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Switch Inc (NYSE:SWCH)
Q1 2019 Earnings Call
May. 8, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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 9:00 p.m. Eastern Time today through 9:00 p.m. Eastern Time on May 15, 2019.

At this time I'd like to turn things over to Matt Heinz. Please go ahead sir.

Matthew Heinz -- Head of Investor Relations

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 our Form 10-K particularly in the section entitled Risk Factors.

In addition, today's call includes 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 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.

Thomas Morton -- President, General Counsel and Secretary

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. Switch 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 in network agreement with global logistics powerhouse FedEx. This five-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 and 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 have previously referenced also includes one of the largest financial exchanges in the world and a leading provider of hyper converged IT solutions.

Overall, we are 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 reinforce confidence in our 2019 guidance. Given the timing of deployments, embedded ramps and above-average duration of the Q1 deal mix, we anticipate a more significant impact to occur beyond this year.

We are 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 Raging Wire 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 hyperscale partners.

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. Most recently with Level 3 CenturyLink where he was Director of Sales Engineering for the Level 3 Wholesale division. Jeff's role in Switch involves leading the sales engineering efforts for 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 John Kaplan to our team as Vice President of Data Center Engineering. John 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 dialogue 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 toward our vision of evolving the Switch Prime into the most secure and most robust hybrid and 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 hyperscale cloud vendors, consummating a fiber network co-build project that will ensure low-latency transport between Switch's colocation facilities and the customer's data centers. This is but one example of how we are strategically positioning Switch as a top destination for high-performance, hybrid, multicloud workloads and we look forward to sharing additional details around these efforts as they become available for release.

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 enterprises migrating their primary cloud deployments from California.

This is in addition to the sales and use abatements available in 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?

Gabriel Nacht -- Chief Financial Officer

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. Colocation 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%. Connectivity revenue in Q1 of 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 of 2019 compared to $1.8 million for the same period in 2018.

Switch has become a strategic partner to over 900 customers and we added 30 new logos in Q1 of 2019. As of March 31, 2019, Switch had over 14,000 billing cabinet equivalents generating over $2,300 per cabinet equivalent in monthly recurring revenue. We have more than 5,000 billing cross-connects as of March 31 and cross-connects accounted for approximately 3.8% of total revenue in Q1 of 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 over $34 million at full deployment, inclusive of both renewals and the sale of incremental services. New customer bookings in Q1 of 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 of 2019 at 0.1%, unchanged compared to the year-ago period. As a reminder, we define churn as the reduction in recurring revenue attributable to customer terminations over the non-renewal of expanded contracts divided by the revenue at the beginning of the period. The metrics discussed on today's call are all in our investor presentation posted in the Investor Relations section of our website.

Cost of revenue increased by $2.4 million in Q1 of 2019 compared to Q1 of 2018, primarily due to a $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. A reconciliation of gross profit to adjusted gross profit is provided in the Appendix section of our investor presentation.

SG&A expenses in Q1 of 2019 were $34.3 million compared to $33.5 million in Q1 of 2018, an increase of 2%. The increase in SG&A was primarily attributable to higher professional fees and headcount growth. Income from operations in Q1 of 2019 increased 65% to $15.5 million compared to $9.4 million in Q1 of 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 of 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 of 2024.

Net income for Q1 of 2019 was $3.7 million compared to net income of $4.0 million in Q1 of 2018. Net income for the first quarter of 2019 includes the impact of a $5 million unrealized loss on interest rate swaps entered into during the quarter. Adjusted EBITDA totaled $53.7 million for Q1 of 2019 compared to $46.9 million in Q1 of 2018, reflecting year-over-year growth of 14%. Adjusted EBITDA margin for Q1 of 2019 was 50.1% compared to 48% in Q1 of 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 the 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 a 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 and to complete expedited construction in our Las Vegas 11 sector two, in response to strong customer demand. As of March 31, 2019, Las Vegas 11 sector one was 46% precommitted based on executed contracts and our order backlog for sector two is building rapidly. As such we plan to open both sector one and sector two of Las Vegas 11 in Q2 of 2019. Switch 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 costs for the upcoming build on sector five, which will be open for clients in Q3 of 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% are 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 of 2018. At full buildout, 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 a 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 Ltd. and concurrently canceled 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 Ltd. 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 are 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.

Thomas Morton -- President, General Counsel and Secretary

In conclusion, we firmly believe that Switch is well aligned with industry dynamics and competitively positioned 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'd 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.

Questions and Answers:

Operator

(Operator Instructions) We'll hear first today from Ari Klein with BMO Capital Markets.

Ari Klein -- BMO Capital Markets -- Analyst

Thanks guys. Maybe just given the number of large deals you signed in the quarter, can you provide an update on the pipeline and whether you still expect to sign some additional large deals this year? And then you also announced a new strategic sales head in the quarter. Can you just provide some color there on whether or not there's some incremental investments required to build out the team?

Thomas Morton -- President, General Counsel and Secretary

Ari, thank you very much. Couple of comments. First of all, Jocelyn McCaslin is a fantastic add to our team. We continue to build out that team. As we said, we added three this quarter and we have more lined up for future quarters to add. We built in those additions into our forecast for revenues and expenses. And as we've said earlier 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 are doing it prudently and we will continue to do it throughout this year to a meeting (ph) growth of the sales force 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 when we close them, you will know about them.

Ari Klein -- BMO Capital Markets -- Analyst

Thanks.

Thomas Morton -- President, General Counsel and Secretary

Thank you.

Operator

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

Frank Louthan -- Raymond James -- Analyst

Great. Thank you. Talk to us a little bit about the CapEx range. What would it take to hit sort of the higher end of the range? What's sort of the assumption there? And then talk to us a little about the pace of the installs in the quarter? Was it a little even? Was it more back-end weighted? How should we think about that? Thanks.

Gabriel Nacht -- Chief Financial Officer

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 installed ramps and they've got to get their equipment in place, get ready to go etcetera but we're still very very happy about the signing that we made this quarter and 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.

Frank Louthan -- Raymond James -- Analyst

Okay, great. Thank you very much.

Thomas Morton -- President, General Counsel and Secretary

Thank you, Frank.

Operator

We'll hear next from Richard Choe with JPMorgan.

Richard Choe -- JPMorgan -- Analyst

Great. Just on the pipeline, given that (Technical Difficulty) and there's still more in the pipeline, are they relatively equal sized, smaller, anything there? And then in terms of the pacing of installs you mentioned, the large deals (inaudible) this year but more next, it seems there's some churn event that nice incremental kind of growth in revenue over the next few quarters and you can come in kind of above the midpoint of guidance. (inaudible) or is there a churn event that we should be thinking about? Thank you.

Thomas Morton -- President, General Counsel and Secretary

So, hi, Richard, this is Thomas and good to hear to voice. And as to 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 the queue. We've obviously closed a few of them in Q1 this year and we have others that we are looking to close in Q2 and we continue to back fill those deals that we closed with additional opportunities. And as we build out our sales force and continue to work more with the brokerage community, I think that we will see an increase in the amount of deals coming in, but that has to play itself out during the year. But right now we are excited about the pipeline. We're excited about the deals we're closing and we're excited about the opportunities we're creating going forward with the expansion of our sales force.

Gabriel Nacht -- Chief Financial Officer

And with regard to your comment on the installs in revenue, some of these deals as we 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, it 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 within that range and we'll see how Q2 develops.

Operator

(Operator Instructions) We'll hear next from Nate Crossett with Berenberg.

Nate Crossett -- Berenberg -- Analyst

Hi, thanks for taking my question. Maybe you can just give an update on Atlanta. How are things progressing? Maybe some color on early indications for leasing, things like that.

Thomas Morton -- President, General Counsel and Secretary

So, Nate, thanks very much. I appreciate. This is Thomas. And we are continuing to build in Atlanta, obviously. We have turned the tide, if you will, on all the rains that were coming in and we have started with -- if you go over there, you'll see the walls are up, the roof is going on and we are making tremendous progress on advancing. The teams obviously out there are very experienced on how they build. We are using crew that are familiar with the Switch infrastructure and Switch way of building. So we have confidence that we will get this thing done 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 are 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 over time. Very good client base, very stable client base. It just takes a little bit more upfront investment to bring them in.

Nate Crossett -- Berenberg -- Analyst

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 a multiyear hiring phase? I'm just trying to figure out how many sales people you have now versus maybe what you think the optimal amount of people are based on your pipeline?

Thomas Morton -- President, General Counsel and Secretary

We expect -- last year we started off with 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 (inaudible) at the hiring at least at the top level for that sales force and then over time we will build out as needed and as an 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 campuses demand it.

Gabriel Nacht -- Chief Financial Officer

The key word there is prudently. As we've been talking about this over the last couple of earnings calls, we've said that we were expecting to add between five and 10 additional client-facing sales heads during the year and now 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 prudently. We are very cognizant of our margins and very careful.

Nate Crossett -- Berenberg -- Analyst

Okay. And then maybe just one last quick one. Can you remind us the float and where you are right now after kind of the recent conversion and kind of how we should expect that float to maybe increase throughout this year and next year?

Thomas Morton -- President, General Counsel and Secretary

Nate, that's a great question and I'll let Gabe talk to the actual float 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 for Class A shares. And the next redemption date that we have set is on July 2nd 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 the Q1 cycle. And Gabe will provide that number.

Gabriel Nacht -- Chief Financial Officer

Nate, on the slide deck that we put up on our website, on slide number 21, we detailed the shares outstanding Class A as well as 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 pro forma to that issuance, we're about 32% of our common shares outstanding in the public Class A shares. And then we have another redemption coming up in July and our partners are required to give us 60 days notice. 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's 7 million that have been slated for redemption in July.

Thomas Morton -- President, General Counsel and Secretary

And to be clear, the 7 million that are slated for redemption in July, it is up to the people that are doing the redemptions to determine whether or not they are going to be selling shares. It's not something the Company has a right to compel a sale. It is up to the individual that is doing the redemption. So we are contacting those people and they have not yet indicated whether or not they're going to be selling, but we will know more toward the end of the cycle which will be July 2. And then as I said, there are two 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.

Nate Crossett -- Berenberg -- Analyst

But is there a maximum that can be redeemed in each period and for the year or --

Thomas Morton -- President, General Counsel and Secretary

No, there is no maximum that can be redeemed in any given period, as long as they are larger transaction block sales, there's some restrictions. With smaller transactions, those can happen but as long as there are larger redemptions, there is no ultimate (inaudible) on what that can be redeemed. But as you've seen over the last 18 months or so that we've been public, people are flowing to shares out in a relatively steady cadence. There hasn't been any sort of flood to the market or anything like that. I don't see any reason to see that changing.

Nate Crossett -- Berenberg -- Analyst

Okay, that's helpful. Thanks guys.

Operator

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

James Breen -- William Blair -- Analyst

Thanks for taking my question. Just given some of the movements in Europe, is there any thought further on the strategy there in terms of geographic expansion? Thanks.

Thomas Morton -- President, General Counsel and Secretary

That's a great question. Thank you, James. Currently we are 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 are doing that in a way that we can maintain our Tier IV goal of operating status and roll out those campuses to those measure and to the capacity and to the quality that our customers have come to expect from us. So we're focused on keeping those three additional campuses up growing and going, and that is where at least for the foreseeable future we see our focus being.

James Breen -- William Blair -- Analyst

Great. Thank you.

Gabriel Nacht -- Chief Financial Officer

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 and running in Milan and in Thailand, and both of those centers are filling quite nicely. They're very low risk to Switch. We license our technology in exchange for a 50% partnership interest in our SUPERNAP international joint venture. And so we do have a presence internationally, but like most things that we do, it's done very prudently. It's done in a risk-averse way in a way that provides upside to Switch.

James Breen -- William Blair -- Analyst

Great. Thanks.

Operator

We'll go now to Erik Rasmussen with Stifel.

Erik Rasmussen -- Stifel -- Analyst

Thanks. First is more of a clarification question. It's on the guidance. Your performance in Q1 was pretty strong and in measuring that against your annual guidance and you talked about your backlog of $35 million, I think $17 million would be realized this year. I understand that you've maintained the guidance, but if you look at the kind of the run rate from Q1 and then look at that backlog conversion, I would suggest that you probably are tracking toward 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 are a little bit larger when they scale?

Thomas Morton -- President, General Counsel and Secretary

Thank you. And Erik, there are two thoughts on that and I'll let Gabe answer this as well. But 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 in the first quarter so we don't want to be coming out of the shoot strong. We don't want to be too precipitous and say that we're going to raise guidance right out the box, so that amount of prudence. Secondly, you're absolutely right that some of these deals, these larger deals all have ramps and so while there is a good amount of bookings they do ramp into it. So their impact on this year is not as much as it this in subsequent years once the ramps are put in.

Gabriel Nacht -- Chief Financial Officer

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. So we still feel comfortable that we're within our range and we'll discuss any adjustments in Q2, if (inaudible).

Erik Rasmussen -- Stifel -- Analyst

Great, thanks. And maybe just a follow up. My second question, the new logos, you've been growing that business last year with some 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 could you give us a sense of how you balance 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?

Thomas Morton -- President, General Counsel and Secretary

Yes. We all talk a little bit strategically and I'll let Gabe speak to the numbers or any (inaudible) 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 gives us a good diversity in our customer base. Right now we are very diverse customer base. Our top 10 customers represent roughly 30, 36% of our overall revenue. So that diversity gives us a nice platform and we don't have any significant customer concentration and any associated risk of that metric.

So we like adding new logos and the second reason that we like adding new logos, besides concentration, is that when customers come to us, they do not tend to leave. They instead tend to land and expand. So the more customers like seedlings that you have that can grow, the greater the growth you will receive from our customers' end. If you look over the past years, it used to be there was roughly 50% of our incremental growth was from existing customers. And over time that number has crept up as the customer base continue to expand. So we are reaping the benefits of having additional logos and expanding the platform on which we can leverage that growth.

Gabriel Nacht -- Chief Financial Officer

And a couple of things on that Erik. Historically we've added a number of new logos each quarter as Thomas alluded to. Many of them start small and that's OK because those are healthy customers to have in a retail colocation environment which is what Switch does, but they also tend to grow with us over time. This quarter in particular we've had a number of transactions that we've been working on for quite some time and we've 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 a couple of the others that we've talked about are quite large in their initial deployment.

But let's put those aside, we still added a number of new logos in the way we typically do each quarter, smaller deployments that will grow with us over time 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 customers expanding. This last quarter 47% of our growth came from new customers. Within the last 12 months 57% -- 53% came from customers that have been with us over the 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 shift to the existing customer in terms of growth. If you look at our historical pattern, Q1 is always the high watermark growth from new customer logos.

Erik Rasmussen -- Stifel -- Analyst

Great. That's helpful. Thank you.

Operator

We'll move on to Jon Petersen with Jefferies.

Jon Petersen -- Jefferies -- Analyst

Great, thanks. So just curious if you can help me understand, on slide 13, I think you signed $168 million of total contract value, $34 million of that is 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?

Gabriel Nacht -- Chief Financial Officer

Sure, Jon. This is Gabe. A couple of things on that. We did break it out in that slide specifically between new and existing customers. So, you'll see about $95 million 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 with us. 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.

Jon Petersen -- Jefferies -- Analyst

So, those existing customers, none of that is renewals? It's all expansions? Is it the way to think about that?

Gabriel Nacht -- Chief Financial Officer

It's both.

Jon Petersen -- Jefferies -- Analyst

But the $19 million represents expansion?

Gabriel Nacht -- Chief Financial Officer

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 to new.

Jon Petersen -- Jefferies -- Analyst

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?

Gabriel Nacht -- Chief Financial Officer

Yes. It actually stayed pretty flat the last few quarters.

Thomas Morton -- President, General Counsel and Secretary

It did creep up 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 when the data center campuses open. We would expect that -- that expense has leveled off and now our debt ratio is staying pretty static and we do not have an anticipation to seeing that client significantly over the rest of this year.

Gabriel Nacht -- Chief Financial Officer

That being said, we've talked -- in the past people have asked about our leverage target. We don't really have a specific target because we've never needed to add leverage. If something were to come down the pipe that were strategic, we certainly will not be afraid of operating it 4 to 5 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 at the same rate net EBITDA is coming into the data centers. So it keeps our leverage level quite low and it's been pretty stable about 2 and 2.5 times.

Thomas Morton -- President, General Counsel and Secretary

Yeah, 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 a large deal with a significant ramp, we will roll into it with the CapEx. So we would lean into CapEx against contracts that were signed.

Jon Petersen -- Jefferies -- Analyst

Great. Okay. That's helpful. Thank you.

Operator

Our next question comes from Michael Rollins with Citi.

Michael Rollins -- Citi -- Analyst

Hi, thanks and good afternoon. Curious If you could talk a bit more about the connectivity segment in a couple of respect. First, in the slide you talked about over 5,000 billing cross-connects? And how do we think about that in terms of the total opportunity for cross-connects across your facilities? And then secondly how should we be thinking about the growth of this business over time between what you might be able to garner from the (inaudible) cross-connect, maybe interested in Switch Inc. fabric as well as the other CORE and tower businesses that you're overlaying on top. Thanks.

Gabriel Nacht -- Chief Financial Officer

With regard to the cross-connects, Mike, as we've talked about in the previous calls and meetings with you and others, historically Switch did not build the cross-connects because we sell connectivity quite differently than all of our peers and that we were sell whole telecom. So we didn't necessarily charge for all cross-connects. We've been more aggressively implementing a cross-connects billing program as they've come up for renewals and changes. And so we're up to about 5000-plus billing cross-connects and we think 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-a-vis our customer base we still think there's a significant opportunity to grow.

Michael Rollins -- Citi -- Analyst

Is there any size or types of pricing or customer reactions moving into a billing model?

Thomas Morton -- President, General Counsel and Secretary

No. The industry has gotten quite used to being charged for cross-connects and we feel very similarly to our peers in that respect.

Gabriel Nacht -- Chief Financial Officer

There was a need, when 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 itself, we do not -- we can break out the cross-connects and charge them separately, so we began to increasingly monetize cross-connects and that's a trend we can expect to continue. And you've seen that as cross-connects as a percentage of revenue have consistently inched upward in terms of our percentage of revenue. Even though our top line growth is continuing as a percentage of revenue, they are growing faster than our top line growth. So they are increasing as a percentage of the overall revenue. So we are charging for cross-connects and we expect that trend to continue.

Michael Rollins -- Citi -- Analyst

Thanks a lot.

Operator

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

Thomas Morton -- President, General Counsel and Secretary

Thank you all.

Duration: 46 minutes

Call participants:

Matthew Heinz -- Head of Investor Relations

Thomas Morton -- President, General Counsel and Secretary

Gabriel Nacht -- Chief Financial Officer

Ari Klein -- BMO Capital Markets -- Analyst

Frank Louthan -- Raymond James -- Analyst

Richard Choe -- JPMorgan -- Analyst

Nate Crossett -- Berenberg -- Analyst

James Breen -- William Blair -- Analyst

Erik Rasmussen -- Stifel -- Analyst

Jon Petersen -- Jefferies -- Analyst

Michael Rollins -- Citi -- Analyst

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