Applied Digital Corporation (Nasdaq: APLD) (“Applied Digital” or
the “Company”), a designer, builder, and operator of
next-generation digital infrastructure designed for
High-Performance Computing (HPC) applications, today announced the
upsize and pricing of its offering of $375 million aggregate
principal amount of 2.75% Convertible Senior Notes due 2030 (the
“Convertible Notes”). The Convertible Notes will be sold in a
private offering to persons reasonably believed to be qualified
institutional buyers in reliance on Rule 144A under the Securities
Act of 1933, as amended (the “Securities Act”).
Key Elements of the
Transaction:
- $375 million 2.75% Convertible
Notes offering (32.5% conversion premium)
- Capped call transactions entered
into in connection with the pricing of Convertible Notes due 2030
with an initial cap price of $14.72 per share of common stock,
which represents a 100% premium to the closing sale price of
Applied Digital’s common stock on October 30, 2024
- Share Repurchase Programs of
approximately $84 million of shares of the common stock in
connection with the offering, consisting of a prepaid forward
repurchase (as described below) and concurrent share buyback
Applied Digital has granted the initial
purchasers of the Convertible Notes an option to purchase, for
settlement within a 13-day period beginning on, and including the
date on which the Convertible Notes are first issued, up to an
additional $75 million aggregate principal amount of the
Convertible Notes. The offering is expected to close on November 4,
2024, subject to satisfaction of customary closing conditions.
Use of Proceeds:
The Company estimates that the aggregate net
proceeds from the offering will be approximately $361.8 million (or
approximately $434.5 million if the initial purchasers exercise in
full their option to purchase additional notes), after deducting
the initial purchasers’ discounts and commissions and the Company’s
estimated offering expenses. The Company intends to use
approximately $84 million of the net proceeds from the offering to
fund share repurchases of the Company’s common stock (the “common
stock”) in connection with the offering including (i) $52.7 million
to fund the cost of entering into prepaid forward repurchase (as
described below) and (ii) $31.3 million to repurchase shares of the
common stock, approximately $43.1 million of the net proceeds from
the offering to pay the cost of the capped call transactions (as
described below, and the remainder for general corporate purposes.
If the initial purchasers exercise their option to purchase
additional notes, then the Company intends to use a portion of the
additional net proceeds to fund the cost of entering into
additional capped call transactions.
Additional Details of the Convertible
Notes:
The Convertible Notes will be senior unsecured
obligations of the Company and will accrue interest at a rate of
2.75% per annum, payable semi-annually in arrears on June 1 and
December 1 of each year, beginning on June 1, 2025. The Convertible
Notes will mature on June 1, 2030, unless earlier repurchased,
redeemed or converted in accordance with their terms. Prior to
March 1, 2030, the Convertible Notes will be convertible only upon
satisfaction of certain conditions and during certain periods, and
thereafter, the Convertible Notes will be convertible at any time
until the close of business on the second scheduled trading day
immediately preceding the maturity date.
The Convertible Notes will be convertible into
cash, shares of the common stock or a combination of cash and
shares of the common stock, at the Company’s election, subject to
certain restrictions. The conversion rate will initially be
102.5431 shares of common stock per $1,000 principal amount of
Convertible Notes (equivalent to an initial conversion price of
approximately $9.75 per share of the common stock). The initial
conversion price of the Convertible Notes represents a premium of
approximately 32.5% to the $7.36 closing price per share of the
common stock on The Nasdaq Global Select Market on October 30,
2024. The conversion rate will be subject to adjustment in certain
circumstances. In addition, upon conversion in connection with
certain corporate events or a notice of redemption, the Company
will increase the conversion rate.
The Company may not redeem the Convertible Notes
prior to December 1, 2027. The Company may redeem for cash all or
any portion of the Convertible Notes (subject to certain
limitations), at its option, on or after December 1, 2027, if the
last reported sale price of the common stock has been at least 130%
of the conversion price then in effect for at least 20 trading days
(whether or not consecutive) during any 30 consecutive trading day
period (including the last trading day of such period) ending on,
and including, the trading day immediately preceding the date on
which the Company provides notice of redemption to holders at a
redemption price equal to 100% of the principal amount of the
Convertible Notes to be redeemed, plus accrued and unpaid interest
to, but excluding, the redemption date.
Holders of the Convertible Notes will have the
right to require the Company to repurchase all or a portion of
their Convertible Notes upon the occurrence of a fundamental change
(as defined in the indenture governing the Convertible Notes) at a
cash repurchase price of 100% of their principal amount plus
accrued and unpaid interest, if any, to, but excluding the
applicable repurchase date.
Share Repurchase Program of
Prepaid Forward Repurchase and Concurrent Share
Repurchases:
In connection with the pricing of the
Convertible Notes, the Company entered into share repurchase
programs consisting of a prepaid forward repurchase and a
concurrent share buyback. Pursuant to the share repurchase
programs, the Company will repurchase an aggregate of approximately
$84 million of shares of the common stock through (i) privately
negotiated transactions effected concurrently with the pricing of
the Convertible Notes with respect to $31.3 million of shares of
the common stock (with the purchase price per share of the common
stock repurchased in such transactions equal to $7.36 closing price
per share of the common stock on October 30, 2024) and (ii) a
privately negotiated prepaid forward stock repurchase transaction
(the “prepaid forward repurchase”) with one of the initial
purchasers of the Convertible Notes (the “forward counterparty”)
with respect to $52.7 million of shares of the common stock.
The initial aggregate number of shares of the
common stock underlying the prepaid forward repurchase is
approximately 7.2 million shares. In the event that the Company
pays any cash dividends on its common stock, the forward
counterparty will pay an equivalent amount to the Company. The
prepaid forward repurchase is generally intended to facilitate
privately negotiated derivative transactions, including swaps,
between the forward counterparty or its affiliates and investors in
the Convertible Notes, relating to shares of the common stock by
which investors in the Convertible Notes will establish short
positions relating to shares of the common stock and otherwise
hedge their investments in the Convertible Notes. As a result, the
prepaid forward repurchase is expected to allow the investors to
establish short positions that generally correspond to (but may be
greater than) commercially reasonable initial hedges of their
investment in the Convertible Notes. In the event of such greater
initial hedges, investors may offset such greater portion by
purchasing shares of the common stock on the day the Company prices
the Convertible Notes. Facilitating investors’ hedge positions by
entering into the prepaid forward repurchase, particularly if
investors purchase shares of common stock on the pricing date,
could increase (or reduce the size of any decrease in) the market
price of shares of the common stock and effectively raise the
conversion price of the Convertible Notes. In connection with
establishing its initial hedges of the prepaid forward repurchase,
the forward counterparty or its affiliates generally expect to, but
are not required to, enter into one or more derivative transactions
with respect to shares of the common stock with the investors of
the Convertible Notes concurrently with or after the pricing of the
Convertible Notes.
The Company’s entry into the prepaid forward
repurchase with the forward counterparty and the entry by the
forward counterparty into derivative transactions in respect of the
common stock with the investors of the Convertible Notes could have
the effect of increasing (or reducing the size of any decrease in)
the market price of the common stock concurrently with, or shortly
after, the pricing of the Convertible Notes and effectively raising
the conversion price of the Convertible Notes.
Neither the Company nor the forward counterparty
will control how investors of the Convertible Notes may use such
derivative transactions. In addition, such investors may enter into
other transactions relating to the common stock or the Convertible
Notes in connection with or in addition to such derivative
transactions, including the purchase or sale of shares of the
common stock. As a result, the existence of the prepaid forward
repurchase, such derivative transactions and any related market
activity could cause more purchases or sales of the common stock
over the terms of the prepaid forward repurchase than there
otherwise would have been had the Company not entered into the
prepaid forward repurchase. Such purchases or sales could
potentially increase (or reduce the size of any decrease in) or
decrease (or reduce the size of any increase in) the market price
of the common stock and/or the price of the Convertible Notes.
In addition, the forward counterparty or its
affiliates may modify their hedge positions by entering into or
unwinding one or more derivative transactions with respect to
shares of the common stock and/or purchasing or selling shares of
the common stock or other securities of the Company’s in secondary
market transactions at any time following the pricing of the
Convertible Notes and prior to the maturity of the Convertible
Notes. These activities could also cause or avoid an increase or a
decrease in the market price of the common stock or the Convertible
Notes, which could affect the ability to convert the Convertible
Notes and, to the extent the activity occurs following conversion
or during any observation period related to a conversion of
Convertible Notes, it could affect the amount and value of the
consideration that noteholders will receive upon conversion of the
Convertible Notes.
Capped Call Transactions:
In connection with the pricing of the
Convertible Notes, the Company entered into privately negotiated
capped call transactions with certain financial institutions (the
“option counterparties”). The cap price of the capped call
transactions is initially $14.72 per share of common stock, which
represents a premium of 100% over the last reported sale price of
the common stock of $7.36 per share on The Nasdaq Global Select
Market on October 30, 2024, and is subject to certain
adjustments under the terms of the capped call
transactions. If the initial purchasers of the Convertible
Notes exercise their option to purchase additional Convertible
Notes, the Company expects to use a portion of the net proceeds
from the sale of the additional Convertible Notes to enter into
additional capped call transactions with the option
counterparties.
The capped call transactions are generally
expected to reduce potential dilution to the common stock upon
conversion of any Convertible Notes and/or offset any cash payments
the Company is required to make in excess of the principal amount
of converted Convertible Notes, as the case may be, with such
reduction and/or offset subject to a cap.
In connection with establishing their initial
hedges of the capped call transactions, the Company expects the
option counterparties or their respective affiliates to purchase
shares of the common stock and/or enter into various derivative
transactions with respect to the common stock concurrently with or
shortly after the pricing of the Convertible Notes. This activity
could increase (or reduce the size of any decrease in) the market
price of the common stock or the Convertible Notes at that time. In
addition, the option counterparties or their respective affiliates
may modify their hedge positions by entering into or unwinding
various derivatives with respect to the common stock and/or
purchasing or selling shares of the common stock or other
securities of the Company in secondary market transactions
following the pricing of the Convertible Notes and prior to the
maturity of the Convertible Notes (and are likely to do so on each
exercise date for the capped call transactions or following any
termination of any portion of the capped call transactions in
connection with any repurchase, redemption or early conversion of
the Convertible Notes). This activity could also cause or avoid an
increase or decrease in the market price of the common stock or the
Convertible Notes, which could affect holders of the Convertible
Notes’ ability to convert the Convertible Notes and, to the extent
the activity occurs following conversion of the Convertible Notes
or during any observation period related to a conversion of the
Convertible Notes, it could affect the amount and value of the
consideration that holders of the Convertible Notes will receive
upon conversion of such Convertible Notes.
The Convertible Notes and any shares of common
stock issuable upon conversion of the Convertible Notes, if any,
have not been registered under the Securities Act, securities laws
of any other jurisdiction, and the Convertibles Notes and such
shares of common stock may not be offered or sold in the United
States absent registration or an applicable exemption from
registration under the Securities Act and any applicable state
securities laws. The Convertible Notes will be offered only to
persons reasonably believed to be qualified institutional buyers
under Rule 144A under the Securities Act.
This press release shall not constitute an offer
to sell, or a solicitation of an offer to buy the Convertible
Notes, nor shall there be any sale of the Convertible Notes or
common stock in any state or jurisdiction in which such an offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state or
jurisdiction.
About Applied Digital
Applied Digital (Nasdaq: APLD) develops, builds
and operates next-generation data centers and cloud infrastructure.
Different by design, the company’s purpose-built facilities are
engineered to unleash the power of accelerated compute and deliver
secure, scalable and sustainable digital hosting, along with
turnkey CSaaS and GPU-as-a-Service solutions. Backed by deep
hyperscale expertise and a robust pipeline of available power,
Applied Digital accommodates AI Factories and beyond to support the
world’s most exacting AI/ML, blockchain and high-performance
computing (HPC) workloads.
Forward-Looking Statements
This release contains "forward-looking
statements" as defined in the Private Securities Litigation Reform
Act of 1995 regarding, among other things, statements regarding the
anticipated terms of the notes being offered, the completion,
timing and size of the proposed offering, the intended use of the
proceeds, the share repurchases and the anticipated terms of, and
the effects of entering into, the capped call transactions and
prepaid forward repurchase described above. These statements use
words, and variations of words, such as “continue,” “build,”
“future,” “increase,” “drive,” “believe,” “look,” “ahead,”
“confident,” “deliver,” “outlook,” “expect,” “intend,” “hope,”
“remain,” “project” and “predict.” You are cautioned not to rely on
these forward-looking statements. These statements are based on
current expectations of future events and thus are inherently
subject to uncertainty. If underlying assumptions prove inaccurate
or known or unknown risks or uncertainties materialize, actual
results could vary materially from the Company's expectations and
projections. These risks, uncertainties, and other factors include:
decline in demand for our products and services; the volatility of
the crypto asset industry; the inability to comply with
developments and changes in regulation; cash flow and access to
capital; and maintenance of third-party relationships. The Company
may not consummate the proposed offering described in this press
release and, if the proposed offering is consummated, cannot
provide any assurances regarding the final terms of the offering or
the notes or its ability to effectively apply the net proceeds as
described above. Information in this release is as of the dates and
time periods indicated herein, and the Company does not undertake
to update any of the information contained in these materials,
except as required by law.
Investor Relations ContactsMatt Glover and Ralf
EsperGateway Group, Inc.(949) 574-3860APLD@gateway-grp.com
Media ContactBuffy Harakidas, EVP and Jo
AlbersJSA (Jaymie Scotto & Associates)jsa_applied@jsa.net(856)
264-7827
Source: Applied Digital Corporation
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