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. The finance leases are generally secured by the underlying leased equipment. The Company's finance leases have original lease periods expiring between 2022 and 2025. Finance leases are included in property and equipment, net on the Company’s condensed balance sheet.

At March 31, 2022, the weighted average remaining lease term for finance lease agreements was approximately 2.4 years and the weighted average discount rate for finance leases was approximately 11.2%.

For the Company’s assets acquired through finance lease and lease financing obligation agreements, depreciation expense was $2.9 million and $3.0 million for the three months ended March 31, 2022 and 2021, respectively. Depreciation expense on the Company’s finance lease agreements is included in cost of revenue in its statements of operations. There have been no material changes to the Company’s finance lease obligation commitments during the three months ended March 31, 2022. 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.

During 2021, the Company entered into four sale-leaseback arrangements with vendors to provide approximately $4.3 million in cash proceeds for previously purchased hard drives and related equipment. The Company concluded the related lease arrangements would be classified as lease financing obligations as it has the option to repurchase the assets at their fair value at a future date. 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 failed sale-leaseback transactions will continue to be accounted for as a failed sale-leaseback upon adoption of ASC 842 because the leaseback is classified as financing.


Year Ending December 31,	Finance leases		Lease financing obligations		Total
Remainder of 2022	$	12,659	$	1,039	$	13,698
2023	14,396		1,385		15,781
2024	7,072		1,240		8,312
2025	549		387		936
2026	—		—		—
Thereafter	—		—		—
Total future minimum lease and financing commitments	34,676		4,051		38,727
Less imputed interest	(4,036)		(600)		(4,636)
Total liability	$	30,640	$	3,451	$	34,091

Prior to the ASC 842 adoption, the future minimum commitments for these finance leases and lease financing obligations as of December 31, 2021 were as follows (in thousands):


Year Ending December 31,
2022	$	16,765
2023	14,123
2024	6,707
2025	617
2026	—
Thereafter	—
Total future minimum lease and financing commitments	38,212
Less imputed interest	(4,964)
Total liability	$	33,248

Prior to the ASC 842 adoption, as of December 31, 2021, the future minimum payments related to the lease financing obligations consisted of the following (in thousands):

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 2022 and 2031. The Company does not have a material amount of short-term leases as of March 31, 2022.

At March 31, 2022, the weighted average remaining lease term for operating leases was approximately 4.4 years and the weighted average discount rate for operating leases was approximately 4.3%.

The future minimum commitments for these operating leases as of March 31, 2022 were as follows (in thousands), which excludes amounts allocated to services under our operating lease agreements that are considered non-lease components:


Year Ending December 31,
Remainder of 2022	$	1,684
2023	1,613
2024	785
2025	245
2026	252
Thereafter	1,105
Total future minimum operating lease commitments	5,684
Less imputed interest	(566)
Total liability	$	5,118

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 judgement 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.

Prior to the ASC 842 adoption, the future minimum commitments for these operating leases as of December 31, 2021 were as follows (in thousands), which also include minimum payments for services under our operating lease agreements:

Rental expense related to the Company’s operating leases was approximately $1.4 million and $1.0 million for the three months ended March 31, 2022 and 2021, of which $1.1 million and $0.9 million is included in cost of revenue in its statement of operations, respectively. During the three months ended March 31, 2022, total operating lease cost was approximately $1.7 million, which does not include costs related to services.

At March 31, 2022, the Company had additional operating leases that had not yet commenced with lease obligations of $8.3 million. The operating lease is expected to commence in 2022 with non-cancellable lease terms of approximately 7 years.

Other non-cancellable commitments relate mainly to service agreements used to facilitate the Company’s infrastructure operations. As of March 31, 2022, the Company had non-cancelable purchase commitments of $1.4 million and $1.5 million payable during the years ending December 31, 2022 and 2023, 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 $0.4 million and $0.2 million to the 401(k) plan during the three months ended March 31, 2022 and 2021, 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 none of its current legal proceedings will 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 if an unfavorable ruling were to occur in any of the current legal proceedings, there exists the possibility of a material adverse effect on the Company’s financial position, results of operations and cash flows.

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 $1.2 million as of March 31, 2022 and December 31, 2021, respectively, which includes estimated amounts for penalties and interest.

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 $3.0 million and $2.5 million as of March 31, 2022 and December 31, 2021, respectively, which includes estimated amounts for penalties and interest.

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 statements of operations in connection with the indemnification provisions.