Leases

3 Months Ended

Mar. 31, 2022

4. Leases

As of March 31, 2022, we have operating leases for corporate offices. Our operating leases have remaining lease terms of roughly 1 year to 10 years, some of which include options to extend the leases for up to an additional 10 years.

Right-of-Use (“ROU”) Assets and Lease Liabilities

At the inception of an arrangement, we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present and the classification of the lease. Operating leases with a term greater than one year are recognized on the balance sheet as ROU assets, lease liabilities, and, if applicable, long-term lease liabilities. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. We have elected not to recognize on our condensed consolidated balance sheets leases with a term of one year or less. For contracts with lease and non-lease components, we have elected not to allocate the contract consideration but rather to account for the lease and non-lease components as a single lease component.

Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. The implicit rates within most of our leases are generally not determinable; therefore, we use the incremental borrowing rate at the lease commencement date to determine the present value of lease payments. The determination of our incremental borrowing rate requires judgment and is estimated for each lease based on the rate we would have to pay for a collateralized loan with the same term and payments as the lease. We consider various factors, including our level of collateralization, estimated credit rating, and the currency in which the lease is denominated. Operating lease ROU assets also include any lease prepayments, offset by lease incentives. Certain of our leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain we will exercise that option while an option to terminate is considered unless it is reasonably certain we will not exercise the option. For certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

Headquarters Lease

In April 2018, we entered into a lease agreement with respect to 176,222 square feet of office space in McLean, Virginia for a new corporate headquarters. The initial term of the lease was 150 months. We took initial possession of the first phase of the new headquarters in October 2018 and began to recognize rent expense as of that date. In February 2019, we took possession of an additional 28,805 square feet of adjacent office space.

In January 2020, we entered into an amendment which adjusted the original terms of the headquarters lease. Under this amendment, we exercised an option to expand occupancy, adding 34,158 square feet of office space. Occupancy of the added space commenced on October 14, 2020. Pursuant to the guidance of ASC 842, Leases, the amendment is considered a modification to the original lease and is accounted for as a separate contract because it represents a new ROU asset and the lease costs on the new space are charged at prevailing market rates. Effective July 1, 2020, we took possession of the space, began to recognize rent expense, and recorded a $7.9 million ROU asset and lease liability on our condensed consolidated balance sheets.

In November 2021, we entered into a third amendment to our headquarters lease, in which we exercised an option to expand occupancy into two adjacent office spaces of 32,883 and 25,925 square feet, with occupancy to commence on September 1, 2022 and May 1, 2023, respectively. Concurrent with the amendment, we also entered into a sublease agreement in which we agreed to sublease 32,883 square feet of space effective September 1, 2022. The sublease terminates on August 31, 2025 but may be extended one additional year at the sublessee’s option. The amendment is considered a modification to the original lease and each space is accounted for as a separate contract because it represents a new ROU asset and the lease costs charged on the new spaces are at prevailing market rates. As of March 31, 2022, we have not taken possession of either space nor met the criteria for the leases and sublease to be considered commenced. Accordingly, we have not reported an ROU asset or liability on our condensed consolidated balance sheets nor have recorded expense or sublease income on our condensed consolidated statements of operations in relation to the additional spaces.

Lease Costs

Expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while the expense for finance leases is recognized as depreciation expense and interest expense. We have lease agreements which require payments for lease and non-lease components (i.e., common area maintenance) that are accounted for as a single lease component. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as maintenance costs based on future obligations, are not included in ROU assets or lease liabilities but rather are expensed as incurred and recorded as variable lease expense.

The following table sets forth the components of lease expense for the three months ended March 31, 2022 and 2021 (in thousands):


	Three Months Ended March 31,
	2022		2021
Operating lease cost	$	1,634	$	1,630
Short-term lease cost	88		41
Variable lease cost	973		25
Total	$	2,695	$	1,696

Supplemental Lease Information

Supplemental balance sheet information related to operating leases as of March 31, 2022 and December 31, 2021 was as follows (in thousands, except for lease term and discount rate):


	As of
	March 31, 2022			December 31, 2021
Operating right-of-use assets	$	27,556		$	27,897

Operating lease liabilities, current	$	8,135		$	8,110
Operating lease liabilities, net of current portion	47,964			48,784
Total operating lease liabilities	$	56,099		$	56,894

Weighted average remaining lease term (in years)	9.3			9.5

Weighted average discount rate	9.5		%	9.5		%

Supplemental cash flow and expense information related to operating leases for the three months ended March 31, 2022 and 2021 was as follows (in thousands):


	Three Months Ended March 31,
	2022		2021
Operating cash outflows for operating leases	$	2,085	$	1,749

Amortization of operating ROU assets	306		324
Interest expense on operating lease liabilities	1,321		402

A summary of our future minimum lease commitments under non-cancellable leases as of March 31, 2022 is as follows (in thousands):


	Operating Leases
2022 (excluding the three months ended March 31, 2022)	$	6,361
2023	8,303
2024	8,619
2025	9,316
2026	9,363

Thereafter	48,775
Total lease payments	90,737
Less: imputed interest	(34,638)
Total	$	56,099