Leases

12 Months Ended

Dec. 31, 2023

7. LEASES

Leases are classified as either finance or operating leases based on criteria in ASC 842. The Company has finance leases for its vehicle and equipment leases and operating leases for its real estate space and office equipment leases. The Company’s operating and finance leases generally have original lease terms between 1 year and 15 years, and in some instances include one or more options to renew. The Company includes options to extend the lease term if the options are reasonably certain of being exercised. The Company currently considers some of its renewal options to be reasonably certain to be exercised. Some leases also include early termination options, which can be exercised under specific conditions. The Company does not have material residual value guarantees or restrictive covenants associated with its leases.

Finance and operating lease assets represent the right to use an underlying asset for the lease term, and finance and operating lease liabilities represent the obligation to make lease payments arising from the lease.

The Company calculates the present value of its finance and operating leases using an estimated incremental borrowing rate (“IBR”), which requires judgment. For real estate operating leases, the Company estimates the IBR based on prevailing market rates for collateralized debt in a similar economic environment with similar payment terms and maturity dates commensurate with the terms of the lease. For all other leases, the Company estimates the IBR based on the stated interest rate on the contract. Since many of the inputs used to calculate the rate implicit in the leases are not readily determinable from the lessee’s perspective, the Company will not use the implicit interest rate.

Certain leases contain variable payments, these payments are expensed as incurred and not included in the Company’s operating lease right-of-use assets and operating lease liabilities. These amounts primarily include payments for maintenance, utilities, taxes, and insurance and are excluded from the present value of the Company’s lease obligations.

The Company does not record operating lease right-of-use assets or operating lease liabilities for leases with an initial term of 12 months or less. The Company also combines lease and non-lease components on all new or modified operating leases into a single lease component for all classes of assets.

When a lease is terminated before the expiration of the lease term, irrespective of whether the lease is classified as a finance lease or an operating lease, the lessee would derecognize the Right of Use ("ROU") asset and corresponding lease liability. Any difference would be recognized as a gain or loss related to the termination of the lease. Similarly, if a lessee is required to make any payments or receives any consideration when terminating the lease, it would include such amounts in the determination of the gain or loss upon termination.

The components of lease expense were as follows:


		Year Ended December 31,
	Statement of Operations Location	2023			2022
Operating lease cost
Lease cost	Selling, general and administrative expense	$	11,663		$	10,017
Variable lease cost	Selling, general and administrative expense		1,313			1,319
Lease termination gain—net (1)	Selling, general and administrative expense		(737	)		—
Impairment of ROU asset (2)	Other income/ expense		—			725
Total operating lease cost		$	12,239		$	12,061

Finance lease cost
Amortization of ROU assets	Depreciation and amortization	$	5,351		$	4,179
Interest on lease liabilities	Interest expense—net		655			467
Total finance lease cost			6,006			4,646
Total lease cost		$	18,245		$	16,707

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(1) During the year ended December 31, 2023, the Company became responsible for a lease surrender liability of $8.3 million as a result of terminating one of its newly acquired businesses' lease agreements. The lease surrender fee is payable in equal installments beginning on February 28, 2024, through December 31, 2031. The present value of the current and long term portion of the surrender fee liability of $0.5 million and $5.4 million, on a discounted basis, is included in accounts payable and other accrued liabilities and other non-current liabilities, respectively, on the consolidated statements of financial position. Upon the termination of the lease, the Company wrote off the related $2.3 million and $8.9 million, ROU asset and lease liability, respectively, and recorded a gain of $0.7 million, net of the surrender fee, within selling, general and administrative expense on the consolidated statements of operations.

(2) During the year ended December 31, 2022, the Company vacated certain of its real estate space that is no longer needed for current operations. The impairment analysis on these ROU assets resulted in an impairment loss of $0.7 million.

Supplemental cash flows information related to leases was as follows:


	Year Ended December 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used in finance leases	$	655	$	467
Operating cash flows used in operating leases		11,931		9,662
Financing cash flows used in finance leases		5,797		3,967

Lease liabilities arising from new ROU assets
Operating leases	$	31,459	$	12,443
Finance leases		7,636		4,915

Weighted average remaining lease terms and weighted average discount rates were:


	Year Ended December 31,
	2023		2022
	Operating Leases	Finance Leases	Operating Leases	Finance Leases
Weighted average remaining lease term (years)	4.42	3.51	4.43	3.30
Weighted average discount rate	4.16%	6.32%	2.64%	5.37%

The following is a schedule by year of the maturities of lease liabilities with original terms in excess of one year:


	December 31,
	Operating Leases			Finance Leases
2024	$	11,185		$	4,582
2025		8,692			3,502
2026		6,560			2,866
2027		4,556			1,865
2028 and thereafter		7,573			737
Total undiscounted future minimum lease payments		38,566			13,552
Less imputed interest		(3,555	)		(1,411	)
Total discounted future minimum lease payments	$	35,011		$	12,141