Frontdoor, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q, the audited consolidated and combined financial statements and related notes thereto included in our 2020 Form 10-K and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K. The cautionary statements discussed in “Cautionary Statement Concerning Forward-Looking Statements” and elsewhere in this report should be read as applying to all forward-looking statements wherever they appear in this report. 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” as well as those factors discussed in “Risk Factors” included in Part I, Item 1A. “Risk Factors” in our 2020 Form 10-K. Overview Frontdoor is the leading provider of home service plans in the United States, as measured by revenue, and operates under the American Home Shield, HSA, OneGuard and Landmark brands. Our customizable home service plans 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 service plan customers subscribe to an annual service plan agreement that covers the repair or replacement of major components of more than 20 home systems and appliances, including electrical, plumbing, central HVAC systems, water heaters, refrigerators, dishwashers and ranges/ovens/cooktops, as well as optional coverages for electronics, pools, spas and pumps. Our operations also include our ProConnect on-demand home services business and Streem, a technology platform that uses augmented reality, computer vision and machine learning to, among other things, help home service professionals more quickly and accurately diagnose breakdowns and complete repairs. At March 31, 2021, we had over two million active home service plans across all 50 states and the District of Columbia. For the three months ended March 31, 2021 and 2020, we generated revenue, net income and Adjusted EBITDA of $329 million, $5 million and $36 million, respectively, and $294 million, $13 million and $47 million, respectively. For the three months ended March 31, 2021, our total operating revenue included 68 percent of revenue derived from existing customer renewals, while 17 percent and 12 percent were derived from new home service plan sales made in conjunction with existing home resale transactions and direct-to-consumer sales, respectively, and two percent was derived from other revenue streams. 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 home service plan 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 Impact of the COVID-19 Pandemic On March 11, 2020, the WHO characterized COVID-19 as a pandemic, and on March 13, 2020, the United States declared a national emergency concerning the outbreak. The broader implications of the COVID-19 pandemic on our results of operations and overall financial performance remain uncertain. Included under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K are the steps we took in 2020 and have continued to take in response to the COVID-19 pandemic to protect the well-being of our employees, customers and contractors. We continue to respond to the real-time needs of our business. 18 While we did not experience a material impact on our results of operations and overall financial performance during the first quarter of 2020, during the first quarter of 2021, our financial condition and results of operations were adversely impacted by the COVID-19 pandemic as follows:  Revenue in the first-year real estate channel has continued to be adversely impacted by the decline in U.S. existing home sales in the second quarter of 2020. Due to the annual nature of our home service plan agreements, the impact of this decline carried forward into the first quarter of 2021. Additionally, a strong existing home seller’s market has constrained demand for home service plans in this channel.  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. In addition, industry-wide availability challenges in the appliance trade have caused increased cost pressure, and, more specifically, appliance parts availability challenges drove additional replacements, contributing to the increased costs.  We incurred incremental wages at our customer care centers due to a higher number of service requests in the appliance and plumbing trades, which is primarily a result of customers sheltering at home in response to COVID-19. Although there are effective vaccines for COVID-19 that have been approved for use, we are unable to predict how widely utilized the vaccines will be, whether they will be effective in preventing the spread of COVID-19 (including its variant strains) and when or if normal economic activity and business operations will resume. We expect that a significant number of people will continue to work remotely from home, which may result in a continued increase in usage of home systems and appliances and demand for our services and a resulting increase in service-related costs. Accordingly, the COVID-19 situation remains very fluid, and we continue to adjust our response in real time. It remains difficult to predict the overall impact the COVID-19 pandemic will have on our business. Macroeconomic Conditions Macroeconomic conditions that may affect customer spending patterns, and thereby our results of operations, include home sales, consumer confidence and employment rates. The COVID-19 pandemic has increased economic uncertainty in these areas. 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. Seasonality Our business is subject to seasonal fluctuations, which drives variations in our revenue, net income and Adjusted EBITDA for interim periods. Seasonal fluctuations are primarily driven by a higher number of central HVAC work orders in the summer months. In the first quarter of 2021 and throughout 2020, additional variations were experienced as the COVID-19 pandemic resulted in an elevated level of service requests, primarily in the appliance and plumbing trades, as our customers spent more time at home. In 2020, approximately 20 percent, 28 percent, 30 percent and 22 percent of our revenue, approximately 12 percent, 43 percent, 43 percent and 2 percent of our net income, and approximately 17 percent, 37 percent, 34 percent and 12 percent of our Adjusted EBITDA was recognized in the first, second, third and fourth quarters, respectively. Effect of Weather Conditions The demand for our services, and our results of operations, are affected by weather conditions. Extreme temperatures can lead to an increase in service requests related to home systems, particularly central HVAC systems, resulting in higher claim frequency and costs and lower profitability. Weather conditions that have a potentially favorable impact to our business include mild winters or summers, which can lead to lower home systems claim frequency. For example, unfavorable weather trends, as compared to 2020, negatively impacted contract claims costs in the first quarter of 2021. While weather variations as described above may affect our business, major weather events and other similar Acts of God, such as hurricanes, flooding and tornadoes, typically do not increase our obligations to provide service. As a rule, repairs associated with such isolated events are addressed by homeowners’ and other forms of insurance as opposed to home service plans that we offer, and such insurance coverage in fact reduces our obligations to provide service to home systems and appliances damaged by insured, catastrophic events. Tariff and Import/Export Regulations Changes in U.S. tariff and import/export regulations may impact the costs of parts, appliances and home systems. Import duties or restrictions on components and raw materials that are imposed, or the perception that they could occur, may materially and adversely affect our business by increasing our costs. For example, rising costs due to blanket tariffs on imported steel and aluminum could increase the costs of our parts, appliances and home systems. 19 Competition We compete in the U.S. home service plan category and the broader U.S. home services industry. The home service plan category is highly competitive. The principal methods of competition, and by which we differentiate ourselves from our competitors, are quality and speed of service, contract offerings, brand awareness and reputation, customer satisfaction, pricing and promotions, contractor network and referrals. Acquisition Activity We anticipate that the highly fragmented nature of the home service plan category will continue to create strategic opportunities for acquisitions. In particular, we intend to focus strategically on underserved regions where we can enhance and expand service capabilities. Historically, we have used acquisitions to cost-effectively grow our customer base in high-growth geographies, and we intend to continue to do so. We may also explore opportunities to make strategic acquisitions that will expand our service offering in the broader home services industry. We have also used acquisitions to enhance our technological capabilities. In 2019, we acquired Streem to support the service experience for our customers, reduce costs and create potential new revenue opportunities across a variety of channels. We expect to use Streem’s services in our core home service plan business and in ProConnect’s on-demand business to deliver a superior service experience and reduce our costs. In 2020, we acquired a business to expand our ProConnect on-demand offering via their intellectual capital and know-how, technology platform capabilities and geographic presence. Non-GAAP Financial Measures To supplement our results presented in accordance with U.S. GAAP, we have disclosed non-GAAP financial measures that exclude or adjust certain items. We present within this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section the non-GAAP financial measure of Adjusted EBITDA. See “Results of Operations — Adjusted EBITDA” for a reconciliation of net income to Adjusted EBITDA, as well as “Key Business Metrics — Adjusted EBITDA” for further discussion of Adjusted EBITDA. Management uses Adjusted EBITDA to facilitate operating performance comparisons from period to period. We believe this non-GAAP financial measure provides investors, analysts and other interested parties useful information to evaluate our business performance as it facilitates company-to-company operating performance comparisons. While we believe this non-GAAP financial measure is useful in evaluating our business, it should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with U.S. GAAP. In addition, this non-GAAP financial measure may not be the same as similarly entitled measures reported by other companies, limiting its usefulness as a comparative measure. Key Business Metrics We focus on a variety of indicators and key operating and financial metrics to monitor the financial condition and performance of the continuing operations of our business. These metrics include:  revenue ,  operating expenses,  net income,  earnings per share,  Adjusted EBITDA,  Adjusted EBITDA margin,  net cash provided from operating activities,  Free Cash Flow,  growth in number of home service plans, and  customer retention rate. Revenue. Home service plan contracts are typically one year in duration. We recognize revenue at the agreed upon contractual amount over time using the input method in proportion to the costs expected to be incurred in performing services under the contracts. Our revenue is primarily a function of the volume and pricing of the services provided to our customers, as well as the mix of services provided. Our revenue volume is impacted by new home service plan sales, customer retention and acquisitions. We derive substantially all of our revenue from customers in the United States. 20 Operating Expenses. In addition to changes in our revenue, our operating results are affected by, among other things, the level of our operating expenses. Our operating expenses primarily include contract claims costs and expenses associated with sales and marketing, customer service and general corporate overhead. A number of our operating expenses are subject to inflationary pressures, such as salaries and wages, employee benefits and health care; contractor costs; home systems, appliances and repair costs; tariffs; insurance premiums; and various regulatory compliance costs. Net Income and Earnings Per Share . The presentation of net income and basic and diluted earnings per share provides measures of performance which are useful for investors, analysts and other interested parties in company-to-company operating performance comparisons. Basic earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period, increased to include the number of shares of common stock that would have been outstanding had potentially dilutive shares of common stock been issued. The dilutive effect of stock options, RSUs, performance shares (which are contractual rights to receive a share of our common stock (or the cash equivalent thereof) upon the achievement, in whole or in part, of the applicable performance goals, pursuant to the terms of the Omnibus Plan and the award agreement) and RSAs are reflected in diluted earnings per share by applying the treasury stock method. Adjusted EBITDA and Adjusted EBITDA margin. We evaluate performance and allocate resources based primarily on Adjusted EBITDA, which is a financial measure not calculated in accordance with U.S. GAAP. We define Adjusted EBITDA as net income before: provision for income taxes; interest expense; depreciation and amortization expense; non-cash stock-based compensation expense; restructuring charges; loss on extinguishment of debt; and other non-operating expenses. We define “Adjusted EBITDA margin” as Adjusted EBITDA divided by revenue. We believe Adjusted EBITDA and Adjusted EBITDA margin are useful for investors, analysts and other interested parties as they facilitate company-to-company operating performance comparisons by excluding potential differences caused by variations in capital structures, taxation, the age and book depreciation of facilities and equipment, restructuring initiatives and equity-based, long-term incentive plans. Net Cash Provided from Operating Activities and Free Cash Flow. We focus on measures designed to monitor cash flow, including net cash provided from operating activities and Free Cash Flow, which is a financial measure not calculated in accordance with U.S. GAAP and represents net cash provided from operating activities less property additions. Growth in Number of Home Service Plans and Customer Retention Rate. We report our growth in number of home service plans and customer retention rate in order to track the performance of our business. Home service plans represent our recurring customer base, which includes customers with active contracts for recurring services. Our customer retention rate is calculated as the ratio of ending home service plans to the sum of beginning home service plans, new home service plan sales and acquired accounts for the applicable period. These measures are presented on a rolling, 12-month basis in order to avoid seasonal anomalies. Critical Accounting Policies and Estimates 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 2020 Form 10-K. There have been no material changes to our critical accounting policies for the three months ended March 31, 2021, 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 on an annual basis, or more frequently, if circumstances indicate a potential impairment. As of March 31, 2021, 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. ‎ 21 Results of Operations Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020 Three Months Ended Increase March 31, (Decrease) % of Revenue (In millions) 2021 2020 2021 vs. 2020 2021 2020 Revenue $ 329 $ 294 12 % 100 % 100 % Cost of services rendered 181 147 23 55 50 Gross Profit 148 147 1 45 50 Selling and administrative expenses 118 105 13 36 36 Depreciation and amortization expense 9 8 14 3 3 Restructuring charges 1 3 * — 1 Interest expense 13 15 (11) 4 5 Interest and net investment income — (2) * — (1) Loss on extinguishment of debt 1 — * — — Income before Income Taxes 5 17 (69) 2 6 Provision for income taxes 1 4 (88) — 1 Net Income $ 5 $ 13 (63) % 1 % 4 % ________________________________ * not meaningful Revenue We reported revenue of $329 million and $294 million for the three months ended March 31, 2021 and 2020, respectively. Revenue by major customer acquisition channel is as follows: Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020 Three Months Ended March 31, (In millions) 2021 2020 Increase (Decrease) Renewals $ 224 $ 200 $ 24 12 % Real estate (1) 57 56 1 2 Direct-to-consumer (1) 41 35 6 16 Other 8 3 5 * Total revenue $ 329 $ 294 $ 35 12 % ________________________________ * not meaningful (1) First-year revenue only. Revenue increased 12 percent for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily driven by higher renewal revenue due to improved price realization and growth in the number of renewed home service plans, due, in part, to customer retention initiatives. The increase in real estate revenue primarily reflects improved price realization. Due to the annual nature of our home service plan agreements, real estate revenue has continued to be adversely impacted by the decline in U.S. existing home sales in the second quarter of 2020. Additionally, the strong existing home seller’s market has constrained demand for home service plans in this channel. The increase in direct-to-consumer revenue primarily reflects growth in the number of first-year direct-to-consumer home service plans, mostly driven by increased investments in marketing. The increase in other revenue was driven by growth in ProConnect and Streem. Number of home service plans, growth in number of home service plans and customer retention rate are presented below. As of March 31, (In millions) 2021 2020 Number of home service plans 2.25 2.17 Growth in number of home service plans 4 % 3 % Customer retention rate 75 % 75 % 22 Cost of Services Rendered We reported cost of services rendered of $181 million and $147 million for the three months ended March 31, 2021 and 2020, respectively. The following table provides a summary of changes in cost of services rendered: Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020 (In millions) Three Months Ended March 31, 2020 $ 147 Impact of change in revenue 8 Contract claims costs 26 Three Months Ended March 31, 2021 $ 181 The increase in contract claims costs reflects higher incidence in the appliance and plumbing trades, primarily a result of customers sheltering at home in response to the COVID-19 pandemic, increased cost pressures in the appliance trade due to industry-wide availability challenges and inflation, offset, in part, by process improvement benefits. Appliance parts availability challenges continued to drive additional replacements, contributing to the increased cost pressures. Contract claims costs also reflects an unfavorable weather impact of approximately $5 million. Selling and Administrative Expenses We reported selling and administrative expenses of $118 million and $105 million for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021 and 2020, selling and administrative expenses comprised sales, marketing and customer service costs of $81 million and $75 million, respectively, and general and administrative expenses of $37 million and $30 million, respectively. The following table provides a summary of changes in selling and administrative expenses: Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020 (In millions) Three Months Ended March 31, 2020 $ 105 Sales and marketing costs 5 Customer service costs 2 Stock-based compensation expense 2 General and administrative costs 4 Three Months Ended March 31, 2021 $ 118 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 and ProConnect and investments in Streem. The increase in customer service costs was primarily related to managing a higher number of service requests and investments in customer retention initiatives. General and administrative costs increased compared to prior year primarily due to increased personnel costs and investments in technology. Depreciation Expense Depreciation expense was $6 million and $5 million for the three months ended March 31, 2021 and 2020, respectively. Amortization Expense Amortization expense was $3 million for each of the three months ended March 31, 2021 and 2020 . Restructuring Charges Restructuring charges were $1 million and $3 million for the three months ended March 31, 2021 and 2020, respectively . For the three months ended March 31, 2021, restructuring charges primarily comprised accelerated depreciation of certain technology systems driven by efforts to enhance our technological capabilities. For the three months ended March 31, 2020, restructuring charges comprised lease termination costs and severance and other costs related to the decision to consolidate certain operations of Landmark with those of OneGuard. 23 Interest Expense Interest expense was $13 million and $15 million for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021, the decrease was primarily due to a decline in interest rates on the unhedged portion of our variable rate debt. Interest and Net Investment Income Interest and net investment income was less than $1 million and $2 million for the three months ended March 31, 2021 and 2020, respectively, and comprised interest on our investment portfolio. Loss on Extinguishment of Debt Loss on extinguishment of debt was $1 million for t he three months ended March 31, 2021, which was recorded in connection with the partial repayment of the Term Loan Facility and includes the write-off of debt issuance costs and original issue discount. There were no such charges for the three months ended March 31, 2020. Provision for Income Taxes The effective tax rate on income was 9.8 percent and 25.0 percent for the three months ended March 31, 2021 and 2020, respectively. The decrease in the effective tax rate for the three months ended March 31, 2021 compared to 2020 is primarily due to excess tax benefits for share-based awards. Net Income Net income was $5 million and $13 million for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021 compared to 2020, 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 $36 million and $47 million for the three months ended March 31, 2021 and 2020, respectively. The following table provides a summary of changes in our Adjusted EBITDA: Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020 (In millions) Three Months Ended March 31, 2020 $ 47 Impact of change in revenue 28 Contract claims costs (26) Sales and marketing costs (5) Customer service costs (2) General and administrative costs (4) Other (1) Three Months Ended March 31, 2021 $ 36 The increase in contract claims costs reflects higher incidence in the appliance and plumbing trades, primarily a result of customers sheltering at home in response to the COVID-19 pandemic, increased cost pressures in the appliance trade due to industry-wide availability challenges and inflation, offset, in part, by process improvement benefits. Appliance parts availability challenges continued to drive additional replacements, contributing to the increased cost pressures. Contract claims costs also reflects an unfavorable weather impact of approximately $5 million. 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 and ProConnect and investments in Streem. The increase in customer service costs was primarily related to managing a higher number of service requests and investments in customer retention initiatives. General and administrative costs increased compared to prior year primarily due to increased personnel costs and investments in technology. Other primarily consists of interest and net investment income. 24 A reconciliation of Net Income to Adjusted EBITDA is presented below. Three Months Ended March 31, (In millions) 2021 2020 Net Income $ 5 $ 13 Depreciation and amortization expense 9 8 Restructuring charges 1 3 Provision for income taxes 1 4 Non-cash stock-based compensation expense 6 3 Interest expense 13 15 Loss on extinguishment of debt 1 — Adjusted EBITDA $ 36 $ 47 Liquidity and Capital Resources Liquidity A substantial portion of our liquidity needs are due to debt service requirements on our indebtedness. 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, 2021, we were in compliance with the covenants under the agreements that were in effect on such date. Based on current conditions, we do not believe the COVID-19 pandemic will affect our ongoing ability to meet the covenants in our debt instruments, including our Credit Agreement and Indenture. Cash and cash equivalents totaled $538 million and $597 million as of March 31, 2021 and December 31, 2020, respectively. Our cash and cash equivalents include balances associated with regulatory requirements in our business. See “—Limitations on Distributions and Dividends by Subsidiaries.” As of March 31, 2021 and December 31, 2020, the total net assets subject to these third-party restrictions was $175 million and $180 million, respectively. As of March 31, 2021, there were $2 million of letters of credit outstanding and $248 million of available borrowing capacity under the Revolving Credit Facility. The letters of credit are posted in lieu of cash to satisfy regulatory requirements in certain states in which we operate. Available liquidity was $611 million at March 31, 2021, consisting of $363 million of cash not subject to third-party restrictions and $248 million of available borrowing capacity under the Revolving Credit Facility. We currently believe that cash generated from operations, our cash on hand and available borrowing capacity under the Revolving Credit Facility at March 31, 2021 will provide us with sufficient liquidity to meet our obligations for the foreseeable future. On February 17, 2021, we repaid $100 million of outstanding principal amount of the Term Loan Facility. In connection with the repayment, we recorded a loss on extinguishment of debt of $1 million, which included the write-off of debt issuance costs and original issue discount. We closely monitor the performance of our investment portfolio. From time to time, we review the statutory reserve requirements to which our regulated entities are subject and any changes to such requirements. These reviews may result in identifying current reserve levels above or below minimum statutory reserve requirements, in which case we may adjust our reserves. The reviews may also identify opportunities to satisfy certain regulatory reserve requirements through alternate financial vehicles. We may, from time to time, repurchase or otherwise retire or extend our debt and/or take other steps to reduce our debt or otherwise improve our financial position, gross leverage, results of operations or cash flows. These actions may include open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and/or opportunistic refinancing of debt. The amount of debt that may be repurchased or otherwise retired or refinanced, if any, and the price of such repurchases, retirements or refinancings will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations. Limitations on Distributions and Dividends by Subsidiaries We depend on our subsidiaries to distribute funds to us so that we may pay obligations and expenses, including satisfying obligations with respect to indebtedness. The ability of our subsidiaries to make distributions and dividends to us depends on their operating results, cash requirements, financial condition and general business conditions, as well as restrictions under the laws of our subsidiaries’ jurisdictions. 25 Our subsidiaries are permitted under the terms of the Credit Agreement and other indebtedness to incur additional indebtedness that may restrict or prohibit the making of distributions, the payment of dividends or the making of loans by such subsidiaries to us. Furthermore, there are third-party restrictions on the ability of certain of our subsidiaries to transfer funds to us. These restrictions are related to regulatory requirements. The payments of ordinary and extraordinary dividends by certain of our subsidiaries (through which we conduct our business) are subject to significant regulatory restrictions under the laws and regulations of the states in which they operate. Among other things, such laws and regulations require certain subsidiaries to maintain minimum capital and net worth requirements and may limit the amount of ordinary and extraordinary dividends and other payments that these subsidiaries can pay to us. We expect that such limitations will be in effect for the foreseeable future. In Texas, we are relieved of the obligation to post 75 percent of our otherwise required reserves because we operate a captive insurer approved by Texas regulators in order to satisfy such obligations. None of our subsidiaries are obligated to make funds available to us through the payment of dividends. Cash Flows 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 March 31, (In millions) 2021 2020 Net cash provided from (used for): Operating activities $ 52 $ 60 Investing activities (7) (3) Financing activities (105) (3) Cash (decrease) increase during the period $ (59) $ 54 Operating Activities Net cash provided from operating activities was $52 million for the three months ended March 31, 2021, compared to $60 million for the three months ended March 31, 2020. Net cash provided from operating activities in 2021 comprised $21 million in earnings adjusted for non-cash charges and a $31 million decrease in cash required for working capital. The decrease in cash required for working capital was driven by growth in our underlying business. Net cash provided from operating activities in 2020 comprised $25 million in earnings adjusted for non-cash charges and a $35 million decrease in cash required for working capital. The decrease in cash required for working capital was driven by growth in our underlying business. Investing Activities Net cash used for investing activities was $7 million and $3 million for the three months ended March 31, 2021 and 2020, respectively. Capital expenditures were $7 million for the three months ended March 31, 2021, compared to $8 million for the three months ended March 31, 2020, and included recurring capital needs and technology projects. We expect capital expenditures for the full year 2021 relating to recurring capital needs and the continuation of investments in information systems and productivity enhancing technology to be approximately $35 million to $45 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 were $5 million and were driven by the maturities of marketable securities. There were no cash flows provided from purchases, sales and maturities of securities, net, for the three months ended March 31, 2021. There were no sales of marketable securities in the three months ended March 31, 2021 and 2020. Financing Activities Net cash used for financing activities was $105 million and $3 million for the three months ended March 31, 2021 and 2020, respectively, and primarily consisted of payments on debt. For the three months ended March 31, 2021, amounts include the partial repayment of $100 million of the Term Loan Facility. 26 Contractual Obligations Our 2020 Form 10-K includes disclosures of our contractual obligations and commitments as of December 31, 2020. We continue to make the contractually required payments, and, therefore, the 2021 obligations and commitments described in our 2020 Form 10-K have been reduced by the required payments. During the three months ended March 31, 2021, we repaid $100 million of the outstanding principal amount of the Term Loan Facility. This amount was disclosed in our 2020 Form 10-K as a required principal payment in 2025. Based on applicable rates at March 31, 2021 plus specified margins, this partial repayment results in a reduction in interest expense of approximately $12 million in total for the years 2021 through 2025. Financial Position The following discussion describes changes in our financial position from December 31, 2020 to March 31, 2021:  Cash and cash equivalents decreased during the three months ended March 31, 2021, primarily due to the repayment of $100 million of outstanding principal amount of the Term Loan Facility, offset, in part, by cash provided from operating activities.  Accounts payable increased during the three months ended March 31, 2021, reflecting the timing of trade payables due to the seasonality of our business.  Deferred revenue increased during the three months ended March 31, 2021, primarily due to the recognition of a contract liability of $45 million related to the recognition of monthly-pay customer revenue on an other-than-straight-line basis to match the timing of cost recognition.  Long-term debt decreased during the three months ended March 31, 2021, due to the repayment of $100 million of outstanding principal amount of the Term Loan Facility. Off-Balance Sheet Arrangements As of March 31, 2021, 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. Accordingly, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. 27