What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-06 compared with 2026-04-30 · 124 added, 52 removed, 264 unchanged (40% of the section changed)

10 unchanged sentences

Non-warranty services are primarily marketed to our existing warranty customer base, enabling incremental revenue opportunities beyond traditional warranty coverage.

As of March 31, 2026, we had approximately 2.1 million active home warranties across all brands in the United States.

As of June 30, 2026, we had approximately 2.1 million active home warranties across all brands in the United States.

We also offer new home builder warranty solutions, which deliver value to both builders and homeowners through a suite of builder warranty products and support services.

1 unchanged sentence

Additional add-on programs provide service request management for warranties and claims administration for structural warranties.

For the three months ended March 31, 2026 and 2025, we generated revenue, net income and Adjusted EBITDA of $451 million, $41 million and $104 million, respectively, and $426 million, $37 million and $100 million, respectively.

For the three months ended June 30, 2026 and 2025, we generated revenue, net income and Adjusted EBITDA of $645 million, $125 million and $220 million, respectively, and $617 million, $111 million and $199 million, respectively.

For the six months ended June 30, 2026 and 2025, we generated revenue, net income, and Adjusted EBITDA of $1,096 million, $167 million, $324 million, respectively, and $1,043 million, $148 million and $300 million, respectively.

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

For the three months ended March 31, 2026, our total operating revenue included 78 percent of revenue derived from existing customer renewals, six percent from new home warranty sales made in conjunction with existing home real estate transactions, seven percent derived from direct-to-consumer sales, and nine percent derived from the non-warranty and other revenue channels.

For the three months ended March 31, 2025, our total operating revenue included 78 percent of revenue derived from existing customer renewals, six percent derived from new home warranty sales made in conjunction with existing home real estate transactions, eight percent derived from direct-to-consumer sales, and eight percent was derived from non-warranty and other revenue channels.

For the six months ended June 30, 2026, our total operating revenue included 76 percent of revenue derived from existing customer renewals, seven percent from home warranty sales made in conjunction with existing home real estate transactions, eight percent derived from direct-to-consumer sales, and ten percent derived from the non-warranty and other revenue channels.

For the six months ended June 30, 2025, our total operating revenue included 76 percent of revenue derived from existing customer renewals, seven percent derived from new home warranty sales made in conjunction with existing home real estate transactions, eight percent derived from direct-to-consumer sales, and nine percent was derived from non-warranty and other revenue channels.

Key Factors and Trends Affecting Our Results of Operations

3 unchanged sentences

While these macroeconomic conditions generally impact the United States as a whole, we believe our nationwide presence mitigates the impact on us of unfavorable economic conditions in any particular region of the United States.

Our financial condition and results of operations for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025 continued to be adversely impacted by the following:

Our financial condition and results of operations for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 continued to be adversely impacted by the following:

• Improving but still challenging real estate market conditions, driven by higher home inventory levels offset by a decline in the number of home resale transactions, continue to impact demand for home warranties.

104 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 2025 Form 10-K.

There have been no material changes to our critical accounting policies during the three months ended March 31, 2026.

There have been no material changes to our critical accounting policies during the six months ended June 30, 2026.

Results of Operations

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

Three Months Ended

9 unchanged sentences

Provision for income taxes

We reported revenue of $451 million and $426 million for the three months ended March 31, 2026 and 2025, respectively.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

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

We reported revenue of $645 million and $617 million for the three months ended June 30, 2026 and 2025, respectively, and $1,096 million and $1,043 million for the six months ended June 30, 2026 and 2025, respectively.

The following tables provide a summary of our revenue by major customer acquisition channel for our home warranties and other revenue:

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

Three Months Ended

5 unchanged sentences

(1) First-year revenue only.

Revenue increased 6 percent for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

Revenue increased 5 percent for the three months ended June 30, 2026 compared to the three months ended June 30, 2025.

The increase in renewal revenue reflects improved price realization resulting from our prior pricing actions.

2 unchanged sentences

The increase in non-warranty and other revenue was primarily driven by growth in our HVAC upgrade program.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

Six Months Ended

Increase (Decrease)

(In millions)

Real estate (1)

Direct-to-consumer (1)

Non-warranty and other

(1) First-year revenue only.

Revenue increased 5 percent for the six months ended June 30, 2026 compared to the six months ended June 30, 2025.

The increase in renewal revenue reflects improved price realization resulting from our prior pricing actions.

The decrease in direct-to-consumer revenue reflects lower price realization resulting from our discounting efforts, offset, in part, by an increase in the number of direct-to-consumer home warranties.

The increase in real estate revenue reflects an increase in the number of first-year real estate home warranties, offset, in part, by lower price realization.

The increase in non-warranty and other revenue was primarily driven by growth in our HVAC upgrade program.

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

3 unchanged sentences

Customer retention rate

(1) As of March 31, 2025, excluding the 2-10 HBW home warranties acquired on December 19, 2024, the reduction in home warranties was one percent.

(1) As of June 30, 2025, excluding the 2-10 HBW home warranties acquired on December 19, 2024, the reduction in home warranties was two percent.

Cost of Services Rendered

We reported cost of services rendered of $203 million and $191 million for the three months ended March 31, 2026 and 2025, respectively.

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

We reported cost of services rendered of $267 million and $261 million for the three months ended June 30, 2026 and 2025, respectively, and $470 million and $452 million for the six months ended June 30, 2026 and 2025.

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

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

(In millions)

Three Months Ended March 31, 2025

Three Months Ended June 30, 2025

Impact of change in revenue

Contract claims costs

Three Months Ended March 31, 2026

Three Months Ended June 30, 2026

The increase in cost of services rendered is due to the impact of change in revenue, primarily driven by the increase in non-warranty revenue.

The increase in contract claims costs primarily reflects inflationary cost pressures and a higher number of service requests per customer, driven by an unfavorable weather impact of $1 million.

Additionally, contract claims costs reflects a $6 million favorable adjustment in the first quarter of 2026 related to the development of prior period claims, compared to a $7 million favorable adjustment in the first quarter of 2025.

The decrease in contract claims costs primarily reflects a lower number of service requests per customer, driven by a favorable weather impact of $5 million, offset, in part, by inflationary cost pressures.

Additionally, contract claims costs reflects a $4 million favorable adjustment in each of the second quarters of 2026 and 2025 related to the development of prior period claims.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

(In millions)

Six Months Ended June 30, 2025

Impact of change in revenue

Contract claims costs

Six Months Ended June 30, 2026

The increase in cost of services rendered is due to the impact of change in revenue, primarily driven by the increase in non-warranty revenue.

The increase in contract claims costs primarily reflects inflationary cost pressures, offset, in part, by a lower number of service requests per customer, driven by a favorable weather impact of $5 million.

Additionally, contract claims costs reflects a $7 million favorable adjustment in each of the first six months of 2026 and 2025 related to the development of prior period claims.

Selling and Administrative Expenses

We reported selling and administrative expenses of $162 million and $151 million for the three months ended March 31, 2026 and 2025, respectively.

We reported selling and administrative expenses of $176 million and $172 million for the three months ended June 30, 2026 and 2025, respectively, and $338 million and $323 million for the six months ended June 30, 2026 and 2025, respectively.

The following table provides 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, 2026 Compared to Three Months Ended June 30, 2025

(In millions)

Three Months Ended March 31, 2025

Three Months Ended June 30, 2025

Sales and marketing costs

1 unchanged sentence

Stock-based compensation expense

Acquisition and integration costs

Other general and administrative costs

Three Months Ended March 31, 2026

Sales and marketing costs increased due to due to our investment in marketing associated with our direct-to-consumer channel.

Three Months Ended June 30, 2026

Sales and marketing costs increased due to our investment in marketing associated with our direct-to-consumer channel.

Customer service costs increased primarily due to personnel costs.

Other general and administrative costs decreased due to lower professional fees, offset, in part, by increased personnel costs.

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

(In millions)

Six Months Ended June 30, 2025

Sales and marketing costs

Customer service costs

Stock-based compensation expense

Other general and administrative costs

Six Months Ended June 30, 2026

Sales and marketing costs increased due to our investment in marketing associated with our direct-to-consumer channel.

Customer service costs increased primarily due to personnel costs.

Other general and administrative costs decreased due to lower professional fees, offset, in part, by increased personnel and technology costs.

Depreciation and Amortization Expense

Depreciation expense was $8 million and $10 million for the three months ended March 31, 2026 and 2025, respectively.

Amortization expense was $12 million and $13 million for the three months ended March 31, 2026 and 2025, respectively.

Depreciation expense was $8 million and $9 million for the three months ended June 30, 2026 and 2025, respectively, and $16 million and $19 million for the six months ended June 30, 2026 and 2025, respectively.

Amortization expense was $12 million for each of the three months ended June 30, 2026 and 2025, and $24 million and $25 million for the six months ended June 30, 2026 and 2025, respectively.

Interest Expense

Interest expense was $19 million for the three months ended March 31, 2026 and 2025.

Interest expense was $19 million and $20 million for the three months ended June 30, 2026 and 2025, respectively, and $38 million and $39 million for the six months ended June 30, 2026 and 2025, respectively.

Interest and Net Investment Income

Interest and net investment income was $5 million and $6 million for the three months ended March 31, 2026 and 2025, respectively.

Interest and net investment income was $5 million and $4 million for the three months ended June 30, 2026 and 2025, respectively, and $11 million and $10 million for the six months ended June 30, 2026 and 2025, respectively.

Provision for Income Taxes

The effective tax rate on income before income taxes was 19.3 percent and 22.3 percent for the three months ended March 31, 2026 and 2025, respectively.

The decrease in the effective tax rate for the three months ended March 31, 2026 was primarily due to share-based compensation, offset in part by state income taxes.

Net income was $41 million and $37 million for the three months ended March 31, 2026 and 2025, respectively.

The effective tax rate on income before income taxes was 24.7 percent and 24.3 percent for the three months ended June 30, 2026 and 2025, respectively, and 23.5 percent and 23.8 percent for the six months ended June 30, 2026 and 2025, respectively.

Net income was $125 million and $111 million for the three months ended June 30, 2026 and 2025, respectively, and $167 million and $148 million for six months ended June 30, 2026 and 2025, respectively.

Adjusted EBITDA

Adjusted EBITDA was $104 million and $100 million for the three months ended March 31, 2026 and 2025.

Adjusted EBITDA was $220 million and $199 million for the three months ended June 30, 2026 and 2025, respectively, and $324 million and $300 million for six months ended June 30, 2026 and 2025, respectively.

Summary of Changes in Net Income and Adjusted EBITDA

The following table provides a summary of the changes in net income and Adjusted EBITDA:

The following tables provide a summary of the changes in net income and Adjusted EBITDA:

Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025

(In millions)

Adjusted EBITDA

Three Months Ended March 31, 2025

Three Months Ended June 30, 2025

Impact of change in revenue

3 unchanged sentences

Stock-based compensation expense

Acquisition and integration costs

Other general and administrative costs

Depreciation and amortization expense

Restructuring charges

Interest expense

1 unchanged sentence

Provision for income taxes

Three Months Ended March 31, 2026

Three Months Ended June 30, 2026

Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

(In millions)

Adjusted EBITDA

Six Months Ended June 30, 2025

Impact of change in revenue

Contract claims costs

Sales and marketing costs

Customer service costs

Stock-based compensation expense

Other general and administrative costs

Depreciation and amortization expense

Restructuring charges

Interest expense

Interest and net investment income

Provision for income taxes

Six Months Ended June 30, 2026

For more information on changes in net income or Adjusted EBITDA, see discussion of individual line items above.

2 unchanged sentences

Three Months Ended

Six Months Ended

(In millions)

5 unchanged sentences

Interest expense

Other non-operating expenses (1)

Adjusted EBITDA

10 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, 2026, we were in compliance with the covenants under the Credit Agreement.

As of June 30, 2026, 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 $603 million and $566 million as of March 31, 2026 and December 31, 2025, respectively.

Cash and cash equivalents totaled $627 million and $566 million as of June 30, 2026 and December 31, 2025, respectively.

Our cash and cash equivalents include balances associated with regulatory requirements in our business.

As of March 31, 2026 and December 31, 2025, the total assets subject to these third-party restrictions were $156 million and $151 million, respectively.

As of March 31, 2026, the available borrowing capacity under the Revolving Credit Facility was $250 million.

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, 2026 will provide us with sufficient liquidity to meet our obligations in the short- and long-term.

As of June 30, 2026 and December 31, 2025, the total assets subject to these third-party restrictions were $157 million and $151 million, respectively.

As of June 30, 2026, the available borrowing capacity under the Revolving Credit Facility was $250 million.

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, 2026 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, primarily consisting of cash deposits.

12 unchanged sentences

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.

We repurchased a total of 7,070,122 outstanding shares for the three months ended March 31, 2026 at an aggregate cost of $381 million under this program, which is included in treasury stock on the condensed consolidated statements of financial position included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As of March 31, 2026, we had $269 million remaining available for future repurchases under this program.

As of June 30, 2026 we repurchased a total of 8,481,501 outstanding shares at an aggregate cost of $472 million under this program, which is included in treasury stock on the condensed consolidated statements of financial position included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As of June 30, 2026, we had $178 million remaining available for future repurchases under this program.

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

8 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)

5 unchanged sentences

Operating Activities

Net cash provided from operating activities was $119 million and $124 million for the three months ended March 31, 2026 and 2025, respectively.

Net cash provided from operating activities for the three months ended March 31, 2026 comprised $69 million in earnings adjusted for non-cash charges, offset, in part, by $50 million in cash used primarily for working capital.

Cash provided from working capital was primarily driven by seasonality, offset, in part, by payments of accrued bonuses.

Net cash provided from operating activities for the three months ended March 31, 2025 comprised $67 million in earnings adjusted for non-cash charges and $57 million in cash provided from working capital.

Net cash provided from operating activities was $245 million and $251 million for the six months ended June 30, 2026 and 2025, respectively.

Net cash provided from operating activities for the six months ended June 30, 2026 comprised $223 million in earnings adjusted for non-cash charges, and $22 million in cash provided from working capital.

Cash provided from working capital was primarily driven by seasonality, offset, in part, by payments of accrued bonuses.

Net cash provided from operating activities for the six months ended June 30, 2025 comprised $207 million in earnings adjusted for non-cash charges and $44 million in cash provided from working capital and long-term insurance-related accounts.

Cash provided from working capital was primarily driven by seasonality, offset, in part, by payments of accrued bonuses and a decline in the number of first-year real estate home warranties, which are typically paid for upfront at the time of closing on the home sale.

Investing Activities

Net cash used for investing activities was $7 million for the three months ended March 31, 2026 as compared to net cash provided from investing activities of $47 million for the three months ended March 31, 2025.

For the three months ended March 31, 2026, cash used for purchases of short-term investments was $2 million.

Capital expenditures were $6 million for three months ended March 31, 2026 and included recurring capital needs and technology projects.

Net cash used for investing activities was $14 million for the six months ended June 30, 2026 as compared to net cash provided from investing activities of $42 million for the six months ended June 30, 2025.

For the six months ended June 30, 2026, cash used for purchases of short-term investments was $2 million, and capital expenditures were $12 million for six months ended June 30, 2026 and included recurring capital needs and technology projects.

We have no additional material capital commitments at this time.

For the three months ended March 31, 2025, cash provided from sales and maturities of available-for-sale securities was $60 million, and purchases of available-for-sale securities was $6 million.

Capital expenditures were $7 million for three months ended March 31, 2025, and included recurring capital needs and technology projects.

For the six months ended June 30, 2025, cash provided from sales and maturities of available-for-sale securities was $60 million, purchases of available-for-sale securities was $6 million, and there was $3 million in cash provided from the finalization of the 2-10 HBW Acquisition purchase price.

Capital expenditures were $14 million for six months ended June 30, 2025 and included recurring capital needs and technology projects.

Financing Activities

Net cash used for financing activities was $75 million and $85 million for the three months ended March 31, 2026 and 2025, respectively.

For the three months ended March 31, 2026, we made scheduled principal payments of debt of $7 million and purchased outstanding shares of our common stock at an aggregate cost of $61 million.

Net cash used for financing activities was $169 million and $153 million for the six months ended June 30, 2026 and 2025, respectively.

For the six months ended June 30, 2026, we made scheduled principal payments of debt of $14 million and purchased outstanding shares of our common stock at an aggregate cost of $152 million.

Repurchases of common stock included associated commissions and taxes of $2 million.

For the three months ended March 31, 2025, we made scheduled principal payments of debt of $7 million and purchased outstanding shares of our common stock at an aggregate cost of $71 million.

For the six months ended June 30, 2025, we made scheduled principal payments of debt of $14 million and purchased outstanding shares of our common stock at an aggregate cost of $135 million.

Repurchases of common stock included associated commissions and taxes of $1 million.

2 unchanged sentences

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

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