Leases

Adoption of the New Lease Accounting Standard

On January 1, 2019, the Company adopted the new lease accounting standard using the modified retrospective transition method applied at the effective date of the standard. Results for reporting periods beginning after January 1, 2019 are presented under the new leasing standard, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting. The Company has elected to utilize the package of practical expedients at the time of adoption, which allows the Company to (1) not reassess whether any expired or existing contracts are or contain leases, (2) not reassess the lease classification of any expired or existing leases, and (3) not reassess initial direct costs for any existing leases. The Company also has elected to utilize the short-term lease recognition exemption and, for those leases that qualified, the Company did not recognize right-of-use (“ROU”) assets or lease liabilities.

New Lease Accounting Policies

The Company determines if an arrangement is a lease at inception and determine the classification of the lease, as either operating or finance, at commencement. The Company has various operating leases for its offices. These existing leases have remaining lease terms ranging from 1 to 11 years. Certain lease agreements contain options to renew, with renewal terms that generally extend the lease terms by 3 to 5 years for each option. The Company does not have any finance leases.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company estimates the incremental borrowing rate to reflect the profile of secured borrowing over the expected term of the leases based on the information available at the later of the initial date of adoption or the lease commencement date.

The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Sublease rental income is recognized as a reduction to the related lease expense on a straight-line basis over the sublease term.

Adoption Impact

As a result of adoption, the Company recorded a material impact as ROU assets and lease liabilities are recognized on the consolidated balance sheet related to office facility leases. The ROU assets and lease liabilities were valued using the incremental borrowing rate as of the adoption date. Additionally, the Company expects to recognize greater rent expense in operating expenses and less interest expense as the Company’s prior build-to-suit leases are now classified as operating leases. Additionally, the change related to build-to-suit leases resulted in the removal of build-to-suit assets from the consolidated balance sheet, which reduced property and equipment, net by $28.3 million and eliminated the lease financing obligation of $1.8 million within accrued expenses and other liabilities and $23.0 million within lease financing obligation, net of current portion. See Note 5 for further details.

The cumulative effects of the changes made to the Company’s January 1, 2019 consolidated balance sheet were as follows (in thousands):



	December 31, 2018			Adjustments Due to Adoption of New Leasing Standard			January 1, 2019

Assets
Other current assets	$	4,103		$	188		$	4,291
Property and equipment, net	61,511			(25,461		)	36,050
Operating lease right-of-use assets	—			42,010			42,010
Other assets	7,228			147			7,375

Liabilities
Operating lease liabilities, current	$	—		$	6,498		$	6,498
Accrued expenses and other current liabilities	10,908			(2,637		)	8,271
Lease financing obligation, net of current portion	22,987			(22,987		)	—
Operating lease liabilities, net of current portion	—			43,351			43,351
Other liabilities	9,290			(3,651		)	5,639

Stockholders’ Equity
Accumulated deficit	$	(373,482	)	$	(3,690	)	$	(377,172	)

Lease Costs

For the three months ended March 31, 2019, the Company recorded operating lease costs, excluding subleases, that were included in the statement of operations as follows:



Operating lease costs recorded within:	Three Months Ended March 31, 2019

Cost of revenue	$	200
Sales and marketing	439
Technology and development	871
General and administrative	634
Total operating lease costs	$	2,144

The Company did not include short term or variable lease costs in the table above as these amounts were immaterial. For the three months ended March 31, 2018, the Company recorded lease costs, excluding subleases, of $1.7 million. The Company made cash payments for operating leases of $2.3 million and $2.5 million for the three months ended March 31, 2019 and 2018, respectively, all of which were included in cash flow from operating activities within the consolidated statements of cash flows. The Company’s operating leases have a weighted average remaining lease term of 7.4 years and weighted average discount rate of 5.6%. For its subleases, the Company recorded contra rent expense of $0.5 million for the three months ended March 31, 2019 and 2018.

Lease Commitments

Future undiscounted lease payments for the Company's operating lease liabilities, a reconciliation of these payments to its operating lease liabilities, and related sublease income at March 31, 2019 are as follows (in thousands):



Nine months ended December 31, 2019 and years ended December 31,
2019	$	6,282
2020	8,523
2021	7,152
2022	7,369
2023	7,628
Thereafter	22,561
Total lease payments	$	59,515
Less: imputed interest	(11,065		)
Total lease liabilities (discounted)	$	48,450



Nine months ended December 31, 2019 and year ended December 31,	Sublease Income
2019	$	(1,640	)
2020	(1,299		)
Total sublease income	$	(2,939	)

As previously disclosed in the Company’s 2018 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum lease payments for the Company's operating leases at December 31, 2018, on an undiscounted basis, were as follows (in thousands):



Years ended December 31,	Lease Commitments		Sublease Income
2019	$	9,220	$	(2,180	)
2020	8,716		(1,282		)
2021	7,145		—
2022	7,362		—
2023	7,621		—
Thereafter	22,532		—
Total minimum lease payments	$	62,596	$	(3,462	)