LEASES

12 Months Ended

Dec. 31, 2019

Adoption of ASC Topic 842, Leases

On January 1, 2019, we adopted ASC Topic 842 using the modified retrospective transition method. Topic 842 requires the recognition of lease assets and liabilities for operating leases, in addition to the finance lease assets and liabilities previously recorded on our consolidated balance sheets. Beginning on January 1, 2019, our consolidated financial statements are presented in accordance with the revised policies, while prior period amounts are not adjusted and continue to be reported in accordance with our historical policies. The modified retrospective transition method required the cumulative effect, if any, of initially applying the guidance to be recognized as an adjustment to our accumulated deficit as of our adoption date. As a result of adopting Topic 842, we recognized additional lease assets and liabilities of $109.6 million as of January 1, 2019. The discount rate used to calculate that adjustment was the rate implicit in the lease, unless that rate was not readily determinable. For leases for which the rate was not readily determinable, the discount rate used was our incremental borrowing rate as of the adoption date, January 1, 2019. There was no cumulative effect adjustment to our accumulated deficit as a result of initially applying the guidance. Aside from the impact to our consolidated balance sheet discussed above, lease accounting policies and presentation within the consolidated statement of operations and consolidated statements of cash flows is substantially consistent with historical treatment.

We elected the package of practical expedients permitted under the transition guidance within Topic 842, which allowed us to carry forward prior conclusions about lease identification, classification and initial direct costs for leases entered into prior to adoption of Topic 842. Additionally, we elected to not separate lease and non-lease components for all of our leases. For leases with a term of 12 months or less, we elected the short-term lease exemption, which allowed us to not recognize right-of-use assets or lease liabilities for qualifying leases existing at transition and new leases we may enter into in the future.

General Description of Leases

We have entered into various non-cancelable operating lease agreements for our offices and data centers and non-cancelable finance lease agreements for property and equipment. We classify leases at their commencement as either operating or finance leases. We may receive renewal or expansion options, rent holidays, leasehold improvements or other incentives on certain lease agreements.

Our operating leases primarily consist of leases for real estate throughout the world with lease expirations between 2020 and 2026. These arrangements typically do not transfer ownership of the underlying asset as we do not assume, nor do we intend to assume, the risks and rewards of ownership. Our finance leases are related to purchases of property and equipment, primarily computer hardware, with expirations between 2020 and 2023. We have also subleased certain office facilities under operating lease agreements, with expirations between 2023 and 2026.

We lease our headquarters located in Chicago, Illinois ("600 West Chicago"). Our lease agreement for 600 West Chicago extends through January 31, 2026 and includes rent escalations that range from one to two percent per year, as well as expansion options and a five-year renewal option. The 600 West Chicago lease represents $79.4 million of the estimated future payments under operating leases shown in the table below. We account for the 600 West Chicago lease as an operating lease and recognize rent expense on a straight-line basis, taking into account rent escalations and lease incentives.

For more information about our lease accounting policies, including lease recognition policy and significant assumptions and judgments used, refer to Note 2, Summary of Significant Accounting Policies.

The following summarizes right-of-use assets as of December 31, 2019 (in thousands):



	December 31, 2019
Right-of-use assets - operating leases	$	133,832
Right-of-use assets - finance leases⁽¹⁾	28,193
Total right-of-use assets, gross	162,025
Less: accumulated depreciation and amortization	(36,380		)
Right-of-use assets, net	$	125,645


(1)	Right-of-use assets for finance leases are included in Property, equipment and software, net on the consolidated balance sheet.

The following table summarizes our lease cost and sublease income for the year ended December 31, 2019 (in thousands):



	Year Ended December 31, 2019
Financing lease cost:
Amortization of right-of-use assets	$	18,922
Interest on lease liabilities	1,021
Total finance lease cost	19,943
Operating lease cost ⁽¹⁾	34,397
Variable lease cost	8,551
Short-term lease cost	365
Sublease income, gross ⁽²⁾	(5,045		)
Total lease cost	$	58,211


(1)	Rent expense under operating leases was $40.1 million and $42.5 million for the years ended December 31, 2018 and 2017.


(2)	Sublease income was $6.5 million and $7.1 million for the years ended December 31, 2018 and 2017.

As of December 31, 2019, the future payments under finance leases and operating leases for each of the next five years and thereafter are as follows (in thousands):



	Finance Leases			Operating Leases
2020	$	8,510		$	39,261
2021	5,264			34,457
2022	715			32,546
2023	12			24,126
2024	—			17,117
Thereafter	—			16,242
Total minimum lease payments	14,501			163,749
Less: Amount representing interest	(658		)	(20,699		)
Present value of net minimum lease payments	13,843			143,050
Less: Current portion of lease obligations	(8,012		)	(32,756		)
Total long-term lease obligations	$	5,831		$	110,294

As of December 31, 2019, we also had $12.3 million of non-cancelable operating lease commitments for offices that have not yet commenced. These operating leases will commence in 2020 with lease terms of 3 years to 5 years.

As of December 31, 2018, the future payments under lease agreements in accordance with our historical accounting policies under Topic 840 were as follows (in thousands):



	Capital Leases			Operating Leases
2019	$	18,169		$	32,533
2020	7,634			31,116
2021	4,784			26,876
2022	687			26,097
2023	—			21,944
Thereafter	—			31,633
Total minimum lease payments	31,274			$	170,199
Less: Amount representing interest	(1,586		)
Present value of net minimum capital lease payments	29,688
Less: Current portion of capital lease obligations	(17,207		)
Total long-term capital lease obligations	$	12,481

As of December 31, 2019, the future amounts due under subleases for each of the next five years and thereafter are as follows (in thousands):



	Subleases
2020	$	5,027
2021	5,065
2022	5,103
2023	4,385
2024	2,333
Thereafter	2,559
Total future sublease income	$	24,472

The discount rate used for our lease obligations as of both December 31, 2019 and January 1, 2019 ranged from 1.5% to 6.9%. As of December 31, 2019, the weighted-average remaining lease term and weighted-average discount rate for our finance leases and operating leases was as follows:



	Finance Leases		Operating Leases
Weighted-average lease term	2 years		5 years
Weighted-average discount rate	5.2	%	5.6	%

The following table summarizes supplemental cash flow information on our leasing obligations for the year ended December 31, 2019 (in thousands):



	Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	(1,021	)
Operating cash flows from operating leases	(36,723		)
Financing cash flows from finance leases	(19,687		)
Right-of-use assets obtained in exchange for lease liabilities:
Finance leases	3,929
Operating leases	27,293