Las Vegas-based data center Switch, Inc. (NYSE: SWCH), which operates the largest data storage campus in the world in the Tahoe Reno Industrial Center (TRIC), announced Monday its record 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% and a record for the company.
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 percent, and in our connectivity business, which was up 19 percent. 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."
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 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 million in the same period last year.
During the third quarter of 2017, Switch spent $37.6 million in The Core Campus in Las Vegas 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 in TRIC 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 in Grand Rapids, Mich.
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.
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