Leases
The Company determines if an arrangement is or contains a lease at contract inception.
Right of Use (“ROU”) assets represent the Company’s right to use an underlying asset over the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. The ROU asset also includes prepaid lease payments and initial direct costs and is reduced for lease incentives paid by the lessor. The discount rate used to determine the present value is generally H-D’s incremental borrowing rate, as allowed under GAAP for subsidiaries, because the implicit rate in the lease is not readily determinable. The lease term used to calculate the ROU asset and lease liabilities includes periods covered by options to extend or terminate when the Company is reasonably certain the lease term will include these optional periods.
In accordance with ASC Topic 842, Leases, (“ASC 842”) the Company elected the short-term lease practical expedient that allows entities to recognize lease payments on a straight-line basis over the lease term for leases with a term of 12 months or less. The Company has also elected the practical expedient under ASC 842 allowing entities to not separate non-lease components from lease components, but instead account for such components as a single lease component for all leases except leases involving assets used in manufacturing and distribution processes.
The Company has operating lease arrangements for real estate. The Company’s leases have a remaining lease term of approximately one to four years. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.
Balance sheet information related to the Company's leases at December 31, was as follows (in thousands): | | | | | | | | | | | | | |
| 2025 | | 2024 | | |
| Assets: | | | | | |
| Lease assets | $ | 823 | | | $ | 765 | | | |
| Liabilities: | | | | | |
| Current portion of lease liabilities | 496 | | | 394 | | | |
| Long-term portion of lease liabilities | 246 | | | 405 | | | |
| Total lease liabilities | $ | 742 | | | $ | 799 | | | |
The following table presents the components of lease costs as of December 31, (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2025 | | 2024 | | 2023 |
| Lease Cost: | | | | | | |
| Operating lease cost | | $ | 476 | | | $ | 1,163 | | | $ | 1,435 | |
| Short-term lease cost | | 52 | | | 63 | | | 38 | |
| Variable lease cost | | 186 | | | 78 | | | 37 | |
| Net lease cost | | $ | 714 | | | $ | 1,304 | | | $ | 1,510 | |
Future maturities of the Company's operating lease liabilities as of December 31, 2025 were as follows (in thousands):
| | | | | |
| Future lease payments: | |
| 2026 | 518 | |
| 2027 | 340 | |
| 2028 | 228 | |
| 2029 | 233 | |
| 2030 | 1 | |
| Thereafter | — | |
| $ | 1,320 | |
| Lease incentive from H-D lease, see Note 15 Related Party Transactions | (500) | |
| Present value discount | (78) | |
| Lease liabilities | $ | 742 | |
Other lease information surrounding the Company's operating leases as of December 31, was as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2025 | | 2024 | | 2023 |
| Cash outflows for amounts included in the measurement of lease liabilities | | $ | 617 | | | $ | 1,181 | | | $ | 1,456 | |
| ROU assets obtained in exchange for lease obligations | | — | | | — | | | 109 | |
Lease modifications (1) | | — | | | (87) | | | — | |
| Weighted-average remaining lease term (in years) | | 2.58 | | 2.16 | | 2.10 |
| Weighted-average discount rate | | 4.73 | % | | 3.60 | % | | 2.69 | % |
(1) In December 2024, the Company issued notice of early termination for a lease agreement with H-D. This termination resulted in a reduction of the right of use asset and lease liability by $87 thousand.
About Leases Disclosures
Lease disclosures under ASC 842 provide a comprehensive view of a company's leased asset portfolio, including the split between operating and finance leases, discount rates used to present-value future payments, and the maturity schedule of lease obligations. This section reveals a significant source of off-balance-sheet commitments that were largely hidden before the current standard.
Key signals: the weighted-average discount rate affects the size of recorded lease liabilities — a higher rate reduces the reported obligation, so compare the chosen rate against the company's incremental borrowing rate. The operating versus finance lease mix affects both EBITDA and operating income presentation. Watch the maturity table for concentration risk: large payment cliffs in specific years may create cash flow pressure. Variable lease payments excluded from the liability measurement represent real obligations that do not appear on the balance sheet. Compare total lease costs against prior-year operating lease expense to assess the true economic burden.