Applied Digital Corp.APLD

Applied Digital Corp. Fair Value Disclosure

10-KFiled Aug 30, 20242 min read
Fair Value Measurements
The carrying values of cash and cash equivalents, restricted cash and restricted cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term nature.
The majority of the Company’s non-financial instruments, which include lease assets and property and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur, a non-financial instrument is required to be evaluated for impairment. If the Company determines that the non-financial instrument is impaired, the Company would be required to write down the non-financial instrument to its fair value. No such triggering events were identified during the fiscal year ended May 31, 2024.
Fair value of financial instruments is determined on a recurring basis, which results are summarized as follows (in thousands):
May 31, 2024
Debt instrumentFair Value HierarchyOutstanding PrincipalFair Value
Yorkville convertible debt
Level 2
$76,132 $80,243 
The fair value of the Yorkville convertible debt was calculated on an as-converted basis using quoted market prices of the Company's outstanding common stock as of May 31, 2024. In assuming full conversion of the outstanding debt balance, the Company used the same terms as the Yorkville Convertible Debt, including a 5% discount on the lowest daily volume weighted average price for the 5 days preceding May 31, 2024.
Outstanding Principal as of May 31, 2024 (in thousands)
$76,132 
Conversion price$4.01 
Number of shares to be issued18,969,939 
Stock price on May 31, 2024
$4.23 
Fair Value as of May 31, 2024 (in thousands)
$80,243 

The Company recorded a loss on the change in fair value of debt of $7.4 million in its consolidated statements of operations.

About Fair Value Disclosures

Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.

Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.

Other Available Disclosures

Income TaxesRevenueEarnings Per SharePP&ELeasesSegmentsDebtCommitmentsStock CompensationNew StandardsPay vs Performance