financial institutions like Macquarie Asset Management, who had a front row seat to these milestones.

As a result, we built trusted partnerships with the largest buyers and users of data center infrastructure in the world. We've also demonstrated our ability to deliver scale power dense facilities just as demand for our services has accelerated dramatically. While our pipeline spans multiple states and regions, I want to emphasize the strategic advantages of our North Dakota -- of our Northern campuses in the Dakotas. We believe these campuses have the ability to offer abundant low-cost synergy, a supportive regulatory environment and more than 200 days of free natural pooling annually. Our proprietary design is engineered for a projected PUE of 1.18 with near 0 water consumption. These innovations are not only intended to deliver efficiency for hyperscale customers but also minimize our environmental footprint and help us ensure we grow responsibly in every community we serve.

We believe that a hyperscaler lease for Polaris Forge 2 would be a significant milestone for Applied Digital and the State of North Dakota. We think the 2 anchor customers under $9 billion long-term contracts would be a meaningful step toward reaching our low strengthening our position in the market and also establishing the region as a major hub for hyperscale infrastructure. These long-term contracts should provide our company with exceptional visibility and clear path to long-term growth.

Lastly, while availability of power has been the primary focus for the overall market, it is becoming a secondary focus for us. With 4 gigawatts in our active development pipeline and more under review, our primary focus has become scaling, development and construction. As I stated on our last call, we've been able to shorten our construction time line to 12 to 14 months from 24 months, which was an important step. We have now scaled to develop multiple campuses in parallel. This has resulted in us now having 700 megawatts currently under construction. We are seeing that our proven ability to design and build at scale has resulted in an influx of power opportunities from third parties that have power and land but don't have the ability to design and build to meet the stringent demands of hyperscalers -- we expect to proceed with at least 1 of these third-party projects this year.

Turning to our blockchain hosting business. We continue to operate 286 megawatts of fully contracted capacity across our 2 North Dakota locations. Bitcoin prices remain strong, which is a positive indicator for our customers, and we remain optimistic about the business and its future.

Next, I'd like to address our cloud services business, which provides high-performance computing infrastructure for AI applications. As announced on our prior quarterly call, our Board of Directors initiated a strategic review of this segment, and their financial results are classified as held for sale. That process is ongoing. We will hold off on providing further updates until we have a definitive disposition plan to share with our shareholders.

With that, I'll turn the call over to our CFO, Saidal Mohmand, for a detailed review of our financials. Saidal?

Thanks, Wes, and good afternoon, everybody. Let me begin with the recent announcements regarding our financing. We secured an initial $112.5 million draw from a $5 billion preferred equity facility with Macquarie Asset Management to advance construction of Polaris Forge 1.. This structure is designed to fully finance the build-out and materially reduce future equity requirements across our platform. Importantly, securing capital at the asset level provides financing alignment in an asset-heavy business like ours and ensures the completion of the Polaris Forge 1 campus while also establishing a clear framework to scale additional canvases.

We also remain on track in our project financing process, as previously mentioned as well. Beyond Polaris Forge 1, as we previously announced, we secured funding from Macquarie Equipment Capital, another branch of Macquarie to launch construction of Polaris Forge 2. We intend to tap our preferred equity facility with Macquarie Asset Management to continue equity funding of this project. We are now advancing project financing for this campus as well to support the full buildout.

We remain relentlessly focused on a few core objectives: first, securing capital at the lowest possible cost, building repeatable financing structures and positioning the company to scale data center development across the United States. These are not easy undertakings, yet our team has executed with remarkable discipline.

As reflected on our balance sheet, we have now built and funded more than $1.6 billion in property and equipment. The fact that we began as a small Bitcoin hosting center business and are now executing transactions with the world leading hyperscalers banks and infrastructure partners underscores our essentiality to the intelligence era.

That said, we want investors to understand that these investments are just the beginning to return -- to generate returns and have yet to be reflected in our income statement. The first 100-megawatt building is nearing completion. And as Wes mentioned, where we have engaged us to perform the tenant fit out for this facility. This marks the initial phase of preparing the building to generate lease revenue.

This quarter, the core set out revenue -- the core refit-out revenue contributed around $26.3 million in revenue. And while we expect that figure to ramp significantly in the next quarter. While this is a onetime low-margin business, approximately mid-single digits is strategically important. We feel it demonstrates that companies like CoreWeave can rely on us for end-to-end services required to deploy state of the art data centers.

As we complete the fit-out over the calendar '25 year, we expect a significant increase in revenue from that work. This one, the net followed by the station the recognition of lease income for the first 100-megawatt building as it comes fully online towards the end of this calendar year.

Now let's turn to the quarter. Please note that unless otherwise specified, the figures are about to -- that we are about to discuss reflect continuing operations only and exclude the Cloud Services business. Revenues for the first fiscal quarter of fiscal '26 were $64.2 million, up 84% from $34.8 million in the fiscal first quarter of 2025. The increase was primarily due to the $26.3 million of revenue generated from the tenant fit-out services associated with our HPC hosting business. The remaining $5 million increase in revenue is related to the data center business and is due to performance improvements compared to the 3 months ended August 31, 2024.

Cost of revenues were $55.6 million compared to $22.7 million. Approximately $25 million of the increase in 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 was $29.2 million compared to $11 million. This increase was due to increases of $16.6 million in stock-based compensation due to accelerated vesting of certain employee stock awards and $3.9 million in personnel expenses for employee costs and other costs attributable to supporting growth of these businesses.

These costs were partially offset by a $2.3 million decrease in professional service expenses, primarily related to a decrease in legal services. Interest expense was $3.9 million compared to $3 million, and our net loss was $27.8 million or $0.11 per share. Adjusted net loss was $7.6 million or $0.03 per share, while adjusted EBITDA was $0.5 million compared to $6.3 million in the prior year. Moving to our balance sheet.

We ended the first fiscal quarter with $114.1 million in cash, cash equivalents and restricted cash, along with $687.3 million in debt. Note, this does not include the $362.5 million in proceeds from our financings that occurred subsequent to the quarter end.

Now with that, I'll turn over the call to Wes for closing remarks.

Thank you, Saidal. In closing, I want to emphasize that as we add a second location with Polaris Forge 2, we expect to see a significant increase in our net operating income anchored by long-term contracts with hyperscale tenants. Applied Digital is operating at the center of one of the most capital-intensive infrastructure build-outs in modern history with hyperscalers expected to invest approximately $350 billion in AI development this year alone. We're not just participating in it, we are enabling it. With the core we've leased supporting roughly $0.5 billion in annual net operating income and Polaris Forge 2 poised to significantly increase that figure, we are laying the foundation to reach our stated goal of $1 billion of NOI run rate within 5 years.

And this is just the beginning. The Department of Energy estimates power shortfall for data centers in the range of 40 to 50 gigawatts, while experts like Eric Schmidt from Google suggests it could exceed 90 gigawatts. We are developing a robust multi-gigawatt pipeline that is growing. While we've been selective in disclosing details for competitive reasons, we recognize the importance of communicating our power position to the market. We believe our pipeline is as strong or stronger than most of our peers, and we plan to continue to expand this in future updates. We are actively evaluating new sites across additional states and regions, and we are moving quickly to meet the accelerating demand.

On a personal note, as we review potential sites, this mission carries deep meaning for me. I grew up in a small town in Idaho and saw firsthand how major cities flourish through access to jobs and technology while rural communities were left behind. That's why I'm especially proud to partner with towns like Ellendale and Harwood. In most cases, when a company brings billions of dollars in construction to a region, it's the result of intense competition and aggressive tax incentives. In our case, we're choosing to invest in these communities because we see their potential and want to be part of their long-term success.

And this is particularly meaningful to me and my family. These projects represent more than infrastructure. They offer transformative opportunity from job creation to economic momentum that impact -- the impact is intended to be felt for generations. We also committed to minimizing our environmental impact through the latest design innovations, including strategies to reduce water usage and preserve local resources. In addition, we are investing in infrastructure upgrades to help minimize our impact on local utilities and manage the electrical demand required for each location. By proactively enhancing grid support and optimizing power distribution, we aim to ensure our developments strengthen, not strain the surrounding communities.

Our vision is for Applied Digital to be known as a job creator, tax contributor and trusted community partner because we believe growth only matters if it's done the right way. We've invested in housing, built community centers, participated in local events and supported initiatives in hopes to make these towns stronger. At the end of the day, this is the legacy I want our company to be remembered for. This is only the beginning for Applied Digital.

We're positioned at the convergence of unprecedented demand and proven execution capability. We have a design that has been approved by 4 hyperscalers. We have secured critical supply chain. We have scaled construction to 700 megawatts, and we have put capital partnerships in place to fund our rapid expansion.

With hyperscalers racing to deploy infrastructure and our platform already delivering, we believe the opportunity ahead is not only massive it's accelerating. We remain confident in our strategy, our partnerships and our ability to lead this next chapter of digital infrastructure.

We welcome your questions at this time. Operator?

[Operator Instructions] Our first question comes from the line of Nick Giles from B. Riley Securities.

Thank you very much, operator. My first question was just on the project financing. I think last quarter, you outlined a pathway to having announced in the near term. And obviously, we've seen the initial Macquarie draw here. But what are the largest remaining factors? And can you just remind us if we should expect financing for the first $150 million or if we should look for something that could be all $400 million?

I'll let Saidal answer that.

Thanks for the question. Yes. So in terms of the project financing, I would expect, just given the both buildings coming on over the next, call it, year, we're going to have the product financing entail both buildings. This is unique. Generally, it's building by building. But given the size and timing to market, we thought it was -- we felt it was appropriate to have both buildings on the same process. Note that this is one of the largest CoreWeave as a tenant financings occurring in the market. So we are finalizing and working through all the credit agreement docs, all the paperwork and what we're aiming for is having a facility in place that's in line, if not more optimal than what was currently announced from some of their competitors.

That's helpful. My next question was, just switching gears to Polaris Forge 2. Can you just remind us what's currently in place from just a power infrastructure perspective, is there a substation that's under construction, for instance? What about the power offtake agreement? Just would appreciate any updates there.

Yes. So Nick, you've seen that we announced 280 megawatts there, it's the initial utility power there will be some infrastructure built and put in place, but we'll meet the time line that we've talked about earlier, which is this location coming online in '26 and fully online in '27.

The next question is from the line of Rob Brown from Lake Street Capital Markets.

Okay. I just want to follow up a little bit. You talked about a couple of new hyperscalers in new locations that you're starting to look at. I can't get too much detail, but what's sort of the kind of time line there and potential that they could start to take action here and move forward.

It's a good question, Rob. Thank you. So we've started negotiations. I think what's important here, Rob, is we're getting into a place where I think we're going to constantly be in negotiation with new customers or existing customers for expansion at new and existing locations. And those will start -- those will run through their process and some of these could be 90 days or 120 days from start to finish. But I think the expectation, Rob, should be that this is going to be a constant for us. So we moved from Polaris Forge 1 where we're executing to Polaris Forge 2 or I think we'll have a contract in place in the very near term.

And then we have more campuses that we're working through, as I mentioned, a 4-gigawatt active pipeline that we're working on and then more outside of that. but it's just going to be a constant and we've seen a big acceleration in our business. And I think some of that is the market and some of that is the progress that we've made over the past 3 months, and we just need to make sure that we're in a good position to meet as much of that demand as we can meet.

Okay. Great. And then I think you talked about expanding the Polaris Forge 1 and 2 to 1 gigawatt. What's I guess the limiting factor there? What would you need to add that much power to those sites?

So as typical with most sites, even very large sites, you see announced, one of the things in the industry is there's no uniform way for you to come me versus someone else for the power because there's not all the details of what that entails and what the time line of that power is. But generally, at locations like this, you have initial power and then you scale over time. We're trying to match with so Ellendale, I would think now, that will go to about 1.4 gigawatts of total utility power a little over 1 gigawatt in hardwood of total utility power and it has to do with the infrastructure that transmits the power in some locations and in others it's about adding additional generation capability.

So the grid at large there, so not necessarily directly at that location, but the grid overall, and we have good line of sight on additional generation coming online in the areas that we needed to come online. But the goal, Rob, for us on these sites is to match the power ramp with our ability to build. So for building at the Polaris Forge 2, we're building 300 megawatts. And when we're wrapping that 300 megawatts up, the hoping that we've matched well where we can start our next 300 megawatts or their 150-megawatt building.

So at least one more of those buildings with power to be delivered. That building is finished and the same at, Ellendale we run through 27, and then we'll have new power coming there in 28 early to mid-2017, we're building for that 28 power, so that our building is ready when that power is available to be delivered

The next question comes from the line of Mike Grondahl from Northland Securities.

And congratulations on the $5 billion MAM financing. Can you talk a little bit about what that does demand financing does for you on a go-forward basis?

Sure, Mike. So Macquarie has been a big investor in data center for many years. They're really well known in the industry. And just us working with them and their relationships with hyperscalers and all of the processes they've been through before. is extraordinarily helpful just from the partnership perspective. But when you look from a capital perspective, what we're seeking to do there is we could finance the Ellendale campus Polaris Forge 1 by ourselves. You probably even finance Polaris Forge 2 by ourselves.

But what we're trying to put in place and what we have put in place now is the ability for us to scale much larger. We're looking more into the future and putting a mechanism in place that eliminates or minimizes the dilution of the public company for a set amount at the subsidiary for Macquarie. And this allows us to go forward the Macquarie Capital of $5 billion of capital really unlocks $20 billion to $25 billion of total capital for us when you include project finance.

And that allows us to build a significant amount of capacity and now our shareholders and yourself as an analyst, you know what the structure is for us, you know what the dilution looks like. We have the dilution down of a subsidiary for Macquarie and it really eliminates the need for us to just constantly be going to the market to raise capital to build these facilities.

That's helpful. And then you guys have talked about the project financing and the progress you've made there for the Ellendale CoreWeave 400 megawatts. Do you have any rough expected terms on that project financing you can kind of talk about at a high level?

Mike, this is Saidal. Yes. So to provide a little more color and not much has changed since the prior quarter. in terms of LTCs for CoreWeave-backed leases, we expect it to come around the 70% LTC range. We've seen anywhere from 70% to 80%, 80% tends to be a little bit of a higher cost given the structuring. In terms of pricing, we've seen anywhere from 400 to 450 basis points. I think one of those facilities was slightly higher at 475. We hope and expect to come in between the 400 to 450 basis points that's out there in terms of the spread over SOFR.

And then how it's bifurcated, it's very interesting, too. So what we've seen in the market, there is a bifurcation with take, for instance, a 70% LTC loan. You'll have 50% of that facility structure as a mortgage, generally lower price, call it, 300 to 335 basis points over so for what the CapEx is cash flow from the campus basically sweeping down the principal. And then the other 20 points of LTC is generally structured as a second lien or met facility anywhere from call it, 10%.

So it blends into that S plus 425. It's a very efficient structure and it's a unique way to finance high-grade tenants that right now are currently not investment grade, but perhaps in a year or 2 or become investment grade. So that's what we're seeing, and it's a dynamic landscape, and we expect to have completed within the quarter. guarantees, but a great progress.

The next question comes from the line of Darren Aftahi from ROTH Capital.

Can you, definitionally speaking, talk to how you define active pipeline, is that prospective exclusivity in development and where the food chain does that 4 gigs fall?

Yes. So Darren, what we look at -- so if I looked at what we have for 4 buckets, it's -- would be operating under construction, active pipeline and then pipeline. And so operating is 0 right now, and this quarter will drop 100 megawatts into operating. We have 700 megawatts in construction right now. Those are pretty easy to define. I mean, the digital active pipeline, these are things that we feel could move into that construction pipe into the construction box in the next 6 to 12 months. And some of those could be even sooner.

So those are things we're actively working on with permitting, with power, with all of those pieces that we think in the next 6 to 12 months can move into the construction pipeline. And then you have a further out pipeline that are things that we're constantly looking at. But we're saying that I don't think that, that can necessarily move into the construction pipeline within that time frame.

That's helpful. And then I guess, with doing multiple sites at once, obviously, you have the capital pace iron out. But in terms of like human capital and people, like how do you balance that? Is there enough resources for you guys to do that? And is your -- I mean you guys call are operating on a pretty aggressive time frame of 12 months, like what or any headwinds potentially that would secure that 12-month time frame that you guys are hoping to achieve all these sites?

Yes. So there's a couple of things on the human capital side, so inside the company. We've been working on this pretty aggressively for a while to get ourselves in a position to be able to scale. So the company has been focused on that building that first building, getting a customer now that's 3 buildings, we have a customer for the 3 buildings. And internally, we've been okay, we see what the demand looks like. We've been cultivating a very large power pipeline. And then we have thought about how do we scale this to multiple campuses at the same time, and we've put almost all of that in place internally that we need.

One of the big items, Darren, that is a big issue, and it will start to become more and more of an issue supply chain. So we've put the supply chain in place. I've talked about this before. We did this some time ago where we've landed with these key partners. We've narrowed down the number of SKUs that we use on site. We have a couple of key partners that we use on supply chain because we need to be able to ramp supply chain along with just having power and land isn't enough. And so we've been able to do that. And then -- so we're doing it in the Dakotas right now.

The key question for me is how much can we do I think we can at least do 1 more campus in the Dakotas in parallel. Can we do 2 more in the Dakotas in parallel because then you start getting into the localized labor force of work and then you can obviously pull from other areas. But you should expect us to do some campuses and other ads where we can pull on a different local labor pool to really execute on this. But those are the key items. And then what we're seeing because we have ability to do the design, to do construction. We have supply chain. We have all of these pieces. We've been getting flooded with our opportunities.

So I would say, in the last 4 weeks, we've seen over 50 different sites and I think we'll see a lot more of these where people -- there's been this big grab for power and for land and people who run out and grab power and it's valuable to have power they don't know what to do with it from there. And so we're stepping in is looking at these sites are being shown to us, and we're having a really stringent selection process on taking the right sites that are great locations for us to diversify our locations or geographically and then make sure that we can build for the right customers with the supply chain and the resources that we have.

Your next question comes from the line of George Sutton from Craig-Hallum.

[ Logan ] on for George this afternoon. First one for me, I noticed in the press release you're calling out that it sounds like the late-stage discussions with the customer at Heartwood. They would get a role on the full gigawatt there. I'm curious, is that kind of becoming a requirement for hyperscalers across the board like they're going to become a customer at a site? Are they looking for basically that line of sight to a gigawatt or some big amount of power? And I guess when we think about those other 2 sites that you called out where you're also in discussions, are those -- anything you can give us about what power is in place there? And are those also sites where you have sort of expansion capability down the road?

Yes, it's a great question. So what we're seeing in general is to ask is how fast can I get 200 megawatts and then the site needs to scale to a gigawatt. And so that's what we're providing in the majority of our discussions. So it's been kind of need '26 power. Now we're really moving into '27 at this point. And so that's our focus is that how fast can we get at least 200 and then scaling to a gigawatt. And so the sites that we talk about generally can all do that type of sale to a gigawatt. Now from a requirement that -- that's the general demand. There's enough demand now that you could do sites that don't have to scale to a gigawatt because that's a significant scale.

But the other piece I would say is we're being asked for sizes significantly beyond that. we've even had some discussions on sites that are 10x that size. So what we're seeing from a demand perspective in the market and the trend where it's going now is larger scale sites, both for training and for inference, but built in a single location so that the cost advantages of building a scale in a single location.

Got it. And then just one other. I mean it sounds like a pretty late stage at Harwood. Just from like a lease economic standpoint, should we look for something similar to what you guys got done at Ellendale or a different end customer there potentially lead to different lease economics?

Yes, you should -- you should expect. So what we focus on is the kind of the spread, right? And the spread is what is our cost of capital versus the tenant that we signed at a location. And so if you have an investment-grade hyperscaler, then the cost of capital for us is lower from a project finance perspective. So you should expect that there's the lower economics versus the headline economics, but you should be expecting a similar spread between those 2 from a cost to capital and then a revenue perspective so that we are getting really the same return from an economic perspective, but that's what you should expect.

The next question comes from the line of Michael Donovan from Compass Point.

Question on supply chain side. So what are you seeing in the supply chain for long lead equipment such as the transformers generators and have lead times or pricing shifted materially in the past 6 months?

So I think the lead times have become kind of stretch in the industry. Again, for us, specifically, we secure these 2 years ago, and we bought out some -- a lot of manufacturing capacity to supply what we'll need for the future because we expected supply chain to be one of the critical components for this. But for ourselves, specifically, we haven't seen a lot of pricing inflation or stretching of what we're ordering because of how we went about that. But I think you're generally seeing that throughout the industry.

Okay. That's helpful. And then just for a clarification around Macquarie for the $5 billion and thinking of Polaris Forge, how much additional funding will be needed for PF 1 for those 3 buildings? Or does that cover all of it?

So between Macquarie and the project finance, we don't expect to contribute ourselves any additional funding into Polaris Forge 1. That will be funded by the project finance and the core financing.

The next question comes from the line of John Todaro from Needham.

It's [ Austin Ortiz ] on the line for John Todaro. Just a quick question on South Dakota. Is there any, I guess, expected power to come online potentially in 2026 or 2027 in the pipeline? Or just any updates on South Dakota, if possible?

So South Dakota, the power will be available in 26 there. However, the piece that we're working on in South Dakota is a sales tax exemption that I believe 41 other states have for IT equipment for data center and -- so we're working through the process there in South Dakota, and I know there's other hyperscalers that are working through that same process. But that's really the gating item for South Dakota is not the power for us.

The last question is from the line of Nick Giles from B. Riley Securities.

I just had one. I first wanted to clarify. I think you said project financing could be wrapped up within the quarter. Would that be calendar or fiscal? And were to take longer, how much more could you draw from them?

Yes, the fiscal quarter.

Appreciate that. And then was that a follow-up always appreciate your industry commentary around demand. I mean, demand still sounds really strong. And obviously, economics today are being determined by availability of power. But as we go out to 2027 and 2028, do you think it's still going to be driven by ability or what other factors would you highlight?

I would highlight, generally now, I think there's a couple of things. So everyone has been scrambling when you can power turn on and when you build a building. But I think as we go through the next 12 months, there's going to be potentially some a bit of a shakeout for things just not being -- meeting construction time lines.

I think there's just a lot of new entrants in the market at large. And I think there's some lessons that we learned a few years ago about the process of building these a lot of other new entrants. So probably we'll have to learn. So I think you'll see projects get delayed. And then there will be proven vendors, proven developers that get more and more of the business as we go forward kind of in '27 and '28.

There are no further questions at this time. So I'd like to turn the call back over to Wes Cummins for closing comments. Sir, please go ahead.

Thanks, everyone, for joining the call for our fiscal first quarter, and I look forward to speaking with you in January.

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.