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Leases | 3 Months Ended
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Mar. 31, 2022
Leases [Abstract] |
Leases | Leases The Company leases real estate, trucks and other equipment. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Classification and initial measurement of the right-of-use asset and lease liability are determined at the lease commencement date. The Company elected the short-term lease measurement and recognition exemption; therefore, leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets. Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term. The Company's arrangements include certain non-lease components such as common area and other maintenance for leased real estate, as well as mileage, fuel and maintenance costs related to leased vehicles. For all leased asset classes, the Company has elected to not separate non-lease components from lease components and will account for each separate lease component and non-lease component associated with the lease as a single lease component. The Company does not guarantee any residual value in its lease agreements, and there are no material restrictions or covenants imposed by lease arrangements. Real estate leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. For the Company's leased vehicles, the Company uses the interest rate implicit in its leases with the lessor to discount lease payments at the lease commencement date. When the implicit rate is not readily available, as is the case with the Company's real estate leases, the Company uses quoted borrowing rates on its secured debt. Related Party Lease Agreement. In conjunction with the closing of the Jake Marshall Transaction, the Company entered into an operating lease for certain land and facilities owned by a former member of JMLLC who became a full-time employee of the Company. The lease term is 10 years and includes an option to extend the lease for two successive periods of 2 years each through November 2035. Base rent for the term of the lease is $37,500 per month for the first five years with payment commencing on January 1, 2022. The fixed rent payment is escalated to $45,000 per month for years 6 through 10 of the lease term. Fixed rent payments for the extension term shall be increased from $45,000 by the percentage increase, if any, in the consumer price index from the lease commencement date. In addition, under the agreement, the Company is required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses. Southern California Sublease. In June, 2021, the Company entered into a sublease agreement with a third party for the entire ground floor of its leased space in Southern California, consisting of 71,787 square feet. Under the terms of the sublease agreement, the sublessee is obligated to pay the Company base rent of approximately $0.6 million per year, which is subject to a 3.0% annual rent increase, plus certain operating expenses and other costs. The initial lease term commenced in September 2021 and continues through April 30, 2027. As of March 31, 2022, the Company remains obligated under the original lease for such office space and, in the event the subtenant of such office space fails to satisfy its obligations under the sublease, the Company would be required to satisfy its obligations directly to the landlord under such original lease. In addition, during the first quarter of 2022, the Company entered into an amendment to the aforementioned sublease agreement, which, among other things, expanded the sublease premises to include the entire second floor of its leased space in Southern California, consisting of 16,720 square feet. Under the terms of the amended sublease agreement, the sublessee is obligated to pay the Company base rent of approximately $0.8 million per year, which is subject to a 3.0% annual rent increase, plus certain operating expenses and other costs. The amended sublease term commenced in March 2022 and continues through April 30, 2027. For the three months ended March 31, 2022, the Company recorded approximately $0.2 million of income in selling, general and administrative expenses related to this sublease agreement. Pittsburgh Lease Termination. In March, 2022, the Company entered into a lease termination agreement (the “Lease Termination Agreement”) to terminate, effective March 31, 2022, the lease associated with the Company’s office space located in Pittsburgh, Pennsylvania, which previously served as its corporate headquarters. Absent the Lease Termination Agreement, the lease would have expired in accordance with its terms in July 2025. Pursuant to the Lease Termination Agreement, in exchange for allowing the Company to terminate the lease early, the Company agreed to pay a termination fee in the aggregate of approximately $0.7 million in 16 equal monthly installments commencing on April 1, 2022. In connection with the lease termination, the Company recognized a gain of $0.1 million associated with the derecognition of the operating lease right-of-use asset and corresponding operating lease liabilities associated with the operating lease and recorded a $0.1 million loss on the disposal of leasehold improvements. The following table summarizes the lease amounts included in the Company's condensed consolidated balance sheets:
(in thousands) | Classification on the Condensed Consolidated Balance Sheets |  | March 31, 2022 |  | December 31, 2021
Assets |  |  |  |  |
Operating | Operating lease right-of-use assets(1) |  | $ | 17,719 |  |  | $ | 20,119 |
Finance | Property and equipment, net(2) |  | 5,111 |  |  | 4,916 |
Total lease assets |  |  | $ | 22,830 |  |  | $ | 25,035 |
Liabilities |  |  |  |  |
Current |  |  |  |  |
Operating | Current operating lease liabilities |  | $ | 3,762 |  |  | $ | 4,366 |
Finance | Current portion of long-term debt |  | 2,458 |  |  | 2,451 |
Noncurrent |  |  |  |  |
Operating | Long-term operating lease liabilities |  | 14,787 |  |  | 16,576 |
Finance | Long-term debt |  | 2,859 |  |  | 2,681 |
Total lease liabilities |  |  | $ | 23,866 |  |  | $ | 26,074 |
(1) Operating lease assets are recorded net of accumulated amortization of $15.6 million at March 31, 2022 and $15.9 million at December 31, 2021. (2) Finance lease assets are recorded net of accumulated amortization of $6.4 million at March 31, 2022 and $5.9 million at December 31, 2021. The following table summarizes the lease costs included in the Company's condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021:
|  |  | Three Months Ended March 31, |  |
(in thousands) | Classification on the Condensed Consolidated Statement of Operations |  | 2022 |  | 2021 |  |  |  |
Operating lease cost | Cost of revenue(1) |  | $ | 694 |  |  | $ | 690 |  |  |  |  |
Operating lease cost | Selling, general and administrative(1) |  | 704 |  |  | 584 |  |  |  |  |
Finance lease cost |  |  |  |  |  |  |  |  |
Amortization | Cost of revenue(2) |  | 651 |  |  | 674 |  |  |  |  |
Interest | Interest expense, net(2) |  | 66 |  |  | 86 |  |  |  |  |
Total lease cost |  |  | $ | 2,115 |  |  | $ | 2,034 |  |  |  |  |
(1) Operating lease costs recorded in cost of revenue included $0.1 million of variable lease costs for both the three months ended March 31, 2022 and 2021. In addition, $0.1 million of variable lease costs are included in selling, general and administrative for both the three months ended March 31, 2022 and 2021. These variable costs consist of the Company's proportionate share of operating expenses, real estate taxes and utilities. (2) Finance lease costs recorded in cost of revenue include variable lease costs of $0.8 million for the three months ended March 31, 2022 and $0.6 million for the three months ended March 31, 2021. These variable lease costs consist of fuel, maintenance, and sales tax charges. Future minimum commitments for finance and operating leases that have non-cancelable lease terms in excess of one year as of March 31, 2022 were as follows:
|  |  |  | Operating Leases
Year ending (in thousands): |  | Finance Leases |  | Non-Related Party |  | Related Party(1) |  | Sublease Receipts(2) |  | Total Operating
Remainder of 2022 |  | $ | 1,934 |  |  | $ | 3,252 |  |  | $ | 338 |  |  | $ | (623) |  |  | $ | 2,967 |
2023 |  | 1,758 |  |  | 3,108 |  |  | 450 |  |  | (885) |  |  | 2,673 |
2024 |  | 1,026 |  |  | 2,502 |  |  | 450 |  |  | (912) |  |  | 2,040 |
2025 |  | 500 |  |  | 2,148 |  |  | 450 |  |  | (939) |  |  | 1,659 |
2026 |  | 99 |  |  | 2,010 |  |  | 450 |  |  | (967) |  |  | 1,493 |
Thereafter |  | — |  |  | 2,033 |  |  | 4,815 |  |  | (327) |  |  | 6,521 |
Total minimum lease payments |  | $ | 5,317 |  |  | $ | 15,053 |  |  | $ | 6,953 |  |  | $ | (4,653) |  |  | $ | 17,353 |
Amounts representing interest |  | 358 |  |  |  |  |  |  |  |  |
Present value of net minimum lease payments |  | $ | 5,675 |  |  |  |  |  |  |  |  |
(1) Associated with the aforementioned related party lease entered into with a former member of JMLLC. (2) Associated with the aforementioned third party sublease. The following is a summary of the lease terms and discount rates:
| March 31, 2022 |  | December 31, 2021
Weighted average lease term (in years): |  |  |
Operating | 7.30 |  | 7.10
Finance | 2.60 |  | 2.51
Weighted average discount rate: |  |  |
Operating | 4.67 | % |  | 4.68 | %
Finance | 5.14 | % |  | 5.27 | %
The following is a summary of other information and supplemental cash flow information related to finance and operating leases:
|  | Three months ended March 31,
(in thousands) |  | 2022 |  | 2021
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |
Operating cash flows from operating leases |  | $ | 1,358 |  |  | $ | 1,225 |
Operating cash flows from finance leases |  | 66 |  |  | 86 |
Financing cash flows from finance leases |  | 660 |  |  | 667 |
Right-of-use assets exchanged for lease liabilities: |  |  |  |
Operating leases |  | — |  |  | 156 |
Finance leases |  | 864 |  |  | 87 |
Right-of-use assets disposed or adjusted modifying operating leases liabilities |  | (1,276) |  |  | 36 |
Right-of-use assets disposed or adjusted modifying finance leases liabilities |  | $ | (19) |  |  | — |
Leases | Leases The Company leases real estate, trucks and other equipment. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Classification and initial measurement of the right-of-use asset and lease liability are determined at the lease commencement date. The Company elected the short-term lease measurement and recognition exemption; therefore, leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets. Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term. The Company's arrangements include certain non-lease components such as common area and other maintenance for leased real estate, as well as mileage, fuel and maintenance costs related to leased vehicles. For all leased asset classes, the Company has elected to not separate non-lease components from lease components and will account for each separate lease component and non-lease component associated with the lease as a single lease component. The Company does not guarantee any residual value in its lease agreements, and there are no material restrictions or covenants imposed by lease arrangements. Real estate leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. For the Company's leased vehicles, the Company uses the interest rate implicit in its leases with the lessor to discount lease payments at the lease commencement date. When the implicit rate is not readily available, as is the case with the Company's real estate leases, the Company uses quoted borrowing rates on its secured debt. Related Party Lease Agreement. In conjunction with the closing of the Jake Marshall Transaction, the Company entered into an operating lease for certain land and facilities owned by a former member of JMLLC who became a full-time employee of the Company. The lease term is 10 years and includes an option to extend the lease for two successive periods of 2 years each through November 2035. Base rent for the term of the lease is $37,500 per month for the first five years with payment commencing on January 1, 2022. The fixed rent payment is escalated to $45,000 per month for years 6 through 10 of the lease term. Fixed rent payments for the extension term shall be increased from $45,000 by the percentage increase, if any, in the consumer price index from the lease commencement date. In addition, under the agreement, the Company is required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses. Southern California Sublease. In June, 2021, the Company entered into a sublease agreement with a third party for the entire ground floor of its leased space in Southern California, consisting of 71,787 square feet. Under the terms of the sublease agreement, the sublessee is obligated to pay the Company base rent of approximately $0.6 million per year, which is subject to a 3.0% annual rent increase, plus certain operating expenses and other costs. The initial lease term commenced in September 2021 and continues through April 30, 2027. As of March 31, 2022, the Company remains obligated under the original lease for such office space and, in the event the subtenant of such office space fails to satisfy its obligations under the sublease, the Company would be required to satisfy its obligations directly to the landlord under such original lease. In addition, during the first quarter of 2022, the Company entered into an amendment to the aforementioned sublease agreement, which, among other things, expanded the sublease premises to include the entire second floor of its leased space in Southern California, consisting of 16,720 square feet. Under the terms of the amended sublease agreement, the sublessee is obligated to pay the Company base rent of approximately $0.8 million per year, which is subject to a 3.0% annual rent increase, plus certain operating expenses and other costs. The amended sublease term commenced in March 2022 and continues through April 30, 2027. For the three months ended March 31, 2022, the Company recorded approximately $0.2 million of income in selling, general and administrative expenses related to this sublease agreement. Pittsburgh Lease Termination. In March, 2022, the Company entered into a lease termination agreement (the “Lease Termination Agreement”) to terminate, effective March 31, 2022, the lease associated with the Company’s office space located in Pittsburgh, Pennsylvania, which previously served as its corporate headquarters. Absent the Lease Termination Agreement, the lease would have expired in accordance with its terms in July 2025. Pursuant to the Lease Termination Agreement, in exchange for allowing the Company to terminate the lease early, the Company agreed to pay a termination fee in the aggregate of approximately $0.7 million in 16 equal monthly installments commencing on April 1, 2022. In connection with the lease termination, the Company recognized a gain of $0.1 million associated with the derecognition of the operating lease right-of-use asset and corresponding operating lease liabilities associated with the operating lease and recorded a $0.1 million loss on the disposal of leasehold improvements. The following table summarizes the lease amounts included in the Company's condensed consolidated balance sheets:
(in thousands) | Classification on the Condensed Consolidated Balance Sheets |  | March 31, 2022 |  | December 31, 2021
Assets |  |  |  |  |
Operating | Operating lease right-of-use assets(1) |  | $ | 17,719 |  |  | $ | 20,119 |
Finance | Property and equipment, net(2) |  | 5,111 |  |  | 4,916 |
Total lease assets |  |  | $ | 22,830 |  |  | $ | 25,035 |
Liabilities |  |  |  |  |
Current |  |  |  |  |
Operating | Current operating lease liabilities |  | $ | 3,762 |  |  | $ | 4,366 |
Finance | Current portion of long-term debt |  | 2,458 |  |  | 2,451 |
Noncurrent |  |  |  |  |
Operating | Long-term operating lease liabilities |  | 14,787 |  |  | 16,576 |
Finance | Long-term debt |  | 2,859 |  |  | 2,681 |
Total lease liabilities |  |  | $ | 23,866 |  |  | $ | 26,074 |
(1) Operating lease assets are recorded net of accumulated amortization of $15.6 million at March 31, 2022 and $15.9 million at December 31, 2021. (2) Finance lease assets are recorded net of accumulated amortization of $6.4 million at March 31, 2022 and $5.9 million at December 31, 2021. The following table summarizes the lease costs included in the Company's condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021:
|  |  | Three Months Ended March 31, |  |
(in thousands) | Classification on the Condensed Consolidated Statement of Operations |  | 2022 |  | 2021 |  |  |  |
Operating lease cost | Cost of revenue(1) |  | $ | 694 |  |  | $ | 690 |  |  |  |  |
Operating lease cost | Selling, general and administrative(1) |  | 704 |  |  | 584 |  |  |  |  |
Finance lease cost |  |  |  |  |  |  |  |  |
Amortization | Cost of revenue(2) |  | 651 |  |  | 674 |  |  |  |  |
Interest | Interest expense, net(2) |  | 66 |  |  | 86 |  |  |  |  |
Total lease cost |  |  | $ | 2,115 |  |  | $ | 2,034 |  |  |  |  |
(1) Operating lease costs recorded in cost of revenue included $0.1 million of variable lease costs for both the three months ended March 31, 2022 and 2021. In addition, $0.1 million of variable lease costs are included in selling, general and administrative for both the three months ended March 31, 2022 and 2021. These variable costs consist of the Company's proportionate share of operating expenses, real estate taxes and utilities. (2) Finance lease costs recorded in cost of revenue include variable lease costs of $0.8 million for the three months ended March 31, 2022 and $0.6 million for the three months ended March 31, 2021. These variable lease costs consist of fuel, maintenance, and sales tax charges. Future minimum commitments for finance and operating leases that have non-cancelable lease terms in excess of one year as of March 31, 2022 were as follows:
|  |  |  | Operating Leases
Year ending (in thousands): |  | Finance Leases |  | Non-Related Party |  | Related Party(1) |  | Sublease Receipts(2) |  | Total Operating
Remainder of 2022 |  | $ | 1,934 |  |  | $ | 3,252 |  |  | $ | 338 |  |  | $ | (623) |  |  | $ | 2,967 |
2023 |  | 1,758 |  |  | 3,108 |  |  | 450 |  |  | (885) |  |  | 2,673 |
2024 |  | 1,026 |  |  | 2,502 |  |  | 450 |  |  | (912) |  |  | 2,040 |
2025 |  | 500 |  |  | 2,148 |  |  | 450 |  |  | (939) |  |  | 1,659 |
2026 |  | 99 |  |  | 2,010 |  |  | 450 |  |  | (967) |  |  | 1,493 |
Thereafter |  | — |  |  | 2,033 |  |  | 4,815 |  |  | (327) |  |  | 6,521 |
Total minimum lease payments |  | $ | 5,317 |  |  | $ | 15,053 |  |  | $ | 6,953 |  |  | $ | (4,653) |  |  | $ | 17,353 |
Amounts representing interest |  | 358 |  |  |  |  |  |  |  |  |
Present value of net minimum lease payments |  | $ | 5,675 |  |  |  |  |  |  |  |  |
(1) Associated with the aforementioned related party lease entered into with a former member of JMLLC. (2) Associated with the aforementioned third party sublease. The following is a summary of the lease terms and discount rates:
| March 31, 2022 |  | December 31, 2021
Weighted average lease term (in years): |  |  |
Operating | 7.30 |  | 7.10
Finance | 2.60 |  | 2.51
Weighted average discount rate: |  |  |
Operating | 4.67 | % |  | 4.68 | %
Finance | 5.14 | % |  | 5.27 | %
The following is a summary of other information and supplemental cash flow information related to finance and operating leases:
|  | Three months ended March 31,
(in thousands) |  | 2022 |  | 2021
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |
Operating cash flows from operating leases |  | $ | 1,358 |  |  | $ | 1,225 |
Operating cash flows from finance leases |  | 66 |  |  | 86 |
Financing cash flows from finance leases |  | 660 |  |  | 667 |
Right-of-use assets exchanged for lease liabilities: |  |  |  |
Operating leases |  | — |  |  | 156 |
Finance leases |  | 864 |  |  | 87 |
Right-of-use assets disposed or adjusted modifying operating leases liabilities |  | (1,276) |  |  | 36 |
Right-of-use assets disposed or adjusted modifying finance leases liabilities |  | $ | (19) |  |  | — |

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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 -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + 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 -Publisher FASB -Name Accounting Standards Codification -Topic 842 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=77888251 + Details
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