5. LEASES

Operating leases

The Company entered into a three‑year lease agreement for its former headquarters (the “Waltham Lease”) on September 30, 2013, with a commencement date of February 1, 2014. On June 30, 2016, the lease was amended to extend the term from January 31, 2017 to January 31, 2019. In connection with the lease agreement, the Company issued a letter of credit to the landlord for $0.1 million. The Company secured the letter of credit for the full amount of the letter with cash on deposit, which was reported as restricted cash as of December 31, 2018. Upon the expiration of the lease term on January 31, 2019, the deposit was returned. With the adoption of ASU 2016-02, Leases, the Company has recorded a right-of-use asset and corresponding lease liability as of December 31, 2018.

On March 15, 2018, the Company entered into a lease agreement with Duffy Associates, LLC for the lease of a portion of the building located at 465 Waverley Oaks Road, Suite 301, Waltham, Massachusetts (the “Waverley Oaks Lease”). The term of the Waverley Oaks Lease was one-year, and as a result, a right-of-use asset and corresponding lease liability was not recorded.

On February 28, 2018, the Company entered into a lease agreement with 480 Arsenal Group LLC for the lease of a portion of the building located at 490 Arsenal Way, Watertown, Massachusetts (the “Watertown Lease”) to be used as its new corporate headquarters. The Company recognized the right-of-use asset and corresponding lease liability on November 15, 2018, by calculating the present value of lease payments, discounted at 9.9%, the Company’s estimated incremental borrowing rate, over the 13-year expected term.

In connection with the Watertown Lease, the Company issued a letter of credit to the landlord for $2.0 million. The Company secured the letter of credit for the full amount of the letter with cash on deposit, which is reported as restricted cash as of September 30, 2019 and December 31, 2018.

For the nine months ended September 30, 2019, the variable lease expense for the Watertown Lease, which includes common area maintenance and real estate taxes was $0.9 million. The remaining lease term was 12.1 years as of September 30, 2019.

Vehicle Fleet lease

During the nine months ended September 30, 2019, the Company entered into a master fleet lease agreement (the “Vehicle Fleet Lease”), pursuant to which it currently leases approximately 65 vehicles. In connection with the Vehicle Fleet Lease, the company issued a letter of credit for $0.5 million, which was reported as restricted cash on the balance sheet. The lease has an expected term of three years, which commenced upon the delivery of the vehicles in March 2019. As of September 30, 2019, the remaining lease term was 2.4 years.

The components of lease expense and related cash flows were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Lease cost
Operating lease cost	$	1,185	$	99	$	3,428	$	296
Short-term lease cost		—		55		—		117
Total lease cost	$	1,185	$	154	$	3,428	$	413

Operating cash outflows from operating leases	$	1,443	$	103	$	3,097	$	307

Future minimum commitments due under the Company’s lease agreements as of September 30, 2019 were as follows (in thousands):


Years Ending December 31,		Operating Lease Obligations (1)		Finance Lease Obligation (2)		Total
2019 (remaining three months)	$	1,025	$	11	$	1,036
2020		4,141		41		4,182
2021		4,233		41		4,274
2022		4,021		41		4,062
2023		3,960		—		3,960
Thereafter		35,415		—		35,415
Present value adjustment		(22,601)		(23)		(22,624)
Present value of lease payments	$	30,194	$	111	$	30,305

(1)

Future minimum lease payments under the Company’s Watertown Lease and its Vehicle Fleet Lease.

(2)

Future minimum lease payments under the Company’s finance lease obligation.