Leases

12 Months Ended

Sep. 30, 2020

We have leases for facilities and office equipment. Our lease liabilities are recognized as the present value of the future minimum lease payments over the lease term. Our right-of-use assets are recognized as the present value of the future minimum lease payments over the lease term less unamortized lease incentives and the balance remaining in deferred rent liability under ASC 840. Our lease payments consist of fixed and in-substance fixed amounts attributable to the use of the underlying asset over the lease term. Variable lease payments that do not depend on an index rate or are not in-substance fixed payments are excluded in the measurement of right-of-use assets and lease liabilities and are expensed in the period incurred. The incremental borrowing rate on our credit facility is used in determining the present value of future minimum lease payments. Some of our lease agreements include options to extend the lease term or terminate the lease. These options are accounted for in our right-of-use assets and lease liabilities when it is reasonably certain that the Company will extend the lease term or terminate the lease. The Company does not have any finance leases.

Upon the adoption of ASC 842, we recorded operating lease right-of-use assets of $17.4 million, current and long-term operating lease liabilities of $3.6 million and $14.4 million, and a $2 thousand cumulative adjustment to accumulated deficit.

The impact of adopting the standard on our consolidated balance sheet at October 1, 2019 is as follows:


(in thousands)	Ref	September 30, 2019		ASC 842 Adjustments		October 1, 2019
Long-term assets:
Operating leases right-of-use assets		$	—	$	17,398	$	17,398

Current liabilities:
Deferred rent liability - short-term	(a)	44		(44)		—
Operating leases liabilities - current		—		3,645		3,645

Long-term liabilities:
Deferred rent liability - long-term	(b)	276		(276)		—
Unamortized tenant improvement allowance	(c)	297		(297)		—
Operating leases liabilities - long-term		—		14,372		14,372

Shareholders' equity:
Accumulated deficit		(39,555)		(2)		(39,557)

Ref (a): The balance of short-term deferred rent liability presented in our annual 10K report within accounts payable, accrued expenses, and other accrued liabilities on our consolidated balance sheet at September 30, 2019.

Ref (b): The balance of long-term deferred rent liability presented in our annual 10K report within other long-term liabilities on our consolidated balance sheet at September 30, 2019.

Ref (c): The balance of unamortized tenant improvement allowance presented in our annual 10K report within other long-term liabilities on our consolidated balance sheet at September 30, 2019.

The Company executed a modification of a lease during the fiscal quarter ending December 31, 2019 and recognized adjustments to the right-of-use asset and lease liabilities in accordance with ASC 842. As a result of the modification, a gain of $0.1 million was recognized. The gain represents the difference between the change in values of the right-of-use-asset and lease liabilities, which were $7.3 million and $7.2 million, respectively. For the year ended September 30, 2020, the increase to right-of-use assets and lease liabilities related to the modification was $24.7 million and $25.2 million, respectively. For more information, refer to Note 7. Supporting Financial Information.

As of September 30, 2020, operating leases for facilities and equipment have remaining lease terms of 0.6 to 10.5 years.

The following table summarizes lease balances in our consolidated balance sheet at September 30, 2020:


	(in thousands)
	September 30, 2020
Operating lease right-of-use assets	$	22,427

Operating lease liabilities, current	$	2,045
Operating lease liabilities - long-term	21,620
Total operating lease liabilities	$	23,665

The Company subleases a portion of one of its leased facilities. The sublease is classified as an operating lease with respect to the underlying asset. The sublease was assumed from the acquisition in fiscal 2019. During the year ended September 30, 2020, the sublease was amended with the new terms commencing in July 2020. The sublease term is 5 years with two additional 1 year term extension options.

The Company's lease costs are included within general and administrative costs in our Consolidated Statements of Operations. For the year ended September 30, 2020, total lease costs for our operating leases are as follows:


	(in thousands)
	Year Ended
	September 30, 2020
Operating	$	4,236
Short-term	155
Variable	63
Sublease income	(271)
Total lease costs	$	4,183

Other information related to our leases are as follows:


	Ref	September 30, 2020
Weighted-average remaining lease term		9.1 years
Weighted-average discount rate	(a)	5.99	%

Ref (a): Calculation based off of borrowing terms from senior credit facility.


	(in thousands)
	Year Ended
	September 30, 2020
Cash paid for amounts included in the measurement of lease liabilities	$	3,586
Lease liabilities arising from obtaining right-of-use-assets	$	229

The Company's future minimum lease payments as of September 30, 2020 are as follows:


For the Fiscal Year Ending September 30,	(in thousands)
2021	$	3,408
2022	3,501
2023	3,375
2024	3,251
2025	3,092
Thereafter	14,684
Total future minimum lease payments	31,311
Less: imputed interest	(7,646)
Present value of future minimum lease payments	23,665
Less: current portion of operating lease liabilities	(2,045)
Long-term operating lease liabilities	$	21,620

Under ASC 840, the Company's future minimum lease payments for the prior fiscal year ended September 30, 2019 were as follows:


For the Fiscal Year Ending September 30,	(in thousands)
2020	$	3,484
2021	3,051
2022	3,136
2023	3,166
2024	3,100
Thereafter	16,945
Total future minimum lease payments	$	32,882