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 (Do not check if a smaller reporting company) | 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). |
June 30, 2018 | December 31, 2017 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | 184,004 | $ | 264,666 | |||
Accounts receivable, net of allowance of $310 and $472, respectively | 10,670 | 16,386 | |||||
Prepaid expenses | 3,975 | 5,037 | |||||
Other current assets | 6,085 | 2,101 | |||||
Total current assets | 204,734 | 288,190 | |||||
Property and equipment, net | 1,248,939 | 1,133,572 | |||||
Long term deposit | 4,712 | 3,842 | |||||
Other assets | 28,867 | 9,155 | |||||
TOTAL ASSETS | $ | 1,487,252 | $ | 1,434,759 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
CURRENT LIABILITIES: | |||||||
Long term debt, current portion | $ | 5,194 | $ | 5,194 | |||
Accounts payable | 18,090 | 18,934 | |||||
Accrued salaries and benefits | 8,425 | 5,211 | |||||
Accrued expenses | 7,881 | 6,469 | |||||
Accrued construction payables | 12,180 | 7,052 | |||||
Deferred revenue, current portion | 10,220 | 11,482 | |||||
Customer deposits | 9,396 | 8,634 | |||||
Capital lease obligations, current portion | 2,309 | 2,309 | |||||
Total current liabilities | 73,695 | 65,285 | |||||
Long term debt, net | 583,969 | 586,566 | |||||
Capital lease obligations | 19,466 | 19,466 | |||||
Deferred revenue | 19,965 | 19,382 | |||||
Liabilities under tax receivable agreement | 39,534 | — | |||||
Other long term liabilities | 1,877 | 1,927 | |||||
TOTAL LIABILITIES | 738,506 | 692,626 | |||||
Commitments and contingencies (Note 6) | |||||||
STOCKHOLDERS’ EQUITY: | |||||||
Preferred stock, $0.001 par value per share, 10,000 shares authorized, none issued and outstanding | — | — | |||||
Class A common stock, $0.001 par value per share, 750,000 shares authorized, 49,553 and 35,938 shares issued and outstanding, respectively | 50 | 36 | |||||
Class B common stock, $0.001 par value per share, 300,000 shares authorized, 160,200 and 173,624 shares issued and outstanding, respectively | 160 | 174 | |||||
Class C common stock, $0.001 par value per share, 75,000 shares authorized, 42,945 shares issued and outstanding | 43 | 43 | |||||
Additional paid in capital | 131,845 | 107,008 | |||||
Retained earnings | 1,774 | 1,602 | |||||
Accumulated other comprehensive income | 79 | 31 | |||||
Total Switch, Inc. stockholders’ equity | 133,951 | 108,894 | |||||
Non-controlling interest | 614,795 | 633,239 | |||||
TOTAL STOCKHOLDERS’ EQUITY | 748,746 | 742,133 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,487,252 | $ | 1,434,759 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(Unaudited) | |||||||||||||||
Revenue | $ | 102,161 | $ | 92,101 | $ | 199,878 | $ | 181,258 | |||||||
Cost of revenue | 55,194 | 48,456 | 110,050 | 93,831 | |||||||||||
Gross profit | 46,967 | 43,645 | 89,828 | 87,427 | |||||||||||
Selling, general and administrative expense | 31,139 | 20,104 | 64,590 | 39,447 | |||||||||||
Income from operations | 15,828 | 23,541 | 25,238 | 47,980 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense, including $409, $245, $818, and $498, respectively, in amortization of debt issuance costs | (6,144 | ) | (4,913 | ) | (12,417 | ) | (8,933 | ) | |||||||
Equity in net losses of investments | — | (293 | ) | (331 | ) | (734 | ) | ||||||||
Loss on extinguishment of debt | — | (3,565 | ) | — | (3,565 | ) | |||||||||
Other | 822 | 183 | 1,851 | 533 | |||||||||||
Total other expense | (5,322 | ) | (8,588 | ) | (10,897 | ) | (12,699 | ) | |||||||
Income before income taxes | 10,506 | 14,953 | 14,341 | 35,281 | |||||||||||
Income tax expense | (967 | ) | — | (852 | ) | — | |||||||||
Net income | 9,539 | 14,953 | 13,489 | 35,281 | |||||||||||
Less: net income attributable to non-controlling interest | 8,718 | — | 11,997 | — | |||||||||||
Net income attributable to Switch, Inc. | $ | 821 | $ | 14,953 | $ | 1,492 | $ | 35,281 | |||||||
Net income per share/unit (Note 11): | |||||||||||||||
Basic | $ | 0.02 | $ | 0.07 | $ | 0.04 | $ | 0.18 | |||||||
Diluted | $ | 0.02 | $ | 0.07 | $ | 0.04 | $ | 0.17 | |||||||
Weighted average shares/units used in computing net income per share/unit (Note 11): | |||||||||||||||
Basic | 42,358 | 200,644 | 39,197 | 200,247 | |||||||||||
Diluted | 42,463 | 207,642 | 39,296 | 206,605 | |||||||||||
Dividends declared per common share | $ | 0.03 | $ | — | $ | 0.03 | $ | — | |||||||
Other comprehensive income: | |||||||||||||||
Foreign currency translation adjustment, before and after tax | — | 293 | 331 | 565 | |||||||||||
Comprehensive income | 9,539 | 15,246 | 13,820 | 35,846 | |||||||||||
Less: comprehensive income attributable to non-controlling interest | 8,718 | — | 12,280 | — | |||||||||||
Comprehensive income attributable to Switch, Inc. | $ | 821 | $ | 15,246 | $ | 1,540 | $ | 35,846 |
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 | — | — | — | — | — | — | — | 1,492 | — | 11,997 | 13,489 | |||||||||||||||||||||||||||||
Distributions to non-controlling interest | — | — | — | — | — | — | — | — | — | (6,048 | ) | (6,048 | ) | |||||||||||||||||||||||||||
Dividends declared | — | — | — | — | — | — | — | (1,320 | ) | — | — | (1,320 | ) | |||||||||||||||||||||||||||
Equity-based compensation expense | — | — | — | — | — | — | 7,566 | — | — | 13,000 | 20,566 | |||||||||||||||||||||||||||||
Issuance of Class A common stock upon settlement of restricted stock unit awards, net of shares withheld for tax | 130 | — | — | — | — | — | (1,220 | ) | — | — | — | (1,220 | ) | |||||||||||||||||||||||||||
Issuance of restricted stock awards | 61 | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Exchanges of non-controlling interest for Class A common stock | 13,424 | 14 | (13,424 | ) | (14 | ) | — | — | 37,676 | — | — | (37,676 | ) | — | ||||||||||||||||||||||||||
Recognition of tax receivable agreement liability resulting from exchanges of non-controlling interest for Class A common stock | — | — | — | — | — | — | (39,534 | ) | — | — | — | (39,534 | ) | |||||||||||||||||||||||||||
Net deferred tax assets resulting from exchanges of non-controlling interest for Class A common stock | — | — | — | — | — | — | 20,349 | — | — | — | 20,349 | |||||||||||||||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | — | 48 | 283 | 331 | |||||||||||||||||||||||||||||
Balance—June 30, 2018 | 49,553 | $ | 50 | 160,200 | $ | 160 | 42,945 | $ | 43 | $ | 131,845 | $ | 1,774 | $ | 79 | $ | 614,795 | $ | 748,746 |
Six Months Ended June 30, | |||||||
2018 | 2017 | ||||||
(Unaudited) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 13,489 | $ | 35,281 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization of property and equipment | 50,321 | 41,786 | |||||
Loss on disposal of property and equipment | 627 | 37 | |||||
Income tax expense | 852 | — | |||||
Amortization of debt issuance costs | 818 | 498 | |||||
Bad debts | 92 | 5 | |||||
Loss on extinguishment of debt | — | 2,065 | |||||
Equity in net losses of investments | 331 | 734 | |||||
Equity-based compensation | 20,566 | 3,564 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 4,861 | (2,325 | ) | ||||
Prepaid expenses | 1,062 | 1,156 | |||||
Other current assets | (100 | ) | (788 | ) | |||
Other assets | (853 | ) | (423 | ) | |||
Accounts payable | (432 | ) | 2,496 | ||||
Accrued salaries and benefits | 3,214 | 3,125 | |||||
Accrued expenses | 1,412 | (652 | ) | ||||
Accrued impact fee expense | — | (27,018 | ) | ||||
Deferred revenue | (679 | ) | 8,833 | ||||
Customer deposits | 762 | 759 | |||||
Other long term liabilities | (112 | ) | (64 | ) | |||
Net cash provided by operating activities | 96,231 | 69,069 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Acquisition of property and equipment | (160,773 | ) | (219,916 | ) | |||
Acquisition of intangible asset | (25 | ) | (33 | ) | |||
Escrow deposit | (3,508 | ) | — | ||||
Proceeds from sale of property and equipment | — | 100 | |||||
Proceeds from notes receivable | — | 17 | |||||
Purchase of portfolio energy credits | (67 | ) | (64 | ) | |||
Net cash used in investing activities | (164,373 | ) | (219,896 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Payment of tax withholdings upon settlement of restricted stock unit awards | (1,220 | ) | — | ||||
Proceeds from borrowings | — | 976,000 | |||||
Change in long term deposit | (996 | ) | — | ||||
Repayment of borrowings, including capital lease obligations | (3,000 | ) | (619,800 | ) | |||
Debt issuance costs on new loan | — | (7,299 | ) | ||||
Deferred offering costs paid | — | (1 | ) | ||||
Dividends paid to Class A common stockholders | (1,258 | ) | — | ||||
Distributions paid to non-controlling interest/members | (6,046 | ) | (171,000 | ) | |||
Net cash (used in) provided by financing activities | (12,520 | ) | 177,900 | ||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (80,662 | ) | 27,073 | ||||
CASH AND CASH EQUIVALENTS—Beginning of period | 264,666 | 22,713 | |||||
CASH AND CASH EQUIVALENTS—End of period | $ | 184,004 | $ | 49,786 |
Six Months Ended June 30, | |||||||
2018 | 2017 | ||||||
(Unaudited) | |||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||
Cash paid for interest, net of amounts capitalized | $ | 11,618 | $ | 8,408 | |||
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION: | |||||||
Increase (decrease) in liabilities incurred to acquire property and equipment | $ | 5,542 | $ | (16,026 | ) | ||
Increase in liabilities incurred related to deferred offering costs | $ | — | $ | 1,691 | |||
Increase in liabilities incurred related to debt refinancing | $ | — | $ | 1,487 | |||
Dividends payable on unvested restricted stock units | $ | 62 | $ | — | |||
Distributions declared but not paid | $ | — | $ | 5,883 | |||
Distributions used for payment of option loans and related interest | $ | 2 | $ | 168 | |||
Decrease in non-controlling interest as a result of exchanges for Class A common stock | $ | (37,676 | ) | $ | — | ||
Recognition of liabilities under tax receivable agreement | $ | 39,534 | $ | — | |||
Increase in deferred tax asset as a result of exchanges for Class A common stock | $ | 20,349 | $ | — |
June 30, 2018 | December 31, 2017 | ||||||
(in thousands) | |||||||
Land and land improvements | $ | 170,512 | $ | 151,286 | |||
Data center equipment | 851,950 | 763,790 | |||||
Capitalized leased assets | 35,971 | 35,974 | |||||
Buildings, building improvements and leasehold improvements | 362,204 | 338,763 | |||||
Substation equipment | 4,247 | 4,247 | |||||
Cloud computing equipment | 5,661 | 5,661 | |||||
Fiber facilities | 8,803 | 8,459 | |||||
Computer equipment, furniture and fixtures | 33,276 | 30,745 | |||||
Vehicles | 1,685 | 1,573 | |||||
Construction in progress | 139,464 | 110,559 | |||||
Core network equipment | 33,396 | 31,472 | |||||
Deferred installation charges | 5,003 | 4,436 | |||||
Property and equipment, gross | 1,652,172 | 1,486,965 | |||||
Less: accumulated depreciation and amortization | (403,233 | ) | (353,393 | ) | |||
Total property and equipment, net | $ | 1,248,939 | $ | 1,133,572 |
Number of Nonvested 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 | (399 | ) | $ | 11.11 | ||
Unvested common unit awards outstanding—June 30, 2018 | 4,384 | $ | 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 forfeited | (123 | ) | $ | 17.00 | ||||||||
Stock options outstanding—June 30, 2018 | 5,602 | $ | 17.00 | 9.27 | $ | — | ||||||
Stock options vested and exercisable—December 31, 2017 | 5,626 | $ | 17.00 | 9.77 | $ | 6,695 | ||||||
Stock options vested and exercisable—June 30, 2018 | 5,503 | $ | 17.00 | 9.27 | $ | — |
(1) | The intrinsic value is calculated as the difference between the fair value of the stock option on June 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 June 30, 2018 as the closing stock price at the end of the second quarter of 2018 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 | 2,353 | $ | 17.01 | |||
RSUs vested | (187 | ) | $ | 15.49 | ||
RSUs forfeited | (68 | ) | $ | 17.16 | ||
RSUs outstanding—June 30, 2018 | 2,129 | $ | 17.16 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(in thousands) | |||||||||||||||
Cost of revenue | $ | 367 | $ | 49 | $ | 783 | $ | 99 | |||||||
Selling, general and administrative | 7,842 | 1,265 | 19,783 | 3,465 | |||||||||||
Total equity-based compensation expense | $ | 8,209 | $ | 1,314 | $ | 20,566 | $ | 3,564 |
June 30, 2018 | December 31, 2017 | |||||||||||
Units | Ownership % | Units | Ownership % | |||||||||
(units in thousands) | ||||||||||||
Switch, Inc.’s ownership of common units(1) | 49,381 | 19.9 | % | 35,938 | 14.5 | % | ||||||
Non-controlling interest holders’ ownership of common units(2) | 198,760 | 80.1 | % | 211,675 | 85.5 | % | ||||||
Total common units | 248,141 | 100.0 | % | 247,613 | 100.0 | % |
(1) | Common units held by Switch, Inc. as of June 30, 2018 exclude 110,000 of vested and exercisable unit options. |
(2) | Common units held by non-controlling interest holders as of June 30, 2018 exclude 4.4 million of unvested common unit awards. Common units held by non-controlling interest holders as of December 31, 2017 exclude 4.8 million of unvested common unit awards and 110,000 of vested and exercisable unit options. |
Three Months Ended June 30, | Six Months Ended June 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 | $ | 821 | $ | 14,953 | $ | 1,492 | $ | 35,281 | |||||||
Denominator—basic: | |||||||||||||||
Weighted average shares/units outstanding—basic(1) | 42,358 | 200,644 | 39,197 | 200,247 | |||||||||||
Net income per share/unit—basic | $ | 0.02 | $ | 0.07 | $ | 0.04 | $ | 0.18 | |||||||
Denominator—diluted: | |||||||||||||||
Weighted average shares/units outstanding—basic(1) | 42,358 | 200,644 | 39,197 | 200,247 | |||||||||||
Weighted average effect of dilutive securities: | |||||||||||||||
Options | 87 | 124 | 89 | 127 | |||||||||||
Unvested incentive unit awards | — | 6,874 | — | 6,231 | |||||||||||
RSUs | 1 | — | 1 | — | |||||||||||
DEUs | 5 | — | 3 | — | |||||||||||
RSAs | 12 | — | 6 | — | |||||||||||
Weighted average shares/units outstanding—diluted(1) | 42,463 | 207,642 | 39,296 | 206,605 | |||||||||||
Net income per share/unit—diluted | $ | 0.02 | $ | 0.07 | $ | 0.04 | $ | 0.17 |
(1) | Amounts for the three and six months ended June 30, 2018 represent shares of Class A common stock. Amounts for the three and six months ended June 30, 2017 represent common units. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||
2018 | 2018 | ||||
(in thousands) | |||||
Stock options(1) | 5,602 | 5,602 | |||
RSUs(1) | 2,118 | 2,118 | |||
Shares of Class B and Class C common stock(2) | 203,145 | 203,145 |
(1) | Represents the number of instruments outstanding at the end of the period. Application of the treasury stock method would reduce this amount if they had a dilutive effect and were included in the computation of diluted net income per share. |
(2) | Shares of Class B 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 June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(in thousands) | |||||||||||||||
Colocation | $ | 81,150 | $ | 74,346 | $ | 158,869 | $ | 146,325 | |||||||
Connectivity | 18,866 | 16,232 | 37,084 | 32,089 | |||||||||||
Other | 2,145 | 1,523 | 3,925 | 2,844 | |||||||||||
Revenue | $ | 102,161 | $ | 92,101 | $ | 199,878 | $ | 181,258 |
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 repurchase program; |
• | the expected growth of the data center market; |
• | our expectations regarding demand for, and market acceptance of, our services; |
• | our expectations regarding our customer growth rate; |
• | 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 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; and |
• | our realization of any benefit from the Tax Receivable Agreement and our organizational structure. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(dollars in thousands) | ||||||||||||||||
Recurring revenue | $ | 99,300 | $ | 89,904 | $ | 194,569 | $ | 177,213 | ||||||||
Capital expenditures | $ | 99,386 | $ | 112,901 | $ | 160,773 | $ | 219,916 | ||||||||
Adjusted EBITDA | $ | 50,283 | $ | 46,792 | $ | 97,176 | $ | 93,881 | ||||||||
Adjusted EBITDA margin | 49.2 | % | 50.8 | % | 48.6 | % | 51.8 | % |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(in thousands) | ||||||||||||||||
Recurring revenue | $ | 99,300 | $ | 89,904 | $ | 194,569 | $ | 177,213 | ||||||||
Non-recurring revenue | 2,861 | 2,197 | 5,309 | 4,045 | ||||||||||||
Revenue | $ | 102,161 | $ | 92,101 | $ | 199,878 | $ | 181,258 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(in thousands) | ||||||||||||||||
Net income | $ | 9,539 | $ | 14,953 | $ | 13,489 | $ | 35,281 | ||||||||
Interest expense | 6,144 | 4,913 | 12,417 | 8,933 | ||||||||||||
Interest income(1) | (707 | ) | (12 | ) | (1,427 | ) | (19 | ) | ||||||||
Income tax expense | 967 | — | 852 | — | ||||||||||||
Depreciation and amortization | 25,718 | 21,749 | 50,321 | 41,786 | ||||||||||||
Loss on disposal of property and equipment | 413 | 17 | 627 | 37 | ||||||||||||
Equity-based compensation | 8,209 | 1,314 | 20,566 | 3,564 | ||||||||||||
Equity in net losses of investments | — | 293 | 331 | 734 | ||||||||||||
Loss on extinguishment of debt | — | 3,565 | — | 3,565 | ||||||||||||
Adjusted EBITDA | $ | 50,283 | $ | 46,792 | $ | 97,176 | $ | 93,881 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(in thousands) | |||||||||||||||
Consolidated Statements of Income Data(1): | |||||||||||||||
Revenue | $ | 102,161 | $ | 92,101 | $ | 199,878 | $ | 181,258 | |||||||
Cost of revenue | 55,194 | 48,456 | 110,050 | 93,831 | |||||||||||
Gross profit | 46,967 | 43,645 | 89,828 | 87,427 | |||||||||||
Selling, general and administrative expense | 31,139 | 20,104 | 64,590 | 39,447 | |||||||||||
Income from operations | 15,828 | 23,541 | 25,238 | 47,980 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense, including amortization of debt issuance costs | (6,144 | ) | (4,913 | ) | (12,417 | ) | (8,933 | ) | |||||||
Equity in net losses of investments | — | (293 | ) | (331 | ) | (734 | ) | ||||||||
Loss on extinguishment of debt | — | (3,565 | ) | — | (3,565 | ) | |||||||||
Other | 822 | 183 | 1,851 | 533 | |||||||||||
Total other expense | (5,322 | ) | (8,588 | ) | (10,897 | ) | (12,699 | ) | |||||||
Income before income taxes | 10,506 | 14,953 | 14,341 | 35,281 | |||||||||||
Income tax expense | (967 | ) | — | (852 | ) | — | |||||||||
Net income | 9,539 | 14,953 | 13,489 | 35,281 | |||||||||||
Less: net income attributable to non-controlling interest | 8,718 | — | 11,997 | — | |||||||||||
Net income attributable to Switch, Inc. | $ | 821 | $ | 14,953 | $ | 1,492 | $ | 35,281 |
(1) | Switch, Ltd. and its subsidiaries is our predecessor for accounting purposes and, accordingly, amounts for the period from January 1, 2017 through June 30, 2017 represent the historical consolidated operations of Switch, Ltd. and its subsidiaries. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||
Consolidated Statements of Income Data: | |||||||||||
Revenue | 100 | % | 100 | % | 100 | % | 100 | % | |||
Cost of revenue | 54 | 53 | 55 | 52 | |||||||
Gross profit | 46 | 47 | 45 | 48 | |||||||
Selling, general and administrative expense | 30 | 22 | 32 | 22 | |||||||
Income from operations | 15 | 26 | 13 | 26 | |||||||
Other income (expense): | |||||||||||
Interest expense, including amortization of debt issuance costs | (6 | ) | (5 | ) | (6 | ) | (5 | ) | |||
Equity in net losses of investments | — | — | — | — | |||||||
Loss on extinguishment of debt | — | (4 | ) | — | (2 | ) | |||||
Other | 1 | — | 1 | — | |||||||
Total other expense | (5 | ) | (9 | ) | (5 | ) | (7 | ) | |||
Income before income taxes | 10 | 16 | 7 | 19 | |||||||
Income tax expense | (1 | ) | — | — | — | ||||||
Net income | 9 | 16 | 7 | 19 | |||||||
Less: net income attributable to non-controlling interest | 9 | — | 6 | — | |||||||
Net income attributable to Switch, Inc. | 1 | % | 16 | % | 1 | % | 19 | % |
Three Months Ended June 30, | Change | |||||||||||||
2018 | 2017 | Amount | % | |||||||||||
(dollars in thousands) | ||||||||||||||
Colocation | $ | 81,150 | $ | 74,346 | $ | 6,804 | 9 | % | ||||||
Connectivity | 18,866 | 16,232 | 2,634 | 16 | % | |||||||||
Other | 2,145 | 1,523 | 622 | 41 | % | |||||||||
Revenue | $ | 102,161 | $ | 92,101 | $ | 10,060 | 11 | % |
Three Months Ended June 30, | Change | |||||||||||||
2018 | 2017 | Amount | % | |||||||||||
(dollars in thousands) | ||||||||||||||
Cost of revenue | $ | 55,194 | $ | 48,456 | $ | 6,738 | 14 | % | ||||||
Gross margin | 46.0 | % | 47.4 | % |
Three Months Ended June 30, | Change | |||||||||||||
2018 | 2017 | Amount | % | |||||||||||
(dollars in thousands) | ||||||||||||||
Selling, general and administrative expense | $ | 31,139 | $ | 20,104 | $ | 11,035 | 55 | % |
Three Months Ended June 30, | Change | |||||||||||||
2018 | 2017 | Amount | % | |||||||||||
(dollars in thousands) | ||||||||||||||
Other income (expense): | ||||||||||||||
Interest expense | $ | (6,144 | ) | $ | (4,913 | ) | $ | (1,231 | ) | 25 | % | |||
Equity in net losses of investments | — | (293 | ) | 293 | (100 | )% | ||||||||
Loss on extinguishment of debt | — | (3,565 | ) | 3,565 | (100 | )% | ||||||||
Other | 822 | 183 | 639 | 349 | % | |||||||||
Total other expense | $ | (5,322 | ) | $ | (8,588 | ) | $ | 3,266 | (38 | )% |
Three Months Ended June 30, | Change | ||||||||||||
2018 | 2017 | Amount | % | ||||||||||
(dollars in thousands) | |||||||||||||
Income tax expense | $ | (967 | ) | $ | — | $ | (967 | ) | NM |
Three Months Ended June 30, | Change | ||||||||||||
2018 | 2017 | Amount | % | ||||||||||
(dollars in thousands) | |||||||||||||
Net income attributable to non-controlling interest | $ | 8,718 | $ | — | $ | 8,718 | NM |
Six Months Ended June 30, | Change | |||||||||||||
2018 | 2017 | Amount | % | |||||||||||
(dollars in thousands) | ||||||||||||||
Colocation | $ | 158,869 | $ | 146,325 | $ | 12,544 | 9 | % | ||||||
Connectivity | 37,084 | 32,089 | 4,995 | 16 | % | |||||||||
Other | 3,925 | 2,844 | 1,081 | 38 | % | |||||||||
Revenue | $ | 199,878 | $ | 181,258 | $ | 18,620 | 10 | % |
Six Months Ended June 30, | Change | |||||||||||||
2018 | 2017 | Amount | % | |||||||||||
(dollars in thousands) | ||||||||||||||
Cost of revenue | $ | 110,050 | $ | 93,831 | $ | 16,219 | 17 | % | ||||||
Gross margin | 44.9 | % | 48.2 | % |
Six Months Ended June 30, | Change | |||||||||||||
2018 | 2017 | Amount | % | |||||||||||
(dollars in thousands) | ||||||||||||||
Selling, general and administrative expense | $ | 64,590 | $ | 39,447 | $ | 25,143 | 64 | % |
Six Months Ended June 30, | Change | |||||||||||||
2018 | 2017 | Amount | % | |||||||||||
(dollars in thousands) | ||||||||||||||
Other income (expense): | ||||||||||||||
Interest expense | $ | (12,417 | ) | $ | (8,933 | ) | $ | (3,484 | ) | 39 | % | |||
Equity in net losses of investments | (331 | ) | (734 | ) | 403 | (55 | )% | |||||||
Loss on extinguishment of debt | — | (3,565 | ) | 3,565 | (100 | )% | ||||||||
Other | 1,851 | 533 | 1,318 | 247 | % | |||||||||
Total other expense | $ | (10,897 | ) | $ | (12,699 | ) | $ | 1,802 | (14 | )% |
Six Months Ended June 30, | Change | ||||||||||||
2018 | 2017 | Amount | % | ||||||||||
(dollars in thousands) | |||||||||||||
Income tax expense | $ | (852 | ) | $ | — | $ | (852 | ) | NM |
Six Months Ended June 30, | Change | ||||||||||||
2018 | 2017 | Amount | % | ||||||||||
(dollars in thousands) | |||||||||||||
Net income attributable to non-controlling interest | $ | 11,997 | $ | — | $ | 11,997 | NM |
Six Months Ended June 30, | |||||||
2018 | 2017 | ||||||
(in thousands) | |||||||
Cash provided by operating activities | $ | 96,231 | $ | 69,069 | |||
Cash used in investing activities | (164,373 | ) | (219,896 | ) | |||
Cash (used in) provided by financing activities | (12,520 | ) | 177,900 | ||||
Net (decrease) increase in cash and cash equivalents | $ | (80,662 | ) | $ | 27,073 |
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: | August 14, 2018 | /s/ Gabe Nacht |
Gabe Nacht Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Switch, Inc. |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
c. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
By: | /s/ Rob Roy | |
Rob Roy Chief Executive Officer Principal Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of Switch, Inc. |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a. | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
b. | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
c. | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): |
a. | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
By: | /s/ Gabe Nacht | |
Gabe Nacht Chief Financial Officer Principal Financial Officer |
1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | the information contained in the Report fairly presents, in all materials respects, the financial condition and results of operations of the Company. |
By: | /s/ Rob Roy | |
Rob Roy Chief Executive Officer Principal Executive Officer | ||
By: | /s/ Gabe Nacht | |
Gabe Nacht Chief Financial Officer Principal Financial Officer | ||
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Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Aug. 01, 2018 |
|
Document Information [Line Items] | ||
Entity Registrant Name | Switch, Inc. | |
Entity Central Index Key | 0001710583 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false | |
Class A | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 49,553,081 | |
Class B | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 160,200,479 | |
Class C | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 42,944,647 |
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Income Statement [Abstract] | ||||
Amortization of debt issuance costs | $ 409 | $ 245 | $ 818 | $ 498 |
Organization |
6 Months Ended |
---|---|
Jun. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | Organization Switch, Inc. was formed as a Nevada corporation in June 2017 for the purpose of completing an initial public offering (“IPO”) and related organizational transactions in order to carry on the business of Switch, Ltd. and its subsidiaries (collectively, “Switch,” and together with Switch, Inc., the “Company”). Switch is comprised of limited liability companies that provide colocation space and related services to global enterprises, financial companies, government agencies, and others that conduct critical business on the internet. Switch develops and operates data centers in Nevada, which are Tier IV Gold certified, and in Michigan, and is developing data centers in Georgia, delivering redundant services with low latency and super capacity transport environments. As the manager of Switch, Ltd., Switch, Inc. operates and controls all of the business and affairs of Switch. |
Summary of Significant Accounting Policies |
6 Months Ended |
---|---|
Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of American (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2017 Annual Report on Form 10-K for the year ended December 31, 2017. Management believes that the accompanying consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of these consolidated financial statements. The consolidated results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018, or for any other future annual or interim period. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and all significant intercompany transactions and balances have been eliminated. As the sole manager of Switch, Ltd., Switch, Inc. operates and controls all of the business and affairs of Switch, and has the sole voting interest in, and controls the management of, Switch, and has the obligation to absorb the losses of, and receive benefits from, Switch. Accordingly, Switch, Inc. identifies itself as the primary beneficiary of Switch and began consolidating Switch in its consolidated financial statements as of October 11, 2017, the closing date of the IPO, resulting in a non-controlling interest related to the common units held by members other than Switch, Inc. on its consolidated financial statements. Switch has been determined to be the predecessor for accounting purposes and, accordingly, the consolidated financial statements for periods prior to the IPO and the related organizational transactions have been adjusted to combine the previously separate entities for presentation purposes. Amounts for the period from January 1, 2017 through June 30, 2017 presented in the consolidated financial statements and condensed notes to consolidated financial statements herein represent the historical operations of Switch. The amounts as of December 31, 2017 and for the period from January 1, 2018 reflect the consolidated operations of the Company. The Company periodically evaluates entities for consolidation either through ownership of a majority voting interest, or through means other than voting interest, in accordance with the Variable Interest Entity (“VIE”) accounting model. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to the allowance for doubtful accounts, useful lives of property and equipment, equity-based compensation, deferred revenue, fair value of leased property at inception of lease term, fair value of deliverables under multiple element arrangements, and probability assessments of exercising renewal options on leases. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable. Significant Accounting Policies A description of the Company’s significant accounting policies is included in the audited financial statements within its Annual Report on Form 10-K for the year ended December 31, 2017. No other changes to significant accounting policies have occurred since the year ended December 31, 2017, with the exception of those detailed below. Cash and Cash Equivalents The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. Cash equivalents as of June 30, 2018 were comprised of money market funds totaling $153.7 million. Cash equivalents comprised of money market funds totaling $241.4 million were incorrectly classified as cash as of December 31, 2017. Derivative Financial Instruments During the three and six months ended June 30, 2018, the Company operated under two agreements for the purchase of electricity (Note 6). The accounting guidance for derivative instruments provides a scope exception for commodity contracts that meet the normal purchases and normal sales criteria specified in the standard. The normal purchases and normal sales exception requires, among other things, physical delivery in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that are designated as normal purchases and normal sales are not recorded on the consolidated balance sheets at fair value. Concentration of Credit and Other Risks Although the Company operates primarily in Nevada, realization of its customer accounts receivable and its future operations and cash flows could be affected by adverse economic conditions, both regionally and elsewhere in the United States. During the three months ended June 30, 2018 and 2017, the Company’s largest customer and its affiliates comprised 10.4% and 9.6%, respectively, of the Company’s revenue. During the six months ended June 30, 2018 and 2017, the Company’s largest customer and its affiliates comprised 9.8% and 9.6%, respectively, of the Company’s revenue. Only one customer accounted for 10% or more of accounts receivable as of June 30, 2018 and December 31, 2017. The Company generally carries cash on deposit with financial institutions in excess of federally insured limits. Income Taxes The Staff of the SEC issued Staff Accounting Bulletin No. 118 (“SAB No. 118”) to provide guidance to registrants in applying Accounting Standards Codification Topic 740 (“ASC 740”) in connection with the Tax Cuts and Jobs Act. SAB No. 118 provides that in the period of enactment, the income tax effects of the Tax Cuts and Jobs Act may be reported as a provisional amount based on a reasonable estimate to the extent a reasonable estimate can be determined, which would be subject to adjustment during a “measurement period.” The measurement period begins in the reporting period of the Tax Cuts and Jobs Act’s enactment and ends when a registrant has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC 740. SAB No. 118 also describes supplemental disclosures that should accompany the provisional amounts. The Company has applied the guidance in SAB No. 118 to account for the financial accounting impacts of the Tax Cuts and Jobs Act as of December 31, 2017. During the three and six months ended June 30, 2018, there were no changes made to the provisional estimates that were recorded in the fourth quarter of 2017. The Company will continue to analyze the effects of the Tax Cuts and Jobs Act on the consolidated financial statements. For interim periods, the Company recognizes income taxes based on its estimated annual effective tax rate expected tor the full year. Tax Receivable Agreement In connection with the IPO, the Company entered into a Tax Receivable Agreement (“TRA”) with members of Switch, Ltd. In the event that such parties exchange any or all of their common units in Switch, Ltd. for Class A common stock, the TRA requires the Company to make payments to such holders for 85% of the tax benefits realized by the Company by such exchange. The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits. The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Company generates each year and the tax rate then applicable. The payment obligations under the TRA are obligations of Switch, Inc. and not of Switch, Ltd. Payments are generally due under the TRA within a specified period of time following the filing of the Company’s tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of LIBOR plus 100 basis points from the due date (without extensions) of such tax return. Any late payments that may be made under the TRA will continue to accrue interest at LIBOR plus 500 basis points until such payments are subsequently made. Recent Accounting Pronouncements ASU 2014-09–Revenue from Contracts with Customers In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The standard supersedes much of the current guidance regarding revenue recognition including most industry-specific guidance. The core principle of the standard is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity will be required to identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligation in the contract, and recognize revenue when (or as) the entity satisfies a performance obligation. In addition to the new revenue recognition requirements, entities will be required to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard also provides guidance on the recognition of costs related to obtaining customer contracts. The standard allows for either full retrospective adoption, meaning the guidance is applied for all periods presented, or modified retrospective adoption, meaning the guidance is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the guidance recognized at the date of initial application. In August 2015, the FASB deferred the effective date by one year (ASU 2015-14) to December 15, 2018 for annual reporting periods beginning after that date, and interim periods within annual periods beginning after December 15, 2019, and permitted early adoption of the standard, but not before the original effective date of December 15, 2017. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”). The core principle of the guidance in Revenue from Contracts with Customers in ASU 2014-09 is not changed by the amendments in ASU 2016-08. The amendments clarify the implementation guidance on principal versus agent considerations. Per ASU 2016-08, when another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (principal) or to arrange for that good or service to be provided by the other party (agent). When an entity that is a principal satisfies a performance obligation, the entity recognizes revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specified good or service transferred to the customer. When an entity that is an agent satisfies a performance obligation, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled. The effective date and transition requirements for ASU 2016-08 are the same as the effective date and transition requirements for ASU 2014-09. In April 2016 and May 2016, the FASB issued guidance which amends certain other aspects of ASU 2014-09. The amendments include the identification of performance obligations and the licensing implementation guidance (ASU 2016-10) and the collectability of revenue, presentation of sales tax and other similar taxes collected from customers, contracts containing noncash considerations, and contract modifications and completed contracts at transition (ASU 2016-12). In December 2016, the FASB amended ASU 2014-09 to make minor corrections and minor improvements to the guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost (ASU 2016-20). The effective date and transition provisions in these amendments are aligned with the requirements of ASU 2014-09. The Company will adopt this guidance effective January 1, 2019, and expects to select the modified retrospective approach for adoption. The Company has assigned internal resources and engaged consulting service providers to assist in evaluating the impact the adoption of this guidance will have on its consolidated financial statements. ASU 2016-02–Leases On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The principle of ASU 2016-02 is that a lessee should recognize the assets and liabilities that arise from leases. Lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability. For income statement purposes, ASU 2016-02 requires leases to be classified as either operating or finance. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. In addition, in January 2018, the FASB issued ASU 2018-01, which permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the entity’s adoption of ASU 2016-02 and were not previously accounted for as leases. In July 2018, the FASB also issued ASU 2018-10, which provides clarifications and improvements on sections of ASU 2016-02, and ASU 2018-11, which provides lessees the option to apply the new guidance to all open leases as of the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and lessors with a practical expedient to account for qualifying non-lease components with associated lease components. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements. The Company has not decided if early adoption will be considered. ASU 2016-13–Financial Instruments–Credit Losses In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). Under this guidance, a company will be required to use a new forward-looking “expected loss” model for trade and other receivables that generally will result in the earlier recognition of allowances for losses. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021, and requires a modified-retrospective approach to adoption. Early adoption is permitted in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements. The Company has not decided if early adoption will be considered. ASU 2016-15–Statement of Cash Flows In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The areas affected by ASU 2016-15 are debt prepayment and debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. Specifically, under this guidance, cash payments for debt prepayment or debt extinguishment costs will be classified as cash outflows for financing activities. The amendments in ASU 2016-15 are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in ASU 2016-15 will be applied using a retrospective transition method to each period presented. The adoption of ASU 2016-15 is not expected to materially impact the Company’s consolidated financial statements. The Company has not decided if early adoption will be considered. ASU 2017-09–Compensation–Stock Compensation In May 2017, the FASB issued ASU 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). This update provides clarity and reduces both diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation–Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. For all entities, the amendments in ASU 2017-09 are effective for annual and interim reporting periods beginning after December 15, 2017. The adoption of this guidance during the first quarter of 2018 did not impact the Company’s consolidated financial statements. ASU 2018-02–Income Statement–Reporting Comprehensive Income In February 2018, the FASB issued ASU 2018-02, Income Statement–Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. For all entities, the amendments in ASU 2018-02 are effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption of this ASU is permitted, including adoption in any interim period. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements. The Company has not decided if early adoption will be considered. ASU 2018-09–Codification Improvements In July 2018, the FASB issued ASU 2018-09, Codification Improvements (“ASU 2018-09”). The amendments in this update make clarifications and minor improvements to the Accounting Standards Codification. Certain updates of ASU 2018-09 are applicable immediately while others are effective for annual periods beginning after December 15, 2018. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements. |
Property and Equipment, Net |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and Equipment, Net | Property and Equipment, Net Property and equipment, net, consists of the following:
During the three months ended June 30, 2018 and 2017, depreciation and amortization expense was $25.7 million and $21.8 million, respectively. During the six months ended June 30, 2018 and 2017, depreciation and amortization expense was $50.3 million and $41.8 million, respectively. Accumulated amortization for the capitalized leased assets totaled $9.1 million and $8.3 million as of June 30, 2018 and December 31, 2017, respectively. During the six months ended June 30, 2018 and 2017, capitalized interest was $2.5 million and $1.4 million, respectively. The Company capitalized internal use software costs of $113,000 and $410,000 during the three months ended June 30, 2018 and 2017, respectively, and $794,000 and $1.1 million during the six months ended June 30, 2018 and 2017, respectively. |
Equity Method Investments |
6 Months Ended |
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Jun. 30, 2018 | |
Equity Method Investments and Joint Ventures [Abstract] | |
Equity Method Investments | Equity Method Investments The Company currently holds two investments accounted for under the equity method of accounting, SUPERNAP International, S.A. (“SUPERNAP International”) and Planet3, Inc. (“Planet3”), in which the Company holds a 50% ownership interest and a 45% ownership interest, respectively. As of June 30, 2018 and December 31, 2017, the Company determined that it continued to have a variable interest in both SUPERNAP International and Planet3, as the entities do not have sufficient equity at risk. However, the Company concluded that it is not the primary beneficiary of SUPERNAP International or of Planet3 as it does not have deemed control of either entity. As a result, it does not consolidate either entity into its consolidated financial statements. As of March 31, 2018, the Company’s carrying value of its investment in SUPERNAP International was reduced to zero as a result of recording its share of the investee’s losses. Accordingly, as the Company does not have any guaranteed obligations and is not otherwise committed to provide further financial support to SUPERNAP International, the Company discontinued the equity method of accounting for its investment in SUPERNAP International as of March 31, 2018 and will not provide for additional losses until its share of future net income or comprehensive income, if any, equals the share of net losses not recognized during the period the equity method was suspended. Losses recorded will continue to include the foreign currency translation adjustment in the Company’s investment. The Company’s share of net loss recorded for the six months ended June 30, 2018 amounted to $331,000. The Company’s share of net loss recorded for the three and six months ended June 30, 2017 amounted to $293,000 and $734,000, respectively. As of June 30, 2018 and December 31, 2017, the Company had recorded amounts consisting of reimbursable expenses due from SUPERNAP International of $305,000 and $337,000, respectively, within accounts receivable on the consolidated balance sheets. Additionally, as of December 31, 2016, as the Company did not have any guaranteed obligations and was not otherwise committed to provide further financial support to Planet3, the Company discontinued the equity method of accounting for its investment in Planet3 and will not provide for additional losses until its share of future net income, if any, equals the share of net losses not recognized during the period the equity method was suspended. |
Leases |
6 Months Ended |
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Jun. 30, 2018 | |
Leases [Abstract] | |
Leases | Leases During the three months ended June 30, 2018 and 2017, rent expense related to operating leases was approximately $2.0 million and $1.9 million, respectively. During the six months ended June 30, 2018 and 2017, rent expense related to operating leases was approximately $3.9 million and $3.6 million, respectively. Related party rent included in these amounts was approximately $1.3 million and $1.2 million for the three months ended June 30, 2018 and 2017, respectively, and approximately $2.5 million and $2.3 million for the six months ended June 30, 2018 and 2017, respectively. |
Commitments and Contingencies |
6 Months Ended |
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Jun. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Purchase Commitments In January 2018, a wholly-owned subsidiary of Switch, Ltd. entered into a Master Power Purchase & Sale Agreement of electricity with Tenaska Power Services Co. to purchase a firm commitment of 10 megawatts per energy hour for a term of 23 months, or a purchase commitment of $4.9 million during the term, which started February 1, 2018. Additionally, scheduling services for the purchased power from the agreement are provided by Morgan Stanley Capital Group Inc., resulting in an additional purchase commitment of $300,000 during the term, for a total purchase commitment of $5.2 million related to this agreement. The remaining total purchase commitment is $4.1 million as of June 30, 2018. Future power purchase commitments for the remainder of 2018 and 2019 are $1.4 million and $2.7 million, respectively, with no additional commitments upon termination of the agreement thereafter. Legal Proceedings On August 7, 2017, Switch, Ltd. filed a lawsuit in the U.S. District Court for the Eastern District of Texas against Aligned Data Centers LLC (“Aligned”) and MTechnology Inc. The lawsuit alleges, among other things, that Aligned has used and promoted technology at its data centers to attract clients to its facility, directly and indirectly infringing at least three of Switch’s patents and using Switch’s patented technology to attempt to unlawfully compete with Switch. The complaint also alleges that Aligned hired a consultant to design their data centers; that this consultant had toured Switch under a non-disclosure agreement; and that this consultant breached his confidentiality agreements with Switch by using Switch’s designs to design the Aligned data centers. Switch is seeking an injunction to prevent the defendants in the lawsuit from infringing Switch’s patents, as well as other remedies. On August 16, 2017, Aligned filed an answer to the complaint and a motion to dismiss the lawsuit. Among other things, Aligned alleges in its answer that Switch’s patents in question should be declared invalid, and countersued for declaratory judgment of the non-infringement of certain of Switch’s patents, injunctive relief, and damages for alleged anti-competition practices involving Aligned’s trademarks in violation of the Lanham Act, tortious interference with Aligned’s business, and disparagement of Aligned’s business. Given certain jurisdictional issues, on September 12, 2017, Switch filed a separate complaint in the Eighth Judicial District of Nevada against the consultant, Stephen Fairfax, and his business, MTechnology Inc. Among other claims, Switch has raised allegations of breach of contract and misappropriation of trade secrets. See Note 14 “Subsequent Events” for more information. On September 7, 2017, Switch, Ltd. and Switch, Inc. (collectively, the “Switch Defendants”), were named in a lawsuit filed in the U.S. District Court for the District of Nevada by V5 Technologies formerly d/b/a Cobalt Data Centers (now defunct). The lawsuit alleges, among other things, that the Switch Defendants have monopolized the Las Vegas Metropolitan area of Southern Nevada’s data center colocation market and have engaged in unfair business practices leading to the failure of Cobalt Data Centers in 2015 and seeks monetary damages in an amount yet to be disclosed. The Switch Defendants are vigorously defending the case. On April 20, 2018, April 30, 2018, May 11, 2018, and June 6, 2018, four substantially similar putative class action complaints, respectively captioned Martz v. Switch, Inc., Palkon v. Switch, Inc., Chun v. Switch, Inc., and Silverberg v. Switch, Inc. were filed in the Eighth Judicial District of Nevada. Additionally, on June 11, 2018, one putative class action complaint captioned Cai v. Switch, Inc. was filed in the United States District Court for the District of New Jersey. These lawsuits were filed against Switch, Inc., certain current and former officers and directors and certain underwriters of Switch, Inc.’s IPO alleging federal securities law violations in connection with the IPO. These lawsuits were brought by purported stockholders of Switch, Inc. seeking to represent a class of stockholders who purchased Class A common stock in or traceable to the IPO, and seek unspecified damages and other relief. Switch, Inc. believes that these lawsuits are without merit and intends to defend against them vigorously. See Note 14 “Subsequent Events” for more information. The outcomes of the legal proceedings are inherently unpredictable, subject to significant uncertainties, and could be material to the Company’s financial condition, results of operations, and cash flows for a particular period. Where the Company is a defendant, it will vigorously defend against the claims pleaded against it. These actions are each in preliminary stages and management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of these actions or the range of reasonably possible loss, if any. |
Income Taxes |
6 Months Ended |
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Jun. 30, 2018 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes As a result of the increase in Switch, Inc.’s ownership of Switch, Ltd. following the exchanges of non-controlling interest for Class A common stock in May 2018 described in Note 10, the Company recorded a deferred tax asset related to the increase in the tax basis of Switch, Inc.’s ownership interest in Switch, Ltd. of $20.3 million within other assets on the consolidated balance sheets as of June 30, 2018, with a corresponding increase to additional paid in capital. The Company has determined it is more-likely-than-not that it will be able to realize this deferred tax asset in the future. Tax Receivable Agreement As of June 30, 2018, the Company has recorded a liability of $39.5 million under the TRA, which provides for the payment of 85% of the amount of the tax benefits, if any, that Switch, Inc. is deemed to realize as a result of increases in the tax basis of its ownership in Switch, Ltd. related to exchanges of non-controlling interest for Class A common stock. |
Stockholders' Equity |
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Jun. 30, 2018 | |
Equity [Abstract] | |
Stockholders' Equity | Stockholders’ Equity Dividends In April 2018 and June 2018, the Company paid cash dividends of $0.0147 per share of Class A common stock and recorded a total of $1.3 million as a reduction of retained earnings from cash dividends declared during the six months ended June 30, 2018. |
Equity-Based Compensation |
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Equity-Based Compensation | Equity-Based Compensation Common Unit Awards The following table summarizes information related to common unit awards for the period indicated below:
As of June 30, 2018, total equity-based compensation cost related to all unvested common unit awards is $33.3 million, which is expected to be recognized over a weighted average period of 3.28 years. If a forfeiture of unvested common unit awards occurs, the associated shares of Class B common stock and Class C common stock, as applicable, are also forfeited. 2017 Incentive Award Plan On September 22, 2017, Switch, Inc.’s Board of Directors adopted the 2017 Incentive Award Plan (the “2017 Plan”). The 2017 Plan, effective as of its adoption date, provides that the initial aggregate number of shares of Class A common stock reserved and available for issuance be 25.0 million shares of Class A common stock plus an increase each January 1, beginning on January 1, 2018 and ending on and including January 1, 2027, equal to the lesser of (A) 17.0 million shares of Class A common stock, (B) 5% of the aggregate number of shares of Switch, Inc.’s Class A common stock, Class B common stock and Class C common stock outstanding on the final day of the immediately preceding calendar year and (C) such smaller number of shares of Class A common stock as is determined by the Board of Directors. Effective January 1, 2018, Switch, Inc.’s Board of Directors approved an annual increase of 7.9 million shares (the “2018 Annual Increase”) in the aggregate number of shares of Class A common stock reserved and available for issuance under the 2017 Plan. The 2018 Annual Increase, and each annual increase thereafter, is subject to adjustment in the event of a stock split, stock dividend or other defined changes in Switch, Inc.’s capitalization. The 2017 Plan also provides for dividend equivalent units (“DEUs”) based on the value of the dividends per share paid on the Company’s Class A common stock, which are accumulated on restricted stock units (“RSUs”) during the vesting period. The DEUs vest and will be settled with shares of the Company’s Class A common stock concurrently with the vesting of the associated RSUs based on the closing share price on the vesting date. Pursuant to the Company’s policy, DEUs are treated as a reduction of retained earnings or, if the Company is in a retained deficit position, as a reduction of additional paid in capital. The following table summarizes information related to stock options for the period indicated below:
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As of June 30, 2018, total equity-based compensation cost related to all unvested stock options is $291,000, which is expected to be recognized over a weighted average period of 2.27 years. The following table summarizes information related to RSUs for the period indicated below:
As of June 30, 2018, total equity-based compensation cost related to all unvested RSU awards is $32.1 million, which is expected to be recognized over a weighted average period of 3.51 years. Director Compensation Program On October 11, 2017, Switch, Inc.’s Board of Directors adopted the Director Compensation Program. The Director Compensation Program, effective as of its adoption date, provides that eligible members of Switch, Inc.’s Board of Directors receive cash and equity compensation. On the date of the Company’s annual stockholder meeting, eligible members of Switch, Inc.’s Board of Directors shall be granted a restricted stock award (“RSA”) comprising of shares of Class A common stock equal to $200,000. The RSAs vest in full on the earlier of (A) the one-year anniversary of the grant date or (B) the date of annual stockholder meeting following the grant date. The vesting of these awards is subject to the eligible director continuing service through the vesting date. In June 2018, the Company granted 61,000 RSAs with a weighted average grant date fair value per award of $13.08. As of June 30, 2018, total equity-based compensation cost related to all unvested RSAs is $748,000, which is expected to be recognized over a weighted average period of 0.94 years. Total equity-based compensation recognized in the consolidated statements of comprehensive income is as follows:
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Non-controlling Interest |
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Noncontrolling Interest [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Non-controlling Interest | Non-controlling Interest Ownership Switch, Inc. owns an indirect minority economic interest in Switch, Ltd., where “economic interests” means the right to receive any distributions, whether cash, property or securities of Switch, Ltd., in connection with common units. Switch, Inc. presents interest held by non-controlling interest holders within non-controlling interest in the consolidated financial statements. On May 18, 2018, Switch, Inc. issued an aggregate of 13.4 million shares of Class A common stock, which includes shares underlying 110,000 vested and exercisable unit options, to members of Switch, Ltd. in connection with such members’ redemptions of an equivalent number of common units of Switch, Ltd. and corresponding cancellation of an equivalent number of Switch, Inc.’s Class B common stock. The redemption occurred pursuant to the terms of the Switch operating agreement entered into in connection with the Company’s IPO. The ownership of the common units is summarized as follows:
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The Company uses the weighted average ownership percentages during the period to calculate the pretax income attributable to Switch, Inc. and the non-controlling interest holders of Switch, Ltd. Distributions Prior to each payment of the Company’s Class A common stock dividends in April 2018 and June 2018, Switch, Ltd. made cash distributions to holders of common units of Switch, Ltd., excluding Switch, Inc., of $0.0147 per common unit for a total distribution of $6.0 million during the six months ended June 30, 2018. During the six months ended June 30, 2017, Switch, Ltd. made cash distributions to holders of common units of Switch, Ltd. of approximately $173.4 million, comprised of $100.0 million to the members in accordance with their percentage interests and $73.4 million to certain members with unreturned capital contributions as required by Switch, Ltd.’s operating agreement. |
Net Income Per Share/Unit |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Income Per Share/Unit | Net Income Per Share/Unit The following table sets forth the calculation of basic and diluted net income per share/unit:
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Shares of Class B common stock and Class C common stock do not share in the earnings or losses of Switch, Inc. and are therefore not participating securities. As such, separate presentation of basic and diluted net income per share for each of Class B common stock and Class C common stock under the two-class method has not been presented. The following table presents potentially dilutive securities excluded from the computation of diluted net income per share/unit for the periods presented because their effect would have been anti-dilutive. There were no anti-dilutive securities for the three and six months ended June 30, 2017.
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Fair Value of Financial Information |
6 Months Ended |
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Jun. 30, 2018 | |
Fair Value Disclosures [Abstract] | |
Fair Value of Financial Information | Fair Value of Financial Instruments The carrying amounts as of June 30, 2018 and December 31, 2017 for cash and cash equivalents, accounts receivable, and accounts payable approximate their estimated fair values due to the short maturity of these instruments. Management believes the fair value of the Company’s long term debt was $594.0 million and $599.2 million based on Level 2 inputs using quoted market prices on or about June 30, 2018 and December 31, 2017, respectively. Management has elected not to adopt the option available under GAAP to measure any of its eligible financial instruments or other items at fair value. Accordingly, the Company continues to measure all of its assets and liabilities on the historical cost basis of accounting except as otherwise required under GAAP. |
Segment Reporting |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting | Segment Reporting The Company’s chief operating decision maker is its Chief Executive Officer. The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. All of the Company’s assets are maintained in the United States, although the Company holds an equity method investment in SUPERNAP International. The Company derives a substantial majority of its revenue from sales to customers in the United States, based upon the billing address of the customer. Revenue derived from customers outside the United States, based upon the billing address of the customer, were less than 1% of revenue for each of the three and six months ended June 30, 2018 and 2017. The Company’s revenue is comprised of the following:
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Subsequent Events |
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Jun. 30, 2018 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events In July 2018, all claims in the subject litigation filed by Switch, Ltd. in the U.S. District Court for the Eastern District of Texas against Aligned and all counterclaims by Aligned against Switch, Ltd. in the subject litigation were dismissed with prejudice pursuant to a joint stipulation of dismissal filed by the parties. In July 2018, the class action complaints filed in the Eighth Judicial District of Nevada were consolidated into a single lawsuit docket. In August 2018, the class action complaint filed in the United States District Court for the District of New Jersey was transferred to the Eighth Judicial District of Nevada. In August 2018, Switch, Inc.’s Board of Directors declared a dividend for the third quarter of 2018 of $0.0147 per share of Class A common stock, for a total estimated to be $757,000, to be paid on September 4, 2018 to holders of record as of August 24, 2018. Prior to the payment of this dividend, Switch, Ltd. will make a cash distribution to all holders of record of common units of Switch, Ltd., including Switch, Inc., of $0.0147 per common unit, for a total estimated to be $3.7 million. In August 2018, Switch, Inc.’s Board of Directors authorized a program by which Switch, Ltd. may repurchase up to $150.0 million of its outstanding common units for cash and Switch, Inc. will cancel a corresponding amount of Class B common shares. The program is effective immediately upon authorization. The authorization may be suspended or discontinued at any time without notice. Repurchases under the common unit repurchase program will be funded from Switch’s existing cash and cash equivalents. |
Summary of Significant Accounting Policies (Policies) |
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Jun. 30, 2018 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of American (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s 2017 Annual Report on Form 10-K for the year ended December 31, 2017. Management believes that the accompanying consolidated financial statements reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of these consolidated financial statements. The consolidated results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the year ending December 31, 2018, or for any other future annual or interim period. |
Principles of Consolidation | Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and all significant intercompany transactions and balances have been eliminated. As the sole manager of Switch, Ltd., Switch, Inc. operates and controls all of the business and affairs of Switch, and has the sole voting interest in, and controls the management of, Switch, and has the obligation to absorb the losses of, and receive benefits from, Switch. Accordingly, Switch, Inc. identifies itself as the primary beneficiary of Switch and began consolidating Switch in its consolidated financial statements as of October 11, 2017, the closing date of the IPO, resulting in a non-controlling interest related to the common units held by members other than Switch, Inc. on its consolidated financial statements. Switch has been determined to be the predecessor for accounting purposes and, accordingly, the consolidated financial statements for periods prior to the IPO and the related organizational transactions have been adjusted to combine the previously separate entities for presentation purposes. Amounts for the period from January 1, 2017 through June 30, 2017 presented in the consolidated financial statements and condensed notes to consolidated financial statements herein represent the historical operations of Switch. The amounts as of December 31, 2017 and for the period from January 1, 2018 reflect the consolidated operations of the Company. The Company periodically evaluates entities for consolidation either through ownership of a majority voting interest, or through means other than voting interest, in accordance with the Variable Interest Entity (“VIE”) accounting model. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. |
Use of Estimates | Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to the allowance for doubtful accounts, useful lives of property and equipment, equity-based compensation, deferred revenue, fair value of leased property at inception of lease term, fair value of deliverables under multiple element arrangements, and probability assessments of exercising renewal options on leases. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable. |
Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. |
Derivative Financial Instruments | Derivative Financial Instruments During the three and six months ended June 30, 2018, the Company operated under two agreements for the purchase of electricity (Note 6). The accounting guidance for derivative instruments provides a scope exception for commodity contracts that meet the normal purchases and normal sales criteria specified in the standard. The normal purchases and normal sales exception requires, among other things, physical delivery in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that are designated as normal purchases and normal sales are not recorded on the consolidated balance sheets at fair value. |
Concentration of Credit and Other Risks | The Company generally carries cash on deposit with financial institutions in excess of federally insured limits. Concentration of Credit and Other Risks Although the Company operates primarily in Nevada, realization of its customer accounts receivable and its future operations and cash flows could be affected by adverse economic conditions, both regionally and elsewhere in the United States. |
Income Taxes | Income Taxes The Staff of the SEC issued Staff Accounting Bulletin No. 118 (“SAB No. 118”) to provide guidance to registrants in applying Accounting Standards Codification Topic 740 (“ASC 740”) in connection with the Tax Cuts and Jobs Act. SAB No. 118 provides that in the period of enactment, the income tax effects of the Tax Cuts and Jobs Act may be reported as a provisional amount based on a reasonable estimate to the extent a reasonable estimate can be determined, which would be subject to adjustment during a “measurement period.” The measurement period begins in the reporting period of the Tax Cuts and Jobs Act’s enactment and ends when a registrant has obtained, prepared, and analyzed the information that was needed in order to complete the accounting requirements under ASC 740. SAB No. 118 also describes supplemental disclosures that should accompany the provisional amounts. The Company has applied the guidance in SAB No. 118 to account for the financial accounting impacts of the Tax Cuts and Jobs Act as of December 31, 2017. During the three and six months ended June 30, 2018, there were no changes made to the provisional estimates that were recorded in the fourth quarter of 2017. The Company will continue to analyze the effects of the Tax Cuts and Jobs Act on the consolidated financial statements. For interim periods, the Company recognizes income taxes based on its estimated annual effective tax rate expected tor the full year. |
Tax Receivable Agreement | Tax Receivable Agreement In connection with the IPO, the Company entered into a Tax Receivable Agreement (“TRA”) with members of Switch, Ltd. In the event that such parties exchange any or all of their common units in Switch, Ltd. for Class A common stock, the TRA requires the Company to make payments to such holders for 85% of the tax benefits realized by the Company by such exchange. The annual tax benefits are computed by calculating the income taxes due, including such tax benefits, and the income taxes due without such benefits. The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Company generates each year and the tax rate then applicable. The payment obligations under the TRA are obligations of Switch, Inc. and not of Switch, Ltd. Payments are generally due under the TRA within a specified period of time following the filing of the Company’s tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of LIBOR plus 100 basis points from the due date (without extensions) of such tax return. Any late payments that may be made under the TRA will continue to accrue interest at LIBOR plus 500 basis points until such payments are subsequently made. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements ASU 2014-09–Revenue from Contracts with Customers In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The standard supersedes much of the current guidance regarding revenue recognition including most industry-specific guidance. The core principle of the standard is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity will be required to identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligation in the contract, and recognize revenue when (or as) the entity satisfies a performance obligation. In addition to the new revenue recognition requirements, entities will be required to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The standard also provides guidance on the recognition of costs related to obtaining customer contracts. The standard allows for either full retrospective adoption, meaning the guidance is applied for all periods presented, or modified retrospective adoption, meaning the guidance is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the guidance recognized at the date of initial application. In August 2015, the FASB deferred the effective date by one year (ASU 2015-14) to December 15, 2018 for annual reporting periods beginning after that date, and interim periods within annual periods beginning after December 15, 2019, and permitted early adoption of the standard, but not before the original effective date of December 15, 2017. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”). The core principle of the guidance in Revenue from Contracts with Customers in ASU 2014-09 is not changed by the amendments in ASU 2016-08. The amendments clarify the implementation guidance on principal versus agent considerations. Per ASU 2016-08, when another party is involved in providing goods or services to a customer, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (principal) or to arrange for that good or service to be provided by the other party (agent). When an entity that is a principal satisfies a performance obligation, the entity recognizes revenue in the gross amount of consideration to which it expects to be entitled in exchange for the specified good or service transferred to the customer. When an entity that is an agent satisfies a performance obligation, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled. The effective date and transition requirements for ASU 2016-08 are the same as the effective date and transition requirements for ASU 2014-09. In April 2016 and May 2016, the FASB issued guidance which amends certain other aspects of ASU 2014-09. The amendments include the identification of performance obligations and the licensing implementation guidance (ASU 2016-10) and the collectability of revenue, presentation of sales tax and other similar taxes collected from customers, contracts containing noncash considerations, and contract modifications and completed contracts at transition (ASU 2016-12). In December 2016, the FASB amended ASU 2014-09 to make minor corrections and minor improvements to the guidance that are not expected to have a significant effect on current accounting practice or create a significant administrative cost (ASU 2016-20). The effective date and transition provisions in these amendments are aligned with the requirements of ASU 2014-09. The Company will adopt this guidance effective January 1, 2019, and expects to select the modified retrospective approach for adoption. The Company has assigned internal resources and engaged consulting service providers to assist in evaluating the impact the adoption of this guidance will have on its consolidated financial statements. ASU 2016-02–Leases On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). The principle of ASU 2016-02 is that a lessee should recognize the assets and liabilities that arise from leases. Lessees will need to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability. For income statement purposes, ASU 2016-02 requires leases to be classified as either operating or finance. Operating leases will result in straight-line expense while finance leases will result in a front-loaded expense pattern. Lessor accounting will remain largely unchanged, other than certain targeted improvements intended to align lessor accounting with the lessee accounting model and with the updated revenue recognition guidance. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted. In addition, in January 2018, the FASB issued ASU 2018-01, which permits an entity to elect an optional transition practical expedient to not evaluate land easements that exist or expired before the entity’s adoption of ASU 2016-02 and were not previously accounted for as leases. In July 2018, the FASB also issued ASU 2018-10, which provides clarifications and improvements on sections of ASU 2016-02, and ASU 2018-11, which provides lessees the option to apply the new guidance to all open leases as of the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption and lessors with a practical expedient to account for qualifying non-lease components with associated lease components. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements. The Company has not decided if early adoption will be considered. ASU 2016-13–Financial Instruments–Credit Losses In June 2016, the FASB issued ASU 2016-13, Financial Instruments–Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). Under this guidance, a company will be required to use a new forward-looking “expected loss” model for trade and other receivables that generally will result in the earlier recognition of allowances for losses. The amendments in ASU 2016-13 are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021, and requires a modified-retrospective approach to adoption. Early adoption is permitted in fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements. The Company has not decided if early adoption will be considered. ASU 2016-15–Statement of Cash Flows In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The areas affected by ASU 2016-15 are debt prepayment and debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the predominance principle. Specifically, under this guidance, cash payments for debt prepayment or debt extinguishment costs will be classified as cash outflows for financing activities. The amendments in ASU 2016-15 are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in ASU 2016-15 will be applied using a retrospective transition method to each period presented. The adoption of ASU 2016-15 is not expected to materially impact the Company’s consolidated financial statements. The Company has not decided if early adoption will be considered. ASU 2017-09–Compensation–Stock Compensation In May 2017, the FASB issued ASU 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). This update provides clarity and reduces both diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation–Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. For all entities, the amendments in ASU 2017-09 are effective for annual and interim reporting periods beginning after December 15, 2017. The adoption of this guidance during the first quarter of 2018 did not impact the Company’s consolidated financial statements. ASU 2018-02–Income Statement–Reporting Comprehensive Income In February 2018, the FASB issued ASU 2018-02, Income Statement–Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. For all entities, the amendments in ASU 2018-02 are effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption of this ASU is permitted, including adoption in any interim period. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements. The Company has not decided if early adoption will be considered. ASU 2018-09–Codification Improvements In July 2018, the FASB issued ASU 2018-09, Codification Improvements (“ASU 2018-09”). The amendments in this update make clarifications and minor improvements to the Accounting Standards Codification. Certain updates of ASU 2018-09 are applicable immediately while others are effective for annual periods beginning after December 15, 2018. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements. |
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Property and Equipment, Net | Property and equipment, net, consists of the following:
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Equity-Based Compensation (Tables) |
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Common Unit Award Activity | The following table summarizes information related to common unit awards for the period indicated below:
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Information Related to Stock Options and the Number and Weighted Average Grant Date Fair Value of Nonvested Stock Options Granted and Outstanding | The following table summarizes information related to stock options for the period indicated below:
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Information Related to RSUs | The following table summarizes information related to RSUs for the period indicated below:
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Total Equity-Based Compensation Recognized in the Consolidated Statements of Comprehensive Income | Total equity-based compensation recognized in the consolidated statements of comprehensive income is as follows:
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Non-controlling Interest (Tables) |
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Ownership of Common Units | The ownership of the common units is summarized as follows:
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Calculation of Basic and Diluted Net Income Per Share/Unit | The following table sets forth the calculation of basic and diluted net income per share/unit:
________________________________________
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Potentially Dilutive Securities Excluded from the Computation of Diluted Net Income Per Share/Unit | The following table presents potentially dilutive securities excluded from the computation of diluted net income per share/unit for the periods presented because their effect would have been anti-dilutive. There were no anti-dilutive securities for the three and six months ended June 30, 2017.
________________________________________
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Segment Reporting (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Composition of Revenue | The Company’s revenue is comprised of the following:
|
Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Concentration Risk [Line Items] | |||||
Money market funds | $ 153,700 | $ 153,700 | $ 241,400 | ||
Percentage of tax benefits realized to be paid to unit holders | 85.00% | ||||
Liabilities under tax receivable agreement | $ 39,534 | $ 39,534 | $ 0 | ||
LIBOR | |||||
Concentration Risk [Line Items] | |||||
Variable interest rate on late payments accruing from due date under tax receivable agreements | 100.00% | ||||
Variable interest rate on late payments under tax receivable agreements | 500.00% | ||||
Customer Concentration Risk | Revenue | Largest Customer | |||||
Concentration Risk [Line Items] | |||||
Concentration risk percentage | 10.40% | 9.60% | 9.80% | 9.60% | |
Customer Concentration Risk | Accounts Receivable | One Customer | |||||
Concentration Risk [Line Items] | |||||
Concentration risk percentage | 10.00% | 10.00% |
Property and Equipment, Net - Narrative (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Property, Plant and Equipment [Abstract] | |||||
Depreciation and amortization expense | $ 25,700 | $ 21,800 | $ 50,321 | $ 41,786 | |
Accumulated amortization for capitalized leased assets | 9,100 | 9,100 | $ 8,300 | ||
Capitalized interest | 2,500 | 1,400 | |||
Internal use software costs capitalized | $ 113 | $ 410 | $ 794 | $ 1,100 |
Equity Method Investments (Details) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017
USD ($)
|
Jun. 30, 2018
USD ($)
investment
|
Jun. 30, 2017
USD ($)
|
Dec. 31, 2017
USD ($)
|
|
Schedule of Equity Method Investments [Line Items] | ||||
Number of equity method investments | investment | 2 | |||
Share of net loss from equity method investment | $ 331,000 | $ 734,000 | ||
SUPERNAP International | ||||
Schedule of Equity Method Investments [Line Items] | ||||
Ownership interest in equity method investment | 50.00% | |||
Carrying value of equity method investment | $ 0 | |||
Share of net loss from equity method investment | $ (293,000) | (331,000) | $ (734,000) | |
SUPERNAP International | Equity Method Investee | ||||
Schedule of Equity Method Investments [Line Items] | ||||
Reimbursable expenses due from equity method investment | $ 305,000 | $ 337,000 | ||
Planet3, Inc. | ||||
Schedule of Equity Method Investments [Line Items] | ||||
Ownership interest in equity method investment | 45.00% |
Leases (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Operating Leased Assets [Line Items] | ||||
Rent expense related to operating leases | $ 2.0 | $ 1.9 | $ 3.9 | $ 3.6 |
Related Parties | ||||
Operating Leased Assets [Line Items] | ||||
Rent expense related to operating leases | $ 1.3 | $ 1.2 | $ 2.5 | $ 2.3 |
Commitments and Contingencies (Details) $ in Thousands |
1 Months Ended | ||
---|---|---|---|
Jan. 31, 2018
USD ($)
MWh
|
Jun. 30, 2018
USD ($)
|
Feb. 01, 2018
USD ($)
|
|
Long-term Purchase Commitment [Line Items] | |||
Purchase commitment | $ 5,200 | $ 4,100 | |
Future power purchase commitments for the remainder of 2018 | 1,400 | ||
Future power purchase commitments for 2019 | $ 2,700 | ||
Energy | |||
Long-term Purchase Commitment [Line Items] | |||
Number of megawatts per hour required under purchase commitment | MWh | 10 | ||
Term of purchase commitment | 23 months | ||
Purchase commitment | $ 4,900 | ||
Scheduling Services | |||
Long-term Purchase Commitment [Line Items] | |||
Purchase commitment | $ 300 |
Income Taxes (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2018 |
Dec. 31, 2017 |
|
Income Tax Disclosure [Abstract] | ||
Deferred tax asset related to increase in the tax basis of ownership interest in Switch, Ltd. | $ 20,300 | |
Liabilities under tax receivable agreement | $ 39,534 | $ 0 |
Percentage of tax benefits realized to be paid to unit holders | 85.00% |
Stockholders' Equity (Details) - USD ($) $ / shares in Units, $ in Thousands |
1 Months Ended | 6 Months Ended | |
---|---|---|---|
Jun. 30, 2018 |
Apr. 30, 2018 |
Jun. 30, 2018 |
|
Class of Stock [Line Items] | |||
Cash dividends | $ 1,320 | ||
Class A Common Stock | |||
Class of Stock [Line Items] | |||
Cash dividends (in dollars per share) | $ 0.0147 | $ 0.0147 |
Equity-Based Compensation - Common Unit Award Activity (Details) - Common Unit Awards shares in Thousands |
6 Months Ended |
---|---|
Jun. 30, 2018
$ / shares
shares
| |
Number of Nonvested Common Units Outstanding (in thousands) | |
Outstanding (in shares) | shares | 4,783 |
Vested (in shares) | shares | (399) |
Outstanding (in shares) | shares | 4,384 |
Weighted Average Grant Date Fair Value per Common Unit | |
Outstanding (in dollars per share) | $ / shares | $ 11.11 |
Vested (in dollars per share) | $ / shares | 11.11 |
Outstanding (in dollars per share) | $ / shares | $ 11.11 |
Equity-Based Compensation - Information Related to RSUs (Details) - 2017 Incentive Award Plan - RSUs shares in Thousands |
6 Months Ended |
---|---|
Jun. 30, 2018
$ / shares
shares
| |
Number of Units (in thousands) | |
Outstanding (in shares) | shares | 31 |
Granted (in shares) | shares | 2,353 |
Vested (in shares) | shares | (187) |
Forfeited (in shares) | shares | (68) |
Outstanding (in shares) | shares | 2,129 |
Weighted Average Grant Date Fair Value per Unit | |
Outstanding (in dollars per share) | $ / shares | $ 18.01 |
Granted (in dollars per share) | $ / shares | 17.01 |
Vested (in dollars per share) | $ / shares | 15.49 |
Forfeited (in dollars per share) | $ / shares | 17.16 |
Outstanding (in dollars per share) | $ / shares | $ 17.16 |
Equity-Based Compensation - Total Equity-Based Compensation Recognized in the Consolidated Statements of Comprehensive Income (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Equity-based compensation expense | $ 8,209 | $ 1,314 | $ 20,566 | $ 3,564 |
Cost of revenue | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Equity-based compensation expense | 367 | 49 | 783 | 99 |
Selling, general and administrative | ||||
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items] | ||||
Equity-based compensation expense | $ 7,842 | $ 1,265 | $ 19,783 | $ 3,465 |
Non-controlling Interest - Narrative (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions |
6 Months Ended | |||
---|---|---|---|---|
May 18, 2018 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Dec. 31, 2017 |
|
Switch, Ltd. | ||||
Noncontrolling Interest [Line Items] | ||||
Cash distributions made to common unit holders (in dollars per share) | $ 0.0147 | |||
Total distribution made | $ 6.0 | $ 173.4 | ||
Cash distributions made to members in accordance with percentage interests | 100.0 | |||
Cash distributions made to members with unreturned capital contributions | $ 73.4 | |||
Stock Options | Common Unit Plan | ||||
Noncontrolling Interest [Line Items] | ||||
Stock options vested and exercisable (in shares) | 110 | 110 | ||
Class A Common Stock | ||||
Noncontrolling Interest [Line Items] | ||||
Shares of common stock issued (in shares) | 13,400 |
Non-controlling Interest - Ownership of Common Units (Details) - shares |
May 18, 2018 |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|---|
Common Units | |||
Ownership % | |||
Unvested common unit awards (in shares) | 4,384,000 | 4,783,000 | |
Unit Options | Common Unit Plan | |||
Ownership % | |||
Unit options vested and exercisable (in shares) | 110,000 | 110,000 | |
Switch, Ltd. | |||
Units | |||
Switch, Inc.’s ownership of common units (in shares) | 49,381,000 | 35,937,500 | |
Non-controlling interest holders’ ownership of common units (in shares) | 198,760,000 | 211,675,452 | |
Total common units (in shares) | 248,141,000 | 247,612,952 | |
Ownership % | |||
Switch, Inc.’s ownership of common units | 19.90% | 14.50% | |
Non-controlling interest holders’ ownership of common units | 80.10% | 85.50% | |
Class A Common Stock | |||
Noncontrolling Interest [Line Items] | |||
Shares of common stock issued (in shares) | 13,400,000 |
Fair Value of Financial Information (Details) - USD ($) $ in Millions |
Jun. 30, 2018 |
Dec. 31, 2017 |
---|---|---|
Level 2 | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Fair value of long-term debt | $ 594.0 | $ 599.2 |
Segment Reporting - Narrative (Details) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Outside of the United States | Revenue | Geographic Concentration Risk | ||||
Revenue, Major Customer [Line Items] | ||||
Concentration risk percentage | 1.00% | 1.00% | 1.00% | 1.00% |
Segment Reporting - Composition of Revenue (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Revenue from External Customer [Line Items] | ||||
Revenue | $ 102,161 | $ 92,101 | $ 199,878 | $ 181,258 |
Colocation | ||||
Revenue from External Customer [Line Items] | ||||
Revenue | 81,150 | 74,346 | 158,869 | 146,325 |
Connectivity | ||||
Revenue from External Customer [Line Items] | ||||
Revenue | 18,866 | 16,232 | 37,084 | 32,089 |
Other | ||||
Revenue from External Customer [Line Items] | ||||
Revenue | $ 2,145 | $ 1,523 | $ 3,925 | $ 2,844 |
Subsequent Events (Details) - USD ($) |
1 Months Ended | 3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|---|
Aug. 31, 2018 |
Jun. 30, 2018 |
Jun. 30, 2017 |
Jun. 30, 2018 |
Jun. 30, 2017 |
|
Subsequent Event [Line Items] | |||||
Dividends declared (in dollars per share) | $ 0.03 | $ 0.00 | $ 0.03 | $ 0.00 | |
Dividends | $ 1,320,000 | ||||
Subsequent Event | |||||
Subsequent Event [Line Items] | |||||
Dividends | $ 757,000 | ||||
Authorized repurchase amount under share repurchase program | $ 150,000,000 | ||||
Switch, Ltd. | Subsequent Event | |||||
Subsequent Event [Line Items] | |||||
Cash distributions to common unit holders (in dollars per share) | $ 0.0147 | ||||
Cash distributions declared | $ 3,700,000 | ||||
Class A Common Stock | Subsequent Event | |||||
Subsequent Event [Line Items] | |||||
Dividends declared (in dollars per share) | $ 0.0147 |
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