Applied Digital Corp. 10-Qquarter ended 2026-08-31

Polaris Forge 1 begins generating rent, but tenant fit-outs and GPU resale inflate revenue growth as financing costs deepen losses.

Filed 2026-10-07 17:19 ET

Key figures · Q1 FY2027 · period ended 2026-08-31

  • Revenue$341.9MYoY +322.4%QoQ +32.1%
  • Operating income−$62.4MYoY −539.0%QoQ +50.0%
  • Net income−$235.5M1YoY −1291.6%QoQ −113.8%
  • Total assets$11.7BQoQ +17.9%
  • Total debt
    How total debt adds up
    Long-term portion of finance lease liability$2.5M
    + Long-term debt$6,263.9M
    + Current portion of finance lease liability$43.5M
    + Current portion of debt$112.6M
    Total debt$6,422.5M

    Lines as the filer presents them on its balance sheet.

    $6.4BQoQ +27.6%
  • Shareholders' equity$1.6BQoQ −6.7%
  • Tangible book value$1.5B2QoQ −6.9%
Notes (2)
  1. Net income: Net loss less the line "Net loss attributable to noncontrolling interest and redeemable noncontrolling interest"; the statement has no line of its own for the loss attributable to the company.
  2. Tangible book value: From the notes to the financial statements; the balance sheet does not present this as a separate line. No intangible assets are reported.

Alerts

Summary verification

  • Small difference

    Capital expenditures: Summary: $2.08B · Filing: $2.1B

    Comment from AI: The summary states capital expenditures of $2.08B; the filing reports $2.07B.

How we check summaries

How this filing reads

  • Health−0.5Cash was $2.95B, while quarterly FCF was $(2.01)B and debt reached $6.38B.
  • Momentum−0.2Revenue rose 322%; operating loss widened to $62.4M as gross margin fell to 15%.
  • Outlook+0.2Contracted lease payments total $35.7B, contingent on infrastructure completion; 210 MW delivery targets H1 2028.

Executive Summary

Applied Digital’s Q1 FY2027 marked its transition into revenue-producing AI data-center infrastructure, but the revenue surge overstated recurring growth because tenant fit-outs and hardware resale contributed substantially. Rental operations improved segment profitability, yet corporate expenses, stock-based compensation, financing costs and investment valuation losses drove a much larger loss attributable to common stockholders. The company’s 1,410 MW of contracted capacity offers substantial long-term opportunity, while its construction program consumed far more cash than operations generated. The investment thesis now depends on timely delivery, conversion of contracted capacity into recurring rent, and financing that does not overwhelm common-stockholder returns.

Key Financial Highlights

Figures cover Q1 FY2027 ended 8/31/2026; balance-sheet changes are versus 5/31/2026.

Metric Reported result Investor interpretation
Revenue $342M, +322% Y/Y Growth includes construction-related services and hardware resale, not just recurring rent.
Gross profit $52.3M, +138% Y/Y Gross margin fell to 15% from 27% as lower-margin services expanded.
Operating loss $(62.4)M vs $(9.76)M Corporate expenses outpaced improved segment profits.
Net loss attributable to common stockholders $(237)M vs $(18.5)M; diluted EPS $(0.82) Noncontrolling-interest allocations and preferred dividends deepen common-stockholder losses.
Net loss, total (incl. noncontrolling interests) $(184)M vs $(16.9)M Valuation losses and financing costs materially affected earnings.
EBITDA / adjusted EBITDA $(72.6)M / $64.4M Management’s adjusted measure excludes ChronoScale and substantial specified expenses.
OCF / FCF $63.9M / $(2.01)B $2.08B of capital expenditures makes construction financing indispensable.
Total assets $11.7B, +18% Expansion principally reflects data-center investment.
Total stockholders’ equity including noncontrolling interest $1.61B, down 6.8% Accounting equity declined despite continued financing activity.
Total debt, carrying amount $6.38B, +28% Leverage is rising ahead of full campus monetization.
  • Earnings quality: Positive OCF despite the consolidated loss reflected noncash adjustments and service-related working-capital timing. Derivative and investment fair-value losses totaled $60.9M; stock-based compensation was $69.2M versus $15.5M.
  • Financing burden: Interest expense reached $77.4M versus $8.01M, partly offset by $35.8M of interest income; cash interest paid was $243M.
  • Liquidity and dilution: Cash and equivalents were $2.95B; total cash, equivalents and restricted cash fell $475M to $3.68B. Common shares outstanding increased 3.2% to 297M; subsequent preferred conversions added ≈5.2M shares.

Business Developments

  • Rental transition: The first two Polaris Forge 1 buildings generated $79.1M of rental and other revenue, including ≈$65.8M of base rent. HPC Hosting segment profit reached $33.4M, but ≈$157M of tenant fit-out revenue means its growth is not yet a pure recurring-rental story.
  • Contracted expansion: Delta Forge 2 secured an ≈15-year lease for 210 MW with a high-investment-grade hyperscaler, representing ≈$5.2B of base-term revenue and expected delivery in H1 calendar 2028. Total minimum contracted lease payments were $35.7B, contingent on delivering the infrastructure.
  • Power and operating portfolio: An agreement for capacity and energy from a planned ≈1,200-MW gas-fired facility supports Polaris Forge 3 expansion. Legacy Data Center Hosting revenue was broadly flat, while more advantageous power pricing improved segment profit.
  • ChronoScale: The ≈96%-owned subsidiary added GPU hardware resale and a Microsoft partnership contemplating ≈50 MW of AI compute capacity. Selling legacy Ekso on 9/30/2026 narrows its focus after an ≈$14.1M impairment.

Risk Assessment

  • Construction and power: $3.67B of construction in progress exposes lease commencement and returns to permitting, equipment, power availability and completion delays.
  • Funding and guarantees: Negative FCF, $6.38B of debt carrying amounts and project-completion guarantees create dependence on continued financing; scheduled principal includes $4.26B due in FY2031.
  • Customer concentration: Three customers supplied 88% of quarterly revenue, making customer spending, billing and lease continuity disproportionately important.
  • Common-stockholder economics: ≈$2.0B of redeemable noncontrolling interest, preferred financing and potential share issuance complicate how project-level profits translate into common-stockholder returns.
  • Regulatory exposure: Scrutiny of AI and crypto electricity use, potential data-center moratoriums and AI regulation could restrict development or customer demand.

This 10-Q lists no risk factors of its own and refers to the annual report. The risks above come from the rest of this filing. Full list: FY2026 10-K.

Strategic Outlook and Investor Actionables

Management is betting that contracted hyperscaler demand will justify debt-funded campus construction and dedicated power infrastructure. Recurring rent is the opportunity; delayed delivery, expensive financing and dilution are the threats to realizing that opportunity for common shareholders.

  • Rental quality: Base rent starts at ≈$65.8M versus ≈$157M of tenant fit-out revenue. Success means rent grows as buildings enter service; failure means reported growth remains dominated by project services.
  • Delivery execution: Contracted capacity is 1,410 MW, including Delta Forge 2’s 210 MW targeted for H1 calendar 2028. Later filings should show capacity entering service on management’s schedules rather than repeated delays.
  • Power execution: The planned ≈1,200-MW generation project underpins Polaris Forge 3 expansion. Progress toward available power supports the thesis; delays or revised arrangements weaken it.
  • Funding sustainability: FCF starts at $(2.01)B and common shares increased 3.2%. Success means operating cash grows as campuses open and financing dependence moderates; failure means continued cash deficits require escalating leverage or dilution.

Figures are computed from the filing's XBRL data; the summary and scores are written by an AI model reading the filing.

Model 006 · prompt 3de311c12b

Feedback