Great. I think we're ready to get started. Thank you everyone for joining. We have the CFO of Frontdoor, Jason Bailey, here today. Jason, really excited to talk to you. Thanks, Sergio. Happy to be here. Yeah, happy to have you. Maybe just to level set for the room, if we could just give a little bit of background into Frontdoor's business model and how it might be a little bit different than some of the other home services players out there. Yeah. When you think about Frontdoor, we are the category-leading home subscription, home services business model. A lot of people like to talk about recurring revenue and capital light. I think we are the epitome of a recurring revenue, capital-light business. We participate, or are a part of, the $500 billion home services world. We're a subset of that. We like to define our market, if there are 90 million owner-occupied homes, we think home warranty is about 5 million of that, with an opportunity to be somewhere between 15 million and 20 million homes. So a lot of potential upside for the category. I think another thing that really sets us apart, a really nice strategic option on our business is our new non-warranty service, where outside of the subscription model, we've been able to monetize our supply chain and our contractor relationships to increase value to the member through our non-warranty services, like HVAC upgrade. Great. Maybe just explain a little bit for those that might be unfamiliar, what a home warranty is. Yeah What the value proposition for the customer is. Yeah. Primarily, you could think of a home warranty, the value prop as budget protection and convenience for home services. We often get the question, is it like insurance? We like to say insurance is in case something happens, a warranty is for when something happens. If you think about, we cover 29 major home systems and appliances, so your air conditioner, your dishwasher, your hot water heater. When one of those systems or items fails, we're there to help you get back up and running. Mm-hmm. What is the cost to the consumer typically? We go to market in two channels. First year real estate through a home closing transaction, or direct to consumer. That price point is somewhere between $500 and $900 a year, depending on your geography and the type of options you choose for coverage, trade service fee, et cetera. Awesome. Maybe thinking about what you have disclosed for the year, really exciting that you are expecting member growth. Yep For the first time in several years. Maybe just taking a step back, what has happened historically that has caused that member count to come down? What is causing that to inflect now? Yeah. For those who are new to our story, I mentioned a minute ago, we go to market in first year real estate as part of a home closing transaction or direct to consumer. As you can imagine, those are our go-to-market channels, and then you flow into the renewal bucket or renewal channel. Over the last five years, there's been enormous pressure in the real estate market. While existing home sales have dropped dramatically, and we tend to look at both that and time on market. As time on market or inventory levels were at two and three months, there was a lot of pressure on that first-year channel that really bogged us down, if you think about total member count. What we focused on in that time was maintaining what share we could in that channel, but we focused really heavily on renewal rates, because when you think about the counts by channel, that renewal count is impacted by how you're filling the bucket, if you will. The things that we could control was the service experience and the renewal experience. Even though we were feeling that pressure and that first-year channel put pressure on total member count, we were really focused on operating correctly as it started to turn. I'd say about 18 months ago, 18 - 24 months ago, and I give the field sales team a lot of credit for this, we really refocused the field sales team on engagement with the local real estate agent. We did that through two or three primary tools. We launched our virtual expert service, where you can virtually connect with an electrician or a plumber online, and that gave us something to go talk to the market about. Shortly thereafter, we launched our app. It has been a great experience for the member, but also, again, something we could talk to real estate agents about. Then last year, we implemented some limited discounting, like $100 off promotional pricing in certain markets. What we found is that engagement really reignited the channel, and that was going on and getting us ready. At the same time, we could see inventory levels starting to rise. From a COVID low of two to two and a half months to, I think today, this morning, the latest stat came out, we're at 4.6 months of inventory. Existing home sales stayed flat, but as the inventory came back, we were really ready in the field for that. I'd say a little bit of macro and a lot of credit to our field sales team to be ready for that inflection point in that first-year channel. As real estate has started to grow again, and we've had this consistent growth in first-year direct to consumer with these really strong renewal rates, those have combined to hit that inflection point to drive total member growth for the first time since 2020. Yeah, that makes sense. It sounds like you guys are seeing momentum across all three of your channels, DTC, renewals, and real estate, and that's all of them working in concert or driving the inflection and growth that you're expecting for this year. Yeah, we're pretty excited. We had a lot of questions strategically about how we're running the channels. I mentioned in a meeting earlier today, we're managing the total book. Bill and I talk a lot about lifetime value and CAC, and total profitability, and the management of gross margin against SG&A to deliver this mid-20s target that we talk about for adjusted EBITDA. One of the big questions we got as we started in direct-to-consumer around promotional pricing and thinking about that channel, and was it a sustainable strategy, and could we renew at the right rates and price through dynamic pricing. To see all those things working well and coming together, I think we're in a fantastic position because that member base is essential, not only to support, improve, and continue our model, which is fantastic, but it gives us this base for this upside on the non-warranty product we've been developing. Let's dive a little bit more into the direct-to-consumer channel. Yeah. I think compared to some of your competitors, that's a really unique channel, go-to-market channel, where your competitors are much more focused on real estate and attach. Yep. Recently, you've been more aggressive in promotional pricing. Sure As we've seen, I think that's caused some of the growth or been a primary driver of the growth you've seen. The question really is around the LTV of those customers. Yep versus non-discounted customers. What have you seen there so far? Yeah. So one of the big questions we had, especially sitting in my chair from a finance perspective, is, okay, we have this promotional pricing. So the first step is it driving enough volume growth, or whether that is through brand recognition, demand, or conversion? Are we getting the right number of units? So that was step one. Step two was, how do those consumers behave? Our business is heavily driven off of renewal rates. So the big question was, when those first-year customers came in at that promotional pricing and we started to move them back to regular pricing to protect that LTV, could we do that without any pressure on the renewal rates? I'll say I've been really, really pleased with our ability to deliver the same or slightly higher renewal rates on those cohorts. As we get more and more, we're almost fully lapped now on most of those initial cohorts where we feel confident that's been there. And what the real secret sauce is we've introduced them in this promotional pricing world, and we've brought them back up in less than two years to regular pricing. That's where our dynamic pricing tool across the renewal book has been a game changer, and I think that's what sets us apart from our competitors. We're big enough, we have enough data in enough markets, and we know enough about our customers through those service journeys, that we can use dynamic pricing to protect the LTV and still drive the volume growth we really, really want. Yeah. That's really encouraging. Maybe just to put a finer point on, you mentioned these promotional customers sometimes even renewing at higher rates. Yep. I think when we talk to investors, that's a little counterintuitive. Sure. So maybe just if you can explain the success you are seeing there and why would a discounted customer have a higher renewal rate than other customers? Yeah. Kathy, our Chief Revenue Officer, and I have this discussion a lot around what is the market dynamic today versus maybe what it was several years ago, and I think we believe the consumer is conditioned or has this expectation around, we call it promotional pricing, but I think a better term may be introductory pricing. I think it is important that you set the value prop, you talk about what the consumer is getting up front, this idea of the introductory pricing, so they are better equipped to know what is coming down the road. And I think when you do those things and you combine them with an excellent service experience, and when we point to metrics like higher continuing recurring, I think we said 36 straight months of improving five-star scores, and thinking about how we onboard customers and kind of the service journey, I think those are the things that have driven our success to be able to prove that out. Got you. Another point that you brought up was engagement. Yep. I think a lot of people just look at how many times a customer requests for a service claim. Sure I know that number has been coming down over the years, and maybe before I get to the question I think you know I'm leading up to, talk about why service requests or claim frequency has been coming down. Yeah. So maybe from some history, we are big believers. The company started in the real estate channel, and 50 years ago, I think the product was kind of a set it and forget it. There was no idea about a renewal book or LTV. As we've morphed over the years, obviously, we understand the real value in a customer relationship over a long period of time, and you see that in profitability and renewal metrics across the channels where our renewal book is the most important book when we think about margins and delivery. Historically, we would've said yep, number of service requests, and it still does, has a direct correlation to renewal rates. We've really tried to build the business beyond that because if you just wait for a customer to have experience, you can't force an incidence or a frequency. Right A breakdown. We've looked for a lot of ways to drive engagement, everything from an onboarding call when you start to a follow-up call with certain offers to get you on auto-pay, to some of our ancillary or non-break services like tune-up and rekey in our real estate channel to drive a service experience so the customer can experience the value prop first hand. We've seen that engagement can span a much broader spectrum than just the one or two breakdowns they might have in a given year. Yep. You preempted. You knew where I was going with that. It's been great. The team's done great work on, I think where we really focus and set ourselves apart. Our business is important to understand the member in particular, and to understand the contractor network and how those work well together. We often see competitively some only focus on the member, very few only focus on the contractor, but there's a real relationship between the three of us that's important for long-term success, whether that's not only delivering low cost for us and for the member, but the actual service experience so the member wants to renew. Yeah. I think one thing that maybe you could touch on that you didn't bring up is the app and the video features that you have. Maybe talk to that as well. Yeah, absolutely. We learned a lot with the Frontdoor app around this virtual service with an expert. For those of you who don't know, the way we service claims, we have an independent third-party contractor network of 17,000 contractors across the country, great geographic coverage. About 4,000 of those we designate as preferred contractors, who service about 85% of our claims. They have continually better cost and quality scores. I set that apart because our business model has never been to employ field technicians per se, because we can service through this network. Well, about two years ago, we embarked on this journey to actually have some plumbers and appliance repair technicians, electricians on staff, and our members can now interact with them virtually. If you have a problem, you can, A, self-solution if you want, or B, we get a lot of data before the initial truck roll to understand the problem. That was one big value prop that sets our product apart from our competitors. The second was the launch of the app and being able to incorporate not only services like our virtual experts, but also to think about, as we've expanded into this non-warranty world, what are the other valuable member services we can provide to you through a forum that you might not otherwise have if you tried to rely on additional communications through traditional methods like email or phone calls. It really bundles all this value for the member in one spot. We think that also is a really nice competitive differentiator. Got it. Let's transition to non-warranty. Yeah. I think we covered warranty pretty well. There's a lot of exciting things going on. But maybe for those who are unfamiliar, what is non-warranty revenue? Non-warranty is a terrific new channel for us. The name is a bit of a misnomer because we are primarily servicing our warranty customers. But the primary offering in our non-warranty channel is our New HVAC upgrade service. We realized probably four or five years ago we had this really nice purchasing power just to the sheer volume of claims we fulfilled through our 2 million members, where we could acquire parts and equipment in the AC channel, air conditioning channel, at really competitive rates. We've grown that business or that offering from about $13 million five years ago to where we expect that to be close to $170 million this year. What it really is we have these service interactions with customers. You call us or log in through the app that you have a repair need. We come out and we service that or we're about to service that, and we offer you the opportunity to upgrade your system if you think about today's world and focus on energy efficiency and the way your unit's working or future service requests. We can use our scale and purchasing power from supply chain. We use our really, really strong relationships with contractors. So we've developed this value prop where for a member, you can do an upgrade or replacement for 20%-40% off depending on what market you are versus retail. It has a great value prop for our contractor network because they get a big job where they can go and deliver the service. Then obviously as we coordinate, we benefit from the margin on the business, not only at that sale, but a great member experience. It's super high five-star. Ultimately the long-term potential impact, positive impact they could have on incidents or frequency just having newer equipment on the member base. Right. Breaks down less often. Yeah. Yeah. I would also add similarly to the promotional pricing question. In my role, I am always the skeptic on each piece, so I am always wondering what is the impact on retention or margin or these three factors. One of the things I have also been pleased with is the service experience is so good. The question was does it erode the value prop of the warranty? We have seen retention rates stay steady or slightly climb after that service experience. So members do not see it as a replacement for the warranty. They see it as we are on their side to help them find value when they have a problem in their home, and that is really, really nice. Absolutely. Yeah. Just adding more value in the consumer's mind. Let us talk about 2-10 Home Buyers Warranty. Yeah. What is a new home structural warranty? They have traditional warranties. Sure How is that different than your core business? When you made that acquisition, you identified some revenue synergies at the time. How are those trending compared to your expectations? Yeah. I would say 2-10 Home Buyers Warranty has been a resounding success. We have been very, very pleased with the acquisition, not only from what the business is, but the teammates we brought on from that company. It's been a great fit into our culture and how we think about driving value for shareholders. I'd probably start with the business itself was probably about two thirds to three fourths a traditional home warranty company, same go-to-market channels and first-year real estate and a small nascent direct consumer channel business. About a quarter of the business was in, as you described, the new home structural warranty business. That business is a nice extension for us. We coordinate with home builders across the country to offer a structural warranty around the home upon or in new construction. You can think about that as, an easy example would be foundation. If there's a foundation problem, the 2-10 Home Buyers Warranty name comes from what the coverage ultimately was. They had some workmanship coverages early on in that one to two-year period, and then you have this two-year structural warranty. We like that business as a natural extension for a couple of reasons. One, it's a built-in additional channel for us to market a traditional home warranty as people roll off that initial one or two-year period of the 2-10 Home Buyers Warranty coverage. Two, it's given us access to this broad, excellent builder network where we're trying to think about how can we leverage our supply chain and what builders may need, and think about long-term, how we could drive more value for the business and for the builders. And that's another, like with our contractor network, if we find ways to make builders or help builders be successful, they will help us in turn, as we think about attachment rates of structural warranties or the potential for our traditional warranty business. You also asked about revenue synergies. One of the things we're really proud of, I'll start with cost first. Really proud of the team. I had some experience in M&A from my past history, and Bill's had a lot of experience with M&A. So we had a very direct, dedicated philosophy at day one around SG&A cost synergies. We executed very well. I think our first-year target was close to $10 million. We delivered almost 2x that last year. For the revenue synergy side, it was a little bit longer tail. We've been working really hard, and I'm pleased to say now, we've put 2-10 Home Buyers Warranty revenue generating or customer account, if you will, onto our platforms, and that has been fantastic. We've launched that. We're fully complete. It'll take a little bit of time for the renewal book to renew into the platform. But we've seen great results. Everything from managing the book and service requests directly through our contractor network to drive gross margin synergies to, I like to say we take our teams and techniques. If you think about that direct-to-consumer channel, where we knew our team was great, we can really see the results there, where we've taken that AHS Frontdoor power and put it behind that engine at 2-10 Home Buyers Warranty and really been able to drive a unit uptick in first-year consumer. And so I've been more than pleased with how well that's going. That's great to hear. Let's talk about margins, which I think has been a real standout for the company. Yes. You guys recently increased your long-term outlook for EBITDA margins to the mid 20% range. Yeah from the low 20% range. Explain what gave you the confidence to increase that target. I think there is some mixed dynamic as non-warranty becomes a larger part of the business that changes the margin profile of the total business. Can you just explain that transition? Yeah. I think historically we thought about the warranty business, because this will play into the non-warranty in a minute, as a roughly 50% gross margin business and around a 20% adjusted EBITDA margin business. As we have learned a lot, coming into that really tough period through the pandemic, not only have we learned a lot about the business and different levers that we have, we have really developed a discipline and focus around cost management, top to bottom, or maybe even beyond cost management. A daily discipline with a really aligned senior management team or executive leadership team so that we are all rowing the same direction and daily execution. We like to say it is a lot of little things that add up to it. When we were talking about raising the margin profile from low 20s to mid 20s, what gave us a lot of confidence was, first, thinking about the book and where we are. Over 75% of our book is renewal. That is kind of our bread and butter. It is a very stable base. Our renewal rates continue to rise, just driven by a great service experience. That is where the bulk of our gross margin is generated. So when you take that, combined with what we are seeing in the first-year channels and our return to member growth, some of the tools we use in dynamic pricing, our really high percent of preferred, which again drives the best cost and quality. That gave us a real confidence in a big part of the book around gross margin. At the same time, in our non-warranty, as you said, it is probably closer to a 20%-25% gross margin profile, but we know it is a great member experience. We know we can work on that over time. We just introduced dynamic pricing in that channel to start to move that margin up. You combine that with this, I am pretty fortunate, Bill and I are very aligned about SG&A cost management. Sometimes there is a lot of friction on where we spend money, how we spend money. We are very focused on SG&A cost management. So even if I get a little bit of pressure over time from non-warranty and its growth, its outsized growth, we are confident we can manage SG&A to drive that mid-20s margin. I think it is just those four or five pieces coming together that give us a lot of confidence in the business. Great. That's great to hear. And then maybe feeding off that margin point, business generates a ton of cash. How do you think about capital allocation, share repurchases, a potential dividend? What are you looking at potential M&A targets? Yeah. So we have been, I think Matt and the team have done a really good job at developing our capital allocation strategy, and we've been very consistent. I got this question a lot as I transitioned to the role. Any change to capital allocation, our first focus is always growth, whether that is organic, and the way we think about organic is that LTV to CAC. Kathy and I are talking about that on a real-time basis every week. So organic growth, number one priority. M&A, second. If we find the right target, if we have another case like a 2-10 Home Buyers Warranty, we would be willing to invest, kind of 1A and 1B. Step two is strong balance sheet. So thinking about leverage, I think we've publicly said we like to be in that 2x to 2.5x range. Very aware that we're trending towards one, so some opportunity there. And we come to number three, and that's return cash to shareholders. We think our share repurchase program has been outstanding. We announced at Q2 that we'll complete our authorization by year end. We will complete our second authorization by year end, which we're really excited about. We think that's a really good investment of money. Given our performance and where we are, I think the allocation methodology works extremely well for a business like this. Great. So we covered a lot of ground here. I guess bigger picture, you look out the next 12, 24 months- Yeah What are you most excited about? I think it's probably, if I were summarizing where we are and what I'm excited about, I think it's the return to member growth first and foremost. I think that's the one thing people have had a big question mark about us. I think we've been operating well from a margin perspective. We're, of course, generating a lot of cash, but was it, can we grow this business? So I think to deliver that member growth really excites me. I'd say obviously not far behind is continuing to deliver these margins and generate this amount of cash. Makes me feel really confident in our future. Awesome. It's great to hear. Yeah. Look forward to it. All right. Well, I think we're out of time. Thanks, Jason. Thank you.