Applied Digital Corporation — Q1 FY2027 Form 10-Q
Reporting period: Three months ended August 31, 2026; financial statements are unaudited. Unless stated otherwise, figures below are in U.S. dollars. The company develops and operates data centers for AI, cloud, networking, and blockchain workloads, with Data Center Hosting and HPC Hosting as its reportable segments. ChronoScale is consolidated but reported within “Other,” not as a separate segment.
Financial performance and liquidity
| Metric | Quarter ended Aug. 31, 2026 | Prior-year quarter |
|---|---|---|
| Revenue | $341.9 million | $80.9 million |
| Operating loss | $62.4 million | $9.8 million |
| Net loss | $184.1 million | $16.9 million |
| Net loss attributable to common stockholders | $237.1 million; $0.82 per share | $18.5 million; $0.07 per share |
| Cash from operating activities | $63.9 million | Cash used: $81.5 million |
| Cash used in investing activities | $2.083 billion | $249.9 million |
| Cash from financing activities | $1.543 billion | $322.2 million |
- Revenue mix and margins: Services and other revenue was $262.8 million; data center rental and other revenue was $79.1 million. Operating margin was approximately negative 18%. Segment profit was $13.3 million for Data Center Hosting and $33.4 million for HPC Hosting. Tenant fit-out services contributed substantially to revenue and costs, so reported revenue growth does not by itself indicate recurring rental economics.
- Non-GAAP measures: Management reported adjusted operating income of $37.8 million (13% margin) and adjusted EBITDA of $64.4 million, versus adjusted operating loss of $3.6 million and adjusted EBITDA of $0.5 million a year earlier. These measures exclude ChronoScale and include management-selected adjustments; they are not GAAP measures.
- Balance sheet at Aug. 31: Cash and cash equivalents were $2.950 billion, including $2.909 billion held by consolidated HPC entity TopCo 2. Restricted cash was $728.0 million in total, including amounts classified in other assets. Total assets were $11.707 billion; total liabilities were $7.907 billion.
- Debt and liquidity: Debt principal payments scheduled over the life of the loans totaled $6.722 billion; reported debt carrying values were net of financing costs. Long-term debt, net, was $6.264 billion, with $112.6 million classified as current. The company drew $82.4 million under a $430 million revolving facility; $241.0 million of standby letters of credit were also outstanding. Management stated that available liquidity should meet needs for at least 12 months, while noting reliance on customer receipts, debt financing, and capital markets.
- Capital spending: Purchases of property, equipment, and other assets were $2.075 billion. Property and equipment, net, rose to $6.330 billion, including $3.670 billion of construction in progress. The company said substantial investment will continue through FY2027.
Changes, financing, and unusual items
- Revenue increased by $260.9 million year over year, reflecting HPC operations and tenant fit-outs, new rental revenue, and ChronoScale GPU hardware resale. HPC began generating revenue from its Polaris Forge 1 buildings; data center rental revenue was new in the comparative period.
- Interest expense increased to $77.4 million from $8.0 million, alongside expanded borrowing. Interest income was $35.8 million. Cash interest paid was $242.9 million.
- Fair-value movements produced a $49.5 million loss on derivatives and an $11.4 million loss on investments. The derivative result included a $56.1 million decline in B&W warrant value, partly offset by a $6.6 million gain on derivatives associated with redeemable noncontrolling interests.
- Stock-based compensation was $69.2 million, compared with $15.5 million. Selling, general and administrative expense rose to $114.7 million from $29.5 million.
- Discontinued operations recorded a $16.1 million net loss, including a $14.1 million impairment charge on the legacy Ekso business. ChronoScale completed the sale of that business on September 30, 2026.
- Financing included $1.59 billion of 7.0% senior secured notes due 2031, $275.0 million gross proceeds from Series G preferred stock, and the revolving-credit draw. The company also redeemed all Series E preferred shares and 78 Series E-1 shares. After quarter-end, the remaining 128,750 Series G shares converted into 5.2 million common shares.
Outlook, risks, and contingencies
- Buildout and leases: Management reported aggregate contracted critical IT load of 1,410 MW after signing a 15-year lease for 210 MW at Delta Forge 2, with approximately $5.2 billion of contracted base-term revenue and expected delivery in the first half of calendar 2028. Project schedules include Polaris Forge 2 initial service in the second half of 2026, and several other campuses entering service during 2027–2028; timing depends on construction and other execution factors.
- Power agreement and related party: On October 4, 2026, the company entered a 15-year agreement to purchase capacity and energy from a planned approximately 1,200 MW natural-gas facility being developed by Base Electron for Polaris Forge 3. Base Electron is partly owned and managed by company officers and directors; Applied Digital owned approximately 10% as of that date. Base Electron may terminate if the project has not reached financial close by March 31, 2027. Review the agreement’s economics, credit support, related-party safeguards, and project conditions.
- Concentration and execution risks: Three customers represented 56%, 21%, and 11% of quarterly revenue. The filing highlights dependence on major customers, financing availability, construction completion, power and equipment availability, permits, labor, and evolving AI, energy, and crypto regulation. Customer concentration and fit-out activity may make revenue and cash flows uneven.
- Debt and liquidity risks: The 7.0% notes are secured and subject to restrictive covenants; the company also provided a completion guarantee for the ELN-04 project. The Texas Capital loan includes liquidity requirements and a requirement that market capitalization remain above $2.0 billion. Management reported compliance with debt covenants at quarter-end.
- Legal matters: A securities class action remains stayed pending resolution of a motion to dismiss; the company cannot estimate potential loss. A derivative action was dismissed without prejudice, and no amended complaint had been filed as of the report.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. It reported no material changes to the risk factors in its FY2026 Form 10-K.
Most important facts for investors to verify
- How much of revenue and adjusted earnings is recurring rental or hosting revenue versus tenant fit-outs and hardware resale, and how non-GAAP exclusions affect the picture.
- Construction progress, power availability, customer acceptance, and delivery dates for the contracted HPC campuses and the 210 MW Delta Forge 2 lease.
- Availability of unrestricted cash after separating restricted cash, project funds, and working-capital needs; also verify the scale and timing of capital spending, debt service, and financing access.
- Debt covenant headroom, the effect of letters of credit on revolver availability, and the sensitivity of liquidity to the Texas Capital market-capitalization condition.
- Customer concentration, potential dilution from preferred conversions, warrants, and equity awards, and the valuation volatility of B&W-related instruments.
- The final economics and governance safeguards for the Base Electron power agreement, including financial close, credit support, and related-party approvals.