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Commitments and Contingencies | Jul. 15, 2022
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Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Finance Leases and Lease Financing Obligations The Company enters into finance lease arrangements to obtain hard drives and related equipment for its data center operations. The term of these agreements primarily range from three to four years and certain of these arrangements have optional renewals to extend the term of the lease generally at a fixed price. Contingent rental payments are generally not included in the Company’s finance lease agreements. Finance leases are generally secured by the underlying leased equipment. The Company's finance leases have original lease periods expiring between 2023 and 2026. Finance leases are included in property and equipment, net on the Company’s condensed consolidated balance sheet. A s of March 31, 2023, the weighted average remaining lease term for finance lease and lease financing obligation agreements was approximately 1.74 years and the weighted average discount rate for finance leases was approximately 9.9%. For th e Company’s assets acquired through finance lease and lease financing obligation agreements, which are related to sale-leaseback agreements, depreciation expense was $3.6 million and $2.9 million for the three months ended March 31, 2023 and 2022, respectively. Depreciation expense on assets acquired through the Company’s finance leases and lease financing obligations is included in cost of revenue in its statements of operations. There have been no material changes to the Company’s finance lease obligation and lease financing commitments during the three months ended March 31, 2023. During the three months ended March 31, 2023, total finance lease costs were $4.0 million, of which interest expense was approximately $0.7 million, and total lease financing obligation costs were $0.3 million, of which interest expense was approximately $0.1 million. During the three months ended March 31, 2022, total finance lease costs were $3.5 million, of which interest expense was approximately $0.8 million, and total lease financing obligation costs were $0.4 million, of which interest expense was approximately $0.1 million. The cash paid on interest on finance lease and lease financing obligations was $0.8 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively. Operating Leases The Company leases its facilities for data centers and office space under non-cancelable operating leases with various expiration dates. Certain lease agreements include renewal options to extend the lease term at a price to be determined upon exercise. These options are not reasonably certain to be exercised and therefore are not factored into the determination of lease payments. Contingent rental payments are generally not included in the Company’s lease agreements. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Th e Company's leases have original lease periods expiring between 2023 and 2031. The Company did not have a material amount of short-term leases as of March 31, 2023. As of March 31, 2023, the weighted average remaining lease term for operating leases was approximately 5.7 years and the weighted average discount rate for operating leases was approximately 6.0%. There have been no material changes to the Company’s operating lease commitments, which excludes amounts allocated to services under operating lease agreements that are considered non-lease components during the three months ended March 31, 2023. Non-lease components included in the Company’s colocation lease agreements are related to non-tangible utilities and services used in its data center operations. The Company used judgment and third-party data in determining the stand-alone price for allocating consideration to lease and non-lease components under these colocation lease agreements, such as, the price of utilities as compared to its tangible data center footprint within each colocation facility. There have been no material changes to the Company’s non-cancellable contractual obligations for non-lease components during the three months ended March 31, 2023. Rental expense related to the Company’s operating leases was $2.0 million and $1.4 million for the three months ended March 31, 2023 and 2022, of which $1.5 million and $1.1 million is included in cost of revenue in its statement of operations, respectively. Total operating lease cost was $2.7 million and $1.7 million for the three months ended March 31, 2023 and 2022, respectively, which does not include costs related to services. Other Contractual Commitments Other non-cancellable commitments relate mainly to service agreements used to facilitate the Company’s infrastructure operations. As of March 31, 2023, the Company had non-cancelable purchase commitments of $7.5 million and $0.5 million payable during the years ending December 31, 2023 and 2024, respectively. 401(k) Plan The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. Contributions to the 401(k) plan are discretionary. The Company contributed $0.5 million and $0.4 million to the 401(k) plan during the three months ended March 31, 2023 and 2022, respectively. Legal Matters The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of its current legal proceedings are likely to have a material adverse effect on its financial position, results of operations or cash flows. However, the results of legal proceedings are inherently unpredictable and litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors. On July 15, 2022, the Company received a demand letter from the investors that entered into the Simple Agreement for Future Equity (“SAFE”) agreements with the Company in August 2021, which related to a contractual dispute in connection with the SAFE transaction. In February 2023, the Company settled with the SAFE holders for a full release of all claims related to the SAFE transaction for a one-time payment in the amount of $1.5 million in aggregate. One of the SAFE holders, TMT Investments PLC, a beneficial owner of more than 5% of the Company’s capital stock, was a party to the settlement and received a pro-rata payment of $0.3 million as part of the SAFE settlement. Sales Tax The Company undertook an analysis of its sales tax exposure based on the South Dakota vs. Wayfair case whereby the U.S. Supreme Court determined that physical presence was not required to determine the potential exposure a company has for sales tax purposes. Based on the Company’s analysis, its total accrual for sales tax payable was $0.2 million as of March 31, 2023 and December 31, 2022, respectively, which includes estimated amounts for penalties and interest. Accrued VAT Liability The Company has calculated a liability for uncollected and unpaid VAT, which is generally assessed by various taxing authorities on services the Company provides to its customers. The Company accrues an amount that it considers probable to be collected and can be reasonably estimated. Based on the Company’s analysis, its total accrual for VAT tax payable was $1.0 million and $1.2 million as of March 31, 2023 and December 31, 2022, respectively, which includes estimated amounts for penalties and interest. Indemnification The Company enters into indemnification provisions under agreements with other parties from time to time in the ordinary course of business. The Company has agreed in certain circumstances to indemnify and defend the indemnified party for claims and related losses suffered or incurred by the indemnified party from third-party claims due to the Company’s activities or non-compliance with certain representations and warranties made by the Company. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. No losses have been recorded in the condensed consolidated statements of operations in connection with the indemnification provisions.

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