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, 2021

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)

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

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 4, 2021, the registrant had 143,677,872 shares of Class A common stock, 98,330,748 shares of Class B common stock, and no shares of Class C common stock outstanding.

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Switch, Inc.

Table of Contents

Part I.			Financial Information
Item 1.			Financial Statements (Unaudited)			1
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			39
Item 4.			Controls and Procedures			39
Part II.			Other Information
Item 1.			Legal Proceedings			40
Item 1A.			Risk Factors			40
Item 6.			Exhibits			44
Signatures

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Table of Contents

Part I.Financial Information.

Item 1.Financial Statements (Unaudited).

Consolidated Balance Sheets			2
Consolidated Statements of Comprehensive (Loss) Income			3
Consolidated Statements of Stockholders’ Equity			4
Consolidated Statements of Cash Flows			8
Condensed Notes to Consolidated Financial Statements			10

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Switch, Inc.

Consolidated Balance Sheets

(in thousands, except per share data)

			September 30,						December 31,
			2021						2020
			(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			$	35,240					$	90,719
Restricted cash			3,968						—
Accounts receivable, net of allowance for credit losses of $672 and $792, respectively			31,544						21,723
Prepaid expenses			8,809						8,171
Other current assets, net of allowance for credit losses of $3 and $0, respectively			2,831						2,235
Total current assets			82,392						122,848
Property and equipment, net			2,138,545						1,737,415
Long-term deposit			10,680						2,626
Deferred income taxes			263,933						203,201
Intangible assets, net			127,258						2,423
Goodwill			106,473						—
Other assets, net of allowance for credit losses of $92 and $87, respectively			58,609						45,943
TOTAL ASSETS			$	2,787,890					$	2,114,456
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable			$	42,236					$	14,588
Accrued salaries and benefits			14,226						4,884
Accrued interest			8,203						7,132
Accrued expenses and other			23,489						9,686
Accrued construction payables			25,360						27,162
Deferred revenue, current portion			16,377						14,870
Customer deposits			16,231						12,348
Swap liability, current portion			9,334						9,418
Operating lease liability, current portion			3,780						3,512
Total current liabilities			159,236						103,600
Long-term debt, net			1,526,492						991,213
Operating lease liability			32,631						25,536
Finance lease liability			57,414						57,516
Deferred revenue			26,347						23,862
Liabilities under tax receivable agreement			359,009						278,865
Other long-term liabilities			13,103						22,897
TOTAL LIABILITIES			2,174,232						1,503,489
Commitments and contingencies (Note 7)
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, 137,489 and 119,009 shares issued and outstanding, respectively			137						119
Class B common stock, $0.001 par value per share, 300,000 shares authorized, 104,515 and 121,640 shares issued and outstanding, respectively			105						122
Class C common stock, $0.001 par value per share, 75,000 shares authorized, none issued and outstanding			—						—
Additional paid in capital			313,982						266,129
(Accumulated deficit) retained earnings			(5,020)						9
Accumulated other comprehensive income			18						79
Total Switch, Inc. stockholders’ equity			309,222						266,458
Noncontrolling interest			304,436						344,509
TOTAL STOCKHOLDERS’ EQUITY			613,658						610,967
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	2,787,890					$	2,114,456

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

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Switch, Inc.

Consolidated Statements of Comprehensive (Loss) Income

(in thousands, except per share data)

(unaudited)

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
Revenue			$	158,104					$	128,785					$	430,660					$	383,798
Cost of revenue			97,413						74,348						246,100						209,575
Gross profit			60,691						54,437						184,560						174,223
Selling, general and administrative expense			42,845						31,516						117,718						105,070
Income from operations			17,846						22,921						66,842						69,153
Other income (expense):
Interest expense, including $689, $439, $1,892, and $1,257, respectively, in amortization of debt issuance costs and original issue discounts			(15,166)						(6,554)						(34,121)						(20,682)
Loss on swaps			(3,853)						(1,559)						(3,618)						(23,257)
Loss on extinguishment of debt			(146)						(245)						(146)						(245)
Equity in net losses of investments			(326)						—						(925)						—
Gain on sale of equity method investment			—						—						5,374						—
Other			500						185						4,092						733
Total other expense			(18,991)						(8,173)						(29,344)						(43,451)
(Loss) income before income taxes			(1,145)						14,748						37,498						25,702
Income tax benefit (expense)			278						(1,515)						(4,287)						(2,622)
Net (loss) income			(867)						13,233						33,211						23,080
Less: net (loss) income attributable to noncontrolling interest			(498)						8,027						17,578						13,993
Net (loss) income attributable to Switch, Inc.			$	(369)					$	5,206					$	15,633					$	9,087
Net (loss) income per share (Note 11):
Basic			$	(0.00)					$	0.05					$	0.12					$	0.09
Diluted			$	(0.00)					$	0.05					$	0.12					$	0.08
Weighted average shares used in computing net (loss) income per share (Note 11):
Basic			136,292						108,690						131,067						102,703
Diluted			136,292						111,565						135,091						243,553
Other comprehensive (loss) income:
Foreign currency translation adjustment, net of reclassification adjustment and tax of $0			—						—						(474)						—
Comprehensive (loss) income			(867)						13,233						32,737						23,080
Less: comprehensive (loss) income attributable to noncontrolling interest			(498)						8,027						17,165						13,993
Comprehensive (loss) income attributable to Switch, Inc.			$	(369)					$	5,206					$	15,572					$	9,087

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

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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
Balances—December 31, 2020			119,009						$	119					121,640						$	122					$	266,129					$	9					$	79					$	344,509					$	610,967
Net income			—						—						—						—						—						11,641						—						12,753						24,394
Equity-based compensation expense			—						—						—						—						6,359						—						—						938						7,297
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax			812						1						—						—						(5,622)						—						—						147						(5,474)
Dividends declared ($0.05 per share)			—						—						—						—						—						(6,562)						—						—						(6,562)
Distributions to noncontrolling interest			—						—						—						—						—						—						—						(5,696)						(5,696)
Exchanges of noncontrolling interest for Class A common stock			7,725						8						(7,725)						(8)						22,364						—						—						(22,364)						—
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock			—						—						—						—						(32,477)						—						—						—						(32,477)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.			—						—						—						—						26,752						—						—						—						26,752
Foreign currency translation adjustment			—						—						—						—						—						—						(61)						(413)						(474)
Balances—March 31, 2021			127,546						128						113,915						114						283,505						5,088						18						329,874						618,727
Net income			—						—						—						—						—						4,361						—						5,323						9,684
Equity-based compensation expense			—						—						—						—						6,906						—						—						622						7,528
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax			21						—						—						—						(777)						—						—						624						(153)
Issuance of Class A common stock upon exercise of stock options			181						—						—						—						1,232						—						—						1,838						3,070
Issuance of restricted stock awards			65						—						—						—						—						—						—						—						—
Dividends declared ($0.05 per share)			—						—						—						—						—						(6,716)						—						—						(6,716)
Distributions to noncontrolling interest			—						—						—						—						—						—						—						(5,532)						(5,532)
Exchanges of noncontrolling interest for Class A common stock			3,277						3						(3,277)						(3)						9,201						—						—						(9,201)						—
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock			—						—						—						—						(14,973)						—						—						—						(14,973)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.			—						—						—						—						10,691						—						—						—						10,691
Balances—June 30, 2021			131,090						$	131					110,638						$	111					$	295,785					$	2,733					$	18					$	323,548					$	622,326

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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
Balances—June 30, 2021			131,090						$	131					110,638						$	111					$	295,785					$	2,733					$	18					$	323,548					$	622,326
Net loss			—						—						—						—						—						(369)						—						(498)						(867)
Equity-based compensation expense			—						—						—						—						6,731						—						—						322						7,053
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax			55						—						—						—						(1,113)						—						—						590						(523)
Issuance of Class A common stock upon exercise of stock options			215						—						—						—						2,780						—						—						878						3,658
Issuance of restricted stock awards			6						—						—						—						—						—						—						—						—
Dividends declared ($0.0525 per share)			—						—						—						—						—						(7,384)						—						—						(7,384)
Distributions to noncontrolling interest			—						—						—						—						—						—						—						(5,487)						(5,487)
Exchanges of noncontrolling interest for Class A common stock			6,123						6						(6,123)						(6)						14,917						—						—						(14,917)						—
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock			—						—						—						—						(32,694)						—						—						—						(32,694)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.			—						—						—						—						27,576						—						—						—						27,576
Balances—September 30, 2021			137,489						$	137					104,515						$	105					$	313,982					$	(5,020)					$	18					$	304,436					$	613,658

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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
Balances—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
Balances—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
Balances—June 30, 2020			106,767						$	107					133,796						$	134					$	238,471					$	98					$	79					$	366,953					$	605,842

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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
Balances—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
Balances—September 30, 2020			108,955						$	109					131,667						$	132					$	242,955					$	(325)					$	79					$	366,133					$	609,083

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

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Switch, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

			Nine Months Ended September 30,
			2021						2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	33,211					$	23,080
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment			125,214						105,322
Amortization of customer relationships			1,979						—
Loss on disposal of property and equipment			211						283
Deferred income taxes			4,287						2,622
Amortization of debt issuance costs and original issue discount			1,892						1,257
Credit loss expense			52						308
Unrealized (gain) loss on swaps			(9,292)						18,085
Loss on extinguishment of debt			146						245
Equity in net losses on investments			925						—
Gain on sale of equity method investment			(5,374)						—
Equity-based compensation			21,878						22,150
Amortization of portfolio energy credits			315						1,381
Cost of revenue for sales-type leases			150						3,436
Changes in operating assets and liabilities:
Accounts receivable			(5,950)						4,250
Prepaid expenses			1,442						1,688
Other current assets			(599)						1,053
Other assets			(2,192)						846
Accounts payable			10,882						2,709
Accrued salaries and benefits			8,781						7,580
Accrued interest			1,071						879
Accrued expenses and other			5,762						169
Deferred revenue			3,992						(4,803)
Customer deposits			1,436						998
Operating lease liabilities			(3,565)						(3,883)
Other long-term liabilities			(387)						(320)
Net cash provided by operating activities			196,267						189,335
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of a business, net of cash acquired			(409,094)						—
Acquisition of property and equipment			(331,659)						(249,096)
Purchase of portfolio energy credits			(2,252)						(1,381)
Purchase of equity method investment			(2,200)						—
Proceeds from sale of equity method investment			4,900						—
Proceeds from sale of property and equipment			2,033						2
Net cash used in investing activities			(738,272)						(250,475)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings, net of original issue discount			556,250						705,500
Repayment of borrowings, including finance lease liabilities			(20,105)						(465,221)
Payment of debt issuance costs			(4,822)						(1,460)
Change in long-term deposit			(3,835)						1,491
Payment of tax withholdings upon settlement of restricted stock unit awards			(6,492)						(4,508)
Proceeds from exercise of stock options			6,728						3,001
Repurchase of common units			—						(20,000)
Dividends paid to Class A common stockholders			(20,137)						(11,377)
Distributions paid to noncontrolling interest			(17,093)						(14,926)
Net cash provided by financing activities			490,494						192,500
NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH			(51,511)						131,360
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period			90,719						24,721
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period			$	39,208					$	156,081

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Switch, Inc.

Consolidated Statements of Cash Flows (Continued)

(in thousands)

(unaudited)

			Nine Months Ended September 30,
			2021						2020
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized			$	31,473					$	18,946
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
Increase (decrease) in liabilities incurred to acquire property and equipment			$	10,526					$	(16,323)
Increase (decrease) in accrued construction payables incurred related to long-term deposit			$	3,138					$	(459)
Increase in liabilities incurred related to deferred debt issuance costs			$	—					$	1,087
Increase in liabilities related to remaining purchase price for the acquisition of a business			$	6,507					$	—
Increase in liabilities related to purchase of portfolio energy credits			$	175					$	—
Decrease in noncontrolling interest as a result of exchanges for Class A common stock			$	(46,482)					$	(50,479)
Recognition of liabilities under tax receivable agreement			$	80,144					$	81,614
Increase in deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.			$	65,019					$	65,919
Right-of-use assets obtained in exchange for new operating lease liabilities			$	7,380					$	3,114
Right-of-use assets obtained in exchange for new finance lease liabilities			$	—					$	138
Decrease in distributions payable on unvested common units			$	(378)					$	(105)
Increase in dividends payable on unvested restricted stock units			$	525					$	388
Dividends payable settled with shares of Class A common stock			$	342					$	145
Increase in property and equipment related to transfer from long-term deposit			$	—					$	244
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:
Cash and cash equivalents			$	35,240					$	156,081
Restricted cash			3,968						—
Total cash, cash equivalents, and restricted cash			$	39,208					$	156,081

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

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Switch, Inc.

Condensed Notes to Consolidated Financial Statements

(unaudited)

Note 1			Organization			11
Note 2			Summary of Significant Accounting Policies			11
Note 3			Acquisition			15
Note 4			Property and Equipment, Net			17
Note 5			Equity Method Investments			18
Note 6			Long-Term Debt			18
Note 7			Commitments and Contingencies			20
Note 8			Income Taxes			21
Note 9			Equity-Based Compensation			21
Note 10			Noncontrolling Interest			22
Note 11			Net (Loss) Income Per Share			22
Note 12			Segment Reporting			23
Note 13			Subsequent Events			23

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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, delivering redundant services with low latency and super capacity transport environments. In June 2021, Switch, Ltd. acquired all of the equity interests of Data Foundry, LLC (“Data Foundry”) and certain real property interests used in connection with Data Foundry’s operations, including operating data centers in Texas. 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, 2020.

On June 7, 2021, Switch, Ltd. acquired all of the equity interests of Data Foundry and certain real property interests used in connection with Data Foundry’s operations. The Company has included the results of operations for Data Foundry in the consolidated financial statements from the date of acquisition. See Note 3 “Acquisition” for additional information.

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, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, 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. identified 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 other than Switch, Inc. on its consolidated financial statements. As of January 2021, Switch, Inc. owns a majority economic interest in Switch.

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, fair value of assets acquired and liabilities assumed in business combinations, and probability assessments of exercising renewal options on leases. The Company bases

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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, 2020. No other changes to significant accounting policies have occurred since December 31, 2020, with the exception of those detailed below.

Restricted Cash

Restricted cash as of September 30, 2021 was comprised of amounts in escrow related to the acquisition of Data Foundry totaling $4.0 million. There was no restricted cash as of December 31, 2020. Restricted cash is classified based on the expiry of the restrictions.

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, 2021 and 2020, the Company’s largest customer and its affiliates comprised 13% and 14%, respectively, of the Company’s revenue. During the nine months ended September 30, 2021, the Company’s largest customer and its affiliates comprised 15% and 14%, respectively, of the Company’s revenue. Two customers, one of which was the Company’s largest customer and its affiliates, accounted for 10% or more of total receivables, including net investments in sales-type leases, as of September 30, 2021. The Company’s largest customer and its affiliates accounted for 10% or more of total receivables, including net investments in sales-type leases, as of December 31, 2020.

Intangible Assets

Intangible assets, net consist of acquired customer relationships, portfolio energy credits, and other. Acquired customer relationships are amortized to selling, general and administrative expense on the consolidated statement of comprehensive (loss) income over the anticipated life of the relationships on a straight-line basis. Estimated future amortization of acquired customer relationships as of September 30, 2021 is $1.6 million for the year ending December 31, 2021 and $6.3 million for each of the years ending December 31, 2022, 2023, 2024, and 2025. See Note 3 “Acquisition” for more information. Portfolio energy credits are recorded at their cost when purchased and are amortized to cost of revenue on the consolidated statements of comprehensive (loss) income when utilized in operations. Other intangible assets consist of indefinite-lived domain names and internet protocol addresses recorded at their cost when purchased. Accumulated amortization of intangible assets was $9.0 million and $6.7 million as of September 30, 2021 and December 31, 2020, respectively.

Goodwill

Goodwill is recognized for the excess of the purchase price over the fair value of tangible and identifiable intangible net assets of businesses acquired. Goodwill is reviewed at least annually for impairment. To evaluate goodwill impairment, the Company performs a qualitative assessment to determine if it is more likely than not that the fair value of its reporting unit is less than its carrying amount. If the qualitative assessment is not conclusive, the Company then proceeds to test goodwill for impairment, including comparing the fair value of its reporting unit to its carrying value, including attributable goodwill. Fair value for the reporting unit is determined using the cost approach, income approach, or market approach incorporating market participant considerations and assumptions on revenue growth rates, operating margins, discount rates and expected capital expenditures. Fair value determinations may include both internal and third-party valuations.

Foreign Currency Translation

During the nine months ended September 30, 2021, foreign currency translation gains of $0.1 million and $0.4 million related to the sale of the Company’s ownership interest in SUPERNAP International, S.A. (“SUPERNAP International”) were reclassified from accumulated other comprehensive income and noncontrolling interest, respectively, to net income. These amounts are included within gain on sale of equity method investment on the consolidated statement of comprehensive (loss) income. See Note 5 “Equity Method Investments” for more information.

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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, 2020			$	—					$	3,997					$	14,870					$	23,862
September 30, 2021			189						4,225						16,377						26,347
Change			$	189					$	228					$	1,507					$	2,485

________________________________________

(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 $1.4 million and $1.7 million of deferred revenue related to leases as of September 30, 2021 and December 31, 2020, respectively.

(4)Amounts include $3.6 million and $2.7 million of deferred revenue related to leases as of September 30, 2021 and December 31, 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, 2020 was $1.8 million and $6.5 million during the three and nine months ended September 30, 2021, respectively. For the three and nine months ended September 30, 2021, no impairment losses related to contract assets were recognized on the consolidated statements of comprehensive (loss) 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 totaled $814.7 million as of September 30, 2021, 43%, 48%, and 8% 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, 2021
			Balance Sheet Classification						Carrying Value						Level 1						Level 2						Level 3
									(in thousands)
Assets:
Cash equivalents			Cash and cash equivalents						$	5,270					$	5,270					$	—					$	—
Liabilities:
Interest rate swaps			Swap liability, current portion						$	9,334					$	—					$	9,334					$	—
Interest rate swaps			Other long-term liabilities						$	11,315					$	—					$	11,315					$	—

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									December 31, 2020
			Balance Sheet Classification						Carrying Value						Level 1						Level 2						Level 3
									(in thousands)
Assets:
Cash equivalents			Cash and cash equivalents						$	60,664					$	60,664					$	—					$	—
Liabilities:
Interest rate swaps			Swap liability, current portion						$	9,418					$	—					$	9,418					$	—
Interest rate swaps			Other long-term liabilities						$	20,523					$	—					$	20,523					$	—

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.

Derivative Financial Instruments

A derivative is a financial instrument whose value changes in response to an underlying variable, requires little or no initial net investment, and is settled at a future date. Derivatives are initially recognized on the consolidated balance sheets at fair value on the date on which the derivatives are entered into and subsequently re-measured at fair value. Derivatives are separated into their current and long-term components based on the timing of the estimated cash flows as of the end of each reporting period.

Embedded derivatives included in hybrid instruments are treated and disclosed as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract, the terms of the embedded derivative are the same as those of a stand-alone derivative, and the combined contract is not measured at fair value through earnings. The financial host contracts are accounted for and measured using the applicable GAAP of the relevant financial instrument category.

The method of recognizing fair value gains and losses depends on whether the derivatives are designated as hedging instruments, and if so, the nature of the hedge relationship. All gains and losses from changes in the fair values of derivatives that do not qualify for hedge accounting are recognized immediately in earnings. Cash flows from derivatives not designated as hedging instruments are classified in accordance with the nature of the derivative instrument and how it is used in the context of the Company’s business.

The Company enters into interest rate swap agreements to manage its interest rate risk associated with variable-rate borrowings. In January and February 2019, Switch, Ltd. entered into four interest rate swap agreements; whereby, Switch, Ltd. will pay a weighted average fixed interest rate (excluding the applicable interest margin) of 2.48% on notional amounts corresponding to borrowings of $400.0 million in exchange for receipts on the same notional amount at a variable interest rate based on the applicable LIBOR at the time of payment. The interest rate swap agreements mature in June 2024 and are not designated as hedging instruments. Resulting gains and losses from these derivatives, inclusive of periodic net settlement amounts, were recorded in loss on swaps on the consolidated statements of comprehensive (loss) income. The Company recorded losses on interest rate swaps of $1.1 million and $1.6 million for the three months ended September 30, 2021 and 2020, respectively. The Company recorded a gain on interest rate swaps of $1.3 million for the nine months ended September 30, 2021 and a loss on interest rate swaps of $23.3 million for the nine months ended September 30, 2020.

The Company enters into power swap agreements to manage its exposure to adverse changes in the price of power. In June 2021, a wholly-owned subsidiary of Switch, Ltd. entered into four power swap agreements comprising of power paid at fixed prices in exchange for receipts on power sales based on the variable prices at the time of settlement. The power swap agreements matured in August 2021 and were not designated as hedging instruments. Resulting gains and losses from these derivatives, inclusive of periodic net settlement amounts, were recorded in loss on swaps on the consolidated statements of comprehensive (loss) income. The Company recorded a loss on power swaps of $2.8 million and $4.9 million for the three and nine months ended September 30, 2021, respectively.

Recent Accounting Pronouncements

ASU 2021-05–Leases

In July 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-05, Leases (Topic 842)–Lessors–Certain Leases with Variable Payments (“ASU 2021-05”). The amendments in this update modify the lease classification requirements for lessors such that any variable lease payments that do

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not depend on a reference index or a rate would be included in the initial lease measurement if (i) the lease would be classified as a sales-type lease or a direct financing lease and (ii) the lessor would have otherwise recognized a day-one loss. The amendments are effective immediately for entities that have already adopted Topic 842. The Company elected to adopt this guidance prospectively as of June 30, 2021. The adoption of this guidance did not materially impact the Company’s consolidated financial statements.

ASU 2021-08–Business Combinations

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805)–Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). The amendments in this update require contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Topic 606, Revenue from Contracts with Customers, as if it had originated the contracts. Under the current business combinations guidance, such assets and liabilities are recognized by the acquirer at fair value on the acquisition date. The amendments in ASU 2021-08 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. 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.

Reclassifications

Certain amounts in the accompanying consolidated balance sheet as of December 31, 2020 and the consolidated statement of cash flows for the nine months ended September 30, 2020 have been reclassified to be consistent with the current period presentation. These reclassifications were to (i) separately present intangible assets, net from other assets on the consolidated balance sheet, (ii) separately present the change in accrued interest from the change in accrued expenses and other on the consolidated statement of cash flows, and (iii) present certain debt discounts net of proceeds from borrowings on the consolidated statement of cash flows. The reclassifications had no impact on the Company’s financial condition, results of operations, or net cash flows.

3. Acquisition

On June 7, 2021, Switch, Ltd. acquired all of the equity interests of Data Foundry and certain real property interests used in connection with Data Foundry’s operations for an estimated total cash consideration of $415.6 million, which includes an estimated $6.5 million to be paid over the next 12 months following the acquisition date upon the finalization of certain closing conditions, and net of cash, cash equivalents, and restricted cash acquired of $4.6 million. Switch, Ltd. funded this acquisition by issuing $500.0 million aggregate principal amount of its 4.125% senior unsecured notes due 2029 (see Note 6 “Long-Term Debt” for additional information). Data Foundry is a carrier-neutral provider of colocation space and related services with data centers in Austin and Houston, Texas. The acquisition is expected to complement and diversify the Company’s existing geographic footprint and revenue exposure by providing future expansion opportunities in Texas. The Company accounted for this acquisition as a business combination.

Acquisition-related costs of $0.1 million and $4.5 million were recorded within selling, general and administrative expense on the consolidated statements of comprehensive (loss) income for the three and nine months ended September 30, 2021, respectively.

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The preliminary allocation of the purchase price to the assets acquired and liabilities assumed based on preliminary estimates of fair value at the acquisition date is as follows (in thousands):

Cash and cash equivalents						$	4,486
Restricted cash						78
Accounts receivable						1,461
Prepaid expenses						2,080
Property and equipment						188,111
Operating lease right-of-use assets(1)						3,946
Goodwill						106,473
Customer relationships(2)						125,000
Other assets						10
Total assets acquired						$	431,645
Accounts payable						$	(1,437)
Accrued salaries and benefits						(561)
Accrued expenses and other						(1,532)
Accrued construction payables						(1,558)
Customer deposits						(2,447)
Operating lease liability, current portion						(461)
Operating lease liability						(3,486)
Total liabilities assumed						$	(11,482)
Net assets acquired						$	420,163

________________________________________

(1)Included within other assets on the consolidated balance sheet.

(2)Included within intangible assets, net on the consolidated balance sheet with an amortization period of 20 years.

Estimated fair value of property and equipment acquired consists of the following at the acquisition date (in thousands):

Land and land improvements						$	23,516
Buildings, building improvements, and leasehold improvements						74,596
Data center equipment						82,320
Core network equipment						36
Computer equipment, furniture and fixtures						2,642
Finance lease right-of-use assets						3,000
Construction in progress						2,001
Total property and equipment						$	188,111

The preliminary fair value estimate of customer relationships was measured using Level 3 inputs under the multi-period excess earnings method as of the acquisition date. The following summarizes information for unobservable inputs categorized as Level 3:

Long-term revenue growth rate						2.0		%
Attrition rate						6.6		%
Discount rate						10.0		%

The preliminary fair value estimate of land was measured as of the acquisition date using Level 2 inputs comprised of prices in observed transactions involving comparable assets. The preliminary fair value estimates of all other property and equipment were measured as of the acquisition date using Level 2 inputs regarding replacement costs, normal useful lives, market depreciation, and salvage values, with the exception of construction in progress, which was measured at historical cost.

Working capital accounts and other assets were measured at the existing carrying values.

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The allocation of the purchase price to assets and liabilities will be finalized when the Company completes its evaluation of certain balances, estimates, and assumptions during the measurement period (up to one year from the acquisition date). The most significant open items necessary to complete are related to working capital, property and equipment, intangible assets, and the related impact to goodwill.

Goodwill arising from the acquisition is primarily attributable to the assembled workforce of Data Foundry and anticipated operational synergies. All goodwill recognized is expected to be deductible for income tax purposes.

Data Foundry contributed $12.0 million to revenue and $0.1 million to net income attributable to Switch, Inc. for the three months ended September 30, 2021, and $15.3 million to revenue and $0.3 million to net income attributable to Switch, Inc. for the nine months ended September 30, 2021. Supplemental pro forma results of operations for the Company, assuming the acquisition had occurred on January 1, 2020, are as follows:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(in thousands)
Revenue			$	158,104					$	141,143					$	451,117					$	421,714
Net (loss) income attributable to Switch, Inc.			$	(342)					$	3,397					$	13,376					$	1,872

The above supplemental pro forma results of operations include the following adjustments and related income tax and noncontrolling interest impacts after applying the Company’s accounting policies:

•additional depreciation and amortization expense reflecting the fair value adjustments to property and equipment and intangible assets;

•adjustment to interest expense to reflect the removal of Data Foundry’s debt and the issuance of Switch, Ltd.’s $500.0 million aggregate principal amount of its 4.125% senior unsecured notes due 2029 in conjunction with the acquisition; and

•adjustment to reflect acquisition-related costs incurred during the three and nine months ended September 30, 2021 as incurred during the nine months ended September 30, 2020.

4. Property and Equipment, Net

Property and equipment, net consists of the following:

			September 30,						December 31,
			2021						2020
			(in thousands)
Land and land improvements			$	312,343					$	286,706
Buildings, building improvements, and leasehold improvements			687,321						532,938
Substation equipment			19,780						19,780
Data center equipment			1,511,350						1,230,623
Vehicles			2,052						1,974
Core network equipment			40,990						37,327
Fiber facilities			14,643						14,441
Computer equipment, furniture and fixtures			52,070						42,243
Finance lease right-of-use assets			75,933						72,951
Construction in progress			245,340						198,355
Property and equipment, gross			2,961,822						2,437,338
Less: accumulated depreciation and amortization			(823,277)						(699,923)
Property and equipment, net			$	2,138,545					$	1,737,415

Accumulated amortization for finance lease right-of-use assets totaled $16.0 million and $14.3 million as of September 30, 2021 and December 31, 2020, respectively.

During the nine months ended September 30, 2021 and 2020, capitalized interest was $4.7 million and $3.0 million, respectively.

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

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(in thousands)
Cost of revenue			$	44,045					$	35,614					$	122,000					$	101,725
Selling, general and administrative expense			1,093						1,177						3,214						3,597
Total depreciation and amortization of property and equipment			$	45,138					$	36,791					$	125,214					$	105,322

5. Equity Method Investments

In February 2021, the Company acquired SUPERNAP International’s 30% ownership interest in SUPERNAP (Thailand) Company Limited (“SUPERNAP Thailand”), the entity which has deployed a data center facility in Thailand, for $2.2 million and sold its 50% ownership interest in SUPERNAP International for $4.9 million, thus disposing of its interest in the data center facility deployed in Italy. As a result of this transaction, the Company recorded a gain on sale of equity method investment of $5.4 million, which includes $0.5 million in foreign currency translation gains realized, for the nine months ended September 30, 2021 on the consolidated statement of comprehensive (loss) income.

As of September 30, 2021, the Company held a 30% ownership interest in SUPERNAP Thailand, the investment of which was accounted for under the equity method of accounting. The Company’s share of net loss recorded for the three and nine months ended September 30, 2021 was $0.3 million and $0.9 million, respectively. As of September 30, 2021, the Company’s net investment of $1.3 million was recorded within other assets on the consolidated balance sheet.

6. Long-Term Debt

Long-term debt consists of the following:

			September 30,						December 31,
			2021						2020
			(in thousands)
3.75% senior unsecured notes, due September 2028			$	600,000					$	600,000
4.125% senior unsecured notes, due June 2029			500,000						—
Term loan facility, interest paid at the defined LIBOR rate plus applicable interest margin (2.09% and 2.40% at September 30, 2021 and December 31, 2020, respectively), due July 2028			400,000						400,000
Revolving credit facility, interest paid at the defined LIBOR rate plus applicable interest margin (1.58% at September 30, 2021), due July 2026			40,000						—
Long-term debt, gross			1,540,000						1,000,000
Less: unamortized debt issuance costs and original issue discount			(13,508)						(8,787)
Long-term debt, net			$	1,526,492					$	991,213

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 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 (“Second Amendment”) to, among other things, extend the maturity of its 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, a partial repayment was applied to the Term Loan Facility to reduce its principal amount to $400.0 million, which is due upon maturity. Additionally, certain lenders exited the Revolving Credit Facility, which resulted in a $0.2 million loss on extinguishment of debt during the three and nine months ended September 30, 2020. In July 2021, Switch, Ltd. entered into a third amendment to the Credit Agreement (together with the Second Amendment, the “Amended Credit Agreement”) to, among other things, extend the maturity of the Revolving Credit Facility to July 29, 2026, extend the maturity of its Term Loan Facility to July 29, 2028, and reduce the applicable margin on the Credit

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Facilities. In connection with this amendment, the Company recorded $1.8 million in third-party costs during the three and nine months ended September 30, 2021 within interest expense on its consolidated statements of comprehensive (loss) income as a result of modification accounting. Additionally, certain lenders exited the Credit Facilities, which resulted in a $0.1 million loss on extinguishment of debt during the three and nine months ended September 30, 2021.

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 a consolidated secured leverage ratio (as defined in the Amended Credit Agreement) of 4.00 to 1.00 for each fiscal quarter.

As of September 30, 2021, the Company had $453.1 million of available borrowing capacity under the Revolving Credit Facility, net of outstanding letters of credit.

2029 Senior Unsecured Notes

In June 2021, Switch, Ltd. (the “Issuer”) issued $500.0 million aggregate principal amount of its 4.125% senior unsecured notes due 2029 (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. The net proceeds were primarily used to fund the acquisition of Data Foundry.

The Notes bear interest at the rate of 4.125% per annum, payable in cash semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021. The Notes mature on June 15, 2029 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 senior unsecured credit facilities.

Prior to June 15, 2024, 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 June 15, 2024, the Issuer may redeem up to 40% of the aggregate principal amount of the Notes at a redemption price equal to 104.125% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds from one or more equity offerings. On or after June 15, 2024, the Issuer may redeem some or all of the Notes at a redemption price decreasing annually from 102.063% 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% 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 senior unsecured 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

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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, 2021 and December 31, 2020 was approximately $1.57 billion and $1.01 billion, respectively, compared to its carrying value, excluding debt issuance costs and original issue discount, of $1.54 billion and $1.00 billion, 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, 2021 and December 31, 2020, respectively.

7. Commitments and Contingencies

Operating Leases

During the three months ended September 30, 2021 and 2020, lease costs related to operating leases were $2.0 million and $1.8 million, respectively. During the nine months ended September 30, 2021 and 2020, lease costs related to operating leases were $5.4 million and $5.7 million, respectively. Related party lease costs included in these amounts were $1.2 million and $1.1 million for the three months ended September 30, 2021 and 2020, respectively, and $3.6 million and $3.5 million for the nine months ended September 30, 2021 and 2020, 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. Switch, Inc. has been dismissed from the case. The lawsuit alleges, among other things, that Switch, Ltd. 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 January 2021, summary judgment was granted in Switch, Ltd.’s favor dismissing all but four of the claims and a partial motion for summary judgment by Cobalt Data Centers was fully denied. The scope of the alleged damages against Switch, Ltd. was also narrowed. Trial is currently scheduled to begin in mid-November 2021, and Switch, Ltd. is vigorously defending the remaining claims in 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. Discovery has concluded and the parties are undertaking settlement negotiations.

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 2020, the federal court entered a judgment in favor of Switch, Inc. and all of the other defendants. With respect to the State Court Securities Action, in February 2021, the court granted Switch, Inc.’s motion to dismiss. The deadlines for plaintiffs to appeal both judgments have passed, so the Securities Actions have been resolved in favor of Switch, Inc. and all of the other defendants.

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 (Case No.: A-18-780831-B) (the “Derivative Shareholder Action”). These lawsuits allege breaches of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of

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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, both of which have been resolved in Switch, Inc.’s favor. Following the dismissal with prejudice of the Securities Actions, in August 2021, the court granted the parties’ stipulation to dismiss the Derivative Shareholder Action without prejudice.

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. 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.

8. Income Taxes

The Company recorded net increases in deferred tax assets of $27.6 million and $65.0 million during the three and nine months ended September 30, 2021, respectively, and $4.9 million and $65.9 million during the three and nine months ended September 30, 2020, 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.

Tax Receivable Agreement

The Company has recorded a liability under the tax receivable agreement of $359.0 million and $278.9 million as of September 30, 2021 and December 31, 2020, respectively, of which $68.5 million and $56.8 million is owed to certain named executive officers of the Company and members of its Board of Directors as of September 30, 2021 and December 31, 2020, respectively. The tax receivable agreement 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.

9. Equity-Based Compensation

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

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(in thousands)
Cost of revenue			$	560					$	475					$	1,747					$	1,415
Selling, general and administrative expense			6,493						6,641						20,131						20,735
Total equity-based compensation			$	7,053					$	7,116					$	21,878					$	22,150

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10. Noncontrolling Interest

Ownership

Switch, Inc. owns an 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, 2021 and 2020, Switch, Inc. issued an aggregate of 17.1 million shares and 18.3 million shares, respectively, of Class A common stock to members 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.

The ownership of the Common Units is summarized as follows:

						September 30, 2021												December 31, 2020
						Units (in thousands)						Ownership %						Units (in thousands)						Ownership %
Switch, Inc.’s ownership of Common Units(1)						137,418						56.9		%				118,934						49.8		%
Noncontrolling interest holders’ ownership of Common Units(2)						104,117						43.1		%				120,045						50.2		%
Total Common Units						241,535						100.0		%				238,979						100.0		%

________________________________________

(1)Common Units held by Switch, Inc. exclude 71,000 and 75,000 Common Units underlying unvested restricted stock awards as of September 30, 2021 and December 31, 2020, respectively.

(2)Common Units held by noncontrolling interest holders exclude 0.4 million and 1.6 million unvested Common Unit awards as of September 30, 2021 and December 31, 2020, respectively.

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

11. Net (Loss) Income Per Share

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

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(in thousands, except per share data)
Net (loss) income per share:
Numerator—basic:
Net (loss) income attributable to Switch, Inc.—basic			$	(369)					$	5,206					$	15,633					$	9,087
Numerator—diluted:
Net (loss) income attributable to Switch, Inc.—basic			$	(369)					$	5,206					$	15,633					$	9,087
Effect of dilutive securities:
Shares of Class B and Class C common stock			—						—						—						10,806
Net (loss) income attributable to Switch, Inc.—diluted			$	(369)					$	5,206					$	15,633					$	19,893
Denominator—basic:
Weighted average shares outstanding—basic			136,292						108,690						131,067						102,703
Net (loss) income per share—basic			$	(0.00)					$	0.05					$	0.12					$	0.09
Denominator—diluted:
Weighted average shares outstanding—basic			136,292						108,690						131,067						102,703
Weighted average effect of dilutive securities:
Stock options			—						1,462						2,510						1,415
Restricted stock units			—						1,358						1,431						1,139
Dividend equivalent units			—						45						44						35
Restricted stock awards			—						10						39						42
Shares of Class B and Class C common stock			—						—						—						138,219
Weighted average shares outstanding—diluted			136,292						111,565						135,091						243,553
Net (loss) income per share—diluted			$	(0.00)					$	0.05					$	0.12					$	0.08

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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 (loss) 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 (loss) 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,
			2021						2020						2021						2020
			(in thousands)
Stock options(1)			8,641						1,117						—						1,117
Restricted stock units(1)			3,484						28						200						28
Dividend equivalent units(1)			41						—						—						—
Restricted stock awards(1)			71						—						6						—
Performance-vesting restricted stock units(1)			277						—						277						—
Shares of Class B and Class C common stock(2)			104,515						131,667						104,515						—

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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 (loss) 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.

12. 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 an entity with foreign operations. 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, 2021 and 2020.

The Company’s revenue is comprised of the following:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(in thousands)
Colocation			$	125,945					$	105,112					$	347,544					$	308,947
Connectivity			29,305						22,450						76,101						70,394
Other			2,854						1,223						7,015						4,457
Total revenue			$	158,104					$	128,785					$	430,660					$	383,798

13. Subsequent Events

In October 2021, the Company borrowed $40.0 million under its Revolving Credit Facility.

In October and November 2021, Switch, Inc. issued an aggregate of 3.6 million and 2.6 million shares, respectively, of Class A common stock to members 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 2021, Switch, Inc.’s Board of Directors declared a dividend of $0.0525 per share of Class A common stock, for a total estimated to be $7.5 million, to be paid on December 1, 2021 to holders of record as of November 19, 2021. 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 $0.0525 per Common Unit, for a total estimated to be $12.7 million.

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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, 2020. 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 Part I, Item 1A—Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020. 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 exascale 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 five primary campus locations, called Primes, which encompass 16 colocation facilities with an aggregate of up to 5.1 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; The Keep Campus in Atlanta, Georgia; and The Rock Campus in Austin, Texas, which was launched with our acquisition in June 2021 of all of the equity interests of Data Foundry, LLC (“Data Foundry”) and certain real property interests used in connection with Data Foundry’s operations.

In addition to our Primes, we held a 50% ownership interest in SUPERNAP International, S.A. (“SUPERNAP International”), which had deployed facilities in Italy and Thailand, until February 2021, when we acquired SUPERNAP International’s 30% ownership interest in SUPERNAP (Thailand) Company Limited (“SUPERNAP Thailand”), the entity which has deployed the facility in Thailand, and sold our ownership interest in SUPERNAP International, thus disposing of our interest in the facility in Italy. We account for our ownership interest in SUPERNAP Thailand under the equity method of accounting.

We currently have more than 1,300 customers, including some of the world’s largest technology and digital media companies, cloud, IT and software providers, as well as financial institutions and network and telecommunications providers. Our ecosystem connects over 350 cloud, IT and software providers and more than 100 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.

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Factors that May Influence Future Results of Operations

Impact of COVID-19. The global health crisis caused by the novel coronavirus (“COVID-19”) pandemic and its resurgences has and may continue to negatively impact global economic activity, which, despite progress in vaccination efforts, remains uncertain and cannot be predicted with confidence. In addition, a new Delta variant of COVID-19, which appears to be the most transmissible variant to date, has begun to spread globally. While we have not incurred significant disruptions thus far from COVID-19, the impact of the Delta variant cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against the Delta variant, the response by governmental bodies and regulators, the severity of the disease or any variant, the duration of the outbreak, the future impact to the business of our customers, partners and vendors, and other facts identified in Part I, Item 1A—Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID-19 pandemic on our business. We will continue to evaluate the nature and extent of the impact of COVID-19 and the Delta variant on the global economy and to our business, consolidated results of operations, and financial condition.

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 and the Delta variant, 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 16 colocation facilities with an aggregate of up to 5.1 million GSF of space and up to 510 megawatts of power. As of September 30, 2021, the utilization rates at these Prime Campuses, based on currently available cabinets, were approximately 92%, 97%, 100%, 82%, and 79% at The Core Campus, The Citadel Campus, The Pyramid Campus, The Keep Campus, and The Rock Campus, respectively. 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 prices 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, historically, we generally have intentionally not passed along the seasonal increase in energy costs during the summer months to the full extent permitted under our contracts in order to avoid seasonal adjustments to our customer pricing, and that practice has, therefore, resulted in a decrease in our gross profit in those periods. In July 2021, we increased certain customer pricing in response to an increase in the cost of energy. 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. 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 $9.4 million for the nine months ended September 30, 2021.

Growth in Customers. Our results of operations could be significantly affected by the growth or reduction of our customer base. We have over 1,300 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.

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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.

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,
			2021						2020						2021						2020
			(dollars in thousands)
Recurring revenue			$	153,932					$	125,963					$	420,331					$	369,178
Capital expenditures			$	135,873					$	82,644					$	331,659					$	249,096
Adjusted EBITDA			$	76,894					$	67,159					$	229,305					$	197,764
Adjusted EBITDA margin			48.6		%				52.1		%				53.2		%				51.5		%

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,
			2021						2020						2021						2020
			(in thousands)
Recurring revenue			$	153,932					$	125,963					$	420,331					$	369,178
Non-recurring revenue			4,172						2,822						10,329						14,620
Revenue			$	158,104					$	128,785					$	430,660					$	383,798

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 or loss adjusted for interest expense, interest income, income taxes, depreciation and amortization of property and equipment, amortization of customer relationships, 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

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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 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.

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 (loss) income to Adjusted EBITDA:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(in thousands)
Net (loss) income			$	(867)					$	13,233					$	33,211					$	23,080
Interest expense			15,166						6,554						34,121						20,682
Interest income(1)			(36)						(39)						(113)						(116)
Income tax (benefit) expense			(278)						1,515						4,287						2,622
Depreciation and amortization of property and equipment			45,138						36,791						125,214						105,322
Amortization of customer relationships			1,562						—						1,979						—
Loss on disposal of property and equipment			32						185						211						283
Equity-based compensation			7,053						7,116						21,878						22,150
Loss on swaps			3,853						1,559						3,618						23,257
Loss on extinguishment of debt			146						245						146						245
Equity in net losses of investments			326						—						925						—
Acquisition-related costs(2)			82						—						4,485						—
Litigation expense(2)			4,717						—						4,717						239
Gain on sale of equity method investment			—						—						(5,374)						—
Adjusted EBITDA			$	76,894					$	67,159					$	229,305					$	197,764

________________________________________

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

(2)Acquisition-related costs and litigation expense are included in the “Selling, general and administrative expense” line in our consolidated statements of comprehensive (loss) income.

Components of Results of Operations

Revenue

During each of the three and nine months ended September 30, 2021 and 2020, we derived more than 96% 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.

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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.

Gross Profit and Gross Margin

Gross profit, or revenue less cost of revenue, and gross margin, or gross profit as a percentage of revenue, have 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 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 issuance and vesting of 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 Swaps

Loss on swaps consists of changes in the fair value of interest rate swaps used to mitigate our exposure to interest rate risk and power swaps used to mitigate our exposure to adverse changes in the price of power, 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 credit facilities in connection with amending our credit agreement.

Equity in Net Losses of Investments

Equity in net losses of investments consists of our share of results of operations from our equity method investments, including foreign currency translation adjustments. We held a 50% ownership interest in SUPERNAP International until February 2021, when we acquired SUPERNAP International’s 30% ownership interest in SUPERNAP Thailand and sold our ownership interest in SUPERNAP International. We had discontinued the equity method of accounting for our investment in SUPERNAP International as the carrying value of our investment was reduced to zero as a result of recording our share of its losses. Our interest in SUPERNAP Thailand is accounted for under the equity method of accounting.

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Gain on Sale of Equity Method Investment

Gain on sale of equity method investment consists of the gain resulting from the sale of our ownership interest in SUPERNAP International, inclusive of foreign currency translation gains realized.

Other

Other 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

Switch, Ltd. 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

We consolidate the financial results of Switch, Ltd. and report a noncontrolling interest on our consolidated statements of comprehensive (loss) 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.

Results of Operations

The following table sets forth our results of operations:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2021						2020						2021						2020
			(in thousands)
Consolidated Statements of Operations Data:
Revenue			$	158,104					$	128,785					$	430,660					$	383,798
Cost of revenue			97,413						74,348						246,100						209,575
Gross profit			60,691						54,437						184,560						174,223
Selling, general and administrative expense			42,845						31,516						117,718						105,070
Income from operations			17,846						22,921						66,842						69,153
Other income (expense):
Interest expense, including amortization of debt issuance costs and original issue discount			(15,166)						(6,554)						(34,121)						(20,682)
Loss on swaps			(3,853)						(1,559)						(3,618)						(23,257)
Loss extinguishment of debt			(146)						(245)						(146)						(245)
Equity in net losses of investments			(326)						—						(925)						—
Gain on sale of equity method investment			—						—						5,374						—
Other			500						185						4,092						733
Total other expense			(18,991)						(8,173)						(29,344)						(43,451)
(Loss) income before income taxes			(1,145)						14,748						37,498						25,702
Income tax benefit (expense)			278						(1,515)						(4,287)						(2,622)
Net (loss) income			(867)						13,233						33,211						23,080
Less: net (loss) income attributable to noncontrolling interest			(498)						8,027						17,578						13,993
Net (loss) income attributable to Switch, Inc.			$	(369)					$	5,206					$	15,633					$	9,087

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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,
			2021						2020						2021						2020
Consolidated Statements of Operations Data:
Revenue			100		%				100		%				100		%				100		%
Cost of revenue			62						58						57						55
Gross profit			38						42						43						45
Selling, general and administrative expense			27						24						27						27
Income from operations			11						18						16						18
Other income (expense):
Interest expense, including amortization of debt issuance costs and original issue discount			(10)						(5)						(8)						(5)
Loss on swaps			(2)						(1)						(1)						(6)
Loss on extinguishment of debt			—						—						—						—
Equity in net losses of investments			—						—						—						—
Gain on sale of equity method investment			—						—						1						—
Other			—						—						1						—
Total other expense			(12)						(6)						(7)						(11)
(Loss) income before income taxes			(1)						11						9						7
Income tax benefit (expense)			—						(1)						(1)						(1)
Net (loss) income			(1)						10						8						6
Less: net (loss) income attributable to noncontrolling interest			—						6						4						4
Net (loss) income attributable to Switch, Inc.			—		%				4		%				4		%				2		%

Comparison of the Three Months Ended September 30, 2021 and 2020

Revenue

			Three Months Ended September 30,												Change
			2021						2020						Amount						%
			(dollars in thousands)
Colocation			$	125,945					$	105,112					$	20,833					20		%
Connectivity			29,305						22,450						6,855						31		%
Other			2,854						1,223						1,631						133		%
Revenue			$	158,104					$	128,785					$	29,319					23		%

Revenue increased by $29.3 million, or 23%, for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. The increase was attributable to $12.0 million contributed by Data Foundry, with 24% of the remaining increase attributable to revenue from new customers initiating service after September 30, 2020, and 76% attributable to increased revenue from existing customers. Our revenue churn rate, which we define as the reduction in recurring revenue attributable to customer terminations or non-renewal of expired contracts, divided by revenue at the beginning of the period, was 0.2% during each of the three months ended September 30, 2021 and 2020.

Cost of Revenue and Gross Margin

			Three Months Ended September 30,												Change
			2021						2020						Amount						%
			(dollars in thousands)
Cost of revenue			$	97,413					$	74,348					$	23,065					31		%
Gross margin			38.4		%				42.3		%

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Cost of revenue increased by $23.1 million, or 31%, for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. The increase was primarily attributable to increases of $10.1 million in facilities costs due to increased utility rates, $8.4 million in depreciation and amortization expense due to additional property and equipment being placed into service, and $1.9 million in connectivity costs associated with increased occupancy as a result of our expansion activities. Accordingly, gross margin decreased by 390 basis points for the three months ended September 30, 2021, compared to the three months ended September 30, 2020.

Selling, General and Administrative Expense

			Three Months Ended September 30,												Change
			2021						2020						Amount						%
			(dollars in thousands)
Selling, general and administrative expense			$	42,845					$	31,516					$	11,329					36		%

Selling, general and administrative expense increased by $11.3 million, or 36%, for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. The increase was primarily attributable to increases of $4.9 million in legal fees, $1.5 million in depreciation and amortization expense largely due to amortization of acquired customer relationships, and $1.4 million in salaries and related employee expenses largely due to an increase in headcount associated with the acquisition of Data Foundry.

Other Income (Expense)

			Three Months Ended September 30,												Change
			2021						2020						Amount						%
			(dollars in thousands)
Other income (expense):
Interest expense			$	(15,166)					$	(6,554)					$	(8,612)					131		%
Loss on swaps			(3,853)						(1,559)						(2,294)						147		%
Loss on extinguishment of debt			(146)						(245)						99						(40)		%
Equity in net losses of investments			(326)						—						(326)						NM
Other			500						185						315						170		%
Total other expense			$	(18,991)					$	(8,173)					$	(10,818)					132		%

________________________________________

NM - Not meaningful

Interest Expense

Interest expense increased by $8.6 million, or 131%, for the three months ended September 30, 2021, compared to the three months ended September 30, 2020. The increase was primarily due to increases in our weighted average debt outstanding from our senior unsecured notes and our weighted average interest rate from 2.41% during the three months ended September 30, 2020 to 3.42% during the three months ended September 30, 2021.

Loss on Swaps

Loss on swaps was $3.9 million for the three months ended September 30, 2021, compared to $1.6 million for the three months ended September 30, 2020. The change was primarily driven by a $2.8 million loss related to power swaps settled during the three months ended September 30, 2021.

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Income Tax Benefit (Expense)

			Three Months Ended September 30,												Change
			2021						2020						Amount						%
			(dollars in thousands)
Income tax benefit (expense)			$	278					$	(1,515)					$	1,793					(118)		%

During the three months ended September 30, 2021, we incurred $0.3 million of income tax benefit, compared to $1.5 million of income tax expense during the three months ended September 30, 2020. Income tax benefit and expense are driven by our allocable share of Switch, Ltd.’s loss or income before income taxes.

Net (Loss) Income Attributable to Noncontrolling Interest

			Three Months Ended September 30,												Change
			2021						2020						Amount						%
			(dollars in thousands)
Net (loss) income attributable to noncontrolling interest			$	(498)					$	8,027					$	(8,525)					(106)		%

Net loss attributable to noncontrolling interest was $0.5 million for the three months ended September 30, 2021, compared to net income attributable to noncontrolling interest of $8.0 million for the three months ended September 30, 2020. The change was the result of decreases in net income during the three months ended September 30, 2021 and in ownership by noncontrolling interest holders.

Comparison of the Nine Months Ended September 30, 2021 and 2020

Revenue

			Nine Months Ended September 30,												Change
			2021						2020						Amount						%
			(dollars in thousands)
Colocation			$	347,544					$	308,947					$	38,597					12		%
Connectivity			76,101						70,394						5,707						8		%
Other			7,015						4,457						2,558						57		%
Revenue			$	430,660					$	383,798					$	46,862					12		%

Revenue increased by $46.9 million, or 12%, for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. The increase was attributable to $15.3 million contributed by Data Foundry, with 20% of the remaining increase attributable to revenue from new customers initiating service after September 30, 2020, and 80% attributable to increased revenue from existing customers. Our revenue churn rate, which we define as the reduction in recurring revenue attributable to customer terminations or non-renewal of expired contracts, divided by revenue at the beginning of the period, was 0.5% and 0.8% during the nine months ended September 30, 2021 and 2020, respectively.

Cost of Revenue and Gross Margin

			Nine Months Ended September 30,												Change
			2021						2020						Amount						%
			(dollars in thousands)
Cost of revenue			$	246,100					$	209,575					$	36,525					17		%
Gross margin			42.9		%				45.4		%

Cost of revenue increased by $36.5 million, or 17%, for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. The increase was primarily attributable to increases of $20.3 million in depreciation and amortization expense due to additional property and equipment being placed into service and $15.3 million in facilities costs due to increased utility rates. Accordingly, gross margin decreased by 250 basis points for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020.

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Selling, General and Administrative Expense

			Nine Months Ended September 30,												Change
			2021						2020						Amount						%
			(dollars in thousands)
Selling, general and administrative expense			$	117,718					$	105,070					$	12,648					12		%

Selling, general and administrative expense increased by $12.6 million, or 12%, for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. The increase was primarily attributable to $4.5 million in costs incurred related to the acquisition of Data Foundry, increases of $3.2 million in legal fees, $1.6 million in depreciation and amortization expense largely due to amortization of acquired customer relationships, and $1.5 million in salaries and related employee expense largely due to an increase in headcount associated with the acquisition of Data Foundry.

Other Income (Expense)

			Nine Months Ended September 30,												Change
			2021						2020						Amount						%
			(dollars in thousands)
Other income (expense):
Interest expense			$	(34,121)					$	(20,682)					$	(13,439)					65		%
Loss on swaps			(3,618)						(23,257)						19,639						(84)		%
Loss on extinguishment of debt			(146)						(245)						99						(40)		%
Equity in net losses of investments			(925)						—						(925)						NM
Gain on sale of equity method investment			5,374						—						5,374						NM
Other			4,092						733						3,359						458		%
Total other expense			$	(29,344)					$	(43,451)					$	14,107					(32)		%

________________________________________

NM - Not meaningful

Interest Expense

Interest expense increased by $13.4 million, or 65%, for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. The increase was primarily due to increases in our weighted average debt outstanding from our senior unsecured notes and our weighted average interest rate from 2.89% during the nine months ended September 30, 2020 to 3.30% during the nine months ended September 30, 2021.

Loss on Swaps

Loss on swaps was $3.6 million for the nine months ended September 30, 2021, compared to $23.3 million for the nine months ended September 30, 2020. The change was primarily driven by changes in the fair value of interest rate swaps largely from the fluctuation in market interest rates, partially offset by a $4.9 million loss related to power swaps settled during the nine months ended September 30, 2021.

Other

Other increased by $3.4 million for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, primarily due to non-recurring license fee income of $2.8 million recorded pursuant to a technology license agreement.

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Income Tax Expense

			Nine Months Ended September 30,												Change
			2021						2020						Amount						%
			(dollars in thousands)
Income tax expense			$	(4,287)					$	(2,622)					$	(1,665)					64		%

During the nine months ended September 30, 2021, we incurred income tax expense of $4.3 million, compared to $2.6 million during the nine months ended September 30, 2020. 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
			2021						2020						Amount						%
			(dollars in thousands)
Net income attributable to noncontrolling interest			$	17,578					$	13,993					$	3,585					26		%

Net income attributable to noncontrolling interest was $17.6 million for the nine months ended September 30, 2021, compared to $14.0 million for the nine months ended September 30, 2020. The change was primarily the result of an increase in net income during the nine months ended September 30, 2021.

Liquidity and Capital Resources

Switch, Inc. is a holding company and has no material assets other than its ownership of awards of common membership interests in Switch, Ltd. As such, we have no independent means of generating revenue or cash flow, and our ability to pay our taxes 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 and the indenture governing our senior unsecured notes limit the ability of Switch, Ltd., among other things, to incur additional debt, incur additional liens, encumbrances or contingent liabilities, and pay distributions or make certain other restricted payments.

As of September 30, 2021, we had $35.2 million in cash and cash equivalents and our total indebtedness was approximately $1.60 billion (excluding debt issuance costs and original issue discount) consisting of (i) $1.10 billion principal from our senior unsecured notes, (ii) $440.0 million principal from our credit facilities, and (iii) $57.4 million from our finance lease liabilities. As of September 30, 2021, we had access to $453.1 million in additional liquidity from our revolving credit facility, net of outstanding letters of credit. For the year ending December 31, 2021, we expect to incur $410 million to $440 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 completion of our development projects. We also believe that our financial resources will allow us to manage the anticipated impact of COVID-19 and its variants 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 and its variants 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 and its variants, including the Delta variant.

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.

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Cash Flows

The following table summarizes our cash flows:

			Nine Months Ended September 30,
			2021						2020
			(in thousands)
Net cash provided by operating activities			$	196,267					$	189,335
Net cash used in investing activities			(738,272)						(250,475)
Net cash provided by financing activities			490,494						192,500
Net (decrease) increase in cash, cash equivalents, and restricted cash			$	(51,511)					$	131,360

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, 2021 was $196.3 million, compared to $189.3 million for the nine months ended September 30, 2020. The increase of $6.9 million was primarily due to non-recurring license fee income of $2.8 million recorded pursuant to a technology license agreement, increased operations in our data center facilities, and changes in our working capital accounts.

Cash Flows from Investing Activities

During the nine months ended September 30, 2021, net cash used in investing activities was $738.3 million, primarily consisting of $409.1 million related to the acquisition of Data Foundry, net of cash acquired, and capital expenditures of $331.7 million related to the expansion of our data center facilities.

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.

Cash Flows from Financing Activities

During the nine months ended September 30, 2021, net cash provided by financing activities was $490.5 million, primarily consisting of $536.3 million in proceeds from the issuance of our senior unsecured notes, net of original issue discount, and net borrowings on our revolving credit facility, partially offset by $20.1 million in dividends paid, $17.1 million in distributions paid to noncontrolling interest, $4.8 million for the payment of debt issuance costs related to our senior unsecured notes and credit agreement amendment, and $6.5 million for the payment of tax withholdings upon settlement of restricted stock unit awards.

During the nine months ended September 30, 2020, net cash provided by financing activities was $192.5 million, primarily consisting of $705.5 million in proceeds from the issuance of our senior unsecured notes, net of original issue discount, 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 $1.5 million for the payment of debt issuance costs related to our senior unsecured notes and credit agreement amendment.

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 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, as a result of the issuance of our notes described below, a partial repayment was applied to our term loan facility to reduce its principal amount to $400.0 million, which is due upon maturity. On July 29, 2021, we entered into a third amendment to the amended and restated credit agreement to, among other things, extend the maturity of our revolving credit facility to July 2026, extend the maturity of our term loan facility to July 2028, and reduce the applicable margin on our credit facilities.

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As of September 30, 2021, we had $40.0 million outstanding under the revolving credit facility accruing interest at an underlying variable interest rate of 1.58% and $453.1 million of availability, net of outstanding letters of credit. As of September 30, 2021, we had $400.0 million outstanding under the term loan facility (excluding debt issuance costs), effectively fixed at 4.48% 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, 2021.

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 indenture to 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 indenture to the notes as of September 30, 2021.

Senior Unsecured Notes Due 2029

On June 7, 2021, we issued $500.0 million aggregate principal amount of our 4.125% senior unsecured notes due 2028. The notes bear interest at the rate of 4.125% per annum and mature on June 15, 2029. Interest on the notes is payable semi-annually in cash in arrears on June 15 and December 15 of each year, beginning on December 15, 2021.

The indenture to 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 indenture to the notes as of September 30, 2021.

See Note 6 “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.

Contractual Obligations

In April 2021 and June 2021, we entered into power purchase and sale agreements for electricity to purchase firm commitments of 30 MW per energy hour and 25 MW per energy hour, which started on July 1, 2021 and September 1, 2021, respectively, through June 30, 2022, for a total purchase commitment of $27.0 million, inclusive of scheduling services. Additional franchise tax amounts may be due based on the data center location where the purchased power is used.

In June 2021, we issued $500.0 million aggregate principal amount of senior unsecured notes, the proceeds of which were primarily used to fund the acquisition of all of the equity interests of Data Foundry and certain real property interests used in connection with Data Foundry’s operations. The notes bear interest at 4.125% per annum and mature on June 15, 2029. Interest on the notes is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021.

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In July 2021, we entered into a third amendment to the amended and restated credit agreement to, among other things, extend the maturity of our revolving credit facility to July 2026, extend the maturity of our term loan facility to July 2028, and reduce the applicable margin on our credit facilities.

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, 2020.

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. Except as provided below, 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, 2020.

Business Combinations

We account for business combinations using the acquisition method of accounting, under which all assets acquired and liabilities assumed are recorded at their respective fair values as of the acquisition date. We estimate the fair value of assets acquired and liabilities assumed from business combinations using fair value measurement methods such as the income approach, market approach, and cost approach. The excess of the purchase price over the fair value of identifiable assets and liabilities is recorded as goodwill.

We measure working capital accounts and other assets at the existing carrying values. Due to the nature of these accounts, there are no functional, technological, or economic considerations resulting in a difference in fair values from carrying values.

Definite-lived intangible assets acquired include customer relationships. We measure the fair value of customer relationships using the multi-period excess earnings method under the income approach. The multi-period excess earnings method measures the discounted present value of estimated future cash flows attributable to customer relationships, net of charges for the contributory use of other identifiable assets.

We measure the fair value of certain computer equipment using the comparable match method and the percent of cost method under the market approach as such equipment is widely available on an active market. The market approach estimates fair value based on market prices in actual transactions and on asking prices for assets currently available for sale. We apply the comparable match method by assigning a value to an asset based on an analysis of similar assets using a measure of utility as the basis comparison. We apply the percent of cost method using trade-in values for measured assets to establish the ratio of the selling price to the current cost of an asset at the time of sale.

We measure other acquired property and equipment using the cost approach. The cost approach estimates fair value by determining the current cost of replacing property and equipment, net of any depreciation resulting from physical deterioration, functional obsolescence, and economic obsolescence.

In applying these fair value measurement methods, we use significant estimates and assumptions such as future expected cash flows, including revenues and expenses, future growth rates, and applicable discount rates. Future cash flows and growth rates are estimated based on expected customer growth and expansion. We determine the discount rate based on an implied internal rate of return analysis as well as a weighted-average cost of capital analysis.

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,” “expects,” “plans,” “anticipates,” “could,” “intends,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions

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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 expectation regarding the acquisition of Data Foundry and certain real property interests used in connection with Data Foundry’s operations, including any future expansion opportunities in Texas;

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

•our anticipated levels of capital expenditures;

•the expected growth of the data center market;

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

•our belief that our financial resources will allow us to manage the anticipated impact of COVID-19 and its variants;

•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 the recognition of remaining performance obligations in the future;

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

•our expectations regarding our customer growth rate;

•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 expectations regarding construction projects and the estimated timelines, additional floorspace, and renewable power available to such data centers;

•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 or our ability to potentially settle any litigation;

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

•our expectations regarding payment of dividends;

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

•our expectations regarding the recognition of our remaining performance obligations in future periods;

•our expectations regarding our interest rate and power swaps;

•our expectations regarding our ability to realize deferred tax assets; and

•our expectations regarding the reissuance of retired shares of Class B common stock.

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. 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. 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. Such risks and uncertainties include, among others, (i) the impact of COVID-19 and

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any variant thereof on our business operations, including the duration, spread, severity, and reoccurrences of such pandemic, the duration and scope of related government orders and restrictions, the impact on our employees, and the impact on the global economy including demand for our customers, partners and vendors’ products and services; (ii) the impact of COVID-19 and any variant thereof on our vendors and suppliers, including disruptions and inefficiencies in the supply chain; and (iii) those risks discussed in Part I, Item 1A—Risk Factors and throughout Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of our Annual Report on Form 10-K for the year ended December 31, 2020, and in Part II, Item 1A—Risk Factors and elsewhere of this Form 10-Q. 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, 2020, 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.

We are exposed to financial market risks, primarily in interest rates related to our debt obligations.

Interest Rate Risk

Our primary exposure to market risk is interest rate risk associated with our long-term debt. We evaluate our exposure to market risk by monitoring interest rates in the marketplace. As of September 30, 2021, our only borrowings subject to variable interest rates are under our credit agreement and bear interest at a margin above LIBOR or base rate (each as defined in the amended and restated credit agreement) as selected by us. In January and February 2019, we entered into four interest rate swap agreements; whereby, we pay a weighted average fixed interest rate (excluding the applicable interest margin) of 2.48% on notional amounts corresponding to borrowings of $400.0 million in exchange for receipts on the same notional amount at a variable interest rate based on the applicable LIBOR at the time of payment. The interest rate swap agreements mature in June 2024. As of September 30, 2021, we had $40.0 million outstanding under our revolving credit facility with an underlying variable interest rate of 1.58%. As of September 30, 2021, a hypothetical increase or decrease of 100 basis points in LIBOR would cause our annual interest cost to change by $0.4 million.

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, 2021, 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, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2021.

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.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II.Other Information

Item 1.Legal Proceedings.

The information set forth in Note 7 “Commitments and Contingencies—Legal Proceedings” to our consolidated financial statements in Part I, Item 1 of this Form 10-Q is incorporated by reference herein.

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, 2020.

Our business could be adversely affected by the novel coronavirus pandemic.

The global health crisis caused by the novel coronavirus (“COVID-19”) pandemic and its resurgences has and may continue to negatively impact global economic activity, which, despite progress in vaccination efforts, remains uncertain and cannot be predicted with confidence. In addition, a new Delta variant of COVID-19, which appears to be the most transmissible variant to date, is spreading globally. The impact of the Delta or other variants cannot be predicted at this time, and could depend on numerous factors, including vaccination rates among the population, the effectiveness of COVID-19 vaccines against COVID-19 and any variant thereof, the response by governmental bodies and regulators, the severity of the disease or any variant, the duration of the outbreak, and the future impact to the business of our customers, partners and vendors. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the impact of the COVID-19 pandemic on our business.

Many countries around the world have continued to impose quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. Such events may result in a period of business and equipment supply disruption, and in reduced operations, any of which could materially affect our business, financial condition and results of operations. In response to COVID-19, we implemented remote working and thus far have not experienced a significant disruption or delay in our business operations. Such government-imposed precautionary measures may have been relaxed in certain countries or states, but there is no assurance that more strict measures will not be put in place again due to a resurgence in COVID-19 cases, including those involving new variants of the coronavirus, which may be more contagious and deadly than prior strains.

In July 2021, due to reports of increased COVID-19 cases apparently driven by the Delta variant, Nevada and other state government officials reintroduced mask mandates for all persons in certain public indoor locations. In September 2021, President Biden signed an Executive Order mandating vaccinations for the federal workforce and federal contractors. Our compliance with the federal contractor vaccine mandate, which requires employees to be fully vaccinated against COVID-19 by December 8, 2021, unless legally entitled to an accommodation, could lead to employee absences, resignations or strains on the labor market. These new developments, and any increased restrictions on operations, may adversely impact our results of operations. Therefore, the COVID-19 pandemic may have a material adverse effect on our operations.

Our business could be adversely affected due to risks related to our acquisitions and the subsequent integration of the acquired businesses.

We may seek to make strategic acquisitions to further expand our business. We cannot be certain that we will be able to identify, consummate and successfully integrate acquisitions, and no assurance can be given with respect to the timing, likelihood or business effect of any possible transaction. Transactions that we consummate would involve risks and uncertainties to us, including mispricing the inherent value of the acquired entity, as well as potential difficulties integrating people, systems and customers.

In June 2021, we acquired all of the equity interests of Data Foundry, LLC (“Data Foundry”) and certain real property interests used in connection with Data Foundry’s operations in exchange for a purchase price of $420.0 million (the “Transaction”). The Transaction subjects us to a number of risks, uncertainties, and potential costs. These include:

•the impact of COVID-19 and any variant thereof on the business operations, employees and customers of Data Foundry;

•the impact of the COVID-19 pandemic and any variant thereof on the vendors and suppliers of Data Foundry, including disruptions and inefficiencies in the supply chain;

•the disruption of our operations or the operations of Data Foundry;

•the loss of customers or key employees;

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•the absence of expected benefits or results for us, Data Foundry or our customers as a result of the Transaction;

•undisclosed liabilities that could be material or become subject to litigation;

•an adverse effect on our ability to manage our business due to the diversion of our management’s attention and any difficulties encountered in any integration process;

•unanticipated integration and restructuring costs; and

•less cash availability for other purposes, including for use in acquisitions or the development of other technologies or products.

Any of these risks, whether with respect to the current or any future acquisitions, could have a material and adverse effect on our ability to manage our business, our financial condition and our results of operations.

Our articles of incorporation designate a specific Nevada court as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ abilities to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated articles of incorporation require that (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us or our officers, directors or employees arising pursuant to any provision of Nevada law regarding corporations, mergers, conversions, exchanges or domestications, or our amended and restated articles of incorporation or amended and restated bylaws or (iv) any action asserting a claim against us or any of our directors, officers or other employees governed by the internal affairs doctrine, will have to be brought only in the Eighth Judicial District Court of Clark County, Nevada (the “Nevada Forum Provision”); however, such provision is not expected to apply to claims arising under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or to any other claim for which the federal courts have exclusive jurisdiction.

Section 27 of the Exchange Act establishes the exclusive jurisdiction of federal courts located in the State of Nevada for suits brought to enforce any duty or liability arising under the Exchange Act. Therefore, the Nevada Forum Provision may not be upheld for claims arising under the Exchange Act. In addition, Section 22 of the Securities Act of 1933, as amended (the “Securities Act”), provides that federal and state courts have concurrent jurisdiction over lawsuits brought pursuant to the Securities Act or the rules and regulations thereunder. To the extent the Nevada Forum Provision restricts the jurisdiction for claims arising under the Securities Act to a Nevada court, there is currently uncertainty as to whether or to the extent such a provision would be enforced. Although we believe the Nevada Forum Provision benefits us by providing increased consistency in the application of Nevada law in the types of lawsuits to which it applies, the provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the Nevada Forum Provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition or results of operations. Any person or entity purchasing or otherwise acquiring any interest in our shares of capital stock shall be deemed to have notice of and consented to the Nevada Forum Provision, but investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

Risks Related to the Proposed Real Estate Investment Trust (“REIT”) Conversion

Although we have chosen to pursue conversion to a REIT, we may not be successful in converting to a REIT effective January 1, 2023, or at all.

In November 2021, our board of directors approved the pursuit of a REIT conversion with a target of electing REIT status for the taxable year beginning January 1, 2023. There are significant implementation and operational complexities to address before we can convert to a REIT, including, without limitation, completing internal reorganizations, modifying accounting and information technology systems, and receiving any necessary stockholder and other approvals Even if we are able to satisfy the existing REIT requirements or any future REIT requirements, the tax laws, regulations and interpretations governing REITs may change at any time in ways that could be disadvantageous to us.

Additionally, several conditions must be met in order to complete the conversion to a REIT, and the timing and outcome of many of these conditions are beyond our control. Even if the transactions necessary to implement REIT conversion are effected, our board of directors may decide not to elect REIT status, or to delay such election, if it determines in its sole discretion that it is not in the best interests of us or our stockholders. We can provide no assurance if or when conversion to a REIT will be successful. Furthermore, the effective date of the REIT

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conversion could be delayed beyond January 1, 2023, in which event we could not elect REIT status until the taxable year beginning January 1, 2024, at the earliest. Failure to timely convert to a REIT or maintain REIT status could result in dissatisfaction in our stockholder base.

We may not realize the anticipated benefits to stockholders, including the achievement of significant tax savings for us and regular distributions to our stockholders.

Even if we convert to a REIT and elect REIT status, we cannot provide assurance that our stockholders will experience benefits attributable to our qualification and taxation as a REIT, including our ability to reduce our corporate level U.S. federal income tax through distributions to stockholders and to make regular distributions to stockholders. The realization of the anticipated benefits to stockholders will depend on numerous factors, many of which are outside our control. In addition, future cash distributions to stockholders will depend on our cash flows, as well as the impact of alternative, more attractive investments as compared to dividends.

We may not qualify or remain qualified as a REIT.

Although we plan to operate in a manner consistent with the REIT qualification rules if we convert to a REIT, we cannot provide assurance that we will, in fact, qualify as a REIT or remain so qualified. REIT qualification involves the application of highly technical and complex provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), to our operations as well as various factual determinations concerning matters and circumstances not entirely within our control. There are limited judicial or administrative interpretations of these provisions.

If we fail to qualify as a REIT in any taxable year after the REIT conversion, we will be subject to U.S. federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates with respect to each such taxable year for which the statute of limitations remains open. In addition, we will be subject to monetary penalties for the failure. This treatment would significantly reduce our net earnings and cash flow because of our additional tax liability and the penalties for the years involved, which could significantly impact our financial condition.

Legislative, administrative, regulatory or other actions affecting REITs, including positions taken by the Internal Revenue Service (“IRS”), could have a negative effect on us.

The rules dealing with U.S. federal income taxation are continually under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury (the “Treasury”). New legislation, Treasury regulations, administrative interpretations or court decisions could, with retroactive effect, significantly and negatively affect our ability to qualify to be taxed as a REIT. Further, such actions could, with retroactive effect, also significantly and negatively affect the U.S. federal income tax consequences to our stockholders and us.

Complying with REIT qualification requirements may limit our flexibility or cause us to forego otherwise attractive opportunities.

To qualify as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our common stock. For example, under the Code, no more than 25% of the value of the assets of a REIT may be represented by securities of a taxable REIT subsidiary (“TRS”), and other nonqualifying assets. This limitation may affect our ability to make large investments in other non-REIT qualifying operations or assets. In addition, in order to maintain qualification as a REIT, annually we will be required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. Even if we maintain our qualification as a REIT, we will be subject to U.S. federal income tax at regular corporate rates for our undistributed REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gains, as well as U.S. federal income tax at regular corporate rates for income recognized by our TRS. Because of these distribution requirements, we will likely not be able to fund future capital needs and investments from operating cash flow. As such, compliance with REIT tests may hinder our ability to make certain attractive investments, including the purchase of significant nonqualifying assets and the material expansion of non-real estate activities.

We may restructure or issue debt or raise equity to satisfy our conversion costs.

Depending on the ultimate size and timing of the cash outlays associated with our conversion to a REIT, we may restructure or issue debt and/or issue equity to fund these disbursements, even if the then-prevailing market conditions are not favorable for these transactions. Whether we issue debt or equity, at what price and amount and other terms of any such issuances will depend on many factors, including alternative sources of capital, our then existing leverage, our need for additional capital, market conditions and other factors beyond our control. If we raise additional funds through the issuance of equity securities or debt convertible into equity securities, the percentage of stock ownership by our existing stockholders may be reduced. In addition, new equity securities or convertible debt

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securities could have rights, preferences, and privileges senior to those of our current stockholders, which could substantially decrease the value of our securities owned by them. Depending on the share price we are able to obtain, we may have to sell a significant number of shares in order to raise the capital we deem necessary to execute our long-term strategy, and our stockholders may experience dilution in the value of their shares as a result. Furthermore, conversion costs may increase the financing we need to fund capital expenditures, future growth and expansion initiatives. As a result, our indebtedness could increase.

We will incur increased costs associated with implementing the REIT conversion and maintaining REIT status.

We will incur significant implementation costs to convert to a REIT, as well as annual compliance costs. Our estimate for such costs, however, may not be accurate, and such costs may actually be higher than our estimates due to changes in our business support functions and support costs, the unsuccessful execution of internal planning, including restructurings and cost reduction initiatives, or other factors.

Restrictive loan covenants could prevent us from satisfying REIT distribution requirements.

If we are successful in converting to a REIT, restrictions in our credit facility and our indentures may prevent us from satisfying our REIT distribution requirements, and we could fail to qualify for taxation as a REIT. If these limits do not jeopardize our qualification for taxation as a REIT but nevertheless prevent us from distributing 100% of our REIT taxable income, we would be subject to federal corporate income tax, and potentially a nondeductible excise tax, on the retained amounts.

We have no experience operating as a REIT, which may adversely affect our business, financial condition or results of operations if we successfully convert to a REIT.

We have no experience operating as a REIT, and our senior management has no experience operating a REIT. Our pre-REIT operating experience may not be sufficient to prepare us to operate successfully as a REIT. Our inability to operate successfully as a REIT, including the failure to maintain REIT status, could adversely affect our business, financial condition or results of operations.

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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.

10-K

3.2

3/1/2021

4.1

*

First Supplemental Indenture and Subsidiary Guarantee governing Switch, Ltd.’s 3.75% Senior Notes due 2028, dated as of July 29, 2021, among Data Foundry, LLC, Switch, Ltd. and U.S. Bank National Association, as trustee.

4.2

*

First Supplemental Indenture and Subsidiary Guarantee governing Switch, Ltd.’s 4.125% Senior Notes due 2029, dated as of July 29, 2021, among Data Foundry, LLC, Switch, Ltd. and U.S. Bank National Association, as trustee.

10.1

*

Third Amendment to Amended and Restated Credit Agreement, dated July 29, 2021, by and among Switch, Ltd., the guarantors party thereto, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent.

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 for the three and nine months ended September 30, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive (Loss) Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, 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.

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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, 2021			/s/ Gabe Nacht
						Gabe Nacht Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)