Applied Digital Corporation (APLD) faced significant challenges during the fiscal fourth quarter ending May 31, 2024, resulting in a net loss of $64.8 million, or $0.52 per share, compared to a net loss of $6.5 million in the same quarter of the previous year. Revenue increased 98.3% year-over-year to $43.7 million, primarily due to expanded capacity in data center hosting and contributions from the burgeoning cloud services sector. Management has emphasized growth potential through strategic initiatives, including a lease agreement with a U.S.-based hyperscaler and the development of the Ellendale HPC campus, which together positions APLD as a significant player in the high-performance computing market.
### Financial Performance
- Revenue: $43.7M, up 98.3% YoY (Q4 2023: $22M)
- Net Income: -$64.8M, from -$6.5M YoY
- EPS: -$0.52
- Gross Profit Margin: -5.93% (Q4 2023: +30.73%)
- Operating Income Margin: -77.59%
- Adjusted EBITDA: $4.8M, with noted complexities from one-time expenses.
### Operational Metrics
- Strong performance at the Jamestown facility, consistently operating at full capacity.
- The Ellendale HPC campus is under development with significant progress towards a 400MW capacity lease agreement.
- Increased operational costs due to power outages and initial start-up expenses in the cloud services segment, impacting profit margins.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
43.70M
98.29%
0.81%
Gross Profit
-2.59M
-142.54%
30.25%
Operating Income
-33.91M
-443.05%
0.56%
Net Income
-64.76M
-844.52%
-3.05%
EPS
-0.52
-621.22%
0.00%
Key Financial Ratios
currentRatio
0.08
grossProfitMargin
-5.93%
operatingProfitMargin
-77.6%
netProfitMargin
-148.2%
returnOnAssets
-8.06%
returnOnEquity
-51.9%
debtEquityRatio
3.43
operatingCashFlowPerShare
$-0.27
freeCashFlowPerShare
$-0.71
priceToBookRatio
4.22
priceEarningsRatio
-2.04
Net Income vs. Revenue
Expense Breakdown
Management Commentary
### Themes from Management Commentary
#### Growth and Strategic Initiatives
- Wes Cummins, CEO: "Despite these short-term setbacks, the company has made significant progress with our key growth initiatives..." Notably, they are focused on expanding their cloud services, which generated $16.8 million in revenue during Q4 2024.
#### Financial Recovery and Challenges
- David Rench, CFO: "We reported an adjusted EBITDA of approximately $4.8 million, several one-time items significantly impacted our financial performance..." indicating ongoing efforts to manage operational costs while ensuring growth.
#### Market Opportunities
- Cummins also mentioned the execution of a Letter of Intent (LOI) with a U.S. hyperscaler for substantial future capacity at their Ellendale campus, projecting a significant boost to operational capability.
"We have made substantial progress towards securing greater than a decade long lease agreement..." - Wes Cummins
— Wes Cummins
"We need to get the right capital base in that business to grow it aggressively." - Wes Cummins
— Wes Cummins
Forward Guidance
Management expressed optimism for the upcoming quarters, positing that Q4 marked the bottom for revenues. They anticipate a trajectory of growth driven by the cloud services segment and the full operational capacity of the Ellendale campus, highlighted by Cummins' statement: "We are focused on finalizing the lease... and believe this will solidify our position as a leader in the HPC data center market." Investors should monitor developments in the hyperscaler lease and the broader demand for their cloud computing services to gauge future performance.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
APLD Focus
-5.93%
-77.60%
-51.90%
-2.04%
GHL
49.40%
36.70%
27.50%
2.85%
MEGL
1.00%
-21.60%
-0.90%
-38.53%
TOP
-96.20%
-1.60%
-6.45%
-9.70%
SAI
7.41%
-81.20%
-7.12%
-5.79%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Considering both quantitative metrics and qualitative insights, APLD presents a mixed investment case. The robust growth in revenue and targeted investments in high-performance computing and cloud services provide bullish indicators for future performance. However, the significant operational losses and high leverage necessitate caution amongst investors. Continued monitoring of management’s execution on strategic initiatives, particularly lease agreements with hyperscalers and operational stability of facilities, is essential for potential investors.
Key Investment Factors
Growth Potential
Management remains optimistic about the cloud services market, projecting significant growth with a revenue run rate of $100 million to $110 million based on current capacity and demand.
Profitability Risk
Challenges include high operational costs, dependency on infrastructure stability, the ongoing need for capital financing, and uncertainty in contract finalization with hyperscalers.
Financial Position
The company holds a substantial $31.7 million in cash but is also encumbered with $125.4 million in debt, indicating a high leverage ratio of 1.007, which could pose risks to financial flexibility.
SWOT Analysis
Strengths
Strong revenue growth of 98.3% YoY driven by increased capacity and new contracts.
Significant investment in high-performance computing, positioning the company well in an expanding market.
Experienced management team with strategic focus on cloud services and long-term customer relationships.
Weaknesses
High operational losses reported in Q4, including a net loss of $64.8 million.
High cost of revenue due to power outages and start-up expenses affecting margins.
Significant debt levels that could constrain future financial flexibility.
Opportunities
Expansion of cloud services could lead to substantial revenue growth as AI applications increase.
Potential for large-scale contracts with hyperscalers, providing a stable revenue base.
Development of new HPC facilities to capture growing demand for advanced computing needs.
Threats
Intense competition from established data center operators in securing contracts.
Market fluctuations and operational disruptions could impact financial stability.
Regulatory or environmental issues affecting operational capabilities in key geographic regions.