What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-06 · 167 added, 71 removed, 233 unchanged (51% of the section changed)

9 unchanged sentences

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

For the three months ended March 31, 2022 and 2021, we generated revenue, net income and Adjusted EBITDA of $351 million, $2 million and $25 million, respectively, and $329 million, $5 million and $36 million, respectively.

For the three months ended March 31, 2022 , our total operating revenue included 70 percent of revenue derived from existing customer renewals, while 13 percent and 13 percent were derived from new home service plan sales made in conjunction with existing home real estate transactions and direct-to-consumer sales, respectively, and three percent was derived from other revenue channels.

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 real estate transactions and direct-to-consumer sales, respectively, and two percent was derived from other revenue channels.

At June 30, 2022 , we had 2.2 million active home service plans across all 50 states and the District of Columbia.

For the three months ended June 30, 2022 and 2021, we generated revenue, net income and Adjusted EBITDA of $487 million, $33 million and $77 million, respectively, and $462 million, $40 million and $114 million, respectively.

For the six months ended June 30, 2022 and 2021, we generated revenue, net income and Adjusted EBITDA of $838 million, $35 million and $102 million, respectively, and $791 million, $45 million and $150 million, respectively.

For the six months ended June 30, 2022 , our total operating revenue included 71 percent of revenue derived from existing customer renewals, while 12 percent and 13 percent were derived from new home service plan sales made in conjunction with existing home real estate transactions and direct-to-consumer sales, respectively, and three percent was derived from other revenue channels.

For the six months ended June 30, 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 real estate transactions and direct-to-consumer sales, respectively, and three percent was derived from other revenue channels.

New CEO Appointment

On May 20, 2022, we announced the appointment of William Cobb, Chairman of the Board of Directors of the Company, as Chief Executive Officer of the Company, effective June 1, 2022.

Cobb has served as Chairman of the Board since October 2018 and continues to hold that office.

Key Factors and Trends Affecting Our Results of Operations

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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.

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

 The challenging home 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.

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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.

Although the economy has improved since the initial outbreak of the pandemic, we are unable to predict the time required for a widespread sustainable economic recovery to take hold.

Given the wide disparities in vaccination rates driven by continued vaccine hesitancy, combined with the emergence of COVID-19 variants and surges in COVID-19 cases, we expect that a significant number of people will continue to spend greater time at 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.

We also expect that industry-wide supply chain challenges will continue to contribute to increased costs and impact the customer experience, which may affect customer retention.

Given the emergence of COVID-19 variants and surges in COVID-19 cases, a significant number of people may continue to spend greater time at 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.

We also expect that industry-wide supply chain challenges may continue to contribute to increased costs and impact the customer experience, which may affect customer retention.

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

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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.

For example, contract claims costs were unfavorably impacted by the extremely hot weather across the country during the second quarter of 2022 as compared to 2021.

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 in the first quarter of 2021 as compared to 2020 negatively impacted contract claims costs, while favorable weather trends in the third quarter of 2021 as compared to 2020 favorably impacted contract claims costs .

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.

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We have also used acquisitions to enhance our technological capabilities and geographic presence.

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 2019, we acquired Streem to support the service experience for our customers, reduce costs and create potentially new revenue opportunities across a variety of channels.

Non-GAAP Financial Measures

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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 2021 Form 10-K.

There have been no material changes to our critical accounting policies for the three months ended March 31, 2022 , certain of which are described below.

There have been no material changes to our critical accounting policies for the six months ended June 30, 2022 , 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, 2022 , 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, 2022 , 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.

Results of Operations for the Three Months Ended March 31, 2022 and 2021

During the third quarter of 2022, we will continue our evaluation of the long-term plan for the Streem reporting unit.

We will be more focused on integrating Streem’s technology into the core business and will be less focused on selling this technology platform to third-party customers;

therefore, an impairment of goodwill and intangible assets at Streem is reasonably possible.

Results of Operations

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Three Months Ended

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We reported revenue of $351 million and $329 million for the three months ended March 31, 2022 and 2021, respectively .

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Six Months Ended

(In millions)

Cost of services rendered

Selling and administrative expenses

Depreciation and amortization expense

Restructuring charges

Interest expense

Interest and net investment (income) loss

Loss on extinguishment of debt

Income before Income Taxes

Provision for income taxes

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We reported revenue of $487 million and $462 million for the three months ended June 30, 2022 and 2021, respectively, and $838 million and $791 million for the six months ended June 30, 2022 and 2021, respectively .

Revenue by major customer acquisition channel is as follows:

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Three Months Ended

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(1) First-year revenue only.

Revenue increased seven percent for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 , primarily driven by higher renewal revenue due to improved price realization and growth in the number of renewed home service plans.

The decrease in real estate revenue primarily reflects a decline in the number of first-year real estate home service plans driven by a continuation of the challenging seller’s market, offset, in part, by improved price realization.

Revenue increased five percent for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 , primarily driven by higher renewal revenue due to improved price realization and growth in the number of renewed home service plans.

The decrease in real estate revenue primarily reflects a decline in the number of first-year real estate home service plans driven by a continuation of the challenging home seller’s market.

The increase in direct-to-consumer revenue primarily reflects improved price realization and a mix shift to higher priced products.

The increase in other revenue was driven by growth in ProConnect and Streem.

The increase in other revenue was driven by growth in ProConnect.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Six Months Ended

(In millions)

Increase (Decrease)

Real estate (1)

Direct-to-consumer (1)

Total revenue

________________________________

(1) First-year revenue only.

Revenue increased six percent for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 , primarily driven by higher renewal revenue due to improved price realization and growth in the number of renewed home service plans.

The decrease in real estate revenue primarily reflects a decline in the number of first-year real estate home service plans driven by a continuation of the challenging home seller’s market.

The increase in direct-to-consumer revenue primarily reflects improved price realization and a mix shift to higher priced products.

The increase in other revenue was driven by growth in ProConnect.

Number of home service plans, growth in number of home service plans and customer retention rate are presented below.

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Customer retention rate

The number of home service plans and customer retention rate as of March 31, 2022 were negatively impacted by a decline in the number of first-year real estate home service plans, which was driven by a continuation of the challenging seller’s market, as well as the impact on customer experience of industry-wide supply chain challenges.

The number of home service plans and customer retention rate as of June 30, 2022 were negatively impacted by a decline in the number of first-year real estate home service plans, which was driven by a continuation of the challenging home seller’s market, as well as the impact on customer experience of industry-wide supply chain challenges.

Cost of Services Rendered

We reported cost of services rendered of $207 million and $181 million for the three months ended March 31, 2022 and 2021, respectively.

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

We reported cost of services rendered of $276 million and $221 million for the three months ended June 30, 2022 and 2021, respectively, and $483 million and $402 million for the six months ended June 30, 2022 and 2021, respectively.

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

Three Months Ended

Six Months Ended

(In millions)

Three Months Ended March 31, 2021

Contract claims cost

Bad debt expense

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

(In millions)

Three Months Ended June 30, 2021

Impact of change in revenue

Contract claims costs

Three Months Ended March 31, 2022

The increase in contract claims costs reflects an acceleration of inflationary cost pressures, including rising contractor labor, fuel, parts and equipment costs, and industry-wide parts and equipment availability challenges, offset, in part, by a lower number of service requests and process improvement benefits.

Industry-wide parts availability challenges continued to drive elevated appliance replacement levels, contributing to the increased cost pressures.

In addition, contract claims costs for the first quarter of 2022 include a $9 million unfavorable adjustment related to the adverse development of prior year claims, primarily from the fourth quarter of 2021.

Three Months Ended June 30, 2022

The increase in contract claims costs primarily reflects an acceleration of inflationary cost pressures, including rising contractor-related expenses and higher parts and equipment costs.

Contract claims costs were also unfavorably impacted by the extremely hot weather across the country during the second quarter.

In addition, contract claims costs for the second quarter of 2022 include a $7 million unfavorable adjustment related to the adverse development of prior period claims.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

(In millions)

Six Months Ended June 30, 2021

Impact of change in revenue

Contract claims costs

Bad debt expense

Six Months Ended June 30, 2022

The increase in contract claims costs primarily reflects an acceleration of inflationary cost pressures, including rising contractor-related expenses and higher parts and equipment costs.

Contract claims costs were also unfavorably impacted by the extremely hot weather across the country during the second quarter.

In addition, contract claims costs for the six months ended June 30, 2022 include a $12 million unfavorable adjustment related to the adverse development of prior period claims.

Selling and Administrative Expenses

We reported selling and administrative expenses of $125 million and $118 million for the three months ended March 31, 2022 and 2021, respectively.

For the three months ended March 31, 2022 and 2021, selling and administrative expenses comprised sales and marketing costs of $56 million and $53 million, respectively, customer service costs of $28 million and $28 million, respectively, and general and administrative expenses of $41 million and $37 million, respectively.

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

We reported selling and administrative expenses of $140 million and $136 million for the three months ended June 30, 2022 and 2021, respectively, and $266 million and $254 million for the six months ended June 30, 2022 and 2021, respectively.

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

Three Months Ended

Six Months Ended

(In millions)

Three Months Ended March 31, 2021

Sales and marketing costs

Customer service costs

General and administrative costs

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

(In millions)

Three Months Ended June 30, 2021

Sales and marketing costs

Stock-based compensation expense

General and administrative costs

Three Months Ended June 30, 2022

The increase in sales and marketing costs was primarily driven by increased investments to drive sales growth in the home service plan direct-to-consumer channel and ProConnect.

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

General and administrative costs increased primarily due to increased professional fees.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

(In millions)

Six Months Ended June 30, 2021

Sales and marketing costs

Stock-based compensation expense

General and administrative costs

Six Months Ended June 30, 2022

The increase in sales and marketing costs was primarily driven by increased investments to drive sales growth in the home service plan direct-to-consumer channel and ProConnect.

General and administrative costs increased primarily due to increased professional fees and higher personnel costs.

Depreciation and Amortization Expense

Depreciation expense was $6 million for each of the three months ended March 31, 2022 and 2021 .

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

Depreciation expense was $7 million and $6 million for the three months ended June 30, 2022 and 2021, respectively, and $13 million and $12 million for the six months ended June 30, 2022 and 2021, respectively .

Amortization expense was $2 million and $3 million for the three months ended June 30, 2022 and 2021, respectively, and $4 million and $6 million for the six months ended June 30, 2022 and 2021, respectively .

The decrease in amortization expense was due to certain intangible assets becoming fully amortized during 2021.

Restructuring Charges

Restructuring charges were $12 million and $1 million for the three months ended June 30, 2022 and 2021, respectively, and $12 million and $2 million for the six months ended June 30, 2022 and 2021, respectively.

For the three and six months ended June 30, 2022, restructuring charges primarily comprised an $11 million impairment charge related to our Memphis headquarters facility operating lease right-of-use asset and leasehold improvements and $1 million of severance and other costs.

The impairment was the result of vacating the facility with the intent to sublease.

For the three months ended June 30, 2021 , restructuring charges primarily comprised accelerated depreciation of certain technology systems driven by efforts to enhance our technological capabilities.

For the six months ended June 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.

Interest Expense

Interest expense was $7 million and $13 million for the three months ended March 31, 2022 and 2021, respectively.

Interest expense was $7 million and $12 million for the three months ended June 30, 2022 and 2021, respectively, and $14 million and $25 million for the six months ended June 30, 2022 and 2021, respectively.

The decrease was driven by our debt reduction and refinancing activities in 2021.

Loss on Extinguishment of Debt

Loss on extinguishment of debt was $30 million and $31 million for t he three and six months ended June 30, 2021, respectively.

Amounts relate to our debt reduction and refinancing activities in 2021.

There were no such charges for the three and six months ended June 30, 2022.

Provision for 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.

Net income was $2 million and $5 million for the three months ended March 31, 2022 and 2021, respectively .

For the three months ended March 31, 2022 compared to 2021, the decrease in net income comprised the $2 million decrease in the aforementioned operating results and the $1 million increase in the provision for income taxes.

The effective tax rate on income was 23.2 percent and 26.0 percent for the three months ended June 30, 2022 and 2021, respectively, and 25.1 percent and 24.5 percent for the six months ended June 30, 2022 and 2021, respectively.

The decrease in the effective tax rate for the three months ended June 30, 2022 compared to 2021 is primarily due to share-based awards and income tax credits, offset, in part, by an increase in state income taxes.

The increase in the effective tax rate for the six months ended June 30, 2022 compared to 2021 is primarily due to share-based awards and state income taxes, offset, in part, by an increase in income tax credits.

Net income was $33 million and $40 million for the three months ended June 30, 2022 and 2021, respectively, and $35 million and $45 million for the six months ended June 30, 2022 and 2021, respectively .

For both the three and six months ended June 30, 2022 compared to 2021, the decrease in net income was primarily driven by the decrease in the aforementioned operating results and the increase in restructuring charges, offset, in part, by the decrease in interest expense and the impact of the prior year loss on extinguishment of debt.

Adjusted EBITDA

Adjusted EBITDA was $25 million and $36 million for the three months ended March 31, 2022 and 2021, respectively .

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

Adjusted EBITDA was $77 million and $114 million for the three months ended June 30, 2022 and 2021, respectively, and $102 million and $150 million for the six months ended June 30, 2022 and 2021, respectively .

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

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

(In millions)

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Impact of change in revenue

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General and administrative costs

Three Months Ended March 31, 2022

Industry-wide parts availability challenges continued to drive elevated appliance replacement levels, contributing to the increased cost pressures.

Three Months Ended June 30, 2022

The increase in contract claims costs primarily reflects an acceleration of inflationary cost pressures, including rising contractor-related expenses and higher parts and equipment costs.

Contract claims costs were also unfavorably impacted by the extremely hot weather across the country during the second quarter.

In addition, contract claims costs for the second quarter of 2022 include a $7 million unfavorable adjustment related to the adverse development of prior period claims.

The increase in sales and marketing costs was primarily driven by increased investments to drive sales growth in the home service plan direct-to-consumer channel and ProConnect.

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

General and administrative costs increased primarily due to increased professional fees.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

(In millions)

Six Months Ended June 30, 2021

Impact of change in revenue

Contract claims costs

Sales and marketing costs

General and administrative costs

Bad debt expense

Six Months Ended June 30, 2022

The increase in contract claims costs primarily reflects an acceleration of inflationary cost pressures, including rising contractor-related expenses and higher parts and equipment costs.

Contract claims costs were also unfavorably impacted by the extremely hot weather across the country during the second quarter.

In addition, contract claims costs for the six months ended June 30, 2022 include a $12 million unfavorable adjustment related to the adverse development of prior period claims.

The increase in sales and marketing costs was primarily driven by increased investments to drive sales growth in the home service plan direct-to-consumer channel and ProConnect.

General and administrative costs increased primarily due to increased professional fees and higher personnel costs.

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

Three Months Ended

Six Months Ended

(In millions)

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The Credit Agreement contains 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, 2022 , we were in compliance with the covenants under the agreements that were in effect on such date.

As of June 30, 2022 , 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.

Cash and cash equivalents totaled $255 million and $262 million as of March 31, 2022 and December 31, 2021, respectively.

Cash and cash equivalents totaled $269 million and $262 million as of June 30, 2022 and December 31, 2021, 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, 2022 , and December 31, 2021, the total net assets subject to these third-party restrictions was $163 million and $175 million, respectively.

As of March 31, 2022 , there were $2 million of letters of credit outstanding and $248 million of available borrowing capacity under the Revolving Credit Facility.

See “—Limitations on Distributions and Dividends by Subsidiaries.” As of June 30, 2022 , and December 31, 2021, the total net assets subject to these third-party restrictions was $159 million and $175 million, respectively.

As of June 30, 2022 , 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 $340 million at March 31, 2022 , consisting of $92 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, 2022 will provide us with sufficient liquidity to meet our obligations in the short- and long-term.

Available liquidity was $357 million at June 30, 2022 , consisting of $109 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 June 30, 2022 will provide us with sufficient liquidity to meet our obligations in the short- and long-term.

We closely monitor the performance of our investment portfolio.

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We expect to fund the share repurchases from net cash provided from operating activities.

As of March 31, 2022, we have purchased a total of 3,643,468 outstanding shares at an aggregate cost of $143 million under this program, which is included in treasury stock on the condensed consolidated statements of financial position.

As of June 30, 2022, we have purchased a total of 4,478,194 outstanding shares at an aggregate cost of $162 million under this program, which is included in treasury stock on the condensed consolidated statements of financial position.

Purchases under the repurchase program may be made from time to time by the company in the open market at prevailing market prices (including through a Rule 10b5-1 Plan), in privately negotiated transactions, or through any combination of these methods, through September 3, 2024.

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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 $47 million and $52 million for the three months ended March 31, 2022 and 2021, respectively.

Net cash provided from operating activities in 2022 comprised $14 million in earnings adjusted for non-cash charges and $33 million in cash provided from working capital.

Cash provided from working capital was primarily driven by seasonality.

Net cash provided from operating activities was $94 million and $119 million for the six months ended June 30, 2022 and 2021, respectively.

Net cash provided from operating activities in 2022 comprised $68 million in earnings adjusted for non-cash charges and $26 million in cash provided from working capital.

Cash provided from working capital was primarily driven by seasonality.

Net cash provided from operating activities in 2021 comprised $112 million in earnings adjusted for non-cash charges and an $8 million decrease in cash required for working capital.

The decrease in cash required for working capital was driven by seasonality and growth in our underlying business, offset, in part, by interest payments made in connection with the redemption of the 2026 Notes.

Investing Activities

Net cash used for investing activities was $8 million and $7 million for the three months ended March 31, 2022 and 2021, respectively.

Capital expenditures were $9 million and $7 million for the three months ended March 31, 2022 and 2021, respectively, and included recurring capital needs and technology projects.

Net cash used for investing activities was $19 million and $15 million for the six months ended June 30, 2022 and 2021, respectively.

Capital expenditures were $19 million and $15 million for the six months ended June 30, 2022 and 2021, respectively, and included recurring capital needs and technology projects.

We expect capital expenditures for the full year 2022 relating to recurring capital needs and the continuation of investments in information systems and productivity enhancing technology to be approximately $40 million to $50 million.

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Financing Activities

Net cash used for financing activities was $47 million and $105 million for the three months ended March 31, 2022 and 2021, respectively.

For the three months ended March 31, 2022, we made scheduled principal payments of debt and finance lease obligations of $4 million and purchased outstanding shares at an aggregate cost of $40 million .

For the three months ended March 31, 2021, we made scheduled principal payments of debt and finance lease obligations of $2 million and, as part of our debt reduction and refinancing activities in 2021, made a $100 million debt repayment.

Net cash used for financing activities was $69 million and $378 million for the six months ended June 30, 2022 and 2021, respectively.

For the six months ended June 30, 2022, we made scheduled principal payments of debt and finance lease obligations of $8 million and purchased outstanding shares at an aggregate cost of $59 million .

For the six months ended June 30, 2021, as part of our debt reduction and refinancing activities in 2021, we borrowed $638 million, net of discount, under the Term Loan Facilities and redeemed the remaining outstanding principal amounts of $634 million of the Prior Term Loan Facility and $350 million of the 2026 Notes.

In connection with the repayments, we paid a “make-whole” redemption premium of $21 million on the 2026 Notes and debt issuance costs of $8 million.

Free Cash Flow

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GAAP measure, to Free Cash Flow using data derived from our audited consolidated financial statements.

Three Months Ended

Six Months Ended

(In millions)

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Financial Position

The following discussion describes changes in our financial position from December 31, 2021 to March 31, 2022 :

 Deferred revenue increased during the three months ended March 31, 2022, reflecting a net contract liability related to the recognition of monthly pay customer revenue on an other-than-straight-line basis to match the timing of cost recognition, offset, in part, by a decline in the number of first-year real estate home service plans.

 Other long-term liabilities decreased during the three months ended March 31, 2022, primarily due to the change in the valuation of our interest rate swap.

 Total shareholders’ equity was a deficit of $20 million as of March 31, 2022 compared to a surplus of $2 million as of December 31, 2021.

The decrease was primarily driven by the repurchases of common stock, offset, in part, by the change in valuation of our interest rate swap during the three months ended March 31, 2022.

The following discussion describes changes in our financial position from December 31, 2021 to June 30, 2022 :

 Contract asset increased during the six months ended June 30, 2022, reflecting a net contract asset related to the recognition of monthly pay customer revenue on an other-than-straight-line basis to match the timing of cost recognition.

 Accounts payable increased during the six months ended June 30, 2022, reflecting the timing of trade payables due to the seasonality of our business.

 Home service plan claims increased during the six months ended June 30, 2022, reflecting the seasonality of contract claims and inflation, which increased amounts due to contractors and suppliers.

 Deferred revenue decreased during the six months ended June 30, 2022, reflecting a decline in the number of first-year real estate home service plans.

 Other long-term liabilities decreased during the six months ended June 30, 2022, primarily due to the change in the valuation of our interest rate swap.

 Total shareholders’ equity was $6 million as of June 30, 2022 compared to $2 million as of December 31, 2021.

The increase was primarily driven by net income and the change in valuation of our interest rate swap, offset, in part, by the repurchases of common stock.

See the condensed consolidated statements of changes in equity (deficit) included in Part I, Item 1 of this report for further information.

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