Leases

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Leases

4. Leases

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease. Operating leases with a term greater than one year are recognized on the balance sheet as right-of-use ("ROU") assets, lease liabilities, and, if applicable, long-term lease liabilities. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We have elected not to recognize on the balance sheet leases with a term of one year or less. For contracts with lease and non-lease components, we have elected not to allocate the contract consideration and to account for the lease and non-lease components as a single lease component. Finance leases are included in property and equipment, net, finance lease liability, current, and finance lease liability, net of current portion line items in our condensed consolidated balance sheets.

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rate within most of our leases are generally not determinable; therefore, we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of our incremental borrowing rate requires judgment and is estimated for each lease based on the rate we would

have to pay for a collateralized loan with the same term and payments as the lease. We consider various factors, including our level of collateralization, estimated credit rating, and the currency in which the lease is denominated. The operating lease ROU also includes any lease prepayments, offset by lease incentives. Certain of our leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option while an option to terminate is considered as well unless it is reasonably certain we will not exercise the option. For certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense. We have lease agreements which require payments for lease and non-lease components (i.e., common area maintenance) that are accounted for as a single lease component. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as maintenance costs based on future obligations. Variable lease payments are not included in the ROU assets or lease liabilities but rather are expensed as incurred and recorded as variable lease expense.

We have operating and finance leases for corporate offices, office furniture and fixtures, and computer hardware. Our leases have remaining lease terms of 1 year to 12 years, some of which include options to extend the leases for up to 5 years.

In April 2018, we entered into a lease agreement with respect to 176,222 square feet of office space in McLean, Virginia for a new corporate headquarters. The initial term of the lease was 150 months. We took initial possession of the first phase of the new headquarters in October 2018 and began to recognize rent expense as of that date. In February 2019, we took possession of a further 28,805 square feet of adjacent office space.

In January 2020, we entered into an amendment which adjusts the original terms of the headquarters lease. Under this amendment, we exercised an option to expand occupancy, adding 34,158 square feet of space. Occupancy of the added space is to commence upon the earlier of the completion of certain improvements or October 14, 2020. Pursuant to the guidance of ASC 842, the amendment is considered a modification to the original lease and is accounted for as a separate contract because it represents a new right-of-use asset and the lease costs charged on the new space are at prevailing market rates. As of March 31, 2020, we have not taken possession of the space nor met the criteria for the lease to be considered commenced. Accordingly, we have not reported a right-of-use asset or liability on our condensed consolidated balance sheets nor have recorded expense on our condensed consolidated statements of operations in relation to the additional space.

The following table sets forth the components of lease expense for the three months ended March 31, 2020 (in thousands):

	Three Months Ended March 31, 2020
Operating lease cost	$	1,868
Finance lease costs:
Amortization of right-of-use assets	373
Interest on lease liabilities	51
Short-term lease cost	185
Variable lease cost	183
Total	$	2,660

Supplemental balance sheet information related to leases as of March 31, 2020 was as follows (in thousands, except for lease term and discount rate):

	As of
	March 31, 2020
Operating Leases
Operating right-of-use assets	$	23,340
Operating lease liabilities, current	$	3,755
Operating lease liabilities, net of current portion	44,778
Total operating lease liabilities	$	48,533
Finance Leases
Property and equipment, at cost	$	4,471
Accumulated depreciation	(1,073)
Property and equipment, net	$	3,398
Finance lease liabilities, current	$	1,466
Finance lease liabilities, net of current portion	1,998
Total finance lease liabilities	$	3,464
Weighted Average Remaining Lease Term (in years)
Operating leases	11.2
Finance leases	2.3
Weighted Average Discount Rate
Operating leases	9.9		%
Finance leases	5.5		%

For the three months ended March 31, 2020, amortization of operating right-of-use assets totaled $0.7 million and interest expense on operating right-of-use liabilities totaled $0.4 million.

Supplemental cash flow information related to leases for the three months ended March 31, 2020 was as follows (in thousands):

	Three Months Ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	772
Operating cash outflows for finance leases	51
Financing cash outflows for finance leases	357

A summary of our future minimum lease commitments under non-cancellable leases as of March 31, 2020 is as follows (in thousands):

	Operating Leases		Finance Leases
2020 (excluding the three months ended March 31, 2020)	$	2,491	$	1,215
2021	7,427		1,620
2022	8,059		859
2023	8,144		—
2024	8,526		—
2025	9,224		—
Thereafter	57,380		—
Total lease payments	101,251		3,694
Less: imputed interest	(52,718)		(230)
Total	$	48,533	$	3,464

Leases

4. Leases

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease. Operating leases with a term greater than one year are recognized on the balance sheet as right-of-use ("ROU") assets, lease liabilities, and, if applicable, long-term lease liabilities. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We have elected not to recognize on the balance sheet leases with a term of one year or less. For contracts with lease and non-lease components, we have elected not to allocate the contract consideration and to account for the lease and non-lease components as a single lease component. Finance leases are included in property and equipment, net, finance lease liability, current, and finance lease liability, net of current portion line items in our condensed consolidated balance sheets.

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rate within most of our leases are generally not determinable; therefore, we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of our incremental borrowing rate requires judgment and is estimated for each lease based on the rate we would

have to pay for a collateralized loan with the same term and payments as the lease. We consider various factors, including our level of collateralization, estimated credit rating, and the currency in which the lease is denominated. The operating lease ROU also includes any lease prepayments, offset by lease incentives. Certain of our leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option while an option to terminate is considered as well unless it is reasonably certain we will not exercise the option. For certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense. We have lease agreements which require payments for lease and non-lease components (i.e., common area maintenance) that are accounted for as a single lease component. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as maintenance costs based on future obligations. Variable lease payments are not included in the ROU assets or lease liabilities but rather are expensed as incurred and recorded as variable lease expense.

We have operating and finance leases for corporate offices, office furniture and fixtures, and computer hardware. Our leases have remaining lease terms of 1 year to 12 years, some of which include options to extend the leases for up to 5 years.

In April 2018, we entered into a lease agreement with respect to 176,222 square feet of office space in McLean, Virginia for a new corporate headquarters. The initial term of the lease was 150 months. We took initial possession of the first phase of the new headquarters in October 2018 and began to recognize rent expense as of that date. In February 2019, we took possession of a further 28,805 square feet of adjacent office space.

In January 2020, we entered into an amendment which adjusts the original terms of the headquarters lease. Under this amendment, we exercised an option to expand occupancy, adding 34,158 square feet of space. Occupancy of the added space is to commence upon the earlier of the completion of certain improvements or October 14, 2020. Pursuant to the guidance of ASC 842, the amendment is considered a modification to the original lease and is accounted for as a separate contract because it represents a new right-of-use asset and the lease costs charged on the new space are at prevailing market rates. As of March 31, 2020, we have not taken possession of the space nor met the criteria for the lease to be considered commenced. Accordingly, we have not reported a right-of-use asset or liability on our condensed consolidated balance sheets nor have recorded expense on our condensed consolidated statements of operations in relation to the additional space.

The following table sets forth the components of lease expense for the three months ended March 31, 2020 (in thousands):

	Three Months Ended March 31, 2020
Operating lease cost	$	1,868
Finance lease costs:
Amortization of right-of-use assets	373
Interest on lease liabilities	51
Short-term lease cost	185
Variable lease cost	183
Total	$	2,660

Supplemental balance sheet information related to leases as of March 31, 2020 was as follows (in thousands, except for lease term and discount rate):

	As of
	March 31, 2020
Operating Leases
Operating right-of-use assets	$	23,340
Operating lease liabilities, current	$	3,755
Operating lease liabilities, net of current portion	44,778
Total operating lease liabilities	$	48,533
Finance Leases
Property and equipment, at cost	$	4,471
Accumulated depreciation	(1,073)
Property and equipment, net	$	3,398
Finance lease liabilities, current	$	1,466
Finance lease liabilities, net of current portion	1,998
Total finance lease liabilities	$	3,464
Weighted Average Remaining Lease Term (in years)
Operating leases	11.2
Finance leases	2.3
Weighted Average Discount Rate
Operating leases	9.9		%
Finance leases	5.5		%

For the three months ended March 31, 2020, amortization of operating right-of-use assets totaled $0.7 million and interest expense on operating right-of-use liabilities totaled $0.4 million.

Supplemental cash flow information related to leases for the three months ended March 31, 2020 was as follows (in thousands):

	Three Months Ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash outflows for operating leases	$	772
Operating cash outflows for finance leases	51
Financing cash outflows for finance leases	357

A summary of our future minimum lease commitments under non-cancellable leases as of March 31, 2020 is as follows (in thousands):

	Operating Leases		Finance Leases
2020 (excluding the three months ended March 31, 2020)	$	2,491	$	1,215
2021	7,427		1,620
2022	8,059		859
2023	8,144		—
2024	8,526		—
2025	9,224		—
Thereafter	57,380		—
Total lease payments	101,251		3,694
Less: imputed interest	(52,718)		(230)
Total	$	48,533	$	3,464