8-K: Applied Digital Secures $150 Million Convertible Preferred Equity Facility for HPC Campus Development

Applied Digital has entered into a preferred equity purchase agreement for up to $150 million to fund the development of its Ellendale High Performance Computing data center campus.

Summary

• Applied Digital Corporation has secured a preferred equity purchase agreement (PEPA) with investors for up to $150 million.
• The company has the right to put shares of its newly designated Series G Convertible Preferred Stock to the investors.
• The shares will be sold at $1,000 per share, subject to a 4% original issue discount.
• Northland Securities, Inc. acted as the placement agent and will receive fees equal to 3% of the gross transaction amount.
• The company's put right can be exercised in increments of $25 million, up to an initial limit of $75 million.
• The initial limit will increase by $25 million on the 10th, 40th, and 70th days after the registration statement is declared effective.
• The shares of Common Stock issuable upon conversion of the Series G Preferred Stock are required to be registered for resale as soon as practicable after June 2, 2025, but in no case later than June 9, 2025.
• The Series G Preferred Stock becomes convertible upon the earlier of 45 days after the first issuance date or the Registration Effective Date.
• The conversion price will equal the greater of 95% of the lowest daily Volume Weighted Average Price for each of the five trading days immediately preceding the conversion date and the initial floor price of $4.25, which may be reduced but in no event below $1.34.
• Based on its initial stated value of $1,000 per share and the $4.25 initial Floor Price, each share of Series G Preferred Stock would be convertible into an aggregate of 236 shares of Common Stock.
• No right of conversion may be exercised by the Investors in excess of $30 million of stated value, in the aggregate, per month, unless otherwise mutually agreed in writing by the Company and the holders holding a majority of the voting power of the Series G Preferred Stock outstanding at the time.
• The company terminated its existing Standby Equity Purchase Agreement with YA II PN, LTD., effective May 7, 2025.
• The company did not issue any shares of Common Stock pursuant to the SEPA and incurred no early termination penalties in connection with the termination of the SEPA.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive. The company has secured a significant financing facility, which provides flexibility for future growth. However, there are some potential risks and limitations associated with the financing terms.

Positives

• The $150 million convertible preferred equity facility provides Applied Digital with capital to further the development of its Ellendale HPC Campus.
• The facility gives the company flexibility to access capital at its discretion, with no obligation to utilize the full amount.
• The company retains full control over the timing and amount of any sales to the investors.
• The company incurred no early termination penalties in connection with the termination of the SEPA.

Negatives

• The Series G Preferred Stock is subject to a 4% original issue discount.
• The conversion of the Series G Preferred Stock is subject to a customary 4.99% beneficial ownership limitation, as well as a 19.99% conversion limitation pursuant to the applicable Nasdaq Listing Rules (the Exchange Cap).
• The conversion price is subject to a floor price, which may limit the number of shares received upon conversion.
• No right of conversion may be exercised by the Investors in excess of $30 million of stated value, in the aggregate, per month, unless otherwise mutually agreed in writing by the Company and the holders holding a majority of the voting power of the Series G Preferred Stock outstanding at the time.

Risks

• The company's ability to effectively apply the net proceeds from the transaction as described above.
• The company's ability to complete construction of the Ellendale HPC data center.
• The company's ability to complete the negotiation and execution of the definitive transaction documents required to close the Macquarie Asset Management facility.
• The company's ability to raise additional capital to fund the ongoing data center construction and operations.
• The company's dependence on principal customers, including our ability to execute leases with key customers, including leases for our Ellendale HPC Campus.
• The company's ability to timely and successfully build new hosting facilities with the appropriate contractual margins and efficiencies.
• Power or other supply disruptions and equipment failures.
• The inability to comply with regulations, developments and changes in regulations.
• Cash flow and access to capital.
• Availability of financing to continue to grow our business.
• Decline in demand for our products and services.
• Maintenance of third party relationships.
• Conditions in the debt and equity capital markets.

Future Outlook

The company plans to use the proceeds from draws under the Facility to fund development of the Ellendale HPC Campus and for general corporate purposes; the company will provide an update on a lease for the company's Ellendale High Performance Computing data center campus in the near term.

Management Comments

• We are pleased to announce this facility which will provide capital to further the development of our Ellendale HPC Campus, said Wes Cummins, Chief Executive Officer of Applied Digital.
• This facility gives us flexibility to access capital that will be used to progress the build-out of our second data center while nearing completion on the construction on our first data center on that campus..

Industry Context

The announcement reflects a trend of data center companies securing financing to expand their high-performance computing (HPC) infrastructure, driven by increasing demand for AI/ML and other compute-intensive applications.

Comparison to Industry Standards

• Comparable companies in the data center space, such as Equinix and Digital Realty, often utilize a mix of debt and equity financing to fund expansion projects.
• The terms of the convertible preferred equity facility, including the discount and conversion price, are within the typical range for similar transactions in the industry.
• The focus on HPC infrastructure aligns with the growing demand for specialized data centers catering to AI/ML workloads, similar to initiatives by Core Scientific and Compute North.

Stakeholder Impact

• Shareholders: The financing could lead to dilution if the preferred stock is converted into common stock.
• Employees: The financing supports the development of the Ellendale HPC Campus, which could create new job opportunities.
• Customers: The expansion of HPC infrastructure could lead to improved services and capabilities.
• Suppliers: The development of the Ellendale HPC Campus could create new business opportunities for suppliers.

Next Steps

• The company will file a registration statement covering the resale of the shares of common stock issuable upon conversion of the preferred stock.
• The company will provide an update on a lease for the company's Ellendale High Performance Computing data center campus in the near term.
• The company will draw on the facility in increments of $25 million as needed, subject to certain conditions.

Key Dates

Keywords

convertible preferred stock, equity financing, HPC campus, Ellendale, Series G, Applied Digital, data center, financing