Leases

3 Months Ended

Dec. 31, 2019

Lessee Accounting

As discussed in Note 2, “Summary of Significant Accounting Policies” the Company adopted ASU 2016-02 on October 1, 2019. ASU 2016-02 requires a lessee to recognize assets and liabilities on the balance sheet for all leases, with the result being the recognition of a right-of-use (“ROU”) asset and a corresponding lease liability. The lease liability is equal to the present value of the minimum lease payments for the term of the lease using the discount rate determined at lease commencement and including any optional renewal periods that were determined to be reasonably certain to be exercised. The ROU asset is equal to the initial measurement of the lease liability plus any lease payments made to the lessor at or before the commencement date and any unamortized initial indirect costs incurred by the lessee, less any unamortized lease incentives received. ROU assets are periodically reviewed for impairment whenever events or changes in circumstances arise. During the three months ended December 31, 2019, the Company incurred no impairment charges on ROU assets.

The discount rate utilized in calculating the lease liability is the rate implicit in the lease, if known, otherwise, the incremental borrowing rate (“IBR”) for the expected lease term is used. Generally, the Company cannot determine the interest rate implicit in the lease. The Company’s IBR approximates the rate the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

The Company occupies certain facilities and operates certain equipment and vehicles under non‑cancelable lease arrangements. Lease agreements may contain lease escalation clauses and purchase and renewal options. At the inception of a contract, the Company determines whether the arrangement is or contains a lease. A lease is determined to exist if there is an identified asset, the Company has the right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the asset. Once a lease is determined to exist, the Company determines the lease classification at lease commencement. Leases are classified as operating or finance leases based on specific criteria. Operating lease expense is recognized on a straight-line basis on the Unaudited Consolidated Statements of Operations. Finance lease expense have front-loaded expense recognition that is recognized as depreciation expense and interest expense on the Unaudited Consolidated Statements of Operations. On the Consolidated Statements of Changes in Cash Flows, payments for operating leases are included in operating activities and payments for finance leases are included in financing activity, with the interest component included in operating activities.

The Company’s real estate leases often include options to extend the lease term; however, the Company has not included the renewal options in the ROU asset and lease liability because the likelihood of renewal was not reasonably certain. In addition, the Company has leases that include variable lease payments, for items such as maintenance or other operating expenses, which are expensed as incurred as variable lease expense.

Adoption of ASU 2016-02, Leases (Topic 842)

The Company applied Topic 842 to all existing leases at October 1, 2019 using the modified retrospective approach. As a result, prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historical accounting under Topic 840. The Company has elected the following package of practical expedients which exempts the Company from having to reassess: (i) whether expired or existing contracts contain a lease, (ii) the lease classification for expired or existing leases, and (iii) initial direct costs for existing leases. In addition, the Company elected to separate lease and non-lease components for all asset classes, did not elect to use hindsight to determine the lease term and made an accounting policy election for short-term leases which does not require the capitalization of leases with terms of 12 months or less.

As a result of adoption of Topic 842 on October 1, 2019, the Company recognized $42,073 of ROU assets related to operating leases in Operating lease right-of-use assets, net and $42,904 of corresponding lease liabilities, of which $13,596 is included in Accrued expenses and other liabilities and $29,308 is included in Obligation under operating leases on the Consolidated Balance Sheets. The difference is attributable to deferred rent balance as of September 30, 2019 that reduced the ROU asset balance on October 1, 2019, of which $73 was removed from Prepaid and other current assets and the remainder was recognized in Retained deficit on the Consolidated Balance Sheets. In addition, the Company recorded an ROU asset related to finance leases in Property, plant, and equipment, net of $2,126 and $3,245 in corresponding lease liabilities included in Other non‑current liabilities on the Consolidated Balance Sheets, with the difference recognized in Retained deficit. See Note 2, “Summary of Significant Accounting Policies” for further information on the impact of adoption.

The following represents the components of lease cost and other information for both operating and finance leases for the three months ended December 31, 2019:



Lease cost
Finance lease cost:
Amortization of ROU assets	$	3,420
Interest on lease liabilities	518
Operating lease cost	4,215
Short-term lease cost	837
Variable lease cost	—
Sublease income	(14		)
Total lease cost	$	8,976

Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	520
Operating cash flows from operating leases	4,154
Financing cash flows from finance leases	3,346
ROU assets obtained in exchange for new operating lease liabilities	1,782
Weighted average remaining lease term - finance leases	3.9 years
Weighted average remaining lease term - operating leases	4.9 years
Weighted average discount rate - finance leases	5.00		%
Weighted average discount rate - operating leases	4.53		%

The following table reconciles future minimum undiscounted rental commitments for operating leases to operating lease liabilities record on the Consolidated Balance Sheet as of December 31, 2019:



Fiscal Year
Remainder of 2020	$	12,269
2021	13,304
2022	8,704
2023	6,266
2024	4,178
Thereafter	8,277
Total undiscounted lease payments	$	52,998
Present value adjustment	(5,952		)
Operating lease liabilities	47,046
Less current installments of obligations under operating leases	14,175
Obligations under operating leases, excluding current installments	$	32,871

The gross and net carrying values of the equipment under finance leases as of December 31, and September 30, 2019 was as follows:



	December 31, 2019		September 30, 2019
Gross carrying amount	$	80,458	$	69,760
Net carrying amount	36,871		36,337

The following table reconciles future minimum undiscounted rental commitments for finance leases to the finance lease liabilities recorded on the Consolidated Balance Sheet as of December 31, 2019:



Fiscal Year
Remainder of 2020	$	10,643
2021	11,043
2022	8,416
2023	5,910
2024	3,716
Thereafter	2,443
Total undiscounted lease payments	42,171
Present value adjustment	(4,221		)
Finance lease liabilities	37,950
Less current installments of obligations under finance leases	12,006
Obligations under finance leases, excluding current installments	$	25,944

The current installments of obligations under finance leases are included in Accrued expenses and other liabilities. Obligations under finance leases, excluding current installments, are included in Other non-current liabilities.

Lessor Accounting

The Company is a lessor to multiple parties. The Company purchases equipment through internal funding or bank debt equal to the fair market value of the equipment. The equipment is then leased to customers for periods ranging from five to twenty years. These contracts generally contain both lease and non-lease components, including installation and maintenance services of the Company owned equipment. As part of the Company’s adoption of Topic 842, for contracts entered into after October 1, 2019, the Company elected the practical expedient to not separate lease and non-lease components when certain conditions are met, including the lease qualifying as an operating lease and the same revenue recognition pattern for the lease and non-lease components. The Company accounts for these contacts with the customer as a combined component under the respective authoritative guidance for the predominant component in the contract, the lease or non-lease component. Lease income is included in Revenue from services on the Unaudited Consolidated Statements of Operations.

As of December 31, 2019, future minimum lease payments receivable under operating leases are as follows:



Fiscal year
Remainder of 2020	$	75,905
2021	51,107
2022	34,977
2023	24,564
2024	13,329
Thereafter	92,565
Future minimum lease payments	$	292,447

Leases