Switch, Inc. (NYSE: SWCH) (“Switch”) today announced financial results for the quarter ended March 31, 2018.
“Switch continues to execute on its market expansion strategy,” said Rob Roy, CEO, chairman and founder of Switch. “We are excited about our growth prospects in 2018 in our Citadel and Pyramid Primes, and the continued growth in our Core Campus.”
First Quarter 2018 Financial Results
- Total revenue of $97.7 million, compared to $89.2 million for the same quarter in 2017, an increase of 10%.
- Operating income of $9.4 million, compared to $24.4 million for the same quarter last year, a decrease of 61%. Operating income in the first quarter of 2018 includes the impact of $12.4 million in equity-based compensation expense compared with $2.3 million in equity-based compensation expense in the same quarter of 2017. A significant portion of this equity-based compensation expense in the first quarter of 2018 relates to the continued vesting of Common Unit awards granted in connection with Switch’s initial public offering. Operating Income in Q1 2018 also includes $4.6 million in additional depreciation from assets placed into service and $1.8 million in additional direct labor costs from hiring during the past year.
- Net income of $4.0 million, compared to $20.3 million for the same quarter in 2017. Net income in the first quarter of 2018 includes $12.4 million in equity-based compensation expense compared with $2.3 million in equity-based compensation expense in the same quarter of 2017.
- Adjusted EBITDA of $46.9 million, compared to $47.1 million for the same quarter in 2017. Adjusted EBITDA margin of 48.0%, compared to 52.8% for the same quarter in 2017, a decrease of 480 basis points.
- Capital expenditures of $61.4 million, compared to $107.0 million in the same quarter in 2017, a decrease of 43%.
- Churn of 0.1%, flat compared to the same quarter in 2017.(1)
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.
“We are pleased with our progress in growing our ecosystem and positioning Switch as a partner of choice for global enterprises,” said Thomas Morton, president and general counsel of Switch. “Our highly differentiated and strategically located campus ecosystems continue to attract primary deployments, while our unique telecom capabilities enable hybrid cloud environments and hyperscale cloud deployments with AWS Direct Connect, Microsoft Express Route, and Google Cloud Interconnect.”
Gabe Nacht, CFO of Switch, added, “Switch offers its clients significant expansion capacity and compelling cost savings at the highest rated resiliency data centers in the world. We have a strong track record of consistent growth as we continue to attract global enterprises to our world class facilities.”
Balance Sheet and Liquidity
As of March 31, 2018, Switch’s total debt outstanding net of cash and cash equivalents was $374 million, resulting in a net debt to last quarter annualized Adjusted EBITDA ratio of 2.0x. As of March 31, 2018, Switch had liquidity of $739 million including cash and cash equivalents and availability under its revolving line of credit.
Capital Expenditures and Development
Capital expenditures for the first quarter totaled $61.4 million. Maintenance capital expenditure was $0.9 million for the first quarter of 2018, compared to $1.0 million in the same period last year. Growth capital expenditure was $60.5 million for the first quarter of 2018, compared to $106.0 million in the same period last year. During the first quarter of 2018, Switch spent $19.5 million in The Core Campus to expand power and cooling in LAS VEGAS 10 and the continued site work and building of the shell on its LAS VEGAS 11 facility, which is planned to open in late 2018 or early 2019, adding another 340,000 gross square feet. Switch also invested $36.0 million in The Citadel Campus to support additional power and cooling for continued sector expansion. Switch spent $4.3 million for additional expansion in The Pyramid Campus. Finally, Switch spent $1.6 million on site development at The Keep Campus, which is scheduled to open in 2019.
Switch today announced that Switch’s Board of Directors has declared a cash dividend of $0.0147per share of Switch’s Class A common stock for the second quarter of 2018. The dividend will be payable on June 8, 2018 to all stockholders of record as of the close of business on May 29, 2018. Prior to the payment of this dividend, Switch, Ltd. will make a cash distribution to all holders of record of common units of Switch, Ltd., including Switch, of $0.0147 per common unit.
Future declarations of quarterly dividends are subject to the determination and discretion of Switch’s Board of Directors based on its consideration of many factors, including Switch’s results of operations, financial condition, capital requirements, restrictions in Switch, Ltd.’s debt agreements and other factors that Switch’s Board of Directors deems relevant.
Recent Business Highlights
- Announced a 15MW colocation deal with an international streaming media corporation that plans to use Switch’s North American PRIME data centers as a worldwide distribution hub for its services. The company plans to go live at Switch’s facilities in Nevada in July of this year.
- Signed additional contracts at The Pyramid Campus in Grand Rapids, MI, with a large electric utility company and a major debit and credit card processor.
- Advanced its intellectual property with the USPTO allowing 3 additional patents. Switch also filed an additional 4 patents on new innovative technology for its industry, bringing Switch’s total patents and pending claims to date to more than 500.
Switch is maintaining its full year guidance, which is as follows:
- Total revenue in the range of $423 million to $440 million.
- Adjusted EBITDA in the range of $216 million to $224 million.
- Capital expenditures in the range of $260 million to $310 million.
Switch does not provide reconciliations for the non-GAAP financial measures included in the 2018 guidance above due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including net income, 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 Switch’s calculations of Adjusted EBITDA.