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LEASES

9 Months Ended

Sep. 30, 2023

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 lease periods expiring through 2035. 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	September 30, 2023		December 31, 2022
Assets:
Operating lease right-of-use assets	Operating lease right-of-use assets	$	6,583	$	20,430
Finance lease right-of-use assets*	Property, plant and equipment, net	$	17,996	$	31,213
Liabilities:
Operating lease liabilities, current portion	Operating lease liabilities, current portion	$	205	$	769
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	$	1,047	$	720
Finance lease liabilities, current portion	Finance lease liabilities, current portion	$	19,833	$	—
Finance lease liabilities, net of current portion	Finance lease liabilities, net of current portion	$	35,909	$	—
Operating and finance lease liabilities subject to compromise	Liabilities subject to compromise	$	—	$	84,664

* December 31, 2022 revised to reflect the impact of the 2022 impairments of property, plant and equipment.

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


		Three Months Ended September 30,
	Financial statement line item	2023		2022
Operating lease expense	General and administrative expenses	$	77	$	589
Short-term lease expense	General and administrative expenses	161		195
Finance lease expense:
Amortization of right-of-use assets	Cost of revenue	2,580		9,040
Interest on lease liabilities	Interest expense, net	766		2,278
Total finance lease expense		3,346		11,318
Total lease expense		$	3,584	$	12,102


		Nine Months Ended September 30,
	Financial statement line item	2023		2022
Operating lease expense	General and administrative expenses	$	675	$	898
Short-term lease expense	General and administrative expenses	523		671
Finance lease expense:
Amortization of right-of-use assets	Cost of revenue	9,708		27,563
Interest on lease liabilities	Interest expense, net	1,508		6,617
Total finance lease expense		11,216		34,180
Total lease expense		$	12,414	$	35,749

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:


	September 30, 2023		September 30, 2022
Weighted Average Remaining Lease Term (Years)
Operating leases	15.4		10.7
Finance leases	1.3		2.3
Weighted Average Discount Rate
Operating leases	7.1	%	6.5	%
Finance leases	12.9	%	12.7	%

The following tables summarize the Company’s supplemental cash flow information (in thousands):


	Nine Months Ended September 30,
	2023		2022
Lease Payments
Operating lease payments	$	499	$	474
Finance lease payments	$	3,501	$	34,287
Supplemental Noncash Information
	$	—	$	21,574
Operating lease right-of-use assets obtained in exchange for lease obligations1	$	—	$	10,557
(Decrease) increase in finance lease right-of-use assets as a result of lease modification	$	(11,644)	$	693
Decrease in ROU related due to termination	$	13,144	$	—
Decrease in lease liability due to termination	$	(13,517)	$	—

1Includes operating lease right-of-use assets of $6.7 million that were recorded upon adoption of Topic 842 on January 1, 2022.

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 September 30, 2023, and thereafter (in thousands):


	Operating leases		Finance leases
Remaining 2023	$	272	$	26,173
2024	170		30,950
2025	170		1,863
2026	170		3
2027	170		—
Thereafter	1,252		—
Total lease payments	2,204		58,989
Less: imputed interest	952		3,247

Total	$	1,252	$	55,742

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 (which have passed) 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. Remedies available under these debt facilities are stayed while the Company is under Chapter 11 protections.

LEASES