Operating income drop hurts Switch stock
Despite a positive outlook from Switch executives, their latest earnings report sent the stock down almost 15 percent to $13.45 a share after the market closed Monday.
The Las Vegas-based company reported $378.3 million in total revenue for 2017, an increase of 19 percent from 2016.
But costs associated with going public last year, adding space to its campuses and building a new cam- pus in Atlanta lowered its operating income to $18.8 million for 2017, a 63 percent decrease from the previous year.
The company said in a statement it had rescheduled its earnings call from the end of March to Monday due to the Good Friday market holiday.
Tax reform shoutout
Switch became the latest company to praise federal tax reform. New tax deduction rules on equipment will especially help the company, which said it spent $402.6 million last year on capital. It expects to spend at least $260 million this year.
“We don’t expect to be a taxpayer
SWITCH
in 2018,” Switch Chief Financial Officer Gabe Nacht said. “Tax reform is abenefitforusallthewayaround.”
But tax reform wasn’t the only item to give Nacht a sunny outlook for 2018.
He told analysts during the call that a new solar energy project Switch is developing will create additional revenue for the company,whichsellsstoragespaceand related services for data creators like movie studios, video game companiesandgovernmentagencies.
The company announced the projectinfebruarywithanofferto pay the exit fee for clients to break away from NV Energy.
“Weexpectthattotakeabitof time to begin showing fruit,” Nacht said.
Selling more services to its 800 customers has generated most of Switch’s revenue growth. The share ofrevenuefromitslargestcustomer, ebay, decreased from 14.1 percent in2015to10.9percentin2017.
Switch added over 100 customers in 2017, including 18 in the fourth quarter. New customers generated only 16 percent of the company’s revenue for 2017.
For the fourth quarter, Switch reported $99.3 million in total revenue,a21percentincreasefroma year earlier. The company reported a net loss of $60.3 million, almost triple its loss for the last quarter of 2016.
Building out
Spending related to Switch’s initial public offering, called the third largest of 2017, caught up with the company on its latest earnings report.
The company reported $71.3 million of equity-based compensation due to the IPO. As of March 12, founder Rob Roy controls 67.2 percent of the common stock voting power.
Excluding those costs, the company increased its annual operating income by 77 percent year over year,accordingtotheearnings report.
Of the $402.6 million the companyspentin2017—morethanfive times the amount spent in 2016 — half went to its Las Vegas campus to meet customer demand. The company expects to open a building in Las Vegas by early 2019 and add 340,000 gross square feet of space.
Switch spent $126.9 million on its campus near Reno, including costs related to power and cooling.
Switch spent $44.6 million building out of its campus in Grand Rapids, Michigan. The company bought the building in the fourth quarter for $23.9 million.
Thecompanyalsospent$15.3 million on land in Las Vegas and Atlanta, a future home for a Switch campus where it stores data.
Switch bought land that housed residential properties to avoid any interference with its data center, Nacht said.
The company spent $6.7 million on site preparation for the Atlanta campus, which will bring Switch intoanareathatismorecompetitive among data centers.
Of the $260 million-plus the companyexpectstospendthisyear,at least $60 million will go to the Reno campus, at least $30 million will go tothemichigancampusandthe rest will go to the campuses in Las Vegas and Atlanta.
“We won’t be building a significant new building in ’19,” Nacht said.
Contact Wade Tyler Millward at wmillward@reviewjournal.com or 702-383-4602. Follow @wademillward on Twitter.