Note 3. 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 contract 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. We recognize the lease obligation 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 are at our sole discretion. For lease extensions that are reasonably certain to occur, we have included these 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:


		September 30,
Leases	Classification	2019
Assets		(in thousands)
Operating lease	Operating lease assets	$	6,175
Finance lease	Finance lease assets *		22,231
Total leased assets		$	28,406
Liabilities
Current
Operating	Other current liabilities	$	3,219
Finance	Current portion of finance lease obligation		252
Noncurrent
Operating	Other long-term liabilities		2,899
Finance	Finance lease obligation		48,297
Total lease liabilities		$	54,667

* Finance lease assets are recorded net of accumulated depreciation of $47.3 million and include $0.8 million of prepaid financing costs as of September 30, 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 three and nine months ended September 30, 2019 are as follows:


		Three months ended			Nine months ended
		September 30,			September 30,
Lease cost	Classification	2019		2019
Operating lease cost		(in thousands)
Service	Cost of revenue	$	552	$	1,732
Research and development	Operating expenses		80		232
Sales and marketing*	Operating expenses		338		1,037
General and administrative*	Operating expenses		207		608
Total operating lease cost		$	1,177	$	3,609
Finance lease cost
Depreciation of leased assets	Cost of revenue, R&D, Sales and marketing and G&A	$	332	$	997
Interest on lease liabilities	Interest expense		1,308		3,849
Total finance lease cost		$	1,640	$	4,846

Total lease cost		$	2,817	$	8,455

* Sales and marketing, general and administrative expense includes short-term lease and variable lease costs of approximately $0.2 million and $0.6 million for the three and nine months ended September 30, 2019, respectively.

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)
2019	$	1,401	$	923	$	2,324
2020		5,720		3,283		9,003
2021		5,848		1,650		7,498
2022		5,980		508		6,488
2023		6,114		113		6,227
Thereafter		85,905		266		86,171
Total lease payments	$	110,968	$	6,743	$	117,711
Less interest portion*		(62,419)		(625)		(63,044)
Finance lease and operating lease obligations	$	48,549	$	6,118	$	54,667

* Finance lease interest calculated using the implied interest rate; operating lease interest calculated using estimated corporate borrowing rate.


	September 30,
Lease term and discount rate	2019
Weighted-average remaining lease term (years):
Operating leases		2.3
Finance leases		17.6
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:


	Nine months ended
	September 30,
Cash paid for amounts included in the measurement of lease liabilities	2019
	(in thousands)
Operating cash outflows from operating leases	$	3,609
Operating cash outflows from finance leases		4,193
Financing cash outflows from finance leases		—
Operating lease assets obtained in exchange for new operating lease liabilities		6,175
Finance lease assets obtained in exchange for new finance lease liabilities	$	—