Applied Digital Corp (APLD) 2025 Q2 法說會逐字稿

內容摘要

Apply Digital 的 2025 財年第二季電話會議涵蓋了前瞻性陳述、非 GAAP 財務指標和最新動態。該公司宣布與麥格理資產管理公司建立戰略合作夥伴關係,提供 50 億美元的融資額度。

營收成長 51% 至 6,390 萬美元,但成本和費用增加導致淨虧損。 Apply Digital 處於有利地位,可應對資料中心電力供應方面的挑戰,並專注於超大規模市場的成長。討論圍繞著融資策略、專案開發以及與麥格理的合作條款。

該公司對未來的機會和進步持樂觀態度。

完整原文

使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主

  • Operator

  • Good afternoon, and welcome to Applied Digital's fiscal second-quarter 2025 conference call.

  • My name is Julian, and I'll be your operator for today.

  • For this call, Applied Digital issued its financial results for fiscal second quarter ended November 30, 2024, in a press release, a copy of which will be furnished in a report on a Form 8-K filed with the SEC and will be available in the Investor Relations section of the company's website.

  • Joining us today -- or joining us on today's call are Applied Digital's Chairman and CEO, Wes Cummins; and CFO, Saidal Mohmand.

  • 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 - Investor Relations

  • Thank you, Julian.

  • Good afternoon, everyone, and welcome to Applied Digital's fiscal second-quarter 2025 conference call.

  • Before management begins formal remarks, we would like to remind everyone that some statements we're 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 a number of factors, many of which are beyond our control, 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 Securities and Exchange Commission or SEC.

  • We disclaim any obligation or any undertaking to update forward-looking statements to reflect circumstances or events that occur after the date of the forward-looking statements are made, except as required by law.

  • We will also discuss non-GAAP financial metrics and encourage you to carefully read our disclosures and the reconciliation tables to the applicable GAAP measures in our earnings release as you consider these metrics.

  • We refer you to our filings with the SEC for detailed disclosures and descriptions of our business, uncertainties and other variable circumstances, including, but not limited to, risks and uncertainties identified under the caption Risk Factors in our annual report on Form 10-K and our quarterly report on Form 10-Q.

  • You may get Applied Digital's SEC filings for free by visiting the SEC website at www.sec.gov.

  • I would also like to remind everyone that this call is being recorded and will be made available for replay via a link in the Investor Relations section of Applied Digital's website.

  • Now I'd like to turn the call over to Applied Digital's Chairman and CEO, Wes Cummins.

  • Wes?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Thanks, Matt, and good afternoon, everyone.

  • Thank you for joining our fiscal second-quarter 2025 conference call.

  • I want to start by expressing gratitude to our employees for their continued hard work and service in supporting our mission of providing purpose-built infrastructure to the rapidly growing high-performance computing industry.

  • Before turning the call over to our CFO, Saidal Mohmand, for a detailed review of our financial results, I'd like to share some recent developments across our businesses.

  • Starting with our Data Center Hosting Business, we currently have 286 megawatts of data center capacity for our cryptocurrency clients across two fully contracted locations in North Dakota, which are operating at full capacity.

  • As many of you know, Bitcoin recently hit $100,000 and the demand for our services in this sector remains robust.

  • Next, let's discuss our Cloud Services Business, which provides high-performance computing power for AI applications.

  • This segment continues to experience growth as we fulfill our existing contracts and explore new opportunities in our pipeline.

  • As of the end of the second quarter, we had six clusters online.

  • We are currently evaluating numerous opportunities in this area as we see how next-generation GPUs come to market.

  • In our HPC hosting segment, we continued construction of our 400-megawatt campus in Ellendale, North Dakota.

  • In December, we reached a major milestone with the successful energization of the main substation transformer.

  • Additionally, I'm very pleased to announce that we won the DCD Community Impact Award for our Ellendale Community and Economic Development initiative.

  • Through the R-WISH program, we are addressing housing shortages and supporting workforce growth in Ellendale, North Dakota.

  • This is a significant accomplishment for an emerging firm like ours in the data center space as we were finalists alongside established companies from around the globe such as Google, NTT Data from India, and Telehouse Europe based in London.

  • Let's now turn to the topic that is on everyone's mind, the lease of our campus in Ellendale, North Dakota.

  • Over the past year, we've learned that the hyperscaler contract process is extremely thorough.

  • While we cannot control their speed, we are focusing on what we can control, completing the construction of our 100-megawatt data center on time and within budget.

  • I strongly believe that our Ellendale campus is a valuable asset with 100 megawatts of critical IT load available in 2025.

  • We believe it is in our shareholders' best interest to continue managing what we can and avoid speculating on an exact date.

  • While the process has been long, one of the major benefits of undergoing such a significant diligence process is that we have been engaged with some of the largest finance and investment partners in the world.

  • Today, I'm excited to share that we have agreed to form a strategic partnership with Macquarie Asset Management.

  • Macquarie Asset Management, the Asset Management division of Macquarie Group, is a global financial services organization operating in 34 markets with over 20,000 employees.

  • They have been recognized as one of the largest infrastructure investors in the world for the past 12 years, raising over $80 billion in capital last year alone.

  • Macquarie brings extensive experience in infrastructure investments in data centers.

  • They will leverage their infrastructure investing and development expertise along with our growing digital -- along with their growing digital ecosystem capabilities to complement Applied Digital's expertise in delivering and servicing data center infrastructure solutions for enterprise and hyperscale companies.

  • The partnership will include a $5 billion perpetual preferred equity financing facility.

  • This facility will allocate up to $900 million to the company's Ellendale high-performance computing data center campus and give Macquarie the right of first refusal to invest up to an additional $4.1 billion across Applied Digital's future HPC data center pipeline.

  • The investment will take the form of a perpetual preferred and a 15% common equity interest in Applied Digital's HPC business segment.

  • The Macquarie investment in conjunction with future project financing will be used to repay project-level debt and allow the company to recover over an estimated $300 million of its equity investment in the Ellendale HPC campus.

  • We believe this expanded relationship with Macquarie positions Applied Digital for significant growth in the industry, establishing Applied Digital as one of the fastest-growing HPC data center owners, operators and developers in the United States.

  • At today's build cost, we have a significant portion of the equity needed to construct over 2 gigawatts of HPC data center capacity, including our Ellendale HPC campus.

  • With an 85% ownership stake in both existing and future HPC assets to a project-level preferred equity financing facility sufficient to fund our HPC project pipeline, we believe we are positioned for transformative progress.

  • We are excited to have Macquarie support as we establish ourselves as a leader in the Tier 3 data center infrastructure sector while continuing to develop and operate large-scale state-of-the-art data centers for world-class customers at the forefront of the AI revolution.

  • In summary, we're encouraged by the positive trends we're witnessing across our business and remain confident in our growth trajectory.

  • With that, I will now turn the call over to our CFO, Saidal Mohmand, to walk you through our financials and provide an update on guidance.

  • Saidal?

  • Saidal Mohmand - Chief Financial Officer

  • Thanks, Wes, and good afternoon, everyone.

  • It has been an active few months for our finance and accounting teams, and I am delighted to lead the department as the new CFO.

  • Let me begin by highlighting some of our recent financial announcements, followed by a detailed overview of the quarter.

  • In November, we completed a $450 million 2.75% convertible senior note offering due 2030, which included $84 million allocated for share repurchases.

  • In December, we announced a $150 million senior secured debt financing facility with Macquarie Equipment Capital and simultaneously repaid our senior credit facility with CIM Group.

  • This allowed us to remove encumbrances on assets as well as the parent guarantee.

  • Today, we announced the strategic partnership with Macquarie Asset Management for a $5 billion perpetual preferred equity financing facility.

  • Now let's turn to the quarter.

  • Revenues for the fiscal second quarter of 2025 were $63.9 million, up 51% over the prior comparable period.

  • This increase was primarily driven by the continued growth of our Cloud Services Business due to the deployment of additional GPU clusters.

  • In total, our Data Center Hosting Segment generated $36.2 million in revenue, while our Cloud Services segment contributed $27.7 million.

  • Cost of revenues increased $22.6 million to $52.4 million from the prior comparable period, primarily driven by the growth in the business as more facilities were energized and additional services were provided to customers.

  • SG&A expense increased $9.5 million to $29.8 million, also driven by growth in the business as more facilities were energized and additional services were provided.

  • This quarter, our depreciation and amortization expense increased to $26.4 million compared to $13.4 million in the same period of 2024.

  • Of this amount, $21.7 million was attributable to D&A in our Cloud segment.

  • This segment's D&A was primarily driven by the amortization of our GPU leases over a two-year period, which we have discussed in previous earnings calls.

  • During the quarter, we renegotiated our GPU lease terms, which allowed us to extend the amortization period for GPU leases to a more industry-standard timeline of five years.

  • This adjustment reduced segment D&A expense by $8.5 million for this quarter.

  • Looking ahead, we expect this change to further lower D&A expenses by about $7 million per quarter on a GAAP reported basis.

  • All in, going forward, we expect to recognize around $15 million per quarter in the cloud segment for the D&A.

  • Moving on to interest expense.

  • Interest expense increased $4.9 million to $7.5 million, primarily driven by an increase in finance leases and interest-bearing loans between periods.

  • Net loss attributable to our common stockholders was $138.7 million or $0.66 on a basic and diluted share.

  • I want to note that this quarter was impacted by the loss on conversion of debt of $25.4 million as convertible debt issued to YA Fund was converted during the period.

  • We also recognized a loss on change in the fair value of debt of $87.2 million due to adjustments to the fair value of the 2.75% convertible senior notes during the two-week period in which the conversion option was recorded as a derivative.

  • This was prior to us receiving shareholder approval at the annual meeting on November 20, 2024, to increase our authorized share count.

  • The adjusted net loss was $12.6 million or $0.06 per share.

  • Adjusted EBITDA increased 93% to $21.4 million as well.

  • Moving to our balance sheet.

  • We ended the fiscal second quarter with $314.6 million of cash, cash equivalents and restricted cash, along with $479.6 million in debt.

  • With that, I'll turn over the call to Wes for closing remarks.

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Thank you, Saidal.

  • The rapid expansion of hyperscale data centers driven by growing demand for AI capabilities is presenting significant challenges to the electricity availability in the US.

  • According to a recent Morgan Stanley report, there could be a shortfall of approximately 36 gigawatts in power available for US data centers by 2028.

  • Addressing this issue is not straightforward as adding new capacity requires lengthy planning, regulatory approvals and the development of new generation and transmission infrastructure, processes that can span years or even decades.

  • Based on these dynamics, we believe that much of the US' currently available excess power could be under contract within the next few years.

  • Applied Digital was one of the first companies to recognize this growing demand for power and data centers.

  • Anticipating these needs, we began construction of our facilities before the market fully grasped the shifting demand landscape.

  • As a result, we believe we are well positioned to capitalize on these trends.

  • Our strategy has been further validated over the past year by securing strategic investments from CIM Group, NVIDIA, and now Macquarie Asset Management.

  • These investments not only validate our vision and approach, but also lower our cost of capital and accelerate the development of our pipeline, transforming it into a highly valuable asset for our shareholders.

  • Our vision is to establish a platform for building and operating multiple HPC data centers, and we're proud of the significant progress achieved this quarter and look forward to sharing further updates as the year unfolds.

  • We welcome your questions at this time.

  • Operator?

  • Operator

  • (Operator Instructions) And our first question comes from Nick Giles, B. Riley Securities.

  • Nick Giles - Analyst

  • Wes and team, congratulations on today's announcement.

  • In the release, you noted late-stage discussions with multiple hyperscalers.

  • And I was wondering, can you provide any color on where due diligence processes stand with the other potential hyperscalers at this point?

  • My next question is would there come a point where you would reenter exclusivity with any of these counterparties?

  • Thank you very much.

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Nick, thanks for the question.

  • So I think we disclosed in either October, November that we had the exclusivity with the first potential customer had expired.

  • We opened up the site for additional customers to look.

  • Those are in varying stages of progress, but it's -- once -- I would say that once it's been done once, everything is prepared for easy access on -- when you're doing the diligence around technicals, the design, fiber, power, all of those things.

  • So a much more accelerated progression of those.

  • Does that answer your question?

  • Nick Giles - Analyst

  • That does.

  • That's very helpful.

  • Maybe just a follow-up one on the Macquarie investment.

  • How long have you been looking at similar deals?

  • And to what extent did terms improve over that timeline?

  • Thank you very much.

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • So we started this process last year.

  • It's been probably seven months.

  • We looked at multiple proposals.

  • And I think as the market developed and the year moved on and the progress that we've made at our site, we, I think, signed the best terms, and I'm very happy with the outcome on the terms we did with this structure with Macquarie.

  • But we did do a full process to make sure that we were getting, A, the best partner and the best terms.

  • Operator

  • Rob Brown, Lake Street Capital.

  • Rob Brown - Analyst

  • Just a little further on the hyperscaler discussions.

  • I know you can't exactly predict, but are they kind of moving forward?

  • Are you working through final details?

  • Or are there kind of roadblocks that you've run into?

  • Just some sense of maybe where it's at and what's left to go?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Rob, thanks.

  • What I would say about it, I think the best way to frame this is the experience we have had thus far, again, very thorough process, we've done great, like from a design, technical perspective, fiber.

  • The work we've done there and what's going into that site, specifically in Ellendale, power, all of that has been great and made a huge amount of progress on that.

  • I think with our -- the announcement today, we're hitting really one of the last piece of the puzzle for us, which is -- I think I've communicated this before, we -- while we have this, I think the demand for this capacity, again, I don't know of anything of this scale available in 2025 is going to allow us to break into full stack development and operations in the hyperscale market.

  • But the last piece here is we're new, we're a new entrant.

  • We're a first-time supplier to any of these hyperscalers and the financial backing from a very well-known partner with a lot of capital, I think, is really helpful in checking the box for the last hurdle we need to get over.

  • But I'm really optimistic about finalizing a lease on that facility and then moving on to the next level.

  • Rob Brown - Analyst

  • Okay.

  • Got it.

  • And then with this funding, are there -- I guess, the next facility is -- and the funding backing for, I guess, an additional $4 billion plus.

  • How does that kind of open up the marketplace?

  • How does that accelerate maybe some of these other discussions you're having?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Again, I think just the backing in general, right, there's the full amount of due diligence.

  • There's a reason that we both wanted to enter into this partnership.

  • We have a great power pipeline.

  • We have a great data center development team, a great ops team.

  • And so as we finalize this first, we have a significant amount of 2026 power available.

  • That's the next step as far as marketing across three different locations.

  • And what this really does for us, Rob, and I think this is really important, is it funds -- I've talked about this for, I think, our last two or three earnings calls, we really needed to move financing and funding down to the asset level.

  • This is an asset-heavy business, a CapEx-heavy business.

  • And this is a huge step in moving that down to the asset level.

  • So every time we start a new campus, every time we get a new contract, there's not the question mark of where do you get the equity, how much dilution comes at the public company.

  • It just lays a very clear roadmap between the equity commitment and then project finance on the debt side that will be layered on top of that to allow us to go out and build, as we said in the prepared remarks, over 2 gigawatts of the pipeline, which is what we have in the near term, '25, '26, '27 pipeline to go and build out.

  • But I think the important part here is it provides a very clear roadmap of how we plan to finance that.

  • Operator

  • Darren Aftahi, ROTH Capital Partners.

  • Darren Aftahi - Analyst

  • Two, if I may.

  • Just on the Macquarie announcement this morning, is there anything strategic in terms of the process and timing as it relates to the lease?

  • And then I know you guys already hit this, the multiple hyperscalers in the PR.

  • Is there a scenario where that 400 megawatts in Ellendale could get split amongst two?

  • Or are you kind of down the path of one entity is going to take all the capacity?

  • Thanks.

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Thanks, Darren.

  • On the first question, it's really about getting to the right terms, and I'm not going to get into whether there's anything else as far as the timing around that.

  • On the second question, it could split.

  • I strongly believe it's going to be a single customer for the entire campus.

  • Operator

  • Mike Grondahl, Northland Securities.

  • Mike Grondahl - Analyst

  • Could you remind us exactly how much money you had invested in Ellendale HPC and how much you'll be able to pull out with this Macquarie financing?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Yeah, I'll let Saidal answer that.

  • Saidal Mohmand - Chief Financial Officer

  • Hey, Mike, so as we disclosed in the 8-K, we have roughly over $700 million invested in the Ellendale campus.

  • And assuming project financing on terms entered along the lease, we expect in excess of $300 million of cash proceeds that we can take back up to the parent.

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • But Mike, I think it's important just as a reminder, we have the Macquarie Capital facility there.

  • There's some -- there's the extra debt that's going to be paid back as well.

  • So when you're trying to do the math between $700 million and then what we pull out, there is that debt repayment.

  • Saidal Mohmand - Chief Financial Officer

  • Effectively, for the Ellendale campus, view it as the applied requirement on a megawatt basis of $1 million per megawatt from Applied, and that will decrease to $750,000 going forward outside the Ellendale campus.

  • Mike Grondahl - Analyst

  • Right.

  • So of the $700 million or over $700 million you have invested in Ellendale, you'll end up with a net $400 million with that $180 million of debt paid off and then you'll pull out some other capital.

  • So your net investment is about

  • [$400 million]?

  • Saidal Mohmand - Chief Financial Officer

  • It's also a moving target, too.

  • Just think about it, right?

  • We're spending -- we're putting dollars into the ground every month in the project as well.

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Yeah, a moving target as far as what we'll be able to pull back out.

  • Yeah, the cash comes back out of the -- what is now the HPC subsidiary and goes back to the public parent co.

  • Mike Grondahl - Analyst

  • Okay.

  • And then two more questions.

  • One, Wes, if you could maybe define your pipeline right now, it looks like Macquarie can fund 2 gigawatts.

  • Do you -- after the [400], how much more do you have or can you get your hands on?

  • And then secondly, if you could -- I don't know, maybe just demand sounds pretty good with all these hyperscalers, but what's the pricing environment look like?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • So I'll answer the second one first.

  • So the pricing environment is reflective of the demand environment.

  • And I think there's plenty of data points just even in the last few weeks about data center spend from some of the hyperscalers that is a strong indicator of where the demand in the market remains.

  • And then to the pipeline, Mike, we've talked about this on our last call.

  • We have other campuses.

  • I think the total is 1.6. So that's the 2 outside of Ellendale, 1.6 of campuses where we have 2026 power and 2027 power.

  • So those are the ones that, in some cases, we've already been in market with those campuses.

  • Mike Grondahl - Analyst

  • So outside of Ellendale, 1.6 and you can have that available '26 or '27.

  • Okay.

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Yeah.

  • Building all of that, you can't build it all for '27, but first power available in '26.

  • And at this point, that's really all that matters.

  • If you haven't started building now, you're not having 2025 power.

  • So this is really looking at '26 for the other campuses.

  • Operator

  • George Sutton, Craig-Hallum.

  • George Sutton - Analyst

  • Thank you and congratulations on the Macquarie deal today.

  • So I'm curious, Wes, I understand timing is challenging to predict.

  • But in the facility, it looks like there is a February 15, 2025, lease signing date that is necessary for this.

  • Can you just address that specific date?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Yeah.

  • So thanks, George.

  • So the Feb 20 -- 15 is not a lease signing date.

  • I'll have to go back and look, but I think that outside date is maybe in June.

  • But the Feb 15 is for completion of some other items, but it's not a lease signature date.

  • George Sutton - Analyst

  • And just so we can define this for everybody, my belief is -- and correct me if I'm wrong, this is effectively the infrastructure equity components going forward.

  • So you would go get a traditional construction loan financing for a large percentage.

  • Underneath that would be the infrastructure equity that is a fairly significant portion of the rest of that.

  • That's what this represents, correct?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • That's exactly it.

  • So important to delineate here between the equity component, which is what this deal is and then the debt component, which is project finance that then in the future flips into an ABS or another debt instrument.

  • So if you want to look at total capital that would be available when you match that equity with debt, right, there's a big multiplier effect there.

  • George Sutton - Analyst

  • Understand.

  • And then lastly, if I could just understand the 15% ownership that Macquarie takes on of the HPC business, what investment are they making for that?

  • Is that the initial $200 million-ish?

  • Or is there a requirement for them to fund a specific portion of the $5 billion in total?

  • Saidal Mohmand - Chief Financial Officer

  • So George, the way to think about it, it's basically lease by lease.

  • Each asset will go into what we deem -- what we call the box of the HPC company, APLDH.

  • So any asset that goes into that entity, they will own 15% of.

  • And assuming that that goes on -- they accept the lease and then it's funded simultaneously entering into the entity.

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Yeah.

  • So any asset that they fund goes into the entity.

  • So it's asset by asset that drops in.

  • George Sutton - Analyst

  • Beautiful.

  • Okay.

  • So if they don't choose to support a specific project, that would not contain the equity in that case?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • That's correct.

  • Operator

  • Brett Knoblauch, Cantor Fitzgerald.

  • Brett Knoblauch - Analyst

  • Thanks for taking my question and congrats on the announcement this morning.

  • On the ROFR, is that just a ROFR on the perpetual preferreds?

  • Or would you have to use that before, say, you wanted to raise traditional equity through a secondary?

  • Or you would have to use the preferreds before you could go down that route?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • So it's -- think of it at two different levels.

  • So we want to finance everything at the asset level with the preferred.

  • Anything up at the top company you're talking about like our public equity that there's nothing on that.

  • And if that's not what you meant, then please correct me.

  • Brett Knoblauch - Analyst

  • I think that answers it.

  • And then just another question on -- it says kind of Macquarie will receive preferred and common.

  • I guess how many shares of common are they getting?

  • And how does that mechanism work?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • So it's 15% of the HPC subsidiary.

  • Brett Knoblauch - Analyst

  • So not like common of the parent?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Not common of the parent. 15% of the HPC subsidiary.

  • Brett Knoblauch - Analyst

  • Understood.

  • Perfect.

  • And then just maybe just on the terms, 12.75% on the dividend.

  • I guess you guys talked about lease terms ranging in the yield on cost range of, call it, low to mid-teens, which is more or less the cost of capital here on the preferred equity side.

  • Have you seen terms improve to a level where you would get a yield on cost above the cost of the preferred?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Yeah.

  • So just remember, the preferred is a sliver of the capital.

  • And then the remainder of the capital is our equity in the site and then project level finance, which is the SOFR plus 2.50 or 2.25. So when you look at the blended cost, we fully expect the return to be well north of our cost of capital.

  • Operator

  • Brian Vieten, Needham & Co.

  • Brian Vieten - Analyst

  • You mentioned there's been some learnings on the deliberate approach hyperscalers take.

  • What's one of those learnings that you can apply to the next set of negotiations, some of which may be ongoing?

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Yeah.

  • So just the preparation of everything that we need to provide going through the process, like I said, it was much more accelerated with anyone else because we have all the prep.

  • We have the knowledge base of what is being looked for potential changes for things in the future as far as design and there's a constant evolution, especially on cooling.

  • So there's that aspect.

  • And then I think one of the biggest is just -- I'll call it being stamped, right, just getting through the process, signing a lease, being stamped by one of these types of customers that we have the ability to do all of these things, I think that's going to help accelerate it.

  • One of the things that we have learned is first-time supplier, it always is going to take longer than if you're already a supplier to that company.

  • And that shouldn't be, I guess, a big surprise, but it's just the delta between existing supplier and first time is a little bit larger than we thought.

  • Operator

  • Thank you.

  • There are no further questions at this time.

  • I would like to pass it back to Wes Cummins for closing remarks.

  • Wesley Cummins - Chairman of the Board, President, Chief Executive Officer, Treasurer, Company Secretary, (Principal Executive Officer)

  • Thank you.

  • Thanks, everyone, for joining our Q2 fiscal 2025 conference call.

  • Look forward to speaking with everyone in April.

  • Operator

  • Thank you.

  • This does conclude today's teleconference.

  • We thank you for your participation.

  • You may disconnect your lines at this time.