Leases

3 Months Ended

Mar. 31, 2020

We have adopted Topic 842 effective January 1, 2019 on a modified retrospective basis and elected not to restate comparative periods. We chose to use certain practical expedients offered by the standard including:

•We did not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, or the initial direct costs for any existing leases.

•We do not recognize a lease liability or right of use asset for leases with a term of 12 months or less.

•We used hindsight in determining the lease term.

We lease space under non-cancellable operating leases for our offices as well as our data centers. Our office leases typically include free rent periods or rent escalation periods, and may also include leasehold improvement incentives. Leases for data centers may also include free rent periods or rent escalation periods. These leases typically do not include residual value guarantees. Both office and data center leases may contain both lease components (rent) and non-lease components (maintenance, electrical costs, and other service charges). Non-lease components are accounted for separately.

Both office and data center leases typically contain options to renew, and/or early terminate. We have evaluated management's expectations for these options as of March 31, 2020. Options have been included in the lease term if management has determined it is reasonably certain it will be exercised.

Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate at lease commencement to determine the present value of future payments. We have a centralized treasury function, and the majority of our leases are negotiated and signed by representatives of Criteo SA. As such, the incremental borrowing rate of Criteo SA is used for all of our contracts. It is then adjusted in consideration of the currency of the lease and the lease term as of the lease commencement date.

Lease expense is recognized for minimum lease payments on a straight-line basis over the lease term. Variable costs are expensed in the period incurred. Variable expenses include changes in indexation. Leases for data centers may have variable costs based on electrical usage.

The components of lease expense are as follows:


	Three Months Ended										Three Months Ended
	March 31, 2019										March 31, 2020
	Offices		Data Centers		Total		Offices		Data Centers		Total
	(in thousands)
Lease expense	$	8,340	$	5,187	$	13,527	$	6,314	$	6,536	$	12,850
Short term lease expense	925		530		1,455		286		56		342
Variable lease expense	—		114		114		9		516		525
Sublease income	(1,076)		—		(1,076)		(202)		—		(202)
Total operating lease expense	$	8,189	$	5,831	$	14,020	$	6,407	$	7,108	$	13,515

As of March 31, 2020, we had future minimum lease payments as follows:


	March 31, 2020
	Offices		Data Centers		Total
	(in thousands)
Remainder of 2020	$	24,813	$	14,251	$	39,064
2021	30,386		14,586		44,972
2022	27,839		10,714		38,553
2023	18,455		4,383		22,838
2024	9,413		2,229		11,642
Thereafter	14,285		373		14,658
Total minimum lease payments	125,191		46,536		171,727
Impact of Discount Rate	(9,748)		(770)		(10,518)
Total Lease Liability	$	115,443	$	45,766	$	161,209

The weighted average remaining lease term and discount rates as of March 31, 2020 are as follows:



	March 31, 2019		March 31, 2020
Weighted average remaining lease term (years)
Offices	5.4		4.5
Data Centers	3.0		3.0
Weighted average discount rate
Offices	2.6	%	2.5	%
Data Centers	1.7	%	1.7	%

Supplemental cash flow information related to our operating leases is as follows for the period ended March 31, 2020:


	Three Months Ended
	March 31, 2019		March 31, 2020
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Cash flow for operating activities	$	(13,964)	$	(14,048)
Right of use assets obtained in exchange for new operating lease liabilities	$	10,926	$	—

As of March 31, 2020, we have additional operating leases, that have not yet commenced which will result in additional operating lease liabilities and right of use assets:


	Offices		Data Centers
	(in thousands)
Additional operating lease liabilities	$	11,295	$	7,807
Additional right of use assets	$	8,446	$	7,807

These operating leases will commence during the fiscal year ending December 31, 2020.