Frontdoor Announces First-Quarter 2024 Revenue Increased 3% to $378 Million

Gross Profit Margin Expanded 510 bps to 51%;

Net Income of $34 Million and Adjusted EBITDA⁽¹⁾ of $71 Million;

Raising Full-Year 2024 Gross Profit Margin and Adjusted EBITDA⁽²⁾ Outlook;

Relaunched the American Home Shield Brand in April

Frontdoor, Inc. (NASDAQ:FTDR), the nation's leading provider of home warranties, today announced its first-quarter 2024 results.

First-Quarter 2024 Summary

• Revenue increased 3% to $378 million and was comprised of an 11% increase from price that was partly offset by an 8% decline from lower volume
• Gross profit margin expanded 510 basis points to 51% as a result of higher realized price, a transition to higher service fees and continued process improvement initiatives that was partly offset by inflationary cost pressures
• Net income and Diluted earnings per share increased to $34 million and $0.43, respectively
• Adjusted EBITDA⁽¹⁾ increased 33% to $71 million
• Net cash provided from operating activities of $84 million

Full-Year 2024 Outlook

• Maintaining revenue range of $1.81 billion to $1.84 billion
• Increasing gross profit margin range to approximately 50.0%
• Increasing Adjusted EBITDA⁽²⁾ range to $360 million to $370 million

"Frontdoor continues to operate extremely well and is off to a strong start in 2024," said Chairman and Chief Executive Officer Bill Cobb. "While earnings continue to exceed expectations, our top priority is to find new and innovative ways to increase demand for our services. The American Home Shield brand relaunch is a significant component of this strategy, and I am very pleased with the initial reaction to our new celebrity spokesperson, Rachel Dratch, as 'Warrantina'. We are truly bringing a refreshed and high energy look to our brand and are optimistic it will improve the growth trajectory for home warranties for years to come."

"I am extremely pleased with our first-quarter financial performance," said Chief Financial Officer Jessica Ross. "We substantially beat our first-quarter Adjusted EBITDA outlook as we continue to deliver and execute on our margin expansion initiatives. As a result, we are increasing our full-year 2024 gross profit margin and Adjusted EBITDA targets while continuing to make investments to drive growth."

First-Quarter 2024 Results

First-quarter 2024 revenue increased 3% to $378 million, which was comprised of an 11% increase from price that was partially offset by an 8% decline from lower volume.

• Renewal revenue increased 7% due to improved price realization that was partially offset by lower volume;
• Real estate revenue decreased 17% due to lower sales as a result of the challenging real estate market that was partially offset by improved price realization;
• Direct-to-consumer revenue decreased 19% primarily due to lower sales, which we believe was driven by a decline in overall category demand for home warranties; and
• Other revenue increased $6 million due to higher on-demand home services, primarily new HVAC sales.

First-quarter 2024 net income was $34 million, or diluted earnings per share of $0.43.

First-quarter 2024 Adjusted EBITDA⁽¹⁾ of $71 million increased 33% versus the prior year period, and includes:

• $14 million from higher revenue conversion⁽³⁾, as price increases were partly offset by lower volume;
• $10 million of lower contract claims costs⁽⁴⁾, excluding the impact of claims costs related to the change in revenue. The decrease in contract claims costs reflects:
  • A transition to higher service fees that drove a lower number of service requests per customer as well as improved net cost per service request;
  • Continued process improvement initiatives, specifically better cost management across our contractor network; partially offset by
  • Ongoing inflationary cost pressures from our contractor network, replacement parts and equipment; and
  • Favorable claims cost development of $1 million, compared to a $6 million favorable cost development in the first quarter of 2023
• $7 million of higher sales and marketing costs, primarily investments to drive direct-to-consumer sales; and
• $3 million of higher G&A costs primarily due to increased personnel costs.

Cash Flow

Net cash provided from operating activities was $84 million for the three months ended March 31, 2024 and was comprised of $51 million in earnings adjusted for non-cash charges and $34 million in cash provided from working capital, partially offset by $1 million in payments for restructuring charges.

Net cash used for investing activities was $10 million for the three months ended March 31, 2024 and was primarily comprised of capital expenditures related to technology projects.

Net cash used for financing activities was $21 million for the three months ended March 31, 2024 and was primarily comprised of $13 million (including taxes and fees) to repurchase 0.4 million shares and $4 million of scheduled debt payments.

Free Cash Flow⁽¹⁾ was $73 million for the three months ended March 31, 2024.

Cash as of March 31, 2024 was $378 million and was comprised of $165 million of restricted net assets and $213 million of Unrestricted Cash.

Capital Allocation Update

• Consistent with our stated capital allocation strategy, the company repurchased $33 million of shares in March and April. The company expects to continue to use excess cash to repurchase shares under our current 3-year, $400 million authorization, absent any acquisitions.

Second-Quarter 2024 Outlook

• Revenue of $530 million to $540 million, a 2% increase over the prior-year period.
• Adjusted EBITDA⁽²⁾ of $130 million to $140 million, a 12% increase over the prior-year period.

Updated Full-Year 2024 Outlook

• Revenue to grow approximately 2% to 3% to $1.81 billion to $1.84 billion. Key assumptions include:
  • A mid-single digit increase in renewals channel revenue;
  • Approximately 10% decline in direct-to-consumer channel revenue;
  • A 15% to 20% decline in real estate channel revenue;
  • Approximately 30% increase in other revenue, which is primarily driven by the new HVAC program;
  • The number of home warranties is expected to decline 1% to 3%.
• Increasing gross profit margin to approximately 50%.
• SG&A of $580 million to $595 million.
• Increasing Adjusted EBITDA⁽²⁾ to $360 million to $370 million.
• Capital expenditures of approximately $35 million to $45 million.
• Annual effective tax rate of approximately 25%.

First-Quarter 2024 Earnings Conference Call

Frontdoor has scheduled a conference call today, May 2, 2024, at 7:30 a.m. Central time (8:30 a.m. Eastern time). During the call, Bill Cobb, Chairman and Chief Executive Officer, and Jessica Ross, Chief Financial Officer, will discuss the company's operational performance and financial results for first-quarter 2024 and respond to questions from the investment community. To participate on the conference call, interested parties should call 1-833-470-1428 (or international participants, 1-929-526-1599) and enter conference ID 300812. Additionally, the conference call will be available via webcast which will include a slide presentation highlighting the company's results. To participate via webcast and view the slide presentation, visit Frontdoor's investor relations home page. The call will be available for replay for approximately 60 days. To access the replay of this call, please call 1-866-813-9403 and enter conference ID 139025 (international participants: +44-204-525-0658, conference ID 139025).

About Frontdoor, Inc.

Frontdoor is reimagining how homeowners maintain and repair their most valuable asset – their home. As the parent company of two leading brands, we bring over 50 years of experience in providing our members with comprehensive options to protect their homes from costly and unexpected breakdowns through our extensive network of pre-qualified professional contractors. American Home Shield, the category leader in home warranties with approximately two million members, gives homeowners budget protection and convenience, covering up to 23 essential home systems and appliances. Frontdoor is a cutting edge, one-stop app for home repair and maintenance. Enabled by our Streem technology, the app empowers homeowners by connecting them in real time through video chat with pre-qualified experts to diagnose and solve their problems. The Frontdoor app also offers homeowners a range of other benefits including DIY tips, discounts and more. For more information about American Home Shield and Frontdoor, please visit frontdoorhome.com.

Forward-Looking Statements

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, projected future performance and any statements about Frontdoor's plans, strategies and prospects. Forward-looking statements can be identified by the use of forward-looking terms such as "believe," "expect," "estimate," "could," "should," "intend," "may," "plan," "seek," "anticipate," "project," "will," "shall," "would," "aim," or other comparable terms. These forward-looking statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control. Such risks and uncertainties include, but are not limited to: changes in macroeconomic conditions, including inflation and global supply chain challenges, especially as they may affect existing home sales, interest rates, consumer confidence or labor availability; the success of our business strategies; the ability of our marketing efforts to be successful or cost-effective; our dependence on our real estate and direct-to-consumer customer acquisition channels and our renewal channel; changes in the source and intensity of competition in our market; our ability to attract, retain and maintain positive relations with third-party contractors and vendors; increases in parts, appliance and home system prices, and other operating costs; our ability to attract and retain qualified key employees and labor availability in our customer service operations; our dependence on third-party vendors, including business process outsourcers, and third-party component suppliers; cybersecurity breaches, disruptions or failures in our technology systems; our ability to protect the security of personal information about our customers; lawsuits, enforcement actions and other claims by third parties or governmental authorities; evolving corporate governance and disclosure regulations and expectations related to environmental, social and governance matters; physical effects of climate change, including adverse weather conditions and Acts of God, along with the increased focus on sustainability; increases in tariffs or changes to import/export regulations; our ability to protect our intellectual property and other material proprietary rights; negative reputational and financial impacts resulting from acquisitions or strategic transactions; requirement to recognize impairment charges; third-party use of our trademarks as search engine keywords to direct our potential customers to their own websites; inappropriate use of social media by us or other parties to harm our reputation; special risks applicable to operations outside the United States by us or our business process outsource providers; a return on investment in our common stock is dependent on appreciation in the price; restrictions in our certificate of incorporation related to an acquisition of us or to our lawsuits against us or our directors or officers; the effects of our significant indebtedness; increases in interest rates increasing the cost of servicing our indebtedness; increased borrowing costs due to lowering or withdrawal of the credit ratings, outlook or watch assigned to us, our debt securities or our credit facilities; and our ability to generate significant cash needed to fund our operations and service our debt. We caution you that forward-looking statements are not guarantees of future performance or outcomes and that actual performance and outcomes, including, without limitation, our actual results of operations, financial condition and liquidity, and the development of new markets or market segments in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this news release. For a discussion of other important factors that could cause Frontdoor's results to differ materially from those expressed in, or implied by, the forward-looking statements included in this document, refer to the risks and uncertainties detailed from time to time in Frontdoor's periodic reports filed with the SEC, including the disclosure contained in Item 1A.

Risk Factors in our 2023 Annual Report on Form 10-K filed with the SEC, as such factors may be updated from time to time in Frontdoor's periodic filings with the SEC. Except as required by law, Frontdoor does not undertake any obligation to update or revise the forward-looking statements to reflect new information or events or circumstances that occur after the date of this news release or to reflect the occurrence of unanticipated events or otherwise. Readers are advised to review Frontdoor's filings with the SEC, which are available from the SEC's EDGAR database at sec.gov, and via Frontdoor's website at frontdoorhome.com.

Non-GAAP Financial Measures

To supplement Frontdoor's results presented in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"), Frontdoor has disclosed the non-GAAP financial measures of Adjusted EBITDA, Free Cash Flow, Adjusted Net Income, Adjusted Diluted Earnings Per Share, and Unrestricted Cash.

We define "Adjusted EBITDA" as net income before depreciation and amortization expense; goodwill and intangibles impairment; restructuring charges; provision for income taxes; non-cash stock-based compensation expense; interest expense; loss on extinguishment of debt; and other non-operating expenses. We believe Adjusted EBITDA is useful for investors, analysts and other interested parties as it facilitates company-to-company operating performance comparisons by excluding potential differences caused by variations in capital structures, taxation, the age and book depreciation of facilities and equipment, restructuring initiatives and equity-based, long-term incentive plans.

We define "Free Cash Flow" as net cash provided from operating activities less property additions. Free Cash Flow is not a measurement of our financial performance or liquidity under U.S. GAAP and does not purport to be an alternative to net cash provided from operating activities or any other performance or liquidity measures derived in accordance with U.S. GAAP. Free Cash Flow is useful as a supplemental measure of our liquidity. Management uses Free Cash Flow to facilitate company-to-company cash flow comparisons, which may vary from company-to-company for reasons unrelated to operating performance.

We define "Adjusted Net Income" as net income before: amortization expense; restructuring charges; loss on extinguishment of debt; other non-operating expenses; and the tax impact of the aforementioned adjustments. We believe Adjusted Net Income is useful for investors, analysts and other interested parties as it facilitates company-to-company operating performance comparisons by excluding potential differences caused by items listed in this definition.

We define "Adjusted Diluted Earnings per Share" as Adjusted Net Income divided by the weighted-average diluted common shares outstanding.

We define "Unrestricted Cash" as cash not subject to third-party restrictions. For additional information related to our third-party restrictions, see "Liquidity and Capital Resources — Liquidity" under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2023 Annual Report on Form 10-K filed with the SEC.

See the schedules attached hereto for additional information and reconciliations of such non-GAAP financial measures. Management believes these non-GAAP financial measures provide useful supplemental information for its and investors' evaluation of Frontdoor's business performance and are useful for period-over-period comparisons of the performance of Frontdoor's business. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with U.S. GAAP. In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies.

© 2024 Frontdoor, Inc. All rights reserved. The following terms, which may be used in this press release, are trademarks of Frontdoor, Inc. and its subsidiaries: Frontdoor^®, American Home Shield^®, HSA™, OneGuard^®, Landmark Home Warranty^®, Streem^®, the Streem logo and the Frontdoor logo. All other trademarks used herein are the property of their respective owners.

Source: Frontdoor, Inc.

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