
PART I. FINANCIAL INFORMATION This section presents unaudited financial statements, management's analysis, market risk, and internal controls ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents unaudited condensed consolidated financial statements, including operations, position, equity, and cash flows, with detailed notes Condensed Consolidated Statements of Operations and Comprehensive Income This section details financial performance, including revenue, gross profit, net income, and EPS Key Financial Highlights (Three Months Ended September 30) | Metric | 2023 (Millions) | 2022 (Millions) | Change (%) | | :----------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $524 | $484 | 8% | | Gross Profit | $268 | $210 | 27% | | Net Income | $71 | $28 | 154% | | Basic EPS | $0.89 | $0.34 | 162% | | Diluted EPS | $0.89 | $0.34 | 162% | Key Financial Highlights (Nine Months Ended September 30) | Metric | 2023 (Millions) | 2022 (Millions) | Change (%) | | :----------------------------- | :-------------- | :-------------- | :--------- | | Revenue | $1,414 | $1,322 | 7% | | Gross Profit | $708 | $565 | 25% | | Net Income | $163 | $63 | 159% | | Basic EPS | $2.01 | $0.77 | 161% | | Diluted EPS | $2.00 | $0.77 | 159% | Condensed Consolidated Statements of Financial Position This section outlines the company's assets, liabilities, and equity at specific points in time Financial Position Highlights (September 30, 2023 vs. December 31, 2022) | Metric | Sep 30, 2023 (Millions) | Dec 31, 2022 (Millions) | Change (Millions) | | :-------------------------- | :---------------------- | :---------------------- | :---------------- | | Total Current Assets | $429 | $330 | +$99 | | Total Assets | $1,168 | $1,082 | +$86 | | Total Current Liabilities | $364 | $364 | $0 | | Long-Term Debt | $580 | $592 | -$12 | | Total Shareholders' Equity | $171 | $61 | +$110 | Condensed Consolidated Statements of Changes in Equity (Deficit) This section tracks changes in shareholders' equity, including net income, stock compensation, and share repurchases - Total Shareholders' Equity increased from $47 million as of September 30, 2022, to $171 million as of September 30, 2023, for the nine-month period20 - Key drivers for the nine months ended September 30, 2023, include net income of $163 million, stock-based compensation expense of $21 million, and common stock repurchases of $(76) million20 Condensed Consolidated Statements of Cash Flows This section summarizes cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (Nine Months Ended September 30) | Activity | 2023 (Millions) | 2022 (Millions) | Change (Millions) | | :-------------------------------- | :-------------- | :-------------- | :---------------- | | Net Cash Provided from Operating Activities | $139 | $80 | +$59 | | Net Cash Used for Investing Activities | $(23) | $(25) | +$2 | | Net Cash Used for Financing Activities | $(88) | $(74) | -$14 | | Cash Increase (Decrease) During the Period | $28 | $(19) | +$47 | | Cash and Cash Equivalents at End of Period | $320 | $244 | +$76 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies, revenue, assets, liabilities, and equity - The notes provide detailed explanations of the financial statements, covering accounting policies, revenue disaggregation, asset impairment, debt structure, and equity changes25 - No material changes to significant accounting policies occurred during the nine months ended September 30, 202327 - The company adopted ASU 2020-04 in March 2023 to replace LIBOR with SOFR for Credit Facilities, which did not materially impact the consolidated financial statements29 Note 1. Description of Business This section provides a high-level description of Frontdoor's business as a leading home service plan provider - Frontdoor is the leading provider of home service plans in the United States, primarily operating under the American Home Shield brand26 - The company offers customizable annual service plans covering repair or replacement of major home systems and appliances, along with on-demand home services via its Streem technology app26 - As of September 30, 2023, Frontdoor had 2.0 million active home service plans across all brands26 Note 2. Significant Accounting Policies This section outlines the significant accounting policies and estimates that require management's judgment - There have been no material changes to the company's significant accounting policies during the nine months ended September 30, 2023, as described in the 2022 Form 10-K27 - Frontdoor adopted ASU 2020-04 in March 2023 to transition from LIBOR to SOFR as the benchmark rate for its Credit Facilities, which did not have a material impact on its financial statements29 Note 3. Revenue This section analyzes revenue performance, detailing changes by acquisition channel and key drivers Revenue by Major Customer Acquisition Channel (Three Months Ended September 30) | Channel | 2023 (Millions) | 2022 (Millions) | Change ($M) | Change (%) | | :---------------- | :-------------- | :-------------- | :---------- | :--------- | | Renewals | $406 | $356 | $50 | 14% | | Real estate | $40 | $51 | $(12) | (23)% | | Direct-to-consumer | $54 | $64 | $(10) | (16)% | | Other | $24 | $13 | $11 | 85% | | Total | $524 | $484 | $40 | 8% | Revenue by Major Customer Acquisition Channel (Nine Months Ended September 30) | Channel | 2023 (Millions) | 2022 (Millions) | Change ($M) | Change (%) | | :---------------- | :-------------- | :-------------- | :---------- | :--------- | | Renewals | $1,083 | $949 | $134 | 14% | | Real estate | $115 | $153 | $(39) | (25)% | | Direct-to-consumer | $157 | $176 | $(19) | (11)% | | Other | $59 | $44 | $16 | 35% | | Total | $1,414 | $1,322 | $91 | 7% | - Deferred customer acquisition costs decreased from $16 million as of December 31, 2022, to $12 million as of September 30, 202338 Note 4. Goodwill and Intangible Assets This section discusses any impairment charges related to goodwill and intangible assets for the reported periods - The goodwill balance remained at $503 million as of September 30, 2023, and December 31, 2022, with no impairment charges recorded in the three and nine months ended September 30, 202345 - In Q3 2022, a $14 million impairment charge was recognized for the Streem reporting unit ($9 million goodwill, $5 million intangible assets) due to a strategic shift to integrate Streem's technology into the core business rather than selling it as a third-party SaaS platform44 - Total intangible assets, net, decreased from $148 million as of December 31, 2022, to $144 million as of September 30, 2