UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, ~~2021~~2022


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

For the transition period from to

Commission File Number: 001-38231


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


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

(702) 444-4111

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Class A common stock, par value $0.001	SWCH	New York Stock Exchange

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☑	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of May ~~6, 2021,~~2, 2022, the registrant had ~~130,927,378~~150,388,024 shares of Class A common stock, ~~110,638,180~~94,231,279 shares of Class B common stock, and 0no shares of Class C common stock outstanding.

Switch, Inc.

Table of Contents


Part I.	Financial Information
Item 1.	Financial Statements (Unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	3031
Part II.	Other Information
Item 1.	Legal Proceedings	3132
Item 1A.	Risk Factors	3132
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 6.	Exhibits	32
Signatures

Table of Contents

Part I.Financial Information.

Item 1.Financial Statements (Unaudited).


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

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Switch, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)

March 31, December 31,
2021 2020
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 38,882 $ 90,719
Accounts receivable, net of allowance for credit losses of $712 and $792, respectively 21,134 21,723
Prepaid expenses 8,685 8,171
Other current assets, net of allowance for credit losses of $2 and $0, respectively 2,125 2,235
Total current assets 70,826 122,848
Property and equipment, net 1,801,302 1,737,415
Long-term deposit 2,789 2,626
Deferred income taxes 227,299 203,201
Other assets, net of allowance for credit losses of $91 and $87, respectively 55,429 48,366
TOTAL ASSETS $ 2,157,645 $ 2,114,456
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 22,627 $ 14,588
Accrued salaries and benefits 7,129 4,884
Accrued interest 1,551 7,132
Accrued expenses and other 10,651 9,686
Accrued construction payables 22,768 27,162
Deferred revenue, current portion 18,401 14,870
Customer deposits 12,804 12,348
Interest rate swap liability, current portion 9,314 9,418
Operating lease liability, current portion 3,867 3,512
Total current liabilities 109,112 103,600
Long-term debt, net 991,608 991,213
Operating lease liability 27,474 25,536
Finance lease liability 57,471 57,516
Deferred revenue 24,803 23,862
Liabilities under tax receivable agreement 311,342 278,865
Other long-term liabilities 17,108 22,897
TOTAL LIABILITIES 1,538,918 1,503,489
Commitments and contingencies (Note 6)
0 0
STOCKHOLDERS’ EQUITY:
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, 127,546 and 119,009 shares issued and outstanding, respectively 128 119
Class B common stock, $0.001 par value per share, 300,000 shares authorized, 113,915 and 121,640 shares issued and outstanding, respectively 114 122
Class C common stock, $0.001 par value per share, 75,000 shares authorized, NaN issued and outstanding 0 0
Additional paid in capital 283,505 266,129
Retained earnings 5,088 9
Accumulated other comprehensive income 18 79
Total Switch, Inc. stockholders’ equity 288,853 266,458
Noncontrolling interest 329,874 344,509
TOTAL STOCKHOLDERS’ EQUITY 618,727 610,967
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,157,645 $ 2,114,456


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

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

Deferred revenue, current portion	21,163		16,905
Customer deposits	16,707		16,335
Swap liability, current portion	2,846		8,062
Operating lease liability, current portion	2,705		3,281
Total current liabilities	134,532		168,586
Long-term debt, net	1,711,433		1,611,962
Operating lease liability	31,467		32,157
Finance lease liability	57,346		57,376
Deferred revenue	25,507		25,921
Liabilities under tax receivable agreement	412,456		395,615
Other long-term liabilities	969		8,360
TOTAL LIABILITIES	2,373,710		2,299,977
Commitments and contingencies (Note 6)	0		0
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value per share, 10,000 shares authorized, none issued and outstanding	—		—
Class A common stock, $0.001 par value per share, 750,000 shares authorized, 148,846 and 145,187 shares issued and outstanding, respectively	149		145
Class B common stock, $0.001 par value per share, 300,000 shares authorized, 95,773 and 98,331 shares issued and outstanding, respectively	96		98
Class C common stock, $0.001 par value per share, 75,000 shares authorized, none issued and outstanding	—		—
Additional paid in capital	357,286		352,984
Accumulated deficit	(18,188)		(23,022)
Accumulated other comprehensive loss	(568)		(568)
Total Switch, Inc. stockholders’ equity	338,775		329,637
Noncontrolling interest	286,940		289,004
TOTAL STOCKHOLDERS’ EQUITY	625,715		618,641
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,999,425	$	2,918,618

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

Switch, Inc. | Q1 ~~2021~~2022 Form 10-Q | 2

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Switch, Inc.

Consolidated Statements of Comprehensive Income ~~(Loss)~~

(in thousands, except per share data)

(unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
Revenue	Revenue	$	130,866	$	128,096	Revenue	$	164,609	$	130,866
Cost of revenue	Cost of revenue	71,693		67,029		Cost of revenue	94,491		71,693
Gross profit	Gross profit	59,173		61,067		Gross profit	70,118		59,173
Selling, general and administrative expense	Selling, general and administrative expense	34,998		40,116		Selling, general and administrative expense	42,871		34,998

Income from operations	Income from operations	24,175		20,951		Income from operations	27,247		24,175
Other income (expense):	Other income (expense):					Other income (expense):
Interest expense, including $583 and $409, respectively, in amortization of debt issuance costs and original issue discount		(8,757)		(7,435)
Gain (loss) on interest rate swaps		3,205		(17,555)
Interest expense, including $662 and $583, respectively, in amortization of debt issuance costs and original issue discount						Interest expense, including $662 and $583, respectively, in amortization of debt issuance costs and original issue discount	(13,197)		(8,757)
Gain on swaps						Gain on swaps	13,649		3,205

Equity in net losses of investments	Equity in net losses of investments	(220)		0		Equity in net losses of investments	—		(220)
Gain on sale of equity method investment	Gain on sale of equity method investment	5,374		0		Gain on sale of equity method investment	—		5,374
Other	Other	3,271		277		Other	475		3,271
Total other income (expense)		2,873		(24,713)
Income (loss) before income taxes		27,048		(3,762)
Income tax (expense) benefit		(2,654)		273
Net income (loss)		24,394		(3,489)
Less: net income (loss) attributable to noncontrolling interest		12,753		(2,273)
Net income (loss) attributable to Switch, Inc.		$	11,641	$	(1,216)
Total other income						Total other income	927		2,873
Income before income taxes						Income before income taxes	28,174		27,048
Income tax expense						Income tax expense	(4,240)		(2,654)
Net income						Net income	23,934		24,394
Less: net income attributable to noncontrolling interest						Less: net income attributable to noncontrolling interest	11,141		12,753
Net income attributable to Switch, Inc.						Net income attributable to Switch, Inc.	$	12,793	$	11,641

Net income (loss) per share (Note 10):
Net income per share (Note 10):						Net income per share (Note 10):
Basic	Basic	$	0.09	$	(0.01)	Basic	$	0.09	$	0.09
Diluted	Diluted	$	0.09	$	(0.01)	Diluted	$	0.08	$	0.09

Weighted average shares used in computing net income (loss) per share (Note 10):
Weighted average shares used in computing net income per share (Note 10):						Weighted average shares used in computing net income per share (Note 10):
Basic	Basic	126,641		94,366		Basic	147,745		126,641
Diluted	Diluted	129,110		94,366		Diluted	153,265		129,110

Other comprehensive income (loss):
Other comprehensive loss:						Other comprehensive loss:
Foreign currency translation adjustment, net of reclassification adjustment and tax of $0	Foreign currency translation adjustment, net of reclassification adjustment and tax of $0	(474)		0		Foreign currency translation adjustment, net of reclassification adjustment and tax of $0	—		(474)
Comprehensive income (loss)		23,920		(3,489)
Less: comprehensive income (loss) attributable to noncontrolling interest		12,340		(2,273)
Comprehensive income (loss) attributable to Switch, Inc.		$	11,580	$	(1,216)
Comprehensive income						Comprehensive income	23,934		23,920
Less: comprehensive income attributable to noncontrolling interest						Less: comprehensive income attributable to noncontrolling interest	11,141		12,340
Comprehensive income attributable to Switch, Inc.						Comprehensive income attributable to Switch, Inc.	$	12,793	$	11,580

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

Switch, Inc. | Q1 ~~2021~~2022 Form 10-Q | 3

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Switch, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)


		Switch, Inc. Stockholders’ Equity																	Switch, Inc. Stockholders’ Equity
		Class A Common Stock			Class B Common Stock														Class A Common Stock			Class B Common Stock
		Shares	Amount		Shares	Amount		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Stockholders’ Equity			Shares	Amount		Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders’ Equity
Balance—December 31, 2020		119,009	$	119	121,640	$	122	$	266,129	$	9	$	79	$	344,509	$	610,967
Balances—December 31, 2021																		Balances—December 31, 2021	145,187	$	145	98,331	$	98	$	352,984	$	(23,022)	$	(568)	$	289,004	$	618,641
Net income	Net income	—	—		—	—		—		11,641		—		12,753		24,394		Net income	—	—		—	—		—		12,793		—		11,141		23,934
Equity-based compensation expense	Equity-based compensation expense	—	—		—	—		6,359		—		—		938		7,297		Equity-based compensation expense	—	—		—	—		6,681		—		—		—		6,681
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	812	1		—	—		(5,622)		—		—		147		(5,474)		Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	957	1		—	—		(11,209)		—		—		(341)		(11,549)

Dividends declared ($0.05 per share)		—	—		—	—		—		(6,562)		—		—		(6,562)
Issuance of Class A common stock upon exercise of stock options																		Issuance of Class A common stock upon exercise of stock options	144	1		—	—		2,611		—		—		(167)		2,445
Dividends declared ($0.0525 per share)																		Dividends declared ($0.0525 per share)	—	—		—	—		—		(7,959)		—		—		(7,959)
Distributions to noncontrolling interest	Distributions to noncontrolling interest	—	—		—	—		—		—		—		(5,696)		(5,696)		Distributions to noncontrolling interest	—	—		—	—		—		—		—		(4,931)		(4,931)
Exchanges of noncontrolling interest for Class A common stock	Exchanges of noncontrolling interest for Class A common stock	7,725	8		(7,725)	(8)		22,364		—		—		(22,364)		—		Exchanges of noncontrolling interest for Class A common stock	2,558	2		(2,558)	(2)		7,766		—		—		(7,766)		—

Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	—	—		—	—		(32,477)		—		—		—		(32,477)		Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	—	—		—	—		(16,841)		—		—		—		(16,841)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		26,752		—		—		—		26,752		Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		15,294		—		—		—		15,294
Foreign currency translation adjustment		—	—		—	—		—		—		(61)		(413)		(474)
Balance—March 31, 2021		127,546	$	128	113,915	$	114	$	283,505	$	5,088	$	18	$	329,874	$	618,727
Balances—March 31, 2022																		Balances—March 31, 2022	148,846	$	149	95,773	$	96	$	357,286	$	(18,188)	$	(568)	$	286,940	$	625,715

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Switch, Inc.

Consolidated Statements of Stockholders’ Equity (Continued)

(in thousands)

(unaudited)


		Switch, Inc. Stockholders’ Equity																	Switch, Inc. Stockholders’ Equity
		Class A Common Stock			Class B Common Stock														Class A Common Stock			Class B Common Stock
		Shares	Amount		Shares	Amount		Additional Paid in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Stockholders’ Equity			Shares	Amount		Shares	Amount		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		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)
Balances—December 31, 2020																		Balances—December 31, 2020	119,009	$	119	121,640	$	122	$	266,129	$	9	$	79	$	344,509	$	610,967
Net income																		Net income	—	—		—	—		—		11,641		—		12,753		24,394
Equity-based compensation expense	Equity-based compensation expense	—	—		—	—		4,973		—		—		2,551		7,524		Equity-based compensation expense	—	—		—	—		6,359		—		—		938		7,297
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	630	—		—	—		(3,375)		—		—		(536)		(3,911)		Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	812	1		—	—		(5,622)		—		—		147		(5,474)
Dividends declared ($0.0294 per share)		—	—		—	—		—		(2,891)		—		—		(2,891)
Dividends declared ($0.05 per share)																		Dividends declared ($0.05 per share)	—	—		—	—		—		(6,562)		—		—		(6,562)
Distributions to noncontrolling interest	Distributions to noncontrolling interest	—	—		—	—		—		—		—		(4,304)		(4,304)		Distributions to noncontrolling interest	—	—		—	—		—		—		—		(5,696)		(5,696)
Exchanges of noncontrolling interest for Class A common stock	Exchanges of noncontrolling interest for Class A common stock	4,637	5		(4,637)	(5)		13,403		—		—		(13,403)		—		Exchanges of noncontrolling interest for Class A common stock	7,725	8		(7,725)	(8)		22,364		—		—		(22,364)		—
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	—	—		—	—		(19,198)		—		—		—		(19,198)		Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	—	—		—	—		(32,477)		—		—		—		(32,477)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		16,610		—		—		—		16,610		Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		26,752		—		—		—		26,752
Balance—March 31, 2020		95,035	$	95	146,410	$	146	$	217,124	$	(1,754)	$	79	$	402,147	$	617,837
Foreign currency translation adjustment																		Foreign currency translation adjustment	—	—		—	—		—		—		(61)		(413)		(474)
Balances—March 31, 2021																		Balances—March 31, 2021	127,546	$	128	113,915	$	114	$	283,505	$	5,088	$	18	$	329,874	$	618,727

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

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Switch, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	24,394	$	(3,489)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net income						Net income	$	23,934	$	24,394
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	Depreciation and amortization of property and equipment	38,791		32,518		Depreciation and amortization of property and equipment	47,833		38,791
(Gain) loss on disposal of property and equipment		(193)		60
Amortization of customer relationships						Amortization of customer relationships	1,562		—
Loss (gain) on disposal of property and equipment						Loss (gain) on disposal of property and equipment	193		(193)
Deferred income taxes	Deferred income taxes	2,654		(273)		Deferred income taxes	4,240		2,654
Amortization of debt issuance costs and original issue discount	Amortization of debt issuance costs and original issue discount	583		409		Amortization of debt issuance costs and original issue discount	662		583
Credit (benefit) loss expense		(77)		18
Unrealized (gain) loss on interest rate swaps		(5,562)		16,745
Credit loss expense (benefit)						Credit loss expense (benefit)	157		(77)
Unrealized gain on swaps						Unrealized gain on swaps	(15,994)		(5,562)

Equity in net losses on investments	Equity in net losses on investments	220		0		Equity in net losses on investments	—		220
Gain on sale of equity method investment	Gain on sale of equity method investment	(5,374)		0		Gain on sale of equity method investment	—		(5,374)
Equity-based compensation	Equity-based compensation	7,297		7,524		Equity-based compensation	6,681		7,297

Amortization of portfolio energy credits	Amortization of portfolio energy credits	0		267		Amortization of portfolio energy credits	384		—
Cost of revenue for sales-type leases	Cost of revenue for sales-type leases	149		2,803		Cost of revenue for sales-type leases	—		149
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	169		5,944		Accounts receivable	(6,603)		169
Prepaid expenses	Prepaid expenses	(514)		454		Prepaid expenses	(1,192)		(514)

Other current assets	Other current assets	108		(626)		Other current assets	62		108
Other assets	Other assets	(444)		411		Other assets	872		(444)
Accounts payable	Accounts payable	1,001		1,987		Accounts payable	(8,848)		1,001
Accrued salaries and benefits	Accrued salaries and benefits	2,245		1,025		Accrued salaries and benefits	1,530		2,245
Accrued interest	Accrued interest	(5,581)		(13)		Accrued interest	(755)		(5,581)
Accrued expenses and other	Accrued expenses and other	965		130		Accrued expenses and other	(1,705)		965
Deferred revenue	Deferred revenue	4,472		(2,261)		Deferred revenue	3,844		4,472
Customer deposits	Customer deposits	456		298		Customer deposits	372		456
Operating lease liabilities	Operating lease liabilities	(1,141)		(1,281)		Operating lease liabilities	(537)		(1,141)
Other long-term liabilities	Other long-term liabilities	(121)		(92)		Other long-term liabilities	(180)		(121)
Net cash provided by operating activities	Net cash provided by operating activities	64,497		62,558		Net cash provided by operating activities	56,512		64,497
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:

Acquisition of property and equipment	Acquisition of property and equipment	(100,424)		(80,898)		Acquisition of property and equipment	(150,433)		(100,424)
Purchase of portfolio energy credits	Purchase of portfolio energy credits	(1,500)		(601)		Purchase of portfolio energy credits	(542)		(1,500)
Purchase of equity method investment	Purchase of equity method investment	(2,200)		0		Purchase of equity method investment	—		(2,200)
Proceeds from sale of equity method investment	Proceeds from sale of equity method investment	4,900		0		Proceeds from sale of equity method investment	—		4,900

Proceeds from sale of property and equipment						Proceeds from sale of property and equipment	378		—

Net cash used in investing activities	Net cash used in investing activities	(99,224)		(81,499)		Net cash used in investing activities	(150,597)		(99,224)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from borrowings		0		70,000
Proceeds from borrowings, net of original issue discount						Proceeds from borrowings, net of original issue discount	100,000		—

Repayment of borrowings, including finance lease liabilities	Repayment of borrowings, including finance lease liabilities	(46)		(1,671)		Repayment of borrowings, including finance lease liabilities	(1,031)		(46)

Change in long-term deposit	Change in long-term deposit	877		1,659		Change in long-term deposit	(3,218)		877
Payment of tax withholdings upon settlement of restricted stock unit awards	Payment of tax withholdings upon settlement of restricted stock unit awards	(5,782)		(4,040)		Payment of tax withholdings upon settlement of restricted stock unit awards	(12,104)		(5,782)

Proceeds from exercise of stock options						Proceeds from exercise of stock options	2,445		—

Dividends paid to Class A common stockholders	Dividends paid to Class A common stockholders	(6,377)		(2,795)		Dividends paid to Class A common stockholders	(7,811)		(6,377)
Distributions paid to noncontrolling interest	Distributions paid to noncontrolling interest	(5,782)		(4,222)		Distributions paid to noncontrolling interest	(5,028)		(5,782)
Net cash (used in) provided by financing activities		(17,110)		58,931
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(51,837)		39,990
CASH AND CASH EQUIVALENTS—Beginning of period		90,719		24,721
CASH AND CASH EQUIVALENTS—End of period		$	38,882	$	64,711
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	73,253		(17,110)
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH						NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH	(20,832)		(51,837)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period						CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period	50,215		90,719
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period						CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period	$	29,383	$	38,882

Switch, Inc. | Q1 ~~2021~~2022 Form 10-Q | 6

Table of Contents

Switch, Inc.

Consolidated Statements of Cash Flows (Continued)

(in thousands)

(unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:	SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:					SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized	Cash paid for interest, net of amounts capitalized	$	13,852	$	7,106	Cash paid for interest, net of amounts capitalized	$	13,449	$	13,852
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:	SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:					SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Increase (decrease) in liabilities incurred to acquire property and equipment		$	3,141	$	(13,532)
(Decrease) increase in liabilities incurred to acquire property and equipment						(Decrease) increase in liabilities incurred to acquire property and equipment	$	(23,114)	$	3,141
Decrease in accrued construction payables incurred related to long-term deposit	Decrease in accrued construction payables incurred related to long-term deposit	$	(41)	$	(882)	Decrease in accrued construction payables incurred related to long-term deposit	$	(1,500)	$	(41)
Increase in property and equipment related to transfer from long-term deposit		$	0	$	244

Increase in receivables due to sale of property and equipment	Increase in receivables due to sale of property and equipment	$	931	$	0	Increase in receivables due to sale of property and equipment	$	—	$	931
Increase in dividends payable on unvested restricted stock units		$	185	$	96
Decrease in noncontrolling interest as a result of exchanges for Class A common stock	Decrease in noncontrolling interest as a result of exchanges for Class A common stock	$	(22,364)	$	(13,403)	Decrease in noncontrolling interest as a result of exchanges for Class A common stock	$	(7,766)	$	(22,364)
Recognition of liabilities under tax receivable agreement	Recognition of liabilities under tax receivable agreement	$	32,477	$	19,198	Recognition of liabilities under tax receivable agreement	$	16,841	$	32,477
Increase in deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	Increase in deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	$	26,752	$	16,610	Increase in deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	$	15,294	$	26,752
Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	$	3,434	$	0	Right-of-use assets obtained in exchange for new operating lease liabilities	$	—	$	3,434
Right-of-use assets obtained in exchange for new finance lease liabilities		$	0	$	145
(Decrease) increase in distributions payable on unvested common units		$	(86)	$	82

Decrease in distributions payable on unvested common units						Decrease in distributions payable on unvested common units	$	(97)	$	(86)
Increase in dividends payable on unvested restricted stock units						Increase in dividends payable on unvested restricted stock units	$	148	$	185
Dividends payable settled with shares of Class A common stock	Dividends payable settled with shares of Class A common stock	$	308	$	129	Dividends payable settled with shares of Class A common stock	$	555	$	308

RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:						RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:
Cash and cash equivalents						Cash and cash equivalents	$	27,493	$	38,882
Restricted cash						Restricted cash	1,890		—
Total cash, cash equivalents, and restricted cash						Total cash, cash equivalents, and restricted cash	$	29,383	$	38,882

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

Switch, Inc. | Q1 ~~2021~~2022 Form 10-Q | 7

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Switch, Inc.

Condensed Notes to Consolidated Financial Statements

(unaudited)


Note 1	Organization	9
Note 2	Summary of Significant Accounting Policies	9
Note 3	~~Property and Equipment, Net~~Acquisition	12
Note 4	~~Equity Method Investments~~Property and Equipment, Net	13
Note 5	Long-Term Debt	1314
Note 6	Commitments and Contingencies	1314
Note 7	Income Taxes	14
Note 8	Equity-Based Compensation	15
Note 9	Noncontrolling Interest	15
Note 10	Net Income ~~(Loss)~~ Per Share	1516
Note 11	Segment Reporting	16
Note 12	Subsequent Events	17

Switch, Inc. | Q1 ~~2021~~2022 Form 10-Q | 8

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, Michigan, and Georgia, delivering redundant services with low latency and super capacity transport environments. In June 2021, Switch, Ltd. acquired all of the equity interests of Data Foundry, LLC (“Data Foundry”) and certain real property interests used in connection with Data Foundry’s operations, including operating data centers in Texas.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, ~~2020.~~2021.

On June 7, 2021, Switch, Ltd. acquired all of the equity interests of Data Foundry and certain real property interests used in connection with Data Foundry’s operations. The Company has included the results of operations for Data Foundry in the consolidated financial statements from the date of acquisition. See Note 3 “Acquisition” for additional information.

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 months ended March 31, ~~2021~~2022 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2021,~~2022, 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. identified 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 other than Switch, Inc. on its consolidated financial statements. As of January 2021, Switch, Inc. owns a majority economic interest in Switch.

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 credit losses, useful lives of property and equipment, impairment of intangible assets, deferred income taxes, liabilities under the tax receivable agreement, equity-based compensation, deferred revenue, incremental borrowing rate, fair value of performance obligations, fair value of assets acquired and liabilities assumed in business combinations, 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. | Q1 2022 Form 10-Q | 9

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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, ~~2020.~~2021. No other changes to significant accounting policies have occurred since December 31, ~~2020,~~2021, with the exception of those detailed below.

~~Switch, Inc.~~ | ~~Q1 2021 Form 10-Q~~ | 9

~~Table of Contents~~

Concentration of Credit and Other Risks

Although the Company operates primarily in Nevada, realization of its 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 March 31, ~~2021~~2022 and ~~2020,~~2021, the Company’s largest customer and its affiliates comprised ~~16%~~14% and ~~14%~~16%, respectively, of the Company’s revenue. ~~The Company’s largest customer and its affiliates~~Two customers accounted for 10% or more of total receivables, including net investments in sales-type leases, as of March 31, ~~2021 and~~2022. One customer accounted for 10% or more of total receivables, including net investments in sales-type leases, as of December 31, ~~2020.~~

~~Foreign Currency Translation~~

During the three months ended March 31, 2021, foreign currency translation gains of $0.1 million and $0.4 million related to the sale of the Company’s ownership interest in SUPERNAP International, S.A. (“SUPERNAP International”) were reclassified from accumulated other comprehensive income and noncontrolling interest, respectively, to net income. These amounts are included within gain on sale of equity method investment on the consolidated statement of comprehensive income. See ~~Note 4“Equity Method Investments” for more information.~~2021.

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, 2020 $ 0 $ 3,997 $ 14,870 $ 23,862
March 31, 2021 106 4,151 18,401 24,803
Change $ 106 $ 154 $ 3,531 $ 941


	Contract Assets, Current Portion(1)		Contract Assets(2)		Deferred Revenue, Current Portion(3)		Deferred Revenue(4)
	(in thousands)
December 31, 2021	$	190	$	4,262	$	16,905	$	25,921
March 31, 2022	190		4,296		21,163		25,507
Change	$	—	$	34	$	4,258	$	(414)

(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 ~~$1.3~~$1.5 million and ~~$1.7~~$1.4 million of deferred revenue related to leases as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

(4)Amounts include $2.5 million and ~~$2.7~~$2.8 million of deferred revenue related to leases as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, 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, ~~2020~~2021 was ~~$2.7~~$2.2 million during the three months ended March 31, ~~2021.~~2022. For the three months ended March 31, ~~2021, 0~~2022, no impairment losses related to contract assets were recognized on the consolidated statement 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 totaled ~~$773.9~~$875.0 million as of March 31, ~~2021, 40%~~2022, 45%, ~~51%~~44%, and 8%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. | Q1 ~~2021~~2022 Form 10-Q | 10

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Fair Value Measurements

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


		March 31, 2022
	Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
		(in thousands)
Assets:

Power swaps	Other current assets	$	685	$	—	$	685	$	—
Power swaps	Other assets	$	1,270	$	—	$	1,270	$	—
Interest rate swaps	Other assets	$	2,116	$	—	$	2,116	$	—

Liabilities:
Interest rate swaps	Swap liability, current portion	$	2,846	$	—	$	2,846	$	—

March 31, 2021
Balance Sheet Classification Carrying Value Level 1 Level 2 Level 3
(in thousands)
Liabilities:
Interest rate swaps Interest rate swap liability, current portion $ 9,314 $ — $ 9,314 $ —
Interest rate swaps Other long-term liabilities $ 15,065 $ — $ 15,065 $ —


			December 31, 2020										December 31, 2021
		Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3			Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
			(in thousands)										(in thousands)
Assets:	Assets:										Assets:
Cash equivalents	Cash equivalents	Cash and cash equivalents	$	60,664	$	60,664	$	—	$	—	Cash equivalents	Cash and cash equivalents	$	17,959	$	17,959	$	—	$	—
Liabilities:	Liabilities:										Liabilities:
Interest rate swaps	Interest rate swaps	Interest rate swap liability, current portion	$	9,418	$	—	$	9,418	$	—	Interest rate swaps	Swap liability, current portion	$	8,062	$	—	$	8,062	$	—
Interest rate swaps	Interest rate swaps	Other long-term liabilities	$	20,523	$	—	$	20,523	$	—	Interest rate swaps	Other long-term liabilities	$	6,706	$	—	$	6,706	$	—

There were no transfers between levels of fair value hierarchy during the periods presented.

The fair ~~value~~values of power swaps and interest rate swaps ~~was~~were measured using a present value of cash flow valuation technique based on forward pricing and yield curves for the same or similar financial instruments.

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 estimated 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.

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 4 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. ~~Gains~~Resulting gains and losses from these derivatives, ~~not designated as hedging instruments,~~ inclusive of periodic net settlement amounts, were recorded in gain ~~(loss)~~ on ~~interest rate~~ swaps on the consolidated statements of comprehensive ~~income (loss).~~income. The Company recorded ~~a gain~~gains on interest rate swaps of $11.6 million and $3.2 million for the three months ended March 31, 2022 and 2021, ~~and a loss on interest rate swaps of $17.6 million for the three months ended March 31, 2020.~~

respectively.

Switch, Inc. | Q1 ~~2021~~2022 Form 10-Q | 11

Table of Contents

The Company enters into power swap agreements to manage its exposure to adverse changes in the price of power. In March 2022, Switch, Ltd. entered into 2 power swap agreements comprising power paid at fixed prices in exchange for receipts on power sales based on the variable prices at the time of settlement. The power swap agreements mature in September 2022 and September 2024 and are not designated as hedging instruments. Resulting gains from these derivatives, inclusive of periodic net settlement amounts, were recorded in gain on swaps on the consolidated statements of comprehensive income. The Company recorded a gain on power swaps of $2.0 million for the three months ended March 31, 2022.

Recent Accounting Pronouncements

The Company’s management has evaluated all of the recently issued, but not yet effective, accounting standards that have been issued or proposed by the Financial Accounting Standards Board or other standards-setting bodies through the filing date of these financial statements and does not believe the future adoption of any such pronouncements will have a material effect on the Company’s financial position, results of operations, and cash flows.

~~Reclassification~~

3. Acquisition

On June 7, 2021, Switch, Ltd. acquired all of the equity interests of Data Foundry and certain real property interests used in connection with Data Foundry’s operations for total cash consideration of $420.0 million, which includes $3.7 million outstanding as of March 31, 2022 to be paid prior to June 7, 2022 upon the finalization of certain closing conditions and $4.6 million of acquired cash, cash equivalents, and restricted cash.

Supplemental pro forma results of operations for the Company, assuming the acquisition had occurred on January 1, 2020, are as follows (in thousands):


	Three Months Ended March 31, 2021
Revenue	$	142,445
Net income attributable to Switch, Inc.	$	9,516

The ~~Company reclassified~~above supplemental pro forma results of operations include the ~~change~~following adjustments and related income tax and noncontrolling interest impacts after applying the Company’s accounting policies:

•additional depreciation and amortization expense reflecting the fair value adjustments to property and equipment and intangible assets;

•adjustment to interest expense to reflect the removal of Data Foundry’s debt and the issuance of Switch, Ltd.’s $500.0 million aggregate principal amount of its 4.125% senior unsecured notes due 2029 in ~~accrued interest~~conjunction with the acquisition; and

•adjustment to ~~present it separately from the change in accrued expenses and other on the consolidated statement of cash flows for~~reflect acquisition-related costs incurred during the three months ended March 31, ~~2020 to be consistent with~~2021 as incurred during the ~~current period presentation. The reclassification had no impact on the Company’s financial condition, results~~three months ended March 31, 2020.

Switch, Inc. | Q1 2022 Form 10-Q | 12

Table of ~~operations, or net cash flows.~~Contents

3.4. Property and Equipment, Net

Property and equipment, net consists of the following:

March 31, December 31,
2021 2020
(in thousands)
Land and land improvements $ 287,638 $ 286,706
Buildings, building improvements, and leasehold improvements 588,166 532,938
Substation equipment 19,780 19,780
Data center equipment 1,287,344 1,230,623
Vehicles 2,032 1,974
Core network equipment 38,213 37,327
Fiber facilities 14,552 14,441
Computer equipment, furniture and fixtures 44,313 42,243
Finance lease right-of-use assets 72,933 72,951
Construction in progress 184,482 198,355
Property and equipment, gross 2,539,453 2,437,338
Less: accumulated depreciation and amortization (738,151) (699,923)
Property and equipment, net $ 1,801,302 $ 1,737,415


	March 31,		December 31,
	2022		2021
	(in thousands)
Land and land improvements	$	322,974	$	322,808
Buildings, building improvements, and leasehold improvements	699,055		695,378
Substation equipment	19,780		19,780
Data center equipment	1,589,574		1,559,241
Vehicles	2,105		2,045
Core network equipment	45,103		43,086

Fiber facilities	14,825		14,647
Computer equipment, furniture and fixtures	53,692		53,194
Finance lease right-of-use assets	75,933		75,933
Construction in progress	410,474		319,623
Property and equipment, gross	3,233,515		3,105,735
Less: accumulated depreciation and amortization	(916,107)		(868,676)
Property and equipment, net	$	2,317,408	$	2,237,059

Accumulated amortization for finance lease right-of-use assets totaled ~~$14.9~~$17.2 million and ~~$14.3~~$16.7 million as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

During the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, capitalized interest was ~~$1.3~~$2.7 million and ~~$1.8~~$1.3 million, respectively.

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

Three Months Ended
March 31,
2021 2020
(in thousands)
Cost of revenue $ 37,729 $ 31,228
Selling, general and administrative expense 1,062 1,290
Total depreciation and amortization of property and equipment $ 38,791 $ 32,518


	Three Months Ended March 31,
	2022		2021
	(in thousands)
Cost of revenue	$	46,438	$	37,729
Selling, general and administrative expense	1,395		1,062
Total depreciation and amortization of property and equipment	$	47,833	$	38,791

Switch, Inc. | Q1 ~~2021~~2022 Form 10-Q | 1213

Table of Contents

~~4. Equity Method Investments~~5. Long-Term Debt

~~In February 2021,~~Long-term debt consists of the Company acquired SUPERNAP International’s 30% ownership interest in SUPERNAP (Thailand) Company Limited (“SUPERNAP Thailand”), the entity which has deployed a data center facility in Thailand, for $2.2 million and sold its 50% ownership interest in SUPERNAP International for $4.9 million, thus disposing of its interest in the data center facility deployed in Italy. As a result of this transaction, the Company recorded a gain on sale of equity method investment of $5.4 million, which includes $0.5 million in foreign currency translation gains realized, for the three months ended March 31, 2021 on the consolidated statement of comprehensive income.following:


	March 31,		December 31,
	2022		2021
	(in thousands)
3.75% senior unsecured notes, due September 2028	$	600,000	$	600,000
4.125% senior unsecured notes, due June 2029	500,000		500,000
Term loan facility, interest paid at the defined LIBOR rate plus applicable interest margin (2.46% and 2.10% at March 31, 2022 and December 31, 2021, respectively), due July 2028	398,000		399,000
Revolving credit facility, interest paid at the defined LIBOR rate plus applicable interest margin (2.21% and 1.85% at March 31, 2022 and December 31, 2021, respectively), due July 2026	230,000		130,000
Long-term debt, gross	1,728,000		1,629,000
Less: unamortized debt issuance costs and original issue discount	(12,567)		(13,038)
	1,715,433		1,615,962
Less: long-term debt, current	(4,000)		(4,000)
Long-term debt, net	$	1,711,433	$	1,611,962

As of March 31, 2021, the Company held a 30% ownership interest in SUPERNAP Thailand, the investment of which was accounted for under the equity method of accounting. The Company’s share of net loss recorded for the three months ended March 31, 2021 was $0.2 million. As of March 31, 2021, the Company’s net investment of $2.0 million was recorded within other assets on the consolidated balance sheet.

~~5. Long-Term Debt~~

~~Long-term debt consists of the following as of:~~

March 31, December 31,
2021 2020
(in thousands)
3.75% senior unsecured notes, due September 2028 $ 600,000 $ 600,000
Term loan facility, interest paid at the defined LIBOR rate plus applicable interest margin (2.36% and 2.40% at March 31, 2021 and December 31, 2020, respectively), due June 2024 400,000 400,000
Long-term debt, gross 1,000,000 1,000,000
Less: unamortized debt issuance costs and original issue discount (8,392) (8,787)
Long-term debt, net $ 991,608 $ 991,213

~~As of March 31, 2021,~~2022, the Company had ~~$500.0~~$263.1 million of available borrowing capacity under its revolving credit facility, net of outstanding letters of credit.

The estimated fair value of the Company’s long-term debt as of March 31, ~~2021~~2022 and December 31, ~~2020~~2021 was approximately ~~$994.1 million~~$1.71 billion and ~~$1.01~~$1.65 billion, respectively, compared to its carrying value, excluding debt issuance costs and original issue discount, of ~~$1.00 billion.~~$1.73 billion and $1.63 billion, respectively. The estimated fair value of the Company’s long-term debt was based on Level 2 inputs using quoted market prices on or about March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

6. Commitments and Contingencies

Purchase Commitments

In March 2022, Switch, Ltd. entered into a power purchase and sale agreement to purchase an aggregate firm commitment of 474,650 megawatt-hours, or a purchase commitment of $25.7 million, inclusive of scheduling services, during a term of 19 months starting on May 1, 2022. Additional franchise tax amounts may be due based on the data center location where the purchased power is used.

Operating Leases

During the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, lease costs related to operating leases were ~~$1.7~~$1.9 million and ~~$1.8~~$1.7 million, respectively. Related party lease costs included in these amounts were $1.2 million for each of the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021.

Legal Proceedings

~~On September 7, 2017, Switch, Ltd. and Switch, Inc. were named in a lawsuit filed~~The Company is party to legal proceedings arising in the ~~U.S. District Court for the District~~ordinary course of ~~Nevada by V5 Technologies formerly d/b/~~business, but is not currently a ~~Cobalt Data Centers. Switch, Inc. has been dismissed from the case. The lawsuit alleges, among other things,~~party to any legal proceeding that Switch, Ltd. 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. Discovery closed in February 2020. In January 2021, summary judgment was granted in Switch, Ltd.’s favor dismissing all but four of the claims andmanagement believes could have a partial motion for summary judgment by Cobalt Data Centers was fully denied. The scope of the alleged damages against Switch, Ltd. was also narrowed. Switch, Ltd. is vigorously defending the remaining claims in 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

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Switch by using Switch’s designs to design the Aligned data centers. Switch, Ltd. is seeking an injunction to prevent the defendants in the lawsuit from infringing Switch, Ltd.’s patents, as well as other remedies. The parties are currently finalizing discovery.

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, 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 seek unspecified damages and other relief. With respect to the Federal Court Securities Action, in July 2019, the federal court granted Switch, Inc.’s motion to dismiss in part, which narrowed the scope of the plaintiff’s case. In December 2019, Switch, Inc. filed a motion for judgmentmaterial adverse effect on the pleadings, and in July 2020, the federal court entered a judgment in favor of Switch, Inc. With respect to the State Court Securities Action, in February 2021, the court granted Switch, Inc.’s motion to dismiss. The deadline for plaintiffs to appeal has passed, so the Securities Actions have been resolved in Switch, Inc.’s favor.

On September 10, 2018, 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 subsequentlyCompany’s 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 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 resolved with prejudice as to each defendant or a motion for summary judgment is resolved in the Federal Court Securities Action. The Derivative Shareholder Action remains stayed. Switch, Inc. believes that the Derivative Shareholder Action is without merit and intends to continue to vigorously defend against it.

~~The outcomes of the legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to the Company’s~~ financial ~~condition,~~position, results of operations, ~~and~~or cash flows for a particular period. Where the Company is a defendant, it will vigorously defend against the claims pleaded against it. 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.flows.

7. Income Taxes

The Company recorded net increases in deferred tax assets of ~~$26.8~~$15.3 million and ~~$16.6~~$26.8 million during the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, with a corresponding increase to additional paid in capital, resulting from changes in the outside basis difference on Switch, Inc.’s investment in Switch, Ltd. The Company has determined that it is more-likely-than-not that it will be able to realize this deferred tax asset in the future.

Tax Receivable Agreement

The Company has recorded a liability under the tax receivable agreement of ~~$311.3~~$412.5 million and ~~$278.9~~$395.6 million as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, of which ~~$61.8~~$197.4 million and ~~$56.8~~$190.7 million is owed to certain named executive officers of the Company, ~~and~~certain members of its Board of Directors, and certain beneficial owners of more than 5% of the Company’s Class A or Class B common stock (and immediate family members of the foregoing) as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The tax receivable agreement provides for

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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.

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8. Equity-Based Compensation

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

Three Months Ended
March 31,
2021 2020
(in thousands)
Cost of revenue $ 590 $ 470
Selling, general and administrative expense 6,707 7,054
Total equity-based compensation $ 7,297 $ 7,524


	Three Months Ended March 31,
	2022		2021
	(in thousands)
Cost of revenue	$	522	$	590
Selling, general and administrative expense	6,159		6,707
Total equity-based compensation	$	6,681	$	7,297

9. Noncontrolling Interest

Ownership

Switch, Inc. owns an economic interest in Switch, Ltd., where “economic 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. During the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, Switch, Inc. issued an aggregate of ~~7.7~~2.6 million shares and ~~4.6~~7.7 million shares, respectively, of Class A common stock to members 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 redemptions occurred pursuant to the terms of the Switch operating agreement entered into in connection with the Company’s IPO.

The ownership of the Common Units is summarized as follows:

March 31, 2021 December 31, 2020
Units (in thousands) Ownership % Units (in thousands) Ownership %
Switch, Inc.’s ownership of Common Units(1)
127,471 53.1 % 118,934 49.8 %
Noncontrolling interest holders’ ownership of Common Units(2)
112,719 46.9 % 120,045 50.2 %
Total Common Units 240,190 100.0 % 238,979 100.0 %


	March 31, 2022			December 31, 2021
	Units (in thousands)	Ownership %		Units (in thousands)	Ownership %
Switch, Inc.’s ownership of Common Units(1)	148,775	60.8	%	145,116	59.6	%
Noncontrolling interest holders’ ownership of Common Units	95,773	39.2	%	98,331	40.4	%
Total Common Units	244,548	100.0	%	243,447	100.0	%

(1)Common Units held by Switch, Inc. exclude ~~75,000~~71,000 Common Units underlying unvested restricted stock ~~awards as of March 31, 2021 and December 31, 2020.~~

~~(2)Common Units held by noncontrolling interest holders exclude 1.2 million and 1.6 million unvested Common Unit awards as of March 31, 2021 and December 31, 2020, respectively.~~awards.

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

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10. Net Income ~~(Loss)~~ Per Share

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

Three Months Ended
March 31,
2021 2020
(in thousands, except per share data)
Net income (loss) per share:
Numerator—basic:
Net income (loss) attributable to Switch, Inc.—basic $ 11,641 $ (1,216)
Numerator—diluted:
Net income (loss) attributable to Switch, Inc.—diluted $ 11,641 $ (1,216)
Denominator—basic:
Weighted average shares outstanding—basic 126,641 94,366
Net income (loss) per share—basic $ 0.09 $ (0.01)
Denominator—diluted:
Weighted average shares outstanding—basic 126,641 94,366
Weighted average effect of dilutive securities:
Stock options 1,471 0
Restricted stock units 904 0
Dividend equivalent units 46 0
Restricted stock awards 48 0
Weighted average shares outstanding—diluted 129,110 94,366
Net income (loss) per share—diluted $ 0.09 $ (0.01)


	Three Months Ended March 31,
	2022		2021
	(in thousands, except per share data)
Net income per share:
Numerator—basic:
Net income attributable to Switch, Inc.—basic	$	12,793	$	11,641
Numerator—diluted:



Net income attributable to Switch, Inc.—diluted	$	12,793	$	11,641
Denominator—basic:
Weighted average shares outstanding—basic	147,745		126,641
Net income per share—basic	$	0.09	$	0.09
Denominator—diluted:
Weighted average shares outstanding—basic	147,745		126,641
Weighted average effect of dilutive securities:
Stock options	4,173		1,471
Restricted stock units	1,268		904
Dividend equivalent units	26		46
Restricted stock awards	52		48


Weighted average shares outstanding—diluted	153,265		129,110
Net income per share—diluted	$	0.08	$	0.09

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 ~~(loss)~~ 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 ~~(loss)~~ per share for the periods presented because their effect would have been anti-dilutive.


	Three Months Ended March 31,
	2022	2021
	(in thousands)
Stock options(1)	—	5,762
Restricted stock units(1)	577	12


Performance-vesting restricted stock units(1)	498	277
Shares of Class B and Class C common stock(2)	95,773	113,915

________________________________________

Three Months Ended
March 31,
2021 2020
(in thousands)
Stock options(1)
5,762 9,243
Restricted stock units(1)
12 3,672
Dividend equivalent units(1)
0 29
Restricted stock awards(1)
0 80
Performance-vesting restricted stock units(1)
277 0
Shares of Class B and Class C common stock(2)
113,915 146,410

(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.

11. 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 an entity with foreign operations. The Company derives almost all of its revenue from sales to customers in the United States, based upon the billing address of the customer. Revenue derived from customers outside the United

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States, based upon the billing address of the customer, was less than 2% of revenue for each of the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021.

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The Company’s revenue is comprised of the following:

Three Months Ended
March 31,
2021 2020
(in thousands)
Colocation $ 107,301 $ 101,214
Connectivity 21,886 25,191
Other 1,679 1,691
Total revenue $ 130,866 $ 128,096


	Three Months Ended March 31,
	2022		2021
	(in thousands)
Colocation	$	131,932	$	107,301
Connectivity	29,957		21,886
Other	2,720		1,679
Total revenue	$	164,609	$	130,866

12. Subsequent Events

In April and May ~~2021,~~2022, Switch, Inc. issued an aggregate of ~~1.6~~0.2 million and ~~1.7~~1.4 million shares, respectively, of Class A common stock to members 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 IPO.

In May 2021, Switch, Ltd. entered into an Interest Purchase Agreement (the “Purchase Agreement”) to acquire all of the equity interests of Data Foundry, Inc. (“Data Foundry”) and has also agreed to acquire certain real property interests used in connection with Data Foundry’s operations (the “Real Property Purchase”) in exchange for cash consideration of $420.0 million, subject to customary adjustments at closing for closing working capital and other transaction matters (the “Transaction”). The completion of the Transaction is subject to closing conditions, including, among others, (i) the expiration or termination of the applicable Hart-Scott-Rodino Act waiting period, (ii) the closing of the Real Property Purchase, (iii) certain corporate restructuring of Data Foundry, and (iv) the fulfillment of other customary closing conditions under the Purchase Agreement. The Purchase Agreement may be terminated by either party, under certain circumstances, including if the Transaction is not consummated by July 31, 2021.

~~In May 2021,~~2022, Switch, Inc.’s Board of Directors declared a dividend of ~~$0.05~~$0.0525 per share of Class A common stock, for a total estimated to be ~~$6.5~~$7.9 million, to be paid on June ~~4, 2021~~6, 2022 to holders of record as of May ~~25, 2021.~~24, 2022. 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 ~~$0.05~~$0.0525 per Common Unit, for a total estimated to be ~~$12.1~~$12.8 million.

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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 (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, ~~2020.~~2021. 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 1A1A—Risk Factors of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. 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.

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 exascale 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 ~~four~~five primary campus locations, called Primes, which encompass 1216 colocation facilities with an aggregate of up to ~~4.7~~5.1 million gross square feet (“GSF”) of space. Our Primes consist of The Core Campus in Las Vegas, Nevada; The Citadel Campus near Reno, Nevada; The Pyramid Campus in Grand Rapids, Michigan; ~~and~~ The Keep Campus in Atlanta, ~~Georgia.~~ Georgia; and The Rock Campus in Austin, Texas, which was launched with our acquisition in June 2021 of all of the equity interests of Data Foundry, LLC (“Data Foundry”) and certain real property interests used in connection with Data Foundry’s operations.

In addition to our Primes, we held a 50% ownership interest in SUPERNAP International, S.A. (“SUPERNAP International”), which had deployed facilities in Italy and Thailand, until February 2021, when we acquired SUPERNAP International’s 30% ownership interest in SUPERNAP (Thailand) Company Limited (“SUPERNAP Thailand”), the entity which has deployed the facility in Thailand, and sold our ownership interest in SUPERNAP International, thus disposing of our interest in the facility in Italy. We account for our ownership interest in SUPERNAP Thailand under the equity method of accounting.

In May 2021, we entered into an interest purchase agreement to acquire all the equity interests of Data Foundry, Inc. (“Data Foundry”) and launched our fifth Prime location in Texas. Headquartered in Austin, Texas, and with data centers in Austin and Houston, Data Foundry is strategically located in a rapidly growing technology hub, which offers a highly favorable business environment for both mature enterprises and early-stage growth companies.

We currently have more than ~~950~~1,300 customers, including some of the world’s largest technology and digital media companies, cloud, IT and software providers, as well as financial institutions and network and telecommunications providers. Our ecosystem connects over ~~250~~350 cloud, IT and software providers and more than 90100 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 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.

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.

In November 2021, our board of directors approved the pursuit of a real estate investment trust (“REIT”) conversion with a target of electing REIT status for the taxable year beginning January 1, 2023. We will report material developments and plans from time to time as the key steps for our conversion to a REIT are put in place and completed.

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Factors that May Influence Future Results of Operations

Impact of COVID-19. The global health crisis caused by the COVID-19 pandemic and its resurgences has and may continue to negatively impact global economic activity, which, despite progress in vaccination efforts, remains uncertain and cannot be predicted with confidence. In ~~March 2020,~~addition, new variants of COVID-19 continue to emerge, including the ~~World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) as a pandemic,~~recent Omicron variant which ~~continues~~appears to be ~~spread throughout~~ the ~~U.S. and the world.~~most transmissible variant to date. While we have not incurred significant disruptions thus far from COVID-19, the impact of the COVID-19 ~~outbreak, we are unable to accurately predict~~pandemic and its variants cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the ~~full impact that~~population, the effectiveness of COVID-19 ~~will have on our results of operations due to numerous uncertainties, including~~vaccines against variants, the response by governmental bodies and regulators, the severity of the disease or any variant, the duration of the outbreak, ~~actions that may be taken by governmental authorities,~~ the future impact to the business of our customers, partners and vendors, ~~the future impact and functioning of the global financial markets~~ and other ~~factors~~facts identified ~~in “Risk Factors”~~ in Part I, Item 1A1A—Risk Factors of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID-19 pandemic on our business. We will continue to evaluate the nature and extent of the impact of COVID-19 and its variants on the global economy and to our business, consolidated results of operations, and financial condition.

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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,~~inflationary pressures, supply chain issues, 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 and its variants, could adversely affect our customers and vendors, which could adversely affect our results of operations and financial condition.

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 1216 colocation facilities with an aggregate of up to ~~4.7~~5.1 million GSF of space and up to ~~490~~508 megawatts ~~(“MW”)~~ of power. As of March 31, ~~2021,~~2022, the utilization rates at these Prime Campuses, based on currently available cabinets, were approximately ~~91%, 95%~~94%, 100%, 99%, 97%, and ~~38%~~77% at The Core Campus, The Citadel Campus, The Pyramid Campus, ~~and~~ The Keep Campus, and The Rock Campus, respectively. ~~Additionally, each~~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 prices 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, historically, we generally have intentionally ~~have~~ not ~~generally~~ passed along the seasonal increase in energy costs during the summer months to the full extent permitted under our contracts in order to avoid seasonal adjustments to our customer pricing, and that practice has, therefore, resulted in a decrease in our gross profit in those periods. ~~Nonetheless, as~~Beginning in July 2021, we increased certain customer pricing in response to an increase in the cost of energy. 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, we enter into power swap agreements, which we believe manages our exposure to adverse changes in the price of power. 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 ~~$2.1~~$1.8 million for the three months ended March 31, ~~2021.~~2022.

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Growth in Customers. Our results of operations could be significantly affected by the growth or reduction of our customer base. We have over ~~950~~1,300 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.

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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 (“GAAP”) to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions.


		Three Months Ended March 31,							Three Months Ended March 31,
		2021			2020				2022			2021
		(dollars in thousands)							(dollars in thousands)
Recurring revenue	Recurring revenue	$	127,977		$	120,486		Recurring revenue	$	161,085		$	127,977
Capital expenditures	Capital expenditures	$	100,424		$	80,898		Capital expenditures	$	150,433		$	100,424
Adjusted EBITDA	Adjusted EBITDA	$	73,442		$	61,489		Adjusted EBITDA	$	86,793		$	73,442
Adjusted EBITDA margin	Adjusted EBITDA margin	56.1		%	48.0		%	Adjusted EBITDA margin	52.7		%	56.1		%

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 March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
		(in thousands)					(in thousands)
Recurring revenue	Recurring revenue	$	127,977	$	120,486	Recurring revenue	$	161,085	$	127,977
Non-recurring revenue	Non-recurring revenue	2,889		7,610		Non-recurring revenue	3,524		2,889
Revenue	Revenue	$	130,866	$	128,096	Revenue	$	164,609	$	130,866

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 or loss adjusted for interest expense, interest income, income taxes, depreciation and amortization of property and equipment, amortization of customer relationships, 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

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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.~~costs for REIT and related restructuring/strategic initiatives. 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.

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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.

The following table sets forth a reconciliation of our net income ~~(loss)~~ to Adjusted EBITDA:


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
		(in thousands)					(in thousands)
Net income (loss)		$	24,394	$	(3,489)
Net income						Net income	$	23,934	$	24,394
Interest expense	Interest expense	8,757		7,435		Interest expense	13,197		8,757
Interest income(1)	Interest income(1)	(39)		(33)		Interest income(1)	(37)		(39)
Income tax expense (benefit)		2,654		(273)
Income tax expense						Income tax expense	4,240		2,654
Depreciation and amortization of property and equipment	Depreciation and amortization of property and equipment	38,791		32,518		Depreciation and amortization of property and equipment	47,833		38,791
(Gain) loss on disposal of property and equipment		(193)		60
Amortization of customer relationships						Amortization of customer relationships	1,562		—
Loss (gain) on disposal of property and equipment						Loss (gain) on disposal of property and equipment	193		(193)
Equity-based compensation	Equity-based compensation	7,297		7,524		Equity-based compensation	6,681		7,297
(Gain) loss on interest rate swaps		(3,205)		17,555
Gain on swaps						Gain on swaps	(13,649)		(3,205)
REIT and related restructuring/strategic initiatives(2)						REIT and related restructuring/strategic initiatives(2)	2,839		—

Equity in net losses of investments	Equity in net losses of investments	220		—		Equity in net losses of investments	—		220
Acquisition-related costs(2)						Acquisition-related costs(2)	—		140
Gain on sale of equity method investment	Gain on sale of equity method investment	(5,374)		—		Gain on sale of equity method investment	—		(5,374)
Acquisition-related costs(2)		140		—
Shareholder-related litigation expense(2)		—		192
Adjusted EBITDA	Adjusted EBITDA	$	73,442	$	61,489	Adjusted EBITDA	$	86,793	$	73,442

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

(2)~~Acquisition-related~~REIT and related restructuring/strategic initiatives and acquisition-related costs ~~and shareholder-related litigation expense~~ are included in the “Selling, general and administrative expense” line in our consolidated statements of comprehensive ~~income (loss).~~income.

Components of Results of Operations

Revenue

During each of the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, we derived more than ~~95%~~97% of our revenue from recurring revenue streams, consisting primarily of (1) colocation, which includes the licensing and leasing of cabinet space and 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. 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 using a time-based measurement of progress as customers receive service benefits evenly throughout the term of the contract. Contracts with our customers generally have terms of three to five years. Non-recurring installation fees, although generally paid in a lump sum

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upon installation, are deferred and recognized ratably over the contract term, which is determined using a portfolio approach. Revenue is generally recognized on a gross basis as a principal versus on a net basis as an agent, largely because we are primarily responsible for fulfilling the contract, take title to services, and bear credit risk.

Cost of Revenue

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

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~~Table of Contents~~

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. The largest portion of our utility costs is fixed and a smaller portion is variable with market conditions.

Gross Profit and Gross Margin

Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have 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.

Operating Expenses

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 Securities and Exchange Commission (“SEC”) and those of the New York Stock Exchange, 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 issuance and vesting of 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

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.

Gain ~~(Loss)~~ on ~~Interest Rate~~ Swaps

Gain ~~(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 and power swaps used to mitigate our exposure to adverse changes in the price of power, inclusive of periodic net settlement amounts.

Equity in Net Losses of Investments

Equity in net losses of investments consists of our share of results of operations from our equity method investments, including foreign currency translation adjustments. We held a 50% ownership interest in SUPERNAP International until February 2021, when we acquired SUPERNAP International’s 30% ownership interest in SUPERNAP Thailand and sold our ownership interest in SUPERNAP International. We had discontinued the equity method of accounting for our investment in SUPERNAP International as the carrying value of our investment was reduced to zero as a result of recording our share of its losses. Our interest in SUPERNAP Thailand iswas accounted for under the equity method of ~~accounting.~~accounting through December 31, 2021. As of December 31, 2021, the carrying value of our investment in SUPERNAP Thailand was reduced to zero as a result of recording our share of operating losses and foreign currency translation adjustments. Accordingly, we discontinued the equity method of accounting for our investment in SUPERNAP Thailand as of December 31, 2021 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

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method was suspended. Our losses will continue to include the foreign currency translation adjustments in our investment.

Gain on Sale of Equity Method Investment

Gain on sale of equity method investment consists of the gain resulting from the sale of our ownership interest in SUPERNAP International, inclusive of foreign currency translation gains realized.

Other

Other 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.

Income Taxes

Switch, Ltd. 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

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~~Table of Contents~~

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.

Noncontrolling Interest

We consolidate the financial results of Switch, Ltd. and report a noncontrolling interest on our consolidated statements of comprehensive income, ~~(loss),~~ 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.

Results of Operations

The following table sets forth our results of operations:

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


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

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

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

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

Three Months Ended
March 31,
2021 2020
Consolidated Statements of Income (Loss) Data:
Revenue 100 % 100 %
Cost of revenue 55 52
Gross profit 45 48
Selling, general and administrative expense 27 31
Income from operations 18 17
Other income (expense):
Interest expense, including amortization of debt issuance costs and original issue discount (7) (6)
Gain (loss) on interest rate swaps 2 (14)
Equity in net losses of investments — —
Gain on sale of equity method investment 4 —
Other 2 —
Total other income (expense) 2 (19)
Income (loss) before income taxes 21 (2)
Income tax (expense) benefit (2) —
Net income (loss) 19 (2)
Less: net income (loss) attributable to noncontrolling interest 10 (1)
Net income (loss) attributable to Switch, Inc. 9 % (1) %


	Three Months Ended March 31,
	2022		2021
Consolidated Statements of Income Data:
Revenue	100	%	100	%
Cost of revenue	57		55
Gross profit	43		45
Selling, general and administrative expense	26		27

Income from operations	17		18
Other income (expense):
Interest expense, including amortization of debt issuance costs and original issue discount	(8)		(7)
Gain on swaps	8		2

Equity in net losses of investments	—		—
Gain on sale of equity method investment	—		4
Other	—		2
Total other income	1		2
Income before income taxes	17		21
Income tax expense	(3)		(2)
Net income	15		19
Less: net income attributable to noncontrolling interest	7		10
Net income attributable to Switch, Inc.	8	%	9	%

Comparison of the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021

Revenue

Three Months Ended
March 31, Change
2021 2020 Amount %
(dollars in thousands)
Colocation $ 107,301 $ 101,214 $ 6,087 6 %
Connectivity 21,886 25,191 (3,305) (13) %
Other 1,679 1,691 (12) (1) %
Revenue $ 130,866 $ 128,096 $ 2,770 2 %


	Three Months Ended March 31,					Change
	2022			2021		Amount		%
	(dollars in thousands)
Colocation	$	131,932		$	107,301	$	24,631	23	%
Connectivity	29,957			21,886		8,071		37	%
Other	2,720			1,679		1,041		62	%
Revenue	$	164,609	0	$	130,866	$	33,743	26	%

Revenue increased by ~~$2.8~~$33.7 million, or 2%26%, for the three months ended March 31, ~~2021,~~2022, compared to the three months ended March 31, ~~2020.~~2021. The increase was ~~primarily~~ attributable to an$12.3 million contributed by Data Foundry, with 20% of the remaining increase ~~of $6.1 million in colocation revenue. Of the overall increase, 11% was~~ attributable to revenue from new customers initiating service after March 31, ~~2020,~~2021, and ~~the remaining 89% was~~80% attributable to increased revenue from existing customers. This increase was partially offset by a decrease in connectivity revenue, primarily due to a decrease of $4.0 million in non-recurring sales-type lease revenue. 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 0.4% during the three months ended March 31, 2021 and 2020, respectively.

Cost of Revenue and Gross Margin

Three Months Ended
March 31, Change
2021 2020 Amount %
(dollars in thousands)
Cost of revenue $ 71,693 $ 67,029 $ 4,664 7 %
Gross margin 45.2 % 47.7 %

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	Three Months Ended March 31,						Change
	2022			2021			Amount		%
	(dollars in thousands)
Cost of revenue	$	94,491		$	71,693		$	22,798	32	%
Gross margin	42.6		%	45.2		%

Cost of revenue increased by ~~$4.7~~$22.8 million, or 7%32%, for the three months ended March 31, ~~2021,~~2022, compared to the three months ended March 31, ~~2020.~~2021. The increase was primarily attributable to $8.2 million incurred by Data Foundry, with the remaining increase attributable to increases of ~~$6.5~~$6.8 million in facilities costs due to increased utility rates, $4.9 million in depreciation and amortization expense due to additional property and equipment being placed into service, and ~~$1.5 million in facilities costs due to increased utility rates. This was partially offset by a decrease of $3.3~~$2.6 million in connectivity costs ~~$2.7 million~~associated with our expansion activities. Accordingly,

Switch, Inc. | Q1 2022 Form 10-Q | 24

Table of ~~which was due to a decrease in costs related to sales-type lease transactions. Accordingly,~~ Contents

gross margin decreased by ~~250~~260 basis points for the three months ended March 31, ~~2021,~~2022, compared to the three months ended March 31, ~~2020.~~2021.

Selling, General and Administrative Expense

Three Months Ended
March 31, Change
2021 2020 Amount %
(dollars in thousands)
Selling, general and administrative expense $ 34,998 $ 40,116 $ (5,118) (13) %


	Three Months Ended March 31,				Change
	2022		2021		Amount		%
	(dollars in thousands)
Selling, general and administrative expense	$	42,871	$	34,998	$	7,873	22	%

Selling, general and administrative expense ~~decreased~~increased by ~~$5.1~~$7.9 million, or ~~13%~~22%, for the three months ended March 31, ~~2021,~~2022, compared to the three months ended March 31, ~~2020.~~2021. The ~~decrease~~increase was primarily attributable to ~~a decrease~~increases of ~~$4.7~~$3.2 million in ~~accounting, legal,~~professional fees, $1.6 million in amortization of acquired customer relationships, and ~~other professional service fees.~~$1.3 million in real estate and personal property taxes.

Other Income (Expense)

Three Months Ended
March 31, Change
2021 2020 Amount %
(dollars in thousands)
Other income (expense):
Interest expense $ (8,757) $ (7,435) $ (1,322) 18 %
Gain (loss) on interest rate swaps 3,205 (17,555) 20,760 (118) %
Equity in net losses of investments (220) — (220) NM
Gain on sale of equity method investment 5,374 — 5,374 NM
Other 3,271 277 2,994 1,081 %
Total other income (expense) $ 2,873 $ (24,713) $ 27,586 (112) %

~~NM - Not meaningful~~


	Three Months Ended March 31,				Change
	2022		2021		Amount		%
	(dollars in thousands)
Other income (expense):
Interest expense	$	(13,197)	$	(8,757)	$	(4,440)	51	%
Gain on swaps	13,649		3,205		10,444		326	%

Equity in net losses of investments	—		(220)		220		(100)	%
Gain on sale of equity method investment	—		5,374		(5,374)		(100)	%
Other	475		3,271		(2,796)		(85)	%
Total other income	$	927	$	2,873	$	(1,946)	(68)	%

Interest Expense

Interest expense increased by ~~$1.3~~$4.4 million, or ~~18%~~51%, for the three months ended March 31, ~~2021,~~2022, compared to the three months ended March 31, ~~2020. The increase was~~2021, primarily due to an increase in our weighted average debt outstanding from our senior unsecured notes and ~~a $0.5 million decrease in capitalized interest during~~borrowings on our revolving credit facility.

Gain on Swaps

During the three months ended March 31, ~~2021. This was partially offset by~~2022, we incurred a ~~decrease in our weighted average interest rate from 3.72% during the three months ended March 31, 2020~~gain on swaps of $13.6 million, compared to ~~3.20% during the three months ended March 31, 2021.~~

~~Gain (Loss)~~a gain on ~~Interest Rate Swaps~~

~~Gain on interest rate~~ swaps ~~was~~of $3.2 million for the three months ended March 31, ~~2021, compared to a loss~~2021. The change was primarily driven by an $11.7 million gain on interest rate swaps ~~of $17.6~~due to the fluctuation in market interest rates and a $2.0 million gain on power swaps entered into during the three months ended March 31, 2022.

Other

Other decreased by $2.8 million for the three months ended March 31, ~~2020. The change was primarily driven by changes in the fair value of interest rate swaps largely from the fluctuation in market interest rates.~~

~~Other~~

~~Other increased by $3.0 million for the three months ended March 31, 2021,~~2022, compared to the three months ended March 31, ~~2020, primarily~~2021, due to non-recurring license fee income of $2.8 million recorded pursuant to a technology license ~~agreement.~~agreement during the three months ended March 31, 2021.

Income Tax Expense


	Three Months Ended March 31,				Change
	2022		2021		Amount		%
	(dollars in thousands)
Income tax expense	$	(4,240)	$	(2,654)	$	(1,586)	60	%

During the three months ended March 31, 2022, we incurred income tax expense of $4.2 million, compared to $2.7 million during the three months ended March 31, 2021. Income tax expense is driven by our allocable share of Switch, Ltd.’s income before income taxes.

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~~Income Tax (Expense) Benefit~~

Three Months Ended
March 31, Change
2021 2020 Amount %
(dollars in thousands)
Income tax (expense) benefit $ (2,654) $ 273 $ (2,927) (1,072) %

During the three months ended March 31, 2021, we incurred $2.7 million of income tax expense, compared to $0.3 million of income tax benefit during the three months ended March 31, 2020. Income tax (expense) benefit is driven by our allocable share of Switch, Ltd.’s income (loss) before income taxes.

Net Income ~~(Loss)~~ Attributable to Noncontrolling Interest

Three Months Ended
March 31, Change
2021 2020 Amount %
(dollars in thousands)
Net income (loss) attributable to noncontrolling interest $ 12,753 $ (2,273) $ 15,026 (661) %


	Three Months Ended March 31,				Change
	2022		2021		Amount		%
	(dollars in thousands)
Net income attributable to noncontrolling interest	$	11,141	$	12,753	$	(1,612)	(13)	%

Net income attributable to noncontrolling interest was $11.1 million for the three months ended March 31, 2022, compared to $12.8 million for the three months ended March 31, ~~2021, compared to net loss attributable to noncontrolling interest of $2.3 million for the three months ended March 31, 2020.~~2021. The change was the result of ~~an increase~~a decrease in ~~net income~~ownership by noncontrolling interest holders during the three months ended March 31, ~~2021, partially offset by a decrease in ownership by noncontrolling interest holders.~~2022.

Liquidity and Capital Resources

Switch, Inc. is a holding company and has no material assets other than its ownership ~~of awards~~ of common membership interests in Switch, Ltd. As such, we have no independent means of generating revenue or cash flow, and our ability to pay our taxes 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 and the ~~indenture~~indentures governing our senior unsecured notes limit the ability of Switch, Ltd., among other things, to incur additional debt, incur additional liens, encumbrances or contingent liabilities, and pay distributions or make certain other restricted payments.

Cash Sources

We have historically relied primarily on cash flows from operations, borrowings under our credit facilities, and issuances of notes. We regularly explore financing alternatives, including new credit agreements, unsecured and secured note issuances, and equity financing.

As of March 31, ~~2021,~~2022, we had ~~$38.9~~$27.5 million in cash and cash ~~equivalents. As of March 31, 2021,~~equivalents and our total indebtedness was approximately ~~$1.06~~$1.79 billion (excluding debt issuance costs and original issue discount) consisting of (i) ~~$600.0 million~~$1.10 billion principal from our senior unsecured notes, (ii) ~~$400.0~~$628.0 million principal from our ~~term loan facility,~~credit facilities, $228.0 million of which is accruing interest at an underlying variable interest rate of 2.21% and $400.0 million of which is effectively fixed at 4.48% pursuant to interest rate swap agreements, and (iii) ~~$57.5~~$57.4 million from our finance lease liabilities. As of March 31, ~~2021,~~2022, we had access to ~~$500.0~~$263.1 million in additional liquidity from our revolving credit ~~facility. In May 2021, we entered into an interest purchase agreement to acquire all the equity interests~~facility, net of ~~Data Foundry and we also agreed to acquire certain real property interests used in connection with Data Foundry’s operations in exchange for cash consideration~~outstanding letters of $420.0 million, subject to customary adjustments at closing for closing working capital and other transaction matters (the “Transaction”). The Transaction will be funded through a combination of cash on hand, borrowings under our revolving credit facility, or new debt securities. For the year ending December 31, 2021, we expect to incur $330 million to $370 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 the Transaction 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.credit.

In addition, we are obligated to make payments under the Tax Receivable Agreement (“TRA”). Although the actual timing and amount of any payments we make under the TRA will vary, we expect those payments will be significant. Any payments we make under the 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 TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us.

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~~Table of Contents~~

~~Cash Flows~~

~~The following table summarizes our cash flows:~~

Three Months Ended
March 31,
2021 2020
(in thousands)
Net cash provided by operating activities $ 64,497 $ 62,558
Net cash used in investing activities (99,224) (81,499)
Net cash (used in) provided by financing activities (17,110) 58,931
Net (decrease) increase in cash and cash equivalents $ (51,837) $ 39,990

~~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 three months ended March 31, 2021 was $64.5 million, compared to $62.6 million for the three months ended March 31, 2020. The increase of $1.9 million was primarily due to non-recurring license fee income of $2.8 million recorded pursuant to a technology license agreement and increased operations in our expanded data center facilities, partially offset by changes in our working capital accounts.

~~Cash Flows from Investing Activities~~

During the three months ended March 31, 2021, net cash used in investing activities was $99.2 million, primarily consisting of capital expenditures of $100.4 million related to the expansion of our data center facilities.

During the three months ended March 31, 2020, net cash used in investing activities was $81.5 million, primarily consisting of capital expenditures of $80.9 million related to the expansion of our data center facilities.

~~Cash Flows from Financing Activities~~

During the three months ended March 31, 2021, net cash used in financing activities was $17.1 million, primarily consisting of dividends paid of $6.4 million, distributions paid to noncontrolling interest of $5.8 million, and payments of tax withholdings upon settlement of restricted stock unit awards of $5.8 million.

During the three months ended March 31, 2020, net cash provided by financing activities was $58.9 million, primarily consisting of $70.0 million in proceeds from borrowings on our revolving credit facility, partially offset by distributions paid to noncontrolling interest of $4.2 million, payments of tax withholdings upon settlement of restricted stock unit awards of $4.0 million, and dividends paid of $2.8 million.

~~Outstanding Indebtedness~~

~~Credit Agreement~~

On June 27, 2017, we entered into an amended and restated credit agreement with Wells Fargo Bank, National Association, as administrative agent, and certain other lenders, consisting of a $600.0 million term loan facility, maturing on June 27, 2024, and a $500.0 million revolving credit facility, maturing on June 27, 2022. On September 17, 2020, we entered into a second amendment to the credit agreement (“Amended Credit Agreement”) to, among other things, extend the maturity of our revolving credit facility to June 27, 2023, modify the ratio used for the financial covenant and certain basket availability tests, and refresh or increase certain baskets for restricted payments, investments, and junior debt payments. In connection with this amendment, certain lenders exited our revolving credit facility and, as a result of the issuance of our notes described below, a partial repayment was applied to our term loan facility to reduce its principal amount to $400.0 million, which is due upon maturity.

As of March 31, 2021, we had $500.0 million of availability under the revolving credit facility and $400.0 million outstanding under the term loan facility (excluding debt issuance costs), effectively fixed at 4.73% pursuant to interest rate swap agreements entered into in January and February 2019.

The Amended Credit Agreement contains affirmative and negative covenants customary for such financings, including, but not limited to, limitations, subject to specified exceptions and baskets, on incurring additional debt, incurring additional liens, encumbrances or contingent liabilities, making investments in other persons or property, selling or disposing of our assets, merging with or acquiring other companies, liquidating or dissolving ourselves or any of the subsidiary guarantors, engaging in any business that is not otherwise a related line of business, engaging in certain transactions with affiliates, paying dividends or making certain other restricted payments, and making loans, advances or guarantees. The terms of the Amended Credit Agreement also require compliance with the

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consolidated secured leverage ratio (as defined in the Amended Credit Agreement) of 4.00 to 1.00 for each fiscal quarter. We were in compliance with this and our other covenants under the Amended Credit Agreement as of March 31, 2021.

Senior Unsecured Notes ~~Due 2028~~

On September 17, 2020, we issued $600.0 million aggregate principal amount of our 3.75% senior unsecured notes due 2028. The notes bear interest at the rate of 3.75% per annum and mature on September 15, 2028. Interest on the notes is payable semi-annually in cash in arrears on March 15 and September 15 of each year, beginning on March 15, 2021.

On June 7, 2021, we issued $500.0 million aggregate principal amount of our 4.125% senior unsecured notes due 2029. The ~~indenture~~notes bear interest at the rate of 4.125% per annum and mature on June 15, 2029. Interest on the notes is payable semi-annually in cash in arrears on June 15 and December 15 of each year, beginning on December 15, 2021.

The indentures to the notes contain covenants that, subject to exceptions and qualifications, among other things, limit our ability to incur additional indebtedness and guarantee indebtedness, pay dividends or make other distributions or repurchase or redeem our 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 our ability to pay dividends, and consolidate, merge or sell all or substantially all of our assets.

Credit Agreement

We are party to an amended and restated credit agreement (as amended on December 28, 2017, September 17, 2020, and July 29, 2021) with Wells Fargo Bank, National Association, as administrative agent, and certain other lenders, consisting of a $400.0 million term loan facility, maturing in July 2028, and a $500.0 million revolving credit facility, maturing in July 2026. The term loan facility is subject to quarterly principal amortization payments of $1.0 million, beginning on December 31, 2021, followed by a final payment of $373.0 million upon maturity.

The amended credit agreement contains affirmative and negative covenants customary for such financings, including, but not limited to, limitations, subject to specified exceptions and baskets, on incurring additional debt,

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incurring additional liens, encumbrances or contingent liabilities, making investments in other persons or property, selling or disposing of our assets, merging with or acquiring other companies, liquidating or dissolving ourselves or any of the subsidiary guarantors, engaging in any business that is not otherwise a related line of business, engaging in certain transactions with affiliates, paying dividends or making certain other restricted payments, and making loans, advances or guarantees. The terms of the amended credit agreement also require compliance with the consolidated secured leverage ratio (as defined in the amended credit agreement) of 4.00 to 1.00 for each fiscal quarter.

We were in compliance with all ~~our~~applicable covenants ~~under the indenture to the notes~~ as of March 31, ~~2021.~~2022.

~~Off-Balance Sheet Arrangements~~Cash Uses

For the year ending December 31, 2022, we expect to incur $510 million to $560 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 ~~do not~~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 completion of our development projects. We also believe that our financial resources will allow us to manage the anticipated impact of COVID-19 and its variants 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 and its variants 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 and its variants.

In addition, we are obligated to make payments under the Tax Receivable Agreement (“TRA”). As of March 31, 2022, we recorded a liability under the TRA of $412.5 million. Although the actual timing and amount of any ~~off-balance sheet arrangements~~payments we make under the TRA will vary, we expect those payments may be significant. Any payments we make under the 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 TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us.

In March 2022, we entered into a power purchase and sale agreement to purchase an aggregate firm commitment of 474,650 megawatt-hours, or a purchase commitment of $25.7 million, inclusive of scheduling services, during a term of 19 months starting on May 1, 2022. Additional franchise tax amounts may be due based on the ~~periods presented.~~

~~Contractual Obligations~~data center location where the purchased power is used.

Outside of the aforementioned, and any routine transactions made in the ordinary course of business, there have been no ~~material~~significant changes to ~~the contractual obligations~~our material cash requirements as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Cash Flows

The following table summarizes our cash flows:


	Three Months Ended March 31,
	2022		2021
	(in thousands)
Net cash provided by operating activities	$	56,512	$	64,497
Net cash used in investing activities	(150,597)		(99,224)
Net cash provided by (used in) financing activities	73,253		(17,110)
Net decrease in cash, cash equivalents, and restricted cash	$	(20,832)	$	(51,837)

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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 three months ended March 31, 2022 was $56.5 million, compared to $64.5 million for the three months ended March 31, 2021. The decrease of $8.0 million was primarily due to changes in our working capital accounts, partially offset by increased operations in our data center facilities.

Cash Flows from Investing Activities

During the three months ended March 31, 2022, net cash used in investing activities was $150.6 million, primarily consisting of capital expenditures of $150.4 million related to the expansion of our data center facilities.

Cash Flows from Financing Activities

During the three months ended March 31, 2022, net cash provided by financing activities was $73.3 million, primarily consisting of $100.0 million in proceeds from borrowings under our credit facilities, partially offset by $12.1 million for the payment of tax withholdings upon settlement of restricted stock unit awards, $7.8 million in dividends paid, and $5.0 million in distributions paid to noncontrolling interest.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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Cautionary Note Regarding 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 word such as “may,” “will,” “expects,” “plans,” “anticipates,” “could,” “intends,” “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 expectations regarding our plans to pursue a conversion to a REIT, including the timing related to such conversion;

•our expansion plans, including timing for such plans;

•our expectation regarding the ~~closing~~acquisition of ~~the transaction with~~ Data Foundry and ~~related purchase of~~ certain real property ~~from affiliates thereof;~~interests used in connection with Data Foundry’s operations, including any future expansion opportunities in Texas;

•our future business development, financial condition and results of operations;

•our anticipated levels of capital expenditures;

•the expected growth of the data center market;

•our belief regarding the anticipated impact of COVID-19 and its variants on our business operations;

•our belief that our financial resources will allow us to manage the anticipated impact of ~~COVID-19;~~COVID-19 and its variants;

•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;

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•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 and types of future revenue;

•our expectations regarding our future expenses, including anticipated increases;

•our expectations regarding demand for, and market acceptance of, our services, including any new 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 expectations regarding construction projects and the estimated timelines, additional floorspace, and renewable power available to such data centers;

•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 beliefs regarding the merits of pending litigation;

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

•~~our~~ expectations regarding payment of dividends;

•our expectations regarding payments under the TRA, contingent upon our taxable income and the applicable tax rate;

•our expectations regarding the recognition of our remaining performance obligations in future periods;

•our expectations regarding our interest rate and power swaps;

•our expectations regarding our ability to realize deferred tax assets; and

•our expectations regarding the reissuance of retired shares of Class B common stock.

We qualify all of our forward-looking statements by these cautionary statements. The forward-looking statements in this Form 10-Q are only predictions. We have based these forward-looking statements largely on our current

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expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. 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. 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. Such risks and uncertainties include, among others, those risks discussed in Part I, Item 1A—Risk Factors and throughout Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, and in Part II, Item 1A—Risk Factors and elsewhere of this Form 10-Q. In addition, you should consult other disclosures made by us (such as in our other filings with the SEC or in company press releases) 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, ~~2020,~~2021, 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.

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Item 3.Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to financial market risks, primarily in interest rates related to our debt obligations.

Interest Rate Risk

Our primary exposure to market risk is interest rate risk associated with our long-term debt. We evaluate our exposure to market risk by monitoring interest rates in the marketplace. As of March 31, ~~2021,~~2022, our only borrowings subject to variable interest rates are under our credit agreement and bear interest at a margin above LIBOR or base rate (each as defined in the amended and restated credit agreement) as selected by us. In ~~January and February~~ 2019, we entered into four interest rate swap agreements; whereby, we 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. As of March 31, ~~2021,~~2022, we had ~~$400.0~~$228.0 million ~~of borrowings~~ outstanding under our credit ~~agreement, all of which were effectively hedged by our~~facilities with an underlying variable interest rate ~~swap agreements, thereby resulting~~of 2.21% for which a hypothetical increase or decrease of 100 basis points in noLIBOR would cause our annual interest ~~rate risk exposure.~~cost to change by $2.3 million.

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Item 4.Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of March 31, ~~2021,~~2022, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended, or the “Exchange Act”). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, ~~2021.~~2022.

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II.Other ~~Information~~Information.

Item 1.Legal Proceedings.

The information set forth in Note 6 “Commitments and Contingencies—Legal Proceedings” to our consolidated financial statements in Part I, Item 1 of this Form 10-Q is incorporated by reference herein.

Item 1A.Risk Factors.

~~Except as provided below, there~~There have been no material changes with respect to the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

~~Our business could be adversely affected due~~

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

In March 2022, we issued 46,694 shares of our Class A common stock to ~~risks related~~the former spouse of our Chief Executive Officer. The shares were issued in reliance upon an exemption from registration pursuant to ~~our acquisitions and the subsequent integration~~Section 4(a)(2) of the ~~acquired businesses.~~

~~We may seek to make strategic acquisitions to further expand our business. We cannot be certain~~Securities Act of 1933, as amended (the “Securities Act”), on the basis that ~~we will be able to identify, consummate~~it did not involve a public offering. These shares of Class A common stock are restricted securities for purposes of Rule 144 under the Securities Act and successfully integrate acquisitions, and no assurance can be given with respect to the timing, likelihood or business effect of any possible transaction. Transactions that we consummate would involve risks and uncertainties to us, including mispricing the inherent value of the acquired entity, as well as potential difficulties integrating people, systems and customers.

In May 2021, we entered into an Interest Purchase Agreement to acquire all of the equity interests of Data Foundry, Inc. (“Data Foundry”) and have also agreed to acquire certain real property interests used in connection with Data Foundry’s operations in exchange for cash consideration of $420.0 million,are subject to ~~customary adjustments at closing for closing working capital and other transaction matters (the “Transaction”). The completion~~certain requirements restricting the resale of ~~the Transaction is subject to closing conditions. The Purchase Agreement may be terminated by either party, under~~such shares, including certain circumstances, including if the Transaction is not consummated by July 31, 2021. While we expect to complete the Transaction by mid-2021, there can be no guarantee that the Transaction will close when expected, or at all. If consummated, the Transaction subjects us to a number of risks, uncertainties, and potential costs. These include:

•~~the disruption of our operations or the operations of Data Foundry;~~

•~~the loss of customers or key employees;~~

•~~the absence of expected benefits or results for us, Data Foundry or our customers as a result of the Transaction;~~

•~~undisclosed liabilities that could be material or become subject to litigation;~~

•~~an adverse effect on our ability to manage our business due to the diversion of our management’s attention and any difficulties encountered in any integration process;~~

•~~unanticipated integration and restructuring costs; and~~

•~~less cash availability for other purposes, including for use in acquisitions or the development of other technologies or products.~~

Any of these risks, whether with respect to the current or any future acquisitions, could have a material and adverse effect on our ability to manage our business, our financial condition and our results of operations.

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Item 6.Exhibits.

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.
10-K 3.2 3/1/2021
10.1 †
Form of Performance-Vesting Restricted Stock Unit Agreement under Switch, Inc. 2017 Incentive Award Plan
8-K 10.1 3/5/2021
10.2 *
First Amendment to Lease, dated March 19, 2021, by and between Switch, Ltd. and Beltway Business Park Warehouse No. 1, LLC.
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 * The following financial statements from the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Condensed Notes to Consolidated Financial Statements
104 * Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

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.

10-K

3.2

3/1/2021

10.1

Fourth Amendment to Lease, dated March 22, 2022, by and between Switch, Ltd. and Beltway Business Park Office No. 1, LLC.

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

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2022, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Condensed Notes to Consolidated Financial Statements

104

Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

* Filed herewith.

# Furnished herewith.

~~† Indicates a management contract or compensatory plan or arrangement.~~

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		Switch, Inc. (Registrant)

Date:	May 10, ~~2021~~2022	/s/ Gabe Nacht
		Gabe Nacht Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)


		March 31, 2021
	Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
		(in thousands)
Liabilities:
Interest rate swaps	Interest rate swap liability, current portion	$	9,314	$	—	$	9,314	$	—
Interest rate swaps	Other long-term liabilities	$	15,065	$	—	$	15,065	$	—