| Leases |
From
time to time, the Company enters into leases for equipment and office space. The Company’s lease agreements do not contain any
material residual value guarantees or material restrictive covenants. The Company presents operating and finance lease right of use assets
and liabilities separately on the unaudited condensed combined balance sheets as their own captions, with the liabilities split between
current and long-term.
During
the nine months ended February 28, 2026, the Company renegotiated the majority of its finance leases to extend the duration of the lease
agreements, thus extending finance lease payments through fiscal year 2028. In accordance with ASC 842, as the modifications were not
separate contracts, the Company reassessed the classification of the leases, noting no change in classification. As such, the Company
reallocated the remaining consideration in the contract and remeasured the lease liability using a discount rate for each of the leases
determined at the effective date of the modification. The Company recognized the amount of the remeasurement of the lease liability for
each of the modified leases as an adjustment to the corresponding right-of-use asset.
Subsequent to February 28, 2026 and through
May 31, 2026, the Company made finance lease payments of approximately $14.6 million and operating lease payments of $5.3 million.
APPLIED
DIGITAL CLOUD CORPORATION AND AFFILIATES
Notes
to the Condensed Combined Financial Statements (Unaudited)
For
the Three and Nine Months Ended February 28, 2026 and February 28, 2025
Components
of lease expense were as follows (in thousands):
Schedule
of Components of Lease Expense
| |
|
February 28, 2026 |
|
|
February 28, 2025 |
|
|
February 28, 2026 |
|
|
February 28, 2025 |
|
| |
|
Three Months Ended |
|
|
Nine Months Ended |
|
| |
|
February 28, 2026 |
|
|
February 28, 2025 |
|
|
February 28, 2026 |
|
|
February 28, 2025 |
|
| Operating lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating lease expense |
|
$ |
6,078 |
|
|
$ |
9,715 |
|
|
$ |
18,234 |
|
|
$ |
27,250 |
|
| Short-term lease expense |
|
|
— |
|
|
|
10,129 |
|
|
|
183 |
|
|
|
10,129 |
|
| Total operating lease cost |
|
|
6,078 |
|
|
|
19,844 |
|
|
|
18,417 |
|
|
|
37,379 |
|
| Finance lease expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortization of right-of-use
assets(1) |
|
|
13,548 |
|
|
|
13,909 |
|
|
|
41,945 |
|
|
|
64,991 |
|
| Interest on lease liabilities |
|
|
2,049 |
|
|
|
4,514 |
|
|
|
7,889 |
|
|
|
12,959 |
|
| Total finance lease cost |
|
|
15,597 |
|
|
|
18,423 |
|
|
|
49,834 |
|
|
|
77,950 |
|
| Variable lease cost |
|
|
520 |
|
|
|
731 |
|
|
|
1,953 |
|
|
|
1,647 |
|
| Total net lease cost |
|
$ |
22,195 |
|
|
$ |
38,998 |
|
|
$ |
70,204 |
|
|
$ |
116,976 |
|
| (1) |
Amortization
of right-of-use assets is included within cost of revenues and selling, general and administrative
expense in the unaudited condensed combined statements of operations. |
The
following table represents the Company’s future minimum lease payments as of February 28, 2026:
Schedule
of Future Minimum Lease Payments
| |
|
Operating Leases |
|
|
Finance Leases |
|
|
Total |
|
| |
|
Operating Leases |
|
|
Finance Leases |
|
|
Total |
|
| FY26 |
|
$ |
5,293 |
|
|
$ |
14,583 |
|
|
$ |
19,876 |
|
| FY27 |
|
|
21,798 |
|
|
|
51,055 |
|
|
|
72,853 |
|
| FY28 |
|
|
22,623 |
|
|
|
10,967 |
|
|
|
33,590 |
|
| FY29 |
|
|
17,152 |
|
|
|
— |
|
|
|
17,152 |
|
| FY30 |
|
|
3,536 |
|
|
|
— |
|
|
|
3,536 |
|
| Thereafter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Total lease payments |
|
|
70,402 |
|
|
|
76,605 |
|
|
|
147,007 |
|
| Less: imputed interest |
|
|
(7,811 |
) |
|
|
(5,330 |
) |
|
|
(13,141 |
) |
| Total lease liabilities |
|
|
62,591 |
|
|
|
71,275 |
|
|
|
133,866 |
|
| Less: Current portion of lease liability |
|
|
(17,606 |
) |
|
|
(50,777 |
) |
|
|
(68,383 |
) |
| Long-term portion of lease liability |
|
$ |
44,985 |
|
|
$ |
20,498 |
|
|
$ |
65,483 |
|
Supplemental
cash flow and other information related to leases is as follows:
Schedule
of Supplemental Cash Flow and Other Information Related to Leases
| |
|
Nine Months Ended |
|
| |
|
February 28, 2026 |
|
|
February 28, 2025 |
|
| Weighted-average years remaining (in years): |
|
|
|
|
|
|
|
|
| Operating leases |
|
|
2.6 years |
|
|
|
3.2 years |
|
| Finance leases |
|
|
2.3 years |
|
|
|
3.0 years |
|
| |
|
|
|
|
|
|
|
|
| Weighted-average discount rate: |
|
|
|
|
|
|
|
|
| Operating leases |
|
|
7.6 |
% |
|
|
7.6 |
% |
| Finance leases |
|
|
9.8 |
% |
|
|
10.0 |
% |
APPLIED
DIGITAL CLOUD CORPORATION AND AFFILIATES
Notes
to the Condensed Combined Financial Statements (Unaudited)
For
the Three and Nine Months Ended February 28, 2026 and February 28, 2025
|
The
Company enters into leases for equipment and office space. The Company’s lease agreements do not contain any material residual
value guarantees or material restrictive covenants. The Company presents operating and finance right of use assets and liabilities separately
on the balance sheets as their own captions, with the liabilities split between current and long-term, respectively.
Components
of lease expense were as follows (in thousands):
Schedule
of Components of Lease Expense
| |
|
May
31, 2025 |
|
|
May
31, 2024 |
|
| Operating lease cost: |
|
|
|
|
|
|
|
|
| Operating lease
expense |
|
$ |
36,068 |
|
|
$ |
16,132 |
|
| Short-term
lease expense |
|
|
122 |
|
|
|
— |
|
| Total operating lease cost |
|
|
36,190 |
|
|
|
16,132 |
|
| Finance lease expense: |
|
|
|
|
|
|
|
|
| Amortization of right-of-use
assets(1) |
|
|
78,724 |
|
|
|
57,230 |
|
| Interest
on lease liabilities |
|
|
16,826 |
|
|
|
9,457 |
|
| Total
finance lease cost |
|
|
95,550 |
|
|
|
66,687 |
|
| Total net lease cost |
|
$ |
131,740 |
|
|
$ |
82,819 |
|
| (1) |
Amortization
of right-of-use assets is included within cost of revenues and selling, general and administrative
expense in the combined statements of operations. |
The
following table represents the Company’s future minimum lease payments as of May 31, 2025 (in thousands):
Schedule
of Future Minimum Lease Payments
| |
|
Operating Leases |
|
|
Finance Leases |
|
|
Total |
|
| |
|
Operating
Leases |
|
|
Finance
Leases |
|
|
Total |
|
| FY26 |
|
$ |
21,033 |
|
|
$ |
140,296 |
|
|
$ |
161,329 |
|
| FY27 |
|
|
21,798 |
|
|
|
— |
|
|
|
21,798 |
|
| FY28 |
|
|
22,623 |
|
|
|
— |
|
|
|
22,623 |
|
| FY29 |
|
|
17,152 |
|
|
|
— |
|
|
|
17,152 |
|
| FY30 |
|
|
3,536 |
|
|
|
— |
|
|
|
3,536 |
|
| Thereafter |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Total lease payments |
|
|
86,142 |
|
|
|
140,296 |
|
|
|
226,438 |
|
| Less: imputed interest |
|
|
(11,629 |
) |
|
|
(6,889 |
) |
|
|
(18,518 |
) |
| Total lease liabilities |
|
|
74,513 |
|
|
|
133,407 |
|
|
|
207,920 |
|
| Less: Current portion
of lease liability |
|
|
(16,093 |
) |
|
|
(133,407 |
) |
|
|
(149,500 |
) |
| Long-term portion of
lease liability |
|
$ |
58,420 |
|
|
$ |
— |
|
|
$ |
58,420 |
|
Supplemental
cash flow and other information related to leases is as follows:
Schedule
of Supplemental Cash Flow and Other Information Related to Leases
| |
|
Fiscal
Year Ended |
|
| |
|
May
31, 2025 |
|
|
May
31, 2024 |
|
| Weighted-average years remaining (in years): |
|
|
|
|
|
|
|
|
| Finance leases |
|
|
3.0
years |
|
|
|
3.9
years |
|
| Operating leases |
|
|
3.3
years |
|
|
|
3.3
years |
|
| |
|
|
|
|
|
|
|
|
| Weighted-average discount rate: |
|
|
|
|
|
|
|
|
| Finance leases |
|
|
10.2 |
% |
|
|
10.4 |
% |
| Operating leases |
|
|
7.6 |
% |
|
|
8.1 |
% |
APPLIED
DIGITAL CLOUD CORPORATION AND AFFILIATES
Notes
to the Combined Financial Statements
For
the Fiscal Years Ended May 31, 2025 and May 31, 2024
|