LEASES

12 Months Ended

Dec. 31, 2023

We determine whether an arrangement is a lease at inception. We have operating leases, primarily for offices, that expire at various dates over the next seven years. We have finance leases covering certain office equipment and fleet vehicles that expire at various dates over the next six years. Our leases do not contain any restrictive covenants.

Our office leases generally contain renewal options for periods ranging from one to five years. Because we are not reasonably certain to exercise these renewal options, the options are not considered in determining the lease term, and payments associated with the option years are excluded from lease payments. Our office leases also generally include termination options, which allow for early termination of the lease after the first one to three years. Because we are not reasonably certain to exercise these termination options, the options are not considered in determining the lease term; payments for the full lease term are included in lease payments. Our office leases do not contain any material residual value guarantees.

Effective January 1, 2023, the master lease agreement for our fleet leases was modified to remove the residual value guarantee provided by the lessor on each of our fleet leases. The modification resulted in a change in the classification of our fleet leases from operating leases to finance leases. In connection with the modification, we reclassified approximately $15 million from the operating lease asset and liability accounts to the property and equipment and current/long-term obligations accounts within our consolidated balance sheet. Additionally, following the modification, expenses associated with our fleet leases are reflected in depreciation expense and interest expense within our consolidated statement of operations as opposed to cost of service and general and administrative expenses, which is where the expenses were reflected in prior periods.

Our fleet leases include a term of 367 days with monthly renewal options thereafter. Our fleet leases also include terminal rental adjustment clauses (“TRAC”), which provide for a final rental payment adjustment at the end of the lease, typically based on the amount realized from the sale of the vehicle. The TRAC is structured such that it will almost always result in a significant payment by us to the lessor if the renewal option is not exercised. Based on the significance of the TRAC adjustment at the initial lease expiration, we believe that it is reasonably certain that we will exercise the monthly renewal options; therefore, the renewal options are considered in determining the lease term, and payments associated with the renewal options are included in lease payments.

For our fleet and office equipment leases, we use the implicit rate in the lease as the discount rate. For our office leases, the implicit rate is typically not available, so we use our incremental borrowing rate as the discount rate. Our lease agreements include both lease and non-lease components. We have elected the practical expedient that allows us to not separate lease and non-lease components for all of our leases.

Payments due under our operating and finance leases include fixed payments as well as variable payments. For our office leases, variable payments include amounts for our proportionate share of operating expenses, utilities, property taxes, insurance, common area maintenance and other facility-related expenses. For our vehicle and equipment leases, variable payments consist of sales tax.

The components of lease cost for the years ended December 31, 2023 and 2022 are as follows (amounts in millions):


	For the Years Ended December 31,
	2023		2022
Operating lease cost:
Operating lease cost	$	33.8	$	43.9
Impairment of operating lease right of use ("ROU") assets	0.2		2.1
Total operating lease cost	34.0		46.0

Finance lease cost:
Loss on termination	—		0.5
Amortization of ROU assets	5.8		1.8
Interest on lease liabilities	1.6		0.1
Total finance lease cost	7.4		2.4

Variable lease cost	3.7		3.4
Short-term lease cost	—		—
Total lease cost	$	45.1	$	51.8

Amounts reported in the consolidated balance sheets as of December 31, 2023 and 2022 for our operating leases are as follows (amounts in millions):


	As of December 31,
	2023		2022
Operating lease ROU assets	$	88.9	$	102.9

Current portion of operating lease liabilities	26.3		33.5
Operating lease liabilities, less current portion	62.7		69.5
Total operating lease liabilities	$	89.0	$	103.0

Amounts reported in the consolidated balance sheets as of December 31, 2023 and 2022 for finance leases are included in the table below. The finance lease ROU assets are recorded within property and equipment, net of accumulated depreciation within our consolidated balance sheets. The finance lease liabilities are recorded within current portion of long-term obligations and long-term obligations, less current portion within our consolidated balance sheets.


	As of December 31,
	2023		2022
Finance lease ROU assets	$	39.8	$	4.1
Accumulated amortization	(11.2)		(1.8)
Finance lease ROU assets, net	$	28.6	$	2.3

Current installments of obligations under finance leases	$	13.8	$	1.2
Long-term portion of obligations under finance leases	15.1		1.1
Total finance lease liabilities	$	28.9	$	2.3

Supplemental cash flow information and non-cash activity related to our leases are as follows (amounts in millions):


	For the Years Ended December 31,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities and ROU assets:
Operating cash flow from operating leases	$	(34.5)	$	(44.4)
Financing cash flow from finance leases	(11.6)		(1.5)

ROU assets obtained in exchange for lease obligations:
Operating leases	$	33.9	$	45.1
Finance leases	40.0		2.1

Reductions to ROU assets resulting from reductions to lease obligations:
Operating leases	$	(15.2)	$	(4.2)
Finance leases	(1.7)		(0.6)

Amounts disclosed for ROU assets obtained in exchange for lease obligations include amounts added to the carrying amount of ROU assets resulting from lease modifications and reassessments.

Weighted average remaining lease terms and discount rates for our leases as of December 31, 2023 and 2022 are as follows:


	As of December 31,
	2023		2022
Weighted average remaining lease term (years):
Operating leases	3.6		3.5
Finance leases	2.6		2.1

Weighted average discount rate:
Operating leases	4.2	%	3.4	%
Finance leases	6.6	%	5.3	%

Maturities of lease liabilities as of December 31, 2023 are as follows (amounts in millions):


	Operating Leases		Finance Leases
2024	$	29.5	$	14.7
2025	26.1		10.9
2026	19.7		3.7
2027	13.2		0.9
2028	7.1		0.9
Thereafter	1.2		0.4
Total undiscounted lease payments	96.8		31.5
Less: Imputed interest	(7.8)		(2.6)
Total lease liabilities	$	89.0	$	28.9