Business Context and Reporting Period
Company: Applied Digital Corp. (APLD)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three and nine months ended February 28, 2026
Business Overview: Designer, builder, and operator of high-performance data centers for AI, cloud, and blockchain workloads. The company operates three segments: Data Center Hosting, Cloud Services, and HPC Hosting.
Significant Accounting Change: The Cloud Services Business was previously classified as "held for sale" and reported as discontinued operations. Effective February 15, 2026, following a Contribution and Exchange Agreement with EKSO Bionics Holdings, Inc., the segment was reclassified to "held and used" and continuing operations. This reclassification resulted in a $59.7 million loss on classification of held for sale due to asset write-downs.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended Feb 28, 2026 | Nine Months Ended Feb 28, 2026 | Nine Months Ended Feb 28, 2025 |
|---|---|---|---|
| Total Revenue | $126,637 | $352,562 | $177,493 |
| Net Loss (GAAP) | $(70,556) | $(101,932) | $(178,528) |
| Net Loss Attributable to Common Stockholders | $(100,861) | $(138,547) | $(179,741) |
| Adjusted Net Income (Non-GAAP) | $33,156 | $22,607 | $(4,899) |
| Adjusted EBITDA (Non-GAAP) | $44,139 | $64,877 | $18,647 |
| Cash and Cash Equivalents | $1,730,440 | $1,730,440 | $43,950 |
| Total Debt (Current + Long-term) | $2,692,675 | $2,692,675 | $688,156 |
Note: Total Debt includes current portion of debt ($98,174) and long-term debt ($2,594,501) as of Feb 28, 2026.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 139% quarter-over-quarter and 101% year-over-year (nine months), driven primarily by the HPC Hosting Business which generated $71.0 million in the quarter and $182.3 million for the nine months.
- Operating Loss: GAAP operating loss widened to $85.7 million for the quarter (from $18.9 million) and $111.6 million for the nine months (from $28.1 million). This is largely due to the $59.7 million non-cash loss on reclassifying the Cloud Services Business from held-for-sale to held-and-used.
- Liquidity Position: Cash and cash equivalents surged from $43.9 million to $1.73 billion, fueled by significant financing activities including a $2.35 billion Senior Secured Notes offering and $900 million in noncontrolling interest contributions.
- Debt Structure: Long-term debt increased significantly to $2.59 billion following the issuance of 2030 Senior Secured Notes and repayment of the SMBC Loan.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
- HPC Expansion: The company is aggressively expanding its HPC footprint with the Polaris Forge 1 campus (400 MW under contract with CoreWeave) and breaking ground on Polaris Forge 2 (200 MW) and Delta Forge 1 (300 MW).
- Cloud Services Strategy: While the Cloud Services Business remains part of consolidated results, management evaluates core performance excluding this segment. A proposed business combination with EKSO Bionics to form "ChronoScale" is pending regulatory approval.
- Non-GAAP Performance: Management highlights Adjusted Operating Income of $25.6 million (24% margin) for the quarter, excluding the Cloud Services Business and non-recurring items.
Risks and Contingencies:
- Legal Proceedings: A putative securities class action lawsuit (McConnell v. Applied Digital Corporation) is stayed pending a motion to dismiss. A derivative lawsuit was dismissed without prejudice.
- Guarantees: The company guaranteed a $1.2 GW power generation facility design-build agreement for Base Electron, with a potential termination fee of $50 million to $100 million.
- Regulatory Environment: Evolving regulations regarding AI energy consumption and data center operations pose potential compliance risks.
- Financing Conditions: Proceeds from a subsequent $2.15 billion 2031 Notes offering (closed March 2026) are held in escrow pending electric service agreement execution; failure to satisfy conditions by June 30, 2026, triggers mandatory redemption.
Investor Verification Checklist
- Cloud Services Reclassification: Verify the impact of the $59.7 million write-down on the Cloud Services Business assets and the status of the EKSO Bionics business combination.
- Debt Covenants: Review the terms of the new $2.35 billion 2030 Notes and $2.15 billion 2031 Notes, specifically regarding amortization schedules and escrow release conditions.
- Non-GAAP Reconciliations: Scrutinize the adjustments made to arrive at Adjusted Net Income and Adjusted EBITDA, particularly the exclusion of the Cloud Services Business results.
- Capital Expenditures: Assess the $1.6 billion cash used in investing activities against the timeline for revenue recognition from new HPC campuses (Polaris Forge 2, Delta Forge 1).
- Legal Exposure: Monitor the status of the stayed securities class action lawsuit and the potential for reinstatement.