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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Switch Inc | NYSE:SWCH | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 34.25 | 0 | 01:00:00 |
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FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Switch, Inc.
(Exact name of registrant as specified in its charter)
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Nevada
(State or other jurisdiction of
incorporation or organization)
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82-1883953
(I.R.S. Employer
Identification No.)
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7135 S. Decatur Boulevard
Las Vegas, NV
(Address of principal executive offices)
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89118
(Zip Code)
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Title of each class
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Name of each exchange on which registered
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Class A common stock, par value $0.001
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New York Stock Exchange
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Emerging growth company
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Part I.
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Item 1.
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Item 1A.
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Item 1B.
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Item 2.
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Item 3.
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Item 4.
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Part II.
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Item 5.
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Item 6.
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Item 7.
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Item 7A.
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Item 8.
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Item 9.
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Item 9A.
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Item 9B.
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Part III.
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Item 10.
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Item 11.
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Item 12.
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Item 13.
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Item 14.
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Part IV.
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Item 15.
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Item 16.
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•
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"we," "us," "our," the "Company," "Switch" and similar references refer to Switch, Inc., and, unless otherwise stated, all of its subsidiaries, including Switch, Ltd., and, unless otherwise stated, all of its subsidiaries.
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"Members" refer to the Founder Members, Non-Founder Members and Former Incentive Unit Holders.
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"Founder Members" refer to Rob Roy, our Founder, Chairman and Chief Executive Officer, and an affiliated entity of Mr. Roy, each of which own Common Units (as defined below) and who may exchange their Common Units for shares of our Class A common stock. As the context requires in this Form 10-K, "Founder Members" also refers to the respective successors, assigns and transferees of such Founder Members permitted under the Switch Operating Agreement and our amended and restated articles of incorporation.
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"Non-Founder Members" refer to those direct and certain indirect owners of interest in Switch, Ltd., other than the Founder Members, each of which own Common Units and who may exchange their Common Units for shares of our Class A common stock. The Non-Founder Members include (i) each of our named executive officers, other than Mr. Roy and (ii) Tom Thomas and Donald D. Snyder, members of our board of directors. As the context requires in this Form 10-K, "Non-Founder Members" also refers to the respective successors, assigns and transferees of such Non-Founder Members permitted under the Switch Operating Agreement and our amended and restated articles of incorporation.
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"Former Incentive Unit Holders" refer collectively to (i) our named executive officers; (ii) an affiliated entity of Mr. Roy, our Founder, Chief Executive Officer and Chairman; (iii) Mr. Snyder, a member of our board of directors; and (iv) certain other current and former non-executive employees, in each case, who held incentive units in Switch, Ltd. and whose incentive units converted into Common Units of Switch, Ltd. in connection with our initial public offering ("IPO").
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"Common Units" refer to the single class of issued common membership interests of Switch, Ltd.
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"Switch Operating Agreement" refers to the Fifth Amended and Restated Operating Agreement of Switch, Ltd.
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our goals and strategies;
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our expansion plans;
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our future business development, financial condition and results of operations;
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the expected growth of the data center market;
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our expectations regarding demand for, and market acceptance of, our services;
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our expectations regarding our customer growth rate;
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the network effects associated with our business;
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our plans to further invest in and grow our business, and our ability to effectively manage our growth and associated investments;
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our ability to timely and effectively scale and adapt our existing technology;
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our ability to successfully enter new markets;
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our ability to maintain, protect and enhance our intellectual property and not infringe upon others' intellectual property; and
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our realization of any benefit from the Tax Receivable Agreement and our organizational structure.
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Part I.
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Item 1.
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Business.
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Continue to Grow Our Existing Prime Campus Locations.
We currently operate The Core Campus, The Citadel Campus and The Pyramid Campus in or near Las Vegas, Reno and Grand Rapids, respectively, and have begun development for The Keep Campus in Atlanta. These Primes currently encompass
10
data centers with an aggregate of up to
4.0 million
GSF of space and up to
415
MW of power available to these facilities. We plan to continue to expand these Primes and actively pursue additional customers with strategic fit for our ecosystem, as well as sell additional solutions to existing customers. Each of our Primes has room for expansion, and we currently have designs to add up to approximately
5.9 million
GSF of additional space to The Citadel Campus and approximately
940,000
GSF of additional space to The Pyramid Campus.
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Expand into New Geographies in the United States.
We intend to continue to evaluate geographic expansion opportunities for our data center facilities, focusing on areas within the United States with limited or no natural disaster risks, favorable business and tax climates, close proximity to major cities, robust telecommunications networks, and significant customer demand. For example, we recently secured land and began development for The Keep Campus to expand geographically into the southeast and mid-Atlantic United States. We believe this approach, combined with our ability to deploy capital efficiently through our modular design, reduces the risks associated with our geographic expansion and enhances the strategic value of our new locations.
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Grow Our Single-User Line of Data Centers.
Our Switch MOD design enables us to rapidly deploy new facilities in a single-user configuration. We believe this expands our addressable market opportunity in the United States and represents a potential new source of revenue. We may decide to pursue these single-user opportunities directly, or by licensing our intellectual property to third parties in U.S. markets that may not be strategic to us or that are not readily accessible.
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Leverage Our Unique Technology Ecosystem to Drive Interconnection Growth.
Our ecosystem connects more than
800
customers, including over
200
cloud and managed services providers and
80
telecommunications providers, which creates an important hub for the Internet of Everything. We plan to support our customers' interconnection needs by continuing to increase our cross connect and external broadband offerings.
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M
aintain and Extend Our Technological Leadership.
We have a long history of innovation and, led by Rob Roy, we are a dynamically inventive organization. We plan to continue to invest in the development of new technologies in order to continue improving our standards for security, availability and scalability. Additionally, we intend to leverage our patented technologies and designs to strategically pursue new, adjacent market opportunities outside our core business. By leveraging our technology and leadership in data center design, we believe we can solve new problems created by the rapid expansion of the internet, data storage and analytics.
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Pursue Strategic Partnerships.
We may enter into strategic relationships with a variety of partners that contribute to our business. For example, rather than simply offering our customers connectivity to public cloud environments, frequently referred to as being an "on ramp" to the cloud, we may partner with public cloud providers to address that portion of their customers' needs that require higher density and reliability than is typically available from public cloud offerings. To facilitate these potential partnerships, we plan to expand in locations along side hyperscale cloud deployments enabling us to provide colocation for cloud customers' mission critical needs.
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100% Hot Aisle Containment Rows
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We refer to our patented 100% Hot Aisle Containment Row technology as the Switch T-SCIF, or Thermal Separate Compartment in Facility. As depicted in the figure below, the T-SCIF creates a fully contained hot aisle between parallel rows of cabinets. The heat from the customers' equipment exhausts into the hot aisle, where it vents up into a hot-air plenum and out of the data center via extraction fans. Simultaneously, cold air is released from the overhead vents in the cold room into the intakes of the IT equipment in the cabinets, which cools the equipment. The exhausted hot air is never allowed to blend back into the cold room, which helps ensure that our customers' IT equipment operates in the correct environmental conditions. Using this cooling method, we are able to cool power levels that significantly exceed those of traditional data centers. Our ability to support these increased densities enables our customers to use and buy less cabinet space to house their equipment, which reduces the cost of their deployment. Similarly, the ability to handle these increased densities allows us to deploy more power on less space, driving a higher return on capital.
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Exterior Wall Penetrating Multi-Mode HVAC Units
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We provide cooling to the T-SCIFs using our patented Exterior Wall Penetrating Multi-Mode heating, ventilation and air conditioning, or HVAC, units that we refer to as the TSC 500, TSC 600 and TSC 1000. The units are attached to the exterior wall of the Switch MOD, which alleviates the cost of reinforcing the data center floor or roof to support the weight of HVAC equipment, while also enabling complete segregation of hot and cold air in the data center. The exterior location of our TSC units eliminates the need to bring water into the data center, frees up valuable IT space for cabinet deployments and allows us to repair or replace any single TSC without disrupting the data center environment. Each of our TSC 500, TSC 600 and TSC 1000 units can take advantage of multiple modes of cooling depending on the environment, which enables us to construct facilities that can be cooled entirely without water. We believe this combination of cooling methods makes our facilities the most efficient and resilient large-scale commercial data centers ever constructed.
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Hot and Cold Containment Segregation Structure
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The Switch BLACK IRON FOREST is the framework that supports the weight of the 100% Hot Aisle Containment Rows within a T-SCIF, the ceiling for the heat containment chamber, and the power delivery pathways for each uninterruptible power system, or UPS, and cabinet system-plus-system PDU. This increases the stability and integrity of our facilities by distributing all overhead weight to a concrete steel-reinforced slab on grade floor. This structure is also connected horizontally across the facility which increases the physical stability of the facility. In addition, this structure's thermal qualities help efficiently maintain the temperature within the data center because all of this metal gets cold from all the cold air blowing on it all the time, and stays cold, radiating cold air through the room and helping to keep the room cold.
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Redundant Data Center Roofing System
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Switch SHIELD is a patented system consisting of an inner roof and outer roof that are separated by nine feet. Both roofs are solid steel, unpenetrated, watertight, airtight, and rated to withstand winds up to 200 miles per hour. If the outer roof is damaged, the inner roof still protects our customers' IT equipment. Switch SHIELD mitigates extreme weather conditions and, with its dual-roof architecture, allows the maintenance, repair or replacement of the roof components while protecting the critical system operations of the data center below, even during a full roof replacement.
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Multi-System Power Containers
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The Switch POD, or Power Optimized Delivery, consists of a separate, color-coded, tri-redundant system in a system-plus-system configuration. This tri-redundant design reinforces our mission-critical focus on delivering 100% power uptime.
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Data Center Infrastructure Management System (DCIM)
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The advanced infrastructure solutions that power, cool, connect and protect our data centers are monitored and optimized with our Living Data Center, or LDC, software. This Switch-developed and supported software monitors all the critical infrastructure of the data center macro-environment and the micro-environments for each customer. Our customers can securely access data pertaining to each of their deployments on a real-time basis as LDC dynamically updates and displays information synthesized from thousands of sensors deployed throughout each facility.
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The Core Campus
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The Core Campus in Las Vegas, Nevada currently encompasses eight separate data centers with up to approximately 2.0 million GSF of space and up to 275 MW of 100% renewable power available to these facilities. We have one additional data center under construction at The Core Campus, which we expect will be operational in late 2018 to early 2019, which will provide approximately 340,000 GSF of additional space and have up to 40 MW of 100% renewable power available to the facility. The Core Campus location offers approximately 5- and 6-millisecond latencies to Southern California and Phoenix, respectively.
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The Citadel Campus
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The Citadel Campus near Reno, Nevada is designed to be the world's largest data center campus. Our first data center in The Citadel Campus, which we believe will be the largest data center in the world upon completion, opened in November 2016. This data center is designed to include up to approximately 1.4 million GSF of space and have up to 130 MW of 100% renewable power available to the facility. We have plans to build seven additional data centers at The Citadel Campus that will provide up to approximately 5.9 million GSF of additional space and have up to 520 MW of 100% renewable power available to the facilities. We anticipate that the first of these data centers will become operational in 2019, with the remaining to be constructed as necessary to meet customer demand. The Citadel Campus location offers approximately 4-millisecond latency to Northern California.
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The Pyramid Campus
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The Pyramid Campus is our Northeastern Prime and is located in Grand Rapids, Michigan. It was designed to be the largest data center campus in the eastern United States. The first data center space became available in the Switch Pyramid, an adaptive reuse of the former Steelcase Pyramid, in June 2016. The Switch Pyramid is designed to include up to 220,000 GSF of datacenter floorspace and have up to 10 MW of 100% renewable power available to the facility. The Pyramid Campus is planned to include up to two additional data centers that will provide up to approximately 940,000 GSF of additional space and have up to 100 MW of 100% renewable power available to the facilities. We expect to construct these facilities as necessary to meet customer demand. In addition to serving the Michigan market, The Pyramid Campus location offers approximately 4-millisecond latency to Chicago.
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The Keep Campus
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The Keep Campus is our Southeastern Prime under development and located in Atlanta, Georgia. We began developing the campus in June 2017 and began construction in the fourth quarter of 2017, with data center space currently planned to be available in 2019.
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Telecommunications Purchasing.
The scale of our campuses attracts a robust network of telecommunications carriers to our facilities that is mutually beneficial to our customers and the carriers. The size and diversity of customers in our campuses generate significant demand for connectivity, while at the same time providing a cost effective entry point for carriers. Because of Rob Roy's inventions, Switch can fit a significantly larger amount of customers into each data center campus, therefore on-net telecommunications carriers can sell large quantities of services to this ecosystem of customers. Our CORE purchasing cooperative aggregates the buying power of our customers, enabling us to provide significant cost-savings on connectivity, while also maintaining a flexible and expansive carrier partner ecosystem from which our customers can choose. Customers can use CORE to acquire connectivity services outside of our campuses.
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Service Provider Access
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Our Switch CLOUD ecosystem provides our customers with direct access to more than
200
cloud and managed services providers and the flexibility to leverage the right mix of on- and off-premise public and private cloud services. By establishing these connections within our facility, our customers enjoy low-latency, highly secure and flexible access to multiple cloud providers to meet their unique business requirements.
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Interconnectivity
.
Our ecosystem connects more than
800
customers, including over
200
cloud and managed services providers and more than
80
telecommunications providers, which enhances our customers' ability to inter- and cross-connect. The ability for customers to privately interconnect has many benefits including reducing costs, optimizing performance and satisfying regulatory requirements. Interconnecting within our data center allows customers to avoid the expense associated with long-haul dedicated connectivity and provides reduced latency and higher availability. By cross-connecting within our facilities, regulated entities can avoid the need to exchange traffic over the internet, thereby satisfying regulatory security requirements in a more cost-efficient manner.
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Collaborative Innovation
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Our dedicated non-commissioned sales team is driven to help our customers connect, innovate and develop technologies of the future and actively works to foster collaboration amongst our ecosystem participants. Because our sales force is non-commissioned, they are enabled and encouraged to build positive relationships and foster interaction between our customers on a platform grounded in truth. This is part of our Truth in Technology commitment. For example, we connected a small Internet Protocol television, or IPTV, company in our ecosystem with a large hospitality company in our ecosystem that was frustrated with the performance of, and options available on, the televisions in its hotel rooms. We also assisted them with their technical collaboration. As a result, the IPTV company now provides services to over 5,000 hotel rooms operated
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Visibility into Future Technologies
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Our customers run some of their most mission-critical and advanced applications in our hyperscale facilities and our exposure to that technology gives us unique visibility into future trends and allows us to plan for future needs.
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Lower Customer Acquisition Costs
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Our ecosystem attracts customers. This natural and self-reinforcing phenomenon results in less time and money spent acquiring customers.
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Customer Loyalty
.
Our ecosystem helps support our strong customer value proposition, which in turn creates customer loyalty. We believe this loyalty is evidenced by our low annual churn rate, which averaged approximately
0.9%
over the three
years ended December 31, 2017
and
0.6%
for the
year ended December 31, 2017
. Additionally, for the
year ended December 31, 2017
, approximately
54%
of our revenue was derived from parties that had been our customer for more than five years. Moreover, our customers regularly expand their deployments within our facilities. For example, approximately
84%
of the increase in revenue for the
year ended December 31, 2017
was attributable to growth from existing customers, while the remaining
16%
of the increase in revenue was attributable to new customers initiating service after
December 31, 2016
.
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Switch CONNECT
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Switch CONNECT provides telecommunications audit and agency services that help our customers evaluate network needs and purchase substantially discounted telecommunications services through CORE, our purchasing cooperative. CORE aggregates the buying power of the over $6 trillion combined market capitalization of the customers in our ecosystem. Our Switch CONNECT team has achieved savings in excess of 50% for our customers compared with their previous telecommunications spend.
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Switch SAFE
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Switch SAFE provides our customers with a large scale, always-on distributed denial of service (D/DoS) attack mitigation platform. We work with customers to understand attack profiles and configure networks to respond to the evolving threat landscape. Switch SAFE is capable of managing attacks of up to 300 gigabits-per-second and 220 million packets-per-second from a single device, allowing our customers to keep their mission critical services up and running.
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Clicking Clean Scorecard
.
In recognition of our efforts, Greenpeace awarded us "A" grades in all five categories measured by Greenpeace in its 2017 Clicking Clean Company Scorecard. We were the only company in the United States that received all "A" grades, and we were recognized as the leader among colocation data centers evaluated in the study. We believe that many technology and infrastructure companies, as well as their customers and clients, evaluate progress towards achieving "clean energy" goals by reference to the company scorecards included in this report.
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Leading Power and Cooling Efficiency
.
Our technology results in significant efficiencies enabling annual Power Usage Effectiveness, or PUE, of 1.28. We do not believe other colocation data center providers are able to maintain such a low PUE while simultaneously allowing customers to operate at very high power densities. We accomplish all of this without compromising our adherence to industry best standards. Our facilities are 100% green and operate at a level that exceeds the standards of IEEE, ANSI, ASHRAE, 24/7, ISO 9001, SAS 70/SSAE-16, BICSI, and the Green Grid Association.
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Supporting New and Local Solar.
In 2016, we partnered with the local Nevada utility to construct Switch Station 1 and Switch Station 2, which are two solar power stations in Las Vegas, Nevada having a combined 179 MW of nameplate capacity.
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Energy Market Direct Access
.
We were the first entity since 2005 to seek the right to unbundle from the electric monopoly in Nevada. By leaving the monopoly and being able to purchase power from the broader electric market, we have greater freedom to control the energy we use, including the ability to lock in our commodity pricing for longer periods, purchase renewable energy from economical resources and effectuate broader national policy change. We received Nevada regulatory approval in December of 2016, and since June 1, 2017, we have been buying our power directly from the national market, as opposed to buying it from the incumbent electrical power utility. We have seen savings from this direct national energy market participation.
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Truth in Technology.
Our customers place a significant level of trust in us to provide them the best technology solutions for their business. Our sales professionals are not paid on commission, and are not incentivized in any way to promote any particular configuration, product or business solutions pathway to our customers.
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Sustainable by Design.
Sustainably running the internet has been a core value since our founding. Our commitment does not stop there. We thoughtfully pursue the advancement of new, innovative policies that expand access to smart water, clean energy and the technological advances that are changing the way the world is powered. We focus on sustainability on multiple levels and have adopted internal policies focused on reducing plastic bottle waste, utilizing biodegradable tableware and recycling.
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Committing to Our Communities through Economic Development.
We believe in building strong communities wherever we operate. We drive and will continue to push economic development through the creation of Rob Roy's InNEVation Centers. The centers were created by Rob Roy to support the Governor's New Nevada Initiative. We like to say that we take the "no" out of innovation. These economic hubs support startups, growups and our customers in collaborating with non-profits, educators, community and thought leaders and "inNEVators" of all shapes and sizes to engage with each other and drive economic results in the communities in which we operate.
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Leading the Industry and beyond in Gender Equality and Veteran Placement.
We believe our workforce is richly diverse in its total composition at all levels and outpaces our industry in the number of women executives. Women hold high-level technical positions throughout our company, including chief responsibility for construction, sales, branding and customer operations. Veterans provide another critical backbone of our workforce. We honor their service and actively recruit veterans to our mission-critical environment. Through our Switch University, we have pioneered strategic partnerships with community colleges to develop a work force that is prepared for the careers that run the Internet of Everything in our data centers.
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Supporting Interdisciplinary Education Blending Technology and the Arts
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We believe that combining education, technology and the arts creates a powerful platform for the future of our country and its market competitiveness. We have collaborated with universities to bring about improvements in research through our donations of supercomputers and connectivity to help accelerate their standing in the critical world of higher education research. We are also passionate about funding programs that build school gardens to connect youth to science through hands-on experiential learning. We bring financial commitment and thought leadership to preparing the next generation of whole-mind thinkers through an unwavering commitment to interdisciplinary Science, Technology, Engineering, the Arts and Mathematics (STEAM) education programs in Nevada and Michigan and in any state where we operate. Switch proudly supports First Robotics winning teams in Nevada and Michigan, the STEAM Education Village at Art Prize in Grand Rapids, the Nevada Museum of the Arts STEAM School, and the Smith Center for Performing Arts STEAM Programs. We believe that the best creative problem solvers who can integrate form and function with equal mastery through science, technology, engineering, arts and math education platforms will run the internet of absolutely everything with both form and function in mind.
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Karma: Our culture is grounded in the philosophy of doing the right thing.
Innovation, detail and excellence drives everything from the interior architecture of our environments to our delivery of 100% uptime. We do it all with dedication to providing world-renowned facilities, superior service for our customers, the best working experience in the industry, true technology leadership and deep caring for the communities where we operate and the planet where we live. Our logo mark was personally designed by Rob Roy to put the power of karma at the center of our company. We believe that if you put good energy out, you will get good energy back.
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offer space at prices below current market rates or below the prices we currently charge our customers;
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bundle colocation services with other services or equipment they provide at reduced prices;
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develop superior products or services, gain greater market acceptance and expand their service offerings more efficiently or rapidly;
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adapt to new or emerging technologies and changes in customer requirements more quickly;
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take advantage of acquisition and other opportunities more readily; and
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adopt more aggressive pricing policies and devote greater resources to the promotion, marketing and sales of their services.
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Campus
(1)
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Year Operational
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Gross Square Feet (up to)
(2)
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Utilization % - By Campus
(3)
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Utilization % - By Open Sector
(3)
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Power Capacity (up to)
(4)
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The Core Campus
(5)
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Current: 8 Facilities
(6)
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2003-2017
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2,000,000
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86%
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91%
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275 MW
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Future: 1 Facility
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2018
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340,000
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40 MW
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The Citadel Campus
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Current: TAHOE RENO 1
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2016
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1,360,000
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18%
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52%
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130 MW
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Future: 7 Facilities
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2019+
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5,890,000
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520 MW
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The Pyramid Campus
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Current: Switch PYRAMID
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2016
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430,000
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(Office)
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220,000
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25%
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50%
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10 MW
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(Data Center)
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Future: 2 Facilities
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2019+
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940,000
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100 MW
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The Keep Campus
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Future
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2018
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1,100,000
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110 MW
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U.S. Total (Current)
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4,010,000
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415 MW
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U.S. Total (Future)
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8,270,000
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770 MW
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(1)
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SUPERNAP International has also deployed two additional data centers in Milan, Italy and Bangkok, Thailand that collectively provide up to
904,200 GSF of space, with up to 100 MW of power
available to these facilities. We hold a 50% ownership interest in SUPERNAP International.
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(2)
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Estimated square footage of all enclosed space at full build out.
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(3)
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Utilization numbers are based on available cabinets. The Citadel Campus and The Pyramid Campus opened in the second half of 2016 and are in the first phase of development. Additional capital investment will be required to reach full build out.
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(4)
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Defined as total power delivered to the data center at full build out.
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(5)
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We lease a data center building and the underlying land for three of our data centers at The Core Campus that have non-cancellable terms expiring through 2066.
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(6)
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Current facilities at The Core Campus include LAS VEGAS 2, LAS VEGAS 4, LAS VEGAS 5, LAS VEGAS 7, LAS VEGAS 8, LAS VEGAS 9, LAS VEGAS 10 and LAS VEGAS 12.
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•
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we amended and restated Switch, Ltd.'s existing operating agreement to, among other things, convert all of the Former Incentive Unit Holders' incentive units into Common Units and appoint Switch, Inc. as the manager of Switch, Ltd.;
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•
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we amended and restated our articles of incorporation to, among other things, provide for Class A common stock, Class B common stock and Class C common stock; and
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•
|
we issued shares of Class B common stock to the Non-Founder Members on a one-to-one basis with the number of Common Units they owned, for nominal consideration, and shares of Class C common stock to the Founder Members on a one-to-one basis with the number of Common Units they owned, for nominal consideration.
|
Item 1A.
|
Risk Factors.
|
•
|
a decline in the technology industry, such as a decrease in the use of mobile or web-based commerce, business layoffs or downsizing, relocation of businesses, increased costs of complying with existing or new government regulations and other factors;
|
•
|
a slowdown in the growth of the Internet generally as a medium for commerce and communication;
|
•
|
a downturn in the market for data center space generally, which could be caused by an oversupply of or reduced demand for data center space;
|
•
|
any transition by our customers of data center storage from third-party providers like us to customer-owned and operated facilities;
|
•
|
the rapid development of new technologies or the adoption of new industry standards that render our or our customers' current products and services obsolete or unmarketable and, in the case of our customers, that contribute to a downturn in their businesses, increasing the likelihood of a default under their service agreements or that they become insolvent;
|
•
|
the migration from colocation data centers to the public cloud; and
|
•
|
technological advancements that result in less data center space being required.
|
•
|
managing a large and growing customer base;
|
•
|
obtaining suitable land to build new data centers;
|
•
|
establishing new operations at additional data centers and maintaining efficient use of the data center facilities we operate;
|
•
|
expanding our service portfolio to cover a wider range of services;
|
•
|
creating and capitalizing on economies of scale;
|
•
|
obtaining additional capital to meet our future capital needs;
|
•
|
recruiting, training and retaining a sufficient number of skilled technical, sales and management personnel;
|
•
|
maintaining effective oversight over personnel and multiple data center locations;
|
•
|
coordinating work among sites and project teams; and
|
•
|
developing and improving our internal systems, particularly for managing our continually expanding business operations.
|
•
|
the timing and magnitude of depreciation and interest expense or other expenses related to the acquisition, purchase or construction of additional data centers or the upgrade of existing data centers;
|
•
|
demand for space, power and services at our data centers;
|
•
|
changes in general economic conditions, such as an economic downturn, or specific market conditions in the telecommunications and internet industries, both of which may have an impact on our customer base;
|
•
|
the duration of the sales cycle for our offerings;
|
•
|
acquisitions or dispositions we may make;
|
•
|
the financial condition and credit risk of our customers;
|
•
|
the provision of customer discounts and credits;
|
•
|
the mix of current and proposed products and offerings and the gross margins associated with our products and offerings;
|
•
|
the timing required for new and future data centers to open or become fully utilized;
|
•
|
competition in the markets in which we operate;
|
•
|
conditions related to international operations;
|
•
|
increasing repair and maintenance expenses in connection with our data centers;
|
•
|
lack of available capacity in our existing data centers to generate new revenue or delays in opening new or acquired data centers that delay our ability to generate new revenue in markets which have otherwise reached capacity;
|
•
|
the timing and magnitude of other operating expenses, including taxes, expenses related to the expansion of sales, marketing, operations and acquisitions, if any, of complementary businesses and assets;
|
•
|
the cost and availability of adequate public utilities, including power;
|
•
|
changes in employee stock-based compensation;
|
•
|
overall inflation;
|
•
|
increasing interest expense due to any increases in interest rates and/or potential additional debt financings;
|
•
|
changes in our tax planning strategies or failure to realize anticipated benefits from such strategies;
|
•
|
changes in income tax benefit or expense; and
|
•
|
changes in or new generally accepted accounting principles in the United States as periodically released by the Financial Accounting Standards Board.
|
•
|
fail to provide competitive pricing terms;
|
•
|
provide space that is deemed by existing and potential customers to be inferior to those of our competitors, based on factors, including available power, preferred design features, security considerations, location, and connectivity; or
|
•
|
are unable to provide services that our existing and potential customers desire.
|
•
|
impairing our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes;
|
•
|
requiring us to dedicate a substantial portion of our operating cash flow to paying principal and interest on our indebtedness, thereby reducing the funds available for operations;
|
•
|
limiting our ability to grow and make capital expenditures due to the financial covenants contained in our debt arrangements;
|
•
|
impairing our ability to adjust rapidly to changing market conditions, invest in new or developing technologies, or take advantage of significant business opportunities that may arise; and
|
•
|
making us more vulnerable if a general economic downturn occurs or if our business experiences difficulties.
|
•
|
power loss;
|
•
|
equipment failure;
|
•
|
human error or accidents;
|
•
|
theft, sabotage and vandalism;
|
•
|
failure by us or our suppliers to provide adequate service or maintenance to our equipment;
|
•
|
network connectivity downtime and fiber cuts;
|
•
|
security breaches to our infrastructure;
|
•
|
improper building maintenance by us;
|
•
|
physical, electronic and cyber security breaches;
|
•
|
fire, earthquake, hurricane, tornado, flood and other natural disasters;
|
•
|
extreme temperatures;
|
•
|
water damage;
|
•
|
public health emergencies; and
|
•
|
terrorism.
|
•
|
offer space at pricing below current market rates or below the pricing we currently charge our customers;
|
•
|
bundle colocation services with other services or equipment they provide at reduced prices;
|
•
|
develop superior products or services, gain greater market acceptance and expand their service offerings more efficiently or rapidly;
|
•
|
adapt to new or emerging technologies and changes in customer requirements more quickly;
|
•
|
take advantage of acquisition and other opportunities more readily; and
|
•
|
adopt more aggressive pricing policies and devote greater resources to the promotion, marketing and sales of their services.
|
•
|
challenges caused by distance, language, cultural and ethical differences and the competitive environment;
|
•
|
heightened risks of unethical, unfair or corrupt business practices, actual or claimed, in certain geographies and of improper or fraudulent sales arrangements that may impact financial results and result in restatements of, and irregularities in, financial statements;
|
•
|
foreign exchange restrictions and fluctuations in currency exchange rates;
|
•
|
application of multiple and conflicting laws and regulations, including complications due to unexpected changes in foreign laws and regulatory requirements;
|
•
|
new and different sources of competition;
|
•
|
potentially different pricing environments, longer sales cycles and longer accounts receivable payment cycles and collections issues;
|
•
|
management communication and integration problems resulting from cultural differences and geographic dispersion;
|
•
|
potentially adverse tax consequences, including multiple and possibly overlapping tax structures, the complexities of foreign value-added tax systems, restrictions on the repatriation of earnings and changes in tax rates;
|
•
|
greater difficulty in enforcing contracts, accounts receivable collection and longer collection periods;
|
•
|
the uncertainty and limitation of protection for intellectual property rights in some countries;
|
•
|
increased financial accounting and reporting burdens and complexities;
|
•
|
lack of familiarity with local laws, customs and practices, and laws and business practices favoring local competitors or partners; and
|
•
|
political, social and economic instability abroad, terrorist attacks and security concerns in general.
|
•
|
changes in the valuation of our deferred tax assets and liabilities;
|
•
|
expected timing and amount of the release of any tax valuation allowances;
|
•
|
tax effects of stock-based compensation;
|
•
|
changes in tax laws, regulations or interpretations thereof; or
|
•
|
future earnings being lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated earnings in countries where we have higher statutory tax rates.
|
•
|
our operating performance and prospects and those of other similar companies;
|
•
|
actual or anticipated variations in our financial condition, liquidity or results of operations;
|
•
|
changes in financial projections we may provide to the public or our failure to meet these projections;
|
•
|
change in the estimates of securities analysts relating to our earnings or other operating metrics;
|
•
|
publication of research reports about us, our significant customers, our competition, data center companies generally or the technology industry;
|
•
|
recruitment or departure of key personnel;
|
•
|
new laws or regulations or new interpretations of existing laws or regulations applicable to our business;
|
•
|
changes in market valuations of similar companies;
|
•
|
announcements by us or our competitors of significant technological innovations, acquisitions, strategic partnerships, joint ventures, or capital commitments;
|
•
|
actual or anticipated developments in our business or our competitors' businesses or the competitive landscape generally;
|
•
|
developments or disputes concerning our intellectual property or our services, or third-party proprietary rights;
|
•
|
adverse market reaction to leverage we may incur or equity we may issue in the future;
|
•
|
actions by institutional stockholders;
|
•
|
actual or perceived accounting issues, including changes in accounting standards, policies, guidelines, interpretations or principles;
|
•
|
compliance with NYSE requirements;
|
•
|
speculation in the press or investment community about our company or industry or the economy in general;
|
•
|
adverse developments in the creditworthiness, business or prospects of one or more of our significant customers;
|
•
|
lawsuits threatened or filed against us;
|
•
|
other events or factors, including those resulting from war, incidents of terrorism, or responses to these events;
|
•
|
the realization of any of the other risk factors presented in this report;
|
•
|
the overall performance of the equity markets; and
|
•
|
general market and economic conditions.
|
•
|
the 10 vote per share feature of our Class C common stock;
|
•
|
authorizing the issuance of "blank check" preferred stock that could be issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt;
|
•
|
prohibiting the use of cumulative voting for the election of directors;
|
•
|
removal of incumbent directors only by the vote of stockholders with not less than two-thirds of the voting power of our outstanding stock;
|
•
|
prohibiting stockholders from calling special meetings;
|
•
|
requiring that our board of directors adopt a resolution in order to propose any amendment to our articles of incorporation before it may be considered for approval by our stockholders;
|
•
|
limiting the ability of stockholders to amend our bylaws and approve certain amendments to our articles of incorporation, in each case by requiring the affirmative vote of holders of at least two-thirds of the votes that stockholders would be entitled to cast in any annual election of directors;
|
•
|
after the Founder Members no longer beneficially own, directly or indirectly, at least 50% of the Class C common stock beneficially owned by the Founder Members as of the completion of the IPO, or 21,472,324 shares of Class C common stock, requiring all stockholder actions to be taken at a meeting of our stockholders; and
|
•
|
establishing advance notice and duration of ownership requirements for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
|
•
|
not being required to have our independent registered public accounting firm audit our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act;
|
•
|
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and
|
•
|
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation or golden parachute payments not previously approved.
|
•
|
the last day of the fiscal year in which we have more than $1.07 billion in annual revenue;
|
•
|
the date we qualify as a "large accelerated filer," with at least $700 million of equity securities held by non-affiliates;
|
•
|
the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; or
|
•
|
the last day of the fiscal year ending after the fifth anniversary of our IPO.
|
Item 1B.
|
Unresolved Staff Comments.
|
Item 2.
|
Properties.
|
Item 3.
|
Legal Proceedings.
|
Item 4.
|
Mine Safety Disclosures.
|
Part II.
|
|
Item 5.
|
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
|
|
|
High
|
|
Low
|
||||
2017
|
|
|
|
|
||||
Fourth Quarter (from October 6, 2017)
|
|
$
|
20.84
|
|
|
$
|
16.25
|
|
|
|
Equity Compensation Plan Information
|
||||||||
Plan category
|
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)
|
|
Weighted average exercise price of outstanding options, warrants and rights (b)
(2)
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
|
||||
Equity compensation plans approved by security holders
(1)
|
|
5,775,534
|
|
|
$
|
17.00
|
|
|
19,224,466
|
|
|
|
October 6, 2017
|
|
December 31, 2017
|
||||
SWCH
|
|
$
|
100.00
|
|
|
$
|
87.28
|
|
S&P 400
|
|
$
|
100.00
|
|
|
$
|
104.52
|
|
S&P Technology
|
|
$
|
100.00
|
|
|
$
|
106.68
|
|
Item 6.
|
Selected Financial Data.
|
|
Years Ended December 31,
|
||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
|
(in thousands, except share/unit and per share/unit data)
|
||||||||||||||||||
Consolidated Statements of Operations Data
(1)
:
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenue
|
$
|
378,275
|
|
|
$
|
318,352
|
|
|
$
|
265,870
|
|
|
$
|
207,306
|
|
|
$
|
166,835
|
|
Cost of revenue
|
198,230
|
|
|
168,844
|
|
|
141,060
|
|
|
108,902
|
|
|
81,290
|
|
|||||
Gross profit
|
180,045
|
|
|
149,508
|
|
|
124,810
|
|
|
98,404
|
|
|
85,545
|
|
|||||
Selling, general and administrative expense
|
160,569
|
|
|
71,420
|
|
|
45,251
|
|
|
35,570
|
|
|
38,574
|
|
|||||
Impact fee expense
|
649
|
|
|
27,018
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Income from operations
|
18,827
|
|
|
51,070
|
|
|
79,559
|
|
|
62,834
|
|
|
46,971
|
|
|||||
Other income (expense):
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest expense, including amortization of debt issuance costs
|
(25,079
|
)
|
|
(10,836
|
)
|
|
(7,682
|
)
|
|
(6,772
|
)
|
|
(5,511
|
)
|
|||||
Equity in net (losses) earnings of investments
|
(1,077
|
)
|
|
(10,138
|
)
|
|
821
|
|
|
(1,053
|
)
|
|
(57
|
)
|
|||||
Loss on extinguishment of debt
|
(3,565
|
)
|
|
—
|
|
|
(212
|
)
|
|
—
|
|
|
(2,146
|
)
|
|||||
Gain on sale of asset
|
—
|
|
|
—
|
|
|
248
|
|
|
—
|
|
|
—
|
|
|||||
Impairment of notes receivable
|
—
|
|
|
(2,371
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Gain on lease termination
|
—
|
|
|
2,801
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Other
|
1,333
|
|
|
842
|
|
|
738
|
|
|
1,500
|
|
|
657
|
|
|||||
Total other expense
|
(28,388
|
)
|
|
(19,702
|
)
|
|
(6,087
|
)
|
|
(6,325
|
)
|
|
(7,057
|
)
|
|||||
(Loss) income before income taxes
|
(9,561
|
)
|
|
31,368
|
|
|
73,472
|
|
|
56,509
|
|
|
39,914
|
|
|||||
Income tax benefit
|
981
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net (loss) income
|
(8,580
|
)
|
|
31,368
|
|
|
73,472
|
|
|
56,509
|
|
|
39,914
|
|
|||||
Less: net income attributable to non-controlling interest
|
6,628
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Net (loss) income attributable to Switch, Inc.
|
$
|
(15,208
|
)
|
|
$
|
31,368
|
|
|
$
|
73,472
|
|
|
$
|
56,509
|
|
|
$
|
39,914
|
|
Net (loss) income per share/unit:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
$
|
(1.88
|
)
|
|
$
|
0.16
|
|
|
$
|
0.37
|
|
|
$
|
0.28
|
|
|
$
|
0.21
|
|
Diluted
|
$
|
(1.88
|
)
|
|
$
|
0.15
|
|
|
$
|
0.37
|
|
|
$
|
0.28
|
|
|
$
|
0.20
|
|
Weighted average shares/units outstanding:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
8,073,908
|
|
|
199,047,070
|
|
|
196,773,458
|
|
|
198,431,693
|
|
|
188,322,897
|
|
|||||
Diluted
|
8,073,908
|
|
|
203,461,420
|
|
|
199,272,269
|
|
|
203,410,628
|
|
|
201,815,537
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash dividends declared per share
|
$
|
0.014
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(1)
|
Switch, Ltd. and its subsidiaries is our predecessor for accounting purposes and, accordingly, amounts for the period from January 1, 2017 through October 10, 2017, and for the years ended December 31, 2016 and December 31, 2015 represent the historical consolidated operations of Switch, Ltd. and its subsidiaries. Switch, Inc. had no business transactions or activities during this period from its incorporation on June 13, 2017 through October 10, 2017, with the exception of the issuance of one share at par value of $0.001 per share, which was canceled as of the closing date of our IPO. The amounts for the period from October 11, 2017 through December 31, 2017 reflect the consolidated operations of Switch, Inc.
|
|
December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in thousands)
|
||||||||||
Consolidated Balance Sheet Data
(1)
:
|
|
|
|
|
|
||||||
Cash and cash equivalents
|
$
|
264,666
|
|
|
$
|
22,713
|
|
|
$
|
14,192
|
|
Working capital (deficit)
|
$
|
222,905
|
|
|
$
|
(107,861
|
)
|
|
$
|
(23,476
|
)
|
Property and equipment, net
|
$
|
1,133,572
|
|
|
$
|
874,259
|
|
|
$
|
598,234
|
|
Total assets
|
$
|
1,434,759
|
|
|
$
|
921,015
|
|
|
$
|
647,578
|
|
Deferred revenue, current and noncurrent
|
$
|
30,864
|
|
|
$
|
24,858
|
|
|
$
|
14,253
|
|
Long-term debt, current and noncurrent
|
$
|
591,760
|
|
|
$
|
472,067
|
|
|
$
|
292,517
|
|
Capital lease obligations, current and noncurrent
|
$
|
21,775
|
|
|
$
|
23,466
|
|
|
$
|
19,466
|
|
Total stockholders'/members' equity
|
$
|
742,133
|
|
|
$
|
278,363
|
|
|
$
|
284,694
|
|
(1)
|
Switch, Ltd. and its subsidiaries is our predecessor for accounting purposes and, accordingly, amounts as of December 31, 2016 and December 31, 2015 represent the historical consolidated operations of Switch, Ltd. and its subsidiaries. The amounts as of December 31, 2017 reflect the consolidated operations of Switch, Inc. Switch, Inc. had no business transactions or activities and had no assets or liabilities during the period from its incorporation on June 13, 2017 through October 10, 2017, with the exception of the issuance of one share at par value of $0.001 per share, which was canceled as of the closing date of our IPO.
|
Item 7.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations.
|
|
Years Ended
December 31, |
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in thousands, except percentages)
|
||||||||||
Recurring revenue
|
$
|
369,926
|
|
|
$
|
308,200
|
|
|
$
|
258,736
|
|
Capital expenditures
|
$
|
402,561
|
|
|
$
|
287,097
|
|
|
$
|
190,113
|
|
Adjusted EBITDA
|
$
|
194,720
|
|
|
$
|
153,173
|
|
|
$
|
141,936
|
|
Adjusted EBITDA margin
|
51.5
|
%
|
|
48.1
|
%
|
|
53.4
|
%
|
|
Years Ended
December 31, |
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in thousands)
|
||||||||||
Recurring revenue
|
$
|
369,926
|
|
|
$
|
308,200
|
|
|
$
|
258,736
|
|
Non-recurring revenue
|
8,349
|
|
|
10,152
|
|
|
7,134
|
|
|||
Revenue
|
$
|
378,275
|
|
|
$
|
318,352
|
|
|
$
|
265,870
|
|
|
Years Ended
December 31, |
||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
|
(in thousands)
|
||||||||||||||||||
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
||||||||||
Net (loss) income
|
$
|
(8,580
|
)
|
|
$
|
31,368
|
|
|
$
|
73,472
|
|
|
$
|
56,509
|
|
|
$
|
39,914
|
|
Interest expense
|
25,079
|
|
|
10,836
|
|
|
7,682
|
|
|
6,772
|
|
|
5,511
|
|
|||||
Interest income
(1)
|
(572
|
)
|
|
(332
|
)
|
|
(260
|
)
|
|
(1,024
|
)
|
|
(166
|
)
|
|||||
Income tax benefit
|
(981
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Depreciation and amortization
|
89,124
|
|
|
66,591
|
|
|
55,355
|
|
|
43,918
|
|
|
34,601
|
|
|||||
Loss on disposal of property and equipment
|
569
|
|
|
1,994
|
|
|
1,307
|
|
|
695
|
|
|
235
|
|
|||||
Impact fee expense
|
649
|
|
|
27,018
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Equity-based compensation
|
84,790
|
|
|
5,935
|
|
|
5,237
|
|
|
4,291
|
|
|
13,170
|
|
|||||
Equity in net losses (earnings) of investments
|
1,077
|
|
|
10,138
|
|
|
(821
|
)
|
|
1,053
|
|
|
57
|
|
|||||
Loss on extinguishment of debt
|
3,565
|
|
|
—
|
|
|
212
|
|
|
—
|
|
|
2,146
|
|
|||||
Gain on sale of asset
|
—
|
|
|
—
|
|
|
(248
|
)
|
|
—
|
|
|
—
|
|
|||||
Gain on lease termination
|
—
|
|
|
(2,801
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Impairment of notes receivable and interest receivable
(2)
|
—
|
|
|
2,426
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Adjusted EBITDA
|
$
|
194,720
|
|
|
$
|
153,173
|
|
|
$
|
141,936
|
|
|
$
|
112,214
|
|
|
$
|
95,468
|
|
(1)
|
Interest income is included in the "Other" line of other income (expense) in our consolidated statements of operations and comprehensive income (loss).
|
(2)
|
The write-off of interest income receivable pertaining to our notes receivable with Planet3, Inc. is included in the selling, general and administrative expense line in our consolidated statements of operations and comprehensive income (loss).
|
|
Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in thousands)
|
||||||||||
Consolidated Statements of Operations Data:
|
|
|
|
|
|
||||||
Revenue
|
$
|
378,275
|
|
|
$
|
318,352
|
|
|
$
|
265,870
|
|
Cost of revenue
|
198,230
|
|
|
168,844
|
|
|
141,060
|
|
|||
Gross profit
|
180,045
|
|
|
149,508
|
|
|
124,810
|
|
|||
Selling, general and administrative expense
|
160,569
|
|
|
71,420
|
|
|
45,251
|
|
|||
Impact fee expense
|
649
|
|
|
27,018
|
|
|
—
|
|
|||
Income from operations
|
18,827
|
|
|
51,070
|
|
|
79,559
|
|
|||
Other income (expense):
|
|
|
|
|
|
||||||
Interest expense including amortization of debt issuance costs
|
(25,079
|
)
|
|
(10,836
|
)
|
|
(7,682
|
)
|
|||
Equity in net earnings (losses) of investments
|
(1,077
|
)
|
|
(10,138
|
)
|
|
821
|
|
|||
Loss on extinguishment of debt
|
(3,565
|
)
|
|
—
|
|
|
(212
|
)
|
|||
Gain on sale of asset
|
—
|
|
|
—
|
|
|
248
|
|
|||
Impairment of notes receivable
|
—
|
|
|
(2,371
|
)
|
|
—
|
|
|||
Gain on lease termination
|
—
|
|
|
2,801
|
|
|
—
|
|
|||
Other
|
1,333
|
|
|
842
|
|
|
738
|
|
|||
Total other expense
|
(28,388
|
)
|
|
(19,702
|
)
|
|
(6,087
|
)
|
|||
(Loss) income before income taxes
|
(9,561
|
)
|
|
31,368
|
|
|
73,472
|
|
|||
Income tax benefit
|
981
|
|
|
—
|
|
|
—
|
|
|||
Net (loss) income
|
(8,580
|
)
|
|
31,368
|
|
|
73,472
|
|
|||
Less: net income attributable to non-controlling interest
|
6,628
|
|
|
—
|
|
|
—
|
|
|||
Net (loss) income attributable to Switch, Inc.
|
$
|
(15,208
|
)
|
|
$
|
31,368
|
|
|
$
|
73,472
|
|
|
Years Ended December 31,
|
|
Change
|
|||||||||||
|
2017
|
|
2016
|
|
Amount
|
|
%
|
|||||||
|
(in thousands, except percentage)
|
|||||||||||||
Colocation
|
$
|
304,720
|
|
|
$
|
259,046
|
|
|
$
|
45,674
|
|
|
18
|
%
|
Connectivity
|
67,690
|
|
|
53,715
|
|
|
13,975
|
|
|
26
|
%
|
|||
Other
|
5,865
|
|
|
5,591
|
|
|
274
|
|
|
5
|
%
|
|||
Revenue
|
$
|
378,275
|
|
|
$
|
318,352
|
|
|
$
|
59,923
|
|
|
19
|
%
|
|
Years Ended December 31,
|
|
Change
|
|||||||||||
|
2017
|
|
2016
|
|
Amount
|
|
%
|
|||||||
|
(in thousands, except percentage)
|
|||||||||||||
Cost of revenue
|
$
|
198,230
|
|
|
$
|
168,844
|
|
|
$
|
29,386
|
|
|
17
|
%
|
Gross margin
|
47.6
|
%
|
|
47.0
|
%
|
|
|
|
|
|
Years Ended December 31,
|
|
Change
|
|||||||||||
|
2017
|
|
2016
|
|
Amount
|
|
%
|
|||||||
|
(in thousands, except percentage)
|
|||||||||||||
Selling, general and administrative expense
|
$
|
160,569
|
|
|
$
|
71,420
|
|
|
$
|
89,149
|
|
|
125
|
%
|
Impact fee expense
|
649
|
|
|
27,018
|
|
|
(26,369
|
)
|
|
(98
|
)%
|
|||
Total operating expenses
|
$
|
161,218
|
|
|
$
|
98,438
|
|
|
$
|
62,780
|
|
|
64
|
%
|
|
Years Ended December 31,
|
|
Change
|
|||||||||||
|
2017
|
|
2016
|
|
Amount
|
|
%
|
|||||||
|
(in thousands, except percentage)
|
|||||||||||||
Other income (expense):
|
|
|
|
|
|
|
|
|||||||
Interest expense
|
$
|
(25,079
|
)
|
|
$
|
(10,836
|
)
|
|
$
|
(14,243
|
)
|
|
(131
|
)%
|
Equity in net losses of investments
|
(1,077
|
)
|
|
(10,138
|
)
|
|
9,061
|
|
|
89
|
%
|
|||
Loss on extinguishment of debt
|
(3,565
|
)
|
|
—
|
|
|
(3,565
|
)
|
|
NM
|
|
|||
Impairment of notes receivable
|
—
|
|
|
(2,371
|
)
|
|
2,371
|
|
|
NM
|
|
|||
Gain on lease termination
|
—
|
|
|
2,801
|
|
|
(2,801
|
)
|
|
NM
|
|
|||
Other
|
1,333
|
|
|
842
|
|
|
491
|
|
|
58
|
%
|
|||
Total
|
(28,388
|
)
|
|
(19,702
|
)
|
|
(8,686
|
)
|
|
(44
|
)%
|
|
Years Ended December 31,
|
|
Change
|
||||||||||
|
2017
|
|
2016
|
|
Amount
|
|
%
|
||||||
|
(in thousands, except percentage)
|
||||||||||||
Income tax benefit
|
$
|
981
|
|
|
$
|
—
|
|
|
$
|
981
|
|
|
NM
|
|
Years Ended December 31,
|
|
Change
|
||||||||||
|
2017
|
|
2016
|
|
Amount
|
|
%
|
||||||
|
(in thousands, except percentage)
|
||||||||||||
Net income attributable to non-controlling interest
|
$
|
6,628
|
|
|
$
|
—
|
|
|
$
|
6,628
|
|
|
NM
|
|
Years Ended December 31,
|
|
Change
|
|||||||||||
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|||||||
|
(in thousands, except percentage)
|
|||||||||||||
Colocation
|
$
|
259,046
|
|
|
$
|
218,498
|
|
|
$
|
40,548
|
|
|
19
|
%
|
Connectivity
|
53,715
|
|
|
43,147
|
|
|
10,568
|
|
|
24
|
%
|
|||
Other
|
5,591
|
|
|
4,225
|
|
|
1,366
|
|
|
32
|
%
|
|||
Revenue
|
$
|
318,352
|
|
|
$
|
265,870
|
|
|
$
|
52,482
|
|
|
20
|
%
|
|
Years Ended December 31,
|
|
Change
|
|||||||||||
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|||||||
|
(in thousands, except percentage)
|
|||||||||||||
Cost of revenue
|
$
|
168,844
|
|
|
$
|
141,060
|
|
|
$
|
27,784
|
|
|
20
|
%
|
Gross margin
|
47.0
|
%
|
|
46.9
|
%
|
|
|
|
|
|
Years Ended December 31,
|
|
Change
|
|||||||||||
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|||||||
|
(in thousands, except percentage)
|
|||||||||||||
Selling, general and administrative expense
|
$
|
71,420
|
|
|
$
|
45,251
|
|
|
$
|
26,169
|
|
|
58
|
%
|
Impact fee expense
|
27,018
|
|
|
—
|
|
|
27,018
|
|
|
NM
|
|
|||
Total operating expenses
|
$
|
98,438
|
|
|
$
|
45,251
|
|
|
$
|
53,187
|
|
|
118
|
%
|
|
Years Ended December 31,
|
|
Change
|
|||||||||||
|
2016
|
|
2015
|
|
Amount
|
|
%
|
|||||||
|
(in thousands, except percentage)
|
|||||||||||||
Other income (expense):
|
|
|
|
|
|
|
|
|||||||
Interest expense
|
$
|
(10,836
|
)
|
|
$
|
(7,682
|
)
|
|
$
|
(3,154
|
)
|
|
41
|
%
|
Equity in net (losses) earnings of investments
|
(10,138
|
)
|
|
821
|
|
|
(10,959
|
)
|
|
NM
|
|
|||
Loss on extinguishment of debt
|
—
|
|
|
(212
|
)
|
|
212
|
|
|
NM
|
|
|||
Gain on sale of asset
|
—
|
|
|
248
|
|
|
(248
|
)
|
|
NM
|
|
|||
Impairment of notes receivable
|
(2,371
|
)
|
|
—
|
|
|
(2,371
|
)
|
|
NM
|
|
|||
Gain on lease termination
|
2,801
|
|
|
—
|
|
|
2,801
|
|
|
NM
|
|
|||
Other
|
842
|
|
|
738
|
|
|
104
|
|
|
14
|
%
|
|||
Total
|
$
|
(19,702
|
)
|
|
$
|
(6,087
|
)
|
|
$
|
(13,615
|
)
|
|
224
|
%
|
|
Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Cash provided by operating activities
|
$
|
145,101
|
|
|
$
|
166,065
|
|
|
$
|
129,281
|
|
Cash used in investing activities
|
(402,451
|
)
|
|
(292,001
|
)
|
|
(196,344
|
)
|
|||
Cash provided by financing activities
|
499,303
|
|
|
134,457
|
|
|
67,693
|
|
|||
Net increase in cash
|
$
|
241,953
|
|
|
$
|
8,521
|
|
|
$
|
630
|
|
|
Payments Due by Period
|
||||||||||||||||||
|
Less than 1 Year
|
|
1 to 3 Years
|
|
3 to 5 Years
|
|
More Than 5 Years
|
|
Total
|
||||||||||
Long-term debt, principal
(1)
|
$
|
6,000
|
|
|
$
|
12,000
|
|
|
$
|
12,000
|
|
|
$
|
567,000
|
|
|
$
|
597,000
|
|
Long-term debt, interest
(2)
|
24,853
|
|
|
49,020
|
|
|
46,980
|
|
|
32,104
|
|
|
152,957
|
|
|||||
Capital lease obligations
(3)
|
4,261
|
|
|
4,188
|
|
|
4,549
|
|
|
31,330
|
|
|
44,328
|
|
|||||
Operating leases
(4)
|
7,064
|
|
|
14,399
|
|
|
7,804
|
|
|
57,296
|
|
|
86,563
|
|
|||||
Other contractual commitments
(5)
|
110,928
|
|
|
21,176
|
|
|
3,475
|
|
|
26,079
|
|
|
161,658
|
|
|||||
Total
|
$
|
153,106
|
|
|
$
|
100,783
|
|
|
$
|
74,808
|
|
|
$
|
713,809
|
|
|
$
|
1,042,506
|
|
(1)
|
Represents principal payments only. We will pay interest on outstanding indebtedness based on the rates and terms summarized in Note 6 "Long-term Debt" to our consolidated financial statements.
|
(2)
|
Represents interest expected to be incurred on our long-term debt based on obligations outstanding at
December 31, 2017
based on the rates and terms summarized in Note 6 "Long-term Debt" to our consolidated financial statements.
|
(3)
|
Represents principal and interest. See Note 7 "Leases" to our consolidated financial statements.
|
(4)
|
Represents minimum operating lease payments, excluding potential lease renewals. See Note 7 "Leases" to our consolidated financial statements.
|
(5)
|
Represents primarily construction-related purchase orders and power purchase and portfolio energy credit agreements for our data centers. See Note 9 "Commitments and Contingencies" to our consolidated financial statements.
|
•
|
there is persuasive evidence of an arrangement;
|
•
|
the service has been or is being provided to the customer;
|
•
|
collection of the fees is reasonably assured; and
|
•
|
the amount of fees to be paid by the customer is fixed or determinable.
|
•
|
the delivered items have value to the customer on a stand-alone basis. The items have value on a stand-alone basis if they are sold separately by any vendor or the customer could resell the delivered items on a stand-alone basis; and
|
•
|
if the arrangement includes a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered probable and substantially in our control.
|
•
|
Expected volatility.
As we had not been a public company and do not have a trading history for our member equity units, the expected price volatility of the member equity units was estimated by analyzing the volatility of companies in the same industry and selecting volatility within the range.
|
•
|
Risk-free interest rate.
The risk-free interest rate was based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term of the equity awards.
|
•
|
Expected term.
The expected term of the equity award was calculated by analyzing the historical exercise data and obtaining the weighted average of the holding period for the equity awards.
|
•
|
Expected dividend yield.
The expected dividend rate was determined at the grant date for each equity award. Because the Common Units are not publicly traded, the fair values of Common Units were estimated on each grant date by a board of managers of Switch, Ltd. for historical periods prior to our IPO. In order to determine the fair value
|
•
|
our historical and expected operating and financial performance;
|
•
|
current business conditions;
|
•
|
our stage of development and business strategy;
|
•
|
the likelihood of achieving a liquidity event, such as an initial public offering or sale of our company given prevailing market conditions and the nature and history of our business;
|
•
|
market multiples of comparable companies in our industry;
|
•
|
the lack of an active public market for our equity units;
|
•
|
the market performance of comparable publicly traded peer companies; and
|
•
|
macroeconomic conditions.
|
Item 8.
|
Financial Statements and Supplementary Data.
|
|
Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Revenue
|
$
|
378,275
|
|
|
$
|
318,352
|
|
|
$
|
265,870
|
|
Cost of revenue
|
198,230
|
|
|
168,844
|
|
|
141,060
|
|
|||
Gross profit
|
180,045
|
|
|
149,508
|
|
|
124,810
|
|
|||
Selling, general and administrative expense
|
160,569
|
|
|
71,420
|
|
|
45,251
|
|
|||
Impact fee expense
|
649
|
|
|
27,018
|
|
|
—
|
|
|||
Income from operations
|
18,827
|
|
|
51,070
|
|
|
79,559
|
|
|||
Other income (expense):
|
|
|
|
|
|
||||||
Interest expense, including $1,303, $922, and $625, respectively, in amortization of debt issuance costs
|
(25,079
|
)
|
|
(10,836
|
)
|
|
(7,682
|
)
|
|||
Equity in net (losses) earnings of investments
|
(1,077
|
)
|
|
(10,138
|
)
|
|
821
|
|
|||
Loss on extinguishment of debt
|
(3,565
|
)
|
|
—
|
|
|
(212
|
)
|
|||
Gain on sale of asset
|
—
|
|
|
—
|
|
|
248
|
|
|||
Impairment of notes receivable
|
—
|
|
|
(2,371
|
)
|
|
—
|
|
|||
Gain on lease termination
|
—
|
|
|
2,801
|
|
|
—
|
|
|||
Other
|
1,333
|
|
|
842
|
|
|
738
|
|
|||
Total other expense
|
(28,388
|
)
|
|
(19,702
|
)
|
|
(6,087
|
)
|
|||
(Loss) income before income taxes
|
(9,561
|
)
|
|
31,368
|
|
|
73,472
|
|
|||
Income tax benefit
|
981
|
|
|
—
|
|
|
—
|
|
|||
Net (loss) income
|
(8,580
|
)
|
|
31,368
|
|
|
73,472
|
|
|||
Less: net income attributable to non-controlling interest
|
6,628
|
|
|
—
|
|
|
—
|
|
|||
Net (loss) income attributable to Switch, Inc.
|
(15,208
|
)
|
|
31,368
|
|
|
73,472
|
|
|||
|
|
|
|
|
|
||||||
Net (loss) income per share/unit (Note 15):
|
|
|
|
|
|
||||||
Basic
|
$
|
(1.88
|
)
|
|
$
|
0.16
|
|
|
$
|
0.37
|
|
Diluted
|
$
|
(1.88
|
)
|
|
$
|
0.15
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
||||||
Weighted average shares/units used in computing net (loss) income per share/unit:
|
|
|
|
|
|
||||||
Basic
|
8,073,908
|
|
|
199,047,070
|
|
|
196,773,458
|
|
|||
Diluted
|
8,073,908
|
|
|
203,461,420
|
|
|
199,272,269
|
|
|||
|
|
|
|
|
|
||||||
Other comprehensive income:
|
|
|
|
|
|
||||||
Foreign currency translation adjustments
|
908
|
|
|
(86
|
)
|
|
(607
|
)
|
|||
Comprehensive (loss) income
|
(7,672
|
)
|
|
31,282
|
|
|
72,865
|
|
|||
Less: comprehensive income attributable to non-controlling interest
|
6,732
|
|
|
—
|
|
|
—
|
|
|||
Comprehensive (loss) income attributable to Switch, Inc.
|
$
|
(14,404
|
)
|
|
$
|
31,282
|
|
|
$
|
72,865
|
|
|
|
|
|
|
Class A Common Stock
|
|
Class B Common Stock
|
|
Class C Common Stock
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
Members' Equity
|
|
Notes Receivable Issued to Members
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid In Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Non-controlling Interest
|
|
Total Stockholders' / Members' Equity
|
|||||||||||||||||||||||
Balance — December 31, 2014
|
$
|
245,981
|
|
|
$
|
(18,166
|
)
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
227,815
|
|
Net income
|
73,472
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
73,472
|
|
||||||||||
Distributions
|
(18,212
|
)
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,210
|
)
|
||||||||||
Net settlement of recourse notes issued to Members
|
—
|
|
|
18,164
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18,164
|
|
||||||||||
Taxes paid on behalf of employees for option exercises
|
(1,558
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,558
|
)
|
||||||||||
Net settlement of outstanding vested options
|
(3,878
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,878
|
)
|
||||||||||
Issuance of membership units for net settlement
|
3,878
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,878
|
|
||||||||||
Repurchase of Member options
|
(18,301
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,301
|
)
|
||||||||||
Repurchase of units
|
(1,393
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,393
|
)
|
||||||||||
Equity-based compensation expense
|
5,237
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,237
|
|
||||||||||
Issuance of membership units upon exercise of unit options
|
75
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75
|
|
||||||||||
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(607
|
)
|
|
—
|
|
|
(607
|
)
|
||||||||||
Balance — December 31, 2015
|
285,301
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(607
|
)
|
|
—
|
|
|
284,694
|
|
||||||||||
Net income
|
31,368
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
31,368
|
|
||||||||||
Distributions
|
(28,110
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(28,110
|
)
|
||||||||||
Taxes paid on behalf of employees for option exercises
|
(290
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(290
|
)
|
||||||||||
Net settlement of outstanding vested options
|
(744
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(744
|
)
|
||||||||||
Issuance of membership units for net settlement
|
744
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
744
|
|
|
|
|
|
|
Class A Common Stock
|
|
Class B Common Stock
|
|
Class C Common Stock
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
Members' Equity
|
|
Notes Receivable Issued to Members
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid In Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Non-controlling Interest
|
|
Total Stockholders' / Members' Equity
|
|||||||||||||||||||||||
Repurchase of member options and units
|
(15,148
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15,148
|
)
|
||||||||||
Equity-based compensation expense
|
4,969
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,969
|
|
||||||||||
Common units awarded
|
966
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
966
|
|
||||||||||
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(86
|
)
|
|
—
|
|
|
(86
|
)
|
||||||||||
Balance — December 31, 2016
|
279,056
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(693
|
)
|
|
—
|
|
|
278,363
|
|
||||||||||
Activity prior to the initial public offering and related organizational transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Net loss
|
(17,313
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(17,313
|
)
|
||||||||||
Distributions to members
|
(174,235
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(174,235
|
)
|
||||||||||
Equity-based compensation expense
|
75,110
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75,110
|
|
||||||||||
Common units awarded
|
1,115
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,115
|
|
||||||||||
Issuance of membership units upon exercise of unit options
|
161
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
161
|
|
||||||||||
Foreign currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
786
|
|
|
—
|
|
|
786
|
|
||||||||||
Effects of the initial public offering and related organizational transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Effects of the reorganization transactions
|
(163,894
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
163,894
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||||
Issuance of Class A common stock in the IPO, net of underwriting discount and offering costs
|
—
|
|
|
—
|
|
|
35,937,500
|
|
|
36
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
572,396
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
572,432
|
|
||||||||||
Issuance of Class B common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
173,624,316
|
|
|
174
|
|
|
—
|
|
|
—
|
|
|
(174
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||||
Issuance of Class C common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
42,944,647
|
|
|
43
|
|
|
(43
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Class A Common Stock
|
|
Class B Common Stock
|
|
Class C Common Stock
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
Members' Equity
|
|
Notes Receivable Issued to Members
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid In Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Non-controlling Interest
|
|
Total Stockholders' / Members' Equity
|
|||||||||||||||||||||||
Allocation of equity to non-controlling interest in Switch, Ltd.
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(629,507
|
)
|
|
—
|
|
|
(80
|
)
|
|
629,587
|
|
|
—
|
|
||||||||||
Activity subsequent to the initial public offering and related organizational transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,105
|
|
|
—
|
|
|
6,628
|
|
|
8,733
|
|
||||||||||
Distributions to non-controlling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,203
|
)
|
|
(11,203
|
)
|
||||||||||
Dividends
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(503
|
)
|
|
—
|
|
|
—
|
|
|
(503
|
)
|
||||||||||
Equity-based compensation expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
442
|
|
|
—
|
|
|
—
|
|
|
8,123
|
|
|
8,565
|
|
||||||||||
Foreign currency translation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|
104
|
|
|
122
|
|
||||||||||
Balance — December 31, 2017
|
$
|
—
|
|
|
$
|
—
|
|
|
35,937,500
|
|
|
$
|
36
|
|
|
173,624,316
|
|
|
$
|
174
|
|
|
42,944,647
|
|
|
$
|
43
|
|
|
$
|
107,008
|
|
|
$
|
1,602
|
|
|
$
|
31
|
|
|
$
|
633,239
|
|
|
$
|
742,133
|
|
|
Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
||||||
Net (loss) income
|
$
|
(8,580
|
)
|
|
$
|
31,368
|
|
|
$
|
73,472
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Depreciation and amortization of property and equipment
|
89,124
|
|
|
66,591
|
|
|
55,355
|
|
|||
Loss on disposal of property and equipment
|
569
|
|
|
1,994
|
|
|
1,307
|
|
|||
Income tax benefit
|
(981
|
)
|
|
—
|
|
|
—
|
|
|||
Amortization of debt issuance costs
|
1,303
|
|
|
922
|
|
|
625
|
|
|||
Bad debts
|
423
|
|
|
383
|
|
|
242
|
|
|||
Loss on extinguishment of debt
|
2,065
|
|
|
—
|
|
|
212
|
|
|||
Equity in net losses (earnings) on investments
|
1,077
|
|
|
5,764
|
|
|
(821
|
)
|
|||
Gain on sale of asset
|
—
|
|
|
—
|
|
|
(248
|
)
|
|||
Planet3 impairment
|
—
|
|
|
7,696
|
|
|
—
|
|
|||
Amortization of notes receivable discount
|
—
|
|
|
(267
|
)
|
|
—
|
|
|||
Other income
|
—
|
|
|
—
|
|
|
(147
|
)
|
|||
Equity-based compensation
|
84,790
|
|
|
5,935
|
|
|
5,237
|
|
|||
Changes in operating assets and liabilities:
|
|
|
|
|
|
||||||
Accounts receivable
|
(6,435
|
)
|
|
(1,101
|
)
|
|
(3,566
|
)
|
|||
Prepaid expenses
|
(1,116
|
)
|
|
187
|
|
|
(487
|
)
|
|||
Other current assets
|
(261
|
)
|
|
(122
|
)
|
|
(781
|
)
|
|||
Other assets
|
(1,221
|
)
|
|
(463
|
)
|
|
(3,229
|
)
|
|||
Accounts payable
|
5,248
|
|
|
634
|
|
|
(1,155
|
)
|
|||
Accrued interest, capital lease obligations
|
(143
|
)
|
|
64
|
|
|
108
|
|
|||
Accrued salaries and benefits
|
991
|
|
|
3,144
|
|
|
412
|
|
|||
Accrued expenses
|
(2,435
|
)
|
|
4,353
|
|
|
(153
|
)
|
|||
Accrued impact fee expense
|
(27,018
|
)
|
|
27,018
|
|
|
—
|
|
|||
Deferred revenue
|
6,006
|
|
|
10,605
|
|
|
1,797
|
|
|||
Customer deposits
|
1,695
|
|
|
1,360
|
|
|
1,101
|
|
|||
Net cash provided by operating activities
|
145,101
|
|
|
166,065
|
|
|
129,281
|
|
|||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
||||||
Acquisition of property and equipment
|
(402,561
|
)
|
|
(287,097
|
)
|
|
(190,113
|
)
|
|||
Acquisition of intangible asset
|
(32
|
)
|
|
—
|
|
|
(449
|
)
|
|||
Proceeds from sale of property and equipment
|
100
|
|
|
—
|
|
|
1,243
|
|
|||
Proceeds from notes receivable
|
211
|
|
|
468
|
|
|
—
|
|
|||
Purchase of notes receivable
|
—
|
|
|
(3,000
|
)
|
|
(485
|
)
|
|||
Purchase of investments
|
—
|
|
|
(1,500
|
)
|
|
(6,540
|
)
|
|||
Purchase of portfolio energy credits
|
(169
|
)
|
|
(872
|
)
|
|
—
|
|
|||
Net cash used in investing activities
|
(402,451
|
)
|
|
(292,001
|
)
|
|
(196,344
|
)
|
•
|
Switch, Ltd. adopted and approved the Fifth Amended and Restated Operating Agreement of Switch, Ltd. (the "Switch Operating Agreement"), which amended and restated Switch, Ltd.'s prior operating agreement to, among other things, convert all incentive units in Switch, Ltd. into Common Units and to appoint Switch, Inc. as the sole manager of Switch, Ltd.;
|
•
|
Switch, Inc. amended and restated its articles of incorporation to, among other things, provide for Class A common stock, Class B common stock, and Class C common stock;
|
•
|
Switch, Inc. issued shares of its Class B common stock to the holders of Common Units other than Switch, Inc. and the Founder Members (the "Non-Founder Members" and, together with the Founder Members, the "Members") on a one-to-one basis with the number of Common Units they owned, for nominal consideration, and shares of its Class C common stock to the Founder Members on a one-to-one basis with the number of Common Units they own, for nominal consideration;
|
•
|
Switch, Inc. issued and sold
35,937,500
shares of its Class A common stock in exchange for net proceeds of approximately
$577.3 million
, after deducting underwriting discounts and commissions but before offering expenses of
$4.9 million
;
|
•
|
Switch, Inc. used all of the net proceeds from the IPO to acquire Common Units from Switch, Ltd. at a purchase price per Common Unit equal to the initial public offering price of Class A common stock, less underwriting discounts and commissions, collectively representing
14.5%
of Switch, Ltd.'s outstanding Common Units; and
|
•
|
Switch, Inc. entered into (i) a Tax Receivable Agreement with Switch, Ltd. and the Members and (ii) an Amended and Restated Registration Rights Agreement with the Members who, upon the completion of the IPO, owned an aggregate of
216,568,963
shares of Switch, Inc.'s Class B common stock and Class C common stock, representing approximately
94.4%
of the combined voting power of all of Switch, Inc.'s common stock.
|
Level 1
|
Quoted prices in active markets for identical assets or liabilities.
|
Level 2
|
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
Level 3
|
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
Assets
|
Estimated Useful Lives
|
Land improvements
|
20-30
|
Buildings, building improvements and leasehold improvements
|
4.5-40
|
Substation equipment
|
30
|
Data center equipment
|
5-10
|
Vehicles
|
7
|
Core network equipment
|
5-7
|
Cloud computing equipment
|
5
|
Fiber facilities
|
20, 40
|
Deferred installation charges
|
3-5
|
Computer equipment, furniture and fixtures
|
3-5
|
•
|
The delivered items have value to the customer on a stand-alone basis. The items have value on a stand-alone basis if
|
•
|
If the arrangement includes a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered probable and substantially in the control of the Company.
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(in thousands)
|
||||||
Land and land improvements
|
$
|
151,286
|
|
|
$
|
104,318
|
|
Data center equipment
|
784,290
|
|
|
591,085
|
|
||
Capitalized leased assets
|
35,974
|
|
|
36,408
|
|
||
Buildings, building improvements, and leasehold improvements
|
338,763
|
|
|
248,680
|
|
||
Substation equipment
|
4,247
|
|
|
—
|
|
||
Cloud computing equipment
|
5,661
|
|
|
5,661
|
|
||
Fiber facilities
|
8,459
|
|
|
6,344
|
|
||
Computer equipment, furniture and fixtures
|
30,745
|
|
|
21,007
|
|
||
Vehicles
|
1,573
|
|
|
1,241
|
|
||
Construction in progress
|
90,059
|
|
|
97,368
|
|
||
Core network equipment
|
31,472
|
|
|
23,859
|
|
||
Deferred installation charges
|
4,436
|
|
|
3,858
|
|
||
Property and equipment, gross
|
1,486,965
|
|
|
1,139,829
|
|
||
Less: accumulated depreciation and amortization
|
(353,393
|
)
|
|
(265,570
|
)
|
||
Total property and equipment, net
|
$
|
1,133,572
|
|
|
$
|
874,259
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(in thousands)
|
||||||
Current assets
|
$
|
2,169
|
|
|
$
|
5,683
|
|
Noncurrent assets
|
$
|
17,075
|
|
|
$
|
18,956
|
|
Current liabilities
|
$
|
2,583
|
|
|
$
|
2,558
|
|
Noncurrent liabilities
|
$
|
19,445
|
|
|
$
|
23,164
|
|
|
Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in thousands)
|
||||||||||
Revenue
|
$
|
700
|
|
|
$
|
1,239
|
|
|
$
|
10,866
|
|
Gross (loss) profit
|
$
|
(3,467
|
)
|
|
$
|
(2,313
|
)
|
|
$
|
7,628
|
|
Net (loss) income
|
$
|
(5,834
|
)
|
|
$
|
(12,353
|
)
|
|
$
|
1,412
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(in thousands)
|
||||||
2015 Term Loan Facility, interest paid at the defined LIBOR rate plus applicable interest margin (2.77% at December 31, 2016); matures May 2020
|
$
|
—
|
|
|
$
|
185,000
|
|
2017 Term Loan Facility, interest paid at the defined LIBOR rate plus applicable interest margin (3.81% at December 31, 2017); matures June 2024
|
597,000
|
|
|
—
|
|
||
Less: unamortized debt issuance costs
|
(5,241
|
)
|
|
(2,233
|
)
|
||
|
591,759
|
|
|
182,767
|
|
||
2015 Revolving Credit Facility, interest paid at the defined LIBOR rate plus applicable interest margin (2.71% at December 31, 2016); matures May 2020
|
—
|
|
|
289,300
|
|
||
2017 Revolving Credit Facility, interest paid at the defined LIBOR rate plus applicable interest margin; matures June 2022
|
—
|
|
|
—
|
|
||
|
$
|
591,759
|
|
|
$
|
472,067
|
|
2018
|
$
|
6,000
|
|
2019
|
6,000
|
|
|
2020
|
6,000
|
|
|
2021
|
6,000
|
|
|
2022
|
6,000
|
|
|
Thereafter
|
567,000
|
|
|
|
597,000
|
|
|
Less: unamortized debt issuance costs
|
(5,241
|
)
|
|
|
$
|
591,759
|
|
|
Related Party Building Lease
(1)
(in thousands)
|
||
2018
|
$
|
1,952
|
|
2019
|
2,064
|
|
|
2020
|
2,124
|
|
|
2021
|
2,243
|
|
|
2022
|
2,306
|
|
|
Thereafter
|
31,330
|
|
|
|
42,019
|
|
|
Less: amount representing interest
|
(22,553
|
)
|
|
Present value of minimum capital lease payments
|
$
|
19,466
|
|
(1)
|
Until 2023, capital lease payments are applied only to accrued interest, thus, there is no current portion.
|
|
Related
Parties
|
|
Other
|
|
Total
|
||||||
|
(in thousands)
|
||||||||||
2018
|
$
|
4,706
|
|
|
$
|
2,358
|
|
|
$
|
7,064
|
|
2019
|
4,798
|
|
|
2,369
|
|
|
7,167
|
|
|||
2020
|
4,860
|
|
|
2,372
|
|
|
7,232
|
|
|||
2021
|
4,256
|
|
|
506
|
|
|
4,762
|
|
|||
2022
|
2,863
|
|
|
179
|
|
|
3,042
|
|
|||
Thereafter
|
56,653
|
|
|
643
|
|
|
57,296
|
|
|||
|
$
|
78,136
|
|
|
$
|
8,427
|
|
|
$
|
86,563
|
|
2018
|
$
|
1,908
|
|
2019
|
1,908
|
|
|
2020
|
1,908
|
|
|
2021
|
1,738
|
|
|
2022
|
1,738
|
|
|
Thereafter
|
26,079
|
|
|
|
$
|
35,279
|
|
|
Year Ended
December 31, 2017 |
||
|
(in thousands)
|
||
Domestic
|
$
|
(8,386
|
)
|
Foreign
|
(1,175
|
)
|
|
Total loss before income taxes
|
$
|
(9,561
|
)
|
|
Year Ended
December 31, 2017 |
||
|
(in thousands)
|
||
Current
|
|
||
Federal
|
$
|
—
|
|
State and local
|
—
|
|
|
Total current tax benefit
|
$
|
—
|
|
|
|
||
Deferred
|
|
||
Federal
|
$
|
(978
|
)
|
State and local
|
(3
|
)
|
|
Total deferred tax benefit
|
$
|
(981
|
)
|
Total tax benefit
|
$
|
(981
|
)
|
|
Year Ended
December 31, 2017 |
|
U.S statutory tax rate
|
35.0
|
%
|
Foreign rate differential
|
(4.3
|
)
|
Rate effect from flow-through entity
|
(34.8
|
)
|
Rate change impact due to tax reform
|
(7.0
|
)
|
Partnership outside basis difference
|
26.2
|
|
Other
|
(4.9
|
)
|
Effective tax rate
|
10.2
|
%
|
|
December 31,
|
||
|
2017
|
||
|
(in thousands)
|
||
Deferred tax assets
|
|
||
Net operating loss carryforwards
|
$
|
981
|
|
Subtotal
|
981
|
|
|
Valuation allowance
|
—
|
|
|
Total deferred tax assets
|
$
|
981
|
|
|
|
||
Deferred tax liabilities
|
|
||
Other
|
—
|
|
|
Total deferred tax liabilities
|
$
|
—
|
|
Net deferred tax assets
|
$
|
981
|
|
•
|
Significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%;
|
•
|
Limitation of the tax deduction for interest expense to 30% of adjusted earnings;
|
•
|
Limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of NOL carrybacks;
|
•
|
Immediate deductions for certain new investments instead of deductions for depreciation expense over time;
|
•
|
Modifying or repealing many business deductions and credits; and
|
•
|
One-time taxation of offshore earnings at reduced rates regardless of repatriation.
|
|
Number of Units (in thousands)
|
|
Weighted Average Exercise Price per Unit
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate
Intrinsic
Value
(1)
(in thousands)
|
|||||
Unit options outstanding—December 31, 2014
|
6,752
|
|
|
$
|
2.07
|
|
|
|
|
|
||
Unit options exercised
|
(2,575
|
)
|
|
2.00
|
|
|
|
|
|
|||
Unit options settled
|
(3,536
|
)
|
|
2.04
|
|
|
|
|
|
|||
Unit options outstanding—December 31, 2015
|
641
|
|
|
2.52
|
|
|
4.73
|
|
$
|
1,930
|
|
|
Unit options exercised
|
(119
|
)
|
|
2.67
|
|
|
|
|
|
|||
Unit options settled
|
(160
|
)
|
|
2.67
|
|
|
|
|
|
|||
Unit options forfeited
|
(195
|
)
|
|
2.67
|
|
|
|
|
|
|||
Unit options outstanding—December 31, 2016
|
167
|
|
|
2.09
|
|
|
1.75
|
|
$
|
939
|
|
|
Unit options exercised
|
(57
|
)
|
|
2.85
|
|
|
|
|
|
|||
Unit options outstanding—December 31, 2017
|
110
|
|
|
$
|
2.85
|
|
|
0.75
|
|
$
|
1,691
|
|
Unit options vested and exercisable—December 31, 2015
|
167
|
|
|
$
|
2.09
|
|
|
2.75
|
|
$
|
574
|
|
Unit options vested and exercisable—December 31, 2016
|
167
|
|
|
$
|
2.09
|
|
|
1.75
|
|
$
|
939
|
|
Unit options vested and exercisable—December 31, 2017
|
110
|
|
|
$
|
2.85
|
|
|
0.75
|
|
$
|
1,691
|
|
(1)
|
The intrinsic value is calculated as the difference between the fair value of the unit on
December 31, 2017
,
2016
, and
2015
and the exercise price of the option.
|
|
Number of Nonvested Options Outstanding (in thousands)
|
|
Weighted Average Grant Date Fair Value per Option
|
|||
Nonvested unit options outstanding—December 31, 2014
|
1,398
|
|
|
$
|
0.93
|
|
Options vested
|
(924
|
)
|
|
0.90
|
|
|
Nonvested unit options outstanding—December 31, 2015
|
474
|
|
|
0.97
|
|
|
Options forfeited
|
(195
|
)
|
|
0.97
|
|
|
Unit options vested
|
(279
|
)
|
|
0.97
|
|
|
Nonvested unit options outstanding—December 31, 2016
|
—
|
|
|
—
|
|
|
Nonvested unit options outstanding—December 31, 2017
|
—
|
|
|
$
|
—
|
|
|
Years Ended
December 31, |
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in thousands)
|
||||||||||
Total fair value of unit options vested
|
$
|
—
|
|
|
$
|
271
|
|
|
$
|
835
|
|
Total aggregate intrinsic value of unit options exercised
(1)
|
$
|
869
|
|
|
$
|
601
|
|
|
$
|
9,098
|
|
(1)
|
The intrinsic value is calculated as the difference between the fair value of the unit on
December 31, 2017
,
2016
, and
2015
and the exercise price of the option.
|
|
Number of Units
(in thousands)
|
|
Weighted Average Hurdle Amount per Unit
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate Intrinsic Value
(1)
(in thousands)
|
||||||
Incentive Units outstanding—December 31, 2014
|
8,760
|
|
|
$
|
3.53
|
|
|
|
|
|
|||
Incentive Units granted
|
10,444
|
|
|
4.35
|
|
|
|
|
|
||||
Incentive Units forfeited
|
(899
|
)
|
|
3.71
|
|
|
|
|
|
||||
Incentive Units outstanding—December 31, 2015
|
18,305
|
|
|
3.99
|
|
|
2.85
|
|
|
$
|
28,235
|
|
|
Incentive Units granted
|
2,197
|
|
|
6.38
|
|
|
|
|
|
||||
Incentive Units forfeited
|
(1,109
|
)
|
|
5.08
|
|
|
|
|
|
||||
Incentive Units outstanding—December 31, 2016
|
19,393
|
|
|
4.20
|
|
|
1.98
|
|
|
$
|
68,139
|
|
|
CEO Award
|
7,500
|
|
|
—
|
|
|
|
|
|
||||
President Award
|
1,512
|
|
|
11.69
|
|
|
|
|
|
||||
Incentive Units forfeited
|
(873
|
)
|
|
4.62
|
|
|
|
|
|
||||
Incentive Units net settled at IPO
|
(5,589
|
)
|
|
5.74
|
|
|
|
|
|
||||
Incentive Units converted into Common Units at IPO
|
(21,943
|
)
|
|
2.87
|
|
|
|
|
|
||||
Incentive Units outstanding—December 31, 2017
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Incentive Units vested—December 31, 2015
|
1,191
|
|
|
$
|
3.47
|
|
|
1.94
|
|
|
$
|
2,454
|
|
Incentive Units vested—December 31, 2016
|
4,558
|
|
|
$
|
3.97
|
|
|
1.50
|
|
|
$
|
17,053
|
|
Incentive Units vested—December 31, 2017
|
22,125
|
|
|
$
|
3.82
|
|
|
—
|
|
|
$
|
318,033
|
|
(1)
|
The intrinsic value is calculated as the difference between the fair value of the Incentive Unit on
December 31, 2017
,
2016
, and
2015
and the hurdle amount of the Incentive Unit.
|
|
Number of Nonvested Incentive Units Outstanding (in thousands)
|
|
Weighted Average Grant Date Fair Value per Incentive Unit
|
|||
Nonvested Incentive Units outstanding—December 31, 2014
|
7,977
|
|
|
$
|
1.36
|
|
Incentive Units granted
|
10,444
|
|
|
$
|
1.18
|
|
Incentive Units forfeited
|
(899
|
)
|
|
$
|
1.26
|
|
Incentive Units vested
|
(408
|
)
|
|
$
|
1.36
|
|
Nonvested Incentive Units outstanding—December 31, 2015
|
17,114
|
|
|
$
|
1.26
|
|
Incentive Units granted
|
2,197
|
|
|
$
|
2.04
|
|
Incentive Units forfeited
|
(1,109
|
)
|
|
$
|
1.75
|
|
Incentive Units vested
|
(3,367
|
)
|
|
$
|
1.24
|
|
Nonvested Incentive Units outstanding—December 31, 2016
|
14,835
|
|
|
$
|
1.34
|
|
CEO Award
|
7,500
|
|
|
$
|
11.69
|
|
President Award
|
1,512
|
|
|
$
|
1.98
|
|
Incentive Units forfeited
|
(873
|
)
|
|
$
|
0.97
|
|
President Award net settled at IPO
|
(624
|
)
|
|
$
|
1.98
|
|
Nonvested Incentive Units converted into nonvested Common Units at IPO—CEO Award
|
(4,500
|
)
|
|
$
|
11.69
|
|
Nonvested Incentive Units converted into nonvested Common Units at IPO—President Award
|
(283
|
)
|
|
$
|
1.98
|
|
Incentive Units vested
|
(17,567
|
)
|
|
$
|
3.14
|
|
Nonvested Incentive Units outstanding—December 31, 2017
|
—
|
|
|
$
|
—
|
|
|
Years Ended
December 31, |
|||||||
|
2017
|
|
2016
|
|
2015
|
|||
Expected volatility
|
29.3
|
%
|
|
39.8
|
%
|
|
35.1
|
%
|
Risk-free interest rate
|
1.4
|
%
|
|
1.5
|
%
|
|
1.4
|
%
|
Expected term (in years)
|
2.0
|
|
|
3.7
|
|
|
3.1
|
|
Dividend rate
|
0.6
|
%
|
|
0.9
|
%
|
|
1.3
|
%
|
|
Number of Stock Options
(in thousands)
|
|
Weighted Average Exercise Price per Stock Option
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Aggregate
Intrinsic Value (1) (in thousands) |
|||||
Stock options outstanding—December 31, 2016
|
—
|
|
|
$
|
—
|
|
|
|
|
|
||
Stock options granted
|
5,725
|
|
|
$
|
17.00
|
|
|
|
|
|
||
Stock options outstanding—December 31, 2017
|
5,725
|
|
|
$
|
17.00
|
|
|
9.77
|
|
$
|
6,813
|
|
Stock options vested and exercisable—December 31, 2017
|
5,626
|
|
|
$
|
17.00
|
|
|
9.77
|
|
$
|
6,695
|
|
(1)
|
The intrinsic value is calculated as the difference between the fair value of the stock option on
December 31, 2017
and the exercise price of the stock option.
|
|
Number of Stock Options
(in thousands)
|
|
Weighted Average Grant Date Fair Value
|
|||
Nonvested stock options outstanding—December 31, 2016
|
—
|
|
|
$
|
—
|
|
Stock options granted
|
5,725
|
|
|
$
|
5.00
|
|
Stock options vested
|
(5,626
|
)
|
|
$
|
4.99
|
|
Nonvested stock options outstanding—December 31, 2017
|
99
|
|
|
$
|
5.37
|
|
|
Year Ended December 31, 2017
|
|
Expected volatility
|
31.8
|
%
|
Risk-free interest rate
|
1.9
|
%
|
Expected term (in years)
|
5.0
|
|
Dividend rate
|
0.6
|
%
|
|
Number of RSUs
(in thousands)
|
|
Weighted Average Grant Date Fair Value per RSU
|
|||
RSUs outstanding—December 31, 2016
|
—
|
|
|
$
|
—
|
|
CEO RSU Award
|
51
|
|
|
$
|
18.01
|
|
RSUs vested
|
(20
|
)
|
|
$
|
18.01
|
|
RSUs outstanding—December 31, 2017
|
31
|
|
|
$
|
18.01
|
|
|
Years Ended
December 31, |
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in thousands)
|
||||||||||
Cost of revenue
|
$
|
1,289
|
|
|
$
|
181
|
|
|
$
|
—
|
|
Selling, general and administrative
|
83,501
|
|
|
5,754
|
|
|
5,237
|
|
|||
Total equity-based compensation expense
|
$
|
84,790
|
|
|
$
|
5,935
|
|
|
$
|
5,237
|
|
|
|
December 31, 2017
|
||||
|
|
Units
|
|
Ownership %
|
||
Switch, Inc.'s ownership of Common Units (equal to outstanding Class A common stock)
|
|
35,937,500
|
|
|
14.5
|
%
|
Non-controlling interest holders' ownership of Common Units
(1)
|
|
211,675,452
|
|
|
85.5
|
%
|
Total Common Units
|
|
247,612,952
|
|
|
100.0
|
%
|
(1)
|
Common Units held as of
December 31, 2017
exclude
4,500,000
and
283,286
of unvested Common Units granted under the CEO Award and President Award, respectively, and
110,225
of vested and exercisable unit options under the Unit Option Plan.
|
|
Years Ended
December 31, |
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in thousands, except share/unit and per share/unit data)
|
||||||||||
Net income (loss) per share/unit:
|
|
|
|
|
|
||||||
Numerator—basic and diluted:
|
|
|
|
|
|
||||||
Net (loss) income attributable to Switch, Inc.—basic and diluted
|
$
|
(15,208
|
)
|
|
$
|
31,368
|
|
|
$
|
73,472
|
|
Denominator—basic:
|
|
|
|
|
|
||||||
Weighted average shares/units outstanding—basic
(1)
|
8,073,908
|
|
|
199,047,070
|
|
|
196,773,458
|
|
|||
Net (loss) income per share/unit—basic
|
$
|
(1.88
|
)
|
|
$
|
0.16
|
|
|
$
|
0.37
|
|
Denominator—diluted:
|
|
|
|
|
|
||||||
Weighted average shares/units outstanding—basic
(1)
|
8,073,908
|
|
|
199,047,070
|
|
|
196,773,458
|
|
|||
Weighted average effect of dilutive securities:
|
|
|
|
|
|
||||||
Effect of dilutive options
|
—
|
|
|
230,511
|
|
|
1,498,228
|
|
|||
Effect of unvested Incentive Units
|
—
|
|
|
4,183,839
|
|
|
1,000,583
|
|
|||
Weighted average shares/units outstanding—diluted
(1)
|
8,073,908
|
|
|
203,461,420
|
|
|
199,272,269
|
|
|||
Net (loss) income per share/unit—diluted
|
$
|
(1.88
|
)
|
|
$
|
0.15
|
|
|
$
|
0.37
|
|
(1)
|
Amounts for the year ended December 31, 2017 represent shares of Class A common stock outstanding. Amounts for the years ended December 31, 2016 and 2015 represent Common Units outstanding.
|
(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 (loss) per share.
|
(2)
|
Shares of Class B common stock 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.
|
|
Years Ended
December 31, |
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(in thousands)
|
||||||||||
Colocation
|
$
|
304,720
|
|
|
$
|
259,046
|
|
|
$
|
218,498
|
|
Connectivity
|
67,690
|
|
|
53,715
|
|
|
43,147
|
|
|||
Other
|
5,865
|
|
|
5,591
|
|
|
4,225
|
|
|||
Revenue
|
$
|
378,275
|
|
|
$
|
318,352
|
|
|
$
|
265,870
|
|
|
Year Ended December 31, 2017
|
||||||||||||||||||
|
First
Quarter
|
|
Second Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
||||||||||
Revenue
|
$
|
89,157
|
|
|
$
|
92,101
|
|
|
$
|
97,689
|
|
|
$
|
99,328
|
|
|
$
|
378,275
|
|
Income (loss) from operations
|
$
|
24,439
|
|
|
$
|
23,541
|
|
|
$
|
25,451
|
|
|
$
|
(54,604
|
)
|
|
$
|
18,827
|
|
Net income (loss)
|
$
|
20,328
|
|
|
$
|
14,953
|
|
|
$
|
16,486
|
|
|
$
|
(60,347
|
)
|
|
$
|
(8,580
|
)
|
Net income (loss) attributable to Switch, Inc.
|
$
|
20,328
|
|
|
$
|
14,953
|
|
|
$
|
16,486
|
|
|
$
|
(66,975
|
)
|
|
$
|
(15,208
|
)
|
Basic net income (loss) per unit/share
|
$
|
0.10
|
|
|
$
|
0.07
|
|
|
$
|
0.08
|
|
|
$
|
(2.09
|
)
|
|
$
|
(1.88
|
)
|
Diluted net income (loss) per unit/share
|
$
|
0.10
|
|
|
$
|
0.07
|
|
|
$
|
0.08
|
|
|
$
|
(2.09
|
)
|
|
$
|
(1.88
|
)
|
|
Year Ended December 31, 2016
|
||||||||||||||||||
|
First
Quarter
|
|
Second Quarter
|
|
Third
Quarter
|
|
Fourth Quarter
|
|
Total
|
||||||||||
Revenue
|
$
|
73,966
|
|
|
$
|
80,832
|
|
|
$
|
81,666
|
|
|
$
|
81,888
|
|
|
$
|
318,352
|
|
Income (loss) from operations
|
$
|
19,813
|
|
|
$
|
22,342
|
|
|
$
|
16,412
|
|
|
$
|
(7,497
|
)
|
|
$
|
51,070
|
|
Net income (loss)
|
$
|
16,678
|
|
|
$
|
18,535
|
|
|
$
|
15,926
|
|
|
$
|
(19,771
|
)
|
|
$
|
31,368
|
|
Net income (loss) attributable to Switch, Inc.
|
$
|
16,678
|
|
|
$
|
18,535
|
|
|
$
|
15,926
|
|
|
$
|
(19,771
|
)
|
|
$
|
31,368
|
|
Basic net income (loss) per unit
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.16
|
|
Diluted net income (loss) per unit
|
$
|
0.08
|
|
|
$
|
0.09
|
|
|
$
|
0.08
|
|
|
$
|
(0.10
|
)
|
|
$
|
0.15
|
|
Item 9.
|
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
|
Item 9B.
|
Other Information.
|
Item 10.
|
Directors, Executive Officers and Corporate Governance.
|
Item 11.
|
Executive Compensation.
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence.
|
Item 14.
|
Principal Accounting Fees and Services.
|
(a)
|
The following documents are filed as part of this report:
|
(1)
|
Financial statements:
|
|
Page
|
(2)
|
Financial statement schedules:
|
(3)
|
Exhibits:
|
|
|
|
Incorporated by Reference
|
|
||
Exhibit No.
|
|
Exhibit Description
|
Form
|
Exhibit
|
Filing Date
|
|
3.1
|
|
8-K
|
3.1
|
10/11/2017
|
|
|
3.2
|
|
8-K
|
3.2
|
10/11/2017
|
|
|
10.1
|
|
8-K
|
10.1
|
10/11/2017
|
|
|
10.2
|
|
8-K
|
10.2
|
10/11/2017
|
|
|
10.3
|
|
8-K
|
10.3
|
10/11/2017
|
|
|
10.4
|
|
S-1
|
10.4
|
9/8/2017
|
|
|
10.4(a)
|
|
8-K
|
10.1
|
12/28/2017
|
|
|
10.5
|
|
S-1
|
10.5
|
9/8/2017
|
|
|
10.6
|
|
S-1
|
10.6
|
9/8/2017
|
|
|
10.7†
|
|
S-1/A
|
10.7
|
9/25/2017
|
|
|
10.7(a)†
|
|
S-1/A
|
10.7(a)
|
9/25/2017
|
|
|
10.7(b)†
|
|
S-1/A
|
10.7(b)
|
9/25/2017
|
|
|
10.7(c)†
|
|
10-Q
|
10.1
|
11/14/2017
|
|
|
10.8†
|
|
S-1/A
|
10.8
|
9/25/2017
|
|
|
|
|
Incorporated by Reference
|
|
||
Exhibit No.
|
|
Exhibit Description
|
Form
|
Exhibit
|
Filing Date
|
|
10.9
|
|
S-1
|
10.9
|
9/8/2017
|
|
|
10.10
|
|
S-1/A
|
10.10
|
9/25/2017
|
|
|
10.11
|
|
S-1/A
|
10.11
|
9/25/2017
|
|
|
10.12
|
|
S-1/A
|
10.12
|
9/25/2017
|
|
|
10.13
|
|
S-1/A
|
10.13
|
9/25/2017
|
|
|
10.14
|
|
S-1/A
|
10.14
|
9/25/2017
|
|
|
10.15
|
|
S-1/A
|
10.15
|
9/25/2017
|
|
|
10.16
|
|
S-1/A
|
10.16
|
9/25/2017
|
|
|
10.17†
|
|
S-1/A
|
10.17
|
9/25/2017
|
|
|
10.18†
|
|
S-1/A
|
10.18
|
9/25/2017
|
|
|
10.19†
|
|
S-1/A
|
10.19
|
9/25/2017
|
|
|
10.20†
|
|
8-K
|
10.2
|
12/28/2017
|
|
|
21.1
|
|
|
|
|
*
|
|
23.1
|
|
|
|
|
*
|
|
24.1
|
|
Power of Attorney (included on signature page)
|
|
|
|
|
31.1
|
|
|
|
|
*
|
|
31.2
|
|
|
|
|
*
|
|
|
|
Incorporated by Reference
|
|
||
Exhibit No.
|
|
Exhibit Description
|
Form
|
Exhibit
|
Filing Date
|
|
32.1
|
|
|
|
|
#
|
|
101.INS
|
|
XBRL Instance Document.
|
|
|
|
*
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
|
|
|
*
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
|
*
|
101.DEF
|
|
XBRL Extension Definition Linkbase Document.
|
|
|
|
*
|
101.LAB
|
|
XBRL Taxonomy Label Linkbase Document.
|
|
|
|
*
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
*
|
Item 16.
|
Form 10-K Summary.
|
|
|
Switch, Inc.
(Registrant)
|
|
|
|
Date:
|
April 2, 2018
|
/s/ Gabe Nacht
|
|
|
Gabe Nacht
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
Date:
|
April 2, 2018
|
/s/ Rob Roy
|
|
|
Rob Roy
Chief Executive Officer and Chairman of the Board of Directors
(Principal Executive Officer)
|
|
|
|
Date:
|
April 2, 2018
|
/s/ Gabe Nacht
|
|
|
Gabe Nacht
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
Date:
|
April 2, 2018
|
/s/ Donald D. Snyder
|
|
|
Donald D. Snyder
Director
|
|
|
|
Date:
|
April 2, 2018
|
/s/ Tom Thomas
|
|
|
Tom Thomas
Director
|
|
|
|
Date:
|
April 2, 2018
|
/s/ Bryan Wolf
|
|
|
Bryan Wolf
Director
|
|
|
|
Date:
|
April 2, 2018
|
/s/ Zareh Sarrafian
|
|
|
Zareh Sarrafian
Director
|
|
|
|
Date:
|
April 2, 2018
|
/s/ Kimberly Sheehy
|
|
|
Kimberly Sheehy
Director
|
1 Year Switch Chart |
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