Le Lézard
Classified in: Science and technology, Business
Subjects: ERN, CCA, ERP, TDS, DIV

Switch Announces Third Quarter 2018 Financial Results


LAS VEGAS, Nov. 13, 2018 /PRNewswire/ -- Switch, Inc. (NYSE: SWCH) ("Switch") today announced financial results for the quarter ended September 30, 2018.

"In the first year as a public company, Switch continued to establish the Switch PRIME campus locations as hyperscale technology infrastructure ecosystems, competitively positioned to support strategic enterprise deployments," said Rob Roy, CEO, chairman and founder of Switch.  "We firmly believe that we are well aligned with industry dynamics, and uniquely positioned to jump start enterprise migration into a hybrid cloud environment."

Third Quarter 2018 Summary

(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.

"Switch signed over 450 contracts in the third quarter of 2018, equating to over 18 megawatts, with total contract value of approximately $135 million," said Thomas Morton, president of Switch. "As we increase capacity of colocation space, we continue adding new logos, while existing customers continue to expand their deployments within the Switch ecosystem."

"Switch is capitalizing on the opportunities ahead of us, while maintaining focus on our long-term business model," said Gabe Nacht, CFO of Switch. "We are a strategic partner to approximately 900 customers and we continue adding customers and partners as we ramp the Citadel PRIME and the Pyramid PRIME, and continue construction on our Keep PRIME in Atlanta, which will open in the fourth quarter of 2019."

Balance Sheet and Liquidity

As of September 30, 2018, Switch's total debt outstanding, including capital lease obligations, net of cash and cash equivalents was $503.2 million, resulting in a net debt to last quarter annualized Adjusted EBITDA ratio of 2.5x.  As of September 30, 2018, Switch had liquidity of $604.5 million, including cash and cash equivalents and availability under its revolving line of credit.

Capital Expenditures and Development

Capital expenditures for the third quarter totaled $60.4 million.  Growth capital expenditures were $57.1 million for the third quarter of 2018, compared to $63.7 million for the same quarter last year. Maintenance capital expenditures were $3.3 million for the third quarter of 2018, compared to $0.4 million for the same quarter last year.  During the third quarter of 2018, Switch invested (i) $35.8 million in The Core Campus, primarily on its LAS VEGAS 11 facility, which is planned to open in late 2018 or early 2019, adding another 340,000 gross square feet, (ii) $12.7 million in The Citadel Campus to support additional customer deployments in its open sectors, (iii) $4.5 million for additional expansion in The Pyramid Campus, and (iv) $7.3 million on site development at The Keep Campus, which is scheduled to open in late 2019.

Dividend

Switch today announced that its Board of Directors has declared a cash dividend of $0.0147 per share of Switch's Class A common stock for the third quarter of 2018. The dividend will be payable on December 6, 2018 to all stockholders of record as of the close of business on November 26, 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 the 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 the Board of Directors deems relevant.

2018 Guidance

Switch full year guidance remains unchanged:

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, 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.

Upcoming Conferences and Events

Switch management will participate in the following investor conferences:

Conference Call Information

Switch will host a conference call and live webcast for analysts and investors at 5:00 p.m. Eastern time on November 13, 2018. Parties in the United States and Canada can access the call by dialing 877-830-2636, using conference code 2089288.  International parties can access the call by dialing 785-424-1802, using conference code 2089288.

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 Tuesday, November 20, 2018. To access the replay, parties in the United States and Canada should call 888-203-1112 and enter conference code 2089288.  International parties should call 719-457-0820 and enter conference code 2089288.

Presentation of Financial Information

This press release includes historical consolidated results for the periods presented of Switch, Ltd. and its subsidiaries, the predecessor of Switch, Inc., for financial reporting purposes. Amounts for the period from January 1, 2017 through September 30, 2017 presented in the consolidated financial statements herein represent the historical operations of Switch, Ltd. and its subsidiaries.

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 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 Net Income to Adjusted EBITDA" table in this press release.

Forward-Looking Statements

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 year ending December 31, 2018 and Switch's expectations regarding the evolution of its marketplace, the timing for the opening of its LAS VEGAS 11 facility, statements regarding future declarations of quarterly dividends and customer deployment plans. 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. The 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 Switch's Annual Report on Form 10-K for the year ended December 31, 2017 and in Switch's 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 Switch disclaims any obligation to update any forward-looking statements 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

POWERING THE FUTURE OF THE CONNECTED WORLD®

Switch (NYSE: SWCH), the technology infrastructure corporation headquartered in Las Vegas, Nevada is built on the intelligent and sustainable growth of the internet. Switch founder and CEO Rob Roy has developed more than 550 issued and pending patent claims covering data center designs that have manifested into the company's world-renowned data centers and technology solution ecosystems.

The Switch PRIMES located in Las Vegas and Tahoe Reno, Nevada; Grand Rapids, Michigan; and Atlanta, Georgia are the world's highest-rated hyperscale data center campus ecosystems with low latency to major U.S. markets. The Switch PRIMES are located in the most cost-effective area of each North American zone based on power, connectivity, taxes, cost of living and lower risk of natural disasters. Visit switch.com for more information.

Investor Contact:
Matthew Heinz
VP of Investor Relations and FP&A
[email protected]
(702) 479-3993


Switch, Inc.

Consolidated Balance Sheets

(in thousands, except for per share data)



September 30,
 2018


December 31,
 2017


(Unaudited)



ASSETS




CURRENT ASSETS:




Cash and cash equivalents

$

104,511



$

264,666


Accounts receivable, net of allowance of $314 and $472, respectively

14,196



16,386


Prepaid expenses

3,932



5,037


Other current assets

3,091



2,101


Total current assets

125,730



288,190


Property and equipment, net

1,281,057



1,133,572


Long-term deposit

4,288



3,842


Deferred income taxes

20,854



981


Other assets

14,871



8,174


TOTAL ASSETS

$

1,446,800



$

1,434,759






LIABILITIES AND STOCKHOLDERS' EQUITY




CURRENT LIABILITIES:




Long-term debt, current portion

$

5,194



$

5,194


Accounts payable

22,158



18,934


Accrued salaries and benefits

9,971



5,211


Accrued expenses

9,340



6,469


Accrued construction payables

17,060



7,052


Deferred revenue, current portion

9,921



11,482


Customer deposits

9,704



8,634


Capital lease obligations, current portion

333



2,309


Total current liabilities

83,681



65,285


Long-term debt, net

582,671



586,566


Capital lease obligations

19,466



19,466


Deferred revenue

20,912



19,382


Liabilities under tax receivable agreement

45,430



?


Other long-term liabilities

1,852



1,927


TOTAL LIABILITIES

754,012



692,626


Commitments and contingencies




STOCKHOLDERS' EQUITY:




Preferred stock, $0.001 par value per share, 10,000 shares authorized, none issued and outstanding

?



?


Class A common stock, $0.001 par value per share, 750,000 shares authorized, 52,083 and 35,938 shares issued and outstanding, respectively

52



36


Class B common stock, $0.001 par value per share, 300,000 shares authorized, 151,616 and 173,624 shares issued and outstanding, respectively

152



174


Class C common stock, $0.001 par value per share, 75,000 shares authorized, 42,945 shares issued and outstanding

43



43


Additional paid in capital

128,468



107,008


Retained earnings

981



1,602


Accumulated other comprehensive income

79



31


Total Switch, Inc. stockholders' equity

129,775



108,894


Non-controlling interest

563,013



633,239


TOTAL STOCKHOLDERS' EQUITY

692,788



742,133


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

1,446,800



$

1,434,759





Switch, Inc.

Consolidated Statements of Comprehensive Income

(in thousands, except for per share/unit data)



Three Months Ended
September 30,


Nine Months Ended
September 30,


2018


2017


2018


2017


(Unaudited)

Revenue

$

102,768



$

97,689



$

302,646



$

278,947


Cost of revenue

59,150



50,744



169,200



144,575


Gross profit

43,618



46,945



133,446



134,372


Selling, general and administrative expense

31,086



21,494



95,676



60,941


Income from operations

12,532



25,451



37,770



73,431


Other income (expense):








Interest expense, including $409, $403, $1,227, and $901, respectively, in amortization of debt issuance costs

(7,409)



(8,856)



(19,826)



(17,789)


Equity in net losses of investments

?



(221)



(331)



(955)


Loss on extinguishment of debt

?



?



?



(3,565)


Other

752



112



2,603



644


Total other expense

(6,657)



(8,965)



(17,554)



(21,665)


Income before income taxes

5,875



16,486



20,216



51,766


Income tax expense

(1,212)



?



(2,064)



?


Net income

4,663



16,486



18,152



51,766


Less: net income attributable to non-controlling interest

4,657



?



16,654



?


Net income attributable to Switch, Inc.

$

6



$

16,486



$

1,498



$

51,766










Net income per share/unit:








Basic

$

0.00



$

0.08



$

0.03



$

0.26


Diluted

$

0.00



$

0.08



$

0.03



$

0.25










Weighted average shares/units used in computing net income per share/unit:








Basic

50,669



200,747



43,063



200,416


Diluted

50,710



208,973



43,142



207,396










Dividends declared per common share

$

0.01



$

?



$

0.04



$

?










Other comprehensive income:








Foreign currency translation adjustment, before and after tax

?



221



331



786


Comprehensive income

4,663



16,707



18,483



52,552


Less: comprehensive income attributable to non-controlling interest

4,657



?



16,937



?


Comprehensive income attributable to Switch, Inc.

$

6



$

16,707



$

1,546



$

52,552





Switch, Inc.

Consolidated Statements of Cash Flows

(in thousands)



Nine Months Ended
September 30,


2018


2017


(Unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:




Net income

$

18,152



$

51,766


Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization of property and equipment

79,310



64,676


Loss on disposal of property and equipment

809



24


Income tax expense

2,064



?


Amortization of debt issuance costs

1,227



901


Bad debt expense

83



172


Loss on extinguishment of debt

?



2,065


Equity in net losses of investments

331



955


Equity-based compensation

28,194



4,879


Amortization of portfolio energy credits

1,999



64


Changes in operating assets and liabilities:




Accounts receivable

1,501



(3,363)


Prepaid expenses

1,105



(166)


Other current assets

(190)



(124)


Other assets

(3,108)



(748)


Accounts payable

938



1,840


Accrued salaries and benefits

4,760



4,743


Accrued expenses

2,871



(121)


Accrued impact fee expense

?



(27,018)


Deferred revenue

(31)



4,333


Customer deposits

1,070



1,000


Other long-term liabilities

(170)



(89)


Net cash provided by operating activities

140,915



105,789


CASH FLOWS FROM INVESTING ACTIVITIES:




Acquisition of property and equipment

(221,144)



(284,011)


Acquisition of intangible asset

(25)



(32)


Escrow deposit

?



(7,632)


Proceeds from sale of property and equipment

25



100


Proceeds from notes receivable

?



211


Purchase of portfolio energy credits

(1,999)



(64)


Net cash used in investing activities

(223,143)



(291,428)


CASH FLOWS FROM FINANCING ACTIVITIES:




Payment of tax withholdings upon settlement of restricted stock unit awards

(1,227)



?


Repurchase of common units

(60,644)



?


Proceeds from borrowings

?



976,000


Change in long-term deposit

(996)



?


Repayment of borrowings, including capital lease obligations

(4,500)



(621,300)


Debt issuance costs on new loan

?



(8,826)


Deferred offering costs paid

?



(893)


Settlement of option loans

314



?


Dividends paid to Class A common stockholders

(2,023)



?


Distributions paid to non-controlling interest/members

(8,851)



(174,063)


Net cash (used in) provided by financing activities

(77,927)



170,918


NET DECREASE IN CASH AND CASH EQUIVALENTS

(160,155)



(14,721)


CASH AND CASH EQUIVALENTS?Beginning of period

264,666



22,713


CASH AND CASH EQUIVALENTS?End of period

$

104,511



$

7,992





Switch, Inc.

Reconciliation of Net Income to Adjusted EBITDA

(in thousands)




Three Months Ended
September 30,


Nine Months Ended
September 30,



2018


2017


2018


2017



(Unaudited)

Net income


$

4,663



$

16,486



$

18,152



$

51,766


Interest expense


7,409



8,856



19,826



17,789


Interest income


(575)



(17)



(2,001)



(36)


Income tax expense


1,212



?



2,064



?


Depreciation and amortization of property and equipment


28,989



22,890



79,310



64,676


Loss (gain) on disposal of property and equipment


182



(13)



809



24


Equity-based compensation


7,628



1,315



28,194



4,879


Equity in net losses of investments


?



221



331



955


Shareholder-related litigation expense


1,384



?



1,384



?


Loss on extinguishment of debt


?



?



?



3,565


Adjusted EBITDA


$

50,892



$

49,738



$

148,069



$

143,618


 

(PRNewsfoto/Switch, Inc.)

 

SOURCE Switch, Inc.


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