Switch (SWCH) Q2 2021 Earnings Call Transcript

Switch (SWCH)
Q2 2021 Earnings Call
Aug 05, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Thank you for attending the Switch, Inc.'s second-quarter 2021 earnings conference call. [Operator instructions] I will now pass the call over to your host, Matthew Heinz with Switch. You may proceed.

Matt Heinz -- Vice President of Investor Relations and Financial Planning & Analysis

Thank you, operator. Good afternoon, and welcome to Switch, Inc.'s second-quarter 2021 earnings 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 described 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 second-quarter 2021 earnings press release has been furnished to the SEC as part of our Form 8-K and is available on our investor relations website at investors.switch.com. I will now turn the call over to Switch's president, Thomas Morton.

Thomas Morton -- President

Thank you, Matt, and good afternoon, everyone. Thank you for joining us today for our second quarter 2021 earnings call. Switch is pleased to report yet another exceptional quarter as we continue to execute on our strategic growth initiatives and sales opportunities driven by strong customer demand. We are also excited to announce several shareholder value initiatives that I will describe after reviewing the details of the quarter.

Our Q2 2021 financial results detailed on Slide 4 of our investor deck reflect continued business momentum and improved operating efficiency across all of our prime campus locations. Second-quarter revenue was $141.7 million, increasing 12% year over year, excluding a $3.3 million revenue contribution from Data Foundry, Switch revenue was $138.4 million, representing a 9% increase compared to the year ago quarter. Profitability also remained strong with our second quarter adjusted EBITDA of $79 million, representing a 14% year-over-year growth including a $1.7 million contribution from Data Foundry. Excluding Data Foundry, Switch's second-quarter adjusted EBITDA of $77.2 million reflects a 12% year-over-year growth and a margin of 55.8%, representing 140 basis points of year-over-year margin expansion.

As a result of our outperformance in revenue and adjusted EBITDA compared to our internal forecast and also incorporating the expected contribution from Data Foundry, we are increasing our 2021 financial outlook. Gabe will discuss the changes to our guidance in greater detail later on today's call. Our sales teams once again delivered solid second-quarter bookings, signing $16 million of incremental recurring revenue and total contract value of $81 million, as detailed in Slide 13 of our investor deck. For the first half of 2021, our incremental annualized revenue bookings increased 54% year-over-year to $34 million, and total contract value increased 30% to $198 million.

In addition, Switch's recurring revenue backlog rose to a new record of greater than $63 million, eclipsing the previous record of $57 million set just last quarter and increasing by more than $13 million compared to December 2020 levels. Half of our 12 largest customer transactions signed in Q2 by total contract value involved multi campus deployments. Two of these transactions were placed by new customers with initial orders exceeding $5 million in total contract value. We believe this demonstrates the inherent value of our Prime campus footprint and strategic sales force expansion in recent years.

We expect this positive trend of multi campus deployments to accelerate as we continue to grow our new locations in Austin and Houston, Texas. I will now discuss some of Switch's notable second-quarter activity and key metrics across the existing prime campus locations. In June, Switch announced a land purchase agreement with Dell Technologies to acquire parcels on Dell's Round Rock Texas headquarters. Combined with the assets acquired from Data Foundry, Switch has officially launched its fifth Prime campus, which has been named The Rock, encompassing strategically located assets in the Austin and Houston metropolitan areas.

In July, Switch received zoning approval from the Round Rock City Council to repurpose the Dell headquarters property for the construction and operation of data center facilities. This was a key step toward beginning the preliminary underground site work required for construction. Including the Data Foundry assets, the Rock Campus ecosystem will be architected to provide more than two million square feet of data center space and 180 megawatts of power upon completion. Leveraging customer demand, we have commenced the build-out of the pre-existing three-megawatt data hall within our Austin location that will be ready for customer deployments in Q4 of 2021.

Additionally, we anticipate commencing construction on our first Switch Tier 5 Platinum data center at The Rock Campus in Q3 of 2021. In the second quarter of 2021, Switch added 23 new logos, accounting for approximately $8 million of annualized recurring revenue, and $21 million in total contract value with their initial deployments to our ecosystem. We closed a 3.5 megawatt transaction with a Fortune 100 global technology firm, specializing in hyper-converged infrastructure solutions, including deployments in both The Core Campus and The Keep Campus, totaling more than $6.5 million in incremental annualized revenue. The customer's deployment in The Keep Campus will bring committed utilization to over 90% in the ATLANTA 1 facility within just 15 months of opening.

Switch executed a multiyear expansion order with an existing global logistics customer for incremental colocation and telecommunication services in The Core Campus and Keep Campus. On a combined basis, the order represents approximately $5 million of annualized recurring revenue and over $20 million in total contract value. We signed an initial order with a multinational producer of specialty glass and ceramics materials used for industrial and scientific applications. This customer's initial deployments will be in the Core Campus and Keep Campus locations, totaling approximately $6 million in total contract value.

An existing Fortune 500 semiconductor firm agreed to accelerate and upsize its committed ramp in The Citadel Campus resulting in an additional $3.5 million of contract value. Our 10 largest renewal signings in Q2 represented $6.5 million of annualized recurring revenue and $21 million of total contract value. And these customers collectively increased their committed run rate spend by 12%. Now turning to our construction milestones and robust project pipeline.

As can be seen on Slide 7 of our investor deck, Switch has a total of more than three million square feet of data center capacity that is either in progress or planned for future development. During the second quarter, we delivered sector two in the ATLANTA 1 facility to our anchor customer, placing 10 megawatts and 780 cabinets into service. We also delivered a 10-megawatt power system in the Citadel Campus to accommodate incremental power demand from two strategic clients. Subsequent to quarter end, we placed one additional sector into service at the Citadel Campus, which has been fully committed by customers.

We continue to prioritize the acceleration of construction of three new data centers in The Core Campus, The Citadel Campus and The Keep Campus, totaling 1.3 million gross square feet and up to 160 megawatts of power at full build-out. As illustrated in our development milestones table on Slide 19 of our investor presentation, we expect to complete construction on Las Vegas 15 in Q2 of 2022, Tahoe Reno 2 in Q1 of 2023, and ATLANTA 2 in Q2 of 2023. In order to maximize cost efficiency and accelerate the delivery of future capacity, we are also completing the underground utilities and site preparation work on five additional facilities, spanning our Core Campus, Citadel Campus, Keep Campus and Rock Campus locations. Keep in mind that these facilities currently have planned completion dates ranging from 2024 through 2026, and thus will incur the majority of their capital spend much closer to the anticipated in-service dates.

In accordance with our real-time evaluation of customer demand. Upon completion, we expect these five data centers will provide approximately 1.9 million incremental square feet and more than 200 megawatts of power. As introduced in our investor relations website last quarter, we have updated our library of construction photographs to provide real-time updates depicting the progress of our ongoing development efforts across the Switch Primes. This afternoon, Switch also announced several new shareholder value initiatives that we are excited to discuss today.

These initiatives build on the strategic expansion of our geographic footprint and leveraging our industry-leading technology solutions. The board's REIT committee is evaluating the prospective advantages and challenges inherent in making a REIT election. The committee mandate includes a directive to target a financial profile that accelerates Switch's long-term value creation and provides the necessary financial flexibility to invest in its growth. As we have discussed previously with many of you in the investment community, we preserve the flexibility to convert to a REIT structure if and when that structure became advantageous to the company and its shareholders.

We anticipate this evaluation period will take several months to complete, and there can be no assurance that the evaluation will result and a change in Switch's tax filing status. In addition, I am pleased to announce that Switch will host an Investor Day on November 8, 2021, and coinciding with the NAREIT REIT World Conference in Las Vegas. Our founder and CEO, Rob Roy, will present his vision and strategy for the company. Gabe, members of our team and I will present other key elements of our strategy and operations.

In addition, we intend on sharing multiyear financial targets to help guide investors through our evolution over the next several years. Pending any change in COVID-19 guidelines, we plan to hold the event live from our Las Vegas headquarters, including a live webcast for those unable to attend. We look forward to providing further updates in the coming weeks regarding logistical details and save-the-date information. Finally, I am also excited to share that Elliott Investment Management has become the largest public investor in Switch.

We believe their large investment is a vote of confidence in our strategy and ability to generate long-term value for shareholders. As part of the shareholder value initiatives announced today, a representative of Elliott will join our board and will also join our REIT Committee. We are enthusiastic to have Elliot on our team. I will now turn the call over to Gabe to discuss our financial results.

Gabe?

Gabe Nacht -- Chief Financial Officer

Thanks, Thomas. Today, I'm going to review our financial results for the second quarter of 2021 and discuss our outlook for the remainder of 2021. Starting with Slide 4 of our investor presentation, Switch reported total second quarter 2021 revenue of $141.7 million, an increase of $14.8 million or 11.6% compared to the second quarter of 2020. Excluding Data Foundry revenue of $3.3 million for the 24-day period post deal closing, Switch's second quarter revenue totaled $138.4 million, an increase of $11.5 million or 9% compared to the second quarter of 2020.

Staying on Slide 4. Adjusted EBITDA totaled $79 million for Q2 2021 compared to $69.1 million in Q2 of 2020, reflecting a margin of 55.7% and year-over-year growth of 14.3%. Excluding Data Foundry's adjusted EBITDA contribution of $1.7 million, Switch's adjusted EBITDA was $77.2 million, reflecting a margin of 55.8% and year-over-year growth of 11.7%. Second-quarter net income was $9.7 million compared to net income of $13.3 million in Q2, 2020.

The reduction in net income was primarily attributable to a $3.5 million increase in interest expense and $4.3 million of acquisition-related expenses. Lastly, on Slide 4, a customer churn was 0.2% in Q2 2021, unchanged compared to the year-ago quarter. Looking now at our growing exascale portfolio on Slide 7. As of June 30, 2021, excluding Data Foundry assets, Switch had approximately 17,900 billing cabinet equivalents, reflecting 700 net organic cabinet additions compared to the prior quarter.

Data Foundry had approximately 3,200 billing cabinet equivalents, bringing total billed cabinets to over 21,000 for the entire company. Excluding Data Foundry, the Switch average monthly recurring revenue per cabinet was over $2,500 in Q2 of 2021, consistent with prior quarter. Staying on Slide 7. As of June 30, 2021, the four legacy Switch Primes had capacity for over 24,900 cabinet equivalents within our open sectors, of which 90% were committed under contracts compared to 89% in the year-ago quarter.

On a consolidated basis, including Data Foundry, we had open sector capacity of approximately 29,200 cabinet equivalents with a committed utilization rate of 88%. Now turning to bookings on Slide 13. During Q2, we executed 545 contracts, representing total contract value of $80.6 million and annualized revenue of $23.6 million at full deployment, inclusive of both renewals and sales of incremental services. Second-quarter bookings include $1.6 million in total contract value and over $750,000 of annualized revenue from Data Foundry.

Excluding renewals, these signings represent $15.9 million of incremental annualized recurring revenue, including $8.2 million in incremental bookings from existing customers and approximately $7.7 million from 23 new logos. Now looking at revenue attribution on Slide 15. Total colocation revenue for the second quarter of 2021 was $114.3 million, up 11.4% compared to the $102.6 million in the year ago quarter. Excluding $2.3 million in colocation revenue from Data Foundry, Switch co-location revenue grew 9.1% to $112 million compared to the year ago quarter.

Excluding Data Foundry, Switch connectivity revenue was $24.1 million, increasing 10.2% sequentially and 6% year over year. Data foundries connectivity revenue made up the remaining $800,000 of total connectivity revenue of $24.9 million. Finally, other revenue, including professional services, accounted for $2.5 million in Q2 of 2021, which includes a $200,000 contribution from Data Foundry. Maintenance capital expenditures were $3.6 million for the second quarter of 2021 or 2.5% of revenue compared to $1.9 million and 1.5% of revenue in the same quarter last year.

Growth capex, excluding land purchases, was $91.1 million for the second quarter of 2021 compared to $81.1 million in the year ago quarter. Please refer to Slide 18 for a detailed breakdown of our capital expenditures by campus. Excluding Data Foundry, Switch had more than 9,000 billing cross-connects as of June 30, and cross-connects accounted for 4.1% of total revenue in Q2, 2021, reflecting 11% year-over-year growth in cross-connect revenue. Second-quarter cost of revenue increased by $8.8 million compared to the year-ago quarter, primarily due to an increase in depreciation.

Excluding depreciation, amortization and equity-based compensation, our Q2, 2021 adjusted cost of revenue increased by 9%, primarily driven by higher power costs. Second quarter SG&A expenses were $39.9 million, up from $33.4 million in the year ago quarter. This 19% year-over-year increase in SG&A was primarily attributable to $4.3 million in acquisition costs related to the Data Foundry purchase and higher professional fees. We expect the year-over-year SG&A cost comparisons will be less favorable in the second half of 2021, as COVID protocols allow our business to get back to normalcy.

Q2, 2021 income from operations decreased 2% to $24.8 million compared to $25.3 million in Q2, 2020. The modest year-over-year reduction in operating income was attributable to $6.4 million increase in SG&A costs, largely driven by depreciation and nonrecurring acquisition-related expenses. Interest expense increased by $3.5 million year-over-year to $10.2 million in Q2 of 2021, primarily driven by higher debt balances related to the issuance of $1.1 billion in senior unsecured notes. Adjusted funds from operations, or AFFO, was $64.3 million in Q2, 2021, an 11% increase compared to $57.9 million in the year ago quarter.

AFFO per diluted share was $0.26 compared to $0.24 in Q2 2020. Looking now at the balance sheet on Page 21. As of June 30, 2021, the company's total debt outstanding, net of cash and cash equivalents was $1.46 billion, resulting in a net debt to last quarter annualized adjusted EBITDA ratio of 4.6 times. The increase in leverage was driven by our $500 million issuance of senior unsecured notes in the second quarter.

As of June 30, 2021, Switch had liquidity of $577.9 million, including cash and cash equivalents and borrowings available on our revolver. As can be seen on Page 25 of our investor presentation, at June 30, 2021, our recurring revenue backlog stood at a record $63.5 million, up from the prior record of $57 million set last quarter. We expect our backlog to contribute approximately $11.1 million of incremental revenue for the remainder of 2021 with $35.7 million contributing in 2022 and $16.6 million in 2023 and beyond. As of June 30, 2021, there were 241.7 million total shares outstanding, including 131.1 million Class A shares and 110.6 million Class B shares.

As disclosed in recent 8-K filings, during the second quarter of 2021, our members redeemed 3.3 million common units, resulting in an issuance of an equivalent number of Class A common shares. Including July member redemptions of 3.7 million, our Class A public float now represents 55.8% of total shares outstanding. Now turning to guidance for 2021 on Page 22 of our investor presentation. We are increasing revenue, adjusted EBITDA and capex guidance once again to reflect Switch's stronger-than-expected first half results, increased second half outlook and to include the expected contribution from Data Foundry.

Guidance is presented both on a consolidated basis and with Switch, excluding Data Foundry, to allow investors to track our organic growth throughout 2021. Excluding Data Foundry, Switch revenue in the range of $566 million to $574 million, reflecting an 11% organic year-over-year growth at the midpoint. This represents a $21 million or 4% increase compared to our prior guidance midpoint. Switch adjusted EBITDA, excluding Data Foundry, in the range of $295 million to $303 million, reflecting an increase of 11% compared to 2020 and an adjusted EBITDA margin of 52.5% at the midpoint.

This represents a $13.5 million or 5% increase compared to our prior guidance midpoint. Consolidated revenue in the range of $593.5 million to $603.5 million, including Data Foundry revenue of $27.5 million to $29.5 million. Consolidated adjusted EBITDA of $306 million to $315 million, including $11 million to $12 million from Data Foundry, reflecting a consolidated adjusted EBITDA margin of 51.9% at the midpoint. Lastly, our guidance range for capital expenditures, excluding land acquisitions, has been increased to $383 million to $417 million, including $12 million to $16 million for the development of pre-existing shell at Data Foundry's Austin campus.

Excluding Data Foundry, the $36 million increase to Switch capital expenditures reflects an acceleration in development across our existing Prime locations, spurred by customer demand and the initial site preparation for the Rock Campus in Austin. And now I will turn it back to Thomas for some closing remarks.

Thomas Morton -- President

Thank you, Gabe. We firmly believe that Switch is favorably positioned for the rapid digital transformation among enterprises as they continue their migration to hybrid multicloud architectures. We are working hard to accelerate delivery of additional data center capacity to meet the strong level of demand we are currently experiencing, and we are confident in our team's ability to execute. On behalf of our entire management team, we would like to take this opportunity to thank our employees, customers, partners and our shareholders for their continued support of Switch.

We would now like to open the line for questions.

Questions & Answers:

Operator

[Operator instructions] The first question is from the line of Sami Badri with Credit Suisse. You may proceed.

George Engroff -- Credit Suisse -- Analyst

Hey Thomas and Gabe, this is actually George Engroff on for Sami. Yes, over the last couple of quarters, you guys have noted that customers generally weren't taking up space over and above their contractual commitments. And then there was a quote in the press release today that reference customer installation pace. So I guess, if you could provide some color on that point, that would be very beneficial.

Thomas Morton -- President

Sure, George. Thanks very much for joining the call. In the previous calls, usually, what happens is customers sign up for their minimum commitment that they are willing to state that they will take at our space. And then they have a ramp for how they will deploy that into that space.

What we have seen traditionally is that they accelerate that deployment and then inevitably find service orders for additional services as they go. During COVID times, we saw people maintain their minimum deployments, but not necessarily accelerate. What we've seen in the back half of this year is customers have requested accelerations of their ramps. And that is helping revenue pull forward into the second half of 2021.

And that's part of the reason for the increase in our guidance. Gabe, anything to add to that?

Gabe Nacht -- Chief Financial Officer

Yes, George, this is Gabe. In our first quarter call, we actually did mention that we saw some acceleration of customer ramps, which is why we raised our guidance. We're seeing more of that in the second quarter. And of course, because we're a monthly recurring revenue model, we get the benefit of that compounding throughout the year, and that's why you're seeing us increase guidance again this quarter.

George Engroff -- Credit Suisse -- Analyst

Great. And I guess just a quick follow-up. So you'd say that's continuing or even getting better into 3Q.

Gabe Nacht -- Chief Financial Officer

Well, I would say it's continuing, and it's incorporated into our guidance. Of course, the world is subject to change as we all know. The world opened up in Q2 and is now shutting back down a little bit, but we are optimistic that our customers will be able to continue to deploy, send their staffs here to deploy their equipment and get their contracts up and running.

George Engroff -- Credit Suisse -- Analyst

Great. And then can you speak to the cross-selling demand you've seen to date with the Rock Campus and with the rest of the campuses?

Thomas Morton -- President

Sure. We actually provide some numbers, George, Gabe talked to in terms of cross-selling, and there are some numbers in my script regarding the fact that more and more customers multihoming. We have been selling into the Rock Campus and the salespeople in the Rock have actually brought up prospects for LAS VEGAS and ATLANTA. So there is cross-selling by the teams as well as customers multihoming.

Gabe, do you have the percentages of people that cross deployed?

Gabe Nacht -- Chief Financial Officer

Actually, given that we took possession of Data Foundry on June 7, we are actively cross-selling those locations, but we're not ready to report closed contracts yet.

George Engroff -- Credit Suisse -- Analyst

Understood. Thank you.

Operator

Next question is from the line of Aryeh Klein with BMO Capital Markets.

Aryeh Klein -- BMO Capital Markets --Analyst

OK. Thank you. Can you talk a little bit more about the decision to kind of look at REIT status now? It's obviously a topic you've been asked about many times before. So just curious about what's the impetus today? And do you think you'll have an update for us by the Analyst Day in November?

Thomas Morton -- President

Thank you, Aryeh. And you're right, this has been an ongoing discussion regarding REITs. And the Board has asked us to take a formal look at it. There have been some changes in the tax codes.

We foresee the potential of other changes in the tax codes. We continue to grow, and at some point we will become a taxpaying entity. And we've always said that if it becomes advantageous to our stakeholders to enjoy us as a REIT company or having made a REIT election, then we would be able to do so, and we preserve that ability at our IPO. As to the November 8 Investor Day, we will have an update on the status of our REIT evaluation during that meeting.

I don't know if we'll have a definitive decision as this is an incredibly involved and accounting-driven metric and decision for the company to make. And so we will have an update on the November 8 meeting, but cannot promise the decision at that time.

Aryeh Klein -- BMO Capital Markets --Analyst

Got it. And then on the leasing, it seems like another pretty healthy quarter. But can you talk to your capacity to lease in the near term? I think you said you're 90% committed in excluding Data Foundry. How much of the development that you have scheduled to come online, I guess, by the end of next year is already spoken for? And kind of in the near term, do you feel restricted in any way from a leasing standpoint?

Thomas Morton -- President

No. We've began to sell into LAS VEGAS 15, which will open in the first half of 2022. And we have cabinets that we still are able to sell. And then we have ramps that are going to be deploying from larger customers in the first half of 2022 and into the back end of 2022.

Gabe Nacht -- Chief Financial Officer

Aryeh, I would just jump in and say yes. I would jump in and say that we're continuing to see good customer demand. We clearly have a lot of committed space and utilized space, but we're building. And I would encourage everybody to go to our investor deck and look at the construction photos.

If you look at the construction photos, you'll see that LAS VEGAS 15 is up. The building is standing. The roof is on. TI's work is continuing inside.

And we have 1.3 million square feet that is coming online between the early part of 2022 and the early part of 2023, which is a 25% expansion to our existing space. So we're already beginning to engage customers in pre-leasing that space. And particularly, once the building is up. When the customers see that the walls and the roof are up, they really feel much more confident in knowing when that building is going to open and when they can begin planning on deploying space.

So that's an excellent advantage for us. And so we're selling and we're selling aggressively, and we're finding ways to fit customers into the existing space that we do have.

Thomas Morton -- President

Just quick final note. Yes, one other quick item here, Aryeh, is that we have about 18% of our revenue is telecommunications and telecommunications, obviously, does not have an inventory constraint on it. So that division is continuing to go and grow. And it is selling into the market base that has opened up with the Data Foundry acquisition where we picked up about 400 new customers.

Operator

Next question is from the line of Erik Rasmussen with Stifel. You may proceed.

Erik Rasmussen -- Stifel Financial Corp. -- Analyst

Thanks and congrats on the strong results and returning low double-digit growth for this year. Maybe my question, so with regards to the strategic review announcement and then thinking about the financial targets longer term, what kind of framework would you be targeting that it's sort of above where you're currently tracking today?

Gabe Nacht -- Chief Financial Officer

Well, Erik, this is Gabe. I'll jump in on that. I'm not sure that we're ready to discuss the specific metrics that we'll be talking about on the Analyst Day, but I think you can expect to hear normal types of metrics that are discussed in these types of events. We'll talk about what we believe our long-term leverage profile ought to be.

Of course, that will be influenced by the strategic review that we're undergoing. We'll talk about where we see our development pipeline and potential growth targets over the next several years and our margin targets.

Erik Rasmussen -- Stifel Financial Corp. -- Analyst

Great. OK. And then maybe then we'll wait for that. But my follow-up question then as it relates to Data Foundry business and the numbers you gave in the 2021 outlook for the contribution there.

It seems like the business is tracking in line with what they did last year. As you look at sort of the second half of this year, is there any opportunity to sort of accelerate growth from those assets on a year-over-year basis? And what would sort of drive that?

Thomas Morton -- President

Yes, it's a great question. There is some incremental space that is available inside the existing data center facilities with a little over three megawatts, and we are actively working to sell that space. If we can sell that space and get the installation in this year, then that will increase the incremental revenue or the second half of 2021 with respect to the Data Foundry assets. And we are actively working on closing deals to accomplish that goal.

Erik Rasmussen -- Stifel Financial Corp. -- Analyst

All right. Thanks.

Operator

The next question is from the line of Colby Synesael with Cowen. You may proceed.

Colby Synesael -- Cowen and Company -- Analyst

Great. Thank you. I guess, first, just starting with Elliott. Are they the impetus behind the focus on potentially transitioning to a REIT? I mean they're known as an activist type investor.

I can't imagine they're just there without looking to make some changes. I'm just curious what it is they're potentially looking for you guys to do, is potentially selling the company on the table as well? Or are there other things being debated perhaps expanding internationally? Just any color you can provide there in terms of why they're there now in the stock? And then secondly, deal sizes, it seems like the deal sizes that you're seeing are getting bigger really over the last year or so. I'm wondering if you have anything that you could point to explain that. Is it just a function of where you guys are focusing, and therefore, it's really a Switch thing? Or is it more a reflection of just what the market's offering up and maybe there's something to talk a bit more on that, too.

Thank you.

Thomas Morton -- President

No, it's great. First, on Elliott tone and tenor. They have been very, very productive to work with. We have enjoyed the relationship with them.

They've already added value to the way that we look at the stock market and we approach that market and the customers they have there. And so you have had a very positive and productive relationship with Elliott. To the REIT analysis in Elliott, I believe, is supportive of that consideration at the very least. And we talked about and the potential of a REIT conversion for a very long time actually since the IPO.

So they are supportive of that analysis, but we had already been engaged in that review and have been asked by the board to conduct a thorough analysis of when and whether that conversion would be appropriate for the benefit of all stakeholders. Your question regarding deal sizes is a great one. As we grow as a larger and increasingly sized company, we attract larger customers and larger deployments from those customers. We've, for a long time, also focused on helping enterprise customers migrate out of their aging legacy data centers, and into our data centers, rather, and take advantage of the one-to-many metrics that is available in a colocation environment.

And they have received that message very well, and we have started to garner more and more enterprise customers that are decommissioning their legacy corporate data centers and move into a data center that is as resilient, if not more resilient than their existing structure, taking advantage of those economies of scale, taking advantage of the telecom and taking advantage of the green energy that we're able to offer them. So the deals that we are seeing are indicative of that initiative was started by Rob Roy, and we are pleased that it is bearing fruit, and we're beginning to see these large deployments roll in.

Colby Synesael -- Cowen and Company -- Analyst

I'm sorry, just one last one. As it relates to the Elliot component, is the sale of the company being considered?

Thomas Morton -- President

Not at this time.

Gabe Nacht -- Chief Financial Officer

Colby, this is Gabe. A couple of things on Elliot's involvement, why are they in the stock? I think they believe our stock is undervalued. And frankly, we agree with that. We've been trading at a discount for quite some time despite showing numbers that are at the top end of the industry.

We have more space coming out of the ground and being put into service, than we believe any other data center company, with 1.3 million square feet coming online in less than -- between now and the early part of 2023 and then another 1.9 million behind that. I think that's also driving deal size. The fact that we have space available has driven deal size. The industry is needing more and more colocation space.

And having the buildings that we have come online, we're filling them up faster than we expected. So that's a great thing. Your initial question on were they the impetus behind the REIT analysis, the answer is no. Our board really was the impetus behind that.

But they are clearly supportive of us doing that analysis, particularly if that is part of the reason why we trade a discount. I will remind everybody that we're not a cash taxpayer at the moment. So there is no tax advantage to becoming a REIT right now. And by not being a REIT, we're able to deploy our capital and put it back into growth.

And we have very aggressive capex plans over the next couple of years, as you guys know. But we are very happy to be working with them. They do have a certain reputation on the Street. But I also think that the Elliott has been working hard to adjust that reputation.

There are a number of engagements that they get involved with. They work very productively with management. We believe we're one of those, and we're very happy to have their involvement.

Colby Synesael -- Cowen and Company -- Analyst

Thank you.

Operator

The next question is from the line of Brendan Lynch with Barclays. You may proceed.

Brendan Lynch -- Barclays Investment Bank -- Analyst

Great. Thanks for taking my questions. Maybe just a follow-up on the REIT status. If you're not a cash taxpayer now and don't anticipate to be one in the near future, what do you see as the benefits of converting to a REIT at this point?

Gabe Nacht -- Chief Financial Officer

Well, first of all, when you say at this point, timing is something that we are looking at and evaluating whether or not it will make sense at some point. And ultimately, our goal is to maximize stakeholder value. If the REIT status is holding us back, that's something we want to look at. Because even though we're not a cash taxpayer, we do know that there are a number of REIT funds that invest in our peers, and we are boxed into a peer group that is all REIT with the exception of Switch.

So if that's creating a drag on our valuation, that's something that we obviously want to look at. We also are cognizant of where the tax rules are. Right now, we're able to take advantage of bonus depreciation, because we're not a REIT. But those bonus depreciation rules begin to diminish after 2023 and then drop off by 2025.

So we're looking at where we think our future tax position will be and what we think is going to be most beneficial for our stakeholders.

Brendan Lynch -- Barclays Investment Bank -- Analyst

OK. That's helpful. And somewhat related to that, it's difficult to say changing to a REIT might change a number of things. But all else equal, what impact would that have on your ability to invest in your R&D platform that's been fairly robust over the past 20 years?

Gabe Nacht -- Chief Financial Officer

That's one of the things...

Thomas Morton -- President

It's a great question...

Gabe Nacht -- Chief Financial Officer

We're looking at. We're running the numbers obviously. As a REIT, we would be required to make distributions of our pre-tax income, and we're running all of those numbers now to see whether it will do to our long rate strategy. Our goal is to make sure that we are structured, the most appropriate way to enhance shareholder value while executing on our long-range strategy and capex plan.

Brendan Lynch -- Barclays Investment Bank -- Analyst

Thanks for the color.

Gabe Nacht -- Chief Financial Officer

Thank you Mr. Lynch

Operator

The next question is from the line of Frank Louthan with Raymond James. You may proceed.

Frank Louthan -- Raymond James -- Analyst

So on the REIT status, I know you're not announcing what you might do, but since REITs have to be on a December fiscal year, so the conversions always happened on January 1. Is it safe to say that this is sort of a January 1 conversion at the earliest?

Thomas Morton -- President

Frank, it's a great question. And that goes to the timing. There's a very detailed analysis that need to be done. There's also a depreciation recapture and other considerations that have to go on.

And it would be generally a January 1 announcement. Doing it January 1 this year, maybe a bit safe for us. But the real important thing is to make sure that it's going to drive shareholder value. And find the optimal time to do it.

If it's going to drive shareholder value, we'll find the time, place and location that we should make the conversion.

Frank Louthan -- Raymond James -- Analyst

Right. Great. And just a follow-up with the business in Texas. What's been the status of the customers? You got any traction there as far as adding customers to some other locations or getting some incremental new business out of the customers from the Texas acquisition?

Thomas Morton -- President

Yes. We have had traction from customers that have sought to deploy in our other facilities. And we've had interest from our existing customer base about taking up a deployment in the Texas asset. So we are actively cross-selling and integrating this into this new Data Foundry facility into our network.

We are also cross-selling our telecommunications and introducing those customers to our cooperative and the opportunity to purchase on telecommunication services through that cooperative.

Operator

The next question is from the line of Jon Petersen with Jefferies. You may proceed.

Jon Petersen -- Jefferies -- Analyst

Great. Thanks. Can you tell us how much revenue came off this quarter from customers down from into your space, but not captured in the churn bucket?

Gabe Nacht -- Chief Financial Officer

I'm sorry, you broke up a little bit, Jon.

Jon Petersen -- Jefferies -- Analyst

Sorry, how much revenue came off in -- I hope it's any better. How much revenue came off from customers that -- OK. Sorry. Can you move on?

Thomas Morton -- President

Go ahead, Gabe.

Gabe Nacht -- Chief Financial Officer

I think the question was how much revenue reduction that we had? And again, that's a number that is difficult for us to measure and report, because we constantly have customers adjusting their deployments. We've talked about that in the past. Customers are constantly adding circuits, adjusting circuits, adding power, adjusting cabinets. This has been an ongoing moving part of our business for the last 20 years and continues to do so.

So we look at our net incremental increases. And that's what we've reported in the financials.

Operator

The next question is from the line of Eric Luebchow with Wells Fargo. You may proceed.

Eric Luebchow -- Wells Fargo Securities -- Analyst

Great. Thanks for taking my question. Sorry to keep beating the REIT conversion question. But Thomas, you mentioned that you foresaw maybe some other changes in the tax code in the future that could impact that decision.

So maybe you could walk us through what you foresee outside of the bonus depreciation step down that might impact the decision?

Thomas Morton -- President

Well, I was actually speaking to the bonus depreciation step down, which is one. And then we obviously have a democratic Congress. And in there, there is an opportunity for us to see other changes in tax code, and we just want to be prepared and be ahead of those.

Eric Luebchow -- Wells Fargo Securities -- Analyst

OK. Got you. And then just one more for me. As relates to kind of some of the inventory supply constraints that you talked about.

With some of the larger deals you're seeing, like how early do you see the pre-leasing window start to open? In other words, like how soon before you actually bring capacity online, can you start to materially pre-lease? And what type of customers are typically more likely to engage in those pre-leases versus others that would wait until the capacity is delivered?

Thomas Morton -- President

Good question. Well, 70% of our growth each year, 60% to 70% comes from existing customers simply expanding. So when you say Las Vegas 15 is in the middle of our Core Campus in Las Vegas, the most likely customers to expand into that facility are existing customers. And then within new customers into that space.

We are actively marketing that space and not 15 in the first sector and to close some sales on that in the near future. And then by the time that opens, we hope to have sold considerable portion of the data center space.

Eric Luebchow -- Wells Fargo Securities -- Analyst

Got you. But you don't necessarily have like pre-leasing targets for when you open up a new sector necessarily? Just wondering if the pre-leasing equation has changed at all. So I think historically, you didn't do as much pre-leasing, but it seems like you're highlighting it a bit more than maybe some time in the past.

Gabe Nacht -- Chief Financial Officer

Yes. Eric...

Thomas Morton -- President

Gabe, would like to take that one?

Gabe Nacht -- Chief Financial Officer

Yes. We've never had specific pre-leasing targets, and we still don't. But obviously, we build buildings, because we want to fill them. And our building in Las Vegas, LAS VEGAS 15 is up standing.

The roof is on, the work is being done. So our customers that are currently on the LAS VEGAS Campus, where we have 800 customers, know that they can expand into that building and know the time frame in which it will be delivered with very good certainty. So that helps us in those discussions. Additionally, we're still seeing activity from new customers that want space.

And we know that's going to be the next large block of space that we're bringing online. So we don't have a specific target. We really never have. We're able to see the cadence of our business go as it has for many, many years where we build a sector and bring it online, and we fill that sector and bring the next sector as customers expand.

So there's a cadence to LAS VEGAS, because of that 800 customers that are here. We're seeing that same cadence in our Tahoe Reno location. Obviously ATLANTA is a newer location. So we have fewer customers there, but we already have 90% of that building committed, and we need to build as fast as we can.

So we're excited about our prospects.

Eric Luebchow -- Wells Fargo Securities -- Analyst

Great. Thank you.

Operator

The next question is from the line of Richard Choe with J.P. Morgan. You may proceed.

Richard Choe -- J.P. Morgan -- Analyst

Hi. I just wanted to go back to guidance a little bit. For stand-alone Switch, you raised guidance, can we give a little more color on how much of that is customers moving in faster? How much is kind of incremental wins in business that you had that's now in the backlog and then what's coming from power? And then what might drive you since there's only half the year left to the higher end or the lower end of that guidance?

Gabe Nacht -- Chief Financial Officer

Richard, this is Gabe. I'll take that. It's sort of all of the above, and I'll give you a little bit of a breakdown. Around $7 million or $8 million of that expansion on Switch stand-alone guidance is due to the fact that we now have customers that have moved in faster.

You're seeing us run ahead of revenue both in Q1 and Q2, and we'll get the compounding effect of that over the next 6 months as those customers continue to generate monthly recurring revenue. Additionally, we've signed some large deals. We talked about those in the call, and Thomas highlighted some of those. Many of those will be moving in, in the second half of the year.

So we're going to see revenue coming from there. And then you mentioned the power increase. I think that's an important thing to highlight because that has a little bit of a different dynamic. We have seen power rates go up, particularly here in the western states.

And some of our customers do have power pass-throughs, and that will add about $7 million in the back half of the year. But of course, that will not come at a typical margin. That is really a pass-through.

Richard Choe -- J.P. Morgan -- Analyst

Great. And then with the MRC of the Cline company, it's lower. So assuming that the Data Foundry is lower. Is there something that can be done or additional services that can increase that MRC? Or is it just the lower -- the Campus is just going to be the lower MRC market?

Thomas Morton -- President

Well, we are building at the Rock. Go ahead.

Gabe Nacht -- Chief Financial Officer

I think in terms of their MRC, they are running a bit lower than Switch today, and that's something that we are looking to enhance because in this last sector that we're building, in Austin. It is going to be a hybrid between Data Foundry's existing design and what Switch typically puts into its Tier 5 data centers. We are going to be incorporating our T skip design, all of our efficiencies, our air handlers, so we're looking to increase that MRC per cabinet. I also think it's super important to understand that our telecom network and our telecom cooperative is an extremely strong tool to increase overall revenue per cabinet.

Because we know that here at Switch, over 80% of our customers participate in the cooperative. We've been actively engaging the 400 customers at Data Foundry about that cooperative, and that can enhance revenue per cabinet. And then we're going to be building. We're going to be building a Tier 5 facility on the Rock Campus and we expect to get the same level of revenue per cabinet that we get in all of our other markets because we do offer the same solution.

Richard Choe -- J.P. Morgan -- Analyst

No, that's great to hear. It seems like a real incremental revenue opportunity for that campus, along with the expansion.

Thank you.

Gabe Nacht -- Chief Financial Officer

Thank you Mr. Choe.

Operator

[Operator signoff]

Gabe Nacht -- Chief Financial Officer

Thank you all.

Thomas Morton -- President

Thank you.

Duration: 58 minutes

Call participants:

Matt Heinz -- Vice President of Investor Relations and Financial Planning & Analysis

Thomas Morton -- President

Gabe Nacht -- Chief Financial Officer

George Engroff -- Credit Suisse -- Analyst

Aryeh Klein -- BMO Capital Markets --Analyst

Erik Rasmussen -- Stifel Financial Corp. -- Analyst

Colby Synesael -- Cowen and Company -- Analyst

Brendan Lynch -- Barclays Investment Bank -- Analyst

Frank Louthan -- Raymond James -- Analyst

Jon Petersen -- Jefferies -- Analyst

Eric Luebchow -- Wells Fargo Securities -- Analyst

Richard Choe -- J.P. Morgan -- Analyst

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