Frontdoor, Inc.

Ladies and gentlemen, welcome to Front Door's third quarter 2024 earnings call. Today's call is being recorded and broadcast on the internet. Beginning today's call is Matt Davis, Vice President of Investor Relations and Treasurer, and he will introduce the other speakers on the call. At this time, we'll begin today's call. Please go ahead, Mr. Davis.

Thank you, Operator. Good morning, everyone, and thank you for joining Front Door's third quarter 2024 earnings conference call. And a special thank you for joining the Monday before the election. Joining me today are Front Door's chairman and chief executive officer, Bill Cobb, and Front Door's chief financial officer, Jessica Ross. The press release and slide presentation that will be used during today's call can be found on the investor relations section of Front Door's website. which is located at investors.frontdoorhome.com. There is also additional detail about our Front Door brand at frontdoor.com and in our new mobile app that you can download in the App Store and at Google Play. As stated on slide three of the presentation, I'd like to remind you that this call and webcast may contain forward-looking statements. These statements are subject to various risks and uncertainties, which could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the SEC. Please refer to the risk factor section in our filings for a more detailed discussion of our forward-looking statements and the risks and uncertainties related to such statements. All forward-looking statements are made as of today, November 4th, and except as required by law, the company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. We will also reference certain non-GAAP financial measures throughout today's call. We have included definitions of these terms and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures in our press release and the appendix to the presentation in order to better assist you in understanding our financial performance. I will now turn the call over to Bill Cobb for opening comments.

Bill? Thanks, Matt Davis, and good morning, everyone. I want to start by highlighting our dramatic improvement over the last two-plus years. When I came into the business in 2022, our gross margins were at an all-time low of 43%. That has changed. Today, we are increasing our 2024 gross margin outlook to about 53%, an all-time high. Not many companies can show an over 1,000 basis point margin improvement in such a short timeframe. Turning to slide five, we delivered record financial performance 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. Adjusted EBITDA grew 29% to $165 million. And we have used $119 million to repurchase 3.2 million shares year-to-date through August. And probably the best news of all, as we will show you shortly, our marketing and discounting efforts are working. The DTC customer count actually grew in the third quarter versus the second quarter, and we are now forecasting that our ending 2024 DTC customer count will be in line with a year ago. This is the progress we have been working toward. While we are very pleased with the recent trajectory of the DTC business, growing our home warranty customer base continues to be our number one strategic priority. Our other key strategic priorities are to expand our on-demand business and to close the acquisition of 210 homebuyers warranty. Speaking of the acquisition, our integration team continues to work with 210 to prepare for a smooth transition. The regulatory approval process is nearing completion, and we are now just waiting for approval from California. Bottom line, the acquisition remains on track to close in the fourth quarter. Okay, so here's how I'm going to lay out the next few minutes. First, I'm going to discuss what's happening with home warranties in both the real estate and DTC channels, followed by our momentum in on-demand, then renewals, and finally a major milestone in our customer experience journey, the new AHS app. Starting with real estate, the market continues to flounder. According to the September report from the National Association of Realtors, or NAR, the annual run rate of home sales decreased to 3.8 million homes, the lowest in 14 years. Additionally, mortgage rates and home prices remain elevated. Simply put, with fewer homes being sold, there are fewer opportunities to attach a home warranty. For some context, our first-year real estate customer count is down almost 14% in the third quarter versus the prior year and down more than half from five years ago. But there is some positive momentum, some positive movement. Existing home inventory is rising, now at 4.3 months of supply, which is the highest it's been in the last four years. Further, mortgage rates are down from a year ago. Finally, American Home Shield has continued to maintain its category-leading share of warranties attached to home purchases. Turning to slide 11 and the direct-to-consumer channel, let's start with the performance of the marketing campaign. In short, it is working. For starters, we have significantly grown AHS-aided brand awareness. It's jumped from 39% in 2022 to over 54% today due to the brand relaunch and marketing campaign. Ad awareness is also up. Recent research shows that about 40% of homeowners now recognize at least one of the three warrantina TV spots. In a crowded media space, that's a very good number. Google searches for AHS are also up year over year, but I need to make a key point here. There has been some confusion that searches are down according to Google Trends. Let me provide some clarity. Google Trends is a snapshot of how popular your search term is relative to all search terms. It is not representative of a specific brand's performance over time. Even Google says you should not use Google Trends for insights or predictive analytics. So the fact is Google searches for AHS are actually up through September. How do we know that? We get our information directly from Google, and we certainly do pay for that. This information represents true volume over time and is much more brand specific accurate, and comprehensive. So to be clear, the first year of the campaign has been successful. As we move forward into the second phase of the AHS marketing campaign, we will continue to build brand awareness in 2025 through a more focused and targeted approach that builds consideration and grows leads. We will share these plans in much more detail at our Investor Day in New York on February 27th. We are also optimizing our price discounting strategy. This is what smart brands do. In times of market softness, brands must adjust to changing consumer behavior. To be clear, we are not relying solely on aggressive discounting. We understand it's not a long-term strategy, but it's where we are seeing strong demand and conversion. In summary, within the DTC channel, awareness is up, brand searches are up, demand and conversion are up, and our customer count is up. Again, this is what we have been working toward. Now let me step away from our traditional home warranty business and talk about our on-demand business. We expect to generate over $100 million in on-demand revenue this year, primarily due to our new HVAC program, which continues to deliver great results. Regarding our new partnership with, sorry, Moen, as announced in our press release last week, we are currently expanding that business to seven additional states. In addition to California, Front Door will soon be the exclusive installer of Moen smart shutoff valves in Idaho, Arizona, Utah, Oregon, Texas, Georgia, and South Carolina. We are also making excellent progress on marketing DTC home warranties to different demographics and channels of distribution. AARP is a great example of an alternative way to go to market. By targeting different segments of their membership, we have been able to grow unit sales with AARP by 25% year over year. Now, turning to renewals, this continues to be a great story for us. Retention rates in the third quarter improved 150 basis points to a record high of 77.7%. That is amazing. While channel mix shift is the primary driver, This improvement is also the result of a lot of tremendous work by our team, improving customer service, expanding use of preferred contractors, getting more members on auto pay, and increasing member engagement throughout the customer journey. Finally, one of the things I'm most excited about is the progress we're making on enhancing our customer experience. In a major milestone, we launched an AHS app a few days ago. This is a big deal, and we will make our formal public announcement on Thursday. With easy, convenient service right at their fingertips, our members can now quickly access their account and plan information, make and track their service requests, take advantage of special offers, and manage their payment information, all to the convenience of their phone. We will have additional enhancements to the app over the coming months. We believe these enhancements will further differentiate American Home Shield from the competition. We are super excited about the app, and I encourage everyone listening to download the app now through Google Play or the App Store. I think you'll be impressed. So with that, I'll now turn the call over to Jessica for more on our record third quarter financials. Jessica?