Exchange: NASDAQ | Sector: Technology | Industry: Information Technology Services
Q3 2024
Published: Apr 11, 2024
Earnings Highlights
Revenue of $43.35M up 207.7% year-over-year
EPS of $-0.52 decreased by 597.1% from previous year
Gross margin of -8.6%
Net income of -62.84M
""The company is also pursuing remedies to recoup lost revenues and additional costs incurred to identify and rectify the outages." - David Rench, CFO" - David Rench
Applied Digital Corporation (APLD) Q3 2024 Financial Analysis: Navigating Challenges with Growth Opportunities
Executive Summary
In Q3 2024, Applied Digital Corporation (APLD) reported a significant increase in revenue, driven by an expanding capacity in its data center hosting and cloud services business. Revenue reached $43.3 million, a 207.65% year-over-year increase. However, the company faced operational challenges, particularly with power outages at its Ellendale facility, leading to a net loss of $62.8 million. Despite these setbacks, management highlighted the ongoing development of new customer relationships, including a contract with a US-based hyperscaler for 400 megawatts of capacity. This situates APLD as a key player in the high-performance computing space, fostering growth even amid adversity.
Key Performance Indicators
Revenue
43.35M
QoQ: 2.71% | YoY:207.65%
Gross Profit
-3.71M
-8.57% margin
QoQ: -128.60% | YoY:-204.39%
Operating Income
-34.10M
QoQ: -317.16% | YoY:-390.14%
Net Income
-62.84M
QoQ: -496.81% | YoY:-794.49%
EPS
-0.52
QoQ: -441.67% | YoY:-597.05%
Revenue Trend
Margin Analysis
Key Insights
**Revenue:** $43.3 million (207.65% YoY, 2.71% QoQ)
**Gross Profit:** -$3.71 million
**Net Income:** -$62.8 million (-$0.52 EPS)
**Operating Loss:** -$34.1 million
**Total Assets:** $643.17 million
Financial Highlights
## Key Financial Metrics:
- Revenue: $43.3 million (207.65% YoY, 2.71% QoQ)
- Gross Profit: -$3.71 million
- Net Income: -$62.8 million (-$0.52 EPS)
- Operating Loss: -$34.1 million
- Total Assets: $643.17 million
- Total Liabilities: $524.68 million
- Cash Position: $33.98 million as of end of Q3
- Debt to Capitalization Ratio: 71.3% (high leverage, needs monitoring)
Management noted that adjusted EBITDA loss for the quarter was around $2.3 million, significantly impacted by one-off expenses and setbacks from unanticipated outages.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
43.35M
207.65%
2.71%
Gross Profit
-3.71M
-204.39%
-128.60%
Operating Income
-34.10M
-390.14%
-317.16%
Net Income
-62.84M
-794.49%
-496.81%
EPS
-0.52
-597.05%
-441.67%
Key Financial Ratios
currentRatio
0.3
grossProfitMargin
-8.57%
operatingProfitMargin
-78.7%
netProfitMargin
-145%
returnOnAssets
-9.77%
returnOnEquity
-53%
debtEquityRatio
2.48
operatingCashFlowPerShare
$0.32
freeCashFlowPerShare
$-0.02
priceToBookRatio
4.25
priceEarningsRatio
-2
Net Income vs. Revenue
Expense Breakdown
Management Commentary
## Transcript Highlights:
- Operational Challenges: "We encountered several challenges that impacted our financial performance due to facility power outages in our data center hosting business," stated Wes Cummins, CEO.
- Future Growth Strategies: "We are also pleased to announce... executed an LOI with a US-based hyperscaler for 400 megawatts of capacity at our Ellendale campus," indicating confidence in long-term contracts.
- Focus on Recovery: CFO David Rench noted, "We incurred one-time professional service expenses... and we are pursuing all available remedies to recoup lost revenues..." indicating active management response to current challenges.
"The company is also pursuing remedies to recoup lost revenues and additional costs incurred to identify and rectify the outages." - David Rench, CFO
— David Rench
"Despite these short-term setbacks, the company has made significant progress with our key growth initiatives..." - Wes Cummins, CEO
— Wes Cummins
Forward Guidance
Looking ahead, APLD expects improvements driven by the deployment of additional cloud service clusters in the upcoming quarter. Management remains optimistic that cash flow and operational metrics will stabilize once the new transformers are operational, increasing production capacity at the Ellendale site. The $160 million from recent asset sales will bolster liquidity and help address outstanding debts. Investors should keep an eye on customer acquisition, particularly with larger enterprise clients as diversification away from startup customers is a priority for APLD.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
APLD Focus
-8.57%
-78.70%
-53.00%
-2.00%
GHL
-56.80%
-1.05%
-97.40%
-2.47%
TOP
0.00%
0.00%
0.00%
0.00%
SAI
7.41%
-81.20%
-7.12%
-4.87%
NCPL
8.25%
-1.18%
-5.53%
-15.94%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
The investment thesis for Applied Digital Corporation remains cautiously optimistic amidst persisting challenges. While the company faces significant short-term operational hurdles and high debt levels, the strategic shift towards establishing long-term contracts with large customers positions it to capitalize on market growth. Continued monitoring of revenue stabilization, successful deployment of new capacity, and enhanced operational efficiencies will be key factors influencing the company's market position and stock performance.
Key Investment Factors
Growth Potential
APLD is positioned in the high-performance computing market, which shows robust growth potential due to increasing demand for AI and cloud services. The recent LOI with a hyperscaler signifies potential recurring revenue streams.
Profitability Risk
Ongoing challenges regarding operational outages and heavy debt levels pose significant risks, especially with elevated interest coverage ratios suggesting potential financial distress ahead.
Financial Position
While liquidity appears constrained with significant losses and a reliance on asset sales for cash flow, the strategic direction towards securing long-term contracts may stabilize the company’s financial health in the future.
SWOT Analysis
Strengths
Significant revenue growth (207.65% YoY) indicating strong demand for services
Strategically located data centers positioned to support high-performance computing needs
Ongoing partnerships with large enterprise clients providing growth opportunities
Weaknesses
High operational costs leading to negative gross profit
Opportunities
Growing HPC market boosted by AI and machine learning trends
Capacity expansion with the recent LOI for 400 MW which could stabilize future revenues
Threats
Operational risks associated with facility outages affecting service reliability
High levels of debt and interest expenses potentially limiting cash flow options