Frontdoor, Inc.

Welcome to Front Door's first quarter 2025 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. He will introduce the other speakers on the call. At this time, we will begin today's call. Please go ahead, Mr. Davis.

Thank you, Operator. Good morning, everyone, and thank you for joining Front Door's first quarter 2025 earnings conference call. Joining me today are Front Door's chairman and CEO, Bill Cobb, and Front Door's CFO, 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. 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, May 1st, 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. Front Door, Inc. continues to operate extremely well, and the first quarter was another example of outstanding financial and operational performance. In short, we are off to a terrific start in 2025. As you can see, revenue increased 13% to $426 million. Net income grew 9% to $37 million. Adjusted EBITDA grew 41% to $100 million. Very importantly, our member count grew 7% to 2.1 million members. And finally, our use of preferred contractors has grown to 85% of services performed during the quarter. What makes this even more impressive is that it's being done against a still challenging macroeconomic environment, the down real estate market, high interest rates, the specter of trade wars, and the resulting decline in consumer confidence. But despite all of these challenges and more, Front Door continues to outperform and buy a lot. But we are not satisfied, not by a long shot. And our number one strategic priority remains growing our member base. Number two, we are focused on growing and scaling revenue from our non-warranty business. And number three, we are optimizing the integration of 210 homebuyers warranty, which, by the way, remains on track. So let's get into the business details, starting with the DTC channel on slide six. This continues to be a positive story that began in the middle of last year. As you can see, we ended the first quarter up 15% versus prior year to 310,000 DTC members. This is primarily due to 210, but our success here is also due to organic growth of 4%. And since the end of the second quarter of last year, we've now had three consecutive quarters of organic DTC unit growth. Now, the key takeaway for DTC in the first quarter, our actions are working to drive organic unit growth. Demand is up, conversion is up, and as a result, our DTC member count is up. Let that sink in for a moment, especially when, again, you consider the macroeconomic headwinds. It's not a stretch to say we are breathing new life into this category. Our success is attributable to several factors. First, the marketing campaign and relaunch of the American Home Shield brand are working. We are targeting audiences better, especially millennials. Our digital advertising is more effective, particularly in the midpoint of the marketing funnel when homeowners are seriously considering a purchase, and we are deploying our media assets in the areas where we have the best potential ROI. We are able to do this because our data is better, we more deeply understand the segments of homebuyers, and our marketing approach is more targeted. Also, our discounting strategy continues to be a strong and proven lever for driving units. While reported DTC revenue is down 9% for the quarter due to our promotional pricing strategy, our focus is on driving organic unit growth. For Q1, we were pleased that number was 4%. We accept this revenue tradeoff due to new member growth being our number one strategic priority and our subsequent ability to renew members at a high rate. Here's the key takeaway. The result of first quarter DTC performance is that we now expect our annual DTC member count to be up from last year. Now let's take a look at the real estate channel. As you know, this channel continues to be a headwind for our business, although there are some signs of improving conditions. According to the latest information from the National Association of Realtors, or NAR, from March 2025, existing home sales slipped 5.9% to a seasonally adjusted annual rate of $4.02 million. The median sales price for existing homes climbed to $403,700. That's the 21st consecutive month of price increases. The 30-year mortgage rate averaged nearly 7% as of April 17th. And the inventory of unsold existing homes jumped 8.1% to 1.33 million homes. or the equivalent of four months of supply. While growing inventory is a positive sign, the combination of high home prices and elevated mortgage rates continues to keep consumers out of the market. As a result, our first-year organic real estate member count is down 6% in the first quarter compared to the same period last year. Now turning to slide eight and retention. For the first quarter of 2025, retention was at 79.9%. which includes 210. While this does include a lower mix of real estate members, retention continues to perform well due to better engaging members during onboarding and throughout the member journey. This includes an expanded calling program that is reducing the number of cancellations. We are also continuing to enhance our member service, especially through increased use of our preferred contractors. And finally, 84% of our members are on monthly auto pay. Product differentiation is another reason for our retention success. No one in this industry innovates better than Front Door. The release of the AHS app last October and the launch in late February of a true industry differentiator, video chat with an expert, are just the latest examples of our innovation in giving members what they want. These innovations are a plus for retention. Members love a better and faster experience, and they've responded very well to the app and video chat. Since the launch in late October, the AHS app has been downloaded almost 200,000 times, and members have submitted 80,000 service requests. Video chat with an expert is also a hit, and here's an interesting tidbit. About 17% of the AHS video chats so far have resulted in the expert being able to resolve the problem right over the phone, or the expert gave the member the information they needed to fix it themselves. That is a great member experience, not to mention in saving us and our members time and money by not having to send a contractor out to the home. Moving to slide 10, non-warranty and other revenue. This continues to be a growing part of Front Door. We are very proud of our new HVAC program. Demand for it is growing, and the number of contractors who want to participate is also growing. As such, we are increasing our revenue outlook for 2025 by to $105 million. To refresh, this program benefits our members who want to take advantage of our scaled pricing to replace their HVAC, upgrading to a system that is new, more efficient, and compliant with the latest refrigerant standards. Moving to the Moen Partnership. As a reminder, we partnered with Moen, starting in California, to provide homeowners access to our plumbing contractors to install a smart water shutoff valve to prevent potential flooding. In late March, we expanded this partnership, and we are now in 21 states, with more states expected later this year. Another great addition to other revenue is the new home structural warranty business that came with the 210 acquisition. As we've dug into this business, we've been very pleased with the relationship our team has with new home builders. We expect the new home structural warranty business to generate $44 million in revenue in 2025. So on that high note, I'll summarize our first quarter by simply saying Front Door's performance continues to be truly outstanding, both from a financial and operational standpoint. This is a continuation of the tremendous winning streak we've been on now for 12 quarters in a row. With that, I'll now turn the call over to Jessica for the specifics of our financial performance. Jessica?