Leases

9 Months Ended

Sep. 30, 2019

The Company leases corporate offices and laboratory space throughout the world, all of which are classified as operating leases expiring at various dates and generally have terms ranging from 1 to 10 years. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Some of the Company’s real estate lease agreements include options to either renew or early terminate the lease. Leases with renewal options allow the Company to extend the lease term typically between 1 and 5 years. When it is reasonably certain that the Company will exercise an option to renew or terminate a lease, these options are considered in determining the classification and measurement of the lease.

Lease liabilities are recorded based on the present value of the future lease payments over the lease term and assessed as of the commencement date. Incentives received from landlords, such as reimbursements for tenant improvements and rent abatement periods, effectively reduce the total lease payments owed for leases.

Certain real estate leases also include executory costs such as common area maintenance (non-lease component), as well as property insurance and property taxes (non-components). Lease payments, which may include lease components, non-lease components and non-components, are included in the measurement of the Company’s lease liabilities to the extent that such payments are either fixed amounts or variable amounts based on a rate or index (fixed in substance) as stipulated in the lease contract. Any actual costs in excess of such amounts are expensed as incurred as variable lease cost.

The Company utilizes its incremental borrowing rate by lease term in order to calculate the present value of our future lease payments. The discount rate represents a risk-adjusted rate on a secured basis, and is the rate at which the Company would borrow funds to satisfy the scheduled lease liability payment streams commensurate with the lease term. On January 1, 2019, the discount rate used on existing leases at adoption was determined based on the remaining lease term using available data as of that date. For new or renewed leases starting in 2019, the discount rate is determined using the incremental borrowing rate at lease commencement and based on the lease term.

Operating Leases

Operating lease costs include an immaterial amount of variable lease cost, and are recorded in cost of revenue and general and administrative expenses, depending on the nature of the leased asset. Aside from variable lease costs, operating lease costs represent fixed lease payments recognized on a straight-line basis over the lease term.

As of September 30, 2019, the maturities of our operating lease liabilities and a reconciliation to the present value of lease liabilities were as follows (in thousands):


	Remaining Lease Payments
Remainder of 2019	$	1,540
2020	4,969
2021	5,050
2022	4,213
2023	4,076
2024	4,097
Thereafter	12,705
Total remaining lease payments	36,650
Less: imputed interest	(9,253)
Total operating lease liabilities	27,397
Less: current portion	(3,527)
Long-term operating lease liabilities	$	23,870
Weighted-average remaining lease term (in years)	8.1
Weighted-average discount rate	6.5		%

The following summarizes additional supplemental data related to our operating leases (in thousands):


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Operating lease costs	$	1,271	$	4,365

			Nine Months Ended September 30, 2019
Right-of-use assets obtained in exchange for operating lease liabilities			$	19,341

Lease contracts that have been executed but have not yet commenced are excluded from the tables above. As of September 30, 2019, the Company has entered into $50.3 million of contractually binding minimum lease payments for leases executed but not yet commenced. This amount primarily relates to the lease of the laboratory and headquarters facility in Fort Myers, Florida that is expected to commence in 2021. In addition to the minimum lease payments, the Company will pay $25.0 million relating to the construction of the underlying assets. This amount will be initially recorded as a prepaid asset. On the commencement date of the lease, the amount will be reclassed to either the right-of-use asset or leasehold improvements as appropriate and amortized accordingly. Construction of this facility has not yet commenced. The Company is not expected to control the underlying assets during the construction period and therefore is not considered the owner of the underlying assets for accounting purposes.

As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting standard, future minimum lease payments for operating leases having initial or remaining noncancellable lease terms in excess of one year were as follows (in thousands):


Years ending December 31,
2019	$	5,247
2020	2,798
2021	1,082
2022	453
2023	92
Thereafter	—
Total minimum lease payments	$	9,672