10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2020

or

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

For the transition period from                    to     

Commission File Number: 001-38231

Switch, Inc.

(Exact name of registrant as specified in its charter)

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

(702) 444-4111

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

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

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

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

As of November 5, 2020, the registrant had 118,983,644 shares of Class A common stock, 121,639,784 shares of Class B common stock, and no shares of Class C common stock outstanding.

Switch, Inc.

Table of Contents

Part I.	Financial Information
Item 1.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39
Part II.	Other Information
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	41
Item 6.	Exhibits	41
Signatures

Part I.Financial Information

Item 1.Financial Statements (Unaudited).

Consolidated Balance Sheets	4
Consolidated Statements of Comprehensive Income	5
Consolidated Statements of Stockholders’ Equity	6
Consolidated Statements of Cash Flows	10
Condensed Notes to Consolidated Financial Statements	12

Switch, Inc. | Q3 2020 Form 10-Q | 3

Switch, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)

	September 30,		December 31,
	2020		2019
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	156,081	$	24,721
Accounts receivable, net of allowance for credit losses of $589 and $309, respectively	16,480		23,365
Prepaid expenses	5,449		7,137
Other current assets, net of allowance for credit losses of $3 and $0, respectively	2,761		3,817
Total current assets	180,771		59,040
Property and equipment, net	1,675,229		1,551,117
Long-term deposit	3,754		3,429
Deferred income taxes	177,669		114,372
Other assets, net of allowance for credit losses of $81 and $0, respectively	47,965		45,785
TOTAL ASSETS	$	2,085,388	$	1,773,743
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Long-term debt, current portion	$	6,000	$	6,000
Accounts payable	18,134		19,477
Accrued salaries and benefits	13,408		5,828
Accrued expenses	12,396		11,254
Accrued construction payables	25,788		37,269
Deferred revenue, current portion	14,476		14,991
Customer deposits	11,828		10,830
Interest rate swap liability, current portion	9,332		3,464
Operating lease liability, current portion	3,819		4,805
Finance lease liability, current portion	4		12
Total current liabilities	115,185		113,930
Long-term debt, net	984,821		745,372
Operating lease liability	26,359		26,142
Finance lease liability	57,543		57,614
Deferred revenue	23,564		27,852
Liabilities under tax receivable agreement	243,690		162,076
Other long-term liabilities	25,143		13,112
TOTAL LIABILITIES	1,476,305		1,146,098
Commitments and contingencies (Note 5)
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, 108,955 and 89,768 shares issued and outstanding, respectively	109		90
Class B common stock, $0.001 par value per share, 300,000 shares authorized, 131,667 and 151,047 shares issued and outstanding, respectively	132		151
Class C common stock, $0.001 par value per share, 75,000 shares authorized, none issued and outstanding	—		—
Additional paid in capital	242,955		204,711
(Accumulated deficit) retained earnings	(325)		2,420
Accumulated other comprehensive income	79		79
Total Switch, Inc. stockholders’ equity	242,950		207,451
Noncontrolling interest	366,133		420,194
TOTAL STOCKHOLDERS’ EQUITY	609,083		627,645
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,085,388	$	1,773,743

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

Switch, Inc. | Q3 2020 Form 10-Q | 4

Switch, Inc.

Consolidated Statements of Comprehensive Income

(in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Revenue	$	128,785	$	122,353	$	383,798	$	341,765
Cost of revenue	74,348		63,504		209,575		179,146
Gross profit	54,437		58,849		174,223		162,619
Selling, general and administrative expense	31,516		36,869		105,070		104,039
Income from operations	22,921		21,980		69,153		58,580
Other income (expense):
Interest expense, including $439, $409, $1,257, and $1,227, respectively, in amortization of debt issuance costs and original issue discount	(6,554)		(7,351)		(20,682)		(22,023)
Loss on interest rate swaps	(1,559)		(3,926)		(23,257)		(17,692)
Loss on extinguishment of debt	(245)		—		(245)		—
Other	185		244		733		1,264
Total other expense	(8,173)		(11,033)		(43,451)		(38,451)
Income before income taxes	14,748		10,947		25,702		20,129
Income tax expense	(1,515)		(867)		(2,622)		(1,531)
Net income	13,233		10,080		23,080		18,598
Less: net income attributable to noncontrolling interest	8,027		7,133		13,993		13,729
Net income attributable to Switch, Inc.	$	5,206	$	2,947	$	9,087	$	4,869
Net income per share (Note 9):
Basic	$	0.05	$	0.04	$	0.09	$	0.07
Diluted	$	0.05	$	0.03	$	0.08	$	0.06
Weighted average shares used in computing net income per share (Note 9):
Basic	108,690		84,135		102,703		72,566
Diluted	111,565		247,142		243,553		247,193
Other comprehensive income:
Foreign currency translation adjustment, net of tax of $0	—		—		—		—
Comprehensive income	13,233		10,080		23,080		18,598
Less: comprehensive income attributable to noncontrolling interest	8,027		7,133		13,993		13,729
Comprehensive income attributable to Switch, Inc.	$	5,206	$	2,947	$	9,087	$	4,869

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

Switch, Inc. | Q3 2020 Form 10-Q | 5

Switch, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)

	Switch, Inc. Stockholders’ Equity
	Class A Common Stock			Class B Common Stock
	Shares	Amount		Shares	Amount		Additional Paid in Capital		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Stockholders’ Equity
Balance—December 31, 2019	89,768	$	90	151,047	$	151	$	204,711	$	2,420	$	79	$	420,194	$	627,645
Cumulative adjustment due to adoption of new credit loss standard	—	—		—	—		—		(67)		—		(82)		(149)
Net loss	—	—		—	—		—		(1,216)		—		(2,273)		(3,489)
Equity-based compensation expense	—	—		—	—		4,973		—		—		2,551		7,524
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	630	—		—	—		(3,375)		—		—		(536)		(3,911)
Dividends declared ($0.0294 per share)	—	—		—	—		—		(2,891)		—		—		(2,891)
Distributions to noncontrolling interest	—	—		—	—		—		—		—		(4,304)		(4,304)
Exchanges of noncontrolling interest for Class A common stock	4,637	5		(4,637)	(5)		13,403		—		—		(13,403)		—
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	—	—		—	—		(19,198)		—		—		—		(19,198)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		16,610		—		—		—		16,610
Balance—March 31, 2020	95,035	95		146,410	146		217,124		(1,754)		79		402,147		617,837
Net income	—	—		—	—		—		5,097		—		8,239		13,336
Equity-based compensation expense	—	—		—	—		5,416		—		—		2,094		7,510
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	16	—		—	—		(330)		—		—		209		(121)
Issuance of Class A common stock upon exercise of stock options	169	—		—	—		596		—		—		2,280		2,876
Issuance of restricted stock awards	59	—		—	—		—		—		—		—		—
Dividends declared ($0.0294 per share)	—	—		—	—		—		(3,245)		—		—		(3,245)
Distributions to noncontrolling interest	—	—		—	—		—		—		—		(3,934)		(3,934)
Exchanges of noncontrolling interest for Class A common stock	11,488	12		(11,488)	(12)		31,840		—		—		(31,840)		—
Repurchase of common units and cancellation of Class B common stock	—	—		(1,126)	—		(7,758)		—		—		(12,242)		(20,000)
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	—	—		—	—		(52,811)		—		—		—		(52,811)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		44,394		—		—		—		44,394
Balance—June 30, 2020	106,767	$	107	133,796	$	134	$	238,471	$	98	$	79	$	366,953	$	605,842

Switch, Inc. | Q3 2020 Form 10-Q | 6

Switch, Inc.

Consolidated Statements of Stockholders’ Equity (Continued)

(in thousands)

(unaudited)

	Switch, Inc. Stockholders’ Equity
	Class A Common Stock			Class B Common Stock
	Shares	Amount		Shares	Amount		Additional Paid in Capital		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Stockholders’ Equity
Balance—June 30, 2020	106,767	$	107	133,796	$	134	$	238,471	$	98	$	79	$	366,953	$	605,842
Net income	—	—		—	—		—		5,206		—		8,027		13,233
Equity-based compensation expense	—	—		—	—		5,419		—		—		1,697		7,116
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	51	—		—	—		(1,538)		—		—		1,207		(331)
Issuance of Class A common stock upon exercise of stock options	7	—		—	—		57		—		—		68		125
Dividends declared ($0.05 per share)	—	—		—	—		—		(5,629)		—		—		(5,629)
Distributions to noncontrolling interest	—	—		—	—		—		—		—		(6,583)		(6,583)
Exchanges of noncontrolling interest for Class A common stock	2,129	2		(2,129)	(2)		5,236		—		—		(5,236)		—
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	—	—		—	—		(9,605)		—		—		—		(9,605)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		4,915		—		—		—		4,915
Balance—September 30, 2020	108,955	$	109	131,667	$	132	$	242,955	$	(325)	$	79	$	366,133	$	609,083

Switch, Inc. | Q3 2020 Form 10-Q | 7

Switch, Inc.

Consolidated Statements of Stockholders’ Equity (Continued)

(in thousands)

(unaudited)

	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		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Stockholders’ Equity
Balance—December 31, 2018	55,218	$	55	148,481	$	149	42,945	$	43	$	140,191	$	2,693	$	79	$	565,142	$	708,352
Cumulative adjustment due to adoption of new revenue recognition standard	—	—		—	—		—	—		—		224		—		940		1,164
Net income	—	—		—	—		—	—		—		733		—		3,113		3,846
Equity-based compensation expense	—	—		—	—		—	—		4,160		—		—		3,985		8,145
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	463	1		—	—		—	—		(2,016)		—		—		705		(1,310)
Dividends declared ($0.0294 per share)	—	—		—	—		—	—		—		(1,728)		—		—		(1,728)
Distributions to noncontrolling interest	—	—		—	—		—	—		—		—		—		(6,006)		(6,006)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		—	—		(728)		—		—		—		(728)
Balance—March 31, 2019	55,681	56		148,481	149		42,945	43		141,607		1,922		79		567,879		711,735
Net income	—	—		—	—		—	—		—		1,189		—		3,483		4,672
Equity-based compensation expense	—	—		—	—		—	—		3,800		—		—		3,643		7,443
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	1	—		—	—		—	—		(195)		—		—		190		(5)
Issuance of restricted stock awards	80	—		—	—		—	—		—		—		—		—		—
Dividends declared ($0.0294 per share)	—	—		—	—		—	—		—		(2,389)		—		—		(2,389)
Distributions to noncontrolling interest	—	—		—	—		—	—		—		—		—		(4,934)		(4,934)
Exchanges of noncontrolling interest for Class A common stock	22,323	22		(22,323)	(22)		—	—		67,362		—		—		(67,362)		—
Repurchase of common units and cancellation of Class B common stock	—	—		(1,288)	(2)		—	—		(2,738)		—		—		(10,857)		(13,597)
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	—	—		—	—		—	—		(59,476)		—		—		—		(59,476)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		—	—		47,871		—		—		—		47,871
Balance—June 30, 2019	78,085	$	78	124,870	$	125	42,945	$	43	$	198,231	$	722	$	79	$	492,042	$	691,320

Switch, Inc. | Q3 2020 Form 10-Q | 8

Switch, Inc.

Consolidated Statements of Stockholders’ Equity (Continued)

(in thousands)

(unaudited)

	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		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income		Noncontrolling Interest		Total Stockholders’ Equity
Balance—June 30, 2019	78,085	$	78	124,870	$	125	42,945	$	43	$	198,231	$	722	$	79	$	492,042	$	691,320
Net income	—	—		—	—		—	—		—		2,947		—		7,133		10,080
Equity-based compensation expense	—	—		—	—		—	—		3,960		—		—		3,350		7,310
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	18	—		—	—		—	—		(708)		—		—		612		(96)
Issuance of restricted stock awards	—	—		—	—		—	—		—		—		—		—		—
Dividends declared ($0.0294 per share)	—	—		—	—		—	—		—		(2,579)		—		—		(2,579)
Distributions to noncontrolling interest	—	—		—	—		—	—		—		—		—		(4,725)		(4,725)
Exchanges of noncontrolling interest for Class A common stock	6,254	6		(6,254)	(6)		—	—		18,550		—		—		(18,550)		—
Repurchase of common units and cancellation of Class B common stock	—	—		(834)	(1)		—	—		(4,850)		—		—		(6,257)		(11,108)
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	—	—		—	—		—	—		(20,505)		—		—		—		(20,505)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	—	—		—	—		—	—		15,671		—		—		—		15,671
Balance—September 30, 2019	84,357	$	84	117,782	$	118	42,945	$	43	$	210,349	$	1,090	$	79	$	473,605	$	685,368

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

Switch, Inc. | Q3 2020 Form 10-Q | 9

Switch, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	23,080	$	18,598
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	105,322		88,841
Loss on disposal of property and equipment	283		148
Deferred income taxes	2,622		1,531
Amortization of debt issuance costs and original issue discount	1,257		1,227
Credit loss expense (benefit)	308		(107)
Unrealized loss on interest rate swaps	18,085		17,449
Loss on extinguishment of debt	245		—
Equity-based compensation	22,150		22,898
Amortization of portfolio energy credits	1,381		1,236
Cost of revenue for sales-type leases	3,436		1,082
Changes in operating assets and liabilities:
Accounts receivable	4,250		2,493
Prepaid expenses	1,688		(172)
Net investment in sales-type leases	—		(4,275)
Other current assets	1,053		(148)
Other assets	846		2,384
Accounts payable	2,709		2,691
Accrued salaries and benefits	7,580		7,368
Accrued expenses	1,048		1,441
Deferred revenue	(4,803)		11,689
Customer deposits	998		480
Operating lease liabilities	(3,883)		(3,638)
Other long-term liabilities	(320)		6
Net cash provided by operating activities	189,335		173,222
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	(249,096)		(221,296)
Proceeds from sale of property and equipment	2		33
Purchase of portfolio energy credits	(1,381)		(1,095)
Net cash used in investing activities	(250,475)		(222,358)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings	710,000		70,000
Repayment of borrowings, including finance lease liabilities	(465,221)		(4,526)
Payment of debt issuance costs and original issue discount	(5,960)		—
Change in long-term deposit	1,491		2,144
Payment of tax withholdings upon settlement of restricted stock unit awards	(4,508)		(1,441)
Proceeds from exercise of stock options	3,001		—
Repurchase of common units	(20,000)		(24,705)
Dividends paid to Class A common stockholders	(11,377)		(6,412)
Distributions paid to noncontrolling interest	(14,926)		(15,006)
Net cash provided by financing activities	192,500		20,054
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	131,360		(29,082)
CASH AND CASH EQUIVALENTS—Beginning of period	24,721		81,560
CASH AND CASH EQUIVALENTS—End of period	$	156,081	$	52,478

Switch, Inc. | Q3 2020 Form 10-Q | 10

Switch, Inc.

Consolidated Statements of Cash Flows (Continued)

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2020		2019
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized	$	18,946	$	20,677
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
(Decrease) increase in liabilities incurred to acquire property and equipment	$	(16,323)	$	10,519
(Decrease) increase in accrued construction payables incurred related to long-term deposit	$	(459)	$	814
Increase in property and equipment related to transfer of long-term deposit	$	244	$	—
Increase in accounts payable related to long-term deposit	$	—	$	501
Increase in dividends payable on unvested restricted stock units	$	388	$	284
Increase in liabilities incurred related to deferred debt issuance costs	$	1,087	$	—
Decrease in noncontrolling interest as a result of exchanges for Class A common stock	$	(50,479)	$	(85,912)
Recognition of liabilities under tax receivable agreement	$	81,614	$	79,981
Increase in deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	$	65,919	$	62,814
Right-of-use assets obtained in exchange for new operating leases	$	3,114	$	44
Property and equipment obtained in exchange for new finance leases	$	138	$	37,923
(Decrease) increase in distributions payable on unvested common units	$	(105)	$	659
Dividends payable settled with shares of Class A common stock	$	145	$	30

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

Switch, Inc. | Q3 2020 Form 10-Q | 11

Switch, Inc.

Condensed Notes to Consolidated Financial Statements

(unaudited)

Note 1	Organization	13
Note 2	Summary of Significant Accounting Policies	13
Note 3	Property and Equipment, Net	17
Note 4	Long-Term Debt	17
Note 5	Commitments and Contingencies	19
Note 6	Income Taxes	20
Note 7	Equity-Based Compensation	20
Note 8	Noncontrolling Interest	21
Note 9	Net Income Per Share	22
Note 10	Segment Reporting	22
Note 11	Subsequent Events	23

Switch, Inc. | Q3 2020 Form 10-Q | 12

1. Organization

Switch, Inc. was formed as a Nevada corporation in June 2017 for the purpose of completing an initial public offering (“IPO”) and related organizational transactions in order to carry on the business of Switch, Ltd. and its subsidiaries (collectively, “Switch,” and together with Switch, Inc., the “Company”). Switch is comprised of limited liability companies that provide colocation space and related services to global enterprises, financial companies, government agencies, and others that conduct critical business on the internet. Switch develops and operates data centers in Nevada, which are Tier IV Gold certified, Michigan, and Georgia (which opened in the first quarter of 2020), 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.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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 nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, or for any other future annual or interim period.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and all significant intercompany transactions and balances have been eliminated.

As the sole manager of Switch, Ltd., Switch, Inc. operates and controls all of the business and affairs of Switch, has the sole voting interest in, and controls the management of, Switch, and has the obligation to absorb the losses of, and receive benefits from, Switch. Accordingly, Switch, Inc. identifies itself as the primary beneficiary of Switch and began consolidating Switch in its consolidated financial statements as of October 11, 2017, the closing date of the IPO, resulting in a noncontrolling interest related to the common units of Switch, Ltd. (“Common Units”) held by members, including Rob Roy, the Founder, Chief Executive Officer and Chairman of Switch, Ltd., and an affiliated entity of Mr. Roy (collectively, the “Founder Members”), other than Switch, Inc. on its consolidated financial statements.

The Company periodically evaluates entities for consolidation either through ownership of a majority voting interest, or through means other than voting interest, in accordance with the Variable Interest Entity (“VIE”) accounting model. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to the allowance for credit losses, useful lives of property and equipment, deferred income taxes, liabilities under the tax receivable agreement, equity-based compensation, deferred revenue, incremental borrowing rate, fair value of performance obligations, and probability assessments of exercising renewal options on leases. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable. Actual results could differ from these estimates.

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Significant Accounting Policies

A description of the Company’s significant accounting policies is included in the audited financial statements within its Annual Report on Form 10-K for the year ended December 31, 2019. No other changes to significant accounting policies have occurred since December 31, 2019, with the exception of those detailed below.

Concentration of Credit and Other Risks

Although the Company operates primarily in Nevada, realization of its receivables and its future operations and cash flows could be affected by adverse economic conditions, both regionally and elsewhere in the United States. During the three months ended September 30, 2020 and 2019, the Company’s largest customer and its affiliates comprised 14% and 13%, respectively, of the Company’s revenue. During the nine months ended September 30, 2020 and 2019, the Company’s largest customer and its affiliates comprised 14% and 12%, respectively, of the Company’s revenue. No customer accounted for 10% or more of total receivables as of September 30, 2020 and two customers, one of which was the Company’s largest customer and its affiliate, accounted for 10% or more of total receivables as of December 31, 2019.

Revenue Recognition

Contract Balances

The opening and closing balances of the Company’s contract assets, net of allowance for credit losses, and deferred revenue are as follows:

	Contract Assets, Current Portion(1)		Contract Assets(2)		Deferred Revenue, Current Portion(3)		Deferred Revenue(4)
	(in thousands)
December 31, 2019	$	496	$	3,216	$	14,991	$	27,852
September 30, 2020	179		3,732		14,476		23,564
Change	$	(317)	$	516	$	(515)	$	(4,288)

________________________________________

(1)     Amounts are included within other current assets on the Company’s consolidated balance sheets.

(2)     Amounts are included within other assets on the Company’s consolidated balance sheets.

(3)     Amounts include $3.8 million and $2.3 million of deferred revenue related to leases as of December 31, 2019 and September 30, 2020, respectively.

(4)     Amounts include $7.9 million and $2.6 million of deferred revenue related to leases as of December 31, 2019 and September 30, 2020, respectively.

The differences between the opening and closing balances of the Company’s deferred revenue primarily result from timing differences between the Company’s satisfaction of performance obligations and the associated customer payments. Revenue recognized from the balance of deferred revenue as of December 31, 2019 was $2.4 million during the three months ended September 30, 2020 and $12.7 million during the nine months ended September 30, 2020. For the three and nine months ended September 30, 2020 and 2019, no impairment losses related to contract assets were recognized on the consolidated statements of comprehensive income.

Remaining Performance Obligations

Remaining performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized in future periods. These amounts as of September 30, 2020 were $711.7 million, 39%, 48%, and 9% of which is expected to be recognized over the next year, one to three years, and three to five years, respectively, with the remainder recognized thereafter. The remaining performance obligations do not include estimates of variable consideration related to unsatisfied performance obligations, such as the usage of metered power, or any contracts that could be terminated without significant penalties.

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Fair Value Measurements

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

		September 30, 2020
	Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
		(in thousands)
Assets:
Cash equivalents	Cash and cash equivalents	$	118,346	$	118,346	$	—	$	—
Liabilities:
Interest rate swaps	Interest rate swap liability, current portion	$	9,332	$	—	$	9,332	$	—
Interest rate swaps	Other long-term liabilities	$	22,767	$	—	$	22,767	$	—

		December 31, 2019
	Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
		(in thousands)
Liabilities:
Interest rate swaps	Interest rate swap liability, current portion	$	3,464	$	—	$	3,464	$	—
Interest rate swaps	Other long-term liabilities	$	10,550	$	—	$	10,550	$	—

Transfers between levels of fair value hierarchy are recorded at the end of the reporting period during which the events or changes in circumstances that caused the transfers to occur. There were no transfers between levels of fair value hierarchy during the periods presented.

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

Recent Accounting Pronouncements

ASU 2014-09–Revenue from Contracts with Customers and ASU 2016-02–Leases

In the fourth quarter of 2019, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) and ASU 2016-02, Leases (Topic 842) effective January 1, 2019, each using the modified retrospective approach. Results for the three and nine months ended September 30, 2019 have been modified to reflect the adoption of this guidance on January 1, 2019.

ASU 2016-13–Financial Instruments–Credit Losses

In June 2016, the Financial Accounting Standards Board (“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 is required to use a new forward-looking “expected loss” model for trade and other receivables that generally results in the earlier recognition of allowances for losses. In April 2019, the FASB issued ASU 2019-04, which, among other amendments, allows for certain policy elections and practical expedients related to accrued interest on financial instruments. In May 2019, the FASB issued ASU 2019-05, which granted targeted transition relief by allowing entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost. In November 2019, the FASB issued ASU 2019-10 and ASU 2019-11, which addressed certain aspects of the guidance related to effective dates, expected recoveries, troubled debt restructurings, accrued interest receivables, and financial assets secured by collateral. In February and March 2020, the FASB also issued ASU 2020-02 and ASU 2020-03, respectively, which provide certain amendments and improvements to sections of ASU 2016-13.

The Company adopted this guidance effective January 1, 2020 using the modified retrospective method. As a result of this adoption, the Company measured an allowance for current expected credit losses for its accounts receivable and contract assets through a loss rate method; whereby, based on past events, such as prior write-offs, it determined expected losses as of the adoption date, while adjusting for current and forward-looking conditions, such as economic news and trends, customer concentrations, changes in customer payment terms, and customer credit-worthiness. Customer credit-worthiness is determined through indicators such as third-party credit ratings, collection experience, and other internal metrics. If a customer‘s credit-worthiness resulted in an impairment of their

Switch, Inc. | Q3 2020 Form 10-Q | 15

ability to make payments, greater allowances for credit losses may be required. The Company pooled its assets based on these conditions such that each asset pool reflected a homogenous set of asset risks, including characteristics such as credit ratings, customer industry, contract term, and historical credit loss patterns. For any period beyond a reasonable and supportable forecast for current and forward-looking conditions, the Company reverted to a loss rate based only on historical information. The adoption of this guidance did not materially impact the Company’s consolidated financial statements.

ASU 2018-13–Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. In addition, in November 2018, the FASB issued ASU 2018-19, which provides clarifications and improvements on sections of ASU 2018-13. The Company adopted this guidance retrospectively as of March 31, 2020. The adoption of this guidance did not materially impact the Company’s consolidated financial statements.

ASU 2019-12–Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)–Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in ASU 2019-12 provide certain clarifications and simplify accounting for income taxes by removing certain exceptions to the general principles in the current guidance. The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted in periods for which financial statements have not yet been issued. 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 2020-04–Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848)–Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 are elective and provide optional expedients and exceptions to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The Company elected to adopt this guidance prospectively as of March 31, 2020 as it has LIBOR-based contracts extending beyond the expected discontinuation of LIBOR, including its term loan facility, revolving credit facility, and interest rate swap agreements. The adoption of this guidance did not materially impact the Company’s consolidated financial statements.

ASU 2020-10–Codification Improvements

In October 2020, the FASB issued ASU 2020-10, Codification Improvements (“ASU 2020-10”). The amendments in ASU 2020-10 improve codification by ensuring that all guidance that includes an option for an entity to provide information in the notes to financial statements is codified within the disclosure section of the codification. The Company early adopted this guidance retrospectively as of July 1, 2020. The early adoption of this guidance did not materially impact the Company’s consolidated financial statements.

Reclassification

The Company reclassified the current portion of its interest rate swap liability to present it separately from accrued expenses on the consolidated balance sheet as of December 31, 2019 to be consistent with the current period presentation. The reclassification had no impact on the Company’s financial condition, results of operations, or net cash flows.

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3. Property and Equipment, Net

Property and equipment, net consists of the following:

	September 30,		December 31,
	2020		2019
	(in thousands)
Land and land improvements	$	283,800	$	223,877
Buildings, building improvements, and leasehold improvements	518,266		435,214
Substation equipment	19,780		19,780
Data center equipment	1,196,670		1,021,056
Vehicles	1,945		1,732
Core network equipment	39,604		36,572
Fiber facilities	14,225		13,180
Computer equipment, furniture and fixtures	44,910		39,057
Finance lease right-of-use assets	72,951		72,569
Construction in progress	154,443		254,750
Property and equipment, gross	2,346,594		2,117,787
Less: accumulated depreciation and amortization	(671,365)		(566,670)
Property and equipment, net	$	1,675,229	$	1,551,117

Accumulated amortization for finance lease right-of-use assets totaled $13.6 million and $11.7 million as of September 30, 2020 and December 31, 2019, respectively.

During the nine months ended September 30, 2020 and 2019, capitalized interest was $3.0 million and $3.9 million, respectively.

In May 2020, the Company purchased approximately two acres of land in Las Vegas, Nevada for $2.5 million from an entity in which a member of its Board of Directors has a beneficial ownership interest.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Cost of revenue	$	35,614	$	29,427	$	101,725	$	86,251
Selling, general and administrative expense	1,177		999		3,597		2,590
Total depreciation and amortization of property and equipment	$	36,791	$	30,426	$	105,322	$	88,841

4. Long-Term Debt

Long-term debt consists of the following as of:

	September 30,		December 31,
	2020		2019
	(in thousands)
Senior Unsecured Notes Due 2028	$	600,000	$	—
Term Loan Facility	400,000		585,000
Revolving Credit Facility	—		170,000
Long-term debt, gross	1,000,000		755,000
Less: unamortized debt issuance costs and original issue discount	(9,179)		(3,628)
	990,821		751,372
Less: long-term debt, current	(6,000)		(6,000)
Long-term debt, net	$	984,821	$	745,372

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Credit Agreement

In June 2017, Switch, Ltd. entered into an amended and restated credit agreement (“Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and certain other lenders, consisting of a $600.0 million term loan facility (the “Term Loan Facility”), maturing on June 27, 2024, and a $500.0 million revolving credit facility (the “Revolving Credit Facility,” and, together with the Term Loan Facility, the “Credit Facilities”), maturing on June 27, 2022. In September 2020, Switch, Ltd. entered into a second amendment to the Credit Agreement (“Amended Credit Agreement”) to, among other things, extend the maturity of the Revolving Credit Facility to June 27, 2023, modify the ratio used for the financial covenant and certain basket availability tests from a consolidated total leverage ratio to a consolidated secured leverage ratio, and refresh or increase certain baskets for restricted payments, investments, and junior debt payments. In connection with this amendment, certain lenders exited the Revolving Credit Facility and a partial repayment was applied to the Term Loan Facility to reduce its principal amount to $400.0 million. As a result, the Company recorded a $0.2 million loss on extinguishment of debt during the three and nine months ended September 30, 2020.

The Term Loan Facility continues to be subject to quarterly amortization payments of $1.5 million, followed by a final payment of $379.0 million in June 2024.

The Amended Credit Agreement contains affirmative and negative covenants customary for such financings, including, but not limited to, limitations on incurring additional debt, incurring additional liens, encumbrances or contingent liabilities, and paying distributions or making certain other restricted payments (with certain exceptions and baskets, including a restricted payment basket of $50.0 million per fiscal year). The Amended Credit Agreement also requires Switch, Ltd. to maintain compliance with the consolidated secured leverage ratio (as defined in the Amended Credit Agreement) of 4.00 to 1.00 for each fiscal quarter.

Senior Unsecured Notes Due 2028

In September 2020, Switch, Ltd. (the “Issuer”) issued $600.0 million aggregate principal amount of its 3.75% senior unsecured notes due 2028 (the “Notes”), pursuant to an indenture (the “Indenture”) by and among the Issuer, the guarantors named therein and U.S. Bank National Association, as trustee. A portion of the net proceeds was used to repay outstanding borrowings on the Revolving Credit Facility and reduce the principal amount of the Term Loan Facility.

The Notes bear interest at the rate of 3.75% per annum, payable in cash semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2021. The Notes mature on September 15, 2028 and are fully and unconditionally guaranteed on a senior unsecured basis by each of the Issuer’s current and future domestic restricted subsidiaries that guarantee its obligations under its Credit Facilities.

Prior to September 15, 2023, the Issuer may redeem the Notes, in whole or in part, at a redemption price of 100% of the principal amount thereof, plus a “make-whole” premium set forth in the Indenture, plus accrued and unpaid interest. In addition, prior to September 15, 2023, the Issuer may redeem up to 40% of the aggregate principal amount of the Notes at a redemption price equal to 103.75% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds from one or more equity offerings. On or after September 15, 2023, the Issuer may redeem some or all of the Notes at a redemption price decreasing annually from 101.875% of the principal amount to 100% of the principal amount, plus accrued and unpaid interest.

In the event of a change of control triggering event (as defined in the Indenture), the Issuer will be required to offer to repurchase the Notes at a price equal to 101% of the principal amount thereof, plus any accrued and unpaid interest. If holders of not less than 90.0% in aggregate principal amount of the outstanding Notes validly tender in connection with any tender offer or other offer to purchase the Notes (including pursuant to a change of control offer, an alternate offer, or an offer to purchase with the proceeds from any asset disposition, all as described in the indenture), the Issuer will have the right to redeem the remaining Notes outstanding following such purchase at a cash redemption price equal to the applicable price paid to holders in such purchase, plus accrued and unpaid interest.

The Notes are general unsecured obligations of the Issuer and the guarantors. Under the terms of the Indenture, the Notes rank equally in right of payment with all of the Issuer’s and the guarantors’ existing and future senior indebtedness, and rank contractually senior in right of payment to the Issuer’s and the guarantors’ future indebtedness and other obligations that are expressly subordinated in right of payment to the Notes. The Notes are effectively subordinated to the Issuer’s and the guarantors’ existing and future secured indebtedness, including secured indebtedness under the Credit Facilities, to the extent of the value of the assets securing such indebtedness. The Notes and guarantees are structurally subordinated to all existing and future indebtedness and liabilities of the Issuer’s subsidiaries that do not guarantee the Notes.

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The Indenture contains covenants that, subject to exceptions and qualifications, among other things, limit the Issuer’s ability and the ability of its Restricted Subsidiaries (as defined in the Indenture) to incur additional indebtedness and guarantee indebtedness, pay dividends or make other distributions or repurchase or redeem Switch, Inc.’s capital stock, prepay, redeem or repurchase certain indebtedness, issue certain preferred stock or similar equity securities, make loans and investments, dispose of assets, incur liens, enter into transactions with affiliates, enter into agreements restricting the ability to pay dividends, and consolidate, merge or sell all or substantially all assets.

The Indenture contains customary events of default including, without limitation, failure to make required payments, failure to comply with certain agreements or covenants, cross-acceleration to certain other indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, and failure to pay certain judgments. An event of default under the notes will allow either the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes to accelerate, or in certain cases, will automatically cause the acceleration of the maturity of all outstanding Notes.

Fair Value

The estimated fair value of the Company’s long-term debt as of September 30, 2020 and December 31, 2019 was approximately $1.01 billion and $755.0 million, respectively, compared to its carrying value, excluding debt issuance costs and original issue discount, of $1.00 billion and $755.0 million, respectively. The estimated fair value of the Company’s long-term debt was based on Level 2 inputs using quoted market prices on or about September 30, 2020 and December 31, 2019, respectively.

5. Commitments and Contingencies

Operating Leases

During the three months ended September 30, 2020 and 2019, lease costs related to operating leases were $1.8 million and $2.0 million, respectively. During the nine months ended September 30, 2020 and 2019, lease costs related to operating leases were $5.7 million and $5.9 million, respectively. Related party lease costs included in these amounts were $1.1 million and $1.4 million for the three months ended September 30, 2020 and 2019, respectively, and $3.5 million and $3.9 million for the nine months ended September 30, 2020 and 2019, respectively.

Legal Proceedings

On September 7, 2017, Switch, Ltd. and Switch, Inc. were named in a lawsuit filed in the U.S. District Court for the District of Nevada by V5 Technologies formerly d/b/a Cobalt Data Centers. The lawsuit alleges, among other things, that Switch, Ltd. and Switch, Inc. monopolized the Las Vegas Metropolitan area of Southern Nevada’s data center colocation market and engaged in unfair business practices leading to the failure of Cobalt Data Centers in 2015 and seeks monetary damages in an amount yet to be disclosed. Discovery closed in February 2020. In March 2020, both parties filed motions for summary judgment and are waiting for the court to rule on the motions. Switch, Ltd. and Switch, Inc. are vigorously defending the case.

On September 12, 2017, Switch, Ltd. filed a complaint in the Eighth Judicial District of Nevada against the consultant, Stephen Fairfax, and his business, MTechnology Inc. Among other claims, Switch raised allegations of breach of contract and misappropriation of trade secrets. The complaint also alleged that Aligned Data Centers LLC (“Aligned”) hired Mr. Fairfax and MTechnology Inc. to design their data centers; that this consultant had toured Switch under a non-disclosure agreement; and that this consultant breached his confidentiality agreements with Switch by using Switch’s designs to design the Aligned data centers. Switch, Ltd. is seeking an injunction to prevent the defendants in the lawsuit from infringing Switch, Ltd.’s patents, as well as other remedies. The parties are currently engaged in discovery.

Four substantially similar putative class action complaints, captioned Martz v. Switch, Inc. et al. (filed April 20, 2018); Palkon v. Switch, Inc. et al. (filed April 30, 2018); Chun v. Switch, Inc. et al. (filed May 11, 2018); and Silverberg v. Switch, Inc. et al. (filed June 6, 2018), were filed in the Eighth Judicial District of Nevada, and subsequently consolidated into a single case (the “State Court Securities Action”). Additionally, on June 11, 2018, one putative class action complaint captioned Cai v. Switch, Inc. et al. was filed in the United States District Court for the District of New Jersey (the “Federal Court Securities Action,” and collectively with the State Court Securities Action, the “Securities Actions”) and subsequently transferred to the Eighth Judicial District of Nevada in August 2018 and the federal court appointed Oscar Farach lead plaintiff. These lawsuits were filed against Switch, Inc., certain current and former officers and directors and certain underwriters of Switch, Inc.’s IPO alleging federal securities law violations in connection with the IPO. These lawsuits were brought by purported stockholders of Switch, Inc. seeking to represent a class of stockholders who purchased Class A common stock in or traceable to the IPO, and

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seek unspecified damages and other relief. With respect to the Federal Court Securities Action, in July 2019, the federal court granted Switch, Inc.’s motion to dismiss in part, which narrowed the scope of the plaintiff’s case. In December 2019, Switch, Inc. filed a motion for judgment on the pleadings, and in July 2020, the federal court entered a judgment in favor of Switch, Inc. In October 2020, Switch, Inc. filed a motion to dismiss in the State Court Securities Action, and a hearing is scheduled for January 2021. Switch, Inc. believes that these lawsuits are without merit and intends to continue to vigorously defend against them.

On September 10, 2018, two purported stockholders of Switch, Inc. filed substantially similar shareholder derivative complaints, respectively captioned Liu v. Roy et al., and Zhao v. Roy et al., in the Eighth Judicial District of Nevada, which were subsequently consolidated into a single case (the “Derivative Shareholder Action”). These lawsuits allege breaches of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control, and gross mismanagement against certain current and former officers and directors of Switch, Inc. The plaintiffs also named Switch, Inc. as a nominal defendant. The complaints arise generally from the same allegations described in the State Court Securities Action and Federal Court Securities Action. The plaintiffs seek unspecified damages on Switch, Inc.’s behalf from the officer and director defendants, certain corporate governance actions, compensatory awards, and other relief. In December 2019, the court granted the parties’ stipulation to stay the Derivative Shareholder Action until the earlier of any of the following events: the Securities Actions are resolved with prejudice as to each defendant or a motion for summary judgment is resolved in the Federal Court Securities Action. Because the State Court Securities Action is still pending, the Derivative Shareholder Action remains stayed.

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.

6. Income Taxes

The Company recorded net increases in deferred tax assets of $4.9 million and $65.9 million during the three and nine months ended September 30, 2020, respectively, and $15.7 million and $62.8 million during the three and nine months ended September 30, 2019, respectively, with a corresponding increase to additional paid in capital, resulting from changes in the outside basis difference on Switch, Inc.’s investment in Switch, Ltd. The Company has determined it is more-likely-than-not that it will be able to realize this deferred tax asset in the future.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in March 2020. The Company does not expect the provisions of the CARES Act to have a significant impact on the effective tax rate or the deferred income tax positions of the Company.

Tax Receivable Agreement

The Company has recorded a liability under the tax receivable agreement of $243.7 million and $162.1 million as of September 30, 2020 and December 31, 2019, respectively, which provides for the payment of 85% of the amount of the tax benefits, if any, that Switch, Inc. is deemed to realize as a result of increases in the tax basis of its ownership in Switch, Ltd. related to exchanges of noncontrolling interest for Class A common stock. No amounts are expected to be paid within the next 12 months.

7. Equity-Based Compensation

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Cost of revenue	$	475	$	361	$	1,415	$	1,115
Selling, general and administrative expense	6,641		6,949		20,735		21,783
Total equity-based compensation	$	7,116	$	7,310	$	22,150	$	22,898

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8. Noncontrolling Interest

Ownership

Switch, Inc. owns a minority economic interest in Switch, Ltd., where “economic interest” means the right to receive any distributions, whether cash, property or securities of Switch, Ltd., in connection with Common Units. Switch, Inc. presents interest held by noncontrolling interest holders within noncontrolling interest in the consolidated financial statements. During the nine months ended September 30, 2020, Switch, Inc. issued an aggregate of 18.3 million shares of Class A common stock to members of Switch, Ltd. in connection with such members’ redemptions of an equivalent number of Common Units and corresponding cancellation and retirement of an equivalent number of Switch, Inc.’s Class B common stock. Such retired shares of Class B common stock may not be reissued. The redemptions occurred pursuant to the terms of the Switch operating agreement entered into in connection with the Company’s IPO.

In February 2020, Switch, Inc.’s Board of Directors authorized the repurchase by Switch, Ltd. of up to $20.0 million of its outstanding Common Units, which authorization expired unused on March 17, 2020. In addition, in May 2020, Switch, Inc.’s Board of Directors authorized the repurchase by Switch, Ltd. of up to $20.0 million of its outstanding Common Units held by Founder Members, with any unused amount from this authorization expiring on June 16, 2020. Switch, Ltd. elected to repurchase 1.1 million of its outstanding Common Units for $20.0 million from Founder Members under the May 2020 authorization. Pursuant to this repurchase, Switch, Inc. canceled and retired an equivalent amount of its shares of Class B common stock, and such shares may not be reissued. Repurchases under the Common Unit repurchase program were funded from Switch’s existing cash and cash equivalents. As of September 30, 2020, the Company had no repurchase authority remaining.

The ownership of the Common Units is summarized as follows:

	September 30, 2020			December 31, 2019
	Units	Ownership %		Units	Ownership %
	(units in thousands)
Switch, Inc.’s ownership of Common Units(1)	108,896	45.6	%	89,688	37.8	%
Noncontrolling interest holders’ ownership of Common Units(2)	129,674	54.4	%	147,859	62.2	%
Total Common Units	238,570	100.0	%	237,547	100.0	%

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(1)    Common Units held by Switch, Inc. exclude 59,000 and 80,000 Common Units underlying unvested restricted stock awards as of September 30, 2020 and December 31, 2019, respectively.

(2)    Common Units held by noncontrolling interest holders exclude 2.0 million and 3.2 million unvested Common Unit awards as of September 30, 2020 and December 31, 2019, respectively.

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

Switch, Inc. | Q3 2020 Form 10-Q | 21

9. Net Income Per Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share data)
Net income per share:
Numerator—basic:
Net income attributable to Switch, Inc.—basic	$	5,206	$	2,947	$	9,087	$	4,869
Numerator—diluted:
Net income attributable to Switch, Inc.—basic	$	5,206	$	2,947	$	9,087	$	4,869
Effect of dilutive securities:
Shares of Class B and Class C common stock	—		5,492		10,806		10,590
Net income attributable to Switch, Inc.—diluted	$	5,206	$	8,439	$	19,893	$	15,459
Denominator—basic:
Weighted average shares outstanding—basic	108,690		84,135		102,703		72,566
Net income per share—basic	$	0.05	$	0.04	$	0.09	$	0.07
Denominator—diluted:
Weighted average shares outstanding—basic	108,690		84,135		102,703		72,566
Weighted average effect of dilutive securities:
Stock options	1,462		1,050		1,415		572
Restricted stock units	1,358		1,027		1,139		652
Dividend equivalent units	45		24		35		21
Restricted stock awards	10		25		42		33
Shares of Class B and Class C common stock	—		160,881		138,219		173,349
Weighted average shares outstanding—diluted	111,565		247,142		243,553		247,193
Net income per share—diluted	$	0.05	$	0.03	$	0.08	$	0.06

Shares of Class B and Class C common stock do not share in the earnings or losses of Switch, Inc. and are therefore not participating securities. As such, separate calculations of basic and diluted net income per share for each of Class B and Class C common stock under the two-class method have not been presented.

The following table presents potentially dilutive securities excluded from the computation of diluted net income per share for the periods presented because their effect would have been anti-dilutive.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
	(in thousands)
Stock options(1)	1,117	5,040	1,117	5,040
Restricted stock units(1)	28	13	28	13
Shares of Class B and Class C common stock(2)	131,667	—	—	—

________________________________________

(1)     Represents the number of instruments outstanding at the end of the period. Application of the treasury stock method would reduce this amount if they had a dilutive effect and were included in the computation of diluted net income per share.

(2)     Shares of Class B and Class C common stock at the end of the period are considered potentially dilutive shares of Class A common stock under application of the if-converted method.

10. 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, S.A., which has deployed facilities in Italy and Thailand. The Company derives almost all of its revenue from sales to customers in the United States, based upon the billing address of the customer.

Switch, Inc. | Q3 2020 Form 10-Q | 22

Revenue derived from customers outside the United States, based upon the billing address of the customer, was less than 2% of revenue for each of the three and nine months ended September 30, 2020 and 2019.

The Company’s revenue is comprised of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Colocation	$	105,112	$	95,409	$	308,947	$	272,857
Connectivity	22,450		25,336		70,394		63,920
Other	1,223		1,608		4,457		4,988
Total revenue	$	128,785	$	122,353	$	383,798	$	341,765

11. Subsequent Events

In October and November 2020, Switch, Inc. issued an aggregate of 0.3 million and 9.8 million shares, respectively, of Class A common stock to members of Switch, Ltd. in connection with such members’ redemptions of an equivalent number of Common Units and corresponding cancellation and retirement of an equivalent number of shares of Class B common stock. Such retired shares of Class B common stock may not be reissued. The redemptions occurred pursuant to the terms of the Switch operating agreement entered into in connection with the Company’s IPO.

In November 2020, Switch, Inc.’s Board of Directors declared a dividend of $0.05 per share of Class A common stock, for a total estimated to be $5.9 million, to be paid on November 30, 2020 to holders of record as of November 17, 2020. Prior to the payment of this dividend, Switch, Ltd. will make a cash distribution to all holders of record of Common Units, including Switch, Inc., of $0.05 per Common Unit, for a total estimated to be $12.0 million.

Switch, Inc. | Q3 2020 Form 10-Q | 23

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related condensed notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Form 10-Q”), and with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019. Unless the context otherwise requires, references to “we,” “us,” “our,” the “Company,” “Switch” and similar references refer to Switch, Inc., and, unless otherwise stated, all of its subsidiaries, including Switch, Ltd., and, unless otherwise stated, all of its subsidiaries.

Overview

We are a technology infrastructure company powering the sustainable growth of the connected world and the Internet of Everything. Using our technology platform, we provide solutions to help enable that growth. Our advanced data centers are the center of our platform and provide power densities that exceed industry averages with efficient cooling, while being powered by 100% renewable energy. These hyperscale data centers address the growing challenges facing the data center industry. Our critical infrastructure components in our data centers are purpose-built to satisfy customers’ needs, drive efficiency and enable the deployment of highly advanced computing technologies.

We presently own and operate four primary campus locations, called Primes, which encompass 12 colocation facilities with an aggregate of up to 4.7 million gross square feet (“GSF”) of space. Our Primes consist of The Core Campus in Las Vegas, Nevada; The Citadel Campus near Reno, Nevada; The Pyramid Campus in Grand Rapids, Michigan; and The Keep Campus in Atlanta, Georgia, which opened during the first quarter of 2020. In addition to our Primes, we hold a 50% ownership interest in SUPERNAP International, S.A. (“SUPERNAP International”), which has deployed facilities in Italy and Thailand. Until March 31, 2018, we accounted for this ownership interest under the equity method of accounting.

We currently have more than 950 customers, including some of the world’s largest technology and digital media companies, cloud, IT and software providers, financial institutions and network and telecommunications providers. Our ecosystem connects over 250 cloud, IT and software providers and more than 90 network and telecommunications providers. Our business is based on a recurring revenue model comprised of (1) colocation, which includes the licensing and leasing of cabinet space and power and (2) connectivity services, which include cross-connects, broadband services and external connectivity. We consider these services recurring because our customers are generally billed on a fixed and recurring basis each month for the duration of their contract. We generally derive more than 95% of our revenue from recurring revenue and we expect to continue to do so for the foreseeable future.

Our non-recurring revenue is primarily comprised of installation services related to a customer’s initial deployment. These services are non-recurring because they are typically billed once, upon completion of the installation.

Factors that May Influence Future Results of Operations

Impact of COVID-19. In March 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) as a pandemic, which continues to be spread throughout the U.S. and the world. The impact from the rapidly changing market and economic conditions due to the COVID-19 outbreak is uncertain, disrupting the business of our customers, and may impact our business, consolidated results of operations, and financial condition in the future. While we have not incurred significant disruptions thus far from the COVID-19 outbreak, we are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact to the business of our customers, partners and vendors, the impact and functioning of the global financial markets and other factors identified in Part II, Item 1A “Risk Factors” in this Form 10-Q. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition.

Switch, Inc. | Q3 2020 Form 10-Q | 24

Market and Economic Conditions. We are affected by general business and economic conditions in the United States and globally. These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets and broad trends in industry and finance, all of which are beyond our control. Macroeconomic conditions that affect the economy and the economic outlook of the United States and the rest of the world, including as a result of the COVID-19 pandemic, could adversely affect our customers and vendors, which could adversely affect our results of operations and financial condition.

Growth and Expansion Activities. Our future revenue growth will depend on our ability to maintain our existing revenue base while expanding and increasing utilization at our existing and developing Prime Campus locations. Our existing Prime Campus locations currently encompass 12 colocation facilities with an aggregate of up to 4.7 million GSF of space and up to 490 megawatts (“MW”) of power. As of September 30, 2020, the utilization rates at these Prime Campuses, based on currently available cabinets, were approximately 91%, 90%, 72%, and 36% at The Core Campus, The Citadel Campus, The Pyramid Campus, and The Keep Campus, respectively. Additionally, each of our existing Primes has room for further expansion. We may be unable to attract customers to our data centers or retain them for a number of reasons, including if we fail to provide competitive pricing terms, provide space that is deemed to be inferior to that of our competitors or are unable to provide services that our existing and potential customers desire.

Cost of Power. We are a large consumer of power, and the cost of energy accounts for a significant portion of our cost of revenue. We require power supply to provide many services we offer, such as powering and cooling our customers’ IT equipment and operating critical data center plant and equipment infrastructure. Pursuant to our service agreements, we provide our customers with a committed level of power supply availability and we have committed to operating our data centers with 100% clean and renewable energy. Most of our customer agreements provide the ability to increase our cost of service in response to an increase in the cost of energy; however, our gross profit can be adversely affected by increases in our cost of energy if we choose not to pass along the increases to our customers. For instance, the seasonal increase in energy costs during the summer months has not historically resulted in an adjustment to our customer pricing, and therefore has resulted in a decrease in our gross profit in those periods. Nonetheless, as an unbundled purchaser of energy in Nevada, we are able to purchase power in the open market through long-term power contracts, which we believe reduces variability of energy costs. Additionally, our existing customers may not renew their contracts with us or may reduce the services purchased from us, or we may be unable to attract new customers, if we experience increased energy costs or limited availability of power resources, including clean and renewable energy. Our brand or reputation could be adversely affected if we are unable to operate our data centers with 100% clean and renewable energy.

Capital Expenditures. Our growth and expansion initiatives require significant capital. The costs of constructing, developing, operating and maintaining data centers, and growing our operations are substantial. While we strive to match the growth of our facilities to the demand for services, we still must spend significant amounts before we receive any revenue. If we are unable to generate sufficient capital to meet our anticipated capital requirements, our growth could slow and operations could be adversely affected. Our maintenance capital expenditures were $5.2 million and $5.4 million for the nine months ended September 30, 2020 and 2019, respectively.

Growth in Customers. Our results of operations could be significantly affected by the growth or reduction of our customer base. We have over 950 customers, including some of the world’s largest technology and digital media companies, cloud, IT and software providers, financial institutions, and network and telecommunications providers. We believe we have significant opportunities to both grow penetration of our existing customers as well as attract new customers. Our ability to attract new customers depends on a number of factors, including our ability to offer high quality services at competitive prices and the capability of our marketing and sales team to attract new customers. Additionally, a significant portion of our revenue is highly dependent on our top 10 customers and the loss of these customers or any significant decrease in their business could adversely affect our results of operations.

Switch, Inc. | Q3 2020 Form 10-Q | 25

Key Metrics and Non-GAAP Financial Measures

We monitor the following unaudited key metrics and financial measures, some of which are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”) to help us evaluate our business, identify trends affecting our business, formulate business plans and make strategic decisions.

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(dollars in thousands)
Recurring revenue	$	125,963		$	115,309		$	369,178		$	329,382
Capital expenditures	$	82,644		$	121,165		$	249,096		$	221,296
Adjusted EBITDA	$	67,159		$	60,751		$	197,764		$	173,430
Adjusted EBITDA margin	52.1		%	49.7		%	51.5		%	50.7		%

Recurring Revenue

We calculate recurring revenue as contractual revenue under signed contracts calculated in accordance with GAAP for the applicable period. Recurring revenue does not include any installation or other one-time revenue, which would be classified as non-recurring revenue. Management uses recurring revenue as a supplemental performance measure because it provides a useful measure of increases or decreases in contractual revenue from our customers and provides a baseline revenue measure on which to plan expenses.

The following table sets forth a reconciliation of recurring revenue to total revenue:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Recurring revenue	$	125,963	$	115,309	$	369,178	$	329,382
Non-recurring revenue	2,822		7,044		14,620		12,383
Revenue	$	128,785	$	122,353	$	383,798	$	341,765

Capital Expenditures

We define capital expenditures as cash purchases of property and equipment during a particular period. We believe that capital expenditures is a useful metric because it provides information regarding the growth of our technology infrastructure platform and the potential to expand our services and add new customers.

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA as net income adjusted for interest expense, interest income, income taxes, depreciation and amortization of property and equipment and for specific and defined supplemental adjustments to exclude (i) non-cash equity-based compensation expense; (ii) equity in net losses of investments; and (iii) certain other items that we believe are not indicative of our core operating performance. We define Adjusted EBITDA margin as Adjusted EBITDA divided by revenue.

Our Adjusted EBITDA and Adjusted EBITDA margin are not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to measures prepared in accordance with GAAP. We present Adjusted EBITDA and Adjusted EBITDA margin because we believe certain investors use them as measures of a company’s historical operating performance and its ability to service and incur debt and make capital expenditures. We believe that the inclusion of certain adjustments in presenting Adjusted EBITDA and Adjusted EBITDA margin is appropriate to provide additional information to investors because Adjusted EBITDA and Adjusted EBITDA margin exclude certain items that we believe are not indicative of our core operating performance and that are not excluded in the calculation of EBITDA. Adjusted EBITDA is also similar to the measures used under the debt covenants included in our credit facilities, except that the definition used in our credit facilities does not exclude certain cash gains or shareholder-related litigation expense. Accordingly, we believe that Adjusted EBITDA and Adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making.

Switch, Inc. | Q3 2020 Form 10-Q | 26

Our non-GAAP financial measures have limitations as analytical tools and you should not consider them in isolation or as a substitute for an analysis of our results under GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. Non-GAAP financial measures may not provide information directly comparable to measures provided by other companies in our industry, as those other companies may calculate their non-GAAP financial measures differently. In addition, the non-GAAP financial measures exclude certain recurring expenses that have been and will continue to be significant expenses of our business.

The following table sets forth a reconciliation of our net income to Adjusted EBITDA:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Net income	$	13,233	$	10,080	$	23,080	$	18,598
Interest expense	6,554		7,351		20,682		22,023
Interest income(1)	(39)		(94)		(116)		(659)
Income tax expense	1,515		867		2,622		1,531
Depreciation and amortization of property and equipment	36,791		30,426		105,322		88,841
Loss on disposal of property and equipment	185		41		283		148
Equity-based compensation	7,116		7,310		22,150		22,898
Loss on interest rate swaps	1,559		3,926		23,257		17,692
Loss on extinguishment of debt	245		—		245		—
Shareholder-related litigation expense	—		844		239		2,358
Adjusted EBITDA	$	67,159	$	60,751	$	197,764	$	173,430

________________________________________

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

Components of Results of Operations

Revenue

During each of the three and nine months ended September 30, 2020 and 2019, we derived more than 94% of our revenue from recurring revenue streams, consisting primarily of (1) colocation, which includes the licensing and leasing of cabinet space and power and (2) connectivity services, which include cross-connects, broadband services and external connectivity. The remainder of our revenue is from non-recurring revenue, which primarily includes installation services related to a customer’s initial deployment. The majority of our revenue contracts are classified as licenses, with the exception of certain contracts that contain lease components. Based on the current growth stage of our business, we expect increases in revenue to be driven primarily by increases in volume, rather than changes in the prices we charge to our customers.

We recognize revenue when control of these goods and services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods and services. Revenue from recurring revenue streams is generally billed monthly and recognized using a time-based measurement of progress as customers receive service benefits evenly throughout the term of the contract. Contracts with our customers generally have terms of three to five years. Non-recurring installation fees, although generally paid in a lump sum upon installation, are deferred and recognized ratably over the contract term, determined using a portfolio approach. Revenue is generally recognized on a gross basis as a principal versus on a net basis as an agent, largely because we are primarily responsible for fulfilling the contract, take title to services, and bear credit risk.

Cost of Revenue

Cost of revenue consists primarily of depreciation and amortization expense, expenses associated with the operations of our facilities, including electricity and other utility costs and repairs and maintenance, data center employees’ salaries and benefits, including equity-based compensation, connectivity costs, and rental payments related to our leased buildings and land used in data center operations. A substantial portion of our cost of revenue is fixed in nature and may not vary significantly from period to period, unless we expand our existing data centers or open new data centers. However, there are certain costs that are considered more variable in nature, including utilities and supplies that are directly related to growth in our existing and new customer base. The largest portion of our utility costs is fixed and a smaller portion is variable with market conditions.

Switch, Inc. | Q3 2020 Form 10-Q | 27

Gross Profit and Gross Margin

Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, has been and will continue to be affected by various factors, including customer growth, the expansion of our existing data centers or opening of new data centers, and the cost of our utilities, specifically electricity. Our gross margin may fluctuate from period to period depending on the interplay of these factors.

Operating Expenses

Selling, General and Administrative Expense

Selling, general and administrative expense consists primarily of salaries and related expenses, including equity-based compensation, accounting, legal and other professional service fees, real estate and personal property taxes, rental payments related to our corporate office lease, marketing and selling expenses, including sponsorships, commissions paid to partners, travel, depreciation and amortization expense, insurance, and other facility and employee related costs. This expense classification may not be comparable to those of other companies. We expect to incur additional selling, general and administrative expenses as we continue to scale our operations to invest in sales and marketing initiatives to further increase our revenue and support our growth. We also expect to continue to incur general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and those of the New York Stock Exchange, additional expenses related to the loss of our emerging growth company status as of December 31, 2019, additional insurance expenses, investor relations activities, and other administrative and professional services. Further, we expect to continue to incur general and administrative expenses in the form of equity-based compensation as a result of the continued vesting of awards of common membership interests in Switch, Ltd. (“Common Units”) granted to certain of our executives in 2017 and other equity awards. As a result, we expect that our selling, general and administrative expense will continue to increase in absolute dollars, but may fluctuate as a percentage of our revenue from period to period.

Other Income (Expense)

Interest Expense

Interest expense consists primarily of interest on our credit facilities and senior unsecured notes and amortization of debt issuance costs and original issue discount, net of amounts capitalized.

Loss on Interest Rate Swaps

Loss on interest rate swaps consists of changes in the fair value of interest rate swaps used to mitigate our exposure to interest rate risk, inclusive of periodic net settlement amounts.

Loss on Extinguishment of Debt

Loss on extinguishment of debt consists of losses resulting from certain lenders exiting our revolving credit facility in connection with amending our credit agreement.

Other

Other income (expense) primarily consists of other items that have impacted our results of operations such as interest income on our cash equivalents and gains and losses resulting from other transactions.

Income Taxes

We are the sole manager of Switch, Ltd., which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Switch, Ltd. is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Switch, Ltd. is passed through to, and included in the taxable income or loss of, its members, including us, on a pro rata basis. We are subject to U.S. federal income taxes, in addition to state and local income taxes with respect to our allocable share of any taxable income or loss generated by Switch, Ltd.

Noncontrolling Interest

As the sole manager of Switch, Ltd., we operate and control all of the business and affairs of Switch, Ltd. and its subsidiaries. Although we have a minority economic interest in Switch, Ltd., we have the sole voting interest in, and control the management of, Switch, Ltd. Accordingly, we consolidate the financial results of Switch, Ltd. and report a noncontrolling interest on our consolidated statements comprehensive income, representing the portion of net income or loss and comprehensive income or loss attributable to the noncontrolling interest. The weighted average ownership percentages during the period are used to calculate the net income or loss and other comprehensive income or loss attributable to Switch, Inc. and the noncontrolling interest.

Switch, Inc. | Q3 2020 Form 10-Q | 28

Results of Operations

The following table sets forth our results of operations:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Consolidated Statements of Income Data:
Revenue	$	128,785	$	122,353	$	383,798	$	341,765
Cost of revenue	74,348		63,504		209,575		179,146
Gross profit	54,437		58,849		174,223		162,619
Selling, general and administrative expense	31,516		36,869		105,070		104,039
Income from operations	22,921		21,980		69,153		58,580
Other income (expense):
Interest expense, including amortization of debt issuance costs and original issue discount	(6,554)		(7,351)		(20,682)		(22,023)
Loss on interest rate swaps	(1,559)		(3,926)		(23,257)		(17,692)
Loss on extinguishment of debt	(245)		—		(245)		—
Other	185		244		733		1,264
Total other expense	(8,173)		(11,033)		(43,451)		(38,451)
Income before income taxes	14,748		10,947		25,702		20,129
Income tax expense	(1,515)		(867)		(2,622)		(1,531)
Net income	13,233		10,080		23,080		18,598
Less: net income attributable to noncontrolling interest	8,027		7,133		13,993		13,729
Net income attributable to Switch, Inc.	$	5,206	$	2,947	$	9,087	$	4,869

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Consolidated Statements of Income Data:
Revenue	100	%	100	%	100	%	100	%
Cost of revenue	58		52		55		52
Gross profit	42		48		45		48
Selling, general and administrative expense	24		30		27		30
Income from operations	18		18		18		17
Other income (expense):
Interest expense, including amortization of debt issuance costs and original issue discount	(5)		(6)		(5)		(6)
Loss on interest rate swaps	(1)		(3)		(6)		(5)
Loss on extinguishment of debt	—		—		—		—
Other	—		—		—		—
Total other expense	(6)		(9)		(11)		(11)
Income before income taxes	11		9		7		6
Income tax expense	(1)		(1)		(1)		—
Net income	10		8		6		5
Less: net income attributable to noncontrolling interest	6		6		4		4
Net income attributable to Switch, Inc.	4	%	2	%	2	%	1	%

Switch, Inc. | Q3 2020 Form 10-Q | 29

Comparison of the Three Months Ended September 30, 2020 and 2019

Revenue

	Three Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Colocation	$	105,112	$	95,409	$	9,703	10	%
Connectivity	22,450		25,336		(2,886)		(11)	%
Other	1,223		1,608		(385)		(24)	%
Revenue	$	128,785	$	122,353	$	6,432	5	%

Revenue increased by $6.4 million, or 5%, for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. The increase was primarily attributable to an increase of $9.7 million in colocation revenue. Of the overall increase, 45% was attributable to revenue from new customers initiating service after September 30, 2019, and the remaining 55% was attributable to increased revenue from existing customers. This increase was partially offset by $4.3 million in non-recurring sales-type lease revenue included in connectivity revenue during the three months ended September 30, 2019. There was no sales-type lease revenue during the three months ended September 30, 2020.

Cost of Revenue and Gross Margin

	Three Months Ended September 30,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Cost of revenue	$	74,348		$	63,504		$	10,844	17	%
Gross margin	42.3		%	48.1		%

Cost of revenue increased by $10.8 million, or 17%, for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. The increase was primarily attributable to increases of $6.2 million in depreciation and amortization expense due to additional property and equipment being placed into service, and $5.0 million in facilities costs due to increased utility rates. This was partially offset by a $1.1 million decrease in costs related to sales-type lease transactions. Gross margin decreased by 580 basis points for the three months ended September 30, 2020, compared to the three months ended September 30, 2019.

Selling, General and Administrative Expense

	Three Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Selling, general and administrative expense	$	31,516	$	36,869	$	(5,353)	(15)	%

Selling, general and administrative expense decreased by $5.4 million, or 15%, for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. The decrease was primarily attributable to decreases of $3.4 million in accounting, legal, and other professional service fees, $0.9 million in salaries and related employee expenses, and $0.7 million in travel and entertainment expenses.

Switch, Inc. | Q3 2020 Form 10-Q | 30

Other Income (Expense)

	Three Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Other income (expense):
Interest expense	$	(6,554)	$	(7,351)	$	797	(11)	%
Loss on interest rate swaps	(1,559)		(3,926)		2,367		(60)	%
Loss on extinguishment of debt	(245)		—		(245)		NM
Other	185		244		(59)		(24)	%
Total other expense	$	(8,173)	$	(11,033)	$	2,860	(26)	%

________________________________________

NM - Not meaningful

Interest Expense

Interest expense decreased by $0.8 million, or 11%, for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. The decrease was primarily due to a decrease in our weighted average interest rate from 4.34% during the three months ended September 30, 2019 to 2.41% during the three months ended September 30, 2020, partially offset by an increase in our weighted average debt outstanding during the three months ended September 30, 2020, primarily from borrowings on our revolving credit facility.

Loss on Interest Rate Swaps

Loss on interest rate swaps decreased by $2.4 million, or 60%, for the three months ended September 30, 2020, compared to the three months ended September 30, 2019. The decrease was driven by changes in the fair value of interest rate swaps largely from fluctuation in market interest rates.

Income Tax Expense

	Three Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Income tax expense	$	(1,515)	$	(867)	$	(648)	75	%

Income tax expense was $1.5 million for the three months ended September 30, 2020, compared to $0.9 million for the three months ended September 30, 2019. Income tax expense is driven by our allocable share of Switch, Ltd.’s income before income taxes.

Net Income Attributable to Noncontrolling Interest

	Three Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Net income attributable to noncontrolling interest	$	8,027	$	7,133	$	894	13	%

Net income attributable to noncontrolling interest was $8.0 million for the three months ended September 30, 2020, compared to $7.1 million for the three months ended September 30, 2019. The change was the result of an increase in net income during the three months ended September 30, 2020.

Switch, Inc. | Q3 2020 Form 10-Q | 31

Comparison of the Nine Months Ended September 30, 2020 and 2019

Revenue

	Nine Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Colocation	$	308,947	$	272,857	$	36,090	13	%
Connectivity	70,394		63,920		6,474		10	%
Other	4,457		4,988		(531)		(11)	%
Revenue	$	383,798	$	341,765	$	42,033	12	%

Revenue increased by $42.0 million, or 12%, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. The increase was primarily attributable to an increase of $36.1 million in colocation revenue. Of the overall increase, 15% was attributable to revenue from new customers initiating service after September 30, 2019, and the remaining 85% was attributable to increased revenue from existing customers.

Cost of Revenue and Gross Margin

	Nine Months Ended September 30,						Change
	2020			2019			Amount		%
	(dollars in thousands)
Cost of revenue	$	209,575		$	179,146		$	30,429	17	%
Gross margin	45.4		%	47.6		%

Cost of revenue increased by $30.4 million, or 17%, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. The increase was primarily attributable to increases of $15.5 million in depreciation and amortization expense due to additional property and equipment being placed into service, $7.1 million in facilities costs due to increased utility rates, $3.2 million in salaries and related employee expenses largely due to a decrease in capitalized and deferred labor during the nine months ended September 30, 2020, $2.4 million in costs related to sales-type lease transactions, and $2.0 million in connectivity costs associated with increased occupancy as a result of expansion activities. Gross margin decreased by 220 basis points for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.     

Selling, General and Administrative Expense

	Nine Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Selling, general and administrative expense	$	105,070	$	104,039	$	1,031	1	%

Selling, general and administrative expense increased by $1.0 million, or 1%, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. The increase was primarily attributable to an increase of $2.3 million in salaries and related employee expenses, $3.3 million of which is largely due to an increase in headcount, partially offset by a decrease of $1.0 million in non-cash compensation expense primarily related to certain equity awards granted in 2017. Additionally, there was an increase of $1.1 million in real estate and personal property taxes, which, together with the salaries and related employee expenses, were partially offset by a decrease of $2.5 million in professional fees for accounting, consulting, and legal services.

Switch, Inc. | Q3 2020 Form 10-Q | 32

Other Income (Expense)

	Nine Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Other income (expense):
Interest expense	(20,682)		(22,023)		$	1,341	(6)	%
Loss on interest rate swaps	(23,257)		(17,692)		(5,565)		31	%
Loss on extinguishment of debt	(245)		—		(245)		NM
Other	733		1,264		(531)		(42)	%
Total other expense	$	(43,451)	$	(38,451)	$	(5,000)	13	%

________________________________________

NM - Not meaningful

Interest Expense

Interest expense decreased by $1.3 million, or 6%, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. The decrease was primarily due to a decrease in our weighted average interest rate from 4.61% during the nine months ended September 30, 2019 to 2.89% during the nine months ended September 30, 2020, partially offset by an increase in our weighted average debt outstanding during the nine months ended September 30, 2020, primarily from borrowings on our revolving credit facility.

Loss on Interest Rate Swaps

Loss on interest rate swaps increased by $5.6 million, or 31%, for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. The increase was driven by changes in the fair value of interest rate swaps largely from fluctuation in market interest rates.

Income Tax Expense

	Nine Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Income tax expense	$	(2,622)	$	(1,531)	$	(1,091)	71	%

Income tax expense was $2.6 million for the nine months ended September 30, 2020, compared to $1.5 million for the nine months ended September 30, 2019. Income tax expense is driven by our allocable share of Switch, Ltd.’s income before income taxes.

Net Income Attributable to Noncontrolling Interest

	Nine Months Ended September 30,				Change
	2020		2019		Amount		%
	(dollars in thousands)
Net income attributable to noncontrolling interest	$	13,993	$	13,729	$	264	2	%

Net income attributable to noncontrolling interest was $14.0 million for the nine months ended September 30, 2020, compared to $13.7 million for the nine months ended September 30, 2019. The change was primarily due to an increase in net income during the nine months ended September 30, 2020.

Liquidity and Capital Resources

Switch, Inc. is a holding company and has no material assets other than its ownership of Common Units. As such, we have no independent means of generating revenue or cash flow, and our ability to pay our taxes and operating expenses or declare and pay dividends in the future, if any, will be dependent upon the financial results and cash flows of Switch, Ltd. and its subsidiaries and any distributions we receive from Switch, Ltd. The terms of the amended and restated credit agreement limit the ability of Switch, Ltd., among other things, to incur additional debt,

Switch, Inc. | Q3 2020 Form 10-Q | 33

incur additional liens, encumbrances or contingent liabilities, and pay distributions or make certain other restricted payments.

As of September 30, 2020, we had $156.1 million in cash and cash equivalents. As of September 30, 2020, our total indebtedness was approximately $1.06 billion (excluding debt issuance costs and original issue discount) consisting of (i) $600.0 million principal from our senior unsecured notes, (ii) $400.0 million principal from our term loan facility, and (iii) $57.5 million from our finance lease liabilities. As of September 30, 2020, we had access to $500.0 million in additional liquidity from our revolving credit facility. For the year ending December 31, 2020, we expect to incur $295 million to $325 million in capital expenditures for development and construction projects related to our expansion (excluding acquisitions of land); however, the exact amount will depend on a number of factors. We believe we have sufficient cash and access to liquidity, coupled with anticipated cash generated from operating activities, to satisfy our anticipated cash needs for working capital and capital expenditures for at least the next 12 months, including repayment of the current portion of our debt as it becomes due and completion of our development projects. We also believe that our financial resources will allow us to manage the anticipated impact of COVID-19 on our business operations for the foreseeable future, which could include reductions in revenue and delays in payments from customers and partners. The challenges posed by COVID-19 on our business are expected to evolve. Consequently, we will continue to evaluate our financial position in light of future developments, particularly those relating to COVID-19.

In addition, we are obligated to make payments under the Tax Receivable Agreement (“TRA”). Although the actual timing and amount of any payments we make under the TRA will vary, we expect those payments will be significant. Any payments we make under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us or to Switch, Ltd. and, to the extent we are unable to make payments under the TRA for any reason, the unpaid amounts generally will be deferred and will accrue interest until paid by us.

Cash Flows

The following table summarizes our cash flows:

	Nine Months Ended September 30,
	2020		2019
	(in thousands)
Net cash provided by operating activities	$	189,335	$	173,222
Net cash used in investing activities	(250,475)		(222,358)
Net cash provided by financing activities	192,500		20,054
Net increase (decrease) in cash and cash equivalents	$	131,360	$	(29,082)

Cash Flows from Operating Activities

Cash from operating activities is primarily generated from operating income from our colocation and connectivity services.

Net cash provided by operating activities for the nine months ended September 30, 2020 was $189.3 million, compared to $173.2 million for the nine months ended September 30, 2019. The increase of $16.1 million was primarily due to increased operations in our expanded data center facilities and changes in our working capital accounts.

Cash Flows from Investing Activities

During the nine months ended September 30, 2020, net cash used in investing activities was $250.5 million, primarily consisting of capital expenditures of $249.1 million related to the expansion of our data center facilities.

During the nine months ended September 30, 2019, net cash used in investing activities was $222.4 million, primarily consisting of capital expenditures of $221.3 million related to the expansion of our data center facilities.

Cash Flows from Financing Activities

During the nine months ended September 30, 2020, net cash provided by financing activities was $192.5 million, primarily consisting of $710.0 million in proceeds from the issuance of our senior unsecured notes and borrowings on our revolving credit facility, partially offset by $465.2 million for the repayment of borrowings outstanding under our credit facilities, $20.0 million for the repurchase of common units, $14.9 million in distributions paid to noncontrolling interest, $11.4 million in dividends paid, and $6.0 million for the payment of debt issuance costs and original issue discount related to our senior unsecured notes and credit agreement amendment.

Switch, Inc. | Q3 2020 Form 10-Q | 34

During the nine months ended September 30, 2019, net cash used in financing activities was $20.1 million, primarily consisting of $70.0 million in proceeds from borrowings on our revolving credit facility, partially offset by $24.7 million for the repurchase of common units, $15.0 million in distributions paid to noncontrolling interest, $6.4 million in dividends paid, and $4.5 million in repayments of borrowings outstanding under our term loan.

Outstanding Indebtedness

Credit Agreement

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

As of September 30, 2020, we had $500.0 million of availability under the revolving credit facility. As of September 30, 2020, we had $400.0 million outstanding under the term loan facility (excluding debt issuance costs) effectively fixed at 4.73% pursuant to interest rate swap agreements entered into in January and February 2019.

The Amended Credit Agreement contains affirmative and negative covenants customary for such financings, including, but not limited to, limitations, subject to specified exceptions and baskets, on incurring additional debt, incurring additional liens, encumbrances or contingent liabilities, making investments in other persons or property, selling or disposing of our assets, merging with or acquiring other companies, liquidating or dissolving ourselves or any of the subsidiary guarantors, engaging in any business that is not otherwise a related line of business, engaging in certain transactions with affiliates, paying dividends or making certain other restricted payments, and making loans, advances or guarantees. The terms of the Amended Credit Agreement also require compliance with the consolidated secured leverage ratio (as defined in the Amended Credit Agreement) of 4.00 to 1.00 for each fiscal quarter. We were in compliance with this and our other covenants under the Amended Credit Agreement as of September 30, 2020.

Senior Unsecured Notes Due 2028

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

The notes contain covenants that, subject to exceptions and qualifications, among other things, limit our ability to incur additional indebtedness and guarantee indebtedness, pay dividends or make other distributions or repurchase or redeem our capital stock, prepay, redeem or repurchase certain indebtedness, issue certain preferred stock or similar equity securities, make loans and investments, dispose of assets, incur liens, enter into transactions with affiliates, enter into agreements restricting our ability to pay dividends, and consolidate, merge or sell all or substantially all of our assets. We were in compliance with all our covenants under the notes as of September 30, 2020.

See Note 4 “Long-Term Debt” to our consolidated financial statements for more information.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements for any of the periods presented.

Switch, Inc. | Q3 2020 Form 10-Q | 35

Contractual Obligations

In January and March 2020, we entered into two power purchase and sale agreements for electricity to purchase an aggregate firm commitment of 75 MW per energy hour, or a total purchase commitment of $23.8 million, inclusive of scheduling services, for a term of one year, which started on July 1, 2020. Additional franchise tax amounts may be due based on the data center location where the purchased power is used. The remaining total purchase commitment was $17.9 million as of September 30, 2020. Future power purchase commitments for the remainder of 2020 and 2021 are $6.0 million and $11.9 million, respectively, with no additional commitments upon termination of the agreement thereafter.

In September 2020, we entered into the Amended Credit Agreement to extend the maturity of our revolving credit facility to June 27, 2023, among other things.

In September 2020, we issued $600.0 million aggregate principal amount of senior unsecured notes, the proceeds of which were primarily used to repay outstanding borrowings on our revolving credit facility and reduce the principal amount of our term loan facility to $400.0 million. The notes bear interest at 3.75% per annum and mature on September 15, 2028. Interest on the notes is payable semi-annually in arrears on March 15 and September 15 of each year, beginning March 15, 2021.

Outside of the aforementioned, and any routine transactions made in the ordinary course of business, there have been no material changes to the contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Cautionary Note Regarding Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain word such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements contained in this Form 10-Q include, but are not limited to, statements about:

•our goals and strategies;

•our expansion plans, including timing for such plans;

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

•the expected growth of the data center market;

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

•our belief that our financial resources will allow us to manage the anticiipated impact of COVID-19;

•our beliefs regarding our design technology and its advantages to our business and financial results;

•our beliefs regarding opportunities that exist in the data center market due to current industry limitations;

•our expectations regarding opportunities to grow penetration of existing customers and attract new customers;

•our beliefs regarding our competitive strengths and the value of our brand;

•our expectations regarding our revenue streams and drivers and types of future revenue;

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

•our expectations regarding demand for, and market acceptance of, our services, including any new services;

•our expectations regarding our customer growth rate;

Switch, Inc. | Q3 2020 Form 10-Q | 36

•our estimated capital expenditures for 2020;

•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 expectations to enter into joint ventures, strategic collaborations and other similar arrangements;

•our beliefs regarding our ability to achieve reduced variability of power costs as an unbundled purchaser of energy;

•our beliefs that we have the necessary permits and approvals to operate our business and that our properties are in substantial compliance with applicable laws;

•our ability to maintain, protect and enhance our intellectual property and not infringe upon others’ intellectual property;

•our beliefs regarding the adequacy of our insurance coverage;

•our beliefs regarding the merits of pending litigation;

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

•our plans regarding our Common Unit repurchase program;

•our expectations regarding payment of dividends;

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

•our expectations regarding the impact of the provisions of the Coronavirus Aid, Relief, and Economic Security Act.

We qualify all of our forward-looking statements by these cautionary statements. The forward-looking statements in this Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. The most important factors that could prevent us from achieving our goals and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by the forward-looking statements include, but are not limited to, the following:

•our ability to successfully implement our business strategies;

•our ability to effectively manage our growth and expansion plans;

•delays or unexpected costs in development and opening of data center facilities;

•any slowdown in demand for our existing data center resources;

•our ability to attract new customers and achieve sufficient customer demand to realize future expected returns on our investments;

•our ability to license space in our existing data centers, including in our new Keep Campus;

•the impact of epidemics, pandemics or outbreaks, including COVID-19, on our business and those of our customers and suppliers;

•the geographic concentration of our data centers in certain markets;

•local economic, credit and market conditions that impact our customers in these markets;

•the impact of delays or disruptions in third-party network connectivity;

•developments in the technology and data center industries in general that negatively impact us, including development of new technologies, adoption of new industry standards, declines in the technology industry or slowdown in the growth of the Internet;

•our ability to adapt to evolving technologies and customer demands in a timely and cost-effective manner;

•financial market fluctuations;

•our ability to obtain necessary capital to fund our capital requirements and our ability to continue to comply with covenants and terms in our credit instruments;

•our ability to generate sufficient cash flow to meet our debt service and working capital requirements;

•our ability to collect revenue on a timely basis;

•fluctuations in interest rates, including the impact of any discontinuance, modification or other reform of LIBOR, or the establishment of alternative reference rates;

Switch, Inc. | Q3 2020 Form 10-Q | 37

•increased operating costs, including power costs;

•significant disruptions, security breaches, including cyber security breaches, or system failures at any of our data center facilities;

•our ability to effectively compete in the data center market;

•the success of our strategic partnerships;

•our ability to protect our intellectual property rights and not infringe upon others’ intellectual property rights;

•loss of significant customers or key personnel;

•losses in excess of our insurance coverage, including due to natural disasters and other unforeseen damage;

•impact of the outcome of pending or future litigation;

•the impact of future changes in legislation and regulations, including changes in real estate and zoning laws, ABA, environmental and other laws that impact our business and industry;

•the success of our solar project;

•future increases in real estate taxes;

•early termination of data center leases or inability to renew on commercially acceptable terms;

•our ability to successfully identity and consummate future joint ventures, acquisitions or other strategic transactions;

•our realization of any benefit from the TRA, our Common Unit repurchase plan and our organizational structure;

•our ability to sufficiently remediate the material weakness identified in our internal control over financial reporting;

•volatility of our stock price, including due to future issuances of our Class A common stock upon redemption or exchange of Common Units; and

•our ability to successfully estimate the impact of certain accounting and tax matters, including the effect on our company of adopting certain accounting pronouncements.

    The foregoing list of important factors does not include all such factors, nor necessarily present them in order of importance. In addition, you should consult other disclosures made by us (such as in our other filings with the SEC or in company press releases) for other factors that may cause actual results to differ materially from those projected by us. You should read this Form 10-Q, and the documents that we reference in this Form 10-Q and have filed with the SEC, and our Annual Report on Form 10-K for the year ended December 31, 2019, with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.

    Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Switch, Inc. | Q3 2020 Form 10-Q | 38

Item 4.Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of September 30, 2020, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended, or the “Exchange Act”). Based on their evaluation, as of September 30, 2020, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective because of the material weakness in our internal control over financial reporting described below.

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

Material Weakness

As of December 31, 2019, we had a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness, which was identified in connection with the audit of our 2017 consolidated financial statements, related to an insufficient complement of resources with an appropriate level of accounting expertise, knowledge, and training commensurate with the complexity of our financial reporting matters. This material weakness led to pervasive immaterial adjustments to our annual and interim consolidated financial statements, inadequate review over account reconciliations and the inability to maintain segregation of duties over journal entries resulting in the lack of an effective control environment. We concluded this material weakness continued to exist as of September 30, 2020.

Additionally, this material weakness could result in a misstatement of our account balances or disclosures that would result in a material misstatement of the annual or interim consolidated financial statements that would not be prevented or detected.

Material Weakness Remediation Efforts

We have implemented and continue to implement measures designed to improve our internal control over financial reporting to remediate this material weakness, including hiring additional personnel with appropriate education, experience and certifications for key positions in the financial reporting and accounting function, as well as designing and implementing improved processes and internal controls, including transaction-level controls, controls over the maintenance of appropriate segregation of duties over journal entries, account reconciliations, and strengthening supervisory reviews by our management.

While we believe that these efforts will improve our internal control over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles. Due to this ongoing testing, we cannot provide assurance that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weakness we have identified or avoid potential future material weaknesses. If the steps we take do not correct the material weakness in a timely manner, we will be unable to conclude that we maintain effective internal control over financial reporting. Accordingly, there could continue to be a reasonable possibility that a material misstatement of our financial statements would not be prevented or detected on a timely basis.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Switch, Inc. | Q3 2020 Form 10-Q | 39

Part II.Other Information

Item 1.Legal Proceedings.

On September 7, 2017, Switch, Ltd. and Switch, Inc. were named in a lawsuit filed in the U.S. District Court for the District of Nevada by V5 Technologies formerly d/b/a Cobalt Data Centers. The lawsuit alleges, among other things, that Switch, Ltd. and Switch, Inc. monopolized the Las Vegas Metropolitan area of Southern Nevada’s data center colocation market and engaged in unfair business practices leading to the failure of Cobalt Data Centers in 2015 and seeks monetary damages in an amount yet to be disclosed. Discovery closed in February 2020. In March 2020, both parties filed motions for summary judgment and are waiting for the court to rule on the motions. Switch, Ltd. and Switch, Inc. are vigorously defending the case.

On September 12, 2017, Switch, Ltd. filed a complaint in the Eighth Judicial District of Nevada against the consultant, Stephen Fairfax, and his business, MTechnology Inc. Among other claims, Switch raised allegations of breach of contract and misappropriation of trade secrets. The complaint also alleged that Aligned Data Centers LLC (“Aligned”) hired Mr. Fairfax and MTechnology Inc. to design their data centers; that this consultant had toured Switch under a non-disclosure agreement; and that this consultant breached his confidentiality agreements with Switch by using Switch’s designs to design the Aligned data centers. Switch, Ltd. is seeking an injunction to prevent the defendants in the lawsuit from infringing Switch, Ltd.’s patents, as well as other remedies. The parties are currently engaged in discovery.

Four substantially similar putative class action complaints, captioned Martz v. Switch, Inc. et al. (filed April 20, 2018); Palkon v. Switch, Inc. et al. (filed April 30, 2018); Chun v. Switch, Inc. et al. (filed May 11, 2018); and Silverberg v. Switch, Inc. et al. (filed June 6, 2018), were filed in the Eighth Judicial District of Nevada, and subsequently consolidated into a single case (the “State Court Securities Action”). Additionally, on June 11, 2018, one putative class action complaint captioned Cai v. Switch, Inc. et al. was filed in the United States District Court for the District of New Jersey (the “Federal Court Securities Action,” and collectively with the State Court Securities Action, the “Securities Actions”) and subsequently transferred to the Eighth Judicial District of Nevada in August 2018 and the federal court appointed Oscar Farach lead plaintiff. These lawsuits were filed against Switch, Inc., certain current and former officers and directors and certain underwriters of Switch, Inc.’s IPO alleging federal securities law violations in connection with the IPO. These lawsuits were brought by purported stockholders of Switch, Inc. seeking to represent a class of stockholders who purchased Class A common stock in or traceable to the IPO, and seek unspecified damages and other relief. With respect to the Federal Court Securities Action, in July 2019, the federal court granted Switch, Inc.’s motion to dismiss in part, which narrowed the scope of the plaintiff’s case. In December 2019, Switch, Inc. filed a motion for judgment on the pleadings, and in July 2020, the federal court entered a judgment in favor of Switch, Inc. In October 2020, Switch, Inc. filed a motion to dismiss in the State Court Securities Action, and a hearing is scheduled for January 2021. Switch, Inc. believes that these lawsuits are without merit and intends to continue to vigorously defend against them.

On September 10, 2018, two purported stockholders of Switch, Inc. filed substantially similar shareholder derivative complaints, respectively captioned Liu v. Roy et al., and Zhao v. Roy et al., in the Eighth Judicial District of Nevada, which were subsequently consolidated into a single case (the “Derivative Shareholder Action”). These lawsuits allege breaches of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control, and gross mismanagement against certain current and former officers and directors of Switch, Inc. The plaintiffs also named Switch, Inc. as a nominal defendant. The complaints arise generally from the same allegations described in the State Court Securities Action and Federal Court Securities Action. The plaintiffs seek unspecified damages on Switch, Inc.’s behalf from the officer and director defendants, certain corporate governance actions, compensatory awards, and other relief. In December 2019, the court granted the parties’ stipulation to stay the Derivative Shareholder Action until the earlier of any of the following events: the Securities Actions are resolved with prejudice as to each defendant or a motion for summary judgment is resolved in the Federal Court Securities Action. Because the State Court Securities Action is still pending, the Derivative Shareholder Action remains stayed.

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.

Switch, Inc. | Q3 2020 Form 10-Q | 40

Item 1A.Risk Factors.

Except as provided below, there have been no material changes with respect to the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019.

Our business and those of our customers and suppliers may be adversely affected by epidemics, pandemics or other outbreaks.

The effects of epidemics, pandemics or other outbreaks of an illness, disease or virus are uncertain and difficult to predict. The COVID-19 pandemic is causing significant disruptions to the United States and global economies and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak is rapidly evolving, and any preventative or protective actions that we may take in response to COVID-19 or any other global health threat or pandemic may result in business and/or operational disruption.

Our customers’ businesses could be disrupted, which would affect their ability to make payments to us, and our revenues could be negatively affected. Additionally, global economic disruptors like COVID-19 could negatively impact our supply chain and cause delays in the construction or development of our data centers due to disruptions in the supply of materials or products or the inability of our contractors to perform on a timely basis or at all. It may not be possible to find replacement products or supplies and ongoing delays could affect our business and growth.

The extent to which COVID-19 impacts our and our customers’ operations will depend on future developments, which are highly uncertain and cannot be predicted, including, among others, the duration and severity of the outbreak, new information that might emerge, governmental measures, and the actions taken to contain COVID-19 or treat its impact. These and other potential impacts of epidemics, pandemics or other outbreaks of an illness, disease or virus could have a material adverse effect on our business, financial condition and results of operations.

Item 6.Exhibits.

			Incorporated by Reference
Exhibit No.		Exhibit Description	Form	Exhibit	Filing Date
3.1		Amended and Restated Articles of Incorporation of Switch, Inc.	8-K	3.1	10/11/2017
3.2		Amended and Restated Bylaws of Switch, Inc.	8-K	3.2	10/11/2017
4.1		Indenture governing Switch, Ltd.’s 3.75% Senior Notes due 2028, dated September 17, 2020, by and among Switch, Ltd., the guarantors named therein and U.S. Bank National Association, as trustee.	8-K	4.1	9/18/2020
4.2		Form of 3.75% Senior Notes due 2028 (included in Exhibit 4.1)	8-K	4.2	9/18/2020
10.1		Second Amendment to Amended and Restated Credit Agreement, dated September 17, 2020, by and among Switch, Ltd., the guarantors party thereto, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent.	8-K	10.1	9/18/2020
31.1	*	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	*	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	#	Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	*	The following financial statements from the Company’s Quarterly Report on Form 10-Q, formatted in Inline XBRL: (i) Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019, (ii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019, (iii) Consolidated Statements of Stockholders’ Equity for each quarterly period in the nine months ended September 30, 2020 and 2019, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019, and (v) Condensed Notes to Consolidated Financial Statements
104	*	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

___________________________________________________________________

*    Filed herewith.

#    Furnished herewith.

Switch, Inc. | Q3 2020 Form 10-Q | 41

SIGNATURES

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

		Switch, Inc. (Registrant)
Date:	November 9, 2020	/s/ Gabe Nacht
		Gabe Nacht Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)

EX-31.1

Exhibit 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Rob Roy, certify that:

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.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

d.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; and

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 the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control 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 control over financial reporting.

Date: November 9, 2020

By:	/s/ Rob Roy
	Rob Roy Chief Executive Officer Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gabe Nacht, certify that:

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 report is being prepared;

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.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

d.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; and

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 the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control 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 control over financial reporting.

Date: November 9, 2020

By:	/s/ Gabe Nacht
	Gabe Nacht Chief Financial Officer Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Switch, Inc. (the “Company”) for the period ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Rob Roy, Chief Executive Officer, and Gabe Nacht, Chief Financial Officer, of the Company, do each certify, pursuant to Section 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

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.

Date: November 9, 2020

By:	/s/ Rob Roy
	Rob Roy Chief Executive Officer Principal Executive Officer
By:	/s/ Gabe Nacht
	Gabe Nacht Chief Financial Officer Principal Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Nov. 05, 2020
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	001-38231
Entity Registrant Name	Switch, Inc.
Entity Incorporation, State or Country Code	NV
Entity Tax Identification Number	82-1883953
Entity Address, Address Line One	7135 S. Decatur Boulevard
Entity Address, City or Town	Las Vegas,
Entity Address, State or Province	NV
Entity Address, Postal Zip Code	89118
City Area Code	(702)
Local Phone Number	444-4111
Title of 12(b) Security	Class A common stock, par value $0.001
Trading Symbol	SWCH
Security Exchange Name	NYSE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Central Index Key	0001710583
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Class A Common Stock
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		118,983,644
Class B Common Stock
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		121,639,784
Class C Common Stock
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		0

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
CURRENT ASSETS:
Cash and cash equivalents	$ 156,081	$ 24,721
Accounts receivable, net of allowance for credit losses of $589 and $309, respectively	16,480	23,365
Prepaid expenses	5,449	7,137
Other current assets, net of allowance for credit losses of $3 and $0, respectively	2,761	3,817
Total current assets	180,771	59,040
Property and equipment, net	1,675,229	1,551,117
Long-term deposit	3,754	3,429
Deferred income taxes	177,669	114,372
Other assets, net of allowance for credit losses of $81 and $0, respectively	47,965	45,785
TOTAL ASSETS	2,085,388	1,773,743
CURRENT LIABILITIES:
Long-term debt, current portion	6,000	6,000
Accounts payable	18,134	19,477
Accrued salaries and benefits	13,408	5,828
Accrued expenses	12,396	11,254
Accrued construction payables	25,788	37,269
Deferred revenue, current portion	14,476	14,991
Customer deposits	11,828	10,830
Interest rate swap liability, current portion	9,332	3,464
Operating lease liability, current portion	3,819	4,805
Finance lease liability, current portion	4	12
Total current liabilities	115,185	113,930
Long-term debt, net	984,821	745,372
Operating lease liability	26,359	26,142
Finance lease liability	57,543	57,614
Deferred revenue	23,564	27,852
Liabilities under tax receivable agreement	243,690	162,076
Other long-term liabilities	25,143	13,112
TOTAL LIABILITIES	1,476,305	1,146,098
Commitments and contingencies (Note 5)
STOCKHOLDER’S EQUITY
Preferred stock	0	0
Additional paid in capital	242,955	204,711
(Accumulated deficit) retained earnings	(325)	2,420
Accumulated other comprehensive income	79	79
Total Switch, Inc. stockholders’ equity	242,950	207,451
Noncontrolling interest	366,133	420,194
TOTAL STOCKHOLDERS’ EQUITY	609,083	627,645
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	2,085,388	1,773,743
Class A Common Stock
STOCKHOLDER’S EQUITY
Common stock	109	90
Class B Common Stock
STOCKHOLDER’S EQUITY
Common stock	132	151
Class C Common Stock
STOCKHOLDER’S EQUITY
Common stock	$ 0	$ 0

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Accounts receivable, allowance for credit losses	$ 589	$ 309
Other current assets, allowance for credit losses	3	0
Other assets, allowance for credit losses	$ 81	$ 0
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Class A Common Stock
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	750,000,000	750,000,000
Common stock, shares issued (in shares)	108,955,000	89,768,000
Common stock, shares outstanding (in shares)	108,955,000	89,768,000
Class B Common Stock
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	300,000,000	300,000,000
Common stock, shares issued (in shares)	131,667,000	151,047,000
Common stock, shares outstanding (in shares)	131,667,000	151,047,000
Class C Common Stock
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	75,000,000	75,000,000
Common stock, shares issued (in shares)	0	0
Common stock, shares outstanding (in shares)	0	0

XML

Consolidated Statements of Comprehensive Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Statement of Comprehensive Income [Abstract]
Revenue	$ 128,785	$ 122,353	$ 383,798	$ 341,765
Cost of revenue	74,348	63,504	209,575	179,146
Gross profit	54,437	58,849	174,223	162,619
Selling, general and administrative expense	31,516	36,869	105,070	104,039
Income from operations	22,921	21,980	69,153	58,580
Other income (expense):
Interest expense, including $439, $409, $1,257, and $1,227, respectively, in amortization of debt issuance costs and original issue discount	(6,554)	(7,351)	(20,682)	(22,023)
Loss on interest rate swaps	(1,559)	(3,926)	(23,257)	(17,692)
Loss on extinguishment of debt	(245)	0	(245)	0
Other	185	244	733	1,264
Total other expense	(8,173)	(11,033)	(43,451)	(38,451)
Income before income taxes	14,748	10,947	25,702	20,129
Income tax expense	(1,515)	(867)	(2,622)	(1,531)
Net income	13,233	10,080	23,080	18,598
Less: net income attributable to noncontrolling interest	8,027	7,133	13,993	13,729
Net income attributable to Switch, Inc.	$ 5,206	$ 2,947	$ 9,087	$ 4,869
Net income per share (Note 9):
Basic (in dollars per share)	$ 0.05	$ 0.04	$ 0.09	$ 0.07
Diluted (in dollars per share)	$ 0.05	$ 0.03	$ 0.08	$ 0.06
Weighted average shares used in computing net income per share (Note 9):
Basic (in shares)	108,690	84,135	102,703	72,566
Diluted (in shares)	111,565	247,142	243,553	247,193
Other comprehensive income:
Foreign currency translation adjustment, net of tax of $0	$ 0	$ 0	$ 0	$ 0
Comprehensive income	13,233	10,080	23,080	18,598
Less: comprehensive income attributable to noncontrolling interest	8,027	7,133	13,993	13,729
Comprehensive income attributable to Switch, Inc.	$ 5,206	$ 2,947	$ 9,087	$ 4,869

XML

Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Income Statement [Abstract]
Amortization of debt issuance costs	$ 439	$ 409	$ 1,257	$ 1,227
Foreign currency translation adjustment, tax	$ 0	$ 0	$ 0	$ 0

XML

Consolidated Statement of Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands	Total	Class A Common Stock	Common Stock Class A Common Stock	Common Stock Class B Common Stock	Common Stock Class C Common Stock	Additional Paid in Capital	Retained Earnings	Accumulated Other Comprehensive Income	Noncontrolling Interest
Balance (in shares) at Dec. 31, 2018			55,218	148,481	42,945
Balance at Dec. 31, 2018	$ 708,352		$ 55	$ 149	$ 43	$ 140,191	$ 2,693	$ 79	$ 565,142
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	3,846						733		3,113
Equity-based compensation expense	8,145					4,160			3,985
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax (shares)			463
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	(1,310)		$ 1			(2,016)			705
Dividends declared	(1,728)						(1,728)
Distributions to noncontrolling interest	(6,006)								(6,006)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	(728)					(728)
Balance (in shares) at Mar. 31, 2019			55,681	148,481	42,945
Balance at Mar. 31, 2019	711,735		$ 56	$ 149	$ 43	141,607	1,922	79	567,879
Balance (in shares) at Dec. 31, 2018			55,218	148,481	42,945
Balance at Dec. 31, 2018	708,352		$ 55	$ 149	$ 43	140,191	2,693	79	565,142
Balance (in shares) at Jun. 30, 2019			78,085	124,870	42,945
Balance at Jun. 30, 2019	$ 691,320		$ 78	$ 125	$ 43	198,231	722	79	492,042
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Dividends declared (in dollars per share)	$ 0.0294
Balance (in shares) at Dec. 31, 2018			55,218	148,481	42,945
Balance at Dec. 31, 2018	$ 708,352		$ 55	$ 149	$ 43	140,191	2,693	79	565,142
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	18,598
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	62,800
Balance (in shares) at Sep. 30, 2019			84,357	117,782	42,945
Balance at Sep. 30, 2019	685,368		$ 84	$ 118	$ 43	210,349	1,090	79	473,605
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative adjustment due to adoption of new credit loss standard	1,164						224		940
Balance (in shares) at Mar. 31, 2019			55,681	148,481	42,945
Balance at Mar. 31, 2019	711,735		$ 56	$ 149	$ 43	141,607	1,922	79	567,879
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	4,672						1,189		3,483
Equity-based compensation expense	7,443					3,800			3,643
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax (shares)			1
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	(5)		$ 0			(195)			190
Issuance of restricted stock awards (in shares)			80
Dividends declared	(2,389)						(2,389)
Distributions to noncontrolling interest	(4,934)								(4,934)
Exchanges of noncontrolling interest for Class A common stock (in shares)			22,323	(22,323)
Exchanges of noncontrolling interest for Class A common stock			$ 22	$ (22)		67,362			(67,362)
Repurchase of common units and cancellation of Class B common stock (in shares)				(1,288)
Repurchase of common units and cancellation of Class B common stock	(13,597)			$ (2)		(2,738)			(10,857)
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	(59,476)					(59,476)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	47,871					47,871
Balance (in shares) at Jun. 30, 2019			78,085	124,870	42,945
Balance at Jun. 30, 2019	691,320		$ 78	$ 125	$ 43	198,231	722	79	492,042
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	10,080						2,947		7,133
Equity-based compensation expense	7,310					3,960			3,350
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax (shares)			18
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	(96)		$ 0			(708)			612
Issuance of restricted stock awards (in shares)			0
Dividends declared	(2,579)						(2,579)
Distributions to noncontrolling interest	(4,725)								(4,725)
Exchanges of noncontrolling interest for Class A common stock (in shares)			6,254	(6,254)
Exchanges of noncontrolling interest for Class A common stock			$ 6	$ (6)		18,550			(18,550)
Repurchase of common units and cancellation of Class B common stock (in shares)				(834)
Repurchase of common units and cancellation of Class B common stock	(11,108)			$ (1)		(4,850)			(6,257)
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	(20,505)					(20,505)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	15,671					15,671
Balance (in shares) at Sep. 30, 2019			84,357	117,782	42,945
Balance at Sep. 30, 2019	$ 685,368		$ 84	$ 118	$ 43	210,349	1,090	79	473,605
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Dividends declared (in dollars per share)	$ 0.0294
Balance (in shares) at Dec. 31, 2019			89,768	151,047
Balance at Dec. 31, 2019	$ 627,645		$ 90	$ 151		204,711	2,420	79	420,194
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	(3,489)						(1,216)		(2,273)
Equity-based compensation expense	7,524					4,973			2,551
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax (shares)			630
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	(3,911)					(3,375)			(536)
Dividends declared	(2,891)						(2,891)
Distributions to noncontrolling interest	(4,304)								(4,304)
Exchanges of noncontrolling interest for Class A common stock (in shares)			4,637	(4,637)
Exchanges of noncontrolling interest for Class A common stock			$ 5	$ (5)		13,403			(13,403)
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	(19,198)					(19,198)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	16,610					16,610
Balance (in shares) at Mar. 31, 2020			95,035	146,410
Balance at Mar. 31, 2020	$ 617,837		$ 95	$ 146		217,124	(1,754)	79	402,147
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Dividends declared (in dollars per share)	$ 0.0294
Balance (in shares) at Dec. 31, 2019			89,768	151,047
Balance at Dec. 31, 2019	$ 627,645		$ 90	$ 151		204,711	2,420	79	420,194
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	23,080
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax (shares)		18,300
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	65,900
Balance (in shares) at Sep. 30, 2020			108,955	131,667
Balance at Sep. 30, 2020	609,083		$ 109	$ 132		242,955	(325)	79	366,133
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cumulative adjustment due to adoption of new credit loss standard	(149)						(67)		(82)
Balance (in shares) at Mar. 31, 2020			95,035	146,410
Balance at Mar. 31, 2020	617,837		$ 95	$ 146		217,124	(1,754)	79	402,147
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Equity-based compensation expense	7,510					5,416			2,094
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax (shares)			16
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	(121)					(330)			209
Issuance of Class A common stock upon exercise of stock options (in shares)			169
Issuance of Class A common stock upon exercise of stock options	2,876					596			2,280
Issuance of restricted stock awards (in shares)			59
Dividends declared	(3,245)						(3,245)
Distributions to noncontrolling interest	(3,934)								(3,934)
Exchanges of noncontrolling interest for Class A common stock (in shares)			11,488	(11,488)
Exchanges of noncontrolling interest for Class A common stock			$ 12	$ (12)		31,840			(31,840)
Repurchase of common units and cancellation of Class B common stock (in shares)				(1,126)
Repurchase of common units and cancellation of Class B common stock	(20,000)					(7,758)			(12,242)
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	(52,811)					(52,811)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	44,394					44,394
Balance (in shares) at Jun. 30, 2020			106,767	133,796
Balance at Jun. 30, 2020	$ 605,842		$ 107	$ 134		238,471	98	79	366,953
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Dividends declared (in dollars per share)	$ 0.0294
Cumulative adjustment due to adoption of new credit loss standard	$ 13,336						5,097		8,239
Net income	13,233
Equity-based compensation expense	7,116					5,419			1,697
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax (shares)			51
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax	(331)					(1,538)			1,207
Issuance of Class A common stock upon exercise of stock options (in shares)			7
Issuance of Class A common stock upon exercise of stock options	125					57			68
Dividends declared	(5,629)						(5,629)
Distributions to noncontrolling interest	(6,583)								(6,583)
Exchanges of noncontrolling interest for Class A common stock (in shares)			2,129	(2,129)
Exchanges of noncontrolling interest for Class A common stock			$ 2	$ (2)		5,236			(5,236)
Repurchase of common units and cancellation of Class B common stock						4,915
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock	(9,605)					(9,605)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	4,915
Balance (in shares) at Sep. 30, 2020			108,955	131,667
Balance at Sep. 30, 2020	$ 609,083		$ 109	$ 132		$ 242,955	(325)	$ 79	366,133
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Dividends declared (in dollars per share)	$ 0.05
Cumulative adjustment due to adoption of new credit loss standard	$ 13,233						$ 5,206		$ 8,027

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Consolidated Statement of Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended				6 Months Ended
	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Jun. 30, 2019
Statement of Stockholders' Equity [Abstract]
Dividends declared (in dollars per share)	$ 0.05	$ 0.0294	$ 0.0294	$ 0.0294	$ 0.0294

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 23,080	$ 18,598
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment	105,322	88,841
Loss on disposal of property and equipment	283	148
Deferred income taxes	2,622	1,531
Amortization of debt issuance costs and original issue discount	1,257	1,227
Credit loss expense (benefit)	308	(107)
Unrealized loss on interest rate swaps	18,085	17,449
Loss on extinguishment of debt	245	0
Equity-based compensation	22,150	22,898
Amortization of portfolio energy credits	1,381	1,236
Cost of revenue for sales-type leases	3,436	1,082
Changes in operating assets and liabilities:
Accounts receivable	4,250	2,493
Prepaid expenses	1,688	(172)
Net investment in sales-type leases	0	(4,275)
Other current assets	1,053	(148)
Other assets	846	2,384
Accounts payable	2,709	2,691
Accrued salaries and benefits	7,580	7,368
Accrued expenses	1,048	1,441
Deferred revenue	(4,803)	11,689
Customer deposits	998	480
Operating lease liabilities	(3,883)	(3,638)
Other long-term liabilities	(320)	6
Net cash provided by operating activities	189,335	173,222
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment	(249,096)	(221,296)
Proceeds from sale of property and equipment	2	33
Purchase of portfolio energy credits	(1,381)	(1,095)
Net cash used in investing activities	(250,475)	(222,358)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings	710,000	70,000
Repayment of borrowings, including finance lease liabilities	(465,221)	(4,526)
Payment of debt issuance costs and original issue discount	(5,960)	0
Change in long-term deposit	1,491	2,144
Payment of tax withholdings upon settlement of restricted stock unit awards	(4,508)	(1,441)
Proceeds from exercise of stock options	3,001	0
Repurchase of common units	(20,000)	(24,705)
Dividends paid to Class A common stockholders	(11,377)	(6,412)
Distributions paid to noncontrolling interest	(14,926)	(15,006)
Net cash provided by financing activities	192,500	20,054
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	131,360	(29,082)
CASH AND CASH EQUIVALENTS—Beginning of period	24,721	81,560
CASH AND CASH EQUIVALENTS—End of period	156,081	52,478
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized	18,946	20,677
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
(Decrease) increase in liabilities incurred to acquire property and equipment	(16,323)	10,519
(Decrease) increase in accrued construction payables incurred related to long-term deposit	(459)	814
Increase in property and equipment related to transfer of long-term deposit	244	0
Increase in accounts payable related to long-term deposit	0	501
Increase in dividends payable on unvested restricted stock units	388	284
Increase in liabilities incurred related to deferred debt issuance costs	1,087	0
Decrease in noncontrolling interest as a result of exchanges for Class A common stock	(50,479)	(85,912)
Recognition of liabilities under tax receivable agreement	81,614	79,981
Increase in deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	65,919	62,814
Right-of-use assets obtained in exchange for new operating leases	3,114	44
Property and equipment obtained in exchange for new finance leases	138	37,923
(Decrease) increase in distributions payable on unvested common units	(105)	659
Dividends payable settled with shares of Class A common stock	$ 145	$ 30

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Organization	9 Months Ended
	Sep. 30, 2020
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, Michigan, and Georgia (which opened in the first quarter of 2020), 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.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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 nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, or for any other future annual or interim period.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and all significant intercompany transactions and balances have been eliminated.

As the sole manager of Switch, Ltd., Switch, Inc. operates and controls all of the business and affairs of Switch, has the sole voting interest in, and controls the management of, Switch, and has the obligation to absorb the losses of, and receive benefits from, Switch. Accordingly, Switch, Inc. identifies itself as the primary beneficiary of Switch and began consolidating Switch in its consolidated financial statements as of October 11, 2017, the closing date of the IPO, resulting in a noncontrolling interest related to the common units of Switch, Ltd. (“Common Units”) held by members, including Rob Roy, the Founder, Chief Executive Officer and Chairman of Switch, Ltd., and an affiliated entity of Mr. Roy (collectively, the “Founder Members”), other than Switch, Inc. on its consolidated financial statements.

The Company periodically evaluates entities for consolidation either through ownership of a majority voting interest, or through means other than voting interest, in accordance with the Variable Interest Entity (“VIE”) accounting model. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to the allowance for credit losses, useful lives of property and equipment, deferred income taxes, liabilities under the tax receivable agreement, equity-based compensation, deferred revenue, incremental borrowing rate, fair value of performance obligations, and probability assessments of exercising renewal options on leases. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable. Actual results could differ from these estimates.

Significant Accounting Policies

A description of the Company’s significant accounting policies is included in the audited financial statements within its Annual Report on Form 10-K for the year ended December 31, 2019. No other changes to significant accounting policies have occurred since December 31, 2019, with the exception of those detailed below.

Concentration of Credit and Other Risks

Although the Company operates primarily in Nevada, realization of its receivables and its future operations and cash flows could be affected by adverse economic conditions, both regionally and elsewhere in the United States. During the three months ended September 30, 2020 and 2019, the Company’s largest customer and its affiliates comprised 14% and 13%, respectively, of the Company’s revenue. During the nine months ended September 30, 2020 and 2019, the Company’s largest customer and its affiliates comprised 14% and 12%, respectively, of the Company’s revenue. No customer accounted for 10% or more of total receivables as of September 30, 2020 and two customers, one of which was the Company’s largest customer and its affiliate, accounted for 10% or more of total receivables as of December 31, 2019.

Revenue Recognition

Contract Balances

The opening and closing balances of the Company’s contract assets, net of allowance for credit losses, and deferred revenue are as follows:

	Contract Assets, Current Portion(1)		Contract Assets(2)		Deferred Revenue, Current Portion(3)		Deferred Revenue(4)
	(in thousands)
December 31, 2019	$	496	$	3,216	$	14,991	$	27,852
September 30, 2020	179		3,732		14,476		23,564
Change	$	(317)	$	516	$	(515)	$	(4,288)

________________________________________

(1)     Amounts are included within other current assets on the Company’s consolidated balance sheets.

(2)     Amounts are included within other assets on the Company’s consolidated balance sheets.

(3)     Amounts include $3.8 million and $2.3 million of deferred revenue related to leases as of December 31, 2019 and September 30, 2020, respectively.

(4)     Amounts include $7.9 million and $2.6 million of deferred revenue related to leases as of December 31, 2019 and September 30, 2020, respectively.

The differences between the opening and closing balances of the Company’s deferred revenue primarily result from timing differences between the Company’s satisfaction of performance obligations and the associated customer payments. Revenue recognized from the balance of deferred revenue as of December 31, 2019 was $2.4 million during the three months ended September 30, 2020 and $12.7 million during the nine months ended September 30, 2020. For the three and nine months ended September 30, 2020 and 2019, no impairment losses related to contract assets were recognized on the consolidated statements of comprehensive income.

Remaining Performance Obligations

Remaining performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized in future periods. These amounts as of September 30, 2020 were $711.7 million, 39%, 48%, and 9% of which is expected to be recognized over the next year, one to three years, and three to five years, respectively, with the remainder recognized thereafter. The remaining performance obligations do not include estimates of variable consideration related to unsatisfied performance obligations, such as the usage of metered power, or any contracts that could be terminated without significant penalties.

Fair Value Measurements

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

		September 30, 2020
	Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
		(in thousands)
Assets:
Cash equivalents	Cash and cash equivalents	$	118,346	$	118,346	$	—	$	—
Liabilities:
Interest rate swaps	Interest rate swap liability, current portion	$	9,332	$	—	$	9,332	$	—
Interest rate swaps	Other long-term liabilities	$	22,767	$	—	$	22,767	$	—

		December 31, 2019
	Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
		(in thousands)
Liabilities:
Interest rate swaps	Interest rate swap liability, current portion	$	3,464	$	—	$	3,464	$	—
Interest rate swaps	Other long-term liabilities	$	10,550	$	—	$	10,550	$	—

Transfers between levels of fair value hierarchy are recorded at the end of the reporting period during which the events or changes in circumstances that caused the transfers to occur. There were no transfers between levels of fair value hierarchy during the periods presented.

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

Recent Accounting Pronouncements

ASU 2014-09–Revenue from Contracts with Customers and ASU 2016-02–Leases

In the fourth quarter of 2019, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) and ASU 2016-02, Leases (Topic 842) effective January 1, 2019, each using the modified retrospective approach. Results for the three and nine months ended September 30, 2019 have been modified to reflect the adoption of this guidance on January 1, 2019.

ASU 2016-13–Financial Instruments–Credit Losses

In June 2016, the Financial Accounting Standards Board (“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 is required to use a new forward-looking “expected loss” model for trade and other receivables that generally results in the earlier recognition of allowances for losses. In April 2019, the FASB issued ASU 2019-04, which, among other amendments, allows for certain policy elections and practical expedients related to accrued interest on financial instruments. In May 2019, the FASB issued ASU 2019-05, which granted targeted transition relief by allowing entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost. In November 2019, the FASB issued ASU 2019-10 and ASU 2019-11, which addressed certain aspects of the guidance related to effective dates, expected recoveries, troubled debt restructurings, accrued interest receivables, and financial assets secured by collateral. In February and March 2020, the FASB also issued ASU 2020-02 and ASU 2020-03, respectively, which provide certain amendments and improvements to sections of ASU 2016-13.

The Company adopted this guidance effective January 1, 2020 using the modified retrospective method. As a result of this adoption, the Company measured an allowance for current expected credit losses for its accounts receivable and contract assets through a loss rate method; whereby, based on past events, such as prior write-offs, it determined expected losses as of the adoption date, while adjusting for current and forward-looking conditions, such as economic news and trends, customer concentrations, changes in customer payment terms, and customer credit-worthiness. Customer credit-worthiness is determined through indicators such as third-party credit ratings, collection experience, and other internal metrics. If a customer‘s credit-worthiness resulted in an impairment of their

ability to make payments, greater allowances for credit losses may be required. The Company pooled its assets based on these conditions such that each asset pool reflected a homogenous set of asset risks, including characteristics such as credit ratings, customer industry, contract term, and historical credit loss patterns. For any period beyond a reasonable and supportable forecast for current and forward-looking conditions, the Company reverted to a loss rate based only on historical information. The adoption of this guidance did not materially impact the Company’s consolidated financial statements.

ASU 2018-13–Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. In addition, in November 2018, the FASB issued ASU 2018-19, which provides clarifications and improvements on sections of ASU 2018-13. The Company adopted this guidance retrospectively as of March 31, 2020. The adoption of this guidance did not materially impact the Company’s consolidated financial statements.

ASU 2019-12–Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)–Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in ASU 2019-12 provide certain clarifications and simplify accounting for income taxes by removing certain exceptions to the general principles in the current guidance. The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted in periods for which financial statements have not yet been issued. 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 2020-04–Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848)–Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 are elective and provide optional expedients and exceptions to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The Company elected to adopt this guidance prospectively as of March 31, 2020 as it has LIBOR-based contracts extending beyond the expected discontinuation of LIBOR, including its term loan facility, revolving credit facility, and interest rate swap agreements. The adoption of this guidance did not materially impact the Company’s consolidated financial statements.

ASU 2020-10–Codification Improvements

In October 2020, the FASB issued ASU 2020-10, Codification Improvements (“ASU 2020-10”). The amendments in ASU 2020-10 improve codification by ensuring that all guidance that includes an option for an entity to provide information in the notes to financial statements is codified within the disclosure section of the codification. The Company early adopted this guidance retrospectively as of July 1, 2020. The early adoption of this guidance did not materially impact the Company’s consolidated financial statements.

Reclassification

The Company reclassified the current portion of its interest rate swap liability to present it separately from accrued expenses on the consolidated balance sheet as of December 31, 2019 to be consistent with the current period presentation. The reclassification had no impact on the Company’s financial condition, results of operations, or net cash flows.

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Property and Equipment, Net

9 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

Property and Equipment, Net

Property and Equipment, Net

Property and equipment, net consists of the following:

	September 30,		December 31,
	2020		2019
	(in thousands)
Land and land improvements	$	283,800	$	223,877
Buildings, building improvements, and leasehold improvements	518,266		435,214
Substation equipment	19,780		19,780
Data center equipment	1,196,670		1,021,056
Vehicles	1,945		1,732
Core network equipment	39,604		36,572
Fiber facilities	14,225		13,180
Computer equipment, furniture and fixtures	44,910		39,057
Finance lease right-of-use assets	72,951		72,569
Construction in progress	154,443		254,750
Property and equipment, gross	2,346,594		2,117,787
Less: accumulated depreciation and amortization	(671,365)		(566,670)
Property and equipment, net	$	1,675,229	$	1,551,117

Accumulated amortization for finance lease right-of-use assets totaled $13.6 million and $11.7 million as of September 30, 2020 and December 31, 2019, respectively.

During the nine months ended September 30, 2020 and 2019, capitalized interest was $3.0 million and $3.9 million, respectively.

In May 2020, the Company purchased approximately two acres of land in Las Vegas, Nevada for $2.5 million from an entity in which a member of its Board of Directors has a beneficial ownership interest.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Cost of revenue	$	35,614	$	29,427	$	101,725	$	86,251
Selling, general and administrative expense	1,177		999		3,597		2,590
Total depreciation and amortization of property and equipment	$	36,791	$	30,426	$	105,322	$	88,841

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Long-Term Debt

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Long-Term Debt

Long-Term Debt

Long-term debt consists of the following as of:

	September 30,		December 31,
	2020		2019
	(in thousands)
Senior Unsecured Notes Due 2028	$	600,000	$	—
Term Loan Facility	400,000		585,000
Revolving Credit Facility	—		170,000
Long-term debt, gross	1,000,000		755,000
Less: unamortized debt issuance costs and original issue discount	(9,179)		(3,628)
	990,821		751,372
Less: long-term debt, current	(6,000)		(6,000)
Long-term debt, net	$	984,821	$	745,372

Credit Agreement

In June 2017, Switch, Ltd. entered into an amended and restated credit agreement (“Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and certain other lenders, consisting of a $600.0 million term loan facility (the “Term Loan Facility”), maturing on June 27, 2024, and a $500.0 million revolving credit facility (the “Revolving Credit Facility,” and, together with the Term Loan Facility, the “Credit Facilities”), maturing on June 27, 2022. In September 2020, Switch, Ltd. entered into a second amendment to the Credit Agreement (“Amended Credit Agreement”) to, among other things, extend the maturity of the Revolving Credit Facility to June 27, 2023, modify the ratio used for the financial covenant and certain basket availability tests from a consolidated total leverage ratio to a consolidated secured leverage ratio, and refresh or increase certain baskets for restricted payments, investments, and junior debt payments. In connection with this amendment, certain lenders exited the Revolving Credit Facility and a partial repayment was applied to the Term Loan Facility to reduce its principal amount to $400.0 million. As a result, the Company recorded a $0.2 million loss on extinguishment of debt during the three and nine months ended September 30, 2020.

The Term Loan Facility continues to be subject to quarterly amortization payments of $1.5 million, followed by a final payment of $379.0 million in June 2024.

The Amended Credit Agreement contains affirmative and negative covenants customary for such financings, including, but not limited to, limitations on incurring additional debt, incurring additional liens, encumbrances or contingent liabilities, and paying distributions or making certain other restricted payments (with certain exceptions and baskets, including a restricted payment basket of $50.0 million per fiscal year). The Amended Credit Agreement also requires Switch, Ltd. to maintain compliance with the consolidated secured leverage ratio (as defined in the Amended Credit Agreement) of 4.00 to 1.00 for each fiscal quarter.

Senior Unsecured Notes Due 2028

In September 2020, Switch, Ltd. (the “Issuer”) issued $600.0 million aggregate principal amount of its 3.75% senior unsecured notes due 2028 (the “Notes”), pursuant to an indenture (the “Indenture”) by and among the Issuer, the guarantors named therein and U.S. Bank National Association, as trustee. A portion of the net proceeds was used to repay outstanding borrowings on the Revolving Credit Facility and reduce the principal amount of the Term Loan Facility.

The Notes bear interest at the rate of 3.75% per annum, payable in cash semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2021. The Notes mature on September 15, 2028 and are fully and unconditionally guaranteed on a senior unsecured basis by each of the Issuer’s current and future domestic restricted subsidiaries that guarantee its obligations under its Credit Facilities.

Prior to September 15, 2023, the Issuer may redeem the Notes, in whole or in part, at a redemption price of 100% of the principal amount thereof, plus a “make-whole” premium set forth in the Indenture, plus accrued and unpaid interest. In addition, prior to September 15, 2023, the Issuer may redeem up to 40% of the aggregate principal amount of the Notes at a redemption price equal to 103.75% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds from one or more equity offerings. On or after September 15, 2023, the Issuer may redeem some or all of the Notes at a redemption price decreasing annually from 101.875% of the principal amount to 100% of the principal amount, plus accrued and unpaid interest.

In the event of a change of control triggering event (as defined in the Indenture), the Issuer will be required to offer to repurchase the Notes at a price equal to 101% of the principal amount thereof, plus any accrued and unpaid interest. If holders of not less than 90.0% in aggregate principal amount of the outstanding Notes validly tender in connection with any tender offer or other offer to purchase the Notes (including pursuant to a change of control offer, an alternate offer, or an offer to purchase with the proceeds from any asset disposition, all as described in the indenture), the Issuer will have the right to redeem the remaining Notes outstanding following such purchase at a cash redemption price equal to the applicable price paid to holders in such purchase, plus accrued and unpaid interest.

The Notes are general unsecured obligations of the Issuer and the guarantors. Under the terms of the Indenture, the Notes rank equally in right of payment with all of the Issuer’s and the guarantors’ existing and future senior indebtedness, and rank contractually senior in right of payment to the Issuer’s and the guarantors’ future indebtedness and other obligations that are expressly subordinated in right of payment to the Notes. The Notes are effectively subordinated to the Issuer’s and the guarantors’ existing and future secured indebtedness, including secured indebtedness under the Credit Facilities, to the extent of the value of the assets securing such indebtedness. The Notes and guarantees are structurally subordinated to all existing and future indebtedness and liabilities of the Issuer’s subsidiaries that do not guarantee the Notes.

The Indenture contains covenants that, subject to exceptions and qualifications, among other things, limit the Issuer’s ability and the ability of its Restricted Subsidiaries (as defined in the Indenture) to incur additional indebtedness and guarantee indebtedness, pay dividends or make other distributions or repurchase or redeem Switch, Inc.’s capital stock, prepay, redeem or repurchase certain indebtedness, issue certain preferred stock or similar equity securities, make loans and investments, dispose of assets, incur liens, enter into transactions with affiliates, enter into agreements restricting the ability to pay dividends, and consolidate, merge or sell all or substantially all assets.

The Indenture contains customary events of default including, without limitation, failure to make required payments, failure to comply with certain agreements or covenants, cross-acceleration to certain other indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, and failure to pay certain judgments. An event of default under the notes will allow either the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes to accelerate, or in certain cases, will automatically cause the acceleration of the maturity of all outstanding Notes.

Fair Value

The estimated fair value of the Company’s long-term debt as of September 30, 2020 and December 31, 2019 was approximately $1.01 billion and $755.0 million, respectively, compared to its carrying value, excluding debt issuance costs and original issue discount, of $1.00 billion and $755.0 million, respectively. The estimated fair value of the Company’s long-term debt was based on Level 2 inputs using quoted market prices on or about September 30, 2020 and December 31, 2019, respectively.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Operating Leases

During the three months ended September 30, 2020 and 2019, lease costs related to operating leases were $1.8 million and $2.0 million, respectively. During the nine months ended September 30, 2020 and 2019, lease costs related to operating leases were $5.7 million and $5.9 million, respectively. Related party lease costs included in these amounts were $1.1 million and $1.4 million for the three months ended September 30, 2020 and 2019, respectively, and $3.5 million and $3.9 million for the nine months ended September 30, 2020 and 2019, respectively.

Legal Proceedings

On September 7, 2017, Switch, Ltd. and Switch, Inc. were named in a lawsuit filed in the U.S. District Court for the District of Nevada by V5 Technologies formerly d/b/a Cobalt Data Centers. The lawsuit alleges, among other things, that Switch, Ltd. and Switch, Inc. monopolized the Las Vegas Metropolitan area of Southern Nevada’s data center colocation market and engaged in unfair business practices leading to the failure of Cobalt Data Centers in 2015 and seeks monetary damages in an amount yet to be disclosed. Discovery closed in February 2020. In March 2020, both parties filed motions for summary judgment and are waiting for the court to rule on the motions. Switch, Ltd. and Switch, Inc. are vigorously defending the case.

On September 12, 2017, Switch, Ltd. filed a complaint in the Eighth Judicial District of Nevada against the consultant, Stephen Fairfax, and his business, MTechnology Inc. Among other claims, Switch raised allegations of breach of contract and misappropriation of trade secrets. The complaint also alleged that Aligned Data Centers LLC (“Aligned”) hired Mr. Fairfax and MTechnology Inc. to design their data centers; that this consultant had toured Switch under a non-disclosure agreement; and that this consultant breached his confidentiality agreements with Switch by using Switch’s designs to design the Aligned data centers. Switch, Ltd. is seeking an injunction to prevent the defendants in the lawsuit from infringing Switch, Ltd.’s patents, as well as other remedies. The parties are currently engaged in discovery.

Four substantially similar putative class action complaints, captioned Martz v. Switch, Inc. et al. (filed April 20, 2018); Palkon v. Switch, Inc. et al. (filed April 30, 2018); Chun v. Switch, Inc. et al. (filed May 11, 2018); and Silverberg v. Switch, Inc. et al. (filed June 6, 2018), were filed in the Eighth Judicial District of Nevada, and subsequently consolidated into a single case (the “State Court Securities Action”). Additionally, on June 11, 2018, one putative class action complaint captioned Cai v. Switch, Inc. et al. was filed in the United States District Court for the District of New Jersey (the “Federal Court Securities Action,” and collectively with the State Court Securities Action, the “Securities Actions”) and subsequently transferred to the Eighth Judicial District of Nevada in August 2018 and the federal court appointed Oscar Farach lead plaintiff. These lawsuits were filed against Switch, Inc., certain current and former officers and directors and certain underwriters of Switch, Inc.’s IPO alleging federal securities law violations in connection with the IPO. These lawsuits were brought by purported stockholders of Switch, Inc. seeking to represent a class of stockholders who purchased Class A common stock in or traceable to the IPO, and

seek unspecified damages and other relief. With respect to the Federal Court Securities Action, in July 2019, the federal court granted Switch, Inc.’s motion to dismiss in part, which narrowed the scope of the plaintiff’s case. In December 2019, Switch, Inc. filed a motion for judgment on the pleadings, and in July 2020, the federal court entered a judgment in favor of Switch, Inc. In October 2020, Switch, Inc. filed a motion to dismiss in the State Court Securities Action, and a hearing is scheduled for January 2021. Switch, Inc. believes that these lawsuits are without merit and intends to continue to vigorously defend against them.

On September 10, 2018, two purported stockholders of Switch, Inc. filed substantially similar shareholder derivative complaints, respectively captioned Liu v. Roy et al., and Zhao v. Roy et al., in the Eighth Judicial District of Nevada, which were subsequently consolidated into a single case (the “Derivative Shareholder Action”). These lawsuits allege breaches of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control, and gross mismanagement against certain current and former officers and directors of Switch, Inc. The plaintiffs also named Switch, Inc. as a nominal defendant. The complaints arise generally from the same allegations described in the State Court Securities Action and Federal Court Securities Action. The plaintiffs seek unspecified damages on Switch, Inc.’s behalf from the officer and director defendants, certain corporate governance actions, compensatory awards, and other relief. In December 2019, the court granted the parties’ stipulation to stay the Derivative Shareholder Action until the earlier of any of the following events: the Securities Actions are resolved with prejudice as to each defendant or a motion for summary judgment is resolved in the Federal Court Securities Action. Because the State Court Securities Action is still pending, the Derivative Shareholder Action remains stayed.

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.

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Income Taxes

9 Months Ended

Sep. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company recorded net increases in deferred tax assets of $4.9 million and $65.9 million during the three and nine months ended September 30, 2020, respectively, and $15.7 million and $62.8 million during the three and nine months ended September 30, 2019, respectively, with a corresponding increase to additional paid in capital, resulting from changes in the outside basis difference on Switch, Inc.’s investment in Switch, Ltd. The Company has determined it is more-likely-than-not that it will be able to realize this deferred tax asset in the future.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in March 2020. The Company does not expect the provisions of the CARES Act to have a significant impact on the effective tax rate or the deferred income tax positions of the Company.

Tax Receivable Agreement

The Company has recorded a liability under the tax receivable agreement of $243.7 million and $162.1 million as of September 30, 2020 and December 31, 2019, respectively, which provides for the payment of 85% of the amount of the tax benefits, if any, that Switch, Inc. is deemed to realize as a result of increases in the tax basis of its ownership in Switch, Ltd. related to exchanges of noncontrolling interest for Class A common stock. No amounts are expected to be paid within the next 12 months.

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Equity-Based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Equity-Based Compensation

Equity-Based Compensation

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Cost of revenue	$	475	$	361	$	1,415	$	1,115
Selling, general and administrative expense	6,641		6,949		20,735		21,783
Total equity-based compensation	$	7,116	$	7,310	$	22,150	$	22,898

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Non-controlling Interest

9 Months Ended

Sep. 30, 2020

Noncontrolling Interest [Abstract]

Non-controlling Interest

Noncontrolling Interest

Ownership

Switch, Inc. owns a minority economic interest in Switch, Ltd., where “economic interest” means the right to receive any distributions, whether cash, property or securities of Switch, Ltd., in connection with Common Units. Switch, Inc. presents interest held by noncontrolling interest holders within noncontrolling interest in the consolidated financial statements. During the nine months ended September 30, 2020, Switch, Inc. issued an aggregate of 18.3 million shares of Class A common stock to members of Switch, Ltd. in connection with such members’ redemptions of an equivalent number of Common Units and corresponding cancellation and retirement of an equivalent number of Switch, Inc.’s Class B common stock. Such retired shares of Class B common stock may not be reissued. The redemptions occurred pursuant to the terms of the Switch operating agreement entered into in connection with the Company’s IPO.

In February 2020, Switch, Inc.’s Board of Directors authorized the repurchase by Switch, Ltd. of up to $20.0 million of its outstanding Common Units, which authorization expired unused on March 17, 2020. In addition, in May 2020, Switch, Inc.’s Board of Directors authorized the repurchase by Switch, Ltd. of up to $20.0 million of its outstanding Common Units held by Founder Members, with any unused amount from this authorization expiring on June 16, 2020. Switch, Ltd. elected to repurchase 1.1 million of its outstanding Common Units for $20.0 million from Founder Members under the May 2020 authorization. Pursuant to this repurchase, Switch, Inc. canceled and retired an equivalent amount of its shares of Class B common stock, and such shares may not be reissued. Repurchases under the Common Unit repurchase program were funded from Switch’s existing cash and cash equivalents. As of September 30, 2020, the Company had no repurchase authority remaining.

The ownership of the Common Units is summarized as follows:

	September 30, 2020			December 31, 2019
	Units	Ownership %		Units	Ownership %
	(units in thousands)
Switch, Inc.’s ownership of Common Units(1)	108,896	45.6	%	89,688	37.8	%
Noncontrolling interest holders’ ownership of Common Units(2)	129,674	54.4	%	147,859	62.2	%
Total Common Units	238,570	100.0	%	237,547	100.0	%

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(1)    Common Units held by Switch, Inc. exclude 59,000 and 80,000 Common Units underlying unvested restricted stock awards as of September 30, 2020 and December 31, 2019, respectively.

(2)    Common Units held by noncontrolling interest holders exclude 2.0 million and 3.2 million unvested Common Unit awards as of September 30, 2020 and December 31, 2019, respectively.

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

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Net Income Per Share

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Net Income Per Share

Net Income Per Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share data)
Net income per share:
Numerator—basic:
Net income attributable to Switch, Inc.—basic	$	5,206	$	2,947	$	9,087	$	4,869
Numerator—diluted:
Net income attributable to Switch, Inc.—basic	$	5,206	$	2,947	$	9,087	$	4,869
Effect of dilutive securities:
Shares of Class B and Class C common stock	—		5,492		10,806		10,590
Net income attributable to Switch, Inc.—diluted	$	5,206	$	8,439	$	19,893	$	15,459
Denominator—basic:
Weighted average shares outstanding—basic	108,690		84,135		102,703		72,566
Net income per share—basic	$	0.05	$	0.04	$	0.09	$	0.07
Denominator—diluted:
Weighted average shares outstanding—basic	108,690		84,135		102,703		72,566
Weighted average effect of dilutive securities:
Stock options	1,462		1,050		1,415		572
Restricted stock units	1,358		1,027		1,139		652
Dividend equivalent units	45		24		35		21
Restricted stock awards	10		25		42		33
Shares of Class B and Class C common stock	—		160,881		138,219		173,349
Weighted average shares outstanding—diluted	111,565		247,142		243,553		247,193
Net income per share—diluted	$	0.05	$	0.03	$	0.08	$	0.06

Shares of Class B and Class C common stock do not share in the earnings or losses of Switch, Inc. and are therefore not participating securities. As such, separate calculations of basic and diluted net income per share for each of Class B and Class C common stock under the two-class method have not been presented.

The following table presents potentially dilutive securities excluded from the computation of diluted net income per share for the periods presented because their effect would have been anti-dilutive.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
	(in thousands)
Stock options(1)	1,117	5,040	1,117	5,040
Restricted stock units(1)	28	13	28	13
Shares of Class B and Class C common stock(2)	131,667	—	—	—

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(1)     Represents the number of instruments outstanding at the end of the period. Application of the treasury stock method would reduce this amount if they had a dilutive effect and were included in the computation of diluted net income per share.

(2)     Shares of Class B and Class C common stock at the end of the period are considered potentially dilutive shares of Class A common stock under application of the if-converted method.

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Segment Reporting

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Segment Reporting

Segment ReportingThe 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, S.A., which has deployed facilities in Italy and Thailand. The Company derives almost all of its revenue from sales to customers in the United States, based upon the billing address of the customer.

Revenue derived from customers outside the United States, based upon the billing address of the customer, was less than 2% of revenue for each of the three and nine months ended September 30, 2020 and 2019.

The Company’s revenue is comprised of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Colocation	$	105,112	$	95,409	$	308,947	$	272,857
Connectivity	22,450		25,336		70,394		63,920
Other	1,223		1,608		4,457		4,988
Total revenue	$	128,785	$	122,353	$	383,798	$	341,765

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Subsequent Events

9 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

In October and November 2020, Switch, Inc. issued an aggregate of 0.3 million and 9.8 million shares, respectively, of Class A common stock to members of Switch, Ltd. in connection with such members’ redemptions of an equivalent number of Common Units and corresponding cancellation and retirement of an equivalent number of shares of Class B common stock. Such retired shares of Class B common stock may not be reissued. The redemptions occurred pursuant to the terms of the Switch operating agreement entered into in connection with the Company’s IPO.

In November 2020, Switch, Inc.’s Board of Directors declared a dividend of $0.05 per share of Class A common stock, for a total estimated to be $5.9 million, to be paid on November 30, 2020 to holders of record as of November 17, 2020. Prior to the payment of this dividend, Switch, Ltd. will make a cash distribution to all holders of record of Common Units, including Switch, Inc., of $0.05 per Common Unit, for a total estimated to be $12.0 million.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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 nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, or for any other future annual or interim period.

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and all significant intercompany transactions and balances have been eliminated.

As the sole manager of Switch, Ltd., Switch, Inc. operates and controls all of the business and affairs of Switch, has the sole voting interest in, and controls the management of, Switch, and has the obligation to absorb the losses of, and receive benefits from, Switch. Accordingly, Switch, Inc. identifies itself as the primary beneficiary of Switch and began consolidating Switch in its consolidated financial statements as of October 11, 2017, the closing date of the IPO, resulting in a noncontrolling interest related to the common units of Switch, Ltd. (“Common Units”) held by members, including Rob Roy, the Founder, Chief Executive Officer and Chairman of Switch, Ltd., and an affiliated entity of Mr. Roy (collectively, the “Founder Members”), other than Switch, Inc. on its consolidated financial statements.

The Company periodically evaluates entities for consolidation either through ownership of a majority voting interest, or through means other than voting interest, in accordance with the Variable Interest Entity (“VIE”) accounting model. A VIE is an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support.

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to the allowance for credit losses, useful lives of property and equipment, deferred income taxes, liabilities under the tax receivable agreement, equity-based compensation, deferred revenue, incremental borrowing rate, fair value of performance obligations, and probability assessments of exercising renewal options on leases. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable. Actual results could differ from these estimates.

Concentration of Credit and Other Risks

Concentration of Credit and Other Risks

Although the Company operates primarily in Nevada, realization of its receivables and its future operations and cash flows could be affected by adverse economic conditions, both regionally and elsewhere in the United States. During the three months ended September 30, 2020 and 2019, the Company’s largest customer and its affiliates comprised 14% and 13%, respectively, of the Company’s revenue. During the nine months ended September 30, 2020 and 2019, the Company’s largest customer and its affiliates comprised 14% and 12%, respectively, of the Company’s revenue. No customer accounted for 10% or more of total receivables as of September 30, 2020 and two customers, one of which was the Company’s largest customer and its affiliate, accounted for 10% or more of total receivables as of December 31, 2019.

Revenue Recognition

Revenue Recognition

Contract Balances

The opening and closing balances of the Company’s contract assets, net of allowance for credit losses, and deferred revenue are as follows:

	Contract Assets, Current Portion(1)		Contract Assets(2)		Deferred Revenue, Current Portion(3)		Deferred Revenue(4)
	(in thousands)
December 31, 2019	$	496	$	3,216	$	14,991	$	27,852
September 30, 2020	179		3,732		14,476		23,564
Change	$	(317)	$	516	$	(515)	$	(4,288)

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(1)     Amounts are included within other current assets on the Company’s consolidated balance sheets.

(2)     Amounts are included within other assets on the Company’s consolidated balance sheets.

(3)     Amounts include $3.8 million and $2.3 million of deferred revenue related to leases as of December 31, 2019 and September 30, 2020, respectively.

(4)     Amounts include $7.9 million and $2.6 million of deferred revenue related to leases as of December 31, 2019 and September 30, 2020, respectively.

The differences between the opening and closing balances of the Company’s deferred revenue primarily result from timing differences between the Company’s satisfaction of performance obligations and the associated customer payments. Revenue recognized from the balance of deferred revenue as of December 31, 2019 was $2.4 million during the three months ended September 30, 2020 and $12.7 million during the nine months ended September 30, 2020. For the three and nine months ended September 30, 2020 and 2019, no impairment losses related to contract assets were recognized on the consolidated statements of comprehensive income.

Remaining Performance Obligations

Remaining performance obligations represent contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized in future periods. These amounts as of September 30, 2020 were $711.7 million, 39%, 48%, and 9% of which is expected to be recognized over the next year, one to three years, and three to five years, respectively, with the remainder recognized thereafter. The remaining performance obligations do not include estimates of variable consideration related to unsatisfied performance obligations, such as the usage of metered power, or any contracts that could be terminated without significant penalties.

Fair Value Measurement

Fair Value Measurements

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

		September 30, 2020
	Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
		(in thousands)
Assets:
Cash equivalents	Cash and cash equivalents	$	118,346	$	118,346	$	—	$	—
Liabilities:
Interest rate swaps	Interest rate swap liability, current portion	$	9,332	$	—	$	9,332	$	—
Interest rate swaps	Other long-term liabilities	$	22,767	$	—	$	22,767	$	—

		December 31, 2019
	Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
		(in thousands)
Liabilities:
Interest rate swaps	Interest rate swap liability, current portion	$	3,464	$	—	$	3,464	$	—
Interest rate swaps	Other long-term liabilities	$	10,550	$	—	$	10,550	$	—

Transfers between levels of fair value hierarchy are recorded at the end of the reporting period during which the events or changes in circumstances that caused the transfers to occur. There were no transfers between levels of fair value hierarchy during the periods presented.

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

Recent Accounting Pronouncements

Recent Accounting Pronouncements

ASU 2014-09–Revenue from Contracts with Customers and ASU 2016-02–Leases

In the fourth quarter of 2019, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) and ASU 2016-02, Leases (Topic 842) effective January 1, 2019, each using the modified retrospective approach. Results for the three and nine months ended September 30, 2019 have been modified to reflect the adoption of this guidance on January 1, 2019.

ASU 2016-13–Financial Instruments–Credit Losses

In June 2016, the Financial Accounting Standards Board (“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 is required to use a new forward-looking “expected loss” model for trade and other receivables that generally results in the earlier recognition of allowances for losses. In April 2019, the FASB issued ASU 2019-04, which, among other amendments, allows for certain policy elections and practical expedients related to accrued interest on financial instruments. In May 2019, the FASB issued ASU 2019-05, which granted targeted transition relief by allowing entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost. In November 2019, the FASB issued ASU 2019-10 and ASU 2019-11, which addressed certain aspects of the guidance related to effective dates, expected recoveries, troubled debt restructurings, accrued interest receivables, and financial assets secured by collateral. In February and March 2020, the FASB also issued ASU 2020-02 and ASU 2020-03, respectively, which provide certain amendments and improvements to sections of ASU 2016-13.

The Company adopted this guidance effective January 1, 2020 using the modified retrospective method. As a result of this adoption, the Company measured an allowance for current expected credit losses for its accounts receivable and contract assets through a loss rate method; whereby, based on past events, such as prior write-offs, it determined expected losses as of the adoption date, while adjusting for current and forward-looking conditions, such as economic news and trends, customer concentrations, changes in customer payment terms, and customer credit-worthiness. Customer credit-worthiness is determined through indicators such as third-party credit ratings, collection experience, and other internal metrics. If a customer‘s credit-worthiness resulted in an impairment of their

ability to make payments, greater allowances for credit losses may be required. The Company pooled its assets based on these conditions such that each asset pool reflected a homogenous set of asset risks, including characteristics such as credit ratings, customer industry, contract term, and historical credit loss patterns. For any period beyond a reasonable and supportable forecast for current and forward-looking conditions, the Company reverted to a loss rate based only on historical information. The adoption of this guidance did not materially impact the Company’s consolidated financial statements.

ASU 2018-13–Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework–Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in this update modify the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. In addition, in November 2018, the FASB issued ASU 2018-19, which provides clarifications and improvements on sections of ASU 2018-13. The Company adopted this guidance retrospectively as of March 31, 2020. The adoption of this guidance did not materially impact the Company’s consolidated financial statements.

ASU 2019-12–Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740)–Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The amendments in ASU 2019-12 provide certain clarifications and simplify accounting for income taxes by removing certain exceptions to the general principles in the current guidance. The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted in periods for which financial statements have not yet been issued. 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 2020-04–Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848)–Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). The amendments in ASU 2020-04 are elective and provide optional expedients and exceptions to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The Company elected to adopt this guidance prospectively as of March 31, 2020 as it has LIBOR-based contracts extending beyond the expected discontinuation of LIBOR, including its term loan facility, revolving credit facility, and interest rate swap agreements. The adoption of this guidance did not materially impact the Company’s consolidated financial statements.

ASU 2020-10–Codification Improvements

In October 2020, the FASB issued ASU 2020-10, Codification Improvements (“ASU 2020-10”). The amendments in ASU 2020-10 improve codification by ensuring that all guidance that includes an option for an entity to provide information in the notes to financial statements is codified within the disclosure section of the codification. The Company early adopted this guidance retrospectively as of July 1, 2020. The early adoption of this guidance did not materially impact the Company’s consolidated financial statements.

Reclassification

Reclassification

The Company reclassified the current portion of its interest rate swap liability to present it separately from accrued expenses on the consolidated balance sheet as of December 31, 2019 to be consistent with the current period presentation. The reclassification had no impact on the Company’s financial condition, results of operations, or net cash flows.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Opening and Closing Balances of the Company's Contract Assets and Deferred Revenue

The opening and closing balances of the Company’s contract assets, net of allowance for credit losses, and deferred revenue are as follows:

	Contract Assets, Current Portion(1)		Contract Assets(2)		Deferred Revenue, Current Portion(3)		Deferred Revenue(4)
	(in thousands)
December 31, 2019	$	496	$	3,216	$	14,991	$	27,852
September 30, 2020	179		3,732		14,476		23,564
Change	$	(317)	$	516	$	(515)	$	(4,288)

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(1)     Amounts are included within other current assets on the Company’s consolidated balance sheets.

(2)     Amounts are included within other assets on the Company’s consolidated balance sheets.

(3)     Amounts include $3.8 million and $2.3 million of deferred revenue related to leases as of December 31, 2019 and September 30, 2020, respectively.

(4)     Amounts include $7.9 million and $2.6 million of deferred revenue related to leases as of December 31, 2019 and September 30, 2020, respectively.

Fair Value Measurements

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

		September 30, 2020
	Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
		(in thousands)
Assets:
Cash equivalents	Cash and cash equivalents	$	118,346	$	118,346	$	—	$	—
Liabilities:
Interest rate swaps	Interest rate swap liability, current portion	$	9,332	$	—	$	9,332	$	—
Interest rate swaps	Other long-term liabilities	$	22,767	$	—	$	22,767	$	—

		December 31, 2019
	Balance Sheet Classification	Carrying Value		Level 1		Level 2		Level 3
		(in thousands)
Liabilities:
Interest rate swaps	Interest rate swap liability, current portion	$	3,464	$	—	$	3,464	$	—
Interest rate swaps	Other long-term liabilities	$	10,550	$	—	$	10,550	$	—

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Property and Equipment, Net (Tables)

9 Months Ended

Sep. 30, 2020

Property, Plant and Equipment [Abstract]

Components of Property and Equipment, Net

Property and equipment, net consists of the following:

	September 30,		December 31,
	2020		2019
	(in thousands)
Land and land improvements	$	283,800	$	223,877
Buildings, building improvements, and leasehold improvements	518,266		435,214
Substation equipment	19,780		19,780
Data center equipment	1,196,670		1,021,056
Vehicles	1,945		1,732
Core network equipment	39,604		36,572
Fiber facilities	14,225		13,180
Computer equipment, furniture and fixtures	44,910		39,057
Finance lease right-of-use assets	72,951		72,569
Construction in progress	154,443		254,750
Property and equipment, gross	2,346,594		2,117,787
Less: accumulated depreciation and amortization	(671,365)		(566,670)
Property and equipment, net	$	1,675,229	$	1,551,117

Depreciation and Amortization of Property and Equipment

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Cost of revenue	$	35,614	$	29,427	$	101,725	$	86,251
Selling, general and administrative expense	1,177		999		3,597		2,590
Total depreciation and amortization of property and equipment	$	36,791	$	30,426	$	105,322	$	88,841

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Long-Term Debt (Tables)

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Summary of Long-Term Debt

Long-term debt consists of the following as of:

	September 30,		December 31,
	2020		2019
	(in thousands)
Senior Unsecured Notes Due 2028	$	600,000	$	—
Term Loan Facility	400,000		585,000
Revolving Credit Facility	—		170,000
Long-term debt, gross	1,000,000		755,000
Less: unamortized debt issuance costs and original issue discount	(9,179)		(3,628)
	990,821		751,372
Less: long-term debt, current	(6,000)		(6,000)
Long-term debt, net	$	984,821	$	745,372

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Equity-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Total Equity-Based Compensation Recognized in the Consolidated Statements of Comprehensive Income

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Cost of revenue	$	475	$	361	$	1,415	$	1,115
Selling, general and administrative expense	6,641		6,949		20,735		21,783
Total equity-based compensation	$	7,116	$	7,310	$	22,150	$	22,898

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Non-controlling Interest (Tables)

9 Months Ended

Sep. 30, 2020

Noncontrolling Interest [Abstract]

Ownership of Common Units

The ownership of the Common Units is summarized as follows:

	September 30, 2020			December 31, 2019
	Units	Ownership %		Units	Ownership %
	(units in thousands)
Switch, Inc.’s ownership of Common Units(1)	108,896	45.6	%	89,688	37.8	%
Noncontrolling interest holders’ ownership of Common Units(2)	129,674	54.4	%	147,859	62.2	%
Total Common Units	238,570	100.0	%	237,547	100.0	%

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(1)    Common Units held by Switch, Inc. exclude 59,000 and 80,000 Common Units underlying unvested restricted stock awards as of September 30, 2020 and December 31, 2019, respectively.

(2)    Common Units held by noncontrolling interest holders exclude 2.0 million and 3.2 million unvested Common Unit awards as of September 30, 2020 and December 31, 2019, respectively.

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Net Income Per Share (Tables)

9 Months Ended

Sep. 30, 2020

Earnings Per Share [Abstract]

Calculation of Basic and Diluted Net Income Per Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands, except per share data)
Net income per share:
Numerator—basic:
Net income attributable to Switch, Inc.—basic	$	5,206	$	2,947	$	9,087	$	4,869
Numerator—diluted:
Net income attributable to Switch, Inc.—basic	$	5,206	$	2,947	$	9,087	$	4,869
Effect of dilutive securities:
Shares of Class B and Class C common stock	—		5,492		10,806		10,590
Net income attributable to Switch, Inc.—diluted	$	5,206	$	8,439	$	19,893	$	15,459
Denominator—basic:
Weighted average shares outstanding—basic	108,690		84,135		102,703		72,566
Net income per share—basic	$	0.05	$	0.04	$	0.09	$	0.07
Denominator—diluted:
Weighted average shares outstanding—basic	108,690		84,135		102,703		72,566
Weighted average effect of dilutive securities:
Stock options	1,462		1,050		1,415		572
Restricted stock units	1,358		1,027		1,139		652
Dividend equivalent units	45		24		35		21
Restricted stock awards	10		25		42		33
Shares of Class B and Class C common stock	—		160,881		138,219		173,349
Weighted average shares outstanding—diluted	111,565		247,142		243,553		247,193
Net income per share—diluted	$	0.05	$	0.03	$	0.08	$	0.06

Potentially Dilutive Securities Excluded from the Computation of Diluted Net Income Per Share

The following table presents potentially dilutive securities excluded from the computation of diluted net income per share for the periods presented because their effect would have been anti-dilutive.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
	(in thousands)
Stock options(1)	1,117	5,040	1,117	5,040
Restricted stock units(1)	28	13	28	13
Shares of Class B and Class C common stock(2)	131,667	—	—	—

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(1)     Represents the number of instruments outstanding at the end of the period. Application of the treasury stock method would reduce this amount if they had a dilutive effect and were included in the computation of diluted net income per share.

(2)     Shares of Class B and Class C common stock at the end of the period are considered potentially dilutive shares of Class A common stock under application of the if-converted method.

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Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Composition of Revenue

The Company’s revenue is comprised of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Colocation	$	105,112	$	95,409	$	308,947	$	272,857
Connectivity	22,450		25,336		70,394		63,920
Other	1,223		1,608		4,457		4,988
Total revenue	$	128,785	$	122,353	$	383,798	$	341,765

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Summary of Significant Accounting Policies - Concentrations of Credit and Other Risks (Details) - Customer Concentration Risk	3 Months Ended			9 Months Ended
	Sep. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenue
Concentration Risk [Line Items]
Concentration risk percentage	14.00%		13.00%	14.00%	12.00%
Two Customers | Accounts Receivable
Concentration Risk [Line Items]
Concentration risk percentage		10.00%
no customer [Member] | Accounts Receivable
Concentration Risk [Line Items]
Concentration risk percentage				10.00%

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Summary of Significant Accounting Policies - Revenue Recognition (Details) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2020
Accounting Policies [Abstract]
Revenue recognized	$ 2,400,000	$ 12,700,000
Impairment losses related to contract balances	$ 0	$ 0

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Summary of Significant Accounting Policies - Remaining Performance Obligations (Details) $ in Millions	Sep. 30, 2020 USD ($)
Revenue from External Customer [Line Items]
Remaining performance obligation	$ 711.7
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01
Revenue from External Customer [Line Items]
Percent of remaining performance obligation expected to be recognized	39.00%
Period over which the remaining performance obligation is expected to be recognized	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-10-01
Revenue from External Customer [Line Items]
Percent of remaining performance obligation expected to be recognized	48.00%
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-10-01 | Minimum
Revenue from External Customer [Line Items]
Period over which the remaining performance obligation is expected to be recognized	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2021-10-01 | Maximum
Revenue from External Customer [Line Items]
Period over which the remaining performance obligation is expected to be recognized	3 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-10-01
Revenue from External Customer [Line Items]
Percent of remaining performance obligation expected to be recognized	9.00%
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-10-01 | Minimum
Revenue from External Customer [Line Items]
Period over which the remaining performance obligation is expected to be recognized	3 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-10-01 | Maximum
Revenue from External Customer [Line Items]
Period over which the remaining performance obligation is expected to be recognized	5 years

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Summary of Significant Accounting Policies - Opening and Closing Balances of the Company's Contract Assets and Deferred Revenue (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Contract assets, current portion
Beginning balance	$ 496
Ending balance	179
Change	(317)
Contract assets
Beginning balance	3,216
Ending balance	3,732
Change	516
Deferred Revenue, Current
Beginning balance	14,991
Ending balance	14,476
Change	(515)
Deferred Revenue
Beginning balance	27,852
Ending balance	23,564
Change	(4,288)
Deferred revenue related to leases, current portion	2,300	$ 3,800
Deferred revenue related to leases, noncurrent portion	$ 2,600	$ 7,900

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Summary of Significant Accounting Policies - Fair Value Measurements (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash equivalents	$ 118,346
Level 1
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash equivalents	118,346
Interest Rate Swap Agreements | Interest rate swap liability, current portion
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate swaps	9,332	$ 3,464
Interest Rate Swap Agreements | Interest rate swap liability, current portion | Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate swaps	9,332	3,464
Interest Rate Swap Agreements | Other long-term liabilities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate swaps	22,767	10,550
Interest Rate Swap Agreements | Other long-term liabilities | Level 2
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate swaps	$ 22,767	$ 10,550

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Property and Equipment, Net - Components of Property and Equipment, Net (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 2,346,594	$ 2,117,787
Less: accumulated depreciation and amortization	(671,365)	(566,670)
Property and equipment, net	1,675,229	1,551,117
Land and land improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	283,800	223,877
Buildings, building improvements, and leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	518,266	435,214
Substation equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	19,780	19,780
Data center equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	1,196,670	1,021,056
Vehicles
Property, Plant and Equipment [Line Items]
Property and equipment, gross	1,945	1,732
Core network equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	39,604	36,572
Fiber facilities
Property, Plant and Equipment [Line Items]
Property and equipment, gross	14,225	13,180
Computer equipment, furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and equipment, gross	44,910	39,057
Finance lease right-of-use assets
Property, Plant and Equipment [Line Items]
Property and equipment, gross	72,951	72,569
Construction in progress
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 154,443	$ 254,750

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Property and Equipment, Net - Narrative (Details) $ in Millions	1 Months Ended	9 Months Ended
	May 31, 2020 USD ($) a	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)
Property, Plant and Equipment [Abstract]
Accumulated amortization for capitalized leased assets		$ 13.6		$ 11.7
Capitalized interest		$ 3.0	$ 3.9
Area of land (in acres) | a	2
Payments to acquire land	$ 2.5

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Property and Equipment, Net - Depreciation and Amortization of Property and Equipment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Property, Plant and Equipment [Line Items]
Depreciation and amortization of property and equipment	$ 36,791	$ 30,426	$ 105,322	$ 88,841
Cost of revenue
Property, Plant and Equipment [Line Items]
Depreciation and amortization of property and equipment	35,614	29,427	101,725	86,251
Selling, general and administrative expense
Property, Plant and Equipment [Line Items]
Depreciation and amortization of property and equipment	$ 1,177	$ 999	$ 3,597	$ 2,590

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Long-Term Debt - Summary of Long-Term Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Long-term debt, gross	$ 1,000,000	$ 755,000
Less: unamortized debt issuance costs and original issue discount	(9,179)	(3,628)
Long-term debt	990,821	751,372
Less: long-term debt, current	(6,000)	(6,000)
Long-term debt, net	984,821	745,372
Revolving Credit Facility | Line of Credit
Debt Instrument [Line Items]
Long-term debt, gross	0	170,000
Senior Unsecured Notes Due 2028 | Senior Notes
Debt Instrument [Line Items]
Long-term debt, gross	600,000	0
Term Loan Facility | Term Loan
Debt Instrument [Line Items]
Long-term debt, gross	$ 400,000	$ 585,000

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Long-Term Debt - Narrative (Details)	1 Months Ended	3 Months Ended		9 Months Ended
	Sep. 30, 2020 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)	Jun. 30, 2017 USD ($)
Debt Instrument [Line Items]
Loss on extinguishment of debt		$ 245,000	$ 0	$ 245,000	$ 0
Estimated fair value of long-term debt	$ 1,010,000,000.00	1,010,000,000.00		1,010,000,000.00		$ 755,000,000.0
Long-term debt, gross	1,000,000,000	1,000,000,000		1,000,000,000		755,000,000
Line of Credit | Revolving Credit Facility
Debt Instrument [Line Items]
Maximum borrowing capacity							$ 500,000,000.0
Long-term debt, gross	0	0		0		170,000,000
Term Loan Facility | Term Loan
Debt Instrument [Line Items]
Principal amount	400,000,000.0	400,000,000.0		400,000,000.0			$ 600,000,000.0
Loss on extinguishment of debt		$ 200,000		$ 200,000
Quarterly amortization payment amount	1,500,000
Final payment amount	379,000,000.0
Restricted payment basket	$ 50,000,000.0
Consolidated secured leverage ratio under covenant	4.00	4.00		4.00
Long-term debt, gross	$ 400,000,000	$ 400,000,000		$ 400,000,000		585,000,000
Senior Unsecured Notes Due 2028 | Senior Notes
Debt Instrument [Line Items]
Principal amount	$ 600,000,000.0	$ 600,000,000.0		$ 600,000,000.0
Interest rate	3.75%	3.75%		3.75%
Repurchase percentage	101.00%
Percent of holders validly tendered in connection with any tender offer or other offer to purchase	90.00%
Holder threshold percentage in the event of default that automatically causes maturity	25.00%
Long-term debt, gross	$ 600,000,000	$ 600,000,000		$ 600,000,000		$ 0
Senior Unsecured Notes Due 2028 | Senior Notes | Prior to September 15, 2023
Debt Instrument [Line Items]
Percent of aggregate principal amounts redeemable	40.00%
Redemption price percentage	103.75%
Senior Unsecured Notes Due 2028 | Senior Notes | On or after September 15, 2023 | Maximum
Debt Instrument [Line Items]
Redemption price percentage	101.875%
Senior Unsecured Notes Due 2028 | Senior Notes | On or after September 15, 2023 | Minimum
Debt Instrument [Line Items]
Redemption price percentage	100.00%

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Commitments and Contingencies - Operating Leases (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Related Party Transaction [Line Items]
Rent expense related to operating leases	$ 1.8	$ 2.0	$ 5.7	$ 5.9
Related Parties
Related Party Transaction [Line Items]
Rent expense related to operating leases	$ 1.1	$ 1.4	$ 3.5	$ 3.9

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Commitments and Contingencies - Legal Proceedings (Details)			2 Months Ended
	Sep. 10, 2018 plaintiff	Jun. 11, 2018 case	Jun. 08, 2018 case
Martz v. Switch, Inc. et al.
Loss Contingencies [Line Items]
Number of complaints filed			4
Cai v. Switch, Inc. et al.
Loss Contingencies [Line Items]
Number of complaints filed		1
Liu v. Roy et al., and Zhao v. Roy et al.
Loss Contingencies [Line Items]
Number of plaintiffs | plaintiff	2

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Income Taxes (Details) - USD ($) $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Income Tax Disclosure [Abstract]
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.	$ 4,915	$ 44,394	$ 16,610	$ 15,671	$ 47,871	$ (728)	$ 65,900	$ 62,800
Liabilities under tax receivable agreement	$ 243,690						$ 243,690		$ 162,076
Percent of tax benefits realized that the company must make payments to holders for							85.00%

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Equity-Based Compensation - Total Equity-Based Compensation Recognized in the Consolidated Statements of Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Equity-based compensation expense	$ 7,116	$ 7,310	$ 22,150	$ 22,898
Cost of revenue
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Equity-based compensation expense	475	361	1,415	1,115
Selling, general and administrative expense
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Equity-based compensation expense	$ 6,641	$ 6,949	$ 20,735	$ 21,783

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Non-controlling Interest - Narrative (Details) - USD ($) shares in Thousands	1 Months Ended		9 Months Ended
	May 31, 2020	Feb. 29, 2020	Sep. 30, 2020	Sep. 30, 2019
Noncontrolling Interest [Line Items]
Increase in authorized amount under stock repurchase program	$ 20,000,000.0	$ 20,000,000.0
Repurchase of common units (in shares)	1,100
Payments for the repurchase of common units	$ 20,000,000.0		$ 20,000,000	$ 24,705,000
Remaining authorized repurchase amount			$ 0
Class A Common Stock
Noncontrolling Interest [Line Items]
Issuance of common stock (in shares)			18,300

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Non-controlling Interest - Ownership of Common Units (Details) - shares	Sep. 30, 2020	Dec. 31, 2019
Common Units
Noncontrolling Interest [Line Items]
Unvested awards (in shares)	2,000,000.0	3,200,000
Restricted stock awards
Noncontrolling Interest [Line Items]
Unvested awards (in shares)	59,000	80,000
Switch, Ltd.
Noncontrolling Interest [Line Items]
Switch, Inc.'s ownership of Common Units (in shares)	108,896,000	89,688,000
Ownership percentage	45.60%	37.80%
Noncontrolling interest holders’ ownership of Common Units (in shares)	129,674,000	147,859,000
Noncontrolling interest holders’ ownership of Common Units	54.40%	62.20%
Total Common Units (in shares)	238,570,000	237,547,000

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Net Income Per Share - Calculation of Basic and Diluted Net Income Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Numerator—basic:
Net income attributable to Switch, Inc.—basic	$ 5,206	$ 2,947	$ 9,087	$ 4,869
Numerator—diluted:
Net income attributable to Switch, Inc.—basic	5,206	2,947	9,087	4,869
Effect of dilutive securities:
Shares of Class B and Class C common stock (in shares)	0	5,492	10,806	10,590
Net income attributable to Switch, Inc.—diluted	$ 5,206	$ 8,439	$ 19,893	$ 15,459
Denominator—basic:
Weighted average shares outstanding—basic (in shares)	108,690	84,135	102,703	72,566
Basic net income per share (in dollars per share)	$ 0.05	$ 0.04	$ 0.09	$ 0.07
Denominator—diluted:
Weighted average shares outstanding—basic (in shares)	108,690	84,135	102,703	72,566
Weighted average effect of dilutive securities:
Weighted average effect of dilutive securities (in shares)	111,565	247,142	243,553	247,193
Diluted net income per share (in dollars per share)	$ 0.05	$ 0.03	$ 0.08	$ 0.06
Stock options
Weighted average effect of dilutive securities:
Weighted average effect of dilutive securities (in shares)	1,462	1,050	1,415	572
Restricted stock units
Weighted average effect of dilutive securities:
Weighted average effect of dilutive securities (in shares)	1,358	1,027	1,139	652
Dividend equivalent units
Weighted average effect of dilutive securities:
Weighted average effect of dilutive securities (in shares)	45	24	35	21
Restricted stock awards
Weighted average effect of dilutive securities:
Weighted average effect of dilutive securities (in shares)	10	25	42	33
Shares of Class B and Class C common stock
Weighted average effect of dilutive securities:
Weighted average effect of dilutive securities (in shares)	0	160,881	138,219	173,349

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Net Income Per Share - Potentially Dilutive Securities Excluded from the Computation of Diluted Net Income Per Share (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted net income per unit (in shares)	1,117	5,040	1,117	5,040
Restricted stock units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted net income per unit (in shares)	28	13	28	13
Shares of Class B and Class C common stock
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of diluted net income per unit (in shares)	131,667	0	0	0

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Segment Reporting - Narrative (Details) - segment	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenue, Major Customer [Line Items]
Number of operating segments	1	1	1	1
Outside of the United States | Revenue | Geographic Concentration Risk
Revenue, Major Customer [Line Items]
Concentration risk percentage	2.00%	2.00%	2.00%	2.00%

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Segment Reporting - Composition of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Revenue from External Customer [Line Items]
Revenue	$ 128,785	$ 122,353	$ 383,798	$ 341,765
Colocation
Revenue from External Customer [Line Items]
Revenue	105,112	95,409	308,947	272,857
Connectivity
Revenue from External Customer [Line Items]
Revenue	22,450	25,336	70,394	63,920
Other
Revenue from External Customer [Line Items]
Revenue	$ 1,223	$ 1,608	$ 4,457	$ 4,988

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Subsequent Events (Details) - USD ($) $ / shares in Units, $ in Thousands, shares in Millions		1 Months Ended	3 Months Ended						6 Months Ended	9 Months Ended
	Nov. 08, 2020	Oct. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2019	Sep. 30, 2020
Subsequent Event [Line Items]
Dividends declared (in dollars per share)			$ 0.05	$ 0.0294	$ 0.0294	$ 0.0294			$ 0.0294
Dividends declared			$ 5,629	$ 3,245	$ 2,891	$ 2,579	$ 2,389	$ 1,728
Subsequent Event
Subsequent Event [Line Items]
Issuance of common stock (in shares)	9.8	0.3
Dividends declared	$ 5,900
Switch, Ltd. | Subsequent Event
Subsequent Event [Line Items]
Cash distribution (in dollars per share)	$ 0.05
Estimated cash distribution	$ 12,000
Class A Common Stock
Subsequent Event [Line Items]
Issuance of common stock (in shares)										18.3
Class A Common Stock | Subsequent Event
Subsequent Event [Line Items]
Dividends declared (in dollars per share)	$ 0.05