v3.25.1
Leases
 3 Months Ended
Mar. 31, 2025
Leases [Abstract]  
Leases Leases
The Company leases real estate, vehicles and other equipment. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Classification and initial measurement of the right-of-use asset and lease liability are determined at the lease commencement date. The Company elected the short-term lease measurement and recognition exemption; therefore, leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets. Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term.
The Company's arrangements include certain non-lease components such as common area and other maintenance for leased real estate, as well as mileage, fuel and maintenance costs related to leased vehicles. For all leased asset classes, the Company has elected to not separate non-lease components from lease components and will account for each separate lease component and non-lease component associated with the lease as a single lease component. The Company does not guarantee any residual value in its lease agreements, and there are no material restrictions or covenants imposed by lease arrangements. Real estate leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. For the Company's leased vehicles, the Company uses the interest rate implicit in its leases with the lessor to discount lease payments at the lease commencement date. When the implicit rate is not readily available, as is the case with the Company's real estate leases, the Company uses quoted borrowing rates on its secured debt.
Related Party Lease Agreements. In conjunction with the closing of the Jake Marshall Transaction, the Company entered into an operating lease for certain land and facilities owned by a former member of JMLLC who became a full-time employee of the Company. The lease term is 10 years and includes an option to extend the lease for two successive periods of two years each through November 2035. Base rent for the term of the lease is $37,500 per month for the first five years with payment commencing on January 1, 2022. The fixed rent payment is escalated to $45,000 per month for years six through 10 of the lease term. Fixed rent payments for the extension term are increased from $45,000 by the percentage increase, if any, in the consumer price index from the lease commencement date. In addition, under the agreement, the Company is required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses.
In conjunction with the closing of the ACME Transaction, the Company entered into an operating lease for certain land and facilities owned by a former member of ACME who became a full-time employee of the Company. The lease term of the lease ran through December 31, 2024 and included an option to extend the lease for one successive period of one year through December 2025, which was not executed by the Company. Base rent for the term of the lease was $17,000 per month for the first six months with payment commencing on July 1, 2023. The fixed rent payment was escalated to $18,000 per month for the twelve month period ending December 31, 2024. In addition, under the agreement, the Company was required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses. Following the expiration of the ACME facilities lease, ACME moved its operations to the aforementioned Jake Marshall leased facilities.
In conjunction with the closing of the Industrial Air Transaction, the Company entered into an operating lease for certain land and facilities owned by a former member of Industrial Air who became a full-time employee of the Company. The lease term of the lease runs through August 31, 2026 and includes an option to extend the lease for two successive periods of three years each through August 2032. Base rent for the term of the lease is $26,500 per month for the first thirty-three months with payment commencing on November 1, 2023. The fixed rent payment is escalated to $27,563 per month for the first three year extension period ending August 31, 2029 and to $28,941 per month for the second three year extension period ending on August 31, 2032. In addition, under the agreement, the Company is required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses.
Southern California Sublease. In June 2021, the Company entered into a sublease agreement with a third party for the entire ground floor of its leased space in Southern California, consisting of 71,787 square feet. Under the terms of the sublease agreement, the sublessee is obligated to pay the Company base rent of approximately $0.6 million per year, which is subject to a 3.0% annual rent increase, plus certain operating expenses and other costs. The initial lease term commenced in September 2021 and continues through April 30, 2027. As of March 31, 2025, the Company remains obligated under the original lease for such office space and, in the event the sublessee of such office space fails to satisfy its obligations under the sublease, the Company would be required to satisfy its obligations directly to the landlord under such original lease.
In addition, during the first quarter of 2022, the Company entered into an amendment to the aforementioned sublease agreement, which, among other things, expanded the sublease premises to include the entire second floor of its leased space in Southern California, consisting of 16,720 square feet. Under the terms of the amended sublease agreement, the sublessee is obligated to pay the Company base rent of approximately $0.8 million per year, which is subject to a 3.0% annual rent increase, plus certain operating expenses and other costs. The amended sublease term commenced in March 2022 and continues through April 30, 2027.
For both the three months ended March 31, 2025 and 2024, the Company recorded approximately $0.3 million of income in selling, general and administrative expense related to this sublease agreement.
The following table summarizes the lease amounts included in the Company's condensed consolidated balance sheets:
(in thousands)Classification on the Condensed Consolidated Balance SheetsMarch 31, 2025December 31, 2024
Assets
Operating
Operating lease right-of-use assets(1)(2)
$20,516 $21,539 
Finance
Property and equipment, net(3)(4)
14,119 13,966 
Total lease assets$34,635 $35,505 
Liabilities
Current
   OperatingCurrent operating lease liabilities$4,192 $4,093 
   FinanceCurrent portion of long-term debt3,419 3,314 
Noncurrent
   OperatingLong-term operating lease liabilities16,682 17,766 
   Finance
Long-term debt(5)
14,058 13,925 
Total lease liabilities$38,351 $39,098 
(1)     Operating lease assets are recorded net of accumulated amortization of $14.8 million at March 31, 2025 and $14.1 million at December 31, 2024.
(2)    Includes approximately $0.9 million at both March 31, 2025 and December 31, 2024, respectively, related to a below-market lease recognized as a result of the Industrial Air Transaction, which was recorded as an increase to the Company’s operating lease right-of-use assets on its condensed consolidated balance sheet. The below-market lease will be amortized to amortization expense over the remaining lease term.
(3)    Finance lease vehicle assets are recorded net of accumulated amortization of $5.7 million at March 31, 2025 and $5.0 million at December 31, 2024.
(4)    Includes approximately $2.4 million of net property assets associated with the Company's Pontiac Facility at both March 31, 2025 and December 31, 2024, respectively.
(5)    Includes approximately $5.4 million associated with the Company's sale and leaseback financing transaction at both March 31, 2025 and December 31, 2024. See Note 6 for further detail.
The following table summarizes the lease costs included in the Company's condensed consolidated statements of operations for the three months ended March 31, 2025 and 2024:
Three Months Ended
March 31,
(in thousands)Classification on the Condensed Consolidated Statement of Operations20252024
Operating lease cost
Cost of revenue(1)
$858 $588 
Operating lease cost
Selling, general and administrative(1)
447 726 
Finance lease cost
   Amortization
Cost of revenue(2)
929 740 
   Interest
Interest expense, net(2)
176 119 
Total lease cost$2,410 $2,173 
(1)    Operating lease costs recorded in cost of revenue included $0.1 million of variable lease costs for both the three months ended March 31, 2025 and 2024. In addition, $0.1 million of variable lease costs are included in selling, general and administrative for both the three months ended March 31, 2025 and 2024, respectively. These variable costs consist of the Company's proportionate share of operating expenses, real estate taxes and utilities.
(2)     Finance lease costs recorded in cost of revenue include variable lease costs of $1.1 million and $1.0 million for the three months ended March 31, 2025 and 2024, respectively. These variable lease costs consist of fuel, maintenance, and sales tax charges.
The future undiscounted minimum finance lease payments, as reconciled to the discounted minimum lease obligation indicated on the Company’s condensed consolidated balance sheets within current and long-term debt, less interest, and under current and long-term operating leases, less imputed interest, as of March 31, 2025 were as follows (in thousands):
Finance Lease ObligationsOperating Lease Obligations
Year ending:VehiclesPontiac FacilityTotal FinanceNon-Related Party
Related Party(1)
Total Operating
Sublease Receipts(2)
Remainder of 2025$3,045 $397 $3,442 $3,395 $574 $3,969 $818 
20263,562 542 4,104 4,609 770 5,379 1,132 
20272,670 555 3,225 3,451 871 4,322 495 
20281,974 569 2,543 2,498 871 3,369 14 
20292,154 583 2,737 1,799 876 2,675 — 
Thereafter191 13,149 13,340 753 4,121 4,874 — 
Total minimum lease payments13,596 15,795 29,391 16,505 8,083 24,588 $2,459 
Financing Component (3)
(1,470)(10,444)(11,914)(1,986)(1,728)(3,714)
Net present value of minimum lease payments12,126 5,351 17,477 14,519 6,355 20,874 
Less: current portion of finance and operating lease obligations(3,419)— (3,419)(3,752)(440)(4,192)
Long-term finance and operating lease obligations$8,707 $5,351 $14,058 $10,767 $5,915 $16,682 
(1)    Associated with the aforementioned related party leases entered into with former members of JMLLC and Industrial Air.
(2)    Associated with the aforementioned third party sublease agreement.
(3)     The financing component for finance lease obligations represents the interest component of finance leases that will be recognized as interest expense in future periods. The financing component for operating lease obligations represents the effect of discounting the lease payments to their present value.
The following is a summary of the lease terms and discount rates as of:
March 31, 2025December 31, 2024
Weighted average lease term (in years):
   Operating5.735.90
   Finance (1)
3.793.84
Weighted average discount rate:
   Operating6.02 %6.02 %
   Finance (1)
5.99 %6.06 %
(1)     Excludes the weighted average lease term and weighted average discount rate associated with the aforementioned sale-leaseback financing transaction, which has a Primary Term of 25 years and utilized an implicit rate of 11.11%. See Note 6 for further detail.
The following is a summary of other information and supplemental cash flow information related to finance and operating leases:
Three months ended March 31,
(in thousands)20252024
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash flows from operating leases$1,296 $1,250 
   Operating cash flows from finance leases163 121 
   Financing cash flows from finance leases851 695 
Right-of-use assets exchanged for lease liabilities:
   Operating leases— 2,097 
   Finance leases1,318 308 
Right-of-use assets disposed or adjusted modifying finance leases liabilities— (41)
Leases Leases
The Company leases real estate, vehicles and other equipment. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Classification and initial measurement of the right-of-use asset and lease liability are determined at the lease commencement date. The Company elected the short-term lease measurement and recognition exemption; therefore, leases with an initial term of 12 months or less are not recorded on the condensed consolidated balance sheets. Instead, the short-term leases are recognized in expense on a straight-line basis over the lease term.
The Company's arrangements include certain non-lease components such as common area and other maintenance for leased real estate, as well as mileage, fuel and maintenance costs related to leased vehicles. For all leased asset classes, the Company has elected to not separate non-lease components from lease components and will account for each separate lease component and non-lease component associated with the lease as a single lease component. The Company does not guarantee any residual value in its lease agreements, and there are no material restrictions or covenants imposed by lease arrangements. Real estate leases typically include one or more options to extend the lease. The Company regularly evaluates the renewal options, and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. For the Company's leased vehicles, the Company uses the interest rate implicit in its leases with the lessor to discount lease payments at the lease commencement date. When the implicit rate is not readily available, as is the case with the Company's real estate leases, the Company uses quoted borrowing rates on its secured debt.
Related Party Lease Agreements. In conjunction with the closing of the Jake Marshall Transaction, the Company entered into an operating lease for certain land and facilities owned by a former member of JMLLC who became a full-time employee of the Company. The lease term is 10 years and includes an option to extend the lease for two successive periods of two years each through November 2035. Base rent for the term of the lease is $37,500 per month for the first five years with payment commencing on January 1, 2022. The fixed rent payment is escalated to $45,000 per month for years six through 10 of the lease term. Fixed rent payments for the extension term are increased from $45,000 by the percentage increase, if any, in the consumer price index from the lease commencement date. In addition, under the agreement, the Company is required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses.
In conjunction with the closing of the ACME Transaction, the Company entered into an operating lease for certain land and facilities owned by a former member of ACME who became a full-time employee of the Company. The lease term of the lease ran through December 31, 2024 and included an option to extend the lease for one successive period of one year through December 2025, which was not executed by the Company. Base rent for the term of the lease was $17,000 per month for the first six months with payment commencing on July 1, 2023. The fixed rent payment was escalated to $18,000 per month for the twelve month period ending December 31, 2024. In addition, under the agreement, the Company was required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses. Following the expiration of the ACME facilities lease, ACME moved its operations to the aforementioned Jake Marshall leased facilities.
In conjunction with the closing of the Industrial Air Transaction, the Company entered into an operating lease for certain land and facilities owned by a former member of Industrial Air who became a full-time employee of the Company. The lease term of the lease runs through August 31, 2026 and includes an option to extend the lease for two successive periods of three years each through August 2032. Base rent for the term of the lease is $26,500 per month for the first thirty-three months with payment commencing on November 1, 2023. The fixed rent payment is escalated to $27,563 per month for the first three year extension period ending August 31, 2029 and to $28,941 per month for the second three year extension period ending on August 31, 2032. In addition, under the agreement, the Company is required to pay its share of estimated property taxes and operating expenses, both of which are variable lease expenses.
Southern California Sublease. In June 2021, the Company entered into a sublease agreement with a third party for the entire ground floor of its leased space in Southern California, consisting of 71,787 square feet. Under the terms of the sublease agreement, the sublessee is obligated to pay the Company base rent of approximately $0.6 million per year, which is subject to a 3.0% annual rent increase, plus certain operating expenses and other costs. The initial lease term commenced in September 2021 and continues through April 30, 2027. As of March 31, 2025, the Company remains obligated under the original lease for such office space and, in the event the sublessee of such office space fails to satisfy its obligations under the sublease, the Company would be required to satisfy its obligations directly to the landlord under such original lease.
In addition, during the first quarter of 2022, the Company entered into an amendment to the aforementioned sublease agreement, which, among other things, expanded the sublease premises to include the entire second floor of its leased space in Southern California, consisting of 16,720 square feet. Under the terms of the amended sublease agreement, the sublessee is obligated to pay the Company base rent of approximately $0.8 million per year, which is subject to a 3.0% annual rent increase, plus certain operating expenses and other costs. The amended sublease term commenced in March 2022 and continues through April 30, 2027.
For both the three months ended March 31, 2025 and 2024, the Company recorded approximately $0.3 million of income in selling, general and administrative expense related to this sublease agreement.
The following table summarizes the lease amounts included in the Company's condensed consolidated balance sheets:
(in thousands)Classification on the Condensed Consolidated Balance SheetsMarch 31, 2025December 31, 2024
Assets
Operating
Operating lease right-of-use assets(1)(2)
$20,516 $21,539 
Finance
Property and equipment, net(3)(4)
14,119 13,966 
Total lease assets$34,635 $35,505 
Liabilities
Current
   OperatingCurrent operating lease liabilities$4,192 $4,093 
   FinanceCurrent portion of long-term debt3,419 3,314 
Noncurrent
   OperatingLong-term operating lease liabilities16,682 17,766 
   Finance
Long-term debt(5)
14,058 13,925 
Total lease liabilities$38,351 $39,098 
(1)     Operating lease assets are recorded net of accumulated amortization of $14.8 million at March 31, 2025 and $14.1 million at December 31, 2024.
(2)    Includes approximately $0.9 million at both March 31, 2025 and December 31, 2024, respectively, related to a below-market lease recognized as a result of the Industrial Air Transaction, which was recorded as an increase to the Company’s operating lease right-of-use assets on its condensed consolidated balance sheet. The below-market lease will be amortized to amortization expense over the remaining lease term.
(3)    Finance lease vehicle assets are recorded net of accumulated amortization of $5.7 million at March 31, 2025 and $5.0 million at December 31, 2024.
(4)    Includes approximately $2.4 million of net property assets associated with the Company's Pontiac Facility at both March 31, 2025 and December 31, 2024, respectively.
(5)    Includes approximately $5.4 million associated with the Company's sale and leaseback financing transaction at both March 31, 2025 and December 31, 2024. See Note 6 for further detail.
The following table summarizes the lease costs included in the Company's condensed consolidated statements of operations for the three months ended March 31, 2025 and 2024:
Three Months Ended
March 31,
(in thousands)Classification on the Condensed Consolidated Statement of Operations20252024
Operating lease cost
Cost of revenue(1)
$858 $588 
Operating lease cost
Selling, general and administrative(1)
447 726 
Finance lease cost
   Amortization
Cost of revenue(2)
929 740 
   Interest
Interest expense, net(2)
176 119 
Total lease cost$2,410 $2,173 
(1)    Operating lease costs recorded in cost of revenue included $0.1 million of variable lease costs for both the three months ended March 31, 2025 and 2024. In addition, $0.1 million of variable lease costs are included in selling, general and administrative for both the three months ended March 31, 2025 and 2024, respectively. These variable costs consist of the Company's proportionate share of operating expenses, real estate taxes and utilities.
(2)     Finance lease costs recorded in cost of revenue include variable lease costs of $1.1 million and $1.0 million for the three months ended March 31, 2025 and 2024, respectively. These variable lease costs consist of fuel, maintenance, and sales tax charges.
The future undiscounted minimum finance lease payments, as reconciled to the discounted minimum lease obligation indicated on the Company’s condensed consolidated balance sheets within current and long-term debt, less interest, and under current and long-term operating leases, less imputed interest, as of March 31, 2025 were as follows (in thousands):
Finance Lease ObligationsOperating Lease Obligations
Year ending:VehiclesPontiac FacilityTotal FinanceNon-Related Party
Related Party(1)
Total Operating
Sublease Receipts(2)
Remainder of 2025$3,045 $397 $3,442 $3,395 $574 $3,969 $818 
20263,562 542 4,104 4,609 770 5,379 1,132 
20272,670 555 3,225 3,451 871 4,322 495 
20281,974 569 2,543 2,498 871 3,369 14 
20292,154 583 2,737 1,799 876 2,675 — 
Thereafter191 13,149 13,340 753 4,121 4,874 — 
Total minimum lease payments13,596 15,795 29,391 16,505 8,083 24,588 $2,459 
Financing Component (3)
(1,470)(10,444)(11,914)(1,986)(1,728)(3,714)
Net present value of minimum lease payments12,126 5,351 17,477 14,519 6,355 20,874 
Less: current portion of finance and operating lease obligations(3,419)— (3,419)(3,752)(440)(4,192)
Long-term finance and operating lease obligations$8,707 $5,351 $14,058 $10,767 $5,915 $16,682 
(1)    Associated with the aforementioned related party leases entered into with former members of JMLLC and Industrial Air.
(2)    Associated with the aforementioned third party sublease agreement.
(3)     The financing component for finance lease obligations represents the interest component of finance leases that will be recognized as interest expense in future periods. The financing component for operating lease obligations represents the effect of discounting the lease payments to their present value.
The following is a summary of the lease terms and discount rates as of:
March 31, 2025December 31, 2024
Weighted average lease term (in years):
   Operating5.735.90
   Finance (1)
3.793.84
Weighted average discount rate:
   Operating6.02 %6.02 %
   Finance (1)
5.99 %6.06 %
(1)     Excludes the weighted average lease term and weighted average discount rate associated with the aforementioned sale-leaseback financing transaction, which has a Primary Term of 25 years and utilized an implicit rate of 11.11%. See Note 6 for further detail.
The following is a summary of other information and supplemental cash flow information related to finance and operating leases:
Three months ended March 31,
(in thousands)20252024
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash flows from operating leases$1,296 $1,250 
   Operating cash flows from finance leases163 121 
   Financing cash flows from finance leases851 695 
Right-of-use assets exchanged for lease liabilities:
   Operating leases— 2,097 
   Finance leases1,318 308 
Right-of-use assets disposed or adjusted modifying finance leases liabilities— (41)