10-Q 1 swch-20210930.htm 10-Q swch-20210930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to     
Commission File Number: 001-38231
swch-20210930_g1.gif
Switch, Inc.
(Exact name of registrant as specified in its charter)
Nevada
82-1883953
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
7135 S. Decatur Boulevard
Las Vegas,
NV
89118
(Address of principal executive offices)
(Zip Code)

(702) 444-4111
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Class A common stock, par value $0.001SWCHNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  No      
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No 
As of November 4, 2021, the registrant had 143,677,872 shares of Class A common stock, 98,330,748 shares of Class B common stock, and no shares of Class C common stock outstanding.



Switch, Inc.
Table of Contents



Part I.Financial Information.

Switch, Inc. | Q3 2021 Form 10-Q | 1

Switch, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
September 30,December 31,
20212020
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$35,240 $90,719 
Restricted cash3,968  
Accounts receivable, net of allowance for credit losses of $672 and $792, respectively
31,544 21,723 
Prepaid expenses8,809 8,171 
Other current assets, net of allowance for credit losses of $3 and $0, respectively
2,831 2,235 
Total current assets82,392 122,848 
Property and equipment, net2,138,545 1,737,415 
Long-term deposit10,680 2,626 
Deferred income taxes263,933 203,201 
Intangible assets, net127,258 2,423 
Goodwill106,473  
Other assets, net of allowance for credit losses of $92 and $87, respectively
58,609 45,943 
TOTAL ASSETS$2,787,890 $2,114,456 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable$42,236 $14,588 
Accrued salaries and benefits14,226 4,884 
Accrued interest8,203 7,132 
Accrued expenses and other23,489 9,686 
Accrued construction payables25,360 27,162 
Deferred revenue, current portion16,377 14,870 
Customer deposits16,231 12,348 
Swap liability, current portion9,334 9,418 
Operating lease liability, current portion3,780 3,512 
Total current liabilities159,236 103,600 
Long-term debt, net1,526,492 991,213 
Operating lease liability32,631 25,536 
Finance lease liability57,414 57,516 
Deferred revenue26,347 23,862 
Liabilities under tax receivable agreement359,009 278,865 
Other long-term liabilities13,103 22,897 
TOTAL LIABILITIES2,174,232 1,503,489 
Commitments and contingencies (Note 7)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value per share, 10,000 shares authorized, none issued and outstanding
  
Class A common stock, $0.001 par value per share, 750,000 shares authorized, 137,489 and 119,009 shares issued and outstanding, respectively
137 119 
Class B common stock, $0.001 par value per share, 300,000 shares authorized, 104,515 and 121,640 shares issued and outstanding, respectively
105 122 
Class C common stock, $0.001 par value per share, 75,000 shares authorized, none issued and outstanding
  
Additional paid in capital313,982 266,129 
(Accumulated deficit) retained earnings(5,020)9 
Accumulated other comprehensive income18 79 
Total Switch, Inc. stockholders’ equity309,222 266,458 
Noncontrolling interest304,436 344,509 
TOTAL STOCKHOLDERS’ EQUITY613,658 610,967 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$2,787,890 $2,114,456 

The accompanying condensed notes are an integral part of these consolidated financial statements.
Switch, Inc. | Q3 2021 Form 10-Q | 2

Switch, Inc.
Consolidated Statements of Comprehensive (Loss) Income
(in thousands, except per share data)
(unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Revenue$158,104 $128,785 $430,660 $383,798 
Cost of revenue97,413 74,348 246,100 209,575 
Gross profit60,691 54,437 184,560 174,223 
Selling, general and administrative expense42,845 31,516 117,718 105,070 
Income from operations17,846 22,921 66,842 69,153 
Other income (expense):
Interest expense, including $689, $439, $1,892, and $1,257, respectively, in amortization of debt issuance costs and original issue discounts
(15,166)(6,554)(34,121)(20,682)
Loss on swaps(3,853)(1,559)(3,618)(23,257)
Loss on extinguishment of debt(146)(245)(146)(245)
Equity in net losses of investments(326) (925) 
Gain on sale of equity method investment  5,374  
Other500 185 4,092 733 
Total other expense(18,991)(8,173)(29,344)(43,451)
(Loss) income before income taxes(1,145)14,748 37,498 25,702 
Income tax benefit (expense)278 (1,515)(4,287)(2,622)
Net (loss) income(867)13,233 33,211 23,080 
Less: net (loss) income attributable to noncontrolling interest(498)8,027 17,578 13,993 
Net (loss) income attributable to Switch, Inc.$(369)$5,206 $15,633 $9,087 
Net (loss) income per share (Note 11):
Basic$(0.00)$0.05 $0.12 $0.09 
Diluted$(0.00)$0.05 $0.12 $0.08 
Weighted average shares used in computing net (loss) income per share (Note 11):
Basic136,292 108,690 131,067 102,703 
Diluted136,292 111,565 135,091 243,553 
Other comprehensive (loss) income:
Foreign currency translation adjustment, net of reclassification adjustment and tax of $0
  (474) 
Comprehensive (loss) income(867)13,233 32,737 23,080 
Less: comprehensive (loss) income attributable to noncontrolling interest(498)8,027 17,165 13,993 
Comprehensive (loss) income attributable to Switch, Inc.$(369)$5,206 $15,572 $9,087 

The accompanying condensed notes are an integral part of these consolidated financial statements.

Switch, Inc. | Q3 2021 Form 10-Q | 3

Switch, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
Switch, Inc. Stockholders’ Equity
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid in Capital(Accumulated Deficit) Retained EarningsAccumulated Other Comprehensive IncomeNoncontrolling InterestTotal Stockholders’ Equity
Balances—December 31, 2020119,009 $119 121,640 $122 $266,129 $9 $79 $344,509 $610,967 
Net income— — — — — 11,641 — 12,753 24,394 
Equity-based compensation expense— — — — 6,359 — — 938 7,297 
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax812 1 — — (5,622)— — 147 (5,474)
Dividends declared ($0.05 per share)
— — — — — (6,562)— — (6,562)
Distributions to noncontrolling interest— — — — — — — (5,696)(5,696)
Exchanges of noncontrolling interest for Class A common stock7,725 8 (7,725)(8)22,364 — — (22,364)— 
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock— — — — (32,477)— — — (32,477)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.— — — — 26,752 — — — 26,752 
Foreign currency translation adjustment— — — — — — (61)(413)(474)
Balances—March 31, 2021127,546 128 113,915 114 283,505 5,088 18 329,874 618,727 
Net income— — — — — 4,361 — 5,323 9,684 
Equity-based compensation expense— — — — 6,906 — — 622 7,528 
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax21 — — — (777)— — 624 (153)
Issuance of Class A common stock upon exercise of stock options181 — — — 1,232 — — 1,838 3,070 
Issuance of restricted stock awards65 — — — — — — — — 
Dividends declared ($0.05 per share)
— — — — — (6,716)— — (6,716)
Distributions to noncontrolling interest— — — — — — — (5,532)(5,532)
Exchanges of noncontrolling interest for Class A common stock3,277 3 (3,277)(3)9,201 — — (9,201)— 
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock— — — — (14,973)— — — (14,973)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.— — — — 10,691 — — — 10,691 
Balances—June 30, 2021131,090 $131 110,638 $111 $295,785 $2,733 $18 $323,548 $622,326 

Switch, Inc. | Q3 2021 Form 10-Q | 4

Switch, Inc.
Consolidated Statements of Stockholders’ Equity (Continued)
(in thousands)
(unaudited)
Switch, Inc. Stockholders’ Equity
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid in Capital(Accumulated Deficit) Retained EarningsAccumulated Other Comprehensive IncomeNoncontrolling InterestTotal Stockholders’ Equity
Balances—June 30, 2021131,090 $131 110,638 $111 $295,785 $2,733 $18 $323,548 $622,326 
Net loss— — — — — (369)— (498)(867)
Equity-based compensation expense— — — — 6,731 — — 322 7,053 
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax55 — — — (1,113)— — 590 (523)
Issuance of Class A common stock upon exercise of stock options215 — — — 2,780 — — 878 3,658 
Issuance of restricted stock awards6 — — — — — — — — 
Dividends declared ($0.0525 per share)
— — — — — (7,384)— — (7,384)
Distributions to noncontrolling interest— — — — — — — (5,487)(5,487)
Exchanges of noncontrolling interest for Class A common stock6,123 6 (6,123)(6)14,917 — — (14,917)— 
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock— — — — (32,694)— — — (32,694)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.— — — — 27,576 — — — 27,576 
Balances—September 30, 2021137,489 $137 104,515 $105 $313,982 $(5,020)$18 $304,436 $613,658 

Switch, Inc. | Q3 2021 Form 10-Q | 5

Switch, Inc.
Consolidated Statements of Stockholders’ Equity (Continued)
(in thousands)
(unaudited)
Switch, Inc. Stockholders’ Equity
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid in Capital(Accumulated Deficit) Retained EarningsAccumulated Other Comprehensive IncomeNoncontrolling InterestTotal Stockholders’ Equity
Balances—December 31, 201989,768 $90 151,047 $151 $204,711 $2,420 $79 $420,194 $627,645 
Cumulative adjustment due to adoption of new credit loss standard— — — — — (67)— (82)(149)
Net loss— — — — — (1,216)— (2,273)(3,489)
Equity-based compensation expense— — — — 4,973 — — 2,551 7,524 
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax630 — — — (3,375)— — (536)(3,911)
Dividends declared ($0.0294 per share)
— — — — — (2,891)— — (2,891)
Distributions to noncontrolling interest— — — — — — — (4,304)(4,304)
Exchanges of noncontrolling interest for Class A common stock4,637 5 (4,637)(5)13,403 — — (13,403)— 
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock— — — — (19,198)— — — (19,198)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.— — — — 16,610 — — — 16,610 
Balances—March 31, 202095,035 95 146,410 146 217,124 (1,754)79 402,147 617,837 
Net income— — — — — 5,097 — 8,239 13,336 
Equity-based compensation expense— — — — 5,416 — — 2,094 7,510 
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax16 — — — (330)— — 209 (121)
Issuance of Class A common stock upon exercise of stock options169 — — — 596 — — 2,280 2,876 
Issuance of restricted stock awards59 — — — — — — — — 
Dividends declared ($0.0294 per share)
— — — — — (3,245)— — (3,245)
Distributions to noncontrolling interest— — — — — — — (3,934)(3,934)
Exchanges of noncontrolling interest for Class A common stock11,488 12 (11,488)(12)31,840 — — (31,840)— 
Repurchase of common units and cancellation of Class B common stock— — (1,126)— (7,758)— — (12,242)(20,000)
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock— — — — (52,811)— — — (52,811)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.— — — — 44,394 — — — 44,394 
Balances—June 30, 2020106,767 $107 133,796 $134 $238,471 $98 $79 $366,953 $605,842 


Switch, Inc. | Q3 2021 Form 10-Q | 6

Switch, Inc.
Consolidated Statements of Stockholders’ Equity (Continued)
(in thousands)
(unaudited)
Switch, Inc. Stockholders’ Equity
Class A Common StockClass B Common Stock
SharesAmountSharesAmountAdditional Paid in Capital(Accumulated Deficit) Retained EarningsAccumulated Other Comprehensive IncomeNoncontrolling InterestTotal Stockholders’ Equity
Balances—June 30, 2020106,767 $107 133,796 $134 $238,471 $98 $79 $366,953 $605,842 
Net income— — — — — 5,206 — 8,027 13,233 
Equity-based compensation expense— — — — 5,419 — — 1,697 7,116 
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax51 — — — (1,538)— — 1,207 (331)
Issuance of Class A common stock upon exercise of stock options7 — — — 57 — — 68 125 
Dividends declared ($0.05 per share)
— — — — — (5,629)— — (5,629)
Distributions to noncontrolling interest— — — — — — — (6,583)(6,583)
Exchanges of noncontrolling interest for Class A common stock2,129 2 (2,129)(2)5,236 — — (5,236)— 
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock— — — — (9,605)— — — (9,605)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.— — — — 4,915 — — — 4,915 
Balances—September 30, 2020108,955 $109 131,667 $132 $242,955 $(325)$79 $366,133 $609,083 

The accompanying condensed notes are an integral part of these consolidated financial statements.
Switch, Inc. | Q3 2021 Form 10-Q | 7

Switch, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
September 30,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$33,211 $23,080 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment125,214 105,322 
Amortization of customer relationships1,979  
Loss on disposal of property and equipment211 283 
Deferred income taxes4,287 2,622 
Amortization of debt issuance costs and original issue discount1,892 1,257 
Credit loss expense52 308 
Unrealized (gain) loss on swaps(9,292)18,085 
Loss on extinguishment of debt146 245 
Equity in net losses on investments925  
Gain on sale of equity method investment(5,374) 
Equity-based compensation21,878 22,150 
Amortization of portfolio energy credits315 1,381 
Cost of revenue for sales-type leases150 3,436 
Changes in operating assets and liabilities:
Accounts receivable(5,950)4,250 
Prepaid expenses1,442 1,688 
Other current assets(599)1,053 
Other assets(2,192)846 
Accounts payable10,882 2,709 
Accrued salaries and benefits8,781 7,580 
Accrued interest1,071 879 
Accrued expenses and other5,762 169 
Deferred revenue3,992 (4,803)
Customer deposits1,436 998 
Operating lease liabilities(3,565)(3,883)
Other long-term liabilities(387)(320)
Net cash provided by operating activities196,267 189,335 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of a business, net of cash acquired(409,094) 
Acquisition of property and equipment(331,659)(249,096)
Purchase of portfolio energy credits(2,252)(1,381)
Purchase of equity method investment(2,200) 
Proceeds from sale of equity method investment4,900  
Proceeds from sale of property and equipment2,033 2 
Net cash used in investing activities(738,272)(250,475)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings, net of original issue discount556,250 705,500 
Repayment of borrowings, including finance lease liabilities(20,105)(465,221)
Payment of debt issuance costs(4,822)(1,460)
Change in long-term deposit(3,835)1,491 
Payment of tax withholdings upon settlement of restricted stock unit awards(6,492)(4,508)
Proceeds from exercise of stock options6,728 3,001 
Repurchase of common units (20,000)
Dividends paid to Class A common stockholders(20,137)(11,377)
Distributions paid to noncontrolling interest(17,093)(14,926)
Net cash provided by financing activities490,494 192,500 
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH(51,511)131,360 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASHBeginning of period
90,719 24,721 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASHEnd of period
$39,208 $156,081 

Switch, Inc. | Q3 2021 Form 10-Q | 8

Switch, Inc.