Leases

9 Months Ended

Sep. 30, 2020

The Company leases facilities in Ann Arbor, Michigan and Cambridge, Massachusetts. The Ann Arbor facility includes office space, and the Cambridge facilities include clean rooms, laboratories for MACI and Epicel manufacturing and office space. The Company also leases offsite warehouse space, vehicles and computer equipment. Certain of the Company’s lease agreements include lease payments that are adjusted periodically for an index or rate. The leases are initially measured using the projected payments adjusted for the index or rate in effect at the commencement date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. All operating lease commitments with a lease term greater than 12 months are recognized as right to use assets and liabilities, on a discounted basis on the balance sheet. Effective October 21, 2020 the Company entered into an agreement for one of its Cambridge, Massachusetts facility leases. This agreement extended the terms of the lease to expire on February 29, 2032, with monthly contractual lease payments ranging from $0.4 million to $0.6 million.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and for both the three and nine months ended September 30, 2020 and 2019, lease expense of less than $0.1 million was recorded related to short-term leases. The contribution toward the cost of tenant improvements is recorded as a reduction of the operating lease assets. For the three and nine months ended September 30, 2020, the Company recognized $1.6 million and $4.5 million of operating lease expense and $1.4 million and $4.0 million for the same periods in 2019.

For both the three and nine months ended September 30, 2020 and 2019, the Company recognized less than $0.1 million of financing lease expense. The Company’s leases contain non-lease components and activities that do not transfer a good or service to the Company. The Company elected not to combine lease and non-lease components and therefore non-lease costs were not included in the net lease assets or lease liabilities.

Total leased assets and liabilities classified on the balance sheet, as of September 30, 2020 and December 31, 2019 are as follows:


(In thousands)	Classification	September 30, 2020		December 31, 2019
Assets
Operating	Right-of-use assets	$	24,796	$	25,103
Finance	Property and equipment, net	120		148
		$	24,916	$	25,251
Liabilities
Current
Operating	Current portion of operating lease liabilities	$	6,102	$	5,461
Finance	Other liabilities	41		41
		$	6,143	$	5,502
Non-current
Operating	Operating lease liabilities	$	21,487	$	22,242
Finance	Other long-term liabilities	74		110
		$	21,561	$	22,352

Leases

Total leased assets and liabilities classified on the balance sheet, as of September 30, 2020 and December 31, 2019 are as follows:


(In thousands)	Classification	September 30, 2020		December 31, 2019
Assets
Operating	Right-of-use assets	$	24,796	$	25,103
Finance	Property and equipment, net	120		148
		$	24,916	$	25,251
Liabilities
Current
Operating	Current portion of operating lease liabilities	$	6,102	$	5,461
Finance	Other liabilities	41		41
		$	6,143	$	5,502
Non-current
Operating	Operating lease liabilities	$	21,487	$	22,242
Finance	Other long-term liabilities	74		110
		$	21,561	$	22,352