- Company Name
- Switch, Inc.
- Stock Symbol
- Class Period
- Purchasers of Switch Class A common stock pursuant and/or traceable to the Company’s October 6, 2017 initial public offering
- Motion Deadline
- August 10, 2018
- District of New Jersey
The complaint charges Switch, certain of its officers and directors and the underwriters of its October 6, 2017 initial public offering (“IPO”) with violations of the Securities Act of 1933. Switch, through its operating subsidiary, Switch, Ltd., provides colocation space and related services to technology and digital media companies, cloud and managed service providers, financial institutions, government agencies and telecommunications providers that conduct critical business on the internet.
On October 5, 2017, the Registration Statement for the IPO was declared effective by the SEC and the next day Switch and the underwriters filed the final Prospectus and priced the IPO at $17 per share. Switch sold more than 35.9 million shares of Class A common stock in the IPO, raising $610 million in gross proceeds.
The complaint alleges that defendants made false and misleading statements and/or failed to disclose adverse information in the Registration Statement and Prospectus (the “Offering Documents”) that existed at the time of the IPO regarding Switch’s business, prospects and financial condition. According to the complaint, the Offering Documents failed to disclose that: (1) Switch’s Grand Rapids and Atlanta facilities would never be as profitable as its Las Vegas facility, diminishing the yield on Switch’s recent capital expenditures acquiring and building out those facilities; (2) Switch’s high capital expenditures to create high redundancy levels at its facilities were not as profitable as they had been in the past; (3) Switch had already spent an additional $64+ million on unbudgeted capital expenditures during the third quarter of 2017 that was not disclosed to investors until after the IPO; (4) Switch recognized $9.4 million in revenues during fiscal 2017 that it would not provide colocation services for until fiscal 2018, meaning its reported fiscal 2017 revenue growth and its fiscal 2018 revenue prospects were both overstated; and (5) eBay, Switch’s largest colocation customer, would not be taking possession of colocation space it had reserved at Switch’s Tahoe/Reno facility in early 2018.
The truth regarding Switch’s business and prospects began to emerge in November 2017, when defendants announced Switch’s third quarter 2017 financial results, disclosing capital expenditure guidance of $345-$365 million for fiscal 2017, a considerable increase from the capital expenditures budgeted at the time of the IPO. Then on April 2, 2018, Switch announced its financial results for the 2017 fourth quarter and fiscal year, including capital expenditures of $402.6 million, which was considerably higher than defendants’ previous guidance of $345-$365 million. In addition, Switch’s revenue guidance for 2018 included “a $9.4 million revenue impact due to fees booked in 2017 related to a 7-year $280 million contract closed in 2016 with a strategic customer to reserve space at one of [its] facilities.” On this news, the price of Switch Class A common stock fell $2.48 per share, or more than 15%, to close at $13.37 per share on April 3, 2018. At the time of the filing of the complaint, Switch Class A common stock was trading at less than $13 per share, a decline of more than 23% from the IPO offering price of $17 per share.