Frontdoor(FTDR) - 2025 Q1 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (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 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 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 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 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] - On December 19, 2024, the company acquired 2-10 HBW for aggregate cash consideration of $585 million[53][55] - The company operates as one operating and reportable segment, with the CEO as the Chief Operating Decision Maker[69][70] - In Q1 2025, the company repurchased 1.44 million shares for $70 million under its $650 million share repurchase program[88][89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 13% revenue increase, improved Adjusted EBITDA, and strong liquidity in Q1 2025 Results of Operations 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][128] - Cost of services rendered increased by only 4% to $191 million, despite a 13% revenue increase, due to cost management improvements[131] - Selling and administrative expenses rose 12% to $151 million, driven by increased personnel costs from the 2-10 HBW acquisition[132] 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 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] 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] 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 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] Item 4. Controls and Procedures 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] - Management has excluded an assessment of internal controls for the recently acquired 2-10 HBW from its evaluation[165] Part II. Other Information Item 1. Legal Proceedings 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] - Management believes the disposition of pending legal actions is not expected to have a material adverse effect on the company[61] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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 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]