Leases

9 Months Ended

Sep. 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 liability and the right-of-use asset for this lease, utilizing the fair market rate determined by independent arbitrators on July 8, 2024, and an extended lease term expiring July 31, 2029.

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
	(in thousands)				(in thousands)
Operating lease expense	$	2,752	$	1,606	$	6,694	$	4,454
Short-term lease expense	370		106		795		143
Variable lease expense	357		260		1,125		750
Total lease expense	$	3,479	$	1,972	$	8,614	$	5,347

For the three months ended September 30, 2024 and 2023, rent expense included in operating expenses was $2,843,000 and $1,653,000, respectively, and rent expense included in cost of goods sold was $636,000 and $319,000, respectively. For the nine months ended September 30, 2024 and 2023, rent expense included in operating expenses was $7,209,000 and $4,542,000, respectively, and rent expense included in cost of goods sold was $1,405,000 and $805,000, respectively.

The following table presents supplemental information related to operating leases:


	September 30, 2024		December 31, 2023
Weighted average remaining lease term	4.55 years		4.51 years
Weighted average discount rate	7.0	%	6.2	%


	Nine Months Ended September 30,
	2024		2023
	(in thousands)
Cash paid for amounts included in measurement of lease obligations:
Operating cash flows from operating leases	$	5,721	$	4,129

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


	(in thousands)
2024 (remainder)	$	2,825
2025	11,550
2026	11,909
2027	10,827
2028	9,617
Thereafter	6,216
Total future lease payments	52,944
Less: imputed interest	(7,725)
Total lease liability balance	$	45,219

During the nine months ended September 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 $185,000 for the remaining three months of the year ending December 31, 2024, and $616,000 for the year ending December 31, 2025