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, 2022

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 1, 2022, the registrant had 157,953,097 shares of Class A common stock, 87,111,360 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			21
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			36
Item 4.			Controls and Procedures			37
Part II.			Other Information
Item 1.			Legal Proceedings			38
Item 1A.			Risk Factors			38
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 6.			Exhibits			41
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, 2022						December 31, 2021
			(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			$	41,251					$	48,325
Restricted cash			—						1,890
Accounts receivable, net of allowance for credit losses of $379 and $361, respectively			30,536						18,368
Prepaid expenses			11,122						10,265
Swap asset, current portion			9,569						—
Other current assets, net of allowance for credit losses of $3			4,449						4,624
Total current assets			96,927						83,472
Property and equipment, net			2,500,213						2,237,059
Long-term deposit			39,056						13,504
Deferred income taxes			375,036						295,699
Intangible assets, net			121,952						125,758
Goodwill			106,350						106,350
Other assets, net of allowance for credit losses of $95 and $91, respectively			61,729						56,776
TOTAL ASSETS			$	3,301,263					$	2,918,618
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Long-term debt, current portion			$	4,000					$	4,000
Accounts payable			41,224						55,262
Accrued salaries and benefits			14,612						6,786
Accrued interest			8,120						8,577
Accrued expenses and other			29,910						18,285
Accrued construction payables			40,865						31,093
Deferred revenue, current portion			26,839						16,905
Customer deposits			16,976						16,335
Swap liability, current portion			—						8,062
Operating lease liability, current portion			3,983						3,281
Liabilities under tax receivable agreement, current portion			75,108						—
Total current liabilities			261,637						168,586
Long-term debt, net			1,890,375						1,611,962
Operating lease liability			31,143						32,157
Finance lease liability			57,080						57,376
Deferred revenue			26,765						25,921
Liabilities under tax receivable agreement			—						395,615
Other long-term liabilities			1,087						8,360
TOTAL LIABILITIES			2,268,087						2,299,977
Commitments and contingencies (Note 5)
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.001 par value per share, 10,000 shares authorized, none issued and outstanding			—						—
Class A common stock, $0.001 par value per share, 750,000 shares authorized, 156,960 and 145,187 shares issued and outstanding, respectively			157						145
Class B common stock, $0.001 par value per share, 300,000 shares authorized, 88,104 and 98,331 shares issued and outstanding, respectively			88						98
Class C common stock, $0.001 par value per share, 75,000 shares authorized, none issued and outstanding			—						—
Additional paid in capital			428,481						352,984
Retained earnings (accumulated deficit)			341,904						(23,022)
Accumulated other comprehensive loss			(568)						(568)
Total Switch, Inc. stockholders’ equity			770,062						329,637
Noncontrolling interest			263,114						289,004
TOTAL STOCKHOLDERS’ EQUITY			1,033,176						618,641
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	3,301,263					$	2,918,618

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,
			2022						2021						2022						2021
Revenue			$	174,467					$	158,104					$	507,261					$	430,660
Cost of revenue			126,582						97,413						322,425						246,100
Gross profit			47,885						60,691						184,836						184,560
Selling, general and administrative expense			40,373						42,845						128,891						117,718
Income from operations			7,512						17,846						55,945						66,842
Other income (expense):
Interest expense, including $663, $689, $1,987, and $1,892, respectively, in amortization of debt issuance costs and original issue discount			(16,696)						(15,166)						(44,079)						(34,121)
Gain (loss) on swaps			8,830						(3,853)						24,832						(3,618)
Loss on extinguishment of debt			—						(146)						—						(146)
Equity in net losses of investments			—						(326)						—						(925)
Gain on sale of equity method investment			—						—						—						5,374
Gain on termination of tax receivable agreement			—						—						372,784						—
Other			531						500						1,412						4,092
Total other (expense) income			(7,335)						(18,991)						354,949						(29,344)
Income (loss) before income taxes			177						(1,145)						410,894						37,498
Income tax (expense) benefit			(409)						278						(6,452)						(4,287)
Net (loss) income			(232)						(867)						404,442						33,211
Less: net income (loss) attributable to noncontrolling interest			25						(498)						15,071						17,578
Net (loss) income attributable to Switch, Inc.			$	(257)					$	(369)					$	389,371					$	15,633
Net (loss) income per share (Note 9):
Basic			$	(0.00)					$	(0.00)					$	2.58					$	0.12
Diluted			$	(0.00)					$	(0.00)					$	1.60					$	0.12
Weighted average shares used in computing net (loss) income per share (Note 9):
Basic			154,778						136,292						150,855						131,067
Diluted			154,778						136,292						250,812						135,091
Other comprehensive loss:
Foreign currency translation adjustment, net of reclassification adjustment and tax of $0			—						—						—						(474)
Comprehensive (loss) income			(232)						(867)						404,442						32,737
Less: comprehensive income (loss) attributable to noncontrolling interest			25						(498)						15,071						17,165
Comprehensive (loss) income attributable to Switch, Inc.			$	(257)					$	(369)					$	389,371					$	15,572

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						Retained Earnings (Accumulated Deficit)						Accumulated Other Comprehensive Loss						Noncontrolling Interest						Total Stockholders’ Equity
Balances—December 31, 2021			145,187						$	145					98,331						$	98					$	352,984					$	(23,022)					$	(568)					$	289,004					$	618,641
Net income			—						—						—						—						—						12,793						—						11,141						23,934
Equity-based compensation expense			—						—						—						—						6,681						—						—						—						6,681
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax			957						1						—						—						(11,209)						—						—						(341)						(11,549)
Issuance of Class A common stock upon exercise of stock options			144						1						—						—						2,611						—						—						(167)						2,445
Dividends declared ($0.0525 per share)			—						—						—						—						—						(7,959)						—						—						(7,959)
Distributions to noncontrolling interest			—						—						—						—						—						—						—						(4,931)						(4,931)
Exchanges of noncontrolling interest for Class A common stock			2,558						2						(2,558)						(2)						7,766						—						—						(7,766)						—
Recognition of tax receivable agreement liability resulting from exchanges of noncontrolling interest for Class A common stock			—						—						—						—						(16,841)						—						—						—						(16,841)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.			—						—						—						—						15,294						—						—						—						15,294
Balances—March 31, 2022			148,846						149						95,773						96						357,286						(18,188)						(568)						286,940						625,715
Net income			—						—						—						—						—						376,835						—						3,905						380,740
Equity-based compensation expense			—						—						—						—						6,980						—						—						—						6,980
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax			36						—						—						—						(2,533)						—						—						1,940						(593)
Issuance of Class A common stock upon exercise of stock options			195						—						—						—						3,555						—						—						(227)						3,328
Issuance of restricted stock awards			48						—						—						—						—						—						—						—						—
Dividends declared ($0.0525 per share)			—						—						—						—						—						(8,080)						—						—						(8,080)
Distributions to noncontrolling interest			—						—						—						—						—						—						—						(4,942)						(4,942)
Exchanges of noncontrolling interest for Class A common stock			1,642						2						(1,642)						(2)						4,245						—						—						(4,245)						—
Termination of tax receivable agreement			—						—						—						—						—						—						—						(35,436)						(35,436)
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.			—						—						—						—						23,439						—						—						—						23,439
Balances—June 30, 2022			150,767						$	151					94,131						$	94					$	392,972					$	350,567					$	(568)					$	247,935					$	991,151

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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						Retained Earnings (Accumulated Deficit)						Accumulated Other Comprehensive Loss						Noncontrolling Interest						Total Stockholders’ Equity
Balances—June 30, 2022			150,767						$	151					94,131						$	94					$	392,972					$	350,567					$	(568)					$	247,935					$	991,151
Net income			—						—						—						—						—						(257)						—						25						(232)
Equity-based compensation expense			—						—						—						—						7,104						—						—						—						7,104
Issuance of Class A common stock upon settlement of restricted stock units, net of shares withheld for tax			53						—						—						—						(1,825)						—						—						1,038						(787)
Issuance of Class A common stock upon exercise of stock options			113						—						—						—						2,036						—						—						(121)						1,915
Dividends declared ($0.0525 per share)			—						—						—						—						—						(8,406)						—						—						(8,406)
Distributions to noncontrolling interest			—						—						—						—						—						—						—						(4,625)						(4,625)
Exchanges of noncontrolling interest for Class A common stock			6,027						6						(6,027)						(6)						(18,862)						—						—						18,862						—
Net deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.			—						—						—						—						47,056						—						—						—						47,056
Balances—September 30, 2022			156,960						$	157					88,104						$	88					$	428,481					$	341,904					$	(568)					$	263,114					$	1,033,176

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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						Retained Earnings (Accumulated Deficit)						Accumulated Other Comprehensive Loss						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						Retained Earnings (Accumulated Deficit)						Accumulated Other Comprehensive Loss						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 income			—						—						—						—						—						(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

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,
			2022						2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	404,442					$	33,211
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment			147,886						125,214
Amortization of customer relationships			4,687						1,979
Loss on disposal of property and equipment			586						211
Deferred income taxes			6,452						4,287
Amortization of debt issuance costs and original issue discount			1,987						1,892
Credit loss expense			207						52
Unrealized gain on swaps			(30,322)						(9,292)
Loss on extinguishment of debt			—						146
Equity in net losses on investments			—						925
Gain on termination of tax receivable agreement			(372,784)						—
Gain on sale of equity method investment			—						(5,374)
Equity-based compensation			20,765						21,878
Amortization of portfolio energy credits			1,261						315
Cost of revenue for sales-type leases			—						150
Changes in operating assets and liabilities:
Accounts receivable			(12,770)						(5,950)
Prepaid expenses			(857)						1,442
Other current assets			(534)						(599)
Other assets			3,271						(2,192)
Accounts payable			3,208						10,882
Accrued salaries and benefits			7,826						8,781
Accrued interest			(457)						1,071
Accrued expenses and other			15,098						5,762
Deferred revenue			10,778						3,992
Customer deposits			641						1,436
Operating lease liabilities			(2,050)						(3,565)
Other long-term liabilities			(348)						(387)
Net cash provided by operating activities			208,973						196,267
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of a business, net of cash acquired			(3,678)						(409,094)
Acquisition of property and equipment			(438,351)						(331,659)
Purchase of portfolio energy credits			(1,958)						(2,252)
Purchase of equity method investment			—						(2,200)
Proceeds from sale of equity method investment			—						4,900
Proceeds from sale of property and equipment			409						2,033
Net cash used in investing activities			(443,578)						(738,272)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings, net of original issue discount			280,000						556,250
Payment of debt issuance costs			—						(4,822)
Repayment of borrowings, including finance lease liabilities			(3,095)						(20,105)
Change in long-term deposit			(6,865)						(3,835)
Payment of tax withholdings upon settlement of restricted stock unit awards			(13,533)						(6,492)
Proceeds from exercise of stock options			7,688						6,728
Dividends paid to Class A common stockholders			(23,959)						(20,137)
Distributions paid to noncontrolling interest			(14,595)						(17,093)
Net cash provided by financing activities			225,641						490,494
NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH			(8,964)						(51,511)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—Beginning of period			50,215						90,719
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH—End of period			$	41,251					$	39,208

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Switch, Inc.

Consolidated Statements of Cash Flows (Continued)

(in thousands)

(unaudited)

			Nine Months Ended September 30,
			2022						2021
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized			$	42,834					$	31,473
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING INFORMATION:
(Decrease) increase in liabilities incurred to acquire property and equipment			$	(7,730)					$	10,526
(Decrease) increase in accrued construction payables incurred related to long-term deposit			$	(2,356)					$	3,138
Increase in liabilities related to remaining purchase price for the acquisition of a business			$	—					$	6,507
Increase (decrease) in noncontrolling interest as a result of exchanges for Class A common stock			$	6,851					$	(46,482)
Recognition of liabilities under tax receivable agreement			$	52,277					$	80,144
Increase in deferred tax asset resulting from changes in outside basis difference on investment in Switch, Ltd.			$	85,789					$	65,019
Right-of-use assets obtained in exchange for new operating lease liabilities			$	2,817					$	7,380
Decrease in distributions payable on unvested common units			$	(97)					$	(378)
Increase in dividends payable on unvested restricted stock units			$	486					$	525
Dividends payable settled with shares of Class A common stock			$	604					$	342
Increase in liabilities related to purchase of portfolio energy credits			$	184					$	175
RECONCILIATION OF CASH, CASH EQUIVALENTS, AND RESTRICTED CASH:
Cash and cash equivalents			$	41,251					$	35,240
Restricted cash			—						3,968
Total cash, cash equivalents, and restricted cash			$	41,251					$	39,208

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			Property and Equipment, Net			14
Note 4			Long-Term Debt			15
Note 5			Commitments and Contingencies			15
Note 6			Income Taxes			16
Note 7			Equity-Based Compensation			17
Note 8			Noncontrolling Interest			18
Note 9			Net (Loss) Income Per Share			19
Note 10			Segment Reporting			19
Note 11			Subsequent Events			20

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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.

On May 11, 2022, the Company entered into a definitive merger agreement with an affiliate of DigitalBridge Group, Inc. and IFM Investors pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) entered into by Switch, Inc., Switch, Ltd., Sunshine Bidco Inc., a Delaware corporation (“Parent”), Sunshine Merger Sub, Ltd., a Nevada limited liability company and a direct wholly owned subsidiary of Switch, Inc. (“Company Merger Sub”), and Sunshine Parent Merger Sub Inc., a Nevada corporation and a wholly owned subsidiary of Parent (“Parent Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Parent Merger Sub will merge with and into Switch, Inc. with Switch, Inc. remaining as the surviving entity (the “Merger”), and immediately following the Merger, Company Merger Sub will merge with and into Switch Ltd. (the “LLC Merger” and, together with the Merger, the “Mergers”).

Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, the issued and outstanding shares of the Company’s Class A common stock will be acquired for $34.25 per share in an all-cash transaction, and any issued and outstanding shares of the Company’s Class B common stock shall be cancelled and converted into the right to receive cash consideration of $34.25 per share.

On August 4, 2022, Switch, Inc.’s stockholders voted to approve the Mergers and the other transactions contemplated by the Merger Agreement at a special meeting of stockholders held for that purpose. The Mergers and the other transactions contemplated by the Merger Agreement (collectively, the “DigitalBridge/IFM Transaction”) are subject to the satisfaction of customary closing conditions, including the receipt of regulatory approvals and the satisfaction or waiver of the other conditions to the Mergers described in the Merger Agreement. The Mergers are expected to close during the fourth quarter of 2022. Upon completion of the DigitalBridge/IFM Transaction, the Company will no longer be traded or listed on any public securities exchange.

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 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, 2021.

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 total cash consideration of $420.0 million, which includes $4.6 million of acquired cash, cash equivalents, and restricted cash. The Company has included the results of operations for Data Foundry in the consolidated financial statements from the date of acquisition.

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, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, 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,

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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, impairment of intangible assets, deferred income taxes, 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 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, 2021. No other changes to significant accounting policies have occurred since December 31, 2021, with the exception of those detailed below.

Concentration of Credit and Other Risks

Although the Company operates primarily in Nevada, realization of its receivables and its future operations and cash flows could be affected by adverse economic conditions, both regionally and elsewhere in the United States. The Company’s largest customer and its affiliates comprised 13% of the Company’s revenue during each of the three months ended September 30, 2022, and 2021, and 13% and 15% of the Company’s revenue during the nine months ended September 30, 2022, and 2021, respectively. Three customers accounted for 10% or more of total receivables, including net investments in sales-type leases, as of September 30, 2022. One customer accounted for 10% or more of total receivables, including net investments in sales-type leases, as of December 31, 2021.

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, 2021			$	190					$	4,262					$	16,905					$	25,921
September 30, 2022			190						4,353						26,839						26,765
Change			$	—					$	91					$	9,934					$	844

________________________________________

(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 $4.1 million and $1.4 million of deferred revenue related to leases as of September 30, 2022 and December 31, 2021, respectively.

(4)Amounts include $4.9 million and $2.8 million of deferred revenue related to leases as of September 30, 2022 and December 31, 2021, 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, 2021 was $2.3 million and $6.7 million during the three and nine months ended September 30, 2022, respectively. For the three and nine

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months ended September 30, 2022, no impairment losses related to contract assets were recognized on the consolidated statement 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 $841.1 million as of September 30, 2022, 49%, 40%, and 9% of which is expected to be recognized over the next year, one to three years, and three to five years, respectively, with the remainder recognized thereafter. The remaining performance obligations do not include estimates of variable consideration related to unsatisfied performance obligations, such as the usage of metered power, or any contracts that could be terminated without significant penalties.

Fair Value Measurements

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

									September 30, 2022
			Balance Sheet Classification						Carrying Value						Level 1						Level 2						Level 3
									(in thousands)
Assets:
Cash equivalents			Cash and cash equivalents						$	10,793					$	10,793					$	—					$	—
Power swaps			Swap asset, current portion						$	2,428					$	—					$	2,428					$	—
Power swaps			Other assets						$	1,155					$	—					$	1,155					$	—
Interest rate swaps			Swap asset, current portion						$	7,141					$	—					$	7,141					$	—
Interest rate swaps			Other assets						$	4,830					$	—					$	4,830					$	—

									December 31, 2021
			Balance Sheet Classification						Carrying Value						Level 1						Level 2						Level 3
									(in thousands)
Assets:
Cash equivalents			Cash and cash equivalents						$	17,959					$	17,959					$	—					$	—
Liabilities:
Interest rate swaps			Swap liability, current portion						$	8,062					$	—					$	8,062					$	—
Interest rate swaps			Other long-term liabilities						$	6,706					$	—					$	6,706					$	—

There were no transfers between levels of fair value hierarchy during the periods presented.

The fair values of power swaps and interest rate swaps were measured using a present value of cash flow valuation technique based on forward pricing and 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

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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 gain (loss) on swaps on the consolidated statements of comprehensive (loss) income. The Company recorded gains on interest rate swaps of $7.2 million and $22.3 million for the three and nine months ended September 30, 2022, respectively. The Company recorded a loss on interest rate swaps of $1.1 million for the three months ended September 30, 2021 and a gain on interest rate swaps of $1.3 million for the nine months ended September 30, 2021.

The Company enters into power swap agreements to manage its exposure to adverse changes in the price of power. In March and April 2022, Switch, Ltd. entered into four power swap agreements comprising power paid at fixed prices in exchange for receipts on power sales based on the variable prices at the time of settlement. Three power swap agreements matured in September 2022 and the remaining agreement matures in September 2024. The power swap agreements are not designated as hedging instruments. Resulting gains and losses from these derivatives, inclusive of periodic net settlement amounts, were recorded in gain (loss) on swaps on the consolidated statements of comprehensive (loss) income. The Company recorded gains on power swaps of $1.6 million and $2.5 million for the three and nine months ended September 30, 2022. The Company recorded losses on power swaps of $2.8 million and $4.9 million for the three and nine months ended September 30, 2021, respectively, as a result of power swap agreements entered into in June 2021, which matured in August 2021.

Recent Accounting Pronouncements

The Company’s management has evaluated all of the recently issued, but not yet effective, accounting standards that have been issued or proposed by the Financial Accounting Standards Board or other standards-setting bodies through the filing date of these financial statements and does not believe the future adoption of any such pronouncements will have a material effect on the Company’s financial position, results of operations, and cash flows.

3. Property and Equipment, Net

Property and equipment, net consists of the following:

			September 30,						December 31,
			2022						2021
			(in thousands)
Land and land improvements			$	341,753					$	322,808
Buildings, building improvements, and leasehold improvements			771,919						695,378
Substation equipment			24,984						19,780
Data center equipment			1,719,433						1,559,241
Vehicles			2,265						2,045
Core network equipment			47,130						43,086
Fiber facilities			15,692						14,647
Computer equipment, furniture and fixtures			57,168						53,194
Finance lease right-of-use assets			75,933						75,933
Construction in progress			458,731						319,623
Property and equipment, gross			3,515,008						3,105,735
Less: accumulated depreciation and amortization			(1,014,795)						(868,676)
Property and equipment, net			$	2,500,213					$	2,237,059

Accumulated amortization for finance lease right-of-use assets totaled $18.4 million and $16.7 million as of September 30, 2022 and December 31, 2021, respectively.

During the nine months ended September 30, 2022 and 2021, capitalized interest was $9.4 million and $4.7 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,
			2022						2021						2022						2021
			(in thousands)
Cost of revenue			$	49,417					$	44,045					$	144,036					$	122,000
Selling, general and administrative expense			1,127						1,093						3,850						3,214
Total depreciation and amortization of property and equipment			$	50,544					$	45,138					$	147,886					$	125,214

4. Long-Term Debt

Long-term debt consists of the following:

			September 30,						December 31,
			2022						2021
			(in thousands)
3.75% senior unsecured notes, due September 2028			$	600,000					$	600,000
4.125% senior unsecured notes, due June 2029			500,000						500,000
Term loan facility, interest paid at the defined LIBOR rate plus applicable interest margin (5.08% and 2.10% at September 30, 2022 and December 31, 2021, respectively), due July 2028			396,000						399,000
Revolving credit facility, interest paid at the defined LIBOR rate plus applicable interest margin (4.83% and 1.85% at September 30, 2022 and December 31, 2021, respectively), due July 2026			410,000						130,000
Long-term debt, gross			1,906,000						1,629,000
Less: unamortized debt issuance costs and original issue discount			(11,625)						(13,038)
			1,894,375						1,615,962
Less: long-term debt, current			(4,000)						(4,000)
Long-term debt, net			$	1,890,375					$	1,611,962

As of September 30, 2022, the Company had $83.1 million of available borrowing capacity under its revolving credit facility, net of outstanding letters of credit.

The estimated fair value of the Company’s long-term debt as of September 30, 2022 and December 31, 2021 was approximately $1.90 billion and $1.65 billion, respectively, compared to its carrying value, excluding debt issuance costs and original issue discount, of $1.91 billion and $1.63 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, 2022 and December 31, 2021, respectively.

5. Commitments and Contingencies

Purchase Commitments

In March 2022, Switch, Ltd. entered into a power purchase and sale agreement to purchase an aggregate firm commitment of 474,650 megawatt-hours, or a purchase commitment of $25.7 million, inclusive of scheduling services, during a term of 19 months, which started on May 1, 2022. Additional franchise tax amounts may be due based on the data center location where the purchased power is used. Future power purchase commitments for the remainder of 2022 and 2023 are $6.5 million and $17.4 million, respectively, with no additional commitments upon termination of the agreement thereafter.

In May 2022, in connection with the execution of the Merger Agreement, Switch, Ltd. entered into a purchase and sale agreement with entities in which a member of the Company’s Board of Directors has beneficial ownership interests for the acquisition of land and a data center building currently being leased from these entities for a total purchase price of $300.0 million, of which $21.0 million was paid as a nonrefundable deposit and recorded in long-term deposit on the consolidated balance sheet as of September 30, 2022. Pursuant to the purchase and sale agreement, the closing on the acquisition of the purchased property will be conditioned upon, among other things, the consummation of the Mergers.

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Operating Leases

During the three months ended September 30, 2022 and 2021, lease costs related to operating leases were $1.9 million and $2.0 million, respectively. During the nine months ended September 30, 2022 and 2021, lease costs related to operating leases were $5.7 million and $5.4 million, respectively. Related party lease costs included in these amounts were $0.9 million and $1.2 million for the three months ended September 30, 2022 and 2021, respectively, and $3.2 million and $3.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Legal Proceedings

Seven lawsuits were filed by purported stockholders of the Company relating to the Mergers: Palkon v. Rob Roy et al., Case No. A-22-853216-B (Nev. Eight Jud. Dist. Ct., May 26, 2022) (the “Palkon Action”), O’Dell v. Switch, Inc., et al., Civil Action No. 1:22-cv-05246 (S.D.N.Y. June 22, 2022) (the “O’Dell Action”), Bushansky v. Switch, Inc. et al., Civil Action No. 1:22-cv-05347 (S.D.N.Y June 24, 2022) (the “Bushansky Action”), Brown v. Switch, Inc. et al., Civil Action No. 1:22-cv-05360 (S.D.N.Y June 24, 2022) (the “Brown Action”), Redfield v. Switch, Inc., et al., Civil Action No. 1:22-cv-05518 (S.D.N.Y. June 28, 2022) (the “Redfield Action”), Waterman v. Switch, Inc. et al., Civil Action No. 1:22-cv-05523 (S.D.N.Y. June 29, 2022) (the “Waterman Action”), and Wilhelm v. Switch, Inc. et al., Civil Action No. 1:22-cv-05785 (S.D.N.Y. July 7, 2022) (the “Wilhelm Action”, and collectively with the Palkon Action, the O’Dell Action, the Bushansky Action, the Brown Action, the Redfield Action and the Waterman Action, the “Actions”). Six of the seven Actions were dismissed as further described below.

The Palkon Action names as defendants the Company’s Board of Directors, DigitalBridge, IFM Investors Pty Ltd, and certain affiliates of the Company and alleges, among other things, that the Company’s Board of Directors breached their fiduciary duties in approving the Mergers, and that DigitalBridge, IFM Investors Pty Ltd, and the certain affiliates of the Company named as defendants aided and abetted such breaches. Upon stipulation of the Parties, the Court ordered that the plaintiff must file an amended complaint on or before November 17, 2022. The defendants’ responses to the amended complaint are due sixty (60) days after the amended complaint is filed. If the defendants respond to the amended complaint by motion(s), the plaintiff must file any opposition(s) within sixty (60) days thereafter, and the defendants must file any replies within thirty (30) days after the plaintiff’s opposition(s) are filed.

The O’Dell Action, the Bushansky Action, and the Brown Action name as defendants the Company and its Board of Directors, and allege, among other things, that the Preliminary Proxy Statement on Schedule 14A of the Company filed on June 16, 2022 (the “Preliminary Proxy Statement”) omits material information with respect to the Mergers, rendering the Preliminary Proxy Statement false and misleading in violation of Sections 14(a) and 20(a) of the Exchange Act. The Redfield Action, the Waterman Action, and the Wilhelm Action allege similar disclosure deficiencies with respect to the Definitive Proxy Statement filed by the Company on Schedule 14A on June 27, 2022 (the “Definitive Proxy Statement”). The Actions seek, among other relief, an order enjoining the Mergers or rescission if the Mergers are consummated. The Bushansky Action, Redfield Action, Waterman Action, and Wilhelm Action were dismissed without prejudice on August 11, 2022. The O’Dell Action was dismissed with prejudice on August 11, 2022. The Brown Action was dismissed without prejudice on October 18, 2022.

In addition, eight purported stockholders sent letters to the Company alleging similar deficiencies in the Definitive Proxy Statement, or, in some cases, the Preliminary Proxy Statement, as those noted in the above-referenced Actions (collectively, the “Demand Letters”). The Company believes that the claims in the Actions and Demand Letters are without merit and intends to vigorously defend against them.

The Company vigorously denies that the Preliminary Proxy Statement or the Definitive Proxy Statement is deficient in any respect. The Company believes that the claims asserted in the Actions and Demand Letters are without merit and no further disclosure is required to supplement the Definitive Proxy Statement under applicable laws. However, solely to moot the unmeritorious disclosure claims and minimize the risk, costs, burden, nuisance and uncertainties inherent in litigation, the Company supplemented the disclosures contained in the Definitive Proxy Statement on July 25, 2022 (the “Supplemental Disclosures”) which should be read in conjunction with the Definitive Proxy Statement. Nothing in the Supplemental Disclosures will be deemed an admission of the legal necessity or materiality under any applicable laws for any of the disclosures set forth therein.

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. Management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of these actions or the range of reasonably possible loss, if any.

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6. Income Taxes

The Company recorded net increases in deferred tax assets of $47.1 million and $27.6 million during the three months ended September 30, 2022 and 2021, respectively, and $85.8 million and $65.0 million during the nine months ended September 30, 2022 and 2021, respectively, with a corresponding increase to additional paid in capital, inclusive of the impact of the $75.1 million liability recorded in connection with the executed amendment to the tax receivable agreement as noted below, resulting from changes in the outside basis difference on Switch, Inc.’s investment in Switch, Ltd. The Company has determined that it is more-likely-than-not that it will be able to realize this deferred tax asset in the future, inclusive of any potential effects of the Merger Agreement.

Tax Receivable Agreement

The Company has recorded a liability under the tax receivable agreement of $75.1 million and $395.6 million as of September 30, 2022 and December 31, 2021, respectively, of which $45.0 million and $190.7 million is owed to certain named executive officers of the Company, certain members of its Board of Directors, and certain beneficial owners of more than 5% of the Company’s Class A or Class B common stock (and immediate family members of the foregoing) as of September 30, 2022 and December 31, 2021, respectively. The tax receivable agreement provided for the payment of 85% of the amount of the tax benefits, if any, that Switch, Inc. was 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.

Concurrent with the execution of the Merger Agreement in May 2022, the Company executed an amendment to the tax receivable agreement, which provides that in exchange for the termination of the tax receivable agreement, each member party thereto is entitled to receive a payment in cash of $0.37 per Common Unit on the earlier of the closing of a change of control transaction, as defined by the tax receivable agreement, or December 31, 2022. Accordingly, during the nine months ended September 30, 2022, a gain on termination of tax receivable agreement of $372.8 million, with no corresponding tax impact, was recorded on the consolidated statements of comprehensive (loss) income and $35.4 million was recorded to noncontrolling interest for Common Units not yet exchanged.

7. 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,
			2022						2021						2022						2021
			(in thousands)
Cost of revenue			$	521					$	560					$	1,551					$	1,747
Selling, general and administrative expense			6,583						6,493						19,214						20,131
Total equity-based compensation			$	7,104					$	7,053					$	20,765					$	21,878

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8. 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, 2022 and 2021, Switch, Inc. issued an aggregate of 10.2 million shares and 17.1 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, 2022												December 31, 2021
						Units (in thousands)						Ownership %						Units (in thousands)						Ownership %
Switch, Inc.’s ownership of Common Units(1)						156,912						64.0		%				145,116						59.6		%
Noncontrolling interest holders’ ownership of Common Units						88,104						36.0		%				98,331						40.4		%
Total Common Units						245,016						100.0		%				243,447						100.0		%

________________________________________

(1)Common Units held by Switch, Inc. exclude 48,000 and 71,000 Common Units underlying unvested restricted stock awards as of September 30, 2022 and December 31, 2021, 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.

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9. 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,
			2022						2021						2022						2021
			(in thousands, except per share data)
Net (loss) income per share:
Numerator—basic:
Net (loss) income attributable to Switch, Inc.—basic			$	(257)					$	(369)					$	389,371					$	15,633
Numerator—diluted:
Net (loss) income attributable to Switch, Inc.—basic			$	(257)					$	(369)					$	389,371					$	15,633
Effect of dilutive securities:
Shares of Class B and Class C common stock			—						—						11,801						—
Net (loss) income attributable to Switch, Inc.—diluted			$	(257)					$	(369)					$	401,172					$	15,633
Denominator—basic:
Weighted average shares outstanding—basic			154,778						136,292						150,855						131,067
Net (loss) income per share—basic			$	(0.00)					$	(0.00)					$	2.58					$	0.12
Denominator—diluted:
Weighted average shares outstanding—basic			154,778						136,292						150,855						131,067
Weighted average effect of dilutive securities:
Stock options			—						—						4,656						2,510
Restricted stock units			—						—						1,380						1,431
Dividend equivalent units			—						—						29						44
Restricted stock awards			—						—						38						39
Performance-vesting restricted stock units			—						—						92						—
Shares of Class B and Class C common stock			—						—						93,762						—
Weighted average shares outstanding—diluted			154,778						136,292						250,812						135,091
Net (loss) income per share—diluted			$	(0.00)					$	(0.00)					$	1.60					$	0.12

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,
			2022						2021						2022						2021
			(in thousands)
Stock options(1)			8,111						8,641						—						—
Restricted stock units(1)			2,703						3,484						—						200
Dividend equivalent units(1)			32						41						—						—
Restricted stock awards(1)			48						71						—						6
Performance-vesting restricted stock units(1)			498						277						226						277
Shares of Class B and Class C common stock(2)			88,104						104,515						—						104,515

________________________________________

(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.

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10. Segment Reporting

The Company’s chief operating decision maker is its Chief Executive Officer. The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions. All of the Company’s assets are maintained in the United States, although the Company holds an equity method investment in 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, 2022 and 2021.

The Company’s revenue is comprised of the following:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
			(in thousands)
Colocation			$	139,751					$	125,945					$	405,472					$	347,544
Connectivity			31,861						29,305						93,302						76,101
Other			2,855						2,854						8,487						7,015
Total revenue			$	174,467					$	158,104					$	507,261					$	430,660

11. Subsequent Events

In October and November 2022, the Company borrowed an aggregate of $40.0 million under its revolving credit facility.

In October and November 2022, Switch, Inc. issued an aggregate of 0.3 million and 0.7 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 2022, 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 $8.3 million, to be paid on December 1, 2022 to holders of record as of November 21, 2022. 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 $12.9 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, 2021. 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, 2021. 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 17 colocation facilities with an aggregate of up to 5.4 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.

In November 2021, our board of directors approved the pursuit of a real estate investment trust (“REIT”) conversion with a target of electing REIT status for the taxable year beginning January 1, 2023. We will report material developments and plans from time to time as the key steps for our conversion to a REIT are put in place and completed.

In May 2022, we entered into a definitive merger agreement with an affiliate of DigitalBridge Group, Inc. and IFM Investors pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) entered into by Switch, Inc., Switch, Ltd., Sunshine Bidco Inc., a Delaware corporation (“Parent”), Sunshine Merger Sub, Ltd., a Nevada limited liability company and a direct wholly owned subsidiary of Switch, Inc. (“Company Merger Sub”), and Sunshine Parent Merger Sub Inc., a Nevada corporation and a wholly owned subsidiary of Parent (“Parent Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Parent Merger Sub will merge with and into Switch, Inc. with Switch, Inc. remaining as the surviving entity (the “Merger”), and immediately following the Merger, Company Merger Sub will merge with and into Switch Ltd. (the “LLC Merger” and, together with the Merger, the “Mergers”).

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Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger, the issued and outstanding shares of our Class A common stock will be acquired for $34.25 per share in an all-cash transaction, and any issued and outstanding shares of our Class B common stock shall be cancelled and converted into the right to receive cash consideration of $34.25 per share.

Our stockholders voted to approve the Mergers and the other transactions contemplated by the Merger Agreement (the “DigitalBridge/IFM Transaction”) at a special meeting of stockholders held for that purpose on August 4, 2022. The DigitalBridge/IFM Transaction is subject to the satisfaction of customary closing conditions, including the receipt of regulatory approvals and the satisfaction or waiver of the other conditions to the Mergers described in the Merger Agreement. The Mergers are expected to close during the fourth quarter of 2022. Upon completion of the DigitalBridge/IFM Transaction, we will no longer be traded or listed on any public securities exchange.

Factors that May Influence Future Results of Operations

Impact of COVID-19. The global health crisis caused by the 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, new variants of COVID-19 continue to emerge. While we have not incurred significant disruptions thus far from COVID-19, the impact of the COVID-19 pandemic and its 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 variants, 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, 2021. 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 its variants 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, inflationary pressures, supply chain issues, 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 its variants, 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 17 colocation facilities with an aggregate of up to 5.4 million GSF of space and up to 558 megawatts of power. As of September 30, 2022, the utilization rates at these Prime Campuses, based on currently available cabinets, were approximately 97%, 98%, 96%, 100%, and 76% 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. Beginning 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. Additionally, we enter into power swap agreements, which we believe manages our exposure to adverse changes in the price of power. 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

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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 $4.0 million for the nine months ended September 30, 2022.

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. 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,
			2022						2021						2022						2021
			(dollars in thousands)
Recurring revenue			$	171,040					$	153,932					$	496,767					$	420,331
Capital expenditures			$	152,404					$	135,873					$	438,351					$	331,659
Adjusted EBITDA			$	69,480					$	76,894					$	240,834					$	229,305
Adjusted EBITDA margin			39.8		%				48.6		%				47.5		%				53.2		%

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,
			2022						2021						2022						2021
			(in thousands)
Recurring revenue			$	171,040					$	153,932					$	496,767					$	420,331
Non-recurring revenue			3,427						4,172						10,494						10,329
Revenue			$	174,467					$	158,104					$	507,261					$	430,660

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.

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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 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, costs for REIT and related restructuring/strategic initiatives, 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,
			2022						2021						2022						2021
			(in thousands)
Net (loss) income			$	(232)					$	(867)					$	404,442					$	33,211
Interest expense			16,696						15,166						44,079						34,121
Interest income(1)			(63)						(36)						(143)						(113)
Income tax expense (benefit)			409						(278)						6,452						4,287
Depreciation and amortization of property and equipment			50,544						45,138						147,886						125,214
Amortization of customer relationships			1,562						1,562						4,687						1,979
Loss on disposal of property and equipment			348						32						586						211
Equity-based compensation			7,104						7,053						20,765						21,878
(Gain) loss on swaps			(8,830)						3,853						(24,832)						3,618
Litigation expense(2)			213						4,717						428						4,717
REIT and related restructuring/strategic initiatives(2)			1,729						—						9,268						—
Gain on termination of tax receivable agreement			—						—						(372,784)						—
Loss on extinguishment of debt			—						146						—						146
Equity in net losses of investments			—						326						—						925
Acquisition-related costs(2)			—						82						—						4,485
Gain on sale of equity method investment			—						—						—						(5,374)
Adjusted EBITDA			$	69,480					$	76,894					$	240,834					$	229,305

________________________________________

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

(2)Litigation expense, REIT and related restructuring/strategic initiatives, and acquisition-related costs are included in the “Selling, general and administrative expense” line in our consolidated statements of comprehensive (loss) income.

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Components of Results of Operations

Revenue

During each of the three and nine months ended September 30, 2022 and 2021, we derived more than 97% 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, which is determined using a portfolio approach. Revenue is generally recognized on a gross basis as a principal versus on a net basis as an agent, largely because we are primarily responsible for fulfilling the contract, take title to services, and bear credit risk.

Cost of Revenue

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

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.

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Gain (Loss) on Swaps

Gain (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.

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 was accounted for under the equity method of accounting through December 31, 2021. As of December 31, 2021, the carrying value of our investment in SUPERNAP Thailand was reduced to zero as a result of recording our share of operating losses and foreign currency translation adjustments. Accordingly, we discontinued the equity method of accounting for our investment in SUPERNAP Thailand as of December 31, 2021 and will not provide for additional losses until our share of future net income, if any, equals the share of net losses not recognized during the period the equity method was suspended. Our losses will continue to include the foreign currency translation adjustments in our investment.

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.

Gain on Termination of Tax Receivable Agreement

Gain on termination of tax receivable agreement consists of the gain resulting from amending the tax receivable agreement to provide that in exchange for the termination of the tax receivable agreement, each member party thereto is entitled to receive a payment in cash of $0.37 per common unit of Switch, Ltd. (“Common Unit”) on the earlier of the closing of a change of control, as defined by the tax receivable agreement, or December 31, 2022.

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.

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Results of Operations

The following table sets forth our results of operations:

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
			(in thousands)
Consolidated Statements of Operations Data:
Revenue			$	174,467					$	158,104					$	507,261					$	430,660
Cost of revenue			126,582						97,413						322,425						246,100
Gross profit			47,885						60,691						184,836						184,560
Selling, general and administrative expense			40,373						42,845						128,891						117,718
Income from operations			7,512						17,846						55,945						66,842
Other income (expense):
Interest expense, including amortization of debt issuance costs and original issue discount			(16,696)						(15,166)						(44,079)						(34,121)
Gain (loss) on swaps			8,830						(3,853)						24,832						(3,618)
Loss extinguishment of debt			—						(146)						—						(146)
Equity in net losses of investments			—						(326)						—						(925)
Gain on sale of equity method investment			—						—						—						5,374
Gain on termination of tax receivable agreement			—						—						372,784						—
Other			531						500						1,412						4,092
Total other (expense) income			(7,335)						(18,991)						354,949						(29,344)
Income (loss) before income taxes			177						(1,145)						410,894						37,498
Income tax (expense) benefit			(409)						278						(6,452)						(4,287)
Net (loss) income			(232)						(867)						404,442						33,211
Less: net income (loss) attributable to noncontrolling interest			25						(498)						15,071						17,578
Net (loss) income attributable to Switch, Inc.			$	(257)					$	(369)					$	389,371					$	15,633

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

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Consolidated Statements of Operations Data:
Revenue			100		%				100		%				100		%				100		%
Cost of revenue			73						62						64						57
Gross profit			27						38						36						43
Selling, general and administrative expense			23						27						25						27
Income from operations			4						11						11						16
Other income (expense):
Interest expense, including amortization of debt issuance costs and original issue discount			(10)						(10)						(9)						(8)
Gain (loss) on swaps			5						(2)						5						(1)
Loss on extinguishment of debt			—						—						—						—
Equity in net losses of investments			—						—						—						—
Gain on sale of equity method investment			—						—						—						1
Gain on termination of tax receivable agreement			—						—						73						—
Other			—						—						—						1
Total other (expense) income			(4)						(12)						70						(7)
Income (loss) before income taxes			—						(1)						81						9
Income tax (expense) benefit			—						—						(1)						(1)
Net (loss) income			—						(1)						80						8
Less: net income (loss) attributable to noncontrolling interest			—						—						3						4
Net (loss) income attributable to Switch, Inc.			—		%				—		%				77		%				4		%

Comparison of the Three Months Ended September 30, 2022 and 2021

Revenue

			Three Months Ended September 30,												Change
			2022						2021						Amount						%
			(dollars in thousands)
Colocation			$	139,751					$	125,945					$	13,806					11		%
Connectivity			31,861						29,305						2,556						9		%
Other			2,855						2,854						1						—		%
Revenue			$	174,467					$	158,104					$	16,363					10		%

Revenue increased by $16.4 million, or 10%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. Of the overall increase, 16% was attributable to revenue from new customers initiating service after September 30, 2021, and the remaining 84% was attributable to increased revenue from existing customers.

Cost of Revenue and Gross Margin

			Three Months Ended September 30,												Change
			2022						2021						Amount						%
			(dollars in thousands)
Cost of revenue			$	126,582					$	97,413					$	29,169					30		%
Gross margin			27.4		%				38.4		%

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Cost of revenue increased by $29.2 million, or 30%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily attributable to increases of $22.2 million in facilities costs due to increased power costs and $5.4 million in depreciation and amortization expense due to additional property and equipment being placed into service. Accordingly, gross margin decreased by 1,100 basis points for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.

Selling, General and Administrative Expense

			Three Months Ended September 30,												Change
			2022						2021						Amount						%
			(dollars in thousands)
Selling, general and administrative expense			$	40,373					$	42,845					$	(2,472)					(6)		%

Selling, general and administrative expense decreased by $2.5 million, or 6%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The decrease was primarily attributable to a decrease of $3.4 million in professional fees, partially offset by an increase of $1.0 million in real estate and personal property taxes.

Other Income (Expense)

			Three Months Ended September 30,												Change
			2022						2021						Amount						%
			(dollars in thousands)
Other income (expense):
Interest expense			$	(16,696)					$	(15,166)					$	(1,530)					10		%
Gain (loss) on swaps			8,830						(3,853)						12,683						NM
Loss on extinguishment of debt			—						(146)						146						(100)		%
Equity in net losses of investments			—						(326)						326						(100)		%
Other			531						500						31						6		%
Total other expense			$	(7,335)					$	(18,991)					$	11,656					(61)		%

________________________________________

NM - Not meaningful

Interest Expense

Interest expense increased by $1.5 million, or 10%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021, primarily due to increases in our weighted average debt outstanding from our revolving credit facility and our weighted average interest rate from 3.42% during the three months ended September 30, 2021 to 4.15% during the three months ended September 30, 2022.

Gain (Loss) on Swaps

During the three months ended September 30, 2022, we incurred a gain on swaps of $8.8 million, compared to a loss on swaps of $3.9 million for the three months ended September 30, 2021. The current period was driven by gains of $7.2 million on interest rate swaps due to the fluctuation in market interest rates and $1.6 million on power swaps due to the fluctuation in the price of power.

Income Tax (Expense) Benefit

			Three Months Ended September 30,												Change
			2022						2021						Amount						%
			(dollars in thousands)
Income tax (expense) benefit			$	(409)					$	278					$	(687)					(247)		%

During the three months ended September 30, 2022, we incurred income tax expense of $0.4 million compared to an income tax benefit of $0.3 million during the three months ended September 30, 2021. Income tax expense and benefit are driven by our allocable share of Switch, Ltd.’s income before income taxes.

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Net Income (Loss) Attributable to Noncontrolling Interest

			Three Months Ended September 30,												Change
			2022						2021						Amount						%
			(dollars in thousands)
Net income (loss) attributable to noncontrolling interest			$	25					$	(498)					$	523					(105)		%

Net income attributable to noncontrolling interest increased by $0.5 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The change was due to an increase in net income during the three months ended September 30, 2022.

Comparison of the Nine Months Ended September 30, 2022 and 2021

Revenue

			Nine Months Ended September 30,												Change
			2022						2021						Amount						%
			(dollars in thousands)
Colocation			$	405,472					$	347,544					$	57,928					17		%
Connectivity			93,302						76,101						17,201						23		%
Other			8,487						7,015						1,472						21		%
Revenue			$	507,261					$	430,660					$	76,601					18		%

Revenue increased by $76.6 million, or 18%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. Data Foundry contributed $22.4 million of the increase, with 7% of the remaining increase attributable to revenue from new customers initiating service after September 30, 2021, and 93% attributable to increased revenue from existing customers.

Cost of Revenue and Gross Margin

			Nine Months Ended September 30,												Change
			2022						2021						Amount						%
			(dollars in thousands)
Cost of revenue			$	322,425					$	246,100					$	76,325					31		%
Gross margin			36.4		%				42.9		%

Cost of revenue increased by $76.3 million, or 31%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily attributable to an increase of $19.6 million incurred by Data Foundry, with the remaining increase attributable to increases of $37.1 million in facilities costs due to increased power costs and $14.4 million in depreciation and amortization expense due to additional property and equipment being placed into service. Accordingly, gross margin decreased by 650 basis points for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.

Selling, General and Administrative Expense

			Nine Months Ended September 30,												Change
			2022						2021						Amount						%
			(dollars in thousands)
Selling, general and administrative expense			$	128,891					$	117,718					$	11,173					9		%

Selling, general and administrative expense increased by $11.2 million, or 9%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily attributable to increases of $4.2 million in real estate and personal property taxes, $4.1 million in professional fees, and $2.7 million in amortization of acquired customer relationships.

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Other Income (Expense)

			Nine Months Ended September 30,												Change
			2022						2021						Amount						%
			(dollars in thousands)
Other income (expense):
Interest expense			$	(44,079)					$	(34,121)					$	(9,958)					29		%
Gain on swaps			24,832						(3,618)						28,450						NM
Loss on extinguishment of debt			—						(146)						146						(100)		%
Equity in net losses of investments			—						(925)						925						(100)		%
Gain on sale of equity method investment			—						5,374						(5,374)						(100)		%
Gain on termination of tax receivable agreement			372,784						—						372,784						NM
Other			1,412						4,092						(2,680)						(65)		%
Total other income (expense)			$	354,949					$	(29,344)					$	384,293					NM

________________________________________

NM - Not meaningful

Interest Expense

Interest expense increased by $10.0 million, or 29%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily due to increases in our weighted average debt outstanding from our revolving credit facility and our weighted average interest rate from 3.30% during the nine months ended September 30, 2021 to 3.68% during the nine months ended September 30, 2022.

Gain (Loss) on Swaps

During the nine months ended September 30, 2022, we incurred a gain on swaps of $24.8 million, compared to a loss on swaps of $3.6 million for the nine months ended September 30, 2021. The current period was driven by a $22.3 million gain on interest rate swaps due to the fluctuation in market interest rates and a $2.5 million gain on power swaps due to the fluctuation in the price of power.

Other

Other decreased by $2.7 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, primarily due to non-recurring license fee income of $2.8 million recorded pursuant to a technology license agreement during the nine months ended September 30, 2021.

Income Tax Expense

			Nine Months Ended September 30,												Change
			2022						2021						Amount						%
			(dollars in thousands)
Income tax expense			$	(6,452)					$	(4,287)					$	(2,165)					51		%

During the nine months ended September 30, 2022, we incurred income tax expense of $6.5 million, compared to $4.3 million during the nine months ended September 30, 2021. 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
			2022						2021						Amount						%
			(dollars in thousands)
Net income attributable to noncontrolling interest			$	15,071					$	17,578					$	(2,507)					(14)		%

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Net income attributable to noncontrolling interest was $15.1 million for the nine months ended September 30, 2022, compared to $17.6 million for the nine months ended September 30, 2021. The change was the result of a decrease in ownership by noncontrolling interest holders during the nine months ended September 30, 2022.

Liquidity and Capital Resources

Switch, Inc. is a holding company and has no material assets other than its ownership 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 indentures 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.

Cash Sources

We have historically relied primarily on cash flows from operations, borrowings under our credit facilities, and issuances of notes. We regularly explore financing alternatives, including new credit agreements, unsecured and secured note issuances, and equity financing.

As of September 30, 2022, we had $41.3 million in cash and cash equivalents and our total indebtedness was approximately $1.96 billion (excluding debt issuance costs and original issue discount) consisting of (i) $1.10 billion principal from our senior unsecured notes, (ii) $806.0 million principal from our credit facilities, $406.0 million of which is accruing interest at an underlying variable interest rate of 4.83% and $400.0 million of which is effectively fixed at 4.48% pursuant to interest rate swap agreements, and (iii) $57.3 million from our finance lease liabilities. As of September 30, 2022, we had access to $83.1 million in additional liquidity from our revolving credit facility, net of outstanding letters of credit. In addition, upon satisfying certain conditions, we can increase the amount available to borrow under our credit agreement no more than five times up to an additional $75.0 million in total debt, plus an additional amount subject to certain leverage restrictions.

Senior Unsecured Notes

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.

On June 7, 2021, we issued $500.0 million aggregate principal amount of our 4.125% senior unsecured notes due 2029. 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.

The indentures 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.

Credit Agreement

We are party to an amended and restated credit agreement (as amended on December 28, 2017, September 17, 2020, and July 29, 2021) with Wells Fargo Bank, National Association, as administrative agent, and certain other lenders, consisting of a $400.0 million term loan facility, maturing in July 2028, and a $500.0 million revolving credit facility, maturing in July 2026. The term loan facility is subject to quarterly principal amortization payments of $1.0 million, followed by a final payment of $373.0 million upon maturity.

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 all applicable covenants as of September 30, 2022.

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Cash Uses

For the year ending December 31, 2022, we expect to incur approximately $560 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.

In addition, we were obligated to make payments under the Tax Receivable Agreement, dated as of October 5, 2017, by and among Switch, Inc., Switch, Ltd. and the members of Switch, Ltd. party thereto (“TRA”). Concurrent with the execution of the Merger Agreement in May 2022, we executed an amendment to the TRA, which provides that in exchange for the termination of the TRA, each member party thereto is entitled to receive a payment in cash of $0.37 per Common Unit on the earlier of the closing of a change of control, as defined by the TRA, or December 31, 2022. As of September 30, 2022, we recorded a liability under the TRA of $75.1 million.

Pursuant to the Merger Agreement, we also have agreed to various specific restrictions relating to the conduct of our business between the date of the Merger Agreement and the time at which the Merger becomes effective, including but not limited to, agreeing to not to (i) issue or sell shares of our common stock, partnership interests or other equity or voting interests, (ii) issue or sell any debt securities or warrants or other rights to acquire any debt securities of us and our wholly owned subsidiaries and (iii) incur or assume any indebtedness, in each case subject to the terms of the Merger Agreement and any exceptions set forth therein.

In March and September 2022, we entered into power purchase and sale agreements to purchase an aggregate firm commitment of 629,280 megawatt-hours, or a purchase commitment of $37.4 million, inclusive of scheduling services, during terms of 19 months, which started on May 1, 2022, and three months, which starts on October 1, 2022, respectively. Additional franchise tax amounts may be due based on the data center location where the purchased power is used. Future power purchase commitments for the remainder of 2022 and 2023 are $18.2 million and $17.4 million, respectively, with no additional commitments upon termination of the agreement thereafter.

In May 2022, in connection with the execution of the Merger Agreement, we entered into a purchase and sale agreement with entities in which a member of our board of directors has beneficial ownership interests for the acquisition of land and a data center building currently being leased from these entities for a total purchase price of $300.0 million, of which $21.0 million was paid as a nonrefundable deposit and recorded in long-term deposit on the consolidated balance sheet as of September 30, 2022. Pursuant to the purchase and sale agreement, the closing on the acquisition of the purchased property will be conditioned upon, among other things, the consummation of the Mergers.

Outside of the aforementioned, and any routine transactions made in the ordinary course of business, there have been no significant changes to our material cash requirements as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Cash Flows

The following table summarizes our cash flows:

			Nine Months Ended September 30,
			2022						2021
			(in thousands)
Net cash provided by operating activities			$	208,973					$	196,267
Net cash used in investing activities			(443,578)						(738,272)
Net cash provided by financing activities			225,641						490,494
Net decrease in cash, cash equivalents, and restricted cash			$	(8,964)					$	(51,511)

Cash Flows from Operating Activities

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

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Net cash provided by operating activities for the nine months ended September 30, 2022 was $209.0 million, compared to $196.3 million for the nine months ended September 30, 2021. The increase of $12.7 million was primarily due to increased operations in our data center facilities.

Cash Flows from Investing Activities

During the nine months ended September 30, 2022, net cash used in investing activities was $443.6 million, primarily consisting of capital expenditures of $438.4 million related to the expansion of our data center facilities.

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.

Cash Flows from Financing Activities

During the nine months ended September 30, 2022, net cash provided by financing activities was $225.6 million, primarily consisting of $280.0 million in proceeds from borrowings under our credit facilities, partially offset by $24.0 million in dividends paid, $14.6 million in distributions paid to noncontrolling interest, and $13.5 million for the payment of tax withholdings upon settlement of restricted stock unit awards.

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, $6.5 million for the payment of tax withholdings upon settlement of restricted stock unit awards, and $4.8 million for the payment of debt issuance costs related to our senior unsecured notes and credit agreement amendment.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances. There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

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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 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:

•risks associated with our ability to consummate the Mergers, and the timing of the closing of the Mergers, including the risks that a condition to closing will not be satisfied within the expected timeframe or at all or that the closing of the Mergers will not occur;

•the occurrence of any change, effect, event, circumstance, occurrence or state of facts that could give rise to the termination of the Merger Agreement;

•the outcome of any legal proceedings that have been or may be instituted against the parties to, and others related to, the Mergers and the Merger Agreement;

•unanticipated difficulties or expenditures relating to receiving approvals from governmental entities to consummate the DigitalBridge/IFM Transaction;

•unanticipated difficulties or expenditures relating to the closing of the land purchase pursuant to that certain Purchase and Sale Agreement and Joint Escrow Instructions, by and among Switch, Ltd., Beltway Business Park, L.L.C., Beltway Business Park Warehouse No. 3, LLC, Beltway Business Park Warehouse No. 4, LLC, Beltway Business Park Warehouse No. 6, LLC and Beltway Business Park Warehouse No. 8, LLC (collectively, the “Beltway Entities”) (the “Land Purchase Agreement”);

•unanticipated difficulties or expenditures relating to the transaction, the response of business partners and competitors to the announcement of the transaction and/or potential difficulties in employee retention as a result of the announcement and pendency of the DigitalBridge/IFM Transaction;

•the Mergers diverting management’s attention from our ongoing business operations;

•restrictions on our ability to pay dividends pursuant to the Merger Agreement;

•our goals and strategies;

•the limitation on our right to recover from Parent and Parent Merger Sub an amount equal to the $693 million parent termination fee in circumstances in which such fee is payable, which may not be adequate to cover our damages;

•our expectations regarding our plans to pursue a conversion to a REIT, including the timing related to such conversion;

•our expansion plans, including timing for such plans;

•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 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;

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•our ability to timely and effectively scale and adapt our existing technology;

•our ability to successfully enter new markets;

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

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

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

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

•our beliefs regarding the adequacy of our insurance coverage;

•our beliefs regarding the merits of pending litigation;

•our expectations regarding payment of dividends;

•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, 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, 2021, 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, 2021, 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, 2022, 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 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, 2022, we had $406.0 million outstanding under our credit facilities with an underlying variable interest rate of 4.83% for which a hypothetical increase or decrease of 100 basis points in LIBOR would cause our annual interest cost to change by $4.1 million.

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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, 2022, 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, 2022.

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, 2022 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 5 “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, 2021.

Risks Related to the Proposed Merger

There may be unexpected delays in the completion of the DigitalBridge/IFM Transaction, or the DigitalBridge/IFM Transaction may not be completed at all.

The DigitalBridge/IFM Transaction is expected to close in the fourth quarter of 2022, assuming that all of the conditions in the Merger Agreement are satisfied or waived. The Merger Agreement provides that either we or Parent may terminate the Merger Agreement in certain circumstances if the Mergers have not occurred by November 11, 2022, subject to up to two automatic three-month extensions if certain conditions set forth in the Merger Agreement are met. Certain events may delay the completion of the Mergers or result in a termination of the Merger Agreement. Some of these events are outside the control of either party. For example, the closing of the acquisition of certain properties in Las Vegas, Nevada, pursuant to the Land Purchase Agreement, must have occurred. We may incur significant additional costs in connection with any delay in completing the Mergers or termination of the Merger Agreement, in addition to significant transaction costs, including legal, financial advisory, accounting, and other costs we have already incurred. We can neither assure you that the conditions to the completion of the Mergers will be satisfied or waived or that any adverse change, effect, event, circumstance, occurrence or state of facts that could give rise to the termination of the Merger Agreement will not occur, nor provide any assurances as to whether or when the Mergers will be completed.

Under the terms of the Merger Agreement, subject to limited exceptions, from the date of the Merger Agreement through the closing date, we may declare regular quarterly cash dividends of an amount not to exceed $0.07 per share of common stock, with usual declaration, record and payment dates in accordance with past dividend practice, without a reduction in the merger consideration to be paid to holders. Depending on when the Mergers are consummated, these restrictions may prevent holders of our common shares from receiving increased dividends that they might otherwise have received.

Failure to complete the Mergers in a timely manner or at all could negatively affect our share price and future business and financial results.

There is no assurance that the Mergers will occur or that the conditions to the Mergers will be satisfied in a timely manner or at all. Also, there is no assurance that an event, change, or other circumstance that could give rise to the termination of the Merger Agreement will not occur. Delays in completing the Mergers or the failure to complete the Mergers at all could negatively affect our future business and financial results, and, in that event, the market price of our common shares may decline significantly, particularly to the extent that the current market price reflects a market assumption that the Mergers will be completed. If the Mergers are not completed for any reason, we will be subject to several risks, including the diversion of management focus and resources from operational matters and other strategic opportunities while working to implement the Mergers, any of which could materially adversely affect our business, financial condition, results of operations and the value of our securities.

The pendency of the Mergers could adversely affect our business and operations.

In connection with the pending Mergers, some of our current or prospective customers, lenders or partners may delay or defer decisions, which could negatively impact our revenues, earnings, cash flows and expenses, regardless of whether the Mergers are completed. In addition, under the Merger Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the Mergers. These restrictions may prevent us from pursuing certain strategic transactions, undertaking certain capital projects, undertaking certain financing transactions and otherwise pursuing other actions that are not in the ordinary course of business, even if such actions could prove beneficial, and may cause us to forego certain opportunities we might otherwise pursue absent the Merger Agreement. Additionally, the pendency of the Mergers may make it more difficult for us to effectively recruit, retain and incentivize key personnel and may cause distractions from our strategy and day-to-day operations for our current employees and management.

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An adverse judgment in a lawsuit challenging the Mergers may prevent the Mergers from becoming effective or from becoming effective within the expected timeframe.

We and the members of our board of directors have been named as defendants in seven individual actions related to the Mergers (six of which have been dismissed), and seeking, among other things, to enjoin us from consummating the Mergers. Our purported stockholders may file additional lawsuits challenging the Mergers or the other transactions contemplated by the Merger Agreement, which may name us and/or our board of directors as defendants. We cannot assure you as to the outcome of such lawsuits, including the amount of costs associated with defending these claims or any other liabilities that may be incurred in connection with the litigation of these claims. If plaintiffs are successful in obtaining an injunction prohibiting the parties from completing the Mergers on the agreed-upon terms, such an injunction may delay the completion of the Mergers in the expected timeframe, or may prevent the Mergers from being completed altogether. Whether or not any plaintiff’s claim is successful, this type of litigation may result in significant costs and divert management’s attention and resources, which could adversely affect the operation of our business.

Counterparties to certain of our agreements may have consent rights in connection with the Mergers.

We are party to certain agreements that give the counterparties to such agreements certain rights, including consent rights, in connection with “change in control” transactions or otherwise. Under certain of these agreements, the Mergers may constitute a “change in control” or otherwise give rise to consent rights and, therefore, the counterparties may assert their rights in connection with the Mergers, including in the case of indebtedness, acceleration of amounts due. Any such counterparty may request modifications of its agreements as a condition to granting a waiver or consent under those agreements, and there can be no assurance that such counterparties will not exercise their rights under the agreements, including termination rights where available. In addition, the failure to obtain consent under one agreement may be a default under other agreements and, thereby, trigger rights of the counterparties to such other agreements, including termination rights where available.

The Merger Agreement contains provisions that could discourage a potential competing acquirer of the Company or could result in a competing acquisition proposal being at a lower price than it might otherwise be.

The Merger Agreement contains provisions that, subject to limited exceptions, restrict the Company’s ability to solicit or negotiate any alternative acquisition proposal. With respect to any written, bona fide acquisition proposal that the Company receives, Parent generally has an opportunity to offer to modify the terms of the Merger Agreement in response to such proposal before the Company’s board of directors may withdraw or modify its recommendation to stockholders in response to such acquisition proposal or terminate the Merger Agreement to enter into a definitive agreement with respect to such acquisition proposal. Upon termination of the Merger Agreement under certain circumstances relating to an acquisition proposal, the Company may be required to pay a termination fee of $260.0 million to Parent.

These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the Company’s business from considering or making a competing acquisition proposal, even if the potential competing acquirer was prepared to pay consideration with a higher per share cash value than the per share value proposed to be received or realized in the Mergers, or might cause a potential competing acquirer to propose to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee and expense reimbursement that may become payable in certain circumstances under the Merger Agreement.

The chairman of our board of directors and our named executive officers have interests in seeing the Mergers completed that are different from, or in addition to, those of our other stockholders.

The chairman of our board of directors and our named executive officers have interests in the Mergers that are different from other stockholders of the Company. Some of these interests include:

•Each of Tom Thomas, a member of our board of directors, and Peter Thomas, Mr. Thomas’s brother, indirectly holds membership interests in the Beltway Entities through Peter Trust LP, a limited partnership in which Tom Thomas, Peter Thomas, and their siblings are the limited partners and Tom Thomas and Peter Thomas are the managing members of its general partner. In addition, each Beltway Entity is managed by Thomas & Mack Beltway, LLC, where Tom Thomas and Peter Thomas serve as the managing members. In connection with the consummation of the Land Purchase Agreement, Mr. Thomas and his immediate family members stand to receive $63.6 million in gross proceeds.

•Certain directors and members of management of Switch and certain affiliates and family members of the foregoing, as equity holders prior to Switch’s initial public offering, are parties to the TRA, as amended on

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May 11, 2022 (the “TRA Amendment”) and are entitled to receive payments pursuant to the TRA and the TRA Amendment in connection with the closing of the Mergers based on the fixed price of $0.37 per Common Unit established in the TRA Amendment. The estimated value of the payments that will be made to these individuals is approximately $27.5 million.

•Immediately prior to the effective time of the Mergers (the “Effective Time”) and as a result of the Merger, (a) each option to purchase shares of common stock with a per share exercise price that is less than the merger consideration of $34.25 per share (the “Merger Consideration”) that is outstanding and unexercised immediately prior to the Effective Time, whether vested or unvested, will be cancelled and converted into the right to receive a cash payment equal to the product of the Merger Consideration, net of the applicable per share exercise price, and the aggregate number of shares of our common stock subject to the option, subject to applicable withholding taxes or other amounts required by applicable law to be withheld, (b) each option to purchase shares of common stock with a per share exercise price that is equal to or greater than the Merger Consideration that is outstanding and unexercised immediately prior to the Effective Time, whether vested or unvested, will be cancelled for no consideration, (c) each award of restricted stock units covering shares of common stock that is outstanding immediately prior to the Effective Time will be cancelled and converted into the right to receive a cash payment equal to the product of the Merger Consideration and the aggregate number of shares subject to the award, plus any accrued and unpaid dividend equivalents with respect to such restricted stock unit award, and subject to applicable withholding taxes or other amounts required by applicable law to be withheld, (d) each award of performance-based restricted stock units covering shares of common stock that is outstanding immediately prior to the Effective Time will be cancelled and converted into the right to receive a cash payment equal to the product of the Merger Consideration and the number of shares of common stock subject to the performance-based restricted stock unit award immediately prior to the Effective Time as determined based on the actual achievement of performance goals under the applicable award agreement, plus any accrued and unpaid dividend equivalents with respect to such performance stock unit award, and subject to applicable withholding taxes or other amounts required by applicable law to be withheld and (e) each restricted share of our common stock that is outstanding immediately prior to the Effective Time will automatically become fully vested and converted into the right to receive a cash payment in an amount equal to the Merger Consideration, without interest. The estimated value of the payments that will be made to our current executive officers that are named executive officers at the Effective Time in respect of their outstanding options, restricted stock unit awards and performance stock unit awards is approximately $181.5 million, which is based on the number of outstanding awards held by such officers as of September 30, 2022 and based on the terms of the applicable award agreements and the Merger Agreement.

In addition, Switch has entered into executive severance agreements with each of its named executive officers, other than Melissa Young, that provide for severance benefits upon a severance-qualifying termination of employment. The severance benefits will be subject to the named executive officer’s execution of a general release of claims in favor of the Company and compliance with the post-employment confidentiality, non-disparagement, non-competition and non-solicitation obligations contained therein.

If the Merger Transactions are completed, our stockholders will forgo the opportunity to benefit from potential future appreciation in the value of the Company.

The Merger Agreement provides for the stockholders of record of the Company’s Class A common stock and Class B common stock to receive cash consideration of $34.25 per share, without interest, upon the closing of the DigitalBridge/IFM Transaction. If the DigitalBridge/IFM Transaction is consummated, our stockholders will no longer hold interests in the Company and, therefore, will not be entitled to benefit from any potential future appreciation in the value of the Company. In the absence of the DigitalBridge/IFM Transaction, we could have various opportunities to enhance the Company’s value, including, but not limited to, entering into a transaction that values the shares of our common stock higher than the value provided for in the Merger Agreement. Therefore, if the DigitalBridge/IFM Transaction is completed, stockholders will forgo future appreciation, if any, in the value of the Company and the opportunity to participate in any other potential transactions that may have resulted in a higher price per share than the price to be paid in the DigitalBridge/IFM Transaction.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

In March 2022, we issued 46,694 shares of our Class A common stock to the former spouse of our Chief Executive Officer. The shares were issued in reliance upon an exemption from registration pursuant to Section 4(a)(2) of the

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Securities Act of 1933, as amended (the “Securities Act”), on the basis that it did not involve a public offering. These shares of Class A common stock are restricted securities for purposes of Rule 144 under the Securities Act and are subject to certain requirements restricting the resale of such shares, including certain holding period requirements.

Item 6.Exhibits.

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

Exhibit

Filing Date

2.1

Agreement and Plan of Merger, dated May 11, 2022, by and among Switch, Inc., Switch, Ltd., Sunshine Bidco Inc., Sunshine Merger Sub, Ltd., and Sunshine Parent Merger Sub Inc.

8-K

2.1

5/11/2022

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

10.1

*

Ninth Amendment to Lease, dated September 9, 2022, by and between InNEVation L.L.C. and Beltway Business Park Office No. 2, LLC.

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, 2022, 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, 2022			/s/ Gabe Nacht
						Gabe Nacht Chief Financial Officer (Principal Financial and Accounting Officer and Duly Authorized Officer)