15. Commitments and Contingencies

Lessor Obligations

As of March 31, 2019, the Company has noncancelable operating leases (as lessor), primarily associated with assets deployed at customer sites. These leases expire over the next one to seven years. Leases contain termination clauses with associated penalties, the amount of which cause the likelihood of cancelation to be remote.

Future minimum lease payments under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of March 31, 2019 are (in thousands):


Remainder of 2019	$	21,892
2020		27,172
2021		22,450
2022		13,713
2023		9,815
2024 and thereafter		12,706
Total future minimum lease payments	$	107,748

Lessee Obligations

As of March 31, 2019, the Company has operating and finance leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash (see also Note 1, Nature of Operations) as summarized below. These leases expire over the next one to nine years. Minimum rent payments under operating and finance leases are recognized on a straight‑line basis over the term of the lease. Leases contain termination clauses with associated penalties, the amounts of which cause the likelihood of cancelation to be remote.

In prior periods, the Company entered into sale/leaseback transactions, that were accounted for as finance leases and reported as part of finance obligations. The outstanding balance of finance obligations related to sale/leaseback transactions at March 31, 2019 was $29.9 million. The fair value of the finance obligation approximates the carrying value as of March 31, 2019.

The Company has sold future services to be performed associated with certain sale/leaseback transactions and recorded the balance as a finance obligation. The outstanding balance of this obligation at March 31, 2019 is $35.6 million, $6.0 million and $29.6 million of which is classified as short-term and long-term, respectively, on the accompanying unaudited interim consolidated balance sheet. The outstanding balance of this obligation at March 31, 2018 was $9.8 million, $2.6 million and $7.2 million of which was classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximates the carrying value as of March 31, 2019.

The Company has a finance lease associated with its property and equipment in Latham, New York. Liabilities relating to this agreement of $2.4 million has been recorded as a finance obligation, in the accompanying unaudited interim consolidated balance sheet as of March 31, 2019. The fair value of this finance obligation approximates the carrying value as of March 31, 2019.

Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of March 31, 2019 are (in thousands):


					Other		Total
	Operating		Finance		Leased		Finance
	Leases		Leases		Property		Obligations
Remainder of 2019	$	17,498	$	5,041	$	325	$	22,864
2020		22,068		6,722		418		29,208
2021		17,134		6,722		391		24,247
2022		11,070		4,975		374		16,419
2023		10,328		3,175		363		13,866
2024 and thereafter		13,353		16,154		1,528		31,035
Total future minimum lease payments		91,451		42,789		3,399		137,639
Less imputed lease interest		(24,150)		(12,898)		(1,022)		(38,070)
Sale of future services		—		35,623		—		—
Total finance obligations	$	67,301	$	65,514	$	2,377	$	135,192

Rental expense for all operating leases was $6.0 million and $3.5 million for the three months ended March 31, 2019 and 2018, respectively.

The gross profit on sale/leaseback transactions for all operating leases was zero for the three months ended March 31, 2019 and 2018. Right of use assets obtained in exchange for new operating lease liabilities was zero for the three months ended March 31, 2019 and $0.6 million for the three months ended March 31, 2018, respectively.

At March 31, 2019 and 2018, security deposits associated with sale/leaseback transactions were $6.8 million and $8.3 million, respectively, and are included in other assets on the unaudited interim consolidated balance sheet.

Other information related to the operating leases are presented in the following table.


		Three months ended		Three months ended
		March 31, 2019		March 31, 2018
Cash payments (in thousands)	$	5,728	$	3,313
Weighted average remaining lease term (years)		4.92		3.60
Weighted average discount rate		12.1%		12.0%

Finance lease costs include amortization of the right of use assets (i.e. depreciation expense) and interest on lease liabilities (i.e. interest and other expense, net in the unaudited interim consolidated statement of operations). Finance lease costs for the three months ended March 31, 2019 and 2018, respectively are (in thousands):


	Three months ended		Three months ended
	March 31, 2019		March 31, 2018
Amortization of right of use asset	$	808	$	1,624
Interest on finance obligations		2,091		1,510
Total finance lease cost	$	2,899	$	3,134

Right of use assets obtained in exchange for new finance lease liabilities were zero for three months ended March 31, 2019 and $0.3 million for the three months ended March 31, 2018.

Other information related to the finance leases are presented in the following table.


		Three months ended		Three months ended
		March 31, 2019		March 31, 2018
Cash payments (in thousands)	$	54,170	$	9,390
Weighted average remaining lease term (years)		3.53		3.90
Weighted average discount rate		10.8%		9.6%

Restricted Cash

In connection with certain of the above noted sale/leaseback agreements, cash of $34.3 million is required to be restricted as security and will be released over the lease term. The Company also has certain letters of credit backed by security deposits totaling $35.1 million that are security for the above noted sale/leaseback agreements.

The Company also has letters of credit in the aggregate amount of $0.5 million at March 31, 2019 associated with a finance obligation from the sale/leaseback of its building. Cash collateralizing this letter of credit is also considered restricted cash.

Litigation

Legal matters are defended and handled in the ordinary course of business. The Company has established accruals for matters for which management considers a loss to be probable and reasonably estimable. It is the opinion of management that facts known at the present time do not indicate that such litigation, after taking into account insurance coverage and the aforementioned accruals, will have a material adverse impact on our results of operations, financial position, or cash flows.

Concentrations of credit risk

Concentrations of credit risk with respect to receivables exist due to the limited number of select customers with whom the Company has initial commercial sales arrangements. To mitigate credit risk, the Company performs appropriate evaluation of a prospective customer’s financial condition.

At March 31, 2019, two customers comprise approximately 83.2% of the total accounts receivable balance. At December 31, 2018, three customers comprised approximately 52.3% of the total accounts receivable balance.

For the three months ended March 31, 2019, 56.2% of total consolidated revenues were associated primarily with two customers. For the three months ended March 31, 2018, 74.2% of total consolidated revenues were associated primarily with two customers. For purposes of assigning a customer to a sale/leaseback transaction completed with a financial institution, the Company considers the end user of the assets to be the ultimate customer.

Vendor Reimbursement

During the first quarter of 2019, the Company received $3.5 million from a vendor to help facilitate a field replacement program for certain composite fuel tanks that do not meet the supply contract standard, as determined by the Company and the manufacturer. The Company is working with its customers to ensure an efficient, minimally disruptive process for the exchange. Amounts received under this arrangement are being accounted for as a reduction of costs. Such costs included labor and materials to replace the tanks, the manufacture of temporary replacement units used while tanks are being replaced, and other miscellaneous costs.