Leases

3 Months Ended

Mar. 31, 2022

Leases [Abstract]

Leases

Leases

The new lease standard was adopted on January 1, 2022 using the modified retrospective transition method. Prior periods were not retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. The Company elected the package of practical expedients permitted under the transition guidance and did not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company also elected the practical expedients to exclude right-of-use ("ROU") assets and lease liabilities for leases with an initial term of 12 months or less from the balance sheet, and to combine lease and non-lease components for property leases, which primarily relate to ancillary expenses such as common area maintenance charges and management fees.

Leases are determined at inception by assessing whether the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Owlet's leases consist of leases for corporate offices and office equipment, and have remaining lease terms of 2 to 5 years, with options for renewal. Renewal and termination options have not been included in the lease terms, as it is not reasonably certain that such options will be exercised. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Leases typically contain rent escalations over the lease term. The Company recognizes expense for these leases on a straight-line basis over the lease term. Certain leases require the Company to pay taxes, insurance, maintenance and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the ROU assets and lease liabilities to the extent they are variable in nature. These variable lease costs are recognized as a variable lease expense when incurred.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Owlet uses its incremental borrowing rate, based on the information available at the lease commencement date, to determine the present value of lease payments. Upon adoption, Owlet recorded lease assets and lease liabilities of approximately $3,003 and $3,764, respectively, which did not have a net impact on the condensed consolidated statement of cash flows for the three months ended March 31, 2022. The lease assets were adjusted for deferred rent, lease incentives, and prepaid rent, which were recorded as a decrease to accrued and other expenses and other long-term liabilities for the amounts of $234 and $527, respectively. There were no finance leases as of adoption or during the quarter.

Income from subleased properties is recognized on a straight-line basis and presented as a reduction of costs, allocated among operating expense line items in the Company’s Consolidated Statements of Operations and Comprehensive Loss. In addition to sublease rent, variable non-lease costs such as common area maintenance and utilities are charged to subtenants over the duration of the lease for their proportionate share of these costs. These variable non-lease income receipts are recognized in operating expenses as a reduction to costs incurred by the Company in relation to the head lease.

The impact of the new lease standard on the March 31, 2022 consolidated balance sheet was as follows:

	March 31, 2022
Right of use assets, net	$	2,727
Accrued and other expenses	$	1,336
Noncurrent lease liabilities	2,103
Total lease liabilities, net	$	3,439
Weighted average remaining lease term	2.3 years
Weighted average discount rate	6.5%

Operating lease costs are recognized on a straight-line basis over the lease term. Total operating lease costs for the three months ended March 31, 2022 were $346, which included approximately $11 related to short-term and variable lease costs.

Supplemental cash flow information related to leases was as follows:

	March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows	$	385

The following table shows the future maturities of lease liabilities for leases in effect as of March 31, 2022:

Years Ending December 31,	Lease Liabilities
2022 (excluding the three months ended March 31, 2022)	$	1,156
2023	1,587
2024	953
Total lease payments	3,696
Less: imputed interest	(257)
Total	$	3,439

As of March 31, 2022, the Company had four sublease arrangements which are noncancellable and have remaining lease terms of 0.5 to 2.5 years. These subleases do not contain any options to renew or terminate the sublease agreement. The following table shows the expected future sublease receipts as of March 31, 2022:

Years Ending December 31,	Sublease Receipts
2022 (excluding the three months ended March 31, 2022)	$	947
2023	1,178
2024	679
Total expected sublease receipts	$	2,804

The Company received sublease income of $113 and $17 for the three months ended March 31, 2022 and March 31, 2021, respectively.

As previously disclosed in our 2021 Annual Report on Form 10-K and under the previous lease standard (Topic ASC 840), future minimum lease payments under non-cancelable operating leases at December 31, 2021 were as follows:

Years Ending December 31,	Amount
2022	$	1,541
2023	1,587
2024	953
Total	$	4,081

Rental expense under operating leases was approximately $371 for the three months ended March 31, 2021.

Leases

Leases

The new lease standard was adopted on January 1, 2022 using the modified retrospective transition method. Prior periods were not retrospectively adjusted and continue to be reported under the accounting standards in effect for those periods. The Company elected the package of practical expedients permitted under the transition guidance and did not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company also elected the practical expedients to exclude right-of-use ("ROU") assets and lease liabilities for leases with an initial term of 12 months or less from the balance sheet, and to combine lease and non-lease components for property leases, which primarily relate to ancillary expenses such as common area maintenance charges and management fees.

Leases are determined at inception by assessing whether the arrangement conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Owlet's leases consist of leases for corporate offices and office equipment, and have remaining lease terms of 2 to 5 years, with options for renewal. Renewal and termination options have not been included in the lease terms, as it is not reasonably certain that such options will be exercised. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Leases typically contain rent escalations over the lease term. The Company recognizes expense for these leases on a straight-line basis over the lease term. Certain leases require the Company to pay taxes, insurance, maintenance and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the ROU assets and lease liabilities to the extent they are variable in nature. These variable lease costs are recognized as a variable lease expense when incurred.

ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Owlet uses its incremental borrowing rate, based on the information available at the lease commencement date, to determine the present value of lease payments. Upon adoption, Owlet recorded lease assets and lease liabilities of approximately $3,003 and $3,764, respectively, which did not have a net impact on the condensed consolidated statement of cash flows for the three months ended March 31, 2022. The lease assets were adjusted for deferred rent, lease incentives, and prepaid rent, which were recorded as a decrease to accrued and other expenses and other long-term liabilities for the amounts of $234 and $527, respectively. There were no finance leases as of adoption or during the quarter.

Income from subleased properties is recognized on a straight-line basis and presented as a reduction of costs, allocated among operating expense line items in the Company’s Consolidated Statements of Operations and Comprehensive Loss. In addition to sublease rent, variable non-lease costs such as common area maintenance and utilities are charged to subtenants over the duration of the lease for their proportionate share of these costs. These variable non-lease income receipts are recognized in operating expenses as a reduction to costs incurred by the Company in relation to the head lease.

The impact of the new lease standard on the March 31, 2022 consolidated balance sheet was as follows:

	March 31, 2022
Right of use assets, net	$	2,727
Accrued and other expenses	$	1,336
Noncurrent lease liabilities	2,103
Total lease liabilities, net	$	3,439
Weighted average remaining lease term	2.3 years
Weighted average discount rate	6.5%

Operating lease costs are recognized on a straight-line basis over the lease term. Total operating lease costs for the three months ended March 31, 2022 were $346, which included approximately $11 related to short-term and variable lease costs.

Supplemental cash flow information related to leases was as follows:

	March 31, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows	$	385

The following table shows the future maturities of lease liabilities for leases in effect as of March 31, 2022:

Years Ending December 31,	Lease Liabilities
2022 (excluding the three months ended March 31, 2022)	$	1,156
2023	1,587
2024	953
Total lease payments	3,696
Less: imputed interest	(257)
Total	$	3,439

As of March 31, 2022, the Company had four sublease arrangements which are noncancellable and have remaining lease terms of 0.5 to 2.5 years. These subleases do not contain any options to renew or terminate the sublease agreement. The following table shows the expected future sublease receipts as of March 31, 2022:

Years Ending December 31,	Sublease Receipts
2022 (excluding the three months ended March 31, 2022)	$	947
2023	1,178
2024	679
Total expected sublease receipts	$	2,804

The Company received sublease income of $113 and $17 for the three months ended March 31, 2022 and March 31, 2021, respectively.

As previously disclosed in our 2021 Annual Report on Form 10-K and under the previous lease standard (Topic ASC 840), future minimum lease payments under non-cancelable operating leases at December 31, 2021 were as follows:

Years Ending December 31,	Amount
2022	$	1,541
2023	1,587
2024	953
Total	$	4,081

Rental expense under operating leases was approximately $371 for the three months ended March 31, 2021.