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

Quarterly report pursuant to Section 13 or 15(d)

Leases

Leases

3 Months Ended

Mar. 31, 2020

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 following describes the nature of our various leasing arrangements and the impact to our statement of operations for the three months ended March 31, 2020:

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 months ended March 31, 2020 and 2019, was $1.4 million and $1.6 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 8.0 years as of March 31, 2020. 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 expense for the three months ended March 31, 2020 and 2019, was $0.5 million and $0 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. The Company has elected to separate the lease and non-lease components.

Bandwidth Operating Leases

The Company records 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 March 31, 2020. 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 expense for the three months ended March 31, 2020 and 2019, was $0.3 million and $0 million, respectively.

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.

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 6.25 years as of March 31, 2020. 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 months ended March 31, 2020 and 2019 (in thousands):



	Three Months Ended March 31,
	2020		2019
Amortization of right-of-use asset, net of lease incentive and contract liability credits	$	420	$	—
Interest accretion on finance lease liabilities	383		—
Total lease cost	$	803	$	—

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 March 31, 2020.

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 its condensed 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 (with embedded operating equipment leases) and recognized revenues on sales-type equipment leases in which the Company acts as the lessor for the three months ended March 31, 2020 and 2019, is presented in the following table (in thousands):



	Three Months Ended March 31
	2020		2019
Bandwidth service and equipment revenues⁽¹⁾	$	26,023	$	34,107
Earned revenues on sales-type leases at commencement⁽²⁾	103		333
Total Licensing and Service Revenues -- Maritime and Land Connectivity	$	26,126	$	34,440

⁽¹⁾This is presented as part of Revenues -- Licensing and services in our condensed 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):



	Three Months Ended March 31, 2020
Supplemental cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,028
Cash paid for amounts included in the measurement of finance lease liabilities	$	940
Right-of-use-assets obtained in exchange for operating lease obligations	Immaterial
Right-of-use-assets obtained in exchange for finance lease obligations	$	—
Weighted average remaining lease term -- real estate operating leases	7.01 years
Weighted average remaining lease term -- teleport co-location operating leases	4.59 years
Weighted average remaining lease term -- satellite capacity operating leases	0.75 years
Weighted average remaining lease term -- finance lease	6.25 years
Weighted average IBR -- real estate operating leases	9.90		%
Weighted average IBR -- teleport co-location operating leases	8.89		%
Weighted average IBR -- teleport satellite capacity operating leases	7.24		%
Weighted average IBR -- finance lease	8.30		%

Annual Future Minimum Lease Payments

The following table reflects a summary of Annual future minimum lease payments and the Company’s lease assets as of March 31, 2020 (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 (remaining nine months)	$	3,815		$	2,819		$	1,034		$	1,443		$	9,111		$	382
2021	5,153			3,758			—			1,793			10,704			503
2022	4,541			3,758			—			1,468			9,767			425
2023	3,616			3,758			—			561			7,935			261
2024	3,621			3,758			—			550			7,929			180
Thereafter	10,825			5,638			—			1,009			17,472			43
Total Future Lease Payments	$	31,571		$	23,489		$	1,034		$	6,824		$	62,918		$	1,794
Less: Imputed interest	(9,232		)	(5,084		)	(24		)	(1,266		)	(15,606		)	(273		)
Present Value of Lease Liabilities	$	22,339		$	18,405		$	1,010		$	5,558		$	47,312
Net Investment in Sales-Type Leases																$	1,521

In response to the COVID-19 pandemic and related government restrictions negatively impacting our operations, subsequent to March 31, 2020, we began renegotiating certain lease agreements to obtain rent relief in the near term, in order to help offset the negative financial impacts of COVID-19. On April 10, 2020, the Financial Accounting Standards Board ("FASB") staff issued a question-and-answer document providing guidance for lease concessions provided to lessees in response to the effects of COVID-19. Such guidance allows lessees to make an election not to evaluate whether a lease concession provided by a lessor should be accounted for as a lease modification in the event the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee. We intend to elect this practical expedient in our accounting for any lease concessions provided for our real estate lease agreements.

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:



	March 31, 2020			December 31, 2019
Equipment
Gross balance	$	55,961		$	57,369
Accumulated depreciation	(32,554		)	(30,692		)
Net Book Value	$	23,407		$	26,677

Leases

Real Estate Operating Leases (as a Lessee)

Teleport Co-Location Operating Leases (as a Lessee)

Satellite Bandwidth Finance Lease (as a Lessee)

Bandwidth Operating Leases

Bandwidth Finance Lease



	Three Months Ended March 31,
	2020		2019
Amortization of right-of-use asset, net of lease incentive and contract liability credits	$	420	$	—
Interest accretion on finance lease liabilities	383		—
Total lease cost	$	803	$	—

Other Arrangements (as a Lessee)

Equipment Held by Customers (as a Lessor)



	Three Months Ended March 31
	2020		2019
Bandwidth service and equipment revenues⁽¹⁾	$	26,023	$	34,107
Earned revenues on sales-type leases at commencement⁽²⁾	103		333
Total Licensing and Service Revenues -- Maritime and Land Connectivity	$	26,126	$	34,440

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



	Three Months Ended March 31, 2020
Supplemental cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,028
Cash paid for amounts included in the measurement of finance lease liabilities	$	940
Right-of-use-assets obtained in exchange for operating lease obligations	Immaterial
Right-of-use-assets obtained in exchange for finance lease obligations	$	—
Weighted average remaining lease term -- real estate operating leases	7.01 years
Weighted average remaining lease term -- teleport co-location operating leases	4.59 years
Weighted average remaining lease term -- satellite capacity operating leases	0.75 years
Weighted average remaining lease term -- finance lease	6.25 years
Weighted average IBR -- real estate operating leases	9.90		%
Weighted average IBR -- teleport co-location operating leases	8.89		%
Weighted average IBR -- teleport satellite capacity operating leases	7.24		%
Weighted average IBR -- finance lease	8.30		%

Annual Future Minimum Lease Payments

The following table reflects a summary of Annual future minimum lease payments and the Company’s lease assets as of March 31, 2020 (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 (remaining nine months)	$	3,815		$	2,819		$	1,034		$	1,443		$	9,111		$	382
2021	5,153			3,758			—			1,793			10,704			503
2022	4,541			3,758			—			1,468			9,767			425
2023	3,616			3,758			—			561			7,935			261
2024	3,621			3,758			—			550			7,929			180
Thereafter	10,825			5,638			—			1,009			17,472			43
Total Future Lease Payments	$	31,571		$	23,489		$	1,034		$	6,824		$	62,918		$	1,794
Less: Imputed interest	(9,232		)	(5,084		)	(24		)	(1,266		)	(15,606		)	(273		)
Present Value of Lease Liabilities	$	22,339		$	18,405		$	1,010		$	5,558		$	47,312
Net Investment in Sales-Type Leases																$	1,521

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:



	March 31, 2020			December 31, 2019
Equipment
Gross balance	$	55,961		$	57,369
Accumulated depreciation	(32,554		)	(30,692		)
Net Book Value	$	23,407		$	26,677

Leases

Real Estate Operating Leases (as a Lessee)

Teleport Co-Location Operating Leases (as a Lessee)

Satellite Bandwidth Finance Lease (as a Lessee)

Bandwidth Operating Leases

Bandwidth Finance Lease



	Three Months Ended March 31,
	2020		2019
Amortization of right-of-use asset, net of lease incentive and contract liability credits	$	420	$	—
Interest accretion on finance lease liabilities	383		—
Total lease cost	$	803	$	—

Other Arrangements (as a Lessee)

Equipment Held by Customers (as a Lessor)



	Three Months Ended March 31
	2020		2019
Bandwidth service and equipment revenues⁽¹⁾	$	26,023	$	34,107
Earned revenues on sales-type leases at commencement⁽²⁾	103		333
Total Licensing and Service Revenues -- Maritime and Land Connectivity	$	26,126	$	34,440

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



	Three Months Ended March 31, 2020
Supplemental cash flow information
Cash paid for amounts included in the measurement of operating lease liabilities	$	2,028
Cash paid for amounts included in the measurement of finance lease liabilities	$	940
Right-of-use-assets obtained in exchange for operating lease obligations	Immaterial
Right-of-use-assets obtained in exchange for finance lease obligations	$	—
Weighted average remaining lease term -- real estate operating leases	7.01 years
Weighted average remaining lease term -- teleport co-location operating leases	4.59 years
Weighted average remaining lease term -- satellite capacity operating leases	0.75 years
Weighted average remaining lease term -- finance lease	6.25 years
Weighted average IBR -- real estate operating leases	9.90		%
Weighted average IBR -- teleport co-location operating leases	8.89		%
Weighted average IBR -- teleport satellite capacity operating leases	7.24		%
Weighted average IBR -- finance lease	8.30		%

Annual Future Minimum Lease Payments

The following table reflects a summary of Annual future minimum lease payments and the Company’s lease assets as of March 31, 2020 (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 (remaining nine months)	$	3,815		$	2,819		$	1,034		$	1,443		$	9,111		$	382
2021	5,153			3,758			—			1,793			10,704			503
2022	4,541			3,758			—			1,468			9,767			425
2023	3,616			3,758			—			561			7,935			261
2024	3,621			3,758			—			550			7,929			180
Thereafter	10,825			5,638			—			1,009			17,472			43
Total Future Lease Payments	$	31,571		$	23,489		$	1,034		$	6,824		$	62,918		$	1,794
Less: Imputed interest	(9,232		)	(5,084		)	(24		)	(1,266		)	(15,606		)	(273		)
Present Value of Lease Liabilities	$	22,339		$	18,405		$	1,010		$	5,558		$	47,312
Net Investment in Sales-Type Leases																$	1,521

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:



	March 31, 2020			December 31, 2019
Equipment
Gross balance	$	55,961		$	57,369
Accumulated depreciation	(32,554		)	(30,692		)
Net Book Value	$	23,407		$	26,677