SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



þ☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Nevada			82-1883953
(State or other jurisdiction of incorporation or organization)		~~82-1883953~~	(I.R.S. Employer Identification No.)
7135 S. Decatur Boulevard
Las Vegas,	NV		89118
(Address of principal executive offices)		~~89118~~	(Zip Code)

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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. Yesþ ☑No o☐

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). Yesþ☑No o☐

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	☐


~~Large accelerated filer~~o			~~Accelerated filer~~þ

~~Non-accelerated filer~~o	~~Smaller reporting company~~o

	Emerging growth companyþ	☐

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. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso☐ Noþ☑

As of November ~~1, 2019,~~5, 2020, the registrant had ~~86,796,336~~118,983,644 shares of Class A common stock, ~~112,145,474~~121,639,784 shares of Class B common stock, and ~~42,944,647~~0 shares of Class C common stock outstanding.

Part I.Financial Information

Item 1.Financial Statements (Unaudited).


~~Part I.~~	~~Financial Information~~


~~Item 1.~~	~~Financial Statements (Unaudited).~~



Consolidated Balance Sheets			24
Consolidated Statements of Comprehensive Income			35
Consolidated Statements of Stockholders’ Equity			46
Consolidated Statements of Cash Flows			810
Condensed Notes to Consolidated Financial Statements			1012

Switch, Inc. | Q3 ~~2019~~2020 Form 10-Q | 1 3

Table of Contents

Switch, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)


							September 30,		December 31,
	September 30, 2019			December 31, 2018			2020		2019
	(unaudited)						(unaudited)
ASSETS						ASSETS
CURRENT ASSETS:						CURRENT ASSETS:
Cash and cash equivalents	$	52,478		$	81,560	Cash and cash equivalents	$	156,081	$	24,721
Accounts receivable, net of allowance of $296 and $426, respectively	18,741			17,654
Accounts receivable, net of allowance for credit losses of $589 and $309, respectively						Accounts receivable, net of allowance for credit losses of $589 and $309, respectively	16,480		23,365
Prepaid expenses	6,962			6,781		Prepaid expenses	5,449		7,137
Other current assets	2,428			2,332
Other current assets, net of allowance for credit losses of $3 and $0, respectively						Other current assets, net of allowance for credit losses of $3 and $0, respectively	2,761		3,817
Total current assets	80,609			108,327		Total current assets	180,771		59,040
Property and equipment, net	1,444,993			1,302,770		Property and equipment, net	1,675,229		1,551,117
Long-term deposit	5,047			3,333		Long-term deposit	3,754		3,429
Deferred income taxes	90,115			28,550		Deferred income taxes	177,669		114,372
Other assets	18,349			17,050
Other assets, net of allowance for credit losses of $81 and $0, respectively						Other assets, net of allowance for credit losses of $81 and $0, respectively	47,965		45,785
TOTAL ASSETS	$	1,639,113		$	1,460,030	TOTAL ASSETS	$	2,085,388	$	1,773,743

LIABILITIES AND STOCKHOLDERS’ EQUITY						LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:						CURRENT LIABILITIES:
Long-term debt, current portion	$	6,000		$	6,000	Long-term debt, current portion	$	6,000	$	6,000
Accounts payable	17,476			20,501		Accounts payable	18,134		19,477
Accrued salaries and benefits	12,626			5,258		Accrued salaries and benefits	13,408		5,828
Accrued expenses	13,875			9,778		Accrued expenses	12,396		11,254
Accrued construction payables	30,981			12,729		Accrued construction payables	25,788		37,269

Deferred revenue, current portion	13,713			10,800		Deferred revenue, current portion	14,476		14,991
Customer deposits	10,442			9,962		Customer deposits	11,828		10,830
Interest rate swap liability, current portion						Interest rate swap liability, current portion	9,332		3,464
Operating lease liability, current portion						Operating lease liability, current portion	3,819		4,805
Finance lease liability, current portion						Finance lease liability, current portion	4		12
Total current liabilities	105,113			75,028		Total current liabilities	115,185		113,930
Long-term debt, net	646,671			580,566		Long-term debt, net	984,821		745,372
Capital lease obligations	19,466			19,466
Operating lease liability						Operating lease liability	26,359		26,142
Finance lease liability						Finance lease liability	57,543		57,614
Deferred revenue	36,847			22,260		Deferred revenue	23,564		27,852
Liabilities under tax receivable agreement	132,516			52,535		Liabilities under tax receivable agreement	243,690		162,076
Other long-term liabilities	17,519			1,823		Other long-term liabilities	25,143		13,112
TOTAL LIABILITIES	958,132			751,678		TOTAL LIABILITIES	1,476,305		1,146,098
Commitments and contingencies (Note 5)						Commitments and contingencies (Note 5)
STOCKHOLDERS’ EQUITY:						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, 84,357 and 55,218 shares issued and outstanding, respectively	84			55
Class B common stock, $0.001 par value per share, 300,000 shares authorized, 117,782 and 148,481 shares issued and outstanding, respectively	118			149
Class C common stock, $0.001 par value per share, 75,000 shares authorized, 42,945 shares issued and outstanding	43			43
Preferred stock, $0.001 par value per share, 10,000 shares authorized, NaN issued and outstanding						Preferred stock, $0.001 par value per share, 10,000 shares authorized, NaN issued and outstanding	0		0
Class A common stock, $0.001 par value per share, 750,000 shares authorized, 108,955 and 89,768 shares issued and outstanding, respectively						Class A common stock, $0.001 par value per share, 750,000 shares authorized, 108,955 and 89,768 shares issued and outstanding, respectively	109		90
Class B common stock, $0.001 par value per share, 300,000 shares authorized, 131,667 and 151,047 shares issued and outstanding, respectively						Class B common stock, $0.001 par value per share, 300,000 shares authorized, 131,667 and 151,047 shares issued and outstanding, respectively	132		151
Class C common stock, $0.001 par value per share, 75,000 shares authorized, NaN issued and outstanding						Class C common stock, $0.001 par value per share, 75,000 shares authorized, NaN issued and outstanding	0		0
Additional paid in capital	210,349			140,191		Additional paid in capital	242,955		204,711
(Accumulated deficit) retained earnings	(51		)	2,693		(Accumulated deficit) retained earnings	(325)		2,420
Accumulated other comprehensive income	79			79		Accumulated other comprehensive income	79		79
Total Switch, Inc. stockholders’ equity	210,622			143,210		Total Switch, Inc. stockholders’ equity	242,950		207,451
Noncontrolling interest	470,359			565,142		Noncontrolling interest	366,133		420,194
TOTAL STOCKHOLDERS’ EQUITY	680,981			708,352		TOTAL STOCKHOLDERS’ EQUITY	609,083		627,645
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,639,113		$	1,460,030	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,085,388	$	1,773,743

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

Switch, Inc. | Q3 ~~2019~~2020 Form 10-Q | 2 4

Table of Contents

Switch, Inc.

Consolidated Statements of Comprehensive Income

(in thousands, except per share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue	$	128,785	$	122,353	$	383,798	$	341,765
Cost of revenue	74,348		63,504		209,575		179,146
Gross profit	54,437		58,849		174,223		162,619
Selling, general and administrative expense	31,516		36,869		105,070		104,039
Income from operations	22,921		21,980		69,153		58,580
Other income (expense):
Interest expense, including $439, $409, $1,257, and $1,227, respectively, in amortization of debt issuance costs and original issue discount	(6,554)		(7,351)		(20,682)		(22,023)
Loss on interest rate swaps	(1,559)		(3,926)		(23,257)		(17,692)
Loss on extinguishment of debt	(245)		0		(245)		0
Other	185		244		733		1,264
Total other expense	(8,173)		(11,033)		(43,451)		(38,451)
Income before income taxes	14,748		10,947		25,702		20,129
Income tax expense	(1,515)		(867)		(2,622)		(1,531)
Net income	13,233		10,080		23,080		18,598
Less: net income attributable to noncontrolling interest	8,027		7,133		13,993		13,729
Net income attributable to Switch, Inc.	$	5,206	$	2,947	$	9,087	$	4,869

Net income per share (Note 9):
Basic	$	0.05	$	0.04	$	0.09	$	0.07
Diluted	$	0.05	$	0.03	$	0.08	$	0.06

Weighted average shares used in computing net income per share (Note 9):
Basic	108,690		84,135		102,703		72,566
Diluted	111,565		247,142		243,553		247,193

Other comprehensive income:
Foreign currency translation adjustment, net of tax of $0	0		0		0		0
Comprehensive income	13,233		10,080		23,080		18,598
Less: comprehensive income attributable to noncontrolling interest	8,027		7,133		13,993		13,729
Comprehensive income attributable to Switch, Inc.	$	5,206	$	2,947	$	9,087	$	4,869

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Revenue $ 117,558
$ 102,768
$ 336,177
$ 302,646
Cost of revenue 62,112
59,150
177,301
169,200
Gross profit 55,446
43,618
158,876
133,446
Selling, general and administrative expense 37,314
31,086
104,612
95,676
Income from operations 18,132
12,532
54,264
37,770
Other income (expense):
Interest expense, including $409, $409, $1,227, and $1,227, respectively, in amortization of debt issuance costs (6,743 ) (7,409 ) (21,212 ) (19,826 )
Equity in net losses of investments —
—
—
(331 )
Loss on interest rate swaps (3,926 ) —
(17,692 ) —
Other 245
752
1,264
2,603
Total other expense (10,424 ) (6,657 ) (37,640 ) (17,554 )
Income before income taxes 7,708
5,875
16,624
20,216
Income tax expense (610 ) (1,212 ) (1,249 ) (2,064 )
Net income 7,098
4,663
15,375
18,152
Less: net income attributable to noncontrolling interest 5,024
4,657
11,423
16,654
Net income attributable to Switch, Inc. $ 2,074
$ 6
$ 3,952
$ 1,498

Net income per share (Note 9):

Basic $ 0.02
$ 0.00
$ 0.05
$ 0.03
Diluted $ 0.02
$ 0.00
$ 0.05
$ 0.03

Weighted average shares used in computing net income per share (Note 9):

Basic 84,135
50,669
72,566
43,063
Diluted 86,261
50,710
247,193
43,142

Other comprehensive income:
Foreign currency translation adjustment, net of tax of $0 —
—
—
331
Comprehensive income 7,098
4,663
15,375
18,483
Less: comprehensive income attributable to noncontrolling interest 5,024
4,657
11,423
16,937
Comprehensive income attributable to Switch, Inc. $ 2,074
$ 6
$ 3,952
$ 1,546

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

Switch, Inc. | Q3 ~~2019~~2020 Form 10-Q | 3 5

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		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Stockholders’ Equity
Balance—December 31, 2019	89,768	$	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 tax	630	—		—	—		(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 stock	4,637	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
Balance—March 31, 2020	95,035	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 tax	16	—		—	—		(330)		—		—		209		(121)
Issuance of Class A common stock upon exercise of stock options	169	—		—	—		596		—		—		2,280		2,876
Issuance of restricted stock awards	59	—		—	—		—		—		—		—		—
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 stock	11,488	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
Balance—June 30, 2020	106,767	$	107	133,796	$	134	$	238,471	$	98	$	79	$	366,953	$	605,842

Switch, Inc. Stockholders’ Equity
Class A Common Stock Class B Common Stock Class C Common Stock
Shares Amount Shares Amount Shares Amount Additional Paid in Capital (Accumulated Deficit) Retained Earnings Accumulated Other Comprehensive Income Noncontrolling Interest Total Stockholders’ Equity
Balance—December 31, 2018 55,218
$ 55
148,481
$ 149
42,945
$ 43
$ 140,191
$ 2,693
$ 79
$ 565,142
$ 708,352
Net income —
—
—
—
—
—
—
700
—
2,971
3,671
Equity-based compensation expense —
—
—
—
—
—
4,160
—
—
3,985
8,145
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax 463
1
—
—
—
—
(2,016 ) —
—
705
(1,310 )
Dividends declared ($0.0294 per share) —
—
—
—
—
—
—
(1,728 ) —
—
(1,728 )
Distributions to noncontrolling interest —
—
—
—
—
—
—
—
—
(6,006 ) (6,006 )
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd. —
—
—
—
—
—
(728 ) —
—
—
(728 )
Balance—March 31, 2019 55,681
56
148,481
149
42,945
43
141,607
1,665
79
566,797
710,396
Net income —
—
—
—
—
—
—
1,178
—
3,428
4,606
Equity-based compensation expense —
—
—
—
—
—
3,800
—
—
3,643
7,443
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax 1
—
—
—
—
—
(195 ) —
—
190
(5 )
Issuance of restricted stock awards 80
—
—
—
—
—
—
—
—
—
—
Dividends declared ($0.0294 per share) —
—
—
—
—
—
—
(2,389 ) —
—
(2,389 )
Distributions to noncontrolling interest —
—
—
—
—
—
—
—
—
(4,934 ) (4,934 )
Exchanges of noncontrolling interest for Class A common stock 22,323
22
(22,323 ) (22 ) —
—
67,362
—
—
(67,362 ) —
Repurchase of common units and cancellation of Class B common stock —
—
(1,288 ) (2 ) —
—
(2,738 ) —
—
(10,857 ) (13,597 )
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock —
—
—
—
—
—
(59,476 ) —
—
—
(59,476 )
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd. —
—
—
—
—
—
47,871
—
—
—
47,871
Balance—June 30, 2019 78,085
$ 78
124,870
$ 125
42,945
$ 43
$ 198,231
$ 454
$ 79
$ 490,905
$ 689,915

Switch, Inc. | Q3 ~~2019~~2020 Form 10-Q | 4 6

Table of Contents

Switch, Inc.

Consolidated Statements of Stockholders’ Equity (Continued)

(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) Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Stockholders’ Equity
Balance—June 30, 2020	106,767	$	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 tax	51	—		—	—		(1,538)		—		—		1,207		(331)
Issuance of Class A common stock upon exercise of stock options	7	—		—	—		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 stock	2,129	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
Balance—September 30, 2020	108,955	$	109	131,667	$	132	$	242,955	$	(325)	$	79	$	366,133	$	609,083

Switch, Inc. | Q3 ~~2019~~2020 Form 10-Q | 5 7

Table of Contents

~~Switch, Inc.~~

~~Consolidated Statements of Stockholders’ Equity (Continued)~~

~~(in thousands)~~

~~(unaudited~~

Switch, Inc. Stockholders’ Equity
Class A Common Stock Class B Common Stock Class C Common Stock
Shares Amount Shares Amount Shares Amount Additional Paid in Capital (Accumulated Deficit) Retained Earnings Accumulated Other Comprehensive Income Noncontrolling Interest Total Stockholders’ Equity
Balance—December 31, 2017 35,938
$ 36
173,624
$ 174
42,945
$ 43
$ 107,008
$ 1,602
$ 31
$ 633,239
$ 742,133
Net income —
—
—
—
—
—
—
671
—
3,279
3,950
Equity-based compensation expense —
—
—
—
—
—
5,278
—
—
7,079
12,357
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax 129
—
—
—
—
—
(1,213 ) —
—
—
(1,213 )
Foreign currency translation adjustment —
—
—
—
—
—
—
—
48
283
331
Balance—March 31, 2018 36,067
36
173,624
174
42,945
43
111,073
2,273
79
643,880
757,558
Net income —
—
—
—
—
—
—
821
—
8,718
9,539
Equity-based compensation expense —
—
—
—
—
—
2,288
—
—
5,921
8,209
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax 1
—
—
—
—
—
(7 ) —
—
—
(7 )
Issuance of restricted stock awards 61
—
—
—
—
—
—
—
—
—
—
Dividends declared ($0.0147) —
—
—
—
—
—
—
(1,320 ) —
—
(1,320 )
Distributions to noncontrolling interest —
—
—
—
—
—
—
—
—
(6,048 ) (6,048 )
Exchanges of noncontrolling interest for Class A common stock 13,424
14
(13,424 ) (14 ) —
—
37,676
—
—
(37,676 ) —
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock —
—
—
—
—
—
(39,534 ) —
—
—
(39,534 )
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd. —
—
—
—
—
—
20,349
—
—
—
20,349
Balance—June 30, 2018 49,553
$ 50
160,200
$ 160
42,945
$ 43
$ 131,845
$ 1,774
$ 79
$ 614,795
$ 748,746

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 6

~~Table of Contents~~

Switch, Inc.

Consolidated Statements of Stockholders’ Equity (Continued)

(in thousands)

(unaudited)


	Switch, Inc. Stockholders’ Equity
	Class A Common Stock			Class B Common Stock			Class C Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid in Capital		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Stockholders’ Equity
Balance—December 31, 2018	55,218	$	55	148,481	$	149	42,945	$	43	$	140,191	$	2,693	$	79	$	565,142	$	708,352
Cumulative adjustment due to adoption of new revenue recognition standard	—	—		—	—		—	—		—		224		—		940		1,164
Net income	—	—		—	—		—	—		—		733		—		3,113		3,846
Equity-based compensation expense	—	—		—	—		—	—		4,160		—		—		3,985		8,145
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	463	1		—	—		—	—		(2,016)		—		—		705		(1,310)
Dividends declared ($0.0294 per share)	—	—		—	—		—	—		—		(1,728)		—		—		(1,728)
Distributions to noncontrolling interest	—	—		—	—		—	—		—		—		—		(6,006)		(6,006)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		—	—		(728)		—		—		—		(728)
Balance—March 31, 2019	55,681	56		148,481	149		42,945	43		141,607		1,922		79		567,879		711,735
Net income	—	—		—	—		—	—		—		1,189		—		3,483		4,672
Equity-based compensation expense	—	—		—	—		—	—		3,800		—		—		3,643		7,443
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	1	0		—	—		—	—		(195)		—		—		190		(5)
Issuance of restricted stock awards	80	—		—	—		—	—		—		—		—		—		—
Dividends declared ($0.0294 per share)	—	—		—	—		—	—		—		(2,389)		—		—		(2,389)
Distributions to noncontrolling interest	—	—		—	—		—	—		—		—		—		(4,934)		(4,934)
Exchanges of noncontrolling interest for Class A common stock	22,323	22		(22,323)	(22)		—	—		67,362		—		—		(67,362)		—
Repurchase of common units and cancellation of Class B common stock	—	—		(1,288)	(2)		—	—		(2,738)		—		—		(10,857)		(13,597)
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	—	—		—	—		—	—		(59,476)		—		—		—		(59,476)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		—	—		47,871		—		—		—		47,871
Balance—June 30, 2019	78,085	$	78	124,870	$	125	42,945	$	43	$	198,231	$	722	$	79	$	492,042	$	691,320

Switch, Inc. | Q3 2020 Form 10-Q | 8

Table of Contents

Consolidated Statements of Stockholders’ Equity (Continued)

(in thousands)

(unaudited)


	Switch, Inc. Stockholders’ Equity
	Class A Common Stock			Class B Common Stock			Class C Common Stock
	Shares	Amount		Shares	Amount		Shares	Amount		Additional Paid in Capital		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Stockholders’ Equity
Balance—June 30, 2019	78,085	$	78	124,870	$	125	42,945	$	43	$	198,231	$	722	$	79	$	492,042	$	691,320
Net income	—	—		—	—		—	—		—		2,947		—		7,133		10,080
Equity-based compensation expense	—	—		—	—		—	—		3,960		—		—		3,350		7,310
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	18	0		—	—		—	—		(708)		—		—		612		(96)
Issuance of restricted stock awards	0	—		—	—		—	—		—		—		—		—		—
Dividends declared ($0.0294 per share)	—	—		—	—		—	—		—		(2,579)		—		—		(2,579)
Distributions to noncontrolling interest	—	—		—	—		—	—		—		—		—		(4,725)		(4,725)
Exchanges of noncontrolling interest for Class A common stock	6,254	6		(6,254)	(6)		—	—		18,550		—		—		(18,550)		—
Repurchase of common units and cancellation of Class B common stock	—	—		(834)	(1)		—	—		(4,850)		—		—		(6,257)		(11,108)
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	—	—		—	—		—	—		(20,505)		—		—		—		(20,505)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		—	—		15,671		—		—		—		15,671
Balance—September 30, 2019	84,357	$	84	117,782	$	118	42,945	$	43	$	210,349	$	1,090	$	79	$	473,605	$	685,368

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

Switch, Inc. | Q3 ~~2019~~2020 Form 10-Q | 7 9

Table of Contents

Switch, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	23,080	$	18,598
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	105,322		88,841
Loss on disposal of property and equipment	283		148
Deferred income taxes	2,622		1,531
Amortization of debt issuance costs and original issue discount	1,257		1,227
Credit loss expense (benefit)	308		(107)
Unrealized loss on interest rate swaps	18,085		17,449
Loss on extinguishment of debt	245		0
Equity-based compensation	22,150		22,898
Amortization of portfolio energy credits	1,381		1,236
Cost of revenue for sales-type leases	3,436		1,082
Changes in operating assets and liabilities:
Accounts receivable	4,250		2,493
Prepaid expenses	1,688		(172)
Net investment in sales-type leases	0		(4,275)
Other current assets	1,053		(148)
Other assets	846		2,384
Accounts payable	2,709		2,691
Accrued salaries and benefits	7,580		7,368
Accrued expenses	1,048		1,441
Deferred revenue	(4,803)		11,689
Customer deposits	998		480
Operating lease liabilities	(3,883)		(3,638)
Other long-term liabilities	(320)		6
Net cash provided by operating activities	189,335		173,222
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	(249,096)		(221,296)


Proceeds from sale of property and equipment	2		33

Purchase of portfolio energy credits	(1,381)		(1,095)
Net cash used in investing activities	(250,475)		(222,358)
CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from borrowings	710,000		70,000
Repayment of borrowings, including finance lease liabilities	(465,221)		(4,526)
Payment of debt issuance costs and original issue discount	(5,960)		0
Change in long-term deposit	1,491		2,144
Payment of tax withholdings upon settlement of restricted stock unit awards	(4,508)		(1,441)

Proceeds from exercise of stock options	3,001		0
Repurchase of common units	(20,000)		(24,705)
Dividends paid to Class A common stockholders	(11,377)		(6,412)
Distributions paid to noncontrolling interest	(14,926)		(15,006)
Net cash provided by financing activities	192,500		20,054
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	131,360		(29,082)
CASH AND CASH EQUIVALENTS—Beginning of period	24,721		81,560
CASH AND CASH EQUIVALENTS—End of period	$	156,081	$	52,478

Nine Months Ended
September 30,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,375
$ 18,152
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment 88,597
79,310
Loss on disposal of property and equipment 148
809
Deferred income taxes 1,249
2,064
Amortization of debt issuance costs 1,227
1,227
(Benefit) provision for doubtful accounts (107 ) 83
Unrealized loss on interest rate swaps 17,449
—
Equity in net losses of investments —
331
Equity-based compensation 22,898
28,194
Amortization of portfolio energy credits 1,236
1,999
Changes in operating assets and liabilities:
Accounts receivable (2,007 ) 1,501
Prepaid expenses (181 ) 1,105
Other current assets (96 ) (190 )
Other assets (2,062 ) (3,108 )
Accounts payable 2,691
938
Accrued salaries and benefits 7,368
4,760
Accrued expenses 790
2,871
Deferred revenue 17,500
(31 )
Customer deposits 480
1,070
Other long-term liabilities 641
(170 )
Net cash provided by operating activities 173,196
140,915
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (221,296 ) (221,144 )
Acquisition of intangible asset —
(25 )
Proceeds from sale of property and equipment 33
25
Purchase of portfolio energy credits (1,095 ) (1,999 )
Net cash used in investing activities (222,358 ) (223,143 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 70,000
—
Repayment of borrowings, including capital lease obligations (4,500 ) (4,500 )
Change in long-term deposit 2,144
(996 )
Payment of tax withholdings upon settlement of restricted stock unit awards (1,441 ) (1,227 )
Settlement of option loans —
314
Repurchase of common units (24,705 ) (60,644 )
Dividends paid to Class A common stockholders (6,412 ) (2,023 )
Distributions paid to noncontrolling interest (15,006 ) (8,851 )
Net cash provided by (used in) financing activities 20,080
(77,927 )
NET DECREASE IN CASH AND CASH EQUIVALENTS (29,082 ) (160,155 )
CASH AND CASH EQUIVALENTS—Beginning of period
81,560
264,666
CASH AND CASH EQUIVALENTS—End of period
$ 52,478
$ 104,511

Switch, Inc. | Q3 ~~2019~~2020 Form 10-Q | 8 10

Table of Contents

Switch, Inc.

Consolidated Statements of Cash Flows (Continued)

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2020		2019
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized	$	18,946	$	20,677
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
(Decrease) increase in liabilities incurred to acquire property and equipment	$	(16,323)	$	10,519
(Decrease) increase in accrued construction payables incurred related to long-term deposit	$	(459)	$	814
Increase in property and equipment related to transfer of long-term deposit	$	244	$	0
Increase in accounts payable related to long-term deposit	$	0	$	501
Increase in dividends payable on unvested restricted stock units	$	388	$	284
Increase in liabilities incurred related to deferred debt issuance costs	$	1,087	$	0
Decrease in noncontrolling interest as a result of exchanges for Class A common stock	$	(50,479)	$	(85,912)
Recognition of liabilities under tax receivable agreement	$	81,614	$	79,981
Increase in deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	$	65,919	$	62,814
Right-of-use assets obtained in exchange for new operating leases	$	3,114	$	44
Property and equipment obtained in exchange for new finance leases	$	138	$	37,923

(Decrease) increase in distributions payable on unvested common units	$	(105)	$	659
Dividends payable settled with shares of Class A common stock	$	145	$	30

Nine Months Ended
September 30,
2019 2018
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized $ 20,042
$ 18,523
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Increase in liabilities incurred to acquire property and equipment $ 10,519
$ 12,896
Increase in accrued construction payables incurred related to long-term deposit $ 814
$ —
Increase in accounts payable incurred related to long-term deposit $ 501
$ —
Increase in deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd. $ 62,814
$ 21,937
Decrease in noncontrolling interest as a result of exchanges for Class A common stock $ (85,912 ) $ (45,142 )
Recognition of liabilities under tax receivable agreement $ 79,981
$ 45,430
Increase in distributions payable on unvested common units $ 659
$ —
Increase in dividends payable on unvested restricted stock units $ 284
$ 96
Dividends payable settled with shares of Class A common stock $ 30
$ —
Settlement of liability incurred upon acquisition of capital lease asset $ —
$ (1,976 )
Distributions used for payment of option loans and related interest $ —
$ 2

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

Switch, Inc. | Q3 ~~2019~~2020 Form 10-Q | 9 11

Table of Contents

Switch, Inc.

Condensed Notes to Consolidated Financial Statements

(unaudited)



Note 1	Organization	1113
Note 2	Summary of Significant Accounting Policies	1113
Note 3	Property and Equipment, Net	1517
Note 4	~~Equity Method Investments~~Long-Term Debt	1517
Note 5	Commitments and Contingencies	1619
Note 6	Income Taxes	1720
Note 7	Equity-Based Compensation	1820
Note 8	Noncontrolling Interest	1821
Note 9	Net Income Per Share	1922
Note 10	Segment Reporting	1922
Note 11	Subsequent Events	2023

Switch, Inc. | Q3 ~~2019~~2020 Form 10-Q | 10 12

Table of Contents

1. Organization

Switch, Inc. was formed as a Nevada corporation in June 2017 for the purpose of completing an initial public offering (“IPO”) and related organizational transactions in order to carry on the business of Switch, Ltd. and its subsidiaries (collectively, “Switch,” and together with Switch, Inc., the “Company”).Switch is comprised of limited liability companies that provide colocation space and related services to global enterprises, financial companies, government agencies, and others that conduct critical business on the internet. Switch develops and operates data centers in Nevada, which are Tier IV Gold certified, ~~and~~ Michigan, and ~~is developing data centers in~~ Georgia ~~with customer occupancy expected to commence~~(which opened in the first ~~half~~quarter of ~~2020,~~2020), delivering redundant services with low latency and super capacity transport environments. As the manager of Switch, Ltd., Switch, Inc. operates and controls all of the business and affairs of Switch.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Management believes that the accompanying consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of these consolidated financial statements. The consolidated results of operations for the three and nine months ended September 30, ~~2019~~2020 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2019,~~2020, or for any other future annual or interim period.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and all significant intercompany transactions and balances have been eliminated.

As the sole manager of Switch, Ltd., Switch, Inc. operates and controls all of the business and affairs of Switch, has the sole voting interest in, and controls the management of, Switch, and has the obligation to absorb the losses of, and receive benefits from, Switch. Accordingly, Switch, Inc. identifies itself as the primary beneficiary of Switch and began consolidating Switch in its consolidated financial statements as of October 11, 2017, the closing date of the IPO, resulting in a noncontrolling interest related to the common units of Switch, Ltd. (“Common Units”) held by members, including Rob Roy, the Founder, Chief Executive Officer and Chairman of Switch, Ltd., and an affiliated entity of Mr. Roy (collectively, the “Founder Members”), other than Switch, Inc. on its consolidated financial statements.

The Company periodically evaluates entities for consolidation either through ownership of a majority voting interest, or through means other than voting interest, in accordance with the Variable Interest Entity (“VIE”) accounting model. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to the allowance for ~~doubtful accounts,~~credit losses, useful lives of property and equipment, deferred income taxes, liabilities under the tax receivable agreement, equity-based compensation, deferred revenue, incremental borrowing rate, fair value of ~~leased property at inception of lease term, fair value of deliverables under multiple element arrangements,~~performance obligations, and probability assessments of exercising renewal options on leases. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable. Actual results could differ from these estimates.

Switch, Inc. | Q3 ~~2019~~2020 Form 10-Q | 11 13

Table of Contents

Significant Accounting Policies

A description of the Company’s significant accounting policies is included in the audited financial statements within its Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. No other changes to significant accounting policies have occurred since ~~the year ended~~ December 31, ~~2018,~~2019, with the exception of those detailed below.

Concentration of Credit and Other Risks

Although the Company operates primarily in Nevada, realization of its ~~customer accounts receivable~~receivables and its future operations and cash flows could be affected by adverse economic conditions, both regionally and elsewhere in the United States. During the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company’s largest customer and its affiliates comprised ~~13%~~14% and ~~11%~~13%, respectively, of the Company’s revenue. During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company’s largest customer and its affiliates comprised ~~12%~~14% and ~~10%~~12%, respectively, of the Company’s revenue. ~~One~~No customer accounted for 10% or more of ~~accounts receivable~~total receivables as of September 30, ~~2019~~2020 and two customers, one of which was the Company’s largest customer and its ~~affiliates~~affiliate, accounted for 10% or more of ~~accounts receivable~~total receivables as of December 31, ~~2018.~~2019.

Revenue Recognition

Contract Balances

The opening and closing balances of the Company’s contract assets, net of allowance for credit losses, and deferred revenue are as follows:


	Contract Assets, Current Portion(1)		Contract Assets(2)		Deferred Revenue, Current Portion(3)		Deferred Revenue(4)
	(in thousands)
December 31, 2019	$	496	$	3,216	$	14,991	$	27,852
September 30, 2020	179		3,732		14,476		23,564
Change	$	(317)	$	516	$	(515)	$	(4,288)

(1) Amounts are included within other current assets on the Company’s consolidated balance sheets.

(2) Amounts are included within other assets on the Company’s consolidated balance sheets.

(3) Amounts include $3.8 million and $2.3 million of deferred revenue related to leases as of December 31, 2019 and September 30, 2020, respectively.

(4) Amounts include $7.9 million and $2.6 million of deferred revenue related to leases as of December 31, 2019 and September 30, 2020, respectively.

The differences between the opening and closing balances of the Company’s deferred revenue primarily result from timing differences between the Company’s satisfaction of performance obligations and the associated customer payments. Revenue recognized from the balance of deferred revenue as of December 31, 2019 was $2.4 million during the three months ended September 30, 2020 and $12.7 million during the nine months ended September 30, 2020. For the three and nine months ended September 30, 2020 and 2019, 0 impairment losses related to contract assets were recognized on the consolidated statements of comprehensive income.

Remaining Performance Obligations

Remaining performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized in future periods. These amounts as of September 30, 2020 were $711.7 million, 39%, 48%, and 9% of which is expected to be recognized over the next year, one to three years, and three to five years, respectively, with the remainder recognized thereafter. The remaining performance obligations do not include estimates of variable consideration related to unsatisfied performance obligations, such as the usage of metered power, or any contracts that could be terminated without significant penalties.

Switch, Inc. | Q3 2020 Form 10-Q | 14

Table of Contents

Fair Value Measurements

Information about the Company’s financial assets and liabilities measured at fair value on a recurring basis is presented below:


		September 30, 2020
	Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
		(in thousands)
Assets:
Cash equivalents	Cash and cash equivalents	$	118,346	$	118,346	$	—	$	—
Liabilities:
Interest rate swaps	Interest rate swap liability, current portion	$	9,332	$	—	$	9,332	$	—
Interest rate swaps	Other long-term liabilities	$	22,767	$	—	$	22,767	$	—

September 30, 2019
Balance Sheet Classification Carrying Value Level 1 Level 2 Level 3
(in thousands)
Assets:
Cash equivalents Cash and cash equivalents $ 23,244
$ 23,244
$ —
$ —
Liabilities:
Interest rate swaps Accrued expenses $ 3,307
$ —
$ 3,307
$ —
Interest rate swaps Other long-term liabilities $ 14,142
$ —
$ 14,142
$ —


		December 31, 2019
	Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
		(in thousands)
Liabilities:
Interest rate swaps	Interest rate swap liability, current portion	$	3,464	$	—	$	3,464	$	—
Interest rate swaps	Other long-term liabilities	$	10,550	$	—	$	10,550	$	—

December 31, 2018
Balance Sheet Classification Carrying Value Level 1 Level 2 Level 3
(in thousands)
Assets:
Cash equivalents Cash and cash equivalents $ 53,293
$ 53,293
$ —
$ —
Transfers between levels of fair value hierarchy are recorded at the end of the reporting period during which the events or changes in circumstances that caused the transfers to occur. There were no transfers between levels of fair value hierarchy during the periods presented.

The ~~estimated~~ fair value of the Company’s long-term debt as of September 30, 2019 was approximately $659.1 million, compared to its carrying value, excluding debt issuance costs, of $656.5 million. The estimated fair value of the Company’s long-term debt was based on Level 2 inputs.

~~Derivative Financial Instruments~~

A derivative is a financial instrument whose value changes in response to an underlying variable, requires little or no initial net investment, and is settled at a future date. Derivatives are initially recognized on the consolidated balance sheets at fair value on the date on which the derivatives are entered into and subsequently re-measured at fair value. Derivatives are separated into their current and long-term components based on the timing of the cash flows as of the end of each reporting period.

Embedded derivatives included in hybrid instruments are treated and disclosed as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, the terms of the embedded derivative are the same as those of a stand-alone derivative and the combined contract is not measured at fair value through earnings. The financial host contracts are accounted for and measured using the applicable GAAP of the relevant financial instrument category.

The method of recognizing fair value gains and losses depends on whether the derivatives are designated as hedging instruments, and if so, the nature of the hedge relationship. All gains and losses from changes in the fair values of derivatives that do not qualify for hedge accounting are recognized immediately in earnings. Cash flows from derivatives not designated as hedging instruments are classified in accordance with the nature of the derivative instrument and how it is used in the context of the Company’s business.

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 12

~~Table of Contents~~

The Company enters into interest rate swap agreements to manage its interest rate risk associated with variable-rate borrowings. In January and February 2019, Switch, Ltd. entered into four interest rate swap agreements; whereby, Switch, Ltd. will pay a weighted average fixed interest rate (excluding the applicable interest margin) of 2.48% on notional amounts corresponding to borrowings of $400.0 million in exchange for receipts on the same notional amount at a variable interest rate based on the applicable LIBOR at the time of payment. The interest rate swap agreements mature in June 2024 and are not designated as hedging instruments. Losses from derivatives not designated as hedging instruments, inclusive of periodic net settlement amounts, were recorded in loss on interest rate swaps was measured using a present value of cash flow valuation technique based on ~~the consolidated statements of comprehensive income and totaled $3.9 million and $17.7 million~~forward yield curves for the ~~three and nine months ended September 30, 2019, respectively.~~same or similar financial instruments.

Recent Accounting Pronouncements

The Company will cease to qualify as an emerging growth company on December 31, 2019. Accordingly, the Company will no longer be permitted to adopt new or revised standards on a private company timeline consistent with emerging growth companies that elect not to opt out of the available extended transition period. As a result, adoption dates for Accounting Standards Updates herein effective after December 31, 2019 are reflective of public business entity requirements.

ASU 2014-09–Revenue from Contracts with Customers and ASU 2016-02–Leases

In ~~May 2014,~~ the ~~Financial Accounting Standards Board (“FASB”) issued~~fourth quarter of 2019, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“and ASU 2014-09”). The standard supersedes much of the current guidance regarding revenue recognition including most industry-specific guidance. The core principle of the standard is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity will be required to identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligation in the contract, and recognize revenue when (or as) the entity satisfies a performance obligation. In addition to the new revenue recognition requirements, entities will be required to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard also provides guidance on the recognition of costs related to obtaining customer contracts. The standard allows for either full retrospective adoption, meaning the guidance is applied for all periods presented, or modified retrospective adoption, meaning the guidance is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the guidance recognized at the date of initial application.

~~In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers~~2016-02, Leases (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”). The core principle of the guidance in ASU 2014-09 is not changed by the amendments in ASU 2016-08. The amendments clarify the implementation guidance on principal versus agent considerations. Per ASU 2016-08, when another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (principal) or to arrange for that good or service to be provided by the other party (agent). When an entity that is a principal satisfies a performance obligation, the entity recognizes revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specified good or service transferred to the customer. When an entity that is an agent satisfies a performance obligation, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled.

In April 2016 and May 2016, the FASB issued guidance which amends certain other aspects of ASU 2014-09. The amendments include the identification of performance obligations and the licensing implementation guidance (ASU 2016-10) and the collectability of revenue, presentation of sales tax and other similar taxes collected from customers, contracts containing noncash considerations, and contract modifications and completed contracts at transition (ASU 2016-12). In December 2016, the FASB amended ASU 2014-09 to make minor corrections and minor improvements to the guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost (ASU 2016-20).

~~The Company will adopt this guidance for the annual reporting period ending December 31,~~842) effective January 1, 2019, each using the modified retrospective ~~approach~~approach. Results for ~~adoption. The most significant impact~~the three and nine months ended September 30, 2019 have been modified to ~~the Company from~~reflect the adoption of this guidance relates to installation revenue. Under the new guidance, the Company expects to recognize installation revenue over the contract term rather than over the expected life of the installation under the prior revenue guidance. For contracts not yet completed as ofon January 1, 2019, the Company expects to recognize an increase to retained earnings of approximately $1.0 million to $1.5 million before any potential income tax impacts. The Company is still assessing the income tax impacts related to this adoption. The 2019 quarterly impacts of this adoption are not expected to be material.

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~~ASU 2016-02–Leases~~

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The principle of ASU 2016-02 is that a lessee should recognize the assets and liabilities that arise from leases. Lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability. For income statement purposes, ASU 2016-02 requires leases to be classified as either operating or finance. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance. In addition, in January 2018, the FASB issued ASU 2018-01, which permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the entity’s adoption of ASU 2016-02 and were not previously accounted for as leases. In July 2018, the FASB issued ASU 2018-10, which provides clarifications and improvements on sections of ASU 2016-02, and ASU 2018-11, which provides lessees the option to apply the new guidance to all open leases as of the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and lessors with a practical expedient to account for qualifying non-lease components with associated lease components. In December 2018 and March 2019, the FASB also issued ASU 2018-20 and ASU 2019-01, respectively, which provide additional clarifications on sections of ASU 2016-02.

The Company will adopt this guidance for the annual reporting period ending December 31, 2019 using the modified retrospective approach for adoption. The Company has assigned internal resources and engaged consulting service providers to assist in evaluating the impact the adoption of this guidance will have on its consolidated financial statements.2019.

ASU 2016-13–Financial Instruments–Credit Losses

In June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). Under this guidance, a company ~~will be~~is required to use a new forward-looking “expected loss” model for trade and other receivables that generally ~~will result~~results in the earlier recognition of allowances for losses. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and requires a modified retrospective approach to adoption. In April 2019, the FASB issued ASU 2019-04, which, among other amendments, allows for certain policy elections and practical expedients related to accrued interest on financial instruments. In May 2019, the FASB ~~also~~ issued ASU 2019-05, which granted targeted transition relief by allowing entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost. In November 2019, the FASB issued ASU 2019-10 and ASU 2019-11, which addressed certain aspects of the guidance related to effective dates, expected recoveries, troubled debt restructurings, accrued interest receivables, and financial assets secured by collateral. In February and March 2020, the FASB also issued ASU 2020-02 and ASU 2020-03, respectively, which provide certain amendments and improvements to sections of ASU 2016-13.

The Company ~~does not expect~~adopted this guidance effective January 1, 2020 using the modified retrospective method. As a result of this adoption, the Company measured an allowance for current expected credit losses for its accounts receivable and contract assets through a loss rate method; whereby, based on past events, such as prior write-offs, it determined expected losses as of the adoption date, while adjusting for current and forward-looking conditions, such as economic news and trends, customer concentrations, changes in customer payment terms, and customer credit-worthiness. Customer credit-worthiness is determined through indicators such as third-party credit ratings, collection experience, and other internal metrics. If a customer‘s credit-worthiness resulted in an impairment of their

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ability to make payments, greater allowances for credit losses may be required. The Company pooled its assets based on these conditions such that each asset pool reflected a homogenous set of asset risks, including characteristics such as credit ratings, customer industry, contract term, and historical credit loss patterns. For any period beyond a reasonable and supportable forecast for current and forward-looking conditions, the Company reverted to a loss rate based only on historical information. The adoption of this guidance ~~to have a material~~did not materially impact ~~on its~~the Company’s consolidated financial statements.

~~ASU 2016-15–Statement of Cash Flows~~

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The areas affected by ASU 2016-15 are debt prepayment and debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. Specifically, under this guidance, cash payments for debt prepayment or debt extinguishment costs will be classified as cash outflows for financing activities. The Company will adopt this guidance for the annual reporting period ending December 31, 2019 retrospectively for all periods presented. Upon adoption of ASU 2016-15, for the year ended December 31, 2017, the Company expects its cash flows from operating activities to increase by $1.5 million and its cash flows provided by financing activities to decrease by $1.5 million. The Company does not expect the adoption of this guidance to impact the years ended December 31, 2019 and December 31, 2018.

ASU 2018-13–Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. ~~The amendments in ASU 2018-13 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.~~ In addition, in November 2018, the FASB issued ASU 2018-19, which provides clarifications and improvements on sections of ASU 2018-13. The Company ~~does~~adopted this guidance retrospectively as of March 31, 2020. The adoption of this guidance did not ~~expect~~materially impact the Company’s consolidated financial statements.

ASU 2019-12–Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)–Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in ASU 2019-12 provide certain clarifications and simplify accounting for income taxes by removing certain exceptions to the general principles in the current guidance. The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted in periods for which financial statements have not yet been issued. The Company is evaluating the impact the adoption of this guidance towill have ~~a material impact~~ on its consolidated financial statements. The Company has not decided if early adoption will be considered.

ASU 2020-04–Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848)–Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 are elective and provide optional expedients and exceptions to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The Company elected to adopt this guidance prospectively as of March 31, 2020 as it has LIBOR-based contracts extending beyond the expected discontinuation of LIBOR, including its term loan facility, revolving credit facility, and interest rate swap agreements. The adoption of this guidance did not materially impact the Company’s consolidated financial statements.

ASU 2020-10–Codification Improvements

In October 2020, the FASB issued ASU 2020-10, Codification Improvements (“ASU 2020-10”). The amendments in ASU 2020-10 improve codification by ensuring that all guidance that includes an option for an entity to provide information in the notes to financial statements is codified within the disclosure section of the codification. The Company early adopted this guidance retrospectively as of July 1, 2020. The early adoption of this guidance did not materially impact the Company’s consolidated financial statements.

Reclassification

The Company reclassified the current portion of its interest rate swap liability to present it separately from accrued expenses on the consolidated balance sheet as of December 31, 2019 to beconsistent with the current period presentation. The reclassification had no impact on the Company’s financial condition, results of operations, or net cash flows.

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~~Prior Period Adjustments~~

During the three months ended September 30, 2018, the Company identified $15.0 million of property and equipment, which was included in construction in progress, that should have been placed in service during the three months ended June 30, 2017, at which time the Company should have begun depreciating the asset and ceased capitalizing interest. To correct for such errors in previously issued consolidated financial statements, during the three months ended September 30, 2018, the Company recognized $1.5 million of incremental depreciation expense in cost of revenue and $0.7 million of incremental interest expense as out of period adjustments. Considering both quantitative and qualitative factors, the Company determined the amounts were not material to any previously issued consolidated financial statements.

3. Property and Equipment, Net

Property and equipment, net consists of the following:


								September 30,		December 31,
	September 30, 2019			December 31, 2018				2020		2019
	(in thousands)							(in thousands)
Land and land improvements	$	223,822		$	194,711		Land and land improvements	$	283,800	$	223,877
Buildings, building improvements, and leasehold improvements	426,894			412,089			Buildings, building improvements, and leasehold improvements	518,266		435,214
Substation equipment	19,770			4,247			Substation equipment	19,780		19,780
Data center equipment	992,193			904,722			Data center equipment	1,196,670		1,021,056
Vehicles	1,744			1,685			Vehicles	1,945		1,732
Core network equipment	38,338			34,901			Core network equipment	39,604		36,572
Cloud computing equipment	5,192			5,192

Fiber facilities	10,597			9,912			Fiber facilities	14,225		13,180
Computer equipment, furniture, and fixtures	39,729			34,975
Capitalized leased assets	34,602			33,730
Computer equipment, furniture and fixtures							Computer equipment, furniture and fixtures	44,910		39,057
Finance lease right-of-use assets							Finance lease right-of-use assets	72,951		72,569
Construction in progress	197,765			124,431			Construction in progress	154,443		254,750
Property and equipment, gross	1,990,646			1,760,595			Property and equipment, gross	2,346,594		2,117,787
Less: accumulated depreciation and amortization	(545,653		)	(457,825		)	Less: accumulated depreciation and amortization	(671,365)		(566,670)
Property and equipment, net	$	1,444,993		$	1,302,770		Property and equipment, net	$	1,675,229	$	1,551,117

Accumulated amortization for ~~capitalized leased~~finance lease right-of-use assets totaled ~~$11.0~~$13.6 million and ~~$9.9~~$11.7 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

During the nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, capitalized interest was ~~$3.9~~$3.0 million and ~~$3.1~~$3.9 million, respectively.

~~The~~In May 2020, the Company ~~capitalized internal use software costs~~purchased approximately 2 acres of ~~$0.8~~land in Las Vegas, Nevada for $2.5 million ~~and $0.3 million during the three months ended September 30, 2019 and 2018, respectively, and $1.7 million and $1.1 million during the nine months ended September 30, 2019 and 2018, respectively.~~from an entity in which a member of its Board of Directors has a beneficial ownership interest.

Total depreciation and amortization of property and equipment recognized on the consolidated statements of comprehensive income was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Cost of revenue	$	35,614	$	29,427	$	101,725	$	86,251
Selling, general and administrative expense	1,177		999		3,597		2,590
Total depreciation and amortization of property and equipment	$	36,791	$	30,426	$	105,322	$	88,841

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands)
Cost of revenue $ 29,427
$ 28,327
$ 86,251
$ 77,448
Selling, general and administrative expense 809
662
2,346
1,862
Total depreciation and amortization of property and equipment $ 30,236
$ 28,989
$ 88,597
$ 79,310

4. ~~Equity Method Investments~~Long-Term Debt

~~The Company currently holds two investments accounted for under~~Long-term debt consists of the equity method of accounting, SUPERNAP International, S.A. (“SUPERNAP International”) and Planet3, Inc. (“Planet3”), in which the Company holds a 50% ownership interest and a 45% ownership interest, respectively. As of September 30, 2019 and December 31, 2018, the Company determined that it continued to have a variable interest in both SUPERNAP International and Planet3,following as of:


	September 30,		December 31,
	2020		2019
	(in thousands)
Senior Unsecured Notes Due 2028	$	600,000	$	0
Term Loan Facility	400,000		585,000
Revolving Credit Facility	0		170,000
Long-term debt, gross	1,000,000		755,000
Less: unamortized debt issuance costs and original issue discount	(9,179)		(3,628)
	990,821		751,372
Less: long-term debt, current	(6,000)		(6,000)
Long-term debt, net	$	984,821	$	745,372

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Credit Agreement

In June 2017, Switch, Ltd. entered into an amended and restated credit agreement (“Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and certain other lenders, consisting of a $600.0 million term loan facility (the “Term Loan Facility”), maturing on June 27, 2024, and a $500.0 million revolving credit facility (the “Revolving Credit Facility,” and, together with the ~~entities do not have sufficient equity at risk. However,~~Term Loan Facility, the ~~Company concluded that it is not~~“Credit Facilities”), maturing on June 27, 2022. In September 2020, Switch, Ltd. entered into a second amendment to the ~~primary beneficiary~~Credit Agreement (“Amended Credit Agreement”) to, among other things, extend the maturity of ~~SUPERNAP International~~the Revolving Credit Facility to June 27, 2023, modify the ratio used for the financial covenant and certain basket availability tests from a consolidated total leverage ratio to a consolidated secured leverage ratio, and refresh or ~~of Planet3 as it does not have deemed control of either entity.~~increase certain baskets for restricted payments, investments, and junior debt payments. In connection with this amendment, certain lenders exited the Revolving Credit Facility and a partial repayment was applied to the Term Loan Facility to reduce its principal amount to $400.0 million. As a result, ~~it does not consolidate either entity into its consolidated financial statements.~~

~~As of March 31, 2018, the Company’s carrying value of its investment in SUPERNAP International was reduced to zero as a result of recording its share of the investee’s losses. Accordingly, as~~ the Company ~~does not have any guaranteed obligations and is not otherwise committed to provide further financial support to SUPERNAP International, the Company discontinued the equity method~~recorded a $0.2 million loss on extinguishment of accounting for its investment in SUPERNAP International as of March 31, 2018 and will not provide for additional losses until its share of future net income or comprehensive income, if any, equals the share of net losses or comprehensive losses not recognizeddebt during the ~~period the equity method was suspended. The Company’s share of net loss recorded during the~~three and nine months ended September 30, ~~2018 amounted~~2020.

The Term Loan Facility continues to ~~$0.3 million. As~~be subject to quarterly amortization payments of $1.5 million, followed by a final payment of $379.0 million in June 2024.

The Amended Credit Agreement contains affirmative and negative covenants customary for such financings, including, but not limited to, limitations on incurring additional debt, incurring additional liens, encumbrances or contingent liabilities, and paying distributions or making certain other restricted payments (with certain exceptions and baskets, including a restricted payment basket of $50.0 million per fiscal year). The Amended Credit Agreement also requires Switch, Ltd. to maintain compliance with the consolidated secured leverage ratio (as defined in the Amended Credit Agreement) of 4.00 to 1.00 for each fiscal quarter.

Senior Unsecured Notes Due 2028

In September 2020, Switch, Ltd. (the “Issuer”) issued $600.0 million aggregate principal amount of its 3.75% senior unsecured notes due 2028 (the “Notes”), pursuant to an indenture (the “Indenture”) by and among the Issuer, the guarantors named therein and U.S. Bank National Association, as trustee. A portion of the net proceeds was used to repay outstanding borrowings on the Revolving Credit Facility and reduce the principal amount of the Term Loan Facility.

The Notes bear interest at the rate of 3.75% per annum, payable in cash semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2021. The Notes mature on September 15, 2028 and are fully and unconditionally guaranteed on a senior unsecured basis by each of the Issuer’s current and future domestic restricted subsidiaries that guarantee its obligations under its Credit Facilities.

Prior to September 15, 2023, the Issuer may redeem the Notes, in whole or in part, at a redemption price of 100% of the principal amount thereof, plus a “make-whole” premium set forth in the Indenture, plus accrued and unpaid interest. In addition, prior to September 15, 2023, the Issuer may redeem up to 40% of the aggregate principal amount of the Notes at a redemption price equal to 103.75% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds from one or more equity offerings. On or after September 15, 2023, the Issuer may redeem some or all of the Notes at a redemption price decreasing annually from 101.875% of the principal amount to 100% of the principal amount, plus accrued and unpaid interest.

In the event of a change of control triggering event (as defined in the Indenture), the Issuer will be required to offer to repurchase the Notes at a price equal to 101% of the principal amount thereof, plus any accrued and unpaid interest. If holders of not less than 90.0% in aggregate principal amount of the outstanding Notes validly tender in connection with any tender offer or other offer to purchase the Notes (including pursuant to a change of control offer, an alternate offer, or an offer to purchase with the proceeds from any asset disposition, all as described in the indenture), the Issuer will have the right to redeem the remaining Notes outstanding following such purchase at a cash redemption price equal to the applicable price paid to holders in such purchase, plus accrued and unpaid interest.

The Notes are general unsecured obligations of the Issuer and the guarantors. Under the terms of the Indenture, the Notes rank equally in right of payment with all of the Issuer’s and the guarantors’ existing and future senior indebtedness, and rank contractually senior in right of payment to the Issuer’s and the guarantors’ future indebtedness and other obligations that are expressly subordinated in right of payment to the Notes. The Notes are effectively subordinated to the Issuer’s and the guarantors’ existing and future secured indebtedness, including secured indebtedness under the Credit Facilities, to the extent of the value of the assets securing such indebtedness. The Notes and guarantees are structurally subordinated to all existing and future indebtedness and liabilities of the Issuer’s subsidiaries that do not guarantee the Notes.

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The Indenture contains covenants that, subject to exceptions and qualifications, among other things, limit the Issuer’s ability and the ability of its Restricted Subsidiaries (as defined in the Indenture) to incur additional indebtedness and guarantee indebtedness, pay dividends or make other distributions or repurchase or redeem Switch, Inc.’s capital stock, prepay, redeem or repurchase certain indebtedness, issue certain preferred stock or similar equity securities, make loans and investments, dispose of assets, incur liens, enter into transactions with affiliates, enter into agreements restricting the ability to pay dividends, and consolidate, merge or sell all or substantially all assets.

The Indenture contains customary events of default including, without limitation, failure to make required payments, failure to comply with certain agreements or covenants, cross-acceleration to certain other indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, and failure to pay certain judgments. An event of default under the notes will allow either the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes to accelerate, or in certain cases, will automatically cause the acceleration of the maturity of all outstanding Notes.

Fair Value

The estimated fair value of the Company’s long-term debt as of September 30, ~~2019~~2020 and December 31, ~~2018, the Company recorded amounts consisting primarily of royalty fees~~2019 was approximately $1.01 billion and ~~reimbursable expenses due from SUPERNAP International of $0.3 million and $0.4~~$755.0 million, respectively, ~~within accounts receivable~~compared to its carrying value, excluding debt issuance costs and original issue discount, of $1.00 billion and $755.0 million, respectively. The estimated fair value of the Company’s long-term debt was based on ~~the consolidated balance sheets.~~Level 2 inputs using quoted market prices on or about September 30, 2020 and December 31, 2019, respectively.

5. Commitments and Contingencies

~~Purchase Commitments~~

In June 2019, a wholly-owned subsidiary of Switch, Ltd. entered into a power purchase and sale agreement with Tenaska Power Services Co. to purchase a commitment of 20 megawatts per energy hour for a term of 12 months, or a purchase commitment of $6.3 million during the term, which started July 1, 2019. Additionally, scheduling services for the purchased power from the agreement are provided by Morgan Stanley Capital Group Inc., resulting in an additional purchase commitment of $0.3 million, for a total purchase commitment of $6.6 million related to this agreement. The remaining total purchase commitment was $4.9 million as of September 30, 2019. Future power purchase commitments for the remainder of 2019 and 2020 are $1.6 million and $3.3 million, respectively, with no additional commitments upon termination of the agreement thereafter.

In July 2019, a wholly-owned subsidiary of Switch, Ltd. entered into two power purchase and sale agreements for electricity and a battery energy storage system agreement to purchase 10.1 million megawatt-hours over a term of 25 years and battery capacity of 50 megawatts at a monthly price per kilowatt-month of installed capacity for a term of 20 years. These agreements result in an aggregate purchase commitment of $468.6 million during the respective terms starting on the earlier of October 1, 2022 or upon delivery of the battery energy storage system.

Operating Leases

During the three months ended September 30, 2020 and 2019, ~~and 2018, rent expense~~lease costs related to operating leases ~~was $2.6~~were $1.8 million and $2.0 million, respectively. During the nine months ended September 30, 2020 and 2019, ~~and 2018, rent expense~~lease costs related to operating leases ~~was $6.7~~were $5.7 million and $5.9 million, respectively. Related party ~~rent~~lease costs included in these amounts ~~was $2.0~~were $1.1 million and ~~$1.2~~$1.4 million for the three months ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively, and ~~$4.7~~$3.5 million and ~~$3.7~~$3.9 million for the nine months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively.

In June 2019, the Company received county approval of an operating lease it previously entered into with an entity in which a member of its Board of Directors has a beneficial ownership interest for the lease of land. The operating lease requires annual payments of $2.5 million over a non-cancellable term of 50 years, commencing July 1, 2019, for a total obligation of $126.9 million. The remaining lease commitment was $126.2 million as of September 30, 2019.

Legal Proceedings

On September 7, 2017, Switch, Ltd. and Switch, Inc. were named in a lawsuit filed in the U.S. District Court for the District of Nevada by V5 Technologies formerly d/b/a Cobalt Data Centers. The lawsuit alleges, among other things, that Switch, Ltd. and Switch, Inc. monopolized the Las Vegas Metropolitan area of Southern Nevada’s data center colocation market and engaged in unfair business practices leading to the failure of Cobalt Data Centers in 2015 and seeks monetary damages in an amount yet to be disclosed. ~~The~~Discovery closed in February 2020. In March 2020, both parties filed motions for summary judgment and are ~~currently engaged in discovery.~~waiting for the court to rule on the motions. Switch, Ltd. and Switch, Inc. are vigorously defending the case.

On September 12, 2017, Switch, Ltd. filed a complaint in the Eighth Judicial District of Nevada against the consultant, Stephen Fairfax, and his business, MTechnology Inc. Among other claims, Switch raised allegations of breach of contract and misappropriation of trade secrets. The complaint also alleged that Aligned Data Centers LLC (“Aligned”) hired Mr. Fairfax and MTechnology Inc. to design their data centers; that this consultant had toured Switch under a non-disclosure agreement; and that this consultant breached his confidentiality agreements with Switch by using Switch’s designs to design the Aligned data centers. Switch, Ltd. is seeking an injunction to prevent the defendants

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in the lawsuit from infringing Switch, Ltd.’s patents, as well as other remedies. The parties are currently engaged in discovery.

~~Four~~NaN substantially similar putative class action complaints, captioned Martz v. Switch, Inc. et al. (filed April 20, 2018); Palkon v. Switch, Inc. et al. (filed April 30, 2018); Chun v. Switch, Inc. et al. (filed May 11, 2018); and Silverberg v. Switch, Inc. et al. (filed June 6, 2018), were filed in the Eighth Judicial District of Nevada, and subsequently consolidated into a single case (the “State Court Securities Action”). Additionally, on June 11, 2018, ~~one~~1 putative class action complaint captioned Cai v. Switch, Inc. et al. was filed in the United States District Court for the District of New Jersey (the “Federal Court Securities Action,” and collectively with the State Court Securities Action, the “Securities Actions”) and subsequently transferred to the Eighth Judicial District of Nevada in August 2018 and the federal court appointed Oscar Farach lead plaintiff. These lawsuits were filed against Switch, Inc., certain current and former officers and directors and certain underwriters of Switch, Inc.’s IPO alleging federal securities law violations in connection with the IPO. These lawsuits were brought by purported stockholders of Switch, Inc. seeking to represent a class of stockholders who purchased Class A common stock in or traceable to the IPO, and

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seek unspecified damages and other relief. ~~In October 2018, the state court granted the defendants’ motion~~With respect to ~~stay the State Court Securities Action in favor of~~ the Federal Court Securities Action, ~~which stay was affirmed by the Nevada Supreme Court~~ in September 2019. In October 2018, the lead plaintiff of the Federal Court Securities Action filed an amended complaint. In November 2018, Switch, Inc. and other defendants filed a motion to dismiss for failure to state a claim and a motion to strike. In July 2019, the federal court granted Switch, Inc.’s motion to dismiss in part, which narrowed the scope of the plaintiff’s case. ~~The parties are currently engaged~~In December 2019, Switch, Inc. filed a motion for judgment on the pleadings, and in ~~discovery~~July 2020, the federal court entered a judgment in favor of Switch, Inc. In October 2020, Switch, Inc. filed a motion to dismiss in the ~~Federal~~State Court Securities ~~Action.~~Action, and a hearing is scheduled for January 2021. Switch, Inc. believes that these lawsuits are without merit and intends to continue to vigorously defend against them.

On September 10, 2018, ~~two~~2 purported stockholders of Switch, Inc. filed substantially similar shareholder derivative complaints, respectively captioned Liu v. Roy et al., and Zhao v. Roy et al., in the Eighth Judicial District of Nevada, which were subsequently consolidated into a single case (the “Derivative Shareholder Action”). These lawsuits allege breaches of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control, and gross mismanagement against certain current and former officers and directors of Switch, Inc. The plaintiffs also named Switch, Inc. as a nominal defendant. The complaints arise generally from the same allegations described in the State Court Securities Action and Federal Court Securities Action. The plaintiffs seek unspecified damages on Switch, Inc.’s behalf from the officer and director defendants, certain corporate governance actions, compensatory awards, and other relief. In December ~~2018,~~2019, the court granted the parties’ stipulation to stay the Derivative Shareholder Action until the earlier of any of the following events: the Securities Actions are ~~dismissed~~resolved with prejudice as to each defendant or ~~until~~a motion for summary judgment is resolved in the ~~defendants file an answer in any of~~Federal Court Securities Action. Because the State Court Securities ~~Actions. The parties are currently negotiating a further stay of~~Action is still pending, the Derivative Shareholder Action ~~pending the resolution of the Federal Court Securities Action.~~remains stayed.

The outcomes of the legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to the Company’s financial condition, results of operations, and cash flows for a particular period. Where the Company is a defendant, it will vigorously defend against the claims pleaded against it. These actions are each in preliminary stages and management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of these actions or the range of reasonably possible loss, if any.

6. Income Taxes

The Company recorded a net increases in deferred tax ~~asset resulting from changes in~~assets of $4.9 million and $65.9 million during the ~~outside basis difference on Switch, Inc.’s investment in Switch, Ltd. of~~three and nine months ended September 30, 2020, respectively, and $15.7 million and $62.8 million during the three and nine months ended September 30, 2019, respectively, ~~and $1.6 million and $21.9 million during the three and nine months ended September 30, 2018, respectively,~~ with a corresponding increase to additional paid in ~~capital.~~capital, resulting from changes in the outside basis difference on Switch, Inc.’s investment in Switch, Ltd. The Company has determined it is more-likely-than-not that it will be able to realize this deferred tax asset in the future. ~~Additionally,~~

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in March 2020. The Company does not expect the ~~Company recorded return~~provisions of the CARES Act to ~~provision adjustments~~have a significant impact on the effective tax rate or the deferred income tax positions of ~~$0.4 million and $0.6 million due to changes in estimated depreciation expense during~~ the ~~three and nine months ended September 30, 2019 and 2018, respectively.~~Company.

Tax Receivable Agreement

The Company has recorded a liability under the tax receivable agreement of ~~$132.5~~$243.7 million and ~~$52.5~~$162.1 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively, which provides for the payment of 85% of the amount of the tax benefits, if any, that Switch, Inc. is deemed to realize as a result of increases in the tax basis of its ownership in Switch, Ltd. related to exchanges of noncontrolling interest for Class A common stock. No amounts are expected to be paid within the next 12 months.

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 17

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7. Equity-Based Compensation

Total equity-based compensation recognized on the consolidated statements of comprehensive income was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Cost of revenue	$	475	$	361	$	1,415	$	1,115
Selling, general and administrative expense	6,641		6,949		20,735		21,783
Total equity-based compensation	$	7,116	$	7,310	$	22,150	$	22,898

Switch, Inc. | Q3 2020 Form 10-Q | 20

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands)
Cost of revenue $ 361
$ 358
$ 1,115
$ 1,141
Selling, general and administrative expense 6,949
7,270
21,783
27,053
Total equity-based compensation $ 7,310
$ 7,628
$ 22,898
$ 28,194

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8. Noncontrolling Interest

Ownership

Switch, Inc. owns ~~an indirect~~a minority economic interest in Switch, Ltd., where “economic ~~interests”~~interest” means the right to receive any distributions, whether cash, property or securities of Switch, Ltd., in connection with Common Units. Switch, Inc. presents interest held by noncontrolling interest holders within noncontrolling interest in the consolidated financial statements. ~~In April and July 2019,~~During the nine months ended September 30, 2020, Switch, Inc. issued an aggregate of ~~28.6~~18.3 million shares of Class A common stock to members of Switch, Ltd. in connection with such members’ redemptions of an equivalent number of Common Units and corresponding cancellation and retirement of an equivalent number of Switch, Inc.’s Class B common stock. Such retired shares of Class B common stock may not be reissued. The ~~redemption~~redemptions occurred pursuant to the terms of the Switch operating agreement entered into in connection with the Company’s IPO.

In ~~April and July 2019,~~February 2020, Switch, Inc.’s Board of Directors authorized the repurchase by Switch, Ltd. of up to $20.0 million of its outstanding Common Units, which authorization expired unused on March 17, 2020. In addition, in May 2020, Switch, Inc.’s Board of Directors authorized the repurchase by Switch, Ltd. of up to $20.0 million of its outstanding Common Units held by Founder Members, with any unused amount from this authorization expiring on June 16, 2020. Switch, Ltd. elected to repurchase ~~an aggregate of 2.1~~1.1 million of its outstanding Common Units for ~~$24.7~~$20.0 million ~~upon~~from Founder Members under the ~~exercise by certain members of their respective redemption right.~~May 2020 authorization. Pursuant to ~~these repurchases,~~this repurchase, Switch, Inc. canceled and retired an equivalent amount of its shares of Class B common ~~stock. The repurchases are part~~stock, and such shares may not be reissued. Repurchases under the Common Unit repurchase program were funded from Switch’s existing cash and cash equivalents. As of ~~a program previously approved by the Board of Directors of~~September 30, 2020, the Company ~~and reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.~~had 0 repurchase authority remaining.

The ownership of the Common Units is summarized as follows:


	September 30, 2019			December 31, 2018				September 30, 2020			December 31, 2019
	Units	Ownership %		Units	Ownership %			Units	Ownership %		Units	Ownership %
	(units in thousands)							(units in thousands)
Switch, Inc.’s ownership of Common Units⁽¹⁾	84,277	34.9	%	55,157	22.7	%	Switch, Inc.’s ownership of Common Units(1)	108,896	45.6	%	89,688	37.8	%
Noncontrolling interest holders’ ownership of Common Units⁽²⁾	157,339	65.1	%	187,440	77.3	%	Noncontrolling interest holders’ ownership of Common Units(2)	129,674	54.4	%	147,859	62.2	%
Total Common Units	241,616	100.0	%	242,597	100.0	%	Total Common Units	238,570	100.0	%	237,547	100.0	%


~~(1)~~	Common Units held by Switch, Inc. as of September 30, 2019 exclude 80,000 Common Units underlying unvested restricted stock awards. Common Units held by Switch, Inc. as of December 31, 2018 exclude 61,000 Common Units underlying unvested restricted stock awards.


~~(2)~~	Common Units held by noncontrolling interest holders as of September 30, 2019 exclude 3.4 million unvested Common Unit awards. Common Units held by noncontrolling interest holders as of December 31, 2018 exclude 4.0 million unvested Common Unit awards.

(1) Common Units held by Switch, Inc. exclude 59,000 and 80,000 Common Units underlying unvested restricted stock awards as of September 30, 2020 and December 31, 2019, respectively.

(2) Common Units held by noncontrolling interest holders exclude 2.0 million and 3.2 million unvested Common Unit awards as of September 30, 2020 and December 31, 2019, respectively.

The Company uses the weighted average ownership percentages during the period to calculate the income before income taxes attributable to Switch, Inc. and the noncontrolling interest holders of Switch, Ltd.

Switch, Inc. | Q3 ~~2019~~2020 Form 10-Q | 18 21

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9. Net Income Per Share

The following table sets forth the calculation of basic and diluted net income per share:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018			2020		2019		2020		2019
	(in thousands, except per share data)									(in thousands, except per share data)
Net income per share:									Net income per share:
Numerator—basic:									Numerator—basic:
Net income attributable to Switch, Inc.—basic	$	2,074	$	6	$	3,952	$	1,498	Net income attributable to Switch, Inc.—basic	$	5,206	$	2,947	$	9,087	$	4,869
Numerator—diluted:									Numerator—diluted:
Net income attributable to Switch, Inc.—basic	$	2,074	$	6	$	3,952	$	1,498	Net income attributable to Switch, Inc.—basic	$	5,206	$	2,947	$	9,087	$	4,869
Effect of dilutive securities:									Effect of dilutive securities:
Shares of Class B and Class C common stock	—		—		8,818		—		Shares of Class B and Class C common stock	0		5,492		10,806		10,590
Net income attributable to Switch, Inc.—diluted	$	2,074	$	6	$	12,770	$	1,498	Net income attributable to Switch, Inc.—diluted	$	5,206	$	8,439	$	19,893	$	15,459
Denominator—basic:									Denominator—basic:
Weighted average shares outstanding—basic	84,135		50,669		72,566		43,063		Weighted average shares outstanding—basic	108,690		84,135		102,703		72,566
Net income per share—basic	$	0.02	$	0.00	$	0.05	$	0.03	Net income per share—basic	$	0.05	$	0.04	$	0.09	$	0.07
Denominator—diluted:									Denominator—diluted:
Weighted average shares outstanding—basic	84,135		50,669		72,566		43,063		Weighted average shares outstanding—basic	108,690		84,135		102,703		72,566
Weighted average effect of dilutive securities:									Weighted average effect of dilutive securities:
Stock/unit options	1,050		25		572		67
Stock options									Stock options	1,462		1,050		1,415		572
Restricted stock units	1,027		—		652		—		Restricted stock units	1,358		1,027		1,139		652
Dividend equivalent units	24		9		21		5		Dividend equivalent units	45		24		35		21
Restricted stock awards	25		7		33		7		Restricted stock awards	10		25		42		33
Shares of Class B and Class C common stock	—		—		173,349		—		Shares of Class B and Class C common stock	0		160,881		138,219		173,349
Weighted average shares outstanding—diluted	86,261		50,710		247,193		43,142		Weighted average shares outstanding—diluted	111,565		247,142		243,553		247,193
Net income per share—diluted	$	0.02	$	0.00	$	0.05	$	0.03	Net income per share—diluted	$	0.05	$	0.03	$	0.08	$	0.06

Shares of Class B and Class C common stock do not share in the earnings or losses of Switch, Inc. and are therefore not participating securities. As such, separate calculations of basic and diluted net income per share for each of Class B and Class C common stock under the two-class method have not been presented.

The following table presents potentially dilutive securities excluded from the computation of diluted net income per share for the periods presented because their effect would have been anti-dilutive.

Stock options⁽¹⁾

Restricted stock units⁽¹⁾

Restricted stock units(1)

Shares of Class B and Class C common stock⁽²⁾

Shares of Class B and Class C common stock(2)

(1) Represents the number of instruments outstanding at the end of the period. Application of the treasury stock method would reduce this amount if they had a dilutive effect and were included in the computation of diluted net income per share.

(2) Shares of Class B and Class C common stock at the end of the period are considered potentially dilutive shares of Class A common stock under application of the if-converted method.

10. Segment Reporting

The Company’s chief operating decision maker is its Chief Executive Officer. The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. All of the Company’s assets are maintained in the United States, although the Company holds an equity method investment in SUPERNAP International, S.A., which has deployed facilities in Italy and Thailand. The Company derives almost all of its revenue from sales to customers in the United States, based upon the billing address of the customer.

Switch, Inc. | Q3 2020 Form 10-Q | 22

Revenue derived from customers outside the United States, based upon the billing address of the

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 19

customer, was less than 2% of revenue for each of the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

The Company’s revenue is comprised of the following:

11. Subsequent Events

In October ~~2019, a wholly-owned subsidiary of Switch, Ltd. entered into a power purchase~~ and sale agreement for electricity and a battery energy storage system agreement to purchase 6.6 million megawatt-hours over a term of 25 years and battery capacity of 60 megawatts at a monthly price per kilowatt-month of installed capacity for a term of 20 years. These agreements result in an aggregate purchase commitment of $379.4 million during the respective terms starting on the earlier of October 1, 2022 or upon delivery of the battery energy storage system.

In October 2019, a wholly-owned subsidiary of Switch, Ltd. entered into a power purchase and sale agreement for electricity to purchase a firm commitment of 10 megawatts per energy hour for a term of five months and 50 megawatts per energy hour for a term of one month, or a purchase commitment of $2.4 million, inclusive of scheduling services, for a total term of six months starting on January 1, 2020.

~~In October 2019,~~November 2020, Switch, Inc. issued an aggregate of ~~2.4~~0.3 million and 9.8 million shares, respectively, of Class A common stock to members of Switch, Ltd. in connection with such members’ redemptions of an equivalent number of Common Units and corresponding cancellation and retirement of an equivalent number of shares of Class B common stock. Such retired shares of Class B common stock may not be reissued. The redemptions occurred pursuant to the terms of the Switch operating agreement entered into in connection with the ~~Company’s~~Company��s IPO.

In October 2019, Switch, Ltd. also elected to repurchase 3.2 million of its outstanding Common Units for $49.2 million upon the exercise by certain members of their respective redemption right. Pursuant to this repurchase, Switch, Inc. canceled an equivalent number of shares of Class B common stock.

~~In October 2019, the Company borrowed $50.0 million under its revolving credit facility.~~

In November ~~2019,~~2020, Switch, Inc.’s Board of Directors declared a dividend of ~~$0.0294~~$0.05 per share of Class A common stock, for a total estimated to be ~~$2.7~~$5.9 million, to be paid on November ~~29, 2019~~30, 2020 to holders of record as of November ~~19, 2019.~~17, 2020. Prior to the payment of this dividend, Switch, Ltd. will make a cash distribution to all holders of record of Common Units, including Switch, Inc., of ~~$0.0294~~$0.05 per Common Unit, for a total estimated to be ~~$7.1~~$12.0 million.

In November 2019, at the request of Switch, Inc.’s Board of Directors, the holders of Class C common stock converted each share of Class C common stock held by them into one share of Class B common stock pursuant to Switch, Inc.’s amended and restated articles of incorporation.

In November 2019, Switch, Inc.’s Board of Directors increased the previously approved program by which Switch, Ltd. may repurchase its outstanding Common Units for cash by $5.0 million, with any unused amount from this increase expiring on December 31, 2019.

Switch, Inc. | Q3 ~~2019~~2020 Form 10-Q | 20 23

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~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related condensed notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q ~~or this Form 10-Q,~~(this “Form 10-Q”), and with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Unless the context otherwise requires, references to “we,” “us,” “our,” the “Company,” “Switch” and similar references refer to Switch, Inc., and, unless otherwise stated, all of its subsidiaries, including Switch, Ltd., and, unless otherwise stated, all of its subsidiaries.

~~Forward-Looking Statements~~

This Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about:

~~our goals and strategies;~~

~~our expansion plans, including timing for such plans;~~

~~our future business development, financial condition and results of operations, including factors that may influence such future results of operations;~~

~~the expected growth of the data center market;~~

~~our beliefs regarding our design technology and its advantages to our business and financial results;~~

~~our beliefs regarding opportunities that exist in the data center market due to current industry limitations;~~

~~our expectations regarding opportunities to grow penetration of existing customers and attract new customers;~~

~~our beliefs regarding our competitive strengths and the value of our brand;~~

~~our expectations regarding our revenue streams and drivers of future revenue;~~

~~our expectations regarding our future capital expenditures and other future expenses, including anticipated increases;~~

~~our expectations regarding demand for, and market acceptance of, our services;~~

~~our expectations regarding our customer growth rate;~~

our beliefs regarding the sufficiency of our cash and access to liquidity, and cash generated from operating activities, to satisfy our working capital and capital expenditures for at least the next 12 months;

~~our intentions regarding sources of financing for our operations and capital expenditures;~~

~~the network effects associated with our business;~~

~~our plans to further invest in and grow our business, and our ability to effectively manage our growth and associated investments;~~

~~our ability to timely and effectively scale and adapt our existing technology;~~

~~our ability to successfully enter new markets;~~

~~our expectations to enter into joint ventures, strategic collaborations and other similar arrangements;~~

~~our beliefs regarding our ability to achieve reduced variability of power costs as an unbundled purchaser of energy;~~

~~our beliefs that we have the necessary permits and approvals to operate our business and that our properties are in substantial compliance with applicable laws;~~

~~our ability to maintain, protect and enhance our intellectual property and not infringe upon others’ intellectual property;~~

~~our beliefs regarding the adequacy of our insurance coverage;~~

~~our expectations regarding loss of our emerging growth company status;~~

~~our beliefs regarding the effectiveness of efforts to improve our internal control over financial reporting;~~

~~our plans regarding our repurchase program of common membership interests in Switch, Ltd., or Common Units;~~

~~our expectations regarding future declarations of dividends and cash distributions; and~~

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 21

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our expectations regarding payments under the tax receivable agreement entered into with members of Switch, Ltd., or the Tax Receivable Agreement, contingent upon our taxable income and the applicable tax rate.

We qualify all of our forward-looking statements by the cautionary statements below. The forward-looking statements in this Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. The most important factors that could prevent us from achieving our goals and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by the forward-looking statements include, but are not limited to, the following:

~~our ability to successfully implement our business strategies;~~

~~our ability to effectively manage our growth and expansion plans;~~

~~delays or unexpected costs in development and opening of data center facilities;~~

~~any slowdown in demand for our existing data center resources;~~

~~our ability to attract new customers and achieve sufficient customer demand to realize future expected returns on our investments;~~

~~our ability to license space in our existing data centers;~~

~~the geographic concentration of our data centers in certain markets;~~

~~local economic, credit and market conditions that impact our customers in these markets;~~

~~the impact of delays or disruptions in third-party network connectivity;~~

developments in the technology and data center industries in general that negatively impact us, including development of new technologies, adoption of new industry standards, declines in the technology industry or slowdown in the growth of the Internet;

~~our ability to adapt to evolving technologies and customer demands in a timely and cost-effective manner;~~

~~financial market fluctuations;~~

~~our ability to obtain necessary capital to fund our capital requirements and our ability to continue to comply with covenants and terms in our credit instruments;~~

~~our ability to generate sufficient cash flow to meet our debt service and working capital requirements;~~

~~our ability to collect revenues on a timely basis;~~

~~fluctuations in interest rates and increased operating costs, including power costs;~~

~~significant disruptions, security breaches, including cyber security breaches, or system failures at any of our data center facilities;~~

~~our ability to effectively compete in the data center market;~~

~~our ability to protect our intellectual property rights and not infringe upon others’ intellectual property rights;~~

~~loss of significant customers or key personnel;~~

~~losses in excess of our insurance coverage, including due to natural disasters and other unforeseen damage;~~

~~impact of the outcome of pending or future litigation;~~

the impact of future changes in legislation and regulations, including changes in real estate and zoning laws, the Americans with Disabilities Act of 1990, environmental and other laws that impact our business and industry;

~~future increases in real estate taxes;~~

~~early termination of data center leases or inability to renew on commercially acceptable terms;~~

~~our ability to successfully identity and consummate future joint ventures, acquisitions or other strategic transactions;~~

~~our realization of any benefit from the Tax Receivable Agreement, our Common Unit repurchase plan and our organizational structure;~~

~~our ability to sufficiently remediate the material weaknesses identified in our internal control over financial reporting;~~

~~volatility of our stock price, including due to future issuances of our Class A common stock upon redemption or exchange of Common Units; and~~

~~our ability to successfully estimate the impact of certain accounting and tax matters, including the effect on our company of adopting certain accounting pronouncements~~.

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 22

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The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by us (such as in our company press releases or other filings with the Securities and Exchange Commission, or the SEC) for other factors that may cause actual results to differ materially from those projected by us. You should read this Form 10-Q, and the documents that we reference in this Form 10-Q and have filed with the SEC, and our Annual Report on Form 10-K for the year ended December 31, 2018, with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Overview

We are a technology infrastructure company powering the sustainable growth of the connected world and the Internet of Everything. Using our technology platform, we provide solutions to help enable that growth. Our advanced data centers are the center of our platform and provide power densities that exceed industry averages with efficient cooling, while being powered by 100% renewable energy. These hyperscale data centers address the growing challenges facing the data center industry. Our critical infrastructure components in our data centers are purpose-built to satisfy customers’ needs, drive efficiency and enable the deployment of highly advanced computing technologies.

We presently own and operate ~~three~~four primary campus locations, called Primes, which encompass 1112 colocation facilities with an aggregate of up to ~~4.4~~4.7 million gross square feet ~~or GSF,~~(“GSF”) of space. Our Primes consist of The Core Campus in Las Vegas, Nevada; The Citadel Campus near Reno, Nevada; ~~and~~ The Pyramid Campus in Grand Rapids, ~~Michigan. In addition, we are constructing a fourth Prime,~~Michigan; and The Keep Campus in Atlanta, Georgia, ~~with customer occupancy expected to commence in~~which opened during the first ~~half~~quarter of 2020. In addition to our Primes, we hold a 50% ownership interest in SUPERNAP International, S.A.~~, or~~ (“SUPERNAP ~~International,~~International”), which has deployed facilities in Italy and Thailand. Until March 31, 2018, we accounted for this ownership interest under the equity method of accounting.

We currently have more than 950 customers, including some of the world’s largest technology and digital media companies, cloud, IT and software providers, financial institutions and network and telecommunications providers. Our ecosystem connects over 250 cloud, IT and software providers and ~~over~~more than 90 network and telecommunications providers. Our business is based on a recurring revenue model comprised of (1) colocation, which includes the licensing and leasing of cabinet space and ~~power;~~power and (2) connectivity services, which include cross-connects, broadband services and external connectivity. We consider these services recurring because our customers are generally billed on a fixed and recurring basis each month for the duration of their contract. We generally derive more than 95% of our revenue from recurring revenue and we expect to continue to do so for the foreseeable future. ~~For the nine months ended September 30, 2019 and 2018, our largest customer, eBay, Inc. and its affiliates, accounted for 12% and 10% of our revenue, respectively.~~

Our non-recurring revenue is primarily comprised of installation services related to a customer’s initial deployment. These services are non-recurring because they are typically billed once, upon completion of the installation.

We generated net income of $7.1 million and $4.7 million during the three months ended September 30, 2019 and 2018, respectively. During the three months ended September 30, 2019 and 2018, we generated Adjusted EBITDA of $56.7 million and $50.9 million, respectively, representing an Adjusted EBITDA margin of 48.2% and 49.5%, respectively.

We generated net income of $15.4 million and $18.2 million during the nine months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019 and 2018, we generated Adjusted EBITDA of $168.9 million and $148.1 million, respectively, representing an Adjusted EBITDA margin of 50.2% and 48.9%, respectively.

Factors that May Influence Future Results of Operations

Impact of COVID-19.In March 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) as a pandemic, which continues to be spread throughout the U.S. and the world. The impact from the rapidly changing market and economic conditions due to the COVID-19 outbreak is uncertain, disrupting the business of our customers, and may impact our business, consolidated results of operations, and financial condition in the future. While we have not incurred significant disruptions thus far from the COVID-19 outbreak, we are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the business of our customers, partners and vendors, the impact and functioning of the global financial markets and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-Q. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition.

Switch, Inc. | Q3 2020 Form 10-Q | 24

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Market and Economic Conditions.We are affected by general business and economic conditions in the United States and globally. These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets and broad trends in industry and finance, all of which are beyond our control. Macroeconomic conditions that affect the economy and the economic outlook of the United States and the rest of the world, including as a result of the COVID-19 pandemic, could adversely affect our customers and vendors, which could adversely affect our results of operations and financial condition.

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 23

~~Table of Contents~~

Growth and Expansion Activities. Our future revenue growth will depend on our ability to maintain our existing revenue base while expanding and increasing utilization at our existing and developing Prime Campus locations. Our existing Prime Campus locations currently encompass 1112 colocation facilities with an aggregate of up to ~~4.4~~4.7 million GSF of space and up to ~~455~~490 megawatts ~~or MW,~~(“MW”) of power. As of September 30, ~~2019,~~2020, the utilization rates at these Prime Campuses, based on currently available cabinets, were approximately ~~93%~~91%, 90%, 72%, and ~~92%~~36% at The Core Campus, The Citadel Campus, The Pyramid Campus, and The ~~Pyramid~~Keep Campus, respectively. Additionally, each of our existing Primes has room for further expansion. We may be unable to attract customers to our data centers or retain them for a number of reasons, including if we fail to provide competitive pricing terms, provide space that is deemed to be inferior to that of our competitors or are unable to provide services that our existing and potential customers desire.

Cost of Power. We are a large consumer of power, and the cost of energy accounts for a significant portion of our cost of revenue. We require power supply to provide many services we offer, such as powering and cooling our customers’ IT equipment and operating critical data center plant and equipment infrastructure. Pursuant to our service agreements, we provide our customers with a committed level of power supply availability and we have committed to operating our data centers with 100% clean and renewable energy. Most of our customer agreements provide the ability to increase our cost of service in response to an increase in the cost of energy; however, our gross profit can be adversely affected by increases in our cost of energy if we choose not to pass along the increases to our customers. For instance, the seasonal increase in energy costs during the summer months has not historically resulted in an adjustment to our customer pricing, and therefore has resulted in a decrease in our gross profit in those periods. Nonetheless, as an unbundled purchaser of energy in Nevada, we are able to purchase power in the open market through long-term power contracts, which we believe reduces variability of energy costs. Additionally, our existing customers may not renew their contracts with us or may reduce the services purchased from us, or we may be unable to attract new customers, if we experience increased energy costs or limited availability of power resources, including clean and renewable energy. Our brand or reputation could be adversely affected if we are unable to operate our data centers with 100% clean and renewable energy.

Capital Expenditures. Our growth and expansion initiatives require significant capital. The costs of constructing, developing, operating and maintaining data centers, and growing our operations are substantial. While we strive to match the growth of our facilities to the demand for services, we still must spend significant amounts before we receive any revenue. If we are unable to generate sufficient capital to meet our anticipated capital requirements, our growth could slow and operations could be adversely affected. Our maintenance capital expenditures were ~~$5.4~~$5.2 million and ~~$5.2~~$5.4 million for the nine months ended September 30, 2020 and 2019, ~~and 2018,~~ respectively.

Growth in Customers. Our results of operations could be significantly affected by the growth or reduction of our customer base. We have over 950 customers, including some of the world’s largest technology and digital media companies, cloud, IT and software providers, financial institutions, and network and telecommunications providers. We believe we have significant opportunities to both grow penetration of our existing customers as well as attract new customers. Our ability to attract new customers depends on a number of factors, including our ability to offer high quality services at competitive prices and the capability of our marketing and sales team to attract new customers. Additionally, a significant portion of our revenue is highly dependent on our top 10 customers and the loss of these customers or any significant decrease in their business could adversely affect our results of operations.

Switch, Inc. | Q3 2020 Form 10-Q | 25

Table of Contents

Key Metrics and Non-GAAP Financial Measures

We monitor the following unaudited key metrics and financial measures, some of which are not calculated in accordance with accounting principles generally accepted in the United States of America ~~or GAAP,~~(“GAAP”) to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions.

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(dollars in thousands)
Recurring revenue $ 115,308
$ 100,306
$ 329,381
$ 294,875
Capital expenditures $ 121,165
$ 60,371
$ 221,296
$ 221,144
Adjusted EBITDA $ 56,714
$ 50,892
$ 168,870
$ 148,069
Adjusted EBITDA margin 48.2 % 49.5 % 50.2 % 48.9 %

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 24

~~Table of Contents~~


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(dollars in thousands)
Recurring revenue	$	125,963		$	115,309		$	369,178		$	329,382
Capital expenditures	$	82,644		$	121,165		$	249,096		$	221,296
Adjusted EBITDA	$	67,159		$	60,751		$	197,764		$	173,430
Adjusted EBITDA margin	52.1		%	49.7		%	51.5		%	50.7		%

Recurring Revenue

We calculate recurring revenue as contractual revenue under signed contracts calculated in accordance with GAAP for the applicable period. Recurring revenue does not include any installation or other one-time revenue, which would be classified as non-recurring revenue. Management uses recurring revenue as a supplemental performance measure because it provides a useful measure of increases or decreases in contractual revenue from our customers and provides a baseline revenue measure on which to plan expenses.

The following table sets forth a reconciliation of recurring revenue to total revenue:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018			2020		2019		2020		2019
	(in thousands)									(in thousands)
Recurring revenue	$	115,308	$	100,306	$	329,381	$	294,875	Recurring revenue	$	125,963	$	115,309	$	369,178	$	329,382
Non-recurring revenue	2,250		2,462		6,796		7,771		Non-recurring revenue	2,822		7,044		14,620		12,383
Revenue	$	117,558	$	102,768	$	336,177	$	302,646	Revenue	$	128,785	$	122,353	$	383,798	$	341,765

Capital Expenditures

We define capital expenditures as cash purchases of property and equipment during a particular period. We believe that capital expenditures is a useful metric because it provides information regarding the growth of our technology infrastructure platform and the potential to expand our services and add new customers.

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA as net income adjusted for interest expense, interest income, income taxes, depreciation and amortization of property and equipment and for specific and defined supplemental adjustments to exclude (i) non-cash equity-based compensation expense; (ii) equity in net losses of investments; and (iii) certain other items that we believe are not indicative of our core operating performance. We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue.

Our Adjusted EBITDA and Adjusted EBITDA margin are not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to measures prepared in accordance with GAAP. We present Adjusted EBITDA and Adjusted EBITDA margin because we believe certain investors use them as measures of a company’s historical operating performance and its ability to service and incur debt and make capital expenditures. We believe that the inclusion of certain adjustments in presenting Adjusted EBITDA and Adjusted EBITDA margin is appropriate to provide additional information to investors because Adjusted EBITDA and Adjusted EBITDA margin exclude certain items that we believe are not indicative of our core operating performance and that are not excluded in the calculation of EBITDA. Adjusted EBITDA is also similar to the measures used under the debt covenants included in our credit facilities, except that the definition used in our credit facilities does not exclude certain cash gains or shareholder-related litigation expense. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.

Switch, Inc. | Q3 2020 Form 10-Q | 26

Our non-GAAP financial measures have limitations as analytical tools and you should not consider them in isolation or as a substitute for an analysis of our results under GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. Non-GAAP financial measures may not provide information directly comparable to measures provided by other companies in our industry, as those other companies may calculate their non-GAAP financial measures differently. In addition, the non-GAAP financial measures exclude certain recurring expenses that have been and will continue to be significant expenses of our business.

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 25

The following table sets forth a reconciliation of our net income to Adjusted EBITDA:

Interest income⁽¹⁾

(1) Interest income is included in the “Other” line of other income (expense) in our consolidated statements of comprehensive income.

Components of Results of Operations

During each of the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, we derived more than ~~95%~~94% of our revenue from recurring revenue streams, consisting primarily of (1) colocation, which includes the licensing and leasing of cabinet space and ~~power;~~power and (2) connectivity services, which include cross-connects, broadband services and external connectivity. The remainder of our revenue is from non-recurring revenue, which primarily includes installation services related to a customer’s initial ~~deployment and contract settlements.~~deployment. The majority of our revenue contracts are classified as licenses, with the exception of certain contracts that contain lease components. Based on the current growth stage of our business, we expect increases in revenue to be driven primarily by increases in volume, rather than changes in the prices we charge to our customers.

We recognize revenue when control of these goods and services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods and services. Revenue from recurring revenue streams is generally billed monthly and recognized ~~ratably over~~using a time-based measurement of progress as customers receive service benefits evenly throughout the ~~period to which~~term of the ~~service relates.~~contract. Contracts with our customers generally have terms of three to five years. Non-recurring installation fees, although generally paid in a lump sum upon installation, are deferred and recognized ratably over the ~~expected life of the installation.~~contract term, determined using a portfolio approach. Revenue ~~from connectivity services~~ is generally recognized on a gross basis ~~primarily~~as a principal versus on a net basis as an agent, largely because we ~~generally act as~~are primarily responsible for fulfilling the ~~principal in the transactions,~~contract, take title to services, and bear credit risk. Revenue from contract settlements, which result when a customer wishes to terminate their contract early, is recognized when no remaining performance obligations exist, to the extent that the revenue has not previously been recognized.

Cost of revenue consists primarily of depreciation and amortization expense, expenses associated with the operations of our facilities, including electricity and other utility costs and repairs and maintenance, data center employees’ salaries and benefits, including equity-based compensation, connectivity costs, and rental payments related to our leased buildings and land used in data center operations. A substantial portion of our cost of revenue is fixed in nature and may not vary significantly from period to period, unless we expand our existing data centers or open new data centers. However, there are certain costs that are considered more variable in nature, including utilities and supplies that are directly related to growth in our existing and new customer base. ~~We have seen the cost of our utilities, specifically electricity, decrease as we are an unbundled purchaser of energy in Nevada, and are able to purchase energy from the open market.~~ The largest portion of our utility costs is fixed and a smaller portion is variable with market conditions.

Switch, Inc. | Q3 2020 Form 10-Q | 27

Gross Profit and Gross Margin

Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by various factors, including customer growth, the expansion of our existing data centers or opening of new data centers, and the cost of our utilities, specifically electricity. Our gross margin may fluctuate from period to period depending on the interplay of these factors.

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 26

Selling, General and Administrative Expense

Selling, general and administrative expense consists primarily of salaries and related expenses, including equity-based compensation, accounting, legal and other professional service fees, real estate and personal property taxes, rental payments related to our corporate office lease, marketing and selling expenses, including sponsorships, commissions paid to partners, travel, depreciation and amortization expense, insurance, and other facility and employee related costs. This expense classification may not be comparable to those of other companies. We expect to incur additional selling, general and administrative expenses as we continue to scale our operations to invest in sales and marketing initiatives to further increase our revenue and support our growth. We also expect to continue to incur general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the ~~SEC~~Securities and Exchange Commission (“SEC”) and those of the New York Stock Exchange, additional expenses related to the loss of our emerging growth company status ~~expected to occur on~~as of December 31, 2019, additional insurance expenses, investor relations activities, and other administrative and professional services. Further, we expect to continue to incur general and administrative expenses in the form of equity-based compensation as a result of the continued vesting of awards of common membership interests in Switch, Ltd. (“Common ~~Unit awards~~Units”) granted to certain of our executives in 2017 and other equity awards. As a result, we expect that our selling, general and administrative expense will continue to increase in absolute dollars, but may fluctuate as a percentage of our revenue from period to period.

Other Income (Expense)

Interest expense consists primarily of interest on our credit facilities and senior unsecured notes and amortization of debt issuance costs and original issue discount, net of amounts capitalized.

~~Equity in Net Losses of Investments~~

Equity in net losses of investments primarily consists of our share of results of operations from our equity method investments, including foreign currency translation adjustments. We currently hold two investments, SUPERNAP International and Planet3, Inc., or Planet3. Our investments in SUPERNAP International and Planet3 were accounted for under the equity method of accounting through March 31, 2018 and December 31, 2016, respectively, and our share of their results of operations are included within equity in net losses of investments for each applicable period presented. As of March 31, 2018, the carrying value of our investment in SUPERNAP International was reduced to zero as a result of recording our share of its losses. Our losses will continue to include the foreign currency translation adjustments in our investment. As of December 31, 2016, we determined an other than temporary loss in the value of our investment in Planet3 had occurred, and we therefore fully impaired its carrying value. Accordingly, we discontinued the equity method of accounting for our investments in SUPERNAP International and Planet3 as of March 31, 2018 and December 31, 2016, respectively, and will not provide for additional losses until our share of future net income, if any, equals the share of net losses not recognized during the period the equity method was suspended.

Loss on Interest Rate Swaps

Loss on interest rate swaps consists of changes in the fair value of interest rate swaps used to mitigate our exposure to interest rate risk, inclusive of periodic net settlement amounts.

Loss on Extinguishment of Debt

Loss on extinguishment of debt consists of losses resulting from certain lenders exiting our revolving credit facility in connection with amending our credit agreement.

Other income (expense) primarily consists of other items that have impacted our results of operations such as interest income on our cash equivalents and gains and losses resulting from other transactions.

~~As a result of our initial public offering, or IPO, and certain organizational transactions completed in connection with our IPO, we became~~We are the sole manager of Switch, Ltd., which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Switch, Ltd. is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Switch, Ltd. is passed through to, and included in the taxable income or loss of, its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss generated by Switch, Ltd.

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 27

Noncontrolling Interest

As the sole manager of Switch, Ltd., we operate and control all of the business and affairs of Switch, Ltd. and its subsidiaries. Although we have a minority economic interest in Switch, Ltd., we have the sole voting interest in, and control the management of, Switch, Ltd. Accordingly, we consolidate the financial results of Switch, Ltd. and report a noncontrolling interest on our consolidated statements comprehensive income, representing the portion of net income or loss and comprehensive income or loss attributable to the noncontrolling interest. The weighted average ownership percentages during the period are used to calculate the net income or loss and other comprehensive income or loss attributable to Switch, Inc. and the noncontrolling interest.

Switch, Inc. | Q3 2020 Form 10-Q | 28

Results of Operations

The following table sets forth our results of operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Consolidated Statements of Income Data:
Revenue	$	128,785	$	122,353	$	383,798	$	341,765
Cost of revenue	74,348		63,504		209,575		179,146
Gross profit	54,437		58,849		174,223		162,619
Selling, general and administrative expense	31,516		36,869		105,070		104,039
Income from operations	22,921		21,980		69,153		58,580
Other income (expense):
Interest expense, including amortization of debt issuance costs and original issue discount	(6,554)		(7,351)		(20,682)		(22,023)

Loss on interest rate swaps	(1,559)		(3,926)		(23,257)		(17,692)
Loss on extinguishment of debt	(245)		—		(245)		—
Other	185		244		733		1,264
Total other expense	(8,173)		(11,033)		(43,451)		(38,451)
Income before income taxes	14,748		10,947		25,702		20,129
Income tax expense	(1,515)		(867)		(2,622)		(1,531)
Net income	13,233		10,080		23,080		18,598
Less: net income attributable to noncontrolling interest	8,027		7,133		13,993		13,729
Net income attributable to Switch, Inc.	$	5,206	$	2,947	$	9,087	$	4,869

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
(in thousands)
Consolidated Statements of Income Data:
Revenue $ 117,558
$ 102,768
$ 336,177
$ 302,646
Cost of revenue 62,112
59,150
177,301
169,200
Gross profit 55,446
43,618
158,876
133,446
Selling, general and administrative expense 37,314
31,086
104,612
95,676
Income from operations 18,132
12,532
54,264
37,770
Other income (expense):
Interest expense, including amortization of debt issuance costs (6,743 ) (7,409 ) (21,212 ) (19,826 )
Equity in net losses of investments —
—
—
(331 )
Loss on interest rate swaps (3,926 ) —
(17,692 ) —
Other 245
752
1,264
2,603
Total other expense (10,424 ) (6,657 ) (37,640 ) (17,554 )
Income before income taxes 7,708
5,875
16,624
20,216
Income tax expense (610 ) (1,212 ) (1,249 ) (2,064 )
Net income 7,098
4,663
15,375
18,152
Less: net income attributable to noncontrolling interest 5,024
4,657
11,423
16,654
Net income attributable to Switch, Inc. $ 2,074
$ 6
$ 3,952
$ 1,498

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 28

The following table sets forth the consolidated statements of income data presented as a percentage of revenue. Amounts may not sum due to rounding.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Consolidated Statements of Income Data:
Revenue	100	%	100	%	100	%	100	%
Cost of revenue	58		52		55		52
Gross profit	42		48		45		48
Selling, general and administrative expense	24		30		27		30
Income from operations	18		18		18		17
Other income (expense):
Interest expense, including amortization of debt issuance costs and original issue discount	(5)		(6)		(5)		(6)

Loss on interest rate swaps	(1)		(3)		(6)		(5)
Loss on extinguishment of debt	—		—		—		—
Other	—		—		—		—
Total other expense	(6)		(9)		(11)		(11)
Income before income taxes	11		9		7		6
Income tax expense	(1)		(1)		(1)		—
Net income	10		8		6		5
Less: net income attributable to noncontrolling interest	6		6		4		4
Net income attributable to Switch, Inc.	4	%	2	%	2	%	1	%

Switch, Inc. | Q3 2020 Form 10-Q | 29

Three Months Ended
September 30, Nine Months Ended
September 30,
2019 2018 2019 2018
Consolidated Statements of Income Data:
Revenue 100 % 100 % 100 % 100 %
Cost of revenue 53
58
53
56
Gross profit 47
42
47
44
Selling, general and administrative expense 32
30
31
32
Income from operations 15
12
16
12
Other income (expense):
Interest expense, including amortization of debt issuance costs (6 ) (7 ) (6 ) (7 )
Equity in net losses of investments —
—
—
—
Loss on interest rate swaps (3 ) —
(5 ) —
Other —
1
—
1
Total other expense (9 ) (6 ) (11 ) (6 )
Income before income taxes 7
6
5
7
Income tax expense (1 ) (1 ) —
(1 )
Net income 6
5
5
6
Less: net income attributable to noncontrolling interest 4
5
3
6
Net income attributable to Switch, Inc. 2 % — % 1 % — %

Comparison of the Three Months Ended September 30, ~~2019~~2020 and ~~2018~~2019

Revenue increased by $14.8 million, or 14%, for the three months ended September 30, 2019, compared to the three months ended September 30, 2018. The increase was primarily attributable to an increase of $12.6 million in colocation revenue. Of the overall increase, 48% was attributable to new customers initiating service after September 30, 2018, and the remaining 52% was attributable to growth from existing customers. Our revenue churn rate, which we define as the reduction in recurring revenue attributable to customer terminations or non-renewal of expired contracts, divided by revenue at the beginning of the period, was 0.1% and 0.3% during the three months ended September 30, 2019 and 2018, respectively.

~~Cost of Revenue and Gross Margin~~

Three Months Ended
September 30, Change
2019 2018 Amount %
(dollars in thousands)
Cost of revenue $ 62,112
$ 59,150
$ 2,962
5 %
Gross margin 47.2 % 42.4 %

~~Cost of revenue increased by $3.0~~$6.4 million, or 5%, for the three months ended September 30, ~~2019,~~2020, compared to the three months ended September 30, ~~2018. The increase was primarily attributable to increases of $2.6 million in~~

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 29

depreciation and amortization expense due to additional property and equipment being placed into service, $1.1 million in salaries and related employee expenses largely due to an increase in headcount, and $1.1 million in connectivity costs associated with increased occupancy. These increases were partially offset by a correction made during the three months ended September 30, 2018 for an immaterial amount of $1.5 million in additional depreciation expense included in cost of revenue that should have been expensed during the periods from June 30, 2017 through June 30, 2018. For further information, see ~~Note 2~~ ~~“Summary of Significant Accounting Policies—Prior Period Adjustments” within our consolidated financial statements.Gross margin increased by 480 basis points for the three months ended September 30, 2019, compared to the three months ended September 30, 2018.~~

~~Selling, General and Administrative Expense~~

Three Months Ended
September 30, Change
2019 2018 Amount %
(dollars in thousands)
Selling, general and administrative expense $ 37,314
$ 31,086
$ 6,228
20 %

Selling, general and administrative expense increased by $6.2 million, or 20%, for the three months ended September 30, 2019, compared to the three months ended September 30, 2018. The increase was primarily attributable to increases of $3.4 million in professional fees for consulting, legal, and accounting services, and $3.2 million in salaries and related employee expenses largely due an increase in headcount.

~~Other Income (Expense)~~

Three Months Ended
September 30, Change
2019 2018 Amount %
(dollars in thousands)
Other income (expense):
Interest expense $ (6,743 ) $ (7,409 ) $ 666
(9 )%
Loss on interest rate swaps (3,926 ) —
(3,926 ) NM
Other 245
752
(507 ) (67 )%
Total other expense $ (10,424 ) $ (6,657 ) $ (3,767 ) 57 %

~~NM - Not meaningful~~

~~Interest Expense~~

Interest expense decreased by $0.7 million, or 9%, for the three months ended September 30, 2019, compared to the three months ended September 30, 2018. The decrease was primarily driven by a correction made during the three months ended September 30, 2018 of $0.7 million in additional interest expense that should have been expensed during the periods from June 30, 2017 through June 30, 2018. For further information, see ~~Note 2~~ ~~“Summary of Significant Accounting Policies—Prior Period Adjustments” within our consolidated financial statements.~~

~~Loss on Interest Rate Swaps~~

In January and February 2019, we entered into four interest rate swap agreements to mitigate our exposure to interest rate risk. We recorded a loss on interest rate swaps that do not qualify for hedge accounting of $3.9 million from changes in the fair value for the three months ended September 30, 2019.

Other income decreased by $0.5 million, or 67%, for the three months ended September 30, 2019, compared to the three months ended September 30, 2018. The decrease was primarily due to a decrease in interest income earned on our cash equivalents.

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 30

~~Income Tax Expense~~

Three Months Ended
September 30, Change
2019 2018 Amount %
(dollars in thousands)
Income tax expense $ (610 ) $ (1,212 ) $ 602
(50 )%

Income tax expense decreased by $0.6 million, or 50%, for the three months ended September 30, 2019, compared to the three months ended September 30, 2018. Income tax expense is driven by our allocable share of Switch, Ltd.’s income and loss before income taxes.

~~Net Income Attributable to Noncontrolling Interest~~

Three Months Ended
September 30, Change
2019 2018 Amount %
(dollars in thousands)
Net income attributable to noncontrolling interest $ 5,024
$ 4,657
$ 367
8 %

Net income attributable to noncontrolling interest increased by $0.4 million, or 8%, for the three months ended September 30, 2019, compared to the three months ended September 30, 2018, primarily due to an increase in net income.

~~Comparison of the Nine Months Ended September 30, 2019 and 2018~~

Nine Months Ended
September 30, Change
2019 2018 Amount %
(dollars in thousands)
Colocation $ 271,977
$ 241,314
$ 30,663
13 %
Connectivity 59,212
55,566
3,646
7 %
Other 4,988
5,766
(778 ) (13 )%
Revenue $ 336,177
$ 302,646
$ 33,531
11 %

~~Revenue increased by $33.5 million, or 11%, for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018.~~ The increase was primarily attributable to an increase of ~~$30.7~~$9.7 million in colocation revenue. Of the overall increase, ~~62%~~45% was attributable to revenue from new customers initiating service after September 30, ~~2018,~~2019, and the remaining ~~38%~~55% was attributable to ~~growth~~increased revenue from existing customers. ~~Our~~This increase was partially offset by $4.3 million in non-recurring sales-type lease revenue ~~churn rate was 0.5% and 0.4%~~included in connectivity revenue during the ~~nine~~three months ended September 30, ~~2019 and 2018, respectively.~~2019. There was no sales-type lease revenue during the three months ended September 30, 2020.

Cost of Revenue and Gross Margin

Cost of revenue increased by ~~$8.1~~$10.8 million, or 5%17%, for the ~~nine~~three months ended September 30, ~~2019,~~2020, compared to the ~~nine~~three months ended September 30, ~~2018.~~2019. The increase was primarily attributable to ~~an increase~~increases of ~~$9.6~~$6.2 million in depreciation and amortization expense due to additional property and equipment being placed into service, and $5.0 million in facilities costs due to increased utility rates. This was partially offset by a $1.1 million decrease ~~of $0.9 million~~ in ~~facilities costs. In addition, we corrected an immaterial amount during~~costs related to sales-type lease transactions. Gross margin decreased by 580 basis points for the ~~nine~~three months ended September 30, ~~2018 of $0.8 million in additional depreciation expense included in cost of revenue that should have been expensed during~~2020, compared to the ~~periods from June 30, 2017 through December 31, 2017. For further~~

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 31

~~information, see~~ ~~Note 2~~ ~~“Summary of Significant Accounting Policies—Prior Period Adjustments” within our consolidated financial statements.Gross margin increased by 320 basis points for the nine~~three months ended September 30, ~~2019, compared to the nine months ended September 30, 2018.~~2019.

Selling, General and Administrative Expense

Nine Months Ended
September 30, Change
2019 2018 Amount %
(dollars in thousands)
Selling, general and administrative expense $ 104,612
$ 95,676
$ 8,936
9 %


	Three Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Selling, general and administrative expense	$	31,516	$	36,869	$	(5,353)	(15)	%

Selling, general and administrative expense ~~increased~~decreased by ~~$8.9~~$5.4 million, or 9%15%, for the ~~nine~~three months ended September 30, ~~2019,~~2020, compared to the ~~nine~~three months ended September 30, ~~2018.~~2019. The ~~increase~~decrease was primarily attributable to ~~increases~~decreases of ~~$5.9~~$3.4 million in ~~professional fees for consulting,~~accounting, legal, and ~~accounting services, $1.0~~other professional service fees, $0.9 million in salaries and related employee expenses, ~~largely due to an increase in headcount, $0.8~~and $0.7 million in ~~real estate~~travel and ~~personal property taxes, and $0.6 million in insurance costs.~~entertainment expenses.

Switch, Inc. | Q3 2020 Form 10-Q | 30

Other Income (Expense)

Interest expense ~~increased~~decreased by ~~$1.4~~$0.8 million, or 7%11%, for the ~~nine~~three months ended September 30, ~~2019,~~2020, compared to the ~~nine~~three months ended September 30, 2018. The increase was driven by an increase in our weighted average interest rate from 4.12% for the nine months ended September 30, 2018 to 4.61% for the nine months ended September 30, 2019, related to our LIBOR-based borrowings. In addition, during the nine months ended September 30, 2018, we corrected an immaterial amount of $0.4 million in additional interest expense that should have been expensed during the periods from June 30, 2017 through December 31, 2017. For further information, see ~~Note 2~~ ~~“Summary of Significant Accounting Policies—Prior Period Adjustments” within our consolidated financial statements.~~

~~Equity in Net Losses of Investments~~

Equity in net losses of investments of $0.3 million related to the financial performance of our equity method investment in SUPERNAP International for the nine months ended September 30, 2018. As the carrying value of our investment in SUPERNAP International was reduced to zero as a result of recording our share of its losses as of March 31, 2018, we discontinued the equity method of accounting and will not provide for additional losses until our share of future net income, if any, equals the share of net losses not recognized during the period the equity method was suspended.

~~Loss on Interest Rate Swaps~~

In January and February 2019, we entered into four interest rate swap agreements to mitigate our exposure to interest rate risk. We recorded a loss on interest rate swaps that do not qualify for hedge accounting of $17.7 million from changes in the fair value for the nine months ended September 30, 2019.

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 32

~~Other income decreased by $1.3 million, or 51%, for the nine months ended September 30, 2019, compared to the nine months ended September 30, 2018.~~ The decrease was primarily due to a decrease in our weighted average interest ~~income earned on our cash equivalents.~~

~~Income Tax Expense~~

Nine Months Ended
September 30, Change
2019 2018 Amount %
(dollars in thousands)
Income tax expense $ (1,249 ) $ (2,064 ) $ 815
(39 )%

~~Income tax expense decreased by $0.8 million, or 39%, for~~rate from 4.34% during the ~~nine~~three months ended September 30, 2019 ~~compared~~ to 2.41% during the ~~nine~~three months ended September 30, ~~2018.~~2020, partially offset by an increase in our weighted average debt outstanding during the three months ended September 30, 2020, primarily from borrowings on our revolving credit facility.

Loss on Interest Rate Swaps

Loss on interest rate swaps decreased by $2.4 million, or 60%, for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. The decrease was driven by changes in the fair value of interest rate swaps largely from fluctuation in market interest rates.


	Three Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Income tax expense	$	(1,515)	$	(867)	$	(648)	75	%

Income tax expense was $1.5 million for the three months ended September 30, 2020, compared to $0.9 million for the three months ended September 30, 2019. Income tax expense is driven by our allocable share of Switch, Ltd.’s income ~~and loss~~ before income taxes.

Net Income Attributable to Noncontrolling Interest


	Three Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Net income attributable to noncontrolling interest	$	8,027	$	7,133	$	894	13	%

Net income attributable to noncontrolling interest was $8.0 million for the three months ended September 30, 2020, compared to $7.1 million for the three months ended September 30, 2019. The change was the result of an increase in net income during the three months ended September 30, 2020.

Switch, Inc. | Q3 2020 Form 10-Q | 31

Comparison of the Nine Months Ended September 30, 2020 and 2019


	Nine Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Colocation	$	308,947	$	272,857	$	36,090	13	%
Connectivity	70,394		63,920		6,474		10	%
Other	4,457		4,988		(531)		(11)	%
Revenue	$	383,798	$	341,765	$	42,033	12	%

Revenue increased by $42.0 million, or 12%, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. The increase was primarily attributable to an increase of $36.1 million in colocation revenue. Of the overall increase, 15% was attributable to revenue from new customers initiating service after September 30, 2019, and the remaining 85% was attributable to increased revenue from existing customers.

Cost of Revenue and Gross Margin


	Nine Months Ended September 30,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Cost of revenue	$	209,575		$	179,146		$	30,429	17	%
Gross margin	45.4		%	47.6		%

Cost of revenue increased by $30.4 million, or 17%, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. The increase was primarily attributable to increases of $15.5 million in depreciation and amortization expense due to additional property and equipment being placed into service, $7.1 million in facilities costs due to increased utility rates, $3.2 million in salaries and related employee expenses largely due to a decrease in capitalized and deferred labor during the nine months ended September 30, 2020, $2.4 million in costs related to sales-type lease transactions, and $2.0 million in connectivity costs associated with increased occupancy as a result of expansion activities. Gross margin decreased by ~~$5.2~~220 basis points for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.

Selling, General and Administrative Expense


	Nine Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Selling, general and administrative expense	$	105,070	$	104,039	$	1,031	1	%

Selling, general and administrative expense increased by $1.0 million, or 1%, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. The increase was primarily attributable to an increase of $2.3 million in salaries and related employee expenses, $3.3 million of which is largely due to an increase in headcount, partially offset by a decrease of $1.0 million in non-cash compensation expense primarily related to certain equity awards granted in 2017. Additionally, there was an increase of $1.1 million in real estate and personal property taxes, which, together with the salaries and related employee expenses, were partially offset by a decrease of $2.5 million in professional fees for accounting, consulting, and legal services.

Switch, Inc. | Q3 2020 Form 10-Q | 32

Other Income (Expense)


	Nine Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Other income (expense):
Interest expense	(20,682)		(22,023)		$	1,341	(6)	%

Loss on interest rate swaps	(23,257)		(17,692)		(5,565)		31	%
Loss on extinguishment of debt	(245)		—		(245)		NM
Other	733		1,264		(531)		(42)	%
Total other expense	$	(43,451)	$	(38,451)	$	(5,000)	13	%

Interest expense decreased by $1.3 million, or 6%, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. The decrease was primarily due to a decrease in our weighted average interest rate from 4.61% during the nine months ended September 30, 2019 to 2.89% during the nine months ended September 30, 2020, partially offset by an increase in our weighted average debt outstanding during the nine months ended September 30, 2020, primarily from borrowings on our revolving credit facility.

Loss on Interest Rate Swaps

Loss on interest rate swaps increased by $5.6 million, or 31%, for the nine months ended September 30, ~~2019,~~2020, compared to the nine months ended September 30, ~~2018,~~2019. The increase was driven by changes in the fair value of interest rate swaps largely from fluctuation in market interest rates.


	Nine Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Income tax expense	$	(2,622)	$	(1,531)	$	(1,091)	71	%

Income tax expense was $2.6 million for the nine months ended September 30, 2020, compared to $1.5 million for the nine months ended September 30, 2019. Income tax expense is driven by our allocable share of Switch, Ltd.’s income before income taxes.

Net Income Attributable to Noncontrolling Interest


	Nine Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Net income attributable to noncontrolling interest	$	13,993	$	13,729	$	264	2	%

Net income attributable to noncontrolling interest was $14.0 million for the nine months ended September 30, 2020, compared to $13.7 million for the nine months ended September 30, 2019. The change was primarily due to ~~a decrease~~an increase in net ~~income.~~income during the nine months ended September 30, 2020.

Liquidity and Capital Resources

Switch, Inc. is a holding company and has no material assets other than its ownership of Common Units. As such, we have no independent means of generating revenue or cash flow, and our ability to pay our taxes and operating expenses or declare and pay dividends in the future, if any, will be dependent upon the financial results and cash flows of Switch, Ltd. and its subsidiaries and any distributions we receive from Switch, Ltd. The terms of the amended and restated credit agreement limit the ability of Switch, Ltd., among other things, to incur additional debt,

Switch, Inc. | Q3 2020 Form 10-Q | 33

incur additional liens, encumbrances or contingent liabilities, and pay distributions or make certain other restricted payments.

As of September 30, ~~2019,~~2020, we had ~~$52.5~~$156.1 million ofin cash and cash equivalents. As of September 30, ~~2019,~~2020, our total indebtedness was ~~$672.1 million~~approximately $1.06 billion (excluding debt issuance costs and original issue discount) consisting of (i) ~~$582.7~~$600.0 million principal from our senior unsecured notes, (ii) $400.0 million principal from our term loan facility, ~~(net of debt issuance costs), (ii) $70.0~~and (iii) $57.5 million from our ~~revolving credit facility, and (iii) $19.4 million from our capital~~finance lease ~~obligations.~~liabilities. As of September 30, ~~2019,~~2020, we had access to ~~$430.0~~$500.0 million in additional liquidity from our revolving credit facility. For the year ending December 31, ~~2019,~~2020, we expect to incur ~~$245~~$295 million to ~~$265~~$325 million in capital expenditures for development and construction projects related to our expansion (excluding acquisitions of land); however, the exact amount will depend on a number of factors. We believe we have sufficient cash and access to liquidity, coupled with anticipated cash generated from operating activities, to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months, including repayment of the current portion of our debt as it becomes due and completion of our development projects. We also believe that our financial resources will allow us to manage the anticipated impact of COVID-19 on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. The challenges posed by COVID-19 on our business are expected to evolve. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19.

In addition, we are obligated to make payments under the Tax Receivable ~~Agreement.~~Agreement (“TRA”). Although the actual timing and amount of any payments we make under the ~~Tax Receivable Agreement~~TRA will vary, we expect those payments will be significant. Any payments we make under the ~~Tax Receivable Agreement~~TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us or to Switch, Ltd. and, to the extent we are unable to make payments under the ~~Tax Receivable Agreement~~TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us.

In August 2018, our board of directors authorized a program by which Switch, Ltd. may repurchase up to $150.0 million of its outstanding Common Units for cash and Switch, Inc. will cancel a corresponding amount of Class B common shares. In November 2019, our board of directors increased the repurchase authority by $5.0 million, with any unused amount from this increase expiring on December 31, 2019. The program was effective immediately

~~Switch, Inc.~~ | ~~Q3 2019 Form 10-Q~~ | 33

upon authorization, but may be suspended or discontinued at any time without notice. Repurchases under the Common Unit repurchase program will be funded from our existing cash and cash equivalents. As of September 30, 2019, we had $64.7 million remaining in repurchase authority, of which $49.2 million was used to repurchase Common Units in October 2019.

The following table summarizes our cash flows:

Cash Flows from Operating Activities

Cash from operating activities is primarily generated from operating income from our colocation and connectivity services.

Net cash provided by operating activities for the nine months ended September 30, ~~2019~~2020 was ~~$173.2~~$189.3 million, compared to ~~$140.9~~$173.2 million for the nine months ended September 30, ~~2018.~~2019. The increase of ~~$32.3~~$16.1 million was primarily due to increased operations in our expanded data center facilities and changes in our working capital accounts.

Cash Flows from Investing Activities

During the nine months ended September 30, 2020, net cash used in investing activities was $250.5 million, primarily consisting of capital expenditures of $249.1 million related to the expansion of our data center facilities.

During the nine months ended September 30, 2019, net cash used in investing activities was $222.4 million, primarily consisting of capital expenditures of $221.3 million related to the expansion of our data center facilities.

During the nine months ended September 30, 2018, net cash used in investing activities was $223.1 million, primarily consisting of capital expenditures of $221.1 million related to the expansion of our data center facilities, and purchases of portfolio energy credits of $2.0 million.

Cash Flows from Financing Activities

During the nine months ended September 30, ~~2019,~~2020, net cash provided by financing activities was $192.5 million, primarily consisting of $710.0 million in proceeds from the issuance of our senior unsecured notes and borrowings on our revolving credit facility, partially offset by $465.2 million for the repayment of borrowings outstanding under our credit facilities, $20.0 million for the repurchase of common units, $14.9 million in distributions paid to noncontrolling interest, $11.4 million in dividends paid, and $6.0 million for the payment of debt issuance costs and original issue discount related to our senior unsecured notes and credit agreement amendment.

Switch, Inc. | Q3 2020 Form 10-Q | 34

During the nine months ended September 30, 2019, net cash used in financing activities was $20.1 million, primarily consisting of $70.0 million in proceeds from borrowings on our revolving credit facility, partially offset by $24.7 million for the repurchase of ~~Common Units,~~common units, $15.0 million in distributions paid to noncontrolling interest, ~~of $15.0~~$6.4 million in dividends paid, ~~of $6.4~~and $4.5 million ~~and~~in repayments of borrowings outstanding under our term ~~loan of $4.5 million.~~

During the nine months ended September 30, 2018, net cash used in financing activities was $77.9 million, primarily consisting of $60.6 million for the repurchase of Common Units, distributions paid to noncontrolling interest of $8.9 million, repayments of borrowings outstanding under our term loan of $4.5 million, dividends paid of $2.0 million, and payments of tax withholdings upon settlement of restricted stock unit awards of $1.2 million.loan.

Outstanding Indebtedness



Part I.	Financial Information
Item 1.	Financial Statements (Unaudited)	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2124
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3638
Item 4.	Controls and Procedures	3639

Part II.	Other Information
Item 1.	Legal Proceedings	3840
Item 1A.	Risk Factors	3941
Item 6.	Exhibits	3941
Signatures



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Switch, Inc.
~~Switch, Inc.~~ (Exact name of registrant as specified in its charter)


~~(1)~~	Represents the number of instruments outstanding at the end of the period. Application of the treasury stock method would reduce this amount if they had a dilutive effect and were included in the computation of diluted net income per share.


~~(2)~~	~~Shares of Class B and Class C common stock at the end of the period are considered potentially dilutive shares of Class A common stock under application of the if-converted method.~~


~~(1)~~	~~Interest income is included in the “Other” line of other income (expense) in our consolidated statements of comprehensive income.~~



			Incorporated by Reference
Exhibit No.		Exhibit Description	Form	Exhibit	Filing Date
3.1		Amended and Restated Articles of Incorporation of Switch, Inc.	8-K	3.1	10/11/2017
3.2		Amended and Restated Bylaws of Switch, Inc.	8-K	3.2	10/11/2017
31.1	*	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	#	Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	*	XBRL Instance Document.
101.SCH	*	XBRL Taxonomy Extension Schema Document.
101.CAL	*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	*	XBRL Extension Definition Linkbase Document.
101.LAB	*	XBRL Taxonomy Label Linkbase Document.
101.PRE	*	XBRL Taxonomy Extension Presentation Linkbase Document.



		Switch, Inc. (Registrant)

Date:	November ~~12, 2019~~9, 2020	/s/ Gabe Nacht
		Gabe Nacht Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)