Leases

12 Months Ended

Jun. 30, 2023

Leasing Arrangements as Lessee

The Company leases certain property and equipment under various third-party operating and finance lease agreements. The Company determines if an arrangement is or contains a lease at the lease inception date by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset. The leases are noncancelable and expire on various terms from 2023 through 2032. We determine if an arrangement is a lease upon commencement of the contract. If an arrangement is determined to be a long-term lease (greater than 12 months), we recognize an ROU asset and lease liability based on the present value of the future minimum lease payments over the lease term at the commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Our lease terms may also include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have elected to apply the short-term lease exception for contracts that have a lease term of twelve months or less and do not include an option to purchase the underlying asset. Therefore, we do not recognize a ROU asset or lease liability for such contracts. We recognize short-term lease payments as expense on a straight-line basis over the lease term. Variable lease payments that do not depend on an index or rate are recognized as expense. Certain leases include escalations based on inflation indexes and fair market value adjustments. Operating lease liabilities are calculated using the prevailing index or rate at lease commencement for such leases.

On March 20, 2023, we consolidated our Germantown center in Pennsylvania with two of our existing centers. Upon consolidation, we terminated our Germantown center lease and recognized lease termination costs of $0.6 million. Lease termination costs are included in other income (expense) on our consolidated statements of operations.

The following table presents the components of our ROU assets and their classification in our Balance Sheet at June 30, 2023.


Component of Lease Balances	Balance Sheet Line Items	Year Ended June 30,
		in thousands
Assets:
Operating lease assets	Operating lease assets	$	21,210
Finance lease assets	Property and equipment, net	16,378
Total leased assets		$	37,588

The following table presents the components of our lease cost and the classification of such costs in our Statement of Operations for the year ended June 30, 2023.


Component of Lease Cost	Statement of Operations Line Items	Year Ended June 30,
		in thousands
Operating lease cost	Cost of care excluding depreciation and amortization and Corporate, general and administrative	$	4,642
Finance lease expense:
Amortization of leased assets	Depreciation and amortization	3,080
Interest on lease liabilities	Interest expense, net	1,255
Variable lease cost	Cost of care excluding depreciation and amortization and Corporate, general and administrative	82
Short-term lease cost	Cost of care excluding depreciation and amortization and Corporate, general and administrative	108
Total lease expense:		$	9,167

The following table includes the weighted-average lease terms and discount rates for operating and finance leases as of June 30, 2023.


Weighted average remaining lease term:			June 30, 2023
Operating leases			7.9 years
Finance leases			3.9 years


Weighted average discount rate	June 30, 2023
Operating leases	6.60	%
Finance leases	7.80	%

The following table includes the future maturities of lease payments for operating leases and finance leases for periods subsequent to June 30, 2023.


in thousands	Operating Lease		Finance Lease		Total
2024	$	4,882	$	5,970	$	10,852
2025	4,356		5,270		9,626
2026	4,283		4,245		8,528
2027	3,981		3,549		7,530
2028	3,140		1,759		4,899
Thereafter	7,033		—		7,033
Total lease payments	27,675		20,793		48,468
Less liability accretion / imputed interest	(5,317)		(2,957)		(8,274)
Total lease liabilities	22,358		17,836		40,194
Less: Current lease liabilities	3,530		4,722		8,252
Total long-term lease liabilities	$	18,828	$	13,114	$	31,942

The following table includes the future maturities of minimum rental payments that are required to be paid under all non-cancelable operating and capital lease obligations, prior to the adoption of ASC 842:


in thousands	Operating Lease		Capital Lease
2023	$	4,873	$	4,405
2024	4,581		3,909
2025	4,122		3,126
2026	4,061		2,092
2027	3,764		1,393
Thereafter	10,265		535
Total minimum rental payments	31,666		15,460
Less: Amount representing interest			(2,652)
Subtotal			12,808
Current portion			3,368
Long-term portion			$	9,440