Frontdoor at JPMorgan Conference: Strategic Growth and Challenges

On Tuesday, 13 May 2025, Frontdoor Inc. (NASDAQ:FTDR) presented at the 53rd Annual JPMorgan Global Technology, Media and Communications Conference. The discussion, led by CEO Bill Cobb and CFO Jessica Ross, highlighted the company’s strong financial performance and strategic initiatives, while also acknowledging potential challenges such as macro-economic factors and tariffs.

Key Takeaways

• Frontdoor emphasized its return to profitability through core business focus and operational improvements.
• The company is expanding into non-warranty services, including strategic acquisitions like Two-Ten Home Buyers Warranty.
• Frontdoor is actively pursuing customer growth in the direct-to-consumer channel with targeted marketing and discount strategies.
• Inflation and tariffs are potential concerns, but the company has protections in place.
• The company is confident in its pricing power and dynamic pricing capabilities.

Financial Results

• Q1 Free Cash Flow: Frontdoor reported $117 million in free cash flow.
• Revenue Guidance: The company expects to generate over $2 billion in revenue for the year.
• Inflation Impact: Inflation has impacted the business by approximately $10 million.
• Synergies from Two-Ten Acquisition: $10 million in synergies are expected in the first year, with $30 million anticipated in the coming years.
• Capital Allocation: The share repurchase program has increased to over $200 million, with $100 million of shares repurchased year-to-date.
• Leverage Ratio: The current leverage ratio is 1.9 times, with a long-term target range of 2 to 2.5 times.

Operational Updates

• Non-Warranty Services: The HVAC program is projected to become a $100 million business by 2025.
• Innovative Features: 17% of homeowners using the video chat feature can resolve issues themselves.
• Customer Acquisition: The direct-to-consumer channel has seen three consecutive quarters of organic growth, with a 4% increase in Q1.
• Preferred Contractors: 85% of services are performed by preferred contractors.
• Dynamic Pricing: The company is implementing dynamic pricing at renewal points, aiming for a 4% average increase.

Future Outlook

• Real Estate Market: The National Association of Realtors forecasts about 4 million homes sold in 2025.
• Tariff Impact: Tariffs may affect parts and equipment costs, but protections are built into the guidance.
• Non-Warranty Expansion: Frontdoor is exploring expansion into services like water heaters, appliances, and roof repair.
• Weather Impact: The guidance includes a conservative estimate of $15 million for potential weather-related impacts.

Q&A Highlights

• DTC Pricing: Despite discounting, the lifetime value of direct-to-consumer customers remains over $1,200, with a payback period around $500.
• Target Demographic: The company is focusing on attracting Hispanic millennials.

For more detailed insights, readers are encouraged to refer to the full conference call transcript.

Full transcript - 53rd Annual JPMorgan Global Technology, Media and Communications Conference:

Corey Carpenter, Internet Analyst, JPMorgan: Hi. Good afternoon, everyone. Corey Carpenter, Internet analyst at JPMorgan. Happy to have Frontdoor chairman and CEO, Bill Cobb, and CFO, Jessica Ross, with me today. Akhil has been CEO since 2022, chairman since before the service master spin, and Jessica joined in 2022 from Salesforce.

So thank you both for joining. Hi, Corey. I got plenty of questions to go through. We’ll open it up at this time, though, at the end for q and a. I think everybody knows by now.

You can submit a question electronically. I have the iPad, or we can do a microphone around the room. So starting off higher level, I think for you, Bill, just for those newer to the story, to kick off, you know, I thought it’d helpful to give a brief overview of the front door business model and also the the industry you operate in. Okay.

Bill Cobb, Chairman and CEO, Frontdoor: Good afternoon, everybody. We are the only publicly traded home warranty company. It’s a subscription based model, that protects homeowners from what inevitably is gonna happen. Things are gonna break down in the home. It’s different from, home insurance, which is if something might happen with us, something will happen.

And we cover 29 systems and appliances in the home, everything from washers and dryers, appliances, HVAC equipment, etcetera. We have three different types of services you can sign up for, good, better, best, if you will, and depending on the coverages that you get. But we’re really there to get service calls, answer the call, to repair or replace whatever system is brought up. We average about two calls a year per per member. We actually like when our members call because that leads to a higher renewal rate.

Ultimately, we have a terrific core business, the home warranty business, but we have a bigger vision, which is to utilize our 2,100,000 member base to look at what we call non warranty initiatives, either partnerships that we do with other other suppliers, such as our our partnership with Moen or what we call our HVAC, our new HVAC program, which is we built to a hundred million dollar business, which replaces, existing, HVACs with new equipment, and we can get into why we think that’s just a good deal. Finally, we just expanded our business a few months ago. We purchased two ten home homebuyers warranty, which brought a home warranty business, a snow play for us that we could fit right into our infrastructure, and a new business called new home structural warranties that brings us into the, housing starts business with with builders. And we, we now have a 20 about 20 share in that, and that’s the largest provider of home structural warranty. So that’s that’s pretty good overview.

Guess I don’t know if you have anything to add.

Jessica Ross, CFO, Frontdoor: No. I think this is a bit of a it’s still a reference to continue to expand into non warranty and on demand services. The new HVAC program that you referenced was in part of first play at that point. We’ve got the Moen partnership, which is kind of our real first partnership where we’re leveraging our plumbers, and we’ll get some more into that as well. But yes, really excited about those opportunities.

Okay.

Corey Carpenter, Internet Analyst, JPMorgan: So you just finished a record year of profitability last year. You guided to another one in 2025. The company was struggling three years ago when you guys joined. So what’s changed and how is it how do you evolve the company in recent years?

Bill Cobb, Chairman and CEO, Frontdoor: Yeah. I think when I came in, and I was chair before, but the previous CEO decided to leave. And when I came in, thought we’ve got to really zero in on our core business. I think a lot of good companies get away from that. We needed to get back to our core home warranty business and really operate that well.

And what that has done, it’s enabled us to really get on get on solid footing. Let’s build up our member count. Let’s let’s take care of our current customers, our renewal book. Let’s operate the company better. Let’s get back together with our contractors and get in a better place with them because that was a conflict friction point for us during COVID.

So we just decided to operate the company better, and let’s, let’s really run a good home warranty business. As we got that stabilized is when we started to look at other opportunities with that member base, which is similar to what I talked to you about earlier with the non warranty options that we have. So we now have a more diversified revenue base than we did three years ago. We are now back on our front foot in terms of growing customers again. We continue to retain customers at record levels.

And so the mix is coming together really nicely. And in the end, this is a cash machine. We have good CapEx. We turn up a lot of cash. We had $117,000,000 of free cash in q one on a company that’s that’s guiding right now.

It’s a little over 2,000,000,000 in revenue.

Jessica Ross, CFO, Frontdoor: Well, and I would I think that Bill often undersells his leadership. I mean, Bill came in, and he really lit supplier in this company, the business. I think prior to, it was more of a view of kind of a reactive versus proactive in terms of the mindset of how we manage costs, etcetera, etcetera. He really embodied an operational excellence culture across the business, that has just continued to create this flywheel of optimization with the build leadership.

Corey Carpenter, Internet Analyst, JPMorgan: So two questions on the industry. You did mention you’re the only public trading company, so I feel like there’s not a ton of always a ton of understanding. So you’ve spoken to a TAM of 15,000,000 home service plans in The U. S. Before.

Industries can around 5,000,000 for a number of years. So I think kind of two questions here. What kept this number from moving higher would be one. And then two, what do you think needs to happen to increase penetration? Yes.

I think we’ve

Bill Cobb, Chairman and CEO, Frontdoor: been a stagnant industry, and I I included us in that. We there was a our chief revenue officer called it a sea of sameness that was a way to the industry. Everybody has a similar name and similar look and feel. And so we we started to break out from that in the last couple of years. We have a you know, we’ve we’ve done the brand in terms of its look and feel.

We have a new advertising campaign. We have brought out an app. We now have used that app to bring out a video chat with an expert where our members can call up before they need a service request to see if they can fix them fix it themselves or get advice on what the service request, should do, get them have them be smarter when the contractor comes by. We actually, disclosed last week that, on those video chat with an expert calls, that 17%, the homeowner is being able to fix it themselves, which they love because they don’t have to sit around and wait for a contractor or pay pay a trade service fee. So I think the industry has lacked innovation, and we’re trying to take the lead in that.

I think we haven’t been, as an industry, aggressive in marketing. We certainly are doing that across the marketing mix today. And so I think that it really has come down to we haven’t sold the value proposition. The value proposition for a home warranty is great. So you have those 29 systems and appliances I talked about earlier, and for $60.70 bucks a month, plus or minus, you know, we’re gonna cover those for a year.

And, in the end, repairs can, between the contractor trip fee and the actual repair can really run you a lot more than that. And we take care of that once you pay your trade service fee. So the current the just the basic value proposition has to be sold better, and that’s what we intend to do.

Corey Carpenter, Internet Analyst, JPMorgan: So you touched on this earlier with HVAC and and non warranty services. So maybe if we can go a little deeper there, if you could just talk about your different various initiatives within nonwarranty services. And then also why you’re making it why now in terms of making a push there?

Bill Cobb, Chairman and CEO, Frontdoor: I think what we did was we sat back a couple of years ago and said, we have this two at the time, a little under 2,000,000, now it’s over 2,000,000 member days. Let’s take advantage of the opportunities that, that would present itself with. And so we know that from our business, we have to go and repair and replace. And sometimes people have aging equipment, but it’s not quite ready to be replaced, or they they wanna get more efficiency from, let’s say, their HVAC. So we now have a program.

We started with HVAC. We’re looking to expand it to water heaters and appliances, and there’s another one with with roof repair that I can talk about. But that we are able to go to our homeowners before it’s ready to be replaced and say, would you like to upgrade your equipment now, get the efficiency of energy savings? We have constructed this in a way that we have a deal with our contractors of what the margin they’ll accept. We buy very well from our OEMs.

So we are able to offer our members a 20% to 40% discount depending upon the location over what a new system would be if they just called somebody up. And it’s proven to be very successful. It’s a great program for our contractors. Our members win downstream for us. We have less cat rolls because, it’s new equipment, you don’t have to repair it as much.

In addition for the member, they’re efficient. They’re heating, electric bills, better heating and electric. So there’s a lot of win win win to this, and it’s proven to be very successful. We now are guiding to over a hundred million dollar business in 2025, and we’re really pleased with the impact that that’s had.

Corey Carpenter, Internet Analyst, JPMorgan: Okay. So before we get kind of more into the kind of the core business, I wanna get how do you get tariffs and macro out of way?

Bill Cobb, Chairman and CEO, Frontdoor: It’s on

Corey Carpenter, Internet Analyst, JPMorgan: everyone’s mind. So first on macro Is

Bill Cobb, Chairman and CEO, Frontdoor: it required for JPMorgan to ask about tariffs?

Corey Carpenter, Internet Analyst, JPMorgan: I think it’s a requirement.

Jessica Ross, CFO, Frontdoor: Requirement. Part of the registration process for the conference.

Corey Carpenter, Internet Analyst, JPMorgan: So so what are you seeing in the current macro environment? And how do you think about just the broader resilience of front door? Should we enter a recession, which I know is a moving target? And then maybe, Jessica, for you, could you just talk about how macro impacted your approach to the outlook you gave a few weeks ago?

Bill Cobb, Chairman and CEO, Frontdoor: So for us, Q1, and Jessica can talk about this in a little more detail, we saw zero inflation. It was we had no inflation. We had no impact from tariffs. We have guided our Q2 to anticipate that we can look out enough in a few months. We don’t see any impact from tariffs there.

I think it will come. Where tariffs hit us is through primarily parts and equipment about for our our cost, not half our contractor cost, labor, and all the things associated with the contractor. And the other is is equipment, parts and equipment. For us, equipment for HVACs, water heaters, appliances, a lot of that is domestically produced. So we’re insulated from the tariffs.

Parts come primarily from China, and there are things like circuit boards that go into smart appliances, which are increasingly a part of our mix. So right now and I’ll let Jessica talk about the guide, what we’ve built in. Right now, we haven’t seen an impact from tariffs. We anticipate it. We’ve seen some of our OEMs are starting to raise prices.

So we do anticipate that coming. But right now, we’re bought in a way where we can cover up the next couple of months. And then we’ve built into the guidance, I think, some protections around what we anticipate will be some impact.

Jessica Ross, CFO, Frontdoor: Yes. And I just I guess that’s also the broader macro. We continue to see consumer sentiment that’s remaining challenged. Real estate continues to be something that we’re evaluating. I think for this year, we’ve been pretty much wait and see, not really taking anything on a return into the outlook that we’ve provided.

So I think in terms of setting the stage for our overall outlook for 2025, we were considering all of those things. That being said, I think we were very fortunate that for Q1, we had exceptionally strong results, as Bill said, from an inflation perspective. And we reported results on a net cost per service request basis, and it was essentially flat for us. And that’s just really a result of the cost improvements and things that we talked about from the cost structure perspective and how we’ve been managing that as well. I think we had positive momentum on the top line.

We have some benefits on renewals coming in better than we expected as well as our non warranty program continued to deliver more revenue, especially on the new HVAC side. So all that being said, as Bill said, the Q1, we took that favorability. We were able to we got good line of sight into Q2. And so essentially, in terms of 2025, it really was this challenge that looked into Q1 favorability and balance that with some uncertainty on the tariff side. For us, we’ve been able to really kind of measure impact of inflation about 31% change to about $10,000,000 into our business.

So in the back half, we said, okay, we’ve got mid single digit inflation and then add on some additional uncertainty for tariffs. So we baked it about 30,000,000. The additional, for us, uncertainty, we can’t control the weather. And so we also put in some conservativeness on some on the weather side as well, about 15,000,000, which, again, essentially just assumes some hedges in the past half, but also taking into account the good favorability we saw in the front half that we’re seeing in the front half of the year. Yes.

Courtney, I

Bill Cobb, Chairman and CEO, Frontdoor: think we’ve talking about this before the meeting or before the session here. We’ve been able to beat our One of the reasons is because every year we build in what we think is normalized. Weather has a big impact on our business, especially in the HVAC area. When it’s super hot and especially in the Southern States, it has a big impact. We’ve had relatively good weather from a front door perspective.

Every year, we have to build that into our guidance assuming that weather is normalized. So that’s what Jessica is speaking to.

Corey Carpenter, Internet Analyst, JPMorgan: All right. Think you addressed both tariffs and macro in one question. I’ll allow us to move on. So kind of zooming in on the core home service business, which you know you really started to refocus on when you joined. So you have two primary customer acquisition channels, real estate and direct to consumer.

How would you characterize the health and the trends impacting each of those channels?

Bill Cobb, Chairman and CEO, Frontdoor: Yeah. So let’s start with real estate, which many of you know has has really had a tough few years. The latest information is National Association of Realtors is saying 2025, we’ll see about 4,000,000 homes sold. The high point, I think, in ’21 or ’22 was 6,000,000, so it’s had been a big hit to the real estate industry. Prices continue to rise.

It’s like 21 of price increases for the average home. So real estate continues to be struggling, pretty stagnant. Couple of blips showing up. Our, inventory has improved. There’s about four months of inventory, out there now, which is starting to get to a real estate market that’s in balance between buyers and sellers is generally four to six months.

Corey Carpenter, Internet Analyst, JPMorgan: What that

Bill Cobb, Chairman and CEO, Frontdoor: means for us is that’s usually a good thing because sellers are now incented to offer a home warranty as part of their offering to attract buyers. So that’s a good thing because during this dollar dominated time, attach rates for real estate for the industry have gone down. They’ve gone down for us as well. So that’s a good thing if we can get attach rates up. But overall, until interest rates show some sign of ameliorating, we are going to be, I think, tough in terms of, you know, we we had 6% decline in real estate in q one.

It’s now what we’re forecasting now, maybe a little worse for the balance of the year. It’s just a tough market right now. Conversely, DTC One, we’ve now had three straight quarters of customer of organic customer growth. We feel very good about that. We feel very good about our marketing messaging, not only from the awareness, side in terms of what we call the middle of the marketing funnel, which is where you really drive your leads and converting those leads.

And that’s really what our business comes down to, that where we can drive leads. And we’ve done a nice job of that. We have 4% organic growth in Q1. Overall, in DTC One, we had 15% growth with the addition of two ten. But what we’re really focused on is that organic number.

And so I think the DTC One area, is very healthy. We can talk about renewals later, but that continues to be a strong point for the company. But we feel really good about our renewal book, that we have a lot of control over in terms of how we treat our members. And then we really think GTC One is looking very favorable, very healthy, and we’re going continue to drive against that.

Jessica Ross, CFO, Frontdoor: Again, was just reiterating, like, real estate, there’s an element of there is what it is, and we’ve been very focused on what we can control. And with B2C one, I think, really continuing to drive that. We’ve had three sequential quarters, I mean, it goes on the B2C side, which is really just a sign that the the work we’re doing is is working.

Corey Carpenter, Internet Analyst, JPMorgan: Yeah. So maybe sticking with direct to consumer, you’ve placed a big emphasis on driving new member growth that you just mentioned. Could you talk about the strategies you’re implementing there and just maybe elaborate a bit more on the early results you’re seeing?

Bill Cobb, Chairman and CEO, Frontdoor: Yes. So what we’ve done is we’ve kind of surround the consumer with a series of messages. And one, like I said, was to reestablish the brand. We’ve this new character, Warren Tina, who is our spokesperson. So we’re really trying to drive that top of the funnel awareness piece.

And that those numbers are up, likability is up and all of those consumer measures. Translating that now into leads, our demand number or leads are up, our conversion is up. So we’re starting to see that come into play also. We’ve also taken on some deep discounting. So we are now pulsing our discounting.

We’re not doing month long discounts. And the idea behind this is to get people in the door. So we’re accepting a lower revenue on our first year, clients in GTC. Real estate pricing has remained pretty constant, and that’s really not a factor because that’s within the with the comes to us from the title company through the closing process. So BTC One, pricing, we’ve decided to get much more aggressive with this kind of trying to get people in the door because we’ve found, we’ve been in this a little over two years, we’re able to renew people and get them back to the level of, margin that we had hoped for within eighteen to twenty four months.

And that’s been really successful. And again, it goes to what Jessica said, where we we have those service calls. People like the service. And so we’re kind of giving up some revenue on DTC One. We’re making it up on renewals, and the whole thing comes together pretty nicely.

So that’s kind of our pricing strategy on DTC One plus the innovation I talked about. You know, people wanna use wanna have an app. They use their app. The video chat was an expert where you can call up, and these are our associates now. These are summers, electricians, HVAC folks who have come off the road.

They were tired of climbing in their houses, and now they’re sitting at their desk talking to people, and they’re all service oriented. And it’s been a wildly successful user experience for us. So it’s all of those elements that really lend us to a really healthy, what we believe, CCC One business is.

Jessica Ross, CFO, Frontdoor: And I think the the product differentiation, like, we’ve often talked about home warranty is seeing this, and so that was really the emphasis for the marketing strategy and how do we pop out. Introducing the app last year, virtual is the expert success. We are really the only person that’s the only company that’s doing that. As we shared on our call, 17% of the virtual expert calls have resulted in a resolution for the member, which just means we don’t have to, you know, have a truck roll. We don’t have to have someone talking to their house, detailing and power that they send it on their own, and it’s been a really nice deal point either experience.

Corey Carpenter, Internet Analyst, JPMorgan: Okay. So I want to talk a bit more on the two ten acquisition. Maybe, Bill, to start, just if you could discuss the strategic rationale, where you’re at on the integration process. And and, Jessica, for you, just the expectation on the impact it could have on financials this year.

Bill Cobb, Chairman and CEO, Frontdoor: Okay. So for two ten, we we knew them from the industry. They’re they were a good competitor. They ran a good business. They They dealt with their, members well.

And so we realized that from a scale perspective, if we could, procure this asset, we could load, which about threefour of the business is home warranty. We could bring that right into and get a lot of efficiencies and people redoing contracts, just just pull them in like any we we do have a couple of brands in home warranty, and this this fits in beautifully. We also were able to acquire their their new home structural business, which is the where the name Q10 comes from, which essentially gives you, in simple terms, home warranty coverage for the first two years and structural coverage for ten years against things like soil erosion and, termites. Not termites. Termites.

It’s, but any structural impediment, that we we have to go. It’s a high severity but but low incidence business. Really good business. We kept this in the housing starts business, gives us access to about 19,000, homebuilders. And there’s a total of 1,000,000 members who are now in the their system who have taken a home structural warrant a new home structural warranty over the last ten years.

So it brought us a lot of access to a new market, a lot more members, a lot more clients. And as the synergies we felt were very strong. So even in the first year, we’ve guided to $10,000,000 in synergies. We’re well on our way on there. We think in the next few years, we’ll enable us to get about $30,000,000 as we bring the back end together so that we have one platform, have one, control team, contract relations team, one service ops team.

So there’s a lot of efficiencies there. So we really like this asset. It fit with us. We’re able to keep our leverage ratio, in the range that we like, which is two to 2.5. We’re now at 1.9.

So we’ve absorbed it well, and, we’re really pleased with how the integration is going.

Corey Carpenter, Internet Analyst, JPMorgan: So let’s, final channel for your biggest channel renewals is and and you have retention rate in renew within renewals at an all time high. What’s been driving the better retention in this channel? And where do you still see runway for improvement?

Bill Cobb, Chairman and CEO, Frontdoor: Yeah. You know, there’s not one thing that we’ve done well except that it is a large part of the company spends their time in this area. What I mean by that is we have driven up our preferred contractor percentage, which we have a series of we have about 16,000 contractors overall, about 4,000 are preferred. We’ve driven that rate of their service, which they are our best contractors, best service contractors. They get the highest five star ratings, the lowest one star ratings to about 85%.

In addition to that, our marketing team does a very good job managing, if you will, a member through their contract term, which is one year. So that we’re very knowledgeable now about what each member is looking for. We have taken this dynamic pricing approach, which we can speak to, and we really are able to price almost to the person their situation. We also have built a really vital team that saves customers. If they’re looking to cancel or they don’t want to renew, we’re very aggressive on trying to get them to stay with us, offering incentives to keep us because this is really where we I called the backbone of the company, the renewals book.

So overall, it’s been a series of things. We have a high amount of folks, 84% on monthly auto pay, which we find is conducive to renewals. So there’s just a variety of efforts that we take to really keep this important metric, and continue to grow it. Donna, do you have anything to

Jessica Ross, CFO, Frontdoor: I just say, think it’s the the theme that we’ve seen over the past couple of years is it’s not just any one, like, shiny object silver bullet. Right? So the key to this business is managing costs or really driving better member experience. It’s a lot of a series of a lot of things, and we’ve really been pushing the business to do that well over the past couple of years.

Corey Carpenter, Internet Analyst, JPMorgan: So moving to some financial questions before we close. The average price of a front door home service plan has gone from just over $700 to nearly $900 over the past three You talked about a 4% price increase this year. So could you just talk about your pricing power and how you think about pricing as a growth lever over time?

Jessica Ross, CFO, Frontdoor: Yeah. No. Absolutely. We’ve talked many times as a number one strategic priority, it’s all about driving new home warranty membership growth. And I think we’ve demonstrated that this is a very inelastic category.

Because once the member uses our product, our renewal rates have been exceptionally strong and consistent over the past couple of years. So I think the price element is just such an important piece as I think about our overall strategy. I think Bill talked about it. We’ve got this in my flywheel now. We can discount to bring new members in.

And then because of our retention rates, we can really leverage our price, our scale and our pricing capabilities across dynamic pricing to retain and drive prices up from a retention perspective. So we’ve got a best in class dynamic pricing tool. This is something we are very, very proud of. We built it over the past four to five years, and it’s something that we really view as a true competitive advantage for us. And so, we talked about the false discounting, and then dynamic pricing really works at the renewal on a very individual customer level.

And so we are looking at each individual customer. We’re able to look at their geography, their availability of contractors, their usage of the product and basically assess their inelasticity or elasticity and set pricing at that level. And so, I think that there was some confusion at Investor Day that we have this one price lever and we pull it and then we can’t pull it anymore. We are actively taking price, at every single renewal point with this tool, which has allowed us to position you know, I think we’re at about 4% average, with the current member base and a 2% to 4% realized price, is what we’re we’re driving to for the year.

Bill Cobb, Chairman and CEO, Frontdoor: Yeah. I would I would just Barb, just so you understand. So when Jessica is talking about inelastic, we’ve reached out of our three channels. Real estate pricing really comes to the, isn’t has been pretty similar over the years, because the the agent and the seller are are providing that for the buyer. They’re really doing that as an incentive to get you to buy, you know, multiple hundreds of thousands of dollar home.

We’re inelastic on the renewal book, which we think you’ve proven that was retention. What we’ve changed is we’ve always said we’re elastic, but we see the elasticity on our DTC one business, which is why we’ve become so aggressive on the pricing there. That is how we beat competition and make sure that we are the best value at that level. So that we have this nice blend of inelastic channels and then the one that’s that has more inelasticity is the one that we really focus a lot of our time and attention on.

Corey Carpenter, Internet Analyst, JPMorgan: So shifting to the volume part of the equation, I think there’s one takeaway is is that you’ve been clear that your top priority is to return to organic unit growth. What needs to happen to get you there? How are you thinking about the potential time line?

Bill Cobb, Chairman and CEO, Frontdoor: Yeah. I I mean, I think real estate, you know, I I don’t know. I don’t know what the timeline is. We’re very active. We got a great real estate sales force.

It’s working every day. It’s calling on agents and the like and and trying to drive that effort. In terms of DCC One, we’re right in the middle of it. We feel that, all the things I talked about earlier, the innovation piece, what we’re doing with discounting, what we’re doing with our mid funnel marketing, we’re targeting Hispanic millennials as a special group that we’re going after because they have a high propensity to look at buying a new home. I think when our efforts in paid social and in direct marketing, in online marketing has really been paying dividends with our demand up and our conversion up.

So we feel really good about how this is going right now. And I think we’re in fine position. And like I said, we’ve had three consecutive quarters where we have grown that organic growth.

Corey Carpenter, Internet Analyst, JPMorgan: One more on capital allocation, and we’ll end up here a picture question. We might have time for one question if anybody wants to submit one online or raise your hand in the room. But on capital allocation, you just closed the fairly sizable acquisition. You’re actively buying back your stock. So your leverage is still below your long term target.

So kind of given those dynamics, Jessica, how are you thinking about your capital allocation priorities this

Jessica Ross, CFO, Frontdoor: Well, I’m just a question. I mean, our capital allocation strategy has been very consistent. First, focus on growth. Second, really maintaining a strong financial profile and then returning capital to shareholders. And I think you hit on a couple of things.

From a growth perspective, we talked about the two ten acquisition. We’re very focused on our organic growth strategy. We just increased our SG and A spend in our guide because, as Bill said, the mid channel strategy is working, and we’re putting some more dollars there. You hit you are you already hit it. Our fine our I think we’re just in probably the strongest financial position we’ve been in, which is especially in uncertain times like this.

We’ve got a leverage ratio of 1.9 times, which is, as Corey said, is is, you know, in line with our target of two to 2.5 times. We’ve got a lot of liquidity on the balance sheet. And with that, we were also able to raise our share repurchase by midyear from 180,000,000 to over 200,000,000, and we’ve already purchased $100,000,000 year to date. So I think we’re going to continue to be consistent with the way that we’ve been deploying capital. Again, we’ve got a lot of flexibility, which again in these uncertain times gives us puts us in a really strong position.

Corey Carpenter, Internet Analyst, JPMorgan: Yeah.

Bill Cobb, Chairman and CEO, Frontdoor: I mean, we’re a cash machine. We ended q one with over $500,000,000 in total cash. Majority of that is unrestricted, which is why we’ve been able to be so aggressive on our share repurchases. But we feel really good, like Jessica, about our liquidity, about our return on invested capital. We have CapEx relatively about 2% of revenue.

We we are able to, really look at our this as a as a as a real gold mine for us that we can figure out how to deploy. But right now, we’re being aggressive on share repurchase because we think likely we’re undervalued in terms of any any kind of measure that you would look at. So that’s what we will continue to be doing.

Corey Carpenter, Internet Analyst, JPMorgan: Any questions in the audience? I think a microphone’s coming.

Unidentified speaker: If if you’re confident on Sean? If you’re confident on, on the in inelasticity of DTC pricing, it seems like if you get the other 10,000,000 possible TAM, it would just be a matter of LTV and track. What’s the what’s the formula there? Why can’t you just take some of the take some money, spend it on marketing, and get a bunch of those?

Bill Cobb, Chairman and CEO, Frontdoor: Yeah. So Why is it not that easy? I I do the I’ve never that easy.

Corey Carpenter, Internet Analyst, JPMorgan: But why is it not?

Bill Cobb, Chairman and CEO, Frontdoor: Yeah. But our LTV, even with our discounting approach, is still over $1,200, which which we’re happy with. Our pack is around 500, so it’s a great equation for us. Real estate LTV is about $700. That’s a very efficient channel for us because that’s really comes on the heels of trying to go after DTC One.

So I think in terms of additional marketing, I think we feel that we continue to spend at healthy enough levels. I think we’ve been aggressive on discounting. We continue to ratchet it up. So I think we’re going to continue along the lines of what you’re saying. So we’re in agreement on that.

Jessica Ross, CFO, Frontdoor: I mean, there’s a lot again, there’s a lot of intention with the start with the top of funnel investment in marketing campaign that we launched last year. And we’re in the heart of, like, really working that mid funnel because I think that’s really where the conversion happens. And again, we’ve seen results, which is why we’re going to continue to do that there.

Corey Carpenter, Internet Analyst, JPMorgan: All right. Last question. We’ll close. Bigger picture question. What are you guys most excited about over the next couple of years?

What do you think is the most underappreciated parts of the story? I think,

Bill Cobb, Chairman and CEO, Frontdoor: I don’t know. Underappreciated, I I’d say, is, you know, that this the resilience of our model and how well we operate the business. I mean, we really have to. It’s a large system. We manage 16,000 contractors.

We have 2,500 or so service ops personnel who support our customers. We have a large technology organization. It’s a big operation, and I think we manage it extremely well. We watch our we manage our costs well. We are we are active on trying to drive the top line.

And I think that whole way we operate the business, the you know, I think that’s that’s the underappreciated part. In terms of what am I most excited about? I’m most excited about the way we can continue to drive our core business and this nonwarranty going in, going to our members, more partnerships that we can build, like the Moen partnership and others to leverage our contractor base to go to this $2,100,000 member base. How that whole thing comes together, I think we’ll have a more diversified revenue stream and continue to operate the company really well.

Jessica Ross, CFO, Frontdoor: No. I was just I mean, that is the thing that people mentioned core business. Like, that is a cash cow. We’re in a financial very strong financial position, and that’s what allows us to invest in this option value of non warranty. And I think there’s a lot of opportunity here that we are very excited about, which is gonna not only create better experiences for our members, but, you know, also tap into home services more broadly.

Corey Carpenter, Internet Analyst, JPMorgan: Great. Thank Linda. Thank you.

Bill Cobb, Chairman and CEO, Frontdoor: Thanks, Corey.

Jessica Ross, CFO, Frontdoor: Thank you

Corey Carpenter, Internet Analyst, JPMorgan: so much. Bye bye. Thanks, everyone.

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