Q3 2021 Switch Inc Earnings Call
Hello, and welcome to the switch Inc. Third quarter 2021 earnings Conference call.
My name is Katie and I'll be coordinating your call today, if you'd like to ask a question. During the presentation. You may do so by pressing star one on your telephone keypad.
I would now have cool a virtual host Matthew Heinz to begin my view. Please go ahead.
Thank you operator, good afternoon, and welcome to the switch Inc. Third quarter 2021 earnings conference call on the call today are Thomas Morton switch President and Gabe Nacht switch CFO. Today's call may include forward looking statements, including references to expectations projections and other characterization.
Future events or market conditions actual results may differ materially from those expressed in our forward looking statements, which are subject to certain risks uncertainties and assumptions. Our statements are made as of today and we assume no obligation to update our disclosures. We describe some of these risks in our SEC filings specifically our form.
10-K in the section titled Risk Factors. In addition, today's call includes discussion of non-GAAP financial measures, which should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.
Please refer to today's press release and supplemental package for further information, including a reconciliation of non-GAAP measures. Our third quarter 2021 earnings press release has been furnished to the SEC as part of our form 8-K and is available on our investor website at investors switch Dot Com I will now turn the call over to switch.
Didn't Thomas Morton, Thank you, Matt and good afternoon, everyone. Thank you for joining us today for our third quarter 2021 earnings call switch accomplished another solid quarter as we continued to execute on our strategic growth initiatives driven by strong enterprise demand for our highly resilient and sustainable data center.
Infrastructure.
Accordingly, our strategic sales initiatives continued to gain traction producing strong mid teens revenue growth in the third quarter and a 25% increase in year to date incremental revenue signings as disclosed in our earnings press release I am pleased to announce that the switch board of directors has voted unanimously.
Pursue REIT conversion and we will be targeting a REIT tax election on January 1st 2023, we look forward to sharing additional details as we continue to move forward with this exciting evolution and switches corporate structure. Our Q3 2021 financial results detailed on slide four of our investor deck.
Reflect the accelerating top line momentum across all of our prime campus locations.
Third quarter revenue was $158 1 million, increasing 23% year over year, excluding a $12 million revenue contribution from data foundry switches revenue was $146 1 million, representing a 13.5% organic growth rate.
Compared to the year ago quarter third quarter, adjusted EBITDA increased 14, 5% year over year to $76 9 million, including a 4.8 million dollar contribution from data foundry, our Q3 adjusted EBITDA margin of.
48, 6% was affected by seasonally driven increases in power costs. In addition to a full quarter contribution from data foundries operations, where third quarter SG&A levels do not yet reflect the full benefit of merger related synergies gain.
Gabe will provide additional details on Q3 financial performance in 2021 guidance later on today's call. Our sales teams. Once again delivered solid third quarter bookings signing over $16 million of incremental recurring revenue and a total contract value of more.
More than $94 million as detailed on slide 13 of our investor deck for the first nine months of 2021 our incremental annualized revenue bookings increased 25% year over year to $50 million and total annualized.
New signings increased 28% to $88 million inclusive of $38 million in renewals.
Which is strategy to expand its prime footprint equally and strategically across the United States has continued to pay dividends as our customers have increasingly exhibited demand for our world class infrastructure across multiple switch locations as of Q3.
'twenty, one multi campus customers comprised over 38% of the legacy switch revenue compared to 33% in the prior year quarter. This represents a year over year growth rate of 26% in third quarter multi campus.
From a revenue our revenue bookings mix also demonstrates the increasing diversity of our business with 60% of our Q3 total contract value coming from primes other than Las Vegas, and 44% on a year to date basis.
Switches growth efforts in Texas continued to gain momentum in third quarter as Texas customers accounted for approximately $5 million of incremental annualized revenue signings in the period, notably during Q3, we executed a three megawatt expansion.
Hansen with a fortune five technology customer and Austin, whose incremental deployment will utilize substantially all of the remaining capacity in the newest sector of our Austin three data center. We believe this significant expansion from one of the world's largest technology companies.
<unk> represents a strong early validation for the data foundry acquisition, which closed just five months ago and sends a positive signal to the other large enterprises are switch continues its build out of the rock campus in Texas, our funnel of say.
Those opportunities remains robust for both inbound and outbound expansions by existing enterprise clients at the Roth campus and across the other four switch primes. We are pleased to report our first outbound expansion by a Texas customer in October.
<unk> a healthcare organization that has signed to expand two switches keep campus in Atlanta, we remain confident that switches national data center footprint and global telecommunications cooperative will be of great value to customers within the legacy data foundry footprint, creating true.
Mendes cross selling opportunities and revenue synergies from this acquisition I will now discuss some of switches notable third quarter activity in key metrics across the existing prime campus locations.
In August switched announced the appointment of Jonathan King as our Chief revenue Officer.
Jonathan was previously an executive at Google Cloud, where he led partner ecosystem development, including the launch of Google Cloud Telecom and edge initiative and the Google Cloud Vmware engine as Chief revenue officer from switch Jonathan will oversee switches go.
To market strategy and business development efforts to further accelerate revenue growth following our land purchase agreement with Dell technologies and receipt of zoning approval from the city of round rock. During Q3, we began underground preparation work on their future sites.
Of our next tier five platinum data centers at the rock campus, we expect to begin shell construction on Austin for in Q2 of 2022 with a targeted completion in early 2024 and the timeline for Austin five.
Will be targeted for six to nine months after completion of Austin for including the data foundry assets. The rock campus ecosystem will be architected to provide more than 2 million square feet of data center space and 180 megawatts of power.
Upon completion as previously mentioned just two months after closing the acquisition of data foundry switch signed its first multi megawatt expansion order with a legacy data foundry customer the transaction involves a five year renewal of the client's existing space and.
It's three megawatt expansion will more than double its current footprint in Austin and Houston, we expect the customer to begin ramping into this new deployment in early 2022.
Switch executed another multiyear expansion order with an existing global logistics customer for incremental co location and telecommunications services in the core campus and the keep campus on a combined basis. The order represents approximately $2 4 million.
Incremental annualized revenue and over $12 million in total contract value.
Subsequent to third quarter. This same customer also signed for an additional 220 cabinets in Atlanta, We signed a one megawatt expansion with a leading semiconductor manufacturer who is adding to its multi campus footprint in the citadel campus and the key <unk>.
This locations the new order represents approximately $2 2 million in incremental revenue over a five year contract term.
October switch announced the commencement of the regional water improvement pipeline project in partnership with the Tahoe, Reno Industrial center and various state and local government agencies. This is the first public private partnership of its kind in Nevada history. The <unk>.
Project further switches industry, leading commitment to providing sustainable technology infrastructure for decades into the future. The pipeline will deliver 4000 acre feet of treated effluent water from our reclamation facility in Sparks, Nevada to the Tahoe Reno industrial.
Real center, enabling switches citadel campus to operate indefinitely on 100% recycled water.
In November switch was recognized for the third year in a row by being placed on the U S. Environmental protection Agency's National Top 100 list of the largest green power users from the Green power partnership switch ranked in the top 10.
On the Epa's top 30 technology and Telecom list and 23rd on the top 100 list of companies based on renewal power usage with a perfect 100% ranking for the use of Green power now turning to our construction.
Stones and robust project pipeline as can be seen on slide seven of our investor deck switch has a total of more than 3 million square feet of data center capacity that is either in progress or planned for future development through 2026. This represents.
A greater than 60% increase to the $5 1 million square feet of data center capacity currently in service during the quarter. We delivered the final sector of our Tahoe Reno, one facility to an anchor customer, placing 10 megawatts and 700.
Wondered 80 cabinets into service the massive one 3 million square foot data center at our Citadel campus is now effectively fully committed to customers and we are underway on the shallow construction of Tahoe, Reno too and the pad construction of Tahoe Arena.
Three we continue to prioritize the acceleration of construction of three new data centers at the core campus. The Citadel campus and the keep campus totaling one 3 million gross square feet and up to 160 megawatts of power at full build out.
As illustrated in our development milestones table on slide 19 of our Investor presentation, We expect to complete construction on Las Vegas 15 in Q2 of 2022 Tahoe Reno too in Q1 of 2023 and at <unk>.
Into three in Q2 of 2023 and.
Order to maximize cost efficiency and accelerate the delivery of future capacity. We are also completing the underground utilities and data center pad preparation on five additional facilities spanning our core campus Citadel campus keep campus and raw.
<unk> campus locations additional details are available on slide seven of the Investor deck. Please keep in mind that these facilities. Currently have planned completion dates ranging from 2024 through 2026, and thus will incur the majority of their capital spend.
Much closer to the anticipated in service dates in accordance with our real time evaluation of customer demand.
On completion, we expect these five data centers will provide approximately one 9 million incremental square feet and more than 200 megawatts of power capacity.
We look forward to hosting our investors and analysts at our Las Vegas headquarters for the switch Investor Day on November 15 2021.
Our founder and CEO, Rob Roy will present, his vision and strategy for the company. Those in attendance will have the opportunity to tour, our Las Vegas campus and spend time with a range of switch executives as they present key elements of our strategy and operations. In addition.
And we will provide multi year financial targets to help guide investors through our evolution over the next several years I will now turn the call over to Gabe to discuss our financial results Gabe. Thanks, Thomas today I'm going to review our financial results for the third quarter of 2021.
One and discuss our outlook for the remainder of 2021.
Starting with slide four of our Investor presentation switch reported total third quarter 2021 revenue of $158 1 million, an increase of $29 3 million or 22, 8% compared to the third quarter of 2020.
Excluding data foundry revenue of $11 9 million switched third quarter revenue totaled $146 2 million, an increase of $17 4 million or 13, 5% organic growth compared to the third quarter of 2020, staying on slide four adjusted EBITDA.
<unk> totaled $76 9 million for Q3, 2021 compared to $67 2 million in Q3, 2020, reflecting a margin of 48, 6% and year over year growth of 14, 5% third quarter adjusted EBITDA margins were affected by seasonal power costs and the.
Inclusion of a full quarter of data foundry results, excluding data foundries adjusted EBITDA contribution of $4 8 million switch adjusted EBITDA was $72 1 million, reflecting a margin of 49, 3% compared to a margin of 52, 1% in the year ago quarter again primary.
Really driven by an increase in power costs relative to Q3 2020 in the third quarter switch reported a net loss of 0.9 million compared to net income of $13 2 million in Q3 2020. The reduction in net income was primarily attributable to a $5 1 million reduction in income from operation.
And an $8 6 million increase in interest expense lastly on slide four customer churn was 0.2% in Q3 2021 unchanged compared to the year ago quarter looking now at our growing excess scaled portfolio on slide seven as of September 30th 2021 switch had approximately.
21700 billing cabinet equivalents across its five prime campus locations, reflecting 600 net cabinet additions compared to the prior quarter included in this total is approximately 3300 billing cabinet equivalents of data foundry compared to 3200 in the prior quarter, including a full <unk>.
Order contribution from data foundry the switch average monthly recurring revenue per cabinet was over 2300 $75 in Q3 of 2021 staying on slide seven as of September 32021, the five switch primes had capacity for approximately 29100 cabinet equivalents.
Within our open sectors of which 91% were committed under contracts compared to 88% in the year ago quarter now turning to bookings on slide 13. During Q3, we executed 657 contracts representing total contract value of 94 million in annualized revenue.
<unk> of $27 million at full deployment inclusive of both renewals and sales of incremental services. We are continuing to see strong customer demand in Texas and for the data foundry assets, our third quarter bookings in Austin, where a great example of the sales traction we are seeing with over $5 million in annualized revenue.
<unk> and approximately $40 million in total contract value from legacy data foundry customers. Excluding renewals, we signed $16 2 million of incremental annualized recurring revenue in Q3, including $15 million in incremental bookings from existing customers and approximately $1 two.
From 15, new logos now looking at revenue attribution on slide 15.
Total colocation revenue for the third quarter of 2021 was $125 9 million up 20% compared to $105 1 million in the year ago quarter, excluding $8 3 million and co location revenue from data foundry switch collocation revenue grew 12% to 100 and <unk>.
$17 7 million compared to the year ago quarter total third quarter connectivity revenue was $29 3 million, increasing 31% from the year ago quarter, excluding data foundry connectivity revenue of $2 9 million switch third quarter connectivity revenue increased 9%.
Chile, and 18% year over year to $26 4 million on an organic basis.
On a consolidated basis switch had more than 10500 billing cross connects as of September 30th and cross connects accounted for four 2% of total revenue in Q3, 2021, reflecting 26% year over year growth in cross connect revenue finally, other revenue including <unk>.
Affectional services accounted for $2 9 million in Q3, 2021, which includes approximately 750000 from data foundry.
Maintenance capital expenditures were $3 7 million for the third quarter of 2021, or two 3% of revenue compared to $2 million and one 6% of revenue in the same quarter last year.
Both capex, excluding land purchases was $132 2 million for the third quarter of 2021 compared to $80 6 million in the year ago quarter.
Please refer to slide 18 for a detailed breakdown of our capital expenditures by campus third quarter cost of revenue increased by $23 1 million compared to the year ago quarter of which $5 8 million was attributable to data foundry.
The $15 2 million increase in switch cost of revenue was primarily attributable to higher seasonal power costs and depreciation.
Excluding depreciation amortization and equity based compensation switches Q3, adjusted cost of revenue increased by $10 2 million, primarily driven by increases in power and connectivity costs compared to the year ago quarter. We would note that power rates have normalized in September and October following an elevated.
Forward pricing curves in the peak summer months third quarter SG&A expenses were $42 8 million up from 31 5 million in the year ago quarter normalizing the year over year comparison for data foundry switches SG&A increased by $7 2 million, primarily attributable to higher professional.
Services costs related to litigation and our ongoing REIT evaluation.
In the third quarter of 2021 switch accrued $4 7 million in litigation costs related to a lawsuit filed against the company in 2017 by cobalt a datacenter operator, who ceased operations in or around 2015, our prior expectation was for the trial to begin in 2022.
The court set the trial date for mid November 2021, we continue to believe the allegations lack merit and thus we intend to vigorously defend against the claims it has historically been our practice to exclude litigation costs from our presentation of adjusted EBITDA that are deemed to be unrelated to our patent portfolio or.
Core business operations as such our third quarter adjusted EBITDA excludes the litigation fees incurred in connection with our defense of the allegations, we expect SG&A costs to remain elevated in the fourth quarter of 2021 in connection with these two items. However, any litigation costs related to the case will be.
Excluded from our presentation of adjusted EBITDA Q3, 2021 income from operations was $17 8 million compared to $22 9 million in Q3 of 2020 the year over year reduction in operating income was attributable to increases in depreciation and amortization power costs and SG&A.
Interest expense increased by $8 6 million year over year to $15 2 million in Q3 of 2021, primarily driven by higher debt balances related to the issuance of $1 1 billion in senior unsecured notes adjusted funds from operations or <unk> was 51.1.
In Q3, 2021, 9% decrease compared to 56 million in the year ago quarter <unk> per diluted share was 21 cents compared to 23 in Q3 2020, primarily due to increases in interest expense maintenance capital expenditures and diluted shares outstanding.
Compared to the year ago quarter looking now at the balance sheet on page 21 as of September 30th 2021, the company's total debt outstanding net of cash and cash equivalents was $1 5 billion, resulting in a net debt to last quarter annualized adjusted EBITDA ratio of five point O times the increase in our lever.
<unk> ratio was driven by our historically lower Q3, EBITDA margin and the increase of $40 million on our revolver.
As of September 32021, switch had liquidity of $488 3 million, including cash and cash equivalents and borrowings available on our revolver as of September 30th 2021, our recurring revenue backlog stood at $37 million compared to 63 million in the prior quarter.
The reduction in backlog was a function of our nearly $40 million in annualized revenue Commencements. During Q3 of 2021, we expect our backlog to contribute approximately $3 million of incremental revenue for the remainder of 2021, representing an estimated 20 million of annualized revenue Commencements during Q4.
Please reference slide 17 for further details on our backlog and expected timing of Commencements as of September 32021, There were 242 million total shares outstanding, including $137 5 million class a shares and $104 5 million class B.
Shares.
As disclosed in recent 8-K filings during the third quarter of 2021, our members redeemed $6 1 million common units, resulting in the issuance of an equivalent number of class a common shares.
<unk> remember redemptions totaling $6 2 million in October and November our class a public float now represents 59, 4% of total shares outstanding now turning to guidance for 2021 on page 22 of our Investor presentation. We expect consolidated revenue in the range of 590.
To $595 million, including data foundry revenue of 27 million to $28 million. This represents 16% growth in consolidated revenue and over 10% organic growth excluding data foundry, our implied revenue guidance for Q4 represent 17% organic growth at the.
Mid point, demonstrating significant acceleration from recent trends and a result of ongoing growth across our five prime campuses. We expect consolidated adjusted EBITDA of $370 million to $314 million, including 11 million to $12 million from data foundry, reflecting a consolidated adjust.
EBITDA margin of 52, 4% at the midpoint lastly, our guidance range for capital expenditures, excluding land acquisitions has been increased to 410 million to $440 million, including $13 million to $17 million in the rock campus for development of the final sector of Boston.
And three and site preparation for the Austin, four and Austin five facilities, the $25 million increase in our Capex midpoint reflects an acceleration of equipment purchases and construction activity in response to strong customer demand, particularly as the sales funnel begins to build for our Las Vegas.
15 opening in Q2 of 2022 relative to our prior guidance range of 1% reduction in our 'twenty 'twenty. One revenue guidance midpoint is primarily related to lower than expected contribution from pass through power revenue. During the second half of 2021. In addition to a modest timing difference in customer.
<unk> deployments relative to prior expectations the revenue impact from lower pass through power is largely offset by lower than planned power costs for the second half of 2021, resulting in no material change to the full year adjusted EBITDA guidance. The portion of 2021 revenue guidance affected by the timing of.
Installations was largely due to the strategic customer signing in Austin that occurred in Q3, but will begin the ramp on its five year contract in early Q1 2022.
And now I will turn it back to Thomas for some closing remarks.
Thank you Gabe we firmly believe that switch is favorably positioned for the rapid digital transformation among enterprises as they continue their migration to hybrid multi cloud architectures. We are working hard to accelerate the delivery of additional data center capacity to meet the strong level of demand.
We are currently experiencing and we are confident in our team's ability to execute on behalf of our entire management team.
We would like to take this opportunity to thank our employees customers partners and our shareholders for their continued support of switch we.
We would now like to open the line for questions.
Our first question comes from Eric Lipp Chow from Wells Fargo. Please go ahead. Your line is open.
Hi, Thanks, and good morning.
Well.
Go over this at the at the Analyst day, but just wondering if you could give us a little bit of color on the decision for a REIT conversion some of.
The puts and takes into considerations in terms of.
Why do you think pursuing to read at this point is the right the right strategy.
Yeah, Good morning, Eric and thank you very much.
We've always wanted to maximize shareholder value and we believe that converting at this time is something that will drive shareholder value and that is the reason we can do it. The board has met with a variety of external advisors as well as the internal team and they believe that the change is going to be favor.
Both shareholder value and will not have any sort of negative impact on our ability to operate and reach our growth initiatives. So we've worked out ways to balance all of those various imperatives and we believe at this time that converting to a REIT is the way to maximize shareholder value.
Yeah.
Okay, Great and then one follow up for me.
Maybe you could just talk about your supply position today, obviously Las Vegas 15 coming online next year do you think you'll be a little more limited in terms of your ability.
To lease up new cabinets in the next couple of quarters or as you mentioned it sounds like the funnel is building for Las Vegas <unk>.
That largely available to be pre leased or pre sold the next couple of quarters as we entered the new year.
Yeah, that's correct, we have existing inventory that inventory is spread around our four five primes now and we believe that we will sell into that inventory and then in the first half of 2022, we have Las Vegas, 15, coming online, which will bring additional revenue to us and then at the beginning of 2023.
We have tahoe Reno to coming online so there will be a lot of inventory available.
Available for people to load into in the future and we believe that we'll be able to meet that demand.
Eric Great we are.
We are currently talking to customers today about Las Vegas 15, So yes. It is available for pre leasing.
And to reiterate Thomas's point, we have one 3 million square feet coming online between early 'twenty two in early 'twenty three.
So we believe we're well positioned to continue growing in the future and for the first few months of 2022 until Las Vegas 15 comes online we do have inventory in Las Vegas, We do have inventory in Texas, we do have inventory.
Okay, great. Thank you Bill.
Yeah.
As a reminder to ask a question. Please press star followed by one on your telephone keypad now.
Our next question comes from Richard Choe from Jpmorgan. Please go ahead.
Hi, you've had a full quarter of data foundry. It seems like the acquisition is going well can you give some update.
The guidance seemed pretty good about the margin improvement how should we think about it going forward.
Sure Richard I'll take that we're very happy with the acquisition the team on the ground with data foundry has been fantastic and as we talked about our strategy for that acquisition. It was really to give us a two year head start into the Texas market. Because we knew we were looking to build our facilities on the Dell.
Campus and by acquiring data foundry, we got a fantastic staff that knows how to run high quality data centers, we had a very strategic.
Sales in the quarter.
Essentially takes the last sector of the existing data foundry facility. So we're really happy with the way things are going there and as far as the synergies that we expected we talked to the street about expecting $2 million in annualized.
Synergies.
Are already exceeding that number.
Yes, just to Echo one thing that we've said is our largest sale actually came from data foundry and that team has done a really good job with the integration and that has resulted in achieving synergies faster than expected. So we're very pleased by the way that that acquisition is rolling out.
Once that sale already.
The works before you acquired it or can you talk a little bit more about that.
That sale was not done and not in the works before we acquired it it was a post acquisition opportunity that the data foundry team helped us successfully land.
Great. Thank you.
We'll take our next question from Ari Klein from BMO capital markets. Please go ahead.
Thanks.
He brought in a chief revenue officer can you talk about how you expect your go to market strategy to evolving and maybe what do you feel like it can be executing a little bit better.
With that.
Well, yeah, all right. Thank you very much and you know we have pretty good growth in Q3, and seven and about 17% in Q4 organic growth projected.
So we feel like we're doing quite well in our sales, but now that we are in six different cities in five different campuses. There is a need for a growing national footprint, we need a leader for the sales team for that sales footprint.
And that is why Jonathan King has been brought on board and we think that he is going to be incredibly effective in deploying that group and enhancing our sales force both in terms of numbers and strategy and approach. So we are we're really pleased to have him on board and it's just a natural evolution of the company and its.
Size and its breadth and that we need a leader in the sales organization and that is of the caliber that Mr. King games. So very very pleased to have him on board and look forward to the results as we move forward into 2022.
Got it and one of the thing that brings to us.
I'm sorry, he's been he's been around the industry for 20 plus years.
He is known Jonathan for for many many years and there's always wanted to bring him onboard but he's always been a very tough guy to get.
Because people keep taking taking him.
Wherever they go but in addition to his experience at Google. He was he was previously at a worldwide technology, which is.
Very very large channel partner not only do we expect them to build continue to build our direct sales force. We really do expect him to add a lot of channel expertise to our sales force.
And help us grow that national footprint.
Got it and then Gabe I think you mentioned that there were some comments then.
Any issues.
And the guidance doesn't sound like it had a big impact, but can you just talk about that and what youre seeing there.
Yes sure.
It was it was it was a very small impact to our guidance.
Mary reason for adjusting our guidance was pass through power revenue when we talked in in Q2.
We had a forecast for power revenues that are involved.
It would curve increase and we actually locked in power at lower rates than we were expecting so we pass through those lower rates and therefore get the lower revenues. So the timing issue was really quite.
Quite minimal and it was really related to this large Texas transaction, so instead of selling into that last sector of Austin three as we typically do with a variety of customers. This one customer took the entire sector and theyre not ramping until early 2022. So that's really the primary driver behind the timing.
Yes.
Thank you.
Our next question comes from Sami Badri from Credit Suisse. Please go ahead.
Great. Thank you.
Couple of questions.
Could you just walk through how switch manages the power costs and you've made several references to how that's managed and power cost savings to the customers et cetera, but you know maybe we could just revisit how you guys are trading things and also do these treatments apply to both the data foundry customer base and switch legacy.
So this is question number one and then question number two is can you just give us an update on any kind of renewal activity and pricing that the existing data foundry customers are actually seeing I know that's part of the synergy or the revenue synergy story for you guys and I'm I'm I have a follow up.
Sure Sami with regard to power his.
Historically, you know over the last.
Eight or so power costs have actually been going down for switch primarily in 2017, when we decoupled from NV energy.
Utility provider in Las Vegas, and went to an open market strategy, our power rates were able to drop quite a quite significantly. This is really the first time that we've seen an increase in our <unk>.
Our rates.
So we typically have not adjusted our power rates upward, but because of this increase we've specifically adjusted about half of our customers that have.
The latest with the right to adjust power rates up.
The average increase was about 4% and we do lock in Palo wherever possible right. Now we are currently locked in for the next 12 months and we are actively working in the markets to lock in additional power for longer periods of time, we're also building.
Solar fields.
In.
In Nevada, and we have 25 year power purchase agreements related to those solar field.
Got it and then maybe the second question on that is.
On the renewables, our new Oregon pricing and sorry.
One other clarification on the prior question is data foundry versus switch you may have addressed it but just checking.
Data foundry and.
And Texas has as power.
Power rates that are coming from the utility.
As opposed to open market purchases that we experience here in.
In Las Vegas, so their power structure is different and we didn't put any power pass through for any of the data foundry customers and with regard to renewals and data foundry. The renewals are going quite well. In addition to two of the large strategic.
Signing that we made for the last sector and data foundry. We also had another large renewal and incremental increase from another large customer data foundry.
At the same rate so no weight reduction so we're very happy with the way things are going in data foundry.
Great.
Sami just one credit.
Okay.
Sorry, One quick addition, just to let you know that we are building. These solar field in order to continue and polar for eight or 100% commitment to green energy and as you may have seen our press release. The EPA just gave us accolades for being 100% Green and rated us in the top 23 out of 100 companies on their scale of <unk>.
Green energy companies. So we continue our commitment to our ESG initiatives.
And we're doing that through power as well as the way that we operate our facilities.
Okay.
Got it and then just.
The renewal pricing question.
Mhm.
I'm, sorry, I think we're not seeing address that.
Yeah, I think we addressed that.
Okay.
The other follow up question I had was more to do with supply chains and it's a two part question. The first one is since switch actually designs and and has the IP for a lot of the actual industrial components that go into your data centers.
Are you guys prioritized in the pecking order of manufacturing and shipments with your with your vendor supply base. So that's question number one and then number two is if you were to give us a percentage magnitude of the number of customers that you're working with that have seen delays of equipment to arrive to your facilities and therefore slowing down commenced.
And it's what percentage of the customer base or the incoming kind of Commencements would you say have been paused or delayed because of supply chain issues.
Alright, so Gabe I'll take a first pass at this and then please weigh in but as to prioritization, we have very long standing relationships with our supply chain manufacturers.
We do do custom built so they go in a different supply chain than just the commodity products, they're very long lead time items. So we've been able to plan and order those items a long time ago.
And because they are accustomed builds they go on a different route. So we have not had any significant impacts by supply chain, delivering and being able to deliver us in a timely manner.
As to customers, we havent experienced any customers doing significant delays or sharing with us they've had significant delays and their need to obtain items to deploy in our facilities and they have been deploying on time and on pace. So we haven't seen much in the way of a supply chain impact.
At least to date in our operations.
Yeah, I'll add to that Sami.
As Thomas said our equipment.
Suppliers really do build a very different product for switch based on our patents and you'll notice that we did increase our capex guidance by about $25 million. This quarter a lot of that has to do with ordering power equipment, we want to make sure that we are.
We have all of the production slots that we need.
Howard and cooling equipment from those suppliers to meet our customer demand. So we're not anticipating any.
Any slowdowns in our delivery and we're not anticipating any supply chain issues, but we did want to lock in all of those slots and we've ordered all of equal.
Got it thank you very much.
Next we take your question from.
Thanks for taking a question from James Breen from William Blair. Your line is now open.
Yeah.
Thanks for taking the question can you talk a little bit about.
Okay.
Customer interest across multiple data centers any color you can give us on what.
Customers are taking space in all of the facilities are multiple facilities.
Yes, the customer journey.
As we mentioned during our initial remarks, the number of customers Cross populating has continued to grow and proliferate, which is great. It's not tied to any particular industry.
Or any particular organization in terms of the way that they are spreading across our campuses, but we are very pleased to see customers take space in multiple locations and it was one of the reasons that we originally expanded back east and one of the reasons that we also expanded into Texas, but 38%.
<unk> of our customers well.
Well, 38% of our revenue is multi campus, which is continuing to grow and where you expect that to continue to increase which is good in terms of elevating overall revenue, but it's also good and stability of customer engagement. So we are pleased by both of those numbers going up and the fact that it will help.
Stabilize our platform.
Okay.
And are you seeing a noticeable difference in customer churn between the multi tenant customers versus single spot.
No churn has remained unchanged at 0.2%. So it is unchanged from Q3 in 2020, so no appreciable differences there.
Great. Thanks.
Okay.
We have a question from Michael Rollins from Citi. Please go ahead.
Thanks, and good morning.
I'm curious.
Yes, a little more into the REIT conversion.
So first do you have to purge any of the routine earnings and make a distribution to shareholders prior to conversion.
And the second part of this topic I was curious about is what happens to the tax receivable agreement.
Does REIT conversion impact the existing liability.
From shares already converted as well as the remaining liability from shares yet to be converted.
Sure Mike I'll take those.
As far as the the E&P purge that's required upon our REIT conversion, we are still working through those numbers.
We'll provide additional detail at our Investor day, and really more additional detail next year, we're targeting a January one 2023.
Election date, which means that during 2022. This is a complicated process, we need to go through all of our assets and income determine which ones are going to be REIT qualifying which ones are not.
Set up a taxable REIT subsidiary and.
Divide up the business. Accordingly, so there was a lot of work to be done two of the items that still need to be finalized or the E&P purge, but we don't believe that's going to be a materially large number for us and as you mentioned the TRA. The tax receivable agreement is another item that we have a variety of alternatives to deal with the TRA.
And those range from early termination of the PRA to continuing the TRA depending on on different structures that we utilized so all of that is still being analyzed and we'll provide additional information as we have it.
And then just an update on just as you look at the bookings and churn environment.
How should investors think about the possible lumpiness each knot.
Not really customer churn perceive it revenue churn, which had certain moments has had elevated impacts but then also on the other side on the bookings you've had a range of outcomes over the last number of quarters. So what's the right way to think about the lumpiness of each of these going forward.
Yeah actually as far as our bookings number or incremental annualized revenue has been relatively flat for the last for the last three quarters Q4, 'twenty 'twenty was quite elevated because at year end, we have some large signings that typically come in.
But we've been running at over $15 million in incremental annualized bookings for the last three quarters. If you go back a year or so ago. We were typically running around 10 million of incremental annualized revenue. So we're really excited and quite happy with the increase in our bookings, but you are correct. I mean, there is lumpiness into our in our revenue.
As things are bookings commence and his ramps occur we signaled earlier in the year that we would have accelerated revenue going into the back half of the year, because we had bookings that we knew would commence and that is indeed exactly what's happened.
We obviously had 23% growth.
In Q3, and we're looking at 27% growth.
In Q4 at the midpoint of our guidance, but really the exciting number as the 17% organic growth that we're looking for in Q4, and that's because of the Commencements that we've had in the back half of this year as they roll through in comparison to the prior.
Prior year same quarter revenue. So there is some lumpiness to our business I think that's just a.
A natural part of what we do we have a number of retail clients as you know that take one cabinet two to five cabinets 10 cabinets to 30 cabinets, but then we have some very large customers that take hundreds of cabinets.
As those companies ramp and that's what creates a bit of the lumpiness.
Yeah.
I would I would say that gave is spot on.
And it is true that we have some lumpiness as we do larger deals they all have phase ins or rollouts and the way that they deploy and even it takes some time to close a large deal and then to figure out what their deployment schedule is and how that ramps in overtime.
Pre deal is different and even once you've closed the deal there can be timing of when that revenue starts to flow in but overall their projection is onwards, and upwards and is continuing to grow and as Gabe said, we're looking at 17% organic growth in Q4. So we continue to our momentum of growth and with Jonathan King coming onboard.
Lord and us firming up the way that we do our sales both direct sales and indirect sales and channel partners. We believe that we have built a platform to have sustained growth going into 2022 and beyond.
Additionally.
You know, our you know our history, well and we've been <unk>.
<unk> digit growth company for many many years and on a compound annual growth rate continues to be double digits, but that doesn't mean, it's double digits. All the time in our history proves that out but over the long run we're very excited about our future. We have one 3 million square feet of space coming online.
In a relatively short future and then another $1 9 million coming online after that so we believe from an inventory standpoint, nobody is building the kind of of of.
Inventories at switches building right now and certainly no. One is building the quality, which is building so as corporate data centers.
Corporations are looking to close their their data centers and move to a co location and hybrid cloud environment. We believe we are uniquely positioned to continue that growth.
And just on the churn side a year ago I think it was in the fourth quarter.
Remembering this correctly there was some incremental revenue churn.
That didn't come up in the customer churn. There was just some migrations that you had two of them are there any of these.
<unk> types of migrations or risks that we should just be mindful of as we're thinking out over the next one to two years as you kind of see what's coming up for renewal and you've had conversations with customers.
Yeah, right now there really isn't any anything that we see in the horizon that is going to be significant we have normal customer deployments that are moving workloads from one one facility to another customer's move.
Workloads to the cloud back from the cloud they've been doing that for 20 years, but theres nothing material that we're that we're looking at over the near term.
Say multiple years out.
I don't have good data on what customers are going to do multiple years out, but we don't expect anything material.
Thank you.
The next question comes from Frank Louthan from Raymond James. Please go ahead.
Great. Thank you.
Can you give us maybe I missed this but can you give us an idea of what the pass through power has been running the last few quarters or is that disclosed somewhere.
Causing some confusion this morning.
And then.
I've got another question on the.
The reconversion or do you think youre going to need to seek.
Or with the IRS in conjunction with that and would you be able to get that done.
Before before January 23.
I'll answer the second question Gabe and we don't think that we're going to need to seek a P. L. R.
Conversion of.
Of data centers into right now is pretty well vetted out and there probably isn't a need to do that but we continue to evaluate the various options and paths that we have to do this conversion to being a REIT and we will have more to speak about that on our investment day.
And throughout the course of the next year as we work towards implementation in January one 2023.
Gabe do you want to speak to pass through power.
Sure with regard to power, we sell contracts in a variety of different flavors, we have a number of circuit based customers, where they will buy a cabinet where the circuits and they can use as much of that circuit is baked in.
Like we have customers that buy cabinets, and then buy power separately, we have customers that commit to them.
All in power commitment floor that includes both cabinets and power. So we sell a variety of different formulas with regard to the increase that we pass through as I mentioned it affected about about.
About 50% of our of our customers.
Our utilization of power and the typical increase was on an average about 4% and this is the first time, we've ever done that.
Okay, so as far as the guidance going forward coming down and you just mentioned.
No margin or low margin or can you give us an idea like in a dollar basis on a quarterly basis, what does that usually run. So we can get an idea of the magnitude of how that whats really changed here.
Yes, the increase that the reduction in the power revenue than we were expecting was about $4 million.
In Q4, so that's the largest part of our decrease in guidance.
Okay is there anything anything else that was low margin in there to do for the Delta and the change or is it pretty much you know the other the other the other piece of the pie as we talked about earlier was really related to the timing of the large sale that we made in Texas.
Got it okay.
Alright, Thank you very much.
Thank you.
Next we have Colby <unk> from Cowen. Please go ahead.
Okay. Thank you.
So I guess I'm still confused and I apologize, maybe everybody else understands it so you're you reduced your guidance.
For lower pass through because you said you got lower.
Power pricing and you pass it onto your customers and that's the 4 million that you just referenced to Frank.
Then you're also saying that for 50% of your revenue base I think.
Youre, saying that you just implemented a 4%.
Increase tier.
Are you seeing which presumably would have up.
I guess a positive benefit on revenues.
Even though not necessarily on EBITDA in the fourth quarter and then into 2022, so I'm just trying to.
Unpack those two things do they seem kind of in polar opposites and then secondly.
Yeah.
Yeah to the extent that you guys see an opportunity for.
Bigger deals and what youre accustomed to signing.
Particularly in markets, where you may have a decent amount of capacity. So for example, Michigan.
Would you be interested in any of those types of deals even though there what some may perceive as hyperscale when you've historically said you're more focused on enterprise. Thank you.
Yes, Colby with regard to the power.
<unk> put forth our guidance in Q2, we were expecting a certain amount of power pass through revenue to increase we had built in about seven or $8 million.
Of additional pass through revenue coming in the back half of the year.
We actually locked in lower prices than we anticipated so that pass through revenue is less than what we anticipated by about $4 million, but along with that comes lower power costs. That's why our EBITDA is not impacted.
Hopefully that.
Does.
That helps I mean that was part of our increase or increase in our guidance in Q2 based on that expectation that we have actual numbers.
We have adjusted guidance for that.
Yes.
As far as the the types of sales that were interested in Thomas you want to.
Before I go to that so how does the increasing pricing by 4% play into that.
Is that separate then and I guess.
Isn't that if you're raising pricing by 4% doesn't that mean for all intensive purposes for 50% of your revenue, it's 4% higher in there I guess, 2% for the total business.
<unk>.
Is that separate from this pass through components that you just described.
No no no that's that is the component.
Yes, some of it is going to be timing too I mean gave it drinks we didn't have.
We didn't have a full quarter of the increases in revenue.
Those increases I'm, sorry increased as the pricing and those increases in pricing as we will experience a full quarter in Q4.
But it was only a partial quarter in Q Q3, and that's part of the reason you're seeing that it's not the increase in pricing doesn't offset.
Revenue.
Okay, we can take it take it offline.
Yes.
Okay as to larger customers. We absolutely are open to doing large customers. We had a customer last year that took 12 megawatts from us.
In Reno, which is fairly significant and we have talked to a number of enterprises, just because they're not just but because their enterprises doesn't mean that they're small customers.
You know a hyperscale large scale I mean, the cloud customers, it's two or three customers that you're talking about when we when we referenced those customers, but we have very large scale deployments in potentially in the Q and those come from enterprises migrating out of their corporate data centers and into a colocation environment.
And we're seeing those impacts and potential sales in all of our campuses, most notably up in Reno, where we have a large building coming online in 2023.
Yes.
Just to come back to you I want to make sure that you're clear on.
What we're saying and I don't want there to be any confusion. So running the numbers. If you look at our Q4 guidance we're guiding.
At the midpoint to about 160 62 million 161, eight you know.
About half of that revenue.
Able to adjust for power So you left it.
Yeah.
$81 million or so.
And if you take a 4% increase on that Youre getting to about three and a half million dollars or so.
Additional quarterly revenue and that's what's in our guidance today.
Now in Q2, we thought that was going to be about double end.
We were able to lock in lower rates.
Got it okay. Thank you that clarifies.
Thanks.
Okay perfect.
Yeah.
Next we have a question from Brendan Lynch from Barclays. Brendan Your line is now open.
Great. Thanks for taking my questions maybe.
Maybe you can give us an update on the edge data center initiatives it looks like.
In the slide deck, you had a photo from Tennessee, maybe just give us an idea of how the rollout is going.
Yeah. Thank you Brendan and appreciate that and yeah. We did put a picture of the edge data center in Tennessee that is looking to come online in the near future and we're excited about that we have other locations in the Q that we will be announcing in March.
<unk> into <unk>.
But again remember remind everybody that the edge data center from a co location point of view is not really a large contributor in terms of revenue the opportunity with edge is to work on our vault platform do the fourth column in conjunction with our partners and expand our telecommunications network.
Hedge will take some time to roll out and do so effectively but we don't expect it to be a large contributor in 2021 or significant probably in 2022. So.
That is just an update on edge if you will.
Dave anything to add to that.
Nope I think you've covered it.
Awesome.
Great and maybe just a follow up.
The press release alluded to you, giving multi year growth objectives at the Investor Day can you tell us if youre planning on giving specific revenue EBITDA and if Bo targets or are your growth objective is going to be more generalized.
Yeah.
Well, what we're gonna give revenue rec.
New growth targets over the long term, we're gonna give an EBITDA margin target over the long range and we'll provide some additional information on <unk> as well.
But we're certainly looking forward to your tuning in to get that data.
Great. Thanks for taking my questions.
Thank you.
The next question comes from Nate Crossett from parent pack Nate. Please go ahead.
Hey, good morning.
Just one follow up on the REIT conversion in terms of the E&P distribution.
When was the timing on something like that be and how would you think about funding that.
Kind of sounds like it's not going to be a large amount but.
At the same time I think your leverage levels are the highest they've ever been so.
How should we kind of square that and then just overall comments on leverage would be helpful.
Sure.
As far as the E&P purge again, we're still determining exactly what that number is going to be but we really don't believe it's going to be material or create a funding issue of any kind for us as far as timing.
To that before we actually make the election, while the election is effective as of the tax year January one 2023, we actually have until.
Until we file our 2023 tax returns, which would be October 24 to make that election of course.
Yeah, we wouldnt want to wait that long, we we'd want to be operating as a REIT.
'twenty three because otherwise you make your election in your immediately a busted read if you haven't.
Provided the dividends that you required and separately to your assets as you required.
The E&P purge would likely take place in in 'twenty three at some point, but we don't believe it's going to be easier.
And as far as leverage in general.
We were operating at very low leverage from.
Since the inception of the company really and because of that we were able to do the data foundry acquisition with no additional equity raise which we think increased our enterprise value benefited shareholders tremendously and used our balance sheet effectively.
We're sitting at around five times today, but we know if you look back at our history that Q3 is typically our lowest EBITDA margin quarter because of summer power rates in Nevada, and we expect leverage to come down in Q4.
Sure.
Okay.
Just in terms of the dividend level upon converting to a REIT is there any color you can give us there I mean.
There is a disparity across the space about payouts so I'm just.
What's your thinking on that.
We will provide more information on that as we have it that's just one of the many complexities that we're still working on as part of this REIT conversion.
Yeah.
Okay.
And then just one quick on just liquidity of the shares.
Bin picking up a lot in the last year I'm, just curious with the latest redemption would get you to.
Yeah, we look at our latest redemptions through November.
We will be at just under 60% publicly floated shares so we're quite happy with the float as it currently sits we've got good trading volume.
The concerns about about low float is essentially dissipated we're not hearing that anymore and we will see additional redemptions next year, we have another eight opportunities for our partners to redeem shares next year.
Yeah. That's correct. We currently trade more north of $50 million worth of stock a day. So most people do not consider us an illiquid stock in any respect.
So we really gave US right, we really don't get many questions on that and we will crest over 60%.
In the near future.
Okay. Thanks, guys.
Thank you.
I have a final reminder to ask any questions. Please press star followed by one I know telephone keypad.
We take our next question from Erik Rasmussen from Stifel. Erik Your line is open.
Yes, thanks for taking the questions, maybe just to a lot's been addressed but the EBITDA margins, obviously were impacted by the higher power costs, but.
It sounds like a return to more normalized rates in Q4.
But what's sort of the limiting factor at this point is it is it really just the data foundry business, that's creating some of the headwind given the margin structure.
Yeah, Yeah, well I think.
Go ahead Thomas.
Alright. Thank you the Q3 power costs are always higher than the other quarters. So that's a seasonal item that we see every year. It's summer. It's hot we use more electricity to run the HVA C units and the price of that electricity goes up that's that's nothing new.
And then we have data foundry that we brought onboard and we have the first three months on data foundry, which resulted in about a 75 basis point reduction in margins.
Okay, Great and then maybe just.
Clarifying.
You talked about accelerated equipment purchases.
Is that really more just demand or is it there's some of the supply chain issues are in the market, that's it and knowing that.
Getting access to critical components in it.
It is a little more challenging thanks.
Yeah. Some of it is just the fact that we are growing our facilities at such a rapid rate and the other is to just avoid any supply chain issues, putting our orders in early making sure that our suppliers know that the orders are there that they have the money that they need to continue their builds and that we adjust our style.
And our own expectations for the potential of a longer supply chain. So what we have done is placed the orders earlier to both.
Help our demand curve and also make sure that our suppliers had adequate time to provide us the equipment that we need without delay.
Yeah.
Eric I'll add to that a bit.
Look at our build plan not only is Las Vegas, 15, coming online, but the other facilities are also going to be coming online about a year after that but we're also adding a lot of equipment to our Reno facility due to customer demand, we are adding equipment to Las Vegas 11, due to customer demand, we are adding equipment to our Atlanta facility due to customer demand.
So I.
I think it's primarily demand driven but as Thomas said, we also want to lock in those production slots from our suppliers.
That's helpful. Great. Thank you.
Thank you.
Okay. There are no further questions, which now brings us to an end. Thank you all for joining you may now disconnect your lines.
Thank you.
Yeah.
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Okay.
Okay.
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Yeah.