Leases

9 Months Ended

Sep. 30, 2024

Note 10 Leases

The Company rents facilities, equipment and vehicles under operating leases, some of which contain renewal options. Upon inception of a rent agreement, the Company determines whether the arrangement contains a lease based on the unique conditions present. Leases that have a term over a year are recognized on the balance sheet as right-of-use assets and lease liabilities. Right-of-use assets are included in other assets on the Company's Consolidated Condensed Balance Sheets. Lease liabilities are included in other current liabilities and other long-term liabilities on the Company's Consolidated Condensed Balance Sheets. Information regarding the Company's right-of-use assets and the corresponding lease liabilities are as follows:


	September 30, 2024		December 31, 2023
(In thousands)
Right-of-use assets	$	6,392	$	5,522
Lease liabilities		6,564		5,758

The Company's operating lease agreements have lease and non-lease components that require payments for common area maintenance, property taxes and insurance. The Company has elected to account for both lease and non-lease components as one lease component. The fixed and in-substance fixed consideration in the Company's rent agreements constitute operating lease expense that is included in the capitalized right-of-use assets and lease liabilities. The variable and short-term lease expense payments are not included in the present value of the right-of use-assets and lease liabilities on the Consolidated Condensed Balance Sheets. The Company's rent expense is as follows:


	Three months ended				Nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
(In thousands)
Operating lease expense	$	920	$	852	$	2,676	$	2,552
Variable and short-term lease expense		151		41		254		117
Rent expense	$	1,071	$	893	$	2,930	$	2,669

The Company records right-of-use assets and lease liabilities based upon the present value of lease payments over the expected lease term. The Company's lease agreements typically do not have implicit interest rates that are readily determinable. As a result, the Company utilizes an incremental borrowing rate that would be incurred to borrow on a collateralized basis over a similar term in a comparable economic environment. As of September 30, 2024 and December 31, 2023, the remaining lease term on the Company's leases was 7.1 years and 5.2, respectively. As of September 30, 2024 and December 31, 2023, the discount rate was 5.0%. The future minimum lease payments to be paid under operating leases are as follows:


	September 30, 2024
(In thousands)
2024 (remaining three months)	$	734
2025		2,386
2026		1,227
2027		542
2028		433
Thereafter		2,575
Total future lease payments		7,897
Present value adjustment		(1,333	)
Present value of future lease payments	$	6,564

BADGER METER INC 10-Q