Leases

9 Months Ended

Sep. 30, 2022

(7) Leases

The Company’s leases consist primarily of real estate and personal property leases throughout the markets in which the Company operates. At contract inception, the Company determines whether an arrangement is or contains a lease, and for each identified lease, evaluates the classification as operating or financing. The Company had no finance leases as of September 30, 2022 and December 31, 2021. Leased assets and obligations are recognized at the lease commencement date based on the present value of fixed lease payments to be made over the term of the lease. Renewal and termination options are factored into determination of the lease term only if the option is reasonably certain to be exercised. The weighted-average remaining lease term was 5.85 years and 6.36 years at September 30, 2022 and December 31, 2021, respectively. The Company had no significant short-term leases as of September 30, 2022 and December 31, 2021.

The Company’s leases do not provide a readily determinable implicit interest rate and the Company uses its incremental borrowing rate to measure the lease liability and corresponding right-of-use asset. The incremental borrowing rates were determined based on a portfolio approach considering the Company’s current secured borrowing rate adjusted for market conditions and the length of the lease term. The weighted-average discount rates used in the measurement of lease liabilities were 5.48% and 5.81% as of September 30, 2022 and December 31, 2021, respectively.

Operating lease cost is recognized on a straight-line basis over the lease term. Operating lease costs for the three months ended September 30, 2022 and 2021 were $3.2 million and $2.6 million, respectively. These costs are included in selling, general, and administrative expenses in the unaudited condensed consolidated statements of operations and comprehensive loss. Operating lease costs for the nine months ended September 30, 2022 and 2021 were $9.4 million and $8.1 million, respectively. Total lease costs include variable lease costs of approximately $0.7 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively, which in each case are primarily comprised of costs of maintenance and utilities, and are determined based on the actual costs incurred during the period. Total lease costs include variable lease costs of $2.0 million and $1.5 million for the

nine months ended September 30, 2022 and 2021, respectively. Variable payments are expensed in the period incurred and not included in the measurement of lease assets and liabilities.

Cash paid for amounts included in the measurement of operating lease liabilities for the nine months ended September 30, 2022 and 2021 was $6.9 million and $7.0 million, respectively, which is included as a component of cash provided by operating activities in the unaudited condensed consolidated statements of cash flows.

As of September 30, 2022, maturities of lease liabilities are as follows:



		(In thousands)
Years ending:
2022 (remainder of the year)	$	1,800
2023		8,555
2024		8,053
2025		7,536
2026		7,020
2027 and thereafter		12,140
Total future minimum lease payments (undiscounted)		45,104
Less: present value discount		(6,962)
Present value of lease liability	$	38,142

EVO Payments, Inc. 10-Q