Leases

6 Months Ended

Jun. 30, 2020

Leases

Leases

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 as a result of the 2015 sale-leaseback of our corporate headquarters in

Beverly, Massachusetts. All new agreements are reviewed to determine if they contain a lease component. A lease is a contract or part of a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. 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. 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 is 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 sheets are as follows:

		June 30,		December 31,
Leases	Classification	2020		2019
Assets		(in thousands)
Operating lease	Operating lease assets	$	5,033	$	5,849
Finance lease	Finance lease assets *		21,200		21,880
Total leased assets		$	26,233	$	27,729
Liabilities
Current
Operating	Other current liabilities	$	2,989	$	3,144
Finance	Current portion of finance lease obligation		654		399
Noncurrent
Operating	Other long-term liabilities		2,035		2,553
Finance	Finance lease obligation		47,787		48,149
Total lease liabilities		$	53,465	$	54,245
* Finance lease assets are recorded net of accumulated depreciation of $47.9 million and include $0.7 million of prepaid financing costs as of June 30, 2020. 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 operating lease office locations support selling and servicing functions. Operating lease expense, and depreciation and interest expense relating to our finance lease obligation, are recognized within our consolidated statement of operations for the three and six months ended June 30, 2020 and 2019 as follows:

		Three months ended				Six months ended
		June 30,				June 30,
Lease cost	Classification	2020		2019		2020		2019
Operating lease cost		(in thousands)
Service	Cost of revenue	$	624	$	583	$	1,174	$	1,180
Research and development	Operating expenses		128		86		209		152
Sales and marketing*	Operating expenses		346		345		678		699
General and administrative*	Operating expenses		220		193		435		402
Total operating lease cost		$	1,318	$	1,207	$	2,496	$	2,433
Finance lease cost
Depreciation of leased assets	Cost of revenue, R&D, Sales and marketing and G&A	$	328	$	332	$	681	$	665
Interest on lease liabilities	Interest expense		1,299		1,311		2,602		2,541
Total finance lease cost		$	1,627	$	1,643	$	3,283	$	3,206
Total lease cost		$	2,945	$	2,850	$	5,779	$	5,639
* Sales and marketing, general and administrative expense includes short-term lease and variable lease costs of approximately $0.3 million and $0.5 million for the three and six months ended June 30, 2020, respectively and includes short-term lease and variable lease costs of approximately $0.2 million and $0.4 million for the three and six months ended June 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 in our calculation of our lease obligations and right-of-use assets as of June 30, 2020:

	Finance		Operating		Total
Maturity of Lease Liabilities	Leases		Leases		Leases
	(in thousands)
2020	$	2,865	$	1,843	$	4,708
2021		5,848		2,242		8,090
2022		5,980		945		6,925
2023		6,114		219		6,333
2024		6,252		86		6,338
Thereafter		79,653		210		79,863
Total lease payments	$	106,712	$	5,545	$	112,257
Less interest portion*		(58,271)		(521)		(58,792)
Finance lease and operating lease obligations	$	48,441	$	5,024	$	53,465
* Finance lease interest calculated using the implied interest rate; operating lease interest calculated using estimated corporate borrowing rate.

	June 30,
Lease term and discount rate	2020
Weighted-average remaining lease term (years):
Operating leases		1.7
Finance leases		16.6
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 include both an interest component 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:

	Six months ended
	June 30,
Cash paid for amounts included in the measurement of lease liabilities	2020		2019
	(in thousands)
Operating cash outflows from operating leases	$	2,496	$	2,433
Operating cash outflows from finance leases		2,746		2,792
Financing cash outflows from finance leases		108		—
Operating lease assets obtained in exchange for operating lease liabilities		1,038		6,431
Finance lease assets obtained in exchange for new finance lease liabilities	$	—	$	—