Leases

12 Months Ended

Dec. 31, 2019

The Company enters into various office space, data center, and equipment lease agreements in conducting its normal business operations. At the inception of any contract, the Company evaluates the agreement to determine whether the contract contains a lease. If the contract contains a lease, the Company then evaluates the term and whether the lease is an operating or finance lease. Most leases include one or more options to renew or may have a termination option. The Company determines whether these options are reasonably certain to be exercised or not at the inception of the lease. In addition, some leases contain escalation clauses. The rent expense is recognized on a straight-line basis in the consolidated statements of operations and comprehensive income (loss) over the term of the lease. Leases with an initial term of 12 months or less are not recorded on our consolidated balance sheets.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Further, the Company treats all lease and non-lease components as a single combined lease component for all classes of underlying assets.

The Company also enters into sublease agreements for some of its leased office space. Rental income attributable to subleases is offset against rent expense over the terms of the respective leases.

The Company leases office space and computer and other equipment under operating lease agreements expiring at various dates through 2031. Under the lease agreements, in addition to base rent, the Company is generally responsible for operating and maintenance costs and related fees. Several of these agreements include tenant improvement allowances, rent holidays or rent escalation clauses. When such items are included in a lease agreement, we record a deferred rent asset or liability on our consolidated balance sheets equal to the difference between rent expense and future minimum lease payments due. The rent expense related to these items is recognized on a straight-line basis over the terms of the leases. The Company’s primary office location is in Arlington, Virginia, which has served as its corporate headquarters since 2013. The Arlington, Virginia office lease expires in January 2032. Certain leases acquired as part of the Valence Health transaction included existing sublease agreements for office locations in Chicago, Illinois.

In connection with various lease agreements, the Company is required to maintain $3.6 million in letters of credit. As of December 31, 2019, the Company held $3.6 million in restricted cash and restricted investments on the consolidated balance sheet as collateral for the letters of credit.

The following table summarizes our primary office leases as of December 31, 2019 (in thousands):



Location	Lease Termination Term (in years)	Future Minimum Lease Commitments		Letter of Credit Amount Required
Arlington, VA	12.1	$	40,832	$	1,579
Chicago, IL	11.3	41,857		232
Louisville, KY ⁽¹⁾	6.5	—		—
Pune, India	3.8	3,265		—
Brea, CA	2.4	2,547		—

⁽¹⁾Lease payments of $4.3 million for Louisville, KY have been prepaid as of December 31, 2019.

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



	For the Year Ended December 31, 2019
Operating lease cost	$	13,903
Amortization of right-of-use assets	598
Interest expense	26
Variable lease cost	4,177
Total lease cost	$	18,704

As discussed in Note 3, the Company adopted ASU 2016-02 effective January 1, 2019, which resulted in accounting for leases under ASC 842. Prior to the adoption, we accounted for leases under ASC 840. In accordance with ASC 840, rent expense, net of sublease income, on operating leases was for the years ended December 31, 2018 and 2017, was $14.2 million and $10.9 million, respectively. The Company does not have any material capital leases.

Maturity of lease liabilities (in thousands) as of December 31, 2019, is as follows:



	As of December 31, 2019
2020	10,747
2021	10,975
2022	9,822
2023	9,191
2024	8,614
Thereafter	53,893
Total lease payments ⁽¹⁾	103,242
Less:
Interest	28,115
Present value of lease liabilities	$	75,127

⁽¹⁾ We have additional operating lease agreements for office space that have not yet commenced as of December 31, 2019. The minimum lease payments for those leases are $0.1 million and the leases will commence during 2020.

Our weighted-average discount rate and our weighted remaining lease terms (in years) are as follows:



	As of December 31, 2019
Weighted average discount rate	6.25	%
Weighted average remaining lease term	9.9