Frontdoor, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT REGIST ERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Frontdoor, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial position of Frontdoor, Inc. and subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive income, statements of changes in total equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2025, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Accrual for Home Warranty Claims – Refer to Notes 2 and 9 of the financial statements Critical Audit Matter Description The Company maintains an accrual for the cost to complete home warranty claims when the ultimate cost of the claims is not yet known. The estimate is determined using an internal analysis based on current claims and historical claims experience. In addition, the Company engages a third-party actuary to develop an independent estimate of the ultimate costs using generally accepted actuarial methods that incorporate cumulative claims experience and information provided by the Company. The Company regularly reviews its estimates of claims costs and adjusts the estimates, as needed. We identified the accrual for home warranty claims as a critical audit matter because estimating the cost to complete home warranty claims involves significant estimation by management due to the subjectivity involved in determining loss development factors for outstanding claims, including the impact of underlying business changes and market trends on the ultimate costs. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists, when performing audit procedures to evaluate the reasonableness of the accrual for home warranty claims as of December 31, 2024. 48 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the home warranty claims accrual included the following, among others: • We tested the design and operating effectiveness of controls over the home warranty claims accrual, including those over the Company’s internal analysis to project the ultimate costs associated with settling each claim as well as oversight of the actuary and related assumptions. Additionally, we tested the design and operating effectiveness over the controls covering the completeness and accuracy of the claims data underlying the accrual process. • We compared management’s prior periods assumptions of expected development to actual development during the current year and subsequent period to identify potential bias in the determination of the home warranty claims accrual. • With the assistance of our actuarial specialists: ▪ We evaluated the methods and assumptions used by management to estimate the home warranty claims accrual. ▪ We developed independent estimates of the home warranty claims accrual and compared our estimate to management’s estimate. • We tested the underlying data that served as the basis for the Company’s internal analysis and their actuary’s analysis, including historical claims, to ensure that the inputs to the estimates were complete and accurate. /s/ Deloitte & Touche LLP Memphis, Tennessee February 27, 2025 We have served as the Company's auditor since 2017. 49 Consolidated Statements of Oper ations and Comprehensive Income ( In millions, except per share data ) Year Ended December 31, 2024 2023 2022 Revenue $ 1,843 $ 1,780 $ 1,662 Cost of services rendered 852 895 952 Gross Profit 991 885 710 Selling and administrative expenses 612 581 521 Depreciation and amortization expense 39 37 34 Goodwill and intangibles impairment — — 14 Restructuring charges 8 16 20 Interest expense 40 40 31 Interest and net investment income ( 20 ) ( 16 ) ( 4 ) Loss on extinguishment of debt 3 — — Income before Income Taxes 309 229 93 Provision for income taxes 74 57 22 Net Income $ 235 $ 171 $ 71 Other Comprehensive (Loss) Income, Net of Income Taxes: Unrealized (loss) gain on derivative instruments, net of income taxes ( 6 ) ( 3 ) 27 Total Other Comprehensive (Loss) Income, Net of Income Taxes ( 6 ) ( 3 ) 27 Comprehensive Income $ 229 $ 169 $ 98 Earnings per Share: ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 3.05 $ 2.13 $ 0.87 Diluted ​ $ 3.01 $ 2.12 $ 0.87 Weighted-average Common Shares Outstanding: Basic 77.0 80.5 81.8 Diluted 78.0 80.9 82.0 See the accompanying Notes to the Consolidated Financial Statements. 50 Consolidated Statemen ts of Financial Position (In millions, except share data) As of December 31, 2024 2023 Assets: Current Assets: Cash and cash equivalents $ 421 $ 325 Marketable securities 15 — Receivables, less allowance of $ 4 and $ 5 , respectively 10 6 Prepaid expenses and other current assets 42 32 Total Current Assets 488 363 Other Assets: Property and equipment, net 73 60 Goodwill 967 503 Intangible assets, net 448 143 Operating lease right-of-use assets 8 3 Long-term marketable securities 38 — Deferred reinsurance 65 — Reinsurance recoverables 9 — Deferred customer acquisition costs 11 12 Other assets 2 5 Total Assets $ 2,107 $ 1,089 Liabilities and Shareholders' Equity: Current Liabilities: Accounts payable $ 71 $ 76 Accrued liabilities: Payroll and related expenses 44 38 Home warranty claims 74 76 Other 28 22 Deferred revenue 123 102 Current portion of long-term debt 29 17 Total Current Liabilities 369 331 Long-Term Debt 1,170 577 Other Long-Term Liabilities: Deferred tax liabilities, net 49 25 Operating lease liabilities 20 16 Unearned insurance premium 233 — Unpaid losses and loss adjustment reserves 12 — Long-term deferred revenue 12 — Other long-term liabilities 4 5 Total Other Long-Term Liabilities 329 46 Commitments and Contingencies (Note 9) Shareholders' Equity: Common stock, $ 0.01 par value; 2,000,000,000 shares authorized; 87,434,468 shares issued and 75,314,243 shares outstanding as of December 31, 2024 and 86,553,387 shares issued and 78,378,511 shares outstanding as of December 31, 2023 1 1 Additional paid-in capital 152 117 Retained earnings 530 296 Accumulated other comprehensive (loss) income — 6 Less treasury stock, at cost; 12,120,225 shares as of December 31, 2024 and 8,174,876 shares as of December 31, 2023 ( 444 ) ( 283 ) Total Shareholders' Equity 239 136 Total Liabilities and Shareholders' Equity $ 2,107 $ 1,089 See the accompanying Notes to the Consolidated Financial Statements. 51 Consol idated Statements of Changes in (Deficit) Equity (In millions) Shares Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Equity Balances as of December 31, 2021 83 $ 1 $ 70 $ 53 $ ( 18 ) $ ( 103 ) $ 2 Net income — — — 71 — — 71 Stock-based compensation expense — — 22 — — — 22 Taxes paid related to net share settlement of equity awards — — ( 3 ) — — — ( 3 ) Issuance of common stock related to ESPP — — 1 — — — 1 Repurchases of common stock ( 2 ) — — — — ( 59 ) ( 59 ) Other comprehensive income, net of tax — — — — 27 — 27 Balances as of December 31, 2022 82 $ 1 $ 90 $ 124 $ 8 $ ( 162 ) $ 61 Net income — — — 171 — — 171 Stock-based compensation expense — — 26 — — — 26 Exercise of stock options — — 4 — — — 4 Taxes paid related to net share settlement of equity awards — — ( 4 ) — — — ( 4 ) Issuance of common stock related to ESPP — — 1 — — — 1 Repurchases of common stock ( 4 ) — — — — ( 121 ) ( 121 ) Other comprehensive loss, net of tax — — — — ( 3 ) — ( 3 ) Balances as of December 31, 2023 78 $ 1 $ 117 $ 296 $ 6 $ ( 283 ) $ 136 Net income — — — 235 — — 235 Stock-based compensation expense — — 26 — — — 26 Exercise of stock options — — 14 — — — 14 Taxes paid related to net share settlement of equity awards — — ( 6 ) — — — ( 6 ) Issuance of common stock related to ESPP — — 1 — — — 1 Repurchases of common stock ( 4 ) — — — — ( 161 ) ( 161 ) Other comprehensive loss, net of tax — — — — ( 6 ) — ( 6 ) Balances as of December 31, 2024 75 $ 1 $ 152 $ 530 $ — $ ( 444 ) $ 239 See the accompanying Notes to the Consolidated Financial Statements. 52 Consolidated S tatements of Cash Flows (In millions) Year Ended December 31, 2024 2023 2022 Cash and Cash Equivalents at Beginning of Period $ 325 $ 292 $ 262 Cash Flows from Operating Activities: Net Income 235 171 71 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization expense 39 37 34 Deferred income tax benefit — ( 13 ) ( 10 ) Stock-based compensation expense 26 26 22 Goodwill and intangibles impairment — — 14 Restructuring charges 8 16 20 Payments for restructuring charges ( 6 ) ( 7 ) ( 5 ) Loss on extinguishment of debt 3 — — Other 1 6 1 Changes in working capital: Receivables 1 — 2 Prepaid expenses and other current assets ( 2 ) ( 1 ) ( 3 ) Accounts payable ( 7 ) ( 4 ) 15 Deferred revenue ( 9 ) ( 19 ) ( 35 ) Accrued liabilities ( 11 ) ( 7 ) 10 Current income taxes ( 8 ) ( 1 ) 6 Net Cash Provided from Operating Activities 270 202 142 Cash Flows from Investing Activities: Purchases of property and equipment ( 39 ) ( 32 ) ( 40 ) Business acquisitions, net of cash acquired ( 583 ) — — Other investing activities — — 4 Net Cash Used for Investing Activities ( 622 ) ( 32 ) ( 35 ) Cash Flows from Financing Activities: Borrowings of debt, net of discount 1,216 — — Repayments of debt ( 598 ) ( 17 ) ( 17 ) Debt issuance costs paid ( 18 ) — — Repurchases of common stock ( 161 ) ( 121 ) ( 59 ) Other financing activities 9 1 ( 2 ) Net Cash Provided from (Used for) Financing Activities 447 ( 137 ) ( 77 ) Cash Increase During the Period 96 34 29 Cash and Cash Equivalents at End of Period $ 421 $ 325 $ 292 See the accompanying Notes to the Consolidated Financial Statements. 53 Frontdoor, Inc. Notes to the Consolidated Financial Statements Note 1. Description of Business Frontdoor is the leading provider of home warranties and new home structural warranties in the United States, as measured by revenue, and operates primarily under the American Home Shield and 2-10 HBW brands. 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 up to 29 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. Our new home structural warranty business provides value to home builders and owners of new homes by providing coverage, including insurance-backed coverage for workmanship, systems and/or structural failures, as well as other post-construction services. We also offer non-warranty home services via our website and app to our home warranty customers directly and others through partnerships and our subscription-based Frontdoor app. As of December 31, 2024, we had approximately 2.1 million active home warranties across all brands in the United States. Note 2. Significant Accounting Policies Consolidation Our consolidated financial statements include all of our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of the consolidated financial statements requires management to make certain estimates and assumptions required under U.S. GAAP that may differ from actual results. The more significant areas requiring the use of management estimates relate to: revenue recognition; business combinations; home warranty claims accruals; the valuation of property and equipment, marketable securities, goodwill and intangible assets; useful lives for recognizing depreciation and amortization expense; accruals for current and deferred tax accounts; stock-based compensation expense; and litigation matters. Revenue The majority of our revenue is generated from home warranty contracts entered into with our customers. Home warranty contracts are typically one year in duration. Home warranty claims costs are expensed as incurred. We recognize revenue over the life of these contracts in proportion to the expected direct costs. Those costs bear a direct relationship to the fulfillment of our obligations under the contracts and are representative of the relative value provided to our customers. We regularly review our estimates of claims costs and adjust our estimates when appropriate. Revenues are presented net of sales taxes collected and remitted to government taxing authorities in the accompanying consolidated statements of operations and comprehensive income. 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. We invoice our monthly-pay customers on a straight-line basis over the contract term. As a result, contract assets arise when we recognize revenue for our home warranty contracts prior to a customer being invoiced. Deferred revenue represents a contract liability and 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. Property and Equipment, Goodwill and Intangible Assets Property and equipment consist of the following: As of December 31, Estimated Useful Lives (In millions) 2024 2023 (Years) Land $ 2 $ — Buildings and improvements 11 4 10 - 40 Technology and communications 139 159 3 - 7 Office equipment, furniture and fixtures, and vehicles 5 3 5 - 7 Property and equipment, gross 157 166 Less accumulated depreciation ( 84 ) ( 105 ) Property and equipment, net $ 73 $ 60 54 Depreciation of property and equipment wa s $ 35 million, $ 32 million and $ 27 million for the years ended December 31, 2024, 2023 and 2022, respectively. Property and equipment are recorded at cost. Property and equipment and intangible assets with finite lives are depreciated on a straight-line basis over their estimated useful lives. These lives are based on our previous experience for similar assets, potential market obsolescence and other industry and business data. Property and equipment and finite-lived intangible assets are tested for recoverability if circumstances indicate a potential impairment. If the carrying amount is no longer recoverable based upon the undiscounted future cash flows of the asset, an impairment loss would be recognized equal to the difference between the carrying amount and the fair value of the asset. Changes in the estimated useful lives could cause us to adjust the carrying values or future expense accordingly. 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. We perform our annual assessment for impairment on October 1 of every year. Goodwill and indefinite-lived intangible assets are tested for impairment at the reporting unit level. The Company can elect to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the reporting unit does not pass the qualitative assessment, or if the Company does not elect to perform the initial qualitative assessment, then the reporting unit’s carrying amount is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. The discounted cash flow approach uses expected future operating results. The market approach uses comparable company information to determine revenue and earnings multiples to value our reporting units. Failure to achieve these expected results or market multiples may cause a future impairment of goodwill at the reporting unit. Goodwill and indefinite-lived intangible assets are considered impaired if the carrying amount of the reporting unit exceeds its fair value. See Note 5 to the accompanying consolidated financial statements for information related to our goodwill and intangible assets. As part of business combination accounting, a value of business acquired ("VOBA") intangible asset is established upon the acquisition of blocks of contracts. This intangible represents the present value of estimated net cash flows for the in-force contracts as of the acquisition date. VOBA is amortized as a component of depreciation and amortization expense in the accompanying consolidated statements of operations and comprehensive income in relation to the profit emergence of the underlying acquired contracts. The valuation of VOBA is based on many factors including investment yields, expenses and discount rate. Advertising We expense advertising costs as incurred. Advertising expense for the years ended December 31, 2024, 2023 and 2022 was $ 170 million, $ 156 million and $ 115 million, respectively. Leases We determine if an arrangement is a lease at inception. We recognize a right-of-use (“ROU”) asset and lease liability for all leases with terms of 12 months or more. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our incremental borrowing rate is determined based on our secured borrowing rating and the lease term. Our operating lease ROU assets are recorded net of lease incentives. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are accounted for separately for our real estate leases. See Note 6 to the accompanying consolidated financial statements for information related to our leases. Restricted Net Assets There are regulatory restrictions on the ability of certain of our subsidiaries to transfer funds to us. The payments of ordinary and extraordinary dividends by our subsidiaries are subject to significant regulatory restrictions under the laws and regulations of the states in which they operate. Among other things, such laws and regulations require certain subsidiaries to maintain minimum capital and net worth requirements and may limit the amount of ordinary and extraordinary dividends and other payments that these subsidiaries can make to us. As of December 31, 2024, the total net assets subject to these regulatory restrictions was $ 184 million. 55 Statutory Financial Information A subsidiary of 2-10 Holdco, Inc., New Home Warranty Insurance Company, a risk retention group, (the "RRG") is required to prepare statutory financial statements in accordance with the laws and regulations in the state jurisdictions in which it operates. We apply the statutory accounting practices prescribed by the National Association of Insurance Commissioners (“NAIC”) as the basis for accounting in the RRG standalone statutory financial statements. These statutory financial statements are prepared on a calendar year basis. For the year ended December 31, 2024, the RRG reported a statutory net loss of $ 1 million and statutory capital and surplus of $ 5 million. No dividends were declared or paid by the RRG during 2024. As part of its regulatory filings and pursuant to the Risk-Based Capital (“RBC”) requirements of the NAIC, the RRG is required to maintain a minimum capitalization level, as determined based on formulas and other factors incorporating various business risks of the insurance subsidiary. As of December 31, 2024, the RRG’s statutory surplus exceeded the RBC requirement. Financial Instruments and Credit Risk We hedge the interest payments on a portion of our variable rate debt through the use of an interest rate swap contract. We have classified our interest rate swap contract as a cash flow hedge and recorded the hedging instrument in the consolidated statements of financial position as either an asset or liability at fair value. The effect of derivative financial instrument transactions could have a material impact on our financial statements. We do not hold or issue derivative financial instruments for trading or speculative purposes. Financial instruments, which potentially subject us to financial and credit risk, consist principally of investments and receivables. Investments consist primarily of certificates of deposit, corporate bonds, mortgage-backed securities and U.S. government obligations. The Company periodically reviews its portfolio of investments to determine whether there has been an other than temporary decline in the value of the investments from factors such as deterioration in the financial condition of the issuer or the market(s) in which the issuer competes. The majority of our receivables have little concentration of credit risk due to the large number of customers with relatively small balances and their dispersion across geographical areas. We maintain an allowance for losses based upon the expected collectability of receivables. See Note 18 to the accompanying consolidated financial statements for information relating to the fair value of financial instruments. Stock-Based Compensation Expense Stock-based compensation expense for non-qualified stock options is estimated at the grant date based on an award’s fair value as calculated by the Black-Scholes option-pricing model and is recognized as expense over the requisite service period. The Black-Scholes model requires various highly judgmental assumptions including expected volatility and option life. If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation expense for future grants may differ materially from that recorded in the current period related to options granted to date. In addition, we estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience. To the extent the actual forfeiture rate is different from the estimate, stock-based compensation expense is adjusted accordingly in the period the forfeiture occurs or the awards vest. See Note 10 to the accompanying consolidated financial statements for more details, including the calculation of stock-based compensation expense for stock options, performance options, RSUs, performance shares and RSAs. Income Taxes Frontdoor files a consolidated U.S. federal income tax return. State and local returns are filed both on a separate company basis and on a combined unitary basis with Frontdoor. Current and deferred income taxes are provided for on a separate company basis. We account for income taxes using an asset and liability approach for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income during the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. Valuation allowances are established when management determines that it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. The financial effect of changes in tax laws or rates is accounted for in the period of enactment. We record a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in tax returns. We recognize potential interest and penalties related to unrecognized tax benefits as income tax expense. 56 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. ASU 2023-07 requires disclosure of this incremental segment information on an annual and interim basis. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. This guidance was applied retrospectively to all prior periods presented in the financial statements when we adopted the provisions of this ASU as of December 31, 2024 . See Note 13 for the required 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 are currently evaluating the impact of this ASU on our enhanced disclosures. In 2024, the FASB issues ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires disclosure, in the notes to the financial statements, of specified information about certain costs and expenses on an annual and interim basis. This guidance is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted, and the guidance can be applied either prospectively or retrospectively. We are currently evaluating the impact of this ASU on our enhanced disclosures. Note 3. Revenue The majority of our revenue is generated from 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. We disaggregate revenue from contracts with customers into major customer acquisition channels. We determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenue by major customer acquisition channel for our home warranties and other revenue is as follows: Year Ended December 31, (In millions) 2024 2023 2022 Renewals $ 1,437 $ 1,367 $ 1,203 Real estate (1) 125 141 184 Direct-to-consumer (1) 166 194 219 Other 116 77 56 Total $ 1,843 $ 1,780 $ 1,662 (1) First-year revenue only. Our home warranty contracts have one primary 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 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. Renewals 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 and continue to be categorized in our renewal channel thereafter. Customer payments for renewals are primarily received in installments over the new contract period. 57 Real estate Real estate home warranties are sold through annual contracts that 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 warranties sold in this channel is classified as renewal revenue as described above. Direct-to-consumer Direct-to-consumer home warranties are sold through annual contracts that 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 warranties sold in this channel is classified as renewal revenue as described above. Other Other revenue primarily includes revenue generated by non-warranty home services and new home structural warranties, as well as 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 $ 11 million and $ 12 million as of December 31, 2024 and 2023 , respectively. Amortization of deferred customer acquisition costs was $ 12 million, $ 16 million and $ 19 million for the years ended December 31, 2024, 2023 and 2022, respectively. There were no impairment losses related to these capitalized costs during the years ended December 31, 2024, 2023 and 2022. Deferred Policy Acquisition Costs We capitalize certain costs related to the issuance of insurance policies under the new home warranty program as deferred policy acquisition costs and amortize these costs over the contract period. We anticipate that all deferred policy acquisition costs will be recoverable. Deferred policy acquisition costs were less than $ 1 million as of December 31, 2024, as the acquired balance from 2-10 HBW was eliminated in purchase accounting. 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 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 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. There were no contract assets as of December 31, 2024 and 2023. 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. 58 A summary of the changes in deferred revenue, including the long-term portion, for the year ended December 31, 2024 is as follows: (In millions) Balance as of December 31, 2023 $ 102 Deferral of revenue 199 Acquired revenue 41 Recognition of deferred revenue ( 208 ) Balance as of December 31, 2024 $ 135 There was approximately $ 98 million of revenue recognized during the year ended December 31, 2024 that was included in the deferred revenue balance as of December 31, 2023. Unearned Insurance Premium New home structural warranty revenue is recognized over the life of the contract in proportion to the costs expected to be incurred in performing services under the contract. Amounts not earned and recognized to date are recognized as unearned insurance premium on the consolidated statement of financial position. Deferred Reinsurance In the normal course of business, we seek to reduce our loss exposure in the new home warranty program by reinsuring certain levels of risk with reinsurers. Premiums ceded are expensed over the term of underlying insurance policies, and the unexpired portion of reinsurance is deferred and recognized as deferred reinsurance on the consolidated statement of financial position. Note 4. 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. We perform our annual assessment for impairment on October 1 of every year. In connection with the preparation of our 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 began to shift the focus of our Streem technology platform to primarily concentrate on integrating the technology into our core product offerings. We continued to license this technology to third-party business-to-business customers as a software-as-a-service platform but discontinued this third-party business at the end of 2024. 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 intang ible assets of $ 5 million. The balance of goodwill was $ 967 million and $ 503 million as of December 31, 2024 and 2023, respectively. During the year ended December 31, 2024, we acquired $ 464 million of goodwill in connection with the 2-10 HBW Acquisition. See Note 7 for additional information on the 2-10 HBW Acquisition. There were no goodwill impairment charges recorded in the years ended December 31, 2024 and 2023. The following table provides a summary of the components of our intangible assets: As of December 31, 2024 2023 (In millions) Gross Accumulated Amortization Net Gross Accumulated Amortization Net Trade names (1) $ 141 $ — $ 141 $ 141 $ — $ 141 Value of business acquired 148 ( 1 ) 147 — — — Home warranty customer relationships 214 ( 173 ) 41 173 ( 173 ) — Builder relationships 73 — 72 — — — Developed technology 35 ( 19 ) 16 19 ( 17 ) 2 Other 63 ( 32 ) 31 32 ( 32 ) — Total $ 673 $ ( 225 ) $ 448 $ 365 $ ( 221 ) $ 143 (1) Not subject to amortization. 59 During the year ended December 31, 2024, in connection with the 2-10 HBW Acquisition, we acquired the following intangible assets: Weighted Average Useful Lives (In millions) (Years) Value of business acquired $ 148 13 Home warranty customer relationships 41 7 Builder relationships 73 12 Developed technology 16 5 Other 31 13 Total $ 309 Amortization expense was $ 4 million, $ 4 million and $ 7 million for the years ended December 31, 2024, 2023 and 2022, respectively. As indicated above, an impairment charge of $ 5 million was recognized during the year ended December 31, 2022 related to Streem’s in tangible assets. There were no intangible asset impairment charges recorded in the years ended December 31, 2024 and 2023. The following table outlines expected amortization expense for existing intangible assets for the next five years: (In millions) 2025 $ 51 2026 42 2027 37 2028 34 2029 31 Total $ 195 Note 5. Leases 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. We also continue to lease certain office space in other geographies, which we have, as indicated below, either exited or subleased. Our leases have remaining lease terms ranging from three years to 10 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: As of December 31, 2024 2023 Weighted-average remaining lease term (years) 9 9 Weighted-average discount rate 6.5 % 6.5 % We recognized operating lease expense of $ 1 million, $ 3 million and $ 4 million for the years ended December 31, 2024, 2023 and 2022, respectively. These expenses are included in selling and administrative expenses in the accompanying consolidated statements of operations and comprehensive income. Supplemental statement of financial position information related to our operating lease liabilities is as follows: As of December 31, (In millions) 2024 2023 Other accrued liabilities $ 2 $ 2 Operating lease liabilities 20 16 Total operating lease liabilities $ 22 $ 18 60 Supplemental cash flow information related to our operating leases is as follows: Year Ended December 31, (In millions) 2024 2023 2022 Cash paid on operating lease liabilities (1) $ 4 $ 4 $ 5 Right-of-use assets obtained in exchange for lease obligations 7 — 3 (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 during the year ended December 31, 2024, which is a non-cash investing activity. The following table presents the maturities of our operating lease liabilities as of December 31, 2024: (In millions) 2025 (1) $ 2 2026 (1) 3 2027 4 2028 3 2029 3 Thereafter 13 Total future lease payments (1) 28 Less imputed interest ( 7 ) Total operating lease liabilities (1) $ 21 (1) Amount is presented net of future sublease income totaling $ 2 million, which relates to the years ending December 31, 2025 and 2026 . Closure of Leased Facilities In August 2023, we entered into a new lease in Scottsdale, Arizona and subsequently decided to exit our leased facility in Phoenix, Arizona. Additionally, in November 2023, we decided to exit our leased facilities in Seattle, Washington, Portland, Oregon and Denver, Colorado. As a result of exiting these leased facilities during 2023, we incurred non-cash impairment charges of $ 5 million for the year ended December 31, 2023 relating to the corresponding operating lease right-of-use assets. 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 year ended December 31, 2022 . Note 6. Income Taxes For the years ended December 31, 2024, 2023 and 2022 , we had $ 3 million, $ 5 million and $ 8 million of unrecognized tax benefits, respectively, all of which would impact the effective tax rate if recognized. The table below summarizes the changes in gross unrecognized tax benefits: (In millions) Balance as of December 31, 2022 $ 8 Decreases in tax positions for current year ( 2 ) Balance as of December 31, 2023 5 Decreases in tax positions for current year ( 2 ) Balance as of December 31, 2024 $ 3 Interest and penalties accrued on the liability for unrecognized tax benefits and recognized as income tax expense are less than $ 1 million as of December 31, 2024. 61 We are subject to taxation in the United States, various states and foreign jurisdictions. Due to expired statutes, the majority of our U.S. federal, state and local income tax returns for the years prior to 2021 are no longer subject to examination by tax authorities. Substantially all of our income before income taxes for the years ended December 31, 2024, 2023 and 2022 was generated in the United States. The reconciliation of income tax computed at the U.S. federal statutory tax rate to our effective income tax rate is as follows: Year Ended December 31, 2024 2023 2022 Tax at U.S. federal statutory rate 21.0 % 21.0 % 21.0 % State and local income taxes, net of U.S. federal benefit 2.6 2.4 0.7 Other permanent items 0.8 0.9 ( 0.2 ) Stock-based compensation 0.3 1.2 2.2 Goodwill impairment — — 2.0 Tax credits ( 0.7 ) ( 0.7 ) ( 3.2 ) Uncertain tax positions — 0.2 1.3 Effective rate 24.1 % 25.0 % 23.8 % Income tax expense is as follows: Year Ended December 31, (In millions) 2024 2023 2022 Current: U.S. federal $ 63 $ 60 $ 28 State and local 10 10 4 Total current income taxes 74 70 32 Deferred: U.S. federal — ( 11 ) ( 7 ) State and local — ( 3 ) ( 2 ) Total deferred income taxes — ( 13 ) ( 10 ) Provision for income taxes $ 74 $ 57 $ 22 Significant components of our deferred tax balances are as follows: As of December 31, (In millions) 2024 2023 Long-term deferred tax assets (liabilities): Intangible assets $ ( 115 ) $ ( 45 ) Unearned Revenue 38 — Property and equipment 9 4 Deferred customer acquisition costs ( 3 ) ( 3 ) Prepaid expenses and other assets ( 2 ) ( 2 ) Operating lease right-of-use assets ( 2 ) ( 1 ) Receivables allowances 1 1 Accrued liabilities 9 9 Other long-term liabilities 4 7 Operating lease liabilities 6 4 Deferred interest expense 5 ( 2 ) Net operating loss and tax credit carryforwards 3 2 Valuation allowance ( 2 ) ( 1 ) Net long-term deferred tax liabilities $ ( 49 ) $ ( 25 ) 62 Note 7. Acquisition On December 19, 2024 , we completed the acquisition of all of the issued and outstanding common stock of 2-10 HBW pursuant to a purchase agreement dated June 3, 2024 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 of 2-10 HBW as of the closing of the transaction. 2-10 HBW is a leading provider of new home structural warranties that provide home builders insurance-backed coverage and/or administrative services for workmanship, systems and/or structural failures. 2-10 HBW is also a provider of home warranties. We entered into an amendment to our Credit Agreement, which also became effective on December 19, 2024, in part, to fund the 2-10 HBW Acquisition. See Note 12 for additional information on the debt refinancing transactions. Total consideration as of December 19, 2024, is as follows: (In millions) Cash consideration paid $ 425 Payment of 2-10 HBW indebtedness 157 Payment of 2-10 HBW transaction costs 15 Payment of escrow 10 Total purchase price consideration 607 Less: Acquired 2-10 HBW cash ( 24 ) Total purchase price consideration, net of cash acquired $ 583 A summary of the consideration paid and the amounts of identified assets acquired and liabilities assumed at the acquisition date, as determined based on management's preliminary assessment of the acquisition date fair value, is as follows: (In millions) Cash and cash equivalents $ 24 Marketable securities 15 Receivables 4 Prepaid expenses and other current assets 8 Property and equipment, net 6 Goodwill 464 Intangible assets 309 Long-term marketable securities 39 Deferred reinsurance 66 Reinsurance recoverables 9 Accounts payable ( 1 ) Accrued liabilities: Payroll and related expenses ( 8 ) Home warranty claims ( 7 ) Other ( 6 ) Deferred revenue ( 29 ) Deferred tax liabilities, net ( 25 ) Unearned insurance premium ( 234 ) Unpaid losses and loss adjustment reserves ( 12 ) Long-term deferred revenue ( 12 ) Other long-term liabilities ( 1 ) Total consideration paid $ 607 As of December 31, 2024, the purchase price allocation for this acquisition has not been finalized. In particular, we are still evaluating the fair value of certain intangible assets. As we finalize the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period in 2025. We recognized $ 6 million of revenue and $ 2 million of net loss during the year ended December 31, 2024 related to the operations of 2-10 HBW for the period from December 19, 2024 through December 31, 2024. 63 In conjunction with the 2-10 HBW Acquisition, we recognized acquisition-related costs of $ 17 million during the year ended December 31, 2024. These charges represent direct third-party costs, including legal, accounting and financial advisory fees and are included in selling and administrative expenses in the accompanying consolidated statements of operations and comprehensive income. A summary of unaudited pro forma financial information related to our consolidated operating results as if the 2-10 HBW Acquisition occurred as of January 1, 2023 is as follows: Year Ended December 31, (In millions) 2024 2023 Revenue $ 2,028 $ 1,967 Net Income $ 194 $ 131 The unaudited pro forma financial information reflects pro forma adjustments to give effect to certain events management believes to be directly attributable to the acquisition. These pro forma adjustments include amortization and depreciation on acquired property and equipment and intangible assets. Additionally, the debt refinancing transactions that occurred contemporaneously with the closing of the 2-10 HBW acquisition are assumed to have occurred on January 1, 2023 , and historical interest expense associated with repaid borrowings associated with the Prior Credit Facilities have been removed. Note 8. Restructuring Charges We incurred restructuring charges of $ 8 million ($ 6 million, net of tax), $ 16 million ($ 12 million, net of tax) and $ 20 million ($ 15 million, net of tax) for the years ended December 31, 2024, 2023 and 2022, respectively. In 2024, restructuring charges included $ 7 million of severance costs and $ 1 million of expenses related to the exit of certain operating leases. In 2023, restructuring charges included $ 10 million in non-cash impairment charges related to the operating lease right-of-use assets and related property and equipment of certain of our leased and company-owned facilities as discussed further in Note 6 to the accompanying consolidated financial statements, $ 2 million of professional fees and $ 3 million of severance costs. The impairment charges were the result of our decision to exit the leased and company-owned properties. The severance costs related to our continued review and optimization of selling, general and administrative expenses. In 2022, restructuring charges included 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, $ 1 million of accelerated depreciation related to the early termination of a lease, and $ 6 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 selling and administrative expenses. The pre-tax charges discussed above are included in restructuring charges in the accompanying consolidated statements of operations and comprehensive income. As of December 31, 2024 and 2023, there were $ 4 million and less than $1 million, respectively, of accrued restructuring charges on the accompanying consolidated balance sheets. During the year ended December 31, 2024, less than $ 1 million of the prior year accrued restructuring charges were paid or otherwise settled. Note 9. Commitments and Contingencies 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 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. In addition to our estimates, we engage a third-party actuary to perform an accrual analysis utilizing generally accepted actuarial methods that incorporate cumulative historical claims experience and information provided by us. We regularly review our estimates of claims costs along with the third-party analysis and adjust our estimates when appropriate. We believe that utilizing actuarial methods in our estimation process to account for these liabilities provides a consistent and effective way to measure these judgmental accruals. 64 Unpaid losses and loss adjustment reserves represent the estimated ultimate cost of settling all new home structural warranty claims and includes the estimated costs of claims incurred but not reported as of the balance sheet date. The reserve is based upon the facts of each case and the Company’s experience with similar cases. The establishment of appropriate reserves is an inherently uncertain and complex process. Reserve estimates are primarily derived using an actuarial estimation process in which historical loss patterns are applied to actual paid losses and reported losses (paid losses plus individual case reserves established by claim adjusters) to create an estimate of how losses are likely to develop over time. We regularly review our estimates of unpaid losses and adjust our estimates when appropriate. The Company reports its unpaid losses and loss adjustment reserves gross of the amounts related to unpaid losses recoverable from reinsurers and net of amounts ceded to reinsurers. We have certain liabilities with respect to existing or potential claims, lawsuits and other proceedings. We accrue for these liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Any resulting adjustments, which could be material, are recorded in the period the adjustments are identified. Due to the nature of our business activities, we are also at times subject to pending and threatened legal and regulatory actions that arise out of the ordinary course of business. In the opinion of management, based in part upon advice of legal counsel, the disposition of any such matters is not expected, individually or in the aggregate, to have a material adverse effect on our business, financial position, results of operations or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that our business, financial position, results of operations or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions. Note 10. Stock-Based Compensation The Omnibus Plan permits the grant to certain employees, consultants and non-employee directors of Frontdoor different forms of awards, including non-qualified stock options, performance options, RSUs, performance shares, RSAs and deferred share equivalents. Upon adoption, 14,500,000 shares were reserved for grants under the Omnibus Plan. Our compensation committee determines the long-term incentive mix of awards to our employees and may authorize new grants annually. As of December 31, 2024, 8,761,706 shares remain available for future grants. Stock Options Stock options are exercisable based on the terms outlined in the applicable award agreement and have generally vested over a period of four years . The grant date fair value of stock options is determined using the Black-Scholes option pricing model with the assumptions noted in the following table. A historical daily measurement of volatility is determined based on our and our peer companies’ average volatility. The risk-free interest rate is determined by reference to the outstanding U.S. Treasury note with a term equal to the expected life of the option granted. The expected life represents the period of time that options are expected to be outstanding and was calculated using the simplified approach due to our lack of historical experience upon which to estimate the expected lives of the options. Year Ended December 31, Assumption 2024 2023 2022 Expected volatility 40.5 % 54.9 % 50.7 % Expected dividend yield 0.0 % 0.0 % 0.0 % Expected life (in years) 6.1 6.1 6.1 Risk-free interest rate 4.21 % 3.71 % 2.38 % During the years ended December 31, 2024, 2023 and 2022, we granted options to purchase 576,260 shares, 661,231 shares and 568,623 shares of our common stock, respectively, at weighted-average exercise prices of $ 31.94 per share, $ 26.67 per share and $ 28.64 per share, respectively. The weighted-average grant-date fair values of the options granted during the years ended December 31, 2024, 2023 and 2022 were $ 14.81 per share, $ 12.49 per share and $ 14.54 per share, respectively. During the year ended December 31, 2024, we applied a forfeiture assumption of 15 percent per annum in the recognition of the expense related to these options, with the exception of the options held by our CEO for which we applied a forfeiture rate of zero percent. The total intrinsic value of options exercised was $ 6 million, $ 1 million and less than $ 1 million for the years ended December 31, 2024, 2023 and 2022, respectively. 65 A summary of option activity under the Omnibus Plan during the year ended December 31, 2024 is presented below: Stock Options Weighted- average Exercise Price Aggregate Intrinsic Value (in millions) Weighted- average Remaining Contractual Term (in years) Outstanding as of December 31, 2023 1,327,338 $ 31.97 $ 7 7.79 Granted to employees 576,260 31.94 Exercised ( 352,903 ) 31.81 Forfeited ( 186,124 ) 30.47 Expired ( 34,540 ) 41.94 Outstanding as of December 31, 2024 1,330,031 $ 31.94 $ 30 7.65 Exercisable as of December 31, 2024 518,157 34.72 10 6.02 Performance Options Performance options are exercisable based on the terms outlined in the applicable award agreement. The grant date fair value of performance options is determined using a Monte Carlo simulation model. In addition to service conditions, the ultimate number of performance options to be earned depends on the achievement of a market condition prior to the fourth anniversary of the grant date, which is based on a share price target. Performance options granted during the years ended December 31, 2023 and 2022 have a weighted-average service period of approximately 0.8 years and 1.6 years, respectively, from the initial grant date. During the years ended December 31, 2023 and 2022 we granted options to purchase 652,004 and 272,503 shares of our common stock, respectively, with a weighted-average exercise price of $ 26.42 per share and $ 24.74 per share, respectively. We did no t issue any performance options under the Omnibus Plan during the year ended December 31, 2024. The weighted-average grant date fair values of the performance options granted during the years ended December 31, 2023 and 2022 were $ 10.40 per share and $ 11.50 per share, respectively. During the year ended December 31, 2024, we applied a forfeiture assumption of 15 percent per annum in the recognition of the expense related to these performance options, with the exception of the options held by our CEO for which we applied a forfeiture rate of zero percent. The total intrinsic value of options exercised was $ 3 million for the year ended December 31, 2024. No performance options were exercised during the years ended December 31, 2023 and 2022. A summary of performance options activity under the Omnibus Plan during the year ended December 31, 2024 is presented below: Performance Options Weighted- average Grant Date Fair Value Outstanding as of December 31, 2023 767,144 $ 10.65 Granted to employees — — Exercised ( 121,950 ) 10.46 Forfeited — — Outstanding as of December 31, 2024 645,194 $ 10.69 RSUs RSUs vest based on the terms outlined in the applicable award agreement, which is generally over a period of three years . The grant date fair value of RSUs is determined using the closing market price of our common stock on the trading day that immediately precedes the grant date. During the years ended December 31, 2024, 2023 and 2022, we granted 812,939 RSUs, 920,369 RSUs and 1,146,733 RSUs, respectively, with weighted-average grant date fair values of $ 32.16 per unit, $ 26.60 per unit and $ 28.00 per unit, respectively. During the year ended December 31, 2024, we applied a forfeiture assumption of 15 percent per annum in the recognition of the expense related to these RSUs, with the exception of the awards held by our CEO for which we applied a forfeiture rate of zero percent. The total fair value of RSUs vested during the years ended December 31, 2024, 2023 and 2022 was $ 16 million, $ 13 million and $ 13 million, respectively. 66 A summary of RSU activity under the Omnibus Plan during the year ended December 31, 2024 is presented below: RSUs Weighted- average Grant Date Fair Value Outstanding as of December 31, 2023 1,286,173 $ 28.06 Granted to employees 812,939 32.16 Vested ( 541,799 ) 29.67 Forfeited ( 245,921 ) 29.47 Outstanding as of December 31, 2024 1,311,392 $ 29.68 Performance Shares Performance shares vest based on the terms outlined in the applicable award agreement, which is generally over a period of three years . The grant date fair value of performance shares is determined using the closing market price of our common stock on the trading day that immediately precedes the grant date. In addition to service conditions, the ultimate number of performance shares to be earned depends on the achievement of a performance condition, which is based on a revenue target. During the years ended December 31, 2024 and 2022, we granted 217,527 and 285,801 performance shares, respectively, with a weighted-average grant date fair value of $ 31.95 and $ 28.03 per share, respectively. We did not issue any performance shares under the Omnibus Plan during the year ended December 31, 2023. During the year ended December 31, 2024, we applied a forfeiture assumption of 15 percent per annum in the recognition of the expense related to these performance shares, with the exception of the awards held by our CEO for which we applied a forfeiture rate of zero percent. The total fair value of performance shares vested during the year ended December 31, 2024 was $ 1 million. No performance shares vested during the years ended December 31, 2023 and 2022. A summary of performance share activity under the Omnibus Plan during the year ended December 31, 2024 is presented below: Performance Shares Weighted- average Grant Date Fair Value Outstanding as of December 31, 2023 133,492 $ 33.01 Granted to employees 217,527 31.95 Vested ( 17,591 ) 51.07 Forfeited ( 60,221 ) 31.95 Outstanding as of December 31, 2024 273,207 $ 30.49 ESPP On March 21, 2019, our board of directors approved and recommended for approval by our stockholders the ESPP, which was approved by our stockholders on April 29, 2019 and became effective for offering periods commencing July 1, 2019. The ESPP is intended to qualify for favorable tax treatment under Section 423 of the Code. Under the plan, eligible employees may purchase common stock, subject to IRS limits, during pre-specified offering periods at a discount established by Frontdoor not to exceed 15 percent of the then current fair market value. A maximum of 1,250,000 shares of our common stock are authorized for sale under the plan. During the years ended December 31, 2024, 2023 and 2022, we issued 26,425 shares, 31,288 shares and 53,353 shares, respectively, under the ESPP. There were 1,048,057 shares available for issuance under the ESPP as of December 31, 2024. Stock-based compensation expense We recognized stock-based compensation expense of $ 26 million ($ 20 million, net of tax), $ 26 million ($ 22 million, net of tax) and $ 22 million ($ 19 million, net of tax) for the years ended December 31, 2024, 2023 and 2022, respectively. These charges are included in selling and administrative expenses in the accompanying consolidated statements of operations and comprehensive income. 67 Stock-based compensation expense for stock options, RSUs and RSAs is recognized over the vesting period of the award using a straight-line vesting method, net of estimated forfeitures. In addition, for performance shares with a performance condition, we evaluate the probability of achieving the performance condition at the end of each reporting period and record the related stock-based compensation expense over the service period. For performance shares and performance options with a market condition, the related stock-based compensation expense is recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided. As of December 31, 2024, there was $ 35 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options, performance options, RSUs, performance shares and RSAs. These costs are expected to be recognized over a weighted-average period of 2.06 years. Note 11. Employee Benefit Plans We currently maintain a defined contribution plan for the benefit of our employees, the Frontdoor, Inc. 401(k) Plan. Discretionary contributions made on behalf of our employees were $ 5 million, $ 4 million and $ 4 million for the years ended December 31, 2024, 2023 and 2022, respectively. These charges are included in selling and administrative expenses in the accompanying consolidated statements of operations and comprehensive income. Note 12. Long-Term Debt Long-term debt is summarized in the following table: As of December 31, (In millions) 2024 2023 Term Loan A maturing in 2029 (1) $ 412 $ — Term Loan B maturing in 2031 (2) 788 — Revolving Credit Facility maturing in 2029 — — Prior Term Loan A maturing in 2026 (3) — 226 Prior Term Loan B maturing in 2028 (4) — 367 Revolving Credit Facility maturing in 2026 — — Total debt 1,199 593 Less current portion ( 29 ) ( 17 ) Total long-term debt $ 1,170 $ 577 (1) Term Loan A maturing in 2029 is presented net of unamortized debt issuance costs of $ 6 million as of December 31, 2024 . (2) Term Loan B maturing in 2031 is presented net of unamortized debt issuance costs of $ 10 million as of December 31, 2024 and unamortized discount of $ 2 million as of December 31, 2024 . (3) Term Loan A maturing in 2026 is presented net of unamortized debt issuance costs of $ 1 million as of December 31, 2023 . (4) Term Loan B maturing in 2028 is presented net of unamortized debt issuance costs of $ 2 million as of December 31, 2023 and unamortized discount of $ 1 million as of December 31, 2023 . Credit Facilities On June 17, 2021, we entered into the Credit Agreement, which provided for a $ 260 million Prior Term Loan A maturing June 17, 2026 , a $ 380 million Prior Term Loan B maturing June 17, 2028 and a $ 250 million Prior Revolving Credit Facility terminating June 17, 2026 . On March 8, 2023, in connection with the planned phase-out of LIBOR, we entered into the first amendment to the Credit Agreement for the purpose of replacing LIBOR with SOFR as the benchmark rate under the Credit Agreement. This change was effective in March 2023 for the Prior Term Loan A and the Prior Revolving Credit Facility and effective in June 2023 for the Prior Term Loan B. On December 19, 2024, we entered into the second amendment to the Credit Agreement, which provides for a $ 418 million Term Loan A maturing December 19, 2029 , an $ 800 million Term Loan B maturing December 19, 2031 and a $ 250 million Revolving Credit Facility terminating December 19, 2029 . The net proceeds from the transaction were used to repay the Prior Term Loan Facilities, including accrued and unpaid interest, to fund the 2-10 HBW Acquisition, which also closed on December 19, 2024, and to pay related fees and expenses of all these transactions with the remainder designated to fund share repurchases or for other general corporate purposes. 68 In connection with the second amendment to the Credit Agreement, we repaid all of the then current outstanding principal amounts of the Prior Term Loan Facilities, consisting of $ 218 million related to the Prior Term Loan A and $ 368 million related to the Prior Term Loan B, and recorded a loss on extinguishment of debt of $ 3 million, which included the write-off of unamortized debt issuance costs and original issue discount. Additionally, on December 19, 2024 , we amended and restated the Revolving Credit Facility, which carried, and continues to carry, a $ 2 million balance. We are required to make quarterly installment payments on Term Loan A equal to five percent per annum of the original principal amount commencing on the last day of each quarter beginning on March 31, 2025. The interest rates applicable to Term Loan A and the Revolving Credit Facility are based on a fluctuating rate of interest based on the Consolidated First Lien Leverage Ratio (as defined in the Amended Credit Agreement) and measured by reference to either, at our option, (i) an adjusted SOFR plus a margin range of 1.50 percent to 2.00 percent per annum or (ii) an alternate base rate plus a margin range of 0.50 percent to 1.00 percent per annum. We are required to make quarterly installment payments on Term Loan B equal to one percent per annum of the original principal amount commencing on the last day of each quarter beginning on March 31, 2025. The interest rates applicable to Term Loan B are based on a fluctuating rate of interest measured by reference to either, at our option, (i) an adjusted SOFR plus a margin of 2.25 percent per annum or (ii) an alternate base rate plus a margin of 1.25 percent per annum. The obligations under the Credit Agreement are guaranteed by certain subsidiaries (collectively, the “Guarantors”) and are secured by substantially all of the material tangible and intangible assets of Frontdoor and the Guarantors, subject to certain customary exceptions. The terms of the Revolving Credit Facility entered into on December 19, 2024 are substantially the same as the terms of the Prior Revolving Credit Facility, except for the extended maturity. The Revolving Credit Facility provides for senior secured revolving loans and stand-by and other letters of credit. As of December 31, 2024 , we had $ 2 million of letters of credit outstanding under the Revolving Credit Facility. The letters of credit are posted in lieu of cash to satisfy regulatory requirements in certain states in which we operate. The Credit Agreement contains covenants that limit or restrict our ability, including the ability of certain of our subsidiaries, to incur additional indebtedness, repurchase debt, incur liens, sell assets, make certain payments (including dividends) and enter into transactions with affiliates; therefore, from time to time, our ability to draw on the Revolving Credit Facility may be limited. As of December 31, 2024, the available borrowing capacity under the Revolving Credit Facility was $ 248 million. As of December 31, 2024, we were in compliance with the covenants under the Credit Agreement. Interest Rate Swaps On October 24, 2018, we entered into an interest rate swap contract effective October 31, 2018 that expires on August 16, 2025. The notional amount of the agreement is $ 350 million. Under the terms of the agreement, we will pay a fixed rate of interest of 3.028 percent on the notional amount, and we will receive a floating rate of interest (based on SOFR, subject to a floor of zero percent) on the notional amount. As a result, through August 16, 2025, $ 350 million of the Amended Term Loan Facilities is fixed at a rate of 3.028 percent, plus the incremental borrowing margin of 2.25 percent. In connection with the Amended Credit Facility, we entered into an additional interest rate swap contract effective December 19, 2024 that expires on December 31, 2029. The initial notional amount of the agreement is $ 299 million with additional step up and step down provisions embedded in the contract. The notional amount steps up in August 2025 by $ 350 million upon the expiration of the company's other interest rate swap contract. The notional amount steps down over the term of the agreement on a basis that correlates with the scheduled principal payments on the Amended Term Loan Facilities. Under the terms of the agreement, we will pay a fixed rate of interest of 4.140 percent on the notional amount, and we will receive a floating rate of interest (based on SOFR, subject to a floor of zero percent) on the notional amount. As a result, a portion of the outstanding principal balance on the Amended Term Loan Facilities in an amount that correlates with the then current notional amount of this interest rate swap contract is fixed at a rate of 4.140 percent, plus the incremental borrowing margin of 2.25 percent. 69 Scheduled Debt Payments The following table presents future scheduled debt payments as of December 31, 2024: (In millions) 2025 $ 29 2026 29 2027 29 2028 29 2029 342 Thereafter 760 Total future scheduled debt payments 1,218 Less unamortized debt issuance costs ( 17 ) Less unamortized discount ( 2 ) Total debt $ 1,199 Note 13. Segments We operate as one operating and reportable segment, primarily under the American Home Shield brand. The majority of our revenue is generated from home warranty contracts entered into with our customers. The accounting policies applied to our one operating and reportable segment are described in Note 2. Our chief operating decision maker (“CODM”), who is our Chief Executive Officer, regularly evaluates financial information, primarily revenue, net income and other measures, on a consolidated basis in deciding how to allocate resources and in assessing performance. Additionally, consolidated revenue is one key component of our incentive compensation program. Information for our one operating and reportable segment is as follows: Year Ended December 31, (In millions) 2024 2023 2022 Revenue $ 1,843 $ 1,780 $ 1,662 Cost of services rendered 852 895 952 Sales and marketing costs 307 299 253 Customer service costs 104 106 112 General and administrative costs 201 176 157 Other segment items (1) 145 133 117 Net Income $ 235 $ 171 $ 71 Total Assets $ 2,107 $ 1,089 $ 1,082 (1) Other segment items include depreciation and amortization expense, goodwill and intangible impairment, restructuring charges, interest expense, interest and net investment income, loss on extinguishment of debt and provision for income taxes. Note 14. Supplemental Cash Flow Information Supplemental information relating to our accompanying consolidated statements of cash flows is as follows: Year Ended December 31, (In millions) 2024 2023 2022 Cash paid for (received from): Interest expense $ 39 $ 38 $ 29 Interest income ( 19 ) ( 16 ) ( 3 ) Income tax payments, net of refunds 82 72 26 70 Note 15. Cash and Marketable Securities Cash, money market funds and certificates of deposits with maturities of three months or less when purchased are included in Cash and cash equivalents in the accompanying consolidated and combined statements of financial position. As of December 31, 2024, short- and long-term marketable securities primarily consisted of certificates of deposit, corporate bonds, mortgage-backed securities and U.S. government obligations and are classified as available-for-sale securities. As of December 31 2023, marketable securities were less than $ 1 million. The amortized cost, fair value and gross unrealized gains and losses of our marketable securities are as follows: (In millions) Amortized Cost Gross Unrealized Gain Gross Unrealized Losses Fair Value As of December 31, 2024 Certificates of deposit $ 12 $ — $ — $ 12 Corporate bonds 14 — — 14 Mortgage-backed securities 12 — — 12 U.S. government and municipal obligations 14 — — 14 Total assets $ 53 $ — $ — $ 53 There were no unrealized losses which had been in a loss position for more than one year as of December 31, 2024. Gains and losses on sales of investments, as determined on a specific identification basis, are included in investment income in the period they are realized. We periodically review our portfolio of investments to determine whether there has been an other than temporary decline in the value of the investments from factors such as deterioration in the financial condition of the issuer or the market(s) in which the issuer competes. There were no proceeds, maturities, gross realized gains and gross realized losses resulting from sales of available-for-sale securities. There were no impairment charges due to other than temporary declines in the value of certain investments for the years ended December 31, 2024, 2023, and 2022. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The amortized cost, fair value and gross unrealized gains and losses of our marketable securities by contractual maturity are as follows: As of December 31, 2024 (In millions) Amortized Cost Fair Value Due to mature One year or less $ 15 $ 15 After one year through five years 16 16 After five years through ten years 8 8 After ten years 2 2 Mortgage-backed securities 12 12 Total marketable securities $ 53 $ 53 71 Note 16. Comprehensive Income (Loss) Comprehensive income (loss) consists of net income (loss), unrealized gains (losses) on derivative instruments and unrealized gains (losses) on marketable securities. We disclose comprehensive income (loss) in the accompanying consolidated statements of operations and comprehensive income and consolidated statements of changes in equity. A summary of the changes in AOCI is as follows: (In millions) Balance as of December 31, 2022 $ 8 Other comprehensive income (loss) before reclassifications: Pre-tax amount 4 Tax provision (benefit) 1 After-tax amount 3 Amounts reclassified from AOCI 1) ( 5 ) Net current period other comprehensive income (loss) ( 3 ) Balance as of December 31, 2023 $ 6 Other comprehensive income (loss) before reclassifications: Pre-tax amount — Tax provision (benefit) — After-tax amount — Amounts reclassified from AOCI (1) ( 6 ) Net current period other comprehensive income (loss) ( 6 ) Balance as of December 31, 2024 $ — (1) Amounts are net of income taxes. See the table below on reclassifications out of AOCI for additional information. A summary of reclassifications out of AOCI is as follows: Year Ended December 31, (In millions) 2024 2023 2022 Gain (loss) on interest rate swap contracts (1) $ 8 $ 7 $ ( 5 ) Impact of income taxes (2) ( 2 ) ( 2 ) 1 Total reclassifications during the period $ 6 $ 5 $ ( 4 ) (1) Included in interest expense in the accompanying consolidated statements of operations and comprehensive income. (2) Included in provision for income taxes in the accompanying consolidated statements of operations and comprehensive income. Note 17. Derivative Financial Instruments We currently use a derivative financial instrument to manage risks associated with changes in interest rates by hedging the interest payments on a portion of our variable rate debt through the use of interest rate swap contracts. We do not hold or issue derivative financial instruments for trading or speculative purposes. In designating derivative financial instruments as hedging instruments under accounting standards for derivative instruments, we formally document the relationship between the hedging instrument and the hedged item, as well as the risk management objective and strategy for the use of the hedging instrument. This documentation includes linking the derivatives to forecasted transactions. We assess at the time a derivative contract is entered into, and at least quarterly thereafter, whether the derivative item is effective in offsetting the projected cash flows of the associated forecasted transaction. Our interest rate swap contracts are classified as cash flow hedges, and, as such, are recorded in the accompanying consolidated statements of financial position on an individual basis as either an asset or liability at fair value, with changes in fair value recorded in AOCI. Cash flows related to the interest rate swap contracts are classified as operating activities in the accompanying consolidated statements of cash flows. 72 The effective portion of the gain or loss on our interest rate swap contracts are recorded in AOCI. These amounts are reclassified into earnings in the same period or periods during which the hedged forecasted debt interest settlement affects earnings. See Note 15 to the accompanying 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 $ 2 million, net of tax, as of December 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. Note 18. Fair Value Measurements We estimate fair value at a price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market for the asset or liability. 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"). 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. The period-end carrying amounts of short- and long-term marketable securities also approximate fair value and primarily consists of available-for-sale debt securities. Unrealized gains and losses are reported net of tax as a component of AOCI in the accompanying consolidated statements of financial position. Any unrealized losses where the decline in value is other than temporary are reported in interest and net investment income in the accompanying consolidated statements of operations and comprehensive income. There were no other than temporary declines in value for the periods ended December 31, 2024 and 2023. As of December 31, 2024 and 2023, the carrying amounts of our total debt were $ 1,199 million and $ 593 million, respectively, and the estimated fair values were $ 1,211 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. We determine the fair value of our interest rate swap contracts using a forward interest rate curve obtained from a third-party market data provider. The fair value of each contract is the sum of the expected future settlements between the contract counterparties, discounted to present value. The expected future settlements are determined by comparing the contract interest rates to the expected forward interest rate as of each settlement date and applying the difference between these two rates to the notional amounts of debt in the interest rate swap contracts. We did not change our valuation techniques for measuring the fair value of any financial assets and liabilities during the year ended December 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 year ended December 31, 2024. 73 The carrying amount and estimated fair value of our financial instruments that are recorded at fair value on a recurring basis for the periods presented are as follows: Estimated Fair Value Measurements (In millions) Carrying Value Quote Prices in Active Markets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) As of December 31, 2024: Marketable securities $ 15 $ 6 $ 9 $ — Other assets 3 — 3 — Long-term marketable securities 38 2 36 — Total assets $ 56 $ 8 $ 48 $ — Other long-term liabilities $ 3 $ — $ 3 $ — Total liabilities $ 3 $ — $ 3 $ — As of December 31, 2023: Prepaid expenses and other current assets $ 5 $ — $ 5 $ — Other assets 2 — 2 — Total assets $ 7 $ — $ 7 $ — Note 19. Capital Stock We are authorized to issue 2,000,000,000 shares of common stock. As of December 31, 2024 , there were 87,434,468 shares of common stock issued and 75,314,243 shares of common stock outstanding. As of December 31, 2023, there were 86,553,387 shares of common stock issued and 78,378,511 shares of common stock outstanding. We have no other classes of equity securities issued or outstanding. Note 20. 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 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 December 31, 2024 , we repurchased a total of 709,077 outstanding shares at an aggregate cost of $ 41 million under this program, which is included in treasury stock on the accompanying consolidated statements of financial position. On September 3, 2024, our previous repurchase authorization of up to $ 400 million expired. We repurchased a total of 11,319,091 outstanding shares at an aggregate cost of $ 400 million under this previous program, which is included in treasury stock on the accompanying consolidated statements of financial position. A summary of repurchases of outstanding shares is as follows: Year Ended December 31, (In millions, except per share data) 2024 2023 2022 Number of shares purchased 3,945,349 3,604,625 1,917,350 Average price paid per share (1) $ 40.43 $ 33.29 $ 30.51 Cost of shares purchased (1) $ 160 $ 120 $ 59 (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 $ 2 million, $ 1 million and less than $ 1 million for the years ended December 31, 2024, 2023 and 2022, respectively . 74 Note 21. Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. 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. A summary of the calculations of our basic and diluted earnings per share is as follows: Year Ended December 31, (In millions, except per share data) 2024 2023 2022 Net Income $ 235 $ 171 $ 71 Weighted-average common shares outstanding 77.0 80.5 81.8 Effect of dilutive securities: RSUs (1) 0.6 0.3 0.1 Stock options (2) 0.2 — — Performance options (3) 0.2 — — Weighted-average common shares outstanding - assuming dilution: 78.0 80.9 82.0 Basic earnings per share $ 3.05 $ 2.13 $ 0.87 Diluted earnings per share $ 3.01 $ 2.12 $ 0.87 (1) RSUs of 384,580 shares, 507,005 shares and 769,704 shares for the years ended December 31, 2024, 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 657,029 shares, 1,276,776 shares and 1,357,963 shares for the years ended December 31, 2024, 2023 and 2022 , respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive. (3) Performance options to purchase 646,230 shares and 159,769 shares for the years ended December 31, 2023 and 2022, 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 for the year ended December 31, 2024 . 75 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Frontdoor, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Frontdoor, Inc. and subsidiaries (the “Company”) as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2024, of the Company and our report dated February 27, 2025, expressed an unqualified opinion on those financial statements. As described in the Report of Management on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at 2-10 Holdco, Inc., which was acquired on December 19, 2024, and whose financial statements constitute 45% of total assets and 0.3% of total revenue of the consolidated financial statement amounts as of and for the year ended December 31, 2024. Accordingly, our audit did not include the internal control over financial reporting for the acquired business. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Memphis, Tennessee February 27, 2025 76 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.