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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 |
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Switch, Inc.
(Exact name of registrant as specified in its charter)
|
Nevada
(State or other jurisdiction of
incorporation or organization)
|
82-1883953
(IRS Employer
Identification No.)
|
7135 S. Decatur Boulevard
Las Vegas, NV
(Address of principal executive offices)
|
89118
(Zip Code)
|
Large accelerated filer
o
|
Accelerated filer
o
|
|
|
Non-accelerated filer
þ
|
Smaller reporting company
o
|
|
|
|
Emerging growth company
þ
|
Part I.
|
|
|
Item 1.
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
|
|
|
Part II.
|
|
|
Item 1.
|
||
Item 1A.
|
||
Item 6.
|
||
•
|
“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.
|
•
|
“Members” refer to the Founder Members, Non-Founder Members and Former Incentive Unit Holders.
|
•
|
“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-Q, “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.
|
•
|
“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-Q, “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.
|
•
|
“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”).
|
•
|
“Common Units” refer to the single class of issued common membership interests of Switch, Ltd.
|
•
|
“Switch Operating Agreement” refers to the Fifth Amended and Restated Operating Agreement of Switch, Ltd.
|
Part I.
|
Financial Information
|
Item 1.
|
Financial Statements (Unaudited).
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(Unaudited)
|
||||||||||||||
Revenue
|
$
|
102,768
|
|
|
$
|
97,689
|
|
|
$
|
302,646
|
|
|
$
|
278,947
|
|
Cost of revenue
|
59,150
|
|
|
50,744
|
|
|
169,200
|
|
|
144,575
|
|
||||
Gross profit
|
43,618
|
|
|
46,945
|
|
|
133,446
|
|
|
134,372
|
|
||||
Selling, general and administrative expense
|
31,086
|
|
|
21,494
|
|
|
95,676
|
|
|
60,941
|
|
||||
Income from operations
|
12,532
|
|
|
25,451
|
|
|
37,770
|
|
|
73,431
|
|
||||
Other income (expense):
|
|
|
|
|
|
|
|
||||||||
Interest expense, including $409, $403, $1,227, and $901, respectively, in amortization of debt issuance costs
|
(7,409
|
)
|
|
(8,856
|
)
|
|
(19,826
|
)
|
|
(17,789
|
)
|
||||
Equity in net losses of investments
|
—
|
|
|
(221
|
)
|
|
(331
|
)
|
|
(955
|
)
|
||||
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,565
|
)
|
||||
Other
|
752
|
|
|
112
|
|
|
2,603
|
|
|
644
|
|
||||
Total other expense
|
(6,657
|
)
|
|
(8,965
|
)
|
|
(17,554
|
)
|
|
(21,665
|
)
|
||||
Income before income taxes
|
5,875
|
|
|
16,486
|
|
|
20,216
|
|
|
51,766
|
|
||||
Income tax expense
|
(1,212
|
)
|
|
—
|
|
|
(2,064
|
)
|
|
—
|
|
||||
Net income
|
4,663
|
|
|
16,486
|
|
|
18,152
|
|
|
51,766
|
|
||||
Less: net income attributable to non-controlling interest
|
4,657
|
|
|
—
|
|
|
16,654
|
|
|
—
|
|
||||
Net income attributable to Switch, Inc.
|
$
|
6
|
|
|
$
|
16,486
|
|
|
$
|
1,498
|
|
|
$
|
51,766
|
|
|
|
|
|
|
|
|
|
||||||||
Net income per share/unit (
Note 11
):
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
0.00
|
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.26
|
|
Diluted
|
$
|
0.00
|
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
||||||||
Weighted average shares/units used in computing net income per share/unit (
Note 11
):
|
|
|
|
|
|
|
|
||||||||
Basic
|
50,669
|
|
|
200,747
|
|
|
43,063
|
|
|
200,416
|
|
||||
Diluted
|
50,710
|
|
|
208,973
|
|
|
43,142
|
|
|
207,396
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Dividends declared per common share
|
$
|
0.01
|
|
|
$
|
—
|
|
|
$
|
0.04
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
||||||||
Other comprehensive income:
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustment, before and after tax
|
—
|
|
|
221
|
|
|
331
|
|
|
786
|
|
||||
Comprehensive income
|
4,663
|
|
|
16,707
|
|
|
18,483
|
|
|
52,552
|
|
||||
Less: comprehensive income attributable to non-controlling interest
|
4,657
|
|
|
—
|
|
|
16,937
|
|
|
—
|
|
||||
Comprehensive income attributable to Switch, Inc.
|
$
|
6
|
|
|
$
|
16,707
|
|
|
$
|
1,546
|
|
|
$
|
52,552
|
|
|
Switch, Inc. Stockholders’ Equity
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Class A Common Stock
|
|
Class B Common Stock
|
|
Class C Common Stock
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Additional Paid in Capital
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income
|
|
Non-controlling Interest
|
|
Total Stockholders’ Equity
|
|||||||||||||||||||||||||||
Balance—December 31, 2017
|
35,938
|
|
|
$
|
36
|
|
|
173,624
|
|
|
$
|
174
|
|
|
42,945
|
|
|
$
|
43
|
|
|
$
|
107,008
|
|
|
$
|
1,602
|
|
|
$
|
31
|
|
|
$
|
633,239
|
|
|
$
|
742,133
|
|
||||||||
Net income
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
1,498
|
|
—
|
|
—
|
|
|
16,654
|
|
|
18,152
|
|
||||||||
Distributions to non-controlling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
(8,853
|
)
|
|
(8,853
|
)
|
||||||||
Dividends declared
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,119
|
)
|
|
—
|
|
|
—
|
|
|
(2,119
|
)
|
||||||||||||||||
Equity-based compensation expense
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
10,060
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
18,134
|
|
|
28,194
|
|
||||||||
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax
|
131
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1,227
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
(1,227
|
)
|
||||||||
Issuance of restricted stock awards
|
61
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Exchanges of non-controlling interest for Class A common stock
|
15,953
|
|
—
|
|
16
|
|
—
|
|
(15,953
|
)
|
—
|
|
(16
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
45,142
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
(45,142
|
)
|
|
—
|
|
||||||||
Repurchase of common units and cancellation of Class B common stock
|
—
|
|
|
—
|
|
|
(6,055
|
)
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
(9,085
|
)
|
|
—
|
|
|
—
|
|
|
(51,553
|
)
|
|
(60,644
|
)
|
||||||||||||||||
Recognition of tax receivable agreement liability resulting from exchanges of non-controlling interest for Class A common stock
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(45,430
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
(45,430
|
)
|
||||||||
Net deferred tax assets resulting from exchanges of non-controlling interest for Class A common stock
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
21,937
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
21,937
|
|
||||||||
Settlement of option loans
|
—
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
63
|
|
|
—
|
|
—
|
|
—
|
|
|
251
|
|
|
314
|
|
||||||||||||||
Foreign currency translation adjustment
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
48
|
|
|
283
|
|
|
331
|
|
||||||||
Balance—September 30, 2018
|
52,083
|
|
|
$
|
52
|
|
|
151,616
|
|
|
$
|
152
|
|
|
42,945
|
|
|
$
|
43
|
|
|
$
|
128,468
|
|
|
$
|
981
|
|
|
$
|
79
|
|
|
$
|
563,013
|
|
|
$
|
692,788
|
|
|
Nine Months Ended
September 30, |
||||||
|
2018
|
|
2017
|
||||
|
(Unaudited)
|
||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
||||
Net income
|
$
|
18,152
|
|
|
$
|
51,766
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and amortization of property and equipment
|
79,310
|
|
|
64,676
|
|
||
Loss on disposal of property and equipment
|
809
|
|
|
24
|
|
||
Income tax expense
|
2,064
|
|
|
—
|
|
||
Amortization of debt issuance costs
|
1,227
|
|
|
901
|
|
||
Bad debt expense
|
83
|
|
|
172
|
|
||
Loss on extinguishment of debt
|
—
|
|
|
2,065
|
|
||
Equity in net losses of investments
|
331
|
|
|
955
|
|
||
Equity-based compensation
|
28,194
|
|
|
4,879
|
|
||
Amortization of portfolio energy credits
|
1,999
|
|
|
64
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
||||
Accounts receivable
|
1,501
|
|
|
(3,363
|
)
|
||
Prepaid expenses
|
1,105
|
|
|
(166
|
)
|
||
Other current assets
|
(190
|
)
|
|
(124
|
)
|
||
Other assets
|
(3,108
|
)
|
|
(748
|
)
|
||
Accounts payable
|
938
|
|
|
1,840
|
|
||
Accrued salaries and benefits
|
4,760
|
|
|
4,743
|
|
||
Accrued expenses
|
2,871
|
|
|
(121
|
)
|
||
Accrued impact fee expense
|
—
|
|
|
(27,018
|
)
|
||
Deferred revenue
|
(31
|
)
|
|
4,333
|
|
||
Customer deposits
|
1,070
|
|
|
1,000
|
|
||
Other long-term liabilities
|
(170
|
)
|
|
(89
|
)
|
||
Net cash provided by operating activities
|
140,915
|
|
|
105,789
|
|
||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
||||
Acquisition of property and equipment
|
(221,144
|
)
|
|
(284,011
|
)
|
||
Acquisition of intangible asset
|
(25
|
)
|
|
(32
|
)
|
||
Escrow deposit
|
—
|
|
|
(7,632
|
)
|
||
Proceeds from sale of property and equipment
|
25
|
|
|
100
|
|
||
Proceeds from notes receivable
|
—
|
|
|
211
|
|
||
Purchase of portfolio energy credits
|
(1,999
|
)
|
|
(64
|
)
|
||
Net cash used in investing activities
|
(223,143
|
)
|
|
(291,428
|
)
|
||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
||||
Payment of tax withholdings upon settlement of restricted stock unit awards
|
(1,227
|
)
|
|
—
|
|
||
Repurchase of common units
|
(60,644
|
)
|
|
—
|
|
||
Proceeds from borrowings
|
—
|
|
|
976,000
|
|
||
Change in long-term deposit
|
(996
|
)
|
|
—
|
|
||
Repayment of borrowings, including capital lease obligations
|
(4,500
|
)
|
|
(621,300
|
)
|
||
Debt issuance costs on new loan
|
—
|
|
|
(8,826
|
)
|
||
Deferred offering costs paid
|
—
|
|
|
(893
|
)
|
||
Settlement of option loans
|
314
|
|
|
—
|
|
||
Dividends paid to Class A common stockholders
|
(2,023
|
)
|
|
—
|
|
||
Distributions paid to non-controlling interest/members
|
(8,851
|
)
|
|
(174,063
|
)
|
||
Net cash (used in) provided by financing activities
|
(77,927
|
)
|
|
170,918
|
|
||
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
(160,155
|
)
|
|
(14,721
|
)
|
||
CASH AND CASH EQUIVALENTS
—
Beginning of period
|
264,666
|
|
|
22,713
|
|
||
CASH AND CASH EQUIVALENTS
—
End of period
|
$
|
104,511
|
|
|
$
|
7,992
|
|
|
Nine Months Ended
September 30, |
||||||
|
2018
|
|
2017
|
||||
|
(Unaudited)
|
||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
||||
Cash paid for interest, net of amounts capitalized
|
$
|
18,523
|
|
|
$
|
16,843
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
|
|
|
|
||||
Increase (decrease) in liabilities incurred to acquire property and equipment
|
$
|
12,896
|
|
|
$
|
(19,412
|
)
|
Settlement of liability incurred upon acquisition of capital lease asset
|
$
|
(1,976
|
)
|
|
$
|
—
|
|
Dividends payable on unvested restricted stock units
|
$
|
96
|
|
|
$
|
—
|
|
Distributions used for payment of option loans and related interest
|
$
|
2
|
|
|
$
|
172
|
|
Decrease in non-controlling interest as a result of exchanges for Class A common stock
|
$
|
(45,142
|
)
|
|
$
|
—
|
|
Recognition of liabilities under tax receivable agreement
|
$
|
45,430
|
|
|
$
|
—
|
|
Increase in deferred tax asset as a result of exchanges for Class A common stock
|
$
|
21,937
|
|
|
$
|
—
|
|
Increase in liabilities incurred related to deferred offering costs
|
$
|
—
|
|
|
$
|
3,237
|
|
Distributions declared but not paid
|
$
|
—
|
|
|
$
|
6,219
|
|
Reimbursement of costs in property and equipment related to substation agreement
|
$
|
—
|
|
|
$
|
1,235
|
|
Reimbursement of costs in long-term deposits related to substation agreement
|
$
|
—
|
|
|
$
|
178
|
|
|
September 30,
2018 |
|
December 31,
2017 |
||||
|
(in thousands)
|
||||||
Land and land improvements
|
$
|
180,440
|
|
|
$
|
151,286
|
|
Data center equipment
|
875,386
|
|
|
763,790
|
|
||
Capitalized leased assets
|
33,975
|
|
|
35,974
|
|
||
Buildings, building improvements and leasehold improvements
|
381,323
|
|
|
338,763
|
|
||
Substation equipment
|
4,247
|
|
|
4,247
|
|
||
Cloud computing equipment
|
5,661
|
|
|
5,661
|
|
||
Fiber facilities
|
8,850
|
|
|
8,459
|
|
||
Computer equipment, furniture and fixtures
|
34,001
|
|
|
30,745
|
|
||
Vehicles
|
1,685
|
|
|
1,573
|
|
||
Construction in progress
|
153,552
|
|
|
110,559
|
|
||
Core network equipment
|
33,949
|
|
|
31,472
|
|
||
Deferred installation charges
|
—
|
|
|
4,436
|
|
||
Property and equipment, gross
|
1,713,069
|
|
|
1,486,965
|
|
||
Less: accumulated depreciation and amortization
|
(432,012
|
)
|
|
(353,393
|
)
|
||
Total property and equipment, net
|
$
|
1,281,057
|
|
|
$
|
1,133,572
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Cost of revenue
|
$
|
28,327
|
|
|
$
|
22,489
|
|
|
$
|
77,448
|
|
|
$
|
63,647
|
|
Selling, general and administrative expense
|
662
|
|
|
401
|
|
|
1,862
|
|
|
1,029
|
|
||||
Total depreciation and amortization of property and equipment
|
$
|
28,989
|
|
|
$
|
22,890
|
|
|
$
|
79,310
|
|
|
$
|
64,676
|
|
|
Number of Unvested Common Units Outstanding
(in thousands)
|
|
Weighted Average Grant Date Fair Value per Common Unit
|
|||
Unvested Common Unit awards outstanding—December 31, 2017
|
4,783
|
|
|
$
|
11.11
|
|
Common Unit awards vested
|
(598
|
)
|
|
$
|
11.11
|
|
Unvested Common Unit awards outstanding—September 30, 2018
|
4,185
|
|
|
$
|
11.11
|
|
|
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, 2017
|
5,725
|
|
|
$
|
17.00
|
|
|
9.77
|
|
$
|
6,813
|
|
Stock options expired
|
(409
|
)
|
|
$
|
17.00
|
|
|
|
|
|
||
Stock options outstanding—September 30, 2018
|
5,316
|
|
|
$
|
17.00
|
|
|
8.94
|
|
$
|
—
|
|
Stock options vested and exercisable—December 31, 2017
|
5,626
|
|
|
$
|
17.00
|
|
|
9.77
|
|
$
|
6,695
|
|
Stock options vested and exercisable—September 30, 2018
|
5,217
|
|
|
$
|
17.00
|
|
|
8.93
|
|
$
|
—
|
|
(1)
|
The intrinsic value is calculated as the difference between the fair value of the stock option on
September 30, 2018
and
December 31, 2017
and the exercise price of the stock option. There is no intrinsic value of options outstanding and vested and exercisable as of
September 30, 2018
as the closing stock price creates a negative intrinsic value.
|
|
Number of Units
(in thousands)
|
|
Weighted Average Grant Date Fair Value per Unit
|
|||
RSUs outstanding—December 31, 2017
|
31
|
|
|
$
|
18.01
|
|
RSUs granted
|
2,540
|
|
|
$
|
16.78
|
|
RSUs vested
|
(189
|
)
|
|
$
|
15.51
|
|
RSUs forfeited
|
(130
|
)
|
|
$
|
16.93
|
|
RSUs outstanding—September 30, 2018
|
2,252
|
|
|
$
|
16.89
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Cost of revenue
|
$
|
358
|
|
|
$
|
50
|
|
|
$
|
1,141
|
|
|
$
|
148
|
|
Selling, general and administrative expense
|
7,270
|
|
|
1,265
|
|
|
27,053
|
|
|
4,731
|
|
||||
Total equity-based compensation expense
|
$
|
7,628
|
|
|
$
|
1,315
|
|
|
$
|
28,194
|
|
|
$
|
4,879
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
||||||||
|
|
Units
|
|
Ownership %
|
|
Units
|
|
Ownership %
|
||||
|
|
(units in thousands)
|
||||||||||
Switch, Inc.’s ownership of Common Units
(1)
|
|
52,022
|
|
|
21.5
|
%
|
|
35,938
|
|
|
14.5
|
%
|
Non-controlling interest holders’ ownership of Common Units
(2)
|
|
190,375
|
|
|
78.5
|
%
|
|
211,675
|
|
|
85.5
|
%
|
Total Common Units
|
|
242,397
|
|
|
100.0
|
%
|
|
247,613
|
|
|
100.0
|
%
|
(1)
|
Common Units held by Switch, Inc. as of
September 30, 2018
exclude
61,000
Common Units underlying unvested RSAs.
|
(2)
|
Common Units held by non-controlling interest holders as of
September 30, 2018
exclude
4.2 million
unvested Common Unit awards. Common Units held by non-controlling interest holders as of
December 31, 2017
exclude
4.8 million
unvested Common Unit awards and
110,000
vested and exercisable unit options.
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands, except per share/unit data)
|
||||||||||||||
Net income per share/unit:
|
|
|
|
|
|
|
|
||||||||
Numerator—basic and diluted:
|
|
|
|
|
|
|
|
||||||||
Net income attributable to Switch, Inc.—basic and diluted
|
$
|
6
|
|
|
$
|
16,486
|
|
|
$
|
1,498
|
|
|
$
|
51,766
|
|
Denominator—basic:
|
|
|
|
|
|
|
|
||||||||
Weighted average shares/units outstanding—basic
(1)
|
50,669
|
|
|
200,747
|
|
|
43,063
|
|
|
200,416
|
|
||||
Net income per share/unit—basic
|
$
|
0.00
|
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.26
|
|
Denominator—diluted:
|
|
|
|
|
|
|
|
||||||||
Weighted average shares/units outstanding—basic
(1)
|
50,669
|
|
|
200,747
|
|
|
43,063
|
|
|
200,416
|
|
||||
Weighted average effect of dilutive securities:
|
|
|
|
|
|
|
|
||||||||
Unit options
|
25
|
|
|
88
|
|
|
67
|
|
|
114
|
|
||||
Unvested incentive unit awards
|
—
|
|
|
8,138
|
|
|
—
|
|
|
6,866
|
|
||||
DEUs
|
9
|
|
|
—
|
|
|
5
|
|
|
—
|
|
||||
RSAs
|
7
|
|
|
—
|
|
|
7
|
|
|
—
|
|
||||
Weighted average shares/units outstanding—diluted
(1)
|
50,710
|
|
|
208,973
|
|
|
43,142
|
|
|
207,396
|
|
||||
Net income per share/unit—diluted
|
$
|
0.00
|
|
|
$
|
0.08
|
|
|
$
|
0.03
|
|
|
$
|
0.25
|
|
(1)
|
Amounts for the
three and nine months ended September 30, 2018
represent shares of Class A common stock. Amounts for the
three and nine months ended September 30, 2017
represent Common Units.
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
|
(in thousands)
|
||||||||||
Weighted average unvested incentive units
|
—
|
|
|
—
|
|
|
—
|
|
|
163,817
|
|
Stock options
(1)
|
5,316
|
|
|
—
|
|
|
5,316
|
|
|
—
|
|
RSUs
(1)
|
2,252
|
|
|
—
|
|
|
2,242
|
|
|
—
|
|
Shares of Class B and Class C common stock
(2)
|
194,561
|
|
|
—
|
|
|
194,561
|
|
|
—
|
|
(1)
|
Represents the number of instruments outstanding at the end of the period. Application of the treasury stock method would reduce this amount if they had a dilutive effect and were included in the computation of diluted net income per share.
|
(2)
|
Shares of Class B 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.
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Colocation
|
$
|
82,445
|
|
|
$
|
79,429
|
|
|
$
|
241,314
|
|
|
$
|
225,753
|
|
Connectivity
|
18,482
|
|
|
17,111
|
|
|
55,566
|
|
|
49,201
|
|
||||
Other
|
1,841
|
|
|
1,149
|
|
|
5,766
|
|
|
3,993
|
|
||||
Revenue
|
$
|
102,768
|
|
|
$
|
97,689
|
|
|
$
|
302,646
|
|
|
$
|
278,947
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
•
|
our goals and strategies;
|
•
|
our expansion plans;
|
•
|
our future business development, financial condition and results of operations;
|
•
|
our plans regarding our Common Unit repurchase program;
|
•
|
the expected growth of the data center market;
|
•
|
our expectations regarding opportunities to grow penetration of existing customers and attract new customers;
|
•
|
our expectations regarding our revenue streams and drivers of future revenue;
|
•
|
our expectations regarding increases in expense;
|
•
|
our beliefs regarding the sufficiency of our cash and access to liquidity, and cash generated from operating activities, to satisfy our working capital and capital expenditures for at least the next 12 months;
|
•
|
our intentions regarding sources of financing for our operations and capital expenditures;
|
•
|
the network effects associated with our business;
|
•
|
our plans to further invest in and grow our business, and our ability to effectively manage our growth and associated investments;
|
•
|
our ability to timely and effectively scale and adapt our existing technology;
|
•
|
our ability to successfully enter new markets;
|
•
|
our beliefs regarding our ability to achieve reduced variability of power costs as an unbundled purchaser of energy;
|
•
|
our ability to defend against securities class actions that have been filed against us;
|
•
|
our ability to maintain, protect and enhance our intellectual property and not infringe upon others’ intellectual property;
|
•
|
our beliefs regarding the effectiveness of efforts to improve our internal control over financial reporting; and
|
•
|
our realization of any benefit from our Tax Receivable Agreement and expectations regarding payments thereunder.
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
|
(dollars in thousands)
|
||||||||||||||
Recurring revenue
|
|
$
|
100,306
|
|
|
$
|
95,771
|
|
|
$
|
294,875
|
|
|
$
|
272,978
|
|
Capital expenditures
|
|
$
|
60,371
|
|
|
$
|
64,095
|
|
|
$
|
221,144
|
|
|
$
|
284,011
|
|
Adjusted EBITDA
|
|
$
|
50,892
|
|
|
$
|
49,738
|
|
|
$
|
148,069
|
|
|
$
|
143,618
|
|
Adjusted EBITDA margin
|
|
49.5
|
%
|
|
50.9
|
%
|
|
48.9
|
%
|
|
51.5
|
%
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
|
(in thousands)
|
||||||||||||||
Recurring revenue
|
|
$
|
100,306
|
|
|
$
|
95,771
|
|
|
$
|
294,875
|
|
|
$
|
272,978
|
|
Non-recurring revenue
|
|
2,462
|
|
|
1,918
|
|
|
7,771
|
|
|
5,969
|
|
||||
Revenue
|
|
$
|
102,768
|
|
|
$
|
97,689
|
|
|
$
|
302,646
|
|
|
$
|
278,947
|
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
|
(in thousands)
|
||||||||||||||
Net income
|
|
$
|
4,663
|
|
|
$
|
16,486
|
|
|
$
|
18,152
|
|
|
$
|
51,766
|
|
Interest expense
|
|
7,409
|
|
|
8,856
|
|
|
19,826
|
|
|
17,789
|
|
||||
Interest income
(1)
|
|
(575
|
)
|
|
(17
|
)
|
|
(2,001
|
)
|
|
(36
|
)
|
||||
Income tax expense
|
|
1,212
|
|
|
—
|
|
|
2,064
|
|
|
—
|
|
||||
Depreciation and amortization of property and equipment
|
|
28,989
|
|
|
22,890
|
|
|
79,310
|
|
|
64,676
|
|
||||
Loss (gain) on disposal of property and equipment
|
|
182
|
|
|
(13
|
)
|
|
809
|
|
|
24
|
|
||||
Equity-based compensation
|
|
7,628
|
|
|
1,315
|
|
|
28,194
|
|
|
4,879
|
|
||||
Equity in net losses of investments
|
|
—
|
|
|
221
|
|
|
331
|
|
|
955
|
|
||||
Shareholder-related litigation expense
|
|
1,384
|
|
|
—
|
|
|
1,384
|
|
|
—
|
|
||||
Loss on extinguishment of debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,565
|
|
||||
Adjusted EBITDA
|
|
$
|
50,892
|
|
|
$
|
49,738
|
|
|
$
|
148,069
|
|
|
$
|
143,618
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||||||
|
(in thousands)
|
||||||||||||||
Consolidated Statements of Income Data
(1)
:
|
|
|
|
|
|
|
|
||||||||
Revenue
|
$
|
102,768
|
|
|
$
|
97,689
|
|
|
$
|
302,646
|
|
|
$
|
278,947
|
|
Cost of revenue
|
59,150
|
|
|
50,744
|
|
|
169,200
|
|
|
144,575
|
|
||||
Gross profit
|
43,618
|
|
|
46,945
|
|
|
133,446
|
|
|
134,372
|
|
||||
Selling, general and administrative expense
|
31,086
|
|
|
21,494
|
|
|
95,676
|
|
|
60,941
|
|
||||
Income from operations
|
12,532
|
|
|
25,451
|
|
|
37,770
|
|
|
73,431
|
|
||||
Other income (expense):
|
|
|
|
|
|
|
|
||||||||
Interest expense, including amortization of debt issuance costs
|
(7,409
|
)
|
|
(8,856
|
)
|
|
(19,826
|
)
|
|
(17,789
|
)
|
||||
Equity in net losses of investments
|
—
|
|
|
(221
|
)
|
|
(331
|
)
|
|
(955
|
)
|
||||
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,565
|
)
|
||||
Other
|
752
|
|
|
112
|
|
|
2,603
|
|
|
644
|
|
||||
Total other expense
|
(6,657
|
)
|
|
(8,965
|
)
|
|
(17,554
|
)
|
|
(21,665
|
)
|
||||
Income before income taxes
|
5,875
|
|
|
16,486
|
|
|
20,216
|
|
|
51,766
|
|
||||
Income tax expense
|
(1,212
|
)
|
|
—
|
|
|
(2,064
|
)
|
|
—
|
|
||||
Net income
|
4,663
|
|
|
16,486
|
|
|
18,152
|
|
|
51,766
|
|
||||
Less: net income attributable to non-controlling interest
|
4,657
|
|
|
—
|
|
|
16,654
|
|
|
—
|
|
||||
Net income attributable to Switch, Inc.
|
$
|
6
|
|
|
$
|
16,486
|
|
|
$
|
1,498
|
|
|
$
|
51,766
|
|
(1)
|
Switch, Ltd. and its subsidiaries is our predecessor for accounting purposes and, accordingly, amounts for the period from January 1, 2017 through
September 30, 2017
represent the historical consolidated operations of Switch, Ltd. and its subsidiaries.
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||
|
2018
|
|
2017
|
|
2018
|
|
2017
|
||||
Consolidated Statements of Income Data:
|
|
|
|
|
|
|
|
||||
Revenue
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Cost of revenue
|
58
|
|
|
52
|
|
|
56
|
|
|
52
|
|
Gross profit
|
42
|
|
|
48
|
|
|
44
|
|
|
48
|
|
Selling, general and administrative expense
|
30
|
|
|
22
|
|
|
32
|
|
|
22
|
|
Income from operations
|
12
|
|
|
26
|
|
|
12
|
|
|
26
|
|
Other income (expense):
|
|
|
|
|
|
|
|
||||
Interest expense, including amortization of debt issuance costs
|
(7
|
)
|
|
(9
|
)
|
|
(7
|
)
|
|
(6
|
)
|
Equity in net losses of investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loss on extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Other
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Total other expense
|
(6
|
)
|
|
(9
|
)
|
|
(6
|
)
|
|
(8
|
)
|
Income before income taxes
|
6
|
|
|
17
|
|
|
7
|
|
|
19
|
|
Income tax expense
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
Net income
|
5
|
|
|
17
|
|
|
6
|
|
|
19
|
|
Less: net income attributable to non-controlling interest
|
5
|
|
|
—
|
|
|
6
|
|
|
—
|
|
Net income attributable to Switch, Inc.
|
—
|
%
|
|
17
|
%
|
|
—
|
%
|
|
19
|
%
|
|
Three Months Ended
September 30, |
|
Change
|
|||||||||||
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Colocation
|
$
|
82,445
|
|
|
$
|
79,429
|
|
|
$
|
3,016
|
|
|
4
|
%
|
Connectivity
|
18,482
|
|
|
17,111
|
|
|
1,371
|
|
|
8
|
%
|
|||
Other
|
1,841
|
|
|
1,149
|
|
|
692
|
|
|
60
|
%
|
|||
Revenue
|
$
|
102,768
|
|
|
$
|
97,689
|
|
|
$
|
5,079
|
|
|
5
|
%
|
|
Three Months Ended
September 30, |
|
Change
|
|||||||||||
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Selling, general and administrative expense
|
$
|
31,086
|
|
|
$
|
21,494
|
|
|
$
|
9,592
|
|
|
45
|
%
|
|
Three Months Ended
September 30, |
|
Change
|
|||||||||||
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Other income (expense):
|
|
|
|
|
|
|
|
|||||||
Interest expense
|
$
|
(7,409
|
)
|
|
$
|
(8,856
|
)
|
|
$
|
1,447
|
|
|
(16
|
)%
|
Equity in net losses of investments
|
—
|
|
|
(221
|
)
|
|
221
|
|
|
(100
|
)%
|
|||
Other
|
752
|
|
|
112
|
|
|
640
|
|
|
571
|
%
|
|||
Total other expense
|
$
|
(6,657
|
)
|
|
$
|
(8,965
|
)
|
|
$
|
2,308
|
|
|
(26
|
)%
|
|
Three Months Ended
September 30, |
|
Change
|
||||||||||
|
2018
|
|
2017
|
|
Amount
|
|
%
|
||||||
|
(dollars in thousands)
|
||||||||||||
Net income attributable to non-controlling interest
|
$
|
4,657
|
|
|
$
|
—
|
|
|
$
|
4,657
|
|
|
NM
|
|
Nine Months Ended
September 30, |
|
Change
|
|||||||||||
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Selling, general and administrative expense
|
$
|
95,676
|
|
|
$
|
60,941
|
|
|
$
|
34,735
|
|
|
57
|
%
|
|
Nine Months Ended
September 30, |
|
Change
|
|||||||||||
|
2018
|
|
2017
|
|
Amount
|
|
%
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Other income (expense):
|
|
|
|
|
|
|
|
|||||||
Interest expense
|
$
|
(19,826
|
)
|
|
$
|
(17,789
|
)
|
|
$
|
(2,037
|
)
|
|
11
|
%
|
Equity in net losses of investments
|
(331
|
)
|
|
(955
|
)
|
|
624
|
|
|
(65
|
)%
|
|||
Loss on extinguishment of debt
|
—
|
|
|
(3,565
|
)
|
|
3,565
|
|
|
(100
|
)%
|
|||
Other
|
2,603
|
|
|
644
|
|
|
1,959
|
|
|
304
|
%
|
|||
Total other expense
|
$
|
(17,554
|
)
|
|
$
|
(21,665
|
)
|
|
$
|
4,111
|
|
|
(19
|
)%
|
|
Nine Months Ended
September 30, |
|
Change
|
||||||||||
|
2018
|
|
2017
|
|
Amount
|
|
%
|
||||||
|
(dollars in thousands)
|
||||||||||||
Net income attributable to non-controlling interest
|
$
|
16,654
|
|
|
$
|
—
|
|
|
$
|
16,654
|
|
|
NM
|
|
Nine Months Ended
September 30, |
||||||
|
2018
|
|
2017
|
||||
|
(in thousands)
|
||||||
Net cash provided by operating activities
|
$
|
140,915
|
|
|
$
|
105,789
|
|
Net cash used in investing activities
|
(223,143
|
)
|
|
(291,428
|
)
|
||
Net cash (used in) provided by financing activities
|
(77,927
|
)
|
|
170,918
|
|
||
Net decrease in cash and cash equivalents
|
$
|
(160,155
|
)
|
|
$
|
(14,721
|
)
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
Part II.
|
Other Information
|
Item 1.
|
Legal Proceedings.
|
|
|
|
|
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
|
|
31.1
|
*
|
|
|
|
|
|
31.2
|
*
|
|
|
|
|
|
32.1
|
#
|
|
|
|
|
|
101.INS
|
*
|
XBRL Instance Document (submitted electronically herewith).
|
|
|
|
|
101.SCH
|
*
|
XBRL Taxonomy Extension Schema Document (submitted electronically herewith).
|
|
|
|
|
101.CAL
|
*
|
XBRL Taxonomy Extension Calculation Linkbase Document (submitted electronically herewith).
|
|
|
|
|
101.DEF
|
*
|
XBRL Extension Definition Linkbase Document (submitted electronically herewith).
|
|
|
|
|
101.LAB
|
*
|
XBRL Taxonomy Label Linkbase Document (submitted electronically herewith).
|
|
|
|
|
101.PRE
|
*
|
XBRL Taxonomy Extension Presentation Linkbase Document (submitted electronically herewith).
|
|
|
|
|
|
|
Switch, Inc.
(Registrant)
|
|
|
|
Date:
|
November 14, 2018
|
/s/ Gabe Nacht
|
|
|
Gabe Nacht
Chief Financial Officer
(Principal Financial and Accounting Officer and Duly Authorized Officer)
|
1 Year Switch Chart |
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