Switch Announces Third Quarter 2022 Financial Results
Switch, Inc. reported Q3 2022 revenue of $174.5 million, marking a 10% year-over-year growth. Despite revenue gains, the company faced a net loss of $0.2 million and a decline in Adjusted EBITDA to $69.5 million, down 10% from the previous year. The Adjusted EBITDA margin decreased to 40% due to increased power costs. The company secured $21 million in annualized revenue since Q2 and anticipates future growth from upcoming facility openings. A pending transaction with Digital Bridge and IFM is set to close by year-end.
- Revenue growth of 10% year-over-year.
- Secured $21 million in annualized revenue since Q2 2022, indicating strong sales activity.
- Ongoing demand for data center infrastructure, with multiple megawatts pre-sold for upcoming facilities.
- Net loss of $0.2 million, indicating financial challenges.
- Adjusted EBITDA decreased by 10% year-over-year, signaling operational cost pressures.
- Adjusted EBITDA margin dropped to 40% due to elevated power costs.
Revenue of
Revenue Growth of
Signed
LAS VEGAS, Nov. 9, 2022 /PRNewswire/ -- Switch, Inc. (NYSE: SWCH) ("Switch") today announced financial results for the quarter ended September 30, 2022.
"Switch maintained a strong double-digit revenue growth trajectory in the third quarter of 2022," said Rob Roy, Founder and CEO of Switch. "Our sales pipeline remains active as we continue to have good visibility on customer demand for facilities that are currently under construction across the Five Primes. LAS VEGAS 15 is substantially committed to clients just six months after its opening, and we have pre-sold multiple megawatts at the TAHOE RENO 2 and ATLANTA 3 facilities which are on track for delivery in H1 2023 and H2 2023, respectively. In addition, we remain committed to our long-term development plan to deliver more than four million square feet of capacity through 2026, with enough land to construct an additional seven million square feet thereafter."
Third Quarter 2022 Financial Results
Financial Summary ($ in millions, except per share amounts) | Q3 2021 | Q2 2022 | Q3 2022 | Y/Y% Change | Q/Q% Change | |
Consolidated revenue | $ 158.1 | $ 168.2 | $ 174.5 | 10 % | 4 % | |
Income from operations | $ 17.8 | $ 21.2 | $ 7.5 | -58 % | -65 % | |
Net (loss) income1 | $ (0.9) | $ 380.7 | $ (0.2) | n.m. | n.m. | |
Net (loss) income per diluted share1 | $ (0.00) | $ 1.51 | $ (0.00) | n.m. | n.m. | |
Adjusted net (loss) income per diluted share | $ 0.01 | $ 0.02 | $ (0.03) | n.m. | n.m. | |
Adjusted EBITDA | $ 76.9 | $ 84.6 | $ 69.5 | -10 % | -18 % | |
Adjusted EBITDA Margin % | 49 % | 50 % | 40 % | -880 bp | -1,050 bp | |
Adjusted Funds from Operations | $ 51.1 | $ 66.4 | $ 56.4 | 10 % | -15 % | |
Key Performance Indicators | Q3 2021 | Q2 2022 | Q3 2022 | LTM Average | ||
Total Contract Value | $ 94.1 | $ 104.0 | $ 63.3 | |||
Annualized Monthly Recurring Revenue | $ 26.9 | $ 37.4 | $ 21.9 | |||
Incremental Annualized Revenue | $ 16.2 | $ 22.3 | $ 8.1 | |||
Weighted Average Term (yrs) | 4.3 | 3.1 | 3.6 | 4.1 | ||
1Q2 2022 net income and net income per diluted share include a |
"We are pleased with our team's strong execution during a challenging macroeconomic period, as we continue to deliver the most resilient technology infrastructure to meet our clients' mission critical demands," said Thomas Morton, President of Switch. "Management remains focused on achieving its operational goals while making continued progress toward closing our go-private transaction with Digital Bridge and IFM. Switch's Board of Directors and senior management team continue to believe in the merits of this transaction and its tremendous benefits to all stakeholders in the company."
"The continued strength in top line growth during the third quarter is reflective of ongoing robust market demand for our premium data center infrastructure," said Gabe Nacht, CFO of Switch. "Elevated power costs continued to affect margins in Q3, in part due to seasonal factors which we expect to moderate in the fourth quarter. While power costs remain elevated on a year-over-year basis, we continue to engage in pricing and hedging strategies to mitigate the impact of higher electricity rates."
Update on Pending Transaction with Digital Bridge 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
Third Quarter 2022 Operating Results
Switch reported consolidated third quarter 2022 revenue of
Balance Sheet and Liquidity
As of September 30, 2022, Switch's net debt was
________________________________________
(1) | Net debt is calculated as total debt outstanding, including finance lease liabilities, of |
(2) | Annualized Adjusted EBITDA is calculated as third quarter 2022 Adjusted EBITDA multiplied by four. |
Capital Expenditures and Development
Capital expenditures for the third quarter totaled
During the quarter ended September 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
- Switch signed over
$8 million in incremental annualized revenue during the third quarter representing$63 million in total contract value. Subsequent to quarter-end, Switch has signed an additional$13 million of incremental annualized revenue, including a three-megawatt expansion with an existing cloud infrastructure customer at the LAS VEGAS 15 facility and a two-megawatt expansion with a cybersecurity customer with deployments in The Core Campus and The Citadel campus. - Completed a CORE telecom services agreement with an existing healthcare technology customer, providing connectivity solutions for its nationwide network of office locations. The agreement represents over
$1 million of incremental annualized revenue and approximately$4 million in total contract value. - Executed a CORE telecom services agreement with a global lumber supply company at The Pyramid Campus representing over
$1 million of incremental annualized revenue and approximately$4 million in total contract value. - Signed a multi-year renewal for network and telecommunications services with a Fortune 500 biotechnology firm at The Core Campus, representing approximately
$4 million in annualized recurring revenue. - Signed a multi-year colocation renewal and expansion with a leading global media and entertainment customer at The Core Campus representing approximately
$11 million in total contract value. - Signed a colocation expansion order with an existing global logistics customer at The Keep Campus totaling approximately
$1 million in annualized revenue and$5 million in total contract value.
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 (loss) attributable to Switch, Inc., adjusted net income (loss) per diluted share, net debt, and net debt to annualized Adjusted EBITDA, which are non-GAAP measures, in this press release. 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 (loss) attributable to Switch, Inc. as net income (loss) adjusted for gain (loss) on swaps, gain on termination of tax receivable agreement, and noncash litigation settlement expense, 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 (Loss) Income to Adjusted EBITDA", "Reconciliation of Net (Loss) Income to Adjusted Funds From Operations," and the "Reconciliation of Net (Loss) Income Attributable to Switch, Inc. to Adjusted Net (Loss) 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; (xiii) 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. | |||
Consolidated Balance Sheets | |||
(in thousands, except per share data) | |||
September 30, | December 31, | ||
(unaudited) | |||
ASSETS | |||
CURRENT ASSETS: | |||
Cash and cash equivalents | $ 41,251 | $ 48,325 | |
Restricted cash | — | 1,890 | |
Accounts receivable, net of allowance for credit losses of | 30,536 | 18,368 | |
Prepaid expenses | 11,122 | 10,265 | |
Swap asset, current portion | 9,569 | — | |
Other current assets, net of allowance for credit losses of | 4,449 | 4,624 | |
Total current assets | 96,927 | 83,472 | |
Property and equipment, net | 2,500,213 | 2,237,059 | |
Long-term deposit | 39,056 | 13,504 | |
Deferred income taxes | 375,036 | 295,699 | |
Intangible assets, net | 121,952 | 125,758 | |
Goodwill | 106,350 | 106,350 | |
Other assets, net of allowance for credit losses of | 61,729 | 56,776 | |
TOTAL ASSETS | $ 3,301,263 | $ 2,918,618 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||
CURRENT LIABILITIES: | |||
Long-term debt, current portion | $ 4,000 | $ 4,000 | |
Accounts payable | 41,224 | 55,262 | |
Accrued salaries and benefits | 14,612 | 6,786 | |
Accrued interest | 8,120 | 8,577 | |
Accrued expenses and other | 29,910 | 18,285 | |
Accrued construction payables | 40,865 | 31,093 | |
Deferred revenue, current portion | 26,839 | 16,905 | |
Customer deposits | 16,976 | 16,335 | |
Swap liability, current portion | — | 8,062 | |
Operating lease liability, current portion | 3,983 | 3,281 | |
Liabilities under tax receivable agreement, current portion | 75,108 | — | |
Total current liabilities | 261,637 | 168,586 | |
Long-term debt, net | 1,890,375 | 1,611,962 | |
Operating lease liability | 31,143 | 32,157 | |
Finance lease liability | 57,080 | 57,376 | |
Deferred revenue | 26,765 | 25,921 | |
Liabilities under tax receivable agreement | — | 395,615 | |
Other long-term liabilities | 1,087 | 8,360 | |
TOTAL LIABILITIES | 2,268,087 | 2,299,977 | |
Commitments and contingencies | |||
STOCKHOLDERS' EQUITY: | |||
Preferred stock, | — | — | |
Class A common stock, | 157 | 145 | |
Class B common stock, | 88 | 98 | |
Class C common stock, | — | — | |
Additional paid in capital | 428,481 | 352,984 | |
Retained earnings (accumulated deficit) | 341,904 | (23,022) | |
Accumulated other comprehensive loss | (568) | (568) | |
Total Switch, Inc. stockholders' equity | 770,062 | 329,637 | |
Noncontrolling interest | 263,114 | 289,004 | |
TOTAL STOCKHOLDERS' EQUITY | 1,033,176 | 618,641 | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 3,301,263 | $ 2,918,618 | |
Switch, Inc. | |||||||
Consolidated Statements of Comprehensive (Loss) Income | |||||||
(in thousands, except per share data) | |||||||
(unaudited) | |||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2022 | 2021 | 2022 | 2021 | ||||
Revenue | $ 174,467 | $ 158,104 | $ 507,261 | $ 430,660 | |||
Cost of revenue | 126,582 | 97,413 | 322,425 | 246,100 | |||
Gross profit | 47,885 | 60,691 | 184,836 | 184,560 | |||
Selling, general and administrative expense | 40,373 | 42,845 | 128,891 | 117,718 | |||
Income from operations | 7,512 | 17,846 | 55,945 | 66,842 | |||
Other income (expense): | |||||||
Interest expense, including | (16,696) | (15,166) | (44,079) | (34,121) | |||
Gain (loss) on swaps | 8,830 | (3,853) | 24,832 | (3,618) | |||
Loss on extinguishment of debt | — | (146) | — | (146) | |||
Equity in net losses of investments | — | (326) | — | (925) | |||
Gain on sale of equity method investment | — | — | — | 5,374 | |||
Gain on termination of tax receivable agreement | — | — | 372,784 | — | |||
Other | 531 | 500 | 1,412 | 4,092 | |||
Total other (expense) income | (7,335) | (18,991) | 354,949 | (29,344) | |||
Income (loss) before income taxes | 177 | (1,145) | 410,894 | 37,498 | |||
Income tax (expense) benefit | (409) | 278 | (6,452) | (4,287) | |||
Net (loss) income | (232) | (867) | 404,442 | 33,211 | |||
Less: net income (loss) attributable to noncontrolling interest | 25 | (498) | 15,071 | 17,578 | |||
Net (loss) income attributable to Switch, Inc. | $ (257) | $ (369) | $ 389,371 | $ 15,633 | |||
Net (loss) income per share: | |||||||
Basic | $ (0.00) | $ (0.00) | $ 2.58 | $ 0.12 | |||
Diluted | $ (0.00) | $ (0.00) | $ 1.60 | $ 0.12 | |||
Weighted average shares used in computing net (loss) income per share: | |||||||
Basic | 154,778 | 136,292 | 150,855 | 131,067 | |||
Diluted | 154,778 | 136,292 | 250,812 | 135,091 | |||
Other comprehensive loss: | |||||||
Foreign currency translation adjustment, net of reclassification adjustment and tax of | — | — | — | (474) | |||
Comprehensive (loss) income | (232) | (867) | 404,442 | 32,737 | |||
Less: comprehensive income (loss) attributable to noncontrolling interest | 25 | (498) | 15,071 | 17,165 | |||
Comprehensive (loss) income attributable to Switch, Inc. | $ (257) | $ (369) | $ 389,371 | $ 15,572 | |||
Switch, Inc. | |||||
Reconciliation of Net (Loss) Income to Adjusted EBITDA | |||||
(in thousands) | |||||
(unaudited) | |||||
Three Months Ended | |||||
September 30, 2022 | June 30, 2022 | September 30, 2021 | |||
Net (loss) income | $ (232) | $ 380,740 | $ (867) | ||
Interest expense | 16,696 | 14,186 | 15,166 | ||
Interest income | (63) | (43) | (36) | ||
Income tax expense (benefit) | 409 | 1,803 | (278) | ||
Depreciation and amortization of property and equipment | 50,544 | 49,509 | 45,138 | ||
Amortization of customer relationships | 1,562 | 1,563 | 1,562 | ||
Loss on disposal of property and equipment | 348 | 45 | 32 | ||
Equity-based compensation | 7,104 | 6,980 | 7,053 | ||
(Gain) loss on swaps | (8,830) | (2,353) | 3,853 | ||
Litigation expense | 213 | 215 | 4,717 | ||
REIT and related restructuring/strategic initiatives | 1,729 | 4,700 | — | ||
Gain on termination of tax receivable agreement | — | (372,784) | — | ||
Loss on extinguishment of debt | — | — | 146 | ||
Equity in net losses of investments | — | — | 326 | ||
Acquisition-related costs | — | — | 82 | ||
Adjusted EBITDA | $ 69,480 | $ 84,561 | $ 76,894 | ||
Switch, Inc. | |||||
Reconciliation of Net (Loss) Income to Adjusted Funds From Operations | |||||
(in thousands) | |||||
(unaudited) | |||||
Three Months Ended | |||||
September 30, 2022 | June 30, 2022 | September 30, 2021 | |||
Net (loss) income | $ (232) | $ 380,740 | $ (867) | ||
Deferred income taxes | 409 | 1,803 | (278) | ||
Depreciation and amortization of property and equipment | 50,544 | 49,509 | 45,138 | ||
Amortization of customer relationships | 1,562 | 1,563 | 1,562 | ||
Loss on disposal of property and equipment | 348 | 45 | 32 | ||
Maintenance capital expenditures | (719) | (1,483) | (3,700) | ||
Equity-based compensation | 7,104 | 6,980 | 7,053 | ||
Unrealized gain on swaps | (10,237) | (4,091) | (4,293) | ||
Amortization of deferred financing costs | 663 | 662 | 689 | ||
Installation adjustment, net | 461 | (531) | 36 | ||
Other adjustments, net | 4,509 | (965) | 407 | ||
REIT and related restructuring/strategic initiatives | 1,729 | 4,700 | — | ||
Litigation expense | 213 | 215 | 4,717 | ||
Gain on termination of tax receivable agreement | — | (372,784) | — | ||
Equity in net losses of investments | — | — | 326 | ||
Acquisition-related costs | — | — | 82 | ||
Loss on extinguishment of debt | — | — | 146 | ||
Adjusted Funds From Operations | $ 56,354 | $ 66,363 | $ 51,050 | ||
Switch, Inc. | |||||
Reconciliation of Net (Loss) Income Attributable to Switch, Inc. to | |||||
Adjusted Net (Loss) Income Attributable to Switch, Inc. | |||||
(in thousands, except per share data) | |||||
(unaudited) | |||||
Three Months Ended | |||||
September 30, 2022 | June 30, 2022 | September 30, 2021 | |||
Net (loss) income attributable to Switch, Inc. | $ (257) | $ 376,835 | $ (369) | ||
(Gain) loss on swaps | (8,830) | (2,353) | 3,853 | ||
Gain on termination of tax receivable agreement | — | (372,784) | — | ||
Income tax impact on adjustments(1) | 1,172 | 304 | (460) | ||
Noncontrolling interest impact on adjustments | 3,250 | 904 | (1,661) | ||
Adjusted net (loss) income attributable to Switch, Inc. | $ (4,665) | $ 2,906 | $ 1,363 | ||
Adjusted net (loss) income per share—diluted | $ (0.03) | $ 0.02 | $ 0.01 | ||
Weighted average shares used in computing adjusted net (loss) income per share—diluted | 154,778 | 156,432 | 141,889 | ||
________________________________________
(1) | The income tax impact is derived by applying the U.S. statutory tax rate to Switch, Inc.'s portion of the adjustment. |
View original content to download multimedia:https://www.prnewswire.com/news-releases/switch-announces-third-quarter-2022-financial-results-301673217.html
SOURCE Switch, Inc.
FAQ
What was Switch's revenue in Q3 2022?
Did Switch report a profit or loss in Q3 2022?
How much did Switch's Adjusted EBITDA change in Q3 2022?
What strategic agreements has Switch recently made?
When is Switch's transaction with Digital Bridge expected to close?
