The Company enters into finance lease arrangements to obtain hard drives and related equipment for its data center operations. The terms of these agreements primarily range from three-to-four years and certain of these arrangements have optional renewals to extend the term of the lease generally at a fixed price. Contingent rental payments are generally not included in the Company’s finance lease agreements. Finance leases are generally secured by the underlying leased equipment. The Company’s finance leases have original lease periods expiring between 2023 and 2025. The underlying assets of finance leases are included in the property and equipment, net on the Company’s balance sheet.

As of December 31, 2022, the weighted average remaining lease term for finance lease and lease financing obligation agreements was approximately two years and the weighted average discount rate for finance leases was 10.2%.

For the Company’s assets acquired through finance lease and lease financing obligation agreements, which are related to sale-leaseback agreements, depreciation expense was $13.2 million and $11.5 million for the years ended December 31, 2022 and 2021, respectively. Depreciation expense on assets acquired through the Company’s finance leases and lease financing obligations is included in cost of revenue in its statements of operations.

During the year ended December 31, 2022, total finance lease costs were $16.1 million, of which interest expense was approximately $3.9 million, and total lease financing obligation costs were $1.4 million, of which interest expense was approximately $0.3 million. The cash paid on interest on finance lease and lease financing obligations was $3.8 million for the year ended December 31, 2022.

During the year ended December 31, 2021, the Company entered into four sale-leaseback arrangements with vendors to provide $4.3 million in cash proceeds for previously purchased hard drives and related equipment. The Company concluded the related lease arrangements would be classified as lease financing obligations as it has the option to repurchase the assets at their fair value at a future date. Therefore, the transactions were each deemed a failed sale-leaseback and was accounted for as a financing arrangement. The assets continue to be depreciated over their useful lives, and payments are allocated between interest expense and repayment of the financing liability. The failed sale-leaseback transactions continued to be accounted for as a failed sale-leaseback upon adoption of ASC 842 because the leaseback is classified as financing. The Company did not enter into any new sale-leaseback arrangements during the year ended December 31, 2022.


Year Ending December 31,	Finance leases		Lease financing obligations		Total
2023	$	19,458	$	1,385	$	20,843
2024	11,557		1,240		12,797
2025	3,287		521		3,808


Thereafter	—		—		—
Total future minimum lease and financing commitments	34,302		3,146		37,448
Less imputed interest	(3,078)		(352)		(3,430)
Total liability	$	31,224	$	2,794	$	34,018


Year Ending December 31,
2022	$	16,765
2023	14,123
2024	6,707
2025	617
2026	—
Thereafter	—
Total future minimum lease and financing commitments	38,212
Less imputed interest	(4,964)
Total liability	$	33,248

The Company leases its facilities for data centers and office space under non-cancelable operating leases with various expiration dates. Certain lease agreements include renewal options to extend the lease term at a price to be determined upon exercise. These options are not reasonably certain to be exercised and therefore are not factored into the determination of

lease payments. Contingent rental payments are generally not included in the Company’s lease agreements. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company's leases have original lease periods expiring between 2023 and 2031. The Company does not have a material amount of short-term leases as of December 31, 2022.

As of December 31, 2022, the weighted average remaining lease term for operating leases was approximately 5.6 years and the weighted average discount rate for operating leases was approximately 5.4%.

The future minimum commitments for these operating leases as of December 31, 2022 were as follows (in thousands), which excludes amounts allocated to services under operating lease agreements that are considered non-lease components:


Year Ending December 31,
2023	$	2,400
2024	1,311
2025	871
2026	890
2027	914
Thereafter	2,038
Total future minimum operating lease commitments	8,424
Less imputed interest	(1,262)
Total	$	7,162

Non-lease components included in the Company’s colocation lease agreements are related to non-tangible utilities and services used in its data center operations. The Company used judgment and third-party data in determining the stand-alone price for allocating consideration to lease and non-lease components under these colocation lease agreements, such as, the price of utilities as compared to its tangible data center footprint within each colocation facility.

Prior to the ASC 842 adoption, the future minimum commitments for these operating leases as of December 31, 2021 were as follows (in thousands), which also include minimum payments for services under operating lease agreements:

Rental expense related to the Company’s operating leases was $6.5 million for the year ended December 31, 2022, of which $4.9 million is included in cost of revenue in its statement of operations. During the year ended December 31, 2022, total operating lease cost was $7.7 million, which does not include costs related to services. Rental expense related to the Company’s operating leases was $7.1 million for the year ended December 31, 2021.

Other non-cancellable commitments relate mainly to infrastructure agreements used to facilitate the Company’s operations. This amount does not include amounts related to finance lease, lease financing obligations and operating leases as disclosed above. As of December 31, 2022, the Company had future minimum payments under the Company’s non-cancelable purchase commitments of $10.8 million and $0.2 million payable during the years ending December 31, 2023 and 2024, respectively.

The Company sponsors a 401(k) defined contribution plan covering all eligible U.S. employees. Contributions to the 401(k) plan are discretionary. The Company contributed $1.6 million and $1.1 million to the 401(k) plan for the years ended December 31, 2022 and 2021, respectively.

The Company is involved from time to time in various claims and legal actions arising in the ordinary course of business. While it is not feasible to predict or determine the ultimate outcome of these matters, the Company believes that none of its current legal proceedings are likely to have a material adverse effect on its financial position, results of operations or cash

flows. However, the results of legal proceedings are inherently unpredictable and litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources, and other factors.

On July 15, 2022, the Company received a demand letter from the investors that participated in the Simple Agreement for Future Equity agreement in August 2021 related to a contractual dispute in connection with the SAFE transaction. The investors sought a refund of their original investment of $10.0 million. In February 2023, the Company settled with the SAFE holders for a full release of all claims related to the SAFE transaction for a one-time payment in the amount of $1.5 million in aggregate. The $1.5 million settlement is included as a general and administrative expense in the Company’s statement of operations during the year ended December 31, 2022.

One of the SAFE holders, TMT Investments PLC (“TMT”), a beneficial holder of more than 5% of the Company’s capital stock, was a party to the settlement and received a pro-rata payment of $0.3 million as part of the SAFE settlement.

The Company undertook an analysis of its sales tax exposure based on the South Dakota vs. Wayfair case whereby the U.S. Supreme Court determined that physical presence was not required to determine the potential exposure a company has for sales tax purposes. Based on the Company’s analysis, its total accrual for sales tax payable was $0.2 million and $1.2 million as of December 2022 and 2021, respectively, which includes estimated amounts for penalties and interest.

The Company has calculated a liability for uncollected and unpaid VAT, which is generally assessed by various taxing authorities on services the Company provides to its customers. The Company accrues an amount that it considers probable to be collected and can be reasonably estimated. Based on the Company’s analysis, its total accrual for VAT tax payable was $1.2 million and $2.5 million as of December 31, 2022 and 2021, respectively, which includes estimated amounts for penalties and interest.

The Company enters into indemnification provisions under agreements with other parties from time to time in the ordinary course of business. The Company has agreed in certain circumstances to indemnify and defend the indemnified party for claims and related losses suffered or incurred by the indemnified party from third-party claims due to the Company’s activities or non-compliance with certain representations and warranties made by the Company. It is not possible to determine the maximum potential loss under these indemnification provisions due to the Company’s limited history of prior indemnification claims and the unique facts and circumstances involved in each particular provision. No losses have been recorded in the statements of operations in connection with the indemnification provisions.