LEASES

9 Months Ended

Dec. 31, 2022

The Company has operating leases for its offices and fulfillment centers. Fulfillment and customer service centers and corporate office leases expire at various dates through 2038, excluding renewal options.

On October 29, 2021, the Company entered into a lease agreement for a new office space in New York, New York to serve as the Company’s new headquarters. During the third quarter of fiscal 2023 the Company completed the move to the new headquarters. In accordance with ASC 842, Leases, the lease was classified as an operating lease. The new lease requires total lease payments of $39.8 million with a lease term of 16.5 years, excluding renewal options. Rent expense is recorded on a straight-line basis over the lease term.

Lease payments commence starting October 1, 2023, however, the Company took initial possession of the new headquarters on April 1, 2022 to begin constructing leasehold improvements, which resulted in an initial recording of a right-of-use asset of $17.0 million, other current asset of $7.6 million and corresponding operating lease liability of $24.6 million, and commencement of operating lease expense. The Company has the right to sublease all, or a portion, of this leased office space provided that certain terms and conditions are met.

The Company also leases certain equipment under operating and finance leases. The terms of equipment leases are generally five years and do not contain renewal options. These finance leases expire at various dates through 2026.

The Company’s finance leases as of December 31, 2022 and March 31, 2022 were not material and were included in property and equipment, net, on the Company’s condensed consolidated balance sheets.

The following schedule represents the components of the Company’s operating lease assets (in thousands):


		As of		As of
Leases	Classification	December 31, 2022		March 31, 2022

Assets
Operating	Operating lease right-of-use assets	$	37,601	$	29,552
Total operating lease assets		$	37,601	$	29,552
Liabilities
Operating lease liabilities (current)	Operating lease liabilities, current	$	5,650	$	5,060
Operating lease liabilities (non-current)	Operating lease liabilities	$	46,996	$	28,847
Total operating lease liabilities		$	52,646	$	33,907

During the three and nine months ended December 31, 2022, the Company vacated the prior headquarters in New York, New York and recorded impairments of $1.5 million and $1.7 million, respectively, to its right-of-use assets associated with the vacated location based on projected or actual sublease rental income and actual or estimated sublease commencement dates and the remeasurement of its operating lease liabilities associated with the modification of certain leases and the early termination of certain leases within the suite of leases pertaining to its prior headquarters.

The impairment analyses were performed at the asset group level and the impairment charges were estimated by comparing the fair value of each asset group based on the expected cash flows to its respective book value. The Company determined the discount rate for each asset group based on the approximate interest rate on a collateralized basis with similar remaining terms and payments as of the impairment date. Significant judgment was required to estimate the fair value of each asset group and actual results could vary from the estimates, resulting in potential future adjustments to amounts previously recorded.

For the nine months ended December 31, 2022 assets acquired in exchange for new operating lease liabilities pertained to the new headquarters and was $17.0 million. Lease expense primarily pertains to operating lease cost. Lease expense for operating leases was $2.2 million and $1.5 million for the three months ended December 31, 2022 and 2021, respectively. Lease expense for operating leases was $6.7 million and $3.7 million for the nine months ended December 31, 2022 and 2021, respectively. These lease expenses were included within general and administrative expenses in the condensed consolidated statements of operations. Sublease income for the three and nine months ended December 31, 2022 was immaterial and was recorded within other income (expense), net on the Company’s condensed consolidated statement of operations.

Cash flows used in operating activities related to operating leases was approximately $2.3 million for the nine months ended December 31, 2022.