15. Commitments and Contingencies

Lessor Obligations

As of September 30, 2019, the Company had noncancelable operating leases (as lessor), primarily associated with assets deployed at customer sites. These leases expire over the next one to seven years. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancellation 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, 2019 were as follows (in thousands):


Remainder of 2019	$	7,685
2020		30,135
2021		29,169
2022		21,272
2023		17,208
2024 and thereafter		34,759
Total future minimum lease payments	$	140,228

Lessee Obligations

As of September 30, 2019, the Company has operating and finance leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash, security deposits and pledged escrows (see also Note 1, Nature of Operations) as summarized below. These leases expire over the next one to nine years. Minimum rent payments under operating and finance 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 cancellation to be remote.

In prior periods, the Company entered into sale/leaseback transactions that were accounted for as finance leases and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at September 30, 2019 and December 31, 2018 was $33.6 million and $81.9 million, respectively. The fair value of the finance obligation approximated the carrying value as of both September 30, 2019 and December 31, 2018.

The Company has sold 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, 2019 was $83.2 million, $12.0 million and $71.2 million of which was classified as short-term and long-term, respectively, on the accompanying unaudited interim consolidated balance sheet. The outstanding balance of this obligation at September 30, 2018 was $21.3 million, $4.0 million and $17.3 million of which was classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximated the carrying value as of September 30, 2019.

The Company has a finance lease associated with its property and equipment in Latham, New York. Liabilities relating to this lease of $2.4 million has been recorded as a finance obligation in the accompanying unaudited interim condensed consolidated balance sheet as of September 30, 2019. The fair value of this finance obligation approximated the carrying value as of September 30, 2019.

Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of September 30, 2019 were as follows (in thousands):


					Other		Total
	Operating		Finance		Leased		Finance
	Leases		Leases		Property		Obligations
Remainder of 2019	$	9,009	$	2,532	$	180	$	11,721
2020		35,731		10,128		425		46,284
2021		35,731		9,276		407		45,414
2022		27,920		4,975		390		33,285
2023		25,316		3,177		366		28,859
2024 and thereafter		45,394		16,154		1,548		63,096
Total future minimum lease payments		179,101		46,242		3,316		228,659
Less imputed lease interest		(48,737)		(12,619)		(938)		(62,294)
Sale of future services		—		83,212		—		83,212
Total finance obligations	$	130,364	$	116,835	$	2,378	$	249,577

Rental expense for all operating leases was $7.8 million and $3.9 million for the three months ended September 30, 2019 and 2018, respectively. Rental expense for all operating leases was $19.9 million and $11.0 million for the nine months ended September 30, 2019 and 2018, respectively.

The gross profit on sale/leaseback transactions for all operating leases was $14.8 million and $30.9 million for the three and nine months ended September 30, 2019, respectively and $6.8 million for both the three and nine months ended September 30, 2018. Right of use assets obtained in exchange for new operating lease liabilities was $38.4 million and $72.9 million for the three and nine months ended September 30, 2019, respectively, and $21.7 million and $23.9 million for the three and nine months ended September 30, 2018.

At September 30, 2019 and 2018, security deposits associated with sale/leaseback transactions were $7.4 million and $5.5 million, respectively, and were included in other assets in the unaudited interim condensed consolidated balance sheet.

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


		Nine months ended		Nine months ended
		September 30, 2019		September 30, 2018
Cash payments (in thousands)	$	19,222	$	10,617
Weighted average remaining lease term (years)		5.25		4.12
Weighted average discount rate		12.1%		12.0%

Finance lease costs include amortization of the right of use assets (i.e. depreciation expense) and interest on lease liabilities (i.e. interest and other expense, net in the unaudited interim condensed consolidated statement of operations). Finance lease costs were as follows (in thousands):


	Nine months ended		Nine months ended
	September 30, 2019		September 30, 2018
Amortization of right of use asset	$	2,308	$	6,776
Interest on finance obligations		3,194		4,781
Total finance lease cost	$	5,502	$	11,557

Right of use assets obtained in exchange for new finance lease liabilities were $5.8 million and $5.9 million for the three and nine months ended September 30, 2019, respectively, and zero and $0.3 million for the three and nine months ended September 30, 2018.

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


		Nine months ended		Nine months ended
		September 30, 2019		September 30, 2018
Cash payments (in thousands)	$	57,659	$	26,392
Weighted average remaining lease term (years)		3.09		3.56
Weighted average discount rate		11.1%		11.1%

Restricted Cash

In connection with certain of the above noted sale/leaseback agreements, cash of $75.9 million was required to be restricted as security as of September 30, 2019, which restricted cash will be released over the lease term. As of September 30, 2019, the Company also had certain letters of credit backed by security deposits totaling $79.1 million that are security for the above noted sale/leaseback agreements.

The Company also had letters of credit in the aggregate amount of $0.5 million at September 30, 2019 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, 2019, two customers comprised approximately 74.2% of the total accounts receivable balance. At December 31, 2018, three customers comprised approximately 52.3% of the total accounts receivable balance.

For the nine months ended September 30, 2019, 62.4% of total consolidated revenues were associated primarily with three customers. For the nine months ended September 30, 2018, 66.3% of total consolidated revenues were associated primarily with two customers. For purposes of assigning a customer to a sale/leaseback transaction completed with a financial institution, the Company considers the end user of the assets to be the ultimate customer.

Vendor Reimbursement

During the nine months ended September 30, 2019, the Company received $4.5 million from a vendor to help facilitate a field replacement program for certain composite fuel tanks that do not meet the supply contract standard, as determined by the Company and the manufacturer. The Company is working with its customers to ensure an efficient, minimally disruptive process for the exchange. Amounts received under this arrangement are being accounted for as a reduction of costs. Such costs included labor and materials to replace the tanks, the manufacture of temporary replacement units used while tanks are being replaced, and other miscellaneous costs.