Leases

9 Months Ended

Sep. 30, 2020

Adoption of ASC Topic 842, Leases

On December 31, 2019, we adopted the new accounting standard ASC 842, Leases, which requires lessees to recognize a lease liability and a ROU asset for all leases with lease terms greater than 12 months. We used the effective date of this standard as the date of initial application, with no retrospective adjustments to prior comparative periods. We were an emerging growth company as defined by the JOBS Act until December 31, 2019 and therefore this guidance became effective for us in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as we no longer qualify as an emerging growth company as of that date.

The Statement of Cash Flows for the nine months ended September 30, 2019 includes non-cash lease expense, which was reclassified to conform to the current presentation.

Leases Overview

We previously rented approximately 9,500 square feet of office space under an operating lease that expired on March 31, 2019. In September 2018, we entered into a non-cancelable operating lease agreement to sublease approximately 45,000 square feet of office space for our corporate headquarters, which included real estate taxes and operating expenses in the base rent. This lease commenced January 15, 2019 and expires November 30, 2020. We recognized an additional ROU asset and lease liability of $1.8 million each on January 15, 2019.

In May 2019, we entered into a new, non-cancelable operating lease agreement for the same space directly with the landlord. The initial lease term commences on December 1, 2020 and expires May 31, 2028 with an option to renew for one additional period of five years at the then-prevailing market rate. The exercise of the lease renewal option is at our sole discretion and is not expected to be included in the lease term for the calculation of the ROU asset and lease liability when the lease commences on December 1, 2020 as it is not reasonably certain of exercise.

Beginning December 1, 2020, in addition to base rent, we will also pay our proportionate share of the operating expenses, as defined in the lease. These payments will be made monthly, and will be adjusted annually to reflect actual charges incurred for operating expenses, such as common area maintenance, taxes and insurance. In conjunction with this new lease, the landlord agreed to provide Inspire with a $0.6 million rent abatement and a refurbishment allowance in the amount of the cost of any leasehold improvements, not to exceed approximately $1.1 million upon Inspire providing the necessary documentation evidencing the costs of the leasehold improvements that are completed by May 31, 2022. However, the lease allows us to allocate the refurbishment allowance against base rent instead of taking a tenant improvement reimbursement. At this time, we intend to allocate the full amount of the refurbishment allowance against base rent. The total minimum lease payments related to this forward-starting lease is $7.4 million.

The following table presents the lease balances within the balance sheets:


Leases	Classification	September 30, 2020		December 31, 2019
Assets
Operating	Operating lease right-of-use asset	$	171	$	915
Liabilities
Operating	Accrued expenses	$	85	$	828

As of September 30, 2020, the remaining lease term was 0.2 years and the discount rate was 8.0%. The operating cash outflows from our operating leases were $0.3 million for each of the three months ended September 30, 2020 and 2019, and $0.8 million for each of the nine months ended September 30, 2020 and 2019.