What changed in this filing

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Item 1. Financial Statements

2024-11-04 compared with 2024-08-01 · 87 added, 61 removed, 393 unchanged (27% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Cost of services rendered

16 unchanged sentences

(In millions, except share data)

September 30,

Current Assets:

2 unchanged sentences

Prepaid expenses and other current assets

Contract asset

Contract assets

Total Current Assets

23 unchanged sentences

2,000,000,000 shares authorized;

86,985,271 shares issued and 77,049,920 shares outstanding as of June 30, 2024 and 86,553,387 shares issued and 78,378,511 shares outstanding as of December 31, 2023

87,193,682 shares issued and 75,782,534 shares outstanding as of September 30, 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;

9,935,351 shares as of June 30, 2024 and 8,174,876 shares as of December 31, 2023

11,411,148 shares as of September 30, 2024 and 8,174,876 shares as of December 31, 2023

Total Shareholders' Equity

5 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Common Stock:

23 unchanged sentences

(In millions)

Six Months Ended

Nine Months Ended

September 30,

Cash and Cash Equivalents at Beginning of Period

32 unchanged sentences

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

As of June 30, 2024 , we had 2.0 million active home warranties across all brands in the United States.

As of September 30, 2024 , we had approximately two 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 six months ended June 30, 2024.

There have been no material changes to our significant accounting policies during the nine months ended September 30, 2024.

Basis of Presentation

20 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In millions)

23 unchanged sentences

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 $ 11 million and $ 12 million as of June 30, 2024 and December 31, 2023, respectively.

Amortization of deferred customer acquisition costs was $ 4 million and $ 5 million for the three months ended June 30, 2024 and 2023, respectively, and $ 7 million and $ 8 million for the six months ended June 30, 2024 and 2023, respectively.

There were no impairment losses related to these capitalized costs during the six months ended June 30, 2024 and 2023.

Deferred customer acquisition costs were $ 10 million and $ 12 million as of September 30, 2024 and December 31, 2023, respectively.

Amortization of deferred customer acquisition costs was $ 3 million and $ 5 million for the three months ended September 30, 2024 and 2023, respectively, and $ 10 million and $ 13 million for the nine months ended September 30, 2024 and 2023 , respectively.

There were no impairment losses related to these capitalized costs during the nine months ended September 30, 2024 and 2023.

Receivables, Less Allowance

5 unchanged sentences

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 $ 8 million as of June 30, 2024.

Contract assets were $ 75 million as of September 30, 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 six months ended June 30, 2024 is as follows:

A summary of the changes in deferred revenue for the nine months ended September 30, 2024 is as follows:

(In millions)

2 unchanged sentences

Recognition of deferred revenue

Balance at June 30, 2024

There was approximately $ 39 million and $ 79 million of revenue recognized during the three and six months ended June 30, 2024 that was included in the deferred revenue balance as of December 31, 2023.

Balance at September 30, 2024

There was approximately $ 22 million and $ 102 million of revenue recognized during the three and nine months ended September 30, 2024 that was included in the deferred revenue balance as of December 31, 2023.

Goodwill and Intangible Assets

1 unchanged sentence

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

The balance of goodwill was $ 503 million as of June 30, 2024 and December 31, 2023.

There were no goodwill impairment charges recorded in the six months ended June 30, 2024.

The balance of goodwill was $ 503 million as of September 30, 2024 and December 31, 2023.

There were no goodwill impairment charges recorded in the nine months ended September 30, 2024 and 2023.

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

As of June 30, 2024

As of September 30, 2024

As of December 31, 2023

4 unchanged sentences

(1) Not subject to amortization.

Amortization expense was $ 1 million for each of the three months ended June 30, 2024 and 2023 and $ 1 and $ 2 million for the six months ended June 30, 2024 and 2023 , respectively.

There were no intangible asset impairment charges for the six months ended June 30, 2024 and 2023.

Amortization expense was $ 1 million for each of the three months ended September 30, 2024 and 2023 and $ 2 and $ 3 million for the nine months ended September 30, 2024 and 2023 , respectively.

There were no intangible asset impairment charges for the nine months ended September 30, 2024 and 2023.

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

2 unchanged sentences

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 less than $ 1 million and $ 1 million for the three months ended June 30, 2024 and 2023, respectively and $ 1 million and $ 2 million for the six months ended June 30, 2024 and 2023, respectively.

We recognized operating lease expense of less than $ 1 million and $ 1 million for the three months ended September 30, 2024 and 2023, respectively, and $ 1 million and $ 2 million for the nine months ended September 30, 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:

Supplemental statement of financial position 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:

Six Months Ended

Nine Months Ended

September 30,

(In millions)

2 unchanged sentences

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

In conjunction with the operating leases of our corporate headquarters located in Memphis, Tennessee, and our collaboration center located in Scottsdale, Arizona, we recognized $ 2 million in tenant improvement allowances as of June 30, 2024, which is a non-cash investing activity.

The following table presents the maturities of our operating lease liabilities as of June 30, 2024:

In conjunction with the operating leases of our corporate headquarters located in Memphis, Tennessee, and our collaboration center located in Scottsdale, Arizona, we recog nized $ 2 million in tenant improvement allowances for the nine months ended September 30, 2024, which is a non-cash investing activity.

The following table presents the maturities of our operating lease liabilities as of September 30, 2024:

(In millions)

5 unchanged sentences

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 and six months ended June 30, 2024 and 2023 was generated in the United States.

Substantially all of our income before income taxes for the three and nine months ended September 30, 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 25.8 percent and 24.8 percent for the three months ended June 30, 2024 and 2023, respectively, and 25.4 percent and 24.9 percent for the six months ended June 30, 2024 and 2023, respectively.

The increase in the effective tax rate for the three and six months ended June 30, 2024 compared to 2023 was primarily due to the capitalization for tax purposes of acquisition-related costs.

The effective tax rate on income before income taxes was 25.1 percent and 25.3 percent for the three months ended September 30, 2024 and 2023, respectively, and 25.3 percent and 25.1 percent for the nine months ended September 30, 2024 and 2023, respectively.

On June 3, 2024 , we entered into the Purchase Agreement to acquire 2-10 HBW for aggregate cash consideration of $ 585 million, subject to certain customary adjustments based on, among other things, the amount of cash, debt, transaction expenses, working capital and regulatory capital in the business as of the closing of the transaction.

4 unchanged sentences

The applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired on July 17, 2024, at 11:59 p.m.

Eastern Time.

Eastern Time, and applicable regulators in Florida and the District of Columbia have approved the transaction subject to customary regulatory conditions.

The transaction is anticipated to close in the fourth quarter of 2024, subject to additional regulatory approval and other customary closing conditions.

In conjunction with the 2-10 HBW Acquisition, we recognized acquisition-related costs of $ 6 million for the three and six months ended June 30, 2024.

In conjunction with the 2-10 HBW Acquisition, we recognized acquisition-related costs of $ 3 million and $ 9 million for the three and nine months ended September 30, 2024, respectively.

These charges represent direct third-party costs, including legal, accounting and financial advisory fees.

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

Restructuring Charges

We incurred restructuring charges of $ 3 million ($ 2 million, net of tax) and $ 5 million ($ 4 million, net of tax) for the three months ended September 30, 2024 and 2023 , respectively, and $ 5 million ($ 3 million, net of tax) and $ 6 million ($ 5 milli on, net of tax) for the nine months ended September 30, 2024 and 2023, respectively.

For the three months ended September 30, 2024, restructuring charges include $ 3 million of severance costs.

For the nine months ended September 30, 2024, restructuring charges include $ 4 million of severance costs and $ 1 million of expenses related to the exit of certain operating leases.

For the three and nine months ended September 30, 2023, restructuring charges primarily include a $ 2 million impairment charge related to our Phoenix, Arizona 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.

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

As of September 30, 2024, there was $ 3 million in accrued restructuring charges in the accompanying condensed consolidated statements of financial position.

As of December 31, 2023, accrued restructuring charges were less than $ 1 million.

Commitments and Contingencies

14 unchanged sentences

Stock-Based Compensation

We recognized stock-based compensation expense of $ 8 million ($ 6 million, net of tax) and $ 8 million ($ 7 million, net of tax) for the three months ended June 30, 2024 and 2023, respectively, and $ 15 million ($ 12 million, net of tax) and $ 13 million ($ 11 million, net of tax) for the six months ended June 30, 2024 and 2023, respectively.

We recognized stock-based compensation expense of $ 6 million ($ 5 million, net of tax) and $ 8 million ($ 7 million, net of tax) for the three months ended September 30, 2024 and 2023, respectively, and $ 20 million ($ 17 million, net of tax) and $ 21 million ($ 18 million, net of tax) for the nine months ended September 30, 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 six months ended June 30, 2024 is as follows:

A summary of awards granted under the Omnibus Plan during the nine months ended September 30, 2024 is as follows:

Stock options

3 unchanged sentences

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

As of June 30, 2024, there was $ 53 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options, performance options, restricted stock units (“RSUs”) and other performance shares.

As of September 30, 2024, there was $ 40 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options, performance options, restricted stock units (“RSUs”) and other performance shares.

These costs are expected to be recognized over a weighted-average period of 2.23 years.

1 unchanged sentence

Long-term debt is summarized in the following table:

September 30,

(In millions)

4 unchanged sentences

Total long-term debt

(1) Term Loan A is presented net of unamortized debt issuance costs of $ 1 million as of June 30, 2024 and December 31, 2023.

(2) Term Loan B is presented net of unamortized debt issuance costs of $ 2 million as of June 30, 2024 and December 31, 2023 and unamortized discount of $ 1 million as of June 30, 2024 and December 31, 2023.

As of June 30, 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 June 30, 2024, 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 September 30, 2024 and December 31, 2023.

(2) Term Loan B is presented net of unamortized debt issuance costs of $ 2 million as of September 30, 2024 and December 31, 2023 and unamortized discount of $ 1 million as of September 30, 2024 and December 31, 2023.

As of September 30, 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 September 30, 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 June 30, 2024:

The following table presents future scheduled debt payments as of September 30, 2024:

(In millions)

5 unchanged sentences

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

Six Months Ended

Nine Months Ended

September 30,

(In millions)

10 unchanged sentences

Pre-tax amount

Tax provision

After-tax amount

Amounts reclassified from AOCI (1)

Total other comprehensive income

Balance at June 30, 2024

Total other comprehensive loss

Balance at September 30, 2024

(1) Amounts are net of income taxes.

1 unchanged sentence

A summary of reclassifications out of AOCI is as follows:

Six Months Ended

Nine Months Ended

September 30,

(In millions)

15 unchanged sentences

See Note 13 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 $ 5 million, net of tax, as of June 30, 2024 .

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 $ 3 million, net of tax, as of September 30, 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.

7 unchanged sentences

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 June 30, 2024 and December 31, 2023, the carrying amounts of our total debt were $ 586 million and $ 593 million, respectively, and the estimated fair values were $ 589 million and $ 598 million, respectively.

As of September 30, 2024 and December 31, 2023, the carrying amounts of our total debt were $ 582 million and $ 593 million, respectively, and the estimated fair values were $ 582 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.

2 unchanged sentences

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 six months ended June 30, 2024 .

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, 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 six months ended June 30, 2024.

There were no transfers between hierarchy levels during the nine months ended September 30, 2024.

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

2 unchanged sentences

(In millions)

As of June 30, 2024:

As of September 30, 2024:

Prepaid expenses and other current assets

2 unchanged sentences

Share Repurchase Program

On July 26, 2024, our Board of Directors approved a new share repurchase authorization of up to $ 650 million of our common stock over the three-year period from September 4, 2024 through September 4, 2027.

Purchases under this new $ 650 million repurchase program may be made from time to time by the company in the open market at prevailing market prices (including through a Rule 10b5-1 Plan), in privately negotiated transactions, or through any combination of these methods, through September 4, 2027.

The actual timing, number, manner and value of any shares repurchased will depend on several factors, including the market price of the company’s stock, general market and economic conditions, the company’s liquidity requirements, applicable legal requirements and other business considerations.

The repurchase program does not obligate us to acquire any number of shares in any specific period or at all and may be suspended or discontinued at any time at our discretion.

As of September 30, 2024 , we have no t made any repurchases under this program.

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 June 30, 2024 , we have repurchased a total of 9,843,294 outstanding shares at a cost of $ 339 million, which is included in treasury stock on the accompanying condensed consolidated statements of financial position.

As of June 30, 2024, we had $ 61 million remaining available for future repurchases under this program through September 3, 2024.

At the time of expiration, we repurchased a total of 11,319,091 outstanding shares at an aggregate cost of $ 400 million under this program, which is included in treasury stock on the accompanying condensed consolidated statements of financial position.

A summary of repurchases of outstanding shares is as follows:

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In millions, except per share data)

2 unchanged sentences

Cost of shares purchased (1)

(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 each of the three months ended June 30, 2024 and 2023, and $ 1 million and less than $ 1 million for the six months ended June 30, 2024 and 2023, respectively.

The repurchase program does not obligate us to acquire any number of shares in any specific period or at all and may be suspended or discontinued at any time at our discretion.

(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 $ 1 million and less than $ 1 million for the three months ended September 30, 2024 and 2023, respectively, and $ 1 million for each of the nine months ended September 30, 2024 and 2023 .

Earnings Per Share

4 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In millions, except per share data)

5 unchanged sentences

Diluted earnings per share

(1) RSUs of 3,093 shares and 74,736 shares for the three months ended June 30, 2024 and 2023, respectively, and 428,235 shares and 719,660 shares for the six months ended June 30, 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 1,504,925 shares and 1,489,773 shares for the three months ended June 30, 2024 and 2023, respectively, and 1,299,171 shares and 1,332,990 shares for the six months ended June 30, 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 274,282 shares and 785,119 shares for the three months ended June 30, 2024 and 2023, respectively, and 274,282 shares and 523,312 shares for the six months ended June 30, 2024 and 2023 , respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

(1) RSUs of 2,706 shares and 59,880 shares for the three months ended September 30, 2024 and 2023, respectively, and 461,600 shares and 471,836 shares for the nine months ended September 30, 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 538,962 shares and 1,338,410 shares for the three months ended September 30, 2024 and 2023, respectively, and 1,015,848 shares and 1,279,130 shares for the nine months ended September 30, 2024 and 2023 , respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

There were no anti-dilutive performance options in the three months ended September 30, 2024.

Performance options to purchase 710,323 shares for the three months ended September 30, 2023, and 191,438 shares and 605,483 shares for the nine months ended September 30, 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

49 unchanged sentences

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