15. Commitments and Contingencies

Lessor Obligations

As of June 30, 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 June 30, 2019 are (in thousands):


Remainder of 2019	$	15,329
2020		29,840
2021		26,507
2022		17,342
2023		13,278
2024 and thereafter		21,653
Total future minimum lease payments	$	123,949

Lessee Obligations

As of June 30, 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 June 30, 2019 and December 31, 2018 was $28.8 million and $81.9 million, respectively. The fair value of the finance obligation approximates the carrying value as of both June 30, 2019 and December 31, 2018.

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 June 30, 2019 is $59.8 million, $9.0 million and $50.8 million of which is classified as short-term and long-term, respectively, on the accompanying unaudited interim condensed consolidated balance sheet. The outstanding balance of this obligation at June 30, 2018 was $9.2 million, $2.6 million and $6.6 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 June 30, 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 condensed consolidated balance sheet as of June 30, 2019. The fair value of this finance obligation approximates the carrying value as of June 30, 2019.

Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of June 30, 2019 are (in thousands):


					Other		Total
	Operating		Finance		Leased		Finance
	Leases		Leases		Property		Obligations
Remainder of 2019	$	15,793	$	3,361	$	225	$	19,379
2020		30,909		6,722		425		38,056
2021		25,930		6,722		407		33,059
2022		19,832		4,975		390		25,197
2023		19,089		3,176		366		22,631
2024 and thereafter		26,815		16,154		1,565		44,534
Total future minimum lease payments		138,368		41,110		3,378		182,856
Less imputed lease interest		(41,138)		(12,339)		(989)		(54,466)
Sale of future services		—		59,804		—		59,804
Total finance obligations	$	97,230	$	88,575	$	2,389	$	188,194

Rental expense for all operating leases was $6.2 million and $3.6 million for the three months ended June 30, 2019 and 2018, respectively. Rental expense for all operating leases was $12.1 million and $7.2 million for the six months ended June 30, 2019 and 2018, respectively.

The gross profit on sale/leaseback transactions for all operating leases was $16.1 million for the three and six months ended June 30, 2019 and zero for the three and six months ended June 30, 2018. Right of use assets obtained in exchange for new operating lease liabilities was $34.5 million for the three and six months ended June 30, 2019 and $1.6 million and $2.2 million for the three and six months ended June 30, 2018.

At June 30, 2019 and 2018, security deposits associated with sale/leaseback transactions were $7.0 million and $8.3 million, respectively, and are included in other assets on the unaudited interim condensed consolidated balance sheet.

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


		Six months ended		Six months ended
		June 30, 2019		June 30, 2018
Cash payments (in thousands)	$	11,677	$	6,634
Weighted average remaining lease term (years)		5.13		3.61
Weighted average discount rate		12.2%		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 condensed consolidated statement of operations). Finance lease costs are as follows (in thousands):


	Six months ended		Six months ended
	June 30, 2019		June 30, 2018
Amortization of right of use asset	$	1,558	$	3,017
Interest on finance obligations		2,656		2,944
Total finance lease cost	$	4,214	$	5,961

Right of use assets obtained in exchange for new finance lease liabilities were $60 thousand for both the three and six months ended June 30, 2019 and zero and $0.3 million for the three and six months ended June 30, 2018.

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


		Six months ended		Six months ended
		June 30, 2019		June 30, 2018
Cash payments (in thousands)	$	55,913	$	19,406
Weighted average remaining lease term (years)		3.25		3.70
Weighted average discount rate		10.8%		10.7%

Restricted Cash

In connection with certain of the above noted sale/leaseback agreements, cash of $32.5 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 $82.9 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 June 30, 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 June 30, 2019, one customer comprises approximately 71.0% of the total accounts receivable balance. At December 31, 2018, three customers comprised approximately 52.3% of the total accounts receivable balance.

For the six months ended June 30, 2019, 66.0% of total consolidated revenues were associated primarily with two customers. For the six months ended June 30, 2018, 66.2% 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 six months ended June 30, 2019 the Company received $4.5 million, $1.0 million of which was received in the second quarter of 2019, 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.