LEASES

Adoption of ASC Topic 842, Leases

On January 1, 2019, the Company adopted ASC Topic 842, Leases, ("ASC Topic 842") using the modified retrospective approach, which was applied to historical leases that were still effective as of January 1, 2019. Results for reporting periods beginning January 1, 2019, are presented in accordance with ASC Topic 842, while prior period amounts are reported in accordance with historical accounting treatment under ASC Topic 840, Leases, ("ASC Topic 840"). In accordance with the adoption of ASC Topic 842, the Company now records a net operating lease right-of-use ("ROU") asset and operating lease liability on the Consolidated Balance Sheets for all operating leases with a contract term in excess of 12 months or a net present value more than corporate capitalization thresholds. Prior to the adoption of ASC Topic 842, these same leases were treated as operating leases under ASC Topic 840 and therefore were not recorded on the Consolidated Balance Sheets. There was no impact to retained earnings and no significant impact on the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows as a result of adopting ASC Topic 842.

Lease Recognition

The Company has entered into contractual lease arrangements to rent office space and other office equipment from third-party lessors. If a contract conveys the right to control the use of identified Property, Plant and Equipment (an identified asset) for a period of time in exchange for consideration, the Company considers the contract to be a lease, or to contain a lease, in accordance with ASC Topic 842. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make future lease payments arising from the lease. Operating lease liabilities and financing lease liabilities are recorded at the present value of lease payments over the lease term at the commencement date. The related ROU assets are recorded on the same date at the amount of the initial liability, adjusted for incentives received, prepayments made to the lessor, and any initial direct costs incurred, as applicable. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. The Company accounts for lease components, such as office space, separately from the non-lease components, such as maintenance service fees, based on estimated costs from the vendor. The Company uses the implicit interest rate when readily determinable; however, most of the Company's lease agreements do not provide an implicit interest rate. As such, the Company determines the present value of future lease payments using the incremental borrowing rate available at the commencement date of the contract, or as of January 1, 2019 in the case of existing leases at adoption of ASC 842. The incremental borrowing rate is the rate available to the Company for a fully collateralized, fully amortizing loan, with the same term as the lease. ROU assets related to operating leases also include any lease incentives received in the recognition of the present value of future lease payments. Certain of the Company's leases may also include escalation clauses or options to extend or terminate the lease. These options are included in the present value recorded for the leases when it is reasonably certain that the Company will exercise that option. None of the Company’s current leases contain guarantees of residual value. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease costs represent the straight-line lease expense of ROU assets and short-term leases. The Company determines if an arrangement is a lease at inception of the contract. Resulting operating lease assets are recorded on the Consolidated Balance Sheets as a component of "Other assets" with offsetting liabilities recorded as a component of "Accrued expenses" and "Other long-term liabilities". Finance lease assets are recorded on the Consolidated Balance Sheets as a component of “Property and equipment, net” with related liabilities recorded as “Current portion of finance leases” or as “Finance leases, excluding current portion”. As of March 31, 2020, the Company has seven financing leases, all of which pertain to certain equipment used in the business. In general, the Company’s operating leases relate to office space used in the Company’s operations, including its headquarters in Flower Mound, Texas, as well as office space in other locations around the globe in which the Company does business.

As of March 31, 2020 and 2019 our leased assets and liabilities consisted of the following (in thousands):



Leases	Classification	March 31, 2020		March 31, 2019
Right-of-use assets
Operating leases	Other assets	$	5,060	$	4,812
Finance leases	Property and equipment, net	362		136
Total right-of-use assets		$	5,422	$	4,948

Lease liabilities
Current portion
Operating leases	Accrued expenses	$	1,386	$	1,836
Finance leases	Current portion of finance leases	80		81
Long-term
Operating leases	Other long-term liabilities	5,009		4,618
Finance leases	Finance leases, excluding current portion	187		73
Total leased liabilities		$	6,662	$	6,608

We incurred the following lease costs related to our operating and finance leases (in thousands):



Lease Cost	Classification	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Operating lease cost	Other operating cost	$	616	$	755
Finance lease cost
Amortization of leased assets	Depreciation and amortization	22		23
Interest on lease liabilities	Interest expense	4		2
Total lease cost		$	642	$	780

For the three months ended March 31, 2020 and 2019 cash paid amounts included in the measurement of lease liabilities included (in thousands):



Lease Payments	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	559	$	755
Financing cash flows from finance leases	47		12

As of March 31, 2020 future minimum lease payments on operating and financing leases were as follows (in thousands):



	March 31, 2020
Maturity of lease liabilities	Operating Leases			Financing Leases
Remaining 2020	$	1,258		$	77
2021	1,585			100
2022	1,161			74
2023	604			45
2024	612			21
Thereafter	2,139			1
Total minimum lease payments	$	7,359		$	318
Imputed interest	(964		)	(52		)
Present value of minimum lease payments	$	6,395		$	266

Lease term and discount rates related to the Company's leases are as follows:



	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Operating leases
Weighted-average remaining lease term (years)	6.1		7.1
Weighted-average discount rate	4.3	%	4.7	%

Financing leases
Weighted-average remaining lease term (years)	3.4		2.3
Weighted-average discount rate	5.6	%	6.9	%