Switch, Inc. Debt surged on 28.3% and Revenue jumped on 10.7%
03/01/2021 • About Switch, Inc. (
$SWCH) • By InTwits
Switch, Inc. reported 2020 financial results today. Here are the key drivers of the company's long term financial model:
- Switch, Inc. is a growth stock: 2020 revenue growth was 10.7%, 5 year revenue CAGR was 14.0% at 2020 ROIC 6.2%
- EBITDA Margin is expanding: 47.8% in 2020 vs. 44.1% in 2019 vs. 37.0% in 2016
- Switch, Inc. has high CAPEX intensity: 5 year average CAPEX/Revenue was 79.8%. At the same time it's a lot of higher than industry average of 3.5%.
- CAPEX is quite volatile: $7m in 2020, $9m in 2019, $3m in 2018, $3m in 2017, $4m in 2016
- The company has potentially unprofitable business model: ROIC is 6.2%
- It operates with high leverage: Net Debt/EBITDA is 4.0x while industry average is 0.6x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Switch, Inc.'s Revenue surged on 10.7%. Revenue growth showed slowdown in 20Q4 - it was 6.0% YoY. Revenue decline was accompanies by EBITDA margin decline. EBITDA Margin dropped on 12.6 pp from 25.3% to 12.6% in FY2020. During the last 5 years EBITDA Margin bottomed in 2017 at 28.5% and was growing since that time.
Gross Margin decreased on 2.1 pp from 47.5% to 45.4% in 2020. SG&A as a % of Revenue decreased on 4.2 pp from 30.9% to 26.7% in 2020. During 2016-2020 SG&A as a % of Revenue topped in 2017 at 42.4% and was declining since that time.
Net Income margin increased slightly on 1.1 pp from 1.9% to 3.0% in 2020. During 2016-2020 Net Income margin bottomed in 2017 at -4.0% and was growing since that time.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 67.8% in 2020. Switch, Inc.'s CAPEX/Revenue dropped on 38.6 pp from 106% in 2017 to 67.8% in 2020. For the last three years the average CAPEX/Revenue was 67.4%. Switch, Inc. has spent a lot to CAPEX (142% of EBITDA) to fuel its growth.
Return on investment
The company operates at low ROIC (6.2%) and ROE (6.6%). ROIC showed almost no change in 2020. ROE increased slightly on 1.5 pp from 5.1% to 6.6% in 2020. During 2016-2020 ROIC bottomed in 2017 at 1.8% and was growing since that time. During 2016-2020 ROE bottomed in 2017 at -7.9% and was growing since that time.
Leverage (Debt)
Debt level is 4.0x Net Debt / EBITDA and 4.4x Debt / EBITDA. Net Debt / EBITDA increased on 0.037x from 4.0x to 4.0x in 2020. Debt surged on 28.3% while cash surged on 267%. During the last 5 years Net Debt/EBITDA bottomed in 2017 at 3.2x and was growing since that time.
Switch, Inc. has no short term refinancing risk: cash is higher than short term debt (2,583.1%).
Valuation and dividends
Switch, Inc.'s trades at EV/EBITDA 11.2x and P/E 112.1x.
Management team
Rob Roy is a the company's CEO. Rob Roy has spent 3 years with the company. Switch, Inc.'s CFO is Gabe Nacht. Gabe Nacht has 3 years tenure at the company.
Financial and operational results
FY ended 12/31/2020
Switch, Inc. ($SWCH) key annual financial indicators| mln. $ | 2016 | 2017 | 2018 | 2019 | 2020 | 2020/2019 |
|---|
P&L
|
|---|
| Revenue | 318.4 | 378.3 | 405.9 | 462.3 | 511.5 | 10.7% |
| Gross Profit | 149.5 | 180.0 | 181.4 | 219.6 | 232.1 | 5.7% |
| SG&A | 71.4 | 160.6 | 126.8 | 142.7 | 136.7 | -4.2% |
| EBITDA | 117.7 | 108.0 | 161.3 | 204.0 | 244.7 | 20.0% |
| EBIT | 51.1 | 18.8 | 54.7 | | | |
| Interest expence | 10.8 | 25.1 | 26.4 | | | |
| Tax | | -1.0 | 1.9 | | | |
| Net Income | 31.4 | -15.2 | 4.1 | 8.9 | 15.5 | 74.3% |
| Stock Based Compensation | 5.9 | 84.8 | 35.7 | | | |
Balance Sheet
|
|---|
| Cash | 22.7 | 264.7 | 81.6 | 24.7 | 90.7 | 267.0% |
| Accounts Receivable | 9.1 | 16.4 | 17.7 | | | |
| Accounts Payable | 1.7 | 18.9 | 20.5 | | | |
| Short Term Debt | 18.3 | 8.3 | 6.0 | 10.8 | 3.5 | -67.5% |
| Long Term Debt | 477.2 | 605.2 | 600.0 | 829.1 | 1,074.3 | 29.6% |
Cash flow
|
|---|
| Capex | 287.1 | 402.6 | 275.5 | 307.7 | 347.0 | 12.8% |
| Dividends | | 1.0 | 3.0 | | | |
Ratios
|
|---|
| Revenue growth | 19.7% | 18.8% | 7.3% | 13.9% | 10.7% | |
| EBITDA growth | -12.8% | -8.3% | 49.5% | 26.4% | 20.0% | |
|
|---|
| Gross Margin | 47.0% | 47.6% | 44.7% | 47.5% | 45.4% | -2.1% |
| EBITDA Margin | 37.0% | 28.5% | 39.8% | 44.1% | 47.8% | 3.7% |
| EBIT Margin | 16.0% | 5.0% | 13.5% | | |
| SG&A, % of revenue | 22.4% | 42.4% | 31.2% | 30.9% | 26.7% | -4.2% |
| SBC, % of revenue | 1.9% | 22.4% | 8.8% | | |
| Net Income Margin | 9.9% | -4.0% | 1.0% | 1.9% | 3.0% | 1.1% |
| CAPEX, % of revenue | 90.2% | 106.4% | 67.9% | 66.6% | 67.8% | 1.3% |
|
|---|
| ROIC | 7.4% | 1.8% | 4.1% | 5.7% | 6.2% | 0.5% |
| ROE | 11.1% | -7.9% | 3.2% | 5.1% | 6.6% | 1.5% |
| Net Debt/EBITDA | 4.0x | 3.2x | 3.3x | 4.0x | 4.0x | 0.0x |
| Interest coverage ratio (ICR) | 4.7x | 0.8x | 2.1x | | |
| Interest expence / Average debt | 2.2% | 4.5% | 4.3% | | | |
People
|
|---|
| Insider ownership | 3.4% | 3.4% | 3.4% | | | |
| Employees | | 723 | 731 | | | |
| Revenue/Employee, th. $ | | 523 | 555 | | | |
Switch, Inc. ($SWCH) key quoterly financial indicators
| mln. $ | 20Q1 | 20Q2 | 20Q3 | 20Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 128 | 127 | 129 | 128 | | 19.2% | 13.3% | 5.3% | 6.0% |
| EBITDA | 56 | 64 | 62 | 64 | | 24.6% | 24.8% | 17.5% | 29.1% |
| Net Income | -1 | 5 | 5 | 6 | | -265.9% | 328.7% | 76.7% | 59.4% |
Balance Sheet
|
|---|
| Cash | 65 | 32 | 156 | 91 | | -25.6% | -47.3% | 197.4% | 267.0% |
| Short Term Debt | 11 | 10 | 10 | 4 | | 76.0% | 66.9% | 63.7% | -67.5% |
| Long Term Debt | 897 | 915 | 1,069 | 1,074 | | 49.8% | 53.1% | 60.4% | 29.6% |
Ratios
|
|---|
| Gross Margin | 47.7% | 46.3% | 42.3% | 45.3% | | 1.2% | -1.8% | -5.8% | -2.0% |
| EBITDA Margin | 43.4% | 50.4% | 48.2% | 50.1% | | 1.9% | 4.6% | 5.0% | 9.0% |
| Net Income Margin | -0.9% | 4.0% | 4.0% | 5.1% | | -1.6% | 3.0% | 1.6% | 1.7% |
Peers in IT Consulting & Other Services
Below we provide Switch, Inc. benchmarking against other companies in IT Consulting & Other Services industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| CLPS Incorporation ($CLPS) | - | 8.1% | 56.0% | 32.7% | 37.7% |
| Endava plc ($DAVA) | - | 38.1% | 36.5% | 32.3% | 21.9% |
| EPAM Systems, Inc. ($EPAM) | - | 25.0% | 27.1% | 24.5% | 15.9% |
| Perficient, Inc. ($PRFT) | - | -0.4% | 2.7% | 13.5% | 8.2% |
| Research Solutions Inc/CA ($RSSS) | - | -25.1% | 8.8% | 2.8% | 7.9% |
| |
|---|
| Median (14 companies) | 8.3% | 3.9% | 3.6% | 5.4% | 0.6% |
|---|
| Switch, Inc. ($SWCH) | - | 18.8% | 7.3% | 13.9% | 10.7% |
Top companies by Gross margin, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Gartner, Inc. ($IT) | 61.3% | 60.1% | 63.1% | 63.5% | 67.2% |
| Teradata Corporation ($TDC) | 51.2% | 47.5% | 47.4% | 50.3% | 55.5% |
| Perficient, Inc. ($PRFT) | 31.1% | 33.3% | 35.8% | 37.4% | 37.8% |
| Cognizant Technology Solutions Corporation ($CTSH) | 39.9% | 38.2% | 39.0% | 36.6% | 35.9% |
| EPAM Systems, Inc. ($EPAM) | 36.5% | 36.5% | 35.6% | 35.1% | 34.9% |
| |
|---|
| Median (14 companies) | 28.8% | 28.8% | 29.4% | 35.1% | 32.7% |
|---|
| Switch, Inc. ($SWCH) | 47.0% | 47.6% | 44.7% | 47.5% | 45.4% |
Top companies by EBITDA margin, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Amdocs Limited ($DOX) | 18.7% | 18.9% | 16.1% | 19.0% | 21.2% |
| Gartner, Inc. ($IT) | 15.0% | 7.1% | 13.0% | 16.2% | 19.8% |
| EPAM Systems, Inc. ($EPAM) | 13.5% | 13.9% | 15.3% | 17.9% | 19.4% |
| Accenture plc ($ACN) | 15.9% | 14.8% | 16.3% | 16.7% | 18.7% |
| Cognizant Technology Solutions Corporation ($CTSH) | 19.8% | 19.7% | 20.5% | 19.2% | 17.8% |
| |
|---|
| Median (14 companies) | 6.7% | 6.9% | 7.2% | 13.9% | 11.7% |
|---|
| Switch, Inc. ($SWCH) | 37.0% | 28.5% | 39.8% | 44.1% | 47.8% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Amdocs Limited ($DOX) | 3.5% | 3.4% | 5.8% | 3.1% | 4.9% |
| ServiceSource International, Inc. ($SREV) | 10.4% | 7.2% | 6.5% | 4.7% | 4.0% |
| Endava plc ($DAVA) | 2.4% | 4.1% | 2.5% | 2.6% | 2.8% |
| EPAM Systems, Inc. ($EPAM) | 2.5% | 2.1% | 2.0% | 4.3% | 2.6% |
| Teradata Corporation ($TDC) | 2.3% | 3.6% | 7.1% | 2.8% | 2.4% |
| |
|---|
| Median (14 companies) | 1.1% | 1.4% | 1.5% | 2.0% | 1.7% |
|---|
| Switch, Inc. ($SWCH) | 90.2% | 106.4% | 67.9% | 66.6% | 67.8% |
Top companies by ROIC, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Accenture plc ($ACN) | 81.3% | 61.7% | 66.1% | 62.1% | 40.7% |
| EPAM Systems, Inc. ($EPAM) | 18.2% | 18.9% | 21.2% | 20.2% | 19.4% |
| Cognizant Technology Solutions Corporation ($CTSH) | 21.3% | 21.9% | 23.8% | 20.4% | 17.5% |
| Amdocs Limited ($DOX) | 13.0% | 14.4% | 11.9% | 15.9% | 14.5% |
| Gartner, Inc. ($IT) | 41.0% | -0.2% | 6.9% | 10.8% | 12.7% |
| |
|---|
| Median (14 companies) | 7.6% | 6.4% | 7.0% | 11.0% | 9.6% |
|---|
| Switch, Inc. ($SWCH) | 7.4% | 1.8% | 4.1% | 5.7% | 6.2% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Gartner, Inc. ($IT) | 0.6x | 11.7x | 4.1x | 4.1x | 2.6x |
| Perficient, Inc. ($PRFT) | 0.4x | 1.0x | 1.3x | 1.0x | 1.5x |
| ServiceSource International, Inc. ($SREV) | 156.0x | - | -35.5x | 2.9x | 0.6x |
| Teradata Corporation ($TDC) | -1.1x | -1.5x | -1.3x | 0.9x | 0.5x |
| Amdocs Limited ($DOX) | -0.8x | -0.9x | -0.7x | -0.6x | 0.1x |
| |
|---|
| Median (12 companies) | 0.1x | 0.2x | 0.1x | -0.4x | -0.4x |
|---|
| Switch, Inc. ($SWCH) | 4.0x | 3.2x | 3.3x | 4.0x | 4.0x |
