Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Jun. 30, 2019 | Aug. 01, 2019 | |
Document Information [Line Items] | ||
Entity Registrant Name | Switch, Inc. | |
Entity Central Index Key | 0001710583 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2019 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false | |
Entity Current Reporting Status | Yes | |
Entity Emerging Growth Company | true | |
Entity Small Business | false | |
Entity Ex Transition Period | false | |
Entity Shell Company | false | |
Class A | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 84,339,373 | |
Class B | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 117,782,283 | |
Class C | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 42,944,647 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Jun. 30, 2019 | Dec. 31, 2018 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 60,169 | $ 81,560 |
Accounts receivable, net of allowance of $331 and $426, respectively | 14,259 | 17,654 |
Prepaid expenses | 4,500 | 6,781 |
Other current assets | 2,359 | 2,332 |
Total current assets | 81,287 | 108,327 |
Property and equipment, net | 1,346,348 | 1,302,770 |
Long-term deposit | 4,085 | 3,333 |
Deferred income taxes | 75,054 | 28,550 |
Other assets | 18,103 | 17,050 |
TOTAL ASSETS | 1,524,877 | 1,460,030 |
CURRENT LIABILITIES: | ||
Long-term debt, current portion | 6,000 | 6,000 |
Accounts payable | 23,842 | 20,501 |
Accrued salaries and benefits | 9,897 | 5,258 |
Accrued expenses | 12,049 | 9,778 |
Accrued construction payables | 11,620 | 12,729 |
Deferred revenue, current portion | 10,598 | 10,800 |
Customer deposits | 10,062 | 9,962 |
Total current liabilities | 84,068 | 75,028 |
Long-term debt, net | 577,969 | 580,566 |
Capital lease obligations | 19,466 | 19,466 |
Deferred revenue | 26,870 | 22,260 |
Liabilities under tax receivable agreement | 112,011 | 52,535 |
Other long-term liabilities | 14,578 | 1,823 |
TOTAL LIABILITIES | 834,962 | 751,678 |
Commitments and contingencies (Note 5 and Note 6) | ||
STOCKHOLDER’S EQUITY | ||
Preferred stock | 0 | 0 |
Additional paid in capital | 198,231 | 140,191 |
Retained earnings | 454 | 2,693 |
Accumulated other comprehensive income | 79 | 79 |
Total Switch, Inc. stockholders’ equity | 199,010 | 143,210 |
Noncontrolling interest | 490,905 | 565,142 |
TOTAL STOCKHOLDERS’ EQUITY | 689,915 | 708,352 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | 1,524,877 | 1,460,030 |
Class A | ||
STOCKHOLDER’S EQUITY | ||
Common stock | 78 | 55 |
Class B | ||
STOCKHOLDER’S EQUITY | ||
Common stock | 125 | 149 |
Class C | ||
STOCKHOLDER’S EQUITY | ||
Common stock | $ 43 | $ 43 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Jun. 30, 2019 | Dec. 31, 2018 |
CURRENT ASSETS: | ||
Allowance for accounts receivable | $ 331 | $ 426 |
Preferred stock | ||
Preferred Stock, Par or Stated Value Per Share | $ 0.001 | $ 0.001 |
Preferred Stock, Shares Authorized | 10,000,000 | 10,000,000 |
Shares issued (in shares) | 0 | 0 |
Shares outstanding (in shares) | 0 | 0 |
Class A | ||
Common stock | ||
Common Stock, Par or Stated Value Per Share | $ 0.001 | $ 0.001 |
Common Stock, Shares Authorized | 750,000,000 | 750,000,000 |
Common Stock, Shares, Issued | 78,085,000 | 55,218,000 |
Common Stock, Shares, Outstanding | 78,085,000 | 55,218,000 |
Class B Common Stock | ||
Common stock | ||
Common Stock, Par or Stated Value Per Share | $ 0.001 | $ 0.001 |
Common Stock, Shares Authorized | 300,000,000 | 300,000,000 |
Common Stock, Shares, Issued | 124,870,000 | 148,481,000 |
Common Stock, Shares, Outstanding | 124,870,000 | 148,481,000 |
Class C | ||
Common stock | ||
Common Stock, Par or Stated Value Per Share | $ 0.001 | $ 0.001 |
Common Stock, Shares Authorized | 75,000,000 | 75,000,000 |
Common Stock, Shares, Issued | 42,945,000 | 42,945,000 |
Common Stock, Shares, Outstanding | 42,945,000 | 42,945,000 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Income Statement [Abstract] | ||||
Revenue | $ 111,587 | $ 102,161 | $ 218,619 | $ 199,878 |
Cost of revenue | 57,889 | 55,194 | 115,189 | 110,050 |
Gross profit | 53,698 | 46,967 | 103,430 | 89,828 |
Selling, general and administrative expense | 33,047 | 31,139 | 67,298 | 64,590 |
Income from operations | 20,651 | 15,828 | 36,132 | 25,238 |
Other income (expense): | ||||
Interest expense, including $409, $409, $818, and $818, respectively, in amortization of debt issuance costs | (7,338) | (6,144) | (14,469) | (12,417) |
Equity in net losses of investments | 0 | 0 | 0 | 331 |
Loss on interest rate swaps | (8,781) | 0 | (13,766) | 0 |
Other | 516 | 822 | 1,019 | 1,851 |
Total other expense | (15,603) | (5,322) | (27,216) | (10,897) |
Income before income taxes | 5,048 | 10,506 | 8,916 | 14,341 |
Income tax expense | (442) | (967) | (639) | (852) |
Net income | 4,606 | 9,539 | 8,277 | 13,489 |
Less: net income attributable to noncontrolling interest | 3,428 | 8,718 | 6,399 | 11,997 |
Net income attributable to Switch, Inc. | $ 1,178 | $ 821 | $ 1,878 | $ 1,492 |
Net income per share (Note 10): | ||||
Basic (in dollars per share) | $ 0.02 | $ 0.02 | $ 0.03 | $ 0.04 |
Diluted (in dollars per share) | $ 0.01 | $ 0.02 | $ 0.03 | $ 0.04 |
Weighted average shares used in computing net income per share (Note 10): | ||||
Basic (in shares) | 77,714 | 42,358 | 66,686 | 39,197 |
Diluted (in shares) | 79,021 | 42,463 | 247,227 | 39,296 |
Other comprehensive income: | ||||
Foreign currency translation adjustment, before and after tax | $ 0 | $ 0 | $ 0 | $ 331 |
Comprehensive income | 4,606 | 9,539 | 8,277 | 13,820 |
Less: comprehensive income attributable to noncontrolling interest | 3,428 | 8,718 | 6,399 | 12,280 |
Comprehensive income attributable to Switch, Inc. | $ 1,178 | $ 821 | $ 1,878 | $ 1,540 |
Consolidated Statements of Co_2
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Income Statement [Abstract] | ||||
Amortization of debt issuance costs | $ 818 | $ 818 | $ 409 | $ 409 |
Consolidated Statement of Stock
Consolidated Statement of Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands | Total | Common StockClass A | Common StockClass B | Common StockClass C | Additional Paid in Capital | Retained Earnings | Accumulated Other Comprehensive Income | Noncontrolling Interest |
Balance (in shares) at Dec. 31, 2017 | 35,938 | 173,624 | 42,945 | |||||
Balance at Dec. 31, 2017 | $ 742,133 | $ 36 | $ 174 | $ 43 | $ 107,008 | $ 1,602 | $ 31 | $ 633,239 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||
Net income | 3,950 | 671 | 3,279 | |||||
Equity-based compensation expense | 12,357 | 5,278 | 7,079 | |||||
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax | 129 | |||||||
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax | (1,213) | $ 0 | (1,213) | |||||
Foreign currency translation adjustment, before and after tax | 331 | 48 | 283 | |||||
Balance (in shares) at Mar. 31, 2018 | 36,067 | 173,624 | 42,945 | |||||
Balance at Mar. 31, 2018 | 757,558 | $ 36 | $ 174 | $ 43 | 111,073 | 2,273 | 79 | 643,880 |
Balance (in shares) at Dec. 31, 2017 | 35,938 | 173,624 | 42,945 | |||||
Balance at Dec. 31, 2017 | 742,133 | $ 36 | $ 174 | $ 43 | 107,008 | 1,602 | 31 | 633,239 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||
Net income | 13,489 | |||||||
Foreign currency translation adjustment, before and after tax | 331 | |||||||
Balance (in shares) at Jun. 30, 2018 | 49,553 | 160,200 | 42,945 | |||||
Balance at Jun. 30, 2018 | 748,746 | $ 50 | $ 160 | $ 43 | 131,845 | 1,774 | 79 | 614,795 |
Balance (in shares) at Mar. 31, 2018 | 36,067 | 173,624 | 42,945 | |||||
Balance at Mar. 31, 2018 | 757,558 | $ 36 | $ 174 | $ 43 | 111,073 | 2,273 | 79 | 643,880 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||
Net income | 9,539 | 821 | 8,718 | |||||
Equity-based compensation expense | 8,209 | 2,288 | 5,921 | |||||
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax | 1 | |||||||
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax | (7) | $ 0 | (7) | |||||
Issuance of restricted stock awards (in shares) | 61 | |||||||
Issuance of restricted stock awards | 0 | |||||||
Dividends declared | (1,320) | (1,320) | ||||||
Distributions to noncontrolling interest | (6,048) | (6,048) | ||||||
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd. | 20,349 | 20,349 | ||||||
Foreign currency translation adjustment, before and after tax | 0 | |||||||
Exchanges of noncontrolling interest for Class A common stock (in shares) | 13,424 | (13,424) | ||||||
Exchanges of noncontrolling interest for Class A common stock | 0 | $ 14 | $ (14) | 37,676 | (37,676) | |||
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock | (39,534) | (39,534) | ||||||
Balance (in shares) at Jun. 30, 2018 | 49,553 | 160,200 | 42,945 | |||||
Balance at Jun. 30, 2018 | 748,746 | $ 50 | $ 160 | $ 43 | 131,845 | 1,774 | 79 | 614,795 |
Balance (in shares) at Dec. 31, 2018 | 55,218 | 148,481 | 42,945 | |||||
Balance at Dec. 31, 2018 | 708,352 | $ 55 | $ 149 | $ 43 | 140,191 | 2,693 | 79 | 565,142 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||
Net income | 3,671 | 700 | 2,971 | |||||
Equity-based compensation expense | 8,145 | 4,160 | 3,985 | |||||
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax | 463 | |||||||
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax | (1,310) | $ 1 | (2,016) | |||||
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax | 705 | |||||||
Dividends declared | (1,728) | (1,728) | ||||||
Distributions to noncontrolling interest | (6,006) | (6,006) | ||||||
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd. | (728) | (728) | ||||||
Balance (in shares) at Mar. 31, 2019 | 55,681 | 148,481 | 42,945 | |||||
Balance at Mar. 31, 2019 | 710,396 | $ 56 | $ 149 | $ 43 | 141,607 | 1,665 | 79 | 566,797 |
Balance (in shares) at Dec. 31, 2018 | 55,218 | 148,481 | 42,945 | |||||
Balance at Dec. 31, 2018 | 708,352 | $ 55 | $ 149 | $ 43 | 140,191 | 2,693 | 79 | 565,142 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||
Net income | 8,277 | |||||||
Foreign currency translation adjustment, before and after tax | 0 | |||||||
Balance (in shares) at Jun. 30, 2019 | 78,085 | 124,870 | 42,945 | |||||
Balance at Jun. 30, 2019 | 689,915 | $ 78 | $ 125 | $ 43 | 198,231 | 454 | 79 | 490,905 |
Balance (in shares) at Mar. 31, 2019 | 55,681 | 148,481 | 42,945 | |||||
Balance at Mar. 31, 2019 | 710,396 | $ 56 | $ 149 | $ 43 | 141,607 | 1,665 | 79 | 566,797 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||
Net income | 4,606 | 1,178 | 3,428 | |||||
Equity-based compensation expense | 7,443 | 3,800 | 3,643 | |||||
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax | 1 | |||||||
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax | (5) | (195) | ||||||
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax | 190 | |||||||
Issuance of restricted stock awards (in shares) | 80 | |||||||
Issuance of restricted stock awards | 0 | |||||||
Dividends declared | (2,389) | (2,389) | ||||||
Distributions to noncontrolling interest | (4,934) | (4,934) | ||||||
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd. | 47,871 | 47,871 | ||||||
Foreign currency translation adjustment, before and after tax | 0 | |||||||
Exchanges of noncontrolling interest for Class A common stock (in shares) | 22,323 | (22,323) | ||||||
Exchanges of noncontrolling interest for Class A common stock | 0 | $ 22 | $ (22) | 67,362 | (67,362) | |||
Repurchase of common units and cancellation of Class B common stock (in shares) | (1,288) | |||||||
Repurchase of common units and cancellation of Class B common stock | (13,597) | $ (2) | (2,738) | (10,857) | ||||
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock | (59,476) | (59,476) | ||||||
Balance (in shares) at Jun. 30, 2019 | 78,085 | 124,870 | 42,945 | |||||
Balance at Jun. 30, 2019 | $ 689,915 | $ 78 | $ 125 | $ 43 | $ 198,231 | $ 454 | $ 79 | $ 490,905 |
Consolidated Statement of Sto_2
Consolidated Statement of Stockholders' Equity Consolidated Statement of Stockholders' Equity (Parenthetical) - $ / shares | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Statement of Stockholders' Equity [Abstract] | ||||
Dividends declared (in dollars per share) | $ 0.0294 | $ 0.0147 | $ 0.0294 | $ 0.0147 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 30, 2019 | Jun. 30, 2018 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income | $ 8,277 | $ 13,489 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization of property and equipment | 58,361 | 50,321 |
Loss on disposal of property and equipment | 107 | 627 |
Deferred income taxes | 639 | 852 |
Amortization of debt issuance costs | 818 | 818 |
(Benefit) provision for doubtful accounts | (72) | 92 |
Unrealized loss on interest rate swaps | 13,765 | 0 |
Equity in net losses of investments | 0 | 331 |
Equity-based compensation | 15,588 | 20,566 |
Amortization of portfolio energy credits | 685 | 67 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 970 | 4,861 |
Prepaid expenses | 2,281 | 1,062 |
Other current assets | (27) | (100) |
Other assets | (1,609) | (853) |
Accounts payable | (493) | (499) |
Accrued salaries and benefits | 4,639 | 3,214 |
Accrued expenses | (238) | 1,412 |
Deferred revenue | 4,408 | (679) |
Customer deposits | 100 | 762 |
Other long-term liabilities | 756 | (112) |
Net cash provided by operating activities | 108,955 | 96,231 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Acquisition of property and equipment | (100,131) | (160,773) |
Acquisition of intangible asset | 0 | (25) |
Escrow deposit | 0 | (3,508) |
Proceeds from sale of property and equipment | 18 | 0 |
Purchase of portfolio energy credits | (544) | (67) |
Net cash used in investing activities | (100,657) | (164,373) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Repayment of borrowings, including capital lease obligations | (3,000) | (3,000) |
Change in long-term deposit | 2,537 | (996) |
Payment of tax withholdings upon settlement of restricted stock unit awards | (1,343) | (1,220) |
Repurchase of common units | (13,597) | 0 |
Dividends paid to Class A common stockholders | (3,932) | (1,258) |
Distributions paid to noncontrolling interest | (10,354) | (6,046) |
Net cash used in financing activities | (29,689) | (12,520) |
NET DECREASE IN CASH AND CASH EQUIVALENTS | (21,391) | (80,662) |
CASH AND CASH EQUIVALENTS—Beginning of period | 81,560 | 264,666 |
CASH AND CASH EQUIVALENTS—End of period | 60,169 | 184,004 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||
Cash paid for interest, net of amounts capitalized | 13,555 | 11,618 |
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION: | ||
Increase in liabilities incurred to acquire property and equipment | 2,679 | 5,542 |
Increase in accrued construction payables incurred related to long-term deposit | 746 | 0 |
Increase in deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd. | 47,143 | 20,349 |
Decrease in noncontrolling interest as a result of exchanges for Class A common stock | (67,362) | (37,676) |
Recognition of liabilities under tax receivable agreement | 59,476 | 39,534 |
Increase in distributions payable on unvested common units | 586 | 0 |
Increase in dividends payable on unvested restricted stock units | 185 | 62 |
Dividends payable settled with shares of Class A common stock | 28 | 0 |
Distributions used for payment of option loans and related interest | $ 0 | $ 2 |
Organization
Organization | 6 Months Ended |
Jun. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | Organization Switch, Inc. was formed as a Nevada corporation in June 2017 for the purpose of completing an initial public offering (“IPO”) and related organizational transactions in order to carry on the business of Switch, Ltd. and its subsidiaries (collectively, “Switch,” and together with Switch, Inc., the “Company”). Switch is comprised of limited liability companies that provide colocation space and related services to global enterprises, financial companies, government agencies, and others that conduct critical business on the internet. Switch develops and operates data centers in Nevada, which are Tier IV Gold certified, and Michigan, and is developing data centers in Georgia, delivering redundant services with low latency and super capacity transport environments. As the manager of Switch, Ltd., Switch, Inc. operates and controls all of the business and affairs of Switch. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 6 Months Ended |
Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Management believes that the accompanying consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of these consolidated financial statements. The consolidated results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 , or for any other future annual or interim period. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and all significant intercompany transactions and balances have been eliminated. As the sole manager of Switch, Ltd., Switch, Inc. operates and controls all of the business and affairs of Switch, has the sole voting interest in, and controls the management of, Switch, and has the obligation to absorb the losses of, and receive benefits from, Switch. Accordingly, Switch, Inc. identifies itself as the primary beneficiary of Switch and began consolidating Switch in its consolidated financial statements as of October 11, 2017, the closing date of the IPO, resulting in a noncontrolling interest related to the common units of Switch, Ltd. (“Common Units”) held by members other than Switch, Inc. on its consolidated financial statements. The Company periodically evaluates entities for consolidation either through ownership of a majority voting interest, or through means other than voting interest, in accordance with the Variable Interest Entity (“VIE”) accounting model. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to the allowance for doubtful accounts, useful lives of property and equipment, deferred income taxes, liabilities under the tax receivable agreement, equity-based compensation, deferred revenue, fair value of leased property at inception of lease term, fair value of deliverables under multiple element arrangements, 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. Significant Accounting Policies A description of the Company’s significant accounting policies is included in the audited financial statements within its Annual Report on Form 10-K for the year ended December 31, 2018. No other changes to significant accounting policies have occurred since the year ended December 31, 2018, with the exception of those detailed below. Concentration of Credit and Other Risks Although the Company operates primarily in Nevada, realization of its customer accounts receivable and its future operations and cash flows could be affected by adverse economic conditions, both regionally and elsewhere in the United States. During each of the three and six months ended June 30, 2019 , the Company’s largest customer and its affiliates comprised 12% of the Company’s revenue. During each of the three and six months ended June 30, 2018 , the Company’s largest customer and its affiliates comprised 10% of the Company’s revenue. One customer accounted for 10% or more of accounts receivable as of June 30, 2019 and December 31, 2018 . Fair Value Measurements Information about the Company’s financial assets and liabilities measured at fair value on a recurring basis is presented below: June 30, 2019 Balance Sheet Classification Carrying Value Level 1 Level 2 Level 3 (in thousands) Assets: Cash equivalents Cash and cash equivalents $ 31,398 $ 31,398 $ — $ — Liabilities: Interest rate swaps Accrued expenses $ 2,509 $ — $ 2,509 $ — Interest rate swaps Other long-term liabilities $ 11,256 $ — $ 11,256 $ — December 31, 2018 Balance Sheet Classification Carrying Value Level 1 Level 2 Level 3 (in thousands) Assets: Cash equivalents Cash and cash equivalents $ 53,293 $ 53,293 $ — $ — The estimated fair value of the Company’s long-term debt as of June 30, 2019 was approximately $586.5 million , compared to its carrying value, excluding debt issuance costs, of $588.0 million . The estimated fair value of the Company’s long-term debt was based on Level 2 inputs. Derivative Financial Instruments A derivative is a financial instrument whose value changes in response to an underlying variable, requires little or no initial net investment, and is settled at a future date. Derivatives are initially recognized on the consolidated balance sheets at fair value on the date on which the derivatives are entered into and subsequently re-measured at fair value. Derivatives are separated into their current and long-term components based on the timing of the cash flows as of the end of each reporting period. Embedded derivatives included in hybrid instruments are treated and disclosed as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, the terms of the embedded derivative are the same as those of a stand-alone derivative and the combined contract is not measured at fair value through earnings. The financial host contracts are accounted for and measured using the applicable GAAP of the relevant financial instrument category. The method of recognizing fair value gains and losses depends on whether the derivatives are designated as hedging instruments, and if so, the nature of the hedge relationship. All gains and losses from changes in the fair values of derivatives that do not qualify for hedge accounting are recognized immediately in earnings. Cash flows from derivatives not designated as hedging instruments are classified in accordance with the nature of the derivative instrument and how it is used in the context of the Company’s business. The Company enters into interest rate swap agreements to manage its interest rate risk associated with variable-rate borrowings. In January and February 2019, Switch, Ltd. entered into four interest rate swap agreements; whereby, Switch, Ltd. will pay a weighted average fixed interest rate (excluding the applicable interest margin) of 2.48% on notional amounts corresponding to borrowings of $400.0 million in exchange for receipts on the same notional amount at a variable interest rate based on the applicable LIBOR at the time of payment. The interest rate swap agreements mature in June 2024 and are not designated as hedging instruments. Losses from derivatives not designated as hedging instruments, inclusive of periodic net settlement amounts, were recorded in loss on interest rate swaps on the consolidated statements of comprehensive income and totaled $8.8 million and $13.8 million for the three and six months ended June 30, 2019 , respectively. Recent Accounting Pronouncements The Company will cease to qualify as an emerging growth company on December 31, 2019. Accordingly, the Company will no longer be permitted to adopt new or revised standards on a private company timeline consistent with emerging growth companies that elect not to opt out of the available extended transition period. As a result, adoption dates for Accounting Standards Updates herein effective after December 31, 2019 are reflective of public business entity requirements. ASU 2014-09–Revenue from Contracts with Customers In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The standard supersedes much of the current guidance regarding revenue recognition including most industry-specific guidance. The core principle of the standard is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity will be required to identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligation in the contract, and recognize revenue when (or as) the entity satisfies a performance obligation. In addition to the new revenue recognition requirements, entities will be required to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard also provides guidance on the recognition of costs related to obtaining customer contracts. The standard allows for either full retrospective adoption, meaning the guidance is applied for all periods presented, or modified retrospective adoption, meaning the guidance is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the guidance recognized at the date of initial application. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”). The core principle of the guidance in ASU 2014-09 is not changed by the amendments in ASU 2016-08. The amendments clarify the implementation guidance on principal versus agent considerations. Per ASU 2016-08, when another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (principal) or to arrange for that good or service to be provided by the other party (agent). When an entity that is a principal satisfies a performance obligation, the entity recognizes revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specified good or service transferred to the customer. When an entity that is an agent satisfies a performance obligation, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled. In April 2016 and May 2016, the FASB issued guidance which amends certain other aspects of ASU 2014-09. The amendments include the identification of performance obligations and the licensing implementation guidance (ASU 2016-10) and the collectability of revenue, presentation of sales tax and other similar taxes collected from customers, contracts containing noncash considerations, and contract modifications and completed contracts at transition (ASU 2016-12). In December 2016, the FASB amended ASU 2014-09 to make minor corrections and minor improvements to the guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost (ASU 2016-20). The Company will adopt this guidance for the annual reporting period ending December 31, 2019 using the modified retrospective approach for adoption. The Company has assigned internal resources and engaged consulting service providers to assist in evaluating the impact the adoption of this guidance will have on its consolidated financial statements. ASU 2016-02–Leases In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The principle of ASU 2016-02 is that a lessee should recognize the assets and liabilities that arise from leases. Lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability. For income statement purposes, ASU 2016-02 requires leases to be classified as either operating or finance. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance. In addition, in January 2018, the FASB issued ASU 2018-01, which permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the entity’s adoption of ASU 2016-02 and were not previously accounted for as leases. In July 2018, the FASB issued ASU 2018-10, which provides clarifications and improvements on sections of ASU 2016-02, and ASU 2018-11, which provides lessees the option to apply the new guidance to all open leases as of the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and lessors with a practical expedient to account for qualifying non-lease components with associated lease components. In December 2018 and March 2019, the FASB also issued ASU 2018-20 and ASU 2019-01, respectively, which provide additional clarifications on sections of ASU 2016-02. The Company will adopt this guidance for the annual reporting period ending December 31, 2019. The Company has assigned internal resources and engaged consulting service providers to assist in evaluating the impact the adoption of this guidance will have on its consolidated financial statements. ASU 2016-13–Financial Instruments–Credit Losses In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). Under this guidance, a company will be required to use a new forward-looking “expected loss” model for trade and other receivables that generally will result in the earlier recognition of allowances for losses. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and requires a modified retrospective approach to adoption. In April 2019, the FASB issued ASU 2019-04, which, among other amendments, allows for certain policy elections and practical expedients related to accrued interest on financial instruments. In May 2019, the FASB also issued ASU 2019-05, which granted targeted transition relief by allowing entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements. ASU 2016-15–Statement of Cash Flows In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The areas affected by ASU 2016-15 are debt prepayment and debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. Specifically, under this guidance, cash payments for debt prepayment or debt extinguishment costs will be classified as cash outflows for financing activities. The Company will adopt this guidance for the annual reporting period ending December 31, 2019 retrospectively for all periods presented. Upon adoption of ASU 2016-15, for the year ended December 31, 2017, the Company expects its cash flows from operating activities to increase by $1.5 million and its cash flows provided by financing activities to decrease by $1.5 million . ASU 2018-13–Fair Value Measurement In August 2018, the FASB issued ASU 2018-13, Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The amendments in ASU 2018-13 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. In addition, in November 2018, the FASB issued ASU 2018-19, which provides clarifications and improvements on sections of ASU 2018-13. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements. Reclassification The Company has reclassified the amortization of portfolio energy credits to present it separately from changes in accounts payable on the consolidated statements of cash flows for the six months ended June 30, 2018 to be consistent with the current period presentation. The reclassification had no impact on the Company’s financial condition, results of operations, or net cash flows. |
Property and Equipment, Net
Property and Equipment, Net | 6 Months Ended |
Jun. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment, Net | Property and Equipment, Net Property and equipment, net consists of the following: June 30, December 31, (in thousands) Land and land improvements $ 194,542 $ 194,711 Buildings, building improvements, and leasehold improvements 424,798 412,089 Substation equipment 19,529 4,247 Data center equipment 971,569 904,722 Vehicles 1,787 1,685 Core network equipment 37,729 34,901 Cloud computing equipment 5,192 5,192 Fiber facilities 10,529 9,912 Computer equipment, furniture, and fixtures 38,235 34,975 Capitalized leased assets 34,355 33,730 Construction in progress 123,656 124,431 Property and equipment, gross 1,861,921 1,760,595 Less: accumulated depreciation and amortization (515,573 ) (457,825 ) Property and equipment, net $ 1,346,348 $ 1,302,770 Accumulated amortization for capitalized leased assets totaled $10.6 million and $9.9 million as of June 30, 2019 and December 31, 2018 , respectively. During the six months ended June 30, 2019 and 2018 , capitalized interest was $2.3 million and $2.5 million , respectively. The Company capitalized internal use software costs of $0.5 million and $0.1 million during the three months ended June 30, 2019 and 2018 , respectively, and $1.0 million and $0.8 million during the six months ended June 30, 2019 and 2018 , respectively. Total depreciation and amortization of property and equipment recognized on the consolidated statements of comprehensive income was as follows: Three Months Ended Six Months Ended 2019 2018 2019 2018 (in thousands) Cost of revenue $ 29,014 $ 25,054 $ 56,824 $ 49,121 Selling, general and administrative expense 789 664 1,537 1,200 Total depreciation and amortization of property and equipment $ 29,803 $ 25,718 $ 58,361 $ 50,321 |
Equity Method Investments
Equity Method Investments | 6 Months Ended |
Jun. 30, 2019 | |
Equity Method Investments and Joint Ventures [Abstract] | |
Equity Method Investments | Equity Method Investments The Company currently holds two investments accounted for under the equity method of accounting, SUPERNAP International, S.A. (“SUPERNAP International”) and Planet3, Inc. (“Planet3”), in which the Company holds a 50% ownership interest and a 45% ownership interest, respectively. As of June 30, 2019 and December 31, 2018 , the Company determined that it continued to have a variable interest in both SUPERNAP International and Planet3, as the entities do not have sufficient equity at risk. However, the Company concluded that it is not the primary beneficiary of SUPERNAP International or of Planet3 as it does not have deemed control of either entity. As a result, it does not consolidate either entity into its consolidated financial statements. As of March 31, 2018, the Company’s carrying value of its investment in SUPERNAP International was reduced to zero as a result of recording its share of the investee’s losses. Accordingly, as the Company does not have any guaranteed obligations and is not otherwise committed to provide further financial support to SUPERNAP International, the Company discontinued the equity method of accounting for its investment in SUPERNAP International as of March 31, 2018 and will not provide for additional losses until its share of future net income or comprehensive income, if any, equals the share of net losses or comprehensive losses not recognized during the period the equity method was suspended. The Company’s share of net loss recorded during the six months ended June 30, 2018 amounted to $0.3 million . As of June 30, 2019 and December 31, 2018 , the Company recorded amounts consisting primarily of reimbursable expenses due from SUPERNAP International of $0.2 million and $0.4 million , respectively, within accounts receivable on the consolidated balance sheets. |
Leases
Leases | 6 Months Ended |
Jun. 30, 2019 | |
Leases [Abstract] | |
Leases | Leases During the three months ended June 30, 2019 and 2018 , rent expense related to operating leases was $2.2 million and $2.0 million , respectively. During the six months ended June 30, 2019 and 2018 , rent expense related to operating leases was $4.1 million and $3.9 million , respectively. Related party rent included in these amounts was $1.5 million and $1.3 million for the three months ended June 30, 2019 and 2018 , respectively, and $2.7 million and $2.5 million for the six months ended June 30, 2019 and 2018 , respectively. In June 2019, the Company received county approval of an operating lease it previously entered into with an entity in which a member of its Board of Directors has a beneficial ownership interest for the lease of land. The operating lease requires annual payments of $2.5 million over a non-cancellable term of 50 years, commencing July 1, 2019, for a total obligation of $126.9 million . |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Jun. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Legal Proceedings On September 7, 2017, Switch, Ltd. and Switch, Inc. were named in a lawsuit filed in the U.S. District Court for the District of Nevada by V5 Technologies formerly d/b/a Cobalt Data Centers. The lawsuit alleges, among other things, that Switch, Ltd. and Switch, Inc. monopolized the Las Vegas Metropolitan area of Southern Nevada’s data center colocation market and engaged in unfair business practices leading to the failure of Cobalt Data Centers in 2015 and seeks monetary damages in an amount yet to be disclosed. The parties are currently engaged in discovery. Switch, Ltd. and Switch, Inc. are vigorously defending the case. On September 12, 2017, Switch, Ltd. filed a complaint in the Eighth Judicial District of Nevada against the consultant, Stephen Fairfax, and his business, MTechnology Inc. Among other claims, Switch raised allegations of breach of contract and misappropriation of trade secrets. The complaint also alleged that Aligned Data Centers LLC hired Mr. Fairfax and MTechnology to design their data centers; that this consultant had toured Switch under a non-disclosure agreement; and that this consultant breached his confidentiality agreements with Switch by using Switch’s designs to design the Aligned data centers. Switch, Ltd. is seeking an injunction to prevent the defendants in the lawsuit from infringing Switch, Ltd.’s patents, as well as other remedies. The parties are currently engaged in discovery. Four substantially similar putative class action complaints, captioned Martz v. Switch, Inc. et al. (filed April 20, 2018); Palkon v. Switch, Inc. et al. (filed April 30, 2018); Chun v. Switch, Inc. et al. (filed May 11, 2018); and Silverberg v. Switch, Inc. et al. (filed June 6, 2018), were filed in the Eighth Judicial District of Nevada, and subsequently consolidated into a single case (the “State Court Securities Action”). Additionally, on June 11, 2018, one 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. In October 2018, the state court granted defendants motion to stay the State Court Securities Action in favor of the Federal Court Securities Action. In November 2018, the plaintiffs in the State Court Securities Action filed a petition for writ of mandamus challenging the stay order. In February 2019, Switch, Inc. filed an answer to this petition and plaintiffs in the State Court Securities Action filed their reply in March 2019. The Supreme Court of Nevada has not yet issued its ruling on this petition. In October 2018, the lead plaintiff of the Federal Court Securities Action filed an amended complaint. In November 2018, Switch, Inc. and other defendants filed a motion to dismiss for failure to state a claim and a motion to strike. In July 2019, the federal court granted Switch, Inc.’s motion to dismiss in part, which narrowed the scope of the plaintiff’s case. Switch, Inc. believes that these lawsuits are without merit and intends to continue to vigorously defend against them. On September 10, 2018, two purported stockholders of Switch, Inc. filed substantially similar shareholder derivative complaints, respectively captioned Liu v. Roy et al., and Zhao v. Roy et al., in the Eighth Judicial District of Nevada, which were subsequently consolidated into a single case (the “Derivative Shareholder Action”). These lawsuits allege breaches of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control, and gross mismanagement against certain current and former officers and directors of Switch, Inc. The plaintiffs also named Switch, Inc. as a nominal defendant. The complaints arise generally from the same allegations described in the State Court Securities Action and Federal Court Securities Action. The plaintiffs seek unspecified damages on Switch, Inc.’s behalf from the officer and director defendants, certain corporate governance actions, compensatory awards, and other relief. In December 2018, the court granted the parties’ stipulation to stay the Derivative Shareholder Action until the Securities Actions are dismissed with prejudice or until the defendants file an answer in any of the Securities Actions. On April 8, 2019, Switch, Ltd. filed a complaint in the Eighth Judicial District of Nevada against the Public Utilities Commission of Nevada (the “PUCN”), its regulatory operation staff (the “Staff”), and its staff counsel, Tamara Cordova, in response to a regulatory petition filed by the Staff requesting the PUCN rule whether Switch is (i) a public utility, as defined by the Nevada statute, (ii) provides its services to the public at large, and (iii) charges its customers for electricity at a rate that is higher than the rate Switch pays for electricity at its facilities. In May 2019, Switch and the PUCN agreed that Switch is not a monopoly provider of electric service within the state of Nevada. In June 2019, the Nevada legislature amended the definition of “public utility” to reflect that agreement. Both the Staff’s petition and Switch, Ltd.’s complaint have been dismissed. The outcomes of the legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to the Company’s financial condition, results of operations, and cash flows for a particular period. Where the Company is a defendant, it will vigorously defend against the claims pleaded against it. These actions are each in preliminary stages and management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of these actions or the range of reasonably possible loss, if any. |
Income Taxes
Income Taxes | 6 Months Ended |
Jun. 30, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Tax Disclosure | Income Taxes The Company recorded a net deferred tax asset resulting from changes in the outside basis difference on Switch, Inc.’s investment in Switch, Ltd. of $47.9 million and $47.1 million during the three and six months ended June 30, 2019 , respectively, and $20.3 million during the three and six months ended June 30, 2018 , with a corresponding increase to additional paid in capital. The Company has determined 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 $112.0 million and $52.5 million as of June 30, 2019 and December 31, 2018 , respectively, which provides for the payment of 85% of the amount of the tax benefits, if any, that Switch, Inc. is deemed to realize as a result of increases in the tax basis of its ownership in Switch, Ltd. related to exchanges of noncontrolling interest for Class A common stock. |
Equity-Based Compensation
Equity-Based Compensation | 6 Months Ended |
Jun. 30, 2019 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Equity-Based Compensation | Equity-Based Compensation Total equity-based compensation recognized on the consolidated statements of comprehensive income was as follows: Three Months Ended Six Months Ended 2019 2018 2019 2018 (in thousands) Cost of revenue $ 381 $ 367 $ 754 $ 783 Selling, general and administrative expense 7,062 7,842 14,834 19,783 Total equity-based compensation $ 7,443 $ 8,209 $ 15,588 $ 20,566 |
Non-controlling Interest
Non-controlling Interest | 6 Months Ended |
Jun. 30, 2019 | |
Noncontrolling Interest [Abstract] | |
Non-controlling Interest | Noncontrolling Interest Ownership Switch, Inc. owns an indirect minority economic interest in Switch, Ltd., where “economic interests” means the right to receive any distributions, whether cash, property or securities of Switch, Ltd., in connection with Common Units. Switch, Inc. presents interest held by noncontrolling interest holders within noncontrolling interest in the consolidated financial statements. In April 2019, Switch, Inc. issued an aggregate of 22.3 million shares of Class A common stock to members of Switch, Ltd. in connection with such members’ redemptions of an equivalent number of Common Units and corresponding cancellation of an equivalent number of Switch, Inc.’s Class B common stock. The redemption occurred pursuant to the terms of the Switch operating agreement entered into in connection with the Company’s IPO. In April 2019, Switch, Ltd. elected to repurchase 1.3 million of its outstanding Common Units for $13.6 million upon the exercise by certain members of their respective redemption right. Pursuant to this repurchase, Switch, Inc. canceled an equivalent amount of its shares of Class B common stock. The repurchase is part of a program previously approved by the Board of Directors of the Company and reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The ownership of the Common Units is summarized as follows: June 30, 2019 December 31, 2018 Units Ownership % Units Ownership % (units in thousands) Switch, Inc.’s ownership of Common Units (1) 78,005 32.2 % 55,157 22.7 % Noncontrolling interest holders’ ownership of Common Units (2) 164,227 67.8 % 187,440 77.3 % Total Common Units 242,232 100.0 % 242,597 100.0 % ________________________________________ (1) Common Units held by Switch, Inc. as of June 30, 2019 exclude 80,000 Common Units underlying unvested restricted stock awards. Common Units held by Switch, Inc. as of December 31, 2018 exclude 61,000 Common Units underlying unvested restricted stock awards. (2) Common Units held by noncontrolling interest holders as of June 30, 2019 exclude 3.6 million unvested Common Unit awards. Common Units held by noncontrolling interest holders as of December 31, 2018 exclude 4.0 million unvested Common Unit awards. The Company uses the weighted average ownership percentages during the period to calculate the income before income taxes attributable to Switch, Inc. and the noncontrolling interest holders of Switch, Ltd. |
Net Income Per Share
Net Income Per Share | 6 Months Ended |
Jun. 30, 2019 | |
Earnings Per Share [Abstract] | |
Net Income Per Share | Net Income Per Share The following table sets forth the calculation of basic and diluted net income per share: Three Months Ended Six Months Ended 2019 2018 2019 2018 (in thousands, except per share data) Net income per share: Numerator—basic: Net income attributable to Switch, Inc.—basic $ 1,178 $ 821 $ 1,878 $ 1,492 Numerator—diluted: Net income attributable to Switch, Inc.—basic $ 1,178 $ 821 $ 1,878 $ 1,492 Effect of dilutive securities: Shares of Class B and Class C common stock — — 4,939 — Net income attributable to Switch, Inc.—diluted $ 1,178 $ 821 $ 6,817 $ 1,492 Denominator—basic: Weighted average shares outstanding—basic 77,714 42,358 66,686 39,197 Net income per share—basic $ 0.02 $ 0.02 $ 0.03 $ 0.04 Denominator—diluted: Weighted average shares outstanding—basic 77,714 42,358 66,686 39,197 Weighted average effect of dilutive securities: Stock/unit options 627 87 334 89 Restricted stock units 618 1 464 1 Dividend equivalent units 22 5 20 3 Restricted stock awards 40 12 37 6 Shares of Class B and Class C common stock — — 179,686 — Weighted average shares outstanding—diluted 79,021 42,463 247,227 39,296 Net income per share—diluted $ 0.01 $ 0.02 $ 0.03 $ 0.04 Shares of Class B and Class C common stock do not share in the earnings or losses of Switch, Inc. and are therefore not participating securities. As such, separate calculations of basic and diluted net income per share for each of Class B and Class C common stock under the two-class method have not been presented. The following table presents potentially dilutive securities excluded from the computation of diluted net income per share for the periods presented because their effect would have been anti-dilutive. Three Months Ended Six Months Ended 2019 2018 2019 2018 (in thousands) Stock options (1) 6,288 5,602 6,288 5,602 Restricted stock units (1) 1,518 2,118 1,518 2,118 Restricted stock awards (1) 80 — 80 — Shares of Class B and Class C common stock (2) 167,815 203,145 — 203,145 ________________________________________ (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. |
Segment Reporting
Segment Reporting | 6 Months Ended |
Jun. 30, 2019 | |
Segment Reporting [Abstract] | |
Segment Reporting | Segment Reporting The Company’s chief operating decision maker is its Chief Executive Officer. The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. All of the Company’s assets are maintained in the United States, although the Company holds an equity method investment in SUPERNAP International, which has deployed facilities in Italy and Thailand. The Company derives almost all of its revenue from sales to customers in the United States, based upon the billing address of the customer. Revenue derived from customers outside the United States, based upon the billing address of the customer, was less than 2% of revenue for each of the three and six months ended June 30, 2019 and less than 1% of revenue for each of the three and six months ended June 30, 2018 . The Company’s revenue is comprised of the following: Three Months Ended Six Months Ended 2019 2018 2019 2018 (in thousands) Colocation $ 90,711 $ 81,150 $ 176,888 $ 158,869 Connectivity 19,458 18,866 38,351 37,084 Other 1,418 2,145 3,380 3,925 Total revenue $ 111,587 $ 102,161 $ 218,619 $ 199,878 |
Subsequent Events
Subsequent Events | 6 Months Ended |
Jun. 30, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events In July 2019, Switch, Inc. issued an aggregate of 6.3 million shares of Class A common stock to members of Switch, Ltd. in connection with such members’ redemptions of an equivalent number of Common Units and corresponding cancellation of an equivalent number of shares of Class B common stock. The redemptions occurred pursuant to the terms of the Switch operating agreement entered into in connection with the Company’s IPO. In July 2019, Switch, Ltd. also elected to repurchase 0.8 million of its outstanding Common Units for $11.1 million upon the exercise by certain members of their respective redemption right. Pursuant to this repurchase, Switch, Inc. canceled an equivalent number of shares of Class B common stock. In July 2019, a wholly-owned subsidiary of Switch, Ltd. entered into two power purchase and sale agreements for electricity and a battery energy storage system agreement to purchase 10.1 million megawatt-hours over a term of 25 years and battery capacity of 50 megawatts at a monthly price per kilowatt-month of installed capacity for a term of 20 years. These agreements result in an aggregate purchase commitment of $468.6 million during the respective terms starting on the earlier of October 1, 2022 or upon delivery of the battery energy storage system. In August 2019, Switch, Inc.’s Board of Directors declared a dividend of $0.0294 per share of Class A common stock, for a total estimated to be $2.5 million , to be paid on August 30, 2019 to holders of record as of August 19, 2019. Prior to the payment of this dividend, Switch, Ltd. will make a cash distribution to all holders of record of Common Units, including Switch, Inc., of $0.0294 per Common Unit, for a total estimated to be $7.2 million . |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Management believes that the accompanying consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of these consolidated financial statements. The consolidated results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 , or for any other future annual or interim period. |
Principles of Consolidation | Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and all significant intercompany transactions and balances have been eliminated. As the sole manager of Switch, Ltd., Switch, Inc. operates and controls all of the business and affairs of Switch, has the sole voting interest in, and controls the management of, Switch, and has the obligation to absorb the losses of, and receive benefits from, Switch. Accordingly, Switch, Inc. identifies itself as the primary beneficiary of Switch and began consolidating Switch in its consolidated financial statements as of October 11, 2017, the closing date of the IPO, resulting in a noncontrolling interest related to the common units of Switch, Ltd. (“Common Units”) held by members other than Switch, Inc. on its consolidated financial statements. The Company periodically evaluates entities for consolidation either through ownership of a majority voting interest, or through means other than voting interest, in accordance with the Variable Interest Entity (“VIE”) accounting model. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. |
Use of Estimates | Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to the allowance for doubtful accounts, useful lives of property and equipment, deferred income taxes, liabilities under the tax receivable agreement, equity-based compensation, deferred revenue, fair value of leased property at inception of lease term, fair value of deliverables under multiple element arrangements, 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. |
Concentration of Credit and Other Risks | Concentration of Credit and Other Risks Although the Company operates primarily in Nevada, realization of its customer accounts receivable and its future operations and cash flows could be affected by adverse economic conditions, both regionally and elsewhere in the United States. During each of the three and six months ended June 30, 2019 , the Company’s largest customer and its affiliates comprised 12% of the Company’s revenue. During each of the three and six months ended June 30, 2018 , the Company’s largest customer and its affiliates comprised 10% of the Company’s revenue. One customer accounted for 10% or more of accounts receivable as of June 30, 2019 and December 31, 2018 . |
Fair Value Measurement | Fair Value Measurements Information about the Company’s financial assets and liabilities measured at fair value on a recurring basis is presented below: June 30, 2019 Balance Sheet Classification Carrying Value Level 1 Level 2 Level 3 (in thousands) Assets: Cash equivalents Cash and cash equivalents $ 31,398 $ 31,398 $ — $ — Liabilities: Interest rate swaps Accrued expenses $ 2,509 $ — $ 2,509 $ — Interest rate swaps Other long-term liabilities $ 11,256 $ — $ 11,256 $ — December 31, 2018 Balance Sheet Classification Carrying Value Level 1 Level 2 Level 3 (in thousands) Assets: Cash equivalents Cash and cash equivalents $ 53,293 $ 53,293 $ — $ — The estimated fair value of the Company’s long-term debt as of June 30, 2019 was approximately $586.5 million , compared to its carrying value, excluding debt issuance costs, of $588.0 million . The estimated fair value of the Company’s long-term debt was based on Level 2 inputs. |
Derivative 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 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 four interest rate swap agreements; whereby, Switch, Ltd. will pay a weighted average fixed interest rate (excluding the applicable interest margin) of 2.48% on notional amounts corresponding to borrowings of $400.0 million in exchange for receipts on the same notional amount at a variable interest rate based on the applicable LIBOR at the time of payment. The interest rate swap agreements mature in June 2024 and are not designated as hedging instruments. Losses from derivatives not designated as hedging instruments, inclusive of periodic net settlement amounts, were recorded in loss on interest rate swaps on the consolidated statements of comprehensive income and totaled $8.8 million and $13.8 million for the three and six months ended June 30, 2019 , respectively. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements The Company will cease to qualify as an emerging growth company on December 31, 2019. Accordingly, the Company will no longer be permitted to adopt new or revised standards on a private company timeline consistent with emerging growth companies that elect not to opt out of the available extended transition period. As a result, adoption dates for Accounting Standards Updates herein effective after December 31, 2019 are reflective of public business entity requirements. ASU 2014-09–Revenue from Contracts with Customers In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The standard supersedes much of the current guidance regarding revenue recognition including most industry-specific guidance. The core principle of the standard is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity will be required to identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligation in the contract, and recognize revenue when (or as) the entity satisfies a performance obligation. In addition to the new revenue recognition requirements, entities will be required to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard also provides guidance on the recognition of costs related to obtaining customer contracts. The standard allows for either full retrospective adoption, meaning the guidance is applied for all periods presented, or modified retrospective adoption, meaning the guidance is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the guidance recognized at the date of initial application. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”). The core principle of the guidance in ASU 2014-09 is not changed by the amendments in ASU 2016-08. The amendments clarify the implementation guidance on principal versus agent considerations. Per ASU 2016-08, when another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (principal) or to arrange for that good or service to be provided by the other party (agent). When an entity that is a principal satisfies a performance obligation, the entity recognizes revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specified good or service transferred to the customer. When an entity that is an agent satisfies a performance obligation, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled. In April 2016 and May 2016, the FASB issued guidance which amends certain other aspects of ASU 2014-09. The amendments include the identification of performance obligations and the licensing implementation guidance (ASU 2016-10) and the collectability of revenue, presentation of sales tax and other similar taxes collected from customers, contracts containing noncash considerations, and contract modifications and completed contracts at transition (ASU 2016-12). In December 2016, the FASB amended ASU 2014-09 to make minor corrections and minor improvements to the guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost (ASU 2016-20). The Company will adopt this guidance for the annual reporting period ending December 31, 2019 using the modified retrospective approach for adoption. The Company has assigned internal resources and engaged consulting service providers to assist in evaluating the impact the adoption of this guidance will have on its consolidated financial statements. ASU 2016-02–Leases In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The principle of ASU 2016-02 is that a lessee should recognize the assets and liabilities that arise from leases. Lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability. For income statement purposes, ASU 2016-02 requires leases to be classified as either operating or finance. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance. In addition, in January 2018, the FASB issued ASU 2018-01, which permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the entity’s adoption of ASU 2016-02 and were not previously accounted for as leases. In July 2018, the FASB issued ASU 2018-10, which provides clarifications and improvements on sections of ASU 2016-02, and ASU 2018-11, which provides lessees the option to apply the new guidance to all open leases as of the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and lessors with a practical expedient to account for qualifying non-lease components with associated lease components. In December 2018 and March 2019, the FASB also issued ASU 2018-20 and ASU 2019-01, respectively, which provide additional clarifications on sections of ASU 2016-02. The Company will adopt this guidance for the annual reporting period ending December 31, 2019. The Company has assigned internal resources and engaged consulting service providers to assist in evaluating the impact the adoption of this guidance will have on its consolidated financial statements. ASU 2016-13–Financial Instruments–Credit Losses In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). Under this guidance, a company will be required to use a new forward-looking “expected loss” model for trade and other receivables that generally will result in the earlier recognition of allowances for losses. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and requires a modified retrospective approach to adoption. In April 2019, the FASB issued ASU 2019-04, which, among other amendments, allows for certain policy elections and practical expedients related to accrued interest on financial instruments. In May 2019, the FASB also issued ASU 2019-05, which granted targeted transition relief by allowing entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements. ASU 2016-15–Statement of Cash Flows In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The areas affected by ASU 2016-15 are debt prepayment and debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. Specifically, under this guidance, cash payments for debt prepayment or debt extinguishment costs will be classified as cash outflows for financing activities. The Company will adopt this guidance for the annual reporting period ending December 31, 2019 retrospectively for all periods presented. Upon adoption of ASU 2016-15, for the year ended December 31, 2017, the Company expects its cash flows from operating activities to increase by $1.5 million and its cash flows provided by financing activities to decrease by $1.5 million . ASU 2018-13–Fair Value Measurement In August 2018, the FASB issued ASU 2018-13, Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. The amendments in ASU 2018-13 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. In addition, in November 2018, the FASB issued ASU 2018-19, which provides clarifications and improvements on sections of ASU 2018-13. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements. |
Reclassification | Reclassification The Company has reclassified the amortization of portfolio energy credits to present it separately from changes in accounts payable on the consolidated statements of cash flows for the six months ended June 30, 2018 to be consistent with the current period presentation. The reclassification had no impact on the Company’s financial condition, results of operations, or net cash flows. |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block] | Information about the Company’s financial assets and liabilities measured at fair value on a recurring basis is presented below: June 30, 2019 Balance Sheet Classification Carrying Value Level 1 Level 2 Level 3 (in thousands) Assets: Cash equivalents Cash and cash equivalents $ 31,398 $ 31,398 $ — $ — Liabilities: Interest rate swaps Accrued expenses $ 2,509 $ — $ 2,509 $ — Interest rate swaps Other long-term liabilities $ 11,256 $ — $ 11,256 $ — December 31, 2018 Balance Sheet Classification Carrying Value Level 1 Level 2 Level 3 (in thousands) Assets: Cash equivalents Cash and cash equivalents $ 53,293 $ 53,293 $ — $ — |
Property and Equipment, Net (Ta
Property and Equipment, Net (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment, Net | Property and equipment, net consists of the following: June 30, December 31, (in thousands) Land and land improvements $ 194,542 $ 194,711 Buildings, building improvements, and leasehold improvements 424,798 412,089 Substation equipment 19,529 4,247 Data center equipment 971,569 904,722 Vehicles 1,787 1,685 Core network equipment 37,729 34,901 Cloud computing equipment 5,192 5,192 Fiber facilities 10,529 9,912 Computer equipment, furniture, and fixtures 38,235 34,975 Capitalized leased assets 34,355 33,730 Construction in progress 123,656 124,431 Property and equipment, gross 1,861,921 1,760,595 Less: accumulated depreciation and amortization (515,573 ) (457,825 ) Property and equipment, net $ 1,346,348 $ 1,302,770 |
Depreciation and Amortization of Property and Equipment | Total depreciation and amortization of property and equipment recognized on the consolidated statements of comprehensive income was as follows: Three Months Ended Six Months Ended 2019 2018 2019 2018 (in thousands) Cost of revenue $ 29,014 $ 25,054 $ 56,824 $ 49,121 Selling, general and administrative expense 789 664 1,537 1,200 Total depreciation and amortization of property and equipment $ 29,803 $ 25,718 $ 58,361 $ 50,321 |
Equity-Based Compensation (Tabl
Equity-Based Compensation (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block] | Equity-Based Compensation Total equity-based compensation recognized on the consolidated statements of comprehensive income was as follows: Three Months Ended Six Months Ended 2019 2018 2019 2018 (in thousands) Cost of revenue $ 381 $ 367 $ 754 $ 783 Selling, general and administrative expense 7,062 7,842 14,834 19,783 Total equity-based compensation $ 7,443 $ 8,209 $ 15,588 $ 20,566 |
Non-controlling Interest (Table
Non-controlling Interest (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Noncontrolling Interest [Abstract] | |
Ownership of Common Units | The ownership of the Common Units is summarized as follows: June 30, 2019 December 31, 2018 Units Ownership % Units Ownership % (units in thousands) Switch, Inc.’s ownership of Common Units (1) 78,005 32.2 % 55,157 22.7 % Noncontrolling interest holders’ ownership of Common Units (2) 164,227 67.8 % 187,440 77.3 % Total Common Units 242,232 100.0 % 242,597 100.0 % ________________________________________ (1) Common Units held by Switch, Inc. as of June 30, 2019 exclude 80,000 Common Units underlying unvested restricted stock awards. Common Units held by Switch, Inc. as of December 31, 2018 exclude 61,000 Common Units underlying unvested restricted stock awards. (2) Common Units held by noncontrolling interest holders as of June 30, 2019 exclude 3.6 million unvested Common Unit awards. Common Units held by noncontrolling interest holders as of December 31, 2018 exclude 4.0 million unvested Common Unit awards. |
Net Income Per Share (Tables)
Net Income Per Share (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Earnings Per Share [Abstract] | |
Calculation of Basic and Diluted Net Income Per Share | The following table sets forth the calculation of basic and diluted net income per share: Three Months Ended Six Months Ended 2019 2018 2019 2018 (in thousands, except per share data) Net income per share: Numerator—basic: Net income attributable to Switch, Inc.—basic $ 1,178 $ 821 $ 1,878 $ 1,492 Numerator—diluted: Net income attributable to Switch, Inc.—basic $ 1,178 $ 821 $ 1,878 $ 1,492 Effect of dilutive securities: Shares of Class B and Class C common stock — — 4,939 — Net income attributable to Switch, Inc.—diluted $ 1,178 $ 821 $ 6,817 $ 1,492 Denominator—basic: Weighted average shares outstanding—basic 77,714 42,358 66,686 39,197 Net income per share—basic $ 0.02 $ 0.02 $ 0.03 $ 0.04 Denominator—diluted: Weighted average shares outstanding—basic 77,714 42,358 66,686 39,197 Weighted average effect of dilutive securities: Stock/unit options 627 87 334 89 Restricted stock units 618 1 464 1 Dividend equivalent units 22 5 20 3 Restricted stock awards 40 12 37 6 Shares of Class B and Class C common stock — — 179,686 — Weighted average shares outstanding—diluted 79,021 42,463 247,227 39,296 Net income per share—diluted $ 0.01 $ 0.02 $ 0.03 $ 0.04 |
Potentially Dilutive Securities Excluded from the Computation of Diluted Net Income Per Share | The following table presents potentially dilutive securities excluded from the computation of diluted net income per share for the periods presented because their effect would have been anti-dilutive. Three Months Ended Six Months Ended 2019 2018 2019 2018 (in thousands) Stock options (1) 6,288 5,602 6,288 5,602 Restricted stock units (1) 1,518 2,118 1,518 2,118 Restricted stock awards (1) 80 — 80 — Shares of Class B and Class C common stock (2) 167,815 203,145 — 203,145 ________________________________________ (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. |
Segment Reporting (Tables)
Segment Reporting (Tables) | 6 Months Ended |
Jun. 30, 2019 | |
Segment Reporting [Abstract] | |
Composition of Revenue | The Company’s revenue is comprised of the following: Three Months Ended Six Months Ended 2019 2018 2019 2018 (in thousands) Colocation $ 90,711 $ 81,150 $ 176,888 $ 158,869 Connectivity 19,458 18,866 38,351 37,084 Other 1,418 2,145 3,380 3,925 Total revenue $ 111,587 $ 102,161 $ 218,619 $ 199,878 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies - Narrative (Details) | 3 Months Ended | 6 Months Ended | 12 Months Ended | ||||
Jun. 30, 2019USD ($) | Jun. 30, 2018 | Jun. 30, 2019USD ($) | Jun. 30, 2018USD ($) | Dec. 31, 2018 | Dec. 31, 2017USD ($) | Feb. 28, 2019USD ($)derivative | |
Concentration Risk [Line Items] | |||||||
Estimated fair value of long-term debt | $ 586,500,000 | $ 586,500,000 | |||||
Carrying value of long-term debt | $ 588,000,000 | 588,000,000 | |||||
Cash flows from operating activities | 108,955,000 | $ 96,231,000 | |||||
Cash flows from financing activities | $ (29,689,000) | $ (12,520,000) | |||||
Accounting Standards Update 2016-15 | |||||||
Concentration Risk [Line Items] | |||||||
Cash flows from operating activities | $ 1,500,000 | ||||||
Cash flows from financing activities | $ (1,500,000) | ||||||
Customer Concentration Risk | Revenue | Colocation and Connectivity Services | |||||||
Concentration Risk [Line Items] | |||||||
Concentration risk percentage | 12.00% | 10.00% | 12.00% | 10.00% | |||
Customer Concentration Risk | Accounts Receivable | One Customer | |||||||
Concentration Risk [Line Items] | |||||||
Concentration risk percentage | 10.00% | 10.00% | |||||
Interest Rate Swap Agreements | |||||||
Concentration Risk [Line Items] | |||||||
Number of derivative agreements | derivative | 4 | ||||||
Weighted average fixed interest rate on notional amounts | 2.48% | ||||||
Notional amount | $ 400,000,000 |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies Fair Value Measurements (Details) - USD ($) $ in Thousands | Jun. 30, 2019 | Dec. 31, 2018 |
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Cash equivalents, carrying value | $ 31,398 | $ 53,293 |
Level 1 | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Cash equivalents, fair value | 31,398 | $ 53,293 |
Interest Rate Swap Agreements | Accrued expenses | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Interest rate swaps | 2,509 | |
Interest Rate Swap Agreements | Accrued expenses | Level 2 | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Interest rate swaps | 2,509 | |
Interest Rate Swap Agreements | Other long-term liabilities | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Interest rate swaps | 11,256 | |
Interest Rate Swap Agreements | Other long-term liabilities | Level 2 | ||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Interest rate swaps | $ 11,256 |
Summary of Significant Accoun_6
Summary of Significant Accounting Policies Derivatives (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Derivative [Line Items] | ||||
Loss on interest rate swaps | $ 8,781 | $ 0 | $ 13,766 | $ 0 |
Interest Rate Swap Agreements | ||||
Derivative [Line Items] | ||||
Loss on interest rate swaps | $ 8,800 | $ 13,800 |
Property and Equipment, Net (De
Property and Equipment, Net (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 | |
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | $ 1,861,921 | $ 1,861,921 | $ 1,760,595 | ||
Less: accumulated depreciation and amortization | (515,573) | (515,573) | (457,825) | ||
Property and equipment, net | 1,346,348 | 1,346,348 | 1,302,770 | ||
Depreciation and amortization of property and equipment | 29,803 | $ 25,718 | 58,361 | $ 50,321 | |
Cost of revenue | |||||
Property, Plant and Equipment [Line Items] | |||||
Depreciation and amortization of property and equipment | 29,014 | 25,054 | 56,824 | 49,121 | |
Selling, general and administrative expense | |||||
Property, Plant and Equipment [Line Items] | |||||
Depreciation and amortization of property and equipment | 789 | $ 664 | 1,537 | $ 1,200 | |
Land and land improvements | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 194,542 | 194,542 | 194,711 | ||
Buildings, building improvements, and leasehold improvements | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 424,798 | 424,798 | 412,089 | ||
Substation equipment | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 19,529 | 19,529 | 4,247 | ||
Data center equipment | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 971,569 | 971,569 | 904,722 | ||
Vehicles | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 1,787 | 1,787 | 1,685 | ||
Core network equipment | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 37,729 | 37,729 | 34,901 | ||
Cloud computing equipment | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 5,192 | 5,192 | 5,192 | ||
Fiber facilities | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 10,529 | 10,529 | 9,912 | ||
Computer equipment, furniture, and fixtures | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 38,235 | 38,235 | 34,975 | ||
Capitalized leased assets | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | 34,355 | 34,355 | 33,730 | ||
Construction in progress | |||||
Property, Plant and Equipment [Line Items] | |||||
Property and equipment, gross | $ 123,656 | $ 123,656 | $ 124,431 |
Property and Equipment, Net - N
Property and Equipment, Net - Narrative (Details) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | |||||
Accumulated amortization for capitalized leased assets | $ 10.6 | $ 10.6 | $ 9.9 | ||
Capitalized interest | 2.3 | $ 2.5 | |||
Capitalized internal use software costs | $ 0.5 | $ 0.1 | $ 1 | $ 0.8 |
Equity Method Investments (Deta
Equity Method Investments (Details) | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2019USD ($)investment | Jun. 30, 2018USD ($) | Jun. 30, 2019USD ($)investment | Jun. 30, 2018USD ($) | Dec. 31, 2018USD ($) | |
Schedule of Equity Method Investments [Line Items] | |||||
Number of investments accounted for under the equity method | investment | 2 | 2 | |||
Equity in net losses of investments | $ 0 | $ 0 | $ 0 | $ 331,000 | |
SUPERNAP International | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Ownership interest in equity method investments | 50.00% | 50.00% | |||
Carrying value of equity method investments | $ 0 | $ 0 | |||
Equity in net losses of investments | $ 300,000 | ||||
Planet3, Inc. [Member] | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Ownership interest in equity method investments | 45.00% | 45.00% | |||
Equity Method Investee [Member] | SUPERNAP International | |||||
Schedule of Equity Method Investments [Line Items] | |||||
Reimbursable expenses due from related parties included in accounts receivable | $ 200,000 | $ 200,000 | $ 400,000 |
Leases (Details)
Leases (Details) - USD ($) $ in Millions | 1 Months Ended | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Operating Leases [Line Items] | |||||
Rent expense related to operating leases | $ 2.2 | $ 2 | $ 4.1 | $ 3.9 | |
Related party rent included in rent expense related to operating leases | $ 1.5 | $ 1.3 | $ 2.7 | $ 2.5 | |
Land and land improvements | |||||
Operating Leases [Line Items] | |||||
Annual required payments | $ 2.5 | ||||
Non-cancellable term | 50 years | 50 years | 50 years | ||
Total obligation | $ 126.9 |
Commitments and Contingencies (
Commitments and Contingencies (Details) | Sep. 10, 2018plaintiff | Jun. 11, 2018case | Jun. 08, 2018case |
State Court Securities Action | |||
Loss Contingencies [Line Items] | |||
Number of complaints filed | 4 | ||
Federal Court Securities Action | |||
Loss Contingencies [Line Items] | |||
Number of complaints filed | 1 | ||
Derivative Shareholder Action | |||
Loss Contingencies [Line Items] | |||
Number of plaintiffs | plaintiff | 2 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | |||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | |||||
Net deferred tax asset resulting from changes in the outside basis difference on investment | $ 47,900 | $ 20,300 | $ 47,100 | $ 20,300 | |
Liabilities under tax receivable agreement | $ 112,011 | $ 112,011 | $ 52,535 | ||
Percent of tax benefits to be paid under tax receivable agreement | 85.00% |
Equity-Based Compensation (Deta
Equity-Based Compensation (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Equity-based compensation | $ 7,443 | $ 8,209 | $ 15,588 | $ 20,566 |
Cost of revenue | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Equity-based compensation | 381 | 367 | 754 | 783 |
Selling, general and administrative expense | ||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||
Equity-based compensation | $ 7,062 | $ 7,842 | $ 14,834 | $ 19,783 |
Non-controlling Interest Narrat
Non-controlling Interest Narrative (Details) - USD ($) $ in Thousands | 1 Months Ended | 6 Months Ended | ||
Apr. 30, 2019 | Jun. 30, 2019 | Jun. 30, 2018 | Dec. 31, 2018 | |
Noncontrolling Interest [Line Items] | ||||
Repurchase of common units (in shares) | 1,300,000 | |||
Payments for repurchase of common units | $ 13,600 | $ 13,597 | $ 0 | |
Restricted Stock | Director Compensation Program | ||||
Noncontrolling Interest [Line Items] | ||||
Unvested awards (in shares) | 80,000 | 61,000 | ||
Common Units | ||||
Noncontrolling Interest [Line Items] | ||||
Unvested awards (in shares) | 3,600,000 | 4,000,000 | ||
Switch, Ltd. | ||||
Noncontrolling Interest [Line Items] | ||||
Switch, Inc.'s ownership of Common Units (in shares) | 78,005,000 | 55,157,000 | ||
Switch, Inc.'s ownership of Common Units | 32.20% | 22.70% | ||
Noncontrolling interest holders’ ownership of Common Units (in shares) | 164,227,000 | 187,440,000 | ||
Noncontrolling interest holders’ ownership of Common Units | 67.80% | 77.30% | ||
Total Common Units (in shares) | 242,232,000 | 242,597,000 | ||
Class A | ||||
Noncontrolling Interest [Line Items] | ||||
Issuance of common stock (in shares) | 22,300,000 |
Net Income Per Share - Calculat
Net Income Per Share - Calculation of Basic and Diluted Net Income Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Numerator—basic: | ||||
Net income attributable to Switch, Inc.—basic | $ 1,178 | $ 821 | $ 1,878 | $ 1,492 |
Numerator—diluted: | ||||
Shares of Class B and Class C common stock | 0 | 0 | 4,939 | 0 |
Net income attributable to Switch, Inc.—diluted | $ 1,178 | $ 821 | $ 6,817 | $ 1,492 |
Denominator—basic: | ||||
Weighted average shares outstanding—basic (in shares) | 77,714 | 42,358 | 66,686 | 39,197 |
Net income per share—basic (in dollars per share) | $ 0.02 | $ 0.02 | $ 0.03 | $ 0.04 |
Denominator—diluted: | ||||
Weighted average shares outstanding—basic (in shares) | 77,714 | 42,358 | 66,686 | 39,197 |
Weighted average effect of dilutive securities: | ||||
Shares of Class B common stock and Class C common stock (in shares) | 0 | 0 | 179,686 | 0 |
Weighted average shares/units outstanding-diluted (in shares) | 79,021 | 42,463 | 247,227 | 39,296 |
Net income per share—diluted (in dollars per share) | $ 0.01 | $ 0.02 | $ 0.03 | $ 0.04 |
Incentive Units | ||||
Weighted average effect of dilutive securities: | ||||
Weighted average effect of dilutive securities (in shares) | 627 | 87 | 334 | 89 |
Restricted stock units | ||||
Weighted average effect of dilutive securities: | ||||
Weighted average effect of dilutive securities (in shares) | 618 | 1 | 464 | 1 |
Dividend equivalent units | ||||
Weighted average effect of dilutive securities: | ||||
Weighted average effect of dilutive securities (in shares) | 22 | 5 | 20 | 3 |
Restricted Stock | ||||
Weighted average effect of dilutive securities: | ||||
Weighted average effect of dilutive securities (in shares) | 40 | 12 | 37 | 6 |
Net Income Per Share Potentiall
Net Income Per Share Potentially Dilutive Securities Excluded from the Computation of Diluted Net Income Per Share (Details) - shares shares in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Stock options | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Antidilutive securities excluded from computation of diluted net income per unit (in shares) | 6,288 | 5,602 | 6,288 | 5,602 |
Restricted stock units | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Antidilutive securities excluded from computation of diluted net income per unit (in shares) | 1,518 | 2,118 | 1,518 | 2,118 |
Restricted stock awards | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Antidilutive securities excluded from computation of diluted net income per unit (in shares) | 80 | 80 | ||
Shares of Class B and Class C common stock | ||||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Antidilutive securities excluded from computation of diluted net income per unit (in shares) | 167,815 | 203,145 | 0 | 203,145 |
Segment Reporting Narrative (De
Segment Reporting Narrative (Details) - segment | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Revenue, Major Customer [Line Items] | ||||
Number of Operating Segments | 1 | 1 | ||
Outside of the United States | Revenue | Geographic Concentration Risk | ||||
Revenue, Major Customer [Line Items] | ||||
Concentration risk percentage | 2.00% | 1.00% | 2.00% | 1.00% |
Segment Reporting Composition o
Segment Reporting Composition of Revenue (Details) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2019 | Jun. 30, 2018 | Jun. 30, 2019 | Jun. 30, 2018 | |
Revenue from External Customer [Line Items] | ||||
Revenue | $ 111,587 | $ 102,161 | $ 218,619 | $ 199,878 |
Colocation | ||||
Revenue from External Customer [Line Items] | ||||
Revenue | 90,711 | 81,150 | 176,888 | 158,869 |
Connectivity | ||||
Revenue from External Customer [Line Items] | ||||
Revenue | 19,458 | 18,866 | 38,351 | 37,084 |
Other | ||||
Revenue from External Customer [Line Items] | ||||
Revenue | $ 1,418 | $ 2,145 | $ 3,380 | $ 3,925 |
Subsequent Events (Details)
Subsequent Events (Details) $ / shares in Units, $ in Thousands, shares in Millions | 1 Months Ended | 3 Months Ended | 6 Months Ended | |||||
Aug. 31, 2019USD ($)$ / shares | Jul. 31, 2019USD ($)megawattsMWhagreementshares | Apr. 30, 2019USD ($)shares | Jun. 30, 2019USD ($)$ / shares | Mar. 31, 2019USD ($) | Jun. 30, 2018USD ($)$ / shares | Jun. 30, 2019USD ($)$ / shares | Jun. 30, 2018USD ($)$ / shares | |
Subsequent Event [Line Items] | ||||||||
Payments for repurchase of common units | $ 13,600 | $ 13,597 | $ 0 | |||||
Dividends declared (in dollars per share) | $ / shares | $ 0.0294 | $ 0.0147 | $ 0.0294 | $ 0.0147 | ||||
Dividends declared | $ 2,389 | $ 1,728 | $ 1,320 | |||||
Subsequent Event | ||||||||
Subsequent Event [Line Items] | ||||||||
Units repurchased (in shares) | shares | 0.8 | |||||||
Payments for repurchase of common units | $ 11,100 | |||||||
Number of purchase and sale agreements entered into | agreement | 2 | |||||||
Aggregate purchase commitment | $ 468,600 | |||||||
Dividends declared | $ 2,500 | |||||||
Switch, Ltd. | Subsequent Event | ||||||||
Subsequent Event [Line Items] | ||||||||
Cash distributions to common unit holders (in dollars per share) | $ / shares | $ 0.0294 | |||||||
Cash distributions declared | $ 7,200 | |||||||
Energy | Subsequent Event | ||||||||
Subsequent Event [Line Items] | ||||||||
Required purchase quantity | MWh | 10,100,000 | |||||||
Term of purchase agreement | 25 years | |||||||
Battery Capacity | Subsequent Event | ||||||||
Subsequent Event [Line Items] | ||||||||
Required purchase quantity | megawatts | 50 | |||||||
Term of purchase agreement | 20 years | |||||||
Class A | ||||||||
Subsequent Event [Line Items] | ||||||||
Issuance of common stock (in shares) | shares | 22.3 | |||||||
Class A | Subsequent Event | ||||||||
Subsequent Event [Line Items] | ||||||||
Issuance of common stock (in shares) | shares | 6.3 | |||||||
Dividends declared (in dollars per share) | $ / shares | $ 0.0294 |