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 financial statements and related notes thereto included in our 2022 Form 10-K and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 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 the risk factors discussed in Part I, Item 1A. “Risk Factors” in our 2022 Form 10-K. Overview Frontdoor is the leading provider of home service plans in the United States, as measured by revenue, and operates primarily under the American Home Shield brand. 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 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, 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 on-demand home services 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. As of March 31, 2023, we had 2.1 million active home service plans, which were offered nationally. For the three months ended March 31, 2023, we generated revenue, net income and Adjusted EBITDA of $367 million, $22 million and $54 million, respectively . For the three months ended March 31, 2022, we generated revenue, net income and Adjusted EBITDA of $351 million, $2 million and $25 million, respectively . For a reconciliation of Adjusted EBITDA to net income, see “—Results of Operations for the three months ended March 31, 2023 and 2022—Adjusted EBITDA.” For the three months ended March 31, 2023 , our total operating revenue included 76 percent of revenue derived from existing customer renewals, while nine 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. 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. Key Factors and Trends Affecting Our Results of Operations Macroeconomic Conditions Current macroeconomic conditions, including inflation, global supply chain challenges, the persistence of the COVID-19 pandemic and instability in the banking system as a result of several recent regional bank failures, 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 impact on us of unfavorable economic conditions in any particular region of the United States. 18 During the first quarter of 2023, our financial condition and results of operations continued to be adversely impacted by the following:  The challenging home seller’s market, driven, in part, by extremely low home inventory levels and rising interest rates, continued to constrain demand for home service plans in the first-year real estate channel.  Consumer sentiment remains pressured as higher inflation eroded real personal income. We believe this environment, combined with our higher prices for a home service plan, impacted our ability to add customers, especially in the direct-to-consumer channel.  Our contractors continued to be impacted by inflation, including higher labor, fuel and parts and equipment costs, and labor availability challenges. We continue to take actions to mitigate these impacts, including increasing the share of parts and equipment our contractors source through us at lower costs, increasing the percent of service requests completed by lower-cost preferred contractors and accelerating contractor recruitment efforts.  Industry-wide parts and equipment availability is on track to return to pre-pandemic levels; however, inflation levels remain high. Seasonality Our business is subject to seasonal fluctuations, which drive variations in our revenue, net income and Adjusted EBITDA for interim periods. Seasonal fluctuations are primarily driven by a higher number of HVAC work orders in the summer months. In 2022, approximately 21 percent, 29 percent, 29 percent and 21 percent of our revenue, approximately two percent, 47 percent, 39 percent and 12 percent of our net income, and approximately 12 percent, 36 percent, 37 percent and 15 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, typically in the winter and summer months, can lead to an increase in service requests related to home systems, particularly HVAC systems, resulting in higher costs and lower profitability, while mild temperatures in the winter or summer months can lead to lower home systems claim frequency, resulting in lower costs and higher profitability. For example, favorable weather trends in the first quarter of 2023 as compared to the first quarter of 2022 favorably impacted contract claims costs. While weather variations as described above may affect our business, major weather events and other similar Acts of God, or natural disasters such as typhoons, hurricanes, tornadoes or earthquakes, typically do not increase our obligations to provide service. Generally, repairs associated with such isolated events are addressed by homeowners’ and other forms of insurance as opposed to the home service plans that we offer. 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. 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. While we have a broad range of competitors in each locality and region, we are the only home service plan company providing home service plans nationwide. The broader U.S. home services industry is also highly competitive. We compete against businesses providing on-demand home services directly and those offering leads to contractors seeking to provide on-demand home services. 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. We believe our nationwide network of approximately 15,000 pre-qualified professional contractor firms, in combination with our large base of contracted customers, differentiate us from other platforms in the home services industry. 19 Acquisition Activity We anticipate that the highly fragmented nature of the home service plan category will continue to create strategic opportunities for acquisitions. 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 and geographic presence. For example, in 2019, we acquired Streem to enable home service professionals to more efficiently interact with customers and complete repairs, and, in 2020, we acquired a business to expand on-demand home services via its 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 measures of Adjusted EBITDA and Free Cash Flow. See “ — Results of Operations for the Three Months Ended March 31, 2023 and 2022—Adjusted EBITDA” for a reconciliation of net income to Adjusted EBITDA and “ — Liquidity and Capital Resources—Free Cash Flow” for a reconciliation of net cash provided from operating activities to Free Cash Flow, as well as “Key Business Metrics” for further discussion of Adjusted EBITDA and Free Cash Flow. Management uses Adjusted EBITDA and Adjusted EBITDA margin to facilitate operating performance comparisons from period to period. We believe these non-GAAP financial measures provide investors, analysts and other interested parties useful information to evaluate our business performance as they facilitate company-to-company operating performance comparisons. Management believes Free Cash Flow is useful as a supplemental measure of our liquidity. Management uses Free Cash Flow to facilitate company-to-company cash flow comparisons, which may vary from company to company for reasons unrelated to operating performance. While we believe these non-GAAP financial measures are useful in evaluating our business, they should be considered as supplemental in nature and are 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, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies, limiting their usefulness as comparative measures. 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. The majority of our revenue is generated from annual home service plan contracts entered into with our customers. 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. 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 healthcare; contractor costs; parts, appliances and home systems costs; tariffs; insurance premiums; and various regulatory compliance costs. 20 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, if any, of stock options, performance options (which are stock options that become exercisable 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), restricted stock units (“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 restricted stock awards (“RSAs”) are reflected in diluted earnings per share by applying the treasury stock method. Adjusted EBITDA and Adjusted EBITDA margin. We evaluate our operating and financial performance primarily based on Adjusted EBITDA, which is a financial measure not calculated in accordance with U.S. GAAP. We define Adjusted EBITDA as net income before: depreciation and amortization expense; goodwill and intangibles impairment; restructuring charges; provision for income taxes; non-cash stock-based compensation expense; interest expense; 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. Free Cash Flow is a financial measure that is 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 on our growth (reduction) in number of home service plans and customer retention rate as measurements of our operating performance. These measurements are presented on a rolling 12-month basis in order to avoid seasonal anomalies. The number of home service plans is representative of our recurring home service plan customer base and is measured as the number of customers with active contracts as of the respective period-end date. Our customer retention rate is calculated as the ratio of the number of end-of-period home service plan contracts to the sum of the number of beginning-of-period home service plan contracts and the number of new home service plan sales and acquired accounts during the respective period. 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 2022 Form 10-K. There have been no material changes to our critical accounting policies for the three months ended March 31, 2023 . 21 Results of Operations % of Revenue Three Months Ended Increase Three Months Ended March 31, (Decrease) March 31, (In millions) 2023 2022 % 2023 2022 Revenue $ 367 $ 351 4 % 100 % 100 % Cost of services rendered 197 207 (5) 54 59 Gross Profit 170 144 18 46 41 Selling and administrative expenses 125 125 (1) 34 36 Depreciation and amortization expense 9 8 10 2 2 Restructuring charges 1 — * — — Interest expense 10 7 42 3 2 Interest and net investment income (3) — * (1) — Income before Income Taxes 29 3 * 8 1 Provision for income taxes 7 2 * 2 — Net Income $ 22 $ 2 * % 6 % — % _______________________________ * not meaningful Revenue We reported revenue of $367 million and $351 million for the three months ended March 31, 2023 and 2022 , respectively . The following table provides a summary of our r evenue by major customer acquisition channel: Three Months Ended March 31, Increase (Decrease) (In millions) 2023 2022 $ % Renewals $ 278 $ 247 $ 32 13 % Real estate (1) 33 45 (13) (28) Direct-to-consumer (1) 44 46 (2) (5) Other 11 13 (1) (11) Total $ 367 $ 351 $ 15 4 % ________________________________ (1) First-year revenue only. Revenue increased four percent for the three months ended March 31, 2023 compared to the three months ended March 31, 2022. The increase in renewal revenue primarily reflects improved price realization. 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 decrease in direct-to-consumer revenue primarily reflects a decline in the number of first-year direct-to-consumer home service plans which we believe resulted from the impact of inflation on consumer sentiment, higher-priced home service plan offerings and a changing competitive landscape, offset, in part, by improved price realization. The decrease in other revenue was primarily driven by lower Streem revenue. 22 The following table provides a summary of the number of home service plans, growth in number of home service plans and customer retention rate: As of March 31, (In millions) 2023 2022 Number of home service plans 2.09 2.19 Reduction in number of home service plans (4) % (3) % Customer retention rate 75.9 % 74.1 % The reduction in the number of home service plans as of March 31, 2023 was primarily 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 a decline in the number of direct-to-consumer home service plans, which we believe resulted from the impact of inflation on consumer sentiment, higher-priced home service plan offerings and a changing competitive landscape. Cost of Services Rendered We reported cost of services rendered of $ 197 million and $207 million for the three months ended March 31, 2023 and 2022 , respectively. The following table provides a summary of the changes in cost of services rendered: (In millions) Three Months Ended March 31, 2022 $ 207 Impact of change in revenue (7) Contract claims costs (4) Three Months Ended March 31, 2023 $ 197 The impact of change in revenue is driven by the reduction in number of home service plans. The decrease in contract claims costs reflects a $6 million favorable adjustment related to the development of prior period claims, compared to a $9 million unfavorable adjustment in the first quarter of 2022. Additionally, first-quarter 2023 contract claims costs reflects a favorable weather impact of $6 million, offset, in part, by inflationary cost pressures, including higher contractor-related expenses and parts and equipment costs. Selling and Administrative Expenses We reported selling and administrative expenses of $125 million for each of the three months ended March 31, 2023 and 2022 . The following tables provide a summary of the components of selling and administrative expenses: Three Months Ended March 31, (In millions) 2023 2022 Sales and marketing costs $ 59 $ 56 Customer service costs 26 28 General and administrative costs 40 41 Total $ 125 $ 125 The following table provides a summary of the changes in selling and administrative expenses: (In millions) Three Months Ended March 31, 2022 $ 125 Sales and marketing costs 3 Customer service costs (2) Stock-based compensation expense (1) Three Months Ended March 31, 2023 $ 125 Sales and marketing costs increased due to our continued investment in marketing to drive sales growth in the home service plan direct-to-consumer channel. Customer service costs decreased primarily due to lower labor costs driven by a lower number of service requests. 23 Depreciation and Amortization Expense Depreciation expense was $8 million and $6 million for the three months ended March 31, 2023 and 2022, respectively. Amortization expense was $1 million and $2 million for the three months ended March 31, 2023 and 2022 , respectively . Depreciation expense increased primarily due to incremental capital expenditures. Amortization expense decreased due to certain intangible assets being fully amortized subsequent to March 31, 2022. Restructuring Charges We had restructuring charges of $1 million and less than $1 million during the three months ended March 31, 2023 and 2022, respectively. For the three months ended March 31, 2023, these charges primarily include severance costs. Interest Expense Interest expense was $10 million and $7 million for the three months ended March 31, 2023 and 2022 , respectively, with the increase driven by higher interest rates on our variable rate debt. Interest and Net Investment Income Interest and net investment income was $3 million and less than $1 million for the three months ended March 31, 2023 and 2022, respectively, with the increase driven by higher interest rates on our cash and cash equivalent balances. Provision for Income Taxes The effective tax rate on our income was 25.2 percent and 51.1 percent for the three months ended March 31, 2023 and 2022 , respectively. The decrease in our effective tax rate was primarily due to the impacts of share-based awards and state income taxes on limited pre-tax income in the prior year. Net Income Net income was $22 million and $2 million for the three months ended March 31, 2023 and 2022 , respectively. The increase was primarily driven by the operating results discussed above. Adjusted EBITDA Adjusted EBITDA was $54 million and $25 million for the three months ended March 31, 2023 and 2022 , respectively. The following table provides a summary of the changes in our Adjusted EBITDA: (In millions) Three Months Ended March 31, 2022 $ 25 Impact of change in revenue 22 Contract claims costs 4 Sales and marketing costs (3) Customer service costs 2 Interest and net investment income 3 Three Months Ended March 31, 2023 $ 54 The decrease in contract claims costs reflects a $6 million favorable adjustment related to the development of prior period claims, compared to a $9 million unfavorable adjustment in the first quarter of 2022. Additionally, first-quarter 2023 contract claims costs reflects a favorable weather impact of $6 million, offset, in part, by inflationary cost pressures, including higher contractor-related expenses and parts and equipment costs. Sales and marketing costs increased due to our continued investment in marketing to drive sales growth in the home service plan direct-to-consumer channel. Customer service costs decreased primarily due to lower labor costs driven by a lower number of service requests. The increase in interest and net investment income was driven by higher interest rates on our cash and cash equivalent balances. 24 A reconciliation of Net Income to Adjusted EBITDA is as follows: Three Months Ended March 31, (In millions) 2023 2022 Net Income $ 22 $ 2 Depreciation and amortization expense 9 8 Restructuring charges (1) 1 — Provision for income taxes 7 2 Non-cash stock-based compensation expense (2) 5 6 Interest expense 10 7 Adjusted EBITDA $ 54 $ 25 _________________________________ (1) We exclude restructuring charges from Adjusted EBITDA because we believe it does not reflect our ongoing operations and because we believe doing so is useful to investors in aiding period-to-period comparability. (2) We exclude non-cash stock-based compensation expense from Adjusted EBITDA primarily because it is a non-cash expense and because it is not used by management to assess ongoing operational performance. We believe excluding this expense from Adjusted EBITDA is useful to investors in aiding period-to-period comparability. Liquidity and Capital Resources Liquidity A substantial portion of our liquidity needs are due to debt service requirements on our indebtedness. 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, 2023, we were in compliance with the covenants under the Credit Agreement. Based on current conditions, we do not believe the ongoing inflationary cost pressures, global supply chain challenges and the persistence of the COVID-19 pandemic will affect our ongoing ability to meet our debt covenants. Cash and cash equivalents totaled $337 million and $292 million as of March 31, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, the total net assets subject to these third-party restrictions were $150 million and $145 million, respectively. As of March 31, 2023, there was $2 million of letters of credit outstanding under our $250 million Revolving Credit Facility, and the available borrowing capacity under the Revolving Credit Facility was $248 million. The letters of credit are posted in lieu of cash to satisfy regulatory requirements in certain states in which we operate. We currently believe that cash generated from operations, our cash on hand and available borrowing capacity under the Revolving Credit Facility as of March 31, 2023 will provide us with sufficient liquidity to meet our obligations in the short- and long-term. In March 2023, in connection with the planned phase-out of LIBOR, we amended our Credit Facilities to replace LIBOR with SOFR as the benchmark rate under the Credit Agreement. This change was effective in March 2023 for Term Loan A and the Revolving Credit Facility and will be effective in June 2023 for Term Loan B. We closely monitor the performance of our investment portfolio, primarily cash deposits. 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 have a diversified investment strategy for our cash investments, and look for opportunities to improve their performance, by diversifying these financial instruments among various counterparties, with priority given for the major financial institutions that serve as lenders under the Credit Agreement. Generally, our cash deposits may be redeemed on demand and are maintained with major financial institutions with solid credit ratings, although in substantially all of our accounts, our holdings exceed insured limits. 25 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. On September 7, 2021, we announced a three-year repurchase authorization of up to $400 million of outstanding shares of our common stock. We expect to fund the share repurchases from net cash provided from operating activities. As of March 31, 2023, 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 , and we had $238 million remaining available for future repurchases under the program. 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. The actual timing, number, manner and value of any shares repurchased will depend on several factors, including the market price of the company’s stock, general market and economic conditions, the company’s liquidity requirements, applicable legal requirements and other business considerations. The repurchase program does not obligate us to acquire any number of shares in any specific period or at all and may be suspended or discontinued at any time at our discretion. 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. 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 Quarterly Report on Form 10-Q are summarized in the following table: Three Months Ended March 31, (In millions) 2023 2022 Net cash provided from (used for): Operating activities $ 60 $ 47 Investing activities (8) (8) Financing activities (7) (47) Cash increase (decrease) during the period $ 45 $ (8) Operating Activities Net cash provided from operating activities was $60 million and $47 million for the three months ended March 31, 2023 and 2022 , respectively. 26 Net cash provided from operating activities for the three months ended March 31, 2023 comprised $34 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 for the three months ended March 31, 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. Investing Activities Net cash used for investing activities was $8 million for each of the three months ended March 31, 2023 and 2022 . Capital expenditures were $8 million and $9 million for the three months ended March 31, 2023 and 2022 , respectively, and included recurring capital needs and technology projects. We expect capital expenditures for the full year 2023 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. Financing Activities Net cash used for financing activities was $7 million and $47 million for the three months ended March 31, 2023 and 2022 , respectively. For the three months ended March 31, 2023, we made scheduled principal payment of debt of $4 million. 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 . Free Cash Flow The following table reconciles net cash provided from operating activities, which we consider to be the most directly comparable U.S. GAAP measure, to Free Cash Flow using data derived from the condensed consolidated statements of cash flows in Part 1, Item 1 of this Quarterly Report on Form 10-Q: Three Months Ended March 31, (In millions) 2023 2022 Net cash provided from operating activities $ 60 $ 47 Property additions (8) (9) Free Cash Flow $ 52 $ 39 Contractual Obligations Our 2022 Form 10-K includes disclosures of our contractual obligations and commitments as of December 31, 2022. We continue to make the contractually required payments associated with these commitments. There are no significant additions to our obligations and commitments since those reported in the 2022 Form 10-K. 27 Financial Position A summary of the significant changes in our financial position from December 31, 2022 to March 31, 2023 is as follows:  Home service plan claims decreased during the three months ended March 31, 2023, reflecting both the faster payment of claims and a lower number of service requests per customer as compared to the prior quarter.  Deferred revenue increased during the three months ended March 31, 2023, 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.  Total shareholders’ equity was $83 million as of March 31, 2023 compared to $61 million as of December 31, 2022. The increase was primarily driven by net income. See the condensed consolidated statements of changes in equity (deficit) included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.