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Leases | 12 Months Ended
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Dec. 31, 2019
Leases |
Leases | Note 9. Leases We have operating leases for office space, warehouse space, computer and office equipment and vehicles used in our business operations. We have a finance lease in relation to the 2015 sale-leaseback of our corporate headquarters in Beverly, Massachusetts. We review all agreements to determine if the agreement contains a lease component. An agreement contains a lease component if it provides the use of a specific physical space or a specific physical item. Upon adoption of Topic 842 on January 1, 2019, we recognized operating lease obligations on a discounted basis using the explicit or implicit discount rate stated within the agreement. We recognize a corresponding right-of-use asset, which is initially determined based upon the net present value of the associated liability and is adjusted for deferred costs and possible impairment, if any. For those lease agreements that do not indicate the applicable discount rate, we use our incremental borrowing rate. The value of the right-of-use asset is initially determined based on the net present value of the associated liability, and is adjusted for deferred costs and possible impairments, if any. We have made the following policy elections: (i) operating leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet; (ii) we recognize lease expense for operating leases on a straight-line basis over the lease term; and (iii) we account for lease components and non-lease components that are fixed payments as one component. Some of our operating leases include one or more options to renew, with renewal terms that can extend the respective lease term 1 to 3 years. The exercise of lease renewal options is at our sole discretion. For lease extensions that are reasonably certain to occur, we have included the renewal periods in our calculation of the net present value of the lease obligation and related right-of-use asset. Certain leases also include options to purchase the leased property. The depreciable life of certain assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. The amounts of operating and finance lease right-of-use assets and related lease obligations recorded within our consolidated balance sheet are as follows:
|  |  | December 31,
Leases | Classification |  | 2019
Assets |  |  | (in thousands)
Operating lease | Operating lease assets |  | $ | 5,849
Finance lease | Finance lease assets * |  |  | 21,880
Total leased assets |  |  | $ | 27,729
Liabilities |  |  |  |
Current |  |  |  |
Operating | Other current liabilities |  | $ | 3,144
Finance | Current portion of finance lease obligation |  |  | 399
Noncurrent |  |  |  |
Operating | Other long-term liabilities |  |  | 2,553
Finance | Finance lease obligation |  |  | 48,149
Total lease liabilities |  |  | $ | 54,245
* Finance lease assets are recorded net of accumulated depreciation of $47.4 million and include $0.7 million of prepaid financing costs as of December 31, 2019.
All of our office locations support selling and servicing functions. Lease expense, depreciation expense relating to finance leased assets and interest expense relating to our finance lease obligation recognized within our consolidated statement of operations for the twelve months ended December 31, 2019 are as follows:
|  |  |  | Year ended
|  |  |  | December 31,
Lease cost | Classification |  | 2019
Operating lease cost |  |  | (in thousands)
Service | Cost of revenue |  | $ | 2,315
Research and development | Operating expenses |  |  | 313
Sales and marketing* | Operating expenses |  |  | 1,378
General and administrative* | Operating expenses |  |  | 788
Total operating lease cost |  |  | $ | 4,794
Finance lease cost |  |  |  |
Depreciation of leased assets | Cost of revenue, R&D, Sales and marketing and G&A |  | $ | 1,348
Interest on lease liabilities | Interest expense |  |  | 5,155
Total finance lease cost |  |  | $ | 6,503
Total lease cost |  |  | $ | 11,297
* Sales and marketing, general and administrative expense includes short-term lease and variable lease costs of approximately $0.9 million for the twelve months ended December 31, 2019.
Our corporate headquarters, shown below under finance leases, has an original lease term of 22 years. All other locations are treated as operating leases, with lease terms ranging from 1 to 10 years. The tables below reflect the minimum cash outflow regarding our current lease obligations as well as the weighted-average remaining lease term and weighted-average discount rates used on our calculation of our lease obligations and right-of-use assets:
|  | Finance |  | Operating |  | Total
Maturity of Lease Liabilities |  | Leases |  | Leases |  | Leases
|  | (in thousands)
2020 |  | $ | 5,720 |  | $ | 3,511 |  | $ | 9,231
2021 |  |  | 5,848 |  |  | 1,838 |  |  | 7,686
2022 |  |  | 5,980 |  |  | 637 |  |  | 6,617
2023 |  |  | 6,114 |  |  | 128 |  |  | 6,242
2024 |  |  | 6,252 |  |  | 68 |  |  | 6,320
Thereafter |  |  | 79,653 |  |  | 206 |  |  | 79,859
Total lease payments |  | $ | 109,567 |  | $ | 6,388 |  | $ | 115,955
Less interest portion* |  |  | (61,019) |  |  | (691) |  |  | (61,710)
Finance lease and operating lease obligations |  | $ | 48,548 |  | $ | 5,697 |  | $ | 54,245
* Finance lease interest calculated using the implied interest rate; operating lease interest calculated using estimated corporate borrowing rate.
|  | December 31,
Lease term and discount rate |  | 2019
Weighted-average remaining lease term (years): |  |  |
Operating leases |  |  | 2.4
Finance leases |  |  | 17.1
Weighted-average discount rate: |  |  |
Operating leases |  |  | 4.5%
Finance leases |  |  | 10.5%
Our cash outflows from our operating leases include rent expense and other charges associated with these leases. These cash flows are included within the operating section of our statement of cash flows. Our cash flows from our finance lease currently include an interest only component and starting in April 2020, both an interest and payment of principal component. The table below shows our cash outflows, by lease type and related section of our statement of cash flows as well as the non-cash amount capitalized on our balance sheet in relation to our operating lease right-of-use assets:
|  | Year ended
|  | December 31,
Cash paid for amounts included in the measurement of lease liabilities |  | 2019
|  | (in thousands)
Operating cash outflows from operating leases |  | $ | 4,794
Operating cash outflows from finance leases |  |  | 5,594
Financing cash outflows from finance leases |  |  | —
Operating lease assets obtained in exchange for new operating lease liabilities |  |  | 5,849
Finance lease assets obtained in exchange for new finance lease liabilities |  | $ | —

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