What changed in this filing

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Item 1. Financial Statements

2024-05-02 compared with 2023-11-01 · 118 added, 178 removed, 313 unchanged (49% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of services rendered

1 unchanged sentence

Depreciation and amortization expense

Goodwill and intangibles impairment

Restructuring charges

3 unchanged sentences

Provision for income taxes

Other Comprehensive Income, Net of Income Taxes:

Unrealized gain on derivative instruments, net of income taxes

Total Other Comprehensive Income, Net of Income Taxes

Other Comprehensive Income (Loss), Net of Income Taxes:

Unrealized gain (loss) on derivative instruments, net of income taxes

Total Other Comprehensive Income (Loss), Net of Income Taxes

Comprehensive Income

5 unchanged sentences

(In millions, except share data)

September 30,

Current Assets:

2 unchanged sentences

Prepaid expenses and other current assets

Contract assets

Total Current Assets

4 unchanged sentences

Deferred customer acquisition costs

Liabilities and Shareholders'

Liabilities and Shareholders' Equity:

Current Liabilities:

2 unchanged sentences

Payroll and related expenses

Home service plan claims

Home warranty claims

Deferred revenue

8 unchanged sentences

Commitments and Contingencies (Note 7)

Shareholders'

Shareholders' Equity:

Common stock, $ 0.01 par value;

2,000,000,000 shares authorized;

86,502,847 shares issued and 79,617,524 shares outstanding as of September 30, 2023 and 86,079,773 shares issued and 81,517,243 shares outstanding as of December 31, 2022

86,871,669 shares issued and 78,296,296 shares outstanding as of March 31, 2024 and 86,553,387 shares issued and 78,378,511 shares outstanding as of December 31, 2023

Additional paid-in capital

2 unchanged sentences

Less treasury stock, at cost;

6,885,323 shares as of September 30, 2023 and 4,562,530 shares as of December 31, 2022

Total Shareholders'

Total Liabilities and Shareholders'

8,575,373 shares as of March 31, 2024 and 8,174,876 shares as of December 31, 2023

Total Shareholders' Equity

Total Liabilities and Shareholders' Equity

See the accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited).

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Common Stock:

4 unchanged sentences

Stock-based compensation expense

Exercise of stock options

Taxes paid related to net share settlement of equity awards

Issuance of common stock related to ESPP

Balance at end of period

4 unchanged sentences

Balance at beginning of period

Other comprehensive income, net of tax

Other comprehensive income (loss), net of tax

Balance at end of period

3 unchanged sentences

Balance at end of period

Total Shareholders'

Total Shareholders' Equity

See the accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited).

2 unchanged sentences

(In millions)

Nine Months Ended

September 30,

Three Months Ended

Cash and Cash Equivalents at Beginning of Period

4 unchanged sentences

Stock-based compensation expense

Goodwill and intangibles impairment

Restructuring charges

9 unchanged sentences

Purchases of property and equipment

Other investing activities

Net Cash Used for Investing Activities

4 unchanged sentences

Net Cash Used for Financing Activities

Cash Increase (Decrease) During the Period

Cash Increase During the Period

Cash and Cash Equivalents at End of Period

3 unchanged sentences

Description of Business

Frontdoor is the leading provider of home service plans in the United States, as measured by revenue, and operates primarily under the American Home Shield brand.

Our customizable home service plans help customers protect and maintain their homes, typically their most valuable asset, from costly and unplanned breakdowns of essential home systems and appliances.

Our home service plan customers usually subscribe to an annual service plan agreement that covers the repair or replacement of major components of more than 20 home systems and appliances, including electrical, plumbing, HVAC systems, water heaters, refrigerators, dishwashers and ranges/ovens/cooktops, as well as optional coverages for electronics, pools, spas and pumps.

Frontdoor also provides on-demand home services and a one-stop app for home repair and maintenance.

Enabled by our Streem technology, the app empowers homeowners by connecting them in real time through video chat with pre-qualified experts to diagnose and solve their problems.

As of September 30, 2023, we had 2.0 million active home service plans across all brands in the United States.

Frontdoor is the leading provider of home warranties in the United States, as measured by revenue, and operates primarily under the American Home Shield brand.

Our customizable home warranties help customers protect and maintain their homes, typically their most valuable asset, from costly and unplanned breakdowns of essential home systems and appliances.

Our home warranty customers usually subscribe to an annual service plan agreement that covers the repair or replacement of major components of more than 20 home systems and appliances, including electrical, plumbing, HVAC systems, water heaters, refrigerators, dishwashers and ranges/ovens/cooktops, as well as optional coverages for electronics, pools, spas and pumps.

Frontdoor also provides on-demand home services and a one-stop app experience for home repair and maintenance.

Enabled by our Streem technology, the app empowers homeowners by connecting them in real time through video chat with qualified experts to diagnose and solve their problems.

As of March 31, 2024, we had 2.0 million active home warranties across all brands in the United States.

Significant Accounting Policies

Our significant accounting policies are described in Note 2 to the audited consolidated financial statements included in our 2023 Form 10-K.

There have been no material changes to our significant accounting policies during the nine months ended September 30, 2023.

There have been no material changes to our significant accounting policies during the three months ended March 31, 2024.

Basis of Presentation

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The results of operations for any interim period are not necessarily indicative of the results that might be achieved for the respective full year.

Newly Adopted Accounting Standards

In March 2020, the FASB issued ASU 2020-04, which provides optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

The amendments apply only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

This standard is currently effective and upon adoption may be applied prospectively to contract modifications.

In March 2021, the FASB issued ASU 2020-06, which extended the sunset date for the required transition to December 31, 2024.

In March 2023, in connection with the planned phase-out of LIBOR, we amended our Credit Facilities to replace LIBOR with SOFR as the benchmark rate under the Credit Agreement.

We adopted ASU 2020-04 in connection with this transition of the benchmark rate under our Credit Agreement.

This transition did not have a material impact on our consolidated financial statements and related disclosures.

The majority of our revenue is generated from annual home service plan contracts entered into with our customers.

Newly Issued Accounting Standards

In 2023, the FASB issued ASU 2023-07 , Segment Reporting (Topic 280), which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted, and the guidance should be applied retrospectively to all periods presented in the financial statements, unless it is impracticable.

We intend to adopt the provisions of this guidance in conjunction with our 2024 Annual Report on Form 10-K for the year ended December 31, 2024.

We are currently evaluating the impact of this ASU on our consolidated financial statements and related disclosures.

In 2023, the FASB issued ASU 2023-09 , Income Taxes (Topic 740), which improves income tax disclosure requirements, primarily through enhanced disclosures related to the rate reconciliation and income taxes paid information.

This guidance is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted, and the guidance should be applied on a prospective basis.

Retrospective application is permitted.

We intend to adopt the provisions of this guidance in conjunction with our 2024 Annual Report on Form 10-K for the year ended December 31, 2024.

We are currently evaluating the impact of this ASU on our consolidated financial statements and related disclosures.

The majority of our revenue is generated from annual home warranty contracts entered into with our customers.

Home warranty contracts are typically one year in duration.

We derive substantially all of our revenue from customers in the United States.

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In millions)

1 unchanged sentence

Direct-to-consumer (1)

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(1) First-year revenue only.

Our home service plan contracts have one performance obligation, which is to provide for the repair or replacement of essential home systems and appliances, as applicable per the contract.

Our home warranty contracts have one performance obligation, which is to provide for the repair or replacement of essential home systems and appliances, as applicable per the contract.

We recognize revenue at the agreed upon contractual amount over time using the input method in proportion to the costs expected to be incurred in performing services under the contracts.

Those costs bear a direct relationship to the fulfillment of our obligations under the contracts and are representative of the relative fair value of the services provided to the customer.

As the costs to fulfill the obligations of the home service plans are incurred on an other-than-straight-line basis, we utilize historical evidence to estimate the expected claims expense and related timing of such costs and make a corresponding adjustment each period to the timing of our related revenue recognition.

As the costs to fulfill the obligations of the home warranties are incurred on an other-than-straight-line basis, we utilize historical evidence to estimate the expected claims expense and related timing of such costs and make a corresponding adjustment each period to the timing of our related revenue recognition.

This adjustment to the straight-line revenue creates a contract asset or contract liability, as described under the heading “Contract Assets and Liabilities” below.

We regularly review our estimates of claims costs and adjust these estimates when appropriate.

Revenue from customer renewals of home service plan contracts, which were previously initiated in the real estate or direct-to-consumer channel are classified as renewals above.

Renewals relate to consecutive contract periods and take place at the end of the first year of a real estate or direct-to-consumer home service plan contract.

Revenue from customer renewals of home warranty contracts, which were previously initiated in the real estate or direct-to-consumer channel are classified as renewal revenue above.

Renewals relate to consecutive contract periods and take place at the end of the first year of a real estate or direct-to-consumer home warranty contract.

Customer payments for renewals are primarily received in installments over the new contract period.

Real estate home service plans are sold through annual contracts which occur in connection with a real estate sale.

Real estate home warranties are sold through annual contracts which occur in connection with a real estate sale.

These plans are typically paid in full at closing on the real estate transaction.

First-year revenue from the real estate channel is classified as real estate above.

At the option of the customer, upon renewal of the contract, the future revenue derived from home service plans sold in this channel is classified as Renewal revenue as described above.

At the option of the customer, upon renewal of the contract, the future revenue derived from home warranties sold in this channel is classified as renewal revenue as described above.

Direct-to-consumer

Direct-to-consumer home service plans are sold through annual contracts which occur in response to our marketing efforts.

Direct-to-consumer home warranties are sold through annual contracts which occur in response to our marketing efforts.

Customer payments for direct-to-consumer sales are primarily received in installments over the contract period.

First-year revenue from the direct-to-consumer channel is classified as direct-to-consumer above.

At the option of the customer, upon renewal of the contract, the future revenue derived from home service plans sold in this channel is classified as Renewal revenue as described above.

Other revenue primarily includes revenue generated by on-demand home services, as well as administrative fees and ancillary services attributable to our home service plan contracts.

At the option of the customer, upon renewal of the contract, the future revenue derived from home warranties sold in this channel is classified as renewal revenue as described above.

Other revenue primarily includes revenue generated by on-demand home services, as well as administrative fees and ancillary services attributable to our home warranty contracts.

Deferred Customer Acquisition Costs

We capitalize the incremental costs of obtaining a contract with a customer and recognize the related expense using the input method in proportion to the costs expected to be incurred in performing services under the contract, over the expected customer relationship period.

Deferred customer acquisition costs were $ 12 million and $ 16 million as of September 30, 2023 and December 31, 2022, respectively.

Amortization of deferred customer acquisition costs was $ 5 million and $ 6 million for the three months ended September 30, 2023 and 2022, respectively, and $ 13 million and $ 15 million for the nine months ended September 30, 2023 and 2022, respectively.

There were no impairment losses related to these capitalized costs during the three months ended September 30, 2023 and 2022.

Deferred customer acquisition costs were $ 11 million and $ 12 million as of March 31, 2024 and December 31, 2023, respectively.

Amortization of deferred customer acquisition costs was $ 3 million and $ 4 million for the three months ended March 31, 2024 and 2023, respectively.

There were no impairment losses related to these capitalized costs during the three months ended March 31, 2024 and 2023.

Receivables, Less Allowance

We record a receivable due from customers once we have an unconditional right to invoice and receive payment in the future related to the services provided and anticipate the collection of amounts due to us.

Contracts for home service plans may be invoiced upfront or monthly in straight-line installment payments over the contract period.

Contracts for home warranties may be invoiced upfront or monthly in straight-line installment payments over the contract period.

The payment terms are determined prior to the execution of the contract.

Contract Assets and Liabilities

Contract assets arise when we recognize revenue for our home service plan contracts prior to a customer being invoiced.

Contract assets arise when we recognize revenue for our home warranty contracts prior to a customer being invoiced.

These timing differences are created when the recognition of revenue in proportion to the costs expected to be incurred in performing the services under the contract are accelerated as compared to the recognition of revenue on a straight-line basis over the contract period.

Contract assets were $ 72 million as of September 30, 2023.

There were no contract assets as of March 31, 2024.

Our contract liabilities consist of deferred revenue which is recognized when cash payments are received in advance of the performance of services, including when the amounts are refundable.

Amounts are recognized as revenue in proportion to the costs expected to be incurred in performing services under our contracts.

A summary of the changes in deferred revenue for the nine months ended September 30, 2023 is as follows:

A summary of the changes in deferred revenue for the three months ended March 31, 2024 is as follows:

(In millions)

Balance at beginning of period

Balance at December 31, 2023

Deferral of revenue

Recognition of deferred revenue

Balance at end of period

There was approximately $ 25 million and $ 120 million of revenue recognized during the three and nine months ended September 30, 2023, respectively, that was included in the deferred revenue balance as of December 31, 2022.

Balance at March 31, 2024

There was approximately $ 41 million during the three months ended March 31, 2024 that was included in the deferred revenue balance as of December 31, 2023.

Goodwill and Intangible Assets

Goodwill and indefinite-lived intangible assets are not amortized and are subject to assessment for impairment on an annual basis, or more frequently if circumstances indicate a potential impairment.

An assessment for impairment is performed on October 1 of every year.

In connection with the preparation of our condensed consolidated financial statements for the third quarter of 2022, we determined that indicators of a potential goodwill and intangible assets impairment were present for our Streem reporting unit.

In particular, we will be more focused on integrating Streem’s technology into our core business and will be less focused on selling this technology platform to third-party business-to-business customers as a software-as-a-service platform.

This shift in focus resulted in significantly lower projected revenue for Streem.

We performed an interim impairment analysis of the Streem reporting unit as of September 30, 2022.

In performing the discounted cash flow analysis, we determined that the carrying amount of the Streem reporting unit exceeded its fair value.

An impairment charge of $ 14 million was recognized during the third quarter of 2022, which comprised the remaining net carrying amount of Streem’s goodwill of $ 9 million and intangible assets of $ 5 million.

The balance of goodwill was $ 503 million as of September 30, 2023 and December 31, 2022.

There were no goodwill impairment charges recorded in the three and nine months ended September 30, 2023.

We perform our annual assessment for impairment on October 1 of every year.

The balance of goodwill was $ 503 million as of March 31, 2024 and December 31, 2023.

There were no goodwill impairment charges recorded in the three months ended March 31, 2024.

The following table provides a summary of the components of our intangible assets:

As of September 30, 2023

As of March 31, 2024

As of December 31, 2023

3 unchanged sentences

Developed technology

_____________________________

(1) Not subject to amortization.

Amortization expense was $ 1 million and $ 2 million for the three months ended September 30, 2023 and 2022, respectively, and $ 3 million and $ 6 million for the nine months ended September 30, 2023 and 2022, respectively.

As indicated above, an impairment charge of $ 5 million was recognized during the three and nine months ended September 30, 2022 related to Streem’s intangible assets.

There were no intangible asset impairment charges for the three and nine months ended September 30, 2023.

We have operating leases primarily for our corporate offices, customer service centers and engineering and technology campuses.

Amortization expense was $ 1 million for each of the three months ended March 31, 2024 and 2023.

There were no intangible asset impairment charges for the three months ended March 31, 2024 and 2023.

We have operating leases primarily for our corporate headquarters located in Memphis, Tennessee, a collaboration center located in Scottsdale, Arizona and a technology collaboration center in Pune, India.

We also continue to lease certain office space in other geographies, which we have either exited or subleased.

Our leases have remaining lease terms ranging from less than one year to 11 years , some of which include options to extend the leases for up to five years .

The weighted-average remaining lease term and weighted-average discount rate related to our operating leases are as follows:

September 30,

Weighted-average remaining lease term (years)

Weighted-average discount rate

We recognized operating lease expense of $ 1 million for each of the three months ended September 30, 2023 and 2022 and $ 2 million and $ 3 million for the nine months ended September 30, 2023 and 2022, respectively.

We recognized operating lease expense of less than $ 1 million and $ 1 million for the three months ended March 31, 2024 and 2023, respectively.

These expenses are included in selling and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive income.

Supplemental balance sheet information related to our operating lease liabilities is as follows:

September 30,

(In millions)

3 unchanged sentences

Supplemental cash flow information related to our operating leases is as follows:

Nine Months Ended

September 30,

Three Months Ended

(In millions)

Cash paid on operating lease liabilities (1)

_____________________________

Right-of-use assets obtained in exchange for lease obligations

(1) Amount is presented net of cash provided from sublease income.

The following table presents the maturities of our operating lease liabilities as of September 30, 2023:

In conjunction with the operating lease of our collaboration center located in Scottsdale, Arizona, we recognized a $ 2 million tenant improvement allowance as of March 31, 2024, which is a non-cash investing activity.

The following table presents the maturities of our operating lease liabilities as of March 31, 2024:

(In millions)

2024 (remainder) (1)

Total future minimum lease payments (1)

Total future lease payments (1)

Less imputed interest

Total operating lease liabilities (1)

_____________________________

(1) Amount is presented net of future sublease income totaling $ 3 million, which relates to the remainder of the year ending December 31, 2024 and the years ending December 31, 2025 through December 31, 2026.

Sublease of Prior Corporate Headquarters

On August 10, 2022, we subleased our prior corporate headquarters facility in Memphis, Tennessee.

As a result of us exiting the facility on June 27, 2022, we incurred a non-cash impairment charge of $ 11 million for the nine months ended September 30, 2 022.

Relocation of Phoenix Customer Service Center

On August 15, 2023, we entered into a new lease in Scottsdale, Arizona, and subsequently decided to exit our lease in Phoenix, Arizona.

As a result, we incurred a non-cash impairment charge of $ 2 million for the three and nine months ended September 30 , 2023.

We are subject to taxation in the United States, various states and foreign jurisdictions.

Substantially all of our income before income taxes for the three months ended September 30, 2023 and 2022 was generated in the United States.

Substantially all of our income before income taxes for the three months ended March 31, 2024 and 2023 was generated in the United States.

We compute interim period income taxes by applying an anticipated annual effective tax rate to our year-to-date income or loss from operations before income taxes, except for significant unusual or infrequently occurring items.

As a result, our estimated tax rate is adjusted each quarter.

The effective tax rate on income before income taxes was 25.3 percent and 28.2 percent for the three months ended September 30, 2023 and 2022, respectively, and 25.1 percent and 26.5 percent for the nine months ended September 30, 2023 and 2022, respectively.

The decrease in the effective tax rate for the three and nine months ended September 30, 2023 compared to 2022 was primarily due to the impact of the goodwill and intangibles impairment recorded in the third quarter of 2022 and the impact of a lower pre-tax income in 2022, offset, in part, by a reduction in income tax credits in 2023 as compared to 2022.

Restructuring Charges

We incurred restructuring charges of $ 5 million ($ 4 million, net of tax) for each of the three months ended September 30, 2023 and 2022 and $ 6 million ($ 5 million, net of tax) and $ 18 million ($ 13 million, net of tax) for the nine months ended September 30, 2023 and 2022, respectively.

For the three and nine months ended September 30, 2023, restructuring charges primarily comprised a $ 2 million impairment charge related to our Phoenix, AZ customer service center’s operating lease right-of-use asset and related fixed assets and $ 2 million of professional fees, with the balance comprised of severance costs.

The impairment charge was the result of our decision to exit the leased property.

For the three months ended September 30, 2022, restructuring charges primarily comprised a $ 2 million impairment of certain internally developed software and $ 3 million of severance and other costs.

Severance costs of $ 2 million related to a reduction in workforce of seven percent as part of our completed strategic review of our selling, general and administrative expenses.

For the nine months ended September 30, 2022, restructuring charges primarily comprised an $ 11 million impairment charge related to our prior corporate headquarters facility operating lease right-of-use asset and leasehold improvements, a $ 2 million impairment of certain internally developed software and $ 5 million of severance and other costs.

Severance costs of $ 2 million related to a reduction in workforce of seven percent as part of our completed strategic review of our selling, general and administrative expenses.

The pre-tax charges discussed above are reported in “Restructuring charges” in the accompanying consolidated statements of operations and comprehensive income.

As of December 31, 2022, there were $ 2 million of restructuring charges accrued, of which $ 1 million were paid or otherwise settled during the nine months ended September 30, 2023.

As of September 30, 2023, there was $ 2 million in accrued restructuring charges in the accompanying condensed consolidated statements of financial position.

The effective tax rate on income before income taxes was 24.4 percent and 25.2 percent for the three months ended March 31, 2024 and 2023.

The decrease in the effective tax rate for the three months ended March 31, 2024 compared to 2023 was primarily due to the impact of share-based awards, offset, in part, by a decrease in income tax credits.

Commitments and Contingencies

Accruals for home service plan claims are made using internal actuarial projections, which are based on current claims and historical claims experience.

Accruals for home warranty claims are made using internal actuarial projections, which are based on current claims and historical claims experience.

Accruals are established based on estimates of the ultimate cost to settle claims.

Home service plan claims take approximately three months to settle, on average, and substantially all claims are settled within six months of incurrence.

Home warranty claims take approximately three months to settle, on average, and substantially all claims are settled within six months of incurrence.

The amount of time required to settle a claim can vary based on a number of factors, including whether a replacement is ultimately required.

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Stock-Based Compensation

We recognized stock-based compensation expense of $ 8 million ($ 7 million, net of tax) and $ 5 million ($ 4 million, net of tax) for the three months ended September 30, 2023 and 2022, respectively, and $ 21 million ($ 18 million, net of tax) and $ 17 million ($ 15 million, net of tax) for the nine months ended September 30, 2023 and 2022, respectively.

These costs are included in selling and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive income.

A summary of awards granted under the Omnibus Plan during the nine months ended September 30, 2023 is as follows:

We recognized stock-based compensation expense of $ 7 million ($ 6 million, net of tax) and $ 5 million ($ 4 million, net of tax) for the three months ended March 31, 2024 and 2023, respectively.

These charges are included in selling and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive income.

A summary of awards granted under the Omnibus Plan during the three months ended March 31, 2024 is as follows:

Stock options

Performance options (1)

Restricted stock units

_____________________________

(1) The information related to performance options above assumes 100 % of the performance target is met.

The performance options contain a market condition that is based on a per share price target for our common stock, and the ultimate number of performance options that may be earned depends on the achievement of this market condition.

As of September 30, 2023 , there was $ 41 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options, performance options, restricted stock units (“RSUs”), performance shares and restricted stock awards (“RSAs”).

These remaining costs are expected to be recognized over a weighted-average period of 2.84 years.

Performance shares (1)

(1) The information related to performance shares above assumes 100 % of the performance condition, which is based on revenue and Adjusted EBITDA targets, is met.

The ultimate number of performance shares that may be earned depends on the achievement of this performance condition .

As of March 31, 2024, there was $ 61 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options, performance options, restricted stock units (“RSUs”) and performance shares.

These costs are expected to be recognized over a weighted-average period of 2.63 years.

Long-Term Debt

A summary of our debt is as follows:

September 30,

Long-term debt is summarized in the following table:

(In millions)

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Total long-term debt

_______________________________

(1) Term Loan A is presented net of unamortized debt issuance costs of $ 1 million and $ 2 million as of September 30, 2023 and December 31, 2022, respectively.

(2) Term Loan B is presented net of unamortized debt issuance costs of $ 2 million and $ 3 million as of September 30, 2023 and December 31, 2022, respectively, and unamortized discount of $ 1 million as of September 30, 2023 and December 31, 2022.

In March 2023, in connection with the planned phase-out of LIBOR, we amended our Credit Facilities to replace LIBOR with SOFR as the benchmark rate under the Credit Agreement.

This change was effective in March 2023 for the Term Loan A and the Revolving Credit Facility and in June 2023 for the Term Loan B.

As of September 30, 2023, we had $ 2 million of letters of credit outstanding under our $ 250 million Revolving Credit Facility, and the available borrowing capacity under the Revolving Credit Facility was $ 248 million.

As of September 30, 2023, we were in compliance with the covenants under the Credit Agreement.

(1) Term Loan A is presented net of unamortized debt issuance costs of $ 1 million as of March 31, 2024 and December 31, 2023.

(2) Term Loan B is presented net of unamortized debt issuance costs of $ 2 million as of March 31, 2024 and December 31, 2023 and unamortized discount of $ 1 million as of March 31, 2024 and December 31, 2023.

As of March 31, 2024, we had $ 2 million of letters of credit outstanding under our $ 250 million Revolving Credit Facility, and the available borrowing capacity under the Revolving Credit Facility was $ 248 million.

As of March 31, 2024, we were in compliance with the covenants under the Credit Agreement.

Scheduled Debt Payments

The following table presents future scheduled debt payments as of September 30, 2023:

The following table presents future scheduled debt payments as of March 31, 2024:

(In millions)

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Supplemental information relating to our accompanying condensed consolidated statements of cash flows is as follows:

Nine Months Ended

September 30,

Three Months Ended

(In millions)

7 unchanged sentences

A summary of the changes in AOCI is as follows:

Balance at beginning of period

Balance at December 31, 2023

Other comprehensive income before reclassifications:

Pre-tax amount

Impact of income taxes

Tax provision

After-tax amount

1 unchanged sentence

Total other comprehensive income

Balance at end of period

___________________________________

Balance at March 31, 2024

(1) Amounts are net of income taxes.

1 unchanged sentence

A summary of reclassifications out of AOCI is as follows:

Nine Months Ended

September 30,

Three Months Ended

(In millions)

Gain (loss) on interest rate swap contract (1)

Gain on interest rate swap contract (1)

Impact of income taxes (2)

Total reclassifications during the period

___________________________________

(1) Included in interest expense in the accompanying condensed consolidated statements of income and comprehensive income.

(2) Included in provision for income taxes in the accompanying condensed consolidated statements of income and comprehensive income.

(1) Included in interest expense in the accompanying condensed consolidated statements of operations and comprehensive income.

(2) Included in provision for income taxes in the accompanying condensed consolidated statements of operations and comprehensive income.

Derivative Financial Instruments

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See Note 11 to the accompanying condensed consolidated financial statements for the effective portion of the gain or loss on derivative instruments recorded in AOCI and for the amounts reclassified out of AOCI and into earnings during the periods presented.

As the underlying forecasted transactions occur during the next 12 months, we estimate the unrealized hedging gain in AOCI expected to be recognized in earnings is $ 6 million, net of tax, as of September 30, 2023.

As the underlying forecasted transactions occur during the next 12 months, we estimate the unrealized hedging gain in AOCI expected to be recognized in earnings is $ 5 million, net of tax, as of March 31, 2024.

The amounts ultimately reclassified into earnings during the next 12 months will be determined based on the actual interest rates in effect at the time the positions are settled, and as a result, they could differ materially from our estimate noted above.

2 unchanged sentences

The valuation techniques require inputs that we categorize into a three-level hierarchy, from highest to lowest level of observable inputs, as follows:

unadjusted quoted prices for identical assets or liabilities in active markets ("Level 1");

direct or indirect observable inputs, including quoted prices or other market data, for similar assets or liabilities in active markets or identical assets or liabilities in less active markets ("Level 2");

and unobservable inputs that require significant judgment for which there is little or no market data ("Level 3").

unadjusted quoted prices for identical assets or liabilities in active markets ("Level 1");

and unobservable inputs that require significant judgment for which there is little or no market data ("Level 3").

When multiple input levels are required for a valuation, we categorize the entire fair value measurement according to the lowest level of input that is significant to the measurement, even though we may have also utilized significant inputs that are more readily observable.

The period-end carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximate their fair values due to the short-term maturities of these financial instruments.

As of September 30, 2023 and December 31, 2022, the carrying amounts of our total debt were $ 597 million and $ 609 million, respectively, and the estimated fair values were $ 600 million and $ 613 million, respectively.

As of March 31, 2024 and December 31, 2023, the carrying amounts of our total debt were $ 589 million and $ 593 million, respectively, and the estimated fair values were $ 592 million and $ 598 million, respectively.

The fair value of our debt was estimated based on available market prices for the same or similar instruments that are considered significant other observable inputs (Level 2) within the fair value hierarchy and was based on information available to us as of the respective period end dates.

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The expected future settlements are determined by comparing the contract interest rate to the expected forward interest rate as of each settlement date and applying the difference between these two rates to the notional amount of debt in the interest rate swap contract.

We did not change our valuation techniques for measuring the fair value of any financial assets and liabilities during the nine months ended September 30, 2023 .

We did not change our valuation techniques for measuring the fair value of any financial assets and liabilities during the three months ended March 31, 2024.

Transfers between hierarchy levels, if any, are recognized at the end of the reporting period.

There were no transfers between hierarchy levels during the nine months ended September 30, 2023.

There were no transfers between hierarchy levels during the three months ended March 31, 2024.

Our interest rate swap contract is currently our only financial instrument remeasured at fair value on a recurring basis.

A summary of the carrying value and fair value of this financial instrument are as follows:

A summary of the carrying value and fair value of this financial instrument is as follows:

Estimated Fair Value Measurements

(In millions)

As of September 30, 2023:

As of March 31, 2024:

Prepaid expenses and other current assets

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On September 7, 2021, we announced a three-year repurchase authorization of up to $ 400 million of outstanding shares of our common stock over the three-year period from September 3, 2021 through September 3, 2024.

As of September 30, 2023, we have repurchased a total of 6,793,266 outstanding shares at an aggregate cost of $ 236 million, which is included in treasury stock on the accompanying condensed consolidated statements of financial position, and we had $ 164 million remaining available for future repurchases under this program.

As of March 31, 2024, we have repurchased a total of 8,483,316 outstanding shares at a cost of $ 294 million, which is included in treasury stock on the accompanying condensed consolidated statements of financial position, and we had $ 106 million remaining available for future repurchases under this program.

A summary of repurchases of outstanding shares is as follows:

Three Months Ended

Nine Months Ended

September 30,

(In millions, except per share data)

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Cost of shares purchased (1)

________________________________

(1) The average price paid per share is calculated on a trade date basis and excludes associated fees.

(1) The average price paid per share and the cost of shares purchased are calculated on a trade date basis and exclude associated commissions and taxes of less than $ 1 million for the three months ended March 31, 2024.

Earnings Per Share

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Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, increased to include the number of shares of common stock that would have been outstanding had potentially dilutive shares of common stock been issued.

The dilutive effect of stock options, performance options, RSUs , performance shares and RSAs are reflected in diluted earnings per share by applying the treasury stock method.

The dilutive effect of stock options, performance options, RSUs, performance shares and restricted stock awards ("RSAs") are reflected in diluted earnings per share by applying the treasury stock method.

A summary of the calculations of our basic and diluted earnings per share is as follows:

Three Months Ended

Nine Months Ended

September 30,

(In millions, except per share data)

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Diluted earnings per share

___________________________________

(1) RSUs of 59,880 shares and 778,828 shares for the three months ended September 30, 2023 and 2022, respectively, and 471,836 shares and 973,418 shares for the nine months ended September 30, 2023 and 2022, respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

(2) Stock options to purchase 1,338,410 shares and 1,572,100 shares for the three months ended September 30, 2023 and 2022, respectively, and 1,279,130 shares and 1,442,599 shares for the nine months ended September 30, 2023 and 2022, respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

Performance options to purchase 710,323 shares and 272,503 shares for the three months ended September 30, 2023 and 2022, respectively, and 605,483 shares and 121,778 shares for the nine months ended September 30, 2023 and 2022, respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

(1) RSUs of 62,764 shares and 510,116 shares for the three months ended March 31, 2024 and 2023, respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

(2) Stock options to purchase 1,072,170 shares and 1,114,819 shares for the three months ended March 31, 2024 and 2023, respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

Performance options to purchase 591,420 shares and 258,596 shares for the three months ended March 31, 2024 and 2023, respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

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• changes in macroeconomic conditions, including inflation and global supply chain challenges, especially as they may affect existing home sales, interest rates, consumer confidence or labor availability;

 increases in parts, appliance and home system prices, and other operating costs;

 changes in the source and intensity of competition in our market;

• our ability to successfully implement our business strategies;

 the ability of our marketing efforts to be successful or cost-effective;

• the ability of our marketing efforts to be successful and cost-effective;

• our dependence on our first-year real estate and direct-to-consumer acquisition channels and our renewal channel;

• changes in the source and intensity of competition in our market;

• our ability to attract, retain and maintain positive relations with third-party contractors and vendors;

 our dependence on our first-year real estate and direct-to-consumer acquisition channels and our renewals channel;

• increases in parts, appliance and home system prices, and other operating costs;

• our ability to attract and retain qualified key employees and labor availability in our customer service operations;

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• our ability to protect the security of personal information about our customers;

 evolving corporate governance and disclosure regulations and expectations related to environmental, social and governance matters;

 risks related to the COVID-19 pandemic;

 risks related to geopolitical instability;

• compliance with, or violation of, laws and regulations, including consumer protection laws, or lawsuits or other claims by third parties, increasing our legal and regulatory expenses;

• evolving corporate governance and disclosure regulations and expectations related to environmental, social and governance matters;

• physical effects of climate change, including adverse weather conditions and Acts of God, along with the increased focus on sustainability;

• increases in tariffs or changes to import/export regulations;

 physical effects of climate change, adverse weather conditions and Acts of God, along with the increased focus on sustainability;

• our ability to protect our intellectual property and other material proprietary rights;

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Available Information

Our website address is www.frontdoor.com.

Our corporate website address is www.frontdoorhome.com.

We use our website as a channel of distribution for company information.

We will make available free of charge on the Investor section of our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.

We also make available through our website other reports filed with or furnished to the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act, as well as our Code of Conduct and Financial Code of Ethics.

We also make available through our corporate website other reports filed with or furnished to the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act, as well as our Code of Conduct and Financial Code of Ethics.

Financial and other material information regarding Frontdoor is routinely posted on our website and is readily accessible.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements