LEASES

9 Months Ended

Sep. 30, 2022

The Company determines if an arrangement is a lease at inception. The Company considers any contract where there is an identified asset as to which the Company has the right to control its use in determining whether the contract contains a lease. An operating lease right-of-use (“ROU”) asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are to be recognized at the commencement date based on the present value of lease payments over the lease term. As all of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available on the commencement date in determining the present value of lease payments. We estimate the incremental borrowing rate based on a yield curve analysis, utilizing the interest rate derived from the fair value analysis of our credit facility and adjusting it for factors that appropriately reflect the profile of secured borrowing over the expected term of the lease. The operating lease ROU assets include any lease payments made prior to the rent commencement date and exclude lease incentives. Our leases have remaining lease terms of one year to 19 years. Lease terms may include options to extend the lease term used in determining the lease obligation when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments are recognized on a straight-line basis over the lease term for operating leases.

See Note 13 which discusses the sale leaseback transaction relating to the Company’s Denver and Grand Prairie campuses which closed on October 29, 2021.

On June 30, 2022, the Company executed a lease for approximately 55,000 square feet of space to serve as the Company’s new campus, in Atlanta, Georgia. The lease commenced on August 2022 with total payments due over the lease term, on an undiscounted basis of $12.2 million over the 12-year lease term. The lease contains two five-year renewal options that may be exercised by the Company at the end of the initial lease term. The Company had no involvement in the construction or design of the underlying asset and were not deemed to be in control of the asset prior to the lease commencement date. During the three months ended September 30, 2022, the Company incurred approximately $0.1 million in capital expenditures, mostly relating to architectural fees and approximately $0.1 million in rent.

Our operating lease cost for the three months ended September 30, 2022 and 2021 was $4.8 million and $3.8 million, respectively. Our operating lease cost for the nine months ended September 30, 2022 and 2021 was $14.1 million and $11.4 million, respectively. Our variable lease cost for the three and nine months ended September 30, 2022 was less than $0.1 million. The net change in ROU asset and operating lease liability is included in other assets in the condensed consolidated cash flows for the nine months ended September 30, 2022 and 2021.

Supplemental cash flow information and non-cash activity related to our operating leases are as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Operating cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	4,382	$	3,972	$	13,702	$	11,009
Non-cash activity:
Lease liabilities arising from obtaining right-of-use assets	$	5,844	$	1,220	$	12,561	$	4,421

During the nine months ended September 30, 2022, the Company entered into two new leases and one lease modification that resulted in noncash re-measurement of the related ROU asset and operating lease liability of $12.6 million. This re-measurement includes the Atlanta, Georgia location, the lease of which commenced in August 2022.

Weighted-average remaining lease term and discount rate for our operating leases is as follows:

	As of
	September 30,
	2022			2021
Weighted-average remaining lease term	11.36 years			5.49 years
Weighted-average discount rate		7.21	%		10.77	%

Maturities of lease liabilities by fiscal year for our operating leases as of September 30, 2022 are as follows:

Year ending December 31,
2022 (excluding the nine months ended September 30, 2022)	$	4,741
2023		16,167
2024		16,780
2025		14,841
2026		12,416
2027		9,532
Thereafter		69,499
Total lease payments		143,976
Less: imputed interest		(41,664	)
Present value of lease liabilities	$	102,312