Switch & Data to Add 1,000 Cabinets

Switch and Data (SDXC) expects to add 1,000 cabinets to its data center footprint in 2007, but plans to manage that growth by using expansion space in buildings where it has existing data centers, company executives said in a recent analyst conference call.

"We are continually looking for opportunities where we can add to our capacity without having to extend into greenfield builds," said President and CEO Keith Olsen. "We haven't made any decisions yet, but we know that in buildings in a number of our markets we have expansion capacity we can take advantage of one we need to."

The Tampa-based provider of colocation and interconnection services operates 33 data centers in 23 markets across North America, and expects to increase its capital spending from $21 million in 2006 to nearly $30 million this year. About two thirds of that capex spending will go towards expanding the power and cooling capacity of existing facilities, the company said.

Switch and Data finished 2006 with 5,843 cabinets, up from 5,075 a year earlier, and said the number of cross connects between customers increased from 16,405 to 17,755. Colocation currently accounts for about 58% of Switch and Data's revenue, compared to 37% for interconnections. The company now has 851 customers, compared to 785, at the end of 2005. Total revenue increased 9.5% in 2006 $211.8 million and is projected to rise to $127 million in 2007.

Olson said demand for additional services is being driven by existing customers, and that recurring revenue represents 95% of all revenue for the company. Many of the company's largest customers have leased space in sites across Switch and Data's infrastructure. Of the company's top 100 customers, 74 have a presence in multiple facilities. These include Cogent Communications, which has space in 29 Switch and Data centers, Level 3 (23 sites), DirecTV (12) and content distribution network provider Limelight Networks (11). New customers during 2006 included VeriSign, YouTube and Zwillow.

Switch & Data went public Feb. 8 with an IPO that raised about $200 million. Shares debuted at $17 and briefly moved as high as $22 a share, but in recent sessions have traded in a range between $18 and $19. The company netted about $142 million from the IPO, and used the proceeds to pay down $104 million of its debt. "The offering has strengthened our financial position and provided a platform for growth," said CFO George Pollock.

The company lost $25.2 million in 2006, an improvement from a loss of $44.9 million in 2005. A major factor in the 2006 loss was interest expenses of $14.2 million, which will be substantially lower now that the company's debt load has been slashed from $140 million to less than $40 million.

"There has been strong growth in demand for co-location services," said Olsen. "We are excited about the business."