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Leases | 3 Months Ended
--- | ---
Oct. 31, 2023
Leases [Abstract] |
Leases | Leases Our leases historically relate to the leasing of facilities and equipment. In accordance with FASB ASC 842 - "Leases" ("ASC 842"), we determine at inception whether an arrangement is, or contains, a lease and whether the lease should be classified as an operating or a financing lease. At lease commencement, we recognize a right-of-use ("ROU") asset and lease liability based on the present value of the future lease payments over the estimated lease term. We have elected to not recognize a ROU asset or lease liability for any leases with terms of twelve months or less. Instead, for such short-term leases, we recognize lease expense on a straight-line basis over the lease term. Certain of our leases include options to extend the term of the lease or to terminate the lease early. When it is reasonably certain that we will exercise a renewal option or will not exercise a termination option, we include the impact of exercising or not exercising such option, respectively, in the estimate of the lease term. As our lease agreements do not explicitly state the discount rate implicit in the lease, we use our incremental borrowing rate ("IBR") on the commencement date to calculate the present value of future lease payments. Such IBR represents our estimated rate of interest to borrow on a collateralized basis over a term commensurate with the expected lease term. Some of our leases include payments that are based on the Consumer Price Index ("CPI") or other similar indices. These variable lease payments are included in the calculation of the ROU asset and lease liability using the index as of the lease commencement date. Other variable lease payments, such as common area maintenance, property taxes, and usage-based amounts, are required by ASC 842 to be excluded from the ROU asset and lease liability and expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset would also consider, to the extent applicable, any deferred rent upon adoption, lease pre-payments or initial direct costs of obtaining the lease (e.g., such as commissions). For all classes of leased assets, we elected the practical expedient to not separate lease components (i.e., the actual item being leased, such as the facility or piece of equipment) from non-lease components (i.e., the distinct elements of a contract not related to securing the use of the leased asset, such as common area maintenance and consumable supplies). Certain of our facility lease agreements (which are classified as operating leases) contain rent holidays or rent escalation clauses. For rent holidays and rent escalation clauses during the lease term, we record rental expense on a straight-line basis over the term of the lease. As of October 31, 2023, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased. The components of lease expense are as follows:
|  |  | Three months ended October 31,
|  |  |  |  | 2023 |  | 2022 |  |
Finance lease expense: |  |  |  |  |  |  |  |  |
Amortization of ROU assets |  |  |  |  | $ | — |  |  | 3,000 |  |  |
Operating lease expense |  |  |  |  | 2,258,000 |  |  | 2,837,000 |  |  |
Short-term lease expense |  |  |  |  | 108,000 |  |  | 101,000 |  |  |
Variable lease expense |  |  |  |  | 1,029,000 |  |  | 1,087,000 |  |  |
Sublease income |  |  |  |  | (17,000) |  |  | (17,000) |  |  |
Total lease expense |  |  |  |  | $ | 3,378,000 |  |  | 4,011,000 |  |  |
Additional information related to leases is as follows:
| Three months ended October 31,
| 2023 |  | 2022
Cash paid for amounts included in the measurement of lease liabilities: |  |  |
Operating leases - Operating cash outflows | $ | 2,319,000 |  |  | $ | 2,906,000 |
Finance leases - Financing cash outflows | — |  |  | 3,000 |
ROU assets obtained in the exchange for lease liabilities (non-cash): |  |  |
Operating leases | $ | 20,000 |  |  | $ | 2,573,000 |
The following table is a reconciliation of future cash flows relating to operating lease liabilities presented on our Condensed Consolidated Balance Sheet as of October 31, 2023:
Remainder of fiscal 2024 | $ | 6,571,000 |  |  |  |  |
Fiscal 2025 | 8,089,000 |  |  |  |  |
Fiscal 2026 | 6,652,000 |  |  |  |  |
Fiscal 2027 | 4,546,000 |  |  |  |  |
Fiscal 2028 | 3,812,000 |  |  |  |  |
Thereafter | 18,793,000 |  |  |  |  |
Total future undiscounted cash flows | 48,463,000 |  |  |  |  |
Less: Present value discount | 5,668,000 |  |  |  |  |
Lease liabilities | $ | 42,795,000 |  |  |  |  |
Weighted-average remaining lease terms (in years) | 8.08 |  |  |  |
Weighted-average discount rate | 3.49% |  |  |  |
We lease our Melville, New York production facility from a partnership controlled by our former CEO. Lease payments made during the three months ended October 31, 2023 and 2022 were $180,000 and $171,000, respectively. The current lease provides for our use of the premises as they exist through December 2031. The annual rent of the facility for calendar year 2024 is $733,000 and is subject to customary adjustments. We have a right of first refusal in the event of a sale of the facility. As of October 31, 2023, we do not have any material rental commitments that have not already commenced.
Leases | Leases Our leases historically relate to the leasing of facilities and equipment. In accordance with FASB ASC 842 - "Leases" ("ASC 842"), we determine at inception whether an arrangement is, or contains, a lease and whether the lease should be classified as an operating or a financing lease. At lease commencement, we recognize a right-of-use ("ROU") asset and lease liability based on the present value of the future lease payments over the estimated lease term. We have elected to not recognize a ROU asset or lease liability for any leases with terms of twelve months or less. Instead, for such short-term leases, we recognize lease expense on a straight-line basis over the lease term. Certain of our leases include options to extend the term of the lease or to terminate the lease early. When it is reasonably certain that we will exercise a renewal option or will not exercise a termination option, we include the impact of exercising or not exercising such option, respectively, in the estimate of the lease term. As our lease agreements do not explicitly state the discount rate implicit in the lease, we use our incremental borrowing rate ("IBR") on the commencement date to calculate the present value of future lease payments. Such IBR represents our estimated rate of interest to borrow on a collateralized basis over a term commensurate with the expected lease term. Some of our leases include payments that are based on the Consumer Price Index ("CPI") or other similar indices. These variable lease payments are included in the calculation of the ROU asset and lease liability using the index as of the lease commencement date. Other variable lease payments, such as common area maintenance, property taxes, and usage-based amounts, are required by ASC 842 to be excluded from the ROU asset and lease liability and expensed as incurred. In addition to the present value of the future lease payments, the calculation of the ROU asset would also consider, to the extent applicable, any deferred rent upon adoption, lease pre-payments or initial direct costs of obtaining the lease (e.g., such as commissions). For all classes of leased assets, we elected the practical expedient to not separate lease components (i.e., the actual item being leased, such as the facility or piece of equipment) from non-lease components (i.e., the distinct elements of a contract not related to securing the use of the leased asset, such as common area maintenance and consumable supplies). Certain of our facility lease agreements (which are classified as operating leases) contain rent holidays or rent escalation clauses. For rent holidays and rent escalation clauses during the lease term, we record rental expense on a straight-line basis over the term of the lease. As of October 31, 2023, none of our leases contained a residual value guarantee and covenants included in our lease agreements are customary for the types of facilities and equipment being leased. The components of lease expense are as follows:
|  |  | Three months ended October 31,
|  |  |  |  | 2023 |  | 2022 |  |
Finance lease expense: |  |  |  |  |  |  |  |  |
Amortization of ROU assets |  |  |  |  | $ | — |  |  | 3,000 |  |  |
Operating lease expense |  |  |  |  | 2,258,000 |  |  | 2,837,000 |  |  |
Short-term lease expense |  |  |  |  | 108,000 |  |  | 101,000 |  |  |
Variable lease expense |  |  |  |  | 1,029,000 |  |  | 1,087,000 |  |  |
Sublease income |  |  |  |  | (17,000) |  |  | (17,000) |  |  |
Total lease expense |  |  |  |  | $ | 3,378,000 |  |  | 4,011,000 |  |  |
Additional information related to leases is as follows:
| Three months ended October 31,
| 2023 |  | 2022
Cash paid for amounts included in the measurement of lease liabilities: |  |  |
Operating leases - Operating cash outflows | $ | 2,319,000 |  |  | $ | 2,906,000 |
Finance leases - Financing cash outflows | — |  |  | 3,000 |
ROU assets obtained in the exchange for lease liabilities (non-cash): |  |  |
Operating leases | $ | 20,000 |  |  | $ | 2,573,000 |
The following table is a reconciliation of future cash flows relating to operating lease liabilities presented on our Condensed Consolidated Balance Sheet as of October 31, 2023:
Remainder of fiscal 2024 | $ | 6,571,000 |  |  |  |  |
Fiscal 2025 | 8,089,000 |  |  |  |  |
Fiscal 2026 | 6,652,000 |  |  |  |  |
Fiscal 2027 | 4,546,000 |  |  |  |  |
Fiscal 2028 | 3,812,000 |  |  |  |  |
Thereafter | 18,793,000 |  |  |  |  |
Total future undiscounted cash flows | 48,463,000 |  |  |  |  |
Less: Present value discount | 5,668,000 |  |  |  |  |
Lease liabilities | $ | 42,795,000 |  |  |  |  |
Weighted-average remaining lease terms (in years) | 8.08 |  |  |  |
Weighted-average discount rate | 3.49% |  |  |  |
We lease our Melville, New York production facility from a partnership controlled by our former CEO. Lease payments made during the three months ended October 31, 2023 and 2022 were $180,000 and $171,000, respectively. The current lease provides for our use of the premises as they exist through December 2031. The annual rent of the facility for calendar year 2024 is $733,000 and is subject to customary adjustments. We have a right of first refusal in the event of a sale of the facility. As of October 31, 2023, we do not have any material rental commitments that have not already commenced.

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- Definition The entire disclosure for finance leases of lessee. Includes, but is not limited to, description of lessee's finance lease and maturity analysis of finance lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 842 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//842-20/tableOfContent + Details
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- Definition The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 842 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//842-20/tableOfContent + Details
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