Applied Digital (APLD) Q1 FY27 Earnings Call Transcript

Operator00:00

Good afternoon and welcome to Applied Digital's fiscal first quarter 2027 conference call. My name is Pascal Bearman and I will be your operator today. Before this call, Applied Digital issued its financial results for the fiscal first quarter ended August 31st, 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.

Operator00:17

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.

Operator00:19

Mr. Glover, you may begin.

Matt Glover00:37

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.

Matt Glover00:46

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.

Matt Glover01:03

For more detailed risks and uncertainties and assumptions relating to our forward looking statements please see the disclosures and 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.

Matt Glover01:12

We also discuss non-GAAP financial metrics and encourage you to read our disclosures and the reconciliation tables to the applicable GAAP measures and earnings release carefully as you consider these metrics.

Matt Glover01:45

Refer 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 the 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 a link 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?

Prepared remarks

Wes Cummins02:03

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.

Wes Cummins02:12

Today, we have approximately 36 billion in contracted revenue across five campuses three states and two very different geographic regions of the country.

Wes Cummins02:24

Our focus is on converting our contracted portfolio into sustainable profitable growth while continuing to selectively pursue new opportunities across our expansive land and power portfolios.

Wes Cummins02:33

During the past year, success was primarily measured by aggressively growing our portfolio of campuses and our total contracted value associated with those campuses.

Wes Cummins02:47

Over the near to medium term we expect to continued expanding our existing campuses and selectively adding new locations with a strong focus on execution and bringing contracted capacity online for our customers.

Wes Cummins02:55

Over the next 12 months we expect to place over 600 megawatts into service versus the 250 megawatts over the past 12 months.

Wes Cummins03:06

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.

Wes Cummins03:19

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 builds.

Wes Cummins03:36

We believe we are well positioned to do all three. 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.

Wes Cummins03:41

Importantly our data center design is different from many of our competitors.

Wes Cummins03:53

Some competitors facilities are designed primarily around the typical five to six year life cycle of a GPU. We've taken a different approach and are building for the long term with 30 plus year horizons.

Wes Cummins04:04

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.

Wes Cummins04:17

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.

Wes Cummins04:26

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.

Wes Cummins04:36

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.

Wes Cummins04:40

Our primary focus remains straightforward.

Wes Cummins04:58

Build large, sustainable AI factory campuses and sign durable, high quality long term contracts. We target take or pay contracts of at least 15 years with proven tier one investment grade hyperscalers that are leaders in the AI industry and are well positioned to convert their investment into sustainable and profitable growth.

Wes Cummins05:08

We view our customers ability to convert their AI investments into durable and sustainable earnings as an important metric as we make decisions on who we will build for.

Wes Cummins05:22

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 builds, and the strength of our world class team.

Wes Cummins05:38

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.

Wes Cummins05:46

We have continued to make progress on expansion opportunities with our existing customers while also advancing discussions around additional campuses.

Wes Cummins05:55

We currently expect approximately 250 megawatts of expansion leases to be executed by calendar year end at materially higher pricing compared to prior leases.

Wes Cummins06:05

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.

Wes Cummins06:17

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.

Wes Cummins06:37

Where we are currently building multiple AI factories across three campuses. North Dakota is our largest operating region and remains core to our strategy. We have repeatedly said it's low cost of power, 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.

Wes Cummins06:53

We expect additional tier one hyperscalers to recognize those advantages over time. It is also the place where we have made the majority of our investments to date. Both in campus and both in the campuses we are building and in the communities with which we have partnered.

Wes Cummins07:01

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.

Wes Cummins07:17

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.

Wes Cummins07:30

The agreement covers an approximately 1200 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.

Wes Cummins07:49

This is exactly the kind of outcome our model is built to produce. While many operators are waiting in interconnection queues 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 timeline aligned with our future development needs.

Wes Cummins08:03

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

Wes Cummins08:15

To put the pace of our execution in North Dakota in perspective we signed our first lease with CoreWeave in May of 2025 for our first two buildings of Polaris Forge One the first of which was then under construction.

Wes Cummins08:30

By the end of calendar year 2025 the first building was fully operational capable of supporting more than 40,000 liquid cooled NVIDIA GB300s. The second building which broke ground in summer 2025 became operational approximately one year later.

Wes Cummins08:47

As of today we have achieved full ready for service or RFS across our first two buildings at our Polaris Forge One 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.

Wes Cummins08:56

This represents 150% increase in delivered capacity. At Ellendale alone we believe we are substantially ahead of our closest competitors in delivered capacity.

Wes Cummins09:07

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.

Wes Cummins09:22

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.

Wes Cummins09:43

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 as further reinforcing their strategic importance.

Wes Cummins09:51

Our development activity in Louisiana and Alabama continues to progress and we remain encouraged by the scale of customer demand across the region.

Wes Cummins10:15

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.

Wes Cummins10:35

As part of that early look we signed an agreement for up to one gigawatt of potential power capacity in Finland. We view 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.

Wes Cummins10:48

Turning to our data center hosting business. Our 286 megawatts of capacity for Bitcoin mining across our two North Dakota sites continues to operate efficiently and provide steady high margin revenue with minimal ongoing capital investment.

Wes Cummins10:59

And now to Chronoscale in which we have a 90 an approximately 96% ownership stake. NeoClouds continue to represent one of the fastest growing segments in this market.

Wes Cummins11:17

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 GB300 NVL 72 systems.

Wes Cummins11:27

This deployment is expected to significantly expand Chronoscale's existing business with a tier one investment grade customer and represents another important step in scaling the platform.

Wes Cummins11:36

With recent new contracts Chronoscale is on track to reach 1 billion of ARR in 2027 and momentum for additional contracts continues to build.

Wes Cummins11:41

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

Wes Cummins11:44

Saidal?

Saidal Mohmand11:56

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 debt to place for the final 150 megawatt building at Polaris Forge One.

Saidal Mohmand12:07

In June as we discussed in our last call we closed that tranche a 1.59 billion offering of 7% senior secured notes due 2031 issued at par.

Saidal Mohmand12:18

With the proceeds of the offering we have funded construction of the third HPC building at Polaris Forge One and have repaid the 300 million 300 million bridge facility we put in place in May.

Saidal Mohmand12:29

With that the full 400 megawatts of the CoreWeave campus at Polaris Forge One and the 200 megawatts of contracted capacity at Polaris Forge Two are now fully funded.

Saidal Mohmand12:31

The pricing of that deal is worth pointing out.

Saidal Mohmand12:48

Our first Polaris Forge One related notes placed last year carry a nine and a quarter coupon. This tranche placed 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.

Saidal Mohmand13:00

We are earning that confidence by executing and delivering our buildings on track and on budget and we expect the first building at Polaris Forge Two to similarly be on track and on budget.

Saidal Mohmand13:16

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.

Saidal Mohmand13:27

We also added flexibility at the corporate level in June we upsized a revolving credit facility to 430 million of commitments with an additional 120 million accordion remaining available.

Saidal Mohmand13:35

Looking ahead the next campuses we need to finance are Polaris Forge Three Delta Forge One and Delta Forge Two.

Saidal Mohmand13:41

All of these are leased to the same tier one investment grade hyperscaler under 15 year take or pay leases.

Saidal Mohmand13:46

We believe this fact changes the financing conversations with potential creditors.

Saidal Mohmand13:53

Recall tier one investment grade tenants open access to a deeper pool of capital which we believe supports more attractive terms.

Saidal Mohmand14:05

We are following the same framework preferred equity from Aqua Asset Management followed by project level debt which allows Applied Digital shareholders to retain a majority ownership stake in each site.

Saidal Mohmand14:17

We are already in active discussions with leading 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.

Saidal Mohmand14:26

Now let's turn to the quarter. As a reminder Chronoscale is included in our GAAP consolidated results but is excluded from our non-GAAP financial measures.

Saidal Mohmand14:35

We reported total revenue of 341.9 million up 322% from 80.9 million in the prior year quarter.

Saidal Mohmand14:51

Our HPC hosting business generated 262.6 million in revenue consisting of 65.8 million of base rent 183.5 million of tenant fit out services and 13.3 million of tenant recoveries.

Saidal Mohmand15:00

Our data center hosting segment, which operates our two Bitcoin hosting sites, generated 37.8 million in revenue in line with the prior year quarter.

Saidal Mohmand15:11

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.

Saidal Mohmand15:19

Segment operating profit this quarter more than doubled from 6 million in the prior quarter driven by a favorable power pricing.

Saidal Mohmand15:27

Chronoscale's revenue was 41.5 million this quarter including approximately 23 million of GPU hardware sales.

Saidal Mohmand15:51

Services and other cost of revenues was 245.7 million primarily consisting of 176.1 million in tenant fit out services performed within our HPC hosting business 22.4 million associated with Chronoscale's GPU hardware sales 19.8 million in energy cost and 17.6 million in depreciation and amortization.

Saidal Mohmand16:15

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 One campus. 13.3 million in expenses which are reimbursable as tenant recoveries and 7.8 million in person personnel and other operating costs supporting our facilities.

Saidal Mohmand16:32

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.

Saidal Mohmand16:41

One item worth calling out in the quarter our stock based compensation expense included 41.3 million tied to one time performance stock units.

Saidal Mohmand16:50

We also recorded 67.5 million of a non-cash loss from the change in fair value of our Babcock and Wilcox warrants and the common stock investment.

Saidal Mohmand17:03

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 76 cents per share.

Saidal Mohmand17:08

Adjusted net loss was 4.1 million or one cent per diluted share.

Saidal Mohmand17:23

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.

Saidal Mohmand17:39

From a balance sheet perspective we believe we remain well positioned. We ended the quarter of 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.

Saidal Mohmand17:44

Note more than 80% of that principal does not come due until fiscal 2031 or later.

Saidal Mohmand17:55

Stockholders equity is 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 we'll execute as such.

Saidal Mohmand18:00

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

Wes Cummins19:01

Thank you 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 zoning requirements longer permitting timelines 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.

Wes Cummins19:20

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 powered and community supported campuses increases.

Wes Cummins19:30

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.

Wes Cummins19:53

Put simply our view is that every new restriction elsewhere makes 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 base terms but the land power interconnection and community support behind these campuses have the capacity to last far longer than any single lease.

Wes Cummins20:10

When a base term ends and we see the that a tenant with 10,000 tens of thousands of GPUs deployed in 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 incredibly difficult to approve.

Wes Cummins20:20

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.

Wes Cummins20:33

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 assume. We also believe that the value should continue to grow as new supply becomes harder to build.

Wes Cummins20:57

And local leaders 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 dollars since our Ellendale project began because we use excess grid capacity and help spread fixed costs across more load.

Wes Cummins21:06

In Harwood, we paid for over 100 million dollars of substation and grid upgrades ourselves which benefit the entire community.

Wes Cummins21:40

And our model already meets the rate payer protection pledge that 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 it's drawing 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 revenue has expanded roughly tenfold from approximately 400,000 a year to nearly 4 million These tax dollars are helping fund schools infrastructure and emergency services.

Wes Cummins21:48

Construction workers on our sites earn six figure six figure incomes on average and many of those dollars stay in the local economy.

Wes Cummins21:55

We were honored that Mid-America Economic Development Council recently named Polaris Forge One its project of the year.

Wes Cummins22:01

Recognizing the campus for its economic impact community investment partnerships and technological innovation.

Wes Cummins22:35

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 One possible. We also invest directly in our local communities through Applied Digital Cares we recently committed $350,000 across five organizations in Oliver County home to Polaris Forge Three that includes funding the new Sheriff's Deputy a new life pack for the county ambulance repairs to two fire trucks computers so every student in grade seven through 12 at Center Stanton has a device and repairs to the community center and pool in center.

Wes Cummins22:56

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 we are what they are welcome welcoming us back to grow and why we believe each of our campuses has significant embedded value that will continue to build over time.

Wes Cummins23:38

In closing we believe we're in the right place at the right time and doing this the right way more than ever we're 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 Elektron we have visibility into the power that feeds it all if demand continues on its current path we 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 three and a half to four gigawatts by the end of calendar year 2030. with that operator we're happy to open the call for questions

Operator23:51

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand to withdraw your question, press star one again.

Operator24:04

We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Operator24:14

Your first question is from the line of Mike Grondahl with Northland Securities. Mike, your line is open. Please go ahead.

Mike Grondahl24:31

Hey guys, thank you. Um you know Applied clearly has 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?

Wes Cummins25:42

Sure Mike thanks for the question so what we're seeing in North Dakota obviously we have you know three customers there ourselves already we're aware of a self-built project roughly one gigawatt self-built project from one of the tier one hyperscalers in the state as well and we've been speak that that is outside of the ones that we already have in the state and we're having multiple conversations with other of the tier one hyperscalers for additional capacity in the state of North Dakota so the answer is is I think all of them will eventually be there and that's a state that that has one of the most attractive things about the state beyond the power and the climate and you know 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 a it's an extraordinarily attractive state to be in and I think it's just going to become more so over the you know the remainder of this year and 27 and 28

Mike Grondahl26:00

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

Saidal Mohmand27:41

Yeah thanks for the question Mike and it's a great question as you can recall we completed the Polaris Forge two and the Polaris Forge One financings which you could argue are not the same credit quality great customers they execute great tenants to have so when you think about the go forward with Polaris Forge Three and Delta Forge One and two 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've 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 100 basis point move would impact our economics greatly but then two we focus then on terms where we can refinance in a year or two 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 phase we have the flexibility to lower our cost relatively quick into a more permanent financing that is our focus we're nimble and it's great thing having you know a high investment grade hyperscaler with multiple options to run at

Mike Grondahl27:44

That's good to hear. Hey, thanks guys

Saidal Mohmand27:46

Thanks Mike.

Questions and answers

Operator27:56

Your next question comes from the line of Nick Giles with B Riley Securities. Nick, your line is open. Please go ahead.

Nick Giles28:19

Yeah, thanks operator. Hi guys. 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 you know the commercial side of that site progressing.

Wes Cummins28:21

Thanks.

Wes Cummins29:37

Sure Nick thanks so the for the site we purchased the site and then we have the option so that initial power that site comes in 2028 and then additional power which is typical of almost any site that's going to scale to a gigawatt there's break points where they'll get approvals for you know additional power adds 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 you know 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 have started asking more in the last you know four 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

Nick Giles30:11

Got it no thanks for that Wes and maybe just switching gears in your prepared remarks I think you really highlighted the longevity of these data center campuses today and I I heard it as kind of a changing tone or maybe highlighting that more so than you have in the past so I was just wondering if there's you know what were the genesis of those comments I mean obviously GPU refresh cycles continue to be part of the discussion here but yeah anything that you'd highlight from that perspective I'd appreciate.

Wes Cummins32:14

Sure, Nick. So it's a couple of things. We we've talked you know for since we started the design that we use today right we I 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 we went through with all of the hyperscalers. So one it it's flexible enough to work for any of the hyperscalers but two we made it flexible to future proof it 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 halls so that you know 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 you know close to unnatural acts 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 you know what the future brings but that's the view that we have as a company that's how we designed them that's how we design them from a redundancy from both the 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 with the 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 build and the operations versus some of the other things that we're seeing just overall going on in the market.

Nick Giles32:20

Makes sense. Appreciate the update guys.

Operator32:31

Your next question is from the line of Derrick Whitfield with Texas Capital. Derrick your line is now open please go ahead.

Derrick Whitfield32:37

Good afternoon and congrats on your continued commercial and execution progress.

Wes Cummins32:40

Thanks.

Derrick Whitfield33:06

Wes I wanted to start with the 1.3 gigawatts of US capacity that you're currently marketing during the last call you noted you're experiencing a healthy market at present and it 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 seemingly everything that's happening from a regulatory moratorium perspective is playing to your benefit but would just love your perspective and color on that

Wes Cummins34:28

Sure, so from a demand perspective in the market we're seeing no no I wouldn't say big change either way I mean it feels like we're at max I've thought of that for you know kind of the last two years and it continues to notch up but demand remains extremely robust for you know 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 start moving into 28 and 29 we have stuff that's contracted into 28 but we're seeing a lot of demand for that as well and really at these locations like we keep pointing to North Dakota but Louisiana is a great market for us as well and so so is Alabama we've had 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 at campus the supply chain for us to continue to execute I would just you know reiterate those comments about we fully expect to you know do some lease expansion and new campuses at materially higher rates versus what you know we signed our last contracts for in the first half of 2026.

Derrick Whitfield34:45

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 if you have a feel on how build costs might compare versus the US as you think about the labor building and equipment supply?

Wes Cummins35:28

Yeah so we we've actually went through that exercise and the build cost is very we expect it to be very similar on a dollars basis versus Euro and so and by that I mean you know if we converted the Euros back it would be roughly the same dollars what I would expect there is a more elongated delivery timeline in Europe just kind of how it works versus what we do here in the US but the goal is to replicate you know the same thing from the supply chain and design and build perspective in the markets when we enter Europe versus here but we've done that work and it and expect the a very similar cost

Derrick Whitfield35:31

Terrific great update guys

Wes Cummins35:35

Thanks

Operator35:43

Your next question comes from the line of Rob Brown with Lake Street Capital Markets Rob your line is now open please go ahead

Rob Brown36:03

Good afternoon congratulations on all the progress um follow a little bit on 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 an expansion there and what years are most affected by that?

Wes Cummins37:39

Sure. So we start to think about 2030 Rob primarily on base electron so base electron is 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 will help campus expansion over in the Harwood campus and then potentially in the middle part of the state around Jamestown so there's a new WBI pipeline that WBI is owned by MDU that they approved and are moving forward with that pipeline it's been in the works for years and so we will be an off-taker of gas at center and you know at Harwood for certain and possibly in Jamestown but the way we have worked that with the gas pipeline is to have you know almost unlimited capacity for expansion at center it's going to be the closest location to the beginning of the pipeline and then these pipelines you know typically taper the further they go out so to have really big expansion capability at center this will all be front of the meter grid connected but also expand at different locations across the state from an equipment perspective you know we're looking at procured equipment that's roughly 2.4 to 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

Rob Brown37:56

Great, thank you. And then I just want to follow up on the supply chain work you've done. You you've executed very well on plan. How how have you mitigated any supply chain constraints or have you know what do you see in terms of supply chain excuse me

Wes Cummins38:59

Sure I mean supply chain I I think is tight across the industry and you have some components more so than others the biggest what we've talked about this before from a supply chain perspective the biggest thing we did was almost two years ago lock 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 four 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 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're locked into our places in the supply chain for key components.

Rob Brown39:05

Thank you.

Wes Cummins39:05

Thanks, Rob.

Operator39:15

Your next question is from the line of George Sutton with CraigHallum. George, your line is now open. Please go ahead.

George Sutton39:34

Thank you. Wes, you used the term selective when you were talking about the future build uh 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?

Wes Cummins39:57

Yeah, that's right, George. Is the you know 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 that you're right on the credit quality aspect of that.

George Sutton40:17

So relative to the 250 megawatts of expansions you've basically defined 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 just the base rent? What might else be involved?

Wes Cummins40:49

Well what 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 want to pin that but you know you can think of definitely north of 15% plus increases on the lease rate but also could include longer duration on the leases that's how we're defining that.

George Sutton40:52

Alright perfect thanks guys

Wes Cummins40:56

Thanks George.

Operator41:06

Your next question comes from the line of Darren Aftahi with Lucid Capital Markets. Darren your line is open please go ahead.

Darren Aftahi41:42

Yeah thanks guys for taking the questions congrats on the progress. Um just on Finland I just had a couple 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 two in mind thanks

Wes Cummins42:38

Sure. So we view the location that we found in Finland you know it felt a lot like the communities that we build in North Dakota so there's a really positive receptivity from a local level on the community level the country is a as a whole has been fairly receptive to data center so we really focused on that for our you know to make this decision on the site plus you know the land availability that 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 then it continues to ramp up through 2031 to the full gigawatt

Operator42:56

Your next question comes from the line of John Todaro with Needham and Company. John, your line is open. Please go ahead.

John Todaro43:23

Hey, thanks for taking my question. Congrats. Um as we look out to the four gigawatts or so by year end 2030 I I guess just what steps do you need to take to ensure you kind of get there is you know how much is reliant on based electron and then also in Europe too it seems like some of that's going to come a little bit later 2031 as you said so is there other sites in Europe that you need to get to as well?

Wes Cummins44:38

Yeah, so so thanks John and I I'll just clarify I went right to the four gigawatts was three three and a half to four gigawatts that we talked about by the end of 2030 so that 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 can 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 the high end of that number that really has us delivering about one gigawatt per year in 29 and 30 right so the kind of if you take a bridge to the end of 20 calendar year 28 getting to around two gigawatts you we as a company think that that's kind of the level we can ramp our construction and delivery up to so that it's really those two things combined but much more so on the ability and capacity to do construction and deliver for customers.

John Todaro45:05

Okay, understood. That's helpful. And then a follow up just on Chrono scale sign the 15 megawatt obviously it seems like it could start ramping quite a bit from here. Just just wondering kind of as we look out a few years could we almost expect Chrono scale to be at 400 megawatts or so in applied sites almost like what CoreWeave did or you know less so I just yeah just curious about Chrono scale the potential customer down the line if they

Wes Cummins46:59

Yeah so so thanks for that question that's a great question so when we look at that right now and you'll see you know over the coming month or so the strategy we're using to secure data center capacity for Chronoscale is outside of the large scale applied digital sites those sites we contract to what we have said which is tier one and you know investment grade hyperscalers the ability to secure other capacity we've we have found a nice strategy for securing more near term grid capacity that isn't at that that that scale at a single location but at multiple locations but I I think you could see you know Chronoscale moving up to multiple hundreds of megawatts in capacity online outside the core applied digital data center builds it with you know over 27 and 28 but I I want to bifurcate this where it is two separate strategies where you know 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 you know sites that are more like you see the first Microsoft site of 50 megawatts that are kind of 50 to 100 megawatt sites that have been passed over because they're they don't scale to the gigawatt side or the multi 100 megawatt size 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 you know two or three years a significant amount actually in 2027 so that's really the I appreciate you letting me make that that clarification around the strategy

John Todaro47:03

Yeah, sounds great. Thank you, Wes. Appreciate it.

Wes Cummins47:07

Thanks, John.

Operator47:14

Your next question comes from the line of Michael Donovan with Compass Point. Michael, your line is open. Please go ahead.

Michael Donovan47:21

Hi guys, thanks for taking my question. Is it fair to assume your existing McCore relationship would extend to Finland?

Wes Cummins47:27

The so CoreWeave has been I that I couldn't have asked for better

Michael Donovan47:29

McQuarry McQuarry

Wes Cummins47:46

I thought you said CoreWeave I was going to talk about the partnership there McQuarrie is North America that that 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

Michael Donovan47:52

Appreciate that Ed and if you had a big interesting on Corey I'll not stop you there but

Michael Donovan47:59

That's all. That's what I have for that.

Michael Donovan48:18

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

Wes Cummins49:29

So so I'll tell you where we're seeing a change so we're seeing a change over the past you know 18 months on the tenant fit out or the technical fit out TFO and what we're seeing in because we execute that for in almost actually every lease that we have we execute that the TFO is becoming much more flexible is 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 TFO it's you know become a larger dollar amount for our customers but I think they're building in a significant amount of flexibility inside the facilities to be able to accommodate whatever workloads they want to deploy and that you know between we'd always stuck 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

Michael Donovan49:42

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

Wes Cummins50:04

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 you know edge compute or just like a you know a 2050 100 megawatt containerized solution

Michael Donovan50:12

Yeah more in line with 20 to 50 not so much containerized ones but or like smaller prefab

Wes Cummins50:27

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

Michael Donovan50:30

Appreciate that and congrats on the execution.

Wes Cummins50:35

Thank you.

Operator50:42

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

Wes Cummins50:48

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

Closing

Operator50:53

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