Applied Digital Corp. 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. You can identify these forward-looking statements through our use of words such as “will,” “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential” and other similar words and expressions of the future. Statements that contain these words and other statements that are forward-looking in nature should be read carefully because they discuss future expectations, contain projections of future results of operations or of financial positions, or state other “forward-looking” information. These statements are based on our management’s beliefs and assumptions, which are based on currently available information. Our actual results, and the assumptions on which we relied, could prove materially different from our expectations. You are cautioned not to place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. There are a number of important factors that could cause our actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to: • our ability to complete construction of our HPC facilities at each of the Polaris Forge 1 and Polaris Forge 2 campuses; • our ability to complete the negotiation and execution of the definitive transaction documents to close the sale of our Cloud Services Business that is currently held for sale and treated as discontinued operations; • our dependence on principal customers, including our ability to execute leases with key customers, including leases for our Polaris Forge 1 and Polaris Forge 2 data center campuses; • availability of financing to continue to grow our business; • labor and other workforce shortages and challenges; • power or other supply disruptions and equipment failures; • the addition or loss of significant customers or material changes to our relationships with these customers; • delays or denials of entitlements or permits, including zoning, siting, utility and other permits, or other delays resulting from requirements of public agencies and utility companies; • our sensitivity to general economic conditions including changes in disposable income levels and consumer spending trends; • our ability to timely and successfully build new hosting facilities with the appropriate contractual margins and efficiencies; • our ability to continue to grow sales in our hosting business; • volatility of cryptoasset prices; and • uncertainties of cryptoasset regulation policy. You should carefully review the risks described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended May 31, 2025, which was filed with the SEC on July 30, 2025, as well as any other cautionary language in this Quarterly Report on Form 10-Q, as the occurrence of any of these events could have an adverse effect, which may be material, on our business, results of operations, financial condition or cash flows. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time, and it is not possible for our management to predict all risk factors and uncertainties, nor are we able to assess the impact of all of these risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements. These risks are not exhaustive. Executive Overview The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. 29 Table of Contents Business Overview We are a U.S. designer, developer, and operator of high-performance, sustainably engineered data centers and colocation services for artificial intelligence (“AI”), networking, and blockchain workloads. Headquartered in Dallas, TX, and founded in 2021, the Company combines hyperscale expertise, proprietary waterless cooling, and rapid deployment capabilities to deliver secure, scalable compute at industry-leading speed and efficiency, while creating economic opportunities in underserved communities through its award-winning Polaris Forge AI Factory model. We operate in two distinct business segments, data center hosting (the "Data Center Hosting Business") and HPC data center hosting (the "HPC Hosting Business"), as further discussed below. During the fiscal quarter ended May 31, 2025, we determined that our Cloud Services Business met the criteria for held for sale and discontinued operations. As such, the results of the Cloud Services Business, which was previously included as a reportable segment, are presented as discontinued operations in the unaudited condensed consolidated statements of operations and have been excluded from both continuing operations and segment results for all periods presented. Trends and Other Factors Affecting Our Business Regulatory Environment The regulatory landscape surrounding AI and blockchain hosting services is evolving rapidly, and we anticipate increased scrutiny and potential regulation in the near and long term. Any such developments may significantly impact our business and operations in ways that are difficult to predict. Governments and regulatory bodies are considering measures to ensure the responsible development and deployment of AI systems, including transparency, accountability, and fairness guidelines. For example, in the U.S Senate, committees of jurisdiction have passed several AI bills that establish industry standards and impose significant obligations in relation to the use of AI systems. On the state level, several U.S. states have considered AI legislation, which aims to reduce risk associated with the use of AI; while certain states have passed comprehensive AI legislation. On September 29, 2025, California passed the Transparency in Frontier Artificial Intelligence Act into law, which requires certain AI companies to fulfill transparency requirements and report AI-related safety incidents, among other things. In Europe, the EU AI Act has been adopted, portions of which have started to take effect this year. The amount of energy used for AI and crypto mining has also received significant attention. For example, in January 2024, the U.S. Energy Information Administration conducted an emergency survey of electricity consumption data from cryptocurrency mining companies in the U.S. This indicates that more focus is being placed on the energy usage of these activities. It is unclear how the information collected will be used for future regulations, but it is expected that energy efficiency and sustainability will be critical factors regulating both AI data centers and cryptocurrency mining. As a company operating at the intersection of data center and HPC hosting services, we are committed to maintaining a proactive and adaptive approach to regulatory compliance. We closely monitor legislative and regulatory developments and engage in dialogue with relevant stakeholders to ensure our business practices align with the evolving legal and regulatory framework. Despite the uncertainties posed by the changing regulatory landscape, we remain committed to delivering innovative and responsible solutions in the data center and HPC hosting markets while prioritizing compliance and risk management. However, if we fail to comply with applicable laws and regulations, we may be subject to significant liabilities, including fines and penalties, and our business, financial condition, or results of operations could be adversely affected. Critical Accounting Estimates Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue, expenses and the related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our unaudited condensed consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our critical accounting estimates are identified and described in our annual consolidated financial statements and the related notes included in our Annual Report on Form 10-K and our subsequent Quarterly Reports on Form 10-Q. 30 Table of Contents Business Update Data Center Hosting Business Our Data Center Hosting Business operates data centers to provide energized space to crypto mining customers. As of August 31, 2025, our 106 MW facility in Jamestown, North Dakota and our 180 MW facility in Ellendale, North Dakota continue to operate at full capacity. HPC Hosting Business Our HPC Hosting Business designs, constructs, and operates next-generation data centers, which are designed to provide massive computing power and support HPC applications within a cost-effective model. We are currently building two HPC focused data center facilities to provide 100 MW and 150 MW, respectively, of capacity at our Polaris Forge 1 campus in Ellendale, ND. These facilities are being designed and purpose-built to host high-density GPU architecture or other HPC applications, such as artificial intelligence, natural language processing, machine learning, and additional HPC developments. The third HPC focused data center facility, which is expected to provide an additional 150MW of capacity at Polaris Forge 1, is currently in planning stages with an anticipated ready for service date in 2027. On May 28, 2025, APLD ELN-02 LLC and APLD ELN-03 LLC, our subsidiaries, each entered into a data center lease (together, the “Data Center Leases”) with CoreWeave, Inc. (“CoreWeave”) to deliver an aggregate of 250 MW of infrastructure to host CoreWeave’s HPC operations at Polaris Forge 1. The first lease is for the full capacity of our 100 MW data center that is currently under construction, and the second lease is for the full capacity of our 150 MW data center that is also under construction. We have guaranteed the obligations of APLD ELN-02 LLC and APLD ELN-03 LLC under the respective Data Center Lease to which such subsidiary is a party. On August 28, 2025, APLD ELN-02 C LLC, our subsidiary, entered into a third data center lease, the (“Building 4 Lease”) with CoreWeave to deliver an additional 150 MW at Polaris Forge 1, bringing the total capacity under contract at Polaris Forge 1 to 400 MW. We have guaranteed the obligations of APLD ELN-02 C LLC under the Building 4 Lease. We recognized $26.3 million in tenant fit-out revenue from this business segment during the three months ended August 31, 2025. We anticipate that this business segment will begin generating meaningful revenues associated with the leases once the first building within Polaris Forge 1 becomes operational, which is expected in calendar year 2025. On August 18, 2025, we also announced that we would be breaking ground on our Polaris Forge 2 campus, a $3 billion, 280 MW data center near Harwood, North Dakota. The project has begun and we currently anticipate reaching initial capacity in 2026 and reaching full capacity in early 2027. Discontinued Operations The Cloud Services Business provides high-performance computing power for AI and machine learning applications. Near the end of the fiscal third quarter 2024, this business began generating revenue. In the fourth quarter of fiscal year 2025, we determined that the Cloud Services Business met the criteria to be classified as “held for sale,” and as the sale represents a strategic shift for the Company, discontinued operations. As such, for the three months ended August 31, 2025, we have reported the Cloud Services Business as held for sale on the unaudited condensed consolidated balance sheets and discontinued operations on the unaudited condensed consolidated statement of operations. The comparative periods have been updated to present the Cloud Services Business as held for sale and discontinued operations as of June 1, 2024. We recognized $16.7 million in revenue from this business segment during three months ended August 31, 2025 within discontinued operations. The Cloud Services Business operates in three states: Colorado, Minnesota and Utah, by renting space at third party co-location centers and providing customers with Company-owned equipment. Management Update On August 1, 2025, we entered into an employment agreement with Jason Zhang, one of the Company’s founders and former directors, to serve in the role of Chief Strategy Officer of the Company. 31 Table of Contents Public Offerings and Changes to Equity June 2025 At-the-Market Sales Agreement On June 2, 2025, the Company entered into a Sales Agreement with Northland Securities, Inc. and Wells Fargo Securities, LLC (the “June 2025 Sales Agreement”), pursuant to which, up to $200,000,000 of shares of the Company's common stock may be issued if and when sold. As of the date of this report, the Company has issued and sold approximately 15.3 million shares under the June 2025 Sales Agreement for gross proceeds of approximately $196.4 million. Series G Preferred Stock On August 14, 2025, we entered into the first amendment (the “First Amendment”) to the Preferred Equity Purchase Agreement (the “PEPA”), dated April 30, 2025, to, among other things, (i) increase the aggregate commitment amount of the shares of Series G Convertible Preferred Stock (the “Series G Preferred Stock”) from $150 million to $300 million, and (ii) increase our access to capital by removing the Put Limitation (as defined in the PEPA) that had previously limited the aggregate purchase price for any Put Issuance (as defined in the PEPA) to no more than $75 million. In connection with the First Amendment, on August 14, 2025, we filed an amendment (the “First CoD Amendment”) to the Series G Certificate of Designation, originally filed with the Secretary of State of the State of Nevada on April 30, 2025. The First CoD Amendment amends the Series G Certificate of Designation to, among other things, (i) increase the initial Floor Price (as set forth in Section 1.5(c)(i) of the Series G Certificate of Designation) to $12.50 from $4.25, and (ii) change the limit below which the Floor Price may not be reduced (as set forth in Section 1.5(c)(ii) of the Series G Certificate of Designation) to $4.33 from $1.34. The Floor Price sets the minimum floor for the conversion price of the Series G Preferred Stock, which price may not be reduced unless we determine to do so in our discretion. The First CoD Amendment further amended the status of converted or repurchased preferred stock such that any shares of Series G Preferred Stock that have been or will be converted will be retired and resume the status of authorized but unissued shares. As Series G Preferred Stock may be reissued, during the three months ended August 31, 2025, the Company issued and sold 180,000 shares of Series G Preferred Stock for aggregate gross proceeds of $175.0 million with a total of 258,000 shares of Series G Preferred Stock being converted into approximately 28.2 million shares of the Company’s common stock. As of August 31, 2025, no Series G Preferred Stock was issued and outstanding. CoreWeave Warrants On August 28, 2025, in connection with the entry into the Building 4 Lease, the Company issued to CoreWeave a warrant (the “Building 4 Warrant”) to acquire up to 8,393,611 shares of the Company’s common stock at an exercise price of $10.75 per share, subject to adjustment in accordance with the terms and conditions set forth in the Building 4 Warrant. The Building 4 Warrant is on the same Form of Warrant as the initial warrant issued to CoreWeave on May 28, 2025, in connection with the data center leases entered into for Building 2 and Building 3 on May 28, 2025. Recent Developments Promissory Note On September 9, 2025, APLD FAR-01 LLC, our subsidiary, entered into a promissory note (the “Promissory Note”) with Macquarie Equipment Capital, Inc., a Delaware corporation (the “Lender”). The Promissory Note provides for a principal sum of (a) $50 million (the “Initial Loan”), which was drawn on the Closing Date, plus (b) subject to the mutual consent of us and the Lender, additional loans in an aggregate principal amount not to exceed $25 million (the “Additional Loans” and together with the Initial Loan, the “Loan”). The Loan shall bear interest at 8.0% per annum, unless an Event of Default (as defined therein) has occurred and is continuing, in which case, the Secured Obligations (as defined therein) shall bear interest at the sum of 8.0% per annum plus an additional 1.50% per month (the “Post-Default Rate”). From the Closing Date until the date that is twelve months following the Closing Date (the “PIK Period”), accrued interest will be paid in kind, with such payment in kind being capitalized to principal monthly and at such other times as may be specified in the Promissory Note. After the PIK Period, accrued interest will be paid in cash, provided that (i) the Post-Default Rate interest is payable in cash on demand and (ii) accrued interest on any principal amount repaid or prepaid is payable on the date of such repayment or prepayment. The Promissory Note matures on the earliest of (i) the date of acceleration of the Loan, (ii) February 1, 2026, if the 200 MW Lease Execution (as defined therein) has not occurred on or before October 31, 2025, or (iii) September 9, 2027. The Loan will accelerate and we must mandatorily prepay the full outstanding principal balance of the Promissory Note, together with accrued interest to the date of prepayment on the principal amount prepaid and any other amounts then due and payable, upon the occurrence of any of the following conditions: (a) a Change of Control (as defined therein), (b) within 32 Table of Contents ninety (90) days following the occurrence of the 200 MW Lease Execution, and (c) within thirty (30) days following a Qualifying Preference Share Issuance (as defined therein). We may voluntarily prepay all or part of the Promissory Note at any time with no less than three (3) business days’ notice with accrued interest to the date of prepayment on the principal amount prepaid, so long as, with respect to the portion of the Loan then being prepaid, in each case, such prepayment is accompanied by the payment of amounts sufficient to achieve a rate of return that equals or exceeds 1.10 to 1.00. The same 1.10x return hurdle applies to repayment at maturity. Amounts repaid under the Promissory Note will not be available to be re-borrowed. Proceeds of the Loan under the Promissory Note will be used, in part, to (i) pay transaction costs, (ii) pay transaction expenses in connection with the Note Documents (as defined therein), (iii) fund the purchase of the financed properties located on the Company’s campus in Harwood, ND (“Polaris Forge 2”), including all associated closing costs, title fees, and legal expenses, (iv) finance improvements to the Polaris Forge 2 properties, (v) fund the purchase of the Transformers (as defined therein) and other equipment expected to be installed and used for the improvements of the Polaris Forge 2 properties, (v) to pay any other costs, fees, expenses, or amounts related to or in connection with the development and construction of Polaris Forge 2, and (vi) for general corporate working capital purposes. In connection with the Loan, (i) APLD FAR-01 LLC, APLD FAR Holdings LLC (“Intermediate Holdings”), a Delaware limited liability company, as parent of the APLD FAR-01 LLC, and APLD FAR-02 LLC (“FAR-02”), a Delaware limited liability company, as a subsidiary of Intermediate Holdings, have entered into a guarantee and collateral agreement, as grantors thereunder, in favor of the Lender (the “Guarantee and Collateral Agreement”) pursuant to which the APLD FAR-01 LLC, Intermediate Holdings, and FAR-02 pledged a continuing security interest in substantially all of their respective assets except for Excluded Assets (as defined in the Guarantee and Collateral Agreement) and (ii) we provided a guarantee (the “Parent Guarantee”) in favor of the Lender that includes certain covenants that limit our ability to (a) transfer or dispose of any Collateral (as defined in the Guarantee and Collateral Agreement) without the prior written consent of the Lender, (b) grant certain liens upon or with respect to the Collateral, and (c) allow APLD FAR-01 LLC and its subsidiaries to sell or otherwise transfer assets to their affiliates, subject to certain specified exceptions in each case. APLD FAR-01 LLC will also grant mortgages to the Lender over certain properties. Series G Preferred Stock Offering On September 11, 2025, we entered into the second amendment (the “Second Amendment”) to the PEPA, dated April 30, 2025, by and between us and the investors signatory thereto, as amended by the First Amendment, dated August 14, 2025 in order to increase our access to capital to fund the continued construction and development of our Polaris Forge 1 data center campus in Ellendale, North Dakota and other general corporate purposes. The Second Amendment amends the PEPA to, among other things, increase the aggregate commitment amount of the shares of Series G Preferred Stock from $300 million to $450 million. Concurrent with the Second Amendment, the Company filed an amendment to the Certificate of Designations to increase the number of shares authorized for issuance as Series G Preferred Stock from 156,000 to 204,000 shares. On September 25, 2025, the Company filed an amendment (the “Third CoD Amendment”) to the Series G Certificate of Designation, originally filed with the Secretary of State of the State of Nevada on April 30, 2025, as amended. The Third CoD Amendment amended the Series G Certificate of Designation, as amended, to increase the Floor Price (as set forth in Section 1.5(c)(i) of the Certificate of Designation) to $22.00 from $12.50. Since the execution of the Second Amendment, 204,000 shares of Series G Preferred Stock have been issued have been issued for aggregate gross proceeds of $200.0 million, of which all 204,000 shares of Series G Preferred Stock have been converted into an aggregate of approximately 10.2 million shares of common stock. On October 7, 2025, the Company entered into the third amendment (the “Third Amendment”) to the PEPA, dated April 30, 2025, by and between the Company and the investors signatory thereto, as amended by the First Amendment and the Second Amendment, in order to increase its access to capital to fund the continued construction and development of its Polaris Forge I data center in Ellendale, North Dakota. The Third Amendment amends the PEPA to, among other things, increase the aggregate commitment amount of the shares of the Series G Preferred Stock from $450.0 million to $590.0 million. 33 Table of Contents Amended and Restated Unit Purchase Agreement As previously disclosed, on January 13, 2025, APLD HPC Holdings LLC (formerly, APLD ELN-02 Holdings LLC), an indirect wholly owned subsidiary of the Company, entered into a Unit Purchase Agreement (the “Unit Purchase Agreement” or “UPA”) for its HPC Hosting Business with MIP VI HPC Holdings, LLC, which is an affiliate of funds and investment vehicles managed by entities within Macquarie Asset Management (“MAM”). On February 11, 2025, APLD HPC Holdings LLC novated and assigned its rights, title and interests and duties, liabilities and obligations under the UPA to APLD HPC TopCo LLC, an indirect wholly-owned subsidiary of the Company (“TopCo 1”). On October 3, 2025, the Company, TopCo 1, APLD HPC TopCo 2 LLC, an indirect wholly-owned subsidiary of the Company (the “Subsidiary Issuer”), and MIP HPC Holdings, LLC (formerly, MIP VI HPC Holdings, LLC) (the “Purchaser”) entered into an Amended and Restated Unit Purchase Agreement (the “A&R UPA”). On October 6, 2025, all conditions to the Initial Closing (as defined in the A&R UPA) were satisfied and the Initial Closing occurred. At the Initial Closing, the Subsidiary Issuer sold to the Purchaser 112,500 Preferred Units in the Subsidiary Issuer at a price per Preferred Unit of $1,000, for an aggregate purchase price of $112.5 million, and for no additional consideration, the Subsidiary Issuer agreed to issue to the Purchaser such number of Common Units of the Subsidiary Issuer representing, in the aggregate, seven and a half percent (7.5%) of the fully diluted common equity of the Subsidiary Issuer as of immediately following the Initial Closing. The proceeds of the Initial Closing will be used to pay, among other things, construction and development costs of Polaris Forge 1 and transaction expenses. MAM has the right to invest up to an additional $4.9 billion under the A&R UPA. In addition, pursuant to the A&R UPA, on October 6, 2025, the Company issued to the designated affiliates of the Purchaser, warrants to purchase an aggregate of 2.4 million shares of the Company’s common stock. The warrants will become exercisable upon the Purchaser funding the full $450 million in Polaris Forge 1. Also on October 6, 2025, the Company entered into a registration rights agreement with the Purchaser, pursuant to which the Company agreed to file with the SEC a registration statement registering the resale of the shares of common stock issuable upon exercise of the warrants within 60 days of the execution of the registration rights agreement. 34 Table of Contents Results of Operations Comparative Results for the Three Months Ended August 31, 2025 and August 31, 2024: The following table sets forth key components of the results of operations (in thousands) during the three months ended August 31, 2025 and August 31, 2024. Three Months Ended August 31, 2025 August 31, 2024 Revenue: Revenue $ 64,216 $ 32,923 Related party revenue — 1,926 Total revenue 64,216 34,849 Costs and expenses: Cost of revenues 55,606 22,743 Selling, general and administrative (1) 29,152 10,993 Gain on classification as held for sale (2) — (24,808) Loss on abandonment of assets 1,751 628 Total costs and expenses 86,509 9,556 Operating (loss) income (22,293) 25,293 Interest expense, net 3,946 2,959 Loss on change in fair value of debt — 6,422 Net (loss) income from continuing operations before income tax expense (26,239) 15,912 Income tax expense 8 — Net (loss) income from continuing operations (26,247) 15,912 Net income (loss) from discontinued operations 9,321 (20,159) Net loss (16,926) (4,247) Preferred dividends (1,576) (44) Net loss attributable to common stockholders $ (18,502) $ (4,291) Net loss attributable to common stockholders Continuing operations $ (27,823) $ 15,868 Discontinued operations 9,321 (20,159) Net loss $ (18,502) $ (4,291) Basic and diluted net loss per share attributable to common stockholders Continuing operations $ (0.11) $ 0.11 Discontinued operations 0.04 (0.14) Basic and diluted net loss per share $ (0.07) $ (0.03) Basic and diluted weighted average number of shares outstanding 255,892,902 149,099,336 35 Table of Contents Adjusted Amounts (3) Adjusted operating (loss) income $ (3,616) $ 2,164 Adjusted operating margin (6) % 6 % Adjusted net loss attributable to common stockholders $ (7,570) $ (795) Adjusted net loss attributable to common stockholders per diluted share $ (0.03) $ (0.01) Other Financial Data (3) EBITDA $ (19,716) $ 22,970 as a percentage of revenues (31) % 66 % Adjusted EBITDA $ 537 $ 6,262 as a percentage of revenues 1 % 18 % (1) Includes related party selling, general and administrative expense of $0.1 million for each of the three months ended August 31, 2025 and August 31, 2024, respectively. See Note 6 - Related Party Transactions for further discussion of related party transactions. (2) Includes $25 million received in connection with the sale of our Garden City facility once conditional approval requirements were met and escrowed funds were released during the three months ended August 31, 2024. (3) Adjusted Amounts and Other Financial Data are non-GAAP performance measures. A reconciliation of reported amounts to adjusted amounts can be found in the "Non-GAAP Measures and Reconciliation" section of Management’s Discussion and Analysis. Commentary on Results of Operations Comparative Results for the Three Months Ended August 31, 2025 compared to the Three Months Ended August 31, 2024 Revenue Revenue increased $31.3 million, or 95%, from $32.9 million for the three months ended August 31, 2024 to $64.2 million for the three months ended August 31, 2025. Approximately $26.3 million of the increase was due to revenue generated related to tenant fit-out services associated with our HPC Hosting Business. The remaining $5.0 million increase in revenue is related to the Data Center Hosting Business and is due to performance improvements compared to the three months ended August 31, 2024. Related party revenue decreased $1.9 million, or 100%, from $1.9 million for the three months ended August 31, 2024 to no related party revenue for the three months ended August 31, 2025, driven by certain related parties terminating their contracts during the first fiscal quarter of 2025. Cost of revenues Cost of revenues increased $32.9 million, or 144%, from $22.7 million for the three months ended August 31, 2024 to $55.6 million for the three months ended August 31, 2025. The increase was primarily driven by an increase of $25.0 million in expenses associated with tenant fit-out services for our HPC Hosting Business, an increase of $7.2 million in energy costs associated with our Data Center Hosting Business, and an increase of $0.6 million in other expenses directly attributable to generating revenue. Selling, general and administrative expense Selling, general and administrative expense increased $18.2 million, or 165%, from $11.0 million for the three months ended August 31, 2024 to $29.2 million for the three months ended August 31, 2025. The change in selling, general and administrative expense is categorized as follows: • approximately $16.6 million increase in stock based compensation primarily due to accelerated vesting of certain employee stock awards; and • approximately $3.9 million increase in personnel expenses for employee costs and other costs attributable to supporting the growth of the business. These increases were partially offset by a $2.3 million decrease in professional service expenses primarily related to a decrease in legal services during the three months ended August 31, 2025 compared to the three months ended August 31, 2024. 36 Table of Contents Loss on abandonment of assets Loss on abandonment of assets increased $1.1 million, or 179%, from $0.6 million for the three months ended August 31, 2024 to $1.8 million for the three months ended August 31, 2025. This was driven by the write down of assets to their fair value upon disposal. Interest expense, net Interest expense, net increased $1.0 million, or 33%, from $3.0 million for the three months ended August 31, 2024, to $3.9 million for the three months ended August 31, 2025. The increase was primarily driven by a $1.4 million increase in loan interest due to loan activity during the three months ended August 31, 2025. These increases were partially offset by a $0.5 million increase in interest income due to an increase in funds held in money market accounts. Net (loss) income from discontinued operations Net (loss) income from discontinued operations increased $29.5 million, or 146%, from a net loss of $20.2 million for the three months ended August 31, 2024 to a net income of $9.3 million for the three months ended August 31, 2025 and represents the income statement activity related to the Cloud Services Business. The Cloud Services Business had an increase of $28.3 million in operating income for the comparative periods and a decrease in interest expense of $1.1 million for the comparative periods. Comparative Segment Data for the Three Months Ended August 31, 2025 and August 31, 2024: The following table sets forth our operating profit (loss) for each of our segments for the three months ended August 31, 2025 and August 31, 2024 (in thousands): Three Months Ended August 31, 2025 August 31, 2024 Segment profit (loss) Data Center Hosting Business $ 6,035 $ 35,851 HPC Hosting Business (2,022) (2,949) Total segment profit $ 4,013 $ 32,902 Commentary on Segment Data Comparative Results for the Three Months Ended August 31, 2025 compared to the Three Months Ended August 31, 2024 Data Center Hosting Business Operating Profit Data Center Hosting Business operating profit decreased $29.8 million, or 83%, from a profit of $35.9 million for the three months ended August 31, 2024 to a profit of $6.0 million for the three months ended August 31, 2025. This decrease was primarily due to a $24.8 million gain on classification of held for sale related to the sale of the Garden City facility during the three months ended August 31, 2024, with no such gain recorded in the current year comparative period. Additionally, cost of revenues increased by approximately $8.0 million for the three months ended August 31, 2025 compared to the prior period, primarily due to an increase of 17% in power cost along with other operating expenses. HPC Hosting Business Operating Loss HPC Hosting Business operating loss decreased $0.9 million, or 31%, from a loss of $2.9 million for the three months ended August 31, 2024 to a loss of $2.0 million for the three months ended August 31, 2025. The change is primarily due to revenue generated related to tenant fit-out services, net of expenses. Non-GAAP Measures To supplement our unaudited condensed consolidated financial statements presented under GAAP, we are presenting certain non-GAAP financial measures. We are providing these non-GAAP financial measures to disclose additional information to facilitate the comparison of past and present operations by providing perspective on results absent one-time or significant non-cash items. We utilize these measures in the business planning process to understand expected operating 37 Table of Contents performance and to evaluate results against those expectations. We believe that these non-GAAP financial measures, when considered together with our GAAP financial results, provide management and investors with an additional understanding of our business operating results regarding factors and trends affecting our business and provide a reasonable basis for comparing our ongoing results of operations . These non-GAAP financial measures are provided as supplemental measures to our performance measures calculated in accordance with GAAP and therefore, are not intended to be considered in isolation or as a substitute for comparable GAAP measures. Further, these non-GAAP financial measures have no standardized meaning prescribed by GAAP and are not prepared under any comprehensive set of accounting rules or principles. Because of the non-standardized definitions of non-GAAP financial measures, we caution investors that the non-GAAP financial measures as used by us in this Quarterly Report on Form 10-Q have limits in their usefulness to investors and may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. Further, investors should be aware that when evaluating these non-GAAP financial measures, these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. In addition, from time to time in the future there may be items that we may exclude for purposes of our non-GAAP financial measures and we may in the future cease to exclude items that we have historically excluded for purposes of our non-GAAP financial measures. Likewise, we may determine to modify the nature of the adjustments to arrive at our non-GAAP financial measures. Investors should review the non-GAAP reconciliations provided below and not rely on any single financial measure to evaluate our business. Adjusted Operating (Loss) Income, Adjusted Net Loss from Continuing Operations Attributable to Common Stockholders, and Adjusted Net Loss from Continuing Operations Attributable to Common Stockholders per Diluted Share “Adjusted Operating (Loss) Income” and “Adjusted net loss from continuing operations attributable to common stockholders” are non-GAAP financial measures that represent operating (loss) income and net (loss) income from continuing operations attributable to common stockholders, respectively. Adjusted Operating (Loss) Income is Operating (loss) income excluding stock-based compensation, non-recurring repair expenses, diligence, acquisition, disposition and integration expenses, litigation expenses, loss on abandonment of assets, gain on classification of held for sale, accelerated depreciation and amortization, restructuring expenses and other non-recurring expenses that Management believes are not representative of the Company’s expected ongoing costs. Adjusted net loss from continuing operations attributable to common stockholders is Adjusted Operating (Loss) Income further adjusted for the loss on change in fair value of debt and preferred dividends. We define “Adjusted net loss from continuing operations attributable to common stockholders per diluted share” as Adjusted net loss from continuing operations attributable to common stockholders divided by weighted average diluted share count. EBITDA and Adjusted EBITDA “EBITDA” is defined as earnings before interest expense, net, income tax expense, and depreciation and amortization. “Adjusted EBITDA” is defined as EBITDA adjusted for stock-based compensation, non-recurring repair expenses, diligence, acquisition, disposition and integration expenses, litigation expenses, gain on classification of held for sale, loss on abandonment of assets, loss on change in fair value of debt, preferred dividends, restructuring expenses and other non-recurring expenses that Management believes are not representative of our expected ongoing costs. 38 Table of Contents Reconciliation of GAAP to Non-GAAP Measures Three Months Ended $ in thousands August 31, 2025 August 31, 2024 Adjusted operating (loss) income Operating (loss) income (GAAP) $ (22,293) $ 25,293 Stock-based compensation 14,446 (2,383) Non-recurring repair expenses (1) 173 32 Diligence, acquisition, disposition and integration expenses (2) 1,196 2,876 Litigation expenses (3) 190 407 Loss on abandonment of assets 1,751 628 Gain on classification of held for sale — (24,808) Accelerated depreciation and amortization (4) — 45 Restructuring expenses (5) 431 — Other non-recurring expenses (6) 490 74 Adjusted operating (loss) income (Non-GAAP) $ (3,616) $ 2,164 Adjusted operating margin (6) % 6 % Adjusted net loss from continuing operations attributable to common stockholders Net (loss) income from continuing operations attributable to common stockholders (GAAP) $ (27,823) $ 15,868 Stock-based compensation 14,446 (2,383) Non-recurring repair expenses (1) 173 32 Diligence, acquisition, disposition and integration expenses (2) 1,196 2,876 Litigation expenses (3) 190 407 Loss on abandonment of assets 1,751 628 Gain on classification of held for sale — (24,808) Accelerated depreciation and amortization (4) — 45 Loss on change in fair value of debt (7) — 6,422 Preferred dividends 1,576 44 Restructuring expenses (5) 431 — Other non-recurring expenses (6) 490 74 Adjusted net loss from continuing operations attributable to common stockholders (Non-GAAP) $ (7,570) $ (795) Adjusted net loss from continuing operations attributable to common stockholders per diluted share (Non-GAAP) $ (0.03) $ (0.01) EBITDA and Adjusted EBITDA Net (loss) income from continuing operations attributable to common stockholders (GAAP) $ (27,823) $ 15,868 Interest expense, net 3,946 2,959 Income tax expense 8 — Depreciation and amortization (4) 4,153 4,143 EBITDA (Non-GAAP) $ (19,716) $ 22,970 Stock-based compensation 14,446 (2,383) Non-recurring repair expenses (1) 173 32 Diligence, acquisition, disposition and integration expenses (2) 1,196 2,876 Litigation expenses (3) 190 407 Gain on classification of held for sale — (24,808) Loss on abandonment of assets 1,751 628 39 Table of Contents Loss on change in fair value of debt (7) — 6,422 Preferred dividends 1,576 44 Restructuring expenses (5) 431 — Other non-recurring expenses (6) 490 74 Adjusted EBITDA (Non-GAAP) $ 537 $ 6,262 (1) Represents costs incurred for the non-recurring repair and replacement of equipment at our Data Center Hosting facilities. (2) Represents legal, accounting and consulting costs incurred in association with certain discrete transactions and projects. (3) Represents non-recurring litigation expense associated with our defense of class action lawsuits and legal fees related to matters with certain former employees. We do not expect to incur these expenses on a regular basis. (4) Represents the acceleration of expense related to assets that were abandoned by us due to operational failure or other reasons. Depreciation and amortization in this amount is included in Depreciation and Amortization expense within our calculation of EBITDA, and therefore is not added back as a management adjustment in our calculation of Adjusted EBITDA. (5) Represents non-recurring expenses associated with employee separations. (6) Represents expenses that are not representative of our expected ongoing costs. (7) Represents loss on change in fair value of debt due to adjustments to the fair value of the Yorkville Convertible Debt. Sources of Liquidity As of August 31, 2025, we had unrestricted cash and cash equivalents of $73.9 million and funds restricted for construction expenditures of $2.9 million. Historically, we have incurred losses and have relied on equity and debt financings to fund our operations. We have primarily generated cash in the last 12 months from the proceeds of our term loans, issuances of common stock, preferred stock, convertible promissory notes, senior unsecured convertible notes, debt facilities and the receipt of contractual deposits and revenue payments from customers. We believe that existing cash balances, cash flows from operations, existing debt facilities, and access to capital markets will provide sufficient liquidity to meet our debt obligations, including any repayment of debt or refinancing of debt, working capital needs, planned capital expenditures, and other contractual obligations, for at least the next twelve months. Recent Financing Activities See Note 7 - Debt in the notes to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information on our term loans and other debt instruments. June 2025 At-the-Market Sales Agreement On June 2, 2025, the Company entered into a Sales Agreement with Northland Securities, Inc. and Wells Fargo Securities, LLC (the “June 2025 Sales Agreement”), pursuant to which, up to $200,000,000 of shares of the Company's common stock may be issued if and when sold. As of the date of this report, the Company has issued and sold approximately 15.3 million shares under the June 2025 Sales Agreement for gross proceeds of approximately $196.4 million. Series G Convertible Preferred Stock On April 30, 2025, we entered into the Preferred Equity Purchase Agreement (the “PEPA”) with certain investors for the issuance and sale of up to 156,000 shares of Series G Convertible Preferred Stock (the “Series G Preferred Stock”) in a transaction. The shares of the Series G Preferred Stock may be put to the investors from time to time at our discretion during the period commencing on April 30, 2025 (the “Commitment Date”) and terminating on the earlier of (i) the 36-month anniversary of the Commitment Date or (ii) such date as there ceases to be a sufficient number of authorized but unissued shares of common stock remaining under the Exchange Cap (as defined in the PEPA). On August 14, 2025, we entered into the First Amendment to, among other things, (i) increase the aggregate commitment amount of the shares of Series G Preferred Stock from $150 million to $300 million, and (ii) increase its access to capital by removing the Put Limitation (as defined in the PEPA) that had previously limited the aggregate purchase price for any Put Issuance (as defined in the PEPA) to no more than $75 million. 40 Table of Contents During the three months ended August 31, 2025, the Company issued and sold 180,000 shares of Series G Preferred Stock for aggregate gross proceeds of $175.0 million. Additionally, during the three months ended August 31, 2025, a total of 258,000 shares of Series G Preferred Stock were converted into approximately 28.2 million shares of our common stock. During the three months ended August 31, 2025, we received $39.4 million in payments for future data center hosting services. Material Contractual Obligations In the ordinary course of business, we enter into contractual arrangements that require future cash payments. The following table sets forth information regarding our anticipated future cash payments under our contractual obligations as of August 31, 2025 (in thousands): Payments Due by Period Total Remainder of FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 Thereafter Debt obligations (1) 867,020 7,867 386,193 7,715 3,209 35 462,001 Interest on debt obligations (2) 94,346 13,934 42,031 13,153 12,680 12,548 — Operating lease obligations (3) 965 573 365 27 — — — Financing lease obligations (4) 12,116 12,101 14 1 — — — Power commitments (5) 40,120 20,942 19,178 — — — — Preferred share dividends (6) 36,237 4,727 6,302 6,302 6,302 6,302 6,302 (1) Debt obligations presented in the table reflect scheduled principal payments related to our outstanding debt as described in Note 7 to the unaudited condensed consolidated financial statements for further discussion. (2) Estimated interest payments on our debt obligations include estimated future interest payments based on the terms of the debt agreements. See Note 7 to the unaudited condensed consolidated financial statements for further discussion. (3) Operating lease obligations include future minimum payments for our operating leases. (4) Financing lease obligations include future minimum payments for our finance leases. We have entered into various leases which are executed but not yet commenced with total minimum payments of approximately $16.6 million and terms of 1.5 years to 2.0 years. (5) Power commitments represents our obligation related to the energy services agreement for our Jamestown, North Dakota co-hosting facility payable. See Note 14 to the unaudited condensed consolidated financial statements for further discussion. (6) Preferred share dividends represent estimated future dividend payments per year in accordance with preferred stock that has been issued. The estimated future dividend payments will continue until preferred stock is redeemed. Funding Requirements We have experienced net losses through the period ended August 31, 2025. Our transition to profitability is dependent on the successful operation of our business. We expect to have sufficient liquidity, including cash on hand, payments from customers, access to debt financing, and access to public capital markets, to support ongoing operations and meet our working capital needs for at least the next 12 months and all of our known requirements and plans for cash. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our ongoing operations and development plans. We have based our estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect, in which case, we would be required to obtain additional financing sooner than currently projected, which may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We expect that our general and administrative expenses and our operating expenditures will continue to increase as we continue to expand our operations. We believe that the significant investments in property and equipment will remain throughout fiscal year 2026 as we continue construction of our HPC hosting facilities. 41 Table of Contents Summary of Cash Flows The following table provides information about our net cash flow for the three months ended August 31, 2025 and August 31, 2024, respectively. Three Months Ended $ in thousands August 31, 2025 August 31, 2024 Net cash used in operating activities $ (82,023) $ (75,890) Net cash used in investing activities (249,420) (32,606) Net cash provided by financing activities 322,236 163,365 Net (decrease) increase in cash and cash equivalents (9,207) 54,869 Cash, cash equivalents, and restricted cash at beginning of period, including cash from discontinued operations 123,318 31,688 Cash, cash equivalents, and restricted cash at end of period, including cash from discontinued operations 114,111 86,557 Less: Cash, cash equivalents, and restricted cash from discontinued operations 7 9 Cash, cash equivalents, and restricted cash from continuing operations $ 114,104 $ 86,548 Commentary on the change in cash flows between the Three Months Ended August 31, 2025 and Three Months Ended August 31, 2024 Operating Activities The net cash used in operating activities increased by $6.1 million, or 8%, from net cash used in operating activities of $75.9 million for the three months ended August 31, 2024 to net cash used in operating activities of $82.0 million for the three months ended August 31, 2025. The increase was primarily driven by an increase in accounts receivable due to tenant fit-out services revenue as well as a decrease in depreciation and amortization due to the Cloud Services Business being classified as held for sale during the three months ended August 31, 2025. These impacts were partially offset by an increase in stock based compensation expense due to awards granted between the comparative periods as well as a decrease in gain on classification of held for sale as there was no gain on classification of held for sale during the three months ended August 31, 2025 and a decrease in deferred revenue reflecting timing differences between revenue recognition and new customer invoicing during the three months ended August 31, 2025 when compared to the three months ended August 31, 2024. Investing Activities The net cash used in investing activities increased by $216.8 million, or 665%, from $32.6 million for the three months ended August 31, 2024, to $249.4 million for the three months ended August 31, 2025. This increase was primarily due to an increase of approximately $194.6 million in investments in property and equipment during the three months ended August 31, 2025 as our payments in the current periods for construction of the Polaris Forge 1 data center facilities outpaced the comparative period construction payments. The remaining increase in net cash used in investing activities was due to there being no proceeds from sale of assets during the three months ended August 31, 2025, compared to the three months ended August 31, 2024. Financing Activities The net cash provided by financing activities increased by $158.9 million, or 97%, from $163.4 million for the three months ended August 31, 2024 to $322.2 million for the three months ended August 31, 2025. The primary reason for the change was an increase in the receipt of net proceeds from offerings of our common and preferred stock of approximately $274.0 million during the three months ended August 31, 2025. Also contributing to the increase was a decrease of $12.0 million in repayments of long-term debt and payments of deferred financing costs during the three months ended August 31, 2025 compared to the three months ended August 31, 2024. These increases were partially offset by decreases of $104.9 million in borrowings of long term debt and $12.0 million from SAFE agreements for equity in Applied Digital Cloud Corporation, a wholly-owned subsidiary of the Company during the three months ended August 31, 2025, compared to the three months ended August 31, 2024 as well as increases in repayment of finance leases of $3.9 million, tax payments for restricted stock upon vesting of $4.5 million, and issuance of preferred stock dividends of $1.5 million during the three months ended August 31, 2025. 42 Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in our exposure to market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of our Annual Report on Form 10-K for the fiscal year ended May 31, 2025.