LEASES

9 Months Ended

Sep. 30, 2021

LEASES

LEASES

(7)   LEASES

The Company categorize leases at their inception as either operating or financing leases. Leases include various office and warehouse facilities which have been categorized as operating leases while certain equipment is leased under financing leases.

The Company entered into a sublease agreement on April 9, 2021 with Cognizant Trizetto Software Group, Inc. for up to approximately 110,754 square feet of office space as its new corporate headquarters. The term of the sublease began on May 1, 2021 and will run through April 29, 2028. The Company is entitled to rent credits equal to twenty-one months of base rent at the initial rate. During the first thirty-three months of the sublease, the rent per square foot is $26.50. The price per square foot increases by an additional $0.50 during each subsequent twelve-month period of the sublease. Upon lease commencement, the Company recorded an operating lease liability and a corresponding right-of-use asset for $13.4 million each. The remaining lease term was 6.5 years at September 30, 2021.

The Company’s operating leases do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring the lease liability. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company’s weighted average borrowing rate was determined to be 4.12% for its operating lease liabilities. The Company’s equipment lease agreements have a weighted average rate of 9.37% which was used to measure its finance lease liability.

As of September 30, 2021, the maturities of the Company’s future minimum lease payments were as follows:

	Operating lease liability		Finance lease liability
	(in thousands)		(in thousands)
October 1, 2021 through December 31, 2021	$	599	$	38
2022		3,569		154
2023		2,982		143
2024		3,496		80
2025		3,567		76
2026 and thereafter		7,576		15
Total undiscounted future minimum lease payments	$	21,789	$	506
Less: Difference between undiscounted lease payments and discounted lease liabilities:		(2,672)		(44)
Total lease liabilities	$	19,117	$	462

The components of lease expenses were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Lease cost:
Operating lease cost:
Total operating lease expense	$	1,072	$	419	$	2,415	$	1,181
Finance lease cost:
Total amortization of leased assets		29		16		78		44
Interest on lease liabilities		11		5		31		14
Total net lease cost	$	1,112	$	440	$	2,524	$	1,239

Operating lease costs related to our manufacturing and warehouse facility, which we began operating out of at the beginning of 2021, were included in cost of sales while all other operating lease costs were included in general and administrative expenses on the consolidated statement of operations.