Anuvu Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Leases

Leases

12 Months Ended

Dec. 31, 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 satellite bandwidth capacity leases), 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 December 31, 2019 (in thousands):



	Impact of Change in Accounting Policy -- as of December 31, 2019
	As reported		ASC 842 Impact			Legacy GAAP
ASSETS
Right-of-use assets, net
Operating leases⁽¹⁾⁽⁴⁾	$	28,261	$	(28,261	)	$	—
Finance lease⁽²⁾⁽⁴⁾	10,926		(10,926		)	—
Total Right-of-Use Assets	39,187		(39,187		)	—
Net lease investment -- other non-current assets⁽³⁾⁽⁴⁾	1,508		(1,508		)	—
Total Lease Assets	$	40,695	$	(40,695	)	$	—

Property and equipment, net⁽⁴⁾	$	—	$	(1,408	)	$	(1,408	)

LIABILITIES
Operating lease liabilities⁽¹⁾ -- current portion	$	8,319	$	(8,319	)	$	—
-- long-term	23,636		(23,636		)	—
Finance lease liabilities⁽²⁾-- current portion	2,297		(2,297		)	—
-- long-term	16,666		(16,666		)	—
Total Lease Liabilities	$	50,918	$	(50,918	)	$	—

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

⁽²⁾This refers to the satellite bandwidth capacity arrangement assessed as a finance lease during the year ended December 31, 2019. The right-of-use asset balance as of December 31, 2019 included the unamortized lease incentive of $0.9 million and unamortized unfavorable contract liability of $6.7 million.

⁽³⁾This includes customer equipment arrangements classified as sales-type leases as of December 31, 2019. In addition, the Company elected the practical expedient which allows the use of hindsight in determining the lease term.

⁽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 assessment or re-assessment in accordance with ASC 842’s new accounting model.

The following describes the nature of our various leasing arrangements and the impact to our statement of operations for the twelve months ended December 31, 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 separate the lease and non-lease components.

The Company records lease expense on a straight-line basis over the lease term in general and administrative expense. Total lease expense for the twelve months ended December 31, 2019 was $6.0 million.

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. Total lease expense recorded for these short-term leases is immaterial for the twelve months ended December 31, 2019.

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. The Company has elected to separate the lease and non-lease components.

These leases have remaining lease terms of one year to 9.0 years as of December 31, 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 twelve months ended December 31, 2019 was $1.2 million.

Satellite Bandwidth Operating & Finance Leases (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. The Company has elected to separate the lease and non-lease components.

Bandwidth Operating Leases

During the year ended December 31, 2019, the Company recorded right-of-use assets and lease liabilities for certain bandwidth capacity arrangements meeting the operating lease classification. These leases have remaining lease terms of one year to 2.0 years as of December 31, 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 twelve months ended December 31, 2019 was $0.8 million.

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. Total lease expense recorded for a short-term lease relating to our satellite bandwidth capacity agreement is $0.9 million for the twelve months ended December 31, 2019.

Bandwidth Finance Lease

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.

This finance lease has a remaining lease term of 6.5 years as of December 31, 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 twelve months ended December 31, 2019 (in thousands):



	Amount
Amortization of right-of-use asset, net of lease incentive and contract liability credits	$	981
Interest accretion on finance lease liabilities	938
Total lease cost	$	1,919

Other Arrangements (as a Lessee)

The Company leases certain computer software and equipment 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 December 31, 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. The Company’s lease terms may give our customer’s options to extend the lease or have automatic renewals, the Company includes these terms when it is reasonably certain that the customer will exercise that option. 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 Company’s lease term includes any option to extend the lease when it is reasonably certain to be exercised based on consideration of all relevant economic factors.

The service revenues (with embedded operating equipment leases) and recognized revenues on sales-type equipment leases in which the Company acts as the lessor for the year ended December 31, 2019 is presented in the following table (in thousands):



	Amount
Bandwidth service and equipment revenues⁽¹⁾	$	117,339
Earned revenues on sales-type leases at commencement⁽²⁾	1,711
Total Licensing and Service Revenues -- Maritime and Land Connectivity	$	119,050

⁽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 for the twelve months ended December 31, 2019 (in thousands):



	Amount
Supplemental cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	7,027
Cash paid for amounts included in the measurement of finance lease liabilities	$	2,192
Right-of-use-assets obtained in exchange for operating lease obligations	$	9,564
Right-of-use-assets obtained in exchange for finance lease obligations	$	20,218
Weighted average remaining lease term:
Real estate operating leases	7.10 years
Teleport co-location operating leases	4.90 years
Satellite capacity operating leases	1.50 years
Satellite capacity finance lease	6.50 years
Weighted average IBR:
Real estate operating leases	8.17		%
Teleport co-location operating leases	8.90		%
Satellite capacity operating leases	7.49		%
Satellite capacity finance lease	8.30		%

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 December 31, 2019 (in thousands):



	As a Lessee															As a Lessor
Years Ending December 31,	Real Estate			Satellite Capacity			Satellite Capacity			Teleport Co-Location			Total			Equipment Held by Customers
Lease Classification	Operating			Finance			Operating			Operating			Total			Sales-Type
2020	$	5,227		$	3,758		$	2,131		$	1,702		$	12,818		$	469
2021	4,962			3,758			791			1,554			11,065			464
2022	4,652			3,758			—			1,241			9,651			386
2023	3,651			3,758			—			561			7,970			258
2024	3,655			3,758			—			550			7,963			223
Thereafter	10,974			5,640			—			966			17,580			—
Total Future Lease Payments	33,121			24,430			2,922			6,574			67,047			1,800
Less: Imputed interest	(9,232		)	(5,467		)	(155		)	(1,275		)	(16,129		)	(292		)
Present Value of Lease Liabilities	$	23,889		$	18,963		$	2,767		$	5,299		$	50,918
Net Investment in Sales-Type Leases																$	1,508

The following is a schedule of future minimum lease payments for our 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 December 31, 2019 (in thousands):



Years Ending December 31,	Amount
2020	$	80,459
2021	38,595
2022	7,680
2023 and thereafter	2,944
Total Maritime and Land Monthly Recurring Charges	$	129,678

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 5 - Property & Equipment, is as follows (in thousands):



	December 31,
	2019			2018
Equipment
Gross balance	$	57,369		$	57,162
Accumulated depreciation	(30,692		)	(27,987		)
Net Book Value	$	26,677		$	29,175

Leases



	Impact of Change in Accounting Policy -- as of December 31, 2019
	As reported		ASC 842 Impact			Legacy GAAP
ASSETS
Right-of-use assets, net
Operating leases⁽¹⁾⁽⁴⁾	$	28,261	$	(28,261	)	$	—
Finance lease⁽²⁾⁽⁴⁾	10,926		(10,926		)	—
Total Right-of-Use Assets	39,187		(39,187		)	—
Net lease investment -- other non-current assets⁽³⁾⁽⁴⁾	1,508		(1,508		)	—
Total Lease Assets	$	40,695	$	(40,695	)	$	—

Property and equipment, net⁽⁴⁾	$	—	$	(1,408	)	$	(1,408	)

LIABILITIES
Operating lease liabilities⁽¹⁾ -- current portion	$	8,319	$	(8,319	)	$	—
-- long-term	23,636		(23,636		)	—
Finance lease liabilities⁽²⁾-- current portion	2,297		(2,297		)	—
-- long-term	16,666		(16,666		)	—
Total Lease Liabilities	$	50,918	$	(50,918	)	$	—

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

The following describes the nature of our various leasing arrangements and the impact to our statement of operations for the twelve months ended December 31, 2019:

Real Estate Operating Leases (as a Lessee)

Teleport Co-Location Operating Leases (as a Lessee)

Satellite Bandwidth Operating & Finance Leases (as a Lessee)

Bandwidth Operating Leases

Bandwidth Finance Lease



	Amount
Amortization of right-of-use asset, net of lease incentive and contract liability credits	$	981
Interest accretion on finance lease liabilities	938
Total lease cost	$	1,919

Other Arrangements (as a Lessee)

Equipment Held by Customers (as a Lessor)



	Amount
Bandwidth service and equipment revenues⁽¹⁾	$	117,339
Earned revenues on sales-type leases at commencement⁽²⁾	1,711
Total Licensing and Service Revenues -- Maritime and Land Connectivity	$	119,050

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



	Amount
Supplemental cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	7,027
Cash paid for amounts included in the measurement of finance lease liabilities	$	2,192
Right-of-use-assets obtained in exchange for operating lease obligations	$	9,564
Right-of-use-assets obtained in exchange for finance lease obligations	$	20,218
Weighted average remaining lease term:
Real estate operating leases	7.10 years
Teleport co-location operating leases	4.90 years
Satellite capacity operating leases	1.50 years
Satellite capacity finance lease	6.50 years
Weighted average IBR:
Real estate operating leases	8.17		%
Teleport co-location operating leases	8.90		%
Satellite capacity operating leases	7.49		%
Satellite capacity finance lease	8.30		%

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 December 31, 2019 (in thousands):



	As a Lessee															As a Lessor
Years Ending December 31,	Real Estate			Satellite Capacity			Satellite Capacity			Teleport Co-Location			Total			Equipment Held by Customers
Lease Classification	Operating			Finance			Operating			Operating			Total			Sales-Type
2020	$	5,227		$	3,758		$	2,131		$	1,702		$	12,818		$	469
2021	4,962			3,758			791			1,554			11,065			464
2022	4,652			3,758			—			1,241			9,651			386
2023	3,651			3,758			—			561			7,970			258
2024	3,655			3,758			—			550			7,963			223
Thereafter	10,974			5,640			—			966			17,580			—
Total Future Lease Payments	33,121			24,430			2,922			6,574			67,047			1,800
Less: Imputed interest	(9,232		)	(5,467		)	(155		)	(1,275		)	(16,129		)	(292		)
Present Value of Lease Liabilities	$	23,889		$	18,963		$	2,767		$	5,299		$	50,918
Net Investment in Sales-Type Leases																$	1,508

The following is a schedule of future minimum lease payments for our 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
2020	$	80,459
2021	38,595
2022	7,680
2023 and thereafter	2,944
Total Maritime and Land Monthly Recurring Charges	$	129,678

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 5 - Property & Equipment, is as follows (in thousands):



	December 31,
	2019			2018
Equipment
Gross balance	$	57,369		$	57,162
Accumulated depreciation	(30,692		)	(27,987		)
Net Book Value	$	26,677		$	29,175

Leases



	Impact of Change in Accounting Policy -- as of December 31, 2019
	As reported		ASC 842 Impact			Legacy GAAP
ASSETS
Right-of-use assets, net
Operating leases⁽¹⁾⁽⁴⁾	$	28,261	$	(28,261	)	$	—
Finance lease⁽²⁾⁽⁴⁾	10,926		(10,926		)	—
Total Right-of-Use Assets	39,187		(39,187		)	—
Net lease investment -- other non-current assets⁽³⁾⁽⁴⁾	1,508		(1,508		)	—
Total Lease Assets	$	40,695	$	(40,695	)	$	—

Property and equipment, net⁽⁴⁾	$	—	$	(1,408	)	$	(1,408	)

LIABILITIES
Operating lease liabilities⁽¹⁾ -- current portion	$	8,319	$	(8,319	)	$	—
-- long-term	23,636		(23,636		)	—
Finance lease liabilities⁽²⁾-- current portion	2,297		(2,297		)	—
-- long-term	16,666		(16,666		)	—
Total Lease Liabilities	$	50,918	$	(50,918	)	$	—

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

The following describes the nature of our various leasing arrangements and the impact to our statement of operations for the twelve months ended December 31, 2019:

Real Estate Operating Leases (as a Lessee)

Teleport Co-Location Operating Leases (as a Lessee)

Satellite Bandwidth Operating & Finance Leases (as a Lessee)

Bandwidth Operating Leases

Bandwidth Finance Lease



	Amount
Amortization of right-of-use asset, net of lease incentive and contract liability credits	$	981
Interest accretion on finance lease liabilities	938
Total lease cost	$	1,919

Other Arrangements (as a Lessee)

Equipment Held by Customers (as a Lessor)



	Amount
Bandwidth service and equipment revenues⁽¹⁾	$	117,339
Earned revenues on sales-type leases at commencement⁽²⁾	1,711
Total Licensing and Service Revenues -- Maritime and Land Connectivity	$	119,050

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



	Amount
Supplemental cash flow information:
Cash paid for amounts included in the measurement of operating lease liabilities	$	7,027
Cash paid for amounts included in the measurement of finance lease liabilities	$	2,192
Right-of-use-assets obtained in exchange for operating lease obligations	$	9,564
Right-of-use-assets obtained in exchange for finance lease obligations	$	20,218
Weighted average remaining lease term:
Real estate operating leases	7.10 years
Teleport co-location operating leases	4.90 years
Satellite capacity operating leases	1.50 years
Satellite capacity finance lease	6.50 years
Weighted average IBR:
Real estate operating leases	8.17		%
Teleport co-location operating leases	8.90		%
Satellite capacity operating leases	7.49		%
Satellite capacity finance lease	8.30		%

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 December 31, 2019 (in thousands):



	As a Lessee															As a Lessor
Years Ending December 31,	Real Estate			Satellite Capacity			Satellite Capacity			Teleport Co-Location			Total			Equipment Held by Customers
Lease Classification	Operating			Finance			Operating			Operating			Total			Sales-Type
2020	$	5,227		$	3,758		$	2,131		$	1,702		$	12,818		$	469
2021	4,962			3,758			791			1,554			11,065			464
2022	4,652			3,758			—			1,241			9,651			386
2023	3,651			3,758			—			561			7,970			258
2024	3,655			3,758			—			550			7,963			223
Thereafter	10,974			5,640			—			966			17,580			—
Total Future Lease Payments	33,121			24,430			2,922			6,574			67,047			1,800
Less: Imputed interest	(9,232		)	(5,467		)	(155		)	(1,275		)	(16,129		)	(292		)
Present Value of Lease Liabilities	$	23,889		$	18,963		$	2,767		$	5,299		$	50,918
Net Investment in Sales-Type Leases																$	1,508

The following is a schedule of future minimum lease payments for our 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
2020	$	80,459
2021	38,595
2022	7,680
2023 and thereafter	2,944
Total Maritime and Land Monthly Recurring Charges	$	129,678

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 5 - Property & Equipment, is as follows (in thousands):



	December 31,
	2019			2018
Equipment
Gross balance	$	57,369		$	57,162
Accumulated depreciation	(30,692		)	(27,987		)
Net Book Value	$	26,677		$	29,175