Switch, Inc. (SWCH) Tops Q4 EPS by 1c, Revenues Miss; Offers FY21 Revenues Guidance Below Consensus
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Switch, Inc. (NYSE: SWCH) reported Q4 EPS of $0.06, $0.01 better than the analyst estimate of $0.05. Revenue for the quarter came in at $127.7 million versus the consensus estimate of $131.3 million.
Fourth Quarter 2020 Financial Results
- Total revenue of $127.7 million, compared to $120.5 million for the same quarter in 2019, an increase of 6%. Fourth quarter revenue was affected by two customers electing to migrate a portion of their application stack to a public cloud environment, resulting in an approximate $3 million reduction in fourth quarter revenue.
- Income from operations of $26.3 million, compared to $18.3 million for the same quarter last year, an increase of 43%.
- Net income of $15.3 million, compared to $12.9 million for the same quarter in 2019. Fourth quarter 2020 net income includes the impact of a $0.2 million loss on interest rate swaps, decreasing net income by $0.01 per diluted share.
- Net income per diluted share of $0.05, and adjusted net income per diluted share of $0.06.
- Adjusted EBITDA of $70.6 million, compared to $57.6 million in the year ago quarter, an increase of 22%. Adjusted EBITDA margin was 55.2%, compared to 47.8% in the year ago period.
- Capital expenditures of $97.9 million, compared to $86.4 million for the same quarter in 2019. Maintenance capital expenditures were $3.4 million, or 2.7% of total revenue.
- Total signed contract value of $240 million representing annualized revenue of $55 million at full deployment, including $36 million of incremental recurring revenue.
"Switch's fourth quarter and full year 2020 results highlight strong sales performance and execution amid a robust demand backdrop for enterprise hybrid cloud solutions, as evidenced by our record Q4 bookings and revenue backlog," said Rob Roy, Switch Founder and CEO. "Our 2021 strategic priorities include the ongoing construction of multiple new data centers consisting of 2.8 million square feet and more than 300 megawatts over the next five years to address current and future demand. We are also focused on the execution of several large customer installations across our Prime campus locations and managing our sales opportunities to maximize our currently available capacity. With the industry's highest rated and most sustainable enterprise class multi-tenant data centers, innovative edge colocation, secure storage solutions, and low-cost telecommunications offerings, we believe that Switch is uniquely positioned to benefit from the accelerating digital transformation among enterprises."
"During 2020 we continued to see very strong demand from both new and existing customers as we executed over $500 million in total contract value for a second consecutive year. We were also able to add 90 new logos to the Switch ecosystem in 2020," said Thomas Morton, President of Switch. "The fourth quarter was our most productive sales quarter in the history of the company, with our sales team closing over $36 million of incremental annualized revenue bookings. From a business standpoint, COVID-19 did affect Switch in two ways. Due to COVID-19 travel restrictions still in place for most large enterprises, the starting installation dates for many recent customer signings have been set to begin in the second half of 2021. In addition, the unprecedented reductions and furloughs of municipal employee staffing levels caused zoning and permitting delays which pushed out the completion timeline of two SUPERNAP data centers that were planned to open in 2021 into 2022. We remain very positive about our nearly three million square feet of enterprise class data center infrastructure that is currently under construction at our Prime campus locations. We believe this significant level of Tier 5 data center construction will solidify Switch's position as an industry leader over the next five years as enterprises continue to evolve their mission critical technology infrastructure toward the hybrid cloud future."
"Switch's fourth quarter financial results capped off another year of double-digit organic growth in revenue and Adjusted EBITDA," said Gabe Nacht, CFO of Switch. "While we have continued to execute on the sales front across all Prime campus locations, we have also focused on operational efficiencies throughout the business that are helping to drive margin expansion and continue to deliver strong returns for our shareholders. We have definitively addressed the question regarding our ability to successfully expand to new markets, having sold over 70% of our first massive data center in Atlanta within eight months of opening. We immediately began construction on the second and third data centers at The Keep Campus based on the continued strong demand for Switch's enterprise class multi-tenant data center infrastructure in the U.S. Southeast region."
Switch, Inc. sees FY2021 revenue of $540-555 million, versus the consensus of $571.97 million.
Switch is introducing full year 2021 guidance as follows:
- Revenue in the range of $540 million to $555 million.
- Adjusted EBITDA in the range of $278 million to $290 million.
- Capital expenditures, excluding land acquisitions, in the range of $330 million to $370 million.
Switch expects its 2021 revenue growth to be weighted toward the second half of the year. Switch's 2021 growth outlook includes the delay in construction permits and zoning approvals that occurred during 2020 as a result of COVID-19, pushing out the completion of certain construction projects by three to six months. Importantly, due to many of the recent multi-megawatt installation commencement dates being pushed out by clients due to their COVID-19 travel restrictions, a significant amount of space and power is being reserved for ramps as reflected in Switch's record backlog, which reduces the remaining quantity of sellable capacity in 2021. This is also due to the expected timing of backlog revenue contribution and customer revenue reductions, in addition to the realization of $4.8 million in non-recurring fiber revenue in the first half of 2020. Switch's 2021 guidance includes an approximate $18 million annualized reduction in recurring revenue, resulting from the decision by two customers to migrate a portion of their workloads to a public cloud environment. Both customers are expected to maintain the balance of their hybrid workloads at Switch and the company does not anticipate further significant customer migrations at this time. The full effect of these revenue reductions will be realized in the first quarter of 2021.
For earnings history and earnings-related data on Switch, Inc. (SWCH) click here.
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