What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2026-02-26 compared with 2025-02-27 · 174 added, 138 removed, 753 unchanged (29% of the section changed)

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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”).

and subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of operations and comprehensive income, changes in (deficit) equity, and cash flows for each of the three years in the period ended December 31, 2025, 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, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

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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.

• We compared management’s prior period 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:

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Depreciation and amortization expense

Goodwill and intangibles impairment

Restructuring charges

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Provision for income taxes

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

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

Other Comprehensive Loss, Net of Income Taxes:

Unrealized loss on derivative instruments, net of income taxes

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

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Prepaid expenses and other current assets

Assets held for sale

Total Current Assets

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Deferred reinsurance

Reinsurance recoverables

Deferred customer acquisition costs

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Home warranty claims

Income taxes payable

Deferred revenue

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Unearned insurance premium

Unpaid losses and loss adjustment reserves

Long-term deferred revenue

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Retained earnings

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

Less treasury stock, at cost;

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Stock-based compensation expense

Exercise of stock options

Taxes paid related to net share settlement of equity awards

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Taxes paid related to net share settlement of equity awards

Issuance of common stock upon vesting of equity awards

Issuance of common stock related to ESPP

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Depreciation and amortization expense

Deferred income tax benefit

Deferred income tax provision (benefit)

Stock-based compensation expense

Goodwill and intangibles impairment

Restructuring charges

Payments for restructuring charges

Loss on extinguishment of debt

Changes in working capital:

Deferred reinsurance

Deferred customer acquisition costs

Prepaid expenses and other current assets

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Accrued liabilities

Unearned insurance premium

Current income taxes

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Business acquisitions, net of cash acquired

Other investing activities

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:

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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.

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

Our home warranty customers usually subscribe to an annual service plan agreement that covers the repair or replacement for breakdowns that generally occur as a result of normal wear and tear 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 pools, spas and pumps.

We also offer non-warranty home services, including our New HVAC upgrade and installation of Moen water shut-off devices, and select home maintenance offerings.

Non-warranty services are marketed to our existing warranty customer base, enabling incremental revenue opportunities beyond traditional warranty coverage.

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

We also offer new home builder warranty solutions, which deliver value to both builders and homeowners through a suite of builder warranty products and support services.

We offer flexible builder-backed and insurance-backed warranty options covering workmanship, home distribution systems, and structural components.

Additional add-on programs provide service request management for warranties and claims administration for structural warranties.

Significant Accounting Policies

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home warranty claims accruals;

the valuation of property and equipment, marketable securities, goodwill and intangible assets;

the valuation of property and equipment, goodwill and intangible assets;

useful lives for recognizing depreciation and amortization expense;

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

Home Warranty Claim Accruals

Home warranty claims costs are expensed as incurred.

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 the use of actuarial methods to account for these liabilities provides a consistent and effective way to measure these judgmental accruals.

However, the use of any estimation technique in this area is inherently sensitive given the magnitude of claims involved.

For example, industry-wide parts and equipment availability challenges and inflation can impact our ability to estimate the cost to settle claims.

We believe our recorded obligations for these expenses are consistently measured.

Nevertheless, changes in claims costs can materially affect the estimates for these liabilities.

Business Combinations

We account for business combinations using the acquisition method of accounting.

Under the acquisition method, the purchase price of the acquisition is allocated to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time of the acquisition.

This allocation involves a number of assumptions, estimates and judgments that could materially affect the timing or amounts recognized in the consolidated financial statements.

In developing estimates of fair values for long-lived assets, including identifiable intangible assets, we utilize a variety of inputs including forecasted cash flows, anticipated growth rates, discount rates, customer attrition, royalty rates, estimated replacement costs and depreciation and obsolescence factors.

Determining the fair value for tangible assets such as real and personal property and specifically identified intangible assets such as customer lists and developed technology involves judgment.

We may refine our estimates and make adjustments to the assets acquired and liabilities assumed over a measurement period, not to exceed one year.

Upon the conclusion of the measurement period or the final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recognized to the consolidated statements of operations.

See Note 7 to the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for the allocation of the purchase price to the fair value of the assets acquired and liabilities assumed.

Property and Equipment, Goodwill and Intangible Assets

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Changes in the estimated useful lives could cause us to adjust the carrying values or future expense accordingly.

We capitalize the costs directly related to the development of internal-use software for our platforms during the application development stage of the projects.

Such costs primarily include payroll and payroll-related costs for engineers and product development employees directly associated with the development project.

Our internal-use software is reported at cost less accumulated amortization within property and equipment, net on the consolidated statements of financial position.

Amortization begins once the project is ready for its intended use.

We amortize the asset on a straight-line basis over the estimated useful life, which is typically a three to seven-year period.

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.

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The valuation of VOBA is based on many factors including investment yields, expenses and discount rate.

Real Estate Held for Sale

We classify long-lived assets to be sold as held for sale in the period in which all required criteria are met.

We initially measure a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell.

Any loss resulting from this measurement is recognized in the period in which the held-for-sale criteria are met.

Conversely, gains are not recognized on the sale of a long-lived asset until the date of sale.

Upon determining a long-lived asset meets the criteria to be classified as held for sale, we cease depreciation and report such long-lived assets, if material, as Assets held for sale on the accompanying condensed consolidated statements of financial position.

On September 4, 2025, we listed 2-10 HBW's corporate office in Aurora, Colorado for sale.

We determined that the related assets met the criteria to be classified as held for sale during the third quarter of 2025.

We expense advertising costs as incurred.

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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.

Financial instruments, which potentially subject us to financial and credit risk, consist principally of receivables.

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.

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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.

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 .

In 2023, the FASB issued ASU 2023-09 , Income Taxes (Topic 740), which improves income tax disclosures.

The adoption of this standard expands our annual income tax disclosures, including enhanced transparency in the effective tax rate reconciliation and disaggregation of income taxes paid.

The adoption does not have a material impact on the consolidated financial statements.

This guidance is applied prospectively in our Annual Report on Form 10-K for the year ended December 31, 2025.

See Note 6 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.

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.

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

In 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) , which modernizes the accounting guidance for the costs to develop software for internal use.

This guidance is effective for annual periods beginning after December 15, 2027.

Early adoption is permitted and the guidance can be applied on a prospective basis, a modified basis for in-process projects or on a retrospective basis.

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

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

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Direct-to-consumer (1)

Non-warranty and other

(1) First-year revenue only.

(2) The year ended December 31, 2025, includes $ 188 million as a result of the 2-10 HBW Acquisition on December 19, 2024 .

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.

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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 non-warranty home services and new home structural warranties, as well as ancillary services attributable to our home warranty contracts.

Non-warranty and other

Non-warranty and other revenue primarily includes revenue generated by non-warranty home services, including the New HVAC upgrade and Moen programs, home maintenance services and new home builder warranties.

Deferred Customer Acquisition Costs

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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 capitalize certain costs related to the issuance of insurance policies, net of ceding commission income from reinsurers, under the new home builder warranty program as deferred policy acquisition costs and amortize these costs over the term of the underlying pattern of insurance risk.

Ceding commission amounts, which represent a recovery of policy acquisition costs, are treated as a reduction of deferred policy acquisition costs.

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.

Deferred policy acquisition costs were $ 5 million and less than $ 1 million as of December 31, 2025 and 2024 , respectively.

Amortization of deferred policy acquisition costs were less than $ 1 million for the year ended December 31, 2025.

There was no amortization of deferred policy acquisition costs for the year ended December 31, 2024.

Deferred policy acquisition costs are recorded in Other assets on the accompanying condensed consolidated statement of financial position.

Receivables, Less Allowance

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Deferral of revenue

Acquired revenue

Recognition of deferred revenue

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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.

New home builder 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.

In the normal course of business, we seek to reduce our loss exposure in the new home builder 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.

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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 $ 959 million and $ 967 million as of December 31, 2025 and 2024, respectively.

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Value of business acquired

Home warranty customer relationships

Homeowner relationships

Builder relationships

Broker relationships

Developed technology

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Value of business acquired

Home warranty customer relationships

Homeowner relationships

Builder relationships

Broker relationships

Developed technology

Amortization expense was $ 53 million, $ 4 million and $ 4 million for the years ended December 31, 2025, 2024 and 2023, 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, 2025, 2024 and 2023.

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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 .

Our leases have remaining lease terms ranging from one year to 9 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:

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Total operating lease liabilities (1)

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

(1) Amount is presented net of future sublease income totaling $ 2 million, which relates to the years ending December 31, 2026 and June 30, 2027 .

Closure of Leased Facilities

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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 .

For the years ended December 31, 2025, 2024 and 2023 , we had $ 2 million, $ 3 million and $ 5 million of unrecognized tax benefits, respectively, all of which would impact the effective tax rate if recognized.

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The reconciliation of income tax computed at the U.S.

federal statutory tax rate to our effective income tax rate for the year ended December 31, 2025 is as follows:

December 31, 2025

federal statutory tax

State and local income tax , net of federal income tax effects (1)

Nontaxable or nondeductible items

Changes in valuation allowances

Total tax provision and effective tax rate

(1) State taxes in Virginia, Texas, Florida, Illinois, Arizona, Georgia and Maryland make up the majority of the effect of the state and local tax category.

As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the reconciliation of income tax computed at the U.S.

federal statutory tax rate to our effective income tax rate is as follows:

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Deferred customer acquisition costs

Prepaid expenses and other assets

Operating lease right-of-use assets

Receivables allowances

Accrued salaries and wages

Accrued liabilities

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Deferred interest expense

Net operating loss and tax credit carryforwards

Tax credits and loss carryforwards

Valuation allowance

Net long-term deferred tax liabilities

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.

On July 4, 2025, the One Big Beautiful Bill Act (the “Bill”) was enacted into U.S.

Certain provisions are applicable to the Company beginning in 2025, while other provisions will be implemented in future periods.

As a result of the Bill, we recognized an increase in our net deferred tax liability and a decrease to our income tax payable resulting from the restoration of full expensing of U.S.

research and experimentation expenditures and reinstating the 100% bonus depreciation for eligible assets.

We do not expect any current or ongoing material impact to our effective tax rate as a result of the Bill.

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 including the amount of cash acquired, debt, seller transaction expenses, working capital and regulatory capital in the business of 2-10 HBW.

Following the settlement of all contractual adjustments, the aggregate cash consideration paid was $ 580 million.

2-10 HBW is a provider of home warranties.

2-10 HBW is also a leading provider of new home builder warranties that offers flexible builder-backed and insurance-backed warranty options covering workmanship, home distribution systems, and structural components.

Additional add-on programs provide service request management for warranties and claims administration for structural warranties.

As a part of the 2-10 HBW Acquisition, we entered into an amendment to our Credit Agreement, which became effective on December 19, 2024.

See Note 12 for additional information on the debt refinancing transactions.

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Payment of 2-10 HBW transaction costs

Payment of escrow

Total purchase price consideration

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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:

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 assessment of the acquisition date fair value, is as follows:

(In millions)

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Deferred reinsurance

Reinsurance recoverables

Accounts payable

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Unearned insurance premium

Unpaid losses and loss adjustment reserves

Long-term deferred revenue

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Total consideration paid

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.

As of December 31, 2025, the purchase price allocation for this acquisition has been finalized.

During the year ended December 31, 2025, we made measurement period adjustments to reflect facts and circumstances in existence as of the acquisition date.

These adjustments included updates to purchase accounting valuations and a $ 3 million reduction in the 2-10 HBW Acquisition purchase price as a result of the working capital true up provisions in the purchase agreement.

The impact of these adjustments was a $ 1 million increase in prepaid expenses and other current assets, a $ 1 million decrease in property and equipment, net, a $ 7 million decrease in goodwill, an $ 3 million increase in intangible assets, a $ 2 million decrease in deferred reinsurance and a $ 2 million decrease in unearned insurance premium.

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.

In conjunction with the 2-10 HBW Acquisition, we recognized acquisition-related costs of $ 17 million during the year ended December 31, 2024.

In conjunction with the 2-10 HBW Acquisition, we recognized acquisition and integration costs of $ 8 million and $ 17 million during the years ended December 31, 2025 and 2024, respectively.

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.

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We incurred restructuring charges of $ 4 million ($ 3 million, net of tax), $ 8 million ($ 6 million, net of tax) and $ 16 million ($ 12 million, net of tax) for the years ended December 31, 2025, 2024 and 2023, respectively.

In 2025, restructuring charges included $ 3 million of severance costs, which related to our continued review and optimization of selling, general and administrative expenses.

In 2024, restructuring charges included $ 7 million of severance costs and $ 1 million of expenses related to the exit of certain operating leases.

The severance costs related to our continued review and optimization of selling, general and administrative expenses.

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 5 to the accompanying consolidated financial statements, $ 2 million of professional fees and $ 3 million of severance costs.

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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.

As of December 31, 2025 and 2024, there were $ 2 million and $ 4 million, respectively, of accrued restructuring charges on the accompanying consolidated balance sheets.

During the year ended December 31, 2025, $ 4 million of the prior year accrued restructuring charges were paid or otherwise settled.

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.

Unpaid losses and loss adjustment reserves represent the estimated ultimate cost of settling new home builder 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 our experience with similar cases.

The establishment of appropriate reserves is an inherently uncertain and complex process.

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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 report our 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.

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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.

In the normal course of business, we periodically enter into guarantee agreements with our subsidiaries under which we agree to pay all liabilities and claims arising from home warranty service contracts sold by the service contract entity in the applicable states if that entity is unable to or does not perform its obligations.

We are not required to recognize liabilities for guarantees issued on behalf of our subsidiaries unless it becomes probable that we will have to perform under the guarantees.

We currently believe it is unlikely that we would be required to perform or otherwise incur any losses associated with guarantees of our subsidiaries’ obligations.

As of December 31, 2025, we had no liability with respect to these guarantees.

We have contractual obligations to purchase goods or services, which specify significant terms, including fixed or minimum quantities to be purchased and fixed minimum, or variable price provisions.

The purchase commitments covered by these arrangements aggregate to approximately $ 29 million for the periods of less than one year.

Stock-Based Compensation

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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 .

Stock options are exercisable based on the terms outlined in the applicable award agreement and have generally vested over a period of three 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.

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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.

The expected life represents the period of time that options are expected to be outstanding and was calculated using the simplified approach.

Expected volatility

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During the year ended December 31, 2025, 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.

The total intrinsic value of options exercised was $ 10 million, $ 6 million and $ 1 million for the years ended December 31, 2025, 2024 and 2023, respectively.

A summary of option activity under the Omnibus Plan during the year ended December 31, 2025 is presented below:

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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.

Performance options granted during the year ended December 31, 2023 have a weighted-average service period of approximately 0.8 years from the initial grant date.

During the year ended December 31, 2023 we granted options to purchase 652,004 shares of our common stock with a weighted-average exercise price of $ 26.42 per share.

We did no t issue any performance options under the Omnibus Plan during the years ended December 31, 2025 and 2024.

The weighted-average grant date fair values of the performance options granted during the year ended December 31, 2023 were $ 10.40 per share.

During the year ended December 31, 2025, 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.

The total intrinsic value of options exercised was $ 4 million and $ 3 million for the year ended December 31, 2025 and 2024, respectively.

No performance options were exercised during the years ended December 31, 2023.

A summary of performance options activity under the Omnibus Plan during the year ended December 31, 2025 is presented below:

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Performance Shares

Performance shares vest based on the terms outlined in the applicable award agreement, which is generally over a period of three years .

Performance shares vest based on the terms outlined in the applicable award agreement, which is generally after 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.

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 and company-specific operating results.

The total number of performance shares that vest will range from 0 % to 200 % of each target as determined by measuring accumulated aggregate performance at the end of the performance period.

During the years ended December 31, 2025 and 2024, we granted 211,889 and 217,527 performance shares, respectively, with a weighted-average grant date fair value of $ 40.35 and $ 31.95 per share, respectively.

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During the year ended December 31, 2025, 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.

The total fair value of performance shares vested during the year ended December 31, 2025 and December 31, 2024 was $ 1 million.

No performance shares vested during the years ended December 31, 2023.

A summary of performance share activity under the Omnibus Plan during the year ended December 31, 2025 is presented below:

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Revolving Credit Facility maturing in 2029

Prior Term Loan A maturing in 2026 (3)

Prior Term Loan B maturing in 2028 (4)

Revolving Credit Facility maturing in 2026

Less current portion

Total long-term debt

(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 .

(1) Term Loan A maturing in 2026 is presented net of unamortized debt issuance costs of $ 5 million and $ 6 million as of December 31, 2025 and 2024, respectively.

(2) Term Loan B maturing in 2028 is presented net of unamortized debt issuance costs of $ 9 million and $ 10 million as of December 31, 2025 and 2024, respectively, and unamortized discount of $ 2 million as of December 31, 2025 and 2024.

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 .

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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.

Additionally, on December 19, 2024 , we amended and restated our $ 250 million Revolving Credit Facility.

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.

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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.

On October 24, 2018, we entered into an interest rate swap contract effective October 31, 2018 that expired 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.

Under the terms of the agreement, we paid a fixed rate of interest of 3.028 percent on the notional amount, and received 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 Term Loan Facilities was 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 stepped up in August 2025 by $ 350 million upon the expiration of the company's other interest rate swap contract.

The total notional amount as of December 31, 2025 is approximately $ 632 million.

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.

Scheduled Debt Payments

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Less unamortized discount

We operate as one operating and reportable segment, primarily under the American Home Shield brand.

We operate as one operating and reportable segment.

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

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Other segment items (1)

(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.

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

Supplemental Cash Flow Information

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Interest income

Income tax payments, net of refunds

Cash paid for income taxes:

U.S State and local

Total cash paid for (received from) income taxes

Cash paid during the period for (received from) income taxes (prior to ASU 2023-09)

Individual jurisdictions equaling 5% or more of the total income taxes paid (received) for the year ended December 31, 2025 include U.S.

Federal at $ 35 million.

No state or foreign jurisdiction exceeded the threshold.

Cash and Marketable Securities

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government obligations and are classified as available-for-sale securities.

As of December 31 2023, marketable securities were less than $ 1 million.

We disposed of our marketable securities during the year ended December 31, 2025.

The amortized cost, fair value and gross unrealized gains and losses of our marketable securities are as follows:

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government and municipal obligations

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.

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

During the year ended December 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 years ended December 31, 2025, 2024, and 2023.

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:

December 31, 2024

(In millions)

Amortized Cost

Due to mature

One year or less

After one year through five years

After five years through ten years

After ten years

Mortgage-backed securities

Total marketable securities

Comprehensive Income (Loss)

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See Note 16 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.

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 $ 3 million, net of tax, as of December 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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There were no other than temporary declines in value for the periods ended December 31, 2025 and 2024.

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.

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As of December 31, 2025:

Interest rate swap (Other accrued liabilities )

Interest rate swap (Other long-term liabilities)

Total liabilities

As of December 31, 2024:

Marketable securities

Interest rate swap (Other assets)

Long-term marketable securities

Other long-term liabilities

Interest rate swap (Other long-term liabilities)

Total liabilities

As of December 31, 2023:

Prepaid expenses and other current assets

Capital Stock

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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.

As of December 31, 2025 , we had $ 329 million remaining available for future repurchases under this program.

A summary of repurchases of outstanding shares is as follows:

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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 $ 2 million, $ 1 million and less than $ 1 million for the years ended December 31, 2024, 2023 and 2022, respectively .

(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, $ 2 million and $ 1 million for the years ended December 31, 2025, 2024 and 2023, respectively .

Earnings Per Share

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(2) Stock options to purchase 339,613 shares, 657,029 shares and 1,276,776 shares for the years ended December 31, 2025, 2024 and 2023 , 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 .

(3) Performance options to purchase 646,230 shares for the year ended December 31, 2023 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 years ended December 31, 2025 and 2024 .

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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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, 2025, of the Company and our report dated February 26, 2026, 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

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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-K

Item 8. Financial Statements and Supplementary Data