Revenue

9 Months Ended

Sep. 30, 2022

Revenue [Abstract]

Revenue

Note 3. Revenue

The majority of our revenue is generated from annual home service plan agreements entered into with our customers. Our home service plan agreements have one 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 value provided to the customer. As the costs to fulfill the obligations of the home service plans are incurred on an other-than-straight-line basis, we utilize historical evidence to estimate the expected claims expense and related timing of such costs. This adjustment to the straight-line revenue creates a contract asset or contract liability, as described under the heading “Contract balances” below. We regularly review our estimates of claims costs and adjust our estimates when appropriate. 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 is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(In millions)	2022		2021		2022		2021
Renewals	$	356	$	328	$	949	$	867
Real estate(1)		51		73		153		207
Direct-to-consumer(1)		64		59		176		157
Other		13		11		44		31
Total	$	484	$	471	$	1,322	$	1,263

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(1)First-year revenue only.

Renewals

Revenue from all customer renewals, whether initiated via the real estate or direct-to-consumer channel, are classified as renewals above. Customer payments for renewals are received either at the commencement of the renewal period or in installments over the contract period.

Real estate

Real estate home service plans are sold through annual contracts in connection with a real estate sale, and payments are typically paid in full at closing. First-year revenue from the real estate channel is classified as real estate above.

Direct-to-consumer

Direct-to-consumer home service plans are sold through annual contracts when customers request a service plan in response to marketing efforts or when third-party resellers make a sale. Customer payments are received either at the commencement of the contract or in installments over the contract period. First-year revenue from the direct-to-consumer channel is classified as direct-to-consumer above.

Other

Other revenue includes revenue generated by our ProConnect on-demand home services business and Streem, as well as administrative fees and ancillary services attributable to our home service plan agreements.

Costs to obtain a contract with a customer

We capitalize the incremental costs of obtaining a contract with a customer, primarily sales commissions, and recognize the expense using the input method in proportion to the costs expected to be incurred in performing services under the contract, over the expected customer relationship period. Deferred customer acquisition costs were $17 million and $16 million as of September 30, 2022 and December 31, 2021, respectively. Amortization of these deferred acquisition costs was $6 million and $5 million for the three months ended September 30, 2022 and 2021, respectively, and $15 million for each of the nine-month periods ended September 30, 2022 and 2021. There were no impairment losses in relation to these capitalized costs.

Contract balances

Timing of revenue recognition may differ from the timing of invoicing to customers. Contracts with customers, including contracts resulting from customer renewals, are generally for a period of one year. We record a receivable related to revenue recognized on services once we have an unconditional right to invoice and receive payment in the future related to the services provided. All accounts receivable are recorded within Receivables, less allowances, in the accompanying condensed consolidated statements of financial position. We invoice our monthly-pay customers on a straight-line basis over the contract term. As a result, a contract asset is created when revenue is recognized on monthly-pay customers before being billed. As of September 30, 2022, a contract asset of $65 million was recorded related to the recognition of monthly-pay customer revenue on an other-than-straight-line basis to match the timing of cost recognition.

Deferred revenue represents a contract liability and is recognized when cash payments are received in advance of the performance of services, including when the amounts are refundable. Amounts are recognized as revenue in proportion to the costs expected to be incurred in performing services under our contracts. Deferred revenue was $113 million and $155 million as of September 30, 2022 and December 31, 2021, respectively.

Changes in deferred revenue for the nine months ended September 30, 2022 were as follows:

(In millions)	Deferred Revenue
Balance as of December 31, 2021	$	155
Deferral of revenue		209
Recognition of deferred revenue		(251)
Balance as of September 30, 2022	$	113

There was approximately $33 million and $155 million of revenue recognized in the three and nine months ended September 30, 2022, respectively, that was included in the deferred revenue balance as of December 31, 2021. Deferred revenue decreased during the nine months ended September 30, 2022, reflecting a decline in the number of first-year real estate home service plans and the recognition of previously deferred amounts on an other than straight-line basis to match the timing of cost recognition.