Earlier today we covered Switch (SWCH), and discussed why it was rallying. Of key concern were recent highlights out of the company. These included the initial public offering, and how the stock was new, as it 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.  We discussed that t he 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. Earnings of course were on tap for after the bell, and shares are giving back some of the gains.  So how did it do:

Well, it surpassed estimates, handily, on both the top and bottom lines. Here are some highlights to be aware of:

  • Total revenue was $97.7 million, compared to $81.7 million for the same quarter last year, an increase of 20%.
  • 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%.

 

The balance sheet is strong as well.  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 $88.0 million in the same period last year. During the third quarter of 2017, Switch spent $37.6 million in The Core Campus 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 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.

Commenting on the quarter Thomas Morton, president and general counsel of Switch stated:

“In the third quarter, we continued to expand our strategically located PRIME campus ecosystems in North America. 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.”

Looking ahead for the rest of the year, Switch sees total revenue in the range of $372 million to $380 million with adjusted EBITDA in the range of $190 million to $195 million. Capital expenditures will be in the range of $345 million to $365 million.

We have a $21 price target on the name. What do you think?

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