15. Commitments and Contingencies

Operating Leases – as Lessor

As of September 30, 2018, the Company has several noncancelable operating leases (as lessor), primarily associated with assets deployed at customer sites. These leases expire over the next six to seven years. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancelation to be remote.

Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of September 30, 2018 are (in thousands):



Remainder of 2018	$	6,675
2019		26,569
2020		24,839
2021		20,117
2022		11,340
2023 and thereafter		13,594
Total future minimum lease payments	$	103,134

Operating Leases – as Lessee

As of September 30, 2018, the Company has several noncancelable operating leases (as lessee), primarily associated with sale/leaseback transactions that are partially secured by restricted cash (see also Note 1) as summarized below. These leases expire over the next six to seven years. Minimum rent payments under operating leases are recognized on a straight‑line basis over the term of the lease. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancelation to be remote.

Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of September 30, 2018 are (in thousands):



Remainder of 2018	$	4,754
2019		17,675
2020		16,304
2021		11,562
2022		6,110
2023 and thereafter		11,472
Total future minimum lease payments		67,877
Less imputed lease interest		(15,929)
Total lease liabilities	$	51,948

Rental expense for all operating leases was $3.9 million and $3.4 million for the three months ended September 30, 2018 and 2017, respectively. Rental expense for all operating leases was $11.0 million and $10.0 million for the nine months ended September 30, 2018 and 2017, respectively.

The gross profit on sale/leaseback transactions for all operating leases was $6.8 million for the three and nine months ended September 30, 2018.

Right of use assets obtained in exchange for new operating lease liabilities were $21.7 million and $23.9 million for three and nine months ended September 30, 2018, respectively.

At September 30, 2018 and December 31, 2017, security deposits associated with sale/leaseback transactions were $5.5 million and $8.3 million, respectively and are included in other assets on the unaudited interim consolidated balance sheet.

Other information related to the operating leases are presented in the following table.


		Three months ended		Nine months ended
		September 30, 2018		September 30, 2018
Cash payments	$	3,994	$	10,617
Weighted average remaining lease term (years)		4.04		4.12
Weighted average discount rate		12.0%		12.0%

The Company has received cash for future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at September 30, 2018 and December 31, 2017 is $21.3 million and $10.4 million, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximates the carrying value as of September 30, 2018.

Finance Leases – As Lessee

During the three and nine months ended September 30, 2018, the Company entered into sale/leaseback transactions, which were accounted for as finance leases and reported as part of finance obligations on the Company’s unaudited interim consolidated balance sheet. In June 2018, the timing and amount of the lease payments from certain previous sale/leaseback transactions were amended to extend the due date. The outstanding balance of finance obligations related to sale/leaseback transactions at September 30, 2018 was $59.5 million. The fair value of the finance obligation approximates the carrying value as of September 30, 2018.

Future minimum lease payments under noncancelable finance leases related to sale/leaseback transactions (with initial or remaining lease terms in excess of one year) as of September 30, 2018 are (in thousands):



Remainder of 2018	$	8,889
2019		30,030
2020		6,042
2021		6,042
2022		4,296
2023 and thereafter		17,025
Total future minimum lease payments		72,324
Less imputed lease interest		(12,811)
Total lease liabilities	$	59,513

Finance lease costs include amortization of the right of use assets (i.e. depreciation expense) and interest of lease liabilities (i.e. interest and other expense, net in the unaudited interim consolidated statement of operations). Finance lease costs for the three and nine months ended September 30, 2018, respectively are (in thousands):


	Three months ended		Nine months ended
	September 30, 2018		September 30, 2018
Amortization of right of use asset	$	2,193	$	6,776
Interest on finance obligations		1,837		4,781
Total finance lease cost	$	4,030	$	11,557

Right of use assets obtained in exchange for new finance lease liabilities were zero and $0.2 million for three and nine months ended September 30, 2018, respectively.

The Company has a finance lease associated with its property and equipment in Latham, New York. Liabilities relating to this agreement of $2.5 million and $2.4 million have been recorded as a finance obligation, in the accompanying unaudited interim consolidated balance sheet as of September 30, 2018 and December 31, 2017, respectively. The fair value of this finance obligation approximates the carrying value as of September 30, 2018.

Other information related to the finance leases are presented in the following table.


		Three months ended		Nine months ended
		September 30, 2018		September 30, 2018
Cash payments	$	6,986	$	26,392
Weighted average remaining lease term (years)		3.02		3.56
Weighted average discount rate		11.2%		11.1%

Restricted Cash

In connection with certain of the above noted sale/leaseback agreements, cash of $48.2 million at September 30, 2018 is required to be restricted as security and will be released over the lease term. The Company has additional letters of credit backed by security deposits as disclosed in the Operating Leases section above.

The Company also has letters of credit in the aggregate amount of $0.5 million at September 30, 2018 associated with a finance obligation from the sale/leaseback of its building. Cash collateralizing this letter of credit is also considered restricted cash.

Litigation

Legal matters are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on our results of operations, financial position, or cash flows.

Concentrations of credit risk

Concentrations of credit risk with respect to receivables exist due to the limited number of select customers with whom the Company has initial commercial sales arrangements. To mitigate credit risk, the Company performs appropriate evaluation of a prospective customer’s financial condition.

At September 30, 2018, two customers comprise approximately 75.3% of the total accounts receivable balance. At December 31, 2017, three customers comprised approximately 59.0% of the total accounts receivable balance.

For the nine months ended September 30, 2018, 61.9% of total consolidated revenues were associated primarily with two customers, respectively. For the nine months ended September 30, 2017, 66.3% of total consolidated revenues were associated primarily with two customers.