Switch, Inc. (SWCH) Q3 2017 Earnings Conference Call Transcript

Switch, Inc. (NYSE: SWCH)Q3 2017 Earnings Conference CallNov. 13, 2017, 6:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good day and welcome to the Switch third quarter 2017 earnings call. Please note that today's conference will be recorded. At this time, I'd like to turn the conference over to Ms. Cynthia Hiponia, from Investor Relations. Please go ahead, ma'am.

Cynthia Hiponia -- The Blueshirt Group -- MD, Investor Relations

Thank you. Good afternoon and welcome to Switch's third quarter, 2017 conference call. Joining me today are Thomas Morton, Switch's president, and Gabe Nacht, which is Chief Financial Officer. Before we start, I would like to remind everyone that certain statements made on this call may include forward-looking statement. Any statement that refers to expectations, projections, or other characterization of future events, including financial projects or future market conditions, is a forward-looking statement. Actual results may differ materially from those expressed in these forward-looking statements, and we make no obligation to update our disclosures. These statements are based on currently available information, and they are subject to a number of significant risks and uncertainties that could cause our actual results to differ materially from those projected in the forward-looking statements. We describe some of these risks in our final perspective dated October 5th, 2017 filed with the SEC, particularly in the section entitled "Risk Factors" and our other filings with the SEC when available.

Statements today include non-GAAP financial measures. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. For information regarding these non-GAAP financial measures, the most directly comparable GAAP measures, and a reconciliation of these measures, please refer to today's press release regarding our third quarter 2017 results.

This 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.com.

Let me now turn the call over to Thomas Morton, Switch's president. Thomas?

Thomas Morton -- President and General Counsel

Thank you, Cynthia. And thank you all for joining us today. It was great to meet many of you during the IPO process, and we are pleased to welcome new and prospective shareholders to our first earnings call as a public company.

I will start by summarizing the operating results for the first third quarter. Since this is our first earnings call and many of you are less familiar with the Switch story, I will also take a few minutes to describe our business and our strategy for growth. I will then turn the call over to Gabe Nacht, our CFO, for a detailed discussion of our quarterly results and the outlook for the full fiscal year.

Regarding our operating results, we are pleased with our strong third quarter financial results, with a record total quarterly revenue of $97.7 million and an organic growth of 20% year over year. Adjusted EBITDA was $49.7 million, an increase of 44% over the prior year. These results were driven by strong market demand for our solutions by both new and existing customers, and we ended the third quarter with a churn of just 0.3%, a testament to our customer value proposition and low total cost of ownership.

For those who are less familiar with the Switch story, Switch is a technology infrastructure company that was born out of our founder, Rob Roy's vision. We are not designing our solutions for where the internet is in 2017, but for where the internet is going in 2037 and beyond. Our data centers are built to be future-proof technology ecosystems. Miniaturizations in chip designs will continue to require significantly more power and significantly more cooling. Applications such as AI and the Internet of Everything are demanding even higher levels of performance from those chips.

Due to both cost and complexity, enterprises are outsourcing increasingly more of their IP infrastructure to a combination of cloud and colocation data centers. Switch's ability to deliver elite performance colocation at competitive economics, combined with the network effects and customer value proposition inherent in our rich technology ecosystem means Switch is uniquely positioned to meet these increasing technological demands.

Most data centers can support 3 to 5 kW per rack. Switch can support ten times that density in side-by-side racks at scale. Many of the facilities utilized by other data center providers are simply unable to match customers' growing power requirements, and these facilities are not easily retrofitted to meet them and can only be retrofitted at a very high cost per megawatt. As a result, we believe Switch is uniquely able to achieve and support these densities, now and into the future.

More than a decade ago, our understanding of the ongoing need for additional compute capacity and the higher densities led Switch to its creation of hyperscale retail colocation data centers based on over 400 issued and pending patent claims. Our innovative patent-protected technology includes 100% POD/aisle containment chimney pods, a revolutionary heat containment system that supports the highest density configurations; exterior wall penetrating multi-mode HVAC units, another revolution in infrastructure technology cooling that allows for unrivaled server efficiency and density and the world's highest-rated resiliency.

A redundant data center roofing system. Our Switch Shield is a dual 200 mph rated steel roofing system whose layers are located 9 ft. apart with zero penetration. This dual roof architecture allows for future rebuilding of the roof components while providing 100% protection for the critical system operations of the data center below, even during a roof rebuilding process. No other data center in the world has these dual roof systems.

And finally, an infrastructure distribution corridor, which we call the Switch Power Spine. This has been designed to increase the modularity of our data center architecture and provide the structure and pathways to channel connectivity, cooling, and the tri-redundant UPS systems from each power room to any sector of the data center.

These innovations are at the heart of Switch's reliability and efficiency that we offer our customers within our physically secure, optimally integrated, future-proof, and mission critical facilities.

We believe that we are the only major data center company that oversees every aspect of its products and services. We internally design, construct, commission, and operate each of our facilities. We also OEM nearly 80% of the components that go into our facilities. This dramatically lowers our cost to build, and we design the equipment to much longer mean time to failure, resulting in a maintenance capital expense that is far better than industry norms.

Further validation of our technology leadership was the certification of two of our Las Vegas facilities for Tier 4 design, Tier 4 facility, and gold in operational excellence, the only colocation corporation to ever achieve this. And now our facilities are constructed and operated to our even more comprehensive Tier 5 Platinum standards. We believe that as customers seek to house their heaviest computing workloads, their most secure data, and their most strictly regulated deployments, they will seek out Tier 5 Platinum facilities to support the mission-critical parts of their business.

Additionally, we offer this level of service at a competitive price point. This is the result of the efficient deployment of capital enabled by Rob Roy's modularly optimized design and the efficiencies of constructing hyperscale, prime campus locations, each comprising well over 1 million planned square feet of data center facilities.

Let me now turn to our growth strategy with a discussion of our PRIME campus locations, our CORE purchasing cooperative, and our plans for expansion.

We have located our four Switch PRIME campus ecosystems in areas with low to no taxes, low cost on 100% green power, low cost of living, low cost of connectivity, and low risk of natural disasters, and our locations are also near major metropolitan markets to support the low latency access to America's largest population zones.

Switch does not deploy in what has traditionally been thought of as Tier 1 and Tier 2 data center markets. Switch has demonstrated a unique ability to create its own hyperscale primary markets. This is evident when you consider the success of our 2.4 million sq. ft. campus in Las Vegas, Nevada, one of the largest technology campus ecosystems in the world.

Our first PRIME campus is known as The Core Campus and is located in Las Vegas, Nevada. Our current facilities on this campus have up to 2 million gross sq. ft. and up to 275 MW of power capacity. In 2018, we plan to open our Las Vegas 11 with an additional 340,000 gross sq. ft. and up to 40 MW of additional power capacity. As of the September quarter, utilization in this campus based on the currently available data center space was approximately 94%.

Our second PRIME campus is located at the Tahoe Reno industrial center in northern Nevada, which we call The Citadel Campus. Our first facility on this campus currently has up to 1.4 million gross sq. ft. and up to 130 MW of power capacity. We have plans for an additional 5.9 million gross sq. ft. with an incremental 520 MW of power capacity, which will make this the world's largest colocation data center campus. As of the end of the third quarter, our utilization rate at The Citadel Campus was approximately 61% of the currently open data center space at Tahoe Reno 1.

Our third primary campus is located in Grand Rapids, Michigan, and is known as The Pyramid Campus. We have successfully established a tax renaissance zone at our Pyramid Campus, which means that our customers pay no taxes on their equipment located within our Grand Rapids data centers. Our first facility on this campus is designed to include up to 220,000 gross sq. ft. of space and up to 20 MW of power capacity. In 2018, we plan to break ground to add up to an additional 940,000 gross sq. ft. and up to 100 MW of power capacity. The utilization rate as of the third quarter of 2017 in The Pyramid Campus was 46% based on the currently open data center space.

Our fourth PRIME campus is located in Atlanta, Georgia, and is known as The Keep Campus. With construction to begin in the third quarter, The Keep Campus has an initially planned footprint of 1.1 million gross sq. ft. with up to 110 MW of power capacity. We plan to open The Keep Campus is the second quarter of 2019.

With four hyperscale PRIME locations, we have broad geographic coverage for the entire nation. With our current facilities encompassing over 4 million gross sq. ft. and up to 425 MW of power capacity, our current build plans call for an additional 8.3 million gross sq. ft., offering 770 MW of incremental power capacity. This future capacity will help Switch capitalize on the rapidly growing colocation market, which remains an extremely underpenetrated market. The vast majority of data center capacity still resides within the enterprise.

That -- the amount that has moved to the colocation or cloud markets is expected to double in the next few years, but this still leaves a very large future addressable market.

A key connectivity differentiator we can offer our customers is our combined ordering retail ecosystem, or CORE This service aggregates our customers' $5 trillion market cap of purchasing power and significantly lowers our customers' nationwide connectivity costs, including all of the clients' corporate facilities, even those not associated with our data centers. Our CORE purchasing cooperative can achieve economies of scale that can offset the entire cost of colocation at Switch's data centers.

In one example, during the third quarter of this year, we were able to reduce the connectivity bill for a software as a service company from $131,000.00 per month to $54,000.00 per month for the first phase of a multi-phase project, a savings of $77,000.00 per month or 58%. Many companies save more on their telecommunications bill than they will spend with us for colocation. Effectively, this customer's deployment in our Tier 5 Platinum facility will be free.

To connect our Core Campus and our Citadel Campus, we designed and constructed a SUPERLOOP fiber ring, which provides massive connectivity between Las Vegas, Reno, northern, and southern California. This allows customers to have geographically redundant yet low latency deployments between our Nevada PRIMEs.

The Switch SUPERLOOP also connects our two western PRIME campus locations to other markets of the west coast, while staying outside of high tax zones, high power costs, and the high risk of natural disasters associated with California.

Another key differentiator is Switch's access to renewable power, from solar, wind, geothermal, and other sustainable resources. Since our inception, one of Rob Roy's central goals has been to power Switch's facilities with 100% clean and renewable energy. We were honored to be recognized as the leader in all categories, including transparency, policy, and advocacy by Greenpeace in January of this year, ranking us higher than Apple, Facebook, and Google, as well as all other multi-tenant data center providers. This ability to provide 100% green power is also important to our customers. They are able to meet and exceed their own sustainability goals simply by locating their infrastructure within the Switch ecosystems. Best of all, they can achieve this result with no incremental cost or effort on their part.

Our technology and market leadership can be exemplified by our marquis customer list and the fact that once a customer enters the Switch ecosystem, they tend to grow with us over time. We currently have over 800 customers across diverse industries including some of the world's largest technology and digital media companies, cloud and managed service providers, financial institutions, healthcare providers, and telecommunications providers.

In the third quarter of this year, we added 29 new customers, including a major super semiconductor, a leading hospitality provider, a gaming firm, a major automobile industry supplier, several healthcare names, three financial institutions, and several recognized names in the IP cloud and computing space.

Additionally, we were pleased to have major companies in the video streaming space, the cloud computing space, the software space, and the not-for-profit areas expand their deployments in our data centers during the quarter.

In summary, we are excited about our business momentum as we finish out the 2017 year. Looking forward, Switch will continue to invest in and expand our four hyperscale PRIME campus locations. Building on our multiple recurring revenue streams, we will continue to leverage our one-of-a-kind technology ecosystems to drive growth and will maintain and extend our technology leadership.

Let me now turn the call over to Gabe to discuss our financial results in more detail. Gabe?

Gabe Nacht -- Chief Financial Officer

Thanks, Thomas. Today I'm going to review the financial results for the third quarter of 2017, as well as provide our outlook for year-end 2017.

In the third quarter, we achieved record quarter revenue of $97.7 million, an increase of $16 million from the third quarter of 2016, representing growth of 20% year over year. This was driven by an increase in the sale of our services to both existing customers and new customers. All of our revenue growth has been organic.

For the third quarter of 2017, we derived 98% of our revenue from recurring revenue streams consisting primary of colocation, which includes the licensing of cabinet space and power, and connectivity services, which includes cross-connects, broadband services, and external connectivity.

The third quarter of 2017 colocation revenue was $79.4 million, connectivity revenue was $17.1 million, and other revenue including professional services accounted for $1.1 million. This compares to colocation revenue of $66.1 million, connectivity revenue of $14.3 million, and other revenue of $1.2 million in the third quarter of 2016.

Our unique CORE purchasing cooperative continues to drive continues to drive connectivity revenue, which increased 19% in the third quarter of 2017 compared to the same period in the prior year. Connectivity accounted for 18% of our total third quarter 2017 revenue.

Approximately 32% of our revenue growth in the third quarter came from new customers, while 68% resulted from service expansions and price increases from our existing customers. As Thomas mentioned, we added 29 new logos during the quarter. Additionally, 180 of our existing customers ordered additional services during the period.

We believe the power of our customer value proposition is evidenced by our customer loyalty and low churn rates. We define churn rate as the reduction in recurring revenue attributable to customer terminations or non-renewal of expired contracts divided by the revenue at the beginning of the period.

The third quarter of 2017, our churn rate was 0.3% and is just 0.5% through September 30th, 2017. It looks like our full-year 2017 churn rate will be below our three-year average of just 1.4% annual churn. On a gross profit basis, in the third quarter, we achieved $46.9 million and a 48% gross profit margin, as compared to $34.6 million or a gross profit margin of 42% in the year-ago period.

As of June 1st, 2017, we became an unbundled purchaser of energy in Nevada, allowing Switch to purchase 100% green energy from a variety of sourcing and at reduced prices. Approximately $2.9 million of the increase in gross profit was due to a reduction in energy cost during the period, accounting for approximately 300 basis points of the improvement in gross profit margin.

Turning now to our operating expenses, SG&A in the quarter was $21.5 million or 22% of revenue, as compared to $18.2 million or 22% of revenue in the third quarter of 2016. The increase in SG&A expense was in part attributable to approximately $2.2 million in increased professional fees in this quarter compared to the same period last year, as we prepared for the IPO.

Income for operations for the third quarter of 2017 was $25.5 million, compared to $16.4 million in the year-ago period, an increase of 55%.

While revenue increased 20% in the period, cost of revenue grew just 8% due to reduced power costs and efficiencies in operations.

SG&A increased 18%, including the costs incurred in preparation for the IPO.

Net income for the third quarter of 2017 was $16.5 million compared to $15.9 million in the in the third quarter of 2016. Compared to the same period last year, we incurred $6.6 million in additional interest expense as our borrowing and our credit facility increased as we continued to invest growth capital. The additional assets placed into service during the past twelve months resulted in $6.1 million of additional depreciation expense during the third quarter compared to the third quarter of the prior year.

Adjusted EBITDA totaled $49.7 million for the third quarter of 2017, a 44% increase compared to adjusted EBITDA of $34.6 million in the third quarter of the prior year. Our adjusted EBITDA margin for the third quarter of 2017 was 50.9% compared to an adjusted EBITDA margin of 42.4% in the same period last year, a year over year increase of 850 basis points.

We define capital expenditures as cash purchases of property and equipment during a particular period, and we break out both maintenance and growth capital expenditures. We believe that capital expenditures are a useful metric because they provide information regarding the growth of our technology infrastructure platform and the potential to expand our services and add new customers.

CapEx for the third quarter of 2017 totaled $64.1 million. Maintenance CapEx was $0.4 million for the third quarter of this year, compared to $0.9 million in the same period last year. Growth CapEx was $63.7 million for the third quarter of 2017, compared to $88 million in the same period last year.

During the third quarter of 2017, we spent $37.6 million on our Core Campus to expand power and cooling in Las Vegas 9 and Las Vegas 10 in response to additional customer density needs and to begin work on our Las Vegas 11 facility, which is planned to open in Q4 of 2018, adding another 340,000 gross sq. ft. of space. We also invested $21.7 million in the citadel campus to support additional power and cooling in our currently open data center space and in construction in preparation for the data center space that will open in Q4 of 2017.

Finally, we spent $4.8 million on the additional build-out of The Pyramid. We plan to continue to invest in growing our portfolio of data center assets in accordance with customer demand. By utilizing our operating cash flow and moderate bank debt, we expect to grow revenue in EBITDA organically while maintaining debt leverage at relatively low levels compared to the industry.

Looking now at the balance sheet. On June 27th, 2017, Switch executed a new $1.1 billion credit facility consisting of a $500 million revolving line of credit and a $600 million term loan. As of September 30th, the company's total debt outstanding net of cash and cash equivalents was $839 million, resulting in a ratio of net debt to last quarter annualized EBITDA of 4.2 times.

On October 11th, 2017, Switch completed its initial public offering of equity, raising gross proceeds of $611 million and net proceeds of $577 million after underwriting discounts. As is typical for the UPC structure, we used all IPO proceeds to purchase newly issued LLC interests in our operating LLC. Not a single investor was bought out as part of the IPO and not a single investor sold any shares into the IPO.

Our operating LLC used a portion of the IPO proceeds to repay the $231 million of outstanding debt on the revolver, which resulted in a net debt to annualized adjusted EBITDA ratio of fewer than 1.4 times, which we believe to be among the lowest in the industry.

Following the IPO, Switch has liquidity of over $850 million both revolver availability and cash on hand. We believe this is sufficient to fund our growth plans for the foreseeable future without the need to go back to the capital markets and further dilute investors.

Now turning to guidance. We will be providing guidance on an annual basis for revenue, adjusted EBITDA, and capital expenditures. For 2017, revenue is expected to be in the range of $372 million to $380 million. Adjusted EBITDA is expected to be in the range of $190 million to $195 million. CapEx is expected to be in the range of $345 million to $365 million.

As a UPC company, Switch will be reporting earnings per share numbers based on the shares at Switch, Inc. and the earnings attributable to Switch, Inc. based on its percentage ownership in Switch Limited. As such, we expect basic weighted average share count to be in the range of $36 million to $37 million Class A shares. Fully diluted average weighted average share count is expected to be in the range of $36.5 million to $38 million Class A shares.

Now, before I turn it back to Thomas, I thought it would be helpful to review our corporate structure and how it relates to our strategy for growth and our vision for Switch. As Thomas discussed in his remarks, Switch is a technology infrastructure company. We have income from non-real estate sources and do not want to be constrained by the REIT asset and income rules. More than 15% of Switch's income is generated by our CORE purchasing cooperative, which is a key differentiator for Switch. As a result, we have elected to use a UPC structure as opposed to becoming a REIT. The UPC structure allows us to focus on growth, rather than dividend requirements and makes us less dependent upon the capital markets to fund growth.

It also allows Switch to preserve our ability to pursue additional revenue streams and diversify our offerings. We believe innovation companies should avoid structures which place artificial rails on their growth. In this same spirit, the structure Switch did choose does not preclude us from converting to a REIT at a future date, should that prove advantageous.

The UPC structure is very similar to the UPREIT employed by many of the publicly traded data center companies. REITs, however, are required to distribute 90% of their pre-tax income each year to the shareholders. As a result, REITs must issue additional equity for operating capital, increase their debt load, or some combination of the two.

The UPC structure enables Switch to retain this capital and deploy it to grow the company. Switch has grown by investing internally generated funds combined with moderate bank debt. As a C corp, we are able to invest our earnings back into growth, rather than being required to dividend out our pre-tax income and go back to the capital markets repeatedly to fund growth.

Additionally, our C corp status allows Switch to depreciate its assets on an accelerated schedule. For example, much of our equipment is depreciated on a five- to seven-year schedule compared to 39 years for real property. This lowers our effective tax rate. We believe we will have a lower effective tax rate than many of our REIT counterparts that have taxable REIT subsidiaries.

UPC structures are not new or rare, and they've been used for almost 20 years. There are currently dozens of publicly traded UPCs, including very recognizable names such as Baker Hughes, GoDaddy, Black Knight Financial, Red Rock Resorts, Hostess Brands, RE/MAX Holdings, Charter Communications, and Accenture, to name a few. Each of these UPC companies is structured as a UPC with a tax receivable agreement. In fact, Switch was the 25th company since January 1, 2015 to consummate an IPO using this structure. We have added an FAQ document to our investor relations website that addresses our structure in more detail.

In summary, our strong performance in the third quarter reflects the powerful customer value proposition of our advanced platform, our high level of service, and our competitive pricing.

Thank you, and let me now turn the call back to Thomas for some closing remarks.

Thomas Morton -- President and General Counsel

Thank you, Gabe. I think it goes without saying, but we are obviously not a property management company. Our visionary leadership led by Rob Roy has created a technology platform with purpose-built, highly resilient, and power dense patented solutions to drive lower cost of ownership for our customers. Our strategically located hyperscale infrastructure has positioned Switch to take advantage of the growing wave of mission-critical data and increasingly powerful IT equipment. And our financial results speak for our success.

Let me take a moment on behalf of Rob Roy and the rest of the management team to thank all of the Switch employees for their dedication and hard work, which has enabled us to achieve our success to date. And of course, we want to thank our customers, who are valued partners of Switch and an integral part of the robust technology ecosystem built around our platform.

With that, Gabe and I are pleased to take your questions. John?

Questions and Answers:

Operator

Hi ladies and gentlemen. If you'd like to ask a question today, push star-one on your telephone keypad. Again, if you would like to ask a question, it is star-one on your telephone keypad. If you are using a speakerphone, we do ask that you depress the mute button. That allows that signal to reach our equipment. Again, if you'd like to ask a question, it is star-one.

At this time, we'll take our first question from Mr. Richard Choe from J.P. Morgan.

Richard Choe -- J.P. Morgan -- Vice President

Great, thank you. Given the year-to-date performance and the guidance, it seems like you're probably gonna come in at the higher end, especially given the continued low churn. Is that kinda safe to say?

Gabe Nacht -- Chief Financial Officer

Well, Richard, I think you know that we like to be relatively conservative in the way we manage the company, and I think the numbers do speak for themselves. We're very comfortable with the guidance that we're providing, and we don't have any indication that our churn is going to change from its current pattern.

Thomas Morton -- President and General Counsel

Hey Richard, this is Thomas, to supplement on that, we believe that our churn will stay where it is right now, and we believe we will come within the guidance range. Where we fall on that range, we are not sure of yet.

Richard Choe -- J.P. Morgan -- Vice President

And then in terms of the expansion campuses, can you give us a little color on what the response of customers have been and how those are going?

Gabe Nacht -- Chief Financial Officer

I'm sorry, Richard, you broke up a little bit on the second part of that question.

Richard Choe -- J.P. Morgan -- Vice President

Just a little more color on the expansion campuses and what the customer response has been.

Thomas Morton -- President and General Counsel

Okay, the customer response has been very strong. We have been ahead of our forecast in Reno, and we are doing well with Grand Rapids as well, and we are currently working with several prospective customers down in the Atlanta area for The Keep Campus.

Richard Choe -- J.P. Morgan -- Vice President

Great, thank you.

Operator

Our next question comes from Tim Long from BMO Capital Markets.

Timothy Patrick Long -- BMO Capital Markets -- Analyst

Thank you. Thanks, guys, two questions, if I could. First, maybe on the guidance, just asking a little bit different way, it's a pretty wide range given it's one quarter back -- quarter left. Could you just talk a little bit about what some of the factors that could drive toward the lower or the upper end of that range, when you look into the last quarter of the year?

And then secondly, you gave some good data on there on 32% of revenue growth coming from new customers, and I think 180 customers expanded in the quarter. So, just give us a little perspective of how those numbers looked, either a quarter or a year ago to get a sense as to how the new customer traction's been over a little bit longer time period? Thank you.

Gabe Nacht -- Chief Financial Officer

Hi Tim. As far as the guidance and what would drive that to one end or the other, our recurring revenue is very stable, as you know, so the only thing that could potentially drive that to one end or the other is the nonrecurring revenue, which really is based on customer installations and the timing of those customer installations, and our ability to bill the installation fees for that.

So, again, this is our first public earnings call. We want to make sure that we're comfortable with the guidance that we're providing you guys. I personally don't think it's a very wide range, but we are comfortable with the numbers that we are providing.

As far as customer growth, we're very happy with the 29 logos that we added in this quarter. I don't have the exact figure for you in the same period of last year to tell you how that compares.

Thomas Morton -- President and General Counsel

Yeah, and this is Thomas. One other thing as far as what could impact our ability to hit the range or operate within the range, obviously, when you're working with customers, customers can change their deployments, can change the timing of their deployments, even if they're committed, so you have an uncontrolled variable there that can happen. But our customers have strong install dates, and they traditionally hit those. So, again, we feel like we will come within our guidance that we are providing to the street.

Timothy Patrick Long -- BMO Capital Markets -- Analyst

Okay, thank you.

Operator

Our next question comes from Sami Badri from Credit Suisse.

Ahmed Sami Badri -- Credit Suisse -- Analyst

Hi, thank you for the question. Hope you guys can hear me. I'm in a little bit of a noisy area. I did have a question on the 29 new customers. Were the 29 new customers new to colocation, or are they moving over from competing data center operators?

Gabe Nacht -- Chief Financial Officer

It's a mix of each, Sami. You know, we get a number of customers that're new to colocation, that are enterprises outsourcing their data center needs. But we also get additional expansion from customers that are in current facilities and realize what Switch can offer and want to expand into our facility. So, it's a mix of both.

Thomas Morton -- President and General Counsel

It is a mix of both, and the ones that are migrating to us from the enterprise deployments that they have tend to be the more regulated entities, and they're doing their first foray into colocation because they see the compelling economics of being collocated. But they are concerned about having dedicated uptime and having the security that they enjoy in their enterprise facilities, and they see Switch as a safe or a wise alternative to make that transition.

Ahmed Sami Badri -- Credit Suisse -- Analyst

Got it, got it. And then maybe did any of the customers move over, the ones that had existing colocation solutions deployed in say like other regions? Did they move from, say, California, into Nevada, and did they take advantage of some of the tax breaks and for example the SUPERLOOP as well?

Thomas Morton -- President and General Counsel

Yeah, since we are the -- we control the Las Vegas market in terms of colocation, chances are most of our customers have relocated from other places. And so, to the extent they are moving out of California or other states, they are moving away from zones that have higher tax, browner power, and higher risk of natural disaster.

Ahmed Sami Badri -- Credit Suisse -- Analyst

Got it. Thank you.

Operator

Our next question comes from Jason Ader from William Blair.

Jason Ader -- William Blair & Company -- Analyst

Yes, thank you. I wanted to ask about the IPO and the impact that it might have had on demand, just given that you've had a lot more exposure, and how we should be thinking about your spending plans if that demand does accelerate.

Gabe Nacht -- Chief Financial Officer

As far as our exposure, clearly the IPO did raise our profile in the public space. A number of companies that may not have heard of Switch previously now know about us. Obviously, investors know about us, and all of those investors are potential customers as well. But as far as customers that are already in the space or competitors that work in the space, Switch is a well-known entity. We have been around for 16 years, we built very high -- the highest quality data centers on the planet. People know about us who are looking for colocation space. But it is a nice branding event for us. We are seeing additional inbound traffic from that.

As far as our spend, we're flexible in our spend because of our modular design and our ability to meet customer demand on a just-in-time basis. So, depending on where customer demand is, we'll either -- we can ramp up our spend to meet that customer demand. So, that isn't an issue, and it would be a great problem.

Thomas Morton -- President and General Counsel

This is Thomas. One thing that we are going to continue to do is expand our salesforce now that we have four locations that we'll be moving into. We'll be expanding our internal sales force, working with managed services providers who like to place their clients inside our facilities, and working to expand our relationships with third parties to refer customers into our facilities. So, it is a multi-pronged attack to address the market and bring more colocation customers to our ecosystems.

Jason Ader -- William Blair & Company -- Analyst

Thank you.

Operator

Our next question comes from Jiorden Sanchez from Goldman Sachs.

Jiorden Sanchez -- Goldman Sachs -- Analyst

Hey guys, and congrats on the first quarter as a public company. Couple questions, if I may. I'll start off with this one first. You guys talked about 20% organic growth. You ended up breaking that out in terms of the services. I was wondering if you could give us a bit more granularity on the markets. I know it's still easy days on some of these new PRIMEs, but as it relates to some of that growth, can you talk through kind of what portions of that or what percentage of that came from maybe Vegas versus some of the other markets?

Gabe Nacht -- Chief Financial Officer

Sure Jiorden. This is Gabe. The 20% organic growth was -- we will break it out between colocation and connectivity services in the Q. And the 10-Q will be filed before the market opens tomorrow, so you will all have that data. We've grown in all of our campuses. Las Vegas continues to drive the majority of growth simply because it's got the majority of our customers. And as we mentioned, the 68% of the growth in the period came from existing customers, most of whom are located here in Las Vegas. But the additional new growth that we received from new customers came from all three -- all of our existing campuses, and we're very happy with the spread of that growth.

Thomas Morton -- President and General Counsel

Jiorden, it's great to hear your voice. The -- Gabe's absolutely right. There have -- it depends on how you look at the growth. If you look at the growth as a percentage of the deployed base in each of the campuses, then they all grew very, very robustly. If you look in terms of absolute dollars, of course the Las Vegas campus is gonna grow the most because it's simply the largest campus. But they all grew robustly.

Jiorden Sanchez -- Goldman Sachs -- Analyst

Thank you, that was helpful color. One other question for you. I mean, the press release highlighted some recent developments on some revenue opportunities beyond the four PRIMEs, so I was wondering if you can kinda touch on some of that. So, one of them was the built-to-suit Switch MOD that you can kinda deploy on premise. I was wondering in terms of what sort of conversations you're having with your customers on those and what sort of long-term opportunity you see. And similarly, on the licensing opportunity, you highlighted the win with Schneiders. Was wondering if you could walk through some of the opportunities there. And then more broadly, how are these kind of deals sort of structured in terms of how they -- how is pricing determined, what's the term on these sort of deals? How do we think about how these things kinda get layered on over time?

Thomas Morton -- President and General Counsel

Fabulous, well, first of all, we are very focused on the four PRIMEs. As you could tell from our talk today, that is the focus of the company: to build and extend the PRIME locations and service the United States from those four locations. We are not looking right now to build and edge infrastructure base, and that, we're leaving to other data center providers at the current time.

As to the MODs, which are the MOD 100s, these we are looking -- working with several companies on building some of those right now, but they are not the focus of what we are looking to grow this company at this time.

As to licensing, we have three ways that we are doing our licensing and three ways that we are monetizing our IP besides building our own facilities. The first is that we are licensing to certain end users, and that would be through the MODs or just portions of deployment that they wanna put in their own data centers. Secondly, we are licensing to manufacturers such as the Schneider license that you referenced. And thirdly, we will be enforcing our IP as to others who may be trying to emulate that IP in their own data center facilities.

We are not looking to -- those to be massive revenue-generating events. They are more to preserve and extend our technology leadership in the PRIMEs that we have.

Jiorden Sanchez -- Goldman Sachs -- Analyst

Okay, very helpful, thank you.

Operator

Our next question comes from Jennifer from Wells Fargo.

Jennifer -- Wells Fargo -- Analyst

Great, thank you for taking the question, two if I may. First I wanted to ask about an anchor tenant for Atlanta; if there is color as to when we might be hearing about -- I guess the question would be, would you be sharing when you have an anchor tenant secure and maybe not necessarily whom that anchor tenant is? And then Tom, you touched on the word "campus." I think there's this misunderstanding that Atlanta, you're just going after Atlanta-based customers. Maybe if you can expand on that, that would be helpful. And then finally, if you could -- just a housekeeping question -- give color on the power density used per customer, what you're seeing and how that compares with your competitors. Thank you.

Thomas Morton -- President and General Counsel

Okay, well I'll talk to these quickly, and then I'll let Gabe do some -- add some color to it as well. As to Atlanta, yes, once -- we are talking to several customers right now or prospective customers. As soon as we secure one, provided that they allow us to do so, we will make an announcement as to that customer being secured.

As to customers outside of our area, we are not somebody who is focused on just garnering customers from the location of our campuses. Most of the customers that we have in Nevada are not from Nevada. Only 5% of our current customer base comes from Nevada. In Las Vegas, we have 2.4 million sq. ft., and that is being used to service customers from outside of this region. We are a bit of a gravity well: we pull customers from other regions that wanna locate in us, and most of them are agnostic as to where they locate, except they wanna be in a Tier 5 Platinum facility and located with others that they interact with. And that is our ecosystem.

And then finally, as to power density, yes, we are seeing a rise in power density. Throughout the life of this company, we have seen that occur, and that is most relevant in, for example, our NAP 10 facility -- NAP 9 facility, rather. Our NAP 9 facility that has 3,400 cabinets with an average density of 16 kW per cabinet. I mean, that is tremendous increase, and we believe that we're the only ones that're able to support that level of density at scale.

Gabe Nacht -- Chief Financial Officer

And just to add to what Thomas was saying about our campus locations, Jennifer, you're entirely right. I think there is a misperception about our going into Atlanta to try to attract business from the Atlanta market. The four PRIMEs are very strategically located to provide a west coast, northern, and southwest presence to provide primary deployment and a redundant deployment for customers that want a west coast presence. The east campuses of Grand Rapids, Michigan and Atlanta will provide exactly that same PRIME and redundancy capability, and from our Atlanta campus, we're going to be targeting clients that want to deploy throughout the southeast. This is not an Atlanta city or a Georgia revenue play at all; it is a southeastern campus designed to attract clients with low latency deployments throughout that entire quadrant of the United States.

Jennifer -- Wells Fargo -- Analyst

Great, thank you very much.

Operator

Our next question comes from James Breen of William Blair.

James Breen -- William Blair & Company -- Analyst

Thanks for taking the question. Just two things. I was wondering if you could give some color on kinda what percentage of your customers are taking connectivity from you as well, and then, as you look across the campuses you have open and any sort of presales you've done in the other campuses, can you give some idea on sorta the percentage of customers that're gonna take something -- some space from you at all four of your locations? Thanks.

Gabe Nacht -- Chief Financial Officer

Sure. Jim, this is Gabe. As far as connectivity, virtually every one of our clients has to connect to something. Without data, it's just a center. So, all of our clients take some form of connectivity from us, and that form of connectivity can be cross-connects within the data center, it can be our broadband IP service, or it can be through our core telecom purchasing cooperative and purchase external connectivity through the various carriers that we service. So, virtually every one of our clients takes some connectivity service from us.

We are rapidly expanding, as you know, that the CORE component of that -- we really believe that that is a unique offering to Switch. That has been growing at about a 30% plus compounded annual rate over the last few years, and we expect that to continue into the future. So, that really is a key differentiator for us, and connectivity revenue is currently 18% of our total revenue, which we believe is at the high end of the peer group and will continue to stay that way.

Your second question...

Thomas Morton -- President and General Counsel

How many people take a... So, I can talk to this. The people that take in multiple locations, we have several customers that have large deployments in multiple locations. As Gabe alluded to earlier, there is a disaster-recovery or dual-deployment ability that they have with our Core campuses, and it's 1.) it's very public in that we have a very large deployment for eBay down here in Las Vegas, and we have a similar deployment up in Reno or Tahoe Reno industrial center. And one of the reasons that we built the SUPERLOOP is so that that client and other clients that want to do a dual-deployment can enjoy low-latency, redundant connectivity between those two PRIMEs. We also have customers that have done significant deployment in Las Vegas and correspondingly have done significant deployment in Michigan. So, that cross-pollination is occurring, and we will see it advance as the PRIMEs begin to build out.

James Breen -- William Blair & Company -- Analyst

Great, thank you.

Operator

Our next question comes from Michael Rollins of Citi.

Michael Rollins -- Citigroup Global Markets, Inc. -- Analyst

Hi, thanks for taking the question. I was curious if you could just unpack a little bit more of the utilization metrics because I looked back at the perspectives for the Q2 utilization numbers versus the ones that you discussed this evening; it looks like The Core Campus and The Citadel had flat utilization sequentially, and Grand Rapids came up from a 20% bisector number last quarter to 46%. So, if you could talk a little bit about what's happening with the utilization in the campuses and how you're seeing the growth specifically in each, that would be great. Thanks.

Gabe Nacht -- Chief Financial Officer

Yeah, thanks, Mike. As far as utilization, I think -- you know, the utilization, we look at it a couple different ways. First, we look at utilization by open data center space because as you know, we open up our data centers very modularly, in response to customer demand. And I think if you look at second quarter and third quarter, we've had utilization expansion in all three of our campuses. So, in terms of utilization space, they have gone up and quite significantly.

The second way we look at utilization is utilization by open campus, and that is all of the building shell that we have ready to go, where we may not have opened specific data center space, but it's ready to deploy. And in a campus the size of Reno, while utilization has moved up quite significantly in our open data center space, that is a massive facility, so it simply -- there's some rounding involved in the utilization by open campus, but really when you look at the utilization by open data center space, we have moved up sequentially from quarter to quarter. And as we bring on more space in Q4, we'll see that number jump around a bit, but right now Reno is currently 60+% occupied in our open data center space, which means it's time to open up additional space, and that's exactly what we're doing.

Thomas Morton -- President and General Counsel

Yeah, Mike, this is great question because we're a bit unique in the way we do our data center campuses in that when we look at utilization rate by campus, we're constantly building more data center space. We're bringing on 340,000 new sq. ft. here in Las Vegas and then even more in other campuses. So, when you look at utilization rate, you also have to factor in that utilization rates will fluctuate simply because we're opening new buildings within the same campus.

Michael Rollins -- Citigroup Global Markets, Inc. -- Analyst

Thanks very much.

Operator

Our next question comes from Frank Louthan of Raymond James.

Frank Louthan -- Raymond James Financial -- Analyst

Great, thank you. Hey, so talk to us a little bit about -- I just wanna go back to about the customer drivers in Atlanta and Michigan. What percentage are you expecting of existing customers that are pulling you there versus new customers, and talk to us a little bit about the sales team ramp? Where are you at the hiring there with the folks that you need, and how does that look for that?

Thomas Morton -- President and General Counsel

So, on the new versus existing, we are opening ourselves for the first time to attract a number of people who are more geographically sensitive to the east coast so we can bring in some customers from that area of the country, and we believe that there will be significant take rates from the east coast into the data centers. What that percentage will actually be, we don't have a crystal ball to see that. We do have 800 plus customers within our ecosystem. We expect that they will continue to take space, and then new customers will come onboard. Initially, it may be that there is a larger percentage of existing customers that take space in the PRIMEs and other locations, but that -- if that occurs that way, then it should level out over time as more customers come onboard from the geographic regions in which the PRIMEs are located.

As to the salesforce, to my earlier point, we are approaching this market with a three-pronged attack, and those three pronges are expanding our internal salesforce; using managed services providers to sell into our facilities, which they really like because they look very good by putting customers in a Tier 5 Platinum facility, and the centers show very well when they want to have meetings in our facilities, and they can also offer their customers access to CORE, which is something that they're not able to provide customers in other locations; and then finally, we will continue to leverage third parties to refer customers into our facilities and leverage their ability and knowledge of their local markets to facilitate growth in new and expansion regions.

Frank Louthan -- Raymond James Financial -- Analyst

Okay great, thank you very much.

Operator

And it looks like our last question comes from Scott Goldman of Jefferies.

Scott Goldman -- Jefferies Group -- Analyst

Hey, thanks, guys. I wonder how keeping -- I guess, maybe could you share with us what your ending billable cabinet number was for the quarter, or conversely, maybe where the MRR per cabinet is? Just trying to get a sense for, obviously, the volume versus pricing dynamic driving the growth. And then secondly, maybe could you just talk a little bit about the difference you see between the campuses around things such as deal size or the bookings by verticals? Are you noticing any difference between what's driving from a vertical perspective or even the applications that are going into those data centers? Thanks.

Gabe Nacht -- Chief Financial Officer

Sure. Hi Scott, this is Gabe. As far as our recurring revenue versus nonrecurring revenue, in the Q that's being released tomorrow, we break out the recurring and nonrecurring revenue, so you'll see that. As far as cabinet counts, we really tend to focus more on overall revenue growth and overall margin because, as you know, we sell a variety of services, not of all of which are tied specifically to cabinets. So, in terms of our pricing, we're very comfortable with the pricing that we've been seeing. We really have been seeing pricing hold quite nicely, and you'll see that in the numbers -- in the more detailed numbers that are released tomorrow.

Scott Goldman -- Jefferies Group -- Analyst

And in terms of differences between campuses around deal size or applications or bookings by verticals?

Gabe Nacht -- Chief Financial Officer

Yeah, we're really not seeing any difference. We obviously have large campuses everywhere we're located, so we have the ability to take traditional retail colocation clients that sometimes want one cabinet to 20 cabinets, and we can take hundreds of cabinets in each of our locations. And we're working transactions of all of those sizes in every single one of our locations.

Thomas Morton -- President and General Counsel

This is Thomas. We're not seeing a large difference in the mix of customers. Obviously, in some places where there aren't regulated industries like gaming, we'll see fewer gaming clients, and where there are concentrating of industry and a certain area like maybe some airline or something like that, we'll see some more concentration in that area. Or you might expect in Michigan, there would be automotive and automotive type because that's what's in that region, to some degree. But other than that, we are not seeing any difference yet as to verticals that are markedly different in one region to the next.

Scott Goldman -- Jefferies Group -- Analyst

Great, thank you very much.

Operator

At this time, there are no additional questions.

Cynthia Hiponia -- Investor Relations

Thank you. Thank you, everyone, for joining us on today's call, and we look forward to updating you again next quarter.

Thomas Morton -- President and General Counsel

Thank you all.

Gabe Nacht -- Chief Financial Officer

Thank you all.

Operator

Ladies and gentlemen, that does conclude our call. On behalf of Switch, we do appreciate your participation, and please, have a good evening.

Duration: 62 minutes

Call participants:

Cynthia Hiponia -- The Blueshirt Group -- MD, Investor Relations

Thomas Morton -- President and General Counsel

Gabe Nacht -- Chief Financial Officer

Richard Choe -- J.P. Morgan -- Vice President

Timothy Patrick Long -- BMO Capital Markets -- Analyst

Ahmed Sami Badri -- Credit Suisse -- Analyst

Jason Ader -- William Blair & Company -- Analyst

Jiorden Sanchez -- Goldman Sachs -- Analyst

Jennifer -- Wells Fargo -- Analyst

James Breen -- William Blair & Company -- Analyst

Michael Rollins -- Citigroup Global Markets, Inc. -- Analyst

Frank Louthan -- Raymond James Financial -- Analyst

Scott Goldman -- Jefferies Group -- Analyst

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