swch-20210331

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, 2021


☐			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

Securities registered pursuant to Section 12(g) of the Act: None

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 6, 2021, the registrant had 130,927,378 shares of Class A common stock, 110,638,180 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	30
Part II.	Other Information
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
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 (Loss)			3
Consolidated Statements of Stockholders’ Equity			4
Consolidated Statements of Cash Flows			6
Condensed Notes to Consolidated Financial Statements			8

Switch, Inc. | Q1 2021 Form 10-Q | 1

Table of Contents

Switch, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)


	March 31,		December 31,
	2021		2020
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	38,882	$	90,719
Accounts receivable, net of allowance for credit losses of $712 and $792, respectively	21,134		21,723
Prepaid expenses	8,685		8,171
Other current assets, net of allowance for credit losses of $2 and $0, respectively	2,125		2,235
Total current assets	70,826		122,848
Property and equipment, net	1,801,302		1,737,415
Long-term deposit	2,789		2,626
Deferred income taxes	227,299		203,201
Other assets, net of allowance for credit losses of $91 and $87, respectively	55,429		48,366
TOTAL ASSETS	$	2,157,645	$	2,114,456

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:

Accounts payable	$	22,627	$	14,588
Accrued salaries and benefits	7,129		4,884
Accrued interest	1,551		7,132
Accrued expenses and other	10,651		9,686
Accrued construction payables	22,768		27,162

Deferred revenue, current portion	18,401		14,870
Customer deposits	12,804		12,348
Interest rate swap liability, current portion	9,314		9,418
Operating lease liability, current portion	3,867		3,512
Total current liabilities	109,112		103,600
Long-term debt, net	991,608		991,213
Operating lease liability	27,474		25,536
Finance lease liability	57,471		57,516
Deferred revenue	24,803		23,862
Liabilities under tax receivable agreement	311,342		278,865
Other long-term liabilities	17,108		22,897
TOTAL LIABILITIES	1,538,918		1,503,489
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, 127,546 and 119,009 shares issued and outstanding, respectively	128		119
Class B common stock, $0.001 par value per share, 300,000 shares authorized, 113,915 and 121,640 shares issued and outstanding, respectively	114		122
Class C common stock, $0.001 par value per share, 75,000 shares authorized, none issued and outstanding	—		—
Additional paid in capital	283,505		266,129
Retained earnings	5,088		9
Accumulated other comprehensive income	18		79
Total Switch, Inc. stockholders’ equity	288,853		266,458
Noncontrolling interest	329,874		344,509
TOTAL STOCKHOLDERS’ EQUITY	618,727		610,967
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,157,645	$	2,114,456

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

Switch, Inc. | Q1 2021 Form 10-Q | 2

Table of Contents

Switch, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(in thousands, except per share data)

(unaudited)


	Three Months Ended March 31,
	2021		2020
Revenue	$	130,866	$	128,096
Cost of revenue	71,693		67,029
Gross profit	59,173		61,067
Selling, general and administrative expense	34,998		40,116
Income from operations	24,175		20,951
Other income (expense):
Interest expense, including $583 and $409, respectively, in amortization of debt issuance costs and original issue discount	(8,757)		(7,435)
Gain (loss) on interest rate swaps	3,205		(17,555)
Equity in net losses of investments	(220)		—
Gain on sale of equity method investment	5,374		—
Other	3,271		277
Total other income (expense)	2,873		(24,713)
Income (loss) before income taxes	27,048		(3,762)
Income tax (expense) benefit	(2,654)		273
Net income (loss)	24,394		(3,489)
Less: net income (loss) attributable to noncontrolling interest	12,753		(2,273)
Net income (loss) attributable to Switch, Inc.	$	11,641	$	(1,216)

Net income (loss) per share (Note 10):
Basic	$	0.09	$	(0.01)
Diluted	$	0.09	$	(0.01)

Weighted average shares used in computing net income (loss) per share (Note 10):
Basic	126,641		94,366
Diluted	129,110		94,366

Other comprehensive income (loss):
Foreign currency translation adjustment, net of reclassification adjustment and tax of $0	(474)		—
Comprehensive income (loss)	23,920		(3,489)
Less: comprehensive income (loss) attributable to noncontrolling interest	12,340		(2,273)
Comprehensive income (loss) attributable to Switch, Inc.	$	11,580	$	(1,216)

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

Switch, Inc. | Q1 2021 Form 10-Q | 3

Table of Contents

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		Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Stockholders’ Equity
Balance—December 31, 2020	119,009	$	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 tax	812	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 stock	7,725	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)
Balance—March 31, 2021	127,546	$	128	113,915	$	114	$	283,505	$	5,088	$	18	$	329,874	$	618,727

Switch, Inc. | Q1 2021 Form 10-Q | 4

Table of Contents

Switch, Inc.

Consolidated Statements of Stockholders’ Equity (Continued)

(in thousands)

(unaudited)

SEC Form 10-Q filed by Switch, Inc.