What changed in this filing

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Item 1. Financial Statements

2025-05-01 compared with 2024-11-04 · 211 added, 146 removed, 334 unchanged (52% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of services rendered

16 unchanged sentences

(In millions, except share data)

September 30,

Current Assets:

Cash and cash equivalents

Marketable securities

Receivables, less allowance of $ 4 and $ 4 , respectively

Prepaid expenses and other current assets

Contract assets

Total Current Assets

3 unchanged sentences

Operating lease right-of-use assets

Long-term marketable securities

Deferred reinsurance

Reinsurance recoverables

Deferred customer acquisition costs

12 unchanged sentences

Operating lease liabilities

Unearned insurance premium

Unpaid losses and loss adjustment reserves

Long-term deferred revenue

Other long-term liabilities

4 unchanged sentences

2,000,000,000 shares authorized;

87,193,682 shares issued and 75,782,534 shares outstanding as of September 30, 2024 and 86,553,387 shares issued and 78,378,511 shares outstanding as of December 31, 2023

87,838,356 shares issued and 74,278,048 shares outstanding as of March 31, 2025 and 87,434,468 shares issued and 75,314,243 shares outstanding as of December 31, 2024

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income

Less treasury stock, at cost;

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

13,560,308 shares as of March 31, 2025 and 12,120,225 shares as of December 31, 2024

Total Shareholders' Equity

5 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Common Stock:

4 unchanged sentences

Stock-based compensation expense

Exercise of stock options

Taxes paid related to net share settlement of equity awards

3 unchanged sentences

Balance at end of period

Accumulated Other Comprehensive Income (Loss):

Accumulated Other Comprehensive (Loss) Income:

Balance at beginning of period

10 unchanged sentences

(In millions)

Nine Months Ended

September 30,

Three Months Ended

Cash and Cash Equivalents at Beginning of Period

6 unchanged sentences

Payments for restructuring charges

Changes in working capital:

Prepaid expenses and other current assets

Deferred reinsurance

Deferred customer acquisition costs

Accounts payable

1 unchanged sentence

Accrued liabilities

Deferred insurance premiums

Current income taxes

2 unchanged sentences

Purchases of property and equipment

Net Cash Used for Investing Activities

Purchases of available-for-sale securities

Sales and maturities of available-for-sale securities

Net Cash Provided from (Used for) Investing Activities

Cash Flows from Financing Activities:

Repayments of debt

Repurchase of common stock

Repurchases of common stock

Other financing activities

6 unchanged sentences

Description of Business

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

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 more than 20 home systems and appliances, including electrical, plumbing, HVAC systems, water heaters, refrigerators, dishwashers and ranges/ovens/cooktops, as well as optional coverages for electronics, pools, spas and pumps.

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

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

As of September 30, 2024 , we had approximately two million active home warranties across all brands in the United States.

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 March 31, 2025 , we had approximately 2.1 million active home warranties across all brands in the United States.

Significant Accounting Policies

Our significant accounting policies are described in Note 2 to the audited consolidated financial statements included in our 2024 Form 10-K.

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

There have been no material changes to our significant accounting policies during the three months ended March 31, 2025.

Basis of Presentation

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Newly Issued Accounting Standards

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

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

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

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

We are currently evaluating the impact of this ASU on our enhanced 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.

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We are currently evaluating the impact of this ASU on our enhanced disclosures.

In 2024, the FASB issued 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.

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

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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 is as follows:

Revenue by major customer acquisition channel for our home warranties and other revenue is as follows:

Three Months Ended

Nine Months Ended

September 30,

(In millions)

9 unchanged sentences

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.

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.

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

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.

Upon renewal of the contract, which is often exercised by the customer, 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 which occur in response to our marketing efforts.

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

Upon renewal of the contract, which is often exercised by the customer, the future revenue derived from home warranties sold in this channel is classified as renewal revenue as described above.

Other revenue primarily includes revenue generated by non-warranty home services and new home structural warranties.

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 $ 10 million and $ 12 million as of September 30, 2024 and December 31, 2023, respectively.

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

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

Deferred customer acquisition costs were $ 11 million as of March 31, 2025 and December 31, 2024.

Amortization of deferred customer acquisition costs was $ 2 million and $ 3 million for the three months ended March 31, 2025 and 2024, respectively.

There were no impairment losses related to these capitalized costs during the three months ended March 31, 2025 and 2024.

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 March 31, 2025 and December 31, 2024.

Amortization of deferred policy acquisition costs was less than $ 1 million for the three months ended March 31, 2025.

There was no amortization of deferred policy acquisition costs for the three months ended March 31, 2024.

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.

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.

An allowance is recorded based on amounts anticipated to be collected.

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

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

Contract assets were $ 75 million as of September 30, 2024.

There were no contract assets as of March 31, 2025.

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

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

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

A summary of the changes in deferred revenue, including the long-term portion for the three months ended March 31, 2025 is as follows:

(In millions)

Balance at December 31, 2023

Balance as of December 31, 2024

Deferral of revenue

Recognition of deferred revenue

Balance at September 30, 2024

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

Balance as of March 31, 2025

There was approximately $ 58 million of revenue recognized during the three months ended March 31, 2025 that was included in the deferred revenue balance as of December 31, 2024.

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 accompanying condensed 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 recognized within revenue over the term of underlying insurance policies, and the unexpired portion of reinsurance is deferred and recognized as deferred reinsurance on the accompanying condensed consolidated statement of financial position.

Goodwill and Intangible Assets

1 unchanged sentence

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

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

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

The balance of goodwill was $ 964 million and $ 967 million as of March 31, 2025 and December 31, 2024, respectively.

There were no goodwill impairment charges during the three months ended March 31, 2025 and 2024.

The $ 3 million reduction in goodwill during the three months ended March 31, 2025 was driven by the finalization of the 2-10 HBW Acquisition purchase price.

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

As of September 30, 2024

As of March 31, 2025

As of December 31, 2024

1 unchanged sentence

Trade names (1)

Customer relationships

Value of business acquired

Home warranty customer relationships

Builder relationships

Developed technology

(1) Not subject to amortization.

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

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

Amortization expense was $ 13 million and $ 1 million for the three months ended March 31, 2025 and 2024 , respectively.

There were no intangible asset impairment charges during the three months ended March 31, 2025 and 2024.

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 either exited or subleased.

Our leases have remaining lease terms ranging from four years to 10 years , some of which include options to extend the leases for up to five years .

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:

September 30,

Weighted-average remaining lease term (years)

Weighted-average discount rate

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

We recognized operating lease expense of less than $ 1 million for each of the three months ended March 31, 2025 and 2024.

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

Supplemental statement of financial position information related to our operating lease liabilities is as follows:

September 30,

(In millions)

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

Nine Months Ended

September 30,

Three Months Ended

(In millions)

2 unchanged sentences

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

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

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

The following table presents the maturities of our operating lease liabilities as of March 31, 2025:

(In millions)

3 unchanged sentences

Total operating lease liabilities (1)

(1) Amount is presented net of future sublease income totaling $ 2 million, which relates to the remainder of the year ending December 31, 2024 and the years ending December 31, 2025 through December 31, 2026.

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

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

Substantially all of our income before income taxes for the three and nine months ended September 30, 2024 and 2023 was generated in the United States.

Substantially all of our income before income taxes for the three months ended March 31, 2025 and 2024 was generated in the United States.

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

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

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

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

2-10 HBW is a leading provider of new home structural warranty protection plans, which are insurance-backed offerings that provide builders’ coverage for structural failures.

2-10 HBW also provides direct-to-consumer home warranties.

The transaction is supported by a fully committed bridge facility under our existing Credit Agreement and cash.

Permanent financing is expected to consist of new term loan borrowings.

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

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

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

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

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

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

Restructuring Charges

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

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

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

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

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

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

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

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

The effective tax rate on income before income taxes was 22.3 percent and 24.4 percent for the three months ended March 31, 2025 and 2024, respectively.

The decrease in the effective tax rate was primarily due to share-based compensation.

O n 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.

Total consideration as of March 31, 2025, is as follows:

(In millions)

Cash consideration paid

Payment of 2-10 HBW indebtedness

Payment of 2-10 HBW transaction costs

Total purchase price consideration

Acquired 2-10 HBW cash

Total purchase price consideration, net of cash acquired

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

Marketable securities

Prepaid expenses and other current assets

Property and equipment, net

Intangible assets

Long-term marketable securities

Deferred reinsurance

Reinsurance recoverables

Accounts payable

Accrued liabilities:

Payroll and related expenses

Home warranty claims

Deferred revenue

Deferred tax liabilities, net

Unearned insurance premium

Unpaid losses and loss adjustment reserves

Long-term deferred revenue

Other long-term liabilities

Total consideration paid

As of March 31, 2025, 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.

The $ 3 million reduction in goodwill during the three months ended March 31, 2025 was driven by the finalization of the 2-10 HBW Acquisition purchase price.

In conjunction with the 2-10 HBW Acquisition, we recognized acquisition-related costs of $ 2 million during the three months ended March 31, 2025 .

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 condensed consolidated statements of operations and comprehensive income.

There were no acquisition-related costs during the three months ended March 31, 2024.

Unaudited pro forma revenue for the three months ended March 31, 2024 as if the 2-10 HBW Acquisition occurred as of January 1, 2024 was $ 419 million.

Commitments and Contingencies

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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.

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.

6 unchanged sentences

Stock-Based Compensation

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

We recognized stock-based compensation expense of $ 8 million ($ 5 million, net of tax) and $ 7 million ($ 6 million, net of tax) for the three months ended March 31, 2025 and 2024, respectively.

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

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

A summary of awards granted under the Omnibus Plan during the three months ended March 31, 2025 is as follows:

Stock options

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

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

As of March 31, 2025, there was $ 69 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options, performance options, restricted stock units (“RSUs”) and performance shares.

These costs are expected to be recognized over a weighted-average period of 2.66 years.

1 unchanged sentence

Long-term debt is summarized in the following table:

September 30,

(In millions)

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Total long-term debt

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

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

As of September 30, 2024 , we had $ 2 million of letters of credit outstanding under our $ 250 million Revolving Credit Facility, and the available borrowing capacity under the Revolving Credit Facility was $ 248 million.

As of September 30, 2024, we were in compliance with the covenants under the Credit Agreement.

(1) Term Loan A is presented net of unamortized debt issuance costs of $ 6 million as of March 31, 2025 and December 31, 2024.

(2) Term Loan B is presented net of unamortized debt issuance costs of $ 10 million as of March 31, 2025 and December 31, 2024, and unamortized discount of $ 2 million as of March 31, 2025 and December 31, 2024.

As of March 31, 2025 , we had $ 2 million of letters of credit outstanding under the Revolving Credit Facility, and the available borrowing capacity under the Revolving Credit Facility was $ 248 million.

As of March 31, 2025, we were in compliance with the covenants under the Credit Agreement.

Scheduled Debt Payments

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

The following table presents future scheduled debt payments as of March 31, 2025:

(In millions)

3 unchanged sentences

Less unamortized discount

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 to the audited consolidated financial statements included in our 2024 Form 10-K.

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:

Three Months Ended

(In millions)

Cost of services rendered

Sales and marketing costs

Customer service costs

General and administrative costs

Other segment items (1)

(1) Other segment items include depreciation and amortization expense, restructuring charges, interest expense, interest and net investment income, and provision for income taxes.

Supplemental Cash Flow Information

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

Nine Months Ended

September 30,

Three Months Ended

(In millions)

3 unchanged sentences

Income tax payments, net of refunds

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 on the accompanying condensed consolidated statements of financial position.

As of March 31, 2025 and December 31, 2024, the amortized cost of our short- and long-term investments was less than $ 1 million and $ 53 million, respectively, and the estimated fair value of these investments was less than $ 1 million and $ 53 million, respectively.

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.

There were no unrealized losses which had been in a loss position for more than one year as of March 31, 2025.

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.

During the three months ended March 31, 2025, there were $ 48 million in proceeds from sales of securities, $ 12 million in maturities and less than $ 1 million in gross realized gains and less than $ 1 million in gross realized losses resulting from sales of available-for-sale securities.

During the three months ended March 31, 2024, 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 three months ended March 31, 2025, and 2024.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and the unrealized gains (losses) on our derivative instrument.

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 condensed consolidated statements of operations and comprehensive income and condensed consolidated statements of changes in equity.

3 unchanged sentences

Pre-tax amount

Tax provision

After-tax amount

1 unchanged sentence

Total other comprehensive loss

Balance at September 30, 2024

Balance at March 31, 2025

(1) Amounts are net of income taxes.

1 unchanged sentence

A summary of reclassifications out of AOCI is as follows:

Nine Months Ended

September 30,

Three Months Ended

(In millions)

Gain on interest rate swap contract (1)

Impact of income taxes (2)

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

Total reclassifications during the period

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

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

Derivative Financial Instruments

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 an interest rate swap contract.

We do not hold or issue derivative financial instruments for trading or speculative purposes.

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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 contract is classified as a cash flow hedge, and, as such, it is recorded in the accompanying condensed consolidated statements of financial position 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 contract are classified as operating activities in the accompanying condensed consolidated statements of cash flows.

The effective portion of the gain or loss on our interest rate swap contract is recorded in AOCI.

Our interest rate swap contracts are classified as cash flow hedges, and, as such, are recorded in the accompanying condensed 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 condensed consolidated statements of cash flows.

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

As the underlying forecasted transactions occur during the next 12 months, we estimate the unrealized hedging gain in AOCI expected to be recognized in earnings is $ 3 million, net of tax, as of September 30, 2024.

As the underlying forecasted transactions occur during the next 12 months, we estimate the unrealized hedging loss in AOCI expected to be recognized in earnings is less than $ 1 million, net of tax, as of March 31, 2025.

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.

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

As of September 30, 2024 and December 31, 2023, the carrying amounts of our total debt were $ 582 million and $ 593 million, respectively, and the estimated fair values were $ 582 million and $ 598 million, respectively.

The 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 condensed 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 condensed consolidated statements of operations and comprehensive income.

There were no other than temporary declines in value for the periods ended March 31, 2024 and December 31, 2024.

As of March 31, 2025 and December 31, 2024, the carrying amounts of our total debt were $ 1,193 million and $ 1,199 million, respectively, and the estimated fair values were $ 1,210 million and $ 1,211 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 contract using a forward interest rate curve obtained from a third-party market data provider.

The fair value of the 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 rate to the expected forward interest rate as of each settlement date and applying the difference between these two rates to the notional amount of debt in the interest rate swap contract.

We did not change our valuation techniques for measuring the fair value of any financial assets and liabilities during the nine months ended September 30, 2024.

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 three months ended March 31, 2025 .

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

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

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

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

There were no transfers between hierarchy levels during the three months ended March 31, 2025.

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)

As of September 30, 2024:

Prepaid expenses and other current assets

As of March 31, 2025:

Other accrued liabilities

Other long-term liabilities

Total liabilities

As of December 31, 2024:

Prepaid expenses and other current assets

Marketable securities

Long-term marketable securities

Other long-term liabilities

Total liabilities

Share Repurchase Program

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

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

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

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

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

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

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

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

As of March 31, 2025 , we repurchased a total of 2,149,160 outstanding shares at an aggregate cost of $ 111 million under this program, which is included in treasury stock on the accompanying condensed 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 shares at an aggregate cost of $ 400 million under this previous program, which is included in treasury stock on the accompanying condensed consolidated statements of financial position.

A summary of repurchases of outstanding shares is as follows:

Three Months Ended

Nine Months Ended

September 30,

(In millions, except per share data)

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Cost of shares purchased (1)

(1) The average price paid per share and the cost of shares purchased are calculated on a trade date basis and exclude associated commissions and taxes of $ 1 million and less than $ 1 million for the three months ended September 30, 2024 and 2023, respectively, and $ 1 million for each of the nine months ended September 30, 2024 and 2023 .

Earnings Per Share

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

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

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

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

Three Months Ended

Nine Months Ended

September 30,

(In millions, except per share data)

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Stock options (2)

Performance options (3)

Weighted-average common shares outstanding - assuming dilution:

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Diluted earnings per share

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

(2) Stock options to purchase 538,962 shares and 1,338,410 shares for the three months ended September 30, 2024 and 2023, respectively, and 1,015,848 shares and 1,279,130 shares for the nine months ended September 30, 2024 and 2023 , respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

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

Performance options to purchase 710,323 shares for the three months ended September 30, 2023, and 191,438 shares and 605,483 shares for the nine months ended September 30, 2024 and 2023 , respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

(1) RSUs of 9,400 shares and 62,674 shares for the three months ended March 31, 2025 and 2024, respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

(2) Stock options to purchase 102,520 shares and 1,072,170 shares for the three months ended March 31, 2025 and 2024, respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

(3) Performance options to purchase 591,420 shares for the three months ended March 31, 2024 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 March 31, 2025.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

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For a discussion of other important factors that could cause our results to differ materially from those expressed in, or implied by, the forward-looking statements included in this report, you should refer to the risks and uncertainties detailed from time to time in our periodic reports filed with the SEC, including the risk factors discussed in Part I, Item 1A.

“Risk Factors” in our 2023 Form 10-K and Part II, Item 1A.“Risk Factors” of this Quarterly Report on Form 10-Q.

“Risk Factors” in our 2024 Form 10-K.

SUMMARY OF MATERIAL RISKS

Factors, risks, trends and uncertainties that make an investment in us speculative or risky and that could cause actual results or events to differ materially from those anticipated in our forward-looking statements include the matters described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” included in this report as well as Item 1A.

Risk Factors in our 2024 Form 10-K filed with the SEC, in addition to the following other factors, risks, trends and uncertainties:

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

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

• our ability to successfully implement our business strategies;

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

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

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

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

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

• changes in U.S.

tariffs or import/export regulations;

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

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

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

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

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

• weather, including adverse conditions, Acts of God and seasonality, along with related regulations;

• our ability to underwrite risks accurately and to charge adequate prices to builder members, as well as our ability to effectively re-insure a large portion of those risks;

• the availability of reinsurance to manage a substantial portion of our potential loss exposure for our new home structural warranty business;

• evolving corporate governance and disclosure regulations and expectations;

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

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• special risks applicable to operations outside the United States by us or our business process outsource providers;

• risks related to the 2-10 HBW Acquisition, including the risk that the 2-10 HBW Acquisition may not achieve its intended results;

• any liabilities, losses, or other exposures for which we do not have adequate insurance coverage, indemnification, or other protection;

• increase in our indebtedness as a result of financing the 2-10 HBW Acquisition;

• a return on investment in our common stock is dependent on appreciation in the price;

• inclusion in our certificate of incorporation includes a forum selection clause that could discourage an acquisition of our company or litigation against us and our directors and officers;

• inclusion in our certificate of incorporation a forum selection clause that could discourage an acquisition of our company or litigation against us and our directors and officers;

• the effects of our significant indebtedness, our ability to incur additional debt and the limitations contained in the agreements governing such indebtedness;

• increases in interest rates increasing the cost of servicing our indebtedness and counterparty credit risk due to instruments designed to minimize exposure to market risks;

• increased borrowing costs due to lowering or withdrawal of the credit ratings, outlook or watch assigned to us, our debt securities or our Credit Facilities;

• increased borrowing costs due to lowering or withdrawal of the credit ratings, outlook or watch assigned to us or our Credit Facilities;

• our ability to generate the significant amount of cash needed to fund our operations and service our debt obligations;

• risks related to the 2-10 HBW Acquisition, including risks that we may not complete the 2-10 HBW Acquisition or that the 2-10 HBW Acquisition may not achieve its intended results;

• other factors described in this report and from time to time in documents that we file with the SEC.

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

What changed 10-Q

Item 1. Financial Statements