Leases

3 Months Ended

Mar. 31, 2022

Leases

Leases

Note 3.  Leases

We have operating leases for office space, warehouse space, a manufacturing plant, computer and office equipment as well as vehicles used in our business operations. We have a finance lease as a result of the 2015 sale-leaseback of our corporate headquarters in Beverly, Massachusetts. All new agreements are reviewed to determine if they contain a lease component. A lease is a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment over a period of time in exchange for consideration. We recognize the lease obligation on a discounted basis using the explicit or implicit discount rate stated within the agreement. We recognize a corresponding right-of-use asset, which is initially determined based upon the net present value of the associated liability and is adjusted for deferred costs and possible impairment, if any. For those lease agreements that do not indicate the applicable discount rate, we use our incremental borrowing rate. We have made the following policy elections: (i) operating leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet; (ii) we recognize lease expense for

operating leases on a straight-line basis over the lease term; and (iii) we account for lease components and non-lease components that are fixed payments as one component. Some of our operating leases include one or more options to renew, with renewal terms that can extend the respective lease term one to five years. The exercise of lease renewal options is at our sole discretion. For lease extensions that are reasonably certain to occur, we have included these renewal periods in our calculation of the net present value of the lease obligation and related right-of-use asset. Certain leases also include options to purchase the leased property. The depreciable life of certain assets and leasehold improvements is limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The amounts of operating and finance lease right-of-use assets and related lease obligations recorded within our consolidated balance sheets are as follows:

		March 31,		December 31,
Leases	Classification	2022		2021
Assets		(in thousands)
Operating leases	Operating lease assets	$	9,403	$	9,242
Finance lease	Finance lease assets *		18,914		19,238
Total leased assets		$	28,317	$	28,480
Liabilities
Current
Operating	Other current liabilities	$	5,106	$	4,716
Finance	Current portion of finance lease obligation		1,039		979
Noncurrent
Operating	Other long-term liabilities		4,170		4,357
Finance	Finance lease obligation		46,128		46,415
Total lease liabilities		$	56,443	$	56,467
*Finance lease assets are recorded net of accumulated depreciation of $48.9 million and includes $0.6 million of prepaid financing costs as of March 31, 2022. Finance lease assets are recorded net of accumulated depreciation of $48.6 million and includes $0.7 million of prepaid financing costs as of December 31, 2021. ​

All of our operating lease office locations support selling and servicing functions. Our Axcelis Asia Operations Center facility in South Korea brings production capability closer to our Asia-based customers. Operating lease expense and depreciation and interest expense relating to our finance lease obligation are recognized within our consolidated statement of operations for the three months ended March 31, 2022 and 2021 as follows:

		Three months ended
		March 31,
Lease cost	Classification	2022		2021
Operating lease cost		(in thousands)
Product / Services	Cost of revenue	$	1,210	$	639
Research and development	Operating expenses		56		130
Sales and marketing*	Operating expenses		418		378
General and administrative*	Operating expenses		211		260
Total operating lease cost		$	1,895	$	1,407
Finance lease cost
Depreciation of leased assets	Cost of revenue, R&D, Sales and marketing and G&A	$	324	$	328
Interest on lease liabilities	Interest expense		1,258		1,279
Total finance lease cost		$	1,582	$	1,607
Total lease cost		$	3,477	$	3,014
* Sales and marketing and general and administrative expense also includes short-term lease and variable lease costs of approximately $0.5 million and $0.4 million for the three months ended March 31, 2022 and 2021, respectively.

The lease of our corporate headquarters, shown below under finance leases, had an original lease term of 22 years, beginning in January 2015 and expiring in January 2037, with renewal options. All other locations are treated as operating leases, with lease terms ranging from one to ten years. The tables below reflect the minimum cash outflow regarding our current lease obligations as well as the weighted-average remaining lease term and weighted-average discount rates used in our calculation of our lease obligations and right-of-use assets as of March 31, 2022:

	Finance		Operating		Total
Maturity of Lease Liabilities	Leases		Leases		Leases
	(in thousands)
2022	$	4,493	$	4,075	$	8,568
2023		6,114		3,188		9,302
2024		6,252		1,032		7,284
2025		5,930		718		6,648
2026		6,008		482		6,490
Thereafter		67,715		78		67,793
Total lease payments	$	96,512	$	9,573	$	106,085
Less interest portion*		(49,345)		(297)		(49,642)
Finance lease and operating lease obligations	$	47,167	$	9,276	$	56,443
* Finance lease interest calculated using the implied interest rate; operating lease interest calculated using estimated corporate borrowing rate.

	March 31,
Lease term and discount rate	2022
Weighted-average remaining lease term (years):
Operating leases		2.6
Finance leases		14.8
Weighted-average discount rate:
Operating leases		4.5%
Finance leases		10.5%

Our cash outflows from our operating leases include rent expense and other charges associated with these leases. These cash flows are included within the operating activities section of our statement of cash flows. Our cash flows from our finance lease include both an interest component and payment of principal component. The table below shows our cash outflows, by lease type and related section of our statement of cash flows, as well as the non-cash amount capitalized on our balance sheet in relation to our operating lease right-of-use assets for the three months ending March 31, 2022 and 2021, respectively:

	Three months ended March 31,
Cash paid for amounts included in the measurement of lease liabilities	2022		2021
	(in thousands)
Operating cash outflows from operating leases	$	1,896	$	1,407
Operating cash outflows from finance leases		1,258		1,279
Financing cash outflows from finance leases		229		175
Operating lease assets obtained in exchange for operating lease liabilities		1,638		791
Finance lease assets obtained in exchange for new finance lease liabilities		—		—