Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Contractual Obligations

The Company leases facilities and certain car leases (the ‘‘leases’’) under agreements accounted for as operating leases. The leases have initial lease terms ranging from 1 to 12 years. Payments due under the lease contracts include primarily fixed payments. The lease terms include periods under options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Currently, there are no operating leases where we believe it is reasonably certain that the Company will exercise any option to extend the initial term.

The Company has evaluated its facility leases and determined which leases met the definition of the new standard in accordance with Topic 842. The Company also performed an evaluation of their other contracts with suppliers in accordance with Topic 842 and have determined that, except for the facilities and car leases described above, none of its supply contracts contain a lease. Further, the Company has made an accounting policy election to keep leases with a term of twelve months or less off the balance sheet. This policy applies to all classes of the underlying assets. The Company will recognize those lease payments and associated interest expense in the consolidated statement of operations evenly over the lease term.

The Company elected the “package of practical expedients,” which permits the Company not to reassess under ASC 842 its prior conclusions about lease identification, lease classification and initial direct costs. The Company also made a policy election not to separate non-lease components from lease components. Furthermore, the Company elected to not capitalize leases with a term of 12 months or less and recognize the lease expense for such leases generally on a straight-line basis over the lease term.

In connection with the leases, the Company recognized operating lease right-of-use assets of $15.7 million and an aggregate lease liability of $19.5 million in its consolidated balance sheet as of December 31, 2019.

The determination of the discount rate used to calculate the present value of the right-of-use assets and lease liabilities depends on whether an interest rate is specified in the lease or not. If the lease specifies a rate, that rate is used when calculating the present value of lease payments. If the rate is not readily determinable, which is generally the case for the Company, the Company’s incremental borrowing rate (“IBR”) as of the date of inception of the lease is used (for initial measurement, the IBR was determined as of the adoption date of the standard). The IBR is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. The Company used a ratings benchmark report against its peers in the technology sector.

The Company has operating leases for its corporate offices and other service agreements. The Company's leases have remaining lease terms of 1 to 12 years, some of which include options to extend. The Company's lease expense for the year ended December 31, 2019 consisted entirely of operating leases was approximately $13.0 million. Operating lease payments, which reduced operating cash flows for the year ended December 31, 2019 was approximately $7.0 million.

Supplemental balance sheet information related to leases was as follows:



	As of December 31, 2019
Operating Leases	(in thousands, except lease term and discount rate)
Right-of-use asset, net	$	15,680

Current operating lease liability	6,602
Long term operating lease liability	12,865
Total operating lease liability	$	19,467

Weighted Average Remaining Lease Term
Operating leases	3.5 years

Weighted Average Discount Rate
Operating leases	7		%

Future minimum lease payments under non-cancellable operating leases (with an initial or remaining lease terms in excess of one year) are as follows (amounts in thousands):



Year Ending December 31,	Operating Leases
2020	$	7,787
2021	6,530
2022	3,746
2023	1,925
2024	1,148
Thereafter	864
Total minimum lease payments	$	22,000
Less: present value adjustment	(2,533		)
Total operating lease liability	$	19,467

Rental expense for operating leases and other service agreements was approximately $13.0 million, $10.9 million and $9.9 million for the years ended December 31, 2019, 2018 and 2017 respectively.

Employee Benefit Plans

The Company has a 401(k) defined contribution plan covering all eligible employees. In 2018, the Company provided for employer matching contributions equal to 50% of employee contributions, up to the lesser of 5% of eligible compensation or $6,000. Matching contributions are deposited into the employee’s 401(k) account and are subject to 5 year graded vesting. Beginning in 2019, the Company’s 401(k) policy was changed to a Safe Harbor Plan, whereby the Company matches 100% of the first 3% of eligible compensation and 50% of the next 2% of eligible compensation. Furthermore, the match is immediately vested. Total Company matching contributions were $3.2 million, $1.6 million, and $1.4 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Indemnifications

The Company enters into service and license agreements in its ordinary course of business. Pursuant to some of these agreements, the Company agrees to indemnify certain customers from and against certain types of claims and losses suffered or incurred by them as a result of using the Company’s products.

The Company also has agreements whereby its executive officers and directors are indemnified for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a directors and officers insurance policy that reduces its exposure and enables the Company to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. The Company has no liabilities recorded for these agreements as of December 31, 2019 and 2018.

Non-Income Related Taxes

The Company is in the process of finalizing its sales tax liability analysis for states that it has economic nexus in. Although it is probable that the Company will be subject to sales tax liabilities plus interest in these states, the amount is not estimable at December 31, 2019. The Company expects to finalize its analysis by March 31, 2020.