XML 42 R20.htm IDEA: XBRL DOCUMENT v3.20.4
Equity-Based Compensation
 12 Months Ended
Dec. 31, 2020
Share-based Payment Arrangement [Abstract]  
Equity-Based Compensation Equity-Based Compensation
2005 Common Membership Unit Plan
There were no unit options outstanding under the 2005 Common Membership Unit Plan during the year ended December 31, 2020 and there were no unit options granted or vested during the years ended December 31, 2020, 2019, and 2018. Total aggregate intrinsic value of unit options exercised was $1.2 million during the year ended December 31, 2018.
Common Unit Awards
In September 2017, Switch, Ltd. granted 7.5 million Incentive Units to its Chief Executive Officer (the “CEO Award”) and 1.5 million Incentive Units to its President with a hurdle amount of $11.69 per Incentive Unit (the “President Award”) under its then-current operating agreement. The CEO Award contained a provision that caused the Incentive Units underlying the CEO Award to convert into Common Units on a one-to-one basis in connection with the closing of Switch, Inc.’s IPO. In connection with the effectiveness of the Switch Operating Agreement and closing of Switch, Inc.’s IPO, the CEO Award converted into 7.5 million Common Units and the President Award converted into 472,000 Common Units after net settling the hurdle amount. If a forfeiture of unvested Common Units under the CEO Award and the President Award occurs, the associated shares of Class B common stock are also forfeited.
The summary of Common Unit activity under the Switch Operating Agreement for the year ended December 31, 2020 is presented below:
Number of Units
(in thousands)		Weighted Average Grant Date Fair Value per Unit
Unvested Common Units—January 1, 20203,188 $11.11 
Vested(1,594)$11.11 
Unvested Common Units—December 31, 20201,594 $11.11 
Total fair value of Common Units vested was $26.6 million, $9.4 million, and $10.7 million for the years ended December 31, 2020, 2019, and 2018, respectively. There were no Common Units granted during the years ended December 31, 2020, 2019, and 2018.
As of December 31, 2020, total equity-based compensation cost related to all unvested Common Units was $1.9 million, which is expected to be recognized over a weighted average period of 0.78 years.
2017 Incentive Award Plan
In September 2017, Switch, Inc.’s Board of Directors adopted the 2017 Incentive Award Plan (the “2017 Plan”). The 2017 Plan, effective as of its adoption date, provides that the initial aggregate number of shares reserved and available for issuance is 25.0 million shares of Class A common stock plus an increase each January 1, beginning on January 1, 2018 and ending on and including January 1, 2027, equal to the lesser of (A) 17.0 million shares of Class A common stock, (B) 5% of the aggregate number of shares of Switch, Inc.’s Class A common stock, Class B common stock, and Class C common stock outstanding on the final day of the immediately preceding calendar year and (C) such smaller number of shares of Class A common stock as is determined by the Board of Directors. Since January 1, 2018, Switch, Inc.’s Board of Directors has approved annual increases totaling 13.3 million shares in the aggregate number of shares of Class A common stock reserved and available for issuance under the 2017 Plan. These increases, and each annual increase thereafter, are subject to adjustment in the event of a stock split, stock dividend or other defined changes in Switch, Inc.’s capitalization.
The 2017 Plan allows for the grant of (i) stock options, including incentive stock options, (ii) stock appreciation rights, (iii) non-statutory stock options under the Code, (iv) restricted stock awards (“RSAs”), (v) restricted stock units (“RSUs”), or (vi) other stock or cash based awards as may be determined by the plan’s administrator from time to time. The term of each option award shall be no more than 10 years from the date of grant. Options exercised under the 2017 Plan provide the purchaser with full rights equivalent to those of existing Class A common stock holders and holders as of the date of exercise. The Company’s policy for issuing shares upon stock option exercise is to issue new shares of Class A common stock. Additionally, the Switch Operating Agreement states that Switch, Ltd. will maintain at all times a one-to-one ratio between the number of Common Units owned by Switch, Inc. and the number of outstanding shares of Class A common stock, including those issued as a result of stock option exercises and vesting of RSU awards.
The 2017 Plan also provides for dividend equivalent units (“DEUs”) based on the value of the dividends per share paid on the Company’s Class A common stock, which are accumulated on RSUs during the vesting period. The DEUs vest and will be settled with shares of the Company’s Class A common stock concurrently with the vesting of the associated RSUs based on the closing share price on the vesting date.
The summary of stock option activity under the 2017 Plan for the year ended December 31, 2020 is presented below:
Number of Stock Options (in thousands)Weighted Average Exercise Price per Stock OptionWeighted Average Remaining Contractual Life
(in years)		Aggregate Intrinsic Value (in thousands)
Outstanding—January 1, 20208,342 $13.57 
Granted1,117 $14.95 
Exercised(177)$17.00 
Expired(219)$17.00 
Outstanding—December 31, 20209,063 $13.59 7.53$28,135 
Fully vested and expected to vest—December 31, 20209,063 $13.59 7.53$28,135 
Exercisable—December 31, 20205,991 $14.93 7.04$11,537 
The following additional disclosures are provided for stock options under the 2017 Plan:
Years Ended
December 31,
202020192018
Weighted average grant date fair value$4.38 $3.15 $1.84 
Total fair value of stock options vested (in thousands)$1,917 $959 $176 
Total intrinsic value of stock options exercised (in thousands)$85 $— $— 
The weighted average assumptions used in estimating the grant date fair value of stock options are listed in the table below:
Years Ended
December 31,
202020192018
Expected volatility31.3 %29.3 %28.2 %
Risk-free interest rate0.9 %2.5 %2.8 %
Expected term (in years)6.36.35.9
Dividend rate0.8 %1.1 %1.7 %
As of December 31, 2020, total equity-based compensation cost related to all unvested stock options was $7.1 million, which is expected to be recognized over a weighted average period of 2.57 years.
The summary of RSU activity, inclusive of DEU settlements, under the 2017 Plan for the year ended December 31, 2020 is presented below:
Number of Units
(in thousands)		Weighted Average Grant Date Fair Value per Unit
Unvested RSUs—January 1, 20203,308 $12.53 
Granted1,454 $15.05 
Vested(1,016)$12.85 
Forfeited(180)$13.81 
Unvested RSUs—December 31, 20203,566 $13.40 
The following additional disclosures are provided for RSU awards under the 2017 Plan:
Years Ended
December 31,
202020192018
Weighted average grant date fair value$15.05 $9.12 $15.03 
Total fair value of shares vested (in thousands)$15,102 $5,114 $2,925 
As of December 31, 2020, total equity-based compensation cost related to all unvested RSU awards was $32.2 million, which is expected to be recognized over a weighted average period of 2.32 years.
The summary of RSA activity under the 2017 Plan for the year ended December 31, 2020 is presented below:
Number of Units
(in thousands)		Weighted Average Grant Date Fair Value per Unit
Unvested RSAs—January 1, 202080 $12.55 
Granted75 $16.61 
Vested(80)$12.55 
Unvested RSAs—December 31, 202075 $16.61 
The following additional disclosures are provided for RSAs under the 2017 Plan:
Years Ended
December 31,
202020192018
Weighted average grant date fair value$16.61 $12.55 $13.08 
Total fair value of shares vested (in thousands)$1,432 $768 $— 
As of December 31, 2020, total equity-based compensation cost related to all unvested RSAs was $0.6 million, which is expected to be recognized over a weighted average period of 0.45 years.
Total equity-based compensation recognized on the consolidated statements of comprehensive income was as follows:
Years Ended
December 31,
202020192018
(in thousands)
Cost of revenue$1,864 $1,491 $1,468 
Selling, general and administrative expense26,869 28,033 34,265 
Total equity-based compensation$28,733 $29,524 $35,733 
Total income tax benefit related to equity-based compensation recognized on the consolidated statements of comprehensive income was $2.7 million, $1.9 million, and $1.5 million for the years ended December 31, 2020, 2019, and 2018, respectively.