Commitments and Contingencies Operating Lease Obligations The Company leases office facilities and equipment under operating leases that expire on various dates through 2028. In April 2018, the Company renegotiated the lease of approximately of 170,000 square feet of space in San Leandro, California, with the lessor (New Doolittle Lease). The New Doolittle Lease is effective from April 2018 through December 2028 and has a renewal term of one additional period of five years. The initial monthly rent is approximately $135 thousand with an annual increase of 3% and a total of nine months of rent abatement. Under the new lease standard, ASC 842, which was early-adopted by the company in 2018, the New Doolittle Lease was accounted for as a modification with changes in lease term and consideration. As a result, the Company re-measured the lease liability using the updated discount rate using secured borrowing discount rate and revised lease payments and recognized the amount of $10.4 million as an increase to the lease liability, with a corresponding adjustment to the right-of-use asset. The components of lease expense are presented in the following table. Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018 (In thousands) Operating lease cost $ 472 $ 1,324 Other information related to the operating leases are presented in the following table. Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018 (In thousands) Cash payments $ 36 $ 647 The weighted average remaining lease term and discount rate as of September 30, 2018 related to the operating leases are presented in the following table. Weighted average remaining lease term 10.0 years Weighted average discount rate 6.95 % Maturities of lease liabilities as of September 30, 2018 are presented in the following table. Lease Amounts (In thousands) Year: 2018 (remaining three months) $ 312 2019 1,824 2020 1,855 2021 1,653 2022 1,812 Thereafter 11,758 Total 19,214 Less imputed lease interest (5,653 ) Total lease liabilities $ 13,561 Warranty Changes in the Companys accrued product warranty reserve are presented in the following table. Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 (In thousands) Balance, beginning of period $ 389 $ 374 $ 366 $ 406 Warranty costs charged to cost of revenue 78 54 213 145 Utilization charges against reserve (8 ) (19 ) (36 ) (57 ) Release of accrual related to expired warranties (50 ) (94 ) (134 ) (179 ) Balance, end of period $ 409 $ 315 $ 409 $ 315 Purchase Obligations The Company has purchase order arrangements with its vendors for which the Company has not received the related goods or services as of September 30, 2018 . These arrangements are subject to change based on the Companys sales demand forecasts, and the Company has the right to cancel the arrangements prior to the date of delivery. The majority of these purchase order arrangements were related to various raw materials and components parts. As of September 30, 2018 , the Company had approximately $7.4 million of open cancellable purchase order arrangements related primarily to materials and parts. Guarantees The Company enters into indemnification provisions under its agreements with other companies in the ordinary course of business, typically with customers. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Companys activities, generally limited to personal injury and property damage caused by the Companys employees at a customers desalination plant in proportion to the employees percentage of fault for the accident. Damages incurred for these indemnifications would be covered by the Companys general liability insurance to the extent provided by the policy limitations. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the estimated fair value of these agreements is not material. Accordingly, the Company had no liabilities recorded for these agreements as of September 30, 2018 and December 31, 2017 . In certain cases, the Company issues warranty and product performance guarantees to its customers for amounts generally equal to 10% or less of the total sales agreement to endorse the execution of product delivery and the warranty of design work, fabrication, and operating performance of our devices. These guarantees are generally stand-by letters of credit that typically remain in place in general for periods of 24 to 36 months , and in some cases up to 68 months . All stand-by letters of credit at September 30, 2018 and December 31, 2017 , were in the aggregate for amounts of $8.9 million and $10.4 million , respectively. See Note 8 ,  Long-term Debt and Lines of Credit , for additional information about the Companys stand-by letters of credit arrangements. Litigation The Company is named in and subject to various proceedings and claims in connection with our business. The Company is contesting the allegations in these claims, and the Company believes that there are meritorious defenses in each of these matters. The outcome of matters the Company has been, and currently are, involved in cannot be determined at this time, and the results cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on our results of operations in any future period and a significant judgment could have a material adverse impact on the Companys financial condition, results of operations and cash flows. The Company may in the future become involved in additional litigation in the ordinary course of its business, including litigation that could be material to its business. The Company considers all claims on a quarterly basis and based on known facts assesses whether potential losses are considered reasonably possible, probable and estimable. Based upon this assessment, the Company then evaluates disclosure requirements and whether to accrue for such claims in its consolidated financial statements. The Company records a provision for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. On September 10, 2014, the Company terminated the employment of its Senior Vice President, Sales, Borja Blanco, on the basis of breach of duty of trust and conduct leading to conflict of interest. On October 24, 2014, Mr. Blanco filed a labor claim against ERI Iberia in Madrid, Spain, challenging the fairness of his dismissal and seeking compensation (Case 1). A hearing was held on November 13, 2015, after which the labor court ruled that it did not have jurisdiction over the matter. Mr. Blanco appealed and the appeals court reversed the labor courts finding and instructed the labor court to make a ruling on the merits on November 21, 2017. On February 14, 2018, the Company received notice that the labor court issued a ruling in favor of Mr. Blanco declaring the termination an unjustified dismissal and ordered the Company to pay a dismissed severance. The Company appealed the decision on February 21, 2018. The Company denies any allegations of wrongdoing and intends to continue to vigorously defend against this lawsuit. Based on currently available information and review with outside counsel, the Company has estimated and accrued a potential loss. On November 24, 2014, Mr. Blanco filed a second action based on breach of contract theories in the same court as Case 1 (Case 2), but the cases are separate. In Case 2, Mr. Blanco seeks payment of an unpaid bonus, stock options, and non-compete compensation. The court ruled that this case is stayed until a final ruling is issued in Case 1. The Company denies any allegations of wrongdoing and intends to continue to vigorously defend against this lawsuit. Based on currently available information and review with outside counsel, the Company has determined that an award to Mr. Blanco is not probable. While a loss may be reasonably possible, an estimate of loss, if any, cannot reasonably be determined at this time. The previously reported consolidated derivative action - In Re Energy Recovery, Inc. Derivative Litigation, HG16804359 - was dismissed with prejudice by the Superior Court for the State of California, County of Alameda on October 17, 2018.