Frontdoor(FTDR) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Second-Quarter 2025 Financial Highlights 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 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] - Successfully scaling non-warranty revenue and the 2-10 integration is ahead of schedule[5] - Generated nearly $200 million in Adjusted EBITDA in Q2 2025, supported by strong operational execution[5] - Returning record amounts of cash to shareholders through share repurchases[5] Updated Full-Year 2025 Outlook Highlights 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 Consolidated Financial Performance 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 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] - Real estate revenue increased 21% due to the 2-10 acquisition[11] - Direct-to-consumer revenue increased 12% due to the 2-10 acquisition and higher volume, partially offset by lower price from discounting[11] - Other revenue increased 63% due to growth in New HVAC and Moen Programs and the addition of New Home Structural Warranty revenue[11] Profitability Analysis (Net Income & Adjusted EBITDA Bridge) 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][12] - Contract claims costs increased by $1 million, reflecting low-single-digit cost inflation offset by favorable weather and claims development[10][12] - Lower sales & marketing costs by $3 million, primarily due to timing[10][12] - Changes in several cost categories are primarily due to the 2-10 acquisition[10][12] Cash Flow & Capital Allocation Cash Flow Summary 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] - Net cash provided from investing activities was $42 million, mainly from sales of securities, offset by capital expenditures[14] - Net cash used for financing activities was $153 million, primarily due to $134 million in share repurchases and debt payments[14] Free Cash Flow 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] Cash Balance as of June 30, 2025 | Category | Amount (in millions) | | :----------------- | :------------------- | | Total Cash | $562 | | Restricted Net Assets | $185 | | Unrestricted Cash | $377 | Capital Allocation Update 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] Outlook Third-Quarter 2025 Outlook 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 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] Company Information About Frontdoor, Inc. 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] - Parent company of American Home Shield and 2-10 Home Buyers Warranty, totaling over two million members[21] - American Home Shield covers up to 29 home systems and appliances, while 2-10 Home Buyers Warranty leads in new home structural warranties[21] Earnings Conference Call Details 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] - Speakers included Chairman and CEO Bill Cobb and CFO Jessica Ross[19] - Access details provided for registration, webcast, and replay[19][20] Legal & Non-GAAP Disclosures Forward-Looking Statements 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] - Risks include macroeconomic conditions, competition, contractor relations, operating costs, regulatory compliance, and acquisition-related risks[22][23] - Readers are advised to review Frontdoor's periodic reports filed with the SEC for a discussion of important risk factors[23] Non-GAAP Financial Measures Definitions 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] - Free Cash Flow is defined as net cash provided from operating activities less property additions[26] - Adjusted Net Income is defined as net income before amortization expense, restructuring charges, and other non-operating items, adjusted for tax impacts[27] - Adjusted Diluted Earnings per Share is Adjusted Net Income divided by weighted-average diluted common shares outstanding[28] - Unrestricted Cash is defined as cash not subject to third-party restrictions[28] Investor Relations & Media Contacts 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) Consolidated Statements of Operations and Comprehensive Income 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 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 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 Net Income to Adjusted Net Income 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 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 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 Home Warranties and Customer Retention 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] - Excluding the 2-10 acquisition, the reduction in home warranties was two percent, and the customer retention rate was 78.3 percent[47]