LAS VEGAS, Nov. 13, 2017 /PRNewswire/ -- Switch, Inc. (NYSE:
SWCH) today announced financial results for the quarter ended
September 30, 2017.
"Switch delivered a strong third quarter, achieving its
highest-ever revenue and operating profit for a single quarter,"
said Rob Roy, CEO, chairman and
founder of Switch. "All of our growth was organic, and we ended the
quarter with over 800 customers, adding notable enterprises to our
customer base. Our innovative, patent-protected technology and
strategically located hyperscale campus ecosystems continue to be
key differentiators leading customers to choose Switch for their
mission critical data."
Third Quarter 2017 Financial Highlights
- Total revenue of $97.7 million,
compared to $81.7 million for the
same quarter last year, an increase of 20%.
- Operating income of $25.5
million, compared to operating income of $16.4 million for the same quarter last year, an
increase 55%.
- Net income of $16.5 million,
compared to $15.9 million for the
same quarter last year.
- Adjusted EBITDA of $49.7 million,
compared to $34.6 million for the
same quarter last year, an increase of 44%. Adjusted EBITDA
margin of 50.9%, compared to 42.4% for the same quarter last year,
an increase of 850 basis points.
- Capital expenditures of $64.1million, compared to $88.9 million in the same quarter of 2016, a
decrease of 28%.
- Churn of 0.3% and 0.5% for the three and nine months ended
September 30, 2017. Churn is defined
as a reduction in recurring revenue attributed to customer
terminations or non-renewal of expired contracts, as a percentage
of revenue at the beginning of the period.
"In the third quarter, we continued to expand our strategically
located PRIME campus ecosystems in North
America," said Thomas Morton,
president and general counsel of Switch. "We recently
announced our plan to develop a more than one million square foot
campus in Atlanta to meet customer
demand in the Southeast region, with construction expected to begin
in the fourth quarter of 2017. We believe our ability to operate
multiple Tier 5® Platinum data centers across the
country solidifies our leadership in powering the growth of
services enabled by the growth of the internet."
Gabe Nacht, CFO of Switch, added,
"We are pleased with our third quarter results as we continue to
deliver on our key strategic growth initiatives. Our record
quarterly revenue was driven by strong year-over-year growth in our
colocation business of 20%, and in our connectivity business, which
was up 19%. In addition, we added 29 new customers in the
quarter. With one of the lowest churn rates in the
industry and a model of capital efficient growth, we believe our
increasing scale will bring continued efficiencies."
Balance Sheet and Liquidity
On June 27, 2017, Switch executed
a new $1.1 billion credit facility
consisting of a $500 million
revolving line of a credit and a $600
million term loan. As of September 30, 2017 Switch's total debt
outstanding net of cash and cash equivalents was $839 million, resulting in a net debt to last
quarter annualized Adjusted EBITDA ratio of 4.2x. Subsequent
to the quarter end, Switch used proceeds from its IPO to repay the
outstanding debt on the revolver. Assuming the repayment of the
revolver, the net debt to last quarter annualized Adjusted EBITDA
ratio was under 1.3x.
Capital Expenditures and Development
Capital expenditures for the third quarter totaled $64.1 million. Maintenance capital
expenditure was $0.4 million for the
third quarter of 2017, compared to $0.9
million in the same period last year. Growth capital
expenditure was $63.7 million for the
third quarter of 2017, compared to $88.0
million in the same period last year. During the third
quarter of 2017, Switch spent $37.6
million in The Core Campus to expand power and cooling in
response to additional customer density needs, and to begin site
work on its Las Vegas 11 facility,
which is planned to open in the fourth quarter of 2018, adding
another 340,000 gross square feet. Switch also invested
$21.7 million in The Citadel Campus
to support additional power and cooling, and for construction in
preparation for the opening of additional data center space in the
fourth quarter of 2017. Finally, Switch spent $4.8 million on an additional buildout of The
Pyramid Campus.
Recent Business Highlights
- Completed initial public offering and began trading on the NYSE
on October 6, 2017. Gross
proceeds from the IPO were approximately $610.9 million, with net proceeds of
approximately $577.3 million, net of
underwriting discounts and commissions.
- Introduced the built-to-suit Switch MOD data center product
line, which can be customized and scaled to meet on-premise
customer demand.
- Announced a patent licensing agreement in the United States with Schneider Electric,
reflecting a growing relationship with one of Switch's long-time
leading global suppliers of equipment for MOD facilities.
- Commenced deployment of a co-creation hub for technology
initiatives and technology partnerships in historic Reno building.
- The U.S. Patent and Trademark Office has allowed three more
patents for Switch's innovative technology, including a patent for
Switch's revolutionary Hot Aisle Containment Chimney Pod Technology
known as the T-SCIF. Switch's exclusive right to this
disruptive technology will not expire until 2030.
2017 Guidance
For the full year 2017, Switch provides the following
guidance:
- Total revenue in the range of $372
million to $380 million.
- Adjusted EBITDA in the range of $190
million to $195 million.
- Capital expenditures in the range of $345 million to $365 million.
- Class A fully weighted average basic share count of 36 million
to 37 million.
- Class A fully weighted average diluted share count of 36.5
million to 38 million.
Switch does not provide reconciliations for the non-GAAP
financial measures included in the 2017 guidance above due to the
inherent difficulty in forecasting and quantifying certain amounts
that are necessary for such reconciliations, including net income
(loss), accelerated depreciation, impairment charges, gains
or losses on retirement of debt and variations in effective tax
rate, which are difficult to predict and estimate and are primarily
dependent on future events, but which are excluded from the
Switch's calculations of Adjusted EBITDA.
Conference Call Information
Switch will host a conference call and live webcast for analysts
and investors at 6:00 p.m. Eastern time on November 13, 2017. Parties in the United
States and Canada can access the call by dialing
(877)-681-3378, using conference code 7988756. International
parties can access the call by dialing (719)-325-4925, using
conference code 7988756.
The webcast will be accessible on Switch's investor relations
website at https://investors.switch.com/ for one year. A
telephonic replay of the conference call will be available
through Monday November 20, 2017. To access the replay,
parties in the United States and Canada should
call (866)-375-1919 and enter conference code 7988756.
International parties should call (719)-457-0820 and enter
conference code 7988756.
Presentation of Financial Information
This press
release presents historical consolidated results for the periods
presented of Switch, Ltd., the predecessor of Switch,
Inc., for financial reporting purposes. The financial results
of Switch, Inc. have not been included in this press
release as it did not engage in any business or other activities
prior to the completion of the IPO on October 11, 2017.
Accordingly, these historical results do not purport to reflect the
results of operations of Switch, Inc. had the IPO and
related transactions occurred prior to the beginning of the periods
included in this press release. For example, these historical
results do not reflect the attribution of net income to
non-controlling interests or the provision for corporate income
taxes on any income that would have been attributable
to Switch, Inc. during such periods had the IPO and
related transactions occurred prior to the beginning of such
periods.
Use of Non-GAAP Financial Measures
To supplement Switch's condensed consolidated financial statements,
which are prepared and presented in accordance with generally
accepted accounting principles in the
United States (GAAP), Switch uses Adjusted EBITDA and
Adjusted EBITDA margin, which are non-GAAP measures, in this press
release. Switch defines Adjusted EBITDA as net income adjusted for
interest expense, interest income, income taxes, depreciation and
amortization and for specific and defined supplemental adjustments
to exclude (i) non-cash equity-based compensation expense; (ii)
equity in net earnings (losses) of investments; and (iii) certain
other items that Switch believes are not indicative of its core
operating performance. Switch defines Adjusted EBITDA margin as
Adjusted EBITDA divided by revenue.
The presentation of these financial measures is not intended to
be considered in isolation or as a substitute for, or superior to,
financial information prepared and presented in accordance with
GAAP. Investors are cautioned that there are material limitations
associated with the use of non-GAAP financial measures as an
analytical tool. These measures may be different from non-GAAP
financial measures used by other companies, limiting their
usefulness for comparison purposes. In addition, the non-GAAP
measures exclude certain recurring expenses that have been and will
continue to be significant expenses of Switch's business.
Switch believes these non-GAAP financial measures provide useful
information to investors and others in understanding and evaluating
its operating results, enhancing the overall understanding of its
past performance and future prospects, and allowing for greater
transparency with respect to key financial metrics used by its
management in financial and operational-decision making.
For more information on Switch's non-GAAP financial measures and
a reconciliation of GAAP to non-GAAP measures, please see the
"Reconciliation of GAAP to Non-GAAP Results" table in this press
release.
Forward-Looking Statement
This press release contains forward-looking statements within the
meaning of federal securities laws. Forward-looking statements
generally relate to future events or Switch's future financial or
operating performance. In some cases, you can identify
forward-looking statements because they contain words such as
"may," "will," "should," "expects," "plans," "anticipates,"
"could," "intends," "target," "projects," "contemplates,"
"believes," "estimates," "predicts," "potential" or "continue" or
the negative of these words or other similar terms or expressions
that concern our expectations, strategy, plans or intentions.
Forward-looking statements in this press release include, but are
not limited to, Switch's anticipated operating results for the 2017
fiscal year and Switch's expectations regarding the evolution of
its marketplace. Switch's expectations and beliefs regarding these
matters may not materialize, and actual results in future periods
are subject to inherent risks, uncertainties and changes in
circumstance that are difficult or impossible to predict.
Consequently, you should not rely on these forward-looking
statements. Actual outcomes and results may differ materially from
those contemplated by these forward-looking statements as a result
of such uncertainties, risks, and changes in circumstances,
including without limitation risks and uncertainties related to
Switch's expansion plans; its future business development; its
expectations regarding demand for, and market acceptance of, its
services; and its ability to enter new markets successfully.
The forward-looking statements contained in this press release
are also subject to other risks and uncertainties, and the
foregoing list of factors is not exclusive. These and additional
risks and uncertainties that could affect Switch's financial and
operating results and cause actual results to differ materially
from those indicated by the forward-looking statements made in this
press release are included under the captions "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operation" and elsewhere in its final prospectus filed
with the Securities and Exchange Commission (the "SEC") relating to
its Registration Statement on Form S-1 and in its other reports
filed with the SEC. Switch's SEC filings are available on the
Investors section of Switch's website
at https://investors.switch.com/and on the SEC's website at
www.sec.gov. The forward-looking statements in this press
release are based on information available to Switch as
of the date hereof, and disclaim Switch's obligation to update
any forward-looking statements provided to reflect any change in
its expectations or any change in events, conditions, or
circumstances on which any such statement is based, except as
required by law. These forward-looking statements should not be
relied upon as representing Switch's views as of any date
subsequent to the date of this press release.
About Switch
Switch is a technology infrastructure
company powering the sustainable growth of the connected world and
the Internet of Everything. Switch's mission is to enable the
advancement of humanity by creating smart, resilient and
sustainable infrastructure solutions that support the most
innovative technology ecosystems. Switch focuses on the design,
construction and operation of some of the world's most reliable,
secure, resilient and sustainable data centers.
Investor Contact:
Irmina
Blaszczyk
or Lauren Sloane
The Blueshirt Group for Switch
investorrelations@switch.com
(702) 479-3993
SWITCH, LTD. AND
SUBSIDIARIES
|
Consolidated
Balance Sheets
|
(in thousands,
except for members' equity units)
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
December 31,
2016
|
|
(unaudited)
|
|
|
ASSETS
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
Cash
|
$
7,992
|
|
$
22,713
|
Accounts receivable,
net of allowance of $429 and $340, respectively
|
13,725
|
|
9,131
|
Prepaid
expenses
|
4,087
|
|
3,921
|
Other current
assets
|
9,597
|
|
2,052
|
Total current
assets
|
35,401
|
|
37,817
|
Property and
equipment, net
|
1,072,823
|
|
874,259
|
Long-term
deposit
|
4,262
|
|
4,440
|
Investments
|
—
|
|
169
|
Other
assets
|
11,894
|
|
4,330
|
TOTAL
ASSETS
|
$
1,124,380
|
|
$
921,015
|
|
|
|
|
LIABILITIES AND
MEMBERS' EQUITY
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
Long-term debt,
current portion
|
$
5,194
|
|
$
14,330
|
Accounts
payable
|
19,516
|
|
1,663
|
Accrued
expenses
|
17,750
|
|
13,127
|
Accrued construction
payables
|
16,669
|
|
47,528
|
Accrued Michigan
building and land purchase
|
22,589
|
|
23,916
|
Accrued impact fee
expense
|
—
|
|
27,018
|
Deferred revenue,
current portion
|
9,890
|
|
7,157
|
Customer
deposits
|
7,939
|
|
6,939
|
Capital lease
obligations, current portion
|
3,500
|
|
4,000
|
Total current
liabilities
|
103,047
|
|
145,678
|
Long-term debt,
net
|
818,865
|
|
457,737
|
Capital lease
obligations
|
19,466
|
|
19,466
|
Accrued interest,
capital lease obligations
|
1,981
|
|
2,070
|
Deferred
revenue
|
19,301
|
|
17,701
|
TOTAL
LIABILITIES
|
962,660
|
|
642,652
|
Commitments and
contingencies (Note 7 and Note 9)
|
|
|
|
MEMBERS'
EQUITY:
|
|
|
|
Members' equity,
225,000,000 units authorized; 200,750,505 and 198,866,680 units
issued and outstanding, respectively
|
161,627
|
|
279,056
|
Accumulated other
comprehensive income (loss)
|
93
|
|
(693)
|
TOTAL MEMBERS'
EQUITY
|
161,720
|
|
278,363
|
TOTAL LIABILITIES AND
MEMBERS' EQUITY
|
$
1,124,380
|
|
$
921,015
|
|
|
|
|
SWITCH, LTD. AND
SUBSIDIARIES
|
Consolidated
Statements of Comprehensive Income
|
For the Three and
Nine Months Ended September 30, 2017
|
(in thousands,
except for members' equity units and net income per
unit)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
Nine Months
Ended
September 30,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue
|
$
97,689
|
|
$
81,666
|
|
$
278,947
|
|
$
236,464
|
Cost of
revenue
|
50,744
|
|
47,029
|
|
144,575
|
|
125,389
|
Gross
profit
|
46,945
|
|
34,637
|
|
134,372
|
|
111,075
|
Selling, general and
administrative expense
|
21,494
|
|
18,225
|
|
60,941
|
|
52,508
|
Income from
operations
|
25,451
|
|
16,412
|
|
73,431
|
|
58,567
|
Other income
(expense):
|
|
|
|
|
|
|
|
Interest expense,
including $403, $266, $901 and $740, respectively, in amortization
of debt issuance costs
|
(8,856)
|
|
(2,273)
|
|
(17,789)
|
|
(6,850)
|
Equity in losses of
investments
|
(221)
|
|
(1,260)
|
|
(955)
|
|
(3,814)
|
Loss on
extinguishment of debt
|
—
|
|
—
|
|
(3,565)
|
|
—
|
Gain on lease
termination
|
—
|
|
2,801
|
|
—
|
|
2,801
|
Other
|
112
|
|
246
|
|
644
|
|
436
|
Total other income
(expense)
|
(8,965)
|
|
(486)
|
|
(21,665)
|
|
(7,427)
|
Net income
|
$
16,486
|
|
$
15,926
|
|
$
51,766
|
|
$
51,140
|
|
|
|
|
|
|
|
|
Net income per
unit:
|
|
|
|
|
|
|
|
Basic
|
$
0.08
|
|
$
0.08
|
|
$
0.26
|
|
$
0.26
|
Diluted
|
$
0.08
|
|
$
0.08
|
|
$
0.25
|
|
$
0.25
|
|
|
|
|
|
|
|
|
Weighted-average
units used in computing net income per unit:
|
|
|
|
|
|
|
|
Basic
|
200,746,690
|
|
199,108,842
|
|
200,415,541
|
|
199,328,865
|
Diluted
|
208,972,744
|
|
204,244,558
|
|
207,395,818
|
|
203,490,593
|
|
|
|
|
|
|
|
|
Other comprehensive
income:
|
|
|
|
|
|
|
|
Foreign currency
translation adjustments
|
221
|
|
293
|
|
786
|
|
316
|
Comprehensive
income
|
$
16,707
|
|
$
16,219
|
|
$
52,552
|
|
$
51,456
|
|
|
|
|
|
|
|
|
SWITCH, LTD. AND
SUBSIDIARIES
|
Reconciliation of
Net Income to Adjusted EBITDA
|
For the Three and
Nine Months Ended September 30, 2017
|
(in
thousands)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
|
|
|
|
|
(in
thousands)
|
|
|
(in
thousands)
|
Adjusted
EBITDA:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
16,486
|
|
$
15,926
|
|
|
$
51,766
|
|
$
51,140
|
Interest
expense
|
|
8,856
|
|
2,273
|
|
|
17,789
|
|
6,850
|
Interest
income
|
|
(17)
|
|
(66)
|
|
|
(36)
|
|
(20)
|
Depreciation and
amortization
|
|
22,890
|
|
16,454
|
|
|
64,676
|
|
47,589
|
(Gain) loss on
disposal of property and equipment
|
|
(13)
|
|
319
|
|
|
24
|
|
718
|
Equity-based
compensation
|
|
1,315
|
|
1,224
|
|
|
4,879
|
|
4,912
|
Equity in net loss of
investments
|
|
221
|
|
1,260
|
|
|
955
|
|
3,814
|
Loss on
extinguishment of debt
|
|
-
|
|
-
|
|
|
3,565
|
|
-
|
Gain on lease
termination
|
|
-
|
|
(2,801)
|
|
|
-
|
|
(2,801)
|
Adjusted
EBITDA
|
|
$
49,738
|
|
$
34,589
|
|
|
$
143,618
|
|
$
112,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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SOURCE Switch, Inc.