LEASES

3 Months Ended

Mar. 31, 2022

LEASES

LEASES

NOTE 7.LEASES

The Company leases certain buildings, vehicles, and equipment in order to reduce the risk associated with ownership and to maximize working capital utilization. The Company elected the practical expedient approach permitted under ASC 842 not to include short-term leases with a duration of 12 months or less on the balance sheet. As of March 31, 2022, and December 31, 2021, all leases were classified as operating leases. Building leases generally carry terms of 5 to 15 years with annual rent escalations at fixed amounts per the lease. Vehicle leases generally carry a fixed term of one year with renewal options to extend the lease on a monthly basis resulting in lease terms up to 7 years depending on the class of vehicle. The exercise of renewal options is at the Company’s sole discretion. It is reasonably certain that the Company will exercise the renewal options on its vehicle leases. The measurement of right-of-use assets and liabilities for vehicle leases includes the fixed payments associated with such renewal periods. We separate lease and non-lease components of

contracts. Our lease agreements do not contain any material variable payments, residual value guarantees, early termination penalties or restrictive covenants.

During the three months ended March 31, 2021, the Company completed multiple sale-leaseback transactions where it sold 16 of its properties related to the Clark Pest Control acquisition for gross proceeds of $62.1 million and a pre-tax gain of $31.1 million, which is included as Other income, net on the income statement. These leases are classified as operating leases with terms of 7 to 15 years.

The Company uses the rate implicit in the lease when available; however, most of our leases do not provide a readily determinable implicit rate. Accordingly, we estimate our incremental borrowing rate based on information available at lease commencement.

		Three Months Ended March 31,
(in thousands, except Other Information)
Lease Classification	Financial Statement Classification	2022			2021
Short-term lease cost	Cost of services provided, Sales, general, and administrative expenses	$	26		$	60
Operating lease cost	Cost of services provided, Sales, general, and administrative expenses		24,023			22,634
Total lease expense		$	24,049		$	22,694
Other Information:
Weighted-average remaining lease term - operating leases			5.5 years			5.7 years
Weighted-average discount rate - operating leases			3.54	%		3.85	%
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases		$	23,758		$	22,457

Lease Commitments

Future minimum lease payments, including assumed exercise of renewal options as of March 31, 2022 were as follows:

	Operating
(in thousands)
2022 (excluding the three months ended March 31, 2022)	$	62,839
2023		67,440
2024		43,519
2025		26,295
2026		16,493
2027		12,119
Thereafter		44,593
Total Future Minimum Lease Payments		273,298
Less: Amount representing interest		28,996
Total future minimum lease payments, net of interest	$	244,302

Future commitments presented in the table above include lease payments in renewal periods for which it is reasonably certain that the Company will exercise the renewal option. Total future minimum lease payments for operating leases, including the amount representing interest, are comprised of $163.3 million for building leases and $110.0 million for vehicle leases. As of March 31, 2022, the Company had additional future obligations of $9.5 million for leases that had not yet commenced.