Switch & Data Facilities Company, Inc. (NASDAQ: SDXC), a
leading provider of network neutral data center and Internet
exchange services, today reported financial results for the year
ended December 31, 2009 and the fourth quarter.
Results of Operations
Fourth Quarter
Total revenues for the fourth quarter ended December 31, 2009
increased to $55.4 million from $45.8 million in the comparable
period in 2008, an increase of 21%. Recurring revenues, which
consist of colocation and interconnection services, were $50.6
million in the fourth quarter 2009, an increase of 18% over the
same period in the prior year. Non-recurring revenues in the fourth
quarter 2009, representing one time installation fees and services,
were $4.8 million compared to $2.8 million in the comparable period
in 2008. Billed cabinets increased from 8,110 in the third quarter
2009 to 8,588 in the fourth quarter. This was the largest
sequential growth in billed cabinets in over three years.
Cost of revenues, excluding depreciation and amortization, for
the fourth quarter 2009 was $28.4 million as compared to $24.4
million for the fourth quarter 2008. As a percentage of revenues,
cost of revenues improved to 51% in the fourth quarter of 2009 from
53% in the same period of the prior year.
Sales and marketing costs for the fourth quarter 2009 were $5.6
million as compared to $5.0 million in the comparable quarter in
2008. General and administrative expenses were $4.8 million for the
fourth quarter as compared to $4.6 million for the fourth quarter
2008.
Other expenses were $2.6 million for the fourth quarter 2009 as
compared to $0.1 million in the comparable quarter 2008. These
expenses were primarily from the pending acquisition of Switch and
Data by Equinix, Inc.
Operating income increased 183% to $5.3 million in the fourth
quarter of 2009 as compared to $1.9 million in the comparable
period in 2008.
Adjusted EBITDA increased to $19.9 million in the fourth quarter
of 2009 as compared to $15.8 million in the comparable period in
2008, an increase of 26%. Adjusted EBITDA margins increased to 36%
in the fourth quarter, from 35% in the comparable period in 2008.
See “Adjusted EBITDA Reconciliation” for further discussion.
Net loss for the for the fourth quarter of 2009 was $2.1
million, including acquisition related expenses of $2.6 million, or
$0.06 per basic and diluted common share as compared to a net loss
of $8.5 million or $0.25 per basic and diluted common share in the
comparable period in 2008.
Full Year 2009
For the year ended December 31, 2009, total revenues increased
to $205.4 million from $171.5 million for the year ended December
31, 2008, an increase of 20%. Recurring revenues were $191.3
million, an increase of 18% over 2008. For the year ended December
31, 2009, non-recurring revenues were $14.2 million, an increase of
44% over the prior year.
For the year ended December 31, 2009, cost of revenues,
excluding depreciation and amortization, was $103.1 million, up
from $90.1 million for the year ended December 31, 2008. As a
percentage of revenues, cost of revenues was 50% in 2009 as
compared to 53% in the same period of the prior year.
For the year ended December 31, 2009, sales and marketing costs
were $20.7 million as compared to $19.7 million for the same period
in 2008. For the year ended December 31, 2009, general and
administrative expenses were $19.0 million as compared to $17.7
million for the year ended December 31, 2008.
Other expenses were $3.1 million for the year ended December 31,
2009, as compare to $0.8 million for the year ended December 31,
2008. These expenses were primarily from the pending acquisition of
Switch and Data by Equinix, Inc.
For the year ended December 31, 2009, Adjusted EBITDA increased
to $76.3 million from $56.5 million in 2008, an increase of
35%.
Net income for the year was $0.4 million, including acquisition
related expenses of $2.6 million, or $0.01 per basic and diluted
common share as compared to a net loss of $7.0 million or $0.20 per
basic and diluted common share in 2008.
Balance Sheet and Cash Flows
Switch and Data had cash and cash equivalents of $28.5 million
on December 31, 2009. Bank debt outstanding on December 31, 2009
was $142.5 million. Capital expenditures in the quarter were $8.1
million and $62.5 million for the full year.
Merger with Equinix
On October 21, 2009, Switch and Data and Equinix, Inc. (Nasdaq:
EQIX) entered into a definitive agreement for Equinix to acquire
Switch and Data in a transaction valued at approximately $689
million in cash and stock, based on Switch and Data’s October 20th
market closing price. On January 29, 2010, Switch and Data
stockholders voted to approve Switch and Data's merger with and
into Sundance Acquisition Corporation, a wholly-owned subsidiary of
Equinix. Completion of the merger remains subject to the expiration
or termination of the waiting period imposed by the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended,
and the satisfaction or waiver of the other closing conditions
specified in the merger agreement between Equinix and Switch and
Data. The merger is expected to close in the second quarter of
2010. There can be no assurances that the proposed merger will be
consummated.
The merger agreement is attached as Exhibit 2.1 to the Current
Report on Form 8-K that Switch and Data filed with the Securities
and Exchange Commission (the "SEC") on October 22, 2009.
Switch and Data will not host an investor call.
About Switch and Data
Switch and Data is a premier provider of network-neutral data
centers that house, power, and interconnect the Internet. Leading
content companies, enterprises, and communications service
providers rely on Switch and Data to connect to customers and
exchange Internet traffic. Switch and Data has built a reputation
for world-class service, delivered across the broadest colocation
footprint and richest network of interconnections in North America.
Switch and Data operates 34 sites in the U.S. and Canada, provides
one of the highest customer satisfaction scores for technical and
engineering support in the industry, and is home to PAIX(R) - the
world's first commercial Internet exchange.
Important information about Switch and Data is routinely posted
to the investor relations section of the website
www.switchanddata.com. For copies of all Switch and Data press
releases and SEC filings, please visit the website. To
automatically receive Switch and Data financial news by email,
please visit the website and subscribe to Email Alerts. Investors
are encouraged to check Switch and Data's website frequently to
access the most up-to-date information.
Forward-Looking Statements
Certain statements herein, particularly in those sections titled
"Balance Sheet and Cash Flows” and "Merger with Equinix" are
“forward-looking statements.” Such forward-looking statements are
not historical facts but instead reflect Switch and Data’s current
expectations or beliefs concerning future events and results of
operations, many of which, by their nature, are inherently
uncertain and outside of Switch and Data’s control. Words such as
expects, believes, estimates, anticipates and similar language
indicates forward-looking statements. It is possible that actual
results may differ, possibly materially, from those anticipated in
these forward-looking statements. Factors that might cause such
differences include, but are not limited to, the failure of a
condition to closing of the transaction to be satisfied; and the
risk that a regulatory approval that may be required for the
transaction is not obtained or is obtained subject to conditions
that are not anticipated. Further information concerning Switch and
Data and its business, including factors that potentially could
materially affect Switch and Data's financial results and
conditions, as well as its other achievements, are contained in
Switch and Data's filings with the SEC. Switch and Data does not
undertake to publicly update or revise its forward-looking
statements, whether as a result of new information, future events
or otherwise.
Switch & Data Facilities
Company, Inc.
Consolidated Statements of
Operations
(in thousands, except earnings
per common share)
(Unaudited)
For the three months
endedDecember 31,
For the year
endedDecember 31,
2008 2009 2008 2009
Revenues $ 45,774 $ 55,425 $ 171,525 $ 205,438 Costs and operating
expenses Cost of revenues, exclusive of depreciation and
amortization 24,377 28,446 90,122 103,133 Sales and marketing 4,993
5,603 19,670 20,733 General and administrative 4,564 4,798 17,659
18,955 Depreciation and amortization 9,954 11,236 30,716 41,473
Lease litigation settlement - -
- 700 Total costs and operating expenses
43,888 50,083 158,167
184,994 Operating income 1,886 5,342 13,358 20,444
Interest income 74 11 1,587 56 Interest expense (10,329 ) (4,546 )
(19,193 ) (15,775 ) Loss from debt extinguishment - - (695 ) -
Other expense, net (113 ) (2,577 ) (768 )
(3,063 ) Income (loss) from continuing operations before
income taxes (8,482 ) (1,770 ) (5,711 ) 1,662 Provision for income
taxes - (304 ) (1,324 ) (1,254 )
Net income (loss) (8,482 ) (2,074 ) (7,035 ) 408 Income
(loss) per common share—basic and diluted
Net income (loss) attributable to common stockholders $
(0.25 ) $ (0.06 ) $ (0.20 ) $ 0.01 Weighted average
common shares outstanding 34,563 34,604 34,369 34,569 Income
(loss) per common share—basic and diluted
Net income (loss) attributable to common stockholders $
(0.25 ) $ (0.06 ) $ (0.20 ) $ 0.01 Weighted average
common shares outstanding 34,563 34,604 34,369 35,330
Switch & Data Facilities
Company, Inc.
Consolidated Balance
Sheets
(in thousands)
(Unaudited)
December 31, December 31, 2008
2009 Assets Current assets Cash and cash equivalents
$ 14,706 $ 28,528
Accounts receivable, net of
allowance for bad debts of $818 and $1,056, respectively
11,497 13,930 Prepaids and other assets 2,429
2,849 Total current assets 28,632 45,307 Property and
equipment, net 270,286 297,312 Goodwill 36,023 36,023 Other
intangible assets, net 18,575 15,274 Other long-term assets, net
5,349 6,464 Total assets $ 358,865
$ 400,380
Liabilities, Preferred Stock and
Stockholders’ Equity Current liabilities Accounts payable and
accrued expenses $ 34,131 $ 23,741 Derivative liability 7,434 8,713
Current portion of unearned revenue 3,629 3,275 Current portion of
deferred rent 455 336 Current portion of customer security deposits
547 577 Current portion of long-term debt - 14,250 Current portion
of capital lease obligation - 1,934
Total current liabilities 46,196 52,826 Unearned revenue, less
current portion 1,858 1,506 Deferred rent, less current portion
18,587 26,287 Customer security deposits, less current portion 376
319 Long-term debt, less current portion 120,000 128,250 Long-term
portion of capital lease obligation 50,927
58,364 Total liabilities 237,944 267,552 Commitments
and contingencies Stockholders’ equity
Common stock, $0.0001 par value,
authorized 200,000 shares; 34,563 and 34,748 issued and outstanding
as of December 31, 2008 and December 31, 2009, respectively
3 3
Preferred stock, $0.0001 par
value, authorized 25,000 shares; no shares issued
- - Additional paid-in capital 347,909 356,624 Accumulated deficit
(224,534 ) (224,126 ) Accumulated other comprehensive income (loss)
(2,457 ) 327 Total stockholders’ equity
120,921 132,828 Total liabilities, preferred
stock and stockholders’ equity $ 358,865 $ 400,380
Switch & Data Facilities
Company, Inc.
Condensed Consolidated
Statements of Cash Flows
(in thousands)
(Unaudited)
For the year
endedDecember 31,
2008 2009 Cash flows from operating
activities: Net income (loss) $ (7,035 ) $ 408 Adjustments to
reconcile net income (loss) to net cash provided by operating
activities Depreciation 26,624 37,861 Amortization of debt issuance
costs 667 921 Amortization of other intangible assets 4,092 3,617
Loss on debt extinguishment 695 - Stock compensation expense 6,314
6,292 Provision for bad debts, net of recoveries 839 1,150 Deferred
rent 6,094 7,289 Change in fair value of derivative 6,884 1,279
Loss (gain) on disposal of fixed
assets
5 (99 ) Changes in operating assets and liabilities, net of
acquired amounts Increase in accounts receivable (3,509 ) (3,451 )
Increase in prepaids and other assets (997 ) (411 ) Increase in
other long term assets (189 ) (651 )
Increase in accounts payable,
accrued expenses, and other liabilities
5,003 252 Decrease (increase) in unearned revenue 127
(869 ) Net cash provided by operating activities
45,614 53,588
Cash flows from
investing activities: Purchase of property and equipment
(154,710 ) (62,629 ) Proceeds from sale of property and equipment
- 115 Net cash used in investing
activities (154,710 ) (62,514 )
Cash flows
from financing activities: Principal payments under long-term
debt (38,188 ) - Principal payments under capital lease - (953 )
Proceeds from long-term debt 120,000 22,500 Proceeds from exercise
of stock options 997 2,423 Excess Tax Benefits from stock-based
compensation 93 - Debt issuance and amendment costs (4,039 )
(1,388 ) Net cash provided by financing activities
78,863 22,582 Net increase (decrease)
in cash and cash equivalents (30,233 ) 13,656 Effect of exchange
rate changes on cash (656 ) 166
Cash and cash equivalents:
Beginning of the period 45,595 14,706
End of the period $ 14,706 $ 28,528
Additional Information
For the three months
ended December 31,
For the year
ended December 31,
($ in Thousands) 2008 2009 2008
2009 Revenues
Colocation $ 29,021 64 % $ 34,557 62 % $ 108,504 63 % $ 129,815 63
% Interconnection 13,918 30 % 16,049 29 %
53,192 31 % 61,445 30 % Recurring Total $ 42,939 94 % $
50,606 91 % $ 161,696 94 % $ 191,260 93 % Non-recurring
2,835 6 % 4,820 9 % 9,829 6 % 14,178 7 % Total
$ 45,774 100 % $ 55,426 100 % $ 171,525 100 % $ 205,438 100 %
December 31, December 31,
2008 2009 Number of cross connects 21,149 22,277
Cabinet equivalents billed 7,596 8,588 Utilization rate 58.4 % 61.3
%
For the three months ended December 31,
December 31, 2008 2009
Percentage of sales to existing
customers
84 % 92 %
Churn as a percentage of recurring
revenues
1.5 % 1.4 % New Sales (in thousands): Recurring revenue * $
1,305 $ 1,640 Non-recurring revenue ** 1,717
2,339 New Sales $ 3,022 $ 3,979
*Recurring revenues represent new service agreements entered
into by new and existing customers during the given quarter.
Revenues from these agreements will recur monthly over the life of
the agreement.
**Non-recurring revenues represent the one-time installation
fees associated with new service agreements. These one-time fees
are billed to customers upon completion of the installation service
and such revenues are recognized on a straight-line basis over the
life of the agreement.
Adjusted EBITDA
Reconciliation
The following is a reconciliation of Switch and Data’s operating
income (loss) to Adjusted EBITDA for the periods ended December 31,
2008 and December 31, 2009. This reconciliation can also be found
on Switch and Data’s website in the Investor Relations section.
Switch and Data defines "Adjusted EBITDA" as operating income
from continuing operations, plus depreciation and amortization,
stock-based compensation expense and other non-cash items such as
deferred rent. Switch and Data calculates Adjusted EBITDA margin as
Adjusted EBITDA divided by total revenues.
Switch and Data uses Adjusted EBITDA as follows:
- As a measurement of operating
performance because they assist management in comparing the results
on a consistent basis as Adjusted EBITDA removes the impact of
items not directly resulting from operations;
- For planning purposes, including
the preparation of the internal annual operating budget;
- To establish targets for certain
management compensation; and
- To evaluate its capacity to
incur and service debt, fund capital expenditures and expand the
business.
Adjusted EBITDA as calculated by the Switch and Data is not
necessarily comparable to similarly titled measures used by other
companies. In addition, Adjusted EBITDA: (a) does not represent net
income or cash flows from operating activities as defined by GAAP;
(b) is not necessarily indicative of cash available to fund Switch
and Data’s cash flow needs; and (c) should not be considered as an
alternative to net income, operating income, cash flows from
operating activities or other financial information as determined
under GAAP.
Switch and Data prepares Adjusted EBITDA by adjusting EBITDA to
eliminate the impact of a number of items that it does not consider
indicative of its core operating performance. Investors are
encouraged to evaluate each adjustment and the reasons Switch and
Data considers them appropriate. As an analytical tool, Adjusted
EBITDA is subject to all of the limitations applicable to EBITDA.
In addition, in evaluating Adjusted EBITDA, investors should be
aware that in the future Switch and Data may incur expenses similar
to the adjustments in this presentation. Switch and Data’s
presentation of Adjusted EBITDA should not be construed as an
implication that its future results will be unaffected by unusual
or non-recurring items.
For the three months
endedDecember 31,
For the year
endedDecember 31,
(in thousands) 2008 2009 2008
2009 Operating income $ 1,886 $ 5,342 $ 13,358 $
20,444 Depreciation and amortization 9,954 11,236 30,716 41,473
Lease litigation settlement - - - 700 Deferred rent expense,
non-cash 2,385 1,563 6,094 7,289 Loss (gain) on disposal of fixed
assets (1) (2 ) 90 4 1 Stock-based compensation expense (2) 1,606
1,668 6,312 6,292 Legal expenses for real estate litigation (3)
- - 63 65 EBITDA $ 15,829
$ 19,899 $ 56,547 $ 76,264
Footnotes:
(1) Loss (gain) on disposal of fixed assets is a non-cash
component of Adjusted EBITDA. These expenses may be included in
both the General and administrative and Cost of revenues line items
of the Statement of Operations.
(2) Stock-based compensation expense is a non-cash expense to
Switch and Data that can be found on the Statement of Cash
Flows.
(3) Switch and Data has incurred legal expenses for lawsuits
brought by several landlords for breach of lease agreements. These
expenses are included in the General and administrative line item
of the Statement of Operations.
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