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Leases

12 Months Ended

Dec. 31, 2023

The Company leases real estate property under operating leases. The Company also leases networking equipment under arrangements with certain providers of IT infrastructure services which were accounted as finance leases or operating leases.

The Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company estimates its incremental borrowing rate to discount the lease payments based on information available at lease commencement date or on the date of lease modification, if applicable. The Company determines its incremental borrowing rate based on the rate of interest it would have to pay to borrow on a collateralized basis with an equal lease payment amount, over a similar term, and in a similar economic environment.

Operating Leases—The Company has entered into various non-cancelable operating leases primarily for its office facilities. The most significant leases are related to the Company's corporate headquarters in Palo Alto, California. As of December 31, 2023, the remaining lease terms varied from 1.1 to 6.2 years. For certain leases, the Company has an option to extend the lease term for periods varying from 1 to 5 years. These renewal options are not considered in the remaining lease

term unless it is reasonably certain that the Company will exercise such options. For leases with an initial term greater than 12 months, the Company has recorded a right-of-use asset and lease liability representing the fixed component of the lease payments.

Further, the Company leases certain networking equipment, colocation space and office space under lease arrangements with terms 12 months or less, which are classified as short-term leases.

The table below presents the operating lease-related assets and liabilities (in thousands):


	Year Ended December 31,
Balance Sheet Classification	2023			2022
Operating lease right-of-use assets	$	48,210		$	60,379
Current operating lease liabilities	$	13,605		$	14,334
Non-current operating lease liabilities	$	42,905		$	54,153
Weighted-average remaining term (years)	4.1			4.9
Weighted-average discount rate	5.2		%	5.1		%

The table below presents certain information related to the lease costs for operating leases which are allocated to cost of revenue, sales and marketing, research and development, and general and administrative expenses (in thousands):


	Year Ended December 31,
	2023		2022		2021
Operating lease cost	$	16,674	$	20,783	$	28,676
Short-term lease cost	1,406		1,272		9,683
Variable lease cost	4,923		1,419		7,862
Total lease cost	$	23,003	$	23,474	$	46,221

Cash paid for amounts included in the measurement of operating lease liabilities was $17.1 million, $22.0 million and $25.5 million for the years ended December 31, 2023, 2022 and 2021, respectively. Right-of-use assets acquired under operating leases was $6.5 million, $7.1 million and $6.1 million for the years ended December 31, 2023 , 2022 and 2021, respectively.

Finance Leases—The Company has entered into various non-cancelable finance leases primarily for networking equipment with weighted average remaining lease term of approximately 7.0 years. The Company has recorded a right-of-use asset and lease liability representing the fixed component of the lease payments.

The table below presents the finance lease-related assets and liabilities (in thousands):


	Year Ended December 31,
	2023			2022			Balance Sheet Classification
Finance lease right-of-use assets	$	159,414		$	65,187		Property and equipment, net
Current finance lease liabilities	$	19,683		$	22,304		Accrued and other current liabilities
Non-current finance lease liabilities	$	144,174		$	44,736		Other non-current liabilities
Weighted-average remaining term (years)	7.0			3.4
Weighted-average discount rate	5.6		%	5.0		%

The Company recognized depreciation expenses related to finance lease of networking equipment of $22.7 million, $24.1 million and $17.8 million for the years ended December 31, 2023, 2022 and 2021, respectively. The Company recognized interest expenses related to finance lease of networking equipment of $7.0 million, $2.8 million and $1.5 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Cash paid for amounts included in the measurement of finance lease liabilities was $20.2 million, $24.1 million and $15.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

One of the Company’s 2020 acquired companies entered into a sublease agreement in 2017. This agreement was with an unrelated third party to occupy approximately 104,852 square feet of the Company’s office space. The Company recorded rent expense on a straight-line basis for the lease, net of sublease income. The sublease agreement expired as of December 31, 2022.

For the years ended December 31, 2023 and 2022, the Company has the following operating sublease information (in thousands):


	Year Ended December 31,
	2023		2022
Fixed sublease expense	$	627	$	4,736
Variable sublease expense	153		1,023
Sublease income	(597)		(5,334)
Variable sublease income	(153)		(1,023)
Net sublease (income) loss	$	30	$	(598)

Undiscounted cash flow—The tables below reconcile the undiscounted cash flows for each of the first five years and total of the remaining years to the operating and finance lease liabilities recorded in the consolidated balance sheets (in thousands):


	As of December 31, 2023
	Operating Leases		Finance Leases		Total
2024	$	16,046	$	27,511	$	43,557
2025	15,531		27,471		43,002
2026	13,906		27,448		41,354
2027	11,368		27,446		38,814
2028	4,802		27,446		32,248
Thereafter	694		54,893		55,587
Total lease payments	62,347		192,215		254,562
Less: amount representing interest	(5,837)		(28,358)		(34,195)
Present value of future lease payments	56,510		163,857		220,367
Less: current obligations under leases	(13,605)		(19,683)		(33,288)
Non-current lease obligations	$	42,905	$	144,174	$	187,079

As of December 31, 2023, the Company did not have any additional significant lease that had not yet commenced.

Leases