swch-20220331

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 March 31, 2022


☐			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


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 class	Trading Symbol	Name of each exchange on which registered
Class A common stock, par value $0.001	SWCH	New 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 May 2, 2022, the registrant had 150,388,024 shares of Class A common stock, 94,231,279 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)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31
Part II.	Other Information
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 6.	Exhibits	32
Signatures

Table of Contents

Part I.Financial Information.

Item 1.Financial Statements (Unaudited).


Consolidated Balance Sheets			2
Consolidated Statements of Comprehensive Income			3
Consolidated Statements of Stockholders’ Equity			4
Consolidated Statements of Cash Flows			6
Condensed Notes to Consolidated Financial Statements			8

Switch, Inc. | Q1 2022 Form 10-Q | 1

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Switch, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)


	March 31, 2022		December 31, 2021
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	27,493	$	48,325
Restricted cash	1,890		1,890
Accounts receivable, net of allowance for credit losses of $363 and $361, respectively	24,774		18,368
Prepaid expenses	11,457		10,265
Other current assets, net of allowance for credit losses of $3	4,627		4,624
Total current assets	70,241		83,472
Property and equipment, net	2,317,408		2,237,059
Long-term deposit	15,222		13,504
Deferred income taxes	306,753		295,699
Intangible assets, net	124,354		125,758
Goodwill	106,350		106,350
Other assets, net of allowance for credit losses of $94 and $91, respectively	59,097		56,776
TOTAL ASSETS	$	2,999,425	$	2,918,618

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Long-term debt, current portion	$	4,000	$	4,000
Accounts payable	21,813		55,262
Accrued salaries and benefits	8,316		6,786
Accrued interest	7,822		8,577
Accrued expenses and other	16,580		18,285
Accrued construction payables	32,580		31,093

Deferred revenue, current portion	21,163		16,905
Customer deposits	16,707		16,335
Swap liability, current portion	2,846		8,062
Operating lease liability, current portion	2,705		3,281
Total current liabilities	134,532		168,586
Long-term debt, net	1,711,433		1,611,962
Operating lease liability	31,467		32,157
Finance lease liability	57,346		57,376
Deferred revenue	25,507		25,921
Liabilities under tax receivable agreement	412,456		395,615
Other long-term liabilities	969		8,360
TOTAL LIABILITIES	2,373,710		2,299,977
Commitments and contingencies (Note 6)
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, 148,846 and 145,187 shares issued and outstanding, respectively	149		145
Class B common stock, $0.001 par value per share, 300,000 shares authorized, 95,773 and 98,331 shares issued and outstanding, respectively	96		98
Class C common stock, $0.001 par value per share, 75,000 shares authorized, none issued and outstanding	—		—
Additional paid in capital	357,286		352,984
Accumulated deficit	(18,188)		(23,022)
Accumulated other comprehensive loss	(568)		(568)
Total Switch, Inc. stockholders’ equity	338,775		329,637
Noncontrolling interest	286,940		289,004
TOTAL STOCKHOLDERS’ EQUITY	625,715		618,641
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,999,425	$	2,918,618

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

Switch, Inc. | Q1 2022 Form 10-Q | 2

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Switch, Inc.

Consolidated Statements of Comprehensive Income

(in thousands, except per share data)

(unaudited)


	Three Months Ended March 31,
	2022		2021
Revenue	$	164,609	$	130,866
Cost of revenue	94,491		71,693
Gross profit	70,118		59,173
Selling, general and administrative expense	42,871		34,998

Income from operations	27,247		24,175
Other income (expense):
Interest expense, including $662 and $583, respectively, in amortization of debt issuance costs and original issue discount	(13,197)		(8,757)
Gain on swaps	13,649		3,205

Equity in net losses of investments	—		(220)
Gain on sale of equity method investment	—		5,374
Other	475		3,271
Total other income	927		2,873
Income before income taxes	28,174		27,048
Income tax expense	(4,240)		(2,654)
Net income	23,934		24,394
Less: net income attributable to noncontrolling interest	11,141		12,753
Net income attributable to Switch, Inc.	$	12,793	$	11,641

Net income per share (Note 10):
Basic	$	0.09	$	0.09
Diluted	$	0.08	$	0.09

Weighted average shares used in computing net income per share (Note 10):
Basic	147,745		126,641
Diluted	153,265		129,110

Other comprehensive loss:
Foreign currency translation adjustment, net of reclassification adjustment and tax of $0	—		(474)
Comprehensive income	23,934		23,920
Less: comprehensive income attributable to noncontrolling interest	11,141		12,340
Comprehensive income attributable to Switch, Inc.	$	12,793	$	11,580

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

Switch, Inc. | Q1 2022 Form 10-Q | 3

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Switch, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)


	Switch, Inc. Stockholders’ Equity
	Class A Common Stock			Class B Common Stock
	Shares	Amount		Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders’ Equity
Balances—December 31, 2021	145,187	$	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 tax	957	1		—	—		(11,209)		—		—		(341)		(11,549)
Issuance of Class A common stock upon exercise of stock options	144	1		—	—		2,611		—		—		(167)		2,445
Dividends declared ($0.0525 per share)	—	—		—	—		—		(7,959)		—		—		(7,959)
Distributions to noncontrolling interest	—	—		—	—		—		—		—		(4,931)		(

SEC Form 10-Q filed by Switch Inc.