Financial Analysis

Note 7. Commitments and Contingencies 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. The amount of time required to settle a claim can vary based on a number of factors, including whether a replacement is ultimately required. In addition to our estimates, we engage a third-party actuary to perform an accrual analysis utilizing generally accepted actuarial methods that incorporate cumulative historical claims experience and information provided by us. We regularly review our estimates of claims costs along with the third-party analysis and adjust our estimates when appropriate. We believe that utilizing actuarial methods in our estimation process to account for these liabilities provides a consistent and effective way to measure these judgmental accruals. Unpaid losses and loss adjustment reserves represent the estimated ultimate cost of settling all new home builder warranty claims and include the estimated costs of claims incurred but not reported as of the balance sheet date. The reserve is based upon the facts of each case and our experience with similar cases. The establishment of appropriate reserves is an inherently uncertain and complex pro …

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Note 8. Stock-Based Compensation We recognized stock-based compensation expense of $ 10 million ($ 5 million, net of tax) and $ 8 million ($ 5 million, net of tax) for the three months ended March 31, 2026 and 2025, respectively. These charges are included in selling and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive income. A summary of awards granted under the Omnibus Plan during the three months ended March 31, 2026 is as follows: Weighted- Weighted- Weighted- Number of Average Average Average Awards Exercise Grant Date Vesting Granted Price Fair Value Period Stock options 561,941 53.64 23.32 3.0 Restricted stock units 486,987 53.64 3.0 Performance shares (1) 139,820 53.64 3.0 (1) The information related to performance shares above assumes 100 % of the performance condition, which is based on revenue and Adjusted EBITDA targets, is met. The ultimate number of performance shares that may be earned depends on the achievement of this performance condition . As of March 31, 2026, there was $ 79 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options, restricted stock units (RSUs) and performance shares. These costs are expected to be recognized over a weighted-average period of 2.36 years. …

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Note 4. 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. The balance of goodwill was $ 959 million as of March 31, 2026 and December 31, 2025 . There were no goodwill impairment charges during the three months ended March 31, 2026 and 2025. The following table provides a summary of the components of our intangible assets: As of March 31, 2026 As of December 31, 2025 Accumulated Accumulated (In millions) Gross Amortization Net Gross Amortization Net Trade names (1) $ 141 $ $ 141 $ 141 $ $ 141 Value of business acquired 148 ( 37 ) 111 148 ( 30 ) 118 Customer relationships (2) 133 ( 19 ) 114 321 ( 213 ) 108 Other (3) 31 ( 11 ) 20 67 ( 35 ) 32 Total $ 453 $ ( 67 ) $ 386 $ 676 $ ( 278 ) $ 398 (1) Not subject to amortization. (2) Customer relationships include homeowner, builder and broker relationships. (3) Other includes developed technology and other miscellaneous intangibles. During 2026, we identified all intangible assets that were fully amortized and removed the fully amortized balances from the gross asset and accumulated amortization amounts. This did not have an impact on the consolidated financial statements. Amortization expense was $ 12 million and $ 13 million for the three months ended March 31, 2026 and 2025 , re …

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Note 6. Income Taxes We are subject to taxation in the United States, various states and foreign jurisdictions. Substantially all of our income before income taxes for the three months ended March 31, 2026 and 2025 was generated in the United States. We compute interim period income taxes by applying an anticipated annual effective tax rate to our year-to-date income or loss from operations before income taxes, except for significant unusual or infrequently occurring items. As a result, our estimated tax rate is adjusted each quarter. The effective tax rate on income before income taxes was 19.3 percent and 22.3 percent for the three months ended March 31, 2026 and 2025, respectively. The decrease in the effective tax rate for the three months ended March 31, 2026 was primarily due to share-based compensation, offset in part by state income taxes. On July 4, 2025, the One Big Beautiful Bill Act (the Bill) was enacted into U.S. law. Certain provisions are applicable to the Company beginning in 2025, while other provisions will be implemented in future periods. As a result of the Bill, we recognized an increase in our net deferred tax liability and a decrease to our income tax payable resulting from the restoration of full expensing of U.S. research and experimentation expenditures and reinstating the 100% bonus depreciation for eligible assets. We do not expect any current or ongoing material impact to our effective tax rate as a result of the Bill. …

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Note 5. Leases We have operating leases for our corporate headquarters located in Memphis, Tennessee, a collaboration center located in Scottsdale, Arizona and a technology collaboration center in Pune, India. We also continue to lease certain office space in other geographies, which we have either exited or subleased. Our leases have remaining lease terms ranging from one year to 9 years , some of which include options to extend the leases for up to five years . The weighted-average remaining lease term and weighted-average discount rate related to our operating leases are as follows: As of March 31, December 31, 2026 2025 Weighted-average remaining lease term (years) 8 8 Weighted-average discount rate 6.6 % 6.6 % We recognized operating lease expense of less than $ 1 million for each of the three months ended March 31, 2026 and 2025. These expenses are included in selling and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive income. Supplemental statement of financial position information related to our operating lease liabilities is as follows: As of March 31, December 31, (In millions) 2026 2025 Other accrued liabilities $ 3 $ 3 Operating lease liabilities 17 18 Total operating lease liabilities $ 20 $ 20 Supplemental cash flow information related to our operating leases is as follows: Three Months Ended March 31, (In millions) 2026 2025 Cash paid on operating lease liabilities (1) $ 1 $ 1 (1) Amount is presented …

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Note 9. Long-Term Debt Long-term debt is summarized in the following table: As of March 31, December 31, (In millions) 2026 2025 Term Loan A maturing in 2029 (1) $ 387 $ 392 Term Loan B maturing in 2031 (2) 780 781 Revolving Credit Facility maturing in 2029 Total debt 1,167 1,173 Less current portion ( 29 ) ( 29 ) Total long-term debt $ 1,138 $ 1,144 (1) Term Loan A is presented net of unamortized debt issuance costs of $ 5 million as of March 31, 2026 and December 31, 2025. (2) Term Loan B is presented net of unamortized debt issuance costs of $ 9 million as of March 31, 2026 and December 31, 2025, and unamortized discount of $ 2 million as of March 31, 2026 and December 31, 2025. As of March 31, 2026, the available borrowing capacity under the Revolving Credit Facility was $ 250 million, and we were in compliance with the covenants under the Credit Agreement. Scheduled Debt Payments The following table presents future scheduled debt payments as of March 31, 2026: (In millions) 2026 (remainder) $ 22 2027 29 2028 29 2029 342 2030 8 Thereafter 752 Total future scheduled debt payments 1,182 Less unamortized debt issuance costs ( 13 ) Less unamortized discount ( 2 ) Total debt $ 1,167 …

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Newly Issued Accounting Standards In 2024, the FASB issued ASU 2024-03, Income StatementReporting Comprehensive IncomeExpense Disaggregation Disclosures (Subtopic 220-40), which requires disclosure, in the notes to the financial statements, of specified information about certain costs and expenses on an annual and interim basis. This guidance is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted, and the guidance can be applied either prospectively or retrospectively. We are currently evaluating the impact of this ASU on our consolidated financial statements. In 2025, the FASB issued ASU 2025-06, IntangiblesGoodwill and OtherInternal-Use Software (Subtopic 350-40) , which modernizes the accounting guidance for the costs to develop software for internal use. This guidance is effective for annual periods beginning after December 15, 2027. Early adoption is permitted and the guidance can be applied on a prospective basis, a modified basis for in-process projects or on a retrospective basis. We are currently evaluating the impact of this ASU on our consolidated financial statements. …

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Note 3. Revenue The majority of our revenue is generated from home warranty contracts entered into with our customers. Home warranty contracts are typically one year in duration. We derive substantially all of our revenue from customers in the United States. We disaggregate revenue from contracts with customers into major customer acquisition channels. We determined that disaggregating revenue into these categories depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenue by major customer acquisition channel for our home warranties and other revenue is as follows: Three Months Ended March 31, (In millions) 2026 2025 Renewals $ 352 $ 333 Real estate (1) 28 27 Direct-to-consumer (1) 31 32 Non-warranty and other 41 33 Total $ 451 $ 426 (1) First-year revenue only. Our home warranty contracts have one primary performance obligation, which is to provide for the repair or replacement of essential home systems and appliances, as applicable per the contract. 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. Those costs bear a direct relationship to the fulfillment of our obligations under the contracts and are representative of the relative fair value of the services provided to the customer. As the costs to fulfill the obligations of the home warranties are incurred on an other-than- …

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Note 10. Segments We operate as one operating and reportable segment. The majority of our revenue is generated from home warranty contracts entered into with our customers. The accounting policies applied to our one operating and reportable segment are described in Note 2 to the audited consolidated financial statements included in our 2025 Form 10-K. Our chief operating decision maker (CODM), who is our Chief Executive Officer , regularly evaluates financial information, primarily revenue, net income and other measures, on a consolidated basis in deciding how to allocate resources and in assessing performance. Additionally, consolidated revenue is one key component of our incentive compensation program. Information for our one operating and reportable segment is as follows: Three Months Ended March 31, (In millions) 2026 2025 Revenue $ 451 $ 426 Cost of services rendered 203 191 Sales and marketing costs 71 65 Customer service costs 30 28 General and administrative costs 61 58 Other segment items (1) 44 47 Net Income $ 41 $ 37 (1) Other segment items include depreciation and amortization expense, restructuring charges, interest expense, interest and net investment income, and provision for income taxes. As of March 31, December 31, 2026 2025 Total Assets $ 2,164 $ 2,142 …

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Note 2. Significant Accounting Policies Our significant accounting policies are described in Note 2 to the audited consolidated financial statements included in our 2025 Form 10-K. There have been no material changes to our significant accounting policies during the three months ended March 31, 2026. Restricted Net Assets There are regulatory restrictions on certain of our subsidiaries under the laws and regulations of the states in which they operate. Among other things, such laws and regulations require certain subsidiaries to maintain funded reserves, minimum capital and net worth requirements, and may limit the amount of ordinary and extraordinary dividends and other payments that these subsidiaries can make to us. As of March 31, 2026, the total assets subject to regulatory restrictions was $ 156 million. This amount included certificates of deposit of $ 2 million, which are reported in Prepaid expenses and other current assets on the accompanying condensed consolidated statements of financial position. Real Estate Held for Sale We classify long-lived assets to be sold as held for sale in the period in which all required criteria are met. We initially measure a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held-for-sale criteria are met. Conversely, gains are not recognized on the sale of a long-lived asset unti …

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