Leases

6 Months Ended

Jun. 30, 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, and

•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 June 30, 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
	June 30, 2019										June 30, 2020
	Offices		Data Centers		Total		Offices		Data Centers		Total
	(in thousands)
Lease expense	$	8,574	$	6,154	$	14,728	$	7,487	$	6,784	$	14,271
Short term lease expense	523		525		1,048		(69)		(56)		(125)
Variable lease expense	1,821		239		2,060		4		(428)		(424)
Sublease income	(693)		—		(693)		26		—		26
Total operating lease expense	$	10,225	$	6,918	$	17,143	$	7,448	$	6,300	$	13,748


	Six Months Ended
	June 30, 2019										June 30, 2020
	Offices		Data Centers		Total		Offices		Data Centers		Total
	(in thousands)
Lease expense	$	16,914	$	11,341	$	28,255	$	13,801	$	13,320	$	27,121
Short term lease expense	1,448		1,055		2,503		217		—		217
Variable lease expense	1,821		353		2,174		13		88		101
Sublease income	(1,769)		—		(1,769)		(176)		—		(176)
Total operating lease expense	$	18,414	$	12,749	$	31,163	$	13,855	$	13,408	$	27,263

As of June 30, 2020, we had future minimum lease payments as follows:


	June 30, 2020
	Offices		Data Centers		Total
	(in thousands)
Remainder of 2020	$	16,037	$	12,530	$	28,567
2021	30,042		19,486		49,528
2022	27,794		10,725		38,519
2023	18,387		4,397		22,784
2024	9,379		2,243		11,622
Thereafter	14,283		375		14,658
Total minimum lease payments	115,922		49,756		165,678
Impact of Discount Rate	(7,500)		(970)		(8,470)
Total Lease Liability	$	108,422	$	48,786	$	157,208

The weighted average remaining lease term and discount rates as of June 30, 2020 are as follows:



	June 30, 2019		June 30, 2020
Weighted average remaining lease term (years)
Offices	5.19		4.28
Data Centers	2.81		2.61
Weighted average discount rate
Offices	2.64	%	2.59	%
Data Centers	1.75	%	1.59	%

Supplemental cash flow information related to our operating leases is as follows for the three months and six month period ended June 30, 2020:


	Three Months Ended
	June 30, 2019		June 30, 2020
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Cash flow for operating activities	$	(13,967)	$	(12,733)
Right of use assets obtained in exchange for new operating lease liabilities	$	594	$	—


	Six Months Ended
	June 30, 2019		June 30, 2020
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Cash flow for operating activities	$	(27,931)	$	(26,781)
Right of use assets obtained in exchange for new operating lease liabilities	$	11,520	$	—

As of June 30, 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	$	12,291	$	7,864
Additional right of use assets	$	9,380	$	7,864

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