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.

As of September 30, 2023, the weighted average remaining lease term for finance lease and lease financing obligation agreements was 1.9 years and the weighted average discount rate for finance leases was 10.8%.

For the Company’s assets acquired through finance lease and lease financing obligation agreements, which are related to sale-leaseback agreements, depreciation expense was $3.9 million and $3.5 million for the three months ended September 30, 2023 and 2022, respectively, and was $11.2 million and $9.7 million for the nine months ended September 30, 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 condensed consolidated statements of operations.

During the three months ended September 30, 2023, total finance lease costs were $4.4 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 September 30, 2022, total finance lease costs were $4.1 million, of which interest expense was approximately $0.9 million, and total lease financing obligation costs were $0.3 million, of which interest expense was approximately $0.1 million.

During the nine months ended September 30, 2023, total finance lease costs were $12.5 million, of which interest expense was approximately $2.2 million, and total lease financing obligation costs were $1.0 million, of which interest expense was approximately $0.2 million. During the nine months ended September 30, 2022, the total finance lease costs were $11.4 million, of which interest expense was approximately $2.5 million, and total lease financing obligation costs were $1.0 million, of which interest expense was approximately $0.3 million. The cash paid for interest on interest on finance lease and lease financing obligations was $2.4 million and $2.8 million for the nine months ended September 30, 2023 and 2022, respectively.

During the nine months ended September 30, 2023, the Company entered into one sale-leaseback arrangement with a vendor to provide $2.5 million in cash proceeds for previously purchased hard drives and related equipment. The Company concluded the related lease arrangements would be classified as a lease financing obligation as the Company is reasonably certain to exercise the purchase option within the arrangement. Therefore, the transaction was deemed a failed sale-leaseback and was accounted for as a financing arrangement. The assets continue to be depreciated over their useful lives, and payments are allocated between interest expense and repayment of the financing liability. The Company did not enter into any sale-leaseback arrangements during the nine months ended September 30, 2022.


Year Ending December 31,	Finance leases		Lease financing obligations		Total
Remainder of 2023	$	5,609	$	805	$	6,414
2024	16,226		2,867		19,093
2025	7,714		1,709		9,423
2026	1,906		—		1,906
2027	—		—		—
Thereafter	—		—		—
Total future minimum lease and financing commitments	31,455		5,381		36,836
Less imputed interest	(2,808)		(686)		(3,494)
Total liability	$	28,647	$	4,695	$	33,342

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. The 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 September 30, 2023.

As of September 30, 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 7.5%.

In July 2023, the Company entered into an operating lease agreement for purposes of consolidating and moving out of two offices into one, resulting in the recognition of $5.3 million of operating right-of-use assets and $5.2 million of operating lease liabilities, current and non-current, on its condensed consolidated balance sheet as of September 30, 2023.

The future minimum commitments for these operating leases as of September 30, 2023 were as follows (in thousands), which excludes amounts allocated to services under operating lease agreements that are considered non-lease components:


Year Ending December 31,
Remaining of 2023	$	640
2024	2,464
2025	2,026
2026	2,076
2027	2,131
Thereafter	3,558
Total future minimum operating lease commitments	12,895
Less imputed interest	(2,379)
Total liability	$	10,516

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.

The future minimum commitments for the Company’s non-cancellable contractual obligations as of September 30, 2023 for non-lease components were as follows (in thousands):

Rental expense related to the Company’s operating leases for both lease and non-lease components was $2.1 million and $1.9 million for the three months ended September 30, 2023 and 2022, of which $1.8 million and $1.4 million is included in cost of revenue in its condensed consolidated statement of operations, respectively. Rental expense related to lease components was $0.7 million for each of the three months ended September 30, 2023 and 2022. Total operating lease cost was $2.6 million and $2.3 million for the three months ended September 30, 2023 and 2022, respectively, which does not include costs related to services.

Rental expense related to the Company’s operating leases for both lease and non-lease components was $6.2 million and $4.7 million for the nine months ended September 30, 2023 and 2022, of which $5.1 million and $3.6 million is included in cost of revenue in its condensed consolidated statement of operations as of such dates, respectively. Rental expense related to lease components was $2.2 million and $2.0 million for the nine months ended September 30, 2023 and 2022, respectively. Total operating lease cost was $7.9 million and $5.8 million, for the nine months ended September 30, 2023 and 2022, respectively, which does not include costs related to services.

Other non-cancellable commitments relate mainly to service agreements used to facilitate the Company’s infrastructure operations. As of September 30, 2023, the Company had non-cancelable purchase commitments of $2.5 million and $0.7 million payable during the remainder of the year ending December 31, 2023 and the year ending December 31, 2024, respectively.

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 September 30, 2023 and 2022, respectively, and $1.4 million and $1.2 million for the nine months ended September 30, 2023 and 2022, respectively.

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 there are not any current legal proceedings that 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.

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 payable was $1.0 million and $1.2 million as of September 30, 2023 and December 31, 2022, respectively.