Frontdoor, Inc. Q3 FY2024 earnings call

• Bill Cobb highlighted that gross margins improved from an all-time low of 43% in 2022 to an expected 53% in 2024. • Third quarter saw record financial performance with revenue up 3%, gross profit margin at 57%, net income up 40%, and adjusted EBITDA up 29%. • Focus on home warranty customer base as top strategic priority, with acquisition of 2-10 Home Buyers Warranty on track to close in Q4. • On-demand business expected to generate over $100 million in revenue, with expansion of Moen partnership to 7 additional states. • Renewal retention rate improved 150 basis points to a record high of 77.7% in Q3. • Launched AHS app to enhance customer experience, with members able to access account info, track service requests, etc.

In the third quarter, revenue increased 3% to $540 million. Gross profit margin expanded 550 basis points to 57%. Net income grew 40% to $100 million, and adjusted EBITDA grew 29% to $165 million. For home warranty segments: Real estate customer count was down nearly 14% in Q3 vs prior year. DTC customer count grew in Q3, with ending 2024 DTC customer count forecasted to be in line with a year ago. On-demand business is expected to generate over $100 million in revenue this year, primarily due to the HVAC program.

• Full-year revenue outlook raised to approximately $1.83 billion (+3%), including mid-single-digit price increase in renewals. • Gross profit margin outlook raised to ~53%, a new record. • Full-year adjusted EBITDA guide increased to approximately $430 million. • Acquisition of 2-10 Home Buyers Warranty on track to close in Q4. • On-demand revenue expected over $100 million in 2024.

• Macro factors affecting home sales, such as low annual run rate of home sales and elevated mortgage rates/home prices. • Regulatory approval process for acquisition, specifically waiting on California approval. • Potential impact of interest rates on real estate market and home warranty attach rates.

Q: About the AHS app launch, how plan to market and roll it out and impact on business?

A: It's member-focused, designed to enhance user experience. Will market to existing members, and be part of brand character. Helps make service request process more efficient and can drive additional members.

Q: On mid-single-digit price increase, which channels and impact on P&L?

A: Price increases focused through renewals channel. Rolled out through renewals book; real estate has constant pricing, DTC part of discounting. Impacts 4Q and carries over to 2025.

Q: On real estate channel, customer account stable despite declining existing home sales, any attach rate improvements?

A: Attach rate for industry home warranties is low, but Frontdoor has maintained fair share. Market has some stabilizing elements like increasing listings supply and potential rate cuts, but market rebound not certain yet.

Q: On DTC channel customer count acceleration, drivers and SG&A pullback?

A: Drivers include marketing campaign, discounting, and Google search up. SG&A outlook lowered, but some marketing spend will be reinvested for 2025 as part of EBITDA growth to reinvest in brand.

Q: On competitive landscape and M&A learnings?

A: Competitors are private or divisions of public companies, some have responded to discounting. Focus on absorbing 2-10 acquisition for immediate future, with more on it at Investor Day in Feb; M&A evaluated for healthy inorganic growth balancing with organic growth.

Q: On HVAC sales potential and Moen materiality?

A: HVAC sales rolling out market by market with potential for growth; Moen expansion in 7 states, details to be shared at Investor Day in Feb; Moen's materiality in 2025 to be discussed further then.

Q: On trade service fees impact timing?

A: Trade service fees launched back half of 2022, process takes 12-24 months to roll out, similar to pricing, and typically takes a year or so for consumer behavior to adjust to new fees