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LEASES

3 Months Ended

Mar. 31, 2022

(10) LEASES

The Company categorize leases at their inception as either operating or financing leases. Leases include various office and warehouse facilities which have been categorized as operating leases while certain equipment is leased under financing leases.

During March 2022, The Company entered into a lease agreement for approximately 4,162 square feet of office space for the operations of Kestrel Labs, Inc. in Boulder, Colorado. The lease begins on April 1, 2022 and will run through April 1, 2025. The rent and common area maintenance charges are equal to $17.00 per square foot with annual increases of 3%. Upon lease commencement, the Company recorded an operating lease liability and corresponding right-of-use asset for $0.2 million each.

The Company’s operating leases do not provide an implicit rate, and therefore the Company uses its incremental borrowing rate as the discount rate when measuring the lease liability. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company’s weighted average borrowing rate was determined to be 4.08% for its operating lease liabilities. The Company’s equipment lease agreements have a weighted average rate of 9.38% which was used to measure its finance lease liability. The weighted average remaining lease term was 5.19 years and 3.30 years for operating and finance leases, respectively, as of March 31, 2022.

As of March 31, 2022, the maturities of the Company’s future minimum lease payments were as follows (in thousands):


	Operating Lease Liability		Finance Lease Liability
April 1, 2022 through December 31, 2022		2,627		115
2023		3,055		152
2024		3,571		116
2025		3,586		76
2026		3,361		15
2027		3,150		—
Thereafter		1,064		—
Total undiscounted future minimum lease payments	$	20,414	$	474
Less: Difference between undiscounted lease payments and discounted lease liabilities:		(2,293)		(67)
Total lease liabilities	$	18,121	$	407

The components of lease expenses were as follows:


	Three Months Ended
	March 31,
	2022		2021
Lease cost:
Operating lease cost:
Total operating lease expense	$	1,105	$	610
Finance lease cost:
Total amortization of leased assets		30		21
Interest on lease liabilities		10		8
Total net lease cost	$	1,145	$	639

For the three months ended March 31, 2022 and 2021, $0.1 million and $0.2 million of operating lease costs respectively, were incurred at the Company’s manufacturing and warehouse facility and were included in cost of sales. For the three months ended March 31, 2022 and 2021, $1.0 million and $0.4 million of operating lease costs, respectively, were included in selling, general and administrative expenses on the consolidated statement of income.