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Switch, Inc. (SWCH)
Q2 2018 Earnings Conference Call
Aug. 13, 2018, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day and welcome to the Switch second quarter 2018 earnings call. Today's conference is being recorded. At this time, I'd like to turn the conference over to today's speakers. Please go ahead.
Irmina
Good afternoon and welcome to Switch's second quarter 2018 conference call. Joining me today are Thomas Morton, Switch's President, and Gabe Nacht, Switch's CFO. Before we start, I would like to remind everyone that certain statements made on this call may include forward-looking statements. Any statement that refers to expectations, projections, or other characterizations of future events, including financial projections 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 SEC filings, specifically our Form 10-K, particularly in the section entitled "Risk Factors." 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, their most directly comparable GAAP measures, and a reconciliation of these measures, please refer to today's press release regarding our second quarter 2018 results. This press release has been furnished to the SEC as part of 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 Morton -- President and General Counsel
Thank you, Irmina, and good afternoon, everyone. Thank you for joining us today. I will start today with a review of our 2018 business developments and strategic outlook. I will then turn the call over to Gabe Nacht, our CFO, for a discussion of our Q2 financial results and the updated outlook for 2018. After going public in the end of 2017, the business vision for Switch in 2018 has been to focus on strategic enterprise deals that leverage the unique capabilities of our PRIME centers and thereby create a more valuable hybrid cloud technology infrastructure ecosystem for our customers and to secure a path of sustainable and profitable long-term growth for Switch.
Today, we are in the process of adding to our business plan, by launching the Switch Enterprise Elite Hybrid Cloud program. This service advises our clients on four future need pathways to bring about the full enterprise adoption of the cloud, which has been lagging behind in its industry projections. We believe that Switch's holistic, hyper-scale ecosystem approach is unique because it involves a deep dive into a client's need for (1) elite data center ecosystems; (2) enterprise connectivity solutions; (3) new software defined tools and services; and (4) a reimagination of enterprise data center equipment.
This is what the senior teams at Fortune 1000 companies have been searching for to enable the transition into the useful future of the Enterprise Hybrid Cloud. Until now, no service provider has packaged all4 of these offerings into such a cohesive and, more importantly, cost-effective manner. Only Switch can achieve this by leveraging our one-of-a-kind, multi-trillion-dollar purchasing cooperative known as The Core.
We have realized through these first few months of testing the offering with several of the Fortune 500 companies, that the potential growth opportunities from this holistic enterprise cloud offering may be more meaningful than we originally envisioned. We have also become aware that the initial closing of these new and improved sales opportunities are going to extend beyond a traditional co-location sales cycle due to the increased engineering and consulting activities required on the myriad of integrated verticals. It is for this reason that we have adjusted guidance for 2018. location due to the myriad of integrated verticals adjusted guidance for 2018.
We expect these new enterprise hybrid cloud projects to take an estimated 9 to 12 months to close and then ramp up over several years toward a time when the client's data center primaries will be fully transitioned to the Enterprise Elite Hybrid Cloud. We are also pleased to advise that the Citadel campus has been designated as a federal qualified opportunity zone. This designation provides an opportunity for material tax advantages to customers deploying at the Citadel PRIME and further enhances the economic advantages to customers of locating at that PRIME. This is in addition to the sales and tax use abatement available in both the Citadel and Core PRIMEs.
The 0% tax rate at the Pyramid PRIME resulting from the renaissance zone designation of that campus and the 0% tax rate also available via the Switch bill at the Keep PRIME in Atlanta. After 17 years of organic revenue growth, Switch is one of the leading technology ecosystems in the world. Our dedication to innovation and sustainability and our reputation contribute to 100% organic growth in the industry's lowest average annual customer churn rate of less than 1% over the last three years.
In the second quarter of 2018, we added 46 new logos. These include a global leader in the semiconductor industry, an innovative biopharmaceutical company, a global driver risk management company, a major Japanese construction company with global operations, a global multi-media company, and a global provider of hybrid cloud analytics and solutions.
In the second quarter of 2018, Switch executed 558 customer contracts, equating to over 20 megawatts and over $165 million in total contract value, with an average contract life of approximately 4 years. This is a 22% increase over Q1 2018, where signings were over $135 million in total contract value.
We also continue to innovate and strengthen our intellectual property portfolio. Switch has been granted 3 additional patents since January 2018, which provide incremental protections for the innovations that differentiate our offerings, such as Switch's heat containment system, our Black Iron Forest, and the chimney pod cable and conduit organizational methods. Thus far, we've filed another 4 patents in 2018. The most recent filings relate to additional protections for Switch's external wall-mounted HVAC units and chimney pod technology.
As of the end of Q2, we stand at over 500 issued and pending patent claims in our intellectual property portfolio. We have also continued to license our intellectual property to manufacturers. These license agreements continue, extend, and confirm the uniqueness and industry-leading nature of our patented data center technology. Switch currently has intellectual property licenses in places with two pivotal data center equipment manufacturers comprised of Schneider and Munters, with additional agreements currently under active negotiations with other industry-leading data center equipment manufacturers.
With respect to the connectivity offerings available through Switch Core, we advanced our capabilities to host hyper-scale cloud with an enhanced sales force and expanded product line to include session initiation protocols or SIP services, additional SD-WAN offerings and hyper-scaled cloud private connectivity options, staying current with the latest telecom service offerings.
As a company, we are extremely excited about the potential for growth as the fully holistic enterprise cloud is embraced by the world's largest corporations. We firmly believe that the Switch PRIME campus ecosystems have unique and industry-leading solutions that are almost impossible to replicate, and position us as a frontrunner in enduring enterprise hybrid cloud adoption. Switch's unique, multi-user, hyper-scaled PRIMEs are designed, constructed, and operated very differently from any other technology ecosystem in the world, creating what we believe to be an unrivaled technology infrastructure platform for our customers and fulfillment of our plans to provide stable, excellent returns for our shareholders for decades to come.
We underscored our commitment to shareholder value creation with the implementation of a buy-back program to repurchase up to $150 million of Switch Ltd.'s Common units and corresponding Switch, Inc. Class D Common Stock. As we continue to innovate, we evolve. We are excited with our 2018 progress and positioning Switch as the preeminent hybrid cloud data center solution partner of choice for global enterprises.
Our highly differentiated and strategically located campus ecosystems continue to attract primary deployments for enterprise customers, while our unmatched telecom capabilities enable hybrid cloud environment and hyper-scale infrastructure deployment. We are pleased with our growth prospects as we continue to execute on our market expansion strategy in the years to come. Let me now turn the call over to Gabe to discuss our financial results in more detail. Gabe?
Gabe Nacht -- Chief Financial Officer
Today, I'm going to review our financial results for the second quarter of 2018. I will then provide our updated outlook for 2018. In the second quarter of 2018, we achieved record quarterly revenue of $102.2 million, an increase of $10.1 million from the second quarter of 2017. This represents 11% year-over-year organic growth, primarily attributable to a $6.8 million increase in co-location revenue and a $2.6 million increase in connectivity revenue.
39% of the revenue increase in the quarter resulted from new customers initiating service during the past year, while 61% of the revenue growth came from customers who have been with Switch longer than one year. In the second quarter of 2018, we derived more than 97% of our revenue from the current revenue stream, which primarily of co-location, which includes the licensing of cabinet space and power, and connectivity services, which includes cross-connects, broadband services, and external connectivity.
The increase in revenue in Q2 of 2018 was primarily related to increased volume of sales to existing and new customers. Co-location revenue for the second quarter of 2018 was $81.2 million, an increase of 9% over the $74.3 million reported in Q2 of 2017. Connectivity revenue in Q2 of 2018 was $18.9 million, an increase of 16% over the $16.2 million in the same period in 2017, primarily due to an increase in revenue from our Core, telecom purchasing cooperative, and an increase in cross-connect revenue, which grew 25% over the same period in 2017.
Other revenue, including professional services, accounted for $2.1 million in Q2 of 2018, up from $1.5 million in the same period of 2017. I would also like to highlight several additional metrics pertaining to the contracts we signed during the second quarter of 2018. As Thomas mentioned, we had a strong bookings quarter, signing over 550 contracts equating to over 20 megawatts, with a total contract value of over $165 million and an average contract life of about 4 years. We included additional information about these metrics in the investor presentation posted on the investor relations section of our website.
As we continue to win new logos and expand our relationships with existing customers, we also maintain what we believe is the lowest churn in the industry, which has declined to just 0.02% in the second quarter of 2018. Cost of revenue increased by $6.7 million in Q2 of 2018 compared to the same period in 2017, due to a $3.7 million increase in depreciation and amortization costs as additional assets were placed into service during the past year at the Core campus and the Citadel campus.
A $0.8 million increase in salaries and related employee expenses due to increased headcounts to support the opening of additional co-location space placed into service, and to support additional customer deployment, and a $1.5 million increase in facilities cost. As a result, our gross profit margin was 46% in the second quarter of 2018, compared to 47.4% in the second quarter of last year. SG&A expense in the second quarter of 2018 was $31.1 million, compared to $20.1 million in the second quarter of 2017, an increase of 55%, which was in large part attributable to $6.6 million in non-cash compensation expense during the period, a significant portion of which relates to the continued vesting of common unit awards of Switch Ltd. granted in connection with Switch's initial public offering.
The company also experienced a $2 million increase in indirect labor as a result of additional headcount hired in the past year to support the company's IPO and public company operations. Additionally, there was a $0.6 million increase in professional fees in Q2 of 2018, compared to Q2 of 2017, including additional audit fees, legal fees, and tax fees, all of which are associated with operating as a publicly traded company.
Income from operations in the second quarter of 2018 was $15.8 million, compared to $23.5 million in the second quarter of 2017, due in part to $8.2 million in equity-based compensation expense and other expenses already discussed. Interest expense increased by $1.2 million to $6.1 million in the second quarter of 2018, primarily driven by the increase in our weighted average interest rate from 3.6% in the second quarter of 2017 to 4.17% in the second quarter of this year.
Net income for the second quarter of 2018 was $9.5 million, compared to $15 million in the second quarter of 2017. Adjusted EBITDA totaled $50.3 million in the second quarter of 2018, compared to adjusted EBITDA of $46.8 million in the second quarter of 2017. Adjusted EBITDA margin for the second quarter of 2018 was 49.2%, compared to 50.8% for the same quarter in 2017. Capital expenditures in the second quarter of 2018 were $99.4 million, compared to $112.9 million in the same quarter of 2017.
During the second quarter of 2018, Switch spent $57.0 million in the Core campus to open the last sector of Las Vegas 10 and for continued site work and building of the shell on its Las Vegas 11 facility, which is planned to open in late 2018 or early 2019, adding another 340,000 gross square feet. Switch also invested $31.5 million in the Citadel campus to open the next two sectors and to purchase an additional 515 additional acres of land. Switch spent $8.0 million for additional expansion of the Pyramid campus. Finally, Switch spent $2.8 million on site development at the Keep campus in Atlanta, which is scheduled to open in the second half of 2019.
Maintenance capital expenditure was $1.0 million for the second quarter of 2018, compared to $1.7 million for the same period last year. Growth capital expenditure was $98.4 million for the second quarter of 2018 compared to $111.2 million in the same period last year. Our existing facilities is our PRIME campus locations, currently encompassing 10 datacenters with an aggregate of 4 million gross square feet of space, and up to 450 megawatts of power.
As of the end of the second quarter of 2018, the utilization rate at these PRIMEs, based on the currently available co-location space, were approximately 87%, 38%, and 96% at the Core campus, the Citadel campus, and the Pyramid campus, respectively, versus 91%, 48%, and 77% in the prior quarter. The utilization rate at the Core campus and the Citadel campus declined from the prior quarter as a result of continued sector expansion.
Looking now at the balance sheet, as of June 30, 2018, the company's total debt outstanding, net of cash and cash equivalents, was $427 million, resulting in an net debt to last quarter annualized adjusted EBITDA ratio of 2.1x. At the end of the second quarter of 2018, Switch had liquidity of $684 million, including cash and cash equivalents and $500 million of availability under our revolving line of credit. We believe this is sufficient to fund our growth plans for the foreseeable future.
Now turning to guidance. As Thomas in his remarks, we have recently launched the Switch Enterprise Elite Hybrid Cloud program. Enterprise customers are taking additional time to evaluate the design of their long-term, large deployments to take advantage of Switch's new offering. As a result, the initial closing timelines for these new-and-improved sales opportunities are going to extend beyond the traditional sales cycle.
Given the dynamics impacting the financial performance this year, we are providing an update to our 2018 guidance as follows. Revenue is expected to be in the range of $405 million to $408 million. Adjusted EBITDA is expected to be in the range of $197 million to $200 million. Our capital expenditures guidance is unchanged and remains in the range of $260 million to $310 million.
We firmly believe in the long-term growth prospects of our business and are confident in the strength of our multi-year sales funnel, which is currently the largest in our corporate history. The contracts we signed in the second quarter alone represent over $40 million in annualized revenue at full deployment, and we expect to deliver on future growth opportunities and we continue to invest in technology that delivers market-defining solutions. I will now turn it back to Thomas for some closing remarks.
Thomas Morton -- President and General Counsel
With 17 years of organic growth as a company, Switch continues to place clients at our Core campus in Las Vegas, as well as expand into our Citadel PRIME in Reno, Nevada, and the Pyramid PRIME in Grand Rapids, Michigan. Following the path established in Las Vegas, Switch is successfully establishing new Tier 1 markets in Tahoe, Reno, and Grand Rapids. We also anticipate achieving exceptional success in Atlanta, Georgia, when the Keep PRIME comes online in the second half of 2019.
We anticipate continued success of our Enterprise Elite Hybrid Cloud offering, where the opportunities remain the strongest we have ever seen. We look forward to announcing additional multi-faceted transactions which leverage our core offerings to the fullest advantage of our customers. I would once again like to take this opportunity on behalf of our management team to thank our employees, customers, and our partners for their commitment and continued support of Switch. We would now like to open the line for questions.
Questions and Answers:
Operator
Thank you. Ladies and gentlemen, if you'd like to ask a question at this time, please press *1 on your telephone keypad. If you're on a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, for questions at this time, please press *1 now. Our first question will come from Richard Cho with J.P. Morgan.
Richard Cho -- J.P. Morgan -- Analyst
Thank you. Given the changing guidance on the revenue side, it seems like revenue is going to be pretty flat. Is there something going on there? I know you had good signings, but on the flip side, just annualizing out to the midpoint of guidance, it seems like revenue isn't going to be ramping. Can you give us an idea of, given the signings, is there a churn event? Then is there a repricing? Then, when can we see the revenue ramp? Thank you.
Gabe Nacht -- Chief Financial Officer
Hi, Richard. This is Gabe. There really isn't anything going on other than the delay in the deals that we've talked about. We've had good signings. However, they still need to deploy. It's the deployment that creates billable revenue. Given where we are in August, we've got some good visibility as to what will be deployed throughout the rest of the year. We want to make sure that we're putting forth numbers that we're confident in and that we're going to hit. And so, that's the revenue guidance we're putting forth.
Thomas Morton -- President and General Counsel
Richard, this is Tom. One other comment is that there is not a churn event that is in our future right now. It is purely that we have more complex, hybrid cloud deployments that we are doing and they are causing our customers to revisit the technological aspect of their deployment to do a more robust deployment with us. When we engage in those conversations, it causes their deployments to slow down slightly in terms of timing, but those deals are not going away and there is no churn. It is purely a timing issue in terms of the deployment. It is still the most robust pipeline we have seen as a company.
Richard Cho -- J.P. Morgan -- Analyst
But given the guidance, I think you said you were pretty conservative the last time you gave guidance and now you're bringing it down by a significant amount. Maybe I'm not doing the math correctly, but it seems like there's very little revenue growth going forward for the last two quarters. Am I reading that incorrectly?
Gabe Nacht -- Chief Financial Officer
No, I think you're reading it correctly. We're forecasting relatively modest revenue growth in the next two quarters given the deployment schedule that we have on tap. If you recall, we typically do our price increases in the first half of the year, so that flows through. We also still do have a bit of a headwind from a strategic customer. Their contract that we signed back in 2016 that does still does have an impact on a quarterly basis in the back half of the year, although not as much as in the first half of the year, but it is still there. So, given all those factors, we forecast the guidance that we put forth.
Richard Cho -- J.P. Morgan -- Analyst
Great, thank you.
Operator
Our next question will come from Tim Long with BMO Capital Markets.
Tim Long -- BMO Capital Markets -- Analyst
Thank you. Just two kind of related, if I can, just to talk a little bit more about looking out on a sequential basis. Gabe, you mentioned the strategic customer. Any change there to the cadence of revenues that you were thinking when you updated us a quarter ago? Then also, the large 15-megawatt deal. I think that was supposed to start contributing in Q3. Is that one of the ones that is being delayed as well? Then after you talk about those two, maybe just talk a little bit about the infrastructure there and visibility. So, do we need a step up in the sales force number? Smaller number of accounts per individual or what can we do to ensure that visibility into the customer with these new, larger programs is improved? Thank you.
Gabe Nacht -- Chief Financial Officer
Tim, thank you. As far as the first question on the strategic customer, the impact has not changed at all. It is actually very contractually set. We know exactly what that impact is. Going into Q3 and Q4, it's about $1.6 million in each of those quarters and then we'll not have any impact in 2019. So, that hasn't changed a bit. With regard to the deal we talked about last quarter, let me turn that one over to Tom.
Thomas Morton -- President and General Counsel
With regard to the large megawatt deal, they have indeed decided to reengineer their chip sets. What they started looking at is the Rob Roy investments and what Rob Roy is capable of and these data centers are capable of. They were finding that they could achieve much larger densities than they knew that they could achieve and they have been redesigning their chip sets to optimize the data center infrastructure that they could be deploying or will be deploying at Switch. That has caused their deployment to be pushed off by a couple of months, but they are still engaged in deploying and, in fact, they are extending the reach of their deployment or talking about extending the reach of their deployment inside of our data centers. So, net-net, it should be a very significant positive for Switch, it's just causing a little bit of a delay while we have technical discussions with them about how their chip sets can be optimized for the environment that we provide.
Tim Long -- BMO Capital Markets -- Analyst
Then just sales force and visibility?
Gabe Nacht -- Chief Financial Officer
We continue to expand our relationship with CBRE. CBRE has really been great in engaging with us. We are also engaged heavily with Rackspace and advancing our relationship with them. Then we continue to expand and enrich our internal sales force in order to make sure that we're able to effectively address the transactions that we are looking at. In the sales force we've also included some technical advisors and technical people to help with the engineering on the customer side with respect to the types of gear and the level of gear that they're deploying inside of our facilities.
It's really a holistic offering to our data center that is not being offered by others. It's a rethinking and a reimagining of how to put data centers and data center space out to the public, and I talked about that a little bit in my initial comments. But it is causing customers to take pause and figure a way that they can actually leverage and optimize their deployments with us. 70% of enterprise data centers are still inside the data center or inside the enterprise and the reason that they're not coming out is because there isn't a holistic Tier 5-type offering available to them.
We're the first to come out with that level of offering and now they're thinking of engaging at that level of scale for the first time. It's just taking a little bit of time for them to get their arms around all the various intricacies that are involved in that scale and that complexity of a deployment. But once it's done, they will move in and we think there will be a tremendous amount of stability and legacy-type environment they'll be moving into.
Tim Long -- BMO Capital Markets -- Analyst
Thank you.
Operator
Our next question will come from Scott Goldman with Jefferies.
Scott Goldman -- Jefferies -- Analyst
Good afternoon, guys. Maybe Tom, maybe just piggyback on that last comment that you had there. I feel like we've heard a number of other companies out there talk about the hybrid cloud and targeting the hybrid cloud. And so I think you made some comments in the prepared remarks, but maybe you could just highlight for us the one or two key points of differentiation that Switch brings to the table. Do you have to change the organization or the approach in terms of going after this opportunity on a go-forward basis? I may have one follow-up. Thanks.
Thomas Morton -- President and General Counsel
This is Tom once again. First of all, no, we don't need to change our organization. This is just optimizing the existing infrastructure that we have. We have been one of the leaders or the leader in providing data center space for years. This is just the market is catching up with what our offerings are and how we can achieve success for them. But as to Switch and some of our offerings and how they're unique, we've talked about these before, but I'll quickly enumerate some of them.
One is we are the only ones that offer a Tier 5 data center. Second is we offer public cloud interconnection and services at very high rates of speed with 40+ carriers. The other thing is that we have helped customers reinvent their data center equipment and worked in collaboration with them to enhance their deployments with Switch and enhance the production productivity of their gear.
In addition to that, we have the tax benefits that come with Switch. The fact that we are in environmentally safe zones and the fact that we are able to offer 100% green power at the lowest cost that they're able to achieve in any other location. Those are some of the items that make Switch unique. Those are some of the things that the companies are contemplating in connection with a holistic deployment with us. It is that combination that is allowing them to be comfortable moving out of their enterprise data centers and into our data centers, because our data centers have to be better than what they currently have at a competitive or better price point. And that's what we're able to provide.
Scott Goldman -- Jefferies -- Analyst
Thank you, Tom, for that. One question for Gabe. If you look at the revised guidance, the implied margins for the full year are probably a couple hundred basis points below where you saw that just a quarter ago. Is that largely just a function of just the revenue trajectory that you've laid out for the back half of the year or is there something on the cost side that we should be thinking about as we go through the rest of the year? Thanks.
Gabe Nacht -- Chief Financial Officer
It really is a function of the revenue trajectory. As we talked about in the first quarter, we did staff up in order to support the customer signings that we've made and the deployment schedules which are now being delayed a bit. So, we have the staff on hand and that is going to impact margins a bit as we move into the back half of the year, but we expect those margins to normalize and still are very comfortable with our long-term margin goal as we move forward.
Scott Goldman -- Jefferies -- Analyst
Thank you, guys.
Operator
Our next question will come from Frank Louthan with Raymond James.
Frank Louthan -- Raymond James -- Analyst
Great, thank you. You mentioned no real changes in the sales force. Any material departures of other employees in the organization? Can you walk us through when the next couple of lock-ups come up and how many employees are affected and the amount of stock? Then I have a follow-up.
Thomas Morton -- President and General Counsel
This is Thomas again. There are no significant departures that we have to announce. The second thing is that the redemptions this quarter, everybody I think knows that it happens on August 17th. The redemptions this quarter are 6.4 million common units that are redeeming to Class A. The next redemption after that occurs in the middle of November. We don't have a forecast yet as to how many people will redeem during that period.
Frank Louthan -- Raymond James -- Analyst
Okay, great. Thank you. The revenue that you booked in the second quarter, when will that start billing and when would it be at that full $40 million annual run rate?
Thomas Morton -- President and General Counsel
Some of them will start billing in the second half of the year. But the larger deals have ramps built in that can be upwards of 2 years. We talked about the large transaction that we signed earlier on this quarter already, and we noted that had a 2-year ramp to it. Some of the other large deals also do have ramps. So, we expect that to be in full revenue within the next 24 months.
Frank Louthan -- Raymond James -- Analyst
Within that $40 million that you booked, is any of that materially concentrated in a couple of contracts or how writeable is it across the 550?
Thomas Morton -- President and General Counsel
When we look at the $40 million, some of those represent renewals. Those are not all new contracts and we do break that out in the slide deck that we provided on our website. That includes renewals to existing customers. But the new transactions that we booked this quarter, most of those are geared toward a few large contracts, one of which we've already talked about quite extensively.
Frank Louthan -- Raymond James -- Analyst
All right, great. Thank you.
Operator
Colby Synesael from Cowen has our next question.
Colby Synesael -- Cowen & Company -- Analyst
Thank you. The enterprise hybrid cloud strategy, it's the first time I'm hearing about it, so I apologize if it's been mentioned before. You're citing that as the explanation for why you've reduced your guidance, but if I go back to your planning period, which I assume was in October, November, December of last year, sometime in period, were you assuming that this was going to happen and it's just happening now later than anticipated? Or is it, it just doesn't line up with me why that's the explanation for why you're reducing your guidance. When I looked at the previous guidance, it was assuming some pretty notable step-ups in the back half of the year, maybe like 7% or 8% quarter-over-quarter.
These enterprise deals, I assume are fairly small, at least compared to some of these hyper-scale-type deals that we've seen some other companies doing. Was there an expectation that you were going to win more of those than you ultimately have? Because, again, just looking at what the guidance had implied versus what you've done and what you're now doing with the guidance, it just doesn't seem to line up that the enterprise hybrid cloud is the explanation for why you're reducing your guidance.
Thomas Morton -- President and General Counsel
First of all, Colby, thank for you for that. Since our IPO Road Show, we've talked about where we thought compute was going and where we thought the hybrid cloud environment would go and our focus was on the enterprise and helping to jump-start that enterprise migration out of the enterprise-only data centers into a cloud environment. We've talked all along about the fact that we're building the PRIME campuses for companies, PRIME deployments that most regulated data sets, their most proprietary data sets, their most high-density data sets. We fully expect that those enterprises will use the cloud for a significant portion of their compute. They'll also need an edge deployment.
We think that's where compute is going. We've been talking about that very consistently since the IPO Road Show, frankly. As far as our planning for this year, what we're finding is these enterprise deals are taking longer. We've had a number of opportunities, for example, where companies have come to us with several cabinets or several hundred cabinets that they would like to move in, but there is a larger opportunity there to talk to them about fully utilizing a hybrid cloud, fully utilizing what our data centers can offer. These take significantly longer to close because we're no longer talking about 100 cabinets or 200 cabinets, we're talking about potentially thousands of cabinets.
I think your hypotheses that these enterprise dealers are smaller than some of the cloud deployments is frankly off-base. The enterprise deals that we're talking about, some of them are absolutely as large as any of the cloud deployments out there. They are complex. The involve the companies buying hundreds of millions of dollars of equipment, making sure their software stack is going to run appropriately, timing, when they're going to move from their existing data centers or shut down their existing data centers. So, it does take logistical planning and we're finding that some of these are stretching out. We are not finding that any of them are going away, which is tremendously positive for us. So, hopefully that helps answer the question.
Colby Synesael -- Cowen & Company -- Analyst
It does. Just one quick follow-up. You mentioned earlier on the call the four different components of your enterprise hybrid program. Maybe you could just spell it out for me. What is different with what you're doing on a go-forward basis versus what you were doing before? I think, Thomas, in response to one question when asked what's you're differentiator, you mentioned four or five things which you guys have mentioned before. Specific to this enterprise strategy, is it that you're selling a broader bundle of services, so you're going to start reselling SDN solutions or data center equipment? I'm just trying to understand what's different in the go-forward solution set, if you will, that you're going to be offering as part of this hybrid offering versus what you were doing previously? Thank you.
Gabe Nacht -- Chief Financial Officer
Colby, thank you for that. It's really a refinement of what we've been offering. This is not a change of course for the company. It is a refinement of our offerings and being able to express that to the customer in a way that they are beginning to or they are understanding and adopting those items. By helping customers, not only by data center but by power, and then also by telecom and working with a cooperative to help them buy and reengineer and reimagine their gear. We are getting deeper and deeper into the customers' deployment and helping them as a trusted advisor, rather than simply as a data center provider. That is a more holistic offering, a more holistic approach to the customers, and it is what, we believe, is going to help customers move from their own enterprise data centers in to a more robust and lower cost alternative, which would be inside Switch's supernet.
Thomas Morton -- President and General Counsel
One of the things that we're also finding in this enterprise customer base is that as they learn more about Switch and what we can offer, they're actually asking us to do more. One of the key things that we're finding is customers are asking us to do a complete telecom audit for them, given our buying power through the Core purchasing cooperative and those are time consuming, but they are also tremendous opportunities for us.
They're also asking us to do complete data center audits of their existing data centers and looking at their gear, looking at what they've currently got deployed, what their power usage is, and thinking holistically about what they could possibly do with that in the future as they migrate to the next stack of computing equipment within a Tier 5 platinum environment that can do densities that Switch can provide. It really is a design and implementation process, along with a sales cycle.
Colby Synesael -- Cowen & Company -- Analyst
Got it. Thank you.
Operator
Our next question will come from Erik Rasmussen with Stifel.
Erik Rasmussen -- Stifel, Nicolaus -- Analyst
Thanks for taking the questions. I think you went through a little bit of this at some stages, but can you just walk us through the onboarding of these new customers to this new enterprise program for hybrid cloud. Just to understand the complexities around this as it relates to the sales cycle. It seems that it's evolving this whole process and could potentially demonstrate other slips further as we kind of go through this just as you're working with customers on it. Then I have a follow-up.
Gabe Nacht -- Chief Financial Officer
Erik, thank you very much. First, not every customer is engaged at this level. We still have a significant amount of g that comes from our standard customers and our standard deployments that we've enjoyed for a long time. Secondly, we have a lot of expansion that is coming from our existing customer base. So, I don't want anybody to walk away and say we're wholly dependent on this particular aspect, but we're a multi-faceted data center provider.
For these large deals, it does involve a greater amount of complexity. I feel like I'm a little bit reiterating myself, so please forgive me, but by getting in with the customers and helping them do their deployments, we are actually getting in with specific customers and helping them modify the gear that they want to buy, the chip sets that they're having made, and the gear that they're having configured and the way that they want to deploy it inside of our data centers.
In addition, addition, we're working with them on tax abatements. We're working with them on qualified opportunity zone investments. Then we're working with them on financial optimizations through their deployment. So, there's financial components here. There are technological components here. And there are logistical components here. These are large, multi-megawatt transactions. To put those all together and to optimize them for timing in each of those workstreams takes a little time and takes a little effort to make sure that it's done appropriately.
It is, at the end of the day, we think a very positive thing. It makes for a very trusted relationship. It makes for a very stable relationship. And it makes for a large amount of deployment inside of our facility. Hopefully that helps.
Erik Rasmussen -- Stifel, Nicolaus -- Analyst
Thanks. That is helpful, thank you. Just as it relates to, we have the guidance for this year. You're about 10% if you exclude the impact of eBay, about 7.5% at the midpoint. Things have kind of pushed out a little bit. When should we expect to get back to that 20% or that historical growth rate that the company has demonstrated the past 7 years and also in terms of a margin profile as well?
Thomas Morton -- President and General Counsel
Erik, as you know, we haven't really discussed 2019 guidance yet. We're not prepared to do that on this call. However, as I said earlier, we're fully comfortable with our long-term margin profile and don't need to make any adjustments for our long-term view on our revenue growth profile or our margin profile.
Erik Rasmussen -- Stifel, Nicolaus -- Analyst
Okay, thank you.
Operator
Next we'll take a question from Sam Badri with Credit Suisse.
Ahmed Sami Badri -- Credit Suisse -- Analyst
Thank you. My first question really had to do with connectivity revenues and how that keeps outpacing co-location revenues. More specifically, there was a comment mentioned that cross-connect revenues were materially higher than the total growth rate. I just want to understand what the dynamic is here. That doesn't really sound like a hybrid cloud type of workload. Maybe if you could just give us a little more detail around that.
Gabe Nacht -- Chief Financial Officer
Sure. Our connectivity revenue did grow faster than our co-location revenue and those numbers are on the slide deck that we provided on our investor relations site. Connectivity revenue in the Core offering that we can provide through our purchasing cooperative is a very unique aspect to what Switch offers. The more people learn about it, the more they're taking advantage of it. Not only are they taking advantage of it with connectivity to and from our data centers, but they're taking advantage of it for their entire networks.
That's one of the things that we're seeing as a true sales opportunity with these Fortune 1000 companies that are seeing what we can offer on a conversation side and asking us to do full telecom audits for them. As far as our cross-connects, as I think we've mentioned several times in the past, historically because we sell full connectivity and full circuits, we did not necessarily concentrate and monetizing the last 200 meters of those circuits in what is typically known as a cross-connect. We've been much more aggressive in making sure that we are charging for those cross-connects today and cross-connects grew in the second quarter year-over-year 25% cross-connect revenue. It is about 3.5% of our total revenue right now and continues to increase.
Ahmed Sami Badri -- Credit Suisse -- Analyst
Got it. Thank you for the color on that. Then are the cross-connects, do they have the very similar contract structure as co-location contracts with escalators or options like that?
Gabe Nacht -- Chief Financial Officer
Yeah, they're structured very similarly. Most of what we do is retail co-location with 3 to 5-year time horizons and the connectivity side of those contracts is very similar as well.
Ahmed Sami Badri -- Credit Suisse -- Analyst
Got it. Then my last question is just regard maintenance capex. It sounds like it was down year-on-year to a pretty low level. I think it was $1 million mentioned earlier. Could you just explain how that, like are recent deployments and builds dramatically more efficient from a maintenance capex perspective for why this is actually occurring?
Gabe Nacht -- Chief Financial Officer
No. Our maintenance capex has always been low and that's part of Rob Roy's design. When he designed the equipment that goes into our data center, he designed it with a meantime to failure in mind, as opposed to designing it with the need to feed a service network, as some of the equipment manufacturers that provide equipment to the general industry design their gear. We just design things with a longer mean time to failure.
Our maintenance capex was a bit lower year-over-year than in the prior quarter. Really, that has to do with timing of certain maintenance capex that we do, timing of filter changes that we move out. So, that does jump around a little bit from quarter to quarter, but in general, it stays at around 2% of our revenue and that's where we're comfortable.
Ahmed Sami Badri -- Credit Suisse -- Analyst
Got it. Thank you.
Operator
Next we'll take a question from Michael Rollins from Citi.
Michael Rollins -- Citigroup -- Analyst
Hi, a couple if I could, please. First, what was the backlog in annualized revenue at the end of the second quarter and how did that compare to the backlog at the end of the first quarter?
Gabe Nacht -- Chief Financial Officer
On the second quarter, we signed just over $135 million of total contract value of signed deals in the second quarter, if that's what you're asking?
Michael Rollins -- Citigroup -- Analyst
You talked about the backlog and the delays in installation and that you haven't lost the orders or the bookings. So, I'm curious if you look at June 30th as the end date there, what was the annualized amount of revenue that you booked but you haven't yet installed? To just sort of size that opportunity as we look forward?
Gabe Nacht -- Chief Financial Officer
We don't specifically comment on our backlog, but when you talk about our backlog from period to period, we did sign $165 million+ of deals just in the second quarter, which is also backlog. Now, some of that was for new customers that are expansions and renewals of existing deals and some of that is for brand-new customers. That detail is on the website. We also provide the annual contract length on the website. With those two pieces of information, I think you can see what the annual backlog is.
Michael Rollins -- Citigroup -- Analyst
Let me try it a different way. Of the $25 million revenue change at the midpoint of guidance, how much of that was delays in sales and not getting the sales that you were looking for, versus how much of that is actually booked and in backlog but is just delayed in terms of the expected installation timeframe?
Gabe Nacht -- Chief Financial Officer
Okay. I follow you. I'd say it's about half. Half of the sales and signings are actually delayed. We don't count them until we actually sign them. The other half is delay in the installation. We did talk about the one large deal that we signed earlier in the quarter and Thomas mentioned that they pushed out there their installation a bit and that's also the case with a couple of the other transactions that we've signed. So, I'd say it's about half and half.
Michael Rollins -- Citigroup -- Analyst
Then in terms of the buy-back program, you mentioned the size of the buy-back. You also mentioned some of the upcoming redemption dates and then the expected size for the next one in August. So, how does the buy-back program work in terms of how should investors think about the opportunity for you to buy some or a significant portion of what's being redeemed and the mechanism in terms of the pricing for that versus if you have to wait a period of time or if it's less discreet. Just kind of curious of how the practice works of buying the corporate units.
Thomas Morton -- President and General Counsel
This is Thomas. I'll give a comment on that. First of all, we're going to use this buy-back package for two purposes. The first is we will have extra cash and we believe that there is an opportunity there for us to use some of the leverage that we have available to buy back some of our units. The second thing is that there is an advantage or a good optic for us to increase the flow to the company, but there's also a balance there in that we don't want in any particular redemption cycle for there to be a large rush to market. So, we will use this buy-back as a way to smooth our or manage the amount of redemptions that are going to occur in any particular quarter. That will ease or make it more fluid in how the flow of new units go or new shares go to the market. So, it's being used for those two purposes.
As to the mechanism of doing it, we have several requirements that go with us with the SEC as to pricing, but the purchases will generally be at market prices. We will set those prices around the times that we are doing the repurchases.
Gabe Nacht -- Chief Financial Officer
The redemptions.
Thomas Morton -- President and General Counsel
The redemptions.
Michael Rollins -- Citigroup -- Analyst
Is there room to do buy-backs in between redemptions, or this is only specifically to address redemptions, as you mentioned?
Thomas Morton -- President and General Counsel
There is flexibility to do that, but we're targeting it right now for the reasons that I've stated.
Michael Rollins -- Citigroup -- Analyst
Thank you.
Operator
Our next question will come from James Breen with William Blair.
James Breen -- William Blair -- Analyst
Thanks for taking the question. Just as a follow-up on the connectivity side. You saw, I think you said 16% growth year-over-year. And then you mentioned that you're helping companies with broader connectivity needs. Just trying to think about the size of that growth. Of the 16%, what percentage of that is coming from telecom that your customers are taking you that don't actually touch your data centers, they're using somewhere else in their network, where you're essentially just reselling telecom services? Is the margins on that, despite the higher growth, are the margins lower there relative to the overall data center margins? Thanks.
Thomas Morton -- President and General Counsel
We don't have a specific number on folks that are specifically taking circuits and how that's growing outside of our data center ecosystem. I can tell you that the external connectivity that we sell, which is really the general connectivity grew at about 9% quarter-over-quarter. Cross-connects grew at about 25% quarter-over-quarter. We do have other revenue streams for agented revenue and fiber revenue that also grew significantly.
James Breen -- William Blair -- Analyst
Is that 9% growth outside of cross-connects mainly from the customer [inaudible] to the data center?
Thomas Morton -- President and General Counsel
Mainly from? You broke up a bit there, James.
James Breen -- William Blair -- Analyst
Is the growth outside of the cross-connects mainly from the customer premises to the data center?
Thomas Morton -- President and General Counsel
It's both. It's from the customers' premises to and from our data centers, and it's also for circuits that don't touch our data center.
James Breen -- William Blair -- Analyst
Great. Thank you.
Operator
Once again, ladies and gentlemen, if you'd like to ask a question at this time, please press *1. Once again, that's *1 for any questions. That does conclude our question-and-answer session at this time. I now would like to thank everybody for attending today's conference call. Thank you for your participation. You may now disconnect.
Thomas Morton -- President and General Counsel
Thank you all.
Gabe Nacht -- Chief Financial Officer
Thank you.
Duration: 56 minutes
Call participants:
Thomas Morton -- President and General Counsel
Gabe Nacht -- Chief Financial Officer
Richard Cho -- J.P. Morgan -- Analyst
Tim Long -- BMO Capital Markets -- Analyst
Scott Goldman -- Jefferies -- Analyst
Frank Louthan -- Raymond James -- Analyst
Colby Synesael -- Cowen & Company -- Analyst
Erik Rasmussen -- Stifel, Nicolaus -- Analyst
Ahmed Sami Badri -- Credit Suisse -- Analyst
Michael Rollins -- Citigroup -- Analyst
James Breen -- William Blair -- Analyst
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