Switch Inc (NYSE: SWCH), a retail colocation provider focused on the enterprise data center segment, today announced its Q1 2022 earnings, maintained its full-year 2022 guidance, and provided updates on its leasing, utilization, backlog, churn, and development pipeline for the quarter. Additionally, multiple reports indicate that Switch may be up for sale, with DigitalBridge outmaneuvering Brookfield, in a $11bn deal.

As of Q1 2022, Switch operates 5 data center campuses (PRIMES), which encompass 16 colocation facilities, representing 508 megawatts of power capacity. Overall, these data centers comprise 5.1 million gross sqft (GSF) in the United States, supporting over 1.35k customers.

Financial Performance in Q1 2022 – Switch Inc

In Q1 2022, Switch Inc reported revenue of $164.6m, a 2.0% increase quarter-over-quarter, and adjusted EBITDA of $86.8m, a 1.1% increase quarter-over-quarter. Therefore, the company’s EBITDA margin was 52.7% in Q1 2022, a ~45 bps decline quarter-over-quarter.

Also, Switch Inc produced organic revenue growth of 16% year-over-year, which excludes the impact of its acquisition of Data Foundry in Texas.

Revenue Composition

Switch generates its revenue from providing colocation space and related connectivity services to enterprises, financial companies, and government agencies, amongst others. Below is breakdown of the company’s revenue by its two key segments:

  • Colocation: revenue of $131.9m (80% of total), equating to a 2.5% increase quarter-over-quarter
  • Connectivity: revenue of $30.0m (18% of total), equating to a 0.9% increase quarter-over-quarter

Full-Year 2022 Guidance

For full-year 2022, Switch projects revenue of $660m to $674m and adjusted EBITDA of $345m to $357m, implying a 52.6% EBITDA margin at the mid-point. As such, the mid-point of Switch’s 2022 guidance infers a year-over-year increase of 12.7% and 11.4% in revenue and EBITDA, respectively.

Additionally, Switch forecasts that it will make capital expenditures, excluding land purchases, of $510m to $560m in full-year 2022.

Operational Performance in Q1 2022 – Switch Inc

Leasing

In Q1 2022, incremental lease signings were $19.9m, down 33% from the $29.5m of signings during Q4 2021. However, lease signings of $19.9m are in-line with the company’s average of ~$20m over the past four quarters. In total, the incremental lease signings represented 27.3 megawatts of power capacity.

Switch Inc’s lease signings during Q1 2022 included:

  • Semiconductor Company: 5-megawatt expansion at the Citadel Campus (Tahoe Reno) representing $7m of incremental annualized revenue and $45m in total contract value (TCV)
  • Global Cloud Infrastructure Provider: 4-megawatt expansion at the Core Campus (Las Vegas) representing $5m of incremental annualized revenue
  • Fortune 500 Video Game Publisher: expansion order at the Core Campus (Las Vegas) totaling over $2m of incremental annualized revenue and $6m in total contract value (TCV)
  • FedEx (Global Logistics): expansion order for both colocation and network services at the Core Campus (Las Vegas) and the Keep Campus (Atlanta) totaling $2m of incremental annualized revenue
  • Top-10 Financial Technology Company: 3-year renewal at the Core Campus (Las Vegas) representing ~$45m in total contract value (TCV)

Switch’s incremental lease signings of $19.9m were driven almost entirely by existing customers ($18.6m), as opposed to new logos ($1.3m).

Utilization

As of Q1 2022, Switch’s billed utilization was 83%, a 3% improvement quarter-over-quarter. While the company’s committed utilization was 93%, which includes billed cabinets plus cabinets that are contractually reserved for future installations and ramps.

Backlog

Switch’s booked-not-billed backlog as of quarter-end was $43.2m, unchanged quarter-over-quarter. Of Switch’s total backlog, $22.6m (52%) will contribute to the remainder of 2022 revenues.

Churn

Customer revenue churn rate was 0.2% in Q1 2022, which was an improvement from churn of 0.5% in Q4 2021. As a reference point, Switch’s 3-year average annual churn has been 0.7%.

Development Pipeline – Switch Inc

Active Development

Presently, Switch expects to complete construction on three new data centers at the Core Campus (Las Vegas), the Citadel Campus (Tahoe Reno), and the Keep Campus (Atlanta) between Q2 2022 and Q2 2023.

Data CenterPRIMETarget DateGSFMWCabinets
LAS VEGAS 15Core CampusQ2 2022330k402.34k
TAHOE RENO 2Citadel CampusQ1 2023530k603.12k
ATLANTA 3Keep CampusQ2 2023450k503.12k
Total1.31m1508.58k

At full build-out, these three facilities will comprise 150 megawatts (8.58k cabinets) of power capacity and 1.3 million gross sqft (GSF). Regarding LAS VEGAS 15, Switch notes that the first sector is substantially committed to clients, following its early Q2 opening, and the company has also closed several transactions in sector two.

Planned Development

Switch is also completing site preparation work on 7 additional facilities, including two at the Core Campus (Las Vegas), two at the Rock Campus (Austin), one at the Pyramid Campus (Grand Rapids), one at the Citadel Campus (Tahoe Reno), and one at the Keep Campus (Atlanta). Specifically, these assets have planned completion dates ranging from 2024 through 2026.

Data CenterPRIMETarget DateGSFMWCabinets
LAS VEGAS 14Core Campus2024330k402.34k
AUSTIN 4Rock Campus2024280k231.60k
GRAND RAPIDS 2Pyramid Campus2024510k503.12k
TAHOE RENO 3Citadel Campus2025660k753.90k
ATLANTA 4Keep Campus2025320k351.76k
AUSTIN 5Rock Campus2025280k231.60k
LAS VEGAS 16Core Campus2026310k402.34k
Total2.69m28516.7k

Collectively, these planned developments will comprise 285 megawatts (16.7k cabinets) of power capacity and 2.7 million gross sqft (GSF) upon full build-out.

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