Leases Leases (Notes)

9 Months Ended

Mar. 31, 2020

LEASES

The Company adopted ASU 2016-02 and its related amendments (collectively known as “ASC 842”) on July 1, 2019 using the optional transition method in ASU 2018-11. Therefore, the reported results for the three and nine months ended March 31, 2020 reflect the application of ASC 842 while the reported results for the three and nine months ended March 31, 2019 were not adjusted and continue to be reported under the accounting guidance, ASC 840, Leases (“ASC 840”), in effect for the prior period.

The Company determines if an arrangement is a lease at inception. The lease term begins on the commencement date, which is the date the Company takes possession of the property, and may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The lease term is used to determine lease classification as an operating or finance lease and is used to calculate straight-line expense for operating leases. The Company elected the package of practical expedients permitted under the transition guidance within ASU 2016-02 to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs.

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. As a practical expedient, lease agreements with lease and non-lease components are accounted for as a single lease component for all asset classes, which are comprised of real estate leases and equipment leases. ROU assets and lease liabilities are recognized at commencement date based upon the present value of lease payments over the lease term. ROU assets also include prepaid lease payments and exclude lease incentives received. The Company estimates contingent lease incentives when it is probable that the Company is entitled to the incentive at lease commencement. Since the Company’s leases do not typically provide an implicit rate, the Company uses its incremental borrowing rate based upon the information available at commencement date for both real estate and equipment leases. The determination of the incremental borrowing rate requires judgment. The Company determines the incremental borrowing rate using the Company’s current unsecured borrowing rate, adjusted for various factors such as collateralization and term to align with the terms of the lease. The Company elected the short-term lease recognition exemption for all leases that qualify. Therefore, leases with an initial term of 12 months or less are not recorded on the balance sheet; instead, lease payments are recognized as lease expense on a straight-line basis over the lease term.

The Company leases certain office space, data centers and equipment. The Company’s leases have remaining terms of 1 to 11 years. Certain leases contain renewal options for varying periods, which are at the Company’s sole discretion. For leases where the Company is reasonably certain to exercise a renewal option, such option periods have been included in the determination of the Company’s ROU assets and lease liabilities. Certain leases require the Company to pay taxes, insurance, maintenance, and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature. These variable lease costs are recognized as a variable lease expense when incurred. Certain leases include options to purchase the leased asset at the end of the lease term, which is assessed as a part of the Company’s lease classification determination. The depreciable life of the ROU asset and leasehold improvements are limited by the expected lease term unless the Company is reasonably certain of a transfer of title or purchase option.

At March 31, 2020, the Company had operating lease assets of $64,546 and financing lease assets of $253. Total operating lease liabilities of $67,774 were comprised of current operating lease liabilities of $11,718 and noncurrent operating lease liabilities of $56,056. Total financing lease liabilities of $247 were comprised of current financing lease liabilities of $81 and noncurrent financing lease liabilities of $166.

Operating lease assets are included within other non-current assets and operating lease liabilities are included with accrued expenses (current portion) and other long-term liabilities (noncurrent portion) in the Company’s condensed consolidated balance sheet. Operating lease assets were recorded net of accumulated amortization of $10,259 as of March 31, 2020. Financing lease assets are included within property and equipment, net and financing lease liabilities are included with notes payable (current portion) and long-term debt (noncurrent portion) in the Company’s

condensed consolidated balance sheet. Financing lease assets were recorded net of accumulated amortization of $9 as of March 31, 2020.

Operating lease costs for the three and nine months ended March 31, 2020 were $3,999 and $12,030, respectively. Financing lease costs for the three and nine months ended March 31, 2020 were both $10. Total operating and financing lease costs for the quarter and year-to-date period included variable lease costs of approximately $934 and $2,593, respectively.

Operating and financing lease expense is included within cost of services, research and development, and selling, general & administrative expense, dependent upon the nature and use of the ROU asset, in the Company’s condensed consolidated statement of income.

Operating cash flows for payments on operating leases for the nine months ended March 31, 2020 were $11,676 and right-of-use assets obtained in exchange for operating lease liabilities were $2,138. Operating cash flows for interest paid on financing leases for the nine months ended March 31, 2020 were $1.

As of March 31, 2020, the weighted-average remaining lease term for the Company's operating leases was 81 months and the weighted-average discount rate was 2.96%. As of March 31, 2020, the weighted-average remaining lease term for the Company's financing leases was 36 months and the weighted-average discount rate was 2.73%.

Maturity of Lease Liabilities under ASC 842

Future minimum rental payments on operating leases with initial non-cancellable lease terms in excess of one year were due as follows at March 31, 2020*:


Due dates	Future Minimum Rental Payments

2020 (remaining period)	$	3,273
2021	13,627
2022	12,447
2023	10,790
2024	8,635
Thereafter	26,608
Total lease payments	$	75,380
Less: interest	(7,606)
Present value of lease liabilities	$	67,774

*Financing leases were immaterial to the quarter and year-to-date period, so a maturity of lease liabilities table has only been included for operating leases.

Lease payments include $5,002 related to options to extend lease terms that are reasonably certain of being exercised. At March 31, 2020, there were no legally binding lease payments for leases signed but not yet commenced.

Maturity of Lease Liabilities under ASC 840

Future minimum rental payments on operating leases with initial non-cancellable lease terms in excess of one year were due as follows at June 30, 2019:


Due dates	Future Minimum Rental Payments

2020	$	15,559
2021	13,539
2022	11,860
2023	10,169
2024	8,835
Thereafter	11,671
Total lease payments	$	71,633

Rent expense for all operating leases was $15,196 during the year ended June 30, 2019.