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Right-of-Use Asset and Lease Liabilities

6 Months Ended

Jun. 30, 2019

Right-of-Use Asset and Lease Liabilities

The Company determines if an arrangement is a lease at inception. The Company presents the operating leases in long-term assets and current and long-term liabilities. Finance lease assets are included in property and equipment, net, and

finance lease liabilities are presented in current and long-term liabilities in the accompanying condensed consolidated balance sheet as of June 30, 2019.

Right-of-use ("ROU") assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not generally provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s lease agreements may have lease and non-lease components, which the Company generally accounts for as a single lease component. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term, and variable payments are recognized in the period they are incurred. The Company’s lease agreements do not contain any residual value guarantees. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company has entered into various operating lease agreements for data centers and office space, and various financing leases agreements for data center and office equipment and furniture.

As of June 30, 2019, the Company had 19 leased properties, with remaining lease terms of one year to 10 years, some of which include options to extend the leases for up to five years.

The components of lease expense recorded in the condensed consolidated statement of operations were as follows (in thousands):



	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	8,273	$	15,446
Finance lease cost:
Amortization of assets	1,526		2,689
Interest on lease liabilities	189		337
Short-term lease cost	1,905		3,340
Variable lease cost	1,080		1,567
Total net lease cost	$	12,973	$	23,379

Supplemental balance sheet information related to leases was as follows (in thousands):



Leases	Classification	As of June 30, 2019
Assets:
Operating lease assets	Operating right-of-use asset (a)	$	151,946
Finance lease assets	Property and equipment, net of accumulated depreciation (b)	12,970
Total leased assets		$	164,916

Liabilities:
Current
Operating	Operating lease liability, current	$	21,858
Finance	Financing lease liability, current	5,920
Noncurrent
Operating	Operating lease liability, noncurrent	138,819
Finance	Finance lease liability, noncurrent	7,752
Total lease liabilities		$	174,349


(a)	Operating lease assets are recorded net of accumulated amortization of $10.8 million as of June 30, 2019.


(b)	Finance lease assets are recorded net of accumulated depreciation of $2.7 million as of June 30, 2019.

Supplemental cash flow and other information related to leases was as follows (in thousands):



	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	12,145
Operating cash flows from finance leases	$	337
Financing cash flows from finance leases	$	2,463

Weighted average remaining lease term (in years):
Operating leases	6.8
Finance leases	3.1

Weighted average discount rate:
Operating leases	5.8		%
Finance leases	5.2		%

Maturities of lease liabilities were as follows (in thousands):



	As of June 30, 2019
	Operating Leases			Finance Leases
2019 (remaining six months)	$	14,523		$	3,278
2020	30,523			6,015
2021	28,791			3,130
2022	28,249			807
2023	27,762			413
Thereafter	68,106			1,316
Total lease payments	197,954			14,959
Less: imputed interest	(37,277		)	(1,287		)
Total lease obligations	160,677			13,672
Less: current obligations	(21,858		)	(5,920		)
Long-term lease obligations	$	138,819		$	7,752

Disclosures related to periods prior to adoption of the New Lease Standard

Rent expense was $2.1 million and $4.2 million in the three and six months ended June 30, 2018, respectively.

As of June 30, 2019, the Company had an additional operating lease obligation of $1.8 million related to a lease that will commence during third quarter 2019 with a lease term of 2.0 years. The Company had additional operating and finance lease obligations of $43.6 million and $0.7 million, respectively, related to a lease that will commence during the second quarter of fiscal year 2020 with a lease term of 6.8 years.

Future minimum lease payment obligations under noncancelable operating and finance leases were as follows (in thousands):



	As of December 31, 2018
	Operating Leases		Finance Leases
2019	$	24,128	$	306
2020	29,527		512
2021	30,898		573
2022	30,492		590
2023	30,122		608
Thereafter	81,316		1,939
Total lease payments	$	226,483	$	4,528