APLD — Q1 FY2027 Financial Report Analysis

Overview

Applied Digital's first quarter of fiscal 2027 (June–August 2026; the company's fiscal year ends May 31) is the first full quarter with two AI data-center buildings earning rent. Total revenue rose 322% to $341.9 million from $80.9 million. Rent from the AI campus in North Dakota reached $65.8 million, up 49% from $44.1 million in the previous quarter. The loss got bigger anyway. The operating loss grew to $62.4 million from $9.8 million, and the net loss from continuing operations attributable to common stockholders grew to $221.0 million, or $0.76 a share, from $18.5 million ($0.07). Three things drove the gap: $69.2 million of stock-based pay, $60.9 million of net paper losses on derivatives and investments, mostly its Babcock & Wilcox warrant and shares, and $51.5 million of results allocated to outside investors in its subsidiaries, mostly Macquarie's preferred return.

At a glance

• $65.8 million of base rent at an 89% property-level margin. Net operating income (rent minus the property costs the tenant doesn't pay back) was $58.8 million. That is the profit the AI-data-center model is built to produce, and it grew about 49% in one quarter as the second Polaris Forge 1 building came online.
• $41.6 million of net interest expense in one quarter. That is more than the $29.5 million for all of fiscal 2026. Cash interest paid in the quarter was $242.9 million. Debt on the balance sheet rose to $6.38 billion from $4.98 billion three months earlier.
• $2.07 billion of construction spending against $63.9 million of operating cash flow. Applied Digital is building five campuses at once. Borrowing and preferred stock paid for the difference, and cash plus restricted cash fell to $3.68 billion from $4.15 billion.

Results in numbers

"Operating margin" is the share of revenue left after running the business, before interest and tax. Here it is negative, meaning costs exceeded revenue. Including the discontinued Ekso business that ChronoScale has since sold, the total net loss to common was $237.1 million, or $0.82 a share.

Compared with the previous quarter (March–May 2026, from the 10-K), revenue rose 32% from $258.7 million. HPC Hosting revenue grew to $262.6 million from $203.0 million, and HPC segment profit rose to $33.4 million from $26.2 million.

Where the revenue came from

AI data centers (HPC Hosting). Applied Digital builds large data centers and leases them for 15 years to customers that run AI chips. This segment earns money in two very different ways:

• Rent. Base rent was $65.8 million, after $0.9 million of non-cash amortization of incentives given to the tenant at signing. Tenant recoveries were another $13.3 million; these are operating costs billed back to the tenant at cost. The first 100 MW building at Polaris Forge 1 ran all quarter. The second building started operating during the quarter and, according to the 10-Q, reached its full 150 MW by the filing date. The rent figure therefore does not yet include a full quarter of that building.
• Tenant fit-out services. Applied Digital buys and installs tenant-specific equipment and bills the tenant for it. Fit-out revenue rose about $157.2 million year on year. In the segment table, HPC services revenue was $183.5 million against $176.1 million of matching cost. That is a margin of about 4%. The work brings in real cash, but it is close to a pass-through: it follows the construction schedule, not the amount of capacity leased.

HPC segment operating profit was $33.4 million, compared with a $2.0 million loss a year earlier. Depreciation on the operating buildings added $22.4 million to segment costs. Depreciation spreads a building's cost over its useful life.

Bitcoin-mining hosting (Data Center Hosting). Applied Digital rents powered space to crypto miners at Jamestown (106 MW) and Ellendale (180 MW), and both sites were full. Revenue was flat at $37.8 million. Segment profit more than doubled to $13.3 million from $6.0 million because cost of revenue fell $6.4 million. Management attributes that to "more advantageous power pricing".

ChronoScale (the cloud business, ~96% owned, ticker CHRN). Revenue rose to $41.5 million from $16.7 million, but $23.0 million of it was a new activity: reselling GPU hardware, which cost $22.4 million to supply. Without that resale revenue, ChronoScale's revenue was roughly $18.5 million. ChronoScale went from a $12.5 million operating profit to a $25.4 million operating loss. Part of that swing is accounting. A year ago the business was classified as "held for sale", which pauses depreciation. Since it lost that status, depreciation has added about $14.2 million to costs. In August ChronoScale signed a partnership with Microsoft, since extended to three years, covering about 50 MW of planned AI compute capacity.

What the headline numbers hide

The adjusted result and the GAAP loss are about $217 million apart. The company's adjusted net loss from continuing operations was $4.1 million ($0.01 a share). The GAAP net loss to common from continuing operations was $221.0 million. The reconciliation adds back:

• $59.4 million of stock-based compensation
• $49.5 million of derivative losses
• $25.4 million of ChronoScale operating losses plus $1.6 million of its interest
• $11.9 million of deal and diligence costs
• $11.4 million of investment losses
• about $5 million of smaller items

The derivative and investment losses mostly come from Babcock & Wilcox. The company's warrant on B&W stock lost $56.1 million in value and its B&W shares lost $11.4 million, partly offset by a $6.6 million gain on derivatives tied to Macquarie's preferred units. Those are paper losses that move with B&W's share price, and last year they ran the other way: fiscal 2026 included $86.6 million of such gains.

As in the annual report, the adjusted figure starts from the net loss before $51.5 million is allocated to outside holders in subsidiaries and $1.5 million of preferred dividends. The company still labels it "attributable to common stockholders". Common shareholders do not get that $53 million, so the adjusted figure overstates their share of the result.

Macquarie's preferred stake now takes a visible share of results. MIP HPC Holdings (a Macquarie vehicle) owns preferred units in the North Dakota development subsidiary, bought for about $1.8 billion. In the quarter, $60.1 million of dividends on those units were paid in kind, meaning they were added to Macquarie's stake rather than paid in cash. That is the main reason $51.5 million of results was allocated away from common shareholders even though the subsidiary itself lost money. The cost will continue for as long as the units are outstanding.

Stock pay is still about a fifth of revenue. Total stock-based compensation was $69.2 million, up from $15.5 million. Of that, $65.5 million sat in SG&A (selling, general and administrative costs), and SG&A as a whole rose 289% to $114.7 million. Stock pay is non-cash, but its effects reach cash. The company paid $99.4 million of withholding taxes on vested employee stock in the quarter. That is a real outflow, larger than the quarter's operating cash flow.

Interest is starting to reach the income statement. Gross interest expense was $77.4 million, up from $8.0 million. Another $35.7 million of interest was capitalized: counted as part of the cost of buildings under construction instead of being expensed. Interest income of $35.8 million on the cash pile offset part of the expense. That offset will shrink as the cash is spent on construction. The contractual schedule shows $326.5 million of interest due over the remaining three quarters of fiscal 2027. As each building is finished, its share of interest stops being capitalized and becomes an expense.

Operating cash flow was helped by working capital. The $63.9 million inflow came alongside a $184.1 million net loss. Most of the difference is non-cash charges added back: stock pay, depreciation, the B&W losses, and a $14.1 million held-for-sale write-down tied to the Ekso sale. Two working-capital items also helped: a $106.7 million rise in accrued liabilities and a $34.5 million rise in deferred revenue (advance billings for fit-out and power). Those inflows are timing and won't necessarily repeat.

Receivables are growing faster than revenue. Accounts receivable doubled in three months to $114.1 million from $56.3 million, while quarterly revenue grew 32% from the previous quarter. Our annual report flagged the same pattern. It is consistent with large fit-out billings around quarter-end, but it is the second quarter in a row, so it is worth watching.

Customer concentration is extreme. One customer was 56% of revenue, another 21% and a third 11%. The 11% matches the bitcoin-mining hosting revenue. The 21% customer did not appear a year ago. The 10-Q does not name these customers.

Per-share figures are diluted by new shares. The weighted share count rose 13.9% to 291.6 million. Another 5.2 million shares were issued after quarter-end when the remaining Series G preferred converted.

Did last quarter's read hold up?

Our FY2026 annual analysis named three things to watch in this 10-Q:

• Base rent as Building 2 comes online. It held up. Base rent rose to $65.8 million from $44.1 million in the fourth quarter, and the property-level margin stayed near 90% (89% vs 91% for the full year).
• Net interest expense as capitalization falls. Interest arrived faster than expected. Capitalized interest did not fall: it rose to $35.7 million because more buildings are under construction. Even so, one quarter's net interest expense ($41.6 million) exceeded all of fiscal 2026's ($29.5 million).
• Renewing the single crypto-mining contract. No news. The 10-Q gives no update on renewing it.

Takeaway: The rent engine is working as designed. Rent grew about 49% in one quarter and keeps an 89% property-level margin. But one quarter's net interest expense already exceeds all of last year's, and Macquarie's preferred dividends took another $60.1 million this quarter ahead of common shareholders. For common shareholders, rent now has to grow faster than financing costs, not just grow.

Outlook

Management gave no revenue or earnings guidance. The 10-Q's build schedule:

• Polaris Forge 1 (North Dakota): Building 1 (100 MW) is operating. Building 2 reached its full 150 MW by the filing date. Building 3 (150 MW) is under construction, with full ready-for-service expected in calendar 2027.
• Polaris Forge 2: two buildings totalling 300 MW. First capacity is expected in the second half of calendar 2026 and full capacity in early calendar 2027.
• Delta Forge 1: 300 MW, starting in the first half of calendar 2027.
• Polaris Forge 3: 300 MW, starting in the second half of calendar 2027. After quarter-end, Applied Digital signed a power purchase agreement with Base Electron for a planned ~1,200 MW gas-fired plant in North Dakota to supply this campus.
• Delta Forge 2: a 210 MW lease signed June 5 with an investment-grade hyperscaler, worth about $5.2 billion over its 15-year base term. Delivery is expected in the first half of calendar 2028.

Contracted critical IT load totals 1,410 MW. Minimum contracted lease payments are $35.7 billion. Of that, $468.0 million falls in the rest of fiscal 2027, then $1.58 billion in fiscal 2028 and $2.36 billion in fiscal 2029. Most of the contracted revenue is therefore two or more years out, while the debt and its interest are already on the books. The company says it has enough liquidity for at least the next 12 months and expects heavy capital spending through fiscal 2027.

Our read: next quarter (September–November 2026) should show a full quarter of the 150 MW Building 2, which would push base rent up again. If Polaris Forge 2 starts on schedule, it adds a second tenant's rent from around the turn of the calendar year. Against that, expensed interest will keep rising as buildings move from construction into service, and interest income will fall as the cash is spent. Three things to watch in the Q2 FY2027 10-Q: base rent compared with the $65.8 million run-rate, whether receivables keep outrunning revenue, and the first rent from Polaris Forge 2.