Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.23.3
Leases
 9 Months Ended
Sep. 30, 2023
Leases [Abstract]  
Leases Leases
The Company has lease arrangements, both as a lessor and a lessee, and makes assumptions and judgments when assessing contracts for lease components, determining lease classifications, and calculating right-of-use asset and lease liability values. These assumptions and judgements may include the useful lives and fair values of the leased assets, the implicit rate underlying the Company’s leases, the Company’s incremental borrowing rate, or the Company’s intent to exercise or not exercise options available in lease contracts.
Components of lease expense and other information for the periods presented are summarized as follows (in thousands, except terms and rates):
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Lease expense
Finance lease expense:
Amortization of right-of-use assets $ 1,823  $ 2,048  $ 5,571  $ 6,467 
Interest on lease liabilities 290  237  851  667 
Operating lease expense 1,423  1,417  4,268  4,252 
Short-term lease expense 2  3  13  21 
Total lease expense $ 3,538  $ 3,705  $ 10,703  $ 11,407 
Supplemental cash flow information
Finance leases:
Operating cash outflow from finance leases $ 290  $ 237  $ 851  $ 667 
Financing cash outflow from finance leases $ 1,859  $ 2,234  $ 5,666  $ 6,694 
Finance lease liabilities arising from obtaining finance lease right-of-use assets $ 1,799  $ 1,335  $ 5,438  $ 4,659 
Operating leases:
Operating cash outflow from operating leases $ 1,396  $ 1,214  $ 4,177  $ 3,197 
Operating lease liabilities arising from obtaining operating lease right-of-use assets $ —  $ —  $ 154  $ — 
Other information as of September 30, 2023
Finance leases:
Weighted-average remaining lease term (years) 1.8
Weighted-average discount rate 9.9  %
Operating leases:
Weighted-average remaining lease term (years) 9.3
Weighted-average discount rate 3.9  %
Operating leases
The Company as the Lessee
The Company leases office space for its headquarters and advertising space under non-cancelable operating lease agreements. These leases have expirations ranging from January 2024 to January 2033. Though the Company is considering renewal options on its leases nearing expiration, the Company has not recognized any renewal options as part of the current lease term as it is not reasonably certain that it will exercise its option as of September 30, 2023. The rates implicit in the Company’s operating leases are not readily determinable. Thus, the Company uses its incremental borrowing rate to calculate the present value of the lease liabilities. The incremental borrowing rate is the rate incurred to borrow on a collateralized basis, and is based on the Company’s secured line of credit, which may be adjusted for the specific terms and collateral of the lease. The operating lease agreements do not contain any residual value guarantees or other restrictions or covenants that would cause the Company to incur additional significant financial obligations. These office space lease agreements contain non-lease components, which represent charges for common area maintenance, taxes and utilities. The Company has elected the practical expedient on not separating lease components from non-lease components.
The Company has other leases for office space with terms less than twelve months from contract inception and no options to purchase the underlying asset. These agreements are accounted for as short-term leases in accordance with ASC 842-20-25-2.
Total rent expense for office space leases was $1.4 million for each of the three months ended September 30, 2023 and 2022, and $4.2 million for each of the nine months ended September 30, 2023 and 2022.
Future maturities of remaining lease payments included in the measurement of operating lease liabilities as of September 30, 2023 are as follows (in thousands):
Years ending December 31,
Remaining 2023 $ 1,396 
2024 5,574 
2025 5,701 
2026 5,843 
2027 5,989 
Thereafter 32,834 
Total 57,337 
Less imputed interest (9,488)
Present value of operating lease obligations $ 47,849 
The Company as the Lessor
As discussed in the Revenue Recognition accounting policy, the Company provides varying quantities of phone hardware to customers without adjustments to the base subscription price. The Company is deemed a lessor in these arrangements. For the three months ended September 30, 2023 and 2022, the Company recorded lease revenues associated with phone hardware of $1.2 million and $1.0 million, respectively. For the nine months ended September 30, 2023 and 2022 the Company recorded lease revenues associated with phone hardware of $3.4 million and $3.1 million, respectively.
In April 2023, the Company entered into a Sublease Agreement for the fourth floor of the office space currently occupied by the Company in Lehi, Utah. During the three and nine months ended September 30, 2023, the Company recorded sublease revenues associated with this agreement of $0.2 million. These revenues are included in other income (expense) on the Condensed Consolidated Statement of Operations.
Finance leases
The Company is the lessee in all of its finance lease arrangements. The Company finances its purchases of phone hardware through lease agreements classified as finance leases. As of September 30, 2023 the Company had 102 executed and active lease agreements, respectively, for phone hardware. These agreements require monthly payments ranging from approximately $72 to $31,892 and have maturity dates ranging from October 2023 to September 2026. As of September 30, 2023, the gross value of phone hardware acquired under these finance leases approximated $21.3 million. Amortization expense on finance-leased phone hardware was $1.8 million and $2.0 million for the three months ended September 30, 2023 and 2022, respectively, and $5.6 million and $6.5 million for the nine months ended September 30, 2023 and 2022, respectively, which is included in the depreciation expense referenced in Note 5.
Future minimum lease payments for the Company’s finance leases as of September 30, 2023 were as follows (in thousands):
Years ending December 31,
Remaining 2023 $ 2,207 
2024 6,739 
2025 3,906 
2026 1,393 
2027 — 
Thereafter — 
Total 14,245 
Less amounts representing interest (1,484)
Present value of finance lease obligations $ 12,761 
Leases Leases
The Company has lease arrangements, both as a lessor and a lessee, and makes assumptions and judgments when assessing contracts for lease components, determining lease classifications, and calculating right-of-use asset and lease liability values. These assumptions and judgements may include the useful lives and fair values of the leased assets, the implicit rate underlying the Company’s leases, the Company’s incremental borrowing rate, or the Company’s intent to exercise or not exercise options available in lease contracts.
Components of lease expense and other information for the periods presented are summarized as follows (in thousands, except terms and rates):
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Lease expense
Finance lease expense:
Amortization of right-of-use assets $ 1,823  $ 2,048  $ 5,571  $ 6,467 
Interest on lease liabilities 290  237  851  667 
Operating lease expense 1,423  1,417  4,268  4,252 
Short-term lease expense 2  3  13  21 
Total lease expense $ 3,538  $ 3,705  $ 10,703  $ 11,407 
Supplemental cash flow information
Finance leases:
Operating cash outflow from finance leases $ 290  $ 237  $ 851  $ 667 
Financing cash outflow from finance leases $ 1,859  $ 2,234  $ 5,666  $ 6,694 
Finance lease liabilities arising from obtaining finance lease right-of-use assets $ 1,799  $ 1,335  $ 5,438  $ 4,659 
Operating leases:
Operating cash outflow from operating leases $ 1,396  $ 1,214  $ 4,177  $ 3,197 
Operating lease liabilities arising from obtaining operating lease right-of-use assets $ —  $ —  $ 154  $ — 
Other information as of September 30, 2023
Finance leases:
Weighted-average remaining lease term (years) 1.8
Weighted-average discount rate 9.9  %
Operating leases:
Weighted-average remaining lease term (years) 9.3
Weighted-average discount rate 3.9  %
Operating leases
The Company as the Lessee
The Company leases office space for its headquarters and advertising space under non-cancelable operating lease agreements. These leases have expirations ranging from January 2024 to January 2033. Though the Company is considering renewal options on its leases nearing expiration, the Company has not recognized any renewal options as part of the current lease term as it is not reasonably certain that it will exercise its option as of September 30, 2023. The rates implicit in the Company’s operating leases are not readily determinable. Thus, the Company uses its incremental borrowing rate to calculate the present value of the lease liabilities. The incremental borrowing rate is the rate incurred to borrow on a collateralized basis, and is based on the Company’s secured line of credit, which may be adjusted for the specific terms and collateral of the lease. The operating lease agreements do not contain any residual value guarantees or other restrictions or covenants that would cause the Company to incur additional significant financial obligations. These office space lease agreements contain non-lease components, which represent charges for common area maintenance, taxes and utilities. The Company has elected the practical expedient on not separating lease components from non-lease components.
The Company has other leases for office space with terms less than twelve months from contract inception and no options to purchase the underlying asset. These agreements are accounted for as short-term leases in accordance with ASC 842-20-25-2.
Total rent expense for office space leases was $1.4 million for each of the three months ended September 30, 2023 and 2022, and $4.2 million for each of the nine months ended September 30, 2023 and 2022.
Future maturities of remaining lease payments included in the measurement of operating lease liabilities as of September 30, 2023 are as follows (in thousands):
Years ending December 31,
Remaining 2023 $ 1,396 
2024 5,574 
2025 5,701 
2026 5,843 
2027 5,989 
Thereafter 32,834 
Total 57,337 
Less imputed interest (9,488)
Present value of operating lease obligations $ 47,849 
The Company as the Lessor
As discussed in the Revenue Recognition accounting policy, the Company provides varying quantities of phone hardware to customers without adjustments to the base subscription price. The Company is deemed a lessor in these arrangements. For the three months ended September 30, 2023 and 2022, the Company recorded lease revenues associated with phone hardware of $1.2 million and $1.0 million, respectively. For the nine months ended September 30, 2023 and 2022 the Company recorded lease revenues associated with phone hardware of $3.4 million and $3.1 million, respectively.
In April 2023, the Company entered into a Sublease Agreement for the fourth floor of the office space currently occupied by the Company in Lehi, Utah. During the three and nine months ended September 30, 2023, the Company recorded sublease revenues associated with this agreement of $0.2 million. These revenues are included in other income (expense) on the Condensed Consolidated Statement of Operations.
Finance leases
The Company is the lessee in all of its finance lease arrangements. The Company finances its purchases of phone hardware through lease agreements classified as finance leases. As of September 30, 2023 the Company had 102 executed and active lease agreements, respectively, for phone hardware. These agreements require monthly payments ranging from approximately $72 to $31,892 and have maturity dates ranging from October 2023 to September 2026. As of September 30, 2023, the gross value of phone hardware acquired under these finance leases approximated $21.3 million. Amortization expense on finance-leased phone hardware was $1.8 million and $2.0 million for the three months ended September 30, 2023 and 2022, respectively, and $5.6 million and $6.5 million for the nine months ended September 30, 2023 and 2022, respectively, which is included in the depreciation expense referenced in Note 5.
Future minimum lease payments for the Company’s finance leases as of September 30, 2023 were as follows (in thousands):
Years ending December 31,
Remaining 2023 $ 2,207 
2024 6,739 
2025 3,906 
2026 1,393 
2027 — 
Thereafter — 
Total 14,245 
Less amounts representing interest (1,484)
Present value of finance lease obligations $ 12,761