All right. Perfect. I think we're good to get started. My name is Alec Brondolo. I cover small and mid-cap internet here at Wells Fargo. I'm very pleased to be joined by Bill Cobb, CEO of Frontdoor, and Jason Bailey, CFO. Guys, thank you so much for joining us. Thanks for having us. Jason, you've recently been promoted to CFO. For the audience who's less familiar with you, could you give us a little bit of insight on your, your path to becoming CFO here? Yeah. Happy to. I started my career in public accounting. I was fortunate. I spent time both at Arthur Andersen and Deloitte in the audit practice, and my time frame covered, you know, a lot of public company audits. I got to see a lot of transactions. Probably most notable was, being in accounting at the time of the rollout of Sarbanes-Oxley. Focus was really on, risk assessment and understanding businesses, which I think was a great foundation. I left Deloitte to join our former parent company, ServiceMaster, to lead the M&A practice, which was, you know, at a company with multiple business units to, consolidate a function across business units and really get hyper-focused on operations. It was a great path for me. I think a good basis, to set me up for, additional roles in FP&A, leading to my promotion a couple of weeks ago to take on the, CFO chair. Little-known fact about me. I still use my PwC backpack. I got on my first day working as an auditor. Oh. 10 plus years later. That's great. Bill, for those newer to the story, could you maybe give a brief overview of the business model and the industry? Yeah. We invented the home warranty industry in 1971, so we've been around over 50 years. Home warranties are something that is not required. Home insurance is required, but it is a discretionary purchase. We always like to say that home insurance is there if something happens. Home warranties are there when something happens. We cover 29 systems and appliances in the home. We have over two million members. We have 17,000 contractors. The way the model works is when you're in need of a repair or a replacement for your system or appliance, you call us or come to us via our app. We send out a contractor, and we complete the job. We charge a trade service fee. It's a recurring revenue model. It's 12-month contracts. The key to our business is to keep that renewal book strong. I mean, it's two keys. One, drive new, new users in and then keep the renewal book strong. How do you frame the addressable market for the home warranty space? Yeah. I mean, if you go to the widest area of home services, you're at a $500 billion TAM or thereabouts. We like to think of it as by, by number of homes. So there's 87 million owner-occupied homes in the U.S. We think that home warranty is about 15 million of that is the addressable market because some of it is either too high, too high income or, lower income. So we're kind of a middle class right in the right in the middle zone there. 15 million is a number that we've done a lot of research on. Right now, home warranty is about 5 million. Home warranty sold, we do 2 million. So we have about 40% share of the market. What has hurt the home warranty industry was COVID when everything became a seller's market. Real estate, which was the way the business started, was you would be part of a real estate transaction. Now, our direct-to-consumer business is even bigger than our real estate business. It can come in through either one of those channels, and then it goes over to the renewal book. I'm sure we'll talk a little bit about each of the channels. With regard to the real estate channel, residential real estate, existing home sales are at kind of a cyclical trough. Inventory seems to be climbing, but EHS is still at a record low today. How do you think about these dynamics? How do you translate that into, you know, real estate channel growth, this year and next year? Yeah. It's been a long, long road. You know, we just announced in our earnings a few weeks ago the first quarter where we had organic growth in real estate for the first time in five years. Yeah. It has been a long road. The macro is a big part of how we interact in the real estate business. We do about 200,000-210,000 units each year, or this year is what we're targeting. That is down from almost 500,000 six years ago or so. It's been hard. That's why we've built up such a big direct-to-consumer business. The dynamics are, the market is turning a little bit more into a buyer's market. Inventory is up, as you mentioned, Alec. It's about 1.5 million homes now. It's about four or five months' supply. Prices are still high. Affordability is an issue. Rent, interest rates, who knows? Generally, that would be a good thing for the real estate business. We're not waiting for interest rates. We are increasing our sales force, the number of people who call on real estate agents. We are having a series of meetings, introducing all the functions that we have with our new app that's on the American Home Shield, everybody's phone. We also have virtual experts, which, the experts are people we've hired that now are employees who came off the road, contractors in plumbing, electrical, HVAC, appliances, who now, as part of the service, you can call them directly, video chat with them. They'll analyze your problem. A lot of times, about one out of six times, you can fix it yourself. If not, they give you direction on how to deal with the contractor. We're trying to build a number of services around the real estate business, so that we can just, and the other, the final piece, I would say, we've finally got getting aggressive with promotional pricing. That's been sort of something that no one ever really does in the real estate business. We're starting to be more aggressive on promotional pricing, which real estate agents are responding to well. The real estate business has been challenging over the last couple of years. The direct-to-consumer business has been performing really well. You've grown units over the last five quarters. What is working well? How do you think about that channel, as we go into 2026? Yeah. First of all, our warranty campaign, our advertising campaign, is working really well. We have directed that effort toward millennials, with an emphasis on Hispanics. We have done a very good job of driving likability, relevance, etc. We do our research and base it on, you know, divide it into cohorts. While older cohorts know a lot about home warranty, we are increasingly getting really good relevance scores from that core target. That is one thing. Our overall media strategy, our digital strategy, we have certainly gotten enhancements from all the work we have done on search. We are now working hard on the ChatGPT area, large language models, because that more and more is increasing in search. We have some really smart people who are driving that piece. Overall, I think that we've done a lot of things across the board that have really helped to drive that not only the top of the funnel, which is the awareness piece, but that piece in the middle that drives consideration. Yeah. I might add to, you know, some of the enthusiasm we had on our last quarter call. If you think about the pressure in the channels, that pressure in real estate that Bill mentioned, it's kind of built over the last five years. That's really what's driven the pressure on our overall customer account base. It's not just in the channel, but you're not filling the bucket. Yeah. As fast. And so some of the enthusiasm you probably heard us mention as both channels, as real estate starts to turn and we maintain and grow in DTC, this is what makes us pretty excited about looking forward into 2026. Now, it will take time as customer account turns. You know, we're on this one-twelfth at a time revenue model. So it'll take a little bit more time for the revenue channel to flow through. But, you know, we're real optimistic about where we see customer accounts going, which we haven't been able to see that over the last five years. So I think that, combined with some of the pricing initiatives we have, are a real springboard for the future. Yeah. I would say that, you know, not you could argue this is the biggest, but us driving to, trying to discount our first-year units. We made this strategic decision a few years, a couple of three years ago, to really be aggressive on first-year pricing. The idea is, with those strong retention rates we have, we can make up for that discount with the renewal book. We will talk about renewals, I would guess, in a little bit. What we have been able to do with that promotional strategy is to get more units in the door. As real estate starts to come back, as we continue our DTC efforts, you know, we have been asked before, and I wanted to clarify this today. We see, sometime in 2026, we will turn positive on our ending member count. We'll have more numbers in our ending member count. That's been coming down, but I think there was some confusion there. When is that going to happen? Right now, we're projecting it'll happen sometime in 2026. Okay. That's helpful. As I, as I, clearly, it's a hot topic. Yes. For investors. For sure. It's going to be helpful to put that out there. Let's talk about the renewal channel. I think retention rates have improved about 300 basis points. Right. Over the last several years, could you maybe speak to the drivers of that improvement and then how you think about the trade-offs between pricing and retention over time? Yeah. I think we have gotten much more cognizant, much more focused on the member journey. When people enter the renewal, you know, they move from the first-year channel, and we're trying to drive them in to have them stay. We have done a number of things to help solidify them staying. As you mentioned, retention rates have improved. That's because we are sending more of our better contractors, what we call our preferred contractors, who have a better experience for they have higher five stars, lower one stars. For us, we have a benefit. That's a lower-cost contractor for us. Secondarily, we have done a number of things to drive autopay, auto-renewal so that people are on a month-monthly fee so that for a recurring revenue business, we think that's really important. We have also, as I mentioned a little bit ago, the app has been a big driver for us. People really love how seamless it is to call on service requests and then the virtual expert piece. I think overall, we have done a good job of surrounding our members with a variety of initiatives. I think the proof is in, you know, how well we've been able to maintain our retention rates. That's something we focus a lot on. You know, cancels is something that we've improved on also when people will cancel. We've had a big initiative against that. There's a number of things. I think good operators do this. I think they do a series of events to help drive the top line. It's really about how you serve the member experience. That's, I was going to say, the words that, as you answer that, Bill, operational execution, I think, has been key. Bill's brought a lot of discipline around, "Hey, these are the things we have to execute on." I think that has been increasingly important as we've embarked on this strategy. We mentioned in the DTC channel, we've taken this promotional pricing approach. The only way that can work is if we can leverage our pricing tools in the renewal channel. Yeah. That only works if we're executing on all of our operational points because we can't, that doesn't work if you see a degradation in renewal rates, and we have it. We've been able to leverage promotional pricing to bring the members in the door, raise pricing pretty rapidly to get them back up to market at term two and term three. You see very little impact on renewal rate. That's kind of the key to success for us. Yeah. There are several different factors at play here, right? The recovery of the real estate market, I think, continued strength in DTC, improvements you've seen in retention. I think you've brought a clear perspective to bear here that customer account, member account is going to turn positive in 2026. How do we put these pieces together and think about revenue growth over the medium term? Yeah. I think. Yeah. I think we mentioned on our last call, we will have probably 3% organic revenue growth this year. We look to expand on that in 2026. One of the big questions we've been asked is, "Okay. We know there's revenue growth. It's still to come, as you see this customer account turn." We've leveraged pricing tools really to maintain that revenue growth over time. We'll look forward to that continuing in 2026 and 2027. The other question we often get asked is around margin profile. Yeah. I know you said we'll talk a little bit about non-warranty in a minute. You know, we're at record margin levels. We'll talk about mix shift as non-warranty comes on. You know, I think we anticipate our focus has been on gross margin dollar growth and EBITDA dollar growth, especially as we talk about things like share of wallet and how we target customers with these incremental services. Yeah. And there's a little confusion out there that I don't know how some of the analysts have put in their projections for 2026. We do not anticipate declining EBITDA dollars. EBITDA dollars will grow in 2026. I want to make that very clear. I think that what Jason said is really important. If you come back to our core strategy, we are driving, we are purposely reducing our revenue in the year one channels and making it up on the back end. I think that's a tribute to the work we've done on what we call our dynamic pricing model, which we price to the individual. So based on how many service requests they have, what their ZIP code is, when we know what they have in the home. There are a number of factors that have made our pricing very specific. Bear in mind, we're lowering the price on the first year and effectively raising the price on the renewal book. Since that's almost 80% of our membership, we're able to get to where we can get 4-4% or so price increases each year. Yeah. That's helpful. Could we maybe talk about non-warranty a little bit? Maybe could you just give us a broad overview? You know, historically, it's been a warranty business. Now you're moving into this new space. Can you maybe just give us an overview of the offering to start out? Yeah. A few years ago, you know, we were sort of doing this on an ad hoc basis. We got together as a team and said, "You know, we've got a," and we were looking at on-demand businesses and going off platform and serving up a separate brand. Then we realized we have a member base of 2.1, about 2 million members at the time. Now it's 2.1. We need to focus on share of wallet. With the warranty business, we're really trying to drive member count or market share with the number of units. With the non-warranty business, the strategic thrust is share of wallet. For existing members, we have and we've started with HVAC because that is the one where there generally is, you know, the biggest angst, you know, when heating goes out or air conditioning goes out. Yeah. As we and it really has started as a repair business. When our contractors go out, we have now built a model where they can say to the homeowner, "I'll repair it, but I have an opportunity for you to upgrade to new equipment." For that, American Home Shield has great prices on original equipment. We have made a deal with our contractors for a fixed margin, so we know exactly what that is. We're going to give a repair credit to the consumer. What that nets to is for the member, depending on the market, it's about a 30% reduction from if you just called up for new HVAC equipment. It's been very attractive for us. We are currently taking a low margin on that because we really were trying to drive adoption and get the model right. We've done that. There are ways that, you know, we're working on now over the next few years to drive that margin up. Now we have a model that we can apply to appliances, which is what we plan on rolling out in 2026, roof, and then water heaters. That's the, I think the question in my mind. Clearly, this concept, there's a broader aperture here beyond HVAC, right? Mm-hmm. There are a million different categories. Right. That you can get into. How do you think about prioritizing kind of what comes first? Is it the margin profile? Is it the size of the addressable market? How do you think about prioritizing as you move into non-warranty? Really what we did was it was based on the amount of service requests we get. The two biggest service request areas are HVAC and appliance. Yep. That was kind of once we got HVAC up and going in that model, we can now apply it to appliance. Now it's different because HVAC is pretty much one system. You know, there's variations thereof. Appliances, there's a lot of appliances in the house. And it's a lower, dollar average. We've got to figure out how we drive that to where it's a meaningful number. We think we have the model. The good thing is, while the price will be lower for a new dishwasher or a new refrigerator, there's a lot of appliances in the house. It should work out well. We are studying right now roof replacement and water heaters. Right now, the focus is continue with HVAC, as I think Jason might have mentioned. We're at a $125 million guide, really from a standing start three years ago. Now we're going to be bringing appliances out in 2026. We're in testing right now, but we plan to go nationwide in 2026. We'll see where we go from there. Yeah. I think two key things I think matter here for us. One is scale. You know, our purchasing scale allows us to do this for customers at below market rates in a significant enough volume that it's very appealing. The second is relationship with contractors. This has been something where, you know, our value prop to contractors is a set number of jobs through the warranty business. Non-warranty not only gives us another job, but it gives us another large dollar job in a CAC-free arrangement, as Bill mentioned. We can pre-negotiate that price. It'll be below market for the customer. The customer wins. The contractor gets a large job, no CAC. They win, and then we win because it's a great experience for a customer and long-term, if you can imagine. As we replace system and units, we see continued high customer sat scores and no falloff in retention. We'll have a long-term win. I think our scale and relationship with contractors have enabled us to supercharge this probably faster than I think most people would have thought possible. I think from a P&L side of it, the gross margin will be lower. As Jason said, we'll call it relatively CAC-free because it's a lot of interaction with the members that we're doing already. Plus, the contractors are our sales force. Yep. We train them in how to do this. From an EBITDA margin, and we have not disclosed this, you know, we are still working through how to. From an EBITDA margin, it is a profitable venture for us. It works really well because, like I said, we are driving share of wallet. We are doing it in a way, and we think that there are ways that we can grow the margin from there with pricing. Right now, we are pricing nationally, you know. Yeah. We can charge more out here in LA versus, you know, Kansas City or something. Yeah. You know, there's been, maybe to shift the focus of the conversation towards margins, there's been a ton of inflationary pressure over the last several years. You are at kind of record margins in 2025. Could you maybe speak to how you manage the business through that inflationary pressure and then maybe how we should be thinking about the durability of the current level of margin as we move into 2026? You want to go first? Yeah. Yeah. So I think, you know, for our business, we saw kind of a, we were a little bit of a delayed reaction from COVID-related impacts. Cost kind of hit us a little bit later as the supply chain slowed down in 2022. We responded pretty decisively. I think, you know, I'd say mid-teen% price increases to try and respond to those really depressed, probably record low margins. And we've been on this steady trajectory forward. I'd look at our gross margin in two key factors. One, pricing. We've hit on this a little bit around the first year to renewal dynamic pricing capabilities and our ability to go from an industry practice of statewide pricing to a ZIP code, ZIP Plus Four, to now where we're almost at the individual level pricing, has really been an enabler for us. Second, I'd say a real partnership with contractors driving what I think Bill mentioned earlier, record level percent of preferred, which not only gives us our most favorable pricing but our highest quality scores. You combine that with our ability to leverage supply chain and our purchasing volumes, it's kind of that three-pronged approach that have allowed us to drive margins where they are. I think even this year, when we talk about inflation, you know, all the news, especially when we were talking about guidance back in February, it's tariffs this, tariffs here. I think we were a little hesitant. We've been able to manage inflation to kind of that low single digit. We talked a little bit about it on the Q3 call. I think we inched up from 3% to 4%. We had a lot of questions about that. Still, you know, we think maintaining inflation at those levels is very manageable for us and not a big concern. I think that's a testament to the way we manage contractors and our supply chain team really executing around, you know, managing who our suppliers are and how we shift those volumes over time. I would add one thing to that, Alec, because you asked about durability of our margins. Yeah. Without committing to specific numbers, we'll be looking at that more in front. I feel really good about it because I think we are so close to our contractors. We know labor rates, insurance, fuel. We are so close to our OEMs. We have a really good sense of our, you know, costs of equipment. A lot of our equipment is domestic. Yeah, there are some component parts, especially in appliances, that come from China. For the most part, we have a really good sense for the cost structure of, you know, what would lead to inflation. Plus, we then have this pricing model, which enables us to effectively manage pricing almost every year so that we do not have to sit there and, because it is, it is a continuous look at pricing through the dynamic model. Plus, we do other things where we look at external measures. In terms of our ability to sustain the margin levels that we're currently focused on and like I said, we're going to give you a range in February. I feel really good because I think your question was about durability. That's where I feel really good about that. Yeah. I might even add to Bill, our mix in the warranty side of the business, if you think about, our first-year mix versus our renewal book. Our renewal book is our most profitable customer. And it's about 85% of our revenue. As we think about how consistent that mix will be for the foreseeable future, that should remain pretty steady. That gives us some incremental confidence in where we think margins can be. How do you think about the relationship between existing home sales growth, the growth of the real estate channel, and inflation in your categories? It feels like, to some extent, if there's a cyclical recovery in real estate, right, that benefits the top line, but perhaps it introduces some inflationary pressure to the bottom line. Is there any kind of historical precedent or rule of thumb that you could share with us to maybe frame that issue? You're the historian. Yeah. What I'd say, you know, I think historically, we looked at the real estate market as about a 30% capture rate of existing home sales. And then there's about a 30% attach rate, for home warranty of that. We know that attach rate has, or that capture has come down to probably the mid-teens, roughly 15%. We think we've held our share pretty well. Even a slight uptick in that attach rate, we think, provides a lot of opportunity. From a business standpoint, though, and from an impact on margins, you know, I think I'd be excited about telling the story if that channel's growing. Probably the biggest business impact, first-year real estate has good gross margins. It has a lower renewal rate just because of the channel dynamic that's coming out. I don't think that'd be a big concern. It puts some pressure on our overall retention rate. Again, I think that'd be a good story to tell if we get to tell when. Probably. Of the market coming back at the top of the month. Since the real estate market, real estate units come through the title company, we have very low cancels in there because we get all the money up front through the title. Yep. Settlement. Helpful. Yeah. The cash flow profile of that channel in particular is fantastic. Mm-hmm. Jason, as incoming CFO, what do you perceive as the most important points for capital allocation going forward? Do you, you know, are you thinking about any deviations from the current strategy? No. I think we have the right strategy and the right capital allocation framework where we continue to be focused on growth, and we will. We want to maintain a strong balance sheet. We have a strong balance sheet now. Then third, we'll think about returning cash to shareholders. It's interesting. We think, you know, following our Q3 results, I thought Bill and I were going to be having more detailed discussions. I think those discussions are pretty easy when you look at our valuation today. I think our focus on share repurchase now is a great time for that. Matt and I spend a lot of time talking about that on a daily basis, just given where we are. We like to talk about M&A. I think Bill and I would say our best M&A right now is in us, so. Yeah. Perhaps I could ask, you know, the business is going to generate more than $500 million with EBITDA this year. I think it's levered at one times net, two times gross. How do you think about the amount of leverage the business could, support over time? Yeah. I, you know, I think depending on what our targets are, what, you know, how we want to deploy cash, we could lever up, you know, for any number of transactions. I think we're comfortable with where we sit right now. I think we're pretty excited about where we are. Yeah. I don't think we want to lever up just to, I think we have a lot of capacity. Yeah. I think that, we would right now, we're focused on the integration of 2-10. That, as was a scale play for us to bring in their real estate VTC and renewal book. We're putting it on our platform by 2026, by mid first half of 2026. It'll be on our back end, on our platform. We can run it as one multi-brand business. We also bought, as part of the purchase of 2-10, this new home structural business, which gives us exposure to new homes, which are about 700,000 in the U.S. this year. And we have about a 20% share of new home structural warranties. So we have a nice blend of, but right now, the focus is on really, getting that integrated into us fully. We've been really pleased with the synergies we've been able to realize already on 2-10. When we bought the, when we purchased the asset, we said it was going to be $30 million plus by 2028. We're already halfway there in the first year. That, again, gives us the capacity to do a lot of things. We have a whole range of things. As Jason said, given this odd reduction, you know, we've just raised, we beat consensus in Q3. We raised our guidance, and the stock fell. Okay. Best thing we can buy right now is ourselves. A lot of that going around in the market. Yeah. I don't think you're alone. Right. Maybe I can ask about AI. You know, it's been at the forefront, I think, of investors' minds this year, certainly at this conference. Can you talk about the shift from traditional search to LLM search? How do you think about that in terms of customer acquisition? And then maybe help us understand how you plan to leverage AI to improve the business more broadly, even outside of marketing and distribution. Yeah. I think I would just change your wording a little bit. Yeah. It, it's an augment to our search. I mean, Google's still the, the. Yeah. The dominant area for our digital efforts. We've realized, you know, this is real. This is coming. It's growing in terms of share. We have adapted our algorithms to, you know, bring, if you will, ChatGPT into our thinking. I think we've done a really nice job. I think it's part of what has helped the DTC1 business. Our demand is up. Our conversion is up. We feel really good about what we're doing on the marketing side. Now, to your broader question, we have two initiatives, you know, and there'll be others to come. The two that I would talk to, one is in the service area. You know, a request comes in for service. With our authorization agents, because what I mean by that is the request comes in. They then have to tell the contractor what the job is. Yeah. Authorize it. What happens is it comes in as a request for a GE model, this, you know, refrigerator. They, so before, we had these people scurrying through, you know, kind of catalogs and, you know, that we had put together. Now AI feeds it directly. We are so much faster on our authorization. Good news. And then for our sales work, we do a lot of phone sales. I mean, it's the old-fashioned way, but people want home, the home is so important to people. They want to talk to somebody about what this is, try to understand it. You know, home warranty is still a little confusing to people. We are actually employing AI now in real time with our sales agents to handle objections. And it's been pretty slick. The team has really liked that because, you know, you can get a variety of pushback. The three areas that to date that we're talking about are marketing, sales, and service. There are some other plans. We We have an innovation team that's working on that. We're pretty excited about what the possibilities are for AI. Perfect. All right. Bill, I think I'm going to leave the conversation there. Bill, Jason, thank you so much for your time. This was great. Great. Thank you. Thanks, Alec.