Good day, everyone and welcome to the Switch to Report First Quarter 2019 Financial Results Conference. Today's conference is being recorded. Ladies and gentlemen as a reminder this conference will be available for replay after 9 PM Eastern Time today through 9 PM Eastern Time on May 15, 2019. At this time, I'd like to turn the call over to Matt Heinz.

Please go ahead, sir..

Thank you, Operator. Good afternoon, and welcome to Switch's first quarter 2019 conference call. On the call today are Thomas Morton, Switch's President and Gabe Nacht, Switch's CFO. Today's call may include forward-looking statements, including references to expectations, projections or other characterizations of future events or market conditions.

Actual results may differ materially from those expressed in our forward-looking statements, which are subject to certain risks, uncertainties and assumptions. Our statements are made as of today, and we assume no obligation to update our disclosures.

We describe some of these risks in our SEC filings, specifically on our Form 10-K, particularly in the section entitled Risk Factors. In addition, today's call includes a discussion of non-GAAP financial measures, which should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP.

Please refer to today's press release and supplemental package for further information, including a reconciliation of non-GAAP measures. Our first quarter 2019 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.

I will now turn the call over to Thomas Morton, Switch's President..

Thank you, Matt, and good afternoon, everyone. Thank you for joining us today. The first quarter of 2019 was one of the most active periods in the company's history. We achieved strong revenue growth and profitability which exceeded all Wall Street consensus estimates.

We signed healthy bookings and continued to make key additions to our internal and external sales teams, which continues to focus on strategic enterprise deals that leverage the unique capabilities and unmatched scale of our PRIME campus locations.

Thereby creating a more valuable technology ecosystem for our customers and securing a path of sustainable and profitable long-term growth for Switch. As previously announced, Switch completed a 10-year colocation and network agreement with global logistics powerhouse FedEx.

This 5-megawatt deal will generate more than $72 million in revenue over the initial contract term of 10 years. This figure excludes usage based power, usage based telecommunication services and built in expansion options. In addition, we completed a new multi-megawatt expansion in a five-year renewal with premier cloud storage provider Box.

A transaction that will more than double the customer's existing infrastructure and committed colocation spending with Switch, including approximately $20 million of incremental total contract value.

Switch added another leading healthcare organization to its customer ecosystem in Tahoe, Reno with a five-year agreement totaling more than $12 million in recurring revenue. In total, Switch executed over 500 customer contracts in the quarter generating $169 million of total contract value.

We added 30 new logos in the quarter which in addition to the transportation, logistics and healthcare providers I've previously referenced also includes one of the largest financial exchanges in the world and a leading provider of hyper converged IT solutions.

Overall we're extremely pleased with the breadth and the diversity of our first quarter signings which we believe are directly attributable to the strategic enterprise initiatives undertaken during 2018 and we anticipate ongoing benefits moving forward.

From a financial perspective, our first quarter bookings results reinforced confidence in our 2019 guidance. Given the timing of deployment embedded ramps and above average duration of the Q1 deal mix, we anticipate a more significant impact to occur beyond this year.

We're excited to announce three new addition to our strategic sales team during the first quarter. Jocelyn McCaslin joins us as Vice President of Global Sales. Jocelyn was previously with RagingWire Data Centers, Savvis and IO where she held senior sales positions including Director of Global Accounts and Director of Channel.

At Switch, Jocelyn will play a key leadership role in deepening our relationships with enterprise and strategic hyper scale partner. Jeff Bryce joins us as Senior Vice President of Solutions Architecture for our core telecommunications division.

Jeff Bryce brings more than 20 years of experience in telecom and data center industries, mostly with Level 3, CenturyLink where he was Director of Sales Engineering for the Level 3 Wholesale Division.

Jeff's role at Switch involves leading the sales engineering efforts with the Switch Telecommunications group helping to deepen our carrier relationships and continue to bring world class connectivity solutions to Switch customers. We have also added Jon Caplinger, to our team as Vice President of Data Center Engineering.

Jon comes to us from Cincinnati Bell and brings over 20 years of experience in assisting customers with optimizing their data center deployments.

We remain in active dialog with other highly qualified sales professionals interested in joining the Switch team and reiterate our expectation to add between five and 10 new members to our strategic sales team in 2019.

We continue to work closely with major public cloud platforms as we execute towards our vision of evolving the Switch PRIMES into the most secure, most robust, hybrid, multi-cloud availability zones in the world.

During the first quarter, we executed a 20-year network services agreement with one of the top three hyper scale cloud vendors, consummating a fiber network co-build project that will ensure low latency transport between Switch's colocation facilities and the customers data centers.

This is one but one example of how we're strategically positioning Switch as a top destination for high performance, hybrid, multi-cloud workloads and we look forward to sharing additional details around these efforts as they become available for release [ph]. In addition to our low cost 100% green power and significant savings on telecommunications.

One of Switch's total cost of ownership advantages for enterprise clients is tax minimization. In particular, I would like to highlight the unique tax benefits available at the Citadel Campus which has been designated as a Federal Qualified Opportunity Zone.

This designation provides an opportunity for material tax savings to customers deploying at the Citadel PRIME and further enhances the economic advantages to enterprise migrating their primary cloud deployments from California. This is in addition to the sales and use abatements available in the both the Citadel and the core campus locations.

The zero tax rate at the Pyramid Campus resulting from its renaissance zone designation as well as the zero tax rate available via the Switch bill at The Keep Campus in Atlanta. I will now turn the call over to Gabe to discuss our financial results. Gabe..

Thanks Thomas. Today I'm going to review our financial results for the first quarter of 2019 and discuss our outlook for the remainder of 2019. In the first quarter of 2019, we achieved quarterly revenue of $107 million an increase of $9.3 million or approximately 10% compared to the first quarter of 2018.

This is primarily attributable to an $8.5 million increase in colocation revenue and a $0.7 million increase in connectivity revenue. 47% of the year-over-year revenue growth resulted from new customers who initiated service during the past 12 months while 53% of the revenue growth came from customers who have been with Switch longer than one-year.

More than 95% of our revenue in the quarter was recurring in nature. Consisting primarily of colocation and connectivity services, which include cross connects, broadband and external connectivity. collocation revenue for the first quarter of 2019 was $86.2 million compared to $77.7 million reported in Q1 of 2018, an increase of 11%.

The activity revenue in Q1, 2019 was $18.9 million compared to $18.2 million in the same period in 2018. Other revenue including professional services accounted for $2.0 million in Q1, 2019 compared to $1.8 million for the same period of 2018. Which has become a strategic partner to over 900 customers and we added 30 new logos in Q1, 2019.

As of March 31, 2019 Switch had over 14,000 billing cabinet equipments generating over $2,300 per cabinet equivalent in monthly recurring revenue. We had more than 5,000 billing cross-connects as of March 31 and cross-connects accounted for approximately 3.8% of total revenue in Q1, 2019 up from 3.5% in the year ago period.

During Q1, we signed over 500 contracts comprising more than 15 megawatts with total contract value of $169 million and annualized revenue of $34 million of full deployment inclusive of both renewals and the sale of incremental services.

New customer bookings in Q1, 2019 were $95 million in total contract value with over $14 million in annualized revenue. As of March 31, 2019, our booked not billed backlog currently stands at over $35 million in aggregate revenue including contractual ramps and contracts yet to commence.

Approximately half of our current backlog is expected to contribute to 2019 revenue with the remainder contributing in 2020 and beyond. Revenue reductions from customer churn remained low in Q1, 2019 at 0.1% unchanged compared to the year ago period.

As a reminder, we defined churn as the reduction in recurring revenue attributable to customer terminations over the non-renewal of expired contracts divided by the revenue at the beginning of the period. Metrics discussed on today's call are all in our investor presentation posted in the investor relation section of our website.

Cost of revenue increased by $2.4 million in Q1, 2019 compared to Q1, 2018 primarily due to $3.7 million increase in depreciation and amortization expense as a result of additional property and equipment being placed into service.

Excluding depreciation, amortization and equity based compensation expenses our Q1, 2019 adjusted gross profit increased 15% year-over-year to $78 million. In reconciliation of gross profit to adjusted gross profit is provided in the appendix section of our Investor presentation.

SG&A expenses in Q1, 2019 were $34.3 million compared to $33.5 million in Q1, 2018 an increase of 2%. The increase in SG&A was primarily attributable to higher professional and headcount growth. Income from operations in Q1, 2019 increased 65% to $15.5 million compared to $9.4 million in Q1, 2018.

The growth in operating income was primarily attributable to an increase in revenue and a decline in equity based compensation. Interest expense increased by $0.9 million to $7.1 million in Q1, 2019 primarily driven by higher LIBOR rates.

Going forward, we anticipate less sensitivity to interest rate fluctuations in our effective borrowing cost as a result of interest rate swaps entered into during the quarter which effectively fixed $400 million of floating rate debt to a fixed rate of 4.73% through June, 2024.

Net income for Q1, 2019 was $3.7 million compared to net income of $4.0 million in Q1, 2018. Net income for the first quarter of 2019 includes the impact of $5 million unrealized loss on interest rate swaps entered into during the quarter.

Adjusted EBITDA totaled $53.7 million for Q1, 2019 compared to $46.9 million in Q1, 2018 reflecting year-over-year growth of 14%. Adjusted EBITDA margin for Q1, 2019 was 50.1% compared to 48% in Q1, 2018.

Capital expenditures in the first quarter of 2019 were $45.9 million compared to $61.4 million in the same quarter of 2018 down 25% primarily due to lower spending in the Citadel Campus partially offset by increased investment in The Keep Campus.

Maintenance capital expenditures were $2.0 million for the first quarter of 2019 or 2% of revenue compared to $0.9 million and 1% of revenue in the same quarter last year. This increase is primarily due to power infrastructure upgrade and additional core network equipment purchased at our Las Vegas, East Campus.

Growth CapEx was $43.9 million for the first quarter of 2019 compared to $60.5 million in the same period last year. During the first quarter of 2019, Switch spent $23.6 million in the Core Campus to commission the final power system in Las Vegas, 10 into complete expedited construction on Las Vegas, 11 Sector 2 in response to strong customer demand.

As of March 31, 2019 Las Vegas, 11 Sector 1 was 46% pre-committed based on executed contracts and our order backlog for Sector 2 is building rapidly. As such, we planned to open both Sector 1 and Sector 2 of Las Vegas, 11 in Q2, 2019 which also invested $10.4 million for the continuing construction of The Keep Campus in Atlanta.

The first building remains on track to open at the end of Q4, 2019. Switch spent $8.5 million in the Citadel Campus for additional power and cooling infrastructure as well as development cost for the upcoming build on Sector 5 which will be open for clients in Q3, 2019. Finally Switch spent $3.4 million for additional expansion in the Pyramid Campus.

As of March 31, 2019 the Switch PRIMES had capacity for over 19,000 cabinet equivalents within our open sectors of which 89% were committed under contracts.

The Q1, 2019 utilization rates of these PRIMES based on committed cabinets and currently available colocation space were approximately 92%, 70% and 91% at the Core Campus, the Citadel Campus and the Pyramid Campus respectively versus 91%, 58% and 88% in Q4, 2018.

At full build out, our existing facilities comprise an aggregate of nearly $4.4 million gross square feet of space up to 455 megawatts of power and nearly 25,000 cabinet equivalents. Looking now at the balance sheet as of March 31, 2019.

The company's total debt outstanding net of cash and cash equivalents was $517.8 million resulting in an net debt to first quarter annualized adjusted EBITDA ratio of 2.4 times unchanged from the prior quarter.

As of March 31, 2019 Switch had liquidity of $587 million including cash and cash equivalents and availability under its revolving line of credit. We believe this is sufficient to fund our growth plans for the foreseeable future. As disclosed in our 8-K on April 3, Switch Inc.

issued 22.3 million shares of Class A common stock to members of Switch Limited and concurrently cancelled an equivalent number of shares of Class B common stock, in connection with the exercise of member redemption rights.

In addition to the exchanges that occurred, we spent $13.6 million to repurchase 1.3 million common units of Switch Limited at $10.55 per common unit. Subsequent to this transaction, we had approximately $76 million remaining on our repurchase program. Now turning to guidance, we're reiterating our prior 2019 guidance comprised of the following.

Revenue in the range of $436 million to $445 million, adjusted EBITDA in the range of $217 million to $223 million and capital expenditures in the range of $210 million to $260 million. And now I'll turn it back to Thomas for some closing remarks..

In conclusion, we firmly believe that Switch is well aligned with industry dynamics and competitively position to accelerate enterprise migration into a hybrid cloud environment. We continue to execute on our pipeline of large enterprise retail colocation opportunities which remain the strongest that we have ever seen.

We look forward to announcing these transactions in due course. We would once again like to take this opportunity on behalf of our management team to thank our employees, our customers and our partners for their continued support of Switch. We would now like to open the call to questions..

[Operator Instructions] we'll hear first today from Ari Klein with BMO Capital Markets..

And maybe just given the number of large deals you signed in the quarter. Can you provide an update on the pipeline? Whether you still expect to sign some additional large deals, this year. And then you also announced new strategic sales head in the quarter.

Can you just provide some color there and whether or not there are some incremental investments required to build out the team?.

Thank you very much [indiscernible]. Couple of comments on, first of all Jocelyn McCaslin is a fantastic add to our team. We continue to build out that team as we've said, we added three this quarter and we have more aligned up for future quarters to add.

We built in those additions into our forecasts for revenues and expenses and as we've said in earlier calls, we plan to roll those out in a prudent way so that we advance the benefits of onboarding those people ahead of the expense of onboarding those people.

So we're doing it prudently and we will continue to do it throughout this year and do a needed growth of this salesforce and expansion of it across the country..

With regard to the pipeline, we continue to feel confident about our existing pipeline. We closed some good transactions this quarter some of which we've been working on for quite some time but we have others that are still in the pipe and we close them, you'll know about them..

Thanks..

We'll hear next from Frank Louthan with Raymond James..

Talk to us little bit about the CapEx range, what would it take to hit through the higher end of the range. What sort of the assumption there? And then talk to us a little bit about pace of the installs in the quarter, was a little even, was it more back end weighted, how should we think about that? Thanks..

Well as far as CapEx. CapEx what would move us toward the higher end of the range is accelerating some of our sector openings due to customer demand, which we're always able to do and certainly happy to do, if we see that developing and the customers need that space more quickly than we anticipate.

One thing to keep in mind is our CapEx forecast that we put out for guidance does not include any land purchases which are sort of outside of our normal CapEx range and our installs have been pretty even through Q1, most of the larger transactions that we've signed this quarter will impact to some degree in the back half of the year, but primarily in 2020 and beyond because they do have install ramps and they've got to get their equipment in place, get ready to go.

But we're still very, very happy about the signings and we're ready to support our [indiscernible] we've got confidence in our current guidance on revenue EBITDA and CapEx and we're in a good position moving into 2020 and beyond as well..

Okay, great. thank you very much..

We'll hear next from Richard Choe with JPMorgan..

Just a follow-up on the pipeline, given the delays and they're still more in the pipeline, are they relatively equal sized, smaller, any sense there? And then in terms of the pacing of installs you mentioned, the [indiscernible] really this year but more next.

It seems like there's some turn event there should be a nice kind of incremental growth in revenue over the next few quarters and you could come in kind of above the midpoint of guidance. [Indiscernible] there are churn event that we should be thinking about. Thank you..

Richard, this is Thomas and good to hear your voice and as through the pipeline. We continue to build out our pipeline as we've said before. We have a robust pipeline with many good sized deals in Q.

we've obviously closed a few of them in Q1 this year and we have others that we're looking to close in Q2 and we continue to backfill those deals that we've closed with additional opportunities and as we built out our sales force and continue to work more with the brokerage community.

I think that we'll see an increase in the amount of deals coming in, but that has the play and [indiscernible] during the year, but right now we're excited about the pipeline. We're excited about the deals we're closing and also excited about the opportunities we're creating. Going forward with the expansion of our sales force..

And with regard to your comment about the installs and revenue. Some of these deals as we've talked about in the previous discussion have ramps that are not even beginning until the back end of the year. and so the 2019 impact is going to be somewhat muted. But 2020 and beyond should be quite helpful.

So with regard to, it sounds like you're asking whether we should be above the range of guidance, we still feel comfortable with our guidance range. We still feel we're within that range and we'll see how Q2 develops..

[Operator Instructions] we'll hear next from Nate Crossett with Berenberg..

Maybe you can just give an update on Atlanta.

How are things progressing, maybe some color on early indications for leasing, things like that?.

Nate, thank you very much. We appreciate. This is Thomas and we are continuing to build in Atlanta obviously. We have turned the tide if you will and the rains [ph] that were coming in and we have started with as you go over there, you'll see as the walls are up, the roof is going on and we're making tremendous progress on advancing.

The teams obviously out there are very experienced on how they build.

We're using crews that are familiar with the Switch infrastructure and the Switch way of building, so we have confidence that we will get this things done and by the end of Q4 of this year and as to customers, we are in discussions with a variety of customers about taking space in there and we look forward to potentially doing some announcements on that later this year.

As to when those customers will deploy, again we're doing a lot of work with enterprise just like with FedEx. We were working on that deal for an extended period of time and these deals just take time to mature. The sales cycle is a little longer, but the clients are sticky and they tend to land and expand with us overtime.

So it's a very good client base, a very stable client base. It just takes a little bit more upfront investment to bring them in..

Okay, that's helpful and then just on the sales force and the hiring. Do you view this more as a one-year event or is this multi-year hiring fees? I'm just trying to figure to how many sales people you have now versus maybe what you think to optimal amount of people are based on your pipeline..

We expect last year. We started off by working with the channel and we did deals with some large channel partners and we started with the search for people to onboard into our internal sales force. We expect to do the bulk work of the hiring at least at the top level for that sales force and then overtime.

We will build out as needed and as in appropriate rate to grow the sales force. So we wanted to put the appropriate leaders in place in various segments of sales, once we have them in place we will prudently expand the underlying sales force as sales and as our campus is demanding..

The key word there is prudent. As we've been talking about this over the last couple of earnings calls and we've said that we were expecting to have between five and 10 additional client facing sales heads during the year and we're on track to do that. But we also said that we shouldn't see a significant impact on SG&A because these are revenue.

These heads will be bringing revenue along with them and we will continue to expand prudent. We're very cognizant of our margins and very careful..

Okay and then maybe just one last quick one.

Can you remind us the flow and where you're right now at their kind of the recent conversions and kind of how we should expect that flow to maybe increase throughout this year and next year?.

Nate, that's a great question and I'll let Gabe talk to the actual flow that's out there.

But as to the increases there are four times a year that the shareholders can redeem the private shares, the Class B shares or Class A shares and the next redemption date that we have set is on July 2 and we know that there will be approximately 7 million shares redeeming at that time and I believe in our financial disclosures.

We also disclosed how many were converted in at the Q1 cycle and Gabe will provide that number..

Nate on our slick deck that we put up on our website on Slide number 21, we detailed the shares outstanding Class A as well as the Class B and C and as of the end of Q1, we had about 55.6 million Class A shares representing about 23% of the total shares outstanding.

But we did issue another 22 million in April so proforma for that issuance were about 32% of our common shares outstanding in the public hand Class A shares and then we have another redemption coming up in July and our partners are required to give us 60 days' notice and so we know what that redemption will be and it will be about 7 million shares and we're still determining, how much of our buyback authorization we will use to repurchase some of those 7 million shares, but currently there are 7 million that have been slated for redemption in July..

And to be clear, the 7 million that are slated to redemption in July. It is up to the people that are doing the redemption to determine whether or not they're going to be selling shares. If not something the company has a right to compel a sale, it is up to the individual that is doing the redemption.

So we're contacting those people and they have not yet indicated whether or not they're going to be selling but we will know more towards the end of the cycle, which will be July 2.

And then as I said, there were two more redemption cycles this year and how many will be redeemed during those cycles that's entirely up to the individual investors and we do not have visibility on those numbers as yet..

But is there a maximum that can be redeemed in each period and for the year or are there limits on that?.

No there is no maximum that can be redeemed in any given period. As long as they're larger transaction block sales, there are some restrictions to smaller transactions and the number of those that can happen. But as long as they're larger redemptions then there is no ultimate feeling on what can be redeemed.

But as you've seen over the last 18 months or so that we've been public. People are flowing the shares out in a relatively steady cadence. There hasn't been sort of flood to the market or anything like that. I don't see any reason to see that changing..

Okay, that's helpful. Thanks guys..

We'll next from William Blair's, James Breen..

Just given some of the movement in Europe. Is there any thought further on the strategy there in terms of geographic expansion? Thanks..

It's a great question, thank you James. Currently we're focused on growing our four campuses here in the United States and that is where our focus has been and where it will continue to be.

We have to remind ourselves that 2.5 years ago we only had one campus and now we will have four by the end of this year and that's a pretty sizable amount of expansion and we want to make sure that we're doing that in a way that we can maintain our tier 4 goals operating status and roll out those campuses into those measures and to the capacity and to the quality that our customers have come through expect from us.

So we're focused on keeping those three additional campuses up growing and going and that is leads to the foreseeable future, we see our focus being..

As that being said Jim. We do have our international joint venture which I believe you're aware of and we have the two data centers that are up in running in Milan and in Thailand and both of those centers are filling quite nicely. They are very low risk to Switch.

We license our technology in exchange for 50% of the partnership interest in our SUPERNAP International Joint Venture and so we do have a presence internationally. But like most things we do it's done very prudently, it's done in a risk averse way in a way that provides upside to Switch..

Great, thanks..

We'll go now to Erik Rasmussen with Stifel..

First is more of a clarification question, it's on the guidance. Your performance in Q1 was pretty strong and measuring that against your annual guidance and then you talked about your backlog of $35 million. I think $17 million will be realized this year.

I understand that you're maintaining the guidance, but if we look at the kind of run rate from Q1 and then look at that backlog conversion. I would suggest that you're probably tracking towards the upper end of your guidance.

But is the way to think about that also what you've talked about and that's the timing of these deals since they're little bit larger and when they scale..

Thank you and Erik, there are two thoughts on that and I'll let Gabe can answer these as well.

the first is that - it's the first quarter and we had a strong first quarter and we're very pleased with the results, but it is the first quarter so we don't want to be coming out of the shoot strong, don't want to be too precipitous and say that we're going to raise guidance right out of the box.

So there's that amount of prudent and secondly you're absolutely right that some of these larger deals all have ramps and so while there is a good amount of bookings. They do ramp into it and so their impact on this year is not as much as it is in subsequent year once the ramps were put in..

And the other aspect to our revenue is that there is some variability particularly in the power usage numbers, which do bounce around a little bit depending on seasonality and client actual usage and so we still feel comfortable that we're within our range and we'll discuss any adjustments in Q2, if weren't..

Great, thanks and maybe just a follow-up my second question. The new logos you've been growing them that business last year was a pretty good growth and accelerated a little bit in Q1. But how should we think about 2019 and even next year.

How important is it for the team to kind of continue to drive that new business to the platform? Maybe can you give us a sense of how you balanced this first year expansion within your customer base and then as you look at kind of the long-term growth potential, how do you see this mix kind of changing?.

I'll talk a little bit strategically and let Gabe speak to numbers or any the supplemental subject like the color he'd like to share. The first item is, that we always like to add new logos. The more new logos we can add, it gives us a good diversity in our customer base. Right now, we've a very diverse customer base.

Our top 10 customers represents roughly 36% of our overall revenue so that diversity gives us a nice platform and we don't have any significant customer concentration, any associated risk with that metric.

So we like adding new logos and the second reason we like adding new logos besides concentration, is that when customers come to us they do not tend to leave, they instead can the land in expand.

So more customers like seedlings [indiscernible] that you have that can grow, the greater the growth you receive from our customers and if you look over the past years. It's used to be, that was roughly 50% of our incremental growth was from existing customers and overtime that number has crapped up enough ,the customer base continue to expand.

So we're reaping the benefits of having additional logos and expanding the platform on which we can leverage that growth..

Yes and on couple things on that Erik is, historically we've added a number of new logos each quarter as Thomas alluded to, many of them start small with us and that's okay because those are healthily customers to have, in a retail collocation environment which is what Switch does. But they also tend to grow with us overtime.

This quarter in particular we've had a number of transactions that we've been working on for quite some time and have been discussing in previous earnings calls about the time taking to close some of these strategic transactions given the size of the initial deployment.

FedEx and the couple of the others that we've talked about are quite large in their initial deployment. But let's put those aside and we still added a number of new logos in way we typically do each quarter, smaller to point [indiscernible] we grow in that overtime and keep a consistent base of revenue in the business.

So we love adding those new logos but we continue to believe that most of our growth comes from existing c customers expanding. This last quarter 47% of our growth came from new customers within the last 12 months, 53% capable customers that have been with us over year.

But as the year progresses that ratio will decline because simply the fact that customers will stay with us longer and ramp throughout the year more tends to ship to the existing customer in terms of growth. If you look at our historical pattern Q1 is always the high water mark growth from new customer..

Great, that's helpful. Thanks..

We'll move onto Jon Petersen with Jefferies..

So just curios if you could help me understand on Slide 13. I think you signed $168 million of total contract value, $34 million of that's annualized revenue.

Can you help me break that down into what's incremental of new customers versus what's extensions and renewals of existing leases?.

Sure Jon, this is Gabe. Couple of things on that and we did break it out in that slide specifically but between new and existing customers. So you'll see about $95 million of total contract value comes from new customers and of that about $14 million plus is annualized revenue from that new customer base.

In addition, our existing customers many of them expanded [indiscernible]. So if you look at the overall incremental growth for the quarter it's about $19 million in annualized revenue coming from both existing customers and new customers..

So those existing customers, none of that renewals, it's all expansions.

Is the way to think about that?.

Well it's both..

But the $19 million represents expansion..

The $19 million represents total incremental revenue for the quarter about $14 million coming from new and about $5 million expanding from the existing customers in addition, they're new..

Okay, all right. Thank you that's very helpful. And then on, thinking about your debt levels. Your leverage is very low relative to peers, but it has been moving up a bit over the last few quarters as you guys have been investing in new campuses.

Maybe if you could just help us think about how you guys are thinking about leverage over the next couple of years and what levels you're comfortable at..

Yes it's actually stayed pretty flat the last few quarters..

It did create [indiscernible] over the past year or so because we were getting ready to open Atlanta and there's some initial infrastructure deployed that's required in Atlanta that doesn't have associated revenue in it because the Data Center campus isn't' open.

So we would expect that, so that expenses levelled off and now our debt ratio is staying pretty static and we do not have an anticipation to see in that climb significantly over the rest of this year..

Now that being said, we've talked in the past people have asked about our leverage target and we don't' really have a specific target because we never needed to add leverage. If something were to come down to pipe that were strategic we certainly would not be afraid of operating it four or five times leverage given our recurring revenue base.

We simply haven't needed it because of the modular way in which we deploy. So we tend to deploy capital and thereby increase our debt and at the same rate that EBITDA is coming into the data centers. So it keeps our leverage level quite low and it's been pretty stable about two, 2.5 times..

Yes, if we were to - Gabe is right. If we were to increase our debt level, it would be associated with customer demand and customer expansion because we deploy ahead of customer demand and as a result of those signings being done. So if somebody signs with a large deal, with a significant ramp. We'll roll into it with the CapEx.

So we would lean into CapEx against contracts that were signed..

Great, okay that's helpful. Thank you..

Our next question comes from Michael Rollins with Citi..

Curios, if you could talk a bit more about the connectivity segment in a couple respects. First, in this slide you talked about 5,000 billing cross connect and how do we think about that in terms of the total opportunity for cross connect across your facilities.

And then secondly, how should we thinking about the growth of this business overtime between what you might be able to garner from the fiscal cross connect. Maybe interest in switching fabrics as well as the other core and power businesses that you're overlaying on top. Thanks..

With regard to the cross-connects Mike, as we've talked about in previous calls and in meetings with you and others. Historically Switch did not build for cross-connects because we sell connectivity quite differently than all of our peers and we're able to sell full telecom. So we didn't necessarily charge for all cross connects.

We've been more aggressively implementing a cross connect billing program as they come up for renewals and changes and so we're up to about 5,000 plus billing cross-connects and we think that there's a good opportunity to grow that part of the business.

Even with the technological changes that are potentially adjusting the way people think about cross-connects and communications networks given where we are vis-à-vis our customer base, we still think there's a significant opportunity to grow..

Is there any size or types of pricing or customer reactions moving to your billing model?.

No, I think the industry got it quite used to being charged for cross-connects and we bill very similarly to our peers in that respect..

There wasn't need when we were selling the full circuit we were embedded in the circuit cost was the cross-connect charge, we didn't break it out as a separate charge.

Now that core and Switch connect has really done well and expanded it's - we do not - and we can break out the cross-connects and charge them separately and so we began to increasingly monetize cross connect and that's' a trend we can expect to continue and you've seen that as cross-connect as percentage of revenue has consistently inched upwards in terms of our percentage of revenue, even though our top line growth is continuing as a percentage of revenue that are growing faster than our top line growth.

So they're increasing as a percentage of the overall revenue as well. So we're charging for cross-connects and we expect that trend to continue..

Thanks a lot..

And with that, that will conclude today's conference and we do thank you all for joining us..