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What changed in Frontdoor, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Frontdoor, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+346 added−352 removedSource: 10-K (2024-02-28) vs 10-K (2023-03-01)

Top changes in Frontdoor, Inc.'s 2023 10-K

346 paragraphs added · 352 removed · 298 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

105 edited+15 added−13 removed21 unchanged
Biggest changeFor 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 their intellectual capital and know-how, technology platform capabilities and geographic presence. 10 Sales and Marketing We market our brands and services to homeowners on a national and local level through various means, including broadcast, digital, marketing partnerships and affiliate relationships and remarketing.
Biggest changeSales and Marketing We market our brands and services to homeowners on a national and local level through various means, including broadcast, digital, marketing partnerships and affiliate relationships and remarketing. We partner with various participants in the residential real estate marketplace, such as real estate brokers and insurance carriers, to market our home warranties.
We provide our customers with a compelling value proposition by offering financial protection against unplanned and expensive home repairs, coupled with the convenience of having repairs completed by experienced professionals whose quality levels are continuously monitored and guaranteed by us.
We provide our customers with a compelling value proposition by offering financial protection against unplanned and expensive home repairs, coupled with the convenience of having repairs guaranteed by us and completed by experienced professionals whose quality levels are continuously monitored.
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 claim frequency and costs and lower profitability, while mild temperatures in the winter or summer months can lead to lower home systems claim frequency. See “Item 7.
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. See “Item 7.
These federal, state and local laws and regulations include laws relating to consumer protection, unfair and/or deceptive trade practices, service contracts, home service plans, home warranties, real estate settlement, wage and hour requirements, contractors, the employment of immigrants, labor relations, licensing, building code requirements, workers’ safety, environmental, privacy and data protection, securities, insurance coverages, sales tax collection and remittance, healthcare, employee benefits, marketing (including, without limitation, telemarketing) and advertising.
These federal, state and local laws and regulations include laws relating to consumer protection, unfair and/or deceptive trade practices, service contracts, home warranties, home service plans, real estate settlement, wage and hour requirements, contractors, the employment of immigrants, labor relations, licensing, building code requirements, workers’ safety, environmental, privacy and data protection, securities, insurance coverages, sales tax collection and remittance, healthcare, employee benefits, marketing (including, without limitation, telemarketing) and advertising.
These targeted investments are expected to result in an enhanced customer experience by providing a more convenient service and improving contractor efficiencies and engagement. We believe these initiatives will lead to improved retention rates over time, cost-savings and the opportunity to deliver additional services to a broader base of satisfied customers. 9 Growing Our Supply Network of Independent Contractors.
These targeted investments are expected to result in an enhanced customer experience by providing a more convenient service and improving contractor efficiencies and engagement. We believe these initiatives will lead to improved retention rates over time, cost-savings and the opportunity to deliver additional services to a broader base of satisfied customers. Growing Our Supply Network of Independent Contractors.
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 home warranty 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.
Technology We are continuing to invest in digital innovation to further increase the ease-of-use of our technology platform for our customers, contractors and commercial partners. Customers. We operate a robust customer technology platform, which makes it easy for customers to purchase from us, request service and manage their account from the convenience of a smartphone or other device.
Technology We are continuing to invest in digital innovation to further increase the ease-of-use of our technology platform for our customers, contractors and commercial partners. Customers. We operate a robust customer technology platform, which makes it easy for customers to purchase from us, request service and manage their account from the convenience of a smartphone or other connected device.
We continue to deepen and expand our supplier relationships, improve access to appliances with the highest demand, increase speed of parts acquisition and expand our service provider network. Geographies. A significant percentage of our revenue is concentrated in the western and southern regions of the United States, including California, Florida and Texas.
We continue to seek to deepen and expand our supplier relationships, improve access to appliances with the highest demand, increase speed of parts acquisition and expand our service provider network. Geographies. A significant percentage of our revenue is concentrated in the western and southern regions of the United States, including California, Florida and Texas.
We also make available through our website other reports filed with or furnished to the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act, as well as our Code of Conduct and Financial Code of Ethics.
We also make available through our corporate website other reports filed with or furnished to the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act, as well as our Code of Conduct and Financial Code of Ethics.
As consumer demand shifts toward more convenient, outsourced services, we believe we have an opportunity as a reliable, scaled service provider with a nationwide network of pre-qualified professional service providers to expand further into on-demand home services.
As consumer demand shifts toward more convenient, outsourced services, we believe we have an opportunity as a reliable, scaled service provider with a nationwide network of qualified professional service providers to expand further into on-demand home services.
Our diversity and inclusion efforts are led by our Diversity Council, which is supported by our Chief Executive Officer (“CEO”) and comprised of other senior and cross-functional leaders and our director of diversity and inclusion. The Diversity Council sponsors employee resource groups to support and celebrate the diversity of our employees.
Our diversity and inclusion efforts are led by our Diversity Council, which is supported by our Chief Executive Officer and comprised of other senior and cross-functional leaders and our director of diversity and inclusion. The Diversity Council sponsors employee resource groups to support and celebrate the diversity of our employees.
We believe our technology-enabled platform provides a foundation for operational and customer service excellence and differentiation, ultimately driving customer and contractor retention and growth. 8 Multi-Channel Sales and Marketing Approach Supported by Sophisticated Consumer Analytics.
We believe our technology-enabled platform provides a foundation for operational and customer service excellence and differentiation, ultimately driving customer and contractor retention and growth. Multi-Channel Sales and Marketing Approach Supported by Sophisticated Consumer Analytics.
Our value proposition resonates with a wide range of homeowners, from those who find security in a plan protecting against expensive and unplanned breakdowns in the home to those seeking convenient services from pre-qualified contractors.
Our value proposition resonates with a wide range of homeowners, from those who find security in a plan protecting against expensive and unplanned breakdowns in the home to those seeking convenient services from qualified contractors.
We actively track and monitor the results of employee pulse surveys in search of trends and opportunities. The surveys inform our human resources strategy so that we can adjust and adapt to our employees’ needs as they change and evolve.
We actively track and monitor the results of employee surveys in search of trends and opportunities. The surveys inform our human resources strategy so that we can adjust and adapt to our employees’ needs as they change and evolve.
We plan to continue to dedicate resources to research and development efforts to maintain and improve our current products and services offerings. 13 Insurance We maintain insurance coverage that we believe is appropriate for our business, including workers’ compensation, general liability and property insurance.
We plan to continue to dedicate resources to research and development efforts to maintain and improve our current products and services offerings. Insurance We maintain insurance coverage that we believe is appropriate for our business, including workers’ compensation, general liability and property insurance.
Financial and other material information regarding Frontdoor is routinely posted on our website and is readily accessible. We do not intend for information contained on our website to be part of this Annual Report on Form 10-K. 14
Financial and other material information regarding Frontdoor is routinely posted on our website and is readily accessible. We do not intend for information contained on our website to be part of this Annual Report on Form 10-K.
In recent years, we have developed a robust customer technology platform, which makes it easy for customers to purchase from us, including through the use of digital payments, request service, receive personalized shopping experiences and home maintenance tips and manage their account from the convenience of a smartphone or other device, whether through our website or an app.
In recent years, we have developed a robust customer technology platform, which makes it easy for customers to purchase from us, including through the use of digital payments, request service, receive personalized shopping experiences and home maintenance tips, and manage their account from the convenience of a smartphone or other connected device, whether through our website or our app.
We leverage marketing and information service arrangements and a team of field-based sales associates and leaders who focus on defined geographic areas to train and educate real estate brokers and agents within their territory about the benefits of a home service plan by working directly with real estate offices and participating in broker meetings and national sales events.
We leverage marketing and information service arrangements and a team of field-based sales associates and leaders who focus on defined geographic areas to train and educate real estate brokers and agents within their territory about the benefits of a home warranty by working directly with real estate offices and participating in broker meetings and national sales events.
We are focused on growing our high-quality nationwide network of pre-qualified professional contractor firms, particularly our base of preferred contractors. These firms are in a wide range of trades and possess diverse skills and capabilities. Our contractor relations team utilizes a highly selective process to choose new contractor firms and continuously monitors their service quality.
We are focused on growing our high-quality nationwide network of qualified professional contractor firms, particularly our base of preferred contractors. These firms are in a wide range of trades and possess diverse skills and capabilities. Our contractor relations team utilizes a selective process to choose new contractor firms and continuously monitors their service quality.
Our product development teams draw upon the experience of our home service plan brands to both create innovative customer solutions for the existing product suite and identify service and category adjacencies. For example, we offer existing home service plan customers pre-season HVAC tune-ups and a lock re-keying service.
Our product development teams draw upon the experience of our home warranty brands to both create innovative customer solutions for the existing product suite and identify service and category adjacencies. For example, we offer existing home warranty customers pre-season HVAC tune-ups and a lock re-keying service.
We will continue to improve the customer experience by deepening our investments in our integrated technology platform, self-service capabilities, business intelligence platforms, customer service operations and contractor management systems, as well as continuing to improve our communications related to our home service plans.
We will continue to improve the customer experience by deepening our investments in our integrated technology platform, self-service capabilities, business intelligence platforms, customer service operations and contractor management systems, as well as continuing to improve our communications related to our home warranties.
We expect to continue to leverage the quality, trust and brand awareness of our brands, including the new ones, to grow our on-demand offering and to allow us to demonstrate the enhanced value that we can offer to both consumers and contractors.
We expect to continue to leverage the quality, trust and brand awareness of our brands, including the new ones, to grow our on-demand offerings and to allow us to demonstrate the enhanced value that we can offer to both consumers and contractors.
We are the leader in the U.S. home service plan category. Over the past five decades, we have developed a marketplace reputation built on the strength of our brands, our customer and contractor value proposition and our service quality.
We are the leader in the U.S. home warranty category. Over the past five decades, we have developed a marketplace reputation built on the strength of our brands, our customer and contractor value proposition and our service quality.
ITEM 1. BUSIN ESS 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.
ITEM 1. BUSIN ESS Overview Frontdoor is the leading provider of home warranties in the United States, as measured by revenue, and operates primarily under the American Home Shield brand. Our customizable home warranties help customers protect and maintain their homes, typically their most valuable asset, from costly and unplanned breakdowns of essential home systems and appliances.
We realize significant economies of scale as a result of our volume of service requests, and we intend to leverage our enhanced customer- and contractor-centric technology platform, robust independent contractor network, existing customer base, purchasing volume for parts, appliances and home systems, and extensive history and deep understanding of the home services industry to generate sustained growth of our home service plan brands.
We realize significant economies of scale as a result of our volume of service requests, and we intend to leverage our enhanced customer- and contractor-centric technology platform, robust independent contractor network, existing customer base, purchasing volume for parts, appliances and home systems, and extensive history and deep understanding of the home services industry to generate sustained revenue growth of our home warranty brands.
Additionally, our range of product offerings—from extensive home service plan coverage to on-demand services and maintenance to virtual diagnosis—can meet customer needs, whether they are seeking budget protection, assistance in finding a contractor or want only guidance for a do-it-yourself solution.
Additionally, our range of product offerings—from extensive home warranty coverage to on-demand services and maintenance to virtual diagnosis—can meet customer needs, whether they are seeking budget protection, assistance in finding a contractor or want only guidance for a do-it-yourself solution.
We intend to further increase our home service plan penetration by making strategic investments to educate consumers on our compelling value proposition, targeting homeowners more effectively through a variety of product and service offerings, further improving the customer experience and attracting new real estate brokers, contractor firms and business partners.
We intend to further increase our home warranty penetration by making strategic investments to educate consumers on our compelling value proposition, targeting homeowners more effectively through a variety of product offerings, further improving the customer experience and attracting new real estate brokers, contractor firms and business partners.
In contrast with insurance products that have low frequency of use, we pay claims on behalf of our home service plan customers more than once per year, on average. We believe this high level of engagement reinforces our customer value proposition and leads to improved retention rates.
In contrast with insurance products that have low frequency of use, we pay claims on behalf of our home warranty customers more than once per year, on average. We believe this high level of engagement reinforces our customer value proposition and leads to improved retention rates.
We have implemented dynamic pricing into our renewal and DTC channels, which allows us to leverage our proprietary data platform to adjust our plan prices based on factors such as the strength of our contractor network or characteristics of homes in a market.
We utilize dynamic pricing into our renewal and DTC channels, which allows us to leverage our proprietary data platform to adjust our plan prices based on factors such as the strength of our contractor network or characteristics of homes in a market.
By offering on-demand home services, we can provide additional services to our existing customers and members and reach new customers, including those not currently interested in home service plans. We intend to continue to leverage our existing sales channels and service platform to deliver additional value-added services to our on-demand home services customers.
By offering on-demand home services, we can provide additional services to our existing customers and reach new customers, including those not currently interested in home warranties. We intend to continue to leverage our existing sales channels and service platform to deliver additional value-added services to our on-demand home services customers.
Our multi-channel sales and marketing approach is designed to understand our customers’ key decision points during the purchase of home services to generate revenue and build brand value. We use this information to help us design product offerings and differentiate our brands to meet the diverse needs of consumers.
Our multi-channel sales and marketing approach is designed to understand our customers’ key decision points during the purchase of home services to generate revenue, better serve their needs, and build brand value. We use this information to help us design product offerings and differentiate our brands and product offerings to meet the diverse and changing needs of consumers.
In addition, we have deployed more sophisticated marketing tools to attract customers, including content marketing, online reputation management and social media channels. The efficacy of our marketing efforts is demonstrated by our ability to cost-effectively generate quality leads and online sales. Diverse, Recurring and Stable Revenue Channels.
In addition, we have deployed more sophisticated marketing and media tools to attract customers, including content marketing, online reputation management and social media channels. The efficacy of our marketing efforts is demonstrated by our ability to cost-effectively generate quality leads that we convert through phone and online sales. Diverse, Recurring and Stable Revenue Channels.
We believe our management team has the vision and experience to position us for continued success and to implement and execute our business strategies over the long term. Our Business Strategies We intend to profitably grow our business by: Increasing Our Home Service Plan Penetration.
We believe our management team has the vision and experience to position us for continued success and to implement and execute our business strategies over the long term. Our Business Strategies We intend to profitably grow our business by: Increasing Our Home Warranty Penetration.
We have made significant investments in our integrated technology platform, self-service capabilities, business intelligence platforms, customer service operations and contractor management systems, which we believe position us to further improve our customer retention rate. In 2022, customers in our renewal channel renewed at a rate of 78 percent.
We have made significant investments in our integrated technology platform, self-service capabilities, business intelligence platforms, customer service operations and contractor management systems, which we believe position us to further improve our customer retention rate. In 2023, customers in our renewal channel renewed at a rate of 79 percent.
Revenue from this channel was $184 million, $252 million and $263 million for the years ended December 31, 2022, 2021 and 2020, respectively. Direct-to-consumer channel. We have invested significant resources to develop the DTC channel to broaden our reach beyond home real estate transactions.
Revenue from this channel was $141 million, $184 million and $252 million for the years ended December 31, 2023, 2022 and 2021, respectively. Direct-to-consumer channel. We have invested significant resources to develop the DTC channel to broaden our reach beyond home real estate transactions.
We are subject to federal, state and local laws and regulations designed to protect consumers, including laws governing consumer privacy and fraud, the collection and use of consumer data, telemarketing and other forms of solicitation.
We are subject to federal, state and local laws and regulations designed to protect consumers, including laws governing deceptive trade practices, consumer privacy and fraud, the collection and use of consumer data, telemarketing and other forms of solicitation.
Leaders receive team-level dashboards; have the opportunity for supplemental training and support to understand how to review, share and discuss their results with their teams; and take meaningful actions together to continuously improve employee experiences. Seasonality The demand for our services and our results of operations are affected by weather conditions and seasonality.
Leaders receive team-level dashboards; have the opportunity for supplemental training and support to understand how to review, share and discuss their results with their teams; and take meaningful actions together to continuously improve employee experiences. We also monitor employee turnover. 13 Seasonality The demand for our services, and our results of operations, are affected by weather conditions and seasonality.
Approximately 50 percent of our DTC sales in 2022 were entered online, and more than 50 percent of our total service request volume was entered online or through our interactive voice response system.
Approximately 50 percent of our DTC sales in 2023 were made online, and more than 50 percent of our total service request volume was entered online or through our interactive voice response system.
Our contractor technology platform makes it easier for contractors to work with us and improves communications between contractors and our customers. Our realtor technology platform makes it easier for realtors to work with us and, therefore, recommend our products to their clients.
Our contractor technology platform makes it easier for contractors to work with us and improves communications between contractors and our customers. Our realtor technology platform makes it easier for realtors to work with us and, therefore, recommend our product offerings to their clients.
Our contractor technology platform makes it easier for contractors to work with us and improves communication between contractors and our customers. Our realtor technology platform makes it easier for realtors to work with us and, therefore, recommend our products to their clients.
Our contractor technology platform makes it easier for contractors to work with us and improves communication between contractors and our customers. Our realtor technology platform makes it easier for realtors to work with us and, therefore, recommend our product offerings to their clients.
In certain instances, our Streem technology platform enables homeowners to use their smartphone cameras to engage in a video chat with a service professional who can remotely see the item that needs attention and capture a variety of important details about the item, potentially helping to reduce the time required for completing repairs and even eliminating the need for a technician to visit the home by offering a simple do-it-yourself solution.
In certain instances, our technology platform enables homeowners to use their smartphone cameras to engage in a video chat with one of our experts who can remotely see the item that needs attention and capture a variety of important details about the item, potentially helping to reduce the time required for completing repairs and even eliminating the need for a technician to visit the home by offering a simple do-it-yourself solution. 12 Contractors.
Contractors. Our contractor technology platform makes it easier for contractors to work with us and improves communication between contractors and our customers. Our contractor portal had over 15,000 active users at the end of 2022, and our platform sent approximately 1.7 million “On-My-Way” notifications to customers, letting them know their contractor was en route to their home. Commercial partners.
Our contractor technology platform makes it easier for contractors to work with us and improves communication between contractors and our customers. Our contractor portal had over 18,000 active users at the end of 2023, and our platform sent approximately 1.3 million “On-My-Way” notifications to customers, letting them know their contractor was en route to their home. Commercial partners.
The historically high demand for homes has led to reduced incentive for sellers to offer a home service plan and less time for the attachment of a home service plan during the sale transaction. In 2022, customers in our real estate channel renewed at a rate of 30 percent after the first contract year.
The historically high demand for homes has led to reduced incentive for sellers to offer a home warranty and less time for the attachment of a home warranty during the sale transaction. In 2023, customers in our real estate channel renewed at a rate of 30 percent after the first contract year.
In addition, if we were to fail to comply with any applicable law or regulation, we could be subject to substantial fines or damages, be involved in lawsuits, enforcement actions and other claims by third parties or governmental authorities, suffer losses to our reputation and our business or suffer the loss of licenses or registrations or incur penalties that may affect how the business is operated, any of which, in turn, could have a material adverse effect on our financial position, results of operations and cash flows.
In addition, if we were to fail to comply with any applicable law or regulation, we could be subject to substantial fines or damages, be involved in lawsuits, enforcement actions and other claims by third parties or governmental authorities, suffer losses to our reputation and our business or suffer the loss of licenses or registrations or incur penalties that may affect how the business is operated, any of which, in turn, could have a material adverse effect on our financial position, results of operations and cash flows. 14 Available Information Our corporate website address is www.frontdoorhome.com.
We calculate the rates at which our customers renew as the ratio of the number of home service plans renewed during the period to the number of home service plans originally set to expire during the period.
We calculate the rates at which our customers renew as the ratio of the number of home warranties renewed during the period to the number of home warranties originally set to expire during the period.
Given the potentially high cost of a major appliance or home system breakdown, the cumbersome process of vetting and hiring a qualified repair professional and, typically, the lack of a formal guarantee for services performed, our customers place high value on the budget protection, peace of mind, convenience, repair expertise and service guarantee our home service plans deliver.
Given the potentially high cost of a major appliance or home system breakdown, the cumbersome process of vetting and hiring a qualified repair professional and, typically, the lack of a formal guarantee for services performed by repair professionals in retail, our customers place high value on the budget protection, peace of mind, convenience, repair expertise and service guarantee our home warranties deliver.
We also believe that we are well-positioned to capitalize on our leading position in the home service plan category to provide services to consumers in the broader repair and maintenance category in the U.S. home services industry.
We also believe that we are well-positioned to capitalize on our leading position in the home warranty category to provide services to consumers in the broader repair and maintenance sectors in the U.S. home services industry.
Direct supplier spend, which excludes purchases made by our contractors, made up approximately 20 percent of our cost of services rendered in 2022, and we have multiple national supplier agreements in place. We have seven national suppliers of parts, appliances and home systems that each account for more than five percent of our supplier spend.
Direct supplier spend, which excludes purchases made by our contractors, made up approximately 25 percent of our cost of services rendered in 2023, and we have multiple national supplier agreements in place. We have six national suppliers of parts, appliances and home systems that each account for more than five percent of our supplier spend.
Revenue from renewals was $1,203 million, $1,103 million and $1,013 million for the years ended December 31, 2022, 2021 and 2020, respectively. Across all three channels, in 2022, customers renewed at a rate of 70 percent, and our overall customer retention rate was 76 percent.
Revenue from renewals was $1,367 million, $1,203 million and $1,103 million for the years ended December 31, 2023, 2022 and 2021, respectively. Across all three channels, in 2023, customers renewed at a rate of 73 percent, and our overall customer retention rate was 76 percent.
Our business model generates strong Adjusted EBITDA margins and requires limited capital expenditures. As such, we have a capital-light business model that drives potential for strong cash flow generation. We may, from time to time, make more significant investments in capability-expanding technology, including continued investments in our technology-enabled platform to drive efficiency and quality of service.
As such, we have a capital-light business model that drives potential for strong cash flow generation. We may, from time to time, make more significant investments in capability-expanding technology, including continued investments in our technology-enabled platform to drive efficiency and quality of service.
Our realtor portal had approximately 73,000 active users at the end of 2022, allowing realtors to enter, edit, view and print order confirmations and view and manage expiring orders. 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.
Our realtor portal had approximately 69,000 active users at the end of 2023, allowing realtors to enter, edit, view and print order confirmations and view and manage expiring orders. Competition We compete in the U.S. home warranty category and the broader U.S. home services industry. The home warranty category is highly competitive.
We are highly selective with onboarding new contractor firms into our nationwide network and continuously monitor service quality through a set of rigorous performance measures, relying heavily on direct customer feedback. We classify a subset of our independent contractor network as “preferred,” representing firms that meet our highest quality standards and are often long-tenured providers with us.
We are selective with onboarding new contractor firms into our nationwide network and continuously monitor service quality through a set of rigorous performance measures, relying heavily on direct customer feedback. We classify a subset of our independent contractor network as “preferred,” representing firms that meet our highest quality standards and are our most cost-effective providers.
Further, we believe on-demand home services provide us more opportunities to introduce customers to our overall home service plan value proposition. We intend to leverage our analysis of consumer preferences to offer home service plans that meet the needs of consumers who prefer traditional home service plans, as well as those seeking a different approach. Delivering Superior Customer Experience.
Further, we believe on-demand home services provide us more opportunities to introduce customers to our overall home warranty value proposition. We intend to leverage our analysis of consumer preferences to offer home warranties that meet the needs of consumers who prefer traditional home warranties, as well as those seeking on-demand services. Delivering Superior Customer Experience.
In addition, we provide insurance for our home service plan claims in Texas via our wholly-owned captive insurance company.
In addition, we provide insurance for our home warranty claims in Texas via our wholly-owned captive insurance company.
As homes become increasingly complex and connected, and the needs of our customers continue to evolve, we believe our ability to innovate through upgraded and customized product offerings, differentiated service offerings and channel diversification focused on key customer segments will continue to drive customer growth and retention.
As home systems and appliances become more complex, and the needs of our customers continue to evolve, we believe our ability to innovate through upgraded and customized product offerings, differentiated service offerings and channel diversification focused on key customer segments will continue to drive customer growth and retention.
We maintain close and frequent contact with our customers as we handle over four million service requests annually utilizing our nationwide network of approximately 15,000 pre-qualified professional contractor firms in a wide range of trades and with diverse skills and capabilities.
We maintain regular contact with our customers as we handle approximately four million service requests annually utilizing our nationwide network of approximately 16,000 qualified professional contractor firms in a wide range of trades and with diverse skills and capabilities.
Our platform allows customers to purchase a home service plan, request a maintenance or repair service, virtually communicate with a representative, learn about home maintenance and repairs, pay bills and track the progress of their service requests, all from their smartphone or other device.
Our platform allows customers to purchase a home warranty, request a maintenance or repair service, virtually communicate with a representative, learn about home maintenance and repairs, manage their account and track the progress of their service requests, all from their smartphone or other connected device.
In the real estate channel, we leverage marketing and information service arrangements and a team of field-based sales associates and leaders to train, educate and market our plans through real estate brokers and agents at both a local and national level.
In the real estate channel, we leverage marketing and information service arrangements, as well as a team of inside and field-based sales associates to train, educate and market our plans through real estate brokers and agents at both local, regional and national levels.
Our customer MyAccount platform had over one million active users at the end of 2022, allowing customers to pay bills, request service, receive home maintenance tips, review account information and electronically communicate with a representative online without having to call our customer service team.
Our customer MyAccount platform had over one million active users at the end of 2023, allowing customers to manage their account, request service, receive home maintenance tips and electronically communicate with a representative online without having to call our customer service team.
Our realtor technology platform makes it easier for realtors to work with us and, therefore, recommend our products to their clients. Approximately 70 percent of real estate channel orders were placed online in 2022.
Our realtor technology platform makes it easier for realtors to work with us and, therefore, recommend our product offerings to their clients. Approximately 69 percent of real estate channel orders were placed online in 2023.
For the year ended December 31, 2022, net cash provided from operating activities was $142 million, and Free Cash Flow was $102 million. For a reconciliation of Free Cash Flow to net cash provided from operating activities, see “Item 7.
For the year ended December 31, 2023, net cash provided from operating activities was $202 million, and Free Cash Flow was $170 million. For a reconciliation of Free Cash Flow to net cash provided from operating activities, see “Item 7.
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.
While we have a broad range of competitors in each locality and region, we are one of the few companies that provide home warranties 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.
We also offer add-on warranties, covering items such as home electronics, which we believe add value to our home service plans and result in improved retention rates. We believe these new service offerings will lead to higher customer engagement, ultimately leading to stronger customer loyalty and retention. Developing a World-Class Data Platform.
We also offer add-on warranties, covering items such as home electronics, which we believe add value to our home warranties and result in improved retention rates. We believe these new service offerings will lead to higher customer engagement, ultimately leading to stronger customer loyalty and retention. Pursuing Selective Acquisitions.
We also benefit from predictable and recurring revenue, as our American Home Shield home service plan customers typically sign annual contracts, and 72 percent of our revenue in 2022 was generated through existing customer renewals, which was in line with historical averages. Additionally, 82 percent of our American Home Shield home service plan customers are on a monthly auto-pay program.
We also benefit from predictable and recurring revenue, as our home warranty customers typically sign annual contracts, and 77 percent of our revenue in 2023 was generated through existing customer renewals, which was in line with historical averages. Additionally, 86 percent of our home warranty customers are on a monthly auto-pay program.
In addition, we believe that increasingly complex home systems and appliances, as well as consumer preference for budget protection and convenience, will emphasize the value proposition of pre-qualified professional repair services and, accordingly, the coverage benefits offered by a home service plan.
In addition, we believe consumer preference for budget protection and convenience as home systems and appliances become more complex will emphasize the value proposition of qualified professional repair and maintenance services and, accordingly, the coverage benefits offered by a home warranty.
We intend to leverage our preferred contractor base, and our ability to offer virtual diagnosis of issues, to enhance our contractors’ experience, and to expand further into home improvement and maintenance services. For the year ended December 31, 2022, we generated revenue, net income and Adjusted EBITDA of $1,662 million, $71 million and $214 million, respectively.
We intend to leverage our preferred contractor base, and our ability to offer virtual diagnosis of issues, to enhance our contractors’ and customers’ experience, and to expand deeper into home repair and maintenance services. For the year ended December 31, 2023, we generated revenue, net income and Adjusted EBITDA of $1,780 million, $171 million and $346 million, respectively.
We view increased penetration of the U.S. home service plan category as a long-term growth opportunity. This category is currently characterized by low household penetration with an estimated six million of 128 million U.S. households (owner-occupied homes and rentals), or approximately four percent, covered by a home service plan.
The home warranty category currently represents approximately $4 billion. We view increased penetration within the U.S. home services industry as a long-term growth opportunity. This category is currently characterized by low household penetration with an estimated five million of 130 million U.S. households (owner-occupied homes and rentals), or approximately four percent, covered by a home warranty.
The expansion of our home service plan offerings, new branding initiatives, and the utilization of dynamic pricing algorithms, as well as our investments in on-demand home services and our Streem technology platform, well position us for growth. Our multi-faceted value proposition resonates with a broad customer demographic, regardless of home price, income level, geographic location or age.
The expansion of our home warranty offerings, new branding initiatives, and the utilization of dynamic pricing algorithms, as well as our investments in on-demand home services, our Frontdoor app and our technology platform, position us for growth. Our multi-faceted value proposition resonates with a broad customer demographic.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations for the Years Ended December 31, 2022 and 2021 —Adjusted EBITDA .” 7 Our Opportunity Frontdoor operates within the estimated $500 billion revenue U.S. home services industry, and more specifically, in repair and maintenance sectors of the industry that have an estimated aggregate $100 billion in revenue The home service plan category currently represents approximately $4 billion.
Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations —Adjusted EBITDA .” Our Opportunity Frontdoor operates within the estimated $500 billion revenue U.S. home services industry, and more specifically, in repair and maintenance sectors of the industry that have an estimated aggregate $100 billion in revenue.
Those brokers and agents then market our home service plans to home buyers and sellers. In 2022, we estimate approximately one million homes were sold with a home service plan out of the approximately 5 million homes sold, reflecting a continued decline in sales of home service plans.
Those brokers and agents then market our home warranties to home buyers and sellers. In 2023, we estimate approximately 800,000 homes were sold with a home warranty out of the approximately 4.1 million homes sold, reflecting a continued decline in sales of home warranties.
We believe our ability to acquire customers through the DTC channel helps to mitigate the effect of potential cyclicality in the home real estate market and our nationwide presence limits the impact of poor economic conditions or adverse weather conditions in any particular geography.
We acquire new home warranty customers through two channels, real estate and DTC, which are offered nationally. We believe our ability to acquire customers through the DTC channel helps to mitigate the effect of potential cyclicality in the home real estate market and our nationwide presence limits the impact of poor economic conditions.
Available Information Our website address is www.frontdoorhome.com. We use our website as a channel of distribution for company information.
We use our website as a channel of distribution for company information.
We partner with various participants in the residential real estate marketplace, such as real estate brokers and insurance carriers, to market our home service plans. In addition, we sell through our customer service team, mobile-optimized e-commerce platform and national sales teams. We utilize the following customer acquisition channels: Real estate channel.
In addition, we sell through our customer service team, mobile-optimized e-commerce platform and national sales teams. We utilize the following customer acquisition channels: Real estate channel.
We believe growing our contractor base within existing service locations and in new geographies, while maintaining service excellence, will drive further penetration of our home service plans and on-demand home services and differentiate our product offering relative to competitors.
We believe growing our contractor base within existing service locations and in new geographies, while maintaining service excellence, will drive further penetration of our home warranties and on-demand home services and differentiate our product offerings relative to competitors. We believe that increased usage of our preferred contractors leads to higher customer retention rates as well as lower costs.
For the year ended December 31, 2022, we generated 72 percent of our revenue through existing customer renewals compared to 69 percent for each of the years ended December 31, 2021 and 2020.
Revenue from this channel was $194 million, $219 million and $201 million for the years ended December 31, 2023, 2022 and 2021, respectively. 11 Customer renewals. For the year ended December 31, 2023, we generated 77 percent of our revenue through existing customer renewals compared to 72 and 69 percent for the years ended December 31, 2022 and 2021, respectively.
Historically, we have used acquisitions to cost-effectively grow our customer base in high-growth geographies, and we intend to opportunistically 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 and enhance our technological capabilities.
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.
Intellectual Property We hold various service marks, trademarks and trade names, such as Frontdoor, American Home Shield, HSA and Streem, that we deem particularly important to our advertising and marketing activities. We develop the substantial majority of our product and service offerings internally and have extended our product and service offerings and intellectual property through acquisitions of businesses and technologies.
Intellectual Property We hold various service marks, trademarks and trade names, such as Frontdoor, American Home Shield and the Frontdoor logo , that we deem particularly important to our advertising and marketing activities.
As a result of our strong customer value proposition, 72 percent of our revenue in 2022 was generated through existing customer renewals, which was in line with historical averages, driving consistency and predictability in our revenues. In addition, a significant majority of our home service plan customers automatically renew on an annual basis.
As a result of our strong customer value proposition, 77 percent of our revenue in 2023 was generated through existing customer renewals, which was in line with historical averages, driving consistency and predictability in our revenues.
We regularly monitor employee satisfaction through formal processes and informal surveys and conversations, and we monitor employee turnover. Employee Engagement . We strive to not only give each employee a job, but also a voice. To make sure we hear our employees’ voices when they speak, we regularly seek employee engagement feedback.
We have sponsored mentorship and development programs to support development for our employee population. Employee Engagement . We strive to not only give each employee a job, but also a voice. To make sure we hear our employees’ voices when they speak, we seek employee engagement and satisfaction feedback.
We believe we have the opportunity to become the authoritative source of home service information. Since the founding of American Home Shield in 1971, we have amassed a significant amount of aggregate data on historic maintenance trends, recall and repair history, and parts and labor pricing for most home repairs.
Since the founding of American Home Shield in 1971, we have amassed a significant amount of aggregate data on historic maintenance trends, recall and repair history, and parts and labor pricing for most home repairs. We are constantly analyzing and using this aggregated data to make better business decisions and improve visibility on future costs.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe extent to which the COVID-19 pandemic will affect our business, financial position, results of operations, liquidity and prospects in the future remains uncertain and will depend on future developments, including the duration and intensity of the pandemic, the emergence of new variants of the virus, the acceptance of vaccines, the duration of government measures to mitigate the pandemic and how quickly and to what extent normal economic and operating conditions can resume, all of which are uncertain and difficult to predict. 21 Laws and government regulations applicable to our business and lawsuits, enforcement actions and other claims by third parties or governmental authorities could increase our legal and regulatory expenses and impact our business, financial position, results of operations and cash flows.
Biggest changeLaws and government regulations applicable to our business and lawsuits, enforcement actions and other claims by third parties or governmental authorities could increase our legal and regulatory expenses and impact our business, financial position, results of operations and cash flows. Our business is subject to significant federal, state and local laws and regulations.
These laws and regulations include but are not limited to laws relating to consumer protection, unfair and/or deceptive trading practices, service contracts, home service plans, home warranties, real estate settlement, wage and hour requirements, state contractor laws, the employment of immigrants, labor relations, licensing, building code requirements, workers’ safety, environmental, privacy and data protection, securities, insurance coverages, sales tax collection and remittance, healthcare reforms, employee benefits, marketing (including, without limitation, telemarketing) and advertising.
These laws and regulations include but are not limited to laws relating to consumer protection, unfair and/or deceptive trading practices, service contracts, home warranties, home service plans, real estate settlement, wage and hour requirements, state contractor laws, the employment of immigrants, labor relations, licensing, building code requirements, workers’ safety, environmental, privacy and data protection, securities, insurance coverages, sales tax collection and remittance, healthcare reforms, employee benefits, marketing (including, without limitation, telemarketing) and advertising.
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 claim frequency and costs and lower profitability, while mild temperatures in the winter or summer months can lead to lower home systems claim frequency.
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.
Because of our significant indebtedness: our ability to engage in large acquisitions without raising additional equity or obtaining additional debt financing is limited; our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes and our ability to satisfy our obligations with respect to our indebtedness may be impaired in the future; a large portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes; we are exposed to the risk of increased interest rates because a portion of our borrowings are or will be at variable rates of interest; it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such indebtedness; we may be more vulnerable to general adverse economic and industry conditions; we may be at a competitive disadvantage compared to our competitors with proportionately less indebtedness or with comparable indebtedness on more favorable terms and, as a result, they may be better positioned to withstand economic downturns ; our ability to refinance indebtedness may be limited, or the associated costs may increase; our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; and we may be prevented from carrying out capital spending and restructurings that are necessary or important to our growth strategy and efforts to improve operating margins of our business.
Because of our significant indebtedness: our ability to engage in large acquisitions without raising additional equity or obtaining additional debt financing is limited; our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes and our ability to satisfy our obligations with respect to our indebtedness may be impaired in the future; a large portion of our cash flow from operations must be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available to us for other purposes; we are exposed to the risk of increased interest rates because a portion of our borrowings are or will be at variable rates of interest; it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and acceleration of, such indebtedness; we may be more vulnerable to general adverse economic and industry conditions; we may be at a competitive disadvantage compared to our competitors with proportionately less indebtedness or with comparable indebtedness on more favorable terms and, as a result, they may be better positioned to withstand economic downturns ; 25 our ability to refinance indebtedness may be limited, or the associated costs may increase; our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited; and we may be prevented from carrying out capital spending and restructurings that are necessary or important to our growth strategy and efforts to improve operating margins of our business.
Among others, the number of real estate transactions in which our services are purchased could also decrease in the following situations: · when mortgage interest rates are high or rise, as they did in 2022; · when the availability of credit, including commercial and residential mortgage funding, is limited; · when real estate values are declining; or · conversely, when demand for existing homes exceeds supply.
Among others, the number of real estate transactions in which our services are purchased could also decrease in the following situations: · when mortgage interest rates are high or rise, as they did in 2022 and 2023; · when the availability of credit, including commercial and residential mortgage funding, is limited; · when real estate values are declining; or · conversely, when demand for existing homes exceeds supply.
Long call and service wait times by customers during peak operating times could have a material adverse impact on our reputation, business, financial position, results of operations and cash flows. 18 Our business process outsourcing initiatives increase our reliance on third-party vendors and may expose our business to harm upon the termination or disruption of our third-party vendor relationships.
Long call and service wait times by customers during peak operating times could have a material adverse impact on our reputation, business, financial position, results of operations and cash flows. Our business process outsourcing initiatives increase our reliance on third-party vendors and may expose our business to harm upon the termination or disruption of our third-party vendor relationships.
Any future disposition transactions could also impact our business and may subject us to various risks, including failure to obtain appropriate value for the disposed businesses and post-closing claims. 23 We may be required to recognize impairment charges. We have significant amounts of goodwill and intangible assets, such as trade names.
Any future disposition transactions could also impact our business and may subject us to various risks, including failure to obtain appropriate value for the disposed businesses and post-closing claims. We may be required to recognize impairment charges. We have significant amounts of goodwill and intangible assets, such as trade names.
Additionally, as we increasingly depend on newer digital channels for traffic, these efforts will involve challenges and risks similar to those we face in connection with our search engine marketing efforts. 16 We also enter into various third-party affiliate agreements in an effort to drive traffic to our various brands and businesses.
Additionally, as we increasingly depend on newer digital channels for traffic, these efforts will involve challenges and risks similar to those we face in connection with our search engine marketing efforts. We also enter into various third-party affiliate agreements in an effort to drive traffic to our various brands and businesses.
At this time, it is not possible to predict the full effect that the anticipated discontinuance of LIBOR, or the establishment of alternative reference rates such as SOFR, will have on us or our borrowing costs. SOFR is a relatively new reference rate and its composition and characteristics are not the same as LIBOR.
At this time, it is not possible to predict the full effect that the discontinuance of LIBOR, or the establishment of alternative reference rates such as SOFR, will have on us or our borrowing costs. SOFR is a relatively new reference rate and its composition and characteristics are not the same as LIBOR.
Any inability to attract or retain qualified key executives in a timely manner, or retain or recruit other key personnel, could have a material adverse impact on our business, financial position, results of operations and cash flows. We are dependent on labor availability in our customer service operations.
Any inability to attract or retain qualified key executives in a timely manner, or retain or recruit other key personnel, could have a material adverse impact on our business, financial position, results of operations and cash flows. 18 We are dependent on labor availability in our customer service operations.
This would harm our ability to market our services in order to meet market demand and could materially and adversely affect our reputation, business, financial position, results of operations and cash flows. We have limited control over these parties on which our business depends.
This would harm our ability to market our services in order to meet market demand and could materially and adversely affect our reputation, business, financial position, results of operations and cash flows. 19 We have limited control over these parties on which our business depends.
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.
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, wildfires or earthquakes, typically do not increase our obligations to provide service.
As a result, we did not pay cash dividends in 2022, and we do not expect to pay any cash dividend for the foreseeable future. All decisions regarding the payment of dividends will be made by our board of directors from time to time in accordance with applicable law.
As a result, we did not pay cash dividends in 2023, and we do not expect to pay any cash dividend for the foreseeable future. All decisions regarding the payment of dividends will be made by our board of directors from time to time in accordance with applicable law.
These efforts may require increasing amounts or be offered at increasing frequency over time. Certain factors including the nature and type of our services offered, potential and existing customers perception of the value of our services, and other macroeconomic factors like general economic conditions and consumer sentiment may impact our efforts.
These efforts may require increasing amounts or be offered at increasing frequency over time. Certain factors including the nature and type of our services offered, potential and existing customers’ perception of the value of our services, and other macroeconomic factors like general economic conditions and consumer sentiment may impact our efforts.
We entered into this interest rate swap agreement in the normal course of business to manage interest rate risks, with a policy of matching positions. The effect of derivative financial instrument transactions under the agreements could have a material impact on our financial statements.
We entered into this interest rate swap contract in the normal course of business to manage interest rate risks, with a policy of matching positions. The effect of derivative financial instrument transactions under the agreements could have a material impact on our financial statements.
Sales in this channel are dependent upon the flow of sales from our first-year real estate and DTC channels, as well as our customers’ perceptions of the value of our home service plans, and accordingly, their willingness to renew their plans.
Sales in this channel are dependent upon the flow of sales from our first-year real estate and DTC channels, as well as our customers’ perceptions of the value of our home warranties, and accordingly, their willingness to renew their plans.
At our customers’ request, we also use our proprietary Streem technology to capture key information about our customers’ appliances, HVAC and other home systems and may, though these video chat sessions capture additional information related to our customer or their home.
At our customers’ request, we also use our proprietary Streem technology to capture key information about our customers’ appliances, HVAC and other home systems and may, through these video chat sessions, capture additional information related to our customer or their home.
Assuming all revolving loans were fully drawn as of December 31, 2022, each one percentage point change in interest rates would result in an approximately $3 million change in annual interest expense on the Revolving Credit Facility.
Assuming all revolving loans were fully drawn as of December 31, 2023, each one percentage point change in interest rates would result in an approximately $3 million change in annual interest expense on the Revolving Credit Facility.
Whether existing customers choose to renew their home service plans is driven by both external factors such as macroeconomic conditions our reputation and actions of our competitors, as well as internal factors such as their experience with our home service plans, including whether they have used their home service plans and their satisfaction with any services we provided, and how they perceive the value of our home service plans in light of the cost of a renewal.
Whether existing customers choose to renew their home warranties is driven by both external factors such as macroeconomic conditions our reputation and actions of our competitors, as well as internal factors such as their experience with our home warranties, including whether they have used their home warranties and their satisfaction with any services we provided, and how they perceive the value of our home warranties in light of the cost of a renewal.
We are exposed to the impact of interest rate changes and manage this exposure through the use of variable-rate and fixed-rate debt and by utilizing an interest rate swap. On October 24, 2018, we entered into an interest rate swap agreement effective October 31, 2018 that expires on August 16, 2025. The notional amount of the agreement was $350 million.
We are exposed to the impact of interest rate changes and manage this exposure through the use of variable-rate and fixed-rate debt and by utilizing an interest rate swap. On October 24, 2018, we entered into an interest rate swap contract effective October 31, 2018 that expires on August 16, 2025. The notional amount of the agreement is $350 million.
There can be no guarantee that our hedging strategy will be effective, and we may experience credit-related losses in some circumstances. ‎ 28 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
There can be no guarantee that our hedging strategy will be effective, and we may experience credit-related losses in some circumstances. ‎ 27 ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Consumer demand may also be significantly influenced by the success of marketing and promotions by us or by our competitors. If we are unsuccessful in attracting consumers to our home service plans we could experience a material adverse impact to our business, financial position, results of operations and cash flows.
Consumer demand may also be significantly influenced by the success of marketing and promotions by us or by our competitors. If we are unsuccessful in attracting consumers to our home warranties, we could experience a material adverse impact to our business, financial position, results of operations and cash flows.
Any decrease in sales from period to period in our real estate and DTC channels may have a negative impact on future growth opportunities in our renewals channel.
Any decrease in sales from period to period in our real estate and DTC channels may have a negative impact on future growth opportunities in our renewal channel.
In particular, we have seven national suppliers of parts, appliances and home systems that each account for more than five percent of our supplier spend.
In particular, we have six national suppliers of parts, appliances and home systems that each account for more than five percent of our supplier spend.
Our ability to compete effectively depends in part on our rights to proprietary information, service marks, trademarks, trade names, patents and other intellectual property rights we own or license, particularly our brand names, Frontdoor, American Home Shield, HSA, OneGuard, Landmark, ProConnect and Streem, as well as the patents related to our Streem technology platform.
Our ability to compete effectively depends in part on our rights to proprietary information, service marks, trademarks, trade names, patents and other intellectual property rights we own or license, particularly our brand names, Frontdoor and American Home Shield, as well as the patents related to our Streem technology platform.
Preventing such unauthorized use is inherently difficult. If we are unable to protect our trademarks from such unauthorized use and curtail the use of confusingly similar terms, competitors and other third parties may drive potential online customers away from our websites to competing and unauthorized websites, which could harm our reputation and cause us to lose sales.
If we are unable to protect our trademarks from such unauthorized use and curtail the use of confusingly similar terms, competitors and other third parties may drive potential online customers away from our websites to competing and unauthorized websites, which could harm our reputation and cause us to lose sales.
We are also subject to various federal, state and local laws and regulations designed to protect consumers, including laws governing consumer privacy and fraud, the collection and use of consumer data, telemarketing and other forms of solicitation.
We are also subject to various federal, state and local laws and regulations designed to protect consumers, including laws governing deceptive trade practices, consumer privacy and fraud, the collection and use of consumer data, telemarketing and other forms of solicitation.
As of December 31, 2022, we had approximately $609 million of total consolidated long-term indebtedness, including the current portion of long-term debt, outstanding. As of December 31, 2022, there were $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.
As of December 31, 2023, we had approximately $593 million of total consolidated long-term indebtedness, including the current portion of long-term debt, outstanding. As of December 31, 2023, there were $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.
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.
Generally, repairs associated with such isolated events are addressed by homeowners’ and other forms of insurance as opposed to the home warranties that we offer.
Consumer demand for services purchased through our first-year DTC channel can fluctuate and, as such, is subject to changes in macro-economic conditions, including interest rates and inflation, as well as consumer sentiment about the value of home service plans and our reputation as a home service plan provider.
Consumer demand for services purchased through our first-year DTC channel can fluctuate and, as such, is subject to changes in macro-economic conditions, including interest rates and inflation, as well as consumer sentiment about the value of home warranties and our reputation as a home warranty provider.
As of December 31, 2022, each one percentage point change in interest rates would result in an approximately $3 million change in the annual interest expense on the Term Loan Facilities after considering the impact of the effective interest rate swap.
As of December 31, 2023, each one percentage point change in interest rates would result in an approximately $2 million change in the annual interest expense on the Term Loan Facilities after considering the impact of the effective interest rate swap.
Risks Related to Our Business Changing macro-economic conditions, including inflation, global supply chain challenges and the persistence of the COVID-19 pandemic, especially as they may affect existing home sales, interest rates or consumer sentiment or unemployment, may adversely impact our business, financial position, results of operations and cash flows. Our results of operations are dependent upon consumer spending.
Risks Related to Our Business Changing macro-economic conditions, including inflation, global supply chain challenges and rising interest rates, especially as they may affect existing home sales or consumer sentiment or unemployment, may adversely impact our business, financial position, results of operations and cash flows. Our results of operations are dependent upon consumer spending.
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.
There are regulatory restrictions on the ability of certain of our subsidiaries to transfer funds to us. 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.
In addition, these potential impacts may be enhanced upon termination of a relationship with a preferred contractor, as approximately 82 percent of our service requests were completed by our preferred contractor network in 2022.
In addition, these potential impacts may be enhanced upon termination of a relationship with a preferred contractor, as approximately 83 percent of our service requests were completed by our preferred contractor network in 2023.
To the extent such costs increase, we may be prevented, in whole or in part, from passing these cost increases through to our existing and prospective customers, which could have a material adverse impact on our business, financial position, results of operations and cash flows. 15 Our industry is highly competitive.
Moreover, to the extent such costs continue to increase, we may be prevented, in whole or in part, from passing these cost increases through to our existing and prospective customers, which could have a material adverse impact on our business, financial position, results of operations and cash flows.
We derive substantially all of our revenue from customers in the United States; however, certain aspects of our customer service operations and other services are conducted outside the United States by business process outsource providers in Colombia, Ghana, Guyana, Mexico, the Philippines and Trinidad and Tobago, and we have established an engineering and technology campus in India.
We derive substantially all of our revenue from customers in the United States; however, certain aspects of our customer service operations and other services are conducted outside the United States by business process outsource providers in Colombia, Ghana, Guyana, Mexico, the Philippines and Trinidad and Tobago, and we have a technology collaboration center in India.
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. As of December 31, 2022, the total net assets subject to these third-party restrictions was $145 million.
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. As of December 31, 2023, the total net assets subject to these regulatory restrictions was $157 million.
Any cyber or similar attack we experience could damage our technology systems and infrastructures, prevent us from providing our services, erode our reputation and those of our various brands, lead to the termination of advantageous contracts, result in inaccurate reporting of financial information, result in the disclosure of confidential consumer and professional contractor information, expose us to significant liabilities for the violation of data privacy laws, result in the disclosure of confidential and sensitive business information or intellectual property, result in claims or litigation against us and/or otherwise be costly to mitigate or remedy.
Any cyber or similar attack or unauthorized access to our software or systems that we experience could damage our technology systems and infrastructures, lead to the loss, compromise or corruption of data, prevent us from providing our services, erode our reputation and those of our various brands, lead to the termination of advantageous contracts, result in inaccurate reporting of financial information, result in the disclosure of confidential consumer and professional contractor information, result in erroneous payments to malicious actors, expose us to significant liabilities for the violation of data privacy laws, result in the disclosure of confidential and sensitive business information or intellectual property, result in claims or litigation against us and/or otherwise be costly to mitigate or remedy.
For example, rising costs due to blanket tariffs on imported steel and aluminum could increase the costs of parts associated with our repair and replacement of home systems and appliances, which could have a material adverse effect on our business, financial position, results of operations and cash flows.
Tariff policies are under continuous review and subject to change. For example, rising costs due to blanket tariffs on imported steel and aluminum could increase the costs of parts associated with our repair and replacement of home systems and appliances, which could have a material adverse effect on our business, financial position, results of operations and cash flows.
However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests of our company and our stockholders.
These provisions are not intended to make us immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests of our company and our stockholders.
In accordance with applicable accounting standards, goodwill and indefinite-lived intangible assets are not amortized and are subject to assessment for impairment by applying a fair - value-based test annually, or more frequently if there are indicators of impairment, including: significant adverse changes in the business climate, including economic or financial conditions; significant adverse changes in expected operating results; adverse actions or assessments by regulators; unanticipated competition; loss of key personnel; and a current expectation that it is more likely than not that a reporting unit or intangible asset will be sold or otherwise disposed of.
In accordance with applicable accounting standards, goodwill and indefinite-lived intangible assets are not amortized and are subject to assessment for impairment on an annual basis, or more frequently if circumstances indicate a potential impairment, including: significant adverse changes in the business climate, including economic or financial conditions; significant adverse changes in expected operating results; adverse actions or assessments by regulators; unanticipated competition; loss of key personnel; and a current expectation that it is more likely than not that a reporting unit or intangible asset will be sold or otherwise disposed of.
In addition, if we were to fail to comply with any applicable law or regulation, we could be subject to substantial fines or damages, be involved in lawsuits, enforcement actions and other claims by third parties or governmental authorities, suffer harm to our reputation, suffer the loss of licenses or incur penalties that may affect how our business is operated, any of which, in turn, could have a material adverse impact on our business, financial position, results of operations and cash flows.
In addition, if we were to fail to comply with any applicable law or regulation, we could be subject to substantial fines or damages, be involved in lawsuits, enforcement actions and other claims by third parties or governmental authorities, suffer harm to our reputation, suffer the loss of licenses or incur penalties that may affect how our business is operated, any of which, in turn, could have a material adverse impact on our business, financial position, results of operations and cash flows. 21 Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to environmental, social and governance matters, that could expose us to numerous risks.
We depend on our renewals channel for a significant percentage of our sales. Our third and largest sales channel is our renewals channel.
We depend on our renewal channel for a substantial percentage of our sales. Our third and largest sales channel is our renewal channel.
None of our subsidiaries are obligated to make funds available to us through the payment of dividends. If we cannot receive sufficient distributions from our subsidiaries, we may not be able to meet our obligations to fund general corporate expenses or service our debt obligations.
We expect that such limitations will be in effect for the foreseeable future. None of our subsidiaries are obligated to make funds available to us through the payment of dividends. If we cannot receive sufficient distributions from our subsidiaries, we may not be able to meet our obligations to fund general corporate expenses or service our debt obligations.
We are subject to risks caused by data breaches and operational disruptions, particularly through cyber-attack or cyber-intrusion, including by computer hackers, foreign governments and cyber terrorists.
We are subject to risks caused by data breaches and operational disruptions, particularly through third-party criminal activity including "ransomware" or other malware, cyber-attack or cyber-intrusion, including by computer hackers, foreign governments and cyber terrorists.
Alternatively, if a court outside of the State of Delaware were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial position, results of operations and cash flows. 25 Risks Related to Our Indebtedness We have significant indebtedness and may incur additional substantial indebtedness, which could adversely affect our financial health and our ability to obtain financing in the future, react to changes in our business and satisfy our obligations.
Alternatively, if a court outside of the State of Delaware were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial position, results of operations and cash flows.
In recent years, the COVID-19 pandemic’s impact on the global supply chain has led to industry-wide price increases for parts and equipment as well as availability challenges across our trades as demand has outpaced production .
In recent years, global supply chain challenges, including as a result of the COVID-19 pandemic, have led to industry-wide price increases for parts and equipment as well as availability challenges across our trades as demand has outpaced production.
In connection with the planned phase-out of LIBOR, we expect to amend our Credit Facilities to replace LIBOR with SOFR as the benchmark rate under the Credit Agreement.
In connection with the phase-out of LIBOR, we amended our Credit Facilities in March 2023 to replace LIBOR with SOFR as the benchmark rate under the Credit Agreement.
We may be unable to refinance our indebtedness, at maturity or otherwise, on terms acceptable to us or at all. 27 Our ability to comply with the covenants and restrictions contained in the Credit Agreement and the instruments governing our other indebtedness may be affected by economic, financial and industry conditions beyond our control including credit or capital market disruptions.
Our ability to comply with the covenants and restrictions contained in the Credit Agreement and the instruments governing our other indebtedness may be affected by economic, financial and industry conditions beyond our control including credit or capital market disruptions.
We cannot provide any assurance that we will be able to continue to appropriately manage our marketing efforts in response to any or all of the events and trends discussed above, and the failure to do so could adversely affect our reputation, business, financial position, results of operations and cash flow.
We cannot provide any assurance that we will be able to continue to appropriately manage our marketing efforts in response to any or all of the events and trends discussed above, and the failure to do so could adversely affect our reputation, business, financial position, results of operations and cash flow. 16 We depend on our first-year real estate and direct-to-consumer acquisition channels for a significant percentage of our sales.
As the development and implementation of our technology systems (including our operating systems) continues to evolve, we may elect to modify, replace or abandon certain technology initiatives, which could result in write-downs. 19 Any disruption in our technology systems, including capacity limitations, instabilities, or failure to operate as expected, could, depending on the magnitude of the problem, adversely impact our business, brands, reputation, customer relationships, financial position, results of operations and cash flows, including by limiting our capacity to monitor, operate and control our operations effectively.
Any disruption in our technology systems, including capacity limitations, instabilities, or failure to operate as expected, could, depending on the magnitude of the problem, adversely impact our business, brands, reputation, customer relationships, financial position, results of operations and cash flows, including by limiting our capacity to monitor, operate and control our operations effectively.
As a result, in periods when home sales are fast-moving, declining or of low inventory levels, demand for our services may be adversely impacted.
Demand for our services is affected by existing home sales, as our services are frequently purchased in connection with real estate transactions. As a result, in periods when home sales are fast-moving, declining or of low inventory levels, demand for our services may be adversely impacted.
Our business strategies and initiatives, including increasing our home service plan penetration, delivering superior customer experience, growing our supplier network of independent contractors, continuing digital innovation, leveraging dynamic pricing, providing customers access to our high-quality, pre-qualified network of contractors for on-demand home services, developing a world-class data platform and pursuing selective acquisitions, are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.
Our business strategies and initiatives, including increasing our home warranty penetration, delivering superior customer experience, growing our supplier network of independent contractors, continuing digital innovation, leveraging dynamic pricing, providing customers access to our high-quality, qualified network of contractors for on-demand home services and pursuing selective acquisitions, are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. 15 In addition, our financial performance is affected by changes in the services and products we offer to customers.
For example, developing and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s recently proposed climate-related reporting requirements.
Developing and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s proposed climate-related reporting requirements, the new California climate disclosure rules, and similar proposals by other U.S. regulatory bodies.
Based upon future economic and financial market conditions, the operating performance of our reporting units and other factors, including those listed above, we may incur impairment charges in the future.
Based upon economic and financial market conditions, the operating performance of our reporting units and other factors, including those listed above, we have incurred, and may in the future incur, impairment charges. It is possible that such future impairments, if required, could be material.
The Credit Agreement contains covenants that, among other things, restrict our ability to: incur additional indebtedness (including guarantees of other indebtedness); create liens; redeem stock or make other restricted payments, including investments and, in the case of the Revolving Credit Facility, make acquisitions; prepay , repurchase or amend the terms of certain outstanding indebtedness; enter into certain types of transactions with affiliates; transfer or sell assets; merge , consolidate or sell all or substantially all of our assets; and enter into agreements restricting dividends or other distributions by our subsidiaries.
The Credit Agreement contains covenants that, among other things, restrict our ability to: incur additional indebtedness (including guarantees of other indebtedness); create liens; redeem stock or make other restricted payments, including investments and, in the case of the Revolving Credit Facility, make acquisitions; prepay , repurchase or amend the terms of certain outstanding indebtedness; enter into certain types of transactions with affiliates; transfer or sell assets; merge , consolidate or sell all or substantially all of our assets; and enter into agreements restricting dividends or other distributions by our subsidiaries. 26 The restrictions in the Credit Agreement and the instruments governing our other indebtedness may prevent us from taking actions that we believe would be in the best interest of our business and may make it difficult for us to execute our business strategy successfully or effectively compete with companies that are not similarly restricted.
Competition could reduce demand for our services and adversely affect our reputation, business, financial position, results of operations and cash flows. We operate in a highly competitive industry. Changes in the sources and intensity of competition in the industry in which we operate may impact the demand for our services and may also result in additional pricing pressure.
Our industry is highly competitive. Competition could reduce demand for our services and adversely affect our reputation, business, financial position, results of operations and cash flows. We operate in a highly competitive industry.
In addition, if we cannot obtain appliance parts to satisfy consumer claims in a timely manner, we may be forced to obtain replacement appliances or systems at a higher cost compared to the cost of appliance parts. We depend on our first-year real estate and direct-to-consumer acquisition channels for a significant percentage of our sales.
In addition, if we cannot obtain appliance parts to satisfy consumer claims in a timely manner, we may be forced to obtain replacement appliances or systems at a higher cost compared to the cost of appliance parts.
We may also incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility.
We may also incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility. We may be unable to refinance our indebtedness, at maturity or otherwise, on terms acceptable to us or at all.
Such a “trade war” could lead to general economic downturn or could materially and adversely affect the demand for our services, thus negatively impacting our business, financial position, results of operations and cash flows. 22 Physical impacts of climate change, which may increase the frequency and intensity of adverse w eather conditions and natural disasters, seasonality and the increased focus by investors and other stakeholders on sustainability issues, can affect the demand for our services, our ability to operate and our results of operations and cash flows.
Physical impacts of climate change, which may increase the frequency and intensity of adverse w eather conditio ns and natural disasters, seasonality and the increased focus by investors and other stakeholders on sustainability issues, can affect the demand for our services, our ability to operate and our results of operations and cash flows.
Prices for raw materials, such as steel and fuel, are subject to market volatility. We cannot predict the extent to which we may experience future increases in costs of refrigerants, appliances, equipment, parts, raw materials, wages and salaries, employee benefits, healthcare, contractor costs, self-insurance costs and other insurance premiums, or of various regulatory compliance costs and other operating costs.
We cannot predict the extent to which we may experience future increases in costs of refrigerants, appliances, equipment, parts, raw materials, wages and salaries, employee benefits, healthcare, contractor costs, self-insurance costs and other insurance premiums, or of various regulatory compliance costs and other operating costs. In recent years, we have adjusted our pricing strategies in response to these rising costs.
Any such additional increases could negatively affect mortgage rates and continue to negatively impact the real estate channel. Increases in parts, appliance and home system prices and other operating costs could adversely impact our business, financial position, results of operations and cash flows.
Increases in parts, appliance and home system prices and other operating costs could adversely impact our business, financial position, results of operations and cash flows.
In our real estate channel, our strategic relationships with top real estate brokers and agents are important to our business because they provide marketing and information services that are useful to our real estate customer acquisition channel.
A significant percentage of our sales are generated through our first-year real estate customer and direct-to-consumer acquisition channels, which feed our renewal channel. In our real estate channel, our strategic relationships with top real estate brokers and agents are important to our business because they provide marketing and information services that are useful to our real estate customer acquisition channel.
Other U.S. states have considered and/or enacted similar privacy laws, including Colorado, Connecticut, Utah and Virginia. Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data.
Additionally, the Federal Trade Commission and many state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data.
We may be unable to compete successfully against current or future competitors, and the competitive pressures that we face may result in reduced demand for our services, reduced pricing and other adverse impacts to our reputation, business, financial position, results of operations and cash flows. We may not successfully implement our business strategies, including achieving our growth objectives.
We may be unable to compete successfully against current or future competitors, and the competitive pressures that we face may result in reduced demand for our services, reduced pricing and other adverse impacts to our reputation, business, financial position, results of operations and cash flows. 17 Our future success depends on our ability to attract, retain and maintain our network of third-party contractors and vendors and their performance.
In addition, although we have insurance to mitigate some of these risks, such policies may not cover the particular cyber or similar attack experienced and, even if the risk is covered, such insurance coverage may not be adequate to compensate for related losses.
In addition, although we have insurance to mitigate some of these risks, such policies may not cover the particular cyber or similar attack experienced and, even if the risk is covered, such insurance coverage may not be adequate to compensate for related losses. 20 The impact of cybersecurity events experienced by third parties with whom we do business (or upon whom we otherwise rely in connection with our day-to-day operations) could have similar effects on us.
Our future success depends on our ability to attract, retain and maintain our network of third-party contractors and vendors and their performance. Our ability to conduct our operations is in part impacted by reliance on a network of third-party contractors.
Our ability to conduct our operations is in part impacted by reliance on a network of third-party contractors. Our future success and financial performance depend substantially on our ability to attract and retain qualified third-party contractors, and their availability, and ensure third-party contractor compliance with our policies, standards and performance expectations.
The burdens imposed by the CCPA , CPRA and other similar laws that may be enacted at the federal and state level may require us to further modify our data processing practices and policies and to incur substantial expenditures in order to comply. 20 Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to environmental, social and governance matters, that could expose us to numerous risks.
The burdens imposed by the CCPA, CPRA and other similar laws that may be enacted at the federal and state level may require us to further modify our data processing practices and policies and to incur substantial expenditures in order to comply.
The impact of increases in interest rates could be more significant for us than it would be for some other companies because of our significant indebtedness.
The impact of increases in interest rates could be more significant for us than it would be for some other companies because of our significant indebtedness. As of December 31, 2023, our variable rate indebtedness used the SOFR as a benchmark for establishing the interest rate. LIBOR was previously the benchmark rate used for our variable rate indebtedness.
These provisions include rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings and the right of our board of directors to issue preferred stock without stockholder approval. Delaware law also imposes some restrictions on mergers and other business combinations between any holder of 15 percent or more of our outstanding common stock and us.
These provisions include rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings and the right of our board of directors to issue preferred stock without stockholder approval.
The principal measures of competition in our business include customer service, brand awareness and reputation, fairness of contract terms, including contract price and coverage scope, contractor network and quality and speed of service.
Regional and local competitors operating in a limited geographic area may have lower labor, employee benefits and overhead costs than us. The principal measures of competition in our business include customer service, brand awareness and reputation, fairness of contract terms, including contract price and coverage scope, contractor network and quality, and speed of service.
Third-party use of our trademarks as keywords in Internet search engine advertising programs may direct potential customers to competitors’ websites, which could harm our reputation and cause us to lose sales. Competitors and other third parties purchase our trademarks and confusingly similar terms as keywords in Internet search engine advertising programs in order to divert potential customers to their websites.
Competitors and other third parties purchase our trademarks and confusingly similar terms as keywords in Internet search engine advertising programs in order to divert potential customers to their websites. Preventing such unauthorized use is inherently difficult.
These brokers and agents are independent parties that we do not control, and we cannot guarantee that our strategic partnership arrangements with them will continue at current levels or at all.
These brokers and agents are independent parties that we do not control, and we cannot guarantee that our strategic partnership arrangements with them will continue at current levels or at all. An inability to maintain these relationships could have a material adverse effect on our business, financial position, results of operations and cash flows.
We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers.
Delaware law also imposes some restrictions on mergers and other business combinations between any holder of 15 percent or more of our outstanding common stock and us. 24 We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal.
However, in 2022, in light of increasing inflation, the Federal Reserve increased interest rates seven times, which has caused buyer apprehension and affordability concerns, resulting in a decrease in home sales in 2022 and negatively impacting our real estate channel. The Federal Reserve has indicated that it expects continued increases in interest rates in 2023 and elevated rates in 2024.
With respect to interest rates, in particular, the Federal Reserve increased interest rates eleven times in 2022 and 2023 in response to increasing inflation. The rise in interest rates has caused buyer apprehension and affordability concerns, resulting in a decrease in home sales in 2022 and 2023 and has negatively impacted our real estate channel.
Acts of God, war, terror acts and epidemic disease, such as COVID-19, may impair our ability to operate or the ability of our business process outsource providers to operate, in particular countries or regions. 24 Risks Related to Our Common Stock We do not intend to pay cash dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
Risks Related to Our Common Stock We do not intend to pay cash dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
Our future success and financial performance depend substantially on our ability to attract and retain qualified third-party contractors and ensure third-party contractor compliance with our policies, standards and performance expectations. However, these third-party contractors are independent parties that we do not control, and who own, operate and oversee the daily operations of their individual businesses.
However, these third-party contractors are independent parties that we do not control, and who own, operate and oversee the daily operations of their individual businesses.
New regulations or guidance relating to climate change, as well as the perspectives of shareholders, employees and other stakeholders regarding these standards, may affect our business activities and increase disclosure requirements, which may increase costs. We may not be able to adequately protect our intellectual property and other proprietary rights that are material to our business.
New regulations or guidance relating to climate change, as well as the perspectives of shareholders, employees and other stakeholders regarding these standards, may affect our business activities and increase disclosure requirements, which may increase costs. 22 Changes to U.S. tariff and import/export regulations may increase the costs of parts, appliances and home systems and, in turn, adversely impact our business.
Any future impairment charges that we are required to record could have a material adverse impact on our results of operations. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in Part II of this Annual Report on Form 10-K for additional information.
Any future impairment charges that we are required to record could have a material adverse impact on our results of operations. See “Item 7.
For example, from 2021 through 2022, we experienced a rapid increase in the cost of parts, appliance and home system costs due to inflation, which, in turn, increased our contract claims costs. Such increase in operating expenses, including contract claims costs, could have a material adverse impact on our business, financial position, results of operations and cash flows.
Such increase in operating expenses, including contract claims costs, could have a material adverse impact on our business, financial position, results of operations and cash flows. Prices for raw materials, such as steel and fuel, are subject to market volatility.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe also lease office space in Portland, Oregon for our Streem business; in Denver, Colorado and Pune, India for engineering and technology campuses; and in Seattle, Washington for a digital marketing and technology campus. We believe these facilities are suitable and adequate to support the needs of our business.
Biggest changeITEM 2. PROPERT IES Our corporate headquarters is located in Memphis, Tennessee, in a leased facility. We also lease a collaboration center located in Scottsdale, Arizona and a technology collaboration center in Pune, India. We believe these facilities are suitable and adequate to support the needs of our business.
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ITEM 2. PROPERT IES Our corporate headquarters is located in Memphis, Tennessee, in a leased facility. We operate two customer service centers throughout the United States, which are located in Carroll, Iowa and Phoenix, Arizona. The facility in Carroll is owned, and the facility in Phoenix is leased.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Purchases of Equity Securities On September 7, 2021, we announced a three-year repurchase authorization of up to $400 million of outstanding shares of our common stock over the three-year period from September 3, 2021 through September 3, 2024. We did not repurchase any shares during the three months ended December 31, 2022.
Biggest changeIssuer Purchases of Equity Securities On September 7, 2021, we announced a three-year repurchase authorization of up to $400 million of outstanding shares of our common stock over the three-year period from September 3, 2021 through September 3, 2024.
ITEM 5. MARKET FOR R EGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on the NASDAQ under the symbol ‘‘FTDR.’’ As of February 23, 2023, there were approximately 17 registered holders of our common stock. Dividends We did not pay any cash dividends in 2022.
ITEM 5. MARKET FOR R EGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on the NASDAQ under the symbol ‘‘FTDR.’’ As of February 23, 2024, there were approximately 10 registered holders of our common stock. Dividends We did not pay any cash dividends in 2023.
Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources—Liquidity” in Part II, Item 7 of this report for more information . ITEM 6. [RESE RVED] ‎ 30
Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity and Capital Resources—Liquidity” in Part II, Item 7 of this report for more information .
As of December 31, 2022, we have purchased a total of 4,478,194 outstanding shares at an aggregate cost of $162 million and had $238 million remaining available for future repurchases under the program . See “ Item 7.
As of December 31, 2023, we have repurchased a total of 8,082,819 outstanding shares at a cost of $281 million, and we had $119 million remaining available for future repurchases under this program . See “ Item 7.
Added
Period Total number of shares purchased Average price ‎ paid per share(1) Total number of ‎ shares purchased as ‎ part of publicly ‎ announced plans or ‎ programs Maximum dollar value ‎ of shares that may yet ‎ be purchased under ‎ the plans or programs ‎ (in millions) Oct. 1, 2023 through Oct. 31, 2023 — — — 164 Nov. 1, 2023 through Nov. 30, 2023 771,261 34.57 771,261 137 Dec. 1, 2023 through Dec 31, 2023 518,292 35.37 518,292 119 Total 1,289,553 34.90 1,289,553 119 ________________________________ (1) The average price paid per share is calculated on a trade date basis and excludes associated commissions and taxes.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeCash Flows Cash flows from operating, investing and financing activities for the years ended December 31, 2022 and 2021, as reflected in the audited consolidated statements of cash flows included in Item 8 of this Annual Report on Form 10-K , are summarized in the following table.
Biggest changeCash Flows Cash flows from operating, investing and financing activities, as reflected in the audited consolidated statements of cash flows included in Item 8 of this Annual Report on Form 10-K , are summarized in the following table: Year Ended December 31, (In millions) 2023 2022 Net cash provided from (used for): Operating activities $ 202 $ 142 Investing activities (32) (35) Financing activities (137) (77) Cash increase during the period $ 34 $ 29 Operating Activities Net cash provided from operating activities was $202 million for the year ended December 31, 2023, compared to $142 million for the year ended December 31, 2022.
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 claim frequency and costs and lower profitability, while mild temperatures in the winter or summer months can lead to lower home systems claim frequency.
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.
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 home warranty 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.
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. Net Income and Earnings Per Share .
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. 33 Net Income and Earnings Per Share .
In 2022, restructuring charges comprised an $11 million impairment charge related to our prior corporate headquarters operating lease right-of-use asset and leasehold improvements, a $2 million impairment of certain internally developed software, $1 million of accelerated depreciation related to the early termination of a lease, and $6 million of severance and other costs.
In 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, a $2 million impairment of certain internally developed software, $1 million of accelerated depreciation related to the early termination of a lease, and $6 million of severance and other costs.
(1) These amounts represent future interest payments related to existing debt obligations based on interest rates and principal maturities specified in the Credit Agreement. Payments related to the Term Loan Facilities are based on applicable variable and fixed interest rates as of December 31, 2022 plus the specified margin in the Credit Agreement for each period presented.
(1) These amounts represent future interest payments related to existing debt obligations based on interest rates and principal maturities specified in the Credit Agreement. Payments related to the Term Loan Facilities are based on applicable variable and fixed interest rates as of December 31, 2023 plus the specified margin in the Credit Agreement for each period presented.
Critical Accounting Policies and Estimates This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based upon our audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K, which have been prepared in accordance with U.S. GAAP.
Critical Accounting Policies and Estimates This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based upon the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K, which have been prepared in accordance with U.S. GAAP.
As of December 31, 2022, there were $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.
As of December 31, 2023, there were $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.
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.
The amount of debt that may be issued, repurchased or otherwise retired or refinanced, if any, and the price of such issuances, repurchases, retirements or refinancings will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations.
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, which is a financial measure not calculated in accordance with U.S. GAAP and represents net cash provided from operating activities less property additions.
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.
On an ongoing basis, we evaluate our estimates and judgments, including those related to: revenue recognition; home service plan claims accruals; the valuation of property and equipment, goodwill and intangible assets; useful lives for recognizing depreciation and amortization expense; accruals for current and deferred tax accounts; stock-based compensation expense; and litigation matters.
On an ongoing basis, we evaluate our estimates and judgments, including those related to: revenue recognition; home warranty claims accruals; the valuation of property and equipment, goodwill and intangible assets; useful lives for recognizing depreciation and amortization expense; accruals for current and deferred tax accounts; stock-based compensation expense; and litigation matters.
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.
The majority of our revenue is generated from annual home warranty contracts entered into with our customers. Home warranty 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.
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.
Overview Frontdoor is the leading provider of home warranties in the United States, as measured by revenue, and operates primarily under the American Home Shield brand. Our customizable home warranties help customers protect and maintain their homes, typically their most valuable asset, from costly and unplanned breakdowns of essential home systems and appliances.
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.
Generally, repairs associated with such isolated events are addressed by homeowners’ and other forms of insurance as opposed to the home warranties 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.
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. 40 Furthermore, there are third-party restrictions on the ability of certain of our subsidiaries to transfer funds to us.
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. 40 Furthermore, there are regulatory restrictions on the ability of certain of our subsidiaries to transfer funds to us.
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.
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 warranty sales, customer retention and acquisitions. We derive substantially all of our revenue from customers in the United States. Operating Expenses.
Accruals for home service plan claims are made using internal actuarial projections, which are based on current claims and historical claims experience. Accruals are established based on estimates of the ultimate cost to settle claims. Home service plan claims take approximately three months to settle, on average, and substantially all claims are settled within six months of incurrence.
Accruals for home warranty claims are made using internal actuarial projections, which are based on current claims and historical claims experience. Accruals are established based on estimates of the ultimate cost to settle claims. Home warranty claims take approximately three months to settle, on average, and substantially all claims are settled within six months of incurrence.
Cash used for working capital was primarily driven by the unfavorable impact on deferred revenue of 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.
Cash used for working capital was primarily driven by the unfavorable impact on deferred revenue of 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.
While weather variations as described above may affect our business, major weather events and other similar Acts of God, or natural disaster such as typhoons, hurricanes, tornadoes or earthquakes, typically do not increase our obligations to provide service.
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, wildfires or earthquakes, typically do not increase our obligations to provide service.
We believe the following accounting policies are most important to the portrayal of our financial condition and results of operations and require our most significant estimates and judgments. 34 Home Service Plan Claims Accruals Home service plan claims costs are expensed as incurred.
We believe the following accounting policies are most important to the portrayal of our financial condition and results of operations and require our most significant estimates and judgments. 34 Home Warranty Claims Accruals Home warranty claims costs are expensed as incurred.
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.
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.
For a discussion of our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, see “Item 7.
For a discussion of our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, see “Item 7.
These actions may include open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and/or opportunistic refinancing of debt.
These actions may include new debt issuance, open market debt repurchases, negotiated repurchases, other retirements of outstanding debt and/or opportunistic refinancing of debt.
There was no such impairment for the year ended December 31, 2021. See “—Critical Accounting Policies and Estimates—Goodwill and Intangible Assets” for further information. 37 Restructuring Charges Restructuring charges were $20 million and $3 million for the years ended December 31, 2022 and 2021, respectively.
There was no such impairment for the year ended December 31, 2023. See “—Critical Accounting Policies and Estimates—Goodwill and Intangible Assets” for further information. 37 Restructuring Charges Restructuring charges were $16 million and $20 million for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2022, the estimated debt balance as of each fiscal year ending from 2023 through 2027 is $598 million, $581 million, $564 million, $359 million and $355 million, respectively, and the weighted-average interest rate on the estimated debt balances as of each fiscal year ending from 2023 through 2027 is 5.7 percent, 5.7 percent, 6.5 percent, 6.6 percent and 6.6 percent, respectively.
As of December 31, 2023, the estimated debt balance as of each year ending from 2024 through 2027 is $581 million, $564 million, $359 million and $355 million, respectively, and the weighted-average interest rate on the estimated debt balances as of each year ending from 2024 through 2027 is 6.0 percent, 7.5 percent, 7.7 percent and 7.7 percent, respectively.
The increase was primarily driven by net income and the change in valuation of our interest rate swap, offset, in part, by repurchases of our common stock. See the audited consolidated statements of changes in equity (deficit) included in Item 8 of this Annual Report on Form 10-K for further information. ‎ 43
The increase was primarily driven by net income, offset, in part, by repurchases of our common stock. See the audited consolidated statements of changes in equity (deficit) included in Item 8 of this Annual Report on Form 10-K for further information. ‎ 43
For the year ended December 31, 2022, we generated revenue, net income and Adjusted EBITDA of $1,662 million, $71 million and $214 million, respectively. For the year ended December 31, 2021, we generated revenue, net income and Adjusted EBITDA of $1,602 million, $128 million and $300 million, respectively.
For the year ended December 31, 2022, we generated revenue, net income and Adjusted EBITDA of $1,662 million, $71 million and $214 million, respectively.
We currently believe that cash generated from operations, our cash on hand and available borrowing capacity under the Revolving Credit Facility as of December 31, 2022 will provide us with sufficient liquidity to meet our obligations in the short- and long-term. We closely monitor the performance of our investment portfolio.
We currently believe that cash generated from operations, our cash on hand and available borrowing capacity under the Revolving Credit Facility as of December 31, 2023 will provide us with sufficient liquidity to meet our obligations in the short- and long-term.
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. Acquisition Activity We anticipate that the highly fragmented nature of the home service plan category will continue to create strategic opportunities for acquisitions.
We believe our nationwide network of qualified professional contractor firms, in combination with our large base of contracted customers, differentiate us from other platforms in the home services industry. 32 Acquisition Activity We anticipate that the highly fragmented nature of the home warranty category will continue to create strategic opportunities for acquisitions.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our 2021 Annual Report on Form 10-K filed with the SEC on February 24, 2022, which specific discussion is incorporated herein by reference.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our 2022 Annual Report on Form 10-K filed with the SEC on March 1, 2023, which specific discussion is incorporated herein by reference.
See “ — Results of Operations for the Years Ended December 31, 2022 and 2021—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.
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. 33 Revenue.
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, number of home warranties, and customer retention rate. Revenue.
For the year ended December 31, 2021, our total operating revenue included 69 percent of revenue derived from existing customer renewals, while 16 percent and 13 percent were derived from new home service plan sales made in conjunction with existing home real estate transactions and direct-to-consumer sales, respectively, and three percent was derived from other revenue channels.
For the year ended December 31, 2022, our total operating revenue included 72 percent of revenue derived from existing customer renewals, while 11 percent and 13 percent were derived from new home warranty 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.
However, the use of any estimation technique in this area is inherently sensitive given the magnitude of claims involved. Given the current operating environment, which includes industry-wide parts and equipment availability challenges and inflation, our ability to estimate the cost to settle claims is further challenged. We believe our recorded obligations for these expenses are consistently measured.
However, the use of any estimation technique in this area is inherently sensitive given the magnitude of claims involved. For example, industry-wide parts and equipment availability challenges and inflation can impact our ability to estimate the cost to settle claims. We believe our recorded obligations for these expenses are consistently measured.
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.
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.
For a reconciliation of Adjusted EBITDA to net income, see “—Results of Operations for the Years Ended December 31, 2022 and 2021—Adjusted EBITDA.” For the year ended December 31, 2022, our total operating revenue included 72 percent of revenue derived from existing customer renewals, while 11 percent and 13 percent were derived from new home service plan sales made in conjunction with existing home real estate transactions and direct-to-consumer sales, respectively, and three percent was derived from other revenue channels.
For a reconciliation of Adjusted EBITDA to net income, see “—Results of Operations—Adjusted EBITDA.” For the year ended December 31, 2023, our total operating revenue included 77 percent of revenue derived from existing customer renewals, while eight percent and 11 percent were derived from new home warranty 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.
Interest and Net Investment Income Interest and net investment income reflects income of $4 million and $1 million for the years ended December 31, 2022 and 2021, respectively. The increase was primarily driven by higher interest rates on our cash and cash equivalent balances.
Interest and Net Investment Income Interest and net investment income was $16 million and $4 million for the years ended December 31, 2023 and 2022, respectively. The increase driven was by higher interest rates on our cash and cash equivalent balances.
See “—Limitations on Distributions and Dividends by Subsidiaries.” As of December 31, 2022 and 2021, the total net assets subject to these third-party restrictions were $145 million and $175 million, respectively.
See “—Limitations on Distributions and Dividends by Subsidiaries.” As of December 31, 2023 and 2022, the total net assets subject to these regulatory restrictions were $157 million and $145 million, respectively.
The decrease in customer service costs was primarily driven by lower labor costs due to a lower number of service requests. The increase in general and administrative costs was primarily driven by higher personnel and insurance costs and increased professional fees.
The decrease in customer service costs was primarily driven by a lower number of service requests. General and administrative costs increased primarily due to increased personnel costs.
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.
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 December 31, 2023, we were in compliance with the covenants under the Credit Agreement.
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.
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.
Depreciation and Amortization Expense Depreciation expense was $27 million and $24 million for the years ended December 31, 2022 and 2021, respectively, with the increase driven by depreciation associated with capital expenditures in the period.
Depreciation and Amortization Expense Depreciation expense was $32 million and $27 million for the years ended December 31, 2023 and 2022, respectively, with the increase primarily driven by incremental capital expenditures in the period.
We performed an interim impairment analysis of the Streem reporting unit as of September 30, 2022. In performing the discounted cash flow analysis, we determined that the carrying amount of the Streem reporting unit exceeded its fair value.
This shift in focus resulted in significantly lower projected revenue for Streem. We performed an interim impairment analysis of the Streem reporting unit as of September 30, 2022. In performing the discounted cash flow analysis, we determined that the carrying amount of the Streem reporting unit exceeded its fair value.
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 Adjusted EBITDA and Adjusted EBITDA margin to facilitate operating performance comparisons from period to period, and Adjusted EBITDA is also a component of our incentive compensation program. 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.
We perform our annual assessment for impairment on October 1 of every year. Goodwill and indefinite-lived intangible assets are tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.
Goodwill and indefinite-lived intangible assets are tested for impairment at the reporting unit level. The Company can elect to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.
If the reporting unit does not pass the qualitative assessment, then the reporting unit’s carrying amount is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches. The discounted cash flow approach uses expected future operating results.
If the reporting unit does not pass the qualitative assessment, or if the Company does not elect to perform the initial qualitative assessment, then the reporting unit’s carrying amount is compared to its fair value. The fair values of the reporting units are estimated using market and discounted cash flow approaches.
Year Ended December 31, (In millions) 2022 2021 Net Income $ 71 $ 128 Depreciation and amortization expense 34 35 Goodwill and intangibles impairment (1) 14 — Restructuring charges (1) 20 3 Provision for income taxes 22 39 Non-cash stock-based compensation expense (2) 22 25 Interest expense 31 39 Loss on extinguishment of debt (1) — 31 Adjusted EBITDA $ 214 $ 300 _________________________________ (1) We exclude goodwill and intangibles impairment, restructuring charges and loss on extinguishment of debt from Adjusted EBITDA because we believe they do not reflect our ongoing operations and because we believe doing so is useful to investors in aiding period-to-period comparability.
A reconciliation of Net Income to Adjusted EBITDA is as follows: Year Ended December 31, (In millions) 2023 2022 Net Income $ 171 $ 71 Depreciation and amortization expense 37 34 Goodwill and intangibles impairment (1) — 14 Restructuring charges (1) 16 20 Provision for income taxes 57 22 Non-cash stock-based compensation expense (2) 26 22 Interest expense 40 31 Adjusted EBITDA $ 346 $ 214 _________________________________ (1) We exclude goodwill and intangibles impairment and restructuring charges from Adjusted EBITDA because we believe they do not reflect our ongoing operations and because we believe doing so is useful to investors in aiding period-to-period comparability.
See Note 2 to the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further information on newly issued accounting standards. ‎ 35 Results of Operations for the Years Ended December 31, 2022 and 2021 Increase Year Ended December 31, (Decrease) % of Revenue (In millions) 2022 2021 2022 vs. 2021 2022 2021 Revenue $ 1,662 $ 1,602 4 % 100 % 100 % Cost of services rendered 952 818 16 57 51 Gross Profit 710 784 (10) 43 49 Selling and administrative expenses 521 511 2 31 32 Depreciation and amortization expense 34 35 (3) 2 2 Goodwill and intangibles impairment 14 — * 1 — Restructuring charges 20 3 * 1 — Interest expense 31 39 (19) 2 2 Interest and net investment income (4) (1) * — — Loss on extinguishment of debt — 31 * — 2 Income before Income Taxes 93 168 (44) 6 10 Provision for income taxes 22 39 (43) 1 2 Net Income $ 71 $ 128 (45) % 4 % 8 % ________________________________ * not meaningful Revenue We reported revenue of $1,662 million and $1,602 million for the years ended December 31, 2022 and 2021, respectively.
See Note 2 to the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further information on newly issued accounting standards. ‎ 35 Results of Operations Increase Year Ended December 31, (Decrease) % of Revenue (In millions) 2023 2022 2023 vs. 2022 2023 2022 Revenue $ 1,780 $ 1,662 7 % 100 % 100 % Cost of services rendered 895 952 (6) 50 57 Gross Profit 885 710 25 50 43 Selling and administrative expenses 581 521 11 33 31 Depreciation and amortization expense 37 34 9 2 2 Goodwill and intangibles impairment — 14 * — 1 Restructuring charges 16 20 (22) 1 1 Interest expense 40 31 26 2 2 Interest and net investment income (16) (4) 329 (1) — Income before Income Taxes 229 93 145 13 6 Provision for income taxes 57 22 157 3 1 Net Income $ 171 $ 71 141 % 10 % 4 % ________________________________ * not meaningful Revenue We reported revenue of $1,780 million and $1,662 million for the years ended December 31, 2023 and 2022, respectively.
Nevertheless, changes in claims costs can materially affect the estimates for these liabilities. Goodwill and Intangible Assets Goodwill and indefinite-lived intangible assets are not amortized and are subject to assessment for impairment on an annual basis or more frequently if circumstances indicate their carrying amounts may not be recoverable.
Nevertheless, changes in claims costs can materially affect the estimates for these liabilities. Goodwill and Intangible Assets Goodwill and indefinite-lived intangible assets are not amortized and are subject to assessment for impairment on an annual basis, or more frequently if circumstances indicate a potential impairment. We perform our annual assessment for impairment on October 1 of every year.
As of December 31, 2022, we have purchased a total of 4,478,194 outstanding shares at an aggregate cost of $162 million under this program, which is included in treasury stock on the consolidated statements of financial position , and we had $238 million remaining available for future repurchases under the program.
As of December 31, 2023, we have repurchased a total of 8,082,819 outstanding shares at a cost of $281 million, which is included in treasury stock on the consolidated statements of financial position, and we had $119 million remaining available for future repurchases under this program.
In connection with the preparation of our condensed consolidated financial statements for the third quarter of 2022, we determined that indicators of a potential goodwill and intangible assets impairment were present for our Streem reporting unit.
Goodwill and indefinite-lived intangible assets are considered impaired if the carrying amount of the reporting unit exceeds its fair value. In connection with the preparation of our audited consolidated financial statements for the third quarter of 2022, we determined that indicators of a potential goodwill and intangible assets impairment were present for our Streem reporting unit.
In addition, contract claims costs for the year ended December 31, 2022 include a $12 million unfavorable adjustment related to the adverse development of prior period claims. Selling and Administrative Expenses We reported selling and administrative expenses of $521 million and $511 million for the years ended December 31, 2022 and 2021, respectively.
Additionally, contract claims costs reflects an $11 million favorable adjustment related to the development of prior period claims, compared to a $12 million unfavorable adjustment in 2022. Selling and Administrative Expenses We reported selling and administrative expenses of $581 million and $521 million for the years ended December 31, 2023 and 2022, respectively.
In 2022, approximately 21 percent, 29 percent, 29 percent and 21 percent of our revenue, approximately 2 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.
In 2023, approximately 21 percent, 29 percent, 29 percent and 21 percent of our revenue, approximately 13 percent, 41 percent, 42 percent and five percent of our net income, and approximately 15 percent, 35 percent, 37 percent and 13 percent of our Adjusted EBITDA was recognized in the first, second, third and fourth quarters, respectively.
The market approach uses comparable company information to determine revenue and earnings multiples to value our reporting units. Failure to achieve these expected results or market multiples may cause a future impairment of goodwill at the reporting unit. Goodwill and indefinite-lived intangible assets are considered impaired if the carrying amount of the reporting unit exceeds its fair value.
The discounted cash flow approach uses expected future operating results. The market approach uses comparable company information to determine revenue and earnings multiples to value our reporting units. Failure to achieve these expected results or market multiples may cause a future impairment of goodwill at the reporting unit.
As of December 31, (In millions) 2022 2021 Number of home service plans 2.13 2.21 Reduction in number of home service plans (4) % (2) % Customer retention rate 75.7 % 74.2 % The reduction in number of home service plans as of December 31, 2022 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. 36 Cost of Services Rendered We reported cost of services rendered of $952 million and $818 million for the years ended December 31, 2022 and 2021, respectively.
The following table provides a summary of the number of home warranties, reduction in number of home warranties and customer retention rate: As of December 31, (In millions) 2023 2022 Number of home warranties 2.00 2.13 Reduction in number of home warranties (6) % (4) % Customer retention rate 76.2 % 75.7 % The reduction in the number of home warranties as of December 31, 2023 was primarily impacted by a decline in the number of first-year real estate home warranties driven by a continuation of the challenging real estate market, as well as a decline in the number of direct-to-consumer home warranties , which we believe was driven by a decline in overall category demand for home warranties. 36 Cost of Services Rendered We reported cost of services rendered of $895 million and $952 million for the years ended December 31, 2023 and 2022, respectively.
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 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.
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.
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.
The reviews may also identify opportunities to satisfy certain regulatory reserve requirements through alternate financial vehicles. 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.
We may, from time to time, issue new debt, 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.
While these macroeconomic conditions generally impact the United States as a whole, we believe our nationwide presence limits the impact on us of poor economic conditions in any particular region of the United States. 31 During 2022, our financial condition and results of operations were adversely impacted by the following: The challenging home seller’s market, driven, in part, by extremely low home inventory levels and rising interest rates, continued to constrain demand for home service plans in the first-year real estate channel. Consumer sentiment declined in 2022 as higher inflation eroded real personal income.
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. 31 During 2023, our financial condition and results of operations continued to be adversely impacted by the following: Challenging real estate market conditions, driven by a decline in the number of home resale transactions, primarily resulting from higher interest rates, combined with low home inventory levels, continue to constrain demand for home warranties in the first-year real estate channel. Consumer sentiment remains mixed as a result of a broad range of current macroeconomic conditions, including pressure on consumer prices and rising interest rates.
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.
Capital expenditures were $32 million and $40 million in 2023 and 2022, respectively, and included recurring capital needs and technology projects. We expect capital expenditures for the full year 2024 relating to committed, recurring capital needs and the continuation of investments in information systems and productivity enhancing technology to be approximately $35 million to $45 million.
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.
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.
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 real estate revenue primarily reflects a decline in the number of first-year real estate home warranties driven by a continuation of the challenging real estate market, offset, in part, by improved price realization from our prior pricing actions.
Key Factors and Trends Affecting Our Results of Operations Macroeconomic Conditions Changes in macroeconomic conditions, including inflation, global supply chain challenges and the persistence of the COVID-19 pandemic, 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.
Key Factors and Trends Affecting Our Results of Operations Macroeconomic Conditions Current macroeconomic conditions, including inflation, higher interest rates, the challenging real estate market and rising global geopolitical issues, may affect existing home sales, consumer sentiment or labor availability. These conditions may reduce demand for our services, increase our costs or otherwise adversely impact our business.
See Note 11 to the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for the terms and maturities of existing debt obligations.
There is no estimated debt balance as of the fiscal year ending 2028. See Note 11 to the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for the terms and maturities of existing debt obligations. (2) These amounts represent future payments relating to real estate operating leases.
Cash used for working capital was also impacted by increased accounts payable and accrued liabilities balances due to the impact of inflation on contractor and supplier costs and trade payables. Net cash provided from operating activities in 2021 comprised $223 million in earnings adjusted for non-cash charges, offset, in part, by $38 million in cash used for working capital.
Cash used for working capital was also impacted by increased accounts payable and accrued liabilities balances due to the impact of inflation on contractor and supplier costs and trade payables. Investing Activities Net cash used for investing activities was $32 million and $35 million for the years ended December 31, 2023 and 2022, respectively.
The following table provides the components of selling and administrative expenses: Year Ended December 31, (In millions) 2022 2021 Sales and marketing costs $ 253 $ 245 Customer service costs 112 116 General and administrative costs 157 150 Total $ 521 511 The following table provides a summary of changes in selling and administrative expenses: (In millions) Year Ended December 31, 2021 $ 511 Sales and marketing costs 8 Customer service costs (4) Stock-based compensation expense (3) General and administrative costs 10 Year Ended December 31, 2022 $ 521 The increase in sales and marketing costs was primarily driven by increased investments to drive sales growth in the home service plan direct-to-consumer channel.
The following table provides a summary of the components of selling and administrative expenses: Year Ended December 31, (In millions) 2023 2022 Sales and marketing costs $ 299 $ 253 Customer service costs 106 112 General and administrative costs 176 157 Total $ 581 521 The following table provides a summary of the changes in selling and administrative expenses: (In millions) Year Ended December 31, 2022 $ 521 Sales and marketing costs 46 Customer service costs (6) Stock-based compensation expense 4 Other general and administrative costs 15 Year Ended December 31, 2023 $ 581 Sales and marketing costs increased primarily due to our investment in marketing associated with the Frontdoor brand and our direct-to-consumer channel.
GAAP measure, to Free Cash Flow using data derived from our audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
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 audited consolidated statements of cash flows included in Item 8 of this Annual Report on Form 10-K.
An impairment charge of $14 million was recognized during the third quarter, which comprised the remaining net carrying amount of Streem’s goodwill of $9 million and intangibles of $5 million. As of December 31, 2022, we do not believe there are any circumstances that would indicate a potential impairment of our goodwill or indefinite-lived intangible assets.
An impairment charge of $14 million was recognized during the third quarter of 2022, which comprised the remaining net carrying amount of Streem’s goodwill of $9 million and intangible assets of $5 million.
Provision for Income Taxes The effective tax rate on income was 23.8 percent and 23.4 percent for the years ended December 31, 2022 and 2021, respectively. Net Income Net income was $71 million and $128 million for the years ended December 31, 2022 and 2021, respectively, with the decrease driven by the operating results discussed above.
Provision for Income Taxes The effective tax rate on income was 25.0 percent and 23.8 percent for the years ended December 31, 2023 and 2022, respectively.
Amortization expense was $7 million and $11 million for the years ended December 31, 2022 and 2021, respectively, with the decrease driven by certain intangible assets becoming fully amortized during 2021. Goodwill and Intangibles Impairment Goodwill and intangibles impairment was $14 million for the year ended December 31, 2022.
Amortization expense was $4 million and $7 million for the years ended December 31, 2023 and 2022, respectively, with the decrease primarily driven by the impairment to the Streem reporting unit in the third quarter of 2022. Goodwill and Intangibles Impairment Goodwill and intangibles impairment was $14 million for the year ended December 31, 2022.
The increase in direct-to-consumer revenue reflects improved price realization and a mix shift to higher priced products, offset, in part, by a decline in the number of first-year direct-to-consumer home service plans. The increase in other revenue was primarily driven by growth in on-demand home services.
The decrease in direct-to-consumer revenue primarily reflects a decline in the number of first-year direct-to-consumer home warranties, which we believe was driven by a decline in overall category demand for home warranties. The increase in other revenue was primarily driven by growth in on-demand home services.
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.
Competition We compete in the U.S. home warranty category and the broader U.S. home services industry. The home warranty category is highly competitive. While we have a broad range of competitors in each locality and region, we are one of the few companies that provide home warranties nationwide. The broader U.S. home services industry is also highly competitive.
Cash and cash equivalents totaled $292 million and $262 million as of December 31, 2022 and 2021, respectively. Our cash and cash equivalents include balances associated with regulatory requirements in our business.
We do not believe current macroeconomic conditions will affect our ongoing ability to meet our debt covenants. Cash and cash equivalents totaled $325 million and $292 million as of December 31, 2023 and 2022, respectively. Our cash and cash equivalents include balances associated with regulatory requirements in our business.
The decrease in customer service costs was primarily driven by lower labor costs due to a lower number of service requests. The increase in general and administrative costs was primarily driven by higher personnel and insurance costs and increased professional fees. 38 The following table reconciles net income, which we consider to be the most directly comparable U.S.
The decrease in customer service costs was primarily driven by a lower number of service requests. General and administrative costs increased primarily due to increased personnel costs. The increase in interest and net investment income was driven by higher interest rates on our cash and cash equivalent balances.
Cash flows provided from other investing activities in 2022 were $4 million and consisted of proceeds received from the sale of a prior customer care center in LaGrange, Georgia. Financing Activities Net cash used for financing activities was $77 million and $489 million for the years ended December 31, 2022 and 2021, respectively.
We have no additional material capital commitments at this time. Cash flows provided from other investing activities in 2022 were $4 million and consisted of proceeds received from the sale of a prior customer care center in LaGrange, Georgia. There were no cash flows provided from other investing activities in 2023.
Our customer retention rate is calculated as the ratio of the number of ending home service plans to the sum of the number of beginning home service plans, new home service plan sales and acquired accounts for the applicable period. These measures are presented on a rolling, 12-month basis in order to avoid seasonal anomalies.
Number of Home Warranties and Customer Retention Rate. We report on our number of home warranties 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.
Revenue increased four percent for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase in renewal revenue reflects improved price realization and growth in the number of renewed home service plans.
Revenue increased seven percent for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase in renewal revenue primarily reflects improved price realization resulting from our prior pricing actions.
During the year ended December 31, 2022, we made scheduled principal payments of debt and finance lease obligations of $17 million and purchased outstanding shares of our common stock at an aggregate cost of $59 million. 41 During the year ended December 31, 2021, we borrowed $638 million, net of discount, under the Term Loan Facilities, made scheduled principal payments of debt and finance lease obligations of $10 million and redeemed the remaining outstanding principal amounts of $634 million of the Prior Term Loan Facility and $350 million of the 2026 Notes.
Repurchases of common stock included associated commissions and taxes of $1 million. 41 During the year ended December 31, 2022, we made scheduled principal payments of debt of $17 million and purchased outstanding shares of our common stock at an aggregate cost of $59 million. Repurchases of common stock included associated commissions and taxes of less than $1 million.
Seasonality Our business is subject to seasonal fluctuations, which drives 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.
Seasonal fluctuations are primarily driven by a higher number of HVAC work orders in the summer months.
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.
We believe this environment impacted demand for home warranties in the first-year direct-to-consumer and renewal channels. Our contractor network continues to be impacted by inflation, including higher labor, parts and equipment costs and labor availability challenges.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe are exposed to the impact of interest rate changes and manage this exposure through the use of variable-rate and fixed-rate debt and by utilizing an interest rate swap. We entered into an interest rate swap agreement in the normal course of business to manage interest rate risks, with a policy of matching positions.
Biggest changeThese conditions may reduce demand for our services, increase our costs or otherwise adversely impact our business, which could have a material adverse impact on our future results of operations. We are exposed to the impact of interest rate changes and manage this exposure through the use of variable-rate and fixed-rate debt and by utilizing an interest rate swap.
Therefore, during the term of the agreement, the effective interest rate on $350 million of the Term Loan Facilities is fixed at a rate of 3.0865 percent, plus the incremental borrowing margin of 2.25 percent. We believe our exposure to interest rate fluctuations could be material to our overall results of operations.
Therefore, during the term of the agreement, the effective interest rate on $350 million of the Term Loan Facilities is fixed at a rate of 3.028 percent, plus the incremental borrowing margin of 2.25 percent. We believe our exposure to interest rate fluctuations could be material to our overall results of operations.
The following table summarizes information about our debt as of December 31, 2022 (after considering the impact of the effective interest rate swap), including the principal cash payments and related weighted - average interest rates by expected maturity dates based on applicable rates as of December 31, 2022.
The following table summarizes information about our debt as of December 31, 2023 (after considering the impact of the effective interest rate swap), including the principal cash payments and related weighted - average interest rates by expected maturity dates based on applicable rates as of December 31, 2023.
Assuming all revolving loans were fully drawn as of December 31, 2022, each one percentage point change in interest rates would result in an approximate $3 million change in annual interest expense on our Revolving Credit Facility.
Assuming all revolving loans were fully drawn as of December 31, 2023, each one percentage point change in interest rates would result in an approximate $3 million change in annual interest expense on our Revolving Credit Facility.
As of December 31, 2022, each one percentage point change in interest rates would result in an approximate $3 million change in the annual interest expense on our Term Loan Facilities after considering the impact of the interest rate swap.
As of December 31, 2023, each one percentage point change in interest rates would result in an approximate $2 million change in the annual interest expense on our Term Loan Facilities after considering the impact of the interest rate swap.
Fair (In millions) 2023 2024 2025 2026 2027 Thereafter Total Value Debt: Variable rate $ 17 $ 17 $ 17 $ 205 $ 4 $ 5 $ 265 $ 264 Average interest rate 6.3% 6.3% 6.3% 6.2% 6.6% 6.6% 6.2% Fixed rate $ 350 $ 350 $ 349 Average interest rate 5.3% 5.3% During the year ended December 31, 2022, the average rates paid and received on the interest rate swap, before the application of the applicable borrowing margin, were 3.1 percent and 1.7 percent, respectively. ‎ 44
Fair (In millions) 2024 2025 2026 2027 2028 Thereafter Total Value Debt: Variable rate $ 17 17 205 4 5 — 248 248 Average interest rate 7.2% 7.2% 7.0% 7.7% 7.7% — 7.0% Fixed rate — — — — 350 — 350 350 Average interest rate — — — — 5.3% — 5.3% During the year ended December 31, 2023, the average rates paid and received on the interest rate swap, before the application of the applicable borrowing margin, were 3.0 percent and 5.0 percent, respectively. ‎ 44
The notional amount of the agreement was $350 million. Under the terms of the agreement, we will pay a fixed rate of interest of 3.0865 percent on the $350 million notional amount, and we will receive a floating rate of interest (based on one-month LIBOR, subject to a floor of zero percent) on the notional amount.
Under the terms of the agreement, we will pay a fixed rate of interest of 3.028 percent on the $350 million notional amount, and we will receive a floating rate of interest (based on SOFR, subject to a floor of zero percent) on the notional amount.
The effect of derivative financial instrument transactions under the agreement could have a material impact on our financial statements. We do not hold or issue derivative financial instruments for trading or speculative purposes. On October 24, 2018, we entered into an interest rate swap agreement effective October 31, 2018 that expires on August 16, 2025.
We entered into an interest rate swap contract in the normal course of business to manage interest rate risks, with a policy of matching positions. The effect of derivative financial instrument transactions under the agreement could have a material impact on our financial statements. We do not hold or issue derivative financial instruments for trading or speculative purposes.
ITEM 7A. QUANTI TATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Changes in macroeconomic conditions, including inflation, global supply chain challenges and the continuing impacts of the COVID-19 pandemic on existing home sales, interest rates, consumer confidence, labor availability, insurance costs and medical costs could have a material adverse impact on future results of operations.
ITEM 7A. QUANTI TATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Changes in macroeconomic conditions, including inflation, higher interest rates, the challenging real estate market and rising global geopolitical issues, may affect existing home sales, consumer sentiment or labor availability.
Added
On October 24, 2018, we entered into an interest rate swap contract effective October 31, 2018 that expires on August 16, 2025. The notional amount of the agreement is $350 million.

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