COMMITMENTS

Leases

As described further in “Note 1. Organization and Summary of Significant Accounting Policies”, we adopted Topic 842 as of January 1, 2018. Prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under Topic 840.

In May 2017, we entered into the Lease with Ascentris for office and research facilities located at the Premises in Alameda, California. The Lease was amended in October 2017 and June 2018 to increase the space leased to an aggregate of 134,765 square feet. We have made certain tenant improvements to the space leased on the Premises, for which we received $8.2 million in reimbursements in January 2019. The Lease’s initial term is through January 31, 2028. Rent payments began February 1, 2018, following the conclusion of a partial twelve-month rent abatement period. We have two five-year options to extend the Lease and a one-time option to terminate the Lease without cause on the last day of the 8^th year of the initial term; none of these optional periods have been considered in the determination of the right-of-use asset or the lease liability for the Lease as we did not consider it reasonably certain that we would exercise any such options. The Lease further provides that we are obligated to pay to Ascentris certain variable costs, including taxes and operating expenses. We also have a right of first offer to lease certain additional space, in the aggregate of approximately 170,000 square feet of space, as that additional space becomes available at 1601, 1701 and 1751 Harbor Bay Parkway, Alameda, California over the remainder of the initial term of the Lease at a market rate determined pursuant to the Lease.

We had an additional operating lease which expired in July 2018 for two buildings in South San Francisco, California with a total area of 116,063 square feet.

We have performed an evaluation of our other contracts with customers and suppliers in accordance with Topic 842 and have determined that, except for the leases described above, a nominal operating lease for space at a data center to house our data servers and a nominal financing lease for office equipment, none of our contracts contain a lease.

The balance sheet classification of our lease liabilities was as follows (in thousands):



	December 31, 2018		December 31, 2017
Operating lease liabilities:
Current portion included in Other current liabilities	$	2,738	$	540
Long-term portion of lease liabilities	12,099		408
Total operating lease liabilities	14,837		948
Financing lease liabilities:
Financing obligation for build-to-suit lease	—		14,530
Current portion included in Other current liabilities	49		—
Long-term portion of lease liabilities	79		—
Total financing lease liabilities	128		14,530
Total lease liabilities	$	14,965	$	15,478

The components of lease costs, which were included in Operating expenses in our Consolidated Statements of Operations, were as follows (in thousands):



	Year Ended December 31,
	2018		2017			2016
Operating lease cost	$	4,189	$	3,944		$	8,620
Variable lease cost	1,661		2,216			1,056
Sublease income	—		(1,225		)	(3,553		)
Total lease costs	$	5,850	$	4,935		$	6,123

Cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2018 was $3.9 million and was included in Net cash provided by operating activities in our Consolidated Statements of Cash Flows.

As of December 31, 2018, the maturities of our operating lease liabilities were as follows (in thousands):



	Operating leases
Years ending December 31,
2019	$	2,794
2020	2,823
2021	2,904
2022	3,000
2023	3,082
Thereafter	13,584
Total lease payments	28,187
Less:
Present value adjustment	(5,180		)
Tenant improvement reimbursements	(8,170		)
Operating lease liabilities	$	14,837

Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, we use our incremental borrowing rate based on the information available at the lease commencement date. As of December 31, 2018, the weighted average remaining lease term is 9.0 years and the weighted average discount rate used to determine the operating lease liability was 4.50%.

Letters of Credit and Restricted Cash

We have obtained two standby letters of credit related to the Lease with Ascentris with a combined credit limit of $1.0 million as of both December 31, 2018 and 2017. We have also obtained standby letters of credit related to a workers compensation insurance policy with credit limits of $0.1 million and $0.6 million as of December 31, 2018 and 2017, respectively. We had also previously obtained a standby letter of credit related to our South San Francisco lease with a credit limit of $0.5 million as of December 31, 2017 which was released during 2018. As of December 31, 2018, none of our letters of credit have been drawn upon. All of the letters of credit are fully collateralized by certificates of deposit. The certificate of deposits used to collateralize the standby letters of credit were included in short-term and long-term restricted cash and investments.

We were previously required to provide collateral as part of an employee purchasing card program. The collateral requirement for the purchase card program at December 31, 2017 was $3.0 million. During 2018 we were notified that we had been released from this collateral requirement. The collateral was invested in certificates of deposit which were included in long-term restricted cash and investments.