Financial Data and Key Metrics Changes - Revenue increased 14% year over year to $617 million, with net income growing 21% to $111 million and adjusted EBITDA rising 26% to $199 million [4][22][26] - For the full year, revenues grew 13% to over $1 billion, net income increased 17% to $148 million, and adjusted EBITDA grew 31% to $300 million [22] Business Line Data and Key Metrics Changes - Direct to consumer (DTC) revenue grew 12%, supported by organic volume growth and the addition of the two ten acquisition [22] - Real estate revenue increased 21%, primarily due to the two ten acquisition [22] - Other revenue grew 63%, driven by success in the new HVAC and Moen programs, as well as the addition of two ten's new home structural business [22] Market Data and Key Metrics Changes - The real estate market remains challenging, with home sales slipping 2.7% month over month to a seasonally adjusted annual rate of 3.93 million, among the lowest in thirty years [8] - The inventory of unsold existing homes rose 18% year over year to 1.53 million homes, indicating a potential transition to a buyer's market [9] Company Strategy and Development Direction - The company focuses on three strategic priorities: growing and retaining home warranty members, scaling revenue from non-warranty business, and optimizing the integration of the two ten Homebuyers Warranty [5][6][18] - The new HVAC program is expected to generate nearly 40% higher revenue than last year, with an increased full-year outlook of $120 million [15] Management's Comments on Operating Environment and Future Outlook - Management noted that the macro environment has improved, leading to better-than-expected results in various areas, including gross profit margin and revenue conversion [26][50] - The company is optimistic about the potential for increased home warranty attach rates as the real estate market shows signs of improvement [64] Other Important Information - The company repurchased $150 million worth of shares year to date through July 31, with an increased full-year share repurchase target of approximately $250 million [29][31] - Free cash flow for the first half of the year was $237 million, a 44% increase versus the prior year period [30] Q&A Session Summary Question: What drove the increase in two ten cost synergies from $10 million to $15 million for 2025? - Management indicated that efficiencies were found across all functions, leading to the increase, and confirmed expectations of $30 million in run rate synergies by 2028 [40] Question: Is your guidance all for HVAC or does that include water heaters? - The guidance is currently focused solely on HVAC, with ongoing tests for potential future offerings [41] Question: What contributed to the strong performance in the real estate channel this quarter? - Management attributed the performance to seasonal investments and effective integration of the two ten acquisition [46][48] Question: Are you still expecting $50 million in headwinds for the back half of the year? - Management noted that the macro environment has improved, leading to better-than-anticipated results, and adjusted expectations for the back half of the year [49][50] Question: How is the two ten structural warranty sales process performing? - Management expressed satisfaction with the sales process and noted that the transition has gone smoothly, with good momentum in sales [59][60]

Financial Highlights - Q2 2025 revenue reached $617 million, a 14% increase compared to the prior year period[17, 55] - Gross profit margin for Q2 2025 was 58%, up 130 bps from the prior year period[17, 62] - Net income for Q2 2025 was $111 million, a 21% increase compared to the prior year period[17, 55] - Adjusted EBITDA for Q2 2025 was $199 million, a 26% increase compared to the prior year period[17, 55] - First half of 2025 revenue was $1.043 billion, a 13% increase compared to the prior year period[55] - First half of 2025 adjusted EBITDA was $300 million, a 31% increase compared to the prior year period[55] - The company has $562 million in total cash, including $377 million in unrestricted cash and $185 million in restricted cash[71] Business Performance - Organic direct-to-consumer home warranties grew by 9%[18, 31] - Renewals grew 9% due to the addition of 2-10 and higher price[59] - Real estate increased 21% due to the addition of 2-10[59] - DTC grew 12% as higher volumes were partially offset by lower price[59] - Other revenue grew 63% due to the new HVAC and Moen programs, as well as the addition of 2-10[59] - The company repurchased $150 million of shares year-to-date through July 31[18, 79] Strategic Initiatives - The company is integrating technology advancements into the member experience, with 14% of the member base having downloaded the app in only 8 months[36] - The company is increasing expected cost synergies from the 2-10 acquisition to approximately $15 million in 2025, up from $10 million+[48] - The company is raising its 2025 share repurchase target from $200 million+ to approximately $250 million[79] Outlook - The company expects full year 2025 revenue to be in the range of $2.055 billion to $2.075 billion[80] - The company expects full year 2025 adjusted EBITDA to be in the range of $530 million to $550 million[80]

[Executive Summary & Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Highlights) [Second-Quarter 2025 Financial Highlights](index=1&type=section&id=Second-Quarter%202025%20Financial%20Highlights) Frontdoor reported strong Q2 2025 results with significant YoY increases in revenue, margins, and net income Second-Quarter 2025 Financial Performance Highlights (YoY Change) | Metric | Q2 2025 Value | YoY Change | | :-------------------------- | :------------ | :--------- | | Revenue | $617 million | +14% | | Gross Profit Margin | 58% | +130 bps | | Net Income | $111 million | +21% | | Adjusted EBITDA | $199 million | +26% | | Diluted Earnings per Share | $1.48 | +26% | | Share Repurchases (YTD July 2025) | $150 million | N/A | [Management Commentary & Strategic Overview](index=1&type=section&id=Management%20Commentary%20%26%20Strategic%20Overview) Management cited exceptional performance, successful scaling of non-warranty revenue, and accelerated 2-10 acquisition integration - Organically grew Direct-to-Consumer member count by **9%**[5](index=5&type=chunk) - Successfully scaling non-warranty revenue and the **2-10 integration is ahead of schedule**[5](index=5&type=chunk) - Generated nearly **$200 million in Adjusted EBITDA** in Q2 2025, supported by strong operational execution[5](index=5&type=chunk) - Returning **record amounts of cash to shareholders** through share repurchases[5](index=5&type=chunk) [Updated Full-Year 2025 Outlook Highlights](index=1&type=section&id=Updated%20Full-Year%202025%20Outlook%20Highlights) Frontdoor raised its full-year 2025 guidance for revenue, gross profit margin, and Adjusted EBITDA Updated Full-Year 2025 Outlook Ranges | Metric | Updated Range | | :------------------ | :-------------------- | | Revenue | $2.055 billion to $2.075 billion | | Gross Profit Margin | 55% to 56% | | Adjusted EBITDA | $530 million to $550 million | [Second-Quarter 2025 Financial Results](index=1&type=section&id=Second-Quarter%202025%20Financial%20Results) [Consolidated Financial Performance](index=1&type=section&id=Consolidated%20Financial%20Performance) Consolidated results show significant growth across key metrics, driven by increased revenue and improved profitability Three Months Ended June 30, 2025 vs. 2024 | Financial Results (In millions except as noted) | 2025 | 2024 | Change | | :------------------------------------ | :--- | :--- | :----- | | Revenue | $617 | $542 | 14% | | Gross Profit | $356 | $306 | 16% | | Net Income | $111 | $92 | 21% | | Diluted Earnings per Share | $1.48 | $1.18 | 26% | | Adjusted Net Income | $122 | $100 | 22% | | Adjusted Diluted Earnings per Share | $1.63 | $1.27 | 28% | | Adjusted EBITDA | $199 | $158 | 26% | | Home Warranties (number in millions) | 2.09 | 1.95 | 7% | [Revenue by Customer Channel](index=2&type=section&id=Revenue%20by%20Customer%20Channel) Revenue increased 14% to $617 million, primarily driven by higher volume from the 2-10 acquisition Revenue by Customer Channel (Three Months Ended June 30) | (In millions) | 2025 | 2024 | Change | | :-------------------------- | :--- | :--- | :----- | | Renewals | $461 | $421 | 9% | | Real estate (First-Year) | $44 | $36 | 21% | | Direct-to-consumer (First-Year) | $56 | $50 | 12% | | Other | $56 | $35 | 63% | | Total | $617 | $542 | 14% | - Renewal revenue **increased 9%** due to the 2-10 acquisition and higher price realization, partially offset by lower volume[11](index=11&type=chunk) - Real estate revenue **increased 21%** due to the 2-10 acquisition[11](index=11&type=chunk) - Direct-to-consumer revenue **increased 12%** due to the 2-10 acquisition and higher volume, partially offset by lower price from discounting[11](index=11&type=chunk) - Other revenue **increased 63%** due to growth in New HVAC and Moen Programs and the addition of New Home Structural Warranty revenue[11](index=11&type=chunk) [Profitability Analysis (Net Income & Adjusted EBITDA Bridge)](index=2&type=section&id=Profitability%20Analysis%20(Net%20Income%20%26%20Adjusted%20EBITDA%20Bridge)) Net Income rose 21% to $111 million and Adjusted EBITDA rose 26% to $199 million, driven by revenue conversion Period-over-Period Net Income and Adjusted EBITDA Bridge (Three Months Ended June 30) | (In millions) | Net Income | Adjusted EBITDA | | :------------------------------------ | :--------- | :-------------- | | Three Months Ended June 30, 2024 | $92 | $158 | | Impact of change in revenue | $51 | $51 | | Contract claims costs | $(1) | $(1) | | Sales and marketing costs | $3 | $3 | | Customer service costs | $(2) | $(2) | | Stock-based compensation expense | $(2) | — | | Acquisition-related costs | $4 | — | | Other general and administrative costs | $(9) | $(9) | | Depreciation and amortization expense | $(12) | — | | Restructuring charges | $1 | — | | Interest expense | $(10) | — | | Interest and net investment income | $(1) | — | | Provision for income taxes | $(4) | — | | Three Months Ended June 30, 2025 | $111 | $199 | - Higher revenue conversion contributed **$51 million** to both Net Income and Adjusted EBITDA[10](index=10&type=chunk)[12](index=12&type=chunk) - Contract claims costs increased by **$1 million**, reflecting low-single-digit cost inflation offset by favorable weather and claims development[10](index=10&type=chunk)[12](index=12&type=chunk) - Lower sales & marketing costs by **$3 million**, primarily due to timing[10](index=10&type=chunk)[12](index=12&type=chunk) - Changes in several cost categories are **primarily due to the 2-10 acquisition**[10](index=10&type=chunk)[12](index=12&type=chunk) [Cash Flow & Capital Allocation](index=3&type=section&id=Cash%20Flow%20%26%20Capital%20Allocation) [Cash Flow Summary](index=3&type=section&id=Cash%20Flow%20Summary) The company generated significant operating cash flow, with a positive shift in investing and continued share repurchases Net Cash Provided From (Used For) Activities (Six Months Ended June 30) | (In millions) | 2025 | 2024 | | :-------------------------------- | :--- | :--- | | Operating activities | $251 | $187 | | Investing activities | $42 | $(22) | | Financing activities | $(153) | $(71) | | Cash increase during the period | $141 | $93 | - Net cash provided from operating activities was **$251 million**, primarily from earnings adjusted for non-cash charges and working capital[13](index=13&type=chunk) - Net cash provided from investing activities was **$42 million**, mainly from sales of securities, offset by capital expenditures[14](index=14&type=chunk) - Net cash used for financing activities was **$153 million**, primarily due to **$134 million in share repurchases** and debt payments[14](index=14&type=chunk) [Free Cash Flow](index=3&type=section&id=Free%20Cash%20Flow) Free Cash Flow increased significantly in the first half of 2025, and the company maintained a healthy cash balance - **Free Cash Flow increased 44% to $237 million** for the six months ended June 30, 2025[15](index=15&type=chunk) Cash Balance as of June 30, 2025 | Category | Amount (in millions) | | :----------------- | :------------------- | | Total Cash | $562 | | Restricted Net Assets | $185 | | Unrestricted Cash | $377 | [Capital Allocation Update](index=3&type=section&id=Capital%20Allocation%20Update) Frontdoor increased its full-year 2025 share repurchase target, signaling a strong commitment to shareholder returns - Increasing target for 2025 share repurchases to approximately **$250 million**[16](index=16&type=chunk) [Outlook](index=3&type=section&id=Outlook) [Third-Quarter 2025 Outlook](index=3&type=section&id=Third-Quarter%202025%20Outlook) The company provided specific revenue and Adjusted EBITDA guidance for the third quarter of 2025 Third-Quarter 2025 Outlook | Metric | Range | | :-------------- | :-------------------- | | Revenue | Approximately $605 million to $615 million | | Adjusted EBITDA | Approximately $180 million to $190 million | [Updated Full-Year 2025 Outlook](index=3&type=section&id=Updated%20Full-Year%202025%20Outlook) The company raised its full-year 2025 guidance for key metrics while adjusting other operational projections Updated Full-Year 2025 Outlook and Key Assumptions | Metric | Range/Assumption | | :-------------------------- | :------------------------------------ | | Revenue | $2.055 billion to $2.075 billion | | Realized Price Increase | 2-4% | | Volume Increase | 9-10% | | Renewal Channel Revenue Increase | Approximately 10% | | Direct-to-Consumer Channel Revenue Increase | Low single-digit | | Real Estate Channel Revenue Increase | High single-digit | | Other Revenue | $180 million to $190 million (approx. $70 million increase YoY) | | Home Warranty Member Count | Decline 1-3% | | Gross Profit Margin | 55% to 56% | | SG&A | $660 million to $670 million | | Adjusted EBITDA | $530 million to $550 million | | Capital Expenditures | Approximately $35 million | | Annual Effective Tax Rate | Approximately 24% | - The increase in 'Other revenue' is primarily driven by the addition of **New Home Structural Warranty revenue** and growth in other programs[18](index=18&type=chunk) [Company Information](index=5&type=section&id=Company%20Information) [About Frontdoor, Inc.](index=5&type=section&id=About%20Frontdoor%2C%20Inc.) Frontdoor is a leading provider of home warranties, operating through its American Home Shield and 2-10 Home Buyers Warranty brands - Frontdoor is the **industry leader in home warranties** and a leading provider of on-demand home repair and maintenance services[21](index=21&type=chunk) - Parent company of American Home Shield and 2-10 Home Buyers Warranty, totaling **over two million members**[21](index=21&type=chunk) - American Home Shield covers up to 29 home systems and appliances, while 2-10 Home Buyers Warranty leads in new home structural warranties[21](index=21&type=chunk) [Earnings Conference Call Details](index=5&type=section&id=Earnings%20Conference%20Call%20Details) Frontdoor scheduled a conference call on August 5, 2025, to discuss its second-quarter 2025 financial results - Conference call held on **August 5, 2025**, at 7:30 a.m. Central time (8:30 a.m. Eastern time)[19](index=19&type=chunk) - Speakers included **Chairman and CEO Bill Cobb** and **CFO Jessica Ross**[19](index=19&type=chunk) - Access details provided for registration, webcast, and replay[19](index=19&type=chunk)[20](index=20&type=chunk) [Legal & Non-GAAP Disclosures](index=5&type=section&id=Legal%20%26%20Non-GAAP%20Disclosures) [Forward-Looking Statements](index=5&type=section&id=Forward-Looking%20Statements) This section contains a standard disclaimer regarding forward-looking statements, which are subject to various risks and uncertainties - Forward-looking statements are identified by terms such as 'believe,' 'expect,' 'estimate,' 'could,' 'should,' and other comparable terms[22](index=22&type=chunk) - Risks include **macroeconomic conditions**, competition, contractor relations, operating costs, regulatory compliance, and **acquisition-related risks**[22](index=22&type=chunk)[23](index=23&type=chunk) - Readers are advised to review Frontdoor's periodic reports filed with the SEC for a discussion of important risk factors[23](index=23&type=chunk) [Non-GAAP Financial Measures Definitions](index=6&type=section&id=Non-GAAP%20Financial%20Measures%20Definitions) Frontdoor provides definitions for non-GAAP measures like Adjusted EBITDA and Free Cash Flow to supplement GAAP results - **Adjusted EBITDA** is defined as net income before interest, taxes, depreciation, amortization, and other specified adjustments[25](index=25&type=chunk) - **Free Cash Flow** is defined as net cash provided from operating activities less property additions[26](index=26&type=chunk) - **Adjusted Net Income** is defined as net income before amortization expense, restructuring charges, and other non-operating items, adjusted for tax impacts[27](index=27&type=chunk) - **Adjusted Diluted Earnings per Share** is Adjusted Net Income divided by weighted-average diluted common shares outstanding[28](index=28&type=chunk) - **Unrestricted Cash** is defined as cash not subject to third-party restrictions[28](index=28&type=chunk) [Investor Relations & Media Contacts](index=7&type=section&id=Investor%20Relations%20%26%20Media%20Contacts) Contact information for investor relations and media inquiries is provided for stakeholders Contact Information | Role | Name | Phone | Email | | :------------- | :--------- | :---------- | :-------------------- | | Investor Relations | Matt Davis | 901.701.5199 | ir@frontdoorhome.com | | Media | Tom Collins | 901.701.5198 | mediacenter@frontdoorhome.com | [Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Consolidated%20Financial%20Statements%20(Unaudited)) [Consolidated Statements of Operations and Comprehensive Income](index=8&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) The statements detail Frontdoor's financial performance for the three and six months ended June 30, 2025, and 2024 Consolidated Statements of Operations and Comprehensive Income (Unaudited) | (In millions, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $617 | $542 | $1,043 | $920 | | Cost of services rendered | $261 | $237 | $452 | $420 | | Gross Profit | $356 | $306 | $591 | $500 | | Selling and administrative expenses | $172 | $167 | $323 | $302 | | Depreciation and amortization expense | $21 | $9 | $44 | $18 | | Interest expense | $20 | $10 | $39 | $20 | | Income before Income Taxes | $146 | $124 | $194 | $169 | | Provision for income taxes | $36 | $32 | $46 | $43 | | Net Income | $111 | $92 | $148 | $126 | | Diluted Earnings per Share | $1.48 | $1.18 | $1.96 | $1.60 | [Condensed Consolidated Statements of Financial Position](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Financial%20Position) The statements present Frontdoor's financial position as of June 30, 2025, compared to December 31, 2024 Condensed Consolidated Statements of Financial Position (Unaudited) | (In millions) | As of June 30, 2025 | As of December 31, 2024 | | :------------------------------------ | :------------------ | :---------------------- | | Total Current Assets | $620 | $488 | | Total Assets | $2,172 | $2,107 | | Total Current Liabilities | $416 | $369 | | Long-Term Debt | $1,157 | $1,170 | | Total Liabilities and Shareholders' Equity | $2,172 | $2,107 | | Total Shareholders' Equity | $254 | $239 | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The statements illustrate the sources and uses of cash for the six months ended June 30, 2025, and 2024 Consolidated Statements of Cash Flows (Unaudited) | (In millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net Cash Provided from Operating Activities | $251 | $187 | | Net Cash Provided from (Used for) Investing Activities | $42 | $(22) | | Net Cash Used for Financing Activities | $(153) | $(71) | | Cash Increase During the Period | $141 | $93 | | Cash and Cash Equivalents at End of Period | $562 | $419 | [Reconciliations of Non-GAAP Financial Measures](index=11&type=section&id=Reconciliations%20of%20Non-GAAP%20Financial%20Measures) [Net Income to Adjusted Net Income](index=11&type=section&id=Net%20Income%20to%20Adjusted%20Net%20Income) This reconciliation details adjustments from GAAP Net Income to Adjusted Net Income for the reported periods Reconciliation of Net Income to Adjusted Net Income | (In millions, except per share amounts) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $111 | $92 | $148 | $126 | | Amortization expense | $12 | $1 | $25 | $1 | | Acquisitions-related Costs | $2 | $6 | $4 | $6 | | Restructuring Charges | $0 | $1 | $0 | $1 | | Tax Impact of Adjustments | $(3) | $0 | $(7) | $(1) | | Adjusted Net Income | $122 | $100 | $171 | $134 | | Adjusted Diluted Earnings per Share | $1.63 | $1.27 | $2.27 | $1.71 | [Net Cash Provided from Operating Activities to Free Cash Flow](index=11&type=section&id=Net%20Cash%20Provided%20from%20Operating%20Activities%20to%20Free%20Cash%20Flow) This table reconciles net cash from operating activities to Free Cash Flow by subtracting property additions Reconciliation of Net Cash Provided from Operating Activities to Free Cash Flow | (In millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net cash provided from operating activities | $251 | $187 | | Property additions | $(14) | $(22) | | Free Cash Flow | $237 | $164 | [Net Income to Adjusted EBITDA](index=11&type=section&id=Net%20Income%20to%20Adjusted%20EBITDA) This reconciliation shows adjustments from GAAP Net Income to Adjusted EBITDA for the reported periods Reconciliation of Net Income to Adjusted EBITDA | (In millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $111 | $92 | $148 | $126 | | Depreciation and amortization expense | $21 | $9 | $44 | $18 | | Restructuring charges | $0 | $1 | $0 | $1 | | Acquistion-related costs | $2 | $6 | $4 | $6 | | Provision for income taxes | $36 | $32 | $46 | $43 | | Non-cash stock-based compensation expense | $9 | $8 | $17 | $15 | | Interest expense | $20 | $10 | $39 | $20 | | Other | $1 | $0 | $1 | $0 | | Adjusted EBITDA | $199 | $158 | $300 | $229 | [Key Business Metrics](index=12&type=section&id=Key%20Business%20Metrics) [Home Warranties and Customer Retention](index=12&type=section&id=Home%20Warranties%20and%20Customer%20Retention) Frontdoor reported an increase in total home warranties and an improved customer retention rate as of June 30, 2025 Key Business Metrics (As of June 30) | Metric | 2025 | 2024 | | :------------------------------------ | :----- | :----- | | Number of home warranties (in millions) | 2.09 | 1.95 | | Renewals | 1.58 | 1.50 | | First-Year Direct-To-Consumer | 0.31 | 0.26 | | First-Year Real Estate | 0.20 | 0.18 | | Increase (Reduction) in number of home warranties | 7% | (6)% | | Customer retention rate | 79.7% | 76.6% | - Customer retention rate is presented on a **rolling 12-month basis** to avoid seasonal anomalies[47](index=47&type=chunk) - Excluding the 2-10 acquisition, the reduction in home warranties was **two percent**, and the customer retention rate was **78.3 percent**[47](index=47&type=chunk)

Core Insights - Frontdoor (FTDR) is expected to report quarterly earnings of $1.44 per share, reflecting a 13.4% increase year-over-year, with revenues projected at $602.1 million, an 11.1% increase compared to the previous year [1] - The consensus EPS estimate has remained unchanged over the past 30 days, indicating analysts' reassessment of their projections [1][2] - Analysts predict specific revenue metrics for Frontdoor, including $458.90 million from 'Revenue by Customer Channel- Renewals', a 9% year-over-year increase [3] Revenue Projections - 'Revenue by Customer Channel- Other' is expected to reach $47.45 million, indicating a significant year-over-year change of 35.6% [4] - 'Revenue by Customer Channel- Direct-to-consumer (First-Year)' is projected at $55.00 million, reflecting a 10% increase year-over-year [4] - 'Revenue by Customer Channel- Real estate (First-Year)' is anticipated to be $41.40 million, suggesting a 15% year-over-year change [5] Stock Performance - Frontdoor's shares have decreased by 3.1% over the past month, contrasting with a 0.6% increase in the Zacks S&P 500 composite [5] - The company holds a Zacks Rank 3 (Hold), indicating expectations to mirror overall market performance in the near future [5]

Company Overview - Frontdoor Inc. (FTDR) has demonstrated strong momentum, with a 37% increase in stock price over the last month [1] - The company has raised its guidance since the previous quarter, indicating strong signs of growth and improved profitability [1] Analyst Insights - The analysis focuses on foreign stocks, particularly in the Nordic market, while also covering growth stocks in the U.S. market [1] - The goal is to uncover undervalued opportunities and explore unique business models to assist investors in making informed decisions [1]

Summary of Frontdoor (FTDR) FY Conference Call - May 13, 2025 Company Overview - Frontdoor is the only publicly traded home warranty company, operating on a subscription-based model that protects homeowners from inevitable breakdowns in their homes [4][5] - The company covers 29 systems and appliances, including HVAC equipment, and offers three service plans [5] - Frontdoor has a member base of over 2,100,000 and aims to leverage this for non-warranty initiatives, including partnerships and new service programs [6] Core Business and Financial Performance - The company has seen a record year of profitability and expects continued growth in 2025, having stabilized its core home warranty business [9][12] - Frontdoor reported $117 million in free cash flow in Q1, with projected revenues exceeding $2 billion [12] - The company has diversified its revenue streams and improved customer retention rates, achieving record levels [11] Industry Insights - The home warranty industry has been stagnant, with a total addressable market (TAM) of 15 million home service plans in the U.S. [14] - The company aims to increase market penetration through innovative marketing and improved value propositions [17][18] - Frontdoor has introduced a video chat feature that allows homeowners to troubleshoot issues, resulting in 17% of users resolving problems without needing a service call [16][50] Non-Warranty Initiatives - Frontdoor has launched a new HVAC program projected to become a $100 million business by 2025, offering members significant discounts on new equipment [20][22] - The company is expanding its non-warranty services to include water heaters and roof repairs [20] Macro Environment and Tariffs - In Q1, Frontdoor experienced zero inflation and no immediate impact from tariffs, although future price increases from suppliers are anticipated [26][28] - The company has built protections into its guidance to account for potential tariff impacts and inflation [32][33] Customer Acquisition Channels - The real estate market has faced challenges, with a forecast of 4 million homes sold in 2025, down from 6 million in previous years [37][38] - Direct-to-consumer (DTC) channels have shown organic growth, with a 4% increase in Q1 and a total growth of 15% including the acquisition of two ten [41][42] Pricing Strategy - The average price of a home service plan has increased from over $700 to nearly $900, with a 4% price increase planned for the year [60] - Frontdoor employs a dynamic pricing strategy that allows for tailored pricing based on individual customer circumstances, contributing to strong retention rates [62][64] Acquisition of Two Ten - The acquisition of Two Ten is expected to yield $10 million in synergies in the first year, with potential for $30 million in the coming years [56] - This acquisition enhances Frontdoor's access to new markets and customer bases, particularly in the home structural warranty sector [54] Retention and Member Experience - The company has achieved an all-time high retention rate, driven by improved contractor relationships and a focus on member experience [57] - Approximately 84% of members are on monthly auto-pay, which supports renewal rates [59] Capital Allocation Strategy - Frontdoor maintains a strong financial profile with a leverage ratio of 1.9, allowing for aggressive share repurchases and continued investment in growth [73][75] - The company has increased its share repurchase program from $180 million to over $200 million [73] Future Outlook - Frontdoor is focused on leveraging its core business while expanding into non-warranty services, aiming for a more diversified revenue stream [85][86] - The management expresses confidence in the resilience of its business model and the potential for future growth through innovation and partnerships [85][86]

Core Viewpoint - Frontdoor (FTDR) is experiencing solid improvement in earnings estimates, which is likely to positively impact its stock price momentum [1][2]. Earnings Estimate Revisions - Analysts show growing optimism regarding Frontdoor's earnings prospects, reflected in upward revisions of earnings estimates [2]. - The current quarter's earnings estimate is $1.35 per share, representing a 6.3% increase from the previous year [6]. - Over the last 30 days, the Zacks Consensus Estimate for Frontdoor has increased by 11.09%, with three estimates moving higher and one lower [6]. - For the full year, the expected earnings are $3.29 per share, indicating a 1.79% decrease from the prior year, but there is a positive trend in estimate revisions [7]. Zacks Rank - Frontdoor currently holds a Zacks Rank 2 (Buy), indicating promising estimate revisions and a favorable investment outlook [8]. - The Zacks Rank system has a strong track record, with Zacks 1 Ranked stocks averaging a 25% annual return since 2008 [3]. Stock Performance - Frontdoor shares have increased by 43.1% over the past four weeks, suggesting strong investor confidence in its earnings growth prospects [9].

[Part I. Financial Information](index=4&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The company presents its unaudited condensed consolidated financial statements for the quarter ended March 31, 2025 [Condensed Consolidated Statements of Operations and Comprehensive Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) Q1 2025 revenue grew 12.7% to $426 million, with net income rising to $37 million Condensed Consolidated Statements of Operations (Q1 2025 vs Q1 2024) | (In millions, except per share data) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | **Revenue** | **$426** | **$378** | | Gross Profit | $235 | $195 | | Income before Income Taxes | $48 | $45 | | **Net Income** | **$37** | **$34** | | **Diluted Earnings per Share** | **$0.49** | **$0.43** | | Comprehensive Income | $30 | $35 | [Condensed Consolidated Statements of Financial Position](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Financial%20Position) Total assets reached $2.121 billion as of March 31, 2025, while shareholders' equity decreased to $198 million Condensed Consolidated Statements of Financial Position (As of March 31, 2025) | (In millions) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $506 | $421 | | Goodwill | $964 | $967 | | Intangible assets, net | $435 | $448 | | **Total Assets** | **$2,121** | **$2,107** | | **Liabilities and Shareholders' Equity** | | | | Total Current Liabilities | $414 | $369 | | Long-Term Debt | $1,164 | $1,170 | | **Total Liabilities** | **$1,923** | **$1,868** | | **Total Shareholders' Equity** | **$198** | **$239** | | **Total Liabilities and Shareholders' Equity** | **$2,121** | **$2,107** | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations increased to $124 million in Q1 2025, with financing activities using $85 million Summary of Cash Flows (Q1 2025 vs Q1 2024) | (In millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | **Net Cash Provided from Operating Activities** | **$124** | **$84** | | Net Cash Provided from (Used for) Investing Activities | $47 | $(10) | | Net Cash Used for Financing Activities | $(85) | $(21) | | **Cash Increase During the Period** | **$85** | **$53** | | Cash and Cash Equivalents at End of Period | $506 | $378 | [Notes to the Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the 2-10 HBW acquisition, revenue disaggregation, debt, and share repurchase activities - Frontdoor is the leading U.S. provider of home warranties with approximately **2.1 million active home warranties** as of March 31, 2025[24](index=24&type=chunk) - On December 19, 2024, the company acquired 2-10 HBW for aggregate cash consideration of **$585 million**[53](index=53&type=chunk)[55](index=55&type=chunk) - The company operates as **one operating and reportable segment**, with the CEO as the Chief Operating Decision Maker[69](index=69&type=chunk)[70](index=70&type=chunk) - In Q1 2025, the company repurchased **1.44 million shares for $70 million** under its $650 million share repurchase program[88](index=88&type=chunk)[89](index=89&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a 13% revenue increase, improved Adjusted EBITDA, and strong liquidity in Q1 2025 [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Q1 2025 revenue grew 13% to $426 million, with Adjusted EBITDA rising significantly to $100 million Revenue by Customer Acquisition Channel (Q1 2025 vs Q1 2024) | (In millions) | Q1 2025 | Q1 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Renewals | $333 | $298 | $35 | 12% | | Real estate | $27 | $27 | $— | — | | Direct-to-consumer | $32 | $36 | $(3) | (9)% | | Other | $33 | $17 | $16 | 95% | | **Total** | **$426** | **$378** | **$48** | **13%** | - The increase in revenue was primarily due to improved price realization and the **2-10 HBW Acquisition**, which contributed approximately **$41 million** in revenue[127](index=127&type=chunk)[128](index=128&type=chunk) - Cost of services rendered increased by only **4% to $191 million**, despite a 13% revenue increase, due to cost management improvements[131](index=131&type=chunk) - Selling and administrative expenses rose **12% to $151 million**, driven by increased personnel costs from the 2-10 HBW acquisition[132](index=132&type=chunk) Reconciliation of Net Income to Adjusted EBITDA | (In millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | **Net Income** | **$37** | **$34** | | Depreciation and amortization expense | $23 | $9 | | Restructuring charges | $1 | $— | | Acquisition-related costs | $2 | $— | | Provision for income taxes | $11 | $11 | | Non-cash stock-based compensation expense | $8 | $7 | | Interest expense | $19 | $10 | | **Adjusted EBITDA** | **$100** | **$71** | [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong liquidity position with $506 million in cash and $248 million in credit availability - As of March 31, 2025, the company had **$506 million in cash** and an available borrowing capacity of **$248 million** under its Revolving Credit Facility[144](index=144&type=chunk) Cash Flow Summary (Q1 2025 vs Q1 2024) | (In millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided from operating activities | $124 | $84 | | Net cash provided from (used for) investing activities | $47 | $(10) | | Net cash used for financing activities | $(85) | $(21) | - The Board of Directors approved a new **$650 million share repurchase authorization**, with **$539 million remaining** available as of March 31, 2025[148](index=148&type=chunk) Free Cash Flow Reconciliation | (In millions) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided from operating activities | $124 | $84 | | Property additions | $(7) | $(10) | | **Free Cash Flow** | **$117** | **$73** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes to its market risk exposures since its 2024 Form 10-K - There have been **no material changes** to the market risk from the risks described in the 2024 Form 10-K[163](index=163&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were deemed effective, excluding the recently acquired 2-10 HBW from the assessment - The CEO and CFO concluded that the company's **disclosure controls and procedures were effective** as of March 31, 2025[164](index=164&type=chunk) - Management has **excluded an assessment of internal controls for the recently acquired 2-10 HBW** from its evaluation[165](index=165&type=chunk) [Part II. Other Information](index=38&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) Current legal proceedings are not expected to have a material adverse effect on the company's business - Details regarding legal proceedings can be found in **Note 8** of the financial statements[166](index=166&type=chunk) - Management believes the disposition of pending legal actions is **not expected to have a material adverse effect** on the company[61](index=61&type=chunk) [Item 1A. Risk Factors](index=38&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported during the first quarter of 2025 - There have been **no material changes** to the risk factors disclosed in the company's 2024 Form 10-K during Q1 2025[167](index=167&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 1.44 million shares for $70 million in Q1 2025 under its repurchase program Issuer Purchases of Equity Securities (Q1 2025) | Period | Total number of shares purchased | Average price paid per share | Maximum dollar value that may yet be purchased (in millions) | | :--- | :--- | :--- | :--- | | Jan. 1 - Jan. 31, 2025 | 407,522 | $57.76 | $585 | | Feb. 1 - Feb. 28, 2025 | 279,363 | $58.92 | $569 | | Mar. 1 - Mar. 31, 2025 | 753,198 | $39.77 | $539 | | **Total** | **1,440,083** | **$48.58** | **$539** | [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including CEO/CFO certifications and Inline XBRL documents - The exhibits filed with this report include **CEO and CFO certifications** and Inline XBRL data files[172](index=172&type=chunk)

Group 1 - Frontdoor reported quarterly earnings of $0.64 per share, exceeding the Zacks Consensus Estimate of $0.37 per share, and up from $0.43 per share a year ago, representing an earnings surprise of 72.97% [1] - The company achieved revenues of $426 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 2.61% and increasing from $378 million year-over-year [2] - Frontdoor has consistently surpassed consensus EPS estimates over the last four quarters, achieving this four times [2] Group 2 - The stock has underperformed, losing about 24.8% since the beginning of the year, compared to the S&P 500's decline of 5.3% [3] - The current consensus EPS estimate for the upcoming quarter is $1.21 on revenues of $588.81 million, and for the current fiscal year, it is $3.01 on revenues of $2.02 billion [7] - The Zacks Industry Rank for Building Products - Miscellaneous is in the bottom 40% of over 250 Zacks industries, indicating potential challenges for stock performance [8]

Financial Data and Key Metrics Changes - Revenue increased by 13% to $426 million, net income grew by 9% to $37 million, and adjusted EBITDA rose by 41% to $100 million [4][18][19] - Member count grew by 7% to 2.1 million members [5] - Gross profit increased by 21% to $235 million, with a gross profit margin improvement of 380 basis points to a record 55% [20] Business Line Data and Key Metrics Changes - Direct-to-Consumer (DTC) channel member count increased by 15% to 310,000, with organic growth of 4% [7][10] - Real estate channel faced challenges, with a 6% decline in first-year organic member count [11][12] - Non-warranty revenue is growing, with expectations for HVAC program revenue at $105 million and new home structural warranty revenue at $44 million for 2025 [15][16] Market Data and Key Metrics Changes - Existing home sales decreased by 5.9% to an annual rate of 4.02 million, while the median sales price for existing homes rose to $403,700 [11] - The 30-year mortgage rate averaged nearly 7% as of mid-April, contributing to consumer market challenges [11] Company Strategy and Development Direction - The company’s strategic priorities include growing the member base, scaling revenue from non-warranty business, and optimizing the integration of the 2-10 Homebuyers Warranty [5][6] - The marketing campaign and relaunch of the American Home Shield brand are yielding positive results, particularly among millennials [9] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating macroeconomic challenges, including high interest rates and declining consumer confidence [5][29] - The company raised its full-year revenue outlook by $20 million and adjusted EBITDA by nearly $50 million, reflecting strong operational performance [18][34] Other Important Information - The company reported a record free cash flow of $117 million for the first quarter, with a free cash flow yield of 9% [27] - The company plans to increase share repurchases to at least $200 million for 2025, indicating confidence in its valuation [31] Q&A Session Summary Question: Impact of tariffs on HVAC equipment - Management indicated minimal inflation in Q1, with HVAC costs actually down, and expressed confidence in managing potential tariff impacts [42] Question: Trends in service requests - The increase in service requests was primarily driven by the addition of the 2-10 Homebuyers Warranty, with expectations to normalize around 4 million for the year [53][54] Question: Sustainability of promotional pricing strategy - The company is adopting a pulsing promotional strategy, which is expected to be sustainable while prioritizing member growth [56][57] Question: Drivers of outperformance in renewals revenue - Outperformance was attributed to stronger renewals and non-warranty revenue, particularly from HVAC and Moen partnerships [62][63] Question: Confidence in raising gross margin guidance - The company raised its gross margin guidance based on strong Q1 performance and expectations of flat inflation, while accounting for potential tariff impacts [76][80]