Leases

6 Months Ended

Jun. 30, 2024

The Company primarily leases manufacturing facilities, distribution centers, and office spaces with lease terms expiring through 2031. In May 2024, the Company determined there was a change in the assessment of whether the renewal option on the lease agreement for its Chino, California facility was reasonably certain to be exercised. As a result, the Company remeasured the lease liabilities and the right-of-use assets for this lease with an extended lease term expiring July 31, 2029. As of June 30, 2024, the Company was still in the arbitration process with the landlord on this facility to determine the fair market value of the rate to be used for lease extension. See further discussion about the renewal rate in Note 16 — Subsequent Events.

The Company recognized the following lease costs in the accompanying condensed consolidated statement of income:


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
	(in thousands)				(in thousands)
Operating lease expense	$	2,122	$	1,515	$	3,942	$	2,848
Short-term lease expense	11		24		20		37
Variable lease expense	394		243		767		490
Total lease expense	$	2,527	$	1,782	$	4,729	$	3,375

For the three months ended June 30, 2024 and 2023, rent expense included in operating expenses was $2,253,000 and $1,524,000, respectively, and rent expense included in cost of goods sold was $274,000 and $258,000, respectively. For the six months ended June 30, 2024 and 2023, rent expense included in operating expenses was $4,184,000 and $2,889,000, respectively, and rent expense included in cost of goods sold was $545,000 and $486,000, respectively.

The following table presents supplemental information related to operating leases:


	June 30, 2024		December 31, 2023
Weighted average remaining lease term	4.79 years		4.51 years
Weighted average discount rate	6.9	%	6.2	%


	Six Months Ended June 30,
	2024		2023
	(in thousands)
Cash paid for amounts included in measurement of lease obligations:
Operating cash flows from operating leases	$	3,573	$	2,740

As of June 30, 2024, future lease payments under operating leases were as follows:


	(in thousands)
2024 (remainder)	$	5,014
2025	11,550
2026	11,909
2027	10,827
2028	9,617
Thereafter	6,216
Total future lease payments	55,133
Less: imputed interest	(8,521)
Total lease liability balance	$	46,612

During the six months ended June 30, 2024, the Company recorded a non-cash impairment of a ROU asset of $1,993,000 resulting from the sublease of its City of Industry warehouse in California.

Global Wells is the landlord under an operating lease agreement with an unrelated party that generates monthly rental payments from $62,000 to $65,000 and ends on October 31, 2025. The expected rental income is $370,000 for the remaining six months of the year ending December 31, 2024, and $616,000 for the year ending December 31, 2025