Exhibit 99.1
Switch & Data Facilities Company, Inc.
Announces Fourth Quarter and Full Year 2006 Financial Results
• | Reports Strong Fourth Quarter and Full Year 2006 Revenue |
• | Key Customer wins and expansions including, Time Warner Telecom, Limelight, and Verisign |
• | Strong year for Customer acquisitions |
Tampa, Florida – March 28, 2007 - Switch and Data Facilities Company, Inc. (NASDAQ:SDXC), a leading provider of network neutral interconnection and colocation services, today reported financial results for the three months and year ended December 31, 2006.
Fourth Quarter and Full Year 2006 Review
For the three months ended December 31, 2006 total revenue increased 9.5% to $29.3 million from $26.7 million in the comparable period in 2005. Total revenue was $111.8 million for the year ended December 31, 2006, a 6.1% increase over revenue of $105.4 million for the prior year ended December 31, 2005. Recurring revenue, which consists of colocation and interconnection services, was $27.9 million in fourth quarter 2006, an increase of 9.2% over the comparable period in 2005. For the full year 2006, recurring revenue increased 6.1% to $106.9 million as compared to $100.8 million the prior year. The increase in recurring revenue was primarily due to the sale of services to new and existing customers.
For fourth quarter 2006, non-recurring revenue, representing one time installation fees and services, was $1.4 million, compared to $1.2 million in the prior year. For the full year, non-recurring revenue increased to $5.0 million from $4.6 million for the year ended December 31, 2005 due to increased support services.
Cost of revenues, excluding depreciation and amortization, for the three months ended December 31, 2006 was $15.2 million as compared to $14.8 million for the three months ended December 31, 2005. For the year ended December 31, 2006 cost of revenues increased by $5.6 million, or 10.2%, to $60.4 million as compared to $54.8 million for the year ended December 31, 2005. The increase in cost of revenues was primarily due to the expansion of the Company’s facilities in several markets, including the San Francisco Bay area and New York City.
For the three months ended December 31, 2006, sales and marketing costs increased approximately 22.0% to $3.1 million from $2.5 million for the comparable quarter in 2005. Sales and marketing expenses increased 25.2% to $12.3 million for the year ended December 31, 2006 compared to $9.8 million for the year ended December 31, 2005. The increase in sales and marketing costs was due primarily to an increase in commissions and increased headcount.
General and administrative expenses declined by $0.9 million for the three months ended December 31, 2006 to $2.5 million due primarily to lower professional fees. For the year ended December 31, 2006 general and administrative expenses were $10.4 million, an increase of 8.4% over the prior year primarily due to increased headcount.
Adjusted EBITDA, which is a non-GAAP measure, and which the Company defines as operating income from operations, plus depreciation and amortization, stock-based compensation expense and other non-cash items such as deferred rent and asset impairment was $9.0 million in the fourth quarter of 2006 and $31.8 million for the 12 months ended December 31, 2006 compared to $7.4 million and $34.6 million in the comparable periods, respectively in 2005.
Capital expenditures were $4.4 million and $21.3 million in the fourth quarter and full year 2006, respectively.
Keith Olsen, CEO and President commented, “Our sales momentum continues to build on the progress we achieved in 2006. We increased billable cabinet equivalents by 15%, ended the year with over 17,500 cross connects and reduced churn to less than 1% in the fourth quarter. We believe our investments in Palo Alto, New York, Denver and Chicago have provided us the platform for growth for both our existing customers, as well as new customers.” Mr. Olsen further added, “Customers are monetizing our marketplaces, Verisign is an example of how a customer extended their services by leveraging our footprint, while delivering to the industry a leading VoIP ENUM solution. We are entering 2007 with a strong financial position, significant operational improvements and most important, the momentum to drive even better results in 2007.”
George Pollock, Jr., the Company’s CFO, also added “The net proceeds to the Company from the IPO were approximately $142 million. The financial position of the Company was materially improved as we used the majority of the proceeds to repay borrowings, reducing our long-term debt by approximately $104 million.”
Business Outlook
For the full year 2007, the Company expects total revenue to be approximately $127 million with $122 million from recurring revenue. Adjusted EBITDA is expected to be approximately $40 million. Adjusted EBITDA margins are projected to be approximately 32%.
Capital expenditures for 2007 are estimated to be in the range of $28 million to $30 million.
A reconciliation between GAAP information and non-GAAP information contained in this press release can be found in the table immediately following the Consolidated Statements of Changes in Financial Position as well as on the Company’s website in the Investor Relations section.
Switch and Data does not provide forward-looking guidance for certain financial data, such as depreciation, amortization, net income (loss) from operations, cash generated from operating activities and cash used in investing activities, and as a result, is not able to provide a reconciliation of GAAP to non-GAAP financial measures for forward-looking data. The Company intends to calculate the various non-GAAP financial measures in future periods consistent with how it was calculated for the three and twelve months ended December 31, 2005 and 2006, presented within this press release.
Conference Call Info
The Company will host a conference call to discuss fourth quarter and full year 2006 results on Wednesday, March 28, 2007 at 4:30 p.m. ET. To listen to the conference call live, please dial 1-866-277-1184 or 1-617-597-5360 (international callers) and reference Passcode 27240928. A simultaneous live webcast of the call will be available over the Internet atwww.switchanddata.com under the Investor Relations section. A replay of the conference call will be available for one week beginning at 6:30 p.m. ET on Wednesday, March 28, 2007 until April 4, 2007. The replay can be accessed by calling 1-888-286-8010 or 1-617-801-6888 (international) and reference Passcode 33831864. In addition, the webcast will be archived on the Company’s website at www.switchanddata.com.
About the Company
Switch and Data is a leading provider of Internet exchange and colocation services. Based in Tampa, Florida, Switch and Data operates one of the largest footprints of neutral Internet exchange and colocation facilities in North America serving more than 850 customers. Switch and Data’s PAIX is recognized worldwide as the premier name in peering and Internet exchange services and is home to one of the largest commercial exchange points in North America. For more information, please visithttp://www.switchanddata.com/.
Forward Looking Statements
Certain statements herein 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. It is possible that actual results may differ, possibly materially, from those anticipated in these forward-looking statements. The information set forth under the caption “Business Outlook” are forward looking statements. Words such as expects, believes, estimates, anticipates and similar language indicate forward looking statements. 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 Securities and Exchange Commission. 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 Statement of Operations
($000) (Unaudited)
For the three months ended December 31, | ||||||||
2005 | 2006 | |||||||
Revenues | $ | 26,746 | $ | 29,282 | ||||
Costs and operating expenses: | ||||||||
Cost of revenues, exclusive of depreciation and amortization | 14,846 | 15,198 | ||||||
Sales and marketing | 2,541 | 3,101 | ||||||
General and administrative | 3,333 | 2,467 | ||||||
Depreciation and amortization | 6,022 | 6,106 | ||||||
Total costs and operating expenses | 26,742 | 26,872 | ||||||
Operating income (loss) | 4 | 2,410 | ||||||
Interest income | 17 | 6 | ||||||
Interest expense | (3,290 | ) | (4,048 | ) | ||||
Loss from debt extinguishment | (769 | ) | — | |||||
Other income (expense), net | 173 | (30 | ) | |||||
Income (loss) from continuing operations before income taxes | (3,865 | ) | (1,662 | ) | ||||
Provision for income taxes | 71 | — | ||||||
Loss from continuing operations | (3,794 | ) | (1,662 | ) | ||||
Income (loss) from discontinued operations | (38 | ) | — | |||||
Net loss | (3,832 | ) | (1,662 | ) | ||||
Preferred stock accretions and dividends | (20,209 | ) | (3,476 | ) | ||||
Net loss, attributable to common shareholders | $ | (24,041 | ) | $ | (5,138 | ) | ||
Income (loss) per share - basic and diluted: | ||||||||
Continuing operations, attributable to common shareholders | $ | (0.22 | ) | $ | (0.05 | ) | ||
Discontinued operations | $ | (0.00 | ) | $ | — | |||
Net loss, attributable to common shareholders | $ | (0.22 | ) | $ | (0.05 | ) | ||
Weighted average shares outstanding | 107,787 | 107,520 |
Switch & Data Facilities Company, Inc.
Consolidated Statement of Operations
($000) (Unaudited)
Year Ended | ||||||||
2005 | 2006 | |||||||
Revenues | $ | 105,414 | $ | 111,831 | ||||
Costs and operating expenses: | ||||||||
Cost of revenues, exclusive of depreciation and amortization | 54,800 | 60,405 | ||||||
Sales and marketing | 9,846 | 12,324 | ||||||
General and administrative | 9,568 | 10,374 | ||||||
Depreciation and amortization | 30,206 | 23,485 | ||||||
Asset impairment | 2,140 | 2,193 | ||||||
Total costs and operating expenses | 106,560 | 108,781 | ||||||
Operating income (loss) | (1,146 | ) | 3,050 | |||||
Interest income | 106 | 77 | ||||||
Interest expense | (9,356 | ) | (14,812 | ) | ||||
Loss from debt extinguishment | (769 | ) | — | |||||
Other income (expense), net | 166 | (36 | ) | |||||
Income (loss) from continuing operations before income taxes | (10,999 | ) | (11,721 | ) | ||||
Provision for income taxes | (69 | ) | — | |||||
Loss from continuing operations | (11,068 | ) | (11,721 | ) | ||||
Income (loss) from discontinued operations | (206 | ) | — | |||||
Net loss | (11,274 | ) | (11,721 | ) | ||||
Preferred stock accretions and dividends | (33,691 | ) | (13,530 | ) | ||||
Net loss, attributable to common shareholders | $ | (44,965 | ) | $ | (25,251 | ) | ||
Income (loss) per share - basic and diluted: | ||||||||
Continuing operations, attributable to common shareholders | $ | (0.42 | ) | $ | (0.23 | ) | ||
Discontinued operations | $ | (0.00 | ) | $ | — | |||
Net loss, attributable to common shareholders | $ | (0.42 | ) | $ | (0.23 | ) | ||
Weighted average shares outstanding | 107,787 | 107,545 |
Switch & Data Facilities Company, Inc.
Consolidated Balance Sheet
($000) (Unaudited)
December 31, | ||||||||
2005 | 2006 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 10,417 | $ | 3,671 | ||||
Accounts receivable, net of allowance for bad debts of $736 and $777, respectively | 6,927 | 7,516 | ||||||
Prepaids and other assets | 1,070 | 1,219 | ||||||
Total current assets | 18,414 | 12,406 | ||||||
Property and equipment, net | 64,763 | 65,947 | ||||||
Derivative asset | 101 | 560 | ||||||
Goodwill | 36,023 | 36,023 | ||||||
Other intangible assets, net | 38,231 | 29,936 | ||||||
Other long-term assets, net | 5,690 | 7,184 | ||||||
Total assets | $ | 163,222 | $ | 152,056 | ||||
Liabilities, Preferred Stock and Stockholders’ Deficit | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 15,345 | $ | 13,049 | ||||
Current portion of unearned revenue | 1,064 | 2,054 | ||||||
Current portion of deferred rent | 230 | 368 | ||||||
Current portion of customer security deposits | 916 | 790 | ||||||
Current portion of long-term debt | 781 | 4,125 | ||||||
Total current liabilities | 18,336 | 20,386 | ||||||
Derivative liability | 8 | — | ||||||
Unearned revenue, less current portion | 560 | 951 | ||||||
Deferred rent, less current portion | 8,596 | 10,549 | ||||||
Customer security deposits, less current portion | 282 | 285 | ||||||
Long-term debt, less current portion | 144,156 | 140,031 | ||||||
Total liabilities | 171,938 | 172,202 | ||||||
Series C redeemable preferred stock, $0.0001 par value, 32,609 shares authorized, issued and 12.5% cumulative preference, $38,492 and $40,456 liquidation preference at December 31, 2005 and 2006, respectively. | 14,376 | 14,376 | ||||||
Series B convertible preferred stock, $0.0001 par value, 22,100 shares authorized, issued and 8% cumulative preference, $166,268 and $179,798 liquidation preference at December 31, 2005 and 2006, respectively | 166,268 | 179,798 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ deficit | ||||||||
Common stock, $0.0001 par value, authorized 50,000 shares; issued and outstanding 42,569 shares and 42,295 shares as of December 31, 2005 and 2006, respectively | 4 | 4 | ||||||
Series B common stock, $0.0001 par value, authorized 65,217 shares; issued and outstanding 65,217 shares as of December 31, 2005 and 2006 | 7 | 7 | ||||||
Special junior stock, $0.0001 par value, authorized 6,902 shares; issued and outstanding 1,191 shares as of December 31, 2005 and 2006 | — | — | ||||||
Series D-1 preferred stock, $0.0001 par value, authorized 325 shares; issued and outstanding 325 shares as of December 31, 2005 and 2006 | — | — | ||||||
Series D-2 preferred stock, $0.0001 par value, authorized 3,250 shares; issued and outstanding 156 and 212 shares as of December 31, 2005 and 2006, respectively | 2 | 5 | ||||||
Unearned stock compensation | (403 | ) | (137 | ) | ||||
Additional paid in capital | — | — | ||||||
Accumulated deficit | (189,721 | ) | (214,971 | ) | ||||
Accumulated other comprehensive income | 751 | 772 | ||||||
Total stockholders’ deficit | (189,360 | ) | (214,320 | ) | ||||
Total liabilities, preferred stock and stockholders’ deficit | $ | 163,222 | $ | 152,056 | ||||
Switch & Data Facilities Company, Inc.
Consolidated Statement of Cash Flows
($000) (Unaudited)
Year Ended | ||||||||
2005 | 2006 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (11,274 | ) | $ | (11,721 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities | ||||||||
Depreciation | 21,521 | 15,481 | ||||||
Amortization of debt issuance costs | 1,100 | 848 | ||||||
Amortization of other intangible assets | 8,686 | 8,004 | ||||||
Stock compensation expense | 339 | 266 | ||||||
Realized gain on foreign currency | (68 | ) | — | |||||
Loss on debt extinguishment | 769 | — | ||||||
Provision for bad debts, net of recoveries | 1,483 | 1,106 | ||||||
Deferred rent | 1,943 | 1,642 | ||||||
Change in fair value of derivative asset and derivative liability | (131 | ) | (468 | ) | ||||
Asset impairment | 2,140 | 2,193 | ||||||
Loss on disposal of fixed assets | 99 | 129 | ||||||
Changes in operating assets and liabilities, net of acquired amounts | ||||||||
(Increase) decrease in accounts receivable | (1,468 | ) | (1,695 | ) | ||||
(Increase) decrease in prepaids and other assets | 222 | (150 | ) | |||||
(Increase) decrease in other long term assets | 301 | 35 | ||||||
Increase (decrease) in accounts payable, accrued expenses, and other liabilities | 484 | (62 | ) | |||||
Increase (decrease) in unearned revenue | (813 | ) | 1,383 | |||||
Net cash provided by operating activities | 25,333 | 16,991 | ||||||
Cash flows from investing activities | ||||||||
Purchase of property and equipment, and other | (16,996 | ) | (21,355 | ) | ||||
Proceeds from sale of property and equipment | — | 282 | ||||||
Acquisitions, net of cash acquired | (24,520 | ) | — | |||||
Net cash used in investing activities | (41,516 | ) | (21,073 | ) | ||||
Cash flows from financing activities | ||||||||
Principal payments under long-term debt | (91,363 | ) | (781 | ) | ||||
Proceeds from long-term debt | 167,000 | — | ||||||
Proceeds from issuance and sale of Series D redeemable, Series D-1 preferred stock, and Series D-2 preferred stock, net of issuance costs | — | 3 | ||||||
Repurchase of Series D redeemable preferred stock | (43,922 | ) | — | |||||
Payment of Series C preferred stock liquidation preference | (16,000 | ) | — | |||||
Public offering costs | — | (1,528 | ) | |||||
Debt issuance and amendment costs | (2,840 | ) | (357 | ) | ||||
Net cash provided by (used in) financing activities | 12,875 | (2,663 | ) | |||||
Net increase (decrease) in cash and cash equivalents | (3,308 | ) | (6,745 | ) | ||||
Effect of exchange rate changes on cash | 18 | (1 | ) | |||||
Cash and cash equivalents | ||||||||
Beginning of the period | 13,707 | 10,417 | ||||||
End of the period | $ | 10,417 | $ | 3,671 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | 7,098 | $ | 15,477 | ||||
Cash paid for taxes | $ | 88 | $ | 14 | ||||
Supplemental schedule of non-cash investing and financing activities | ||||||||
Purchase of property and equipment included in accounts payable | $ | 3,537 | $ | 930 | ||||
Liabilities assumed in connection with acquisitions | $ | 1,456 | $ | — | ||||
Public offering costs included in accounts payable | $ | — | $ | 491 |
Additional Company Information
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||||||||||||||
2005 | 2006 | 2005 | 2006 | |||||||||||||||||||||
($000) | As % of Rev. | ($000) | As % of Rev. | ($000) | As % of Rev. | ($000) | As % of Rev. | |||||||||||||||||
Revenue | ||||||||||||||||||||||||
Colocation | $ | 5,528 | 58 | % | $ | 7,381 | 59 | % | $ | 61,406 | 58 | % | $ | 65,420 | 58 | % | ||||||||
Interconnection | 9,987 | 37 | % | 10,473 | 36 | % | 39,361 | 37 | % | 41,459 | 37 | % | ||||||||||||
Recurring Total | 25,515 | 95 | % | 27,854 | 95 | % | 100,767 | 95 | % | 106,879 | 95 | % | ||||||||||||
Non-recurring | 1,231 | 5 | % | 1,428 | 5 | % | 4,647 | 5 | % | 4,952 | 5 | % | ||||||||||||
TOTAL | $ | 6,746 | 100 | % | $ | 9,282 | 100 | % | $ | 05,414 | 100 | % | $ | 11,831 | 100 | % | ||||||||
As of December 31, | ||||||
2005 | 2006 | |||||
Number of customers | 785 | 851 | ||||
Number of cross connects | 16,405 | 17,755 | ||||
Cabinet equivalents billed | 5,075 | 5,843 | ||||
Utilization Rate | 66 | % | 66 | % |
Three Months Ended December 31, | ||||||
2005 | 2006 | |||||
Monthly Recurring Revenue* | $ | 610 | $ | 847 | ||
Non-recurring Revenue ** | $ | 835 | $ | 1,461 |
* | Monthly recurring revenue represents new service agreements entered into by new and existing customers during the given quarter. Revenue from these agreements will recur monthly over the life of the agreement. |
** | Non recurring revenue represents 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 revenue is recognized on a straight-line basis over the life of the agreement. |
Adjusted EBITDA RECONCILIATION
The following is a reconciliation of the Company’s net income (loss) for the 3 and 12 months month periods ended December 31, 2005 and December 31, 2006 to Adjusted EBITDA.
Switch and Data uses Adjusted EBITDA:
• | As measurements of operating performance because they assist management in comparing the operating performance on a consistent basis as they remove the impact of items not directly resulting from the operations; |
• | For planning purposes, including the preparation of its internal annual operating budget; |
• | To establish targets for certain management compensation; and |
• | To evaluate the Company’s capacity to incur and service debt, fund capital expenditures and expand the business. |
Adjusted EBITDA as calculated by the Company 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 the Company’s cash flow needs; and (c) should not be considered as alternatives to net income, operating income, cash flows from operating activities or the Company’s other financial information as determined under GAAP.
The Company 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 the Company 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 the Company 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 Ended | For the Year Ended | ||||||||||||
Dec 31, 2005 | Dec 30, 2006 | 2005 | 2006 | ||||||||||
Operating income (loss) | $ | 4 | $ | 2,410 | $ | (1,146 | ) | $ | 3,050 | ||||
Depreciation and amortization | 6,022 | 6,106 | 30,206 | 23,485 | |||||||||
Asset impairment | — | — | 2,140 | 2,193 | |||||||||
Deferred rent expense, non-cash (1) | 448 | 266 | 1,943 | 1,642 | |||||||||
Stock-based compensation expense (2) | 74 | 64 | 339 | 266 | |||||||||
Legal expenses for real estate litigation (3) | 300 | 109 | 553 | 773 | |||||||||
IPO costs required to be expensed | — | — | — | 350 | |||||||||
Aborted acquisition professional fees | 590 | — | 590 | — | |||||||||
Adjusted EBITDA | $ | 7,438 | $ | 8,955 | $ | 34,625 | $ | 31,759 | |||||
Footnotes:
(1) | Rent is accrued as a straight-line expense that incorporates future lease cost escalations. The Deferred rent line item on the Statement of Cash Flows accounts for the difference between cash paid for rent and accrued rent expense for the period. |
(2) | Stock compensation expense is a non-cash expense that can be found on the Statement of Cash Flows. |
(3) | Legal expenses for lawsuits brought by landlords for alleged breach of lease agreements that occurred during 2000 or 2001. These expenses are included in the General and Administrative line item of the Statement of Operations. |
Investor Relations Contact: Kathleen Heaney 1-866-797-2633 ir@switchanddata.com | Media Contact: Brian Ruby (203) 682-8200 pr@switchanddata.com |
Switch & Data Facilities Company, Inc.
1715 N. Westshore Blvd
Suite 650
Tampa, FL 33607
www.switchanddata.com