DALLAS - Applied Digital Corporation (NASDAQ:APLD), specializing in the design, construction, and operation of digital infrastructure for High-Performance Computing (HPC), has announced the pricing of its $375 million convertible senior notes due 2030. The notes will bear an interest rate of 2.75% per annum and are targeted at qualified institutional buyers, leveraging Rule 144A under the Securities Act of 1933.
The offering, which includes a 32.5% conversion premium, is accompanied by capped call transactions to minimize dilution from the conversion of notes and to offset potential cash payments above the principal amount upon conversion. The cap price is set at $14.72 per share, twice the closing sale price of Applied Digital's common stock as of October 30, 2024.
Applied Digital has also initiated a share repurchase program worth approximately $84 million, which includes a prepaid forward repurchase and concurrent share buyback. The repurchase aligns with the offering and is expected to involve approximately 7.2 million shares.
The convertible notes are senior unsecured obligations of the company and will be payable semi-annually starting June 1, 2025. The initial conversion rate is set at approximately 102.5431 shares of common stock per $1,000 principal amount, corresponding to an initial conversion price of around $9.75 per share. This conversion price signifies a 32.5% premium over the common stock's closing price on October 30, 2024.
The notes will be convertible under certain conditions and during specific periods before March 1, 2030, and anytime thereafter until the second trading day before the maturity date. The company may not redeem the notes before December 1, 2027, but it retains the option to redeem them for cash after this date under certain conditions.
Applied Digital expects to close the offering on November 4, 2024, subject to customary closing conditions. The net proceeds, estimated at approximately $361.8 million (or $434.5 million if additional notes are purchased), will fund the share repurchase program, pay for the capped call transactions, and support general corporate purposes.
The company has granted initial purchasers an option to buy up to an additional $75 million in notes within a 13-day period from the issuance date. If exercised, the additional net proceeds will partly fund further capped call transactions.
The convertible notes and any shares of common stock issued upon conversion have not been registered under the Securities Act or any state securities laws and will be offered only to qualified institutional buyers.
This news is based on a press release statement from Applied Digital Corporation.
In other recent news, Applied Digital Corporation announced its intention to offer $300 million in convertible senior notes due 2030. Additionally, the company reported a significant increase in revenue, reaching $60.7 million, primarily due to its cloud services and 286MW North Dakota BTC facilities, despite posting a net loss of $21.6 million. Analyst firms H.C. Wainwright, Lake Street Capital Markets, and Craig-Hallum have upgraded their stock price targets for Applied Digital.
The company has also simplified its capital structure by withdrawing the designations of its Series A, Series B, and Series D Convertible Preferred Stock. In terms of executive changes, Saidal Mohmand has assumed the role of Chief Financial Officer, with David Rench transitioning to the role of Chief Administrative Officer.
Finally, Applied Digital is nearing the completion of a high-performance computing lease with a major hyperscaler and has secured a $160 million private placement, which included investments from Nvidia (NASDAQ:NVDA) and Related Companies. These are among the recent developments for Applied Digital as it continues to progress on its current projects and strategic investments.
InvestingPro Insights
Applied Digital Corporation's recent announcement of a $375 million convertible notes offering comes at a time of significant growth and volatility for the company. According to InvestingPro data, APLD has experienced a remarkable 172.09% price total return over the past six months, indicating strong investor interest in the company's potential.
The company's revenue growth is particularly noteworthy, with a 124.03% increase in the last twelve months as of Q1 2025. This aligns with an InvestingPro Tip that analysts anticipate sales growth in the current year. The robust revenue performance supports the company's decision to raise capital through the convertible notes offering, potentially fueling further expansion in its digital infrastructure business.
However, investors should note that APLD is currently not profitable, with an operating income margin of -47.83% in the last twelve months. This is reflected in another InvestingPro Tip, which states that analysts do not anticipate the company will be profitable this year. The convertible notes offering and share repurchase program may be strategic moves to strengthen the company's financial position and support its growth trajectory despite current profitability challenges.
For those interested in a deeper analysis, InvestingPro offers 18 additional tips for APLD, providing a comprehensive view of the company's financial health and market position.
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