Leases (Notes)

6 Months Ended

Jun. 30, 2020

On January 1, 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842),” which requires leases with durations greater than twelve months to be recognized on the balance sheet. We adopted the standard using the current period adjustment method with an effective date of January 1, 2019. For both operating and finance leases, we recognize a right-of-use asset, which represents our right to use the underlying asset for the lease term, and a lease liability, which represents the present value of our obligation to make payments arising over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases. The incremental borrowing rate is determined using a portfolio approach based on the rate of interest that the Company would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term.

Where the Company is the lessee, the Company elected to account for non-lease components associated with its leases (e.g., common area maintenance costs) and lease components separately for substantially all of its asset classes, except for data centers, for which the Company elected to combine lease and non-lease components. In arrangements where the Company is the lessor, the Company elected to apply the practical expedient which allows the Company to account for lease components (e.g., customer premise equipment) and non-lease components (e.g., service revenue) as combined components under the revenue recognition guidance in Topic 606 as service revenues are the predominant components in the arrangements.

The Company leases property and equipment under finance and operating leases. For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of lease payments over the term. Many of its leases include rental escalation clauses, renewal options and/or termination options that are factored into our determination of lease payments when appropriate.

When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the leases do not provide a readily determinable implicit rate. Therefore, the Company must estimate an incremental borrowing rate to discount the lease payments based on information available at lease commencement.

The table below presents the lease-related assets and liabilities recorded on the balance sheet.


		June 30,		December 31,
(in thousands)	Classification on the Balance Sheet	2020		2019
Assets
Operating lease assets	Operating lease - right of use asset	$	42,930	$	40,551
Finance lease assets	Property and equipment, net	715		1,299
Total lease assets		$	43,645	$	41,850

Liabilities
Current
Operating	Operating lease liabilities, current	$	9,161	$	7,663
Finance	Accrued liabilities	117		124
Noncurrent
Operating	Operating lease liabilities, noncurrent	45,050		44,015
Finance	Other noncurrent liabilities	—		54
Total lease liabilities		$	54,328	$	51,856

The Company leases certain offices, computer equipment and its data center facilities under non-cancelable operating leases for varying periods through 2028. Lease expense was $4.5 million and $3.4 million for the three months ended June 30, 2020 and 2019, respectively, and $8.9 million and $6.4 million for the six months ended June 30, 2020 and 2019, respectively.

Supplemental cash flow information related to operating leases was as follows:


	Six Months Ended
	June 30, 2020		June 30, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	5,106	$	4,200


Lease liabilities arising from obtaining right-of-use assets:
Operating leases	$	7,033	$	1,525

Operating and financing cash flows from finance leases were immaterial during the six months ended June 30, 2020.

The weighted average remaining lease term and the weighted average discount rate of the Company's leases were as follows:


	June 30, 2020		June 30, 2019
Weighted average remaining lease term (years)
Operating leases	5.9		7.2
Finance leases	0.5		1.1
Weighted average discount rates
Operating leases	4.9	%	4.6	%
Finance leases	5.0	%	5.0	%