Leases (Notes)

9 Months Ended

Sep. 30, 2019

Leases

The Company leases office space, domestically and internationally, under operating leases. The Company’s leases have remaining lease terms between one year and four years. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and long-term operating lease liabilities in the Company’s unaudited condensed consolidated balance sheets. The Company does not have any finance leases. The Company determines if an arrangement is a lease, or contains a lease, at inception. The Company assesses all relevant facts and circumstances in making the determination of the existence of a lease. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. Many of the Company’s leases include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the Company does not separate non-lease components from lease components.

On July 8, 2019, the Company entered into a definitive triple net space lease agreement with 237 North First Street Holdings, LLC (the “Landlord”), whereby the Company will lease approximately 90,000 square feet of office space located at 4453 North First Street in San Jose, California (the “Lease”). The office space will serve as the Company’s corporate headquarters and include engineering, marketing and administrative functions. The Company expects to move to the new premises during the summer of 2020. The Lease has a term of 128 months from the commencement date. The starting rent of the Lease is approximately $3.26 per square foot on a triple net basis. The annual base rent increases each year to certain fixed amounts over the course of the term as set forth in the Lease and will be $4.38 per square foot in the eleventh year. In addition to the base rent, the Company will also pay operating expenses, insurance expenses, real estate taxes, and a management fee. The Lease also allows for an option to expand, wherein the Company has the right of first refusal to rent additional space in the building. The Company has a one-time option to extend the Lease for a period of 60 months and may elect to terminate the Lease, via written notice to the Landlord, in the event the office space is damaged or destroyed. Total future required payments under the Lease are approximately $41 million. The lease of the Company’s current Sunnyvale, California headquarters expires on June 30, 2020.

The Company used its incremental borrowing rate to measure the lease liabilities at the adoption date for its existing operating leases that commenced prior to January 1, 2019 which was based on the remaining lease term and remaining lease payments for such leases. On an ongoing basis, as most of the Company’s leases do not provide an implicit rate, the Company will use its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company will use the implicit rate when readily determinable.

The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded on the unaudited condensed consolidated balance sheet as of September 30, 2019 (in thousands):



Years ending December 31,	Amount
2019 (remaining three months)	$	2,527
2020	6,572
2021	4,641
2022	3,450
2023	644
Thereafter	—
Total minimum lease payments	17,834
Less: amount of lease payments representing interest	(1,037		)
Present value of future minimum lease payments	16,797
Less: current obligations under leases	(7,382		)
Long-term lease obligations	$	9,415

As of September 30, 2019, the weighted-average remaining lease term for the Company’s operating leases was 2.7 years, and the weighted-average discount rate used to determine the present value of the Company’s operating leases was 4.3%.

Operating lease costs are included in research and development and selling, general and administrative costs on the statement of operations, and were $2.2 million and $6.7 million for the three and nine months ended September 30, 2019, respectively.

Cash paid for amounts included in the measurement of operating lease liabilities was $7.8 million for the nine months ended September 30, 2019.