Saturday, November 25, 2017

NYSE: SWCH. Mega data centres operator Switch files for IPO

With a portfolio of 12 million sqf and more than 1,000 MW of power, Switch’s footprint could prove to be a giant stock market addition.

The New York Stock Exchange (NYSE) could soon see the eighth US data centre operator make its market debut as Switch, Inc, officially files for IPO.

The other data centre companies currently trading include Equinix, Digital Realty Trust, CoreSite, QTS, CyrusOne, Iron Mountain, and DuPont Fabros Technology, which is currently in the process of being acquired by Digital Realty.

Switch’s initial public offering was made on Friday, September 8, 2017, and concerns the company’s Class A common stock.

Switch said it plans to trade under the symbol SWCH. The company has, however, cleared out the price per share for the IPO, not disclosing the value of the offering.

Following the offering, Switch will have three classes of authorised common stock. The Class A stock and the Class B common stock will have one vote per share. The Class C common stock will have ten votes per share, according to the filled documents.

In the documents, the company has also unveiled that on an annual basis, revenue has grown from $166.8m in 2013 to $318.4m in 2016, representing a compounded annual growth rate (CAGR), of 24.0%.

Switch generated net income of $73.5m and $31.4m during the years ended December 31, 2015 and 2016, respectively, and $35.2m and $35.3m during the six months ended June 30, 2016 and 2017, respectively.

Net income for the year ended December 31, 2016 included a nonrecurring charge of $27m related to becoming an unbundled purchaser of energy in Nevada.

As of June 30, 2017, Switch had total indebtedness of $825.4m under credit facilities.

The company’s footprint includes today four prime campuses in the US: three operational and one under construction.

The total grows sqf full capacity will amount to 12 million, with onl four million sqf currently available. Power exceeds today 415MW, with full capacity design projected to top 1,185MW.

The company has a customer base of more than 800 clients, including over 100 cloud and managed services providers and 50 telecommunications providers.

Switch has also expressed its desire to establish strategic partnership. It said: “We may enter into strategic relationships with a variety of partners that contribute to our business. For example, rather than simply offering our customers connectivity to public cloud environments, frequently referred to as being an “on ramp” to the cloud, we may partner with public cloud providers to address that portion of their customers’ needs that require higher density and reliability than is typically available from public cloud offerings.

“To facilitate these potential partnerships, we plan to expand to locations near hyperscale cloud deployments where we can provide colocation for cloud customers’ mission critical needs.”

Risk factors of an IPO

In the filing, the company has also laid out the risk factors associated with a data centre business. Here’s the main ones:

  • A slowdown in the demand for data center resources and other market and economic conditions could have a material adverse effect on us.
  • Any inability to manage our growth could disrupt our business and reduce our profitability.
  • Our operating results may fluctuate.
  • The data center business is capital-intensive, and our capacity to generate capital may be insufficient to meet our anticipated capital requirements.
  • Failure to obtain the necessary capital when needed may force us to delay, limit or terminate our expansion efforts or other operations.
  • We face risks associated with having a long selling and implementation cycle for our services that requires us to make significant time and resource commitments prior to recognizing revenue for those services.
  • We may not generate sufficient cash flow to meet our debt service and working capital requirements.
  • Increased power costs and limited availability of power resources may adversely affect our results of operations.
  • We generate significant revenue from data centers located in one location and a significant disruption to this location could materially and adversely affect our operations.
  • Any failure in the critical systems of the data center facilities we operate or services we provide could lead to disruptions in our customers’ businesses and could harm our reputation and result in financial penalty and legal liabilities, which would reduce our revenue and have a material adverse effect on our results of operation.Delays in the expansion of existing data centers or the construction of new data centers could involve significant risks to our business.
  • We are continuing to invest in our expansion efforts but may not have sufficient customer demand in the future to realize expected returns on these investments. If we fail to adequately protect our proprietary intellectual property rights, our competitive position could be impaired and we may lose valuable assets, generate reduced revenue and incur costly litigation to protect our rights.
  • We may in the future be subject to intellectual property disputes, which are costly to defend and could harm our business and operating results. We rely on the proper and efficient functioning of computer and data-processing systems, and a large-scale malfunction could have a material adverse effect on us.
  • We may be vulnerable to security breaches which could disrupt our operations and have a material adverse effect on our financial condition and results of operations.
  • A significant portion of our revenue is highly dependent on a limited number of customers, and the loss of, or any significant decrease in business from, these customers could adversely affect our financial condition and results of operations.
  • Our customer contract commitments are subject to reduction and potential cancellation.
  • Our customer base may decline if our customers or potential customers develop their own data centers or expand their own existing data centers.
  • Our churn rate may increase or we may be unable to achieve high contract renewal rates.
  • If we do not succeed in attracting new customers for our services and growing revenue from existing customers, we may not achieve our anticipated revenue growth.
  • The migration from colocation data centers to the public cloud may have a material adverse effect on our results of operations.
  • Unanticipated changes in the tax rates and policies of the states in which we operate could materially and adversely affect our results of operations.
  • The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could seriously harm our business.
  • Future consolidation and competition in our customers’ industries could reduce the number of our existing and potential customers and make us dependent on a more limited number of customers.
  • We may not be able to compete effectively against our current and future competitors.
  • We have government customers, which subjects us to risks including early termination, audits, investigations, sanctions and penalties.
  • If we are unable to adapt to evolving technologies and customer demands in a timely and cost-effective manner, our ability to sustain and grow our business may suffer.
  • We depend on third parties to provide Internet, telecommunication and fiber optic network connectivity to the customers in our data centers, and any delays or disruptions in service could have a material adverse effect on us.
  • The occurrence of a catastrophic event or a prolonged disruption may exceed our insurance coverage by significant amounts. Environmental problems are possible and can be costly.
  • Our leases for self-developed data centers could be terminated early and we may not be able to renew our existing leases and agreements on commercially acceptable terms or our rent or payment under the agreements could increase substantially in the future, which could materially and adversely affect our operations.
  • Any difficulties in identifying and consummating future acquisitions, alliances or joint ventures may expose us to potential risks and have an adverse effect on our business, results of operations or financial condition.
  • If our or our customers’ proprietary intellectual property or confidential information is misappropriated or disclosed by us or our employees in violation of applicable laws and contractual agreements, we could be exposed to protracted and costly legal proceedings, lose clients and our business could be seriously harmed.
  • Competition for employees is intense, and we may not be able to attract and retain the qualified and skilled employees needed to support our business.
  • The uncertain economic environment may have an adverse impact on our business and financial condition.
  • Our international operations through our joint venture may expose us to certain operating, legal and other risks, which could adversely impact our business, results of operations and financial condition.
  • Future legislation and regulation, both domestic and abroad, governing the internet and other related communications services could have an adverse effect on our business operations.
  • Our properties may not be suitable for use other than as data centers, which could make it difficult to sell or reposition them if we are not able to lease available space and could materially adversely affect our business, results of operations and financial condition.