Switch & Data Shares Slump After Earnings

Shares of Switch and Data (SDXC) lost 20 percent of their value Wednesday in the first session of trading after the colocation and peering specialist reported strong earnings for the final quarter of 2007. On Tuesday afternoon Switch and Data announced revenues for the three months ended Dec. 31, 2007 of $29.1 million, a 29 percent improvement over the same period in 2006. Net income was $2.48 million, or seven cents per share.

Shares of Switch and Data fell $2.37 to $9.28 on Wednesday, a decline of 20.3 percent. SDXC stock was up slightly to $9.54 in early trading Thursday.

In the company's quarterly conference call Tuesday afternoon, several analysts inquired about debt financing to build out a large New Jersey data center that Switch and Data has leased. The 163,500 square foot building in North Bergen, New Jersey is seen as key to the company's growth. But Switch and Data executives said the debt financing - a bank credit line estimated at $140 to $160 million - is on track and expected to be close without incident, despite the current challenges in the credit markets.

"We have strong support from our bankers for our debt financing, and we anticipate closing in March," said CFO George Pollock. "We have several commitments from our lead banks." Pollock said that while there has been volatility in the credit markets, "the pricing is in line with our expectations."

Analysts attributed Wednesday's decline in Switch and Data shares to investor expectations. "Some investors thought after they saw Equinix raise guidance that SDXC would do the same, and they just maintained guidance," said Colby Synesael, who tracks Switch and Data for Merriman Curhan Ford & Co. "And yes, some people, including myself had expected the debt financing to be completed by last night, but it is now not going to happen until next month. That does maintain a risk that some may have thought was gone, but speaking with management, they are very confident the deal will get done."

Synesael noted that shares of Switch and Data had climbed 17 percent following the Equinix earnings announcement, meaning that shares of SDXC have essentially reverted to their prior trading range.

Company management was decidedly upbeat about Switch and Data's results. "In our first year as a public company, we have successfully executed our business plan," said Keith Olsen, CEO and President. "We posted record revenue and EBITDA growth in 2007 (and) continue to see robust demand across our markets. Our investment plan in 2008 will provide us with capacities to meet this demand."