Equity-Based Compensation

Common Unit Awards

The following table summarizes information related to common unit awards for the period indicated below:



	Number of Nonvested Common Units Outstanding (in thousands)		Weighted Average Grant Date Fair Value per Common Unit
Unvested common unit awards outstanding—December 31, 2017	4,783		$	11.11
Common unit awards vested	(399	)	$	11.11
Unvested common unit awards outstanding—June 30, 2018	4,384		$	11.11

As of June 30, 2018, total equity-based compensation cost related to all unvested common unit awards is $33.3 million, which is expected to be recognized over a weighted average period of 3.28 years. If a forfeiture of unvested common unit awards occurs, the associated shares of Class B common stock and Class C common stock, as applicable, are also forfeited.

2017 Incentive Award Plan

On September 22, 2017, Switch, Inc.’s Board of Directors adopted the 2017 Incentive Award Plan (the “2017 Plan”). The 2017 Plan, effective as of its adoption date, provides that the initial aggregate number of shares of Class A common stock reserved and available for issuance be 25.0 million shares of Class A common stock plus an increase each January 1, beginning on January 1, 2018 and ending on and including January 1, 2027, equal to the lesser of (A) 17.0 million shares of Class A common stock, (B) 5% of the aggregate number of shares of Switch, Inc.’s Class A common stock, Class B common stock and Class C common stock outstanding on the final day of the immediately preceding calendar year and (C) such smaller number of shares of Class A common stock as is determined by the Board of Directors. Effective January 1, 2018, Switch, Inc.’s Board of Directors approved an annual increase of 7.9 million shares (the “2018 Annual Increase”) in the aggregate number of shares of Class A common stock reserved and available for issuance under the 2017 Plan. The 2018 Annual Increase, and each annual increase thereafter, is subject to adjustment in the event of a stock split, stock dividend or other defined changes in Switch, Inc.’s capitalization.

The 2017 Plan also provides for dividend equivalent units (“DEUs”) based on the value of the dividends per share paid on the Company’s Class A common stock, which are accumulated on restricted stock units (“RSUs”) during the vesting period. The DEUs vest and will be settled with shares of the Company’s Class A common stock concurrently with the vesting of the associated RSUs based on the closing share price on the vesting date. Pursuant to the Company’s policy, DEUs are treated as a reduction of retained earnings or, if the Company is in a retained deficit position, as a reduction of additional paid in capital.

The following table summarizes information related to stock options for the period indicated below:



	Number of Stock Options (in thousands)		Weighted Average Exercise Price per Stock Option		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value⁽¹⁾(in thousands)
Stock options outstanding—December 31, 2017	5,725		$	17.00	9.77	$	6,813
Stock options forfeited	(123	)	$	17.00
Stock options outstanding—June 30, 2018	5,602		$	17.00	9.27	$	—
Stock options vested and exercisable—December 31, 2017	5,626		$	17.00	9.77	$	6,695
Stock options vested and exercisable—June 30, 2018	5,503		$	17.00	9.27	$	—

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(1)	The intrinsic value is calculated as the difference between the fair value of the stock option on June 30, 2018 and December 31, 2017 and the exercise price of the stock option. There is no intrinsic value of options outstanding and vested and exercisable as of June 30, 2018 as the closing stock price at the end of the second quarter of 2018 creates a negative intrinsic value.

As of June 30, 2018, total equity-based compensation cost related to all unvested stock options is $291,000, which is expected to be recognized over a weighted average period of 2.27 years.

The following table summarizes information related to RSUs for the period indicated below:



	Number of Units (in thousands)		Weighted Average Grant Date Fair Value per Unit
RSUs outstanding—December 31, 2017	31		$	18.01
RSUs granted	2,353		$	17.01
RSUs vested	(187	)	$	15.49
RSUs forfeited	(68	)	$	17.16
RSUs outstanding—June 30, 2018	2,129		$	17.16

As of June 30, 2018, total equity-based compensation cost related to all unvested RSU awards is $32.1 million, which is expected to be recognized over a weighted average period of 3.51 years.

Director Compensation Program

On October 11, 2017, Switch, Inc.’s Board of Directors adopted the Director Compensation Program. The Director Compensation Program, effective as of its adoption date, provides that eligible members of Switch, Inc.’s Board of Directors receive cash and equity compensation. On the date of the Company’s annual stockholder meeting, eligible members of Switch, Inc.’s Board of Directors shall be granted a restricted stock award (“RSA”) comprising of shares of Class A common stock equal to $200,000. The RSAs vest in full on the earlier of (A) the one-year anniversary of the grant date or (B) the date of annual stockholder meeting following the grant date. The vesting of these awards is subject to the eligible director continuing service through the vesting date.

In June 2018, the Company granted 61,000 RSAs with a weighted average grant date fair value per award of $13.08. As of June 30, 2018, total equity-based compensation cost related to all unvested RSAs is $748,000, which is expected to be recognized over a weighted average period of 0.94 years.

Total equity-based compensation recognized in the consolidated statements of comprehensive income is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in thousands)
Cost of revenue	$	367	$	49	$	783	$	99
Selling, general and administrative	7,842		1,265		19,783		3,465
Total equity-based compensation expense	$	8,209	$	1,314	$	20,566	$	3,564