What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-06 compared with 2020-05-07 · 160 added, 59 removed, 241 unchanged (48% of the section changed)

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Our actual results could differ materially from those discussed in these forward-looking statements.

Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this report, particularly in “Cautionary Statement Concerning Forward-Looking Statements” and “Risk Factors” included in Part II, Item 1A of this report.

Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this report, particularly in “Cautionary Statement Concerning Forward-Looking Statements” as well as those factors discussed in “Risk Factors” included in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Frontdoor is the largest provider of home service plans in the U.S., as measured by revenue, and operates under the American Home Shield, HSA, OneGuard and Landmark brands.

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We serve over two million customers annually across all 50 states and the District of Columbia.

For the three months ended March 31, 2020 and 2019, we generated revenue, net income and Adjusted EBITDA of $294 million, $13 million and $47 million, respectively, and $271 million, $13 million and $43 million, respectively.

For the three months ended March 31, 2020, our total operating revenue included 68 percent of revenue derived from existing customer renewals, while 19 percent and 12 percent were derived from new unit sales made in conjunction with existing home resale transactions and direct-to-consumer sales, respectively, and one percent was derived from other revenue streams.

For the three months ended March 31, 2019, our total operating revenue included 67 percent of revenue derived from existing customer renewals, while 20 percent and 12 percent were derived from new unit sales made in conjunction with existing home resale transactions and direct-to-consumer sales, respectively, and one percent was derived from other revenue streams.

For the three months ended June 30, 2020 and 2019, we generated revenue, net income and Adjusted EBITDA of $417 million, $49 million and $100 million, respectively, and $388 million, $60 million and $105 million, respectively.

For the six months ended June 30, 2020 and 2019, we generated revenue, net income and Adjusted EBITDA of $711 million, $62 million and $147 million, respectively, and $658 million, $73 million and $149 million, respectively.

For the six months ended June 30, 2020, our total operating revenue included 69 percent of revenue derived from existing customer renewals, while 18 percent and 12 percent were derived from new unit sales made in conjunction with existing home resale transactions and direct-to-consumer sales, respectively, and one percent was derived from other revenue streams.

For the six months ended June 30, 2019, our total operating revenue included 67 percent of revenue derived from existing customer renewals, while 20 percent and 12 percent were derived from new unit sales made in conjunction with existing home resale transactions and direct-to-consumer sales, respectively, and one percent was derived from other revenue streams.

Key Factors and Trends Affecting Our Results of Operations

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The broader implications of COVID-19 on our results of operations and overall financial performance remain uncertain.

In response to the pandemic, we took several steps to protect the well-being of our employees, customers and contractors, and we continue to respond to the real-time needs of our business.

In response to the pandemic, we have taken a number of steps to protect the well-being of our employees, customers and contractors, and we continue to respond to the real-time needs of our business.

Specifically, we have:

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While our supply chain has not experienced significant disruptions to date, we are closely monitoring the transportation and distribution of parts and replacement units.

Financial Impact to our Business.

While we did not experience a material impact on our financial condition and results of operations during the first quarter, during the second quarter of 2020, our financial condition and results of operations were adversely impacted by COVID-19 as follows:

 We experienced a decline in first-year real estate sales attributable, in part, to the adverse impact COVID-19 had on U.S.

existing home sales.

Due to the annual nature of our service plan agreements, the impact of this decline will carry forward into future periods.

 We experienced an increase in appliance and plumbing claims primarily due to the increased usage of home systems and appliances driven by state and local shelter at home orders and recommendations.

 We increased our marketing spend in the first-year direct-to-consumer channel to help mitigate the decline in first-year real estate sales.

 We incurred incremental wages at our contact centers due to increased demand driven by temporary closures at our offshore business process outsourcers.

 We incurred incremental direct costs in response to COVID-19, which were temporary in nature and primarily related to incremental health and childcare benefits for our employees and hoteling costs related to our offshore business process outsourcers.

The COVID-19 situation remains very fluid, and we continue to adjust our response in real time.

While we did not experience a material impact on our financial condition and results of operations during the first quarter, it remains difficult to predict how COVID-19 will impact our business through the remainder of the year.

We anticipate that the U.S.

real estate market and our first-year real estate sales channel will be adversely impacted by the virus.

It remains difficult to predict the overall impact COVID-19 will have on our business through the remainder of the year.

We anticipate that U.S.

existing home sales and our first-year real estate sales will continue to be adversely impacted by COVID-19.

In addition, we anticipate a continued increase in claims and incremental investments in marketing due to the factors noted above.

Macroeconomic Conditions

Macroeconomic conditions that may affect customer spending patterns, and thereby our results of operations, include home sales, consumer confidence and employment rates.

We believe our ability to acquire customers through the direct-to-consumer channel helps to mitigate the effect of a downturn in the real estate market, while our nationwide presence limits the risk of poor economic conditions in any particular geography.

During the second quarter of 2020, the COVID-19 pandemic increased economic uncertainty in these areas and adversely impacted U.S.

existing home sales.

We believe our ability to acquire customers through the direct-to-consumer channel helps to mitigate the effects of downturns in the real estate market, while our nationwide presence limits the risk of poor economic conditions in any particular geography.

Our business is subject to seasonal fluctuations, which drives variations in our revenue, net income and Adjusted EBITDA for interim periods.

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Our critical accounting policies and estimates are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Form 10-K.

There have been no material changes to our critical accounting policies for the three months ended March 31, 2020, certain of which are described below.

There have been no material changes to our critical accounting policies for the six months ended June 30, 2020, certain of which are described below.

Goodwill and Intangible Assets

In accordance with applicable accounting standards, goodwill and indefinite-lived intangible assets are not amortized and are subject to assessment for impairment by applying a fair-value-based test on an annual basis, or more frequently, if circumstances indicate a potential impairment.

As of March 31, 2020, we do not believe there are any circumstances, including those related to COVID-19, that would indicate a potential impairment of our goodwill or indefinite-lived intangible assets.

As of June 30, 2020, we do not believe there are any circumstances, including those related to COVID-19, that would indicate a potential impairment of our goodwill or indefinite-lived intangible assets.

We will continue to monitor the macroeconomic impacts on our business in our ongoing evaluation of potential impairments.

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Results of Operations

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

Three Months Ended

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Restructuring charges

Interest expense

Interest and net investment loss (income)

Income before Income Taxes

Provision for income taxes

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* not meaningful

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Six Months Ended

(In millions)

Cost of services rendered

Selling and administrative expenses

Depreciation and amortization expense

Restructuring charges

Spin-off charges

Interest expense

Interest and net investment income

Interest and net investment loss (income)

Income before Income Taxes

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We reported revenue of $294 million and $271 million for the three months ended March 31, 2020 and 2019, respectively.

We reported revenue of $417 million and $388 million for the three months ended June 30, 2020 and 2019, respectively, and $711 million and $658 million for the six months ended June 30, 2020 and 2019, respectively.

Revenue by major customer acquisition channel is as follows:

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

Three Months Ended

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(1) First-year revenue only.

Revenue increased eight percent for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, driven by higher renewal revenue due to improved price realization and growth in the number of renewed home service plans, partly as a result of customer retention improvement initiatives.

The increase in real estate revenue reflects improved price realization, offset, in part, by a decline in the number of first-year real estate home service plans.

Revenue increased eight percent for the three months ended June 30, 2020 compared to the three months ended June 30, 2019, driven by higher renewal revenue due to growth in the number of renewed home service plans, partly as a result of customer retention improvement initiatives, and improved price realization.

The decrease in real estate revenue reflects a decline in the number of first-year real estate home service plans, due, in part, to the adverse impact COVID-19 had on U.S.

existing home sales, offset, in part, by improved price realization.

The increase in direct-to-consumer revenue reflects growth in the number of first-year direct-to-consumer home service plans, mostly driven by increased investments in marketing, and improved price realization.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Six Months Ended

(In millions)

Increase (Decrease)

Real estate (1)

Direct-to-consumer (1)

Total revenue

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(1) First-year revenue only.

Revenue increased eight percent for the six months ended June 30, 2020 compared to the six months ended June 30, 2019, driven by higher renewal revenue due to improved price realization and growth in the number of renewed home service plans, partly as a result of customer retention improvement initiatives.

Real estate revenue was relatively flat, as improved price realization was offset by a decline in the number of first-year real estate home service plans, due, in part, to the adverse impact COVID-19 had on U.S.

existing home sales.

Growth in number of home service plans and customer retention rate are presented below.

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Cost of Services Rendered

We reported cost of services rendered of $147 million and $143 million for the three months ended March 31, 2020 and 2019, respectively.

The following table provides a summary of changes in cost of services rendered:

We reported cost of services rendered of $200 million and $183 million for the three months ended June 30, 2020 and 2019, respectively, and $347 million and $326 million for the six months ended June 30, 2020 and 2019, respectively.

The following tables provide a summary of changes in cost of services rendered:

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

(In millions)

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

Impact of change in revenue

Contract claims costs

Three Months Ended March 31, 2020

Excluding the impact of the change in revenue, contract claims costs were relatively flat, primarily due to lower incidence, which was partly driven by a favorable weather impact of approximately $4 million, offset by an increase in the underlying cost of repairs, which was due to normal inflation, offset, in part, by process improvements and cost reduction initiatives.

Three Months Ended June 30, 2020

The increase in contract claims costs reflects higher incidence in the appliance and plumbing trades, which is primarily a result of customers sheltering at home in response to COVID-19, and normal inflation.

Contract claims costs also reflects a favorable weather impact of approximately $1 million and process improvement benefits.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

(In millions)

Six Months Ended June 30, 2019

Impact of change in revenue

Contract claims

Six Months Ended June 30, 2020

The increase in contract claims costs reflects higher incidence in the second quarter of 2020 in the appliance and plumbing trades, which is primarily a result of customers sheltering at home in response to COVID-19, and normal inflation.

Contract claims costs also reflects a favorable weather impact of approximately $5 million, process improvement benefits and lower incidence in the heating trade in the first quarter of 2020.

Selling and Administrative Expenses

We reported selling and administrative expenses of $105 million and $89 million for the three months ended March 31, 2020 and 2019, respectively, which comprised sales, marketing and customer service costs of $75 million and $64 million, respectively, and general and administrative expenses of $30 million and $25 million, respectively.

The following table provides a summary of changes in selling and administrative expenses:

We reported selling and administrative expenses of $125 million and $104 million for the three months ended June 30, 2020 and 2019, respectively, and $229 million and $193 million for the six months ended June 30, 2020 and 2019, respectively.

For the three months ended June 30, 2020 and 2019, selling and administrative expenses comprised sales, marketing and customer service costs of $90 million and $74 million, respectively, and general and administrative expenses of $35 million and $30 million, respectively.

For the six months ended June 30, 2020 and 2019, selling and administrative expenses comprised sales, marketing and customer service costs of $164 million and $138 million, respectively, and general and administrative expenses of $65 million and $55 million, respectively.

The following tables provide a summary of changes in selling and administrative expenses:

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

(In millions)

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

Sales and marketing costs

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Stock-based compensation expense

General and administrative costs

Three Months Ended June 30, 2020

The increase in sales and marketing costs was primarily driven by higher targeted marketing spend to drive sales growth in the direct-to-consumer channel.

The increase in customer service costs was primarily driven by investments to enhance customer service.

General and administrative costs increased compared to prior year primarily due to investments in technology and incremental direct costs related to COVID-19 of $1 million.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

(In millions)

Six Months Ended June 30, 2019

Sales and marketing costs

Customer service costs

Stock-based compensation

Secondary offering costs

General and administrative costs

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

The increase in sales and marketing costs was primarily driven by higher targeted marketing spend to drive sales growth in the direct-to-consumer channel.

The increase in customer service costs was primarily driven by investments to enhance customer service.

General and administrative costs increased compared to prior year primarily due to higher personnel costs.

General and administrative costs increased compared to prior year primarily due to higher personnel costs, investments in technology and incremental direct costs related to COVID-19 of $1 million.

Depreciation Expense

Depreciation expense was $5 million and $4 million for the three months ended March 31, 2020 and 2019, respectively.

Depreciation expense was $5 million and $4 million for the three months ended June 30, 2020 and 2019, respectively, and $10 million and $9 million for the six months ended June 30, 2020 and 2019, respectively.

Amortization Expense

Amortization expense was $3 million and $2 million for the three months ended March 31, 2020 and 2019, respectively .

Amortization expense was $4 million and $1 million for the three months ended June 30, 2020 and 2019, respectively, and $7 million and $3 million for the six months ended June 30, 2020 and 2019, respectively .

For the three and six months ended June 30, 2020, the increase was primarily due to amortization of intangible assets recognized from our acquisition of Streem.

Restructuring Charges

Restructuring charges were $3 million and less than $1 million for the three months ended March 31, 2020 and 2019, respectively .

For the three months ended March 31, 2020, restructuring charges comprised $2 million of lease termination costs and $1 million of severance and other non-personnel costs related to the decision to consolidate the operations of Landmark with those of OneGuard, which was completed during the first quarter of 2020.

For the three months ended March 31, 2019, restructuring charges comprised severance costs.

Restructuring charges were $1 million and less than $1 million for the three months ended June 30, 2020 and 2019, respectively, and $4 million and less than $1 million for the six months ended June 30, 2020 and 2019, respectively .

For the three months ended June 30, 2020, restructuring charges primarily comprised accelerated depreciation of certain technology systems driven by efforts to enhance our technological capabilities.

For the three months ended June 30, 2019, restructuring charges comprised severance costs.

For the six months ended June 30, 2020, restructuring charges comprised $2 million of lease termination costs and $1 million of severance and other costs related to the decision to consolidate the operations of Landmark with those of OneGuard, which was completed during the first quarter of 2020, as well as $1 million of accelerated depreciation of certain technology systems.

For the six months ended June 30, 2019, restructuring charges comprised severance costs.

Interest Expense

Interest expense was $15 million and $16 million for the three months ended March 31, 2020 and 2019, respectively.

Interest and Net Investment Income

Interest and net investment income was $2 million and $1 million for the three months ended March 31, 2020 and 2019, respectively, and primarily comprised interest on our investment portfolio.

Interest expense was $14 million and $16 million for the three months ended June 30, 2020 and 2019, respectively, and $29 million and $31 million for the six months ended June 30, 2020 and 2019, respectively.

Interest and Net Investment Loss (Income)

Interest and net investment loss (income) reflects a loss of $3 million for the three months ended June 30, 2020 and income of $2 million for the three months ended June 30, 2019 and a loss of $1 million for the six months ended June 30, 2020 and income of $3 million for the six months ended June 30, 2019.

For the three and six months ended June 30, 2020, amounts primarily comprised a $3 million loss on investment, offset, in part, by interest on our investment portfolio.

For the three and six months ended June 30, 2019, amounts primarily comprised interest on our investment portfolio.

Provision for Income Taxes

The effective tax rate on income was 25.0 percent and 26.9 percent for the three months ended March 31, 2020 and 2019, respectively.

The decrease in the effective tax rate is due to a decrease in non-deductible transaction costs.

Net income was $13 million for each of the three months ended March 31, 2020 and 2019.

The effective tax rate on income was 25.5 percent and 25.1 percent for the three months ended June 30, 2020 and 2019, respectively, and 25.4 percent for each of the six months ended June 30, 2020 and 2019.

Net income was $49 million and $60 million for the three months ended June 30, 2020 and 2019, respectively, and $62 million and $73 million for the six months ended June 30, 2020 and 2019, respectively.

For the three and six months ended June 30, 2020 compared to 2019, the decrease was driven by the aforementioned operating results, offset, in part, by a decrease in the provision for income taxes as a result of lower income before income taxes.

Adjusted EBITDA

Adjusted EBITDA was $47 million and $43 million for the three months ended March 31, 2020 and 2019, respectively.

The following table provides a summary of changes in our Adjusted EBITDA.

Adjusted EBITDA was $100 million and $105 million for the three months ended June 30, 2020 and 2019, respectively, and $147 million and $149 million for the six months ended June 30, 2020 and 2019, respectively.

The following tables provide a summary of changes in our Adjusted EBITDA:

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

(In millions)

Three Months Ended March 31, 2019

Three Months Ended June 30, 2019

Impact of change in revenue

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General and administrative costs

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Contract claims costs also reflects a favorable weather impact of approximately $1 million and process improvement benefits.

The increase in sales and marketing costs was primarily driven by higher targeted marketing spend to drive sales growth in the direct-to-consumer channel.

The increase in customer service costs was primarily driven by investments to enhance customer service.

General and administrative costs increased compared to prior year primarily due to higher personnel costs.

General and administrative costs increased compared to prior year primarily due to investments in technology.

Other primarily consists of interest and net investment income.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

(In millions)

Six Months Ended June 30, 2019

Impact of change in revenue

Contract claims

Sales and marketing costs

Customer service costs

General and administrative costs

Six Months Ended June 30, 2020

Contract claims costs also reflects a favorable weather impact of approximately $5 million, process improvement benefits and lower incidence in the heating trade in the first quarter of 2020.

The increase in sales and marketing costs was primarily driven by higher targeted marketing spend to drive sales growth in the direct-to-consumer channel.

The increase in customer service costs was primarily driven by investments to enhance customer service.

General and administrative costs increased compared to prior year primarily due to higher personnel costs and investments in technology.

A reconciliation of Net Income to Adjusted EBITDA is presented below.

Three Months Ended

Six Months Ended

(In millions)

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Secondary offering costs

Other non-operating expenses (1)

Adjusted EBITDA

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(1) Other non-operating expenses for the three and six months ended June 30, 2020 includes (a) a loss on investment of $3 million, (b) incremental direct costs related to COVID-19 of $1 million, which were temporary in nature and primarily related to incremental health and childcare benefits for our employees and hoteling costs related to our offshore business process outsourcers and (c) acquisition-related transaction costs of less than $1 million.

Liquidity and Capital Resources

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The Credit Agreement, as well as the Indenture, contain covenants that limit or restrict our ability, including the ability of certain of our subsidiaries, to incur additional indebtedness, repurchase debt, incur liens, sell assets, make certain payments (including dividends) and enter into transactions with affiliates.

As of March 31, 2020, we were in compliance with the covenants under the agreements that were in effect on such date.

Cash and short-term marketable securities totaled $484 million and $434 million as of March 31, 2020 and December 31, 2019, respectively.

As of June 30, 2020, we were in compliance with the covenants under the agreements that were in effect on such date.

We do not believe that COVID-19 will affect our ongoing ability to meet the covenants in our debt instruments, including our Credit Agreement and Indenture.

Cash and short-term marketable securities totaled $548 million and $434 million as of June 30, 2020 and December 31, 2019, respectively.

Cash and short-term marketable securities include balances associated with regulatory requirements in our business.

See “—Limitations on Distributions and Dividends by Subsidiaries.” As of March 31, 2020 and December 31, 2019, the total net assets subject to these third-party restrictions was $169 million and $168 million, respectively.

As of March 31, 2020, there were no letters of credit outstanding and there was $250 million of available borrowing capacity under the Revolving Credit Facility.

Available liquidity was $565 million at March 31, 2020, consisting of $315 million of cash not subject to third-party restrictions and $250 million of available borrowing capacity under the Revolving Credit Facility.

See “—Limitations on Distributions and Dividends by Subsidiaries.” As of June 30, 2020 and December 31, 2019, the total net assets subject to these third-party restrictions was $176 million and $168 million, respectively.

As of June 30, 2020, there were no letters of credit outstanding and there was $250 million of available borrowing capacity under the Revolving Credit Facility.

Available liquidity was $622 million at June 30, 2020, consisting of $372 million of cash not subject to third-party restrictions and $250 million of available borrowing capacity under the Revolving Credit Facility.

We currently believe that cash generated by operations, our cash on hand and available borrowing capacity under the Revolving Credit Facility at June 30, 2020 will provide us with sufficient liquidity to meet our obligations for the foreseeable future.

Our investment portfolio has been invested in high-quality debt securities.

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Cash flows from operating, investing and financing activities, as reflected in the condensed consolidated statements of cash flows included in Part I, Item 1 of this report, are summarized in the following table.

Three Months Ended

Six Months Ended

(In millions)

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Operating Activities

Net cash provided from operating activities was $60 million for the three months ended March 31, 2020, compared to $52 million for the three months ended March 31, 2019.

Net cash provided from operating activities was $140 million for each of the six months ended June 30, 2020 and 2019.

Net cash provided from operating activities in 2020 comprised $94 million in earnings adjusted for non-cash charges and a $46 million decrease in cash required for working capital.

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Investing Activities

Net cash used for investing activities was $3 million and $5 million for the three months ended March 31, 2020 and 2019, respectively.

Capital expenditures increased to $8 million for the three months ended March 31, 2020, compared to $4 million for the three months ended March 31, 2019, and included recurring capital needs and technology projects.

Net cash used for investing activities was $19 million and $12 million for the six months ended June 30, 2020 and 2019, respectively.

Capital expenditures increased to $18 million for the six months ended June 30, 2020, compared to $10 million for the six months ended June 30, 2019, and included recurring capital needs and technology projects.

We expect capital expenditures for the full year 2020 relating to recurring capital needs and the continuation of investments in information systems and productivity enhancing technology to be approximately $30 million to $40 million.

We have no additional material capital commitments at this time.

Cash flows provided from purchases, sales and maturities of securities, net, for the three months ended March 31, 2020 and 2019 were $5 million and $3 million, respectively, and were driven by the maturities of marketable securities.

There were no sales of marketable securities in the three months ended March 31, 2020 and 2019.

Cash flows used for other investing activities for the three months ended March 31, 2019 were $3 million and represent ongoing strategic investments in our business.

Cash flows provided from purchases, sales and maturities of securities, net, for the six months ended June 30, 2020 and 2019 were $5 million and $4 million, respectively, and were driven by the maturities of marketable securities.

There were no sales of marketable securities in the six months ended June 30, 2020 and 2019.

Cash payments for business acquisitions, net of cash acquired, were $5 million for the six months ended June 30, 2020, compared to $3 million for the six months ended June 30, 2019, and represent ongoing strategic investments in our business.

The business acquisition in the six months ended June 30, 2020 was made to expand the Candu on-demand offering.

Cash flows used for other investing activities for the six months ended June 30, 2019 were $3 million and represent ongoing strategic investments in our business.

Financing Activities

Net cash used for financing activities was $3 million for the three months ended March 31, 2020, compared to $2 million for the three months ended March 31, 2019, and primarily consisted of payments on debt and finance lease obligations.

Net cash used for financing activities was $4 million for each of the six months ended June 30, 2020 and 2019 and primarily consisted of payments on debt and finance lease obligations.

Contractual Obligations

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We continue to make the contractually required payments, and, therefore, the 2020 obligations and commitments described in our 2019 Form 10-K have been reduced by the required payments.

As of June 30, 2020, we have entered into additional leases as a lessee for real estate that have not yet commenced.

Rent payments are expected to commence during the second half of 2020 and first half of 2021, with lease terms between three and seven years.

These leases will result in future non-cancelable operating lease payments of $2 million in 2021 and $9 million in the years thereafter (2022-2028).

Financial Position

The following discussion describes changes in our financial position from December 31, 2019 to March 31, 2020.

The following discussion describes changes in our financial position from December 31, 2019 to June 30, 2020.

Cash and cash equivalents increased from prior year levels, primarily due to cash provided from operating activities.

Deferred revenue increased from prior year levels, primarily due to the recognition of a contract liability of $44 million related to the recognition of monthly-pay customer revenue on an other-than-straight-line basis to match the timing of cost recognition.

Other long-term liabilities increased from prior year levels, primarily due to the change in the valuation of our interest rate swap.

Accounts payable increased from prior year levels, reflecting the timing of payments due to the seasonality of our business.

Home service plan claims increased from prior year levels, primarily due to the seasonality of contract claims, which increased amounts due to contractors and suppliers.

Other accrued liabilities and other long-term liabilities each increased from prior year levels, primarily due to the change in the valuation of our interest rate swap.

See Note 16 to the condensed consolidated financial statements included in Part I, Item 1 of this report for more information.

Off-Balance Sheet Arrangements

As of March 31, 2020, we did not have any significant off-balance sheet arrangements.

As of June 30, 2020, we did not have any significant off-balance sheet arrangements.

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

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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 2. Management’s Discussion and Analysis