Commitments and Contingencies

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies

Commitments and Contingencies

16.  Commitments and Contingencies

Lessor Obligations

As of June 30, 2020, the Company had 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 cancellation 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, 2020 were as follows (in thousands):

Remainder of 2020	$	15,567
2021		30,958
2022		27,338
2023		24,284
2024		20,902
2025 and thereafter	$	36,861
Total future minimum lease payments	$	155,910

Lessee Obligations

As of June 30, 2020, the Company had operating and finance leases, as lessee, primarily associated with sale/leaseback transactions that are partially secured by restricted cash, security deposits and pledged escrows (see also Note 1, Nature of Operations) as summarized below.  These leases expire over the next one to eight 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 amount of which cause the likelihood of cancellation 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, 2020 and December 31, 2019 was $27.9 million and $31.7 million, respectively. The fair value of the finance obligation approximated the carrying value as of both June 30, 2020 and December 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 June 30, 2020 was $129.2 million, of which $19.6 million and $109.6 million were classified as short-term and long-term, respectively, on the unaudited interim condensed consolidated balance sheets. The outstanding balance of this obligation at December 31, 2019 was $35.6 million, of which $6.0 million and $29.6 million were classified as short-term and long-term, respectively. The amount is amortized using the effective interest method. The fair value of this finance obligation approximated the carrying value as of June 30, 2020.

The Company has a finance lease associated with its property and equipment in Latham, New York.  Liabilities relating to this lease of $2.8 million has been recorded as a finance obligation in the unaudited interim condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019. The fair value of this finance obligation approximated the carrying value as of June 30, 2020.

Future minimum lease payments under operating and finance leases (with initial or remaining lease terms in excess of one year) as of June 30, 2020 were as follows (in thousands):

					Other		Total
	Operating		Finance		Leased		Finance
	Leases		Leases		Property		Obligations
Remainder of 2020	$	25,947	$	5,066	$	312	$	31,325
2021		51,818		9,276		590		61,684
2022		51,267		4,975		573		56,815
2023		45,461		3,149		549		49,159
2024		45,410		16,154		632		62,196
2025 and thereafter		52,344		—		1,174		53,518
Total future minimum lease payments		272,247		38,620		3,830		314,697
Less imputed lease interest		(73,820)		(10,718)		(1,020)		(85,558)
Sale of future services		129,209		—		—		129,209
Total lease liabilities	$	327,636	$	27,902	$	2,810	$	358,348

Rental expense for all operating leases was $12.9 million and $6.2 million for the three months ended June 30, 2020 and 2019, respectively. Rental expense for all operating leases was $25.5 million and $12.1 million for the six months ended June 30, 2020 and 2019, respectively.

The gross profit on sale/leaseback transactions for all operating leases was $14.4 million and $19.7 million for the three and six months ended June 30, 2020, respectively, and $16.1 million for the three and six months ended June 30, 2019. Right of use assets obtained in exchange for new operating lease liabilities was $29.2 million and $45.4 million for the three and six months ended June 30, 2020, respectively, and $34.5 million for the three and six months ended June 30, 2019.

At both June 30, 2020 and December 31, 2019, security deposits associated with sale/leaseback transactions were $6.0 million and were included in other assets in the unaudited interim condensed consolidated balance sheets.

Other information related to the operating leases are presented in the following tables:

		Six months ended		Six months ended
		June 30, 2020		June 30, 2019
Cash payments (in thousands)	$	24,982	$	11,677

	As of June 30,
		2020	2019
Weighted average remaining lease term (years)		5.48	5.13
Weighted average discount rate		12.1%	12.2%

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 were as follows (in thousands):

	Six months ended		Six months ended
	June 30, 2020		June 30, 2019
Amortization of right of use asset	$	1,740	$	1,558
Interest on finance obligations		1,223		2,656
Total finance lease cost	$	2,963	$	4,214

Right of use assets obtained in exchange for new finance lease liabilities was zero and $0.7 million for both the three and six months ended June 30, 2020 and 2019, respectively.

Other information related to the finance leases are presented in the following tables:

		Six months ended		Six months ended
		June 30, 2020		June 30, 2019
Cash payments (in thousands)	$	5,196	$	55,913

	As of June 30,
		2020	2019
Weighted average remaining lease term (years)		3.53	3.25
Weighted average discount rate		8.0%	10.8%

Restricted Cash

As security for the above noted sale/leaseback agreements, cash of $131.1 million was required to be restricted as of June 30, 2020, which restricted cash will be released over the lease term. As of June 30, 2020, the Company also had letters of credit backed by security deposits totaling $98.2 million for the above noted sale/leaseback agreements.

In addition, as of June 30, 2020, the Company also had letters of credit in the aggregate amount of $0.5 million associated with a finance obligation from the sale/leaseback of its building. We consider cash collateralizing this letter of credit as 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, 2020, two customers comprised approximately 88.4% of the total accounts receivable balance. At December 31, 2019, two customers comprised approximately 63.4% of the total accounts receivable balance.

For the six months ended June 30, 2020, 77.9% of total consolidated revenues were associated primarily with two customers. For the six months ended June 30, 2019, 66.0% 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.