Switch Announces Second Quarter 2022 Financial Results
Switch reported Q2 2022 revenue of $168.2 million, a 19% increase year-over-year. Net income surged to $380.7 million, driven by a $372.8 million gain from a tax agreement termination. Adjusted EBITDA was $84.6 million, reflecting a 7% growth but a decline in margin to 50.3%. Organic growth was 12%. The company is accelerating its development pipeline, with a total contract value of $104 million. A cash dividend of $0.0525 per share was declared, payable September 1, 2022.
- Revenue growth of 19% year-over-year.
- Net income increased to $380.7 million, benefiting from a significant tax agreement gain.
- Incremental annualized revenue bookings of $22 million.
- Total contract value for the quarter at $104 million.
- Accelerated development pipeline to meet high customer demand.
- Adjusted EBITDA margin decreased to 50.3%, down 550 basis points year-over-year.
- Income from operations declined 15% compared to Q2 2021.
Revenue of
Revenue Growth of
Incremental Annualized Revenue Bookings of
LAS VEGAS, Aug. 8, 2022 /PRNewswire/ -- Switch, Inc. (NYSE: SWCH) ("Switch") today announced financial results for the quarter ended June 30, 2022.
"Switch continued to execute favorably on its robust sales pipeline and maintained a strong growth trajectory in the second quarter of 2022," said Rob Roy, Founder and CEO of Switch. "Customer demand remains elevated across the five Primes and pre-sales continue to improve with respect to facilities that are currently under construction. To meet this high level of demand, we are accelerating our long-term development pipeline to deliver more than four million square feet of capacity through 2026, with enough land to construct an additional seven million square feet thereafter. In addition, LAS VEGAS 15 is pacing well ahead of historical fill rates as the first two sectors are now substantially committed to clients. Additionally, we have pre-sold multiple megawatts at the TAHOE RENO 2 facility scheduled to come online in the first half of 2023."
Second Quarter 2022 Financial Results
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Financial Summary ($ in millions, except per share amounts) | Q2 2021 | Q1 2022 | Q2 2022 | Y/Y% Change | Q/Q% Change | |
Consolidated revenue | $ 141.7 | $ 164.6 | $ 168.2 | 19 % | 2 % | |
Switch revenue (excluding Data Foundry) | $ 138.4 | $ 152.3 | $ 155.4 | 12 % | 2 % | |
Data Foundry revenue | $ 3.3 | $ 12.3 | $ 12.8 | n.m. | 4 % | |
Income from operations | $ 24.8 | $ 27.2 | $ 21.2 | -15 % | -22 % | |
Net income1 | $ 9.7 | $ 23.9 | $ 380.7 | n.m. | n.m. | |
Net income per diluted share1 | $ 0.03 | $ 0.08 | $ 1.51 | n.m. | n.m. | |
Adjusted net income per diluted share | $ 0.04 | $ 0.04 | $ 0.02 | -56 % | -55 % | |
Adjusted EBITDA | $ 79.0 | $ 86.8 | $ 84.6 | 7 % | -3 % | |
Adjusted EBITDA Margin % | 55.7 % | 52.7 % | 50.3 % | -550 bp | 240 bp | |
Adjusted Funds from Operations | $ 64.3 | $ 70.3 | $ 66.4 | 3 % | -6 % | |
Key Performance Indicators | Q2 2021 | Q1 2022 | Q2 2022 | LTM Average | ||
Total Contract Value | $ 80.6 | $ 159.5 | $ 104.0 | |||
Annualized Monthly Recurring Revenue | $ 23.6 | $ 47.8 | $ 37.4 | |||
Incremental Annualized Revenue | $ 15.9 | $ 19.9 | $ 22.3 | |||
Weighted Average Term (yrs) | 3.8 | 4.2 | 3.1 | 4.3 | ||
1Q2 2022 net income and net income per diluted share include a | ||||||
"We are pleased with our strong second quarter results, and remain focused on executing upon our operational goals while making continued progress toward closing the previously announced go-private transaction with DigitalBridge and IFM," said Thomas Morton, President of Switch. "We would like to thank our public shareholders for their overwhelming support of the go-private transaction at the recent special meeting on August 4th. Switch's Board of Directors and senior management team continue to believe this deal delivers tremendous value to all stakeholders in our company."
"Our second quarter 2022 revenue growth reflects the continued strong demand for our premium data center solutions and the benefit of favorable sales execution," said Gabe Nacht, CFO of Switch. "Anomalous elevated power costs due to extraordinary world events affected Q2 margins, which we expect to continue during the third quarter. While we and our clients have seen an increase in power costs, our contracts are structured to allow us to recover increases in power, which combined with our hedging strategy, will enable Switch to recapture these costs over time."
Update on Pending Transaction with DigitalBridge and IFM
Switch previously announced it has entered into a definitive agreement with DigitalBridge Group, Inc., under which DigitalBridge Partners II and an affiliate of global infrastructure investor IFM Investors will acquire all outstanding common shares of Switch for
Second Quarter 2022 Operating Results
Switch reported consolidated second quarter 2022 revenue of
Balance Sheet and Liquidity
As of June 30, 2022, Switch's net debt was
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(1) | Net debt is calculated as total debt outstanding, including finance lease liabilities, of |
(2) | Annualized Adjusted EBITDA is calculated as second quarter 2022 Adjusted EBITDA multiplied by four. |
Capital Expenditures and Development
Capital expenditures for the second quarter totaled
During the quarter ended June 30, 2022, Switch capital expenditures were incurred as follows: (i)
Dividend
Switch announced today that its Board of Directors has declared a cash dividend of
Future declarations of 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
- Signed a four megawatt expansion order with an existing Fortune 50 global technology customer at The Core Campus and The Keep Campus representing
$7.5 million of incremental annualized revenue. - Signed a two megawatt expansion order with the streaming division of a Fortune 100 global media and entertainment customer at The Core Campus, totaling approximately
$3 million of incremental annualized revenue and$13 million in total contract value. - Signed a multi-year renewal and expansion with a leading global defense contractor at The Core Campus, representing approximately
$2 million of incremental annualized revenue and$15 million of total contract value inclusive of the renewal. - Signed a five-year renewal with a multi-trillion dollar global asset management company at The Core Campus totaling more than
$8 million in total contract value. - Signed an expansion order for both colocation and network services with an existing global logistics customer at The Core Campus and The Keep Campus totaling approximately
$4 million of incremental annualized revenue.
Use of Non-GAAP Financial Measures
To supplement Switch's condensed consolidated financial statements, which are prepared and presented in accordance with accounting principles generally accepted in the United States of America ("GAAP"), Switch uses Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Funds From Operations, adjusted net income attributable to Switch, Inc., adjusted net income per diluted share, net debt, and net debt to annualized Adjusted EBITDA, which are non-GAAP measures, in this press release. In addition, Switch presents revenue, excluding Data Foundry, which is also a non-GAAP measure. Switch defines Adjusted EBITDA as net income (loss) adjusted for interest expense, interest income, income taxes, depreciation and amortization of property and equipment, amortization of customer relationships, 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. Switch defines Adjusted Funds from Operations as net income (loss) adjusted for depreciation and amortization of property and equipment, amortization of customer relationships, noncash equity-based compensation, deferred income tax expense, unrealized loss (gain) on swaps, loss on debt extinguishment, gain on termination of tax receivable agreement, maintenance capital expenditures, and certain other items that Switch believes are not indicative of its core operating performance. Switch defines adjusted net income attributable to Switch, Inc. as net income (loss) adjusted for gain (loss) on swaps and gain on termination of tax receivable agreement, net of noncontrolling interest and income taxes calculated using the specific tax treatment applicable to the adjustments. Switch defines net debt as total debt outstanding, including finance lease liabilities, net of cash and cash equivalents. Switch defines net debt to last quarter annualized Adjusted EBITDA as net debt divided by quarterly Adjusted EBITDA multiplied by four. Switch uses net debt and net debt to last quarter annualized Adjusted EBITDA as measures to evaluate its net debt and leverage position. Switch believes that investors also may find such measures to be helpful in assessing its ability to pursue business opportunities and investments.
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 financial 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", "Reconciliation of Net Income to Adjusted Funds From Operations," and the "Reconciliation of Net Income Attributable to Switch, Inc. to Adjusted Net Income Attributable to Switch, Inc." tables 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 the company's expectations, strategy, plans or intentions. Forward-looking statements in this press release include, but are not limited to Switch's guidance relating to revenue, Adjusted EBITDA and capital expenditures for the year ending December 31, 2022; Switch's expectations regarding operating results, including the timing of revenue growth in 2022; Switch's expectations regarding its plans to pursue a conversion to a REIT structure, including the timing or completion of such conversion; Switch's estimated data center construction and opening timelines; Switch's expectations regarding customer demand and retention, market position, growth and financial results; and Switch's expectations regarding future declarations of dividends and cash distributions. 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 include, without limitation (i) the impact of COVID-19 and its variants on its business operations, including the duration, spread, severity, and reoccurrences of such pandemic, the duration and scope of related government orders and restrictions, the impact on its employees, and the impact on the global economy including demand for its customers, partners and vendors' products and services; (ii) the impact of COVID-19 and its variants on its vendors and suppliers, including disruptions and inefficiencies in the supply chain; (iii) its ability to successfully implement its business strategies and effectively manage its growth and expansion plans; (iv) delays or unexpected costs in development and opening of data center facilities; (v) any slowdown in demand for its existing data center resources; (vi) its ability to attract new customers, realize the anticipated benefits of its new contracts and achieve sufficient customer demand to realize future expected returns on its investments; (vii) its ability to effectively compete in the data center market; (viii) its ability to license space in its existing data centers; (ix) the geographic concentration of its data centers in certain markets; (x) local economic, credit and market conditions that impact its customers in these markets; (xi) the impact of delays or disruptions in third-party network connectivity; (xii) developments in the technology and data center industries in general that negatively impact Switch, including development of new technologies, adoption of new industry standards, declines in the technology industry or slowdown in the growth of the Internet; (xiii) its ability to adapt to evolving technologies and customer demands in a timely and cost-effective manner; (xiv) its ability to obtain necessary capital to fund its capital requirements and its ability to continue to comply with covenants and terms in its credit instruments; (xv) fluctuations in interest rates and increased operating costs, including power costs; (xvi) significant disruptions, security breaches, including cyber security breaches, or system failures at any of its data center facilities; (xvii) loss of significant customers or key personnel; (xviii) the impact of future changes in legislation and regulations, including changes in real estate and zoning laws, the Americans with Disabilities Act of 1990, environmental and other laws that impact its business and industry, in addition to those under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in Switch's most recent Annual Report on Form 10-K and in Switch's other reports filed with the Securities and Exchange Commission ("SEC"). Switch's SEC filings are available on the Investors section of Switch's website at 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
Switch (NYSE: SWCH), is the independent leader in exascale data center ecosystems, edge data center designs, industry-leading telecommunications solutions and next-generation technology innovation. Switch Founder and CEO Rob Roy has developed more than 700 issued and pending patent claims covering data center designs that have manifested into the company's world-renowned data centers and technology solutions.
We innovate to sustainably progress the digital foundation of the connected world with a focus on enterprise-class and emerging hybrid cloud solutions. The Switch PRIMEs, located in Las Vegas and Tahoe Reno, Nevada; Grand Rapids, Michigan; Atlanta, Georgia; and Austin, Texas are the world's most powerful exascale data center campus ecosystems with low latency to major U.S. markets. Visit switch.com for more information or follow us on LinkedIn and Twitter.
Switch, Inc.
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June 30, | December 31, | ||
(unaudited) | |||
ASSETS | |||
CURRENT ASSETS: | |||
Cash and cash equivalents | $ 31,226 | $ 48,325 | |
Restricted cash | — | 1,890 | |
Accounts receivable, net of allowance for credit losses of | 20,597 | 18,368 | |
Prepaid expenses | 8,470 | 10,265 | |
Other current assets, net of allowance for credit losses of | 6,539 | 4,624 | |
Total current assets | 66,832 | 83,472 | |
Property and equipment, net | 2,386,870 | 2,237,059 | |
Long-term deposit | 38,741 | 13,504 | |
Deferred income taxes | 328,389 | 295,699 | |
Intangible assets, net | 123,342 | 125,758 | |
Goodwill | 106,350 | 106,350 | |
Other assets, net of allowance for credit losses of | 59,583 | 56,776 | |
TOTAL ASSETS | $ 3,110,107 | $ 2,918,618 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
CURRENT LIABILITIES: | |||
Long-term debt, current portion | $ 4,000 | $ 4,000 | |
Accounts payable | 35,691 | 55,262 | |
Accrued salaries and benefits | 10,075 | 6,786 | |
Accrued interest | 8,646 | 8,577 | |
Accrued expenses and other | 18,878 | 18,285 | |
Accrued construction payables | 28,946 | 31,093 | |
Deferred revenue, current portion | 21,395 | 16,905 | |
Customer deposits | 16,998 | 16,335 | |
Swap liability, current portion | 1,796 | 8,062 | |
Operating lease liability, current portion | 3,138 | 3,281 | |
Liabilities under tax receivable agreement, current portion | 75,108 | — | |
Total current liabilities | 224,671 | 168,586 | |
Long-term debt, net | 1,780,904 | 1,611,962 | |
Operating lease liability | 31,276 | 32,157 | |
Finance lease liability | 57,316 | 57,376 | |
Deferred revenue | 23,854 | 25,921 | |
Liabilities under tax receivable agreement | — | 395,615 | |
Other long-term liabilities | 935 | 8,360 | |
TOTAL LIABILITIES | 2,118,956 | 2,299,977 | |
Commitments and contingencies | |||
STOCKHOLDERS' EQUITY: | |||
Preferred stock, | — | — | |
Class A common stock, | 151 | 145 | |
Class B common stock, | 94 | 98 | |
Class C common stock, | — | — | |
Additional paid in capital | 392,972 | 352,984 | |
Retained earnings (accumulated deficit) | 350,567 | (23,022) | |
Accumulated other comprehensive loss | (568) | (568) | |
Total Switch, Inc. stockholders' equity | 743,216 | 329,637 | |
Noncontrolling interest | 247,935 | 289,004 | |
TOTAL STOCKHOLDERS' EQUITY | 991,151 | 618,641 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 3,110,107 | $ 2,918,618 | |
Switch, Inc.
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Three Months Ended June 30, | Six Months Ended June 30, | ||||||
2022 | 2021 | 2022 | 2021 | ||||
Revenue | $ 168,185 | $ 141,690 | $ 332,794 | $ 272,556 | |||
Cost of revenue | 101,352 | 76,994 | 195,843 | 148,687 | |||
Gross profit | 66,833 | 64,696 | 136,951 | 123,869 | |||
Selling, general and administrative expense | 45,647 | 39,875 | 88,518 | 74,873 | |||
Income from operations | 21,186 | 24,821 | 48,433 | 48,996 | |||
Other income (expense): | |||||||
Interest expense, including | (14,186) | (10,198) | (27,383) | (18,955) | |||
Gain (loss) on swaps | 2,353 | (2,970) | 16,002 | 235 | |||
Equity in net losses of investments | — | (379) | — | (599) | |||
Gain on sale of equity method investment | — | — | — | 5,374 | |||
Gain on termination of tax receivable agreement | 372,784 | — | 372,784 | — | |||
Other | 405 | 321 | 880 | 3,592 | |||
Total other income (expense) | 361,356 | (13,226) | 362,283 | (10,353) | |||
Income before income taxes | 382,543 | 11,595 | 410,717 | 38,643 | |||
Income tax expense | (1,803) | (1,911) | (6,043) | (4,565) | |||
Net income | 380,740 | 9,684 | 404,674 | 34,078 | |||
Less: net income attributable to noncontrolling interest | 3,905 | 5,323 | 15,046 | 18,076 | |||
Net income attributable to Switch, Inc. | $ 376,835 | $ 4,361 | $ 389,628 | $ 16,002 | |||
Net income per share: | |||||||
Basic | $ 2.51 | $ 0.03 | $ 2.62 | $ 0.12 | |||
Diluted | $ 1.51 | $ 0.03 | $ 1.60 | $ 0.12 | |||
Weighted average shares used in computing net income per share: | |||||||
Basic | 150,036 | 130,163 | 148,861 | 128,412 | |||
Diluted | 251,089 | 245,527 | 250,422 | 131,660 | |||
Other comprehensive loss: | |||||||
Foreign currency translation adjustment, net of reclassification adjustment and tax of | — | — | — | (474) | |||
Comprehensive income | 380,740 | 9,684 | 404,674 | 33,604 | |||
Less: comprehensive income attributable to noncontrolling interest | 3,905 | 5,323 | 15,046 | 17,663 | |||
Comprehensive income attributable to Switch, Inc. | $ 376,835 | $ 4,361 | $ 389,628 | $ 15,941 | |||
Switch, Inc.
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Three Months Ended | |||||
June 30, | March 31, | June 30, | |||
Net income | $ 380,740 | $ 23,934 | $ 9,684 | ||
Interest expense | 14,186 | 13,197 | 10,198 | ||
Interest income | (43) | (37) | (38) | ||
Income tax expense | 1,803 | 4,240 | 1,911 | ||
Depreciation and amortization of property and equipment | 49,509 | 47,833 | 41,285 | ||
Amortization of customer relationships | 1,563 | 1,562 | 417 | ||
Loss on disposal of property and equipment | 45 | 193 | 372 | ||
Equity-based compensation | 6,980 | 6,681 | 7,528 | ||
(Gain) loss on swaps | (2,353) | (13,649) | 2,970 | ||
REIT and related restructuring/strategic initiatives | 4,700 | 2,839 | — | ||
Litigation expense | 215 | — | — | ||
Gain on termination of tax receivable agreement | (372,784) | — | — | ||
Equity in net losses of investments | — | — | 379 | ||
Acquisition-related costs | — | — | 4,263 | ||
Adjusted EBITDA | $ 84,561 | $ 86,793 | $ 78,969 | ||
Switch, Inc. Reconciliation of Net Income to Adjusted Funds From Operations (in thousands) (unaudited)
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Three Months Ended | |||||
June 30, | March 31, | June 30, | |||
Net income | $ 380,740 | $ 23,934 | $ 9,684 | ||
Deferred income taxes | 1,803 | 4,240 | 1,911 | ||
Depreciation and amortization of property and equipment | 49,509 | 47,833 | 41,285 | ||
Amortization of customer relationships | 1,563 | 1,562 | 417 | ||
Loss on disposal of property and equipment | 45 | 193 | 372 | ||
Maintenance capital expenditures | (1,483) | (1,833) | (3,562) | ||
Equity-based compensation | 6,980 | 6,681 | 7,528 | ||
Unrealized (gain) loss on swaps | (4,091) | (15,994) | 563 | ||
Amortization of deferred financing costs | 662 | 662 | 620 | ||
Installation adjustment, net | (531) | 689 | 654 | ||
Other adjustments, net | (965) | (534) | 141 | ||
REIT and related restructuring/strategic initiatives | 4,700 | 2,839 | — | ||
Litigation expense | 215 | — | — | ||
Gain on termination of tax receivable agreement | (372,784) | — | — | ||
Equity in net losses of investments | — | — | 379 | ||
Acquisition-related costs | — | — | 4,263 | ||
Adjusted Funds From Operations | $ 66,363 | $ 70,272 | $ 64,255 | ||
Switch, Inc.
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Three Months Ended | |||||
June 30, 2022 | March 31, 2022 | June 30, 2021 | |||
Net income attributable to Switch, Inc. | $ 376,835 | $ 12,793 | $ 4,361 | ||
(Gain) loss on swaps | (2,353) | (13,649) | 2,970 | ||
Gain on termination of tax receivable agreement | (372,784) | — | — | ||
Income tax impact on adjustments(1) | 304 | 1,733 | (339) | ||
Noncontrolling interest impact on adjustments | 904 | 5,397 | (1,354) | ||
Adjusted net income attributable to Switch, Inc. | $ 2,906 | $ 6,274 | $ 5,638 | ||
Adjusted net income per share—diluted | $ 0.02 | $ 0.04 | $ 0.04 | ||
Weighted average shares used in computing adjusted net income per share—diluted | 156,432 | 153,265 | 134,190 | ||
________________________________________ (1) The income tax impact is derived by applying the U.S. statutory tax rate to Switch, Inc.'s portion of the adjustment. | |||||
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SOURCE Switch, Inc.
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