Applied Digital Corp
For the period ended Feb 29, 2024. Filed Apr 11, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Feb 29, 2024 · Filed Apr 11, 2024
APLD$15.55+9.7%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2023-11-30; filed 2024-01-16.
0001144879-24-000010
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-02-29; filed 2024-04-11.
0001144879-24-000078
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 132 previous paragraphs and 147 current paragraphs.
48 unchanged; 45 reworded; 52 added; 36 removed; 3 previous and 2 current paragraphs rearranged.
Tables are not compared: 4 previous and 4 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (52)
Current report
•our sensitivity to general economic conditions including changes in disposable income levels and consumer spending trends;
Current report
The Company’s 100 MW facility in Jamestown, North Dakota operated at full capacity during the quarter ended February 29, 2024; however, the Company’s 180 MW facility in Ellendale, North Dakota experienced a power outage starting in January. In response to these challenges, our utility provider installed transformers to enable us to selectively power-down the affected portions of our site. Upon re-energization we have determined the failures were due to transformers not meeting industry standards. The Company has successfully procured new transformers and related components from North American manufacturers. As of the date of this report, the Ellendale facility has begun energization and has been re-energized to approximately 14% of its full capacity, or 25 MW. In addition, the Company anticipates that as new transformers are received and installed, the Ellendale facility will target operating capacity of approximately 65%-75% of full capacity by the end of May 2024.
Current report
During the quarter ended February 29, 2024, the Company increased its energy capacity at its 200 MW Garden City, Texas facility up to 132 MW. As of February 29, 2024, the Company determined the Garden City facility met the criteria for classification as held for sale. On March 14, 2024, the Company entered into a purchase and sale agreement (the “Purchase and Sale Agreement”) with Mara Garden City LLC, a Delaware limited liability company and a subsidiary of Marathon Digital Holdings, Inc. (“Marathon”), pursuant to which the Company and related subsidiaries agreed to sell to Mara Garden City LLC the Garden City hosting facility (“the Transaction”) for total cash consideration of up to of $87.3 million. The Company will also receive approximately $10.0 million in additional consideration at the closing of the Transaction (the “Closing”) in connection with the surrender of certain of Marathon’s revenue prepayments under its existing service agreements with the Company. The Company recognized a loss of approximately $21.7 million in connection with the classification of assets held for sale to recognize the assets at fair value less costs to sell, which was less than the asset’s carrying value at February 29, 2024.
Current report
The Purchase and Sale Agreement contains customary representations and warranties made by the parties, covenants and agreements, and Closing conditions and post-Closing obligations. In addition, in the event the full intended additional megawatt energization for the Facility is not conditionally approved by the applicable regulatory authority within 120 days of the Closing, the total cash consideration is subject to a reduction of up to $34.0 million, depending on the amount of the additional megawatt energization that is not conditionally approved.
Current report
Applied Digital’s Cloud Services business provides high-performance computing power for artificial intelligence and machine learning applications. The Company continues to seek and sign additional customers and the pipeline remains robust. Near the end of the quarter, equipment began generating revenue, which the Company expects will make a positive impact on the financial performance of this segment in the fiscal fourth quarter.
Current report
Applied Digital’s HPC hosting business designs, builds, and operates next-generation data centers, which are designed to provide massive computing power and support high-performance computing applications within a cost-effective model. During the fiscal second quarter, the Company broke ground on its first 100 MW high-performance compute facility in Ellendale, North Dakota. The new 342,000-square-foot building will provide ultra-low cost and highly efficient liquid-cooled infrastructure for HPC applications.
Current report
The Company has entered into exclusivity and executed an letter of intent with a US-based hyperscaler for a 400 MW capacity lease, inclusive of our current 100 MW facility and two forthcoming buildings in Ellendale, North Dakota. The Company is in advanced discussions with traditional financing counterparties for this investment-grade tenant. The exclusive negotiation period with the initial HPC anchor tenant identified for our Ellendale campus expired at the end of March.
Current report
Comparative Results for the Three and Nine Months Ended February 29, 2024 and February 28, 2023:
Current report
(1)Includes cost of revenues attributable to related party revenues of $2.5 million and $3.1 million for the three months ended February 29, 2024 and February 28, 2023, respectively, and $6.6 million and $8.8 million for the nine months ended February 29, 2024 and February 28, 2023, respectively.
Current report
(2)Includes related party selling, general and administrative expense of $0.1 million and $0.5 million for the three and nine months ended February 29, 2024, respectively. There was no related party selling, general and administrative expense incurred during the three and nine months ended February 28, 2023.
Current report
(3)Includes related party interest expense of $0.2 million and $0.8 million for the three months ended and nine months ended February 29, 2024, respectively. There was no related party debt issued during three and nine months ended February 28, 2023 and as such, no interest expense was incurred related to related party debt.
Current report
(4)Amounts included in the nine months ended February 29, 2024 are related to the extinguishment of related party debt.
Current report
Revenue increased $30.2 million, or 301%, from $10.1 million for the three months ended February 28, 2023 to $40.3 million for the three months ended February 29, 2024 driven by increased capacity across the Company’s three Datacenter hosting facilities between periods as well as the Company recognizing revenue under its Cloud services segment during the three months ended February 29, 2024 due to the launch of the service during the current fiscal year.
Current report
Related party revenue decreased $.9 million, or 24%, from $4.0 million for the three months ended February 28, 2023 to $3.1 million for the three months ended February 29, 2024 driven by reduced uptime and pricing compared to the prior year comparable period.
Current report
•approximately $13.8 million increase in depreciation and amortization expense due to an increase in owned and leased assets in-service directly supporting revenue;
Current report
•approximately $2.0 million increase in personnel expenses for employee costs directly attributable to generating revenue resulting from increased headcount supporting revenue;
Current report
•approximately $1.2 million increase in lease and related expenses for the use of datacenter space to support the Company’s cloud services business; and
Current report
Selling, general and administrative expense
Current report
Selling, general and administrative expense increased $19.9 million, or 188%, from $10.5 million for the three months ended February 28, 2023 to $30.4 million for the three months ended February 29, 2024. The increase was primarily due to the overall growth in the business. The change in selling, general and administrative expense is categorized as follows:
Current report
•approximately $10.4 million increase in depreciation and amortization expense due to an increase in owned and leased assets that are not currently being used to generate revenue;
Current report
•approximately $4.5 million increase in lease and related expenses for datacenter space not yet being used to generate revenue;
Current report
•approximately $0.3 million increase in personnel expense to support the growth of the business.
Current report
Loss on classification of held for sale
Current report
Loss on classification of held for sale was $21.7 million for the three months ended February 29, 2024 due to the write down of the Garden City assets to their fair market value as a result of the planned sale of that facility. There were no such losses recorded in the prior year comparative period.
Current report
Interest expense, net
Current report
Loss on change in fair value of related party debt
Current report
Loss on change in fair value of related party debt was $2.6 million for the three months ended February 29, 2024 due to the valuation associated with the Company’s borrowings under the AI Bridge Loan. There were no such losses recorded in the prior year comparative period.
Current report
Revenue increased $87.9 million, or 380%, from $23.1 million for the nine months ended February 28, 2023 to $111.0 million for the nine months ended February 29, 2024 driven by increased capacity across the Company’s three Datacenter hosting facilities between periods as well as the Company recognizing revenue under its Cloud services segment due to the launch of the service during the current fiscal year.
Current report
•approximately $24.8 million increase in depreciation and amortization expense due to an increase in owned and leased assets directly supporting revenue;
Current report
•approximately $5.0 million increase in personnel expenses for employee costs directly attributable to generating revenue resulting from increased headcount supporting revenue;
Current report
•approximately $2.7 million increase in lease and related expenses for the use of datacenter space to support the Company’s cloud services business; and
Current report
Selling, general and administrative expense
Current report
Selling, general and administrative expense increased by $24.4 million, or 57%, from $42.8 million for the nine months ended February 28, 2023 to $67.1 million for the nine months ended February 29, 2024. The increase was primarily due to the overall growth in the business. The change in selling, general and administrative expense is categorized as follows:
Current report
•approximately $18.3 million increase in depreciation and amortization expense due to an increase in owned and leased assets that are not currently being used to generate revenue;
Current report
•approximately $6.6 million increase in other expenses such as operating leases expense for datacenter space not yet being used to generate revenue;
Current report
•approximately $4.6 million increase in professional service expenses related to legal services provided on discrete transactions and projects as well as general support of the business; and
Current report
Loss on classification of held for sale
Current report
Loss on classification of held for sale was $21.7 million for the nine months ended February 29, 2024 due to the write down of the Garden City assets to their fair market value as part of the planned sale of that facility. There were no such losses recorded in the prior year comparative period.
Current report
Interest expense, net
Current report
Loss on change in fair value of related party debt
Showing the first 40 of 52 passages. Open the source sections for the rest.
Removed paragraphs (36)
Previous report
Our Cloud services business operates through our Sai Computing brand and provides cloud services to customers, such as artificial intelligence and machine learning developers, to develop their advanced products.
Previous report
During the six months ended November 30, 2023, the Company received and deployed an initial production cluster of 1,024 GPUs, and began recognizing revenue on our first cloud services contract.
Previous report
Our HPC hosting business designs, builds, and operates datacenters which are designed to support high-compute applications using advanced and sophisticated infrastructures to provide services to customers.
Previous report
The Company is in process of constructing a facility next to the Company’s currently operating facilities in Jamestown, North Dakota, and Ellendale, North Dakota.
Previous report
On January 15, 2024, the Company entered into a conditional agreement to provide HPC datacenter capacity at its Ellendale, North Dakota campus, subject to finalization of definitive lease documents. The conditional agreement is for a total of 100 MWs for a term of 10 years, with a total value of approximately $2.2 billion over such 10 year term. The conditional agreement is conditioned upon each party securing satisfactory financing for the completion of construction, with the ability of each party to terminate within 45 days, without penalty, if the condition is not satisfied.
Previous report
As of November 30, 2023, the Company’s 106 MW facility in Jamestown, North Dakota and 180 MW facility in Ellendale, North Dakota were fully operational. During the quarter ended November 30, 2023, the Company entered into a long term
Previous report
Retail Electric Service Agreement with TerraForm Power to provide energy to the Company’s 200 MW Garden City, Texas facility and the Company began energizing the facility.
Previous report
Comparative Results for the Three and Six Months Ended November 30, 2023 and 2022:
Previous report
Datacenter hosting revenue increased $25.4 million, or 290%, from $8.7 million for the three months ended November 30, 2022 to $34.1 million for the three months ended November 30, 2023 driven primarily by a full quarter of revenue generation from the Company’s Ellendale facility as well as the Garden City facility beginning revenue generation during the second quarter of fiscal year 2024.
Previous report
Cloud services revenue increased $4.5 million, or 100%, from zero for the three months ended November 30, 2022 to $4.5 million for the three months ended November 30, 2023 driven by a full quarter of revenue generation as the Company began providing service to its cloud services customers during the first quarter of fiscal year 2024.
Previous report
Related party datacenter hosting revenue was $3.6 million for the three months ended November 30, 2023 which was comparable to $3.6 million for the three months ended November 30, 2022.
Previous report
•approximately $7.7 million increase in depreciation and amortization expense attributable to owned and leased assets directly supporting revenue;
Previous report
•approximately $1.0 million increase in personnel expenses for employees directly attributable to generating revenue; and
Previous report
Selling, general and administrative expenses
Previous report
•approximately $5.0 million increase in depreciation and amortization expense attributable to owned and leased assets that do not directly support revenue;
Previous report
•approximately $2.0 million increase in employee salaries and benefits expense not directly attributable to revenues;
Previous report
•approximately $1.5 million increase in colocation lease expenses, incurred prior to services being provided, due to the growth of the business; and
Previous report
Other expenses
Previous report
Datacenter hosting revenues increased $51.0 million, or 390%, from $13.1 million for the six months ended November 30, 2022 to $64.1 million for the six months ended November 30, 2023. The increase in datacenter hosting revenues was driven by a full six months of operations at our Ellendale, North Dakota facility as well as as well as the Garden City facility beginning revenue generation during the second quarter of fiscal year 2024.
Previous report
Cloud services revenue increased $6.6 million, or 100%, from zero for the six months ended November 30, 2022 to $6.6 million for the six months ended November 30, 2023 due to revenue from the Company’s first cloud services contract, which started during the first quarter of fiscal year 2024.
Previous report
•approximately $11.6 million increase in depreciation and amortization expense attributable to owned and leased assets directly supporting revenue;
Previous report
•approximately $2.1 million increase in personnel expenses for employees directly attributable to generating revenue; and
Previous report
Selling, general and administrative expenses
Previous report
Selling, general and administrative expenses increased by $5.9 million, or 18%, from $32.2 million for the six months ended November 30, 2022 to $38.1 million for the six months ended November 30, 2023. The primary drivers of the change to selling, general and administrative expense for the six months ended November 30, 2023 were:
Previous report
•approximately $7.8 million increase in depreciation and amortization expense not attributable to owned and leased assets directly supporting revenue;
Previous report
•approximately $3.8 million increase in employee salaries and benefits expense not directly attributable to revenues;
Previous report
•approximately $1.9 million increase in colocation lease expenses, incurred prior to services being provided, due to the growth of the business; and
Previous report
Other expenses
Previous report
Income tax benefit
Previous report
Operating Profit
Previous report
Operating Profit
Previous report
“Adjusted Operating Loss” is a non-GAAP measure that represents operating loss excluding stock-based compensation, loss from legal settlement, non-recurring professional service costs and other non-recurring expenses. “Adjusted Net Loss” is a non-GAAP measure that represents net loss excluding stock-based compensation, loss on extinguishment of debt, loss on legal settlement, non-recurring professional services costs and other non-recurring expenses. We believe these are useful metrics as they provide additional information regarding factors and trends affecting our business and provide perspective on results absent one-time or significant non-cash items. However, the Company’s presentation of these measures should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. The Company’s computation of Adjusted Operating Loss and Adjusted Net Loss may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted Operating Loss and Adjusted Net Loss in the same fashion.
Previous report
Because of these limitations, Adjusted Operating Loss and Adjusted Net Loss should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. The Company compensates for these limitations by relying primarily on its GAAP results and using Adjusted Operating Loss and Adjusted Net Loss on a supplemental basis. You should review the reconciliation of operating loss to Adjusted Operating Loss and net loss to Adjusted Net Loss above and not rely on any single financial measure to evaluate the Company’s business.
Previous report
“EBITDA” is defined as earnings before interest, taxes, and depreciation and amortization. “Adjusted EBITDA” is defined as EBITDA adjusted for stock-based compensation, loss on extinguishment of debt, loss from legal settlement, non-recurring professional service costs, and other non-recurring expenses. These costs have been adjusted as they are not indicative of business operations. Adjusted EBITDA is intended as a supplemental measure of the Company’s performance that is neither required by, nor presented in accordance with, GAAP. The Company believes that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing its financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. We also believe EBITDA and Adjusted EBITDA are useful metrics to investors because they provide additional information regarding factors and trends affecting our business, which are used in the business planning process to understand expected operating performance, to evaluate results against those expectations, and because of their importance as measures of underlying operating performance, as the primary compensation performance measure under certain programs and plans. However, you should be aware that when evaluating EBITDA and Adjusted EBITDA, the Company may incur future expenses similar to those excluded when calculating these measures. In addition, the Company’s presentation of these measures should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. the Company’s computation of Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate Adjusted EBITDA in the same fashion.
Previous report
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. The Company compensates for these limitations by relying primarily on its GAAP results and using EBITDA and Adjusted EBITDA on a supplemental basis. You should review the reconciliation of net loss to EBITDA and Adjusted EBITDA above and not rely on any single financial measure to evaluate the Company’s business.
Previous report
Further, during December 2023, the Company received payments from cloud services customers totaling $8.1 million and $3.0 million from datacenter hosting customers for future services.
Reworded paragraphs (45)
Previous wording
We are a designer, builder, and operator of digital infrastructure providing cost-competitive solutions to customers in high-performance compute hosting (“HPC hosting”), cloud service (“Cloud services”), and datacenter hosting (“Datacenter hosting”) industries.
Current wording
We are a designer, builder, and operator of digital infrastructure providing cost-competitive solutions to customers in the high-performance compute hosting (“HPC hosting”), cloud services (“Cloud services”), and datacenter hosting (“Datacenter hosting”) industries.
Previous wording
We have a material concentration of customers in the crypto mining industry. Our customers’ businesses are subject to extensive laws, rules, regulations, policies and legal and regulatory guidance, including those governing securities, commodities, cryptoasset custody, exchange and transfer, data governance, data protection, cybersecurity and tax. Many of these legal and regulatory regimes were adopted prior to the advent of the Internet, mobile technologies, cryptoassets and related technologies. As a result, they do not contemplate or address unique issues associated with the crypto economy, are subject to significant uncertainty, and vary widely across U.S. federal, state and local and international jurisdictions. These legal and regulatory regimes, including the laws, rules and regulations thereunder, evolve frequently and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another. Moreover, the complexity and evolving nature of our business and the significant uncertainty surrounding the regulation of the crypto economy requires us to exercise our judgement as to whether certain laws, rules and regulations apply to us or our customers, and it is possible that governmental bodies and regulators may disagree with our or our customers’ conclusions. To the extent we or our customers have not complied with such laws, rules and regulations, we could be subject to significant fines and other regulatory consequences, which could adversely affect our business, prospects or operations. As cryptoassets have grown in popularity and in market size, the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the Commodity Futures Trading Commission, the SEC, the Financial Crimes Enforcement Network and the Federal Bureau of Investigation) have begun to examine the operations of cryptoasset networks, cryptoasset users and cryptoasset exchange markets. Other countries around the world are likewise reviewing and, in some cases, increasing regulation of the cryptoasset industry. For instance, on September 24, 2021, China imposed a ban on all crypto transactions and mining.
Current wording
Moreover, the complexity and evolving nature of our business and the significant uncertainty surrounding the regulation of the crypto economy requires us to exercise our judgement as to whether certain laws, rules and regulations apply to us or our customers, and it is possible that governmental bodies and regulators may disagree with our or our customers’ conclusions. To the extent we or our customers have not complied with such laws, rules and regulations, we could be subject to significant fines and other regulatory consequences, which could adversely affect our business, prospects or operations. As cryptoassets have grown in popularity and in market size, the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the Commodity Futures Trading Commission, the SEC, the Financial Crimes Enforcement Network and the Federal Bureau of Investigation) have begun to examine the operations of cryptoasset networks, cryptoasset users and cryptoasset exchange markets. Other countries around the world are likewise reviewing and, in some cases, increasing regulation of the cryptoasset industry. For instance, on September 24, 2021, China imposed a ban on all crypto transactions and mining.
Previous wording
Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our unaudited condensed consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our critical accounting policies and estimates are identified and described in our annual consolidated financial statements and the related notes included in our Annual Report, and there have been no material changes since the filing of our Annual Report.
Current wording
Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our unaudited condensed consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our critical accounting policies and estimates are identified and described in our annual consolidated financial statements and the related notes included in our Annual Report on Form 10-K and our subsequent Quarterly Reports on Form 10-Q.
Previous wording
The following table sets forth key components of the results of operations (in thousands) during the three and six months ended November 30, 2023 and 2022.
Current wording
The following table sets forth key components of the results of operations (in thousands) during the three and nine months ended February 29, 2024 and February 28, 2023.
Previous wording
(a)Adjusted Amounts and Other Financial Data are non-GAAP performance measures. A reconciliation of reported amounts to adjusted amounts can be found in the "Non-GAAP Measures and Reconciliation" section of the MD&A.
Current wording
(5)Adjusted Amounts and Other Financial Data are non-GAAP performance measures. A reconciliation of reported amounts to adjusted amounts can be found in the "Non-GAAP Measures and Reconciliation" section of MD&A.
Previous wording
Cost of revenues increased $17.4 million, or 147%, from $11.8 million for the three months ended November 30, 2022 to $29.2 million for the three months ended November 30, 2023. The increase was primarily driven by the growth in the business as more facilities were energized compared to the three months ended November 30, 2022. The change in cost of revenues are categorized as follows:
Current wording
Cost of revenues increased $36.5 million, or 347%, from $10.5 million for the three months ended February 28, 2023 to $47.1 million for the three months ended February 29, 2024. The increase was primarily driven by the growth in the business as more facilities were energized and as additional services were provided to customers compared to the three months ended February 28, 2023. The change in cost of revenues is categorized as follows:
Previous wording
•approximately $8.2 million increase in energy costs used to generate revenue;
Current wording
•approximately $18.3 million increase in energy costs used to generate revenue;
Previous wording
•approximately $0.5 million increase in other expenses directly attributable to generating revenue.
Current wording
•approximately $1.2 million increase in other expenses directly attributable to generating revenue.
Previous wording
•approximately $0.5 million increase in professional service expenses incurred to support the growth of the business.
Current wording
•approximately $3.9 million increase in professional service expenses incurred related to legal services provided on discrete transactions and projects as well as general support of the business;
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•approximately $1.9 million increase in other selling, general, and administrative expenses such as insurance premiums and computer and software expenses;
Current wording
•approximately $0.7 million increase in other selling, general, and administrative expenses such as insurance premiums and computer and software expenses; and
Previous wording
Interest expense, net increased $2.0 million, or 547%, from $0.4 million for the three months ended November 30, 2022 to $2.4 million for the three months ended November 30, 2023. The increase was driven by an increase in finance leases and interest-bearing loans between periods.
Current wording
Interest expense, net increased $4.1 million, or 1151%, from $0.4 million for the three months ended February 28, 2023 to $4.4 million for the three months ended February 29, 2024. The increase was driven by an increase in finance leases and interest-bearing loans between periods.
Previous wording
Commentary on Results of Operations Comparative Results for the Six Months Ended November 30, 2023 compared to the Six Months Ended November 30, 2022
Current wording
Commentary on Results of Operations Comparative Results for the Nine Months Ended February 29, 2024 compared to the Nine Months Ended February 28, 2023
Previous wording
Related party datacenter hosting revenue increased $1.6 million, or 27%, from $6.2 million for the six months ended November 30, 2022 to $7.8 million for the six months ended November 30, 2023 driven by increased uptime at the Company’s Jamestown, North Dakota facility.
Current wording
Related party revenue increased $0.7 million, or 7%, from $10.2 million for the nine months ended February 28, 2023 to $10.9 million for the nine months ended February 29, 2024 driven by increased uptime at the Company’s Jamestown, North Dakota facility throughout the period.
Previous wording
Cost of revenues increased by $35.7 million, or 199%, from $17.9 million for the six months ended November 30, 2022 to $53.6 million for the six months ended November 30, 2023. The increase is primarily driven by the growth in the business as more facilities were energized compared to the six months ended November 30, 2022. The change in cost of revenues are categorized as follows:
Current wording
Cost of revenues increased by $73.6 million, or 259%, from $28.4 million for the nine months ended February 28, 2023 to $102.1 million for the nine months ended February 29, 2024. The increase was primarily driven by the growth in the business as more facilities were energized and more services were provided to customers compared to the nine months ended February 28, 2023. The changes in cost of revenues are categorized as follows:
Previous wording
•approximately $21.1 million increase in energy costs used to generate revenue;
Current wording
•approximately $39.3 million increase in energy costs used to generate revenue;
Previous wording
•approximately $0.9 million increase in other expenses directly attributable to generating revenue.
Current wording
•approximately $1.9 million increase in other expenses directly attributable to generating revenue.
Previous wording
•approximately $3.7 million increase in other selling, general, and administrative expenses such as insurance premiums and computer and software expenses;
Current wording
•approximately $3.6 million increase in other selling, general, and administrative expense such as insurance premiums and computer and software expenses.
Previous wording
These increases were partially offset by a $12.0 million decrease in stock based compensation expense, as the Company recognized a cumulative catch-up of expense in stock based compensation expense in the comparative period upon the Company’s registration statement for the award shares being declared effective.
Current wording
This increase was partially offset by a decrease of approximately $8.6 million in personnel expenses largely driven by a decrease stock-based compensation expense, as the Company recognized a cumulative catch-up in stock-based compensation expense in the comparative period upon the Company’s registration statement for the award shares being declared effective.
Previous wording
Loss from legal settlement was $2.4 million for the six months ended November 30, 2023 primarily due to a settlement agreement entered into by the Company in respect to employment-related claims by a former executive. The terms of the settlement include payment to the claimant of $2.3 million.
Current wording
Loss from legal settlement was $2.4 million for the nine months ended February 29, 2024 primarily due to a settlement agreement entered into by the Company in respect to employment-related claims by a former executive. The terms of the settlement include payment to the claimant of $2.3 million. There were no such losses recorded in the prior year comparative period.
Previous wording
Interest expense, net increased $3.7 million, or 525% , from $0.7 million for the six months ended November 30, 2022 to $4.4 million for the six months ended November 30, 2023 driven by an increase in finance leases and change in the Company’s debt obligations between periods.
Current wording
Interest expense, net increased $7.8 million, or 733% , from $1.1 million for the nine months ended February 28, 2023 to $8.8 million for the nine months ended February 29, 2024 driven by increases in finance leases and debt obligations between periods.
Previous wording
Loss on extinguishment of debt increased $2.3 million, or 2403%, from $0.1 million for the six months ended November 30, 2022 to $2.4 million for the six months ended November 30, 2023. The increase was driven by the termination fees to extinguish the B. Riley loan during the six months ended November 30, 2023.
Current wording
Loss on extinguishment of debt increased $2.3 million, or 2401%, from $0.1 million for the nine months ended February 28, 2023 to $2.4 million for the nine months ended February 29, 2024. The increase was driven by the termination fees to extinguish the B. Riley related party loan during the nine months ended February 29, 2024.
Previous wording
Income tax benefit decreased $0.3 million or 100% from a $0.3 million benefit for the six months ended November 30, 2022 to zero for the six months ended November 30, 2023. This change was driven by a change in valuation allowance for the six months ended November 30, 2023 compared to the six months ended November 30, 2022.
Current wording
Income tax benefit decreased $0.3 million or 100% from a $0.3 million benefit for the nine months ended February 28, 2023 to zero for the nine months ended February 29, 2024. This change was driven by a change in valuation allowance for the nine months ended February 29, 2024 compared to the nine months ended February 28, 2023.
Previous wording
Comparative Segment Data for the Three and Six Months Ended November 30, 2023 and 2022:
Current wording
Comparative Segment Data for the Three and Nine Months Ended February 29, 2024 and February 28, 2023:
Previous wording
The following table sets forth the Company’s operating profit for each of our segments for the three and six months ended November 30, 2023 and 2022 (in thousands):
Current wording
The following table sets forth the Company’s operating profit for each of our segments for the three and nine months ended February 29, 2024 and February 28, 2023 (in thousands):
Previous wording
Datacenter hosting operating profit increased $25.1 million, or 176% from a loss of $14.2 million for the three months ended November 30, 2022 to a profit of $10.8 million for the three months ended November 30, 2023. The change is driven by full energization of the Company’s Ellendale, North Dakota and Jamestown, North Dakota facilities during the three months ended November 30, 2023, relative to operations only at the Company’s Jamestown facility during the the three months ended November 30, 2022. The change is also driven by a decrease in stock-based compensation between the periods.
Current wording
Datacenter hosting operating loss increased $21.3 million, or 684% from a loss of $3.1 million for the three months ended February 28, 2023 to a loss of $24.4 million for the three months ended February 29, 2024. The change was primarily driven by the loss on classification of held for sale which the Company recognized in association with the planned sale of the Garden City facility, as well as accelerated depreciation and amortization recognized in relation to outage incidents at the Ellendale, North Dakota facility. This loss was partially offset by an increase in MW capacity across the Company’s three Datacenter hosting facilities during the three months ended February 29, 2024, compared to operations only at the Company’s Jamestown facility during the the three months ended February 28, 2023, as well as a decrease in stock-based compensation between the periods.
Previous wording
Cloud services operating loss increased $11.7 million, from zero for the three months ended November 30, 2022 to $11.7 million for the three months ended November 30, 2023. The operating loss is primarily driven by amortization expense on finance leases on computing equipment, occupancy costs from operating leases, and stock-based compensation expense attributable to the segment.
Current wording
Cloud services operating loss increased $20.8 million, from a loss of $0.7 million for the three months ended February 28, 2023 to a loss of $21.6 million for the three months ended February 29, 2024 primarily driven by amortization expense on finance leases on computing equipment, occupancy costs from operating leases, and an increase stock-based compensation expense attributable to the segment as the Company ramps up its Cloud services operations.
Previous wording
HPC hosting operating loss increased $1.7 million, or 100% from zero to $1.7 million due to the Company launching the segment during the current period. The loss is largely comprised of stock-based compensation expense, payroll, and amortization expense related to finance leases in the HPC hosting buildout.
Current wording
HPC hosting operating loss increased $1.4 million, or 7928% from a loss of $18 thousand to a loss of $1.4 million. The loss was largely comprised of stock-based compensation expense, payroll, and amortization expense related to finance leases as the Company ramps up its HPC hosting operations.
Previous wording
Commentary on Segment Data Comparative Results for the Six Months Ended November 30, 2023 compared to the Six Months Ended November 30, 2022
Current wording
Commentary on Segment Data Comparative Results for the Nine Months Ended February 29, 2024 compared to the Nine Months Ended February 28, 2023
Previous wording
Datacenter hosting operating profit increased $34.9 million, or 231% from a loss of $15.1 million for the six months ended November 30, 2022 to a profit of $19.8 million for the six months ended November 30, 2023. The change is driven by a full six months of operations at our Ellendale, North Dakota facility as well as the Garden City facility beginning revenue generation during the second quarter of fiscal year 2024. The change is also driven by a decrease in stock-based compensation between the periods.
Current wording
Datacenter hosting operating loss decreased $13.6 million, or 74% from a loss of $18.2 million for the nine months ended February 28, 2023 to a loss of $4.6 million for the nine months ended February 29, 2024. The change was driven by a full nine months of operations at our Ellendale, North Dakota facility as well as the Garden City facility beginning revenue generation during the second quarter of fiscal year 2024, as well as a decrease in stock-based compensation between the periods. These changes were partially offset by the loss on classification of held for sale which the Company recognized in association with the sale of the Garden City facility, and by accelerated depreciation and amortization in relation to outage incidents at the Ellendale, North Dakota facility.
Previous wording
Cloud services operating loss increased $19.1 million, from zero for the six months ended November 30, 2022 to $19.1 million for the six months ended November 30, 2023 primarily driven by amortization expense on finance leases on computing equipment, occupancy costs from operating leases, and stock-based compensation expense attributable to the segment.
Current wording
Cloud services operating loss increased $40.0 million, from a loss of $0.7 million for the nine months ended February 28, 2023 to a loss of $40.7 million for the nine months ended February 29, 2024 primarily due to amortization expense on finance leases on computing equipment, occupancy costs from operating leases, and stock-based compensation expense as the Company ramps up its Cloud services operations.
Previous wording
HPC hosting operating loss increased $0.9 million, or 100% from zero to $0.9 million due to the Company launching the segment during the current period. The loss is largely comprised of stock-based compensation expense, payroll, and amortization expense related to finance leases in the HPC hosting buildout.
Current wording
HPC hosting operating loss increased $3.1 million, or 17156% from a loss of $18 thousand to loss of $3.1 million. The loss was largely comprised of stock-based compensation expense, payroll, and amortization expense related to finance leases as the Company ramps up its HPC hosting operations.
Previous wording
Adjusted Operating Loss and Adjusted Net Loss
Current wording
Beginning in the third quarter of 2024, the Company updated its presentation of non-GAAP measures. As a result of this updated presentation, the Company no longer excludes start-up costs as an adjustment to Operating loss, Net loss, or EBITDA in our calculation of Adjusted operating loss, Adjusted net loss, Adjusted net loss per diluted share, and Adjusted EBITDA. EBITDA, Adjusted EBITDA, Adjusted net loss, and Adjusted net loss per diluted share are non-GAAP measures and are defined below.
Previous wording
(a)Non-recurring professional service costs represents legal, accounting, and other professional services costs related to non-recurring transactions.
Current wording
(a)Non-recurring professional service costs represents legal, accounting, and consulting services costs related to discrete transactions and projects, as well as legal fees associated with the Company’s defense of class action lawsuits and legal fees related to matters with certain former employees. The Company does not expect to incur these expenses on a regular basis.
Previous wording
(b)Other non-recurring expenses include expenses related to non-recurring research and development activities, asset abandonment charges, and other expenses that are not representative of the Company’s expected ongoing costs.
Current wording
(d)Other non-recurring costs represent expenses that are not representative of the Company’s expected ongoing costs.
Previous wording
As of November 30, 2023, the Company had unrestricted cash and cash equivalents of $9.2 million and negative working capital of $166.0 million. Historically the Company has incurred losses and has relied on equity and debt financings to fund its operations. We have primarily generated cash in the last 12 months from the proceeds of our term loans, issuance of common stock, and the receipt of contractual deposits and revenue payments from customers.
Current wording
As of February 29, 2024, the Company had unrestricted cash and cash equivalents of $4.4 million and negative working capital of $243.5 million, inclusive of assets held for sale. Historically the Company has incurred losses and has relied on equity and debt financings to fund its operations. We have primarily generated cash in the last 12 months from the proceeds of our term and related party loans, issuance of common stock, and the receipt of contractual deposits and revenue payments from customers.
Previous wording
See Note 6 - Debt to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information on our term loans.
Current wording
See Note 5 - Related Party Transactions and Note 6 - Debt in the notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information on our term and related party loans.
Previous wording
On June 27, 2023, the Company began issuing and selling common stock under an "at the market" sales agreement, with Craig-Hallum Capital, pursuant to which the Company may sell up to $125 million in aggregate proceeds from sales of common stock. As of November 30, 2023, the Company has sold approximately 14.8 million shares. Net proceeds, less commission and legal fees of approximately $3.3 million, were approximately $97.9 million. The Company received an additional $23.1 million in proceeds subsequent to November 30, 2023. The at the market offering is now complete.
Current wording
On June 27, 2023, the Company began issuing and selling common stock under an "at the market" sales agreement, with Craig-Hallum Capital, pursuant to which the Company may sell up to $125 million in aggregate proceeds from sales of common stock. During the nine months ended February 29, 2024, the Company sold approximately 18.9 million shares in total. Net proceeds, less commission and legal fees of approximately $4.0 million, were approximately $121.0 million. The at the market offering was completed in December 2023.
Previous wording
During the six months ended November 30, 2023, we received $81.8 million in payments for future datacenter hosting services.
Current wording
During the nine months ended February 29, 2024, we received $129.0 million in payments for future datacenter hosting services.
Previous wording
We have experienced net losses through the period ended November 30, 2023. Our transition to profitability is dependent on the successful operation of our three lines of business. The Company expects to have sufficient liquidity, including cash on hand, payments from customers, and access to public capital markets, to support ongoing operations. We believe these activities will be sufficient to meet our working capital needs for at least the next 12 months and all of the Company’s known requirements and plans for cash. We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, in which case, we would be required to obtain additional financing sooner than currently projected, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.
Current wording
The Company expects to have sufficient liquidity, including cash on hand, payments from customers, access to debt financing, and access to public capital markets, to support ongoing operations. We believe these activities will be sufficient to meet our working capital needs for at least the next 12 months and all of the Company’s known requirements and plans for cash. We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, in which case, we would be required to obtain additional financing sooner than currently projected, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.
Previous wording
We expect that our general and administrative expenses and our operating expenditures will continue to increase as we continue to expand our operations. We believe that the significant investments in property and equipment will remain throughout fiscal year 2024 as we continue construction of our HPC hosting facilities and acquire assets to support our cloud services business. We also expect that our revenues will increase as we continue to bring online additional capacity at our Garden City, Texas location and within our cloud services contracts.
Current wording
We expect that our general and administrative expenses and our operating expenditures will continue to increase as we continue to expand our operations. We believe that the significant investments in property and equipment will remain throughout fiscal year 2025 as we continue construction of our HPC hosting facilities and acquire assets to support our Cloud services business.
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Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
We have a material concentration of customers in the crypto mining industry. Our customers’ businesses are subject to extensive laws, rules, regulations, policies and legal and regulatory guidance, including those governing securities, commodities, cryptoasset custody, exchange and transfer, data governance, data protection, cybersecurity and tax. Many of these legal and regulatory regimes were adopted prior to the advent of the Internet, mobile technologies, cryptoassets and related technologies. As a result, they do not contemplate or address unique issues associated with the crypto economy, are subject to significant uncertainty, and vary widely across U.S. federal, state and local and international jurisdictions. These legal and regulatory regimes, including the laws, rules and regulations thereunder, evolve frequently and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another.
Current report — wording carried from elsewhere
We have experienced net losses through the period ended February 29, 2024. Our transition to profitability is dependent on the successful operation of our three lines of business.
Rearranged previous paragraphs (3)
Previous report — wording carried elsewhere
Selling, general and administrative expenses decreased $6.1 million, or 23%, from $27.2 million for the three months ended November 30, 2022 to $21.1 million for the three months ended November 30, 2023. The primary driver of the decrease was a $17.0 million decrease in stock based compensation expense, as the Company recognized a cumulative catch-up of expense in stock based compensation expense in the comparative period upon the Company’s registration statement for the award shares being declared effective. This decrease was partially offset by the following increases:
Previous report — wording carried elsewhere
The income tax benefit decreased $0.3 million, or 100%, from a $0.3 million benefit for the three months ended November 30, 2022 to zero for the three months ended November 30, 2023. This change was driven by a change in valuation allowance for the three months ended November 30, 2023 compared to the three months ended November 30, 2022.
Previous report — wording carried elsewhere
•approximately $0.7 million increase in professional service expenses incurred to support the growth of the business.