Leases

12 Months Ended

Sep. 30, 2023

The Company leases certain facilities and equipment under operating leases per ASC 842. These leases include renewal or termination options for varying periods which we deemed reasonably certain to exercise. This determination is based on our consideration of certain economic, strategic and other factors that we evaluate at lease commencement date and reevaluate throughout the lease term.

Some leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance and tax payments and additional lease payments contingent on sales. The variable portion of lease payments is not included in our right-of-use assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expenses recorded in selling, general and administrative expenses in our consolidated statement of income.

We have elected to apply the short-term lease exception for all underlying asset classes, which mainly includes equipment leases. That is, leases with a term of 12 months or less are not recognized on the balance sheet, but rather expensed on a straight-line basis over the lease term. We do not include significant restrictions or covenants in our lease agreements, and residual value guarantees are generally not included within our operating leases.

Future maturities of operating lease liabilities as of September 30, 2023 are as follows (in thousands):


	Principal Portion		Interest Portion		Total Payments
October 2023 - September 2024	$	2,977	$	2,056	$	5,033
October 2024 - September 2025	3,227		1,881		5,108
October 2025 - September 2026	3,516		1,691		5,207
October 2026 - September 2027	3,532		1,487		5,019
October 2027 - September 2028	2,982		1,300		4,282
Thereafter	21,918		4,630		26,548
	$	38,152	$	13,045	$	51,197

Total lease expense under ASC 842 was included in selling, general and administrative expenses in our consolidated statement of income, except for sublease income which was included in other revenue, for the years ended September 30, 2023, 2022, and 2021 as follows (in thousands):


	2023			2022			2021
Operating lease expense – fixed payments	$	5,166		$	4,738		$	3,325
Variable lease expense	1,629			1,397			349
Short-term equipment and other lease expense (includes $357, $258 and $298 recorded in advertising and marketing for fiscal 2023, 2022, and 2021, respectively, and $557, $435 and $397 recorded in repairs and maintenance, respectively; see Note 4)	1,325			1,264			955
Sublease income	—			(4)			(6)
Total lease expense, net	$	8,120		$	7,395		$	4,623

Other information:
Operating cash outflows from operating leases	$	7,949		$	7,200		$	4,522
Weighted average remaining lease term	10.5 years			11 years			12 years
Weighted average discount rate	5.8		%	5.6		%	6.0		%

In relation to certain rent concessions that we received from certain of our lessors in view of the COVID-19 pandemic, we accounted for those rent concessions as deferral of payments as if the lease is unchanged. Any reduction in total lease expense during the period caused by either an extension of the lease term or a forgiveness of certain lease payments is accounted for as variable lease payment adjustments.

We recorded impairment charges of operating lease right-of-use assets amounting to $1.0 million, $0, and $0 during fiscal years 2023, 2022, and 2021, respectively.

We recorded third-party operating lease revenue under ASC 842 amounting to $1.8 million, $1.6 million, and $1.5 million for fiscal 2023, 2022, and 2021, respectively. Minimum future base rentals are as follows: $1.7 million for 2024, $1.4 million for 2025, $380,000 for 2026, $320,000 for 2027, $292,000 for 2028, and $802,000 thereafter.