What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-02 compared with 2023-05-04 · 164 added, 77 removed, 238 unchanged (50% of the section changed)

8 unchanged sentences

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.

Frontdoor also provides a one-stop app for home repair and maintenance.

Enabled by our Streem technology, the app empowers homeowners by connecting them in real time through video chat with pre-qualified experts to diagnose and solve their problems.

Additionally, Frontdoor now offers home service plans under the Frontdoor brand.

As of June 30, 2023, we had 2.1 million active home service plans across all brands in the United States.

For the three months ended June 30, 2023 and 2022, we generated revenue, net income and Adjusted EBITDA of $523 million, $70 million and $121 million, respectively, and $487 million, $33 million and $77 million, respectively .

For the six months ended June 30, 2023 and 2022, we generated revenue, net income and Adjusted EBITDA of $890 million, $91 million and $174 million, respectively, and $838 million, $35 million and $102 million, respectively.

For a reconciliation of Adjusted EBITDA to net income, see “—Results of Operations—Adjusted EBITDA.”

For the six months ended June 30, 2023 , our total operating revenue included 76 percent of revenue derived from existing customer renewals, while eight 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 four percent was derived from other revenue channels.

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.

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.

Evolving macroeconomic conditions, including inflation, global supply chain challenges 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, consumer sentiment 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.

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.

During the six months ended June 30, 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 a decline in the number of home resale transactions combined with 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.

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

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

 Industry-wide parts and equipment availability has returned to pre-pandemic levels;

however, inflation levels for the period remained high.

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

4 unchanged sentences

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.

For example, favorable weather trends in the first six months of 2023 as compared to the first six months of 2022 resulted in a lower number of service requests per customer, which 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.

25 unchanged sentences

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.

See “ — Results of Operations—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.

60 unchanged sentences

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 .

There have been no material changes to our critical accounting policies for the six months ended June 30, 2023 .

Results of Operations

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Three Months Ended

11 unchanged sentences

* not meaningful

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:

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

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

Income before Income Taxes

Provision for income taxes

_______________________________

* not meaningful

We reported revenue of $523 million and $487 million for the three months ended June 30, 2023 and 2022 , respectively, and $890 million and $838 million for the six months ended June 30, 2023 and 2022, respectively.

The following tables provide a summary of our r evenue by major customer acquisition channel:

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Three Months Ended

5 unchanged sentences

(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.

Revenue increased seven percent for the three months ended June 30, 2023 compared to the three months ended June 30, 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.

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 a change in consumer sentiment as a result of macroeconomic factors and higher consumer price sensitivity.

The increase in other revenue was primarily driven by growth in on-demand home services .

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Six Months Ended

Increase (Decrease)

(In millions)

Real estate (1)

Direct-to-consumer (1)

________________________________

(1) First-year revenue only.

Revenue increased six percent for the six months ended June 30, 2023 compared to the six months ended June 30, 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 increase in other revenue was primarily driven by growth in on-demand home services .

The following table provides a summary of the number of home service plans, growth in number of home service plans and customer retention rate:

3 unchanged sentences

Customer retention rate

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.

The reduction in the number of home service plans as of June 30, 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 a change in consumer sentiment as a result of macroeconomic factors and higher consumer price sensitivity.

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:

We reported cost of services rendered of $253 million and $276 million for the three months ended June 30, 2023 and 2022 , respectively, and $449 million and $483 million for the six months ended June 30, 2023 and 2022, respectively .

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

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

(In millions)

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Impact of change in revenue

Contract claims costs

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

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.

The decrease in contract claims costs reflects a favorable weather impact of $17 million as cooler than normal weather drove a lower number of service requests per customer.

Additionally, contract claims costs reflects a $4 million favorable adjustment related to the development of prior period claims, compared to a $7 million unfavorable adjustment in the second quarter of 2022, and continued process improvement initiatives.

These favorable items were offset, in part, by inflationary cost pressures, including higher contractor-related expenses and parts and equipment costs.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

(In millions)

Six Months Ended June 30, 2022

Impact of change in revenue

Contract claims costs

Six Months Ended June 30, 2023

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 favorable weather impact of $23 million as mild weather drove a lower number of service requests per customer.

Additionally, contract claims costs reflects a $9 million favorable adjustment related to the development of prior period claims, compared to a $12 million unfavorable adjustment in the first six months of 2022, and continued process improvement initiatives.

These favorable items were 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 .

We reported selling and administrative expenses of $162 million and $140 million for the three months ended June 30, 2023 and 2022, respectively, and $287 million and $266 million for the six months ended June 30, 2023 ad 2022, respectively .

The following tables provide a summary of the components of selling and administrative expenses:

Three Months Ended

Six Months Ended

(In millions)

2 unchanged sentences

General and administrative costs

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

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

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

(In millions)

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Sales and marketing costs

1 unchanged sentence

Stock-based compensation expense

Three Months Ended March 31, 2023

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.

General and administrative costs

Three Months Ended June 30, 2023

Sales and marketing costs increased due to our investment in marketing associated with the launch of the Frontdoor brand.

Customer service costs decreased primarily due to lower labor costs driven by a lower number of service requests.

General and administrative costs increased primarily due to investments in technology and increased personnel costs and professional fees.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

(In millions)

Six Months Ended June 30, 2022

Sales and marketing costs

Customer service costs

Stock-based compensation expense

General and administrative costs

Six Months Ended June 30, 2023

Sales and marketing costs increased due to our investment in marketing associated with the launch of the Frontdoor brand.

Customer service costs decreased primarily due to lower labor costs driven by a lower number of service requests.

General and administrative costs increased primarily due to investments in technology and increased personnel costs and professional fees.

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.

Depreciation expense was $8 million and $7 million for the three months ended June 30, 2023 and 2022, respectively, and $16 million and $13 million for the six months ended June 30, 2023 and 2022, respectively.

Amortization expense was $1 million and $2 million for the three months ended June 30, 2023 and 2022, respectively, and $2 million and $4 million for the six months ended June 30, 2023 and 2022, respectively .

The increase in depreciation expense was primarily due to incremental capital expenditures.

The decrease in amortization expense was primarily driven by the impairment to the Streem reporting unit in the third quarter of 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.

We had restructuring charges of less than $1 million and $12 million for the three months ended June 30, 2023 and 2022, respectively, and $1 million and $12 million for the six months ended June 30, 2023 and 2022, respectively.

For the three and six months ended June 30, 2023, these charges primarily include severance costs.

For the three and six months ended June 30, 2022, restructuring charges primarily comprised an $11 million impairment charge related to our prior corporate 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.

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 expense was $10 million and $7 million for the three months ended June 30, 2023 and 2022 , respectively, and $20 million and $14 million for the six months ended June 30, 2023 and 2022, respectively.

The increase was 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.

Interest and net investment income was $4 million and less than $1 million for the three months ended June 30, 2023 and 2022, respectively, and $8 million and less than $1 million for the six months ended June 30, 2023 and 2022, respectively.

The increase driven was 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 was $22 million and $2 million for the three months ended March 31, 2023 and 2022 , respectively.

The effective tax rate on income before income taxes was 24.8 percent and 23.2 percent for the three months ended June 30, 2023 and 2022 , respectively, and 24.9 percent and 25.1 percent for the six months ended June 30, 2023 and 2022, respectively.

The increase in the effective tax rate for the three months ended June 30, 2023 compared to 2022 was primarily due to the impacts of share-based awards and a decrease in income tax credits, partially offset by state income taxes.

Net income was $70 million and $33 million for the three months ended June 30, 2023 and 2022 , respectively, and $91 million and $35 million for the six months ended June 30, 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.

Adjusted EBITDA was $121 million and $77 million for the three months ended June 30, 2023 and 2022 , respectively, and $174 million and $102 million for the six months ended June 30, 2023 and 2022, respectively.

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

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

(In millions)

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Impact of change in revenue

2 unchanged sentences

Customer service costs

General and administrative costs

Interest and net investment income

Three Months Ended March 31, 2023

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.

Three Months Ended June 30, 2023

The impact of change in revenue reflects improved price realization, offset, in part, by the reduction in number of home service plans.

The decrease in contract claims costs reflects a favorable weather impact of $17 million as cooler than normal weather drove a lower number of service requests per customer.

These favorable items were 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 investment in marketing associated with the launch of the Frontdoor brand.

Customer service costs decreased primarily due to lower labor costs driven by a lower number of service requests.

General and administrative costs increased primarily due to investments in technology and increased personnel costs and professional fees.

The increase in interest and net investment income was driven by higher interest rates on our cash and cash equivalent balances.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

(In millions)

Six Months Ended June 30, 2022

Impact of change in revenue

Contract claims costs

Sales and marketing costs

Customer service costs

General and administrative costs

Interest and net investment income

Six Months Ended June 30, 2023

The impact of change in revenue reflects improved price realization, offset, in part, by the reduction in number of home service plans.

The decrease in contract claims costs reflects a favorable weather impact of $23 million as mild weather drove a lower number of service requests per customer.

These favorable items were 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 investment in marketing associated with the launch of the Frontdoor brand.

Customer service costs decreased primarily due to lower labor costs driven by a lower number of service requests.

General and administrative costs increased primarily due to investments in technology and increased personnel costs and professional fees.

The increase in interest and net investment income was driven by higher interest rates on our cash and cash equivalent balances.

A reconciliation of Net Income to Adjusted EBITDA is as follows:

Three Months Ended

Six Months Ended

(In millions)

12 unchanged sentences

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.

As of June 30, 2023, we were in compliance with the covenants under the Credit Agreement.

We do not believe current macroeconomic conditions will affect our ongoing ability to meet our debt covenants.

Cash and cash equivalents totaled $344 million and $292 million as of June 30, 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.

See “—Limitations on Distributions and Dividends by Subsidiaries.” As of June 30, 2023 and December 31, 2022, the total net assets subject to these third-party restrictions were $158 million and $145 million, respectively.

As of June 30, 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.

We currently believe that cash generated from operations, our cash on hand and available borrowing capacity under the Revolving Credit Facility as of June 30, 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.

This change was effective in March 2023 for Term Loan A and the Revolving Credit Facility and in June 2023 for Term Loan B.

We closely monitor the performance of our investment portfolio, primarily cash deposits.

3 unchanged sentences

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.

Generally, our cash deposits may be redeemed on demand and are maintained with major financial institutions with solid credit ratings, although our holdings exceed insured limits in substantially all of our accounts.

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.

3 unchanged sentences

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.

As of June 30, 2023, we have repurchased a total of 5,552,053 outstanding shares at an aggregate cost of $195 million, which is included in treasury stock on the condensed consolidated statements of financial position , and had $205 million remaining available for future repurchases under this 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.

13 unchanged sentences

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

Six Months Ended

(In millions)

3 unchanged sentences

Financing activities

Cash increase (decrease) during the period

Cash increase during the period

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.

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.

Net cash provided from operating activities was $112 million and $94 million for the six months ended June 30, 2023 and 2022 , respectively.

Net cash provided from operating activities for the six months ended June 30, 2023 comprised $117 million in earnings adjusted for non-cash charges, offset, in part, by $5 million in cash used for working capital.

Cash used for working capital was primarily driven by a decline in the number of first-year real estate home service plans, which are typically paid for upfront at the time of closing on the home sale, offset, in part, by seasonality.

Net cash provided from operating activities for the six months ended June 30, 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.

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.

Net cash used for investing activities was $15 million and $19 million for the six months ended June 30, 2023 and 2022, respectively .

Capital expenditures were $15 million and $19 million for the six months ended June 30, 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.

1 unchanged sentence

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 .

Net cash used for financing activities was $44 million and $69 million for the six months ended June 30, 2023 and 2022 , respectively.

For the six months ended June 30, 2023, we made scheduled principal payment of debt of $8 million and purchased outstanding shares at an aggregate cost of $34 million.

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 .

Free Cash Flow

1 unchanged sentence

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

Six Months Ended

(In millions)

7 unchanged sentences

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.

A summary of the significant changes in our financial position from December 31, 2022 to June 30, 2023 is as follows:

 Contract asset increased during the six months ended June 30, 2023, 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.

 Other accrued liabilities increased during the six months ended June 30, 2023, reflecting an increase in federal income tax payable.

 Deferred revenue decreased during the six months ended June 30, 2023, reflecting a decline in the number of first-year real estate home service plans, which are typically paid for upfront at the time of closing on the home sale.

 Total shareholders’ equity was $131 million as of June 30, 2023 compared to $61 million as of December 31, 2022.

The increase was primarily driven by net income, offset, in part, by repurchases of our common stock.

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

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