Leases

9 Months Ended

Sep. 29, 2023

The Company determines if an arrangement is a lease or contains a lease at inception. For all leases with a term longer than 12 months, operating leases are recorded under the noncurrent asset operating lease financial statement line item and the current and noncurrent operating lease liability financial statement line items on the Company’s condensed consolidated balance sheets. The Company has lease agreements with lease and non-lease components, which the Company has elected to account for as a single lease component for all asset classes. Lease expense is recognized on a straight-line basis over the lease term.

Right-of-Use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Since most of the Company’s leases do not provide an implicit rate, the Company uses its own incremental borrowing rate

(“IBR”) on a collateralized basis in determining the present value of lease payments. The Company utilizes a market-based approach to estimate the IBR.

The Company’s lease arrangements primarily consist of operating leases for offices, warehouse space, and distribution centers. The leases have remaining lease terms of 1 year to 10 years, some of which include options to extend for up to an additional 5 years, and some of which include options to terminate prior to completion of the contractual lease term with or without penalties. The Company’s lease term only includes periods covered by options if those options are reasonably certain of being exercised (or not reasonably certain of being exercised as it relates to termination options). Variable lease payments that depend on an index or rate (such as the Consumer Price Index or a market interest rate) are included in the measurement of ROU assets and lease liabilities using the index or rate at the commencement date. Variable payments, other than those dependent upon an index or rate, are excluded from the measurement of the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. The variable lease cost primarily represents variable payments related to common area maintenance and utilities. The Company’s leases do not contain any material residual value guarantees.

The components of the Company’s lease costs are:


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Operating lease cost (a)	$	3,669	$	3,812	$	11,411	$	10,884
Variable lease cost	1,247		1,202		3,856		3,181
Short-term lease cost	35		65		169		251
Total lease cost	$	4,951	$	5,079	$	15,436	$	14,316

(a)Included in cost of sales, exclusive of depreciation and amortization, and selling, general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations.

Supplemental cash flow information and non-cash activity related to the Company’s operating leases are as follows:


	Three Months Ended				Nine Months Ended
	September 29, 2023		September 30, 2022		September 29, 2023		September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities	$	3,640	$	3,735	$	10,662	$	10,539
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations	$	1,220	$	18,028	$	7,758	$	62,925

Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:


	September 29, 2023
Weighted-average remaining lease term	6.34 years
Weighted-average discount rate	7.81	%

As of September 29, 2023, future lease payments under non-cancelable lease commitments for the next five fiscal years and thereafter were as follows:


Remainder of 2023	$	3,821
2024	15,659
2025	14,581
2026	12,436
2027	10,468
Thereafter	28,540
Total lease payments	85,505
Less: Imputed interest	19,936
Less: Lease incentive receivable	413
Present value of lease liabilities	$	65,156

During the nine months ended September 29, 2023, the Company completed its move from its former leased location in Draper, UT to its new location in Lehi, UT. The lease has an operational commencement date of February 1, 2023 and an expiration date of September 30, 2033. As of September 29, 2023, the Company has not entered into any additional lease agreements for office space that have not yet commenced.