Frontdoor, Inc.

to $195 million. Additionally, first-year organic DTC ending member count grew 8%. Real estate member count grew sequentially in Q3, a milestone that we have not seen for the past five years. New HVAC revenue continues to crush it. Synergies from the 210 acquisition remain ahead of schedule, and we have used our strong cash flows to repurchase shares. totaling $215 million through October 31st. Our results speak for themselves, and they show the power of our strategy and the momentum we've built. Now flip to slide five. We are firing on all cylinders, and this strong momentum has positioned us to deliver across our business. First, operational excellence is at our core. Three years of disciplined execution have built a strong foundation to accelerate growth. Second, DTC continues to perform, five straight quarters of organic member growth. Third, we see the real estate channel turning the corner, supported by the return of a buyer's market. Fourth, retention rates are strong and remain near all-time highs. We're committed to delivering an outstanding experience for our 2 million plus members through continuous innovation and technology. And finally, our non-warranty growth continues to be a game changer. Leveraging the success of the new HVAC program, we are well positioned to replicate that model by expanding into other replacement categories. Let's double click on each point beginning on slide six. We've talked a lot over the past few quarters about building a foundation of operational excellence, and for good reason. These efforts have translated directly into stronger financial results. Over the past three years, we have focused our margin improvement efforts in two key areas. One, pricing actions, and two, operational efficiencies. Let me start with pricing. In 2022, we face the highest inflation in a generation. and we responded decisively with double-digit price increases, not only to catch up to those inflationary pressures, but also to address where inflation was heading. We did this using our dynamic pricing capabilities, which deliver smart and strategic price adjustments, particularly for higher usage members. We also raised our trade service fee, which is actually an offset to claims costs, providing us another lever to respond to inflation. Now turning to operations, we've made meaningful strides in improving execution and cost discipline. We have enhanced and accelerated our contractor management process. This has driven better alignment, better execution, better member experiences, and better costs. One key proof point is that our preferred contractor utilization has improved 200 basis points on average over the last three years. Our supply chain team has done an excellent job of leveraging our purchasing volume and extensive supplier network to negotiate better terms and allocate purchases to maximize cost savings. When you combine these pricing actions and operational efficiencies, we have improved our gross profit margin over 1,000 basis points since I started in the middle of 2022. In fact, we have had so much success improving our margins that we are reevaluating the long-term margin targets we provided at Investor Day earlier this year, and we will provide more information about that on our next earnings call. Moving to the direct-to-consumer channel on slide seven, the DTC channel is performing very well, and our efforts to drive member count growth are paying off. In the third quarter, we grew organic DTC member count by 8% versus the prior year period. This is now five consecutive quarters of organic growth. Our success in DTC is due to several factors. First, the Warrantina campaign is working. I'll show you supporting data on the next slide, but we developed this campaign with younger audiences in mind, specifically millennials, since the average first-time homebuyer is now 38 years old. From a targeting perspective, we have sharpened our media strategy to focus on the middle of the media funnel, where consumers go from being aware of us to considering us. This strategy has improved our marketing effectiveness and media efficiency. Next, simply speaking, our promotional pricing strategy is bringing in more members. This strategy works because we can quickly return these cohorts to traditional pricing within the first two years without compromising renewal rates. Further, we are directly targeting new home buyers who did not purchase a warranty with their new home transaction. Our multi-channel approach includes paid search, social media, commercial partnerships, and word-of-mouth campaigns. And we are getting more sophisticated in our digital marketing approach. AI is coming into play and enhancing our search strategy by moving beyond traditional keyword targeting. We are using more intelligent, context-driven approaches, which have improved discoverability and relevance with large language models, or LLMs, such as ChatGPT. Let's turn to slide 8 to talk about the effectiveness of the Warrantina campaign. The campaign is resonating, and we are leaning into education to balance the entertainment factor. Our research shows that key metrics such as likability, relevance, and purchase interest are up significantly in just six months' time. And as you can see in red, our value proposition of budget protection and convenience is landing even more with those under the age of 45. The team's work over the past five quarters has been excellent. But we are not stopping here. We are allocating more marketing spend in the fourth quarter to position us for another strong year in 2026. Now turning to slide nine and the real estate channel. The story here is finally one of optimism. Despite ongoing macro challenges, our ending member count in the real estate channel has increased sequentially in the third quarter, the first improvement since 2020. While the macro environment in the real estate sector is showing some signs of improvement, challenges still remain. According to the National Association of Realtors, September existing home sales increased 4.1% to a seasonally adjusted annual rate of 4.06 million. However, this is still among the lowest level of home sales in 30 years. Moreover, affordability remains a concern, with home prices climbing another 2% on average in September, to $415,000. The bright spot, total housing inventory increased 14% year-over-year, and we are now at 4.6 months of supply. While inventory remains below pre-COVID levels, it is now at a five-year high. This shift signals that a transition to a buyer's market is underway, where homes stay on the market longer and sellers are more likely to add a home warranty to help close the deal. Here are some of our aggressive actions to improve sales. Increasing engagement with real estate agents. We are delivering a differentiated product and agent interest has picked up significantly around our video chat with an expert feature. We are also continuing to provide education on the benefits of a home warranty and have a compelling value proposition that keeps our brands top of mind. Additionally, we have implemented targeted promotions to drive renewed interest and excitement with both agents and new homebuyers. Our actions combined with these market dynamics are resulting in us outpacing the market. Moving on to retention rates on slide 10. In the third quarter, our customer retention rate was at 79.4%. Retention remains strong because we are delivering a better market. member experience through technology and process improvements. On the technology side, we have had two big wins. First, AHS app adoption is growing. Launched only a year ago, almost 20% of our members have already downloaded our app, an outstanding result. This enables easier service request submission and real-time contractor updates. In the past 12 months, members have submitted 200,000 service requests through the app, and usage continues to ramp. Second, and to quote one of our members, video chat with an expert is dope. Since the launch in February, our visual experts have completed about 35,000 video chats, and members love it, giving us nearly perfect thumbs-up ratings. It is a true differentiator in the home services industry, and it is free for our members. Behind the scenes, we're also driving continuous improvements to deepen member loyalty and strengthen retention, such as early engagement with new members through onboarding and tailored offers, improving the number of members on auto pay, usage of preferred contractors, which was 84% in the third quarter. And we're also leveraging technology to improve the member experience, including system improvements to support smarter job routing to our contractors, and using AI to accelerate authorizations and assist in coverage decisions, enabling a 10x increase in the speed of coverage reviews. The impact is clear. Stronger relationships, higher satisfaction, and a service experience that sets us apart. Retention isn't just a metric. It's proof that our strategy is working. On slide 11, let's talk about another bright spot at Front Door, non-warranty revenue. This is a major success story and an even bigger opportunity. As a reminder, non-warranty is comprised of a number of programs, but is currently fueled by our new HVAC sales. The program is scaling fast, and we are raising our full-year outlook for new HVAC revenue again, now to $125 million this year. a 44% increase over 2024. The opportunity ahead is enormous. In three years' time, we have sold around 50,000 HVAC units to our base of more than 2 million members. The runway for expansion is clear. We are now applying these learnings to other trades. We recently expanded our appliance replacement pilot, offering great deals on a full range of new appliances, and we are looking to launch this great offer nationwide next year. We are also exploring opportunities in roof and water heater replacement. Together, these categories represent an opportunity of $2 billion with our members, opening the front door to significant long-term growth. We especially love this program because every sale is a relatively CAC-free opportunity across our member base. And looking into the future, we see additional potential through our 210 acquisition, which provides us access to 19,000 builder partners. This positions us to expand beyond HVAC and create new revenue streams across multiple trades and in new customer channels. We'll share more about this on our next earnings call. On that high note, I'll now turn the call over to Jessica.

Thanks, Bill. And good morning, everyone. I will now cover the financial results for the third quarter, beginning with revenue on slide 13. We delivered strong top line growth of 14% in the third quarter, with revenues reaching $618 million. This performance was driven by 12% from higher volume and 3% from higher price. From a channel perspective, renewal revenue was up 9%, benefiting from 210 volumes, and higher price realization from leveraging our dynamic pricing capabilities. Real estate revenue grew 21%, driven primarily by contributions from Q10. Direct-to-consumer revenue increased 11%, supported by volume gains from our promotional pricing strategy and targeted marketing efforts, as well as contributions from Q10. This was partially offset by lower pricing. And finally, our non-warranty business continues to be a key growth engine, with other revenues up 73% year over year. This growth was propelled by our new HVAC and MOEN programs, along with contributions from 210's new home structural offering. Now, moving down the P&L to growth profit on slide 14. Growth profit grew 16% to $353 million in the third quarter, with growth profit margin expanding by 60 basis points versus the prior year period. During the quarter, inflation was in the low to mid single digits across contractors, parts, and equipment. Favorable weather trends reduced the number of service requests in the HVAC trade, providing a $6 million benefit. and claims cost development was a $5 million benefit compared to a $3 million benefit in the prior year period. Turning to slide 15, where we will review net income and adjusted EBITDA. For the third quarter, net income grew 5% to $106 million, and adjusted EBITDA grew 18% to $195 million. Adjusted EBITDA margin improved to 32% in the third quarter, up about 100 basis points from the prior year period. Let me quickly walk you through the drivers. We had $47 million of favorable revenue conversion, primarily from the 210 acquisition and higher price. Contract claims costs were flat versus the prior year period. which includes the already discussed inflation impacts and favorable incidents and claims development. We also had $20 million of higher SG&A due to the addition of 210 and personnel costs. Now, moving to earnings per share on slide 16. On a fully diluted basis, earnings per share grew 9% to $1.42 per share. and adjusted earnings per share grew 15% to $1.58 per share. Now turning to slide 17 and our free cash flow and financial position. Our year-to-date free cash flow increased 64% to $296 million, and our total cash position increased to $563 million. Through October, we purchased $215 million worth of shares. Now, let me take a step back and really highlight our cash flow conversion. Our year-to-date cash conversion was 60% compared to 46% in the prior year period. This sustained cash generation and conversion is a defining feature of our business model and a cornerstone of our financial strength. With that, I will now turn it over to Jason to walk through the outlook. Thanks, Jessica.

Now turning to slide 18 in our fourth quarter outlook. For the fourth quarter, we expect revenue to be in the range of $415 to $425 million. We expect fourth quarter adjusted EBITDA to be in the range of $50 to $55 million. This range anticipates higher SG&A spend as we are reinvesting some of our gross profit favorability into marketing to drive growth. Now turning to slide 19 and how this translates into our full year outlook for 2025. For the full year, we are increasing our revenue outlook to be in the range of $2.075 to $2.085 billion, driven by better than expected performance in the new HVAC program, the renewals channel, and the real estate channel. This is approximately a $15 million increase from our prior outlook at the midpoint. Based on this, total revenue is expected to be up 13% in 2025, driven by about 10% from the 210 acquisition and 3% from organic growth. Our underlying revenue assumptions include a 10% increase in renewal channel revenue, a 12% increase in real estate channel revenue, a 3% increase in D2C channel revenue, and a $75 million increase in other revenue. Turning to operating performance, we are narrowing our gross profit margin expectation to be approximately 55.5%. As previously mentioned, we are increasing our sales and marketing spend during the fourth quarter, which translates to full year SG&A in the range of $670 to $675 million. Taking this, combined with the strong third quarter performance, we are raising our full year adjusted EBITDA to be in the range of $545 to $550 million. As a reminder, our full year adjusted EBITDA outlook also includes $20 million of interest income and excludes $8 million of 210 integration costs and stock-based compensation of approximately $33 million. We are lowering our capital expenditure expectations to approximately $30 million And lastly, our annual effective tax rate is expected to be approximately 25%. And while we're not providing 2026 guidance today, we look forward to sharing more details on our expectations and priorities during our next earnings call. I will now turn the call back over to Bill for a few closing remarks.