Leases

6 Months Ended

Aug. 04, 2024

We lease office facilities under non-cancelable operating lease agreements expiring through July 2032. Our lease agreements do not contain any material residual value guarantees or restrictive covenants. During the first quarter of fiscal 2025, we entered into a data center lease with a seven-year duration, and aggregate lease payments of $32.7 million, commencing in the third quarter of fiscal 2025 and therefore is excluded from our future lease payments tabular disclosure below.

We also lease certain engineering test equipment under financing agreements. These finance leases have a lease term of three years and contain a bargain purchase option at the end of the respective lease term. It is reasonably certain that the bargain purchase option will be exercised.

The components of lease costs during the periods presented were as follows (in thousands):


	Second Quarter of Fiscal				First Two Quarters of Fiscal
	2024		2025		2024		2025
Fixed operating lease cost	$	12,652	$	11,548	$	26,653	$	22,537

Variable lease cost (1)	3,590		3,202		5,674		6,794
Short-term lease cost (12 months or less)	1,075		957		2,133		1,854

Finance lease cost:
Amortization of finance lease right-of-use assets	1,100		1,100		2,200		2,200
Interest on finance lease liabilities	128		62		257		125
Total finance lease cost	$	1,228	$	1,162	$	2,457	$	2,325

Total lease cost	$	18,545	$	16,869	$	36,917	$	33,510

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(1) Variable lease cost predominantly included common area maintenance charges.

Supplemental information related to leases is as follows (in thousands):


	At the End of
	Fiscal 2024			Second Quarter of Fiscal 2025
Operating leases:
Weighted-average remaining lease term (in years)	5.0			4.9
Weighted-average discount rate	7.1		%	7.3		%

Finance leases:
Finance lease right-of-use assets, gross	$	17,596		$	17,596
Accumulated amortization	(7,812)			(10,012)
Finance lease right-of-use assets, net (1)	$	9,784		$	7,584
Finance lease liabilities, current (2)	4,204			2,035
Finance lease liabilities, non-current (3)	180			64
Total finance lease liabilities	$	4,384		$	2,099
Weighted-average remaining lease term (in years)	2.4			1.9
Weighted-average discount rate	5.4		%	5.6		%

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(1) Included in the condensed consolidated balance sheets within property and equipment, net.

(2) Included in the condensed consolidated balance sheets within accrued expenses and other liabilities.

(3) Included in the condensed consolidated balance sheets within other liabilities, non-current.

Supplemental cash flow information related to leases is as follows (in thousands):


	First Two Quarters of Fiscal
	2024		2025
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	18,643	$	22,916
Financing cash outflows for finance leases	$	1,540	$	3,337
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	$	10,840	$	28,636

Future lease payments under our non-cancelable leases at the end of the second quarter of fiscal 2025 were as follows (in thousands):


Fiscal Years Ending	Operating Leases		Finance Leases
The remainder of 2025	$	33,147	$	1,938
2026	48,630		183
2027	31,226		—
2028	32,896		—
2029	26,729		—
Thereafter	40,645		—
Total future lease payments	213,273		2,121
Less: imputed interest	(35,024)		(22)
Present value of total lease liabilities	$	178,249	$	2,099

Lessor Arrangement

During the fourth quarter of fiscal 2024, we, as a lessor, entered into a non-cancelable arrangement with a customer ("lessee") to lease our data storage solutions and subscription services. The arrangement includes three seven-year leases that commence in the first, second and fourth quarters of fiscal 2025 with total net consideration of $76.6 million, and provides the lessee with an end-of-term option to purchase the leased assets for a pre-determined price.

We determined, at inception of the arrangement, that each of the three seven-year leases included multiple components. These components include sales-type leases, an operating lease, and non-lease components. The total net consideration for each lease was allocated to these components based on relative standalone selling price. The amounts allocated to the lease and non-lease components are accounted for in accordance with ASC 842 and ASC 606, respectively. Lease income associated with sales-type leases are classified as product revenue and lease income associated with operating leases and non-lease components are classified primarily as subscription services revenue on our condensed consolidated statements of operations.

The total net consideration for two of the seven-year leases that commenced in the first and second quarters of fiscal 2025 ("First Two Leases") was $50.6 million. We recognized $8.0 million and $15.2 million in product revenue related to the sales-type lease components during the second quarter and first two quarters of fiscal 2025. The associated profit was $6.1 million and $11.4 million, based on the product revenue recognized less certain costs, during the second quarter and first two quarters of fiscal 2025. Subscription services revenue related to the operating lease and non-lease components recognized during the second quarter and first two quarters of fiscal 2025 were $1.9 million and $2.1 million.

Future minimum gross lease payments for the two seven-year leases allocated to the sales-type leases and operating lease components were as follows (in thousands). The remaining lease payments of $38.1 million allocated to the non-lease components, are excluded from the table below.


Fiscal Years Ending	Sales-Type Leases		Operating Lease
The remainder of 2025	$	1,835	$	1,483
2026	2,908		2,192
2027	2,908		2,192
2028	4,713		386
2029	5,100		—
Thereafter	10,966		—


Total future lease payments to be received	$	28,430	$	6,253