Anuvu Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

9 Months Ended

Sep. 30, 2019

Our leasing operations consist of various arrangements, where we act either (i) as the lessee (primarily related to our corporate and regional offices, teleport co-location arrangements and a commitment for satellite bandwidth capacity), or (ii) as the lessor (for our owned equipment rented to connectivity customers). The foregoing table summarizes the impact of ASC 842 adoption on the Company’s condensed consolidated balance sheet as of September 30, 2019 (in thousands):



	Impact of Change in Accounting Policy -- as of September 30, 2019
	As reported		ASC 842 Impact			Legacy GAAP
ASSETS
Right-of-use assets, net
Operating leases⁽¹⁾⁽⁴⁾	$	24,167	$	(24,167	)	$	—
Finance lease⁽²⁾⁽⁴⁾	10,754		(10,754		)	—
Total Right-of-Use Assets	$	34,921	$	(34,921	)	$	—
Net lease investment -- other non-current assets⁽³⁾⁽⁴⁾	1,216		(1,216		)	—
Total Lease Assets	$	36,137	$	(36,137	)	$	—

Property and equipment, net⁽⁴⁾	—		1,065			1,065

LIABILITIES
Operating lease liabilities⁽¹⁾ -- current portion	$	5,177	$	(5,177	)	$	—
-- long-term	22,258		(22,258		)	—
Finance lease liabilities⁽²⁾ -- current portion	2,115		(2,115		)	—
-- long-term	16,819		(16,819		)	—
Total Lease Liabilities	$	46,369	$	(46,369	)	$	—

⁽¹⁾This includes arrangements for: (i) corporate and regional office leases, and (ii) teleport co-location leases.

⁽²⁾This refers to the satellite bandwidth capacity arrangement assessed as a finance lease during the quarter ended June 30, 2019. The right-of-use asset balance as of September 30, 2019 included the unamortized lease incentive of $0.9 million and unamortized unfavorable contract liability of $7.0 million.

⁽³⁾This includes customer equipment arrangements classified as sales-type leases as of September 30, 2019.

⁽⁴⁾All existing arrangements as of January 1, 2019 were not re-assessed as allowed under our ASC 842 implementation. Any new arrangements or modifications to existing contracts after January 1, 2019 adoption date are subject to lease classification assessment in accordance with ASC 842’s new lease accounting model.

The following describes the nature of our various leasing arrangements and the impact to our statement of operations for the three and nine months ended September 30, 2019:

Real Estate Operating Leases (as a Lessee)

The Company has operating leases for office facilities throughout the United States and around the world. Upon inception of a contract, the Company evaluates if the contract, or part of the contract, contains a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Leases include both a right-of-use asset and a lease liability. The right-of-use asset represents the Company’s right to use the underlying asset in the lease, and it also includes prepaid lease payments. The lease liability represents the present value of the remaining lease payments discounted using the incremental borrowing rate (“IBR”). Maintenance and property tax expenses are accounted for on an accrual basis as variable lease cost. The Company has elected to combine lease and non-lease components, if applicable.

The Company records lease expense on a straight-line basis over the lease term in general and administrative expense. Total lease expense for the three and nine months ended September 30, 2019 was $1.5 million and $4.6 million, respectively.

The Company’s leases have remaining lease terms of one year to 10.0 years. Lease terms include renewal or termination options that the Company is reasonably certain to exercise. For leases with a term of 12 months or less, the Company has made an accounting policy election to not record a right-of-use asset and associated lease liability on its condensed consolidated balance sheet.

Teleport Co-Location Operating Leases (as a Lessee)

The Company engages certain bandwidth providers for teleport co-location services to deliver bandwidth to our network. These co-location service agreements typically include provisions for physical rack space at a third-party teleport facility. We have determined that the space provided for our equipment constitutes an operating lease.

These leases have remaining lease terms of one year to 9.0 years as of September 30, 2019. The Company records lease expense on a straight-line basis over the lease term as part of cost of sales -- licensing and services. Total lease cost recorded for the three and nine months ended September 30, 2019 was $0.2 million and $0.6 million, respectively.

Satellite Bandwidth Finance Lease (as a Lessee)

The Company maintains agreements with satellite service providers to provide for satellite bandwidth capacity. The Company evaluates these arrangements for embedded leases when the Company has the right to control the use of a significant portion of the identified asset. During the quarter ended June 30, 2019, the Company modified an existing arrangement for bandwidth capacity that provided us with the right to control a significant portion of the identified asset. The modified agreement met the criteria of finance lease classification. The Company has elected to combine lease and non-lease components, if applicable.

This finance lease has a remaining lease term of 6.75 years as of September 30, 2019. The Company records amortization of right-of-use assets and interest accretion on finance lease liabilities as part of cost of sales -- licensing and services and interest expense, net, respectively. The following table provides the components of the finance lease cost for the three and nine months ended September 30, 2019:



	Three Months Ended September 30	Nine Months Ended September 30
	2019	2019
Amortization of right-of-use asset, net of lease incentive and contract liability credits	398	$	531
Interest accretion on finance lease liabilities	441	590
Total lease cost	839	$	1,121

Other Arrangements (as a Lessee)

The Company leases certain computer software, equipment and co-location facilities under finance leases that expire on various dates through 2022, for which the outstanding lease liability balance was assessed as not material as of September 30, 2019.

The Company reviews the carrying value of its right-of-use assets for impairment whenever events or changes in circumstances indicate that the recorded value may not be recoverable. Recoverability of assets is measured by comparing the carrying amounts of the assets to the estimated future undiscounted cash flows, excluding financing costs. If the Company determines that an impairment exists, any related impairment loss is estimated based on fair values.

Equipment Held by Customers (as a Lessor)

The Company either sells or leases certain equipment (including antennas, modems and routers, among others) as part of the bandwidth service to our Maritime and Land Connectivity customers. We account for existing equipment lease transactions as operating leases. We recognize lease payments for operating leases as licensing and services revenue in our consolidated statement of operations on a straight-line basis over the lease term.

We assess new equipment lease arrangements or modifications to existing equipment lease arrangements for operating or sales-type lease classification. We recognize investments in leases for sales-type leases when the risk and rewards of ownership are not fully transferred to the customer due to our continued involvement with the equipment. We allocate the total consideration in a contract assessed with a sales-type lease using the expected cost-plus margin and residual methods for the lease and non-lease components, respectively.

The service revenues and recognized revenues on sales-type leases for the three and nine months ended September 30, 2019 is presented in the following table (in thousands):



	Three Months Ended September 30		Nine Months Ended September 30
	2019		2019
Bandwidth service and equipment revenues⁽¹⁾	$	34,244	$	104,505
Earned revenues on sales-type leases at commencement⁽²⁾	—		1,310
Total Licensing and Service Revenues -- Maritime and Land Connectivity	$	34,244	$	105,815

⁽¹⁾This is presented as part of Revenues -- Licensing and services in our consolidated statement of operations, and includes the equipment lease component that is embedded in the overall bandwidth service arrangement. Since we adopted the practical expedient to not separate the lease and non-lease components as allowed with the ASC 842 implementation as of January 1, 2019, we will continue to classify existing embedded equipment arrangements as operating leases, to the extent unmodified.

⁽²⁾This includes the equipment lease revenues recognized at commencement date of the customer equipment arrangements classified as sales-type leases. As equipment leasing is a standard component in our connectivity business model, we present equipment revenues relating to these sales-type leases on a gross basis, and recognize a corresponding cost of sales equal to the net book value of the leased equipment. Interest income component is considered immaterial.

Supplemental Cash Flow Information, Weighted-Average Remaining Lease Term and Discount Rate

Because the rate implicit in each lease is not readily determinable, the Company uses its IBR to determine the present value of the lease payments. The following table discloses the weighted-average remaining lease term and IBR, as well as supplemental cash flow information (in thousands):



	Nine Months Ended September 30, 2019
Supplemental cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities	$	4,436
Cash paid for amounts included in the measurement of finance lease liabilities	$	1,253
Right-of-use-assets obtained in exchange for operating lease obligations	$	3,388
Right-of-use-assets obtained in exchange for finance lease obligations	$	19,597
Weighted average remaining lease term -- real estate operating leases	7.4 years
Weighted average remaining lease term -- teleport co-location operating leases	4.9 years
Weighted average remaining lease term -- finance lease	6.8 years
Weighted average IBR -- real estate operating leases	8.94		%
Weighted average IBR -- teleport co-location operating leases	8.92		%
Weighted average IBR -- finance lease	9.30		%

Maturity Analysis

Undiscounted Cash Flows and Reconciliation to Consolidated Balance Sheet

The following table reflects a summary of the undiscounted cash flows on an annual basis and reconciliation to the Company’s lease assets and liabilities as of September 30, 2019 (in thousands):



	As a Lessee												As a Lessor
Years Ending December 31,	Real Estate			Satellite Capacity			Teleport Co-Location			Total			Equipment Held by Customers
Lease Classification	Operating			Finance			Operating			Total			Sales-Type
2019 (remaining three months)	$	1,197		$	940		$	272		$	2,409		$	106
2020	4,867			3,758			1,046			9,671			314
2021	4,784			3,758			803			9,345			314
2022	4,460			3,758			438			8,656			314
2023	3,982			3,758			438			8,178			258
Thereafter	15,253			9,397			829			25,479			222
Total Future Lease Payments	$	34,543		$	25,369		$	3,826		$	63,738		$	1,528
Less: Imputed interest	(10,194		)	(6,435		)	(740		)	(17,369		)	(312		)
Present Value of Lease Liabilities	$	24,349		$	18,934		$	3,086		$	46,369
Net Investment in Sales-Type Leases													$	1,216

The following is a schedule of future minimum lease payments for our real estate operating leases as of December 31, 2018 (in thousands):



Years Ending December 31,	Amount
2019	$	4,941
2020	4,593
2021	4,359
2022	3,818
2023	3,541
Thereafter	13,115
Total minimum lease payments	$	34,367

Maritime & Land MRC’s

The following is a schedule of future monthly recurring charges (“MRCs”) arising from our contractual arrangements with Maritime & Land Connectivity customers as of September 30, 2019 (in thousands):



Years Ending December 31,	Amount
2019 (remaining three months)	$	30,949
2020	62,344
2021	31,260
2022 and thereafter	9,436
Total Maritime and Land Monthly Recurring Charges	$	133,989

The following is a schedule of future MRCs arising from our contractual arrangements with Maritime and Land Connectivity customers as of December 31, 2018 (in thousands):



Years Ending December 31,	Amount
2019	$	89,111
2020	34,885
2021	20,594
2022	4,864
2023	2,396
Total Maritime and Land Monthly Recurring Charges	$	151,850

The book value of the equipment held by customers under operating leases, which are classified as “Equipment” in Note 4 - Property & Equipment, is as follows:



	September 30, 2019			December 31, 2018
Equipment
Gross balance	$	57,162		$	62,012
Accumulated depreciation	(27,987		)	(25,232		)
Net Book Value	$	29,175		$	36,780

Leases



	Impact of Change in Accounting Policy -- as of September 30, 2019
	As reported		ASC 842 Impact			Legacy GAAP
ASSETS
Right-of-use assets, net
Operating leases⁽¹⁾⁽⁴⁾	$	24,167	$	(24,167	)	$	—
Finance lease⁽²⁾⁽⁴⁾	10,754		(10,754		)	—
Total Right-of-Use Assets	$	34,921	$	(34,921	)	$	—
Net lease investment -- other non-current assets⁽³⁾⁽⁴⁾	1,216		(1,216		)	—
Total Lease Assets	$	36,137	$	(36,137	)	$	—

Property and equipment, net⁽⁴⁾	—		1,065			1,065

LIABILITIES
Operating lease liabilities⁽¹⁾ -- current portion	$	5,177	$	(5,177	)	$	—
-- long-term	22,258		(22,258		)	—
Finance lease liabilities⁽²⁾ -- current portion	2,115		(2,115		)	—
-- long-term	16,819		(16,819		)	—
Total Lease Liabilities	$	46,369	$	(46,369	)	$	—

⁽¹⁾This includes arrangements for: (i) corporate and regional office leases, and (ii) teleport co-location leases.

⁽³⁾This includes customer equipment arrangements classified as sales-type leases as of September 30, 2019.

The following describes the nature of our various leasing arrangements and the impact to our statement of operations for the three and nine months ended September 30, 2019:

Real Estate Operating Leases (as a Lessee)

Teleport Co-Location Operating Leases (as a Lessee)

Satellite Bandwidth Finance Lease (as a Lessee)



	Three Months Ended September 30	Nine Months Ended September 30
	2019	2019
Amortization of right-of-use asset, net of lease incentive and contract liability credits	398	$	531
Interest accretion on finance lease liabilities	441	590
Total lease cost	839	$	1,121

Other Arrangements (as a Lessee)

Equipment Held by Customers (as a Lessor)

The service revenues and recognized revenues on sales-type leases for the three and nine months ended September 30, 2019 is presented in the following table (in thousands):



	Three Months Ended September 30		Nine Months Ended September 30
	2019		2019
Bandwidth service and equipment revenues⁽¹⁾	$	34,244	$	104,505
Earned revenues on sales-type leases at commencement⁽²⁾	—		1,310
Total Licensing and Service Revenues -- Maritime and Land Connectivity	$	34,244	$	105,815

Supplemental Cash Flow Information, Weighted-Average Remaining Lease Term and Discount Rate



	Nine Months Ended September 30, 2019
Supplemental cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities	$	4,436
Cash paid for amounts included in the measurement of finance lease liabilities	$	1,253
Right-of-use-assets obtained in exchange for operating lease obligations	$	3,388
Right-of-use-assets obtained in exchange for finance lease obligations	$	19,597
Weighted average remaining lease term -- real estate operating leases	7.4 years
Weighted average remaining lease term -- teleport co-location operating leases	4.9 years
Weighted average remaining lease term -- finance lease	6.8 years
Weighted average IBR -- real estate operating leases	8.94		%
Weighted average IBR -- teleport co-location operating leases	8.92		%
Weighted average IBR -- finance lease	9.30		%

Maturity Analysis

Undiscounted Cash Flows and Reconciliation to Consolidated Balance Sheet

The following table reflects a summary of the undiscounted cash flows on an annual basis and reconciliation to the Company’s lease assets and liabilities as of September 30, 2019 (in thousands):



	As a Lessee												As a Lessor
Years Ending December 31,	Real Estate			Satellite Capacity			Teleport Co-Location			Total			Equipment Held by Customers
Lease Classification	Operating			Finance			Operating			Total			Sales-Type
2019 (remaining three months)	$	1,197		$	940		$	272		$	2,409		$	106
2020	4,867			3,758			1,046			9,671			314
2021	4,784			3,758			803			9,345			314
2022	4,460			3,758			438			8,656			314
2023	3,982			3,758			438			8,178			258
Thereafter	15,253			9,397			829			25,479			222
Total Future Lease Payments	$	34,543		$	25,369		$	3,826		$	63,738		$	1,528
Less: Imputed interest	(10,194		)	(6,435		)	(740		)	(17,369		)	(312		)
Present Value of Lease Liabilities	$	24,349		$	18,934		$	3,086		$	46,369
Net Investment in Sales-Type Leases													$	1,216

The following is a schedule of future minimum lease payments for our real estate operating leases as of December 31, 2018 (in thousands):



Years Ending December 31,	Amount
2019	$	4,941
2020	4,593
2021	4,359
2022	3,818
2023	3,541
Thereafter	13,115
Total minimum lease payments	$	34,367

Maritime & Land MRC’s



Years Ending December 31,	Amount
2019 (remaining three months)	$	30,949
2020	62,344
2021	31,260
2022 and thereafter	9,436
Total Maritime and Land Monthly Recurring Charges	$	133,989

The following is a schedule of future MRCs arising from our contractual arrangements with Maritime and Land Connectivity customers as of December 31, 2018 (in thousands):



Years Ending December 31,	Amount
2019	$	89,111
2020	34,885
2021	20,594
2022	4,864
2023	2,396
Total Maritime and Land Monthly Recurring Charges	$	151,850

The book value of the equipment held by customers under operating leases, which are classified as “Equipment” in Note 4 - Property & Equipment, is as follows:



	September 30, 2019			December 31, 2018
Equipment
Gross balance	$	57,162		$	62,012
Accumulated depreciation	(27,987		)	(25,232		)
Net Book Value	$	29,175		$	36,780

Leases



	Impact of Change in Accounting Policy -- as of September 30, 2019
	As reported		ASC 842 Impact			Legacy GAAP
ASSETS
Right-of-use assets, net
Operating leases⁽¹⁾⁽⁴⁾	$	24,167	$	(24,167	)	$	—
Finance lease⁽²⁾⁽⁴⁾	10,754		(10,754		)	—
Total Right-of-Use Assets	$	34,921	$	(34,921	)	$	—
Net lease investment -- other non-current assets⁽³⁾⁽⁴⁾	1,216		(1,216		)	—
Total Lease Assets	$	36,137	$	(36,137	)	$	—

Property and equipment, net⁽⁴⁾	—		1,065			1,065

LIABILITIES
Operating lease liabilities⁽¹⁾ -- current portion	$	5,177	$	(5,177	)	$	—
-- long-term	22,258		(22,258		)	—
Finance lease liabilities⁽²⁾ -- current portion	2,115		(2,115		)	—
-- long-term	16,819		(16,819		)	—
Total Lease Liabilities	$	46,369	$	(46,369	)	$	—

⁽¹⁾This includes arrangements for: (i) corporate and regional office leases, and (ii) teleport co-location leases.

⁽³⁾This includes customer equipment arrangements classified as sales-type leases as of September 30, 2019.

The following describes the nature of our various leasing arrangements and the impact to our statement of operations for the three and nine months ended September 30, 2019:

Real Estate Operating Leases (as a Lessee)

Teleport Co-Location Operating Leases (as a Lessee)

Satellite Bandwidth Finance Lease (as a Lessee)



	Three Months Ended September 30	Nine Months Ended September 30
	2019	2019
Amortization of right-of-use asset, net of lease incentive and contract liability credits	398	$	531
Interest accretion on finance lease liabilities	441	590
Total lease cost	839	$	1,121

Other Arrangements (as a Lessee)

Equipment Held by Customers (as a Lessor)

The service revenues and recognized revenues on sales-type leases for the three and nine months ended September 30, 2019 is presented in the following table (in thousands):



	Three Months Ended September 30		Nine Months Ended September 30
	2019		2019
Bandwidth service and equipment revenues⁽¹⁾	$	34,244	$	104,505
Earned revenues on sales-type leases at commencement⁽²⁾	—		1,310
Total Licensing and Service Revenues -- Maritime and Land Connectivity	$	34,244	$	105,815

Supplemental Cash Flow Information, Weighted-Average Remaining Lease Term and Discount Rate



	Nine Months Ended September 30, 2019
Supplemental cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities	$	4,436
Cash paid for amounts included in the measurement of finance lease liabilities	$	1,253
Right-of-use-assets obtained in exchange for operating lease obligations	$	3,388
Right-of-use-assets obtained in exchange for finance lease obligations	$	19,597
Weighted average remaining lease term -- real estate operating leases	7.4 years
Weighted average remaining lease term -- teleport co-location operating leases	4.9 years
Weighted average remaining lease term -- finance lease	6.8 years
Weighted average IBR -- real estate operating leases	8.94		%
Weighted average IBR -- teleport co-location operating leases	8.92		%
Weighted average IBR -- finance lease	9.30		%

Maturity Analysis

Undiscounted Cash Flows and Reconciliation to Consolidated Balance Sheet

The following table reflects a summary of the undiscounted cash flows on an annual basis and reconciliation to the Company’s lease assets and liabilities as of September 30, 2019 (in thousands):



	As a Lessee												As a Lessor
Years Ending December 31,	Real Estate			Satellite Capacity			Teleport Co-Location			Total			Equipment Held by Customers
Lease Classification	Operating			Finance			Operating			Total			Sales-Type
2019 (remaining three months)	$	1,197		$	940		$	272		$	2,409		$	106
2020	4,867			3,758			1,046			9,671			314
2021	4,784			3,758			803			9,345			314
2022	4,460			3,758			438			8,656			314
2023	3,982			3,758			438			8,178			258
Thereafter	15,253			9,397			829			25,479			222
Total Future Lease Payments	$	34,543		$	25,369		$	3,826		$	63,738		$	1,528
Less: Imputed interest	(10,194		)	(6,435		)	(740		)	(17,369		)	(312		)
Present Value of Lease Liabilities	$	24,349		$	18,934		$	3,086		$	46,369
Net Investment in Sales-Type Leases													$	1,216

The following is a schedule of future minimum lease payments for our real estate operating leases as of December 31, 2018 (in thousands):



Years Ending December 31,	Amount
2019	$	4,941
2020	4,593
2021	4,359
2022	3,818
2023	3,541
Thereafter	13,115
Total minimum lease payments	$	34,367

Maritime & Land MRC’s



Years Ending December 31,	Amount
2019 (remaining three months)	$	30,949
2020	62,344
2021	31,260
2022 and thereafter	9,436
Total Maritime and Land Monthly Recurring Charges	$	133,989

The following is a schedule of future MRCs arising from our contractual arrangements with Maritime and Land Connectivity customers as of December 31, 2018 (in thousands):



Years Ending December 31,	Amount
2019	$	89,111
2020	34,885
2021	20,594
2022	4,864
2023	2,396
Total Maritime and Land Monthly Recurring Charges	$	151,850

The book value of the equipment held by customers under operating leases, which are classified as “Equipment” in Note 4 - Property & Equipment, is as follows:



	September 30, 2019			December 31, 2018
Equipment
Gross balance	$	57,162		$	62,012
Accumulated depreciation	(27,987		)	(25,232		)
Net Book Value	$	29,175		$	36,780