10-Q 1 swch-20220930.htm 10-Q swch-20220930
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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, 2022
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-20220930_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 1, 2022, the registrant had 157,953,097 shares of Class A common stock, 87,111,360 shares of Class B common stock, and no shares of Class C common stock outstanding.



Switch, Inc.
Table of Contents


Part I.Financial Information.
Item 1.Financial Statements (Unaudited).

Switch, Inc. | Q3 2022 Form 10-Q | 1

Switch, Inc.
Consolidated Balance Sheets
(in thousands, except per share data)
September 30, 2022December 31, 2021
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$41,251 $48,325 
Restricted cash 1,890 
Accounts receivable, net of allowance for credit losses of $379 and $361, respectively
30,536 18,368 
Prepaid expenses11,122 10,265 
Swap asset, current portion9,569  
Other current assets, net of allowance for credit losses of $3
4,449 4,624 
Total current assets96,927 83,472 
Property and equipment, net 2,500,213 2,237,059 
Long-term deposit39,056 13,504 
Deferred income taxes375,036 295,699 
Intangible assets, net121,952 125,758 
Goodwill106,350 106,350 
Other assets, net of allowance for credit losses of $95 and $91, respectively
61,729 56,776 
TOTAL ASSETS$3,301,263 $2,918,618 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Long-term debt, current portion$4,000 $4,000 
Accounts payable41,224 55,262 
Accrued salaries and benefits14,612 6,786 
Accrued interest8,120 8,577 
Accrued expenses and other29,910 18,285 
Accrued construction payables40,865 31,093 
Deferred revenue, current portion26,839 16,905 
Customer deposits16,976 16,335 
Swap liability, current portion 8,062 
Operating lease liability, current portion3,983 3,281 
Liabilities under tax receivable agreement, current portion75,108  
Total current liabilities261,637 168,586 
Long-term debt, net1,890,375 1,611,962 
Operating lease liability31,143 32,157 
Finance lease liability57,080 57,376 
Deferred revenue26,765 25,921 
Liabilities under tax receivable agreement 395,615 
Other long-term liabilities1,087 8,360 
TOTAL LIABILITIES2,268,087 2,299,977 
Commitments and contingencies (Note 5)
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, 156,960 and 145,187 shares issued and outstanding, respectively
157 145 
Class B common stock, $0.001 par value per share, 300,000 shares authorized, 88,104 and 98,331 shares issued and outstanding, respectively
88 98 
Class C common stock, $0.001 par value per share, 75,000 shares authorized, none issued and outstanding
  
Additional paid in capital428,481 352,984 
Retained earnings (accumulated deficit)341,904 (23,022)
Accumulated other comprehensive loss(568)(568)
Total Switch, Inc. stockholders’ equity770,062 329,637 
Noncontrolling interest263,114 289,004 
TOTAL STOCKHOLDERS’ EQUITY1,033,176 618,641 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,301,263 $2,918,618 

The accompanying condensed notes are an integral part of these consolidated financial statements.
Switch, Inc. | Q3 2022 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,
2022202120222021
Revenue$174,467 $158,104 $507,261 $430,660 
Cost of revenue126,582 97,413 322,425 246,100 
Gross profit47,885 60,691 184,836 184,560 
Selling, general and administrative expense40,373 42,845 128,891 117,718 
Income from operations7,512 17,846 55,945 66,842 
Other income (expense):
Interest expense, including $663, $689, $1,987, and $1,892, respectively, in amortization of debt issuance costs and original issue discount
(16,696)(15,166)(44,079)(34,121)
Gain (loss) on swaps8,830 (3,853)24,832 (3,618)
Loss on extinguishment of debt (146) (146)
Equity in net losses of investments (326) (925)
Gain on sale of equity method investment   5,374 
Gain on termination of tax receivable agreement  372,784  
Other531 500 1,412 4,092 
Total other (expense) income (7,335)(18,991)354,949 (29,344)
Income (loss) before income taxes177 (1,145)410,894 37,498 
Income tax (expense) benefit(409)278 (6,452)(4,287)
Net (loss) income(232)(867)404,442 33,211 
Less: net income (loss) attributable to noncontrolling interest25 (498)15,071 17,578 
Net (loss) income attributable to Switch, Inc.$(257)$(369)$389,371 $15,633 
Net (loss) income per share (Note 9):
Basic$(0.00)$(0.00)$2.58 $0.12 
Diluted$(0.00)$(0.00)$1.60 $0.12 
Weighted average shares used in computing net (loss) income per share (Note 9):
Basic154,778 136,292 150,855 131,067 
Diluted 154,778 136,292 250,812 135,091 
Other comprehensive loss:
Foreign currency translation adjustment, net of reclassification adjustment and tax of $0
   (474)
Comprehensive (loss) income(232)(867)404,442 32,737 
Less: comprehensive income (loss) attributable to noncontrolling interest 25 (498)15,071 17,165 
Comprehensive (loss) income attributable to Switch, Inc.$(257)$(369)$389,371 $15,572 

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

Switch, Inc. | Q3 2022 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 CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive LossNoncontrolling InterestTotal Stockholders’ Equity
Balances—December 31, 2021145,187 $145 98,331 $98 $352,984 $(23,022)$(568)$289,004 $618,641 
Net income— — — — — 12,793 — 11,141 23,934 
Equity-based compensation expense— — — — 6,681 — — — 6,681 
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax957 1 — — (11,209)— — (341)(11,549)
Issuance of Class A common stock upon exercise of stock options144 1 — — 2,611 — — (167)2,445 
Dividends declared ($0.0525 per share)
— — — — — (7,959)— — (7,959)
Distributions to noncontrolling interest— — — — — — — (4,931)(4,931)
Exchanges of noncontrolling interest for Class A common stock2,558 2 (2,558)(2)7,766 — — (7,766)— 
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock— — — — (16,841)— — — (16,841)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.— — — — 15,294 — — — 15,294 
Balances—March 31, 2022148,846 149 95,773 96 357,286 (18,188)(568)286,940 625,715 
Net income— — — — — 376,835 — 3,905 380,740 
Equity-based compensation expense— — — — 6,980 — — — 6,980 
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax36 — — — (2,533)— — 1,940 (593)
Issuance of Class A common stock upon exercise of stock options195 — — — 3,555 — — (227)3,328 
Issuance of restricted stock awards48 — — — — — — — — 
Dividends declared ($0.0525 per share)
— — — — — (8,080)— — (8,080)
Distributions to noncontrolling interest— — — — — — — (4,942)(4,942)
Exchanges of noncontrolling interest for Class A common stock1,642 2 (1,642)(2)4,245 — — (4,245)— 
Termination of tax receivable agreement— — — — — — — (35,436)(35,436)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.— — — — 23,439 — — — 23,439 
Balances—June 30, 2022150,767 $151 94,131 $94 $392,972 $350,567 $(568)$247,935 $991,151 

Switch, Inc. | Q3 2022 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 CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive LossNoncontrolling InterestTotal Stockholders’ Equity
Balances—June 30, 2022150,767 $151 94,131 $94 $392,972 $350,567 $(568)$247,935 $991,151 
Net income— — — — — (257)— 25 (232)
Equity-based compensation expense— — — — 7,104 — — — 7,104 
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax53 — — — (1,825)— — 1,038 (787)
Issuance of Class A common stock upon exercise of stock options113 — — — 2,036 — — (121)1,915 
Dividends declared ($0.0525 per share)
— — — — — (8,406)— — (8,406)
Distributions to noncontrolling interest— — — — — — — (4,625)(4,625)
Exchanges of noncontrolling interest for Class A common stock6,027 6 (6,027)(6)(18,862)— — 18,862 — 
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.— — — — 47,056 — — — 47,056 
Balances—September 30, 2022156,960 $157 88,104 $88 $428,481 $341,904 $(568)$263,114 $1,033,176 
Switch, Inc. | Q3 2022 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 CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive LossNoncontrolling 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 2022 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 CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive LossNoncontrolling InterestTotal Stockholders’ Equity
Balances—June 30, 2021131,090 $131 110,638 $111 $295,785 $2,733 $18 $323,548 $622,326 
Net income— — — — — (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 

The accompanying condensed notes are an integral part of these consolidated financial statements.
Switch, Inc. | Q3 2022 Form 10-Q | 7

Switch, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine Months Ended
September 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$404,442 $33,211 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment147,886 125,214 
Amortization of customer relationships4,687 1,979 
Loss on disposal of property and equipment586 211 
Deferred income taxes6,452 4,287 
Amortization of debt issuance costs and original issue discount1,987 1,892 
Credit loss expense207 52 
Unrealized gain on swaps(30,322)(9,292)
Loss on extinguishment of debt 146 
Equity in net losses on investments 925 
Gain on termination of tax receivable agreement(372,784) 
Gain on sale of equity method investment (5,374)
Equity-based compensation20,765 21,878 
Amortization of portfolio energy credits1,261 315 
Cost of revenue for sales-type leases 150 
Changes in operating assets and liabilities:
Accounts receivable(12,770)(5,950)
Prepaid expenses(857)1,442 
Other current assets(534)(599)
Other assets3,271 (2,192)
Accounts payable3,208 10,882 
Accrued salaries and benefits7,826 8,781 
Accrued interest(457)1,071 
Accrued expenses and other15,098 5,762 
Deferred revenue10,778 3,992 
Customer deposits641 1,436 
Operating lease liabilities(2,050)(3,565)
Other long-term liabilities(348)(387)
Net cash provided by operating activities208,973 196,267 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of a business, net of cash acquired(3,678)(409,094)
Acquisition of property and equipment(438,351)(331,659)
Purchase of portfolio energy credits(1,958)(2,252)
Purchase of equity method investment (2,200)
Proceeds from sale of equity method investment 4,900 
Proceeds from sale of property and equipment409 2,033 
Net cash used in investing activities(443,578)(738,272)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings, net of original issue discount280,000 556,250 
Payment of debt issuance costs (4,822)
Repayment of borrowings, including finance lease liabilities(3,095)(20,105)
Change in long-term deposit(6,865)(3,835)
Payment of tax withholdings upon settlement of restricted stock unit awards(13,533)(6,492)
Proceeds from exercise of stock options 7,688 6,728 
Dividends paid to Class A common stockholders (23,959)(20,137)
Distributions paid to noncontrolling interest (14,595)(17,093)
Net cash provided by financing activities225,641 490,494 
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH (8,964)(51,511)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASHBeginning of period
50,215 90,719 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASHEnd of period
$41,251 $39,208 

Switch, Inc. | Q3 2022 Form 10-Q | 8

Switch, Inc.
Consolidated Statements of Cash Flows (Continued)