Leases

9 Months Ended

Jun. 30, 2020

During the first quarter of fiscal 2020, the Company adopted ASU 2016-02, Leases (Topic 842) (the "Leasing Standard") using the transition method provided in ASU 2018-11, Leases (Topic 842): Targeted Improvements. The impact of adopting the Leasing Standard resulted in the recognition of right-of-use assets and lease liabilities of $304.8 million and $386.4 million, respectively, on October 1, 2019, the date of adoption.

The majority of the Company's operating lease payments relate to its corporate headquarters in Seattle, Washington, which includes approximately 515,000 square feet of office space. The lease commenced in April 2019 and expires in 2033 with an option for renewal. The Company has concluded that the renewal option is not yet likely to be exercised. The Company also leases additional office and lab space for product development and sales and support personnel in the United States and internationally. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The components of the Company's operating lease expenses for the three and nine months ended June 30, 2020 were as follows (in thousands):


	Three months ended June 30, 2020		Nine months ended June 30, 2020
Operating lease expense	$	13,431	$	37,724
Short-term lease expense	878		2,505
Variable lease expense	6,062		16,163
Total lease expense	$	20,371	$	56,392

Variable lease expense primarily consists of common area maintenance and parking expenses. The Company executed two sublease contracts that commenced during the first quarter of fiscal year 2020. Lease income payments commenced in the second fiscal quarter. The Company has three additional subleases through the Q2 2020 acquisition of Shape Security.

Supplemental balance sheet information related to the Company's operating leases was as follows (in thousands, except lease term and discount rate):


	June 30, 2020
Operating lease right-of-use assets, net	$	316,761

Operating lease liabilities, current¹	46,490
Operating lease liabilities, long-term	345,577
Total operating lease liabilities	$	392,067

Weighted average remaining lease term (in years)	10.4
Weighted average discount rate	2.61		%

(1)Current portion of operating lease liabilities is included in accrued liabilities on the Company's consolidated balance sheet.

Maturities of lease liabilities as of June 30, 2020 were as follows (in thousands):


Fiscal Years Ending September 30:	Operating Lease Payments
2020 (remainder)	$	11,613
2021	59,308
2022	56,111
2023	43,060
2024	38,340
2025	32,132
Thereafter	215,954
Total lease payments	456,518
Less: imputed interest	(64,451)
Total lease liabilities	$	392,067

Operating lease liabilities above do not include sublease income. As of June 30, 2020, the Company expects to receive sublease income of approximately $11.4 million, which consists of $1.1 million to be received for the remainder of fiscal 2020 and $10.3 million to be received over the three fiscal years thereafter.

As of June 30, 2020, the Company had no significant operating leases that were executed but not yet commenced.

ASC 840 - Leases

As a result of adopting the Leasing Standard, reporting periods beginning in the first quarter of fiscal 2020 are presented under the new standard while prior period amounts are not adjusted and continue to be reported in accordance with ASC 840 - Leases.

Prior to the adoption of the Leasing Standard, future minimum operating lease payments, net of sublease income, were as follows as of September 30, 2019 (in thousands):


Fiscal Year	Gross Lease Payments		Sublease Income		Net Lease Payments
2020	$	54,046	$	683	$	53,363
2021	50,712		1,051		49,661
2022	47,550		1,082		46,468
2023	36,514		368		36,146
2024	33,971		—		33,971
Thereafter	242,826		—		242,826
	$	465,619	$	3,184	$	462,435