10-Q: Applied Digital Reports Strong Revenue Growth, Strategic Shifts

Applied Digital Corporation reported a significant increase in revenue for the quarter ended November 30, 2025, driven by its HPC Hosting Business, alongside strategic moves including a major debt offering and a proposed Cloud Services business combination.

Summary

• Total revenue for the three months ended November 30, 2025, increased by 250% to $126,589 thousand from $36,163 thousand in the prior year.
• Total revenue for the six months ended November 30, 2025, increased by 176% to $190,805 thousand from $71,012 thousand in the prior year.
• The HPC Hosting Business was the primary revenue driver, contributing $84,992 thousand (three months) and $111,288 thousand (six months) due to tenant fit-out services and rental revenues from ELN-02 at Polaris Forge 1.
• Net loss for the three months ended November 30, 2025, was $(14,450) thousand, a significant improvement from $(138,726) thousand in the prior year.
• Net loss for the six months ended November 30, 2025, was $(31,376) thousand, an improvement from $(142,973) thousand in the prior year.
• Net income from discontinued operations (Cloud Services Business) was $12,113 thousand for the three months and $21,434 thousand for the six months ended November 30, 2025, compared to losses in the prior year.
• The company completed a private offering of $2,350,000 thousand in 9.25% Senior Secured Notes due 2030.
• An agreement was reached on a non-binding term sheet for a proposed business combination of the Cloud Services Business with EKSO Bionics Holdings, Inc. to form ChronoScale Corporation.
• Cash and cash equivalents increased significantly to $1,913,436 thousand as of November 30, 2025, from $41,552 thousand as of May 31, 2025.
• Total assets grew to $5,229,344 thousand from $1,870,090 thousand over the six-month period.

Sentiment

Score: 8

Explanation: The company demonstrated substantial revenue growth, significantly reduced net losses, and successfully secured major financing for its expansion into high-growth HPC and AI data centers. The strategic divestiture of the Cloud Services Business into a new entity also appears favorable. While operating expenses and debt increased, these are largely tied to aggressive growth initiatives.

Positives

• Significant revenue growth: 250% increase for the three months ($126,589 thousand vs $36,163 thousand) and 176% for six months ($190,805 thousand vs $71,012 thousand).
• Strong performance in HPC Hosting Business, with $84,992 thousand (3 months) and $111,288 thousand (6 months) in revenue, including tenant fit-out services and rental revenues from ELN-02.
• Improved net loss: reduced from $(138,726) thousand to $(14,450) thousand for the three months, and from $(142,973) thousand to $(31,376) thousand for the six months.
• Positive net income from discontinued Cloud Services Business: $12,113 thousand (3 months) and $21,434 thousand (6 months) compared to losses in prior periods.
• Successful $2,350,000 thousand Senior Secured Notes offering, providing substantial capital for data center construction.
• Increased cash and cash equivalents to $1,913,436 thousand, indicating strong liquidity.
• Secured major data center leases with CoreWeave (totaling 400 MW at Polaris Forge 1) and a U.S. hyperscaler (200 MW at Polaris Forge 2).
• Entry into a non-binding term sheet for the Cloud Services Business combination, potentially creating ChronoScale Corporation and allowing ownership of over 80% of the combined entity.
• Data Center Hosting Business operating profit increased by 27% to $15,959 thousand for the three months ended November 30, 2025.
• HPC Hosting Business operating loss decreased by 56% to $(2,596) thousand for the three months ended November 30, 2025.
• Recorded a $13,126 thousand gain on change in fair value of derivative and a $2,767 thousand gain on change in fair value of investment for the three and six months ended November 30, 2025.

Negatives

• Continued net loss from continuing operations: $(26,563) thousand for three months and $(52,810) thousand for six months ended November 30, 2025.
• Significant increase in cost of revenues: 344% increase for three months ($100,553 thousand vs $22,661 thousand) and 244% for six months ($156,158 thousand vs $45,404 thousand), largely due to tenant fit-out services.
• Substantial increase in selling, general and administrative (SG&A) expenses: 119% increase for three months ($56,993 thousand vs $25,974 thousand) and 133% for six months ($86,145 thousand vs $36,966 thousand), driven by stock-based compensation, professional services, and personnel expenses.
• Increased interest expense, net: 292% increase for three months ($11,484 thousand vs $2,929 thousand) and 162% for six months ($15,431 thousand vs $5,888 thousand) due to loan activity.
• Recorded a loss on change in fair value of debt of $87,218 thousand for the three months and $85,439 thousand for the six months ended November 30, 2025.
• Recorded a loss on conversion of debt of $25,410 thousand for the three months and $33,612 thousand for the six months ended November 30, 2025.
• Data Center Hosting Business operating profit decreased by 55% for the six months ended November 30, 2025, primarily due to a $25,000 thousand gain on classification of held for sale in the prior year not recurring.
• Operating loss from continuing operations of $(30,957) thousand for the three months and $(53,249) thousand for the six months ended November 30, 2025.
• Total liabilities significantly increased to $3,157,525 thousand from $1,236,365 thousand over the six-month period, primarily due to long-term debt.

Risks

• Ability to complete construction of HPC facilities at Polaris Forge 1 and Polaris Forge 2 campuses.
• Ability to complete the negotiation and execution of definitive transaction documents to close the sale of the Cloud Services Business.
• Dependence on principal customers and ability to execute leases with key customers.
• Availability of financing to continue business growth.
• Labor and other workforce shortages and challenges.
• Power or other supply disruptions and equipment failures.
• Addition or loss of significant customers or material changes to customer relationships.
• Delays or denials of entitlements or permits, including zoning, siting, utility and other permits, or other delays resulting from requirements of public agencies and utility companies.
• Sensitivity to general economic conditions including changes in disposable income levels and consumer spending trends.
• Ability to timely and successfully build new hosting facilities with the appropriate contractual margins and efficiencies.
• Ability to continue to grow sales in the hosting business.
• Volatility of cryptoasset prices.
• Uncertainties of cryptoasset regulation policy.
• Ability to keep up with the use and continued pace of developments in AI and evolving data center requirements and regulatory frameworks for AI.
• Potential significant liabilities, including fines and penalties, if the company fails to comply with applicable laws and regulations, especially concerning the rapidly evolving regulatory landscape for AI and blockchain hosting services.
• Inability to estimate a range of loss for the ongoing Securities Lawsuit and Derivative Lawsuit, where an unfavorable action could be material to results of operations.

Future Outlook

The company anticipates increased scrutiny and potential regulation in the AI and blockchain hosting services sector. It expects to have sufficient liquidity from existing cash, operations, debt facilities, and capital markets to meet obligations for at least the next twelve months. Significant investments in property and equipment are expected to continue throughout fiscal year 2026 for HPC hosting facilities construction. The proposed business combination of the Cloud Services Business with EKSO Bionics Holdings, Inc. to form ChronoScale Corporation is subject to final binding documents, due diligence, and regulatory/shareholder approvals.

Management Comments

• "We are committed to maintaining a proactive and adaptive approach to regulatory compliance, closely monitoring legislative and regulatory developments and engaging in dialogue with relevant stakeholders."
• "We remain committed to delivering innovative and responsible solutions in the data center and HPC hosting markets while prioritizing compliance and risk management."
• "Our 106 MW facility in Jamestown, North Dakota and our 180 MW facility in Ellendale, North Dakota continue to operate at full capacity."
• "We recently commenced operations at our first HPC data center at our Polaris Forge 1 campus with 100MW of capacity."
• "We continue building our second HPC data center at Polaris Forge 1 to provide an additional 150MW of capacity."
• "Our third HPC focused data center facility at Polaris Forge 1, which is expected to provide an additional 150MW of capacity, is currently under construction, with an anticipated ready for service date in 2027."
• "We expect to initially own over 80% of the combined company, which will operate under the name ChronoScale, upon closing of the Proposed Transaction for the Cloud Services Business."
• "We expect 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 and meet our working capital needs for at least the next twelve months and all of our known requirements and plans for cash."
• "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 2026 as we continue construction of our HPC hosting facilities."

Industry Context

The company operates at the intersection of data center and HPC hosting services, with a strong focus on AI, cloud, networking, and blockchain workloads. The industry is experiencing rapid growth, particularly in AI, which drives demand for high-performance computing infrastructure. However, it is also facing increasing regulatory scrutiny regarding energy consumption and responsible AI development, as evidenced by the U.S. Energy Information Administration's survey on cryptocurrency mining and California's Transparency in Frontier Artificial Intelligence Act. The company's strategic shift towards HPC and AI, coupled with its focus on sustainably engineered data centers, positions it within a high-growth segment while addressing emerging industry concerns.

Management Changes

Corporate Governance

Legal Proceedings

• Securities Lawsuit (McConnell v. Applied Digital Corporation, et al.): A putative securities class action lawsuit filed in August 2023, alleging false or misleading statements regarding the company's business, operations, and compliance policies, including overstating profitability of the Data Center Hosting Business and independence of the Board. The lawsuit is currently stayed pending resolution of a motion to dismiss. The company is unable to estimate a range of loss, but an adverse decision could be material.
• Derivative Lawsuit (Weich v. Cummins, et al.): A derivative action filed in November 2023, alleging breach of fiduciary duties, corporate waste, and unjust enrichment based on similar allegations as the securities lawsuit. The court granted the defendants' motion to dismiss without prejudice on June 5, 2024, for failure to plead demand futility or a claim for breach of fiduciary duty. The plaintiff has not yet sought leave to file an amended complaint. The company is unable to estimate a range of loss, but an adverse decision could be material.

Related Party Transactions

• No related party revenue was recognized during the three or six months ended November 30, 2025.
• During the six months ended November 30, 2024, approximately $1,200 thousand of related party revenue was from Customer D and $700 thousand from Customer E. Customer D and E were previously entities with beneficial owners holding over 5% of the company's common stock, but these individuals ceased to be 5% beneficial owners as of July 25, 2024.
• Software license fees of $74 thousand (3 months) and $149 thousand (6 months) for the period ended November 30, 2025, were incurred with a company whose chairman is also a member of the company's Board of Directors.

Stakeholder Impact

• Shareholders: Potential dilution from significant common stock issuances (June 2025 ATM, Series G conversions, warrant exercises) and the proposed Cloud Services business combination. Increased value from strategic growth in HPC/AI and improved financial performance. Risk from ongoing lawsuits.
• Employees: Increased headcount and stock-based compensation indicate growth and potential for employee incentives. Employment agreement for Chief Strategy Officer.
• Customers: Expansion of HPC data centers (Polaris Forge 1 & 2) and new leases with hyperscalers (CoreWeave, unnamed U.S. hyperscaler) indicate enhanced service offerings and capacity.
• Creditors: Significant increase in long-term debt ($2,350,000 thousand Senior Secured Notes) and new credit facilities (DevCo Facility, Revolving Credit Facility) provide capital but also increase leverage. Repayment of SMBC Loan.
• Suppliers/Vendors: Increased construction activities for data centers likely benefit construction vendors and equipment suppliers.

Next Steps

• Complete construction of HPC facilities at Polaris Forge 1 and Polaris Forge 2 campuses.
• Negotiate and execute definitive transaction documents to close the sale of the Cloud Services Business (Proposed Transaction with EKSO Bionics Holdings, Inc. to form ChronoScale Corporation).
• Achieve "ready for service" dates for Building 3 (150 MW) at Polaris Forge 1 during calendar year 2026.
• Achieve initial capacity at Polaris Forge 2 in 2026 and full capacity in early 2027.
• Achieve "ready for service" date for Building 4 (150 MW) at Polaris Forge 1 in middle of calendar year 2027.
• Continue to fund the purchase, development, and improvement of new data center projects using the DevCo Facility.
• File a resale registration statement with the SEC for shares issuable upon exercise of MAM Warrants within 60 days of October 6, 2025.
• Monitor and adapt to evolving regulatory landscape surrounding AI and blockchain hosting services.
• Evaluate the impact of new accounting standards (ASU 2024-03, ASU 2024-04, ASU 2025-06, ASU 2025-11) on financial statements and disclosures.

Key Dates

Recommendation

The company is undergoing a significant transformation, pivoting aggressively into the high-growth AI and HPC data center market. The substantial capital raises, including the $2,350,000 thousand Senior Secured Notes and ongoing preferred equity funding, demonstrate strong investor confidence and provide the necessary resources for its ambitious expansion plans. Securing major long-term leases with hyperscalers like CoreWeave and another investment-grade client for 600 MW of capacity validates its strategy and provides a strong revenue pipeline. The improved net loss and positive Adjusted EBITDA, coupled with the strategic spin-off of the Cloud Services Business into ChronoScale, indicate a more focused and potentially profitable future. While increased debt and operating expenses are noted, they are directly tied to scaling operations in a high-demand sector. The company's ability to attract significant capital and major customers, alongside its focus on sustainable infrastructure, positions it for substantial long-term growth, making it a strong buy for investors with a higher risk tolerance.

Keywords

High-Performance Computing (HPC), Artificial Intelligence (AI), Data Centers, Colocation Services, Blockchain Workloads, Cloud Services, SEC Filing, Quarterly Report, Financial Results, Debt Offering, Preferred Stock, Convertible Notes, Polaris Forge, CoreWeave, Macquarie Asset Management, ChronoScale Corporation, EKSO Bionics, North Dakota, Infrastructure, GPU Architecture, Machine Learning, Natural Language Processing, Cryptocurrency Mining, Regulatory Compliance