Frontdoor, Inc. Q4 FY2024 Earnings Call

Ladies and gentlemen, please take your seats. The program will be about to begin. Ladies and gentlemen, please take your seats. The program is about to begin.

Thank you for joining Frontdoor, Inc. It's 2025 Investor Day. My name is Matt Davis, and I'm the Vice President of Investor Relations and Treasurer for Frontdoor. We are about to get started. But before we begin, I want to cover off on a few items. First, Frontdoor's fourth quarter and full year 2024 earnings press release as well as our 10-K was released this morning before market opening. Additionally, the Investor Day slides that will be used during today's presentation can be found on the Investor Relations section of Frontdoor's website, which is located at investors.frontdoorhome.com. As stated in the presentation and on the screens behind me, I'd like to remind you this investor day presentation 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 factors 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, February 27th. 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 presentation. We've included definitions of these terms and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures in the appendix to today's presentation in order to better assist you in understanding our financial performance. Finally, I would like to remind all investors how to best reach Frontdoor if you have any questions, or would like to set up a call with us. We ask that you reach out to the investor relations department. The best way to do that is through our email, ir@frontdoorhome.com. You can also call us at 901-701-5199. Thank you again for joining us today. For those of you on the webcast, we will begin starting in approximately two minutes.

Morning, everybody. I'm Bill Cobb. And thank you for being here in person. And to those of you who are joining us on the webcast, my leadership team and I have been working hard on our strategy and plans for 2025 and beyond. And we'll be sharing a lot today. But before I get to the agenda and our presenters I want to share a few key points upfront. As you know, I became the CEO in June of 2022, some thirty-three months ago. Back then, the company was at an inflection point. We were in one of the most challenging macroeconomic environments in the company's history. High inflation, supply chain issues, softening real estate market, and other headwinds. As a result, membership was in decline. Gross margins were at historic lows of forty-three percent. We had not yet fully implemented our pricing actions, and most importantly, we needed to implement process improvement and business transformation. I saw these as imperatives. We needed to move the company to a more proactive mindset and approach. As such, we embarked on several decisive actions to transform our business. First and foremost, we focused on our number one strategic priority, member growth. We stabilized our core business, American Home Shield, by investing significant resources, especially in technology and marketing. This work positioned AHS for growth. And the rebrand and marketing campaign we launched last year is doing exactly what we wanted. We're seeing positive momentum in our new member account, and Kathy Collins will talk about this later. We enhanced our margins. In 2022, our gross margins were at an all-time low of forty-three percent. But now through a lot of hard work, and our process improvement and business transformation initiatives, we finished 2024 with a gross margin of fifty-four percent. An all-time high. By the way, you'll hear that term all-time high a few more times today. We improved retention rates. In 2022, our retention rate was seventy-five point seven percent. Today, that's grown to seventy-eight point five percent. Another all-time high. We explored strategic M&A. We completed the acquisition of 210 Homebuyers Warranty in December. We'll go into more details this morning, but in the simplest terms, the acquisition of 210 diversifies our business through their new home structural warranty, and through their home warranty business. 210 brings in more members, more revenue, and more EBITDA. In fact, we are even more optimistic now about 210's impact than we originally estimated. We expanded our non-warranty business. This is one of the things I am most proud of. 2024 revenue from our non-warranty services, also referred to as on-demand, was a hundred and seven million dollars and we know there is more we can do. And here's another point I am very proud of. We returned a lot of excess cash to shareholders through share buybacks. We exhausted the previous four hundred million dollar authorization in August of last year, and we are now operating under a new three-year six hundred and fifty million dollar authorization that began last September. Over the past three months, following the acquisition of 210, we have bought back approximately eighty million dollars worth of shares. And when you add all of these actions up, we delivered. We did what we said we would do. And the investment community has reacted very favorably. Thank you, by the way. When I became CEO in June of 2022, our share price was twenty-four dollars and fifteen cents. We hit a low point in December of 2022 when the share price sank to nineteen fifty-five. But we've been on a predominantly upward trend since then. At our investor day here two years ago, the share price was twenty-nine forty-six. We ended yesterday at fifty-seven dollars and seventeen cents a share. That's a one hundred and thirty-seven percent increase in our stock price since I started. Now with all these improvements and our shift to a more proactive mindset, today, Frontdoor, Inc. is a fundamentally different company. We have dramatically improved execution, which has stabilized our business. Our process improvement initiatives have us operating very efficiently. Better than ever before. We are in a very strong financial position. Last year, our gross margins were the highest they have ever been. Most importantly, we are laser-focused on our core business: home warranties. So that's a look back at what happened since I came on board as CEO and where we are today. Let's now transition to the future and why we believe Frontdoor is positioned for long-term growth. Let's start with our vision for the future. A future in which Frontdoor is well-positioned to grow in both the warranty and non-warranty sides of our business. To be a leader, not just in home warranties, but in the entire home services industry. We are evolving the Frontdoor model from only repair or replace to a new vision of home protection: repair and care realized. What this means in practice is that we are a full-service provider for both our members through home warranties as well as members and nonmembers through our non-warranty on-demand services. Our vision reflects our commitment to delivering sustainable unit and revenue growth over the long haul, with our home warranty members serving as the foundation to expand our business. Our vision also underscores Frontdoor's unique ability to provide homeowners with reliable, high-quality solutions for their repair and maintenance needs in a modern consumer-centric manner. So let's move to how we're bringing this vision to life through topics our presenters will share this morning. For our new investors, much of today will serve as a primer on the fundamentals of our business. For those more familiar with Frontdoor, I think you'll find today to be a great refresh on many of the things we've shared over the preceding months. Our first presenter will be Ray Tong, our Vice President of Pricing and Analytics. Ray will discuss what a home warranty is, how it works, and how we are optimizing our subscription-based business model using dynamic pricing. George Guastello, our Vice President of Strategy and Integration, will share how Frontdoor is uniquely positioned in the home services industry and prime for growth. George will discuss why we are even more excited about the 210 acquisition and what it will do for our business. Next up, Kathy Collins, our Chief Revenue Officer. The last time you heard from Kathy, she was the CMO. But her portfolio has significantly broadened. Kathy will discuss our business construct, along with our go-to-market strategies. Then we'll hear from Evan Iverson, who has also been promoted since you last saw him, from VP of Contractor Relations to Chief Operating Officer. Evan will give you an in-depth look at our nationwide network of independent contractors, our enhancements to customer service and key technology investments. And finally, the part you've all been waiting for, our Chief Financial Officer, Jessica Ross. Jessica will provide a full readout of our fourth quarter and full year 2024 financial performance, and our full year 2025 and long-term outlook. So with that, I'll now turn the floor over to Ray Tong.

Thank you, Bill, and good morning, everyone. I'm Ray Tong, Vice President of Pricing and Analytics. Invest in what you know. Invest in what you understand. That's why we want you to know the fundamentals of our home warranty business model. A home warranty is a high engagement product with homeowners. It's a subscription-based model and that model has critical non-intuitive implications on our financials. We optimize this model to create value for our shareholders. We protect homeowners from unexpected breakdowns, for up to twenty-nine systems and appliances through a contract. We will repair or replace these covered items when breakdowns happen due to normal wear and tear. By systems, I'm referring to electrical, plumbing, heating and cooling, or HVAC. Appliances include refrigerator, washer, dryer, built-in microwave, garbage disposal, and more. Home warranty starts with the homeowner choosing the coverage that best fits their needs and then paying their fee monthly or annually. Needs differ by homeowner, so our coverage is not one size fits all. After we welcome and onboard the member, the next most significant interaction is when a covered item breaks. At that point, the member will request service through automated channels such as our mobile app, or online portal, or by talking to an agent. At the same time, they will also pay us a trade service fee or trip fee. We will assign a contractor who will go to the home to diagnose and resolve the issue. After the service request is completed, we will pay for cost covered by the warranty. So a key difference between our category and insurance or other types of warranties is the likelihood that a homeowner uses our product. Whether you're talking about title insurance, term life insurance, a warranty on your car, car insurance, or homeowners insurance, these are all products that cover what might happen. A home warranty covers what will inevitably happen. That's why our members on average place around two service requests each year. This high engagement product, coupled with a subscription-based model, drives the high renewal rate in our business. In our financials, we describe two first-year channels where we sell home warranties: direct to the consumer or through a real estate transaction. After members from our first-year channels renew, they flow into our third and largest channel, Renewals. Once a member renews, they are much more likely to stay with us with a seventy-nine percent renewal rate after that first year. Kathy Collins will cover our go-to-market strategy for each channel in greater depth. Unlike mandatory insurance, a home warranty is a discretionary purchase. We assess the strength of our renewal rate not just against our historical performance, but also against other popular categories such as streaming services. If you were to compare the renewal-rate equivalent, which is the inverse of monthly churn, for a well-known streaming service versus American Home Shield, our flagship home warranty brand, we are among the best. In addition to renewal rate, we also look at price. The price of a home warranty is up to seven times higher than streaming on a monthly basis. Lining up renewal rates and average monthly prices shows that a home warranty is a subscription with high engagement driving a high renewal rate, with a price that demonstrates homeowners value what we deliver. As a recurring revenue business where our agreements are typically twelve months long, it's critical to understand the timing implications of pricing and trade service fee actions on our financials. The key phrase is one twelfth at a time. The table you're looking at represents our financial results by year across the top, and the months in which sales or renewals are made down the side. If we sell a unit in January, we will recognize the revenue from that unit over the entire year, one twelfth at a time. If we sell the unit in July, we will recognize half of the revenue in that year and the remaining half of the revenue in the next year. So we don't change price or trade service fees until a member buys a new contract or renews. So it takes a full year for these changes to flow through our entire portfolio. If you couple that with the twelve months it takes for a contract to complete, the total amount of time for pricing and trade service fee impacts to show up in our financials is nearly twenty-four months. You can see that visually going corner to corner in the two boxes I'm highlighting. If we initiate a price change in January of this year, then we won't finish realizing the impact of that change until late 2026. If we initiate a five percent price increase in January of 2025, we will only realize half of that or two point five percent in 2025 and the remaining two point five percent in 2026. There are three takeaways tied to the one-twelfth dynamic, and the implications on our financial results. The first is what I just finished covering: that pricing and trade service fee actions take nearly twenty-four months to fully roll into the P&L. Second, it drives stability and predictability in our financial results. Third, units we sold or renewed and pricing actions we took in 2024 will drive nearly half of our revenue in 2025. We drive value for shareholders by optimizing our home warranty model. We optimize for lifetime value, balancing three important business objectives: member count, revenue, and gross profit. We use price elasticity as a key metric to drive the best outcomes for the business. We look at lifetime value by each of our first-year channels. In direct to consumer, lifetime value is about twelve hundred dollars per member. Even though this channel has a lower first-year margin, the high renewal rate more than makes up for that. Real estate, on the other hand, has a higher first-year margin, but a lower renewal rate, yielding an approximate six hundred and fifty dollar lifetime value per member. We still consider this to be an attractive lifetime value. One of the important drivers of price elasticity is the service experience. The service experience is tied to how much a member values their home warranty. When members use the product, they receive tangible value: fixing a physical asset, and an emotional benefit—peace of mind. The combination of tangible and emotional benefit makes members more inelastic to price. Because the service experience plays an important role in transitioning members to being more inelastic, the reverse is true as well. First-year members are more elastic to price because they have not yet had an opportunity to place a service request. This is particularly true for direct to consumer and less so for real estate. Being more elastic to price is not necessarily a bad thing. Where we encounter more elastic demand, we can use price to grow members, revenue, and lifetime value, particularly in our strategic use of discounts. On the other end of the spectrum, where demand is more inelastic, we can use price to achieve more gross profit, more revenue, and more lifetime value because renewal members value their home warranty most. Measuring price elasticity is only useful if you have a capability to deploy prices that match claims risk and therefore value to the member. Dynamic pricing is how we do that. This is a capability that we have built and enhanced since the spin-off, combining internal and external data, machine learning-based pricing models built by our in-house data science team, and a sophisticated pricing platform to drive significant revenue and gross profit growth. So dynamic pricing to be effective, we have to accomplish two things: accurately predict risk and value, and match prices accordingly. This graph shows how accurately we predict risk and value for renewal members. The horizontal axis represents predicted claims cost. The vertical axis represents actual claims cost. A highly accurate predictive model will look like a straight line up into the right. That's the trend you're seeing. With accurate predictions, the next step is to align price to that prediction. This next graph shows two lines: predicted claims cost and the renewal price applied to the member's next contract. While we have three channels, we do not have three discrete price points; we have a price spectrum. When the claim's risk and the value the member receives is lower, we price lower and vice versa. When we build a capability, we build to drive a tangible result. And dynamic pricing is no exception. Since 2018, prices increased six percent compounded annually. Flatline trends may look boring on a chart, but in our case, it's amazing. Despite the substantial increase in price, our renewal rate within each of our three channels has been very stable. The stability that you're seeing is even better than what we would expect according to pure price elasticity. At Frontdoor, we are one team. It took the combined efforts across the company to make this happen. Putting together what we just looked at—price and renewal rates—we are confident that dynamic pricing is driving revenue and gross profit growth while maintaining strong renewal rates. I mentioned earlier that when a member places a service request, they also pay a trade service fee. Trade service fees are another form of price we use to maintain our long-term home warranty gross margin expectations. This shows up as an offset to gross claims cost embedded in cost of services rendered on the income statement. We intentionally use trade service fees to mitigate the impact of inflation. In 2018, the vast majority of our portfolio was on seventy-five dollar trade service fee or less. In 2024, the vast majority of our portfolio is split between a hundred dollar and a hundred and twenty-five dollar trade service fee. In summary, a home warranty is a high engagement product with recurring revenue that is stable and predictable. We deliver a quality service experience that works in harmony with our subscription-based model to drive greater retention from first year into renewals. Lastly, we make decisions to optimize for lifetime value, balancing member count, revenue, and gross profit. With that, I'm happy to welcome George Guastello, who will cover our industry, strategic priorities, and recent acquisition.

Thank you, Ray. Good morning, everyone. I'm George Guastello, Vice President of Strategy and Integration. I lead all strategic planning for the company. I'm also responsible for the integration of our 210 acquisition. 2024 was a record-setting year for Frontdoor. We're going to build on that momentum. And it starts with the home services industry, which is large and attractive. Frontdoor is the only company positioned to truly capitalize on its immense opportunities. Our 2025 strategic priorities provide the blueprint to deliver aggressive growth. And our 210 acquisition will turbocharge our progress. Now, home services is a massive and growing five hundred billion dollar industry. It includes both warranty and non-warranty services. Frontdoor aggressively competes in both categories. There's a vast total addressable market of more than a hundred and thirty million homes, and the fuel that feeds this industry is that each of these homes require maintenance and repair. They rely on contractors and experts to deliver that service. Frontdoor is uniquely positioned to win in this space and continue to create value for homeowners and investors. Now within home services, the home warranty category presents a big opportunity for growth. It's currently valued at about four billion dollars and covers five million homes. That is only six percent of owner-occupied homes, which is woefully underpenetrated. Frontdoor is the clear leader in this category. We deliver forty-six percent of category revenue share. We have more than two million members. Our network of seventeen thousand independent contractors manage about four million service requests annually. And our scaled subscription-based model delivers consistent, predictable recurring revenue. We will accelerate our leadership position in this category. Now the non-warranty category is large and fast-growing. Repairs, maintenance, replacements alone are valued at about two hundred and fifty billion dollars. Non-warranty services are transactional. These are maintenance, repairs, replacements, improvements that do not require a membership or a subscription. The non-warranty category is highly fragmented. Players today face challenges like unreliable service, service quality issues, and negative feedback from customers and the contractors. And here's what's critical: non-warranty providers can continue to operate unprofitably. The graph shows two of the biggest players in this space aren't making money. In fact, we believe nobody is making money at scale. Until now. Frontdoor has the solution to solve this puzzle. Frontdoor's unmatched size, scale, and brand awareness provide advantages that others have not been able to replicate. Our two million plus members minimize our acquisition costs. Our extensive contractor network allows us to avoid the cost to scale. And our brand awareness makes sure that we stay top of mind with consumers. All of this enables us to profitably accelerate non-warranty revenue growth to our existing warranty members. And here's what the unlock is: as our member base grows, so does our ability to drive non-warranty revenue. Now let's briefly turn to our growth priorities. The catalyst for our growth is built on three key strategic priorities. First, grow and retain new warranty members. Accelerating new warranty member growth in the near term is our top priority, and it serves as the cornerstone. Second, scale non-warranty revenue. We will accelerate growth in non-warranty services and complementary revenue streams to our warranty members. And third, optimize the integration of 210. 210 is key to our plans, and it provides growth and synergies. Now Kathy Collins will provide more insights on our first two priorities shortly, but first, let's talk about 210. I led the acquisition of 210, and we chose this company because it provides Frontdoor four key benefits: one, warranty member growth; two, distribution; three, revenue diversification; and four, significant synergies. For those of you not familiar with 210, the company is a great fit for us. It directly aligns with our core warranty business. It's been in business for forty plus years. And it provides home warranties in forty-three states. The acquisition provides immediate home warranty growth. We get more than a hundred and seventy thousand home warranty members. Complimentary real estate, direct to consumer, and renewal channels. An attractive recurring revenue stream, and increased scale in the home warranty category. 210 is also the largest provider of new home structural warranties to builders. They cover about one in every five newly constructed homes. The product provides builders and homeowners up to ten years of insurance-backed protection for structural defects on a home as well as workmanship and systems coverage. And they're sold to nineteen thousand homebuilders. These structural warranties are available nationally across forty-eight states. Now here's how the product works. A homeowner gets one year workmanship protection for issues like flooring, cabinetry, finishings within a home. Two years protection for systems issues—anything like plumbing or electrical system issues. 210 will help the homeowner relay the issues to the builder, who is the responsible party for resolution. For the builder, 210 handles all of the administrative responsibilities. The homeowner also receives up to ten years of insurance-backed protection for potential structural issues with the home. In the event of a covered structural claim, 210 will manage the repair process, fixing the issue for the homeowner, and significantly reducing the builder's post-construction risk. With 210's industry-leading new home structural warranty, we now have expanded distribution with access to over a million new homeowners and nineteen thousand homebuilders. This opens up an exciting new sales channel for both our core home warranties and non-warranty services like our growing new HVAC program. 210's new home structural warranty also diversifies our revenue stream into an attractive adjacent category. The average cost for the product is about five hundred dollars. About eighty-eight percent of sales are to existing home builders. And 210 sells the product through a combination of field and inside sales associates. Lastly, the acquisition of 210 provides significant operational synergies. We will immediately operate 210 more effectively using Frontdoor's proven infrastructure and expertise. In 2025, we expect to unlock significant synergies delivering over ten million dollars this year. And we expect a thirty plus million dollar run rate by 2028. This will enhance Frontdoor's profitability, and deliver even more value to our members and shareholders. Specifically for our shareholders, applying our expected synergy run rate to 2024's adjusted EBITDA results in a very attractive purchase price multiple of eight times or lower, synergized adjusted EBITDA. So bringing this all together: Frontdoor is primed for growth. The home services industry is massive. Our scale, brand awareness, and powerful operating model position us to grow members and expand non-warranty services profitably. Our subscription-based model delivers predictable, recurring revenue. And now with 210, we get more members, more distribution, revenue diversification, and powerful synergies. Bottom line, Frontdoor is in the perfect position to win now and in the future. Thank you for coming today. And I'll now turn it over to Kathy Collins, who will share a deeper dive into our go-to-market strategy and exciting opportunities ahead.

Thank you, George. I am delighted to be here with all of you today to share a variety of important topics about our business. The areas I'm going to cover are our high-level framework for the warranty and non-warranty sides of the business. Starting on the warranty side, we'll kick off with American Home Shield, our leading brand, then AHS's value proposition and how we go to market. We will then shift to our four strategies for growth, brand health and campaign results. I will end with our non-warranty business scope, overview, and updates. So to kick us off, I want to share a very simple construct that helps organize our strategic priorities. At the highest level, we run two businesses: warranty, our core recurring revenue business, and non-warranty, which is more transactional in nature. This non-warranty business primarily exists to grow share of wallet among our two million plus warranty members. I won't get to the warranty side in just a few minutes, but let's start with warranty. When you look at our brands within this framework, American Home Shield is by far our largest. It's American Home Shield plus the other brands in our portfolio: OneGuard, Landmark, HSA, and our newest brand, 210 Home Buyers Warranty. All of these brands are being operated as one home warranty business and have their own go-to-market plans. But today, I'm going to focus on American Home Shield. American Home Shield is the clear number one in the home warranty category. We have the strongest brand recognition by far. Our unaided brand awareness is twenty-one percent, meaning a customer can name us without being prompted. That awareness is twice as high as our nearest competitor. And due to the success of our marketing campaign, unaided awareness is at an all-time high for American Home Shield. American Home Shield also has the largest nationwide network of over seventeen thousand independent contractors, a network that we have built with quality contractors over many decades. Evan will go into this area in greater detail. Our research is very clear. What matters most to homeowners when it comes to a home warranty is that they can trust the people we deploy to their homes. Trust them to provide expertise, to restore functionality of their systems and appliances, and to keep their homes running. The term consumers use consistently unprompted is peace of mind. When asked the primary reason for purchasing a home warranty, virtually half say they bought it for that peace of mind. Now as Ray pointed out, an American Home Shield warranty protects up to twenty-nine home systems and appliances from breakdowns due to normal wear and tear. This is the best coverage in the home warranty category. The value of an AHS home warranty extends beyond peace of mind, however. In the words of one consumer, it's the not knowing that makes home ownership a challenge. While peace of mind is the key motivator with our members, homeowners also stress over unplanned expenses. Sixty-two percent of all homeowners say they aren't saving enough, and about twenty percent say they don't have any savings. The opportunity is real. We can provide value to the people who need it most. Think about the financial impact this way. Consumers prioritize two key benefits of an AHS home warranty. First, it protects a homeowner from any significant failure, which could be costly without coverage. A home warranty provides a breadth of coverage of up to twenty-nine home systems and appliances. Without coverage, those repairs or replacements could cost thousands of dollars per year. In summary, protection, peace of mind, and cost savings are the core of our value proposition and how we position the AHS brand to homeowners. Okay. Now let's get into how we go to market as the American Home Shield brand. I want to be really clear: our number one priority is new home warranty member acquisition. We have two main go-to-market channels: direct to consumer and real estate. So let's start with direct to consumer. First, some background on D2C. American Home Shield pioneered the D2C channel about twenty years ago. As I shared earlier, a home warranty has a strong value proposition for existing homeowners. We market home warranties directly to consumers through digital or performance marketing, broadcast, direct mail, and other channels. D2C is an investment in the first year. It renews at about seventy-two percent at the end of year one, and then becomes profitable in the second year and beyond. This channel surpassed the real estate channel in terms of unit volume in 2021 and today is responsible for a little more than sixty percent of our new members. Not surprisingly, the timing of this channel shift aligns with the crash of the real estate market. Macroeconomic factors have also challenged direct to consumer growth, including consumer confidence, inflation, interest rates, and overall economic uncertainty. Despite those challenges, we are extremely pleased with our D2C business. The consumer is resilient and responding. We continue to deliver compelling product news, new reasons to believe, and strength in a myriad of marketing channels. I am very happy to report that through these efforts and more, we have been able to grow our D2C member count in the third and fourth quarters of last year. Since the end of Q2, we saw more than a five percent increase in member count and double-digit growth in units sold in the fourth quarter. We have started 2025 with great momentum. I am now going to share our plans for acquisition growth and retention. We have identified four strategies to grow our member base. First, strategically offering deep discounts. Second, targeting new audiences with higher propensity to buy a home warranty. Third, campaign and media optimization. And fourth, product differentiation. Starting with deep discounting: a couple years ago, we recognized that our high lifetime value and renewal rates gave us the ability to test and execute some new pricing strategies. In light of the challenging real estate market, we needed to find more ways to bring more members to the AHS brand. So in March of 2023, we first ran fifty percent off in D2C to better understand the impact of pricing in the home warranty category. Offering fifty percent off periodically greatly increases both demand and conversion. We know that price matters at the point of the initial purchase, but some prospects may have concern about what would happen one year later at the point of renewal. If we offered fifty percent off as a starting point and then in year two jumped them back to normal pricing, would they simply cancel? To that end, we tested several pricing levels ranging from low to high year-two increases, and what we now know is members are less resistant to price increases once they have been with us for a year or more. And the good news is that we are walking them back to full price and profitability within about two years. So this discounting strategy is working. It has given us a boost in membership, contributing to that turnaround in Q4. We are at the highest retention rate we've ever seen and we've been able to maintain our overall margin performance due to the timing and length of the promotional periods. Deep discounting continues to service nice and will be a part of our plan going forward. Let's now talk about how we are targeting new audiences. The campaign has been very effective in moving the needle on top-of-funnel metrics such as brand awareness for AHS. In fact, aided brand awareness is at an all-time high. We have always been significantly above the other players in the category, but in the past two years, we have widened that gap to twenty-five percent higher than our nearest competitor. So now is the right time for us to shift our focus to the midpoint of the marketing funnel. For those of you not familiar with this diagram, the funnel is a visual representation of the customer journey, depicting the different stages a potential customer goes through from initially learning about a product or service to making that purchase. So now we are focusing on the midpoint of the funnel, which is all about consideration and trial. Now that they know American Home Shield, we've gotten their attention; the next step is getting them closer to purchase. We have spent the last several months in deep quantitative analysis learning about specific audiences that we can more readily target through media. And this work has led us to two audiences in 2025: millennials and Hispanic millennials. Millennials who are twenty-nine to forty-three years old are the fastest growing cohort of home buyers, and they tend to be quite stressed with home ownership. Within the millennial cohort, Hispanics are the fastest growing demographic population. With a more targeted focus, we can more effectively connect with Hispanic homeowners through a personalized message and a customized approach. Now let's shift to how we are optimizing our marketing and getting the most out of our investment. Simply put, brand does matter. We have worked diligently to build brand equity through a positive, consistent experience and strong marketing campaigns. Since our last investor day, we have done a great deal of work to enhance this already great brand. Last April, we relaunched the AHS brand through updated iconography and imagery, a new website, and the introduction of the "Warrantina" campaign. This was done after much research telling us the category was in dire need of something breakthrough. I've spoken quite a bit about this category being virtually a sea of sameness with every brand touting the same benefits, having similar logos, iconography, and value props. This was our time to stand out. Enter Warrantina. And we are seeing strong results to date. The campaign featuring comedian Rachel Dratch is memorable, funny, which isn't the norm in this category, and likable. More importantly, it's educational and informative, giving consumers a better understanding of an AHS home warranty and its benefits. The campaign has grown awareness in a relatively short amount of time. Our research shows that two out of five homeowners are familiar with the Warrantina campaign and the likability is over eighty percent—well above advertising norms. So is the marketing working? Yes. It is. We are up across the board in ad awareness, brand awareness, brand attributes, units, and retention since the launch of the campaign in Q2. And we are keeping the campaign going in 2025 with some fresh creative. So now I am happy to share with you one of our new TV spots. Ladies and gentlemen, the world premiere of "Dollhouse." "Mama, look. This is like our new house.' 'Warranty. I hope you have an American Home Shield warranty.' 'Leaky toilet fixed. Clogged AC coils fixed. Oven beyond repair? If AHS can fix your covered item, they'll replace it no matter its age.' 'The warranty is smart.' 'Oh, happy family. Is that us? Too much?' 'American Home Shield. Don't worry. Be warranty.'" All right. Let's now transition to our fourth strategy, which is product differentiation. American Home Shield continues to be the driver of innovation in the home warranty category. Our D2C and real estate tiered product offerings are the core of our warranty business, with a number of add-ons and supplemental services available. We have three tiers of products on the D2C side: platinum, gold, and silver. For our real estate members, the three tiers are called complete, plus, and essential. But we think about product more broadly. It's all about the experience for our AHS members. To that end, in late October, we launched the American Home Shield app, a modern solution focused on the member experience. The app serves as our catalyst for future innovation of the member experience. It's available to all members, giving members an efficient mobile-first service experience and the app will be foundational to unlocking innovative digital solutions in the future. Members can manage their account, submit service requests, renew their membership, or make changes to their plan, and they can access the new HVAC program and more. All of this through the convenience of their phone. Our communication with members will become more frequent and customized through push notifications. We have been blown away by the response to the app and the usage in just the first four months. To date, we have over a hundred forty thousand registered users, over forty-four thousand service requests have been submitted through the app, saving time and other resources for our call centers, and the app has a rating of four point seven stars on Google Play and four point nine in the Apple App Store. We will continue to enhance the member experience through the app based on consumer needs, service enhancements, and new brand innovation. So the app is a great example of our product innovation, but today, I am beyond thrilled to share with you our latest product feature: AHS video chat with an expert. That's right. Members of our top two product tiers starting today have the opportunity to connect with one of our virtual experts through the AHS app. Video chat is now available in the American Home Shield app for select AHS members. Members can chat with repair experts for live help with home hassles at no additional cost. That's right. It's free. If a home system or appliance isn't working right, the expert can provide real-time guidance to assess or fix the problem on the spot. Troubleshoot with confidence, all from the AHS app. The expert will see you now. Sign up at ahs.com today. So let me share with you how this feature and functionality came to be. Two years ago, we launched the Frontdoor app. It included a home warranty product and other features including video chat with an expert. What we have learned in those two years has been invaluable. Homeowners love our video chat experience, and they love our experts. It is an understatement to say this has been a positive experience for Frontdoor users, so we decided to bring this to the AHS brand. Our experts are highly experienced former contractors who now work for us. They are men and women who are ready to get off the road and take on a new adventure of helping homeowners either fix what's broken or guide them to the right solution. They are experts in the fields of plumbing, electrical, HVAC, appliance repair, and even a generalist category. This has been an amazingly positive experience. The AHS app with video chat means that our Gold and Platinum level members, which is about eighty-seven percent of our members, can get help even faster and easier. It means they can potentially walk through a fix over the video chat, possibly making it less costly for the homeowner. And importantly, the app with video chat is giving our members a new way to work through an issue and we expect this channel to increase overall member satisfaction as we've seen with the Frontdoor brand. And it comes at no additional charge for the member. We love the fact that not only is this a game changer, but it's something we believe is truly a differentiator in this category. The AHS video chat feature is launching today. We are notifying AHS members of the new feature this week. You will also be seeing video chat with an expert built into our acquisition marketing channels. Now I'd like to share with you one of our other new spots that will be used both on television and digital platforms. This is "Ancient Manual." "Did you find the manual?" "Yes. Of course, I found it." "Warren, give me—" "No. I need that." "Who's Dale?" "A real human. I'm Dale.' 'American Home Shield now provides video chat with live repair experts for home fixes over the phone.' 'Let's go fix that oven.' 'Okay, Dale. Need my phone back.' 'Fix it over video chat on the AHS app. Sign up today at ahs.com.'" All right. So moving on from D2C, let's now talk about real estate. To begin, here's a little background. American Home Shield founded the home warranty category in 1971 specifically through the real estate channel. We market home warranty through a field sales team, many of whom have longstanding relationships with real estate agents. Sales through this channel are profitable in the first year, and these renew at about thirty percent after the first year—much lower than the D2C channel. Prior to 2021, when real estate was the key channel for attaching home warranties, it was a fairly common practice for the real estate agent to include the warranty to close the deal. However, since the real estate market boom and then crash, the world has changed. As you can see, in 2024 home sales cratered to one of the lowest levels we've seen in forty years. The good news is that despite this greatly reduced inventory, we have managed to maintain our category share. The chart shows how real estate home warranty sales and home warranty capture (or attach) rates have declined in tandem from 2018 through 2023. On the right side, you can see that we have maintained our share in spite of those declining sales. While there are some positive signs, real estate continues to be a tough market. The National Association of Realtors reported existing home sales for 2024 at 4.06 million, which was the lowest number since 1995. Further, inventory continues to remain around three and a half months, and home prices are up six percent year over year to an average of four hundred seven thousand dollars. Although we don't know what our new normal will be, this channel remains important and we have been able to maintain our share. Our relationships with the largest brokerages are quite strong. So until the market recovers, here is what we are doing to drive units and maintain our leadership position in real estate. We're using data, technology, and automation to build a better way to capture new members. For instance, we are analyzing growth markets and optimizing our marketing investment accordingly. We are placing our best sales talent in high propensity markets. And we are identifying those top-performing real estate agents and working to customize communication journeys with those agents. Bottom line, the brand and my team are poised for success and we will be ready when the real estate market inevitably comes back. Now let's move to the heart of our business: renewals. Specifically our retention strategies. Clearly, the new app and video chat with an expert are big renewal plays for us. But there is more. First, let me start with where we are on retention. This slide shows our retention rate for American Home Shield from 2022 through 2024. We finished 2024 at an amazing retention rate of seventy-eight point five percent. This is an all-time high for us, but we're not done. We work cross-functionally to ensure that the member experience is not something just one team focuses on. We all own that. We have done extensive research to understand why members don't renew, and those insights have become our areas of focus. Our three initiatives to grow loyalty and engagement are usage, onboarding, and autopay sign-ups. Members most likely to renew are members who have used our services. In our real estate segment, for example, users renew at twice the rate of non-users. Across all of our first-year members, we have identified ways for them to engage with the brand, maybe through a discounted HVAC tune-up or a free carpet cleaning service. Further, we create enhanced member journeys to deliver compelling offers, and we often highlight maintenance services, giving them a chance to try us out if they don't have a repair need. On the real estate side, where renewal rates are significantly lower than D2C, we have come to understand the importance of onboarding. In many cases, homeowners don't even know they have a home warranty and have not used it. So we continue to take steps to welcome them to the AHS brand through consistent emails and other communications. This is a complete member journey, including the education of benefits and follow-ups with relevant offers. And finally, monthly autopay is our last area of renewal focus. If we can get a member on autopay, our chances of keeping them are significantly higher than if they are not. Although eighty-four percent of our members today are on autopay, we continue to test offers to get that other sixteen percent signed up. All right. Now let's switch to the non-warranty side of the business, where we are currently offering non-warranty products and services in two distinct ways. First, to our two million plus members through programs such as our new HVAC initiative. And second, B2B2C or business partnerships such as our Moen initiative. So let me say a little bit about each of those. We have built our new HVAC program from scratch to a nearly eighty-seven million dollar business in 2024. As we've expanded and marketed the program, we continue to see significant growth. What a differentiator this has been. This program is all about membership benefits. By being an AHS member, you have access to the best deals because of the partnerships that we have built over the years, both in terms of suppliers and contractors. We are very optimistic about this offering and expect 2025 revenue to come in at an even stronger level. The life of an HVAC system is around fifteen years, and we can help guide our members when the opportunity and timing are right. The prices are greatly reduced because of the large unit quantities and the brands that flow through our business today. Environmental efficiencies and new regulatory standards on refrigerants also come into play with newer systems. Expansion of this program could be a material strategic opportunity for Frontdoor. Some investors have asked, how big could this be? We have sized the opportunity based on a number of different categories: appliances, hot water heaters, and roof replacement. We believe this can and will be a major growth engine for Frontdoor. We believe programs across these four categories provide a nearly two billion dollar opportunity creating even more value for our members over time. This chart shows how we get to that two billion dollars in a non-warranty total addressable market within our member base across HVAC, roof replacement, appliances, and hot water heaters. On line one, you see the rate we believe members could proactively replace these items. On line two, the average price of each service. And from that, we are able to derive the opportunity size on line three. So the total across those four categories comes to about two billion dollars in TAM within our member base. Now let's talk about business partnerships that leverage our network of around seventeen thousand independent contractors. Our partnership with Moen is a fantastic example of where this opportunity can take us. As you may know, in some states, insurance companies are beginning to require an accessible water shutoff valve complete with smartphone alerts to mitigate flooding issues. We started this partnership in the state of California and made it very easy for homeowners. Basically, Moen drop ships the valve and necessary parts to the home. However, homeowners often are not sure how to install these nor do they want to learn. Enter our plumbing contractors. They are able to install the device in a short amount of time, completing the job for Moen, the insurance provider, and the homeowner. This is a perfect example of our size and scale providing an opportunity that many of our competitors could not execute. Our network provides virtually national coverage. In the spirit of successful partnerships, we have figured out yet another new revenue stream as well as introduced the Frontdoor business to more homeowners. Since the California launch in June, we have extended to thirteen more states for a current total of fourteen with another six states expected by the end of this quarter. So summarizing the non-warranty side of the business: we have built a one hundred million dollar plus business by accessing just a small portion of our two million plus members. We will continue to tap into this loyal base and we'll let their input guide us to what's next. Continuing to build HVAC, appliances, water heaters, roof replacements, we will continue to leverage B2B2C partnerships and are currently in active conversations with other potential partners. You can tell that we are bullish about our growth trajectory for both the warranty and non-warranty sides of our business. What I hope you take away is this: American Home Shield is the category leader by far. Our core business is our warranty business, led by the American Home Shield brand. This year, we are laser-focused on those four growth strategies: deep discounting, precise targeting, conversion marketing, and product innovation, led by the app and video chat. And our non-warranty business is a growth engine, with a focus on growing share of wallet among our two million plus members and establishing strong corporate partnerships. Our brand name recognition combined with our national network of contractors are strong reasons for homeowners to turn to Frontdoor for all of their home protection, repair, and care needs. Thank you so much for your engagement this morning. At this time, I would like to introduce my friend, Evan Iverson.

Thank you, Kathy, and good morning, everyone. I'm Evan Iverson, the Chief Operating Officer of Frontdoor. My job is focused on how our contractor network, service operations, and technology come together to better serve our members and grow our business. Operations plays a major role in our strategic focus, and we are operating better than ever. Leveraging our unmatched nationwide network of independent contractors, driving efficiency and experience through disciplined service operations, and delivering business value through pragmatic, reliable technology investments. But before I detail our strategy, let's reset to when I spoke to you in 2023. CPI was at eight percent, the highest in forty years, which was especially pronounced in home services with appliances up twelve percent and HVAC up twenty-two percent. Net, this was a sixteen percent increase in our cost per service request. At the time, I explained the aggressive actions we were taking to help us get out of the inflation trap. Those remain core elements of our approach today: coverage optimization, supply management, geographic optimization, and cost control and planning improvements. When I spoke to you in 2023, I told you how we were working through coverage—specifically, how we were managing our exposure across our marketing strategy, pricing, and products. A great example is what Ray explained to you earlier on how we think about trade service fees and what we price in the cost of product. It helped us fight inflation and remains a key focus today. Supplier strategy is a foundational element of our business, and we continue to work tirelessly to ensure we are buying the right parts, systems, and appliances and aggregating volume across both suppliers and contractors to ensure we get the greatest value possible from our scale. This helped us escape the inflation trap and remains critical today. At the heart of dynamic pricing is a wealth of data on cost and performance of not just markets, but individual homes. As Ray explained, this is critical to matching price with cost. And finally, we implemented reviews for high-cost jobs, changed incentives for field managers, and changed our budgeting approach. Our results speak for themselves. We have seen a significant reduction in the impact of inflation on our net cost per claim with slightly deflationary results in 2024. This tremendous performance all starts with our contractors. Our approach to contractors is different. Our model is built on partnership, not just working with them. Our recipe is simple. We offer real value. We coach them. We are transparent in our feedback and we show we care, which results in engaged contractors who want and value our work. If there's any secret sauce to recruiting a new contractor, it's this: we're not trying to sell them leads. We bring them real work, real member problems for them to solve, and we pay them quickly. Once contractors are in our system, we have a dedicated team of roughly one hundred field managers that coach contractors on how to work with our systems and grow contractors' businesses through the multiple channels of revenue that our value proposition creates, and leverage proven best practices. We coach them on how they are performing for members and for Frontdoor. The screenshot you see is a new self-service scorecard we are rolling out within our network. This is the actual screen a contractor will see. It allows our contractors to see their performance both against their targets and peers in the markets and understand exactly how they need to improve to be more competitive. We get their input through our pro council. It helps us understand what is working, what isn't, and helps us shape our strategic focus. That is the magic of our model. We work hard to create jobs contractors want and in turn they provide better customer service and they deliver better cost for Frontdoor. Everyone wins. The contractors that consistently perform the best on cost and quality and leveraging best practices are designated as preferred contractors, representing about four thousand of our seventeen thousand strong contractor network. These four thousand preferred contractors performed eighty-five percent of our service requests in 2024. We see savings in excess of fifty percent from our preferred contractors, driven in part by volume aggregation, best practice impact of tools and systems (for example, procurement or self-service tools), and contractors valuing the full range of revenue opportunities of our work. We are finding that members serviced by our preferred contractors are more likely to renew, seeing a one hundred and eighty basis points improvement in our renewal rates. Increasing the percentage of jobs that go to preferred contractors has been key to our improvement since I last presented to this group in March 2023. And most importantly, members like this approach, as evidenced by their rating of our contractors at four point five stars, another all-time high. Contractors aren't just working with us on our home warranty work. They are the engine that allows us to grow our non-warranty. They are willing to help us grow revenue faster, to take a leap of faith to try new offerings, and that willingness allows us to grow quickly. They were critical in building our new HVAC program to an eighty-seven million dollar business, and our plumbers supported us in getting our Moen Flow offering in the market, delivering about five million dollars of revenue in 2024. As I said, it all starts with our contractors. They deliver for both members and Frontdoor. Now let's turn to how we're optimizing our service operations. Going back to the pandemic, it forced us to go remote, and it was a significant challenge for us to solve. We saw hold times or speed to answer exceed forty minutes in our peak summer season. By our second peak after the pandemic, we had improved materially and have gotten better every year since. This isn't just a function of throwing headcount at problems. We are getting better in our most complex and important processes like authorizations and compliance for replacements, where we have to review and approve work for members ensuring they get the coverage and value of their American Home Shield warranty. We are delivering real productivity gains by handling more calls per hour and we have made these improvements with equal or better member experiences, as shown by our members' ratings of our authorizations and appliance agents. Taken in conjunction with the improvements in the contractor network, the net result is a continued upward trend and an all-time high of overall AHS five-star member ratings. That is service operations performing better than ever for our members. And finally, it's been about six months since I took over technology, and my focus has been on ensuring we are delivering business value with our technology investments. We shifted our approach from a focus heavy on transformation and prioritizing pie-in-the-sky initiatives and tech debt to focusing on reliability, supporting the business, and capitalizing on our existing strengths. We are now tracking and holding ourselves accountable by focusing on prioritizing reliability across all teams, measuring and monitoring progress to know when and where things are breaking so we can address them, and making continuous improvement rooted in all we do. While we are not yet at our goal, we are steadily improving. I am tremendously proud of the team's work on this. The progress we are making is now reflected in our 2024 uptime of ninety-nine point eight eight seven percent. Now let's discuss some examples of how technology is supporting the business. We built our new HVAC program on a technology stack that works rather than waiting for a perfect approach. We built our Moen offering on our existing non-warranty platform, which allowed us to get to market quickly. We have used the same approach to improve member experience. We've reduced transfers and contractor assignments by forty percent, ensuring the right contractor shows up the first time to get the member problem solved with both great customer service and low cost. We have gone from issuing paper checks to digital payments, which has shortened the time members wait for payments by ninety percent—a significant member benefit. A portion of our service operations are driven by self-service experiences that we've built for members, such as the shopping portal where they can now select a new appliance, which in turn has reduced inbound call volume for appliance replacements by forty-five percent, and self-service orders have gone up. In short, our technology is stable and dependable, is supporting the growth in our warranty and non-warranty businesses, and is making us more efficient and productive for our contractors, members, and associates. This doesn't mean we're resigned to incremental improvements. Everyone asks me about AI. We are testing AI in a number of environments in our service operation, focused on assisting service agents and inside sales. Our authorizations process is a great example where our AI model navigates permutations of four million plus job items across five major trades, and more than twenty-five contract types. It is now approaching ninety percent accuracy. While we are value-focused in our technology, we are still looking for ways tech can transform our business. As Kathy mentioned, the launch of the American Home Shield app with virtual expert support is another great example that our technology portfolio is a great mix of value-led innovation and tactical pragmatic improvement. Frontdoor represents a unique opportunity to invest in a strong, growing business in the home services industry with an unrivaled contractor network and approach, disciplined and results-driven operations, and technology that focuses on driving our business value every day. Frontdoor stands out from the rest. And now I would like to introduce Jessica Ross, our Chief Financial Officer.

Thank you, Evan, and good morning, everyone. Last year was an exceptional year for our company. We acquired 210 to drive growth, and we completed our new 1.47 billion dollar credit facility, creating a solid financial foundation for years to come. With that, let's jump into our record fourth quarter results which demonstrated a continuation of our outstanding financial performance. Q4 revenue increased five percent to three hundred and eighty-three million dollars, primarily driven by the addition of 210, as well as better than expected revenue from non-warranty services. Net income was flat at nine million dollars which is a great outcome considering it includes transaction costs associated with the 210 acquisition and our related debt financing in December. Adjusted EBITDA increased ten percent to forty-nine million dollars. We also beat our fourth quarter guidance by approximately thirteen million dollars which was driven by better than expected revenue conversion and gross profit, partially offset by about seven million dollars of intentional marketing investments. Now turning to gross profit, which increased five percent to a hundred and eighty-six million dollars, and gross profit margin improved to a fourth quarter record of forty-nine percent. As you can see, we delivered another quarter of strong financial performance, and we could not be more proud. Now moving to our 2024 full-year financial results. Full-year 2024 revenue increased four percent to one point eight four billion dollars. Net income increased thirty-seven percent to two hundred and thirty-five million dollars and adjusted EBITDA increased twenty-eight percent to an all-time high of four hundred and forty-three million dollars. This was undeniably an exceptional year for Frontdoor. Full-year gross profit increased twelve percent to nine hundred and ninety-one million dollars and gross profit margin improved four hundred and ten basis points to a record fifty-four percent. This was driven by the progress Evan mentioned, our dynamic pricing capabilities, and our trade service fee initiatives. Now let's dive into the 2024 adjusted EBITDA bridge. Starting at the top, we had sixty million dollars of favorable revenue conversion. Contract claims cost decreased forty-four million dollars. Sales and marketing increased eight million dollars driven by intentional investments made in the fourth quarter to drive member growth. General and administrative costs increased seven million dollars primarily driven by increased professional fees and personnel costs. These spending increases were partially offset by six million dollars of favorable interest income and other items. In summary, adjusted EBITDA increased to a record four hundred and forty-three million dollars which is nearly a hundred million dollar increase. This is a twenty-eight percent increase year over year. Now, let's review our statement of cash flows. With record earnings come record cash flows. Net cash provided from operating activities was two hundred and seventy million dollars for the twelve months ended December thirty-first, as a result of our exceptionally strong earnings. Net cash used for investing activities was six hundred and twenty-two million dollars and was primarily comprised of funds used to acquire 210. Net cash flows from financing activities were four hundred and forty-seven million dollars and were primarily driven by our new debt issuance, which was a great success. As a result of our strong performance, free cash flow increased thirty-six percent to two hundred and thirty-one million dollars for the twelve months ended 2024. We also used a hundred and sixty million dollars to repurchase nearly four million shares last year. We ended the year with four hundred and seventy-four million dollars in cash and marketable securities. This was comprised of a hundred and eighty-four million dollars of restricted assets, and two hundred and ninety-one million dollars of unrestricted assets. Now let me spend a few minutes talking about the way we deploy our capital. We have an exceptional business model that generates a lot of cash and has low CapEx requirements. This unique combination gives us significant flexibility when it comes to capital allocation. It is important to note that we have maintained a very consistent allocation strategy over time. Our first priority has always been growth. After that, we want to maintain a strong financial profile. And finally, we want to return all excess cash to you, our shareholders. Let's dive into each of these in a bit more detail. We are a growth company and we will continue to prioritize growth. That can come in the form of investments to fund organic growth across marketing, non-warranty services, as well as process improvements and technology investments to scale our business. Our M&A strategy remains focused on opportunities to grow our core business, as evidenced by the recent acquisition of 210. Our second priority is to maintain a strong financial profile. Our goals here are simple: ensure we have enough cash and liquidity to run the business, and maintain a prudent leverage ratio. We continue to target a net leverage ratio of two to two point five times adjusted EBITDA. We successfully completed our 1.47 billion dollar credit facility in December, which funded the 210 acquisition and refinanced all of our existing debt while extending our debt maturities to 2029. The result is a very attractive debt tower. We don't have to worry about refinancing anytime soon and can remain laser-focused on driving the business forward. And finally, our third objective is to return excess cash to shareholders. We completed our prior three-year four hundred million dollar share repurchase authorization in 2024, and our board approved a new three-year six hundred and fifty million dollar program that started in September. I am very proud that we have a history of buying back shares. Since 2021, we have returned approximately four hundred and eighty million dollars to shareholders by buying back twelve point seven million shares at an average price of thirty-eight dollars per share. To put this in perspective, this represents approximately fifteen percent of total shares outstanding over the last four years. This includes approximately eighty million under our current program in just the last three months. Now for those of you that might be newer to our story, let me take a moment to share a few historical financial highlights with you. First, I'd like to call out our consistent revenue growth over time. Looking back to 2008, we have delivered a revenue CAGR of over seven percent. I want to highlight the durability of our revenue model here. Even through all of the challenges and uncertainties over the last two decades, including the global financial crisis in 2008, COVID, high inflation and significant volatility in the housing market, we have continued to deliver consistent revenue growth over time. Moving on to our historical member count, which is a bit more nuanced. We went public in 2018 and grew members over the next two years primarily through D2C. However, in the years that followed, the housing market dramatically changed. It became a seller's market. Inventory reached an all-time low. Existing home sales have become more volatile. As a result, our sales of home warranties in the real estate channel are less than half of what they were in 2018. In 2024, our acquisition of 210 drove our member count up and we are very excited about the value the 210 acquisition adds to our business as well as the growth strategies Kathy outlined earlier. Now turning to our gross margin history, which has averaged forty-eight percent over the past seven years. We went from the worst of times in 2022 to now record gross margins in 2024, as a result of the work driven by this executive leadership team to turn the business around over the past two years. As I shared earlier, we have a business model that doesn't require heavy capital expenditures. Our capital spending runs at around two percent of revenue related primarily to technology investments to drive growth and scale. In addition to our consistent revenue growth, we have also delivered strong levels of adjusted EBITDA, going from two hundred and thirty-eight million dollars in 2018 to a record four hundred and forty-three million dollars in 2024. Not only have we grown adjusted EBITDA by nearly eleven percent annually over the last seven years, we've averaged a nineteen percent margin during the same period. I'd like to call out that since Bill took the CEO position in 2022, adjusted EBITDA has more than doubled. Finally, this business generates a lot of cash. One of the metrics we look at is the percentage of free cash flow to adjusted EBITDA, which averaged fifty-six percent over this period. To summarize, we have demonstrated a consistent history of strong financial performance over time, which leads me to what I know you all have been waiting for: our full year and first quarter 2025 outlook. Before I get into the details of our outlook, I want to provide some context on the main drivers impacting our estimates. Starting with our revenue assumptions: our home warranty member count has recently been in decline due to the challenging real estate environment, and the decline in first-year channels is negatively impacting our renewal base. Additionally, we are lapping double-digit price increases, which has been a major contributor to our revenue growth over the last few years. As a result, 2025 will be a transition year for member count and organic revenue growth. Now for the good news. Despite these headwinds, we still expect to see revenue growth of approximately ten percent in 2025, driven by 210 and non-warranty services. Additionally, we expect gross margin of approximately fifty-two percent and adjusted EBITDA margin of approximately twenty-three percent, both of which remain significantly above our historical averages. We have done a lot of work over the past few years to ensure that our margins and profitability metrics remain strong, and we will continue to benefit from these efforts in 2025. There is clearly a lot to celebrate here. So now, let's move to the Outlook details, which includes the addition of 210. Starting with revenue, we expect an increase of about ten percent for a range of two billion to two point o four billion dollars. This includes a two to four percent increase in realized price. We initiated a mid-single-digit price increase late last year. And I would like to reiterate what Ray shared earlier: it takes up to twenty-four months for our increases to fully roll through realized revenue. So our realized price increase in 2025 is a reflection of our prior pricing actions. The remaining six to eight percent is driven by volume, primarily from the 210 acquisition and other revenue, partially offset by lower organic growth in home warranty. Other revenue includes approximately a hundred million dollars of new HVAC sales, about fifteen million dollars related to Moen, and about forty million dollars related to 210's new home structural warranty business. Moving on to gross profit, we are estimating a full-year margin of fifty-one point five to fifty-three percent. This is four hundred basis points above our historical average. This includes the impact of lapping prior price and trade service fee increases, mid-single-digit inflation (which includes some uncertainty around tariffs), and an increase in the number of service requests per member and normal weather. Now let's turn to our full-year S G&A outlook, which we expect to be in the range of six hundred and forty million to six hundred and sixty million dollars. This is an increase over 2024 due to the addition of 210, normal inflation and includes approximately thirty million of stock-based compensation and eight million of one-time costs associated with the 210 integration. Based on all of these inputs, we are setting our full-year 2025 adjusted EBITDA range to be between four hundred and fifty and four hundred and seventy-five million dollars. For those of you trying to bridge down to this range, you would have to include interest income of approximately fifteen million. This results in a strong adjusted EBITDA margin of approximately twenty-three percent. We expect substantial cash flows, and like many other companies, we have factored in some additional macroeconomic uncertainty for this year. As a result of our strong adjusted EBITDA, we expect our free cash flow to be over two hundred and twenty million dollars in 2025. And I will continue to point out that this business generates a significant amount of cash. This means that we can buy back a lot of stock. In fact, we are currently targeting using over a hundred and eighty million dollars to repurchase shares this year. And we all know that can be a powerful lever for driving our share price. Finally, we expect our full-year capital expenditures to be approximately forty million dollars and the annual effective tax rate to be approximately twenty-five percent. I want to end our 2025 outlook discussion with our first-quarter outlook. First-quarter revenue is expected to be between four hundred and ten million and four hundred and twenty million dollars, or about a ten percent increase over the prior year period. Adjusted EBITDA is expected to come in between seventy and eighty million dollars. This is slightly above the prior year period. I would like to conclude by turning to our long-term financial outlook. These are my favorite slides in the deck and probably will be for investors as well. We are a growth company, and we expect to grow revenue to at least two point five billion dollars in the three-year period from 2026 through 2028. This is nearly a twenty-five percent increase in revenue in that time frame, which includes a turnaround in the real estate market, expansion of our non-warranty services, and growth across the 210 platform. After that, our long-term revenue growth expectations are in the mid to high single-digit growth range, which will be driven by an improvement in member count, pricing increases to offset normal inflation, and continued growth in non-warranty services. As we look forward to more normalized market conditions for home warranty sales, and growth in non-warranty services, we would expect gross margins to stabilize around our target of about fifty percent in 2028 and beyond. As we continue to gain leverage and optimize our S G&A spend over time, we would expect adjusted EBITDA to grow to at least five hundred and fifty million in 2028, and then continue to be in that low twenty percent range after that. Our 2025 adjusted EBITDA outlook range of four hundred and fifty to four hundred and seventy-five million is amazing progress, considering we were targeting only three hundred million for 2025 when I first stood before you two years ago at investor day. With that, I will now return the stage to Bill.

Thanks, Jessica. Okay. We're near the end of the formal presentation. But before we open it up for your questions, I do want to close with a few final thoughts. First, I am incredibly proud of this world-class team you saw on display today and all the people on their teams. All of these all-time highs and records are attributable to their excellence. So let me review the highlights from today's presentation. You've heard a lot about process improvements, about how we improved execution, and today, Frontdoor is operating better and more efficiently than ever before. As a result, we delivered record financial results last year. Going forward this year, we are entirely focused on growing our home warranty member account and maximizing the value of 210 as we fully integrate that business. These efforts and more have positioned the company for long-term growth through the warranty and non-warranty sides of our business. It is great to see that all of our effort is paying off. Frontdoor's stock price has more than doubled since the middle of 2022 when I became CEO. We went from about twenty-four dollars a share to yesterday's ending price of fifty-seven seventeen per share. That's a one hundred and thirty-seven percent increase over that time frame. And trust me, it feels very good to stand here in front of you today and show just how much we have grown shareholder value since our last investor day. And yet, Frontdoor stock still remains undervalued from a historic perspective. We are only trading at about eleven times adjusted EBITDA. Our goal is to not only grow our earnings, but also get back to a mid-teens multiple. So to reiterate and bring home all that you've heard this morning, we have a very compelling investment. There are six primary reasons we believe Frontdoor is the stock to own in the home services industry. First, as George laid out, the home services industry presents a massive opportunity. This is a five hundred billion dollar total addressable market with significant growth opportunities. Second, we're the largest provider of home warranties. We have a cultivated network of around seventeen thousand contractors and a strong record of innovation over our fifty-four-year history, the latest being AHS video chat with an expert. Third, Frontdoor's core subscription-based home warranty business model is extremely attractive. With our two point one million members, not only does it deliver consistent, predictable recurring revenue, but it does so with very high margins and cash flows. Fourth, we believe we have cracked the code on delivering non-warranty services. You heard from Kathy just how big we think the non-warranty revenue opportunity could be. Fifth, we are executing better than we ever have. Our financial results show it. And the sixth reason to believe is we have a consistent capital allocation strategy. We are investing to grow the business both organically and through M&A, and we are returning excess cash to shareholders through aggressive share buybacks while maintaining a strong financial position. So that's the core of our investment thesis. Let me leave you with one final thought. We run a very straightforward, simple, capital-light business model. Lots of members, lots of cash, operated very well, consistently, and predictably. We are a great bet for your portfolio allocation to home services. And on that high note, that concludes our formal presentation. We need just a minute to bring the team up on stage, and then we'll be ready to take your questions. We just got a text that our first AHS video chat with an expert has occurred this morning. So way to go. For our questions, we are going to do a heavy mix of in the room, but we also have Jason Bailey reading some online questions as well. So we're going to go ahead and get started with the room questions. Sergio, Alyson, if you could walk a microphone up to Sergio for the first question. And then we can go ahead and get started.

And then our first question will be from Sergio. Sergio, we've got the mic coming to you.

Great. Thanks, guys, for the presentation. Very helpful today. I guess, first question I had was on conversion. It was great to see the American Home Shield marketing campaign looks like you're seeing a lot of success there with the brand awareness up. You highlighted conversion as a key priority for 2025. So what does that look like this year? Where are you focused and where's the investment needed for 2025 to improve conversion and get that customer count up? That would be number one. Then the second question would be on the long-term outlook. Jessica, that's my favorite slide too, so thanks for providing that. Historically, the margin profile of this business has varied pretty significantly. I think you've done a pretty good job narrowing down that variability with some of the process improvements that you've made. But as we look over the long term, where do you see that variability? I think there's still things that you can't control, like weather. So any thoughts on how that variability is maybe narrowed and where you see that over the long term? Thanks. So, Sergio, when you say conversion, are you talking about retention? I'm not quite sure. Customer conversion. So customers coming into the funnel and then converting. Okay. You want me to take that first?

Speaking to conversion, one of the things that I mentioned in my presentation was moving down the funnel, which we expect will improve our conversion. We have seen there are certain levers we can pull such as discounting where we have seen conversion increase significantly. Some of our channels are stronger than others. So we believe that moving toward these mid-funnel channels will help boost that number.

And then just on margin, I remember when we were here two years ago, it was the number one question in the room because as Bill pointed out, we were at forty-three percent. At that point the investor community was more accustomed to the fifty percent range. I do think that long term, as I pointed out, that is really the model that we are driving towards. The variability historically has been around inflation and weather, which we cannot control, and also the number of service requests. We've been down over the past couple of years, which has given us some favorability on the incident side, boosting margin. But we will control what we can control. I think we've gotten a lot better around inflation. Heading into this year, we've been monitoring that very closely. We learned a lot of lessons in 2022 where we pulled all the levers and inflation didn't show up the way many expected, which has been driven a lot of the favorability in results in recent years. Heading into the future, we are in a much stronger position in the business in terms of controlling what we can control so that we can stay on that long-term target of fifty percent.

I would add the work that Evan and his team have done on process improvements, whether that's with the contractors, with their service operations, improving the user experience through some of the tech initiatives—those are enabling us to withstand some of the shocks to the system.

And then our next question is from Cory Carpenter with JPMorgan.

Hey, everyone. Thanks for having the event. I wanted to ask a few questions on 210. Bill, you kind of kicked it off saying you're even more optimistic about 210 than you originally estimated. Why is that? Were you seeing anything specific that makes you feel that way? And then, Jessica, maybe for you, just a little more color on where you expect those synergies to come from. I think you said ten million this year, thirty million in three years. Are you seeing those synergies? And then how are you thinking about growth from a revenue perspective as well for 210? Thank you.

In terms of why I'm even more optimistic: when you bring on a team you do all the diligence and you plan, but you don't completely know until you integrate. I've been impressed by how well the team has been absorbed into our company. Culturally, I think the fit has worked out very well. The talent and quality of the 210 team that we were able to bring over has been quite impressive. And the synergy work we've started has shown great opportunities. We talked about a thirty million plus run-rate over the next few years. All of those things have come together, and it's really feeling in two months like one company, which is sometimes rare with integrations. This one is going very well, and so that is why I feel so good about it. I feel good about the people, I feel good about the business, and I think the synergy opportunity is real.

To add on, we acquired a great business, but the opportunity is really with our size and scale across the board. We operate a very efficient company and bringing them onto our processes and systems is going to be a huge synergy opportunity for us. As George has said, there's cross-selling and access to a million additional homeowners and the nineteen thousand homebuilders that we'll have access to. I think that brings a real flywheel of opportunity for synergies for us.

Okay. I know Jason has a couple of questions. Jason, you want to ask one?

Yeah. One of the questions was: how many structural warranties are in customer accounts? Are the structural warranties part of the home warranty count, or are there additional structural warranty counts related to the acquisition? How do we think about that mix?

When we talk about structural warranties, I'll use two terms: sales within a particular year and the total in-force structural warranty book. In sales within a particular year, we saw about one hundred and twenty to one hundred and twenty-five thousand new sales annually. The structural warranty is a ten-year product, so those homeowners and homes are under warranty for a ten-year period. When you hear me reference a million, that reflects warranties sold from roughly 2015 through 2025. Each year some roll off, and assuming consistent sales volume, there's a steady-state in-force count around a million plus.

One of the opportunities with 210, as I mentioned earlier, is working with those nineteen thousand builders and the million homeowners who have access to 210's structural warranty to see how we can connect with those groups—especially in the non-warranty area, but potentially for some warranty opportunities as well. We think that synergy could be quite meaningful.

I know Eric's in the audience. Eric, do you have a question for Goldman?

I want to talk a little bit about long-term mix in the business. You laid out the warranty case and the non-warranty case for the market opportunity. I know you're positioning for growth on both sides, but how do you think the broader landscape evolves over the long term as to what homeowners actually would prefer and how that might inform strategic investments against mix? Thanks.

One thing I would say is that every time there is negative real estate news, it impacts us because real estate as a channel is still a meaningful part of our business—around six or seven percent of revenue historically—but it has become a smaller portion as D2C and non-warranty have grown. The business is really built on renewals and non-warranty, and our efforts have been to expand those engines. We remain very bullish on home warranties as the growth engine: predictable, recurring, cash-generative. Non-warranty is the additional growth opportunity where we can increase share of wallet—there is a lot of upside there. So from a mix perspective, expect our warranty business to remain the core while non-warranty grows as an important, higher-growth complement.

That's why the second half performance in D2C and continuing that momentum is going to be key to us. If we can sustain the D2C gains and expand non-warranty, that will influence mix in the way Bill described.

Okay. Back over to Jason.

Two related questions. First: do you have a target for percent of jobs that go to preferred contractors? Second: can you give us service request counts for 2024 and an outlook for 2025?

We are proud of the eighty-five percent of jobs that were handled by preferred contractors in 2024, and targeting within the mid-eighties is where we expect to be. We balance bringing in new contractors for competition and innovation with the need to aggregate enough volume to be material to our best contractors. That balance point keeps us in the mid-eighties. Regarding service requests, Jessica can provide the specific counts.

For 2024, we were at approximately 3.6 million service requests and we are targeting close to 4.0 million for 2025, which is roughly where we were in 2023.

I know Sergio has another question, but we're going to go to Jason first.

Can you give us your outlook for full-year interest expense?

Total debt service is about one hundred and ten million and interest expense is approximately eighty million. We're very pleased with our new debt facility which funded the 210 acquisition and extended maturities.

Jessica, going back to your long-term revenue outlook slide: what kind of macro environment does that assume? Is that stable from here, or is that getting better? And then maybe on inelasticity: you had a slide showing renewals customers are most inelastic to price—does that change as the customer tenure lengthens?

I'll take the first part and Ray can take the second. The long-term outlook assumes a return to a more normalized real estate market and more normal inflation levels. It incorporates growth in non-warranty and the contribution of 210. In short, the outlook anticipates a return to real estate activity and a more normalized macro environment over the projection period. We view 2025 as a transition year as we lap prior price increases and rebuild member count in certain channels.

On inelasticity: tenure does matter. The longer a member has been with us and the more they have used the product, the more they value it and the less elastic they become. It's not just tenure alone; it's the member's experience and predicted usage that determine perceived value. First-year members tend to be more price elastic because they haven't experienced the tangible and emotional benefits of the product yet. As members use the product and perceive value, they become more inelastic and are less likely to churn in response to price increases.

I would add that the more a member experiences our product, the more likely they are to stay. The more they interact and the longer they're with us, the happier they are. That speaks to the heart of our model.

Okay. Corey's up next.

All right. Just one more for me. I wanted to ask about tariffs. Jessica, you mentioned there is some anticipated tariff potential in your guide. Which I think calls for cost per claims inflation to go from zero percent this past year to mid-single digits this year. But bigger picture on tariffs, could you remind us what you are most sensitive to? There's new headlines frequently. What matters for you guys on the tariff side and how should we think about that?

It's reflected in our current estimate of mid-single digits. If you think of the things we buy—parts and equipment—many components are sourced globally. Tariffs that target specific economies, for example on imports from China, can be problematic. Across our three largest trades—appliance, plumbing, HVAC—there are many items sensitive to tariffs. Hot water heaters and HVAC units involve steel and aluminum, and appliances include printed circuit boards and other components. So when we call out raw material tariffs, those are real costs in our world. Long term, the cost will flow through the system. Our approach is to ensure our sourcing agreements give us enough time to manage and mitigate tariff impacts, and within my teams we manage to overall claim cost. Ultimately, if costs rise, our focus is to bring them back down by driving efficiency across the system.

We monitor inflation and tariffs closely. Ray and the team track inputs across PCE and PPI categories so we know which levers to pull and when. Given recent headlines and volatility, we took a prudent approach in our guide and built in risk. We don't want to be caught behind.

And just to follow up: on sourcing—do you source parts yourselves versus contractors supplying parts? Any rough split on how much you guys are sourcing yourselves versus getting external supplies through contractors?

It varies by trade. In appliances we buy one hundred percent of the appliances we replace. In HVAC and plumbing, our estimate is somewhere between fifty and sixty-five percent sourced by the contractor versus supplied through our programs, depending on the part and market. Our primary concern is that contractors meet their total cost and quality targets. If they can do that while supplying their own parts, that's fine. If delivery or cost becomes an issue, our field managers will offer our parts programs to help bring them back in line.

PJ?

Thank you. I actually use the program and love AHS. On the appliances side, do you have relationships with suppliers or vendors because HVAC generally has a replacement program right now—things like that to mitigate costs?

That's a benefit of our scale. We have very strong relationships with all of the major suppliers, which is how we're able to pass reduced costs on to our members and contractors. For example, we buy one hundred percent of the appliances we replace. On a personal note, my wife and I are currently replacing our washer and dryer through our appliance program. The app screenshot Kathy showed includes the HVAC page and if you swipe left the appliance purchase program appears—members can leverage our scale to replace appliances affordably.

One follow-up: regarding D2C, given the changing rental market and real estate dynamics, do you have any strategy for property managers?

Property management is something we are actively looking at. We have pursued it in the past and continue to explore it. Right now, with the real estate market down, we're focusing on D2C while ensuring we're ready for recovery. But property management, title companies, and other channels are all things we evaluate for new revenue streams and partnerships.

Okay. Back over to Jason.

One online question: you mentioned five million homes currently covered by home warranty. Where do you think that can grow to?

When we say five million, that's how many owner-occupied homes have a home warranty today. When we look at consumer understanding and awareness, we believe there's a near-term opportunity to add between fifteen and twenty million additional homes. Ultimately, the full addressable market is roughly eighty-seven million owner-occupied homes. Over the nearer horizon, we are targeting expanding from five million toward that additional fifteen to twenty million homes.

Jason, another online question for you.

What does the runway for D2C look like?

There is a very long runway. We only have five million homes out of eighty-seven million. We need to educate consumers on what a home warranty is and how it differs from homeowner's insurance. The Warrantina campaign and our targeting efforts—especially toward millennials and Hispanic millennials—are designed to expand awareness and move consumers down the funnel. We saw growth in D2C in Q3 and Q4 and we expect that momentum to continue. There's a long runway to expand D2C substantially.

Anything else from the room? Jason?

Does your one-twelfth pricing model leave you vulnerable to immediate inflation?

If you look at what happened in 2022, it is possible for cost to rise faster than price can flow through into our earned revenue. That is possible, and it did happen. That said, we take a much more proactive posture now. We monitor signposts—headlines and core categories within PCE and PPI—and we have a battery of tactics and initiatives ready to deploy. We understand which levers to pull and when, including price, trade service fees, and operational actions to control claims cost. One-twelfth recognition brings predictability, but it does mean we have to anticipate and act earlier.

We don't want to be caught behind as we were in 2022. This year we will remain very vigilant. Ray and the rest of the team are monitoring inputs very closely, and we have a set of levers to manage costs proactively.

Okay. Our last online question will be read by Jason.

How are you thinking about additional partnerships beyond Moen?

We love the Moen partnership and there is a long runway with Moen alone. We started in California in June and have expanded to additional states; it takes time to scale because we coordinate with insurance providers, state regulations, and our plumbing contractors. We are actively in conversations with other potential partners and the success of HVAC and Moen demonstrates our ability to execute partnerships at scale because of our contractor network. We're optimistic about pursuing other partnerships that can deliver similar value.

Bill, any final words before we close the Q&A?

Yeah. The stock is getting hammered today in the market and that's never a good look on an investor day, but the macro situation is such that many companies are experiencing volatility. We're not the only company affected. We think we've got a terrific plan, a great track record of performance, and appropriate caveats in our plan. We feel good about how Q1 is going to net out, as Jessica laid out. This is a year where we have to stay on top of macro developments every day, but I think we're well-positioned to deliver on our numbers. We feel very good about the state of the company and where we're going. So for those looking, this may be a buying opportunity. Thanks very much for coming and thanks to the webcast audience as well.

Thank you. Thank you very much. Thank you.