LEASES

9 Months Ended

Sep. 30, 2023

The Company determines if an arrangement is a lease at its 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 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 terms ranging from less than one year to approximately 18 years. Lease terms may include options to extend the term used in determining the lease obligation when it is reasonably certain that the Company will exercise that option. Expenses for lease payments are recognized on a straight-line basis over the lease term for operating leases.

On October 31, 2023, the Company entered into a lease for approximately 100,000 square feet of space to serve as the Company’s new campus in Houston, Texas. The lease term is set to commence on January 2, 2024, with an initial lease term of 21-years and 6 months. The lease contains three five-year renewal options.

On October 18, 2023, the Company entered into a lease for approximately 120,000 square feet of space to serve as the Company’s new Nashville, Tennessee campus. The lease term is set to commence on November 1, 2023, with an initial lease term of 15-years. The lease contains two five-year renewal options.

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 term commenced in August 2022, with total payments due on an undiscounted basis of $12.2 million over the 12-year initial 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 facilities on the property and was not deemed to be in control of the asset prior to the lease commencement date. During the nine months ended September 30, 2023, the Company incurred approximately $0.6 million in rent expenses.

Operating lease costs for each of the three months ended September 30, 2023 and 2022 were $4.8 million and $4.8 million, respectively, and $14.6 million and $14.1 million for the nine months ended September 30, 2023 and 2022, respectively. Variable lease costs were $0.2 million and less than $0.1 million for the three months ended September 30, 2023 and 2022, respectively, and $0.3 million and less than $0.1 million for the nine months ended September 30, 2023 and 2022, respectively. 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, 2023 and 2022.

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,
	2023		2022		2023		2022
Operating cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	3,977	$	4,382	$	12,155	$	13,702
Non-cash activity:
Lease liabilities arising from obtaining right-of-use assets	$	8,349	$	5,844	$	10,491	$	12,561

The Company has entered into three new leases and four lease modifications since the beginning of the fiscal year, resulting in a noncash re-measurement of the related ROU asset and operating lease liability of $10.5 million.

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

	As of
	September 30,
	2023			2022
Weighted-average remaining lease term	11.22 years			11.36 years
Weighted-average discount rate		6.94	%		7.21	%

Maturities of lease liabilities by fiscal year for our operating leases as of September 30, 2023 are as follows:

Year ending December 31,
2023 (excluding the nine months ended September 30, 2023)	$	3,949
2024		18,054
2025		16,681
2026		14,386
2027		11,499
2028		11,331
Thereafter		67,312
Total lease payments		143,212
Less: imputed interest		(40,404	)
Present value of lease liabilities	$	102,808