At the beginning of fiscal 2022, the Company adopted new lease accounting guidance issued by the FASB. The most significant change requires lessees to record the present value of operating lease payments as operating lease assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements.

We adopted the new guidance using the modified retrospective method at the beginning of fiscal 2022. As such, the condensed consolidated balance sheets for prior periods are not comparable to our fiscal 2022 periods. The Company adopted the new guidance by applying the package of practical expedients permitted under the transition guidance, which allowed the Company to carry forward its original assessment of whether:

The adoption of the new guidance resulted in the recognition of operating lease assets of approximately $21.0 million and operating lease liabilities of approximately $22.0 million, which were measured by the present value of the remaining minimum lease payments. In accordance with the guidance, the Company elected the practical expedient to exclude from the measurement of the operating lease assets and lease liabilities leases with a remaining term less than one year. The Company also elected the practical expedient that allows lessees the option to account for lease and non-lease components together as a single component for all real estate classes of underlying assets. At adoption, in the condensed consolidated balance sheet, we also reclassified deferred rent of approximately $1.0 million for operating leases at the end of the fiscal year ended December 31, 2021 from other current liabilities (current portion) and other long-term liabilities (non-current portion) to current portion of operating lease liabilities and long-term portion of operating lease liabilities, respectively. The impact on the Company’s condensed consolidated statements of income and cash flows was not material.

The present value of the lease payments was calculated using the Company’s incremental borrowing rate applicable to the lease, which is determined by estimating what it would cost the Company to borrow a collateralized amount equal to the total lease payments over the lease term based on the contractual terms of the lease and the location of the leased asset.

The Company has operating leases for its office space, which have remaining lease terms of up to nine years. The Company does not have finance leases. The Company did not enter into any leases during the three and six months ended June 30, 2022.

We determine whether an arrangement is a lease at the contract inception date. Our leases may require us to make fixed rental payments or variable lease payments, which are based on a variety of factors including property values, tax and utility rates, property services fees, and other factors. Since these costs are variable in nature, they are excluded from the measurement of the reported operating lease assets and liabilities and are expensed as incurred. The Company records rent expense for operating leases, some of which have escalating rent payments, on a straight-line basis over the lease term.

Some of our leases include renewal options to extend the leases for up to five years and/or termination options to terminate the leases within one year. If it is reasonably certain that a renewal or termination option will be exercised, the exercise of the option is

considered in calculating the term of the lease. As of June 30, 2022, our operating leases had a weighted-average remaining lease term of approximately eight years and a weighted-average incremental borrowing rate of 2.9%.

As of June 30, 2022, the Company had entered into an operating lease with total estimated future lease payments of $3.6 million that had not yet commenced and therefore is not included in the measurement of the operating right-of-use asset and operating lease liability on the condensed consolidated balance sheet. The lease commenced in the third quarter of fiscal 2022.

Cash paid for amounts included in the operating lease liabilities was $0.7 million and $1.3 million for the three and six months ended June 30, 2022, respectively.

	Three Months Ended June 30,		Six Months Ended June 30,
	2022		2022
Operating lease cost	$	812	$	1,624
Short-term lease cost		355		698
Variable lease cost		2		99
Total lease cost	$	1,169	$	2,421

Rent expense on operating leases was $1.0 million and $2.0 million for the three and six months ended June 30, 2021, respectively.

	As of June 30,
Year	2022
Remainder of 2022	$	1,000
2023		3,715
2024		3,060
2025		2,991
2026		2,974
Thereafter		13,739
Total undiscounted future lease payments		27,479
Less: Commitments for leases not yet commenced		3,593
Less: Imputed interest		2,878
Present value of operating lease liabilities		21,008
Less: Operating lease liabilities, current		2,014
Operating lease liabilities, noncurrent	$	18,994

Future minimum payments under the Company’s non-cancelable operating leases, primarily related to office space, as of December 31, 2021 are as follows:

	As of December 31,
Year	2021
2022	$	3,039
2023		3,953
2024		3,060
2025		2,991
2026		2,974
Thereafter		13,739
Total minimum payments	$	29,756