AI 'structural inflation' is here! Who will be the biggest winner?

業績會第一現場

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Applied Digital 2026財年Q3業績直播

Key Takeaways (AI-Generated)

Financial Performance

- Total revenues of $126.6 million, a 139% increase from the comparative prior quarter

- HPC hosting business generated $71 million revenue with $44.1 million base rents

- Data center segment achieved $37.5 million revenue with 7% year-over-year growth

- Adjusted EBITDA reached $44.1 million with strong $2.1 billion cash position

Business Highlights

- First 100 MW building at Polaris Forge 1 now operating as liquid cooled data center

- Broke ground on Delta Forge 1, a 300 MW AI factory campus with mid-2027 operations

- Executed Core Weave lease amendments securing A3 investment grade rating improvement

- Closed $2.15 billion private offering of senior secured notes for Polaris Forge 2

Financial Guidance

- Next PF1 building has July 1st RFS date with August quarter revenue recognition

- Revenue expected to ramp significantly over next 12 months as buildings come online

- Long-term goal of $1 billion NOI within five years targeting investment grade revenue

- Vision to build 5+ gigawatts of critical IT load across all campuses

Opportunities

- Marketing 4 development sites with approximately 1 GW total grid power capacity

- Strategic partnerships with hyperscalers providing $16 billion contracted lease revenue

- Refinancing opportunities as credit ratings improve from BB to A3 levels

- Market expansion through liquid cooling technology and large-scale construction experience

Risks

- Market competition as many US sites being converted to data centers

- Construction and power infrastructure development risks including regulatory approvals

- Operational disruptions from new power plant construction and transmission line variables

Full Transcript (AI-Generated)

Operator

Ladies and gentlemen, good afternoon and welcome to Applied Digital Fiscal Third Quarter 2026 Conference Call. My name is Abby and I will be your operator today. Before this call, Applied Digital issued its financial results for the fiscal third quarter ended February 28th, 2026 in a press release, a copy of which has been furnished in a report on Form 8K filed with the Securities and Exchange Commission or SEC and will be available in the Investor Relations section of the company's website.

Joining us on today's call are Applied Digital Chairman and CEO, Wes Cummins and CFO Sidal Momand. Following their remarks, we will open the call for questions. Before we begin, Matt Glover from Gateway Group will make a brief introductory statement. Mr. Glover, you may begin.

Matt Glover

Thank you, Abby. Hello everyone and welcome to Applied Digital's fiscal third quarter 2026 conference call. Before managing to begin formal remarks, we would like to remind everyone that some statements we are making today may be considered forward-looking statements under securities laws and involve a number of risks and uncertainties. As a result, we caution you that there are a number of factors, many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements.

For more detailed risks, uncertainties and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the SEC. We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law. We will also discuss non GAAP financial metrics. Encourage you to read our disclosures and the reconciliation tables to the applicable GAAP measures in our earnings release carefully.

As you consider these metrics, we refer you to our filings with the SEC for detailed posters and descriptions of our business as well as uncertainties and other very variable circumstances, including but not limited to risks and uncertainties identified under the caption Risk Factors in our Annual report on Form 10K and our quarterly reports on Form 10Q. You may access Applied Digital's SEC filings for free by visiting the SEC website at www.sec.gov.

I would like to remind everyone that this call is being recorded and will be available for replay via link available in the Investor Relations section of Applied Digital's website. Now I would like to turn the call over to Applied Digital's Chairman and CEO, Wes Cummins. Wes.

Wes Cummins

Thanks, Matt, and good afternoon, everyone. Thank you for joining our fiscal third quarter 2026 earnings conference call. This quarter, we continued to differentiate ourselves in the industry. Over two years ago, we were one of the first companies to recognize the surging demand for large scale, high power density AI data centers and broke ground on our first Turner MW facility. This early investment is now paying off in two important ways.

First, we now operate one of the only 100 MW direct to chip liquid cooled data centers in the world online today. This coupled with key learnings gives us the experience and the ability to demonstrate to major hyperscalers and others. With that, we can execute on time and deliver fully functional state-of-the-art facilities. Second, what investors are seeing today in our reported financials including over 44 million in Adjusted EBITDA for the quarter across our core businesses is just the early stages of what we expect to achieve in the HPC segment.

This first hundred MW building represents only 110th of the total capacity we currently have under construction. While many variables and uncertainty involved in developing large scale power infrastructure such as new power plant construction, transmission lines and regulatory approval. We're currently we currently estimate that we have contracted only a small fraction of our long term power potential. Turning to execution, all buildings under construction of PF1 and PF2 are progressing on time and on budget.

Building large scale data centers through North Dakota winter is no small task, but with years of experience and thousands of skilled professionals on site along with trusted partners such as Mcgoff, Abd Adolphson and Peterson and Basics were executing effectively at Polaris Forge 1 to 400 MW core Weave campus. The 1st 100 MW building is now operating and our 100 and 1200 skilled craft professionals are progressing in parallel on 2 new 150 MW facilities at Polaris Forge 2, the 200 MW investment grade hyperscaler campus.

Both buildings are advancing well with foundations largely complete and work now shifting to precast direction as well as mechanical, other electrical and plumbing trades mobilizing for interior fit out. During the quarter we also broke ground on Delta Forge one a 300 MW critical IT load AI factory campus spanning more than 600 acres in a strategic southern U.S. market with initial operations expected in mid 2027. We have some great videos reflecting our progress on X and LinkedIn pages.

Last quarter we shared we we're actively marketing. Three potential sites. During the quarter, we made the decision to delay the South Dakota site as we evaluated long term viability and explore opportunities to reallocate the associated power agreements. As a result, we have brought two additional sites into the pipeline and are now actively marketing 4 development sites in total. These include Delta Forge, one in southern in the Southern US, an additional site in North Dakota and two sites in unnamed states subject to receiving all necessary approvals for these sites and total grid power capacity across these locations.

The total grid power capacity across these locations is approximately 1 GW and the campuses are in various stages of negotiation with some in advanced stages of negotiation. Well, there can be no assurances we will successfully match any specific site with a customer and many variables must align to bring a new data center campus to fruition. We believe it is helpful to provide investors with visibility into our expanding development pipeline and future growth opportunities.

Turning to our data center hosting business where we host 2 sites for Bitcoin mining. This segment has our highest return on assets, and we had another strong quarter. Many of the sites in the US are being converted to data centers and thus anyone who has high performance or high performance powered sites is sitting on very valuable assets, especially in lower cost regions with a great climate like the Dakotas.

Now turning to cloud, as discussed last quarter, after reviewing strategic options, the Board announced plans to separate Applied Digital Cloud and combine it with EXO Bionic Holdings through our proposed business combination to form Chronoscale Corporation, a dedicated accelerated compute platform for GPU optimized AI infrastructure. We believe this is an ideal time to pursue this transaction, particularly in light of the significant recent increases in demand and GPU rental rates we're observing in the market.

This move positions the cloud business to raise capital independently, create differentiation and Dr. accelerated growth with long the long term goal of spending the business to our shareholders. With that, I'll turn the call over to our CFO, Seidel Momon for a detailed review of financials. Is that all?

Sidal Momand

Thank you, Wes and good afternoon, everyone. This quarter, we realized a full quarter of lease revenue from our hundred MW data center and the HPC hosting business. Going forward, we expect revenues to ramp significantly over the next 12 months as our 250 MW buildings come online. We have also completed the majority of our equity and debt financing for our first two campuses. Note, this past March, we just closed a $2.15 billion private offering of 6 3/4 senior secured notes due 2020, 2031 to support our 200 megawatts of critical IT load at our Polaris Forge 2 campus.

We now have only one remaining tranche of debt to place for the final 150 MW building at our Players Forge One site. We have some very positive news for our debt and equity investors. On March 30, 2026, we executed amendments and related agreements with Core Weave that included restructuring portions of the ELN O2 and ELN O3 leases through a special purpose vehicle or SPV so Siri wholly owned by Core Weave. This included delivering an unconditional springing parent guarantees from Core Weave, Inc and securing a $50 million letter of credit.

These enhancements were supported by Corey's SPV receiving an investment grade A3 rating, a meaningful improvement from its previous BB rating. We believe this improved credit support, not only do you risk the existing 250 megawatts of these capacity, but should also help lower cost of capital when placing the remaining 150 MW ranch. Although there could be no guarantees on timing or pricing, longer term we expect these enhancements will position us well to refinance that debt at more attractive rates in the future.

We are actively working with tops and top institutions to place that debt at the right time and at the lowest possible cost of capital. From here, we believe we have a straightforward financing model. We have access to 4.1 billion in preferred equity from Macquarie Asset Management following a mutually agreed upon executed lease with an investment grade hyperscaler. We we would then follow a similar approach for the debt financing. This structure allows applied digital shareholders to retain over 85% common equity ownership of future sites, while significantly reducing reliance on the public capital markets.

Now let's turn to the quarter. We reported total revenues of 126.6 million, a 139% increase from the comparative prior quarter. Our HPC hosting business generated 71,000,000 of revenue consisting of 44.1 million IT related to base rents, 18.9 million related to tenant fit out services and 8.1 million related to power pass through arrangements and other ancillary revenue streams. This resulted in segment operating profit of 17.6 million the data.

Center segment, which operates A crypto data centers had another strong quarter with 37.5 million in revenue of 7% year over year. We are very pleased with this business which continues to deliver the highest return on assets in the company generating 13.9 million in operating profit in just one quarter and that's not 119.6 million in reported assets. Given that the cloud business is merging with XO and that we will be a majority holder, we have consolidated clouds revenues of 18.1 million for the quarter.

We also recorded a $59.7 million non cash write down in the business due to reclassification from held for sale. As a result, this segment reported a loss of 52.2 million. As the cloud business is pursuing a separate strategy from our core business and and we'll have and we'll be placed in a separately public publicly traded company, we have excluded the segment from our non GAAP results. Cost of revenues increased by 23.7 million for the quarter.

This increase was primarily driven by 18,000,000 and tenant fit out services, an increase of 4.8 million in personnel expenses, an increase in 4.1 million of energy costs associated with our data center hosting business and an increase and of 2 million in DNA expense. These increases were partially offset by a decrease in 5.2 million and lease and lease related expenses as GNA expense increased 57 million to 79.7 million this quarter.

The increase was primarily driven by a 39.3 million in stock based compensation due to increase headcount and performance rewards, 8.6 million in professional service expenses mainly related to legal support for one time transactions and business growth, 5.1 million in personal expenses also related to the increase in headcount and 8 million in other SG and A expenses. These increases are partially offset by a decrease of 3.9 million in lease and lease related expenses.

Net interest income was a +2.4 million this quarter. This was primarily driven by a 19.3 million increase in interest income from our money market accounts. Net loss attributable to common stockholders was 100.9 million or $0.36 per share. Adjusted net income was 33.2 million or a positive $0.09 per year. The appreciation for the quarter was approximately 18 and a half million and Adjusted EBITDA for the quarter was 44.1 million.

Turning to the balance sheet, we are exceptionally well positioned. We ended the quarter of 2.1 billion in cash and cash equivalents against 2.7 billion in debt with no significant maturity due in the next two years and approximately 1.6 billion in equity. Our goal is to maintain one of the strongest balance sheets in the industry throughout the majority of the construction phase and we believe we are achieving those goals now. I'll turn over the call to West for closing remarks.

Wes Cummins

Thanks at all. We are seeing a clear acceleration in demand for high performance AI data center capacity as hyperscalers are as aggressive as we've ever seen them. While some of question the slower pace of new resignings industry wide, I want to be clear there is significant demand for credible well located data center sites almost anywhere in the world. Just three months ago we referenced approximately 400 billion in annual capital expenditures from the largest US hyperscalers.

That figure has now been reported to increase to nearly 700 billion. This represents one of the largest investment cycles in U.S. history. Compressed into an extremely short time frame. These enormous investments highlight the intense pressure on power and infrastructure. Leaders such as Elon Musk have publicly stated that even if we utilize all available excess power on the grid, it will still not be enough to meet the demand for new data centers.

This concern is so significant it has driven major strategic moves across the industry, including efforts to develop data centers in space. We believe these trends only increase the long term value of high quality, low cost sites like those that we operate today. Recognizing this dynamic early, we are advancing our own power strategy through support of Base Electron, an independent power producer. Base Electron will work with Babcock and Locox to build a power plant that will supply initially roughly 1.2 gigawatts of natural gas fire generation capacity to the grid in the Dakotas region.

This power will be in front of the meter and developed in partnership with regional utilities. We are providing the support based on insights gained from discussions with some of the largest hyperscalers in the world. We believe that if we build it, they will continue to come to our region. The objective is to add reliable power to the Dakotas and help contain electricity costs for consumers, reduces the need for utilities to raise capital and allows for the development of new large scale sites in the region.

Applied Digital is providing limited credit support through a guarantee on the project is Base Electron successfully raises at least 50 million in financing or completes an IPO. I Digital guarantee will be terminated in exchange for the guarantee. Applied Digital shareholders will own approximately 10% of this new company. We believe we are once again ahead of the curve by supporting an IPP just as we were two years ago when we began building one of the first state-of-the-art liquid cooled AI data centers.

We expect to see more companies follow this model of developing dedicated power solutions in the coming years. We're not only investing in infrastructure and power, we're also investing in our communities through Applied Digital Cares where we recently awarded our first round of grants supporting important local initiatives in education, health, Wellness, innovation and public safety, including upgrades for local fire departments.

In closing, we recently celebrated our five year anniversary. In that short time, we have successfully navigated multiple business lines, built billion dollar state-of-the-art data centers in remote locations and secured approximately 16 billion in contracted lease revenue. Given the significant demand we are seeing, our focus is on scaling the platform where new leases will continue to be a natural outcome as we expand across campuses in a disciplined repeatable way.

Our long term vision is to build a dominant data center region in the Dakotas with multiple hyperscalers while also expanding into strategic locations across the United States. Every new campus we secure is intended create to create one of the most valuable annuity streams available, a 15 to 30 year revenue stream backed by some of the strongest credits in the world. Once the site is secured, we will focus on growing that site.

Then from the financial perspective, we know that today our cost of capital is higher than it should be, but we plan to refinance that down over time as we shift from project finance loans into ABS or equivalent market at lower rates. We believe that should be the key tipping point where shareholders return on investment will significantly ramp and the majority of our shareholder value will be unlocked. We believe our first two hyperscaler partnerships are just the beginning.

We remain confident in our ability to exceed our long term goal, goal of a billion dollars of NOI within five years to drive accountability. We've implemented new internal targets for our leadership team at both 1 billion and 2 billion of NOI levels. With that, operator, we're happy to open the call for questions.

Operator

Thank you. And we'll now begin the question and answer session. If you have dialed in and would like to ask a question, please press *1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press *1 a second time. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your questions. Again, it is *1 to join the queue.

And our first question comes from the line of Mike Brombo with Northland Securities. Your line is open.

Mike Brombo

Hey, guys, thank you. You know, 2 questions one side all. Could you give us a little bit maybe more insight into the restructured leases at PF? One is, is if you had to estimate what kind of cost savings when you go to refinance, do you think you could see? And then maybe secondly, Wes, drilling down a little bit on the demand environment. How would you say it's changed over the last 90 days and and what's kind of the breadth of your discussion with the hypers with with various hyperscalers?

Sidal Momand

Donna, why don't you go first? Yep, Yep. So on the the lease restructuring, so there is as you can see obviously the observable trading of the bonds that are outstanding today. There's been a significant improvement in pricing and there's really a couple of changes that are driving that. One, the off take for core weave is a high investment grade off take. So there is a look through benefit.

There is also a lock box structure whereby operating expenses such as lease payments which are really the the fulcrum to run the GPU's, they're 100% required. We are first in the waterfall and contractually obligated to get those payments through through their own financing facilities. So there's a payment benefit from that. While at the same time we also retain the the the parent or springing parent guarantee from Coral Weave.

So effectively we have improved our position of the lease where we get a minimum credit enhancement and and then there's other structural protections of the letter credit etcetera. So, so it's a significant improvement in terms of rate. We've seen that Corey through their DTL, they've been able to lower their financing costs significantly. We expect obviously no guarantee, but we expect to continue to move our borrowing costs more in line for an investment grade tenant under the structure as we go forward.

Obviously no assurances, but from looking at trading levels of our bonds today, it appears quite favorable and Mike on on the demand side, so.

Wes Cummins

You, you always see, we always see, you know, shifts in demands quarter to quarter, who's super aggressive and who steps back. And sometimes that'll go, you know, six months, maybe 12 months. But we still see every hyperscaler that we target engaged pretty aggressively in the market. And it just depends also location by location. So it's hard to give the total market view. So what I'm what I always give you is this is what we see, right?

And So what we see is for, for the locations that, that we're marketing, but we've seen multiple hyperscalers at every location with interest. And, and when you, when I think about how we go and contract the capacity that is available. All right. So first you have Polaris Forge one and two, now we have Delta Forge one. We have two customers at those separate campuses.

And one thing that I think about a lot is 2 things, diversifying customers. So we have those to customers instead of signing additional with those customers, you know, get a new customer at those campuses. So even if it were very easy for me for example to to sign more with, with one of my current customers, my preference right now is to continue to diversify the business. So this is again very applied digital specific.

And then we also have a a pretty clear goal of getting our total contracted revenue to 70% in investment grade. So you know today we have 16 billion of of total contracted revenue and that splits 11 billion of core weave and five, 5 billion to an investment grade hyperscaler. And so you can just do the math of how we get to that, the split that I'm looking for.

And we have those campuses in play and we're marketing those campuses and we're in in advance stages of of negotiation with some of those campuses. But we feel good about the assets that we have, which is it's important to to distinguish the assets we have versus some of the other assets that we see in the market. Everything that we're marketing is grid power and that's always top priority.

So that's going to go in front of almost anything that is, you know, behind the meter on site generation. So we feel really good about our assets now just making sure that we get the right tenant and the right contract in place. And I know you know, on the on the side of a lot of investors into just how quickly can you sign these and announce them.

But on our side, we don't put these, you know, deadlines on ourselves. We just make sure that we end up with the right customer and the right contract. And I'm really confident that we'll end up with that at the campuses that we're marketing because they're great assets.

Mike Brombo

OK, Hey, thank you and good luck.

Wes Cummins

Thanks.

Operator

And our next next question comes from the line of Darren Ampahi with Roth Capital. Your line is open.

Darren Ampahi

Thanks guys. Congrats on all your progress. Two things if I may. So Delta Forge one, your commentary about potentially being operational mid 2027. I guess what does that say or infer about, you know, when a lease effectively needs to be signed And then on your last call you talked to Firmat about being an exclusivity with a hyperscaler, 3 sites, 900 megawatts of my memory serves me correct. Are you still an exclusivity with that potential tenant and is there any update on that project in general? Thanks.

Wes Cummins

Yes. So Darren, on the first question, so with Delta Forge one, we, you should expect to, you know, I expect, I'll say that I expect a lease in the near term on that for hitting that goal. As you, as everyone knows, we've been working on that for a few months now. We've made a lot of great progress there. And so feel, feel good about the getting the lease in the time frame to hit that, that RFS date as well.

And then we had some shifting around, as I mentioned in the script from the, the South Dakota campus, we, we didn't get the, the tax exemption we were looking for from the Legislature this session. And so we've, we've paused that development. We, we're working on two other sites that, that we had, you know, somewhat previously and we, we've gotten a lot more active on those, but we have still 3 sites in, in exclusivity with hyperscaler and we'll, we'll see how all of that plays out.

But we feel really good again about those assets and, and getting those leases signed, you know, at a minimum, I would say during this, this year, but I'm more optimistic that it would be more near term. But, but I don't, we're not going to sign a bad lease just to get, just to get an announcement on the tape. So, but, but we feel really, really good about the progress we've made on those sites.

Darren Ampahi

Appreciate it. Thank you.

Operator

And our next question comes from the line of George Sutton with Craig Hallum. Your line is open.

George Sutton

Thank you site all For those of us that are non fixing gun guys, wondered if you could just walk through what it generally means if you go from double B to single A if you were to go into the refinance market, what kind of spread differential is there?

Sidal Momand

Yeah, great, great question. So right now, so for, you know, obviously single A's investment grade spreads or anywhere from, you know, their sub 300 basis plans. So low twos to mid twos depends on obviously structure remaining, how the lease is placed, etcetera. But generally think about it mid mid twos historically. And then for, you know, the, the, the double B's, right, they're generally single B's to double B's can be anywhere from 350 to, you know, 450 basis points, once again, depending on the, the off take in the structure of the contract.

George Sutton

OK, so pretty significant. Wes, I'm curious that, you know, I know there's certain sites that you're working on, some of them have the six month moratoriums put on by local counties. My sense is, correct me if I'm wrong, but as time goes on, the ultimate value that you'd get from the same contract, same properties continues to rise is that in other words, we're all waiting for the near term deals and all of that. But any extent that these actually extend out a little further, the value capture for you is ultimately greater. Is that, is that a correct statement?

Wes Cummins

It it George? It's been the trend we've seen so far. So I, I, I think that's, you know, directionally correct and, and on, on those, you know, in the moratoriums on those things, you know, we're working through those and we feel really good about getting through just just in an education process. If if you, if you look at what we've done in North Dakota specifically because we have a site that's operating, we went through the process that we have very specific evidence to point to on the, on the Polaris 4 to 1 campus and Allendale, both the economic benefits, but also our impact on ratepayers on the grid.

As you've seen, there's been some some news on that recently. So since that, that site has been operational, we, we've saved ratepayers about $31 million because of the use of, of the infrastructure there and, and how we site our, our campuses and, and where we take these. And, and then the, the work with the community, you know, you, you get, we get a lot of great reviews. So it's easier for us to continue to do things in that state and educate people and get, get through those, you know, the, the moratoriums and the zoning and all of those pieces.

So we feel really good about about doing that in, in North Dakota and continuing to expand there. But but George, back to, you know, big picture on these again the, the, the sites that we have I I think are premium and that their, their utility power that's available in, in, in 27. And we see a lot of demand for those types of assets.

And you know the, the goal for us this year that I stated the one goal was total contract value getting 70%, you know, investment grade and, and 30% other or over that number. So you can imagine that the type of growth in total contracted value we would need to hit that. But then the goal is really get to, we're marketing for new campuses. We can get to 5 total campuses or 6 total campuses and all of those campuses grow overtime, some of them grow immensely overtime.

And so it gives us a really good path, you know, to to five plus gigawatts of, of critical IT load across all of our campuses over time. And for for us, I think it's easier once you've landed a customer at a campus, it's an established, established location to either expand to that customer at the campus or bring other customers on that campus.

So when I look to the future, I look at not only new sites, but expansion our current campuses. And if we can put ourselves in a position where we have a, a Clearview to to 5 or 6 gigawatts just across the campuses that, you know, we have already contracted and, and are looking to contract here this year, It's going to be a really great growth runway for the company and, and fairly, you know, locked in and, and probably easier for us to do than just continue to add new campuses.

George Sutton

Got it, Thank you.

Operator

And our next question comes from the line of Nick Giles with B Riley. Your line is open.

Nick Giles

Hey, thanks operator. Nice job guys. So Wes, I think you mentioned your marketing for sites, one of which is Delta Forge, 122 unnamed sites. And you know, I think other than maybe Garden City way back when, this is, you know, this is new. Geographic exposure for you. So what drew you to the South and what kind of contrast would you draw between it and your Dakota sites? And was this really a result of customer indications or more applied LED? Thanks.

Wes Cummins

So Nick, what always drives us first is where power is available. So that, that's, that's always first when we, you know, find our sites and then, and then it goes to fiber. And then there's a lot of other variables that that we look at and, and those variables include how crowded is that market that that's, that's one we definitely look at. So why do you want to look at how proud of the market is 1 aspect that's good because the, the more density you have, you know, it's easier to get more customers there.

There's a lot more infrastructure right now. It's hard to, to be in crowded markets because of Labor force. So we, we look at markets where we think we can definitely secure the labor force to go and build these. So like, for example, on these, like we're not, we're not looking at something in West TX right now. We're, we're in states that are outside of that so that we can attract a different labor force and make sure that we can build these.

We look at states that are, that are definitely, you know, probusiness and business friendly, have governors and legislators that want data centers in their state. They're looking to expand business. So it's a lot of different variables, but it's always first driven by power and power availability and when it when it's available. And we're still very focused on grid power. We've looked at a lot of projects where people have what they call powered land, but when they, what they really have is they have land and then they have a gas pipeline that runs there nearby where you can do off take for gas and then you need to figure out power generation and you typically do off grid.

We're seeing some of those projects happen. I think the the, but what we see is the preference by far for the hyperscalers that we're working looking to work with is that the grid power is definitely still the preferred solution. And so those, those are the kind of sites we keep developing and that's what we continue to market.

Nick Giles

It makes sense. Appreciate that Wesson and it sounds like things are on track, but just would be nice to get an update on the next building at PF One. Can you just remind us when we would first see revenue recognition? I think the guide is sometimes 2026.

Wes Cummins

Yeah, RFS date for PF1 is July 1st, I believe. And so and, and Nick, did you just to remind you how these buildings energize. So they have six data halls in each building. You don't energize all six at the same time. So in July you'll energize some of the data halls and I believe they're they're all energized. So it goes July, August, September and then they'll be fully energized and then later in the year the, the first building at PF 2 comes online.

And so you'll get the same type of, of energization ramp on that building. And so you'll, you know, you'll see some revenue step up in, in the August quarter from the new building. And then you know, get, you should get basically, you know, close to a full quarter of it in the November quarter. And then a partial from from the Polaris Forge 2 building. And then, you know, getting close to full quarters in, in that in the February quarter of, of fiscal 27.

So that, that's how those will start to ramp up. And then as you start in the 27, you know, you'll have those buildings continue to ramp the, the, the third building of Polaris Forge one and then Delta Forge and then whatever else we start contracting as well. So you kind of have those, there's pretty clear step ups and you know, this was I think this was a really great quarter for us from a revenue results perspective because you you start to see the earnings power of what we're building.

We're still you know, it's, it's still subscale versus all of the people that we employed because we're building so much, right. We have almost a GW under construction, 900 megawatts under construction. So it's still a little bit top heavy from that perspective, but you get to start to see the flow through and then easier for you guys to model out what the earnings power of the platform looks like.

Nick Giles

Appreciate you guys, best of luck.

Wes Cummins

Thanks.

Operator

And our next question comes from the line of Rob Brown with Lake Street. Your line is open.

Rob Brown

Good afternoon. Congratulations on all the progress. Just wanted to follow up on the power availability commentary and, and I guess the base of electron strategy. It just just a sense of when you think you start to run into constraints in, in I guess the North Dakota market and, and, and how you see that, you know, maybe when you see constraints and, and how you see that playing out.

Wes Cummins

Sure. So we have the, the players forge one players forge 2 and, and, and another side in North Dakota. So we have the three sites. They will be building through 28 on on all of those and and that's going to take up the significant amount. Of the excess power that we see right now in North Dakota. And then towards the end of 28, we'll start to Commission some of these basic electronics, start to Commission some of these new power generation assets.

And So what that's really designed to do is to meet when we feel like we start to, to tap out of the available grid power. And then we're adding, you know, base electrons, adding more power to the grid. And then we said this, Rob, in the prepared remarks, but I think it's worth reiterating the base Electron business model is actually adding grid power. It's not building on site generation specifically for the applied digital data centers, but it's strategically adding it in places on the grid in North Dakota that that will definitely feed the applied digital sites.

But it's meant to make the, the grid overall better and more resilient and be a benefit to, to all of the, the stakeholders and the ratepayers in the state and not just putting it on site to, to generate electricity for applied digital, but that, that's really the timing. And, and what we've spaced out is, OK, here's, here's when we start to run out of what we think is available grid power for us. And so we need to add more to the grid to continue to expand these campuses.

And I, as I we've mentioned previously, you know, the, the Ellendale, the players 4 to 1 campus in Newton, the new campus in, in North Dakota, they, they all have the ability to expand significantly from an electrical infrastructure delivery perspective. And we just want to make sure that we enable that.

Rob Brown

OK, great. Thank you. I'll turn it over.

Wes Cummins

Thanks Robin.

Operator

And our next question comes from the line of John Todaro with Needham and Company. Your line is open.

John Todaro

Hey guys, Congrats on all the progress. First question, Wes, you made a couple of comments about you know, not just citing any deal you want the right term and also you know taking maybe a little bit longer than you hoped or expected while appreciating that the demand is quite strong. Has there just been any aspect whether terms or rates that have changed that maybe made conversations a little bit more difficult than getting the leases done? And is there any kind of like sticking point that is coming up?

Wes Cummins

Every lease is different, John, and so there's always different parties in the lease and what needs to happen. And you know, in some instances there's a lot of something that needs to happen for the utility as far as guarantees and what gets negotiated in the entire package. And that that's been newer for us. So that's definitely one aspect, but it, but it's not in every lease. It's just in, in certain ones.

But, but it's, I can't say that the entire landscape has changed because it's just every campus when you're dealing with a different utility and a different counterparty, they all have their own nuances. And, and of course, I, I would, if you ask my team, you know, I would say every lease takes longer than I would like. I just wish we get to the terms that were great for us and we would sign it.

But, but I, I, I feel like these are all on track for us. And and you know, we'll just say that that I think we we feel really good about where they are and, and, and signing a lot of these campuses up this year. But we we will make sure that we we get these right and with the right tenant and the right structure. But, but it's hard to say market wide if there's anything different, but but there's always different details and nuances in every single site.

John Todaro

Understood, appreciate that. And then maybe one for site all just just trying to maybe reconfirm the cadence of the the fit out service revenue. Is all that been recognized now or should we expect some more in the coming quarter to contribute?

Sidal Momand

Yeah. So for ELN O2, a majority of the fit out revenue has been recognized. There will be a small amount remaining for for the first building. And then towards the end you'll see some, some ramp on ELN O3 or or PF the the second building in PF one start to start to ramp up once again. Once again, timing right timing can be lumpy quarter to quarter and it's a low margin line and that's not the current correct around like 5% or so, right, That's fair. Yep, correct.

John Todaro

Great. Thank you guys, Sean.

Operator

And our next question comes from the line of Michael Donovan with Compass Point. Your line is open.

Michael Donovan

Hi, thanks for taking my question and Congrats on the progress. So now could you walk us through what still needs to happen between now and June 30th for the PF2 financing escrow tied to the 2.15 billion of 2031 notes to be released?

Sidal Momand

Yeah, yeah, exactly. Great question. Especially the ESA needs to be finalized between the the utility and the counterparties involved and that has been progressing, no? As as as scheduled. For instance, there was recently on the substation construction. So the longest pole, longest pole in the tent has been the substation construction items that so when we had a kayak signed a construction agreement to to build that and last October and we're we're in a good, really great shape on the substation progress there.

Michael Donovan

Appreciate that sidel. And I think it's for Wes. What's the strategic rationale for structuring base electron outside of applied rather than than owning the the generation directly?

Wes Cummins

Yeah, so the we we thought a lot about this. It's a it's a great question. And the, what we landed on with this was that, you know, the, the power generation aspect, that power generation business is fundamentally different than the data center business. And so we did not think that it was the right thing to take a lot of risk inside of Applied Digital to go and build the power generating assets that, that will help expand the, the, the data center capacity for Applied Digital.

But, and, and when you think about the, the different risk profiles, so on Applied Digital, we sign long term data center leases, we get 15 years, you know, of lease payments. And if our customer doesn't use the facility, they still owe us the lease payments. But when you look on the power side of the business, is it the power will, you know, feed into the data center? But if the customer is not using the data center, they still pay the lease payments to the data center, but there's no power being drawn into the data center.

So it's, it's fundamentally different risk and return profiles for those. So it's been created as a separate company Applied Digital have ownership in that. So the applied digital shareholders get upside of the, the success and base electron that take no risk on on the downside of, of, you know, any, any catastrophe that happens inside of that. So if we expect it to eventually trade publicly as well.

So, so people can choose if they want to have power generation exposure, if they want to have data center exposure. And now it's Chronoscale spins out. Do you want to have GPU cloud exposure? So you, you, you really get those choices instead of us just forcing it into to apply digital where there, there there could be some upside to shareholders, but it creates a totally different risk profile for the company in our opinion.

And so I think it was the right choice to put it outside, let it create its own capital stack. Investors are coming come in and put capital into, into the business. It'll need to raise its own capital to go build these assets. But that, that was really the fundamental choice as as to why it's not just folded as another unit inside of Applied Digital.

Michael Donovan

Thanks a lot. Appreciate that added color. I'll pop back in queue.

Operator

And our next question comes from the line of Paul Meeks with Freedom Capital Markets. Your line is open.

Paul Meeks

Thank you guys. Excuse me if this was asked and answered, but do we still have 100 megawatts at PF two that is still uncontracted?

Wes Cummins

That's correct. And going forward, you'll make an announcement you know not to. The hyperscaler may or may not be. Those are always easy to figure out, but you will. Make an announcement when it is contracted, yes. And and and we do expect that that to to be contracted in the near term.

Paul Meeks

Thank you. Next question is for both PF1 and PF2. Are you sticking with the? Site in a why margins that I think you last showed in a presentation. Last fall that that is correct. Yep, that, that, that is correct. So, so high 80s to to 90's the range of we've been we've been operating at space, right.

Paul Meeks

And last quick one, when you meet this five year NOI target, you know you're going to start with the you know, project financing and then switch over time. But once we get there five years out, what is your firm's capital structure look like?

Sidal Momand

So this is had also. So there's a couple of different ways. So one as you complete the construction and construction risk is removed from the overall financing, your cost of capital comes down. You know, if you look at some of the the, the private peers leverage tends to be very high in excess of of 10 times NOI. You know we, we feel it's a prudent way to be in that five to six times NOI leverage, which when you're against you know call it high, high investment, high investment grade and investment grade credits for long term leases with escalators, that's very prudent.

So, so I think as you get to that five year mark, once our platform is fully humming and as we surpass our NRI goals of a billion and 2 billion of NOI that you know call it 5 to 6 terms of leverage is prudent. Now once again, the caveat being there's always going to be new potential opportunities that we're building now and we are also opportunistic across the spectrum for financing with the view of always having paper that is constructive both for shareholders and obviously for other stakeholders in the company as well.

Paul Meeks

Appreciate it. Thank you, guys.

Operator

And ladies and gentlemen, that concludes our question and answer session. I will now turn the conference back over to Wes Cummins for closing remarks.

Wes Cummins

Thanks everyone, for joining us today. And I want to make sure that I thank all of our employees who are working overtime to make all of this a reality for the company and its shareholders and look forward to speaking with you in July.

Operator

Ladies and gentlemen, that concludes today's call, and we thank you for your participation. You may not disconnect.

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