Leases

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

Leases

Leases

The Company leases real estate, trucks and other equipment. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Classification and initial measurement of the right-of-use asset and lease liability are determined at the lease commencement date. The Company elected the short-term lease measurement and recognition exemption; therefore, leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets. Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term.

The Company's arrangements include certain non-lease components such as common area and other maintenance for leased real estate, as well as mileage, fuel and maintenance costs related to leased vehicles. For all leased asset classes, the Company has elected to not separate non-lease components from lease components and will account for each separate lease component and non-lease component associated with the lease as a single lease component. The Company does not guarantee any residual value in its lease agreements, and there are no material restrictions or covenants imposed by lease arrangements. Real estate leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. For the Company’s leased vehicles, the Company uses the interest rate implicit in its leases with the lessor to discount lease payments at the lease commencement date. When the implicit rate is not readily available, as is the case with the Company’s real estate leases, the Company uses quoted borrowing rates on its secured debt.

Related Party Lease Agreement. In conjunction with the closing of the Jake Marshall Transaction, the Company entered into an operating lease for certain land and facilities owned by a former member of JMLLC who became a full-time employee of the Company. The lease term is ten years and includes an option to extend the lease for two successive periods of two years each through November 2035. Base rent for the term of the lease is $37,500 per month for the first five years with payment commencing on January 1, 2022. The fixed rent payment is escalated to $45,000 per month for years 6 through 10 of the lease term. Fixed rent payments for the extension term shall be increased from $45,000 by the percentage increase, if any, in the consumer price index from the lease commencement date. In addition, under the agreement, the Company is required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses.

Southern California Sublease. In June, 2021, the Company entered into a sublease agreement with a third party for the entire ground floor of its leased space in Southern California, consisting of 71,787 square feet. Under the terms of the sublease agreement, the sublessee is obligated to pay the Company base rent of approximately $0.6 million per year, which is subject to a 3.0% annual rent increase, plus certain operating expenses and other costs. The initial lease term commenced in September 2021 and continues through April 30, 2027. As of December 31, 2021, the Company remains obligated under the original lease for such office space and, in the event the subtenant of such office space fails to satisfy its obligations under the sublease, the Company would be required to satisfy its obligations directly to the landlord under such original lease. For the year ended December 31, 2021, the Company recorded $0.4 million of income in selling, general and administrative expenses related to this sublease agreement.

The following table summarizes the lease amounts included in the Company’s consolidated balance sheets as of December 31, 2021 and 2020:

(in thousands)	Classification on the Consolidated Balance Sheets	December 31, 2021		December 31, 2020
Assets
Operating	Operating lease right-of-use assets(a)	$	20,119	$	18,751
Finance	Property and equipment, net(b)	4,916		6,242
Total lease assets		$	25,035	$	24,993
Liabilities
Current
Operating	Current operating lease liabilities	$	4,366	$	3,929
Finance	Current portion of long-term debt	2,451		2,536
Noncurrent
Operating	Long-term operating lease liabilities	16,576		15,459
Finance	Long-term debt	2,681		3,923
Total lease liabilities		$	26,074	$	25,847

(a)    Operating lease assets are recorded net of accumulated amortization of $15.9 million and $11.9 million at December 31, 2021 and 2020, respectively.

(b)    Finance lease assets are recorded net of accumulated amortization of $5.9 million and $5.3 million at December 31, 2021 and 2020, respectively.

The following table summarizes the lease costs included in the Company’s consolidated statements of operations for the years ended December 31, 2021 and 2020:

(in thousands)	Classification on the Consolidated Statements of Operations	December 31, 2021		December 31, 2020
Operating lease cost	Cost of revenue(a)	$	2,901	$	3,527
Operating lease cost	Selling, general and administrative(a)	2,223		1,483
Finance lease cost:
Amortization	Cost of revenue(b)	2,622		2,711
Interest	Interest expense, net(b)	305		363
Total lease cost		$	8,051	$	8,084

(a)    Operating lease costs recorded in cost of sales includes $0.5 million and $0.7 million of variable lease costs for both the years ended December 31, 2021 and 2020, respectively. In addition, $0.4 million and $0.3 million of variable lease costs are included in selling, general and administrative expenses for the years ended December 31, 2021 and 2020, respectively. These variable costs consist of our proportionate share of operating expenses, real estate taxes, and utilities.

(b)    Finance lease costs recorded in cost of revenue includes $2.8 million and $2.4 million of variable leases costs for the years ended December 31, 2021 and 2020, respectively. These variable lease costs consist of fuel, maintenance, and sales tax charges. No variable lease costs for finance leases were recorded in selling, general and administrative expenses for the years ended December 31, 2021 or 2020.

Future minimum commitments for finance and operating leases that have non-cancelable lease terms in excess of one year as of the year ended December 31, 2021 were as follows (in thousands):

			Operating Leases
Year ending December 31:	Finance Leases		Non-Related Party		Related Party(1)		Sublease Receipts(2)		Total Operating
2022	$	2,658	$	4,800	$	450	$	(657)	$	4,593
2023	1,662		3,516		450		(677)		3,289
2024	851		2,917		450		(697)		2,670
2025	289		2,409		450		(718)		2,141
2026	12		2,010		450		(740)		1,720
Thereafter	—		2,033		4,815		(250)		6,598
Total minimum lease payments	$	5,472	$	17,685	$	7,065	$	(3,739)	$	21,011
Amounts representing interest	(340)
Present value of net minimum lease payments	$	5,132

(1)    Associated with the aforementioned related party lease entered into with a former member of JMLLC.

(2)    Associated with the aforementioned third party sublease.

The following is a summary of the lease terms and discount rates as of:

	December 31, 2021		December 31, 2020
Weighted average lease term (in years)
Operating	7.10		5.48
Finance	2.51		2.78
Weighted average discount rate
Operating	4.68	%	4.83	%
Finance	5.27	%	5.50	%

The following is a summary of other information and supplemental cash flow information related to finance and operating leases:

	Year Ended December 31,
(in thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	4,938	$	5,164
Operating cash flows from finance leases	305		363
Financing cash flows from finance leases	2,623		2,664
Right-of-use assets exchanged for lease liabilities
Operating leases	$	5,417	$	1,096
Finance leases	1,296		2,624
Right-of-use assets disposed or adjusted modifying operating leases liabilities	$	219	$	621
Right-of-use assets disposed or adjusted modifying finance leases liabilities	$	—	$	(86)

Leases

Leases

The Company leases real estate, trucks and other equipment. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Classification and initial measurement of the right-of-use asset and lease liability are determined at the lease commencement date. The Company elected the short-term lease measurement and recognition exemption; therefore, leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets. Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term.

The Company's arrangements include certain non-lease components such as common area and other maintenance for leased real estate, as well as mileage, fuel and maintenance costs related to leased vehicles. For all leased asset classes, the Company has elected to not separate non-lease components from lease components and will account for each separate lease component and non-lease component associated with the lease as a single lease component. The Company does not guarantee any residual value in its lease agreements, and there are no material restrictions or covenants imposed by lease arrangements. Real estate leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. For the Company’s leased vehicles, the Company uses the interest rate implicit in its leases with the lessor to discount lease payments at the lease commencement date. When the implicit rate is not readily available, as is the case with the Company’s real estate leases, the Company uses quoted borrowing rates on its secured debt.

Related Party Lease Agreement. In conjunction with the closing of the Jake Marshall Transaction, the Company entered into an operating lease for certain land and facilities owned by a former member of JMLLC who became a full-time employee of the Company. The lease term is ten years and includes an option to extend the lease for two successive periods of two years each through November 2035. Base rent for the term of the lease is $37,500 per month for the first five years with payment commencing on January 1, 2022. The fixed rent payment is escalated to $45,000 per month for years 6 through 10 of the lease term. Fixed rent payments for the extension term shall be increased from $45,000 by the percentage increase, if any, in the consumer price index from the lease commencement date. In addition, under the agreement, the Company is required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses.

Southern California Sublease. In June, 2021, the Company entered into a sublease agreement with a third party for the entire ground floor of its leased space in Southern California, consisting of 71,787 square feet. Under the terms of the sublease agreement, the sublessee is obligated to pay the Company base rent of approximately $0.6 million per year, which is subject to a 3.0% annual rent increase, plus certain operating expenses and other costs. The initial lease term commenced in September 2021 and continues through April 30, 2027. As of December 31, 2021, the Company remains obligated under the original lease for such office space and, in the event the subtenant of such office space fails to satisfy its obligations under the sublease, the Company would be required to satisfy its obligations directly to the landlord under such original lease. For the year ended December 31, 2021, the Company recorded $0.4 million of income in selling, general and administrative expenses related to this sublease agreement.

The following table summarizes the lease amounts included in the Company’s consolidated balance sheets as of December 31, 2021 and 2020:

(in thousands)	Classification on the Consolidated Balance Sheets	December 31, 2021		December 31, 2020
Assets
Operating	Operating lease right-of-use assets(a)	$	20,119	$	18,751
Finance	Property and equipment, net(b)	4,916		6,242
Total lease assets		$	25,035	$	24,993
Liabilities
Current
Operating	Current operating lease liabilities	$	4,366	$	3,929
Finance	Current portion of long-term debt	2,451		2,536
Noncurrent
Operating	Long-term operating lease liabilities	16,576		15,459
Finance	Long-term debt	2,681		3,923
Total lease liabilities		$	26,074	$	25,847

(a)    Operating lease assets are recorded net of accumulated amortization of $15.9 million and $11.9 million at December 31, 2021 and 2020, respectively.

(b)    Finance lease assets are recorded net of accumulated amortization of $5.9 million and $5.3 million at December 31, 2021 and 2020, respectively.

The following table summarizes the lease costs included in the Company’s consolidated statements of operations for the years ended December 31, 2021 and 2020:

(in thousands)	Classification on the Consolidated Statements of Operations	December 31, 2021		December 31, 2020
Operating lease cost	Cost of revenue(a)	$	2,901	$	3,527
Operating lease cost	Selling, general and administrative(a)	2,223		1,483
Finance lease cost:
Amortization	Cost of revenue(b)	2,622		2,711
Interest	Interest expense, net(b)	305		363
Total lease cost		$	8,051	$	8,084

(a)    Operating lease costs recorded in cost of sales includes $0.5 million and $0.7 million of variable lease costs for both the years ended December 31, 2021 and 2020, respectively. In addition, $0.4 million and $0.3 million of variable lease costs are included in selling, general and administrative expenses for the years ended December 31, 2021 and 2020, respectively. These variable costs consist of our proportionate share of operating expenses, real estate taxes, and utilities.

(b)    Finance lease costs recorded in cost of revenue includes $2.8 million and $2.4 million of variable leases costs for the years ended December 31, 2021 and 2020, respectively. These variable lease costs consist of fuel, maintenance, and sales tax charges. No variable lease costs for finance leases were recorded in selling, general and administrative expenses for the years ended December 31, 2021 or 2020.

Future minimum commitments for finance and operating leases that have non-cancelable lease terms in excess of one year as of the year ended December 31, 2021 were as follows (in thousands):

			Operating Leases
Year ending December 31:	Finance Leases		Non-Related Party		Related Party(1)		Sublease Receipts(2)		Total Operating
2022	$	2,658	$	4,800	$	450	$	(657)	$	4,593
2023	1,662		3,516		450		(677)		3,289
2024	851		2,917		450		(697)		2,670
2025	289		2,409		450		(718)		2,141
2026	12		2,010		450		(740)		1,720
Thereafter	—		2,033		4,815		(250)		6,598
Total minimum lease payments	$	5,472	$	17,685	$	7,065	$	(3,739)	$	21,011
Amounts representing interest	(340)
Present value of net minimum lease payments	$	5,132

(1)    Associated with the aforementioned related party lease entered into with a former member of JMLLC.

(2)    Associated with the aforementioned third party sublease.

The following is a summary of the lease terms and discount rates as of:

	December 31, 2021		December 31, 2020
Weighted average lease term (in years)
Operating	7.10		5.48
Finance	2.51		2.78
Weighted average discount rate
Operating	4.68	%	4.83	%
Finance	5.27	%	5.50	%

The following is a summary of other information and supplemental cash flow information related to finance and operating leases:

	Year Ended December 31,
(in thousands)	2021		2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	4,938	$	5,164
Operating cash flows from finance leases	305		363
Financing cash flows from finance leases	2,623		2,664
Right-of-use assets exchanged for lease liabilities
Operating leases	$	5,417	$	1,096
Finance leases	1,296		2,624
Right-of-use assets disposed or adjusted modifying operating leases liabilities	$	219	$	621
Right-of-use assets disposed or adjusted modifying finance leases liabilities	$	—	$	(86)