What changed in this filing

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Item 1. Financial Statements

2022-05-06 compared with 2021-10-29 · 86 added, 158 removed, 374 unchanged (39% of the section changed)

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Cost of services rendered

3 unchanged sentences

Interest expense

Interest and net investment (income) loss

Loss on extinguishment of debt

1 unchanged sentence

Provision for income taxes

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

Net unrealized gain (loss) on derivative instruments

Other Comprehensive Income, Net of Income Taxes:

Net unrealized gain on derivative instruments

Total Comprehensive Income

4 unchanged sentences

(In millions, except share data)

September 30,

Current Assets:

Cash and cash equivalents

Receivables, less allowance of $ 2 in each period

Contract asset

Receivables, less allowance of $ 3 and $ 2 , respectively

Prepaid expenses and other assets

11 unchanged sentences

Home service plan claims

Interest payable

Deferred revenue

11 unchanged sentences

2,000,000,000 shares authorized;

85,768,848 shares issued and 85,221,181 shares outstanding at September 30, 2021 and 85,477,779 shares issued and outstanding at December 31, 2020

85,980,791 shares issued and 82,303,166 shares outstanding at March 31, 2022 and 85,798,765 shares issued and 83,232,481 shares outstanding as of December 31, 2021

Additional paid-in capital

Retained earnings (accumulated deficit)

Retained earnings

Accumulated other comprehensive loss

Less common stock held in treasury, at cost;

547,667 shares at September 30, 2021

Total Equity (Deficit)

3,677,625 shares at March 31, 2022 and 2,566,284 shares as of December 31, 2021

Total (Deficit) Equity

Total Liabilities and Shareholders'

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Changes in Equity (Deficit) (Unaudited)

Condensed Consolidated Statement of Changes in Deficit (Unaudited)

(In millions)

Three Months Ended

Nine Months Ended

September 30,

Balance at beginning of period

3 unchanged sentences

Exercise of stock options

Issuance of common stock

Taxes paid related to net share settlement of equity awards

12 unchanged sentences

Balance at end of period

Total Equity (Deficit)

Total Deficit

See accompanying Notes to the unaudited Condensed Consolidated Financial Statements.

1 unchanged sentence

(In millions)

Nine Months Ended

September 30,

Three Months Ended

Cash and Cash Equivalents at Beginning of Period

2 unchanged sentences

Depreciation and amortization expense

Deferred income tax provision

Stock-based compensation expense

12 unchanged sentences

Purchases of property and equipment

Business acquisitions, net of cash received

Purchases of available-for-sale securities

Sales and maturities of available-for-sale securities

Net Cash Used for Investing Activities

Cash Flows from Financing Activities:

Borrowings of debt, net of discount

Payments of debt and finance lease obligations

Debt issuance cost paid

Call premium paid on retired debt

Repurchase of common stock

1 unchanged sentence

Net Cash Used for Financing Activities

Cash (Decrease) Increase During the Period

Cash Decrease During the Period

Cash and Cash Equivalents at End of Period

5 unchanged sentences

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 home service plan customers usually subscribe to an annual service plan agreement that covers the repair or replacement of major components of more than 20 home systems and appliances, including electrical, plumbing, 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 September 30, 2021, we had over two million active home service plans across all 50 states and the District of Columbia.

We recommend that the accompanying condensed consolidated financial statements be read in conjunction with the audited consolidated and combined financial statements and the notes thereto included in our 2020 Form 10-K.

At March 31, 2022, we had 2.2 million active home service plans across all 50 states and the District of Columbia.

We recommend that the accompanying condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in our 2021 Form 10-K.

The accompanying condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods presented.

The results of operations for any interim period are not indicative of the results that might be achieved for a full year.

Impact of the COVID-19 Pandemic

On March 11, 2020, the World Health Organization (“WHO”) characterized the novel coronavirus disease (“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.

Macroeconomic Conditions

Changes in macroeconomic conditions, including inflation, global supply chain challenges and the persistence of the COVID-19 pandemic, especially as they may affect existing home sales, interest rates, consumer confidence or labor availability, may reduce demand for our services, increase our costs and adversely impact our business.

While these macroeconomic conditions generally impact the United States as a whole, we believe our nationwide presence limits the risk of poor economic conditions in any particular region of the United States.

During the first three months of 2022, our financial condition and results of operations were adversely impacted by the following:

 The challenging seller’s market, driven, in part, by extremely low home inventory levels, continued to constrain demand for home service plans in the first-year real estate channel.

 Our contractors continued to be impacted by inflation, including higher labor, fuel and parts and equipment costs.

We continue to take actions to mitigate these impacts, including increasing the share of parts and equipment our contractors source through us, increasing the percent of service requests completed by lower-cost preferred contractors and accelerating contractor recruitment efforts.

 Industry-wide parts availability challenges continued to drive elevated appliance replacement levels due to lack of parts availability, further contributing to increased costs and adversely impacting the customer experience, which was reflected in our customer retention rate.

 Due to labor availability challenges, we continued to experience workforce retention issues, including difficulties in hiring and retaining employees in customer service operations and throughout our business, and we believe our contractors are experiencing similar workforce challenges.

The COVID-19 Pandemic

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

In response to the COVID-19 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.

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

During the first nine months of 2021, our financial condition and results of operations were adversely impacted by the COVID-19 pandemic as follows:

 The tight existing home sales market continued to constrain demand for home service plans in the first-year real estate channel.

Additionally, due to the annual nature of our home service plan agreements and the corresponding recognition of revenue over this annual period, real estate revenue for the first quarter of 2021 was adversely impacted by the decline in U.S.

existing home sales that occurred in the second quarter of 2020.

 We continued to experience an increase in appliance claims compared to pre-pandemic levels primarily due to increased usage of home systems and appliances driven by customers spending greater time at home in response to COVID-19.

In addition, industry-wide parts availability challenges have caused increased cost pressure, and, more specifically, additional appliance replacements due to lack of parts availability, further contributing to the increased costs.

These industry-wide supply chain challenges also impacted the customer experience, which was reflected in our customer retention rate.

 We incurred incremental customer service wages due to a higher number of service requests in the appliance trade compared to pre-pandemic levels, which was primarily a result of customers spending greater time at home in response to COVID-19.

Additionally, due to labor availability challenges, we continued to experience difficulties in hiring and retaining customer service personnel.

Significant Accounting Policies

Our significant accounting policies are described in Note 2 to the audited consolidated and combined financial statements included in our 2020 Form 10-K.

There have been no material changes to the significant accounting policies for the nine months ended September 30, 2021.

Our significant accounting policies are described in Note 2 to the audited consolidated financial statements included in our 2021 Form 10-K.

There have been no material changes to the significant accounting policies for the three months ended March 31, 2022.

The majority of our revenue is generated from annual home service plan agreements entered into with our customers.

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Three Months Ended

Nine Months Ended

September 30,

(In millions)

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We capitalize the incremental costs of obtaining a contract with a customer, primarily sales commissions, and recognize the expense using the input method in proportion to the costs expected to be incurred in performing services under the contract, over the expected customer relationship period.

Deferred customer acquisition costs were $ 16 million and $ 19 million as of September 30, 2021 and December 31, 2020, respectively.

Amortization of these deferred acquisition costs was $ 5 million and $ 6 million for the three months ended September 30, 2021 and 2020, respectively, and $ 15 million for each of the nine months ended September 30, 2021 and 2020.

Deferred customer acquisition costs were $ 18 million and $ 16 million as of March 31, 2022 and December 31, 2021, respectively.

Amortization of these deferred acquisition costs was $ 4 million for each of the three months ended March 31, 2022 and 2021.

There were no impairment losses in relation to these capitalized costs.

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As a result, a contract asset is created when revenue is recognized on monthly-pay customers before being billed.

As of September 30, 2021, a contract asset of $ 53 million was recorded related to the recognition of monthly-pay customer revenue on an other-than-straight-line basis to match the timing of cost recognition.

Deferred revenue represents a contract liability and is recognized when cash payments are received in advance of the performance of services, including when the amounts are refundable.

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

Deferred revenue was $ 147 million and $ 187 million as of September 30, 2021 and December 31, 2020, respectively.

Changes in deferred revenue for the nine months ended September 30, 2021 were as follows:

Deferred revenue was $ 190 million and $ 155 million as of March 31, 2022 and December 31, 2021, respectively, and, as of March 31, 2022, included a net 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.

Changes in deferred revenue for the three months ended March 31, 2022 were as follows:

(In millions)

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Recognition of deferred revenue

Balance as of September 30, 2021

There was approximately $ 41 million and $ 187 million of revenue recognized in the three and nine months ended September 30, 2021, respectively, that was included in the deferred revenue balance as of December 31, 2020.

Deferred revenue decreased during the nine months ended September 30, 2021, reflecting a decline in the number of first-year real estate home service plans, a shift in the mix of annual-pay customers to monthly-pay customers and the recognition of previously deferred amounts on an other-than-straight-line basis to match the timing of cost recognition.

Balance as of March 31, 2022

There was approximately $ 60 million of revenue recognized in the three months ended March 31, 2022, that was included in the deferred revenue balance as of December 31, 2021.

Deferred revenue increased during the three months ended March 31, 2022, reflecting the net contract liability discussed above, offset, in part, by a decline in the number of first-year real estate home service plans.

Goodwill and Intangible Assets

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An assessment for impairment is performed on October 1 of every year.

The balance of goodwill was $ 512 million as of September 30, 2021 and December 31, 2020.

There were no goodwill or trade name impairment charges recorded in the nine months ended September 30, 2021 and 2020.

There were no accumulated impairment losses recorded as of September 30, 2021 and December 31, 2020.

During the second quarter of 2020, we completed a business acquisition for $ 5 million, which was primarily allocated to developed technology and other intangible assets.

There were no acquisitions during the nine months ended September 30, 2021.

The balance of goodwill was $ 512 million as of March 31, 2022 and December 31, 2021.

There were no goodwill or trade name impairment charges recorded in the three months ended March 31, 2022 and 2021.

There were no accumulated impairment losses recorded as of March 31, 2022 and December 31, 2021.

The table below summarizes the other intangible asset balances:

As of September 30, 2021

As of March 31, 2022

As of December 31, 2021

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(1) Not subject to amortization.

Amortization expense was $ 2 million and $ 2 million for the three months ended September 30, 2021 and 2020, respectively, and $ 8 million and $ 9 million for the nine months ended September 30, 2021 and 2020, respectively.

Amortization expense was $ 2 million and $ 3 million for the three months ended March 31, 2022 and 2021, respectively.

The following table outlines expected amortization expense for existing intangible assets for the remainder of 2022 and the next five years :

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We have operating leases primarily for our corporate offices, customer service centers and engineering and technology campuses.

Our leases have remaining lease terms of two years to 13 years, some of which include options to extend the leases for up to five years .

Our leases have remaining lease terms of less than one year to 13 years, some of which include options to extend the leases for up to five years .

Renewal options that are reasonably certain to be exercised are included in the lease term.

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The weighted-average remaining lease term and weighted-average discount rate related to operating leases is as follows:

September 30,

Weighted-average remaining lease term (years)

Weighted-average discount rate

We recognized operating lease expense of $ 1 million for each of the three months ended September 30, 2021 and 2020 and $ 3 million and $ 2 million for the nine months ended September 30, 2021 and 2020, respectively .

We recognized operating lease expense of $ 1 million for each of the three months ended March 31, 2022 and 2021.

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

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

Nine Months Ended

September 30,

Three Months Ended

(In millions)

1 unchanged sentence

Leased assets obtained in exchange for new lease liabilities

_____________________________

(1) For the nine months ended September 30, 2020, amounts include $ 2 million of lease termination costs related to the decision to consolidate certain operations of Landmark Home Warranty, LLC (“Landmark”) with those of OneGuard Home Warranties (“OneGuard”).

See Note 7 to the accompanying condensed consolidated financial statements for further information.

Supplemental balance sheet information related to operating leases is as follows:

September 30,

(In millions)

5 unchanged sentences

Total operating lease liabilities

The following table presents maturities of our operating lease liabilities as of September 30, 2021.

The following table presents maturities of our operating lease liabilities as of March 31, 2022.

(In millions)

4 unchanged sentences

Our estimated tax rate is adjusted each quarter in accordance with ASC 740.

The effective tax rate on income was 24.3 percent and 24.8 percent for the three months ended September 30, 2021 and 2020, respectively, and 24.4 percent and 25.1 percent for nine months ended September 30, 2021 and 2020, respectively .

The decrease in the effective tax rate for the nine months ended September 30, 2021 compared to 2020 is primarily due to excess tax benefits for share-based awards and income tax credits, offset, in part, by an increase in state income taxes.

The effective tax rate on income was 51.1 percent and 9.8 percent for the three months ended March 31, 2022 and 2021, respectively.

The increase in the effective tax rate for the three months ended March 31, 2022 compared to 2021 is primarily due to share-based awards, offset, in part, by a reduction in state income taxes and an increase in income tax credits.

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

1 unchanged sentence

We are not subject to state and local income tax examinations by tax authorities in jurisdictions where separate income tax returns are filed for the years prior to 2017.

Substantially all of our income before income taxes for the nine months ended September 30, 2021 and 2020 was generated in the United States.

Our policy is to recognize potential interest and penalties related to our tax positions within the tax provision.

Total interest and penalties included in the accompanying condensed consolidated statements of operations and comprehensive income are immaterial.

Restructuring Charges

We incurred restructuring charges of less than $ 1 million (less than $ 1 million, net of tax) for each of the three months ended September 30, 2021 and 2020 and $ 2 million ($ 1 million, net of tax) and $ 4 million ($ 3 million, net of tax) for the nine months ended September 30, 2021 and 2020, respectively.

For the three months ended September 30, 2021, restructuring charges primarily comprised severance costs.

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

For the nine months ended September 30, 2021, restructuring charges comprised $ 1 million of accelerated depreciation of certain technology systems driven by efforts to enhance our technological capabilities and $ 1 million of severance and other costs.

For the nine months ended September 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.

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

As of December 31, 2020, there were $ 1 million of restructuring charges accrued, which were paid or otherwise settled during the nine months ended September 30, 2021.

As of September 30, 2021, there were no accrued restructuring charges in the accompanying condensed consolidated statements of financial position.

Substantially all of our income before income taxes for the three months ended March 31 , 2022 and 2021 was generated in the United States.

Commitments and Contingencies

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Stock-Based Compensation

We recognized stock-based compensation expense of $ 5 million ($ 4 million, net of tax) and $ 4 million ($ 4 million, net of tax) for the three months ended September 30, 2021 and 2020, respectively, and $ 19 million ( 14 million, net of tax) and $ 13 million ($ 11 million, net of tax) for the nine months ended September 30, 2021 and 2020, respectively.

We recognized stock-based compensation expense of $ 6 million ($ 6 million, net of tax) and $ 6 million ($ 4 million, net of tax) for the three months ended March 31, 2022 and 2021, respectively .

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

A summary of awards granted under the Omnibus Plan during the nine months ended September 30, 2021 is presented below:

A summary of awards granted under the Omnibus Plan during the three months ended March 31, 2022 is presented below:

Weighted Avg.

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(1) The number of performance shares granted during the nine months ended September 30, 2021 represents the target value of the awards.

(1) The number of performance shares granted during the three months ended March 31, 2022 represents the target value of the awards.

The performance shares contain a performance condition that is based on our revenue target, and the ultimate number of performance shares to be earned depends on the achievement of this performance condition.

As of September 30, 2021, there was $ 46 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options, restricted stock units (“RSUs”), performance shares and restricted stock awards (“RSAs”).

As of March 31, 2022 , there was $ 73 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options, restricted stock units (“RSUs”), performance shares and restricted stock awards (“RSAs”).

These remaining costs are expected to be recognized over a weighted-average period of 2.58 years.

1 unchanged sentence

Long-term debt is summarized in the following table:

September 30,

(In millions)

1 unchanged sentence

Term Loan B maturing in 2028 (2)

Amended Revolving Credit Facility maturing in 2026

Prior Term Loan Facility maturing in 2025 (3)

Prior Revolving Credit Facility maturing in 2023

2026 Notes (4)

Revolving Credit Facility maturing in 2026

Less current portion

1 unchanged sentence

___________________________________

(1) As of September 30, 2021, presented net of $ 2 million in unamortized debt issuance costs.

(2) As of September 30, 2021, presented net of $ 4 million in unamortized debt issuance costs and $ 2 million in unamortized original issue discount.

(3) As of December 31, 2020, presented net of $ 5 million in unamortized debt issuance costs and $ 1 million in unamortized original issue discount.

(4) As of December 31, 2020, presented net of $ 4 million in unamortized debt issuance costs.

Credit Facilities

On February 17, 2021, we repaid $ 100 million of the outstanding principal amount of the Prior 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.

On June 17, 2021, we entered into the Amended Credit Agreement, providing for the Term Loan A maturing June 17, 2026 , the Term Loan B maturing June 17, 2028 and the Amended Revolving Credit Facility, which terminates June 17, 2026 .

The net proceeds of the transaction, together with cash on hand, were used to redeem the remaining outstanding principal amounts of $ 534 million of the Prior Term Loan Facility and $ 350 million of the 2026 Notes at a price of 106.1 %.

In addition, the Amended Revolving Credit Facility replaced the Prior Revolving Credit Facility .

In connection with the repayments, we recorded a loss on extinguishment of debt of $ 30 million in the second quarter of 2021, which included a “make-whole” redemption premium of $ 21 million on the 2026 Notes and the write-off of $ 9 million of debt issuance costs and original issue discount.

The interest rates applicable to the Term Loan A and the Amended Revolving Credit Facility are based on a fluctuating rate of interest based on the Consolidated First Lien Leverage Ratio ( as defined in the Amended Credit Agreement ) and measured by reference to either, at our option, (i) an adjusted LIBOR plus a margin range of 1.50 % to 2.00 % per annum or (ii) an alternate base rate plus a margin range of 0.50 % to 1.00 % per annum.

The interest rates applicable to the Term Loan B are based on a fluctuating rate of interest measured by reference to either, at our option, (i) an adjusted LIBOR plus a margin of 2.25 % per annum or (ii) an alternate base rate plus a margin of 1.25 % per annum.

The obligations under the Amended Credit Agreement are guaranteed by certain subsidiaries (collectively, the “Guarantors”) and are secured by substantially all of the material tangible and intangible assets of Frontdoor and the Guarantors, subject to certain customary exceptions.

The Amended Revolving Credit Facility provides for senior secured revolving loans and stand-by and other letters of credit.

The Amended Revolving Credit Facility limits outstanding letters of credit to $ 250 million.

As of September 30, 2021, there were $ 2 million of letters of credit outstanding and $ 248 million of available borrowing capacity under the Amended Revolving Credit Facility.

The Amended Credit Agreement contains certain affirmative and negative covenants, including limitations on the incurrence of indebtedness, liens, ability to engage in certain fundamental transactions, make certain dispositions, make certain restricted payments and engage in transactions with affiliates.

The Amended Credit Agreement also contains a financial covenant requiring the maintenance of a Consolidated First Lien Leverage Ratio, as defined in the Amended Credit Agreement, of not greater than 3.50 to

1.00 at the end of each fiscal quarter or, subject to certain limitations, 4.00 to 1.00 following material acquisitions .

As of September 30, 2021, we were in compliance with the financial covenants under the Amended Credit Agreement that were in effect on such date.

(1) As of March 31, 2022 , and December 31, 2021, each presented net of $ 2 million in unamortized debt issuance costs.

(2) As of March 31, 2022 , and December 31, 2021, each presented net of $ 3 million in unamortized debt issuance costs and $ 2 million in unamortized original issue discount.

Scheduled Long-term Debt Payments

As of September 30, 2021, future scheduled long - term debt payments are $ 4 million for the remainder of 2021, $ 17 million for each of the years ending December 31, 2022 through 2025 and $ 205 million for the year ending December 31, 2026.

As of March 31, 2022, future scheduled long - term debt payments are $ 13 million for the remainder of 2022, $ 17 million for each of the years ending December 31, 2023 through 2025, $ 205 million for the year ending December 31, 2026 and $ 4 million for the year ending December 31, 2027.

Supplemental Cash Flow Information

Supplemental information relating to the accompanying condensed consolidated statements of cash flows is presented in the following table:

Nine Months Ended

September 30,

Three Months Ended

(In millions)

2 unchanged sentences

Income tax payments, net of refunds

Interest income

Comprehensive Income (Loss)

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Net current period other comprehensive income (loss)

Balance as of September 30, 2021

Balance as of March 31, 2022

Balance as of December 31, 2020

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Net current period other comprehensive income (loss)

Balance as of September 30, 2020

Balance as of March 31, 2021

___________________________________

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See reclassifications out of AOCI below for further details.

Reclassifications out of AOCI included the following components for the periods indicated.

Reclassifications out of AOCI included the following components.

Amounts Reclassified from Accumulated

Other Comprehensive Income (Loss)

Nine Months Ended

September 30,

Consolidated Statements of

Three Months Ended

Condensed Consolidated Statements of

(In millions)

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See Note 13 to the accompanying condensed consolidated financial statements for the effective portion of the gain or loss on derivative instruments recorded in AOCI and for the amounts reclassified out of AOCI and into earnings.

As the underlying forecasted transactions occur during the next 12 months, the unrealized hedging loss in AOCI expected to be recognized in earnings is $ 8 million, net of tax, as of September 30, 2021.

As the underlying forecasted transactions occur during the next 12 months, the unrealized hedging loss in AOCI expected to be recognized in earnings is $ 3 million, net of tax, as of March 31, 2022 .

The amounts that are ultimately reclassified into earnings will be based on actual interest rates at the time the positions are settled and may differ materially from the amount noted above.

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The period-end carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued liabilities approximate fair value because of the short maturity of these instruments.

The carrying amount of total debt was $ 629 million and $ 975 million, and the estimated fair value was $ 635 million and $ 1,004 million as of September 30, 2021 and December 31, 2020, respectively.

The carrying amount of total debt was $ 621 million and $ 625 million, and the estimated fair value was $ 626 million and $ 630 million as of March 31, 2022 and December 31, 2021, respectively.

The fair value of our debt is 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.

The fair values presented reflect the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).

The fair value estimates presented in this report are based on information available to us as of September 30, 2021 and December 31, 2020.

The fair value estimates presented in this report are based on information available to us as of March 31, 2022 and December 31, 2021.

We value our interest rate swap contract using a forward interest rate curve obtained from a third-party market data provider.

1 unchanged sentence

The expected future settlements are determined by comparing the contract interest rate to the expected forward interest rate as of each settlement date and applying the difference between the two rates to the notional amount of debt in the interest rate swap contract.

We did not change our valuation techniques for measuring the fair value of any financial assets and liabilities during the nine months ended September 30, 2021.

We did not change our valuation techniques for measuring the fair value of any financial assets and liabilities during the three months ended March 31, 2022 .

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

There were no transfers between levels during the nine months ended September 30, 2021 and 2020.

The carrying amount and estimated fair value of our financial instruments that are recorded at fair value on a recurring basis for the periods presented are as follows:

There were no transfers between levels during the three months ended March 31, 2022 and 2021.

The carrying amount and estimated fair value of our financial instruments that are recorded at fair value on a recurring basis are as follows:

Estimated Fair Value Measurements

3 unchanged sentences

‎ Unobservable

As of September 30, 2021:

As of March 31, 2022:

Financial Liabilities:

13 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In millions, except per share data)

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Basic and diluted earnings per share are calculated as follows:

Three Months Ended

Nine Months Ended

September 30,

(In millions, except per share data)

6 unchanged sentences

___________________________________

(1) Restricted stock units of 0.3 million and 0.1 million shares for the three months ended September 30, 2021 and 2020, respectively, and 0.3 million and 0.1 million shares for the nine months ended September 30, 2021 and 2020, respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

(2) Options to purchase 0.7 million and 0.9 million shares for the three months ended September 30, 2021 and 2020, respectively, and 0.6 million and 0.7 million shares for the nine months ended September 30, 2021 and 2020, respectively, were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

(1) RSUs of 0.4 million shares for the three months ended March 31, 2022 were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

There were no such anti-dilutive RSUs for the three months ended March 31, 2021.

(2) Options to purchase 1.2 million shares for the three months ended March 31, 2022 were not included in the diluted earnings per share calculation because their effect would have been anti-dilutive.

There were no such anti-dilutive options for the three months ended March 31, 2021.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

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These forward-looking statements are made only as of the date of this report, and we do not undertake any obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, and changes in future operating results over time or otherwise.

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

“Risk Factors” in our 2021 Form 10-K.

SUMMARY OF MATERIAL RISKS

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

2 unchanged sentences

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

 weakening general economic conditions, especially as they may affect existing home sales, unemployment and consumer confidence or spending levels;

 our ability to successfully implement our business strategies;

 our ability to attract, retain and maintain positive relations with third-party contractors and vendors;

 adverse weather conditions and Acts of God;

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

 changes in macroeconomic conditions, including inflation, global supply chain challenges and the persistence of the COVID-19 pandemic, especially as they may affect existing home sales, interest rates, consumer confidence or labor availability;

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

 failure of our marketing efforts to be successful or cost-effective;

 our ability to attract and retain key personnel;

 our dependence on labor availability, third-party vendors, including business process outsourcers, and third-party component suppliers;

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

 our dependence on our real estate customer acquisition channel;

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

 our dependence on third-party vendors, including business process outsourcers, and third-party component suppliers;

 compliance with, or violation of, laws and regulations, including consumer protection laws, increasing our legal and regulatory expenses;

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 cybersecurity breaches, disruptions or failures in our technology systems and our failure to protect the security of personal information about our customers;

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

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

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 requirement to recognize impairment charges;

 failure to maintain our strategic relationships with the real estate brokerages and agents that comprise our real estate customer acquisition channel;

 third-party use of our trademarks as search engine keywords to direct our potential customers to their own websites;

 inappropriate use of social media by us or other parties to harm our reputation;

 our limited history of operating as an independent company;

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

 tax liabilities and potential indemnification of Terminix for material taxes if the distribution fails to qualify as tax-free;

 the effects of our substantial indebtedness and the limitations contained in the agreements governing such indebtedness;

 increases in interest rates increasing the cost of servicing our substantial indebtedness;

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

 the effects of our significant indebtedness and the limitations contained in the agreements governing such indebtedness;

 increases in interest rates increasing the cost of servicing our indebtedness;

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

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

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We use our website as a channel of distribution for company information.

We will make available free of charge on the Investor section of our website our Annual Report Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.

We will make available free of charge on the Investor section of our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.

We also make available through our website other reports filed with or furnished to the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act, as well as our Code of Conduct and Financial Code of Ethics.

Financial and other material information regarding Frontdoor is routinely posted on our website and is readily accessible.

We do not intend for information contained in our website to be part of this Quarterly Report on Form 10-Q.

We do not intend for information contained on our website to be part of this Quarterly Report on Form 10-Q.

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

What changed 10-Q

Item 1. Financial Statements