Quarterly report pursuant to Section 13 or 15(d)

Leases, Commitments, and Contingencies

v3.22.1
Leases, Commitments, and Contingencies
3 Months Ended
Mar. 31, 2022
Commitments and Contingencies Disclosure [Abstract]  
Leases, Commitments, and Contingencies
8. LEASES, COMMITMENTS, AND CONTINGENCIES
Leases
In February 2016, the FASB issued ASU No.
2016-02, Leases
(Topic 842) and in July 2018, ASU
No. 2018-10,
Codification Improvements to Topic 842, Leases, and ASU
2018-11, Leases (Topic
842) – Targeted Improvements (collectively, the Standard). As discussed in Note 1, the Company adopted the Standard on January 1, 2022.
The Company’s leases are summarized as follows:
 
   
A lease for its headquarters and laboratory facilities in Roseville, MN which encompasses approximately 38,000 square feet. The original lease term was 20 years, and the Company holds four 5-year renewal options. Historically, this lease was considered a failed sale leaseback based on the nature of the transactions and was reported as a financing-type lease.
 
   
An equipment financing arrangement that is considered a financing-type lease. This arrangement has a term of four years for each draw. The Company was required to deposit cash into a restricted account in an amount equal to the future rent payments required by the lease. As of March 31, 2022, restricted cash totaled $0.6 million. The Company has the option to request the return of excess collateral annually in December, and the amount the Company expects to receive is reflected as a current asset.
 
   
A small number of short-term and immaterial leases for office equipment.
The Company’s adoption of the Standard required it to remove its existing land, buildings, and equipment associated with its headquarters lease as well as the associated liability. The Company assessed the elements of its lease agreement and upon adoption, recorded an operating lease associated with the sale leaseback of land underlying the headquarter facility, and a second operating lease associated with the building. The cumulative effect of the adoption of the Standard was recorded to stockholders’ equity.
The impact of adoption on the Company’s December 31, 2021, consolidated balance sheet was as
follows:

 

 
  
As Reported
December 31,
2021
 
 
Adoption of
Lease Standard
 
 
As Adjusted
December 31,
2021
 
Assets
                          
Land, buildings, and equipment
   $ 21,731      $ (16,543    $ 5,188  
Operating lease right-of-use assets
     —          14,090        14,090  
    
 
 
    
 
 
    
 
 
 
     $ 21,731      $ (2,453    $ 19,278  
    
 
 
    
 
 
    
 
 
 
Liabilities and stockholders’ equity
                          
Current portion of financing lease obligations
   $ 370      $ (4 )    $ 366  
Other current liabilities
     191        276        467  
Financing lease obligations
     17,506        (17,371      135  
Operating lease obligations
     —          13,814        13,814  
Accumulated deficit
     (196,092      832        (195,260
    
 
 
    
 
 
    
 
 
 
     $ (178,025    $ (2,453    $ (180,478
    
 
 
    
 
 
    
 
 
 
The Company records its operating lease liabilities at the present value of the future lease payments over the lease term. If the lease term includes options to extend or terminate the lease, those elements are included in the determination of lease term when it is reasonably certain that the option will be exercised. The rate used to determine the present value of future lease payments is the rate stated in the lease agreement, or if not stated, the Company’s incremental borrowing rate is used, up to an effective rate that enables the lease liability to amortize to zero over the lease term. Rent expense for operating leases is recorded in selling, general, and administrative
(SG&A)
expense in the consolidated statements of operations and in operating cash flows in the consolidated statements of cash flows. The Company also records operating lease right-of-use assets at an initial amount equal to the operating lease liability. Those right-of-use assets are amortized to lease expense within SG&A over the lease term using the effective interest method to ensure the right-of-use asset amortizes to zero concurrent with the associated liability, and the right-of-use asset amortization expense is also reported in operating cash flows in the consolidated statements of cash flows.
The Company records its financing lease liabilities at the present value of the future lease payments over the lease term. If the lease term includes options to extend or terminate the lease, those elements are included in the determination of lease term when it is reasonably certain that the option will be exercised. The rate used to determine the present value of future lease payments is the rate stated in the lease agreement, or if not stated, the Company’s incremental borrowing rate is used, up to an effective rate that enables the lease liability to amortize to zero over the lease term. Expense associated with financing leases is recorded in interest, net in the consolidated statements of operations and in operating cash flows in the consolidated statements of cash flows.
The Company is obligated under
non-cancellable
operating leases, primarily for office space and certain equipment, as follows:

 
  
March 31, 2022
 
 
  
Remaining
 
  
Right-of-Use
 
In Thousands
  
Term (years)
 
  
Asset
 
Roseville, MN lease
     16.1      $ 13,969  
             
 
 
 
Total
            $ 13,969  
The Roseville, M
N
lease includes four options to each extend the lease for
 
5 years
These options to extend the lease are not recognized as part of the
right-of-use
assets and operating lease liabilities as it is not reasonably certain that the Company will exercise those options. The Company’s agreement does not include options to terminate the lease.

The components of lease expense were as follows:
 
In Thousands
  
Three Months Ended
March 31, 2022
 
Finance lease costs
   $ 9  
Operating lease costs
     399  
Variable lease costs
     231  
    
 
 
 
Total
   $ 639  
    
 
 
 
Operating lease cost for short-term leases was not material for the three months ended March 31, 2022.
Other information related to leases was as follows:
 
In Thousands except for lease term and discount rate
  
As of and for

Three Months Ended
March 31,
 
 
  
Operating
 
 
Financing
 
Cash paid for amounts included in the measurement of lease liabilities:
  
     
 
     
Operating cash flows
   $ 67     $

 
Financing cash flows
   $     $ 94  
Weighted average remaining lease term (years)
     16.1       0.9  
Weighted average discount rate
     7.9     8.1
    
 
 
   
 
 
 
As of March 31, 2022, future minimum payments under operating and finance leases were as follows:

 
In Thousands
  
Operating
 
 
Financing
 
 
Total
 
Remainder of 2022
   $ 1,034      $ 231      $ 1,265  
2023
     1,446        99        1,545  
2024
     1,480               1,480  
2025
     1,479               1,479  
2026
     1,479               1,479  
2027
     1,479               1,479  
Thereafter
     16,991               16,991  
    
 
 
    
 
 
    
 
 
 
       25,388        330        25,718  
Less: imputed interest
     (11,365      (15      (11,380
    
 
 
    
 
 
    
 
 
 
Total
   $ 14,023      $ 315      $ 14,338  
    
 
 
    
 
 
    
 
 
 
Litigation and Claims
The Company is not currently a party to any material pending legal proceeding.