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Leases

3 Months Ended

Oct. 31, 2019

Note 3—Leases

On August 1, 2019, the Company adopted Accounting Standards Update No. 2016-02, Leases (Topic 842), and the amendments thereto, related to the accounting for leases (collectively referred to as "ASC 842"). ASC 842 establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on its balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Entities have the option to continue to apply historical accounting under Topic 840, the previously applicable standard, including its disclosure requirements, in comparative periods presented in the year of adoption. An entity that elects this option will recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption instead of the earliest period presented.

The Company elected to apply the optional ASC 842 transition provisions beginning on August 1, 2019. Accordingly, the Company will continue to apply Topic 840 prior to August 1, 2019, including Topic 840 disclosure requirements, in the comparative periods presented. The Company elected the package of practical expedients for all its leases that commenced before August 1, 2019. In addition, the Company elected not to apply the recognition requirements of ASC 842 for its short-term leases.

The Company's leases primarily consist of operating leases for office space. These leases have remaining terms from one to six years. net2phone-UCaaS also has operating leases for office equipment. Certain of these leases include renewal options that may be exercised and/or options to terminate the lease. The Company has concluded that it is not reasonably certain that it would exercise the options to extend the lease or terminate the lease.

The adoption of ASC 842 resulted in the recognition of operating lease liabilities of $12.4 million and operating ROU assets of the same amount as of August 1, 2019 based on the present value of the remaining minimum rental payments associated with the Company's leases. As the Company's leases do not provide an implicit rate, nor is one readily available, the Company used its incremental borrowing rate based on information available at August 1, 2019 to determine the present value of its future minimum rental payments.

net2phone has equipment leases that were classified as capital leases under Topic 840 and are finance leases under ASC 842. net2phone is also the lessor in various equipment leases that were classified as sales-type capital leases under Topic 840, that are classified as sales-type finance leases under ASC 842. The assets and liabilities related to these finance leases are not material to the Company's consolidated balance sheets.

Supplemental disclosures related to the Company's operating leases were as follows:

	Three Months Ended October 31, 2019
	(in thousands)
Operating lease cost	$	711
Short-term lease cost		58
Total lease cost	$	769
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	684

	October 31, 2019

Weighted-average remaining lease term-operating leases		4.9 years
Weighted-average discount rate-operating leases		3.12	%

The Company's aggregate operating lease liability was as follows:

	October 31, 2019
	(in thousands)
Operating lease liabilities included in "Other current liabilities"	$	2,417
Operating lease liabilities included in noncurrent liabilities		9,335
Total	$	11,752

Future minimum maturities of operating lease liabilities were as follows:

	Twelve-month period ending October 31,
	(in thousands)
2020	$	2,776
2021		2,637
2022		2,438
2023		1,996
2024		1,880
Thereafter		986
Total lease payments		12,713
Less imputed interest		(961	)
Total operating lease liabilities	$	11,752