LEASES

3 Months Ended

Mar. 31, 2023

Leases [Abstract]

LEASES

7. LEASES

The Company has entered into non-cancellable operating and finance leases for office, data facilities, computer and networking equipment, electrical infrastructure and office equipment, with original lease periods expiring through 2033. In addition, certain leases contain bargain renewal options extending through 2051. The Company recognizes lease expense for these leases on a straight-line basis over the lease term, which includes any bargain renewal options. The Company recognizes rent expense on a straight-line basis over the lease period. In addition to minimum rent, certain leases require payment of real estate taxes, insurance, common area

maintenance charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use assets on the Company’s Consolidated Balance Sheets. For certain leases, the Company receives lease incentives, such as tenant improvement allowances, and records those as adjustments to operating lease right-of-use assets and operating lease liabilities on the Company’s Consolidated Balance Sheets and amortizes the lease incentives on a straight-line basis over the lease term as an adjustment to rent expense.

The components of operating and finance leases are presented on the Company’s Consolidated Balance Sheets as follows (in thousands):

	Financial statement line item	March 31, 2023		December 31, 2022
Assets:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	20,235	$	20,430
Finance lease right-of-use assets	Property, plant and equipment, net	$	82,039	$	84,092
Liabilities:
Operating lease liabilities,    current portion	Operating lease liabilities,    current portion	597		$	769
Operating lease liabilities, net    of current portion	Operating lease liabilities, net    of current portion	1,055		$	720
Operating and finance lease liabilities subject to compromise	Liabilities subject to compromise	$	83,250	$	84,664

The components of lease expense were as follows (in thousands):

		Three Months Ended March 31,
	Financial statement line item	2023		2022
Operating lease expense	General and administrative expenses	$	390	$	154
Short-term lease expense	General and administrative expenses	365		191
Finance lease expense:
Amortization of right-of-use assets	Cost of revenue	3,857		9,824
Interest on lease liabilities	Interest expense, net	309		2,102
Total finance lease expense		4,166		11,926
Total lease expense		$	4,921	$	12,271

In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured rate with reference to recent borrowings of similar collateral and tenure when available. Determining our incremental borrowing rate, especially if there are insufficient observable borrowings near the time of lease commencement, may require significant judgment.

Information relating to the lease term and discount rate is as follows:

	March 31, 2023		March 31, 2022
Weighted Average Remaining Lease Term (Years)
Operating leases	10.7		22.1
Finance leases	2.1		2.6
Weighted Average Discount Rate
Operating leases	6.5	%	6.4	%
Finance leases	12.4	%	10.2	%

The following table summarizes the Company’s supplemental cash flow information (in thousands):

	Three Months Ended March 31,
	2023		2022
Lease Payments
Operating lease payments	$	337	$	101
Finance lease payments	$	1,080	$	12,357
Supplemental Noncash Information
Finance lease right-of-use assets obtained in exchange for lease obligations	$	—	$	10,557

The Company’s minimum payments under noncancelable operating and finance leases having initial terms and bargain renewal periods in excess of one year are as follows at March 31, 2023, and thereafter (in thousands):

	Operating leases		Finance leases
Remaining 2023	$	2,082	$	37,103
2024	1,810		39,108
2025	1,866		1,862
2026	1,924		32
2027	1,985		—
Thereafter	12,037		—
Total lease payments	21,704		78,105
Less: imputed interest	6,577		8,330
Less: Liabilities subject to compromise	13,475		69,775
Total	$	1,652	$	—

Balance Sheet Classification

As discussed in 5 — Notes Payable, in October 2022, the Company determined not to make certain payments with respect to several of its debt facilities, equipment financing facilities and leases and other financings, including its two bridge promissory notes. As a result, the creditors under these debt facilities may exercise remedies following any applicable grace periods and pursuant to any confirmed plan of reorganization, including electing to accelerate the principal amount of such debt, suing the Company for nonpayment, increasing interest rates to default rates, or taking action with respect to collateral, where applicable. The Company has classified all of its finance lease liabilities as Liabilities subject to compromise as of March 31, 2023 and December 31, 2022.

LEASES

7. LEASES

The Company has entered into non-cancellable operating and finance leases for office, data facilities, computer and networking equipment, electrical infrastructure and office equipment, with original lease periods expiring through 2033. In addition, certain leases contain bargain renewal options extending through 2051. The Company recognizes lease expense for these leases on a straight-line basis over the lease term, which includes any bargain renewal options. The Company recognizes rent expense on a straight-line basis over the lease period. In addition to minimum rent, certain leases require payment of real estate taxes, insurance, common area

maintenance charges, and other executory costs. Differences between rent expense and rent paid are recognized as adjustments to operating lease right-of-use assets on the Company’s Consolidated Balance Sheets. For certain leases, the Company receives lease incentives, such as tenant improvement allowances, and records those as adjustments to operating lease right-of-use assets and operating lease liabilities on the Company’s Consolidated Balance Sheets and amortizes the lease incentives on a straight-line basis over the lease term as an adjustment to rent expense.

The components of operating and finance leases are presented on the Company’s Consolidated Balance Sheets as follows (in thousands):

	Financial statement line item	March 31, 2023		December 31, 2022
Assets:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	20,235	$	20,430
Finance lease right-of-use assets	Property, plant and equipment, net	$	82,039	$	84,092
Liabilities:
Operating lease liabilities,    current portion	Operating lease liabilities,    current portion	597		$	769
Operating lease liabilities, net    of current portion	Operating lease liabilities, net    of current portion	1,055		$	720
Operating and finance lease liabilities subject to compromise	Liabilities subject to compromise	$	83,250	$	84,664

The components of lease expense were as follows (in thousands):

		Three Months Ended March 31,
	Financial statement line item	2023		2022
Operating lease expense	General and administrative expenses	$	390	$	154
Short-term lease expense	General and administrative expenses	365		191
Finance lease expense:
Amortization of right-of-use assets	Cost of revenue	3,857		9,824
Interest on lease liabilities	Interest expense, net	309		2,102
Total finance lease expense		4,166		11,926
Total lease expense		$	4,921	$	12,271

In determining the discount rate used to measure the right-of-use asset and lease liability, we use rates implicit in the lease, or if not readily available, we use our incremental borrowing rate. Our incremental borrowing rate is based on an estimated secured rate with reference to recent borrowings of similar collateral and tenure when available. Determining our incremental borrowing rate, especially if there are insufficient observable borrowings near the time of lease commencement, may require significant judgment.

Information relating to the lease term and discount rate is as follows:

	March 31, 2023		March 31, 2022
Weighted Average Remaining Lease Term (Years)
Operating leases	10.7		22.1
Finance leases	2.1		2.6
Weighted Average Discount Rate
Operating leases	6.5	%	6.4	%
Finance leases	12.4	%	10.2	%

The following table summarizes the Company’s supplemental cash flow information (in thousands):

	Three Months Ended March 31,
	2023		2022
Lease Payments
Operating lease payments	$	337	$	101
Finance lease payments	$	1,080	$	12,357
Supplemental Noncash Information
Finance lease right-of-use assets obtained in exchange for lease obligations	$	—	$	10,557

The Company’s minimum payments under noncancelable operating and finance leases having initial terms and bargain renewal periods in excess of one year are as follows at March 31, 2023, and thereafter (in thousands):

	Operating leases		Finance leases
Remaining 2023	$	2,082	$	37,103
2024	1,810		39,108
2025	1,866		1,862
2026	1,924		32
2027	1,985		—
Thereafter	12,037		—
Total lease payments	21,704		78,105
Less: imputed interest	6,577		8,330
Less: Liabilities subject to compromise	13,475		69,775
Total	$	1,652	$	—

Balance Sheet Classification

As discussed in 5 — Notes Payable, in October 2022, the Company determined not to make certain payments with respect to several of its debt facilities, equipment financing facilities and leases and other financings, including its two bridge promissory notes. As a result, the creditors under these debt facilities may exercise remedies following any applicable grace periods and pursuant to any confirmed plan of reorganization, including electing to accelerate the principal amount of such debt, suing the Company for nonpayment, increasing interest rates to default rates, or taking action with respect to collateral, where applicable. The Company has classified all of its finance lease liabilities as Liabilities subject to compromise as of March 31, 2023 and December 31, 2022.