Q1 2026 Frontdoor Inc Earnings Call

April 30, 2026

Operator 2: Ladies and gentlemen, welcome to Frontdoor's Q1 2026 Earnings Call. Today's call is being recorded and broadcast on the Internet. Beginning today's call is Matt Davis, Vice President of Investor Relations and Treasurer. He will introduce the other speakers on the call. At this time, we'll begin today's call. Please go ahead, Mr. Davis.

Operator: Ladies and gentlemen, welcome to Frontdoor's Q1 2026 Earnings Call. Today's call is being recorded and broadcast on the Internet. Beginning today's call is Matt Davis, Vice President of Investor Relations and Treasurer. He will introduce the other speakers on the call. At this time, we'll begin today's call. Please go ahead, Mr. Davis.

Speaker #2: He will introduce the other speakers on the call. At this time, we'll begin today's call. Please go ahead, Mr. Davis. Thank you, operator. Good morning, everyone, and thank you for joining Frontdoor's first quarter 2026 earnings conference call.

Matt Davis: Thank you, operator. Good morning, everyone, and thank you for joining Frontdoor's Q1 2026 Earnings Conference Call. Joining me today are Bill Cobb, Chairman and CEO, and Jason Bailey, Senior Vice President and CFO. The press release and slide presentation that will be used during today's call can be found on the investor relations section of Frontdoor's website, which is located at www.investors.frontdoorhome.com. As stated on slide 3 of the presentation, I'd like to remind you that this call and webcast may contain forward-looking statements. These statements are subject to various risks and uncertainties, which could cause actual results to differ materially from those discussed here today. These risk factors are explained in detail in the company's filings with the SEC.

Speaker #2: Joining me today are Bill Cobb, Chairman and CEO, and Jason Bailey, Senior Vice President and CFO. The press release and slide presentation that will be used during today's call can be found on the Investor Relations section of Frontdoor's website, which is located at www.investors.frontdoorhome.com.

Speaker #2: As stated on slide three of the presentation, I'd like to remind you that this call and webcast may contain forward-looking statements. These statements are subject to various risks and uncertainties, which could cause actual results to differ materially from those discussed here today.

Speaker #2: These risk factors are explained in detail in the company's filings with the SEC. Please refer to the risk factor section in our filings for a more detailed discussion of our forward-looking statements and the risks and uncertainties related to such statements.

Matt Davis: Please refer to the Risk Factors section in our filings for a more detailed discussion of our forward-looking statements and the risks and uncertainties related to such statements. All forward-looking statements are made as of today, 30 April, and except as required by law, the company undertakes no obligation to update any forward-looking statements, whether a result of new information, future events, or otherwise. We will also reference certain non-GAAP financial measures throughout today's call. We've included definitions of these terms and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures in our press release and the appendix to the presentation in order to better assist you in understanding our financial performance. I will now turn the call over to Bill Cobb for opening comments. Bill?

Speaker #2: All forward-looking statements are made as of today, April 30th, and accept as required by law, the company undertakes no obligation to update any forward-looking statements, whether a result of new information, future events, or otherwise.

Speaker #2: We will also reference certain non-GAAP financial measures throughout today's call. We've included definitions of these terms and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures in our press release and the appendix to the presentation, in order to better assist you in understanding our financial performance.

Speaker #2: I will now turn the call over to Bill Cobb for opening comments. Bill?

Speaker #3: Thanks, Matt Davis. Coming into 2026, we laid out an ambitious plan. Grow the member base, deliver structurally higher margins, and maintain a disciplined capital allocation framework to create shareholder value.

Bill Cobb: Thanks, Matt Davis. Coming into 2026, we laid out an ambitious plan: grow the member base, deliver structurally higher margins, and maintain a disciplined capital allocation framework to create shareholder value. I'm happy to report that we are off to a fast start in 2026 and executing on each of these. Turning to slide 5. Revenue grew 6% to $451 million. Gross profit margin remains strong at 55%. Net income grew 11% to $41 million. Adjusted EBITDA increased 3% to $104 million, and we bought back $60 million worth of shares. Operationally, our member count trend continues to move in the right direction, with growth in our first year channels accelerating to 3%.

William Cobb: Thanks, Matt Davis. Coming into 2026, we laid out an ambitious plan: grow the member base, deliver structurally higher margins, and maintain a disciplined capital allocation framework to create shareholder value. I'm happy to report that we are off to a fast start in 2026 and executing on each of these. Turning to slide 5. Revenue grew 6% to $451 million. Gross profit margin remains strong at 55%. Net income grew 11% to $41 million. Adjusted EBITDA increased 3% to $104 million, and we bought back $60 million worth of shares. Operationally, our member count trend continues to move in the right direction, with growth in our first year channels accelerating to 3%.

Speaker #3: I'm happy to report that we are off to a fast start in 2026, and executing on each of these. Turning the slide five, revenue grew 6% to $451 million.

Speaker #3: Gross profit margin remained strong at 55%. Net income grew 11% to $41 million, adjusted EBITDA increased 3% to $104 million, and we bought back $60 million worth of shares.

Speaker #3: Operationally, our member count trend continues to move in the right direction, with growth in our first-year channels accelerating to 3%. Combining this with our strong execution in the renewal channel, we now anticipate total member count will grow approximately 1% for the year.

Bill Cobb: Combining this with our strong execution in the renewal channel, we now anticipate total member count will grow approximately 1% for the year. This would be a major milestone and would mark the first year of organic member count growth since 2020. Complementing our core business, our HVAC upgrade program continues to be a significant driver of growth and adds meaningful value for our home warranty members. Let's now turn to slide 6 to take a deeper look at channel performance. Starting with the direct-to-consumer channel, where ending member count grew 3% versus the prior year period, marking the sixth consecutive quarter of year-over-year member growth. Proof that our strategy is working. Our approach to D-DTC is anchored in three key areas: strengthening brand leadership, growing demand, and improving conversion. First, strengthening brand leadership.

William Cobb: Combining this with our strong execution in the renewal channel, we now anticipate total member count will grow approximately 1% for the year. This would be a major milestone and would mark the first year of organic member count growth since 2020. Complementing our core business, our HVAC upgrade program continues to be a significant driver of growth and adds meaningful value for our home warranty members. Let's now turn to slide 6 to take a deeper look at channel performance. Starting with the direct-to-consumer channel, where ending member count grew 3% versus the prior year period, marking the sixth consecutive quarter of year-over-year member growth. Proof that our strategy is working. Our approach to D-DTC is anchored in three key areas: strengthening brand leadership, growing demand, and improving conversion. First, strengthening brand leadership.

Speaker #3: This would be a major milestone, and would mark the first year of organic member count growth since 2020. Complementing our core business, our HVAC upgrade program continues to be a significant driver of growth and adds meaningful value for our home warranty members.

Speaker #3: Let's now turn to slide six to take a deeper look at channel performance. Starting with the direct-to-consumer channel, our ending member count grew 3% versus the prior-year period, marking the sixth consecutive quarter of year-over-year member growth.

Speaker #3: Proof that our strategy is working. Our approach to DTC is anchored in three key areas: strengthening brand leadership, growing demand, and improving conversion. First, strengthening brand leadership.

Speaker #3: We continue to benefit from strong brand awareness, which we further reinforced in March with the launch of our latest warranty campaign. Campaign results continue to be terrific.

Bill Cobb: We continue to benefit from strong brand awareness, which we further reinforced in March with the launch of our latest Warrantina campaign. Campaign results continue to be terrific, with improvements across key brand metrics, including unaided awareness up 6% to 28%, purchase consideration up 5 points to 35%, and likelihood to recommend up 8 points to 63%. Second, we are growing demand through an optimized value proposition, a more refined targeting approach, and enhanced performance marketing. These efforts are allowing us to drive higher intent to purchase traffic while maintaining discipline around our marketing investments. In short, we are improving both the quality and quantity of demand entering the funnel. We have started to see increased demand from the integration of 2-10 onto our platform with better SEO performance and an improved user experience. Third, we are improving conversion.

William Cobb: We continue to benefit from strong brand awareness, which we further reinforced in March with the launch of our latest Warrantina campaign. Campaign results continue to be terrific, with improvements across key brand metrics, including unaided awareness up 6% to 28%, purchase consideration up 5 points to 35%, and likelihood to recommend up 8 points to 63%. Second, we are growing demand through an optimized value proposition, a more refined targeting approach, and enhanced performance marketing. These efforts are allowing us to drive higher intent to purchase traffic while maintaining discipline around our marketing investments. In short, we are improving both the quality and quantity of demand entering the funnel. We have started to see increased demand from the integration of 2-10 onto our platform with better SEO performance and an improved user experience. Third, we are improving conversion.

Speaker #3: With improvements across key brand metrics, including unaided awareness up 6% to 28%, purchase consideration up 5 points to 35%, and likelihood to recommend up 8 points to 63%.

Speaker #3: Second, we are growing demand through an optimized value proposition, a more refined targeting approach, and enhanced performance marketing. These efforts are allowing us to drive higher intent-to-purchase traffic while maintaining discipline around our marketing investments.

Speaker #3: In short, we are improving both the quality and quantity of demand entering the funnel. Additionally, we have started to see increased demand from the integration of 210 onto our platform, with better SEO performance and an improved user experience.

Speaker #3: And third, we are improving conversion. We continue to refine our sales funnel through optimized marketing content for LLMs, AI tools to improve sales performance, and promotional pricing.

Bill Cobb: We continue to refine our sales funnel through optimized marketing content for LLMs, AI tools to improve sales performance, and promotional pricing, all to drive stronger conversion. The beauty of our promotional pricing strategy is that we are able to deliver member count growth without compromising long-term renewal performance. Most importantly, the renewal rates for our promotional cohorts are consistently exceeding those of non-discounted member cohorts. Now moving on to the first year real estate channel. While existing home sales remain near 30-year lows, home inventory continues to rise. This improvement in inventory is creating a more favorable selling environment for home warranties. To capitalize on this, we've been deliberately investing at the local level and leveraging targeted promotions to position our brands for success. Here's a great metric.

William Cobb: We continue to refine our sales funnel through optimized marketing content for LLMs, AI tools to improve sales performance, and promotional pricing, all to drive stronger conversion. The beauty of our promotional pricing strategy is that we are able to deliver member count growth without compromising long-term renewal performance. Most importantly, the renewal rates for our promotional cohorts are consistently exceeding those of non-discounted member cohorts. Now moving on to the first year real estate channel. While existing home sales remain near 30-year lows, home inventory continues to rise. This improvement in inventory is creating a more favorable selling environment for home warranties. To capitalize on this, we've been deliberately investing at the local level and leveraging targeted promotions to position our brands for success. Here's a great metric.

Speaker #3: All to drive stronger conversion. The beauty of our promotional pricing strategy is that we are able to deliver member count growth without compromising long-term renewal performance.

Speaker #3: Most importantly, the renewal rates for our promotional cohorts are consistently exceeding those of non-discounted member cohorts. Now, moving on to the first-year real estate channel.

Speaker #3: While existing home sales remain near 30-year lows, home inventory continues to rise. This improvement in inventory is creating a more favorable selling environment for home warranties.

Speaker #3: To capitalize on this, we've been deliberately investing at the local level and leveraging targeted promotions to position our brands for success. Here's a great metric: our attach rate has improved now for eight consecutive months.

Bill Cobb: Our attach rate has improved now for 8 consecutive months and was at nearly 6% of existing home sales in March. As a result, ending member count for first year real estate grew 3%, the first time we have organically grown this channel in years. This is a very big deal. Now turning to renewals, where our performance has been nothing short of amazing. Renewal rates remain near record highs, supported by a combination of factors. Continuous improvement in the end-to-end member experience and reduced cancellations driven by engaging with members at the right time with the right message. Now moving to non-warranty and other. We continued to scale during the quarter with revenue growth of 23% year-over-year to $41 million. HVAC upgrades remain the primary driver, and we continue to optimize how we run the program.

William Cobb: Our attach rate has improved now for 8 consecutive months and was at nearly 6% of existing home sales in March. As a result, ending member count for first year real estate grew 3%, the first time we have organically grown this channel in years. This is a very big deal. Now turning to renewals, where our performance has been nothing short of amazing. Renewal rates remain near record highs, supported by a combination of factors. Continuous improvement in the end-to-end member experience and reduced cancellations driven by engaging with members at the right time with the right message. Now moving to non-warranty and other. We continued to scale during the quarter with revenue growth of 23% year-over-year to $41 million. HVAC upgrades remain the primary driver, and we continue to optimize how we run the program.

Speaker #3: And was that nearly 6% of existing home sales in March? As a result, ending member count for first-year real estate grew 3%. The first time we have organically grown this channel in years.

Speaker #3: This is a very big deal. Now, turning to renewals, where our performance has been nothing short of amazing. Renewal rates remain near record highs, supported by a combination of factors.

Speaker #3: Continuous improvement in the end-to-end member experience and reduced cancellation driven by engaging with members at the right time with the right message. Now, moving to non-warranty and other, we continue to scale during the quarter with revenue growth of 23% year-over-year to $41 million.

Speaker #3: HVAC upgrades remain the primary driver, and we continue to optimize how we run the program. By routing a greater share of the HVAC claims to higher converting contractors, we have seen significant improvements in both quote rates and orders.

Bill Cobb: By routing a greater share of HVAC claims to higher converting contractors, we have seen significant improvements in both quote rates and orders. Let me now turn to slide 7 to discuss our strategic priorities driving value creation. Last quarter, we were clear about the priorities that mattered most for our business. First, member growth. Improving first-year acquisition trends combined with strong renewal rates gives us confidence that we expect to deliver approximately 1% member count growth this year. Second, we continue to scale non-warranty revenue in a disciplined manner. We have proven our ability to expand share of wallet while deepening engagement with our member base. Third, deliver structurally higher margins. Last quarter, we increased our long-term margin targets underpinned by dynamic pricing and cost discipline.

William Cobb: By routing a greater share of HVAC claims to higher converting contractors, we have seen significant improvements in both quote rates and orders. Let me now turn to slide 7 to discuss our strategic priorities driving value creation. Last quarter, we were clear about the priorities that mattered most for our business. First, member growth. Improving first-year acquisition trends combined with strong renewal rates gives us confidence that we expect to deliver approximately 1% member count growth this year. Second, we continue to scale non-warranty revenue in a disciplined manner. We have proven our ability to expand share of wallet while deepening engagement with our member base. Third, deliver structurally higher margins. Last quarter, we increased our long-term margin targets underpinned by dynamic pricing and cost discipline.

Speaker #3: Let me now turn to slide seven to discuss our strategic priorities driving value creation. Last quarter, we were clear about the priorities that mattered most for our business.

Speaker #3: First, member growth. Improving first-year acquisition trends combined with strong renewal rates gives us confidence that we expect to deliver approximately 1% member count growth this year.

Speaker #3: Second, we continue to scale non-warranty revenue in a disciplined manner. We have proven our ability to expand share of wallet while deepening engagement with our member base.

Speaker #3: Third, deliver structurally higher margins. Last quarter, we increased our long-term margin targets underpinned by dynamic pricing and cost discipline. This margin performance translates into strong cash generation which brings us to our final priority: disciplined capital allocation to drive long-term value creation.

Bill Cobb: This margin performance translates into strong cash generation, which brings us to our final priority: disciplined capital allocation to drive long-term value creation. Our capital allocation priorities remain unchanged. First, we invest to accelerate growth through organic initiatives and selective M&A. Second, we maintain a strong balance sheet and financial profile. Finally, we return excess cash to shareholders, and we are on track to complete our current share repurchase authorization by early 2027. Execution across all of these long-term goals is clearly reflected in our financial performance. With that, let me turn it over to Jason to walk through the financials and our outlook in more detail. Jason.

William Cobb: This margin performance translates into strong cash generation, which brings us to our final priority: disciplined capital allocation to drive long-term value creation. Our capital allocation priorities remain unchanged. First, we invest to accelerate growth through organic initiatives and selective M&A. Second, we maintain a strong balance sheet and financial profile. Finally, we return excess cash to shareholders, and we are on track to complete our current share repurchase authorization by early 2027. Execution across all of these long-term goals is clearly reflected in our financial performance. With that, let me turn it over to Jason to walk through the financials and our outlook in more detail. Jason.

Speaker #3: Our capital allocation priorities remain unchanged. First, we invest to accelerate growth through organic initiatives and selective M&A. Second, we maintain a strong balance sheet and financial profile.

Speaker #3: And finally, we return excess cash to shareholders. We are on track to complete our current share repurchase authorization by early 2027. Execution across all of these long-term goals is clearly reflected in our financial performance.

Speaker #3: With that, let me turn it over to Jason to walk through the financials and our outlook in more detail. Jason, thanks, Bill. Good morning, everyone.

Jason Bailey: Thanks, Bill. Good morning, everyone. Let's start on slide nine, where I will quickly cover some of the financial highlights for the quarter. We are off to an excellent start in 2026. Our Q1 results reflect focused execution and consistency across the business. Versus the prior year period, revenue grew 6% to $451 million. Gross margins remain strong at 55%. Adjusted EBITDA increased 3% to $104 million. Lastly, adjusted diluted EPS grew 14% to $0.73 per share, reflecting strong earnings growth and the positive impact of our share repurchase program. Now, let's turn to slide 10 for a deeper look at our revenue performance. As I just highlighted, total revenue grew 6% to $451 million.

Speaker #3: Let's start on slide nine, where I will quickly cover some of the financial highlights for the quarter. We are off to an excellent start in 2026.

Speaker #3: Our first quarter results reflect focused execution and consistency across the business. Versus the prior year period, revenue grew 6% to $451 million. Gross margins remain strong at 55%.

Speaker #3: Adjusted EBITDA increased 3% to $104 million. And lastly, adjusted diluted EPS grew 14% to $73 per share reflecting strong earnings growth and the positive impact of our share repurchase program.

Speaker #3: Now, let's turn to slide 10 for a deeper look at our revenue performance. As I just highlighted, total revenue grew 6% to $451 million.

Speaker #3: This was driven by approximately 5% from higher realized price and 1% from higher volume, primarily due to the HVAC upgrade program. From a channel perspective, compared to the prior year period, renewal revenue grew 6% driven by higher price first-year real estate revenue increased by 3% as higher volume was partially offset by slightly lower pricing.

Jason Bailey: This was driven by approximately 5% from higher realized price and 1% from higher volume, primarily due to the HVAC upgrade program. From a channel perspective, compared to the prior year period, renewal revenue grew 6%, driven by higher price. First year real estate revenue increased by 3% as higher volume was partially offset by slightly lower pricing. First year direct-to-consumer revenue decreased 5%, driven by our promotional pricing strategy aimed at increasing member count growth. This lower pricing reflects a higher mix of discounted first-year members from the past 12 months of new member acquisition, which was partially offset by higher volume as we added more new members. Lastly, non-warranty and other revenue increased 23% due to both higher price and volume, driven by our HVAC upgrade program. Now, moving down the P&L to gross profit and gross margin on slide 11.

Speaker #3: First-year direct-to-consumer revenue decreased 5% driven by our promotional pricing strategy aimed at increasing member count growth. This lower pricing reflects a higher mix of discounted first-year members from the past 12 months of new member acquisition, which was partially offset by higher volume as we added more new members.

Speaker #3: Lastly, non-warranty and other revenue increased 23% due to both higher price and volume driven by our HVAC upgrade program. Now, moving down the P&L to gross profit and gross margin on slide 11.

Speaker #3: Gross profit increased 5% versus the prior year period to $248 million. While gross profit margin held strong at 55%. For the first quarter, our gross profit margin reflects higher price realization of 5% or $19 million disciplined cost management leading to low single-digit cost inflation slightly higher incidents or service requests per member, which includes approximately $1 million from unfavorable weather in the quarter.

Jason Bailey: Gross profit increased 5% versus the prior year period to $248 million, while gross profit margin held strong at 55%. For Q1, our gross profit margin reflects higher price realization of 5% or $19 million, disciplined cost management leading to low single-digit cost inflation, slightly higher incidents or service requests per member, which includes approximately $1 million from unfavorable weather in the quarter. This gross profit margin also reflects the ongoing expected revenue mix shift as non-warranty and other revenue continue to scale within the portfolio. Turning to slide 12 to review our net income and adjusted EBITDA. For Q1, net income grew 11% to $41 million versus the prior year period. Adjusted EBITDA grew 3% to $104 million.

Speaker #3: This gross profit margin also reflects the ongoing expected revenue mix shift as non-warranty and other revenue continue to scale within the portfolio. Turning to slide 12 to review our net income and adjusted EBITDA.

Speaker #3: For the first quarter, net income grew 11% to $41 million versus the prior year period. Adjusted EBITDA grew 3% to $104 million. As planned, SG&A increased during the quarter to capitalize on the strong momentum from 2025 in the direct-to-consumer channel.

Jason Bailey: As planned, SG&A increased during the quarter to capitalize on the strong momentum from 2025 in the Direct-to-Consumer channel. Adjusted EBITDA margin remains strong at 23%, reflecting disciplined cost management and solid operational execution despite the higher levels of marketing investments. Let's now turn to slide 13 to discuss our free cash flow and capital deployment. Our recurring revenue and capital-light business model continued to generate excellent free cash flow of $114 million in the quarter. As a reminder, we expect to convert Adjusted EBITDA to free cash flow at a rate of over 60% in 2026. In the quarter, we returned $60 million to shareholders through share repurchases. We ended the quarter with a strong liquidity position of $698 million and a low net leverage ratio.

Speaker #3: Adjusted EBITDA margin remained strong at 23% reflecting disciplined cost management and solid operational execution despite the higher levels of marketing investments. Let's now turn to slide 13 to discuss our free cash flow and capital deployment.

Speaker #3: Our recurring revenue and capital light business model continued to generate excellent free cash flow of $114 million in the quarter. As a reminder, we expect to convert adjusted EBITDA to free cash flow at a rate of over 60% in 2026.

Speaker #3: In the quarter, we returned $60 million to shareholders through share repurchases. We ended the quarter with a strong liquidity position of $698 million and a low net leverage ratio.

Speaker #3: More broadly, this financial strength supports the capital allocation strategy Bill outlined earlier, providing the capacity to invest in long-term growth, maintaining balance sheet strength, and returning excess cash to shareholders.

Jason Bailey: More broadly, this financial strength supports the capital allocation strategy Bill outlined earlier, providing the capacity to invest in long-term growth, maintaining balance sheet strength, and returning excess cash to shareholders. When stepping back, Q1 was another proof point of what our business model is built to do. We continued to deliver strong earnings, generate significant free cash flow, and return substantial capital to shareholders while accelerating growth investments. Let's now turn to our Q2 outlook on slide 14. For Q2 2026, we expect revenue to be in the range of $635 to 650 million. This outlook reflects a low single-digit increase in renewal revenue, a mid-single digit increase in first year real estate revenue, a low single-digit decrease in first year direct-to-consumer revenue, and a mid 20% increase in non-warranty and other revenue.

Speaker #3: When stepping back, Q1 was another proof point of what our business model is built to do. We continue to deliver strong earnings generate significant free cash flow and return substantial capital to shareholders while accelerating growth investments.

Speaker #3: Let's now turn to our second quarter outlook on slide 14. For the second quarter of 2026, we expect revenue to be in the range of $635 million to $650 million.

Speaker #3: This outlook reflects a low single-digit increase in renewal revenue a mid-single-digit increase in first-year real estate revenue a low single-digit decrease in first-year direct-to-consumer revenue and a mid-20% increase in non-warranty and other revenue.

Speaker #3: We expect adjusted EBITDA to be in the range of $198 million to $208 million. This reflects higher gross profit from revenue conversion, low single-digit inflation, continued revenue mix shift to non-warranty, and our strategic decision to increase sales and marketing spend with the strong momentum we are seeing in the first-year channels.

Jason Bailey: We expect adjusted EBITDA to be in the range of $198 million to $208 million. This reflects higher gross profit from revenue conversion, low single-digit inflation, continued revenue mix shift to non-warranty, and our strategic decision to increase sales and marketing spend with the strong momentum we are seeing in the first year channels. Turning to our full year 2026 outlook on slide 15. We are reaffirming our full year 2026 outlook with key assumptions remaining essentially unchanged as detailed in our earnings release and shown on the slide. As a reminder, and for those of you that are new to our story, I want to take a moment to discuss how seasonality impacts our financial results.

Speaker #3: Turning to our full-year 2026 outlook on Slide 15. We are reaffirming our full-year 2026 outlook, with key assumptions remaining essentially unchanged, as detailed in our earnings release and shown on the slide.

Speaker #3: As a reminder, and for those of you that are new to our story, I want to take a moment to discuss how seasonality impacts our financial results.

Speaker #3: With our first quarter results and second quarter guide, we anticipate that 53% to 54% of our full year 2026 adjusted EBITDA will be generated in the first half of the year.

Jason Bailey: With our Q1 results and Q2 guide, we anticipate that 53% to 54% of our full year 2026 adjusted EBITDA will be generated in the H1 of the year. This is similar to the split in 2025. This is a normal part of our business and the reason why I encourage our investors to focus on our full year performance and guidance as the true measure of how we are delivering results. While the geopolitical environment has become more complex, our execution across the business, combined with multiple levers we can deploy to offset inflation, give us confidence in our ability to deliver on our expected revenue and adjusted EBITDA growth for the year. With that, back to you, Bill.

Speaker #3: This is similar to the split in 2025. This is a normal part of our business, and the reason why I encourage our investors to focus on our full year performance and guidance as the true measure of how we are delivering results.

Speaker #3: While the geopolitical environment has become more complex, our execution across the business combined with multiple levers we can deploy to offset inflation give us confidence in our ability to deliver on our expected revenue and adjusted EBITDA growth for the year.

Speaker #3: With that, back to you, Bill.

Speaker #1: Thank you, Jason. Our first quarter results reflect a continuation of the strong execution you've come to expect from Frontdoor. I'd like to highlight three things as we wrap up.

Bill Cobb: Thank you, Jason. Our Q1 results reflect a continuation of the strong execution you've come to expect from Frontdoor. I'd like to highlight three things as we wrap up. First, our member count is now growing. The team is doing great work, and we're seeing that translate into measurable progress. As a result, we now expect our total member count to increase approximately 1% for 2026, a major milestone for our business. Second, we are continuing to deliver strong margins in line with our long-term targets. The operating model we've been strengthening over the past several years is allowing us to deliver consistent results. Finally, our business model is doing what it was designed to do: generate a lot of cash and return that to shareholders through share repurchases.

William Cobb: Thank you, Jason. Our Q1 results reflect a continuation of the strong execution you've come to expect from Frontdoor. I'd like to highlight three things as we wrap up. First, our member count is now growing. The team is doing great work, and we're seeing that translate into measurable progress. As a result, we now expect our total member count to increase approximately 1% for 2026, a major milestone for our business. Second, we are continuing to deliver strong margins in line with our long-term targets. The operating model we've been strengthening over the past several years is allowing us to deliver consistent results. Finally, our business model is doing what it was designed to do: generate a lot of cash and return that to shareholders through share repurchases.

Speaker #1: First, our member count growth our member count is now growing. The team is doing great work, and we're seeing that translate into measurable progress.

Speaker #1: And as a result, we now expect our total member count to increase approximately 1% for 2026. A major milestone for our business. Second, we are continuing to deliver strong margins in line with our long-term targets.

Speaker #1: The operating model we've been strengthening over the past several years is allowing us to deliver consistent results. And finally, our business model is doing what it was designed to do: generate a lot of cash.

Speaker #1: And return that to shareholders through share repurchases. We love the position we're in, and we remain focused on executing with discipline as the year progresses.

Bill Cobb: We love the position we're in, and we remain focused on executing with discipline as the year progresses. Operator, please open the line for questions.

William Cobb: We love the position we're in, and we remain focused on executing with discipline as the year progresses. Operator, please open the line for questions.

Speaker #1: Operator, please open the line for questions.

Speaker #2: Thank you, Bill. At this time, we are conducting our question-and-answer session. If you would like to ask a question, please press *1 on your phone keypad now.

Operator 2: Thank you, Bill. At this time, we are conducting our question and answer session. If you would like to ask a question, please press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For anyone using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment while we poll for questions. Thank you. Our first question is coming from Mark Hughes of Truist Securities. Mark, your line is live.

Operator: Thank you, Bill. At this time, we are conducting our question and answer session. If you would like to ask a question, please press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For anyone using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment while we poll for questions. Thank you. Our first question is coming from Mark Hughes of Truist Securities. Mark, your line is live.

Speaker #2: A confirmation tone will indicate that your line is in the queue. You may press *2 if you would like to remove your question from the queue.

Speaker #2: And for anyone using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions.

Speaker #2: Thank you. Our first question is coming from Mark Hughes of Truist Securities. Mark, your line is live.

Speaker #3: Yeah, thank you. Good morning. Bill or Jason, good morning. Could you talk about the real estate channel? Seems like you're having good success there.

Mark Hughes: Yeah, thank you. Good morning.

Bill Cobb: Hey, Mark.

William Cobb: Hey, Mark.

Mark Hughes: Bill or Jason, good morning. Can you talk about the real estate channel? Seems like you're having good success there. I wonder if you might touch on the attachment rates. You said they've been improving in recent months. What was it, 8% in March. Where did they bottom out at? Where historically have they gotten up to in a stronger market?

Speaker #3: I wonder if you might touch on the attachment rates—you said they've been improving in recent months. Was it 8% in March? Where did they bottom out at?

Speaker #3: Where historically have they gotten up to in a stronger market?

Speaker #1: Yeah, if you recall, many years ago and I'm talking six, seven years ago attach rates in the industry were around 30%. That has fallen through COVID and the real estate sluggishness into the mid-teens.

Bill Cobb: Yeah. If you recall many, you know, many years ago, and I'm talking 6, 7 years ago, attach rates in the industry were around 30%. That has fallen through COVID and the real estate sluggishness into the mid-teens. What has happened is we have steadily seen improvements in our attach rate, which is a measure of our warranties divided by existing home sales. In March, we hit 6% on that measure. I think it reflects some really good work by our real estate team. Some work we're doing on shifting our focus away from large MSAs to focusing really on the local real estate agent. We have added some promotional pricing there.

William Cobb: Yeah. If you recall many, you know, many years ago, and I'm talking 6, 7 years ago, attach rates in the industry were around 30%. That has fallen through COVID and the real estate sluggishness into the mid-teens. What has happened is we have steadily seen improvements in our attach rate, which is a measure of our warranties divided by existing home sales. In March, we hit 6% on that measure. I think it reflects some really good work by our real estate team. Some work we're doing on shifting our focus away from large MSAs to focusing really on the local real estate agent. We have added some promotional pricing there.

Speaker #1: What has happened is we have steadily seen improvements in our attach rate, which is a measure of our warranties divided by existing home sales.

Speaker #1: So in March, we hit 6% on that measure. And I think it reflects some really good work by our real estate team, some work we're doing on shifting our focus away from large MSAs to focusing really on the local real estate agent.

Speaker #1: We have added some promotional pricing there. It's not at the level of 50% off, but it enables us to have basically get the attention of real estate agents.

Bill Cobb: It's not at the level of 50% off, but it enables us to have, you know, basically get the attention of real estate agents. We've seen, we've spent a lot of time talking about the improvements we've made for our members, with the app, our experts, et cetera. It's a combination of factors, and we're steadily moving up. Like I said, I watch that measure very closely, the attach rate in our team, you know, with 8 consecutive quarters of improvement. That's a lot of what we think is driving the better performance.

William Cobb: It's not at the level of 50% off, but it enables us to have, you know, basically get the attention of real estate agents. We've seen, we've spent a lot of time talking about the improvements we've made for our members, with the app, our experts, et cetera. It's a combination of factors, and we're steadily moving up. Like I said, I watch that measure very closely, the attach rate in our team, you know, with 8 consecutive quarters of improvement. That's a lot of what we think is driving the better performance.

Speaker #1: And we've seen we've spent a lot of time talking about the improvements we've made to our members. With the app, our experts, etc. So it's a combination of factors, and we're steadily moving up.

Speaker #1: And like I said, I watched that measure very closely, the attach rate and our team with eight consecutive quarters of improvement. That's a lot of what we think is driving the better performance.

Speaker #3: Yeah. And will the strategy be on renewal? You'll move that up pretty expeditiously channel?

Mark Hughes: Yeah. Will the strategy be on renewal, you'll move that up pretty expeditiously like you've been doing in the Direct-to-Consumer channel?

Speaker #1: Yeah, it continues to be around 30%. It's a big initiative for our teams to try to we tick up into the 31 level, but we've been kind of stuck at 30%.

Bill Cobb: Yeah. It continues to be around 30%. It's a big initiative for our teams to try to. You know, we tick up into the 31 level, but we've been kind of stuck at 30%. If we can unlock that would be great. It used to be in the mid-20s, we have made a lot of progress here. As you saw in our 10-K, our renewal rates improved by 200 basis points in 2025. I think that the combination of efforts, which is why we feel so good about where the renewal book's coming.

William Cobb: Yeah. It continues to be around 30%. It's a big initiative for our teams to try to. You know, we tick up into the 31 level, but we've been kind of stuck at 30%. If we can unlock that would be great. It used to be in the mid-20s, we have made a lot of progress here. As you saw in our 10-K, our renewal rates improved by 200 basis points in 2025. I think that the combination of efforts, which is why we feel so good about where the renewal book's coming.

Speaker #1: But if we can unlock that, that would be great. It used to be in the mid-20s. So we have made a lot of progress there.

Speaker #1: And as you saw in our 10-K, our renewal rates improved by 200 basis points in 2025. So I think that the combination of efforts—which is why we feel so good about where the renewal book's coming—and if we can continue to grow the first-year channels, the renewal book is catching up, and that's why we're now at 1% ending member count growth, which we're forecasting for '26.

Bill Cobb: If we can continue to grow the first-year channels, you know, the renewal book is catching up, and that's why we're now at, you know, 1% ending member count growth, what we're forecasting for 2026.

William Cobb: If we can continue to grow the first-year channels, you know, the renewal book is catching up, and that's why we're now at, you know, 1% ending member count growth, what we're forecasting for 2026.

Speaker #3: And then one more, if I can. You talked about the 210 that you're integrating onto the platform. You're seeing some momentum as a result of that.

Mark Hughes: One more, if I can. You talked about the 2-10 that you're integrating onto the platform. You're seeing some momentum as a result of that. Could you expand on that point?

Speaker #3: Could you expand on that point?

Speaker #1: Yeah, we now run it as one and this was always the plan. We thought that the synergies we could start to drive in revenue.

Bill Cobb: We now, you know, we now run it as one, and this was always the plan. We thought that the synergies we could start to drive in revenue. We run HSA, AHS, and now 2-10. All of our DTC actions, all of our real estate transactions, all of our renewal transactions are all on one platform. This gives our teams an ability to do specific initiatives, you know. For example, now 2-10 can do 50% off on the DTC channel. Now we can do the same kind of tactics that we've used to help drive the renewal channel. That's why it makes it a lot easier for us to execute 2-10 as being part of the platform.

William Cobb: We now, you know, we now run it as one, and this was always the plan. We thought that the synergies we could start to drive in revenue. We run HSA, AHS, and now 2-10. All of our DTC actions, all of our real estate transactions, all of our renewal transactions are all on one platform. This gives our teams an ability to do specific initiatives, you know. For example, now 2-10 can do 50% off on the DTC channel. Now we can do the same kind of tactics that we've used to help drive the renewal channel. That's why it makes it a lot easier for us to execute 2-10 as being part of the platform.

Speaker #1: So we run HSA/AHS and now 210. All of our DTC actions, all of our real estate transactions, all of our renewal transactions are all on one platform.

Speaker #1: This gives our teams an ability to do specific initiatives so, for example, now 210 can do 50% off on the DTC channel. Now we can do the same kind of tactics that we've used to help drive the renewal channel.

Speaker #1: So that's why it makes it a lot easier for us to execute 210 as being part of the platform.

Speaker #4: Yeah, I'd add Bill too. It gives the other good examples would be our dynamic pricing tools can be applied, our contractor algorithms. It's just great.

Jason Bailey: Yeah. I'd add, Bill, too. I guess the other good examples would be our dynamic pricing tools can be applied.

Bill Cobb: Right

Jason Bailey: Our contractor algorithms. It's just great.

William Cobb: Right

Jason Bailey: Our contractor algorithms. It's just great.

Speaker #1: Yeah. So we now have one integrated contractor relations team, one integrated customer support team, etc.

Bill Cobb: Yeah. We now have one integrated contractor relations team, one integrated customer support team, et cetera.

William Cobb: Yeah. We now have one integrated contractor relations team, one integrated customer support team, et cetera.

Speaker #3: It pushes that. Thank you.

Mark Hughes: Appreciate that. Thank you.

Speaker #1: Okay. Thanks, Mark.

Bill Cobb: Okay. Thanks, Mark.

William Cobb: Okay. Thanks, Mark.

Speaker #2: Thank you very much. And our next question is coming from Eric Sheridan of Goldman Sachs. Eric, your line is live.

Operator 2: Thank you very much. Our next question is coming from Eric Sheridan of Goldman Sachs. Eric, your line is live.

Operator: Thank you very much. Our next question is coming from Eric Sheridan of Goldman Sachs. Eric, your line is live.

Speaker #5: Thanks so much for taking the question and thanks for all the details in the report. I want to go a little bit deeper in how you continue to get message around scaling marketing investments around your brands, around driving customer acknowledgment of the product set and customer adoption of products broadly.

Eric Sheridan: Thanks so much for taking the question, and thanks for all the details in the report. Wanted to go a little bit deeper in how you continue to get message around scaling marketing investments around your brands, around driving customer acknowledgement of the product set and customer adoption of products broadly. How are you thinking also about applying marketing to the balance you wanna strike between the warranty business and the non-warranty business over the long term in terms of the messaging you wanna put in front of consumers? Thanks so much.

Speaker #5: And how are you thinking also about applying marketing to the balance you want to strike between the warranty business and the non-warranty business over the long term in terms of the messaging you want to put in front of consumers?

Speaker #5: Thanks so much.

Speaker #1: Yeah, our primary focus is on the warranty business because the non-warranty business is primarily at this point a B2B2C business where we work very closely with our contractors.

Bill Cobb: Our primary focus is on the warranty business because the non-warranty business is primarily at this point a B2B2C business where we work very closely with our contractors. There's a halo effect on the brands that come from talking about, you know, American Home Shield and what that does for our members. The way we operate is we talk about our marketing funnel. It starts at the top with our broad advertising message. We use the warranty as our main message. That's a portion of our marketing investment because there are all the elements of search marketing, direct mail, social media. There's a variety of tactics that we use in our overall marketing.

William Cobb: Our primary focus is on the warranty business because the non-warranty business is primarily at this point a B2B2C business where we work very closely with our contractors. There's a halo effect on the brands that come from talking about, you know, American Home Shield and what that does for our members. The way we operate is we talk about our marketing funnel. It starts at the top with our broad advertising message. We use the warranty as our main message. That's a portion of our marketing investment because there are all the elements of search marketing, direct mail, social media. There's a variety of tactics that we use in our overall marketing.

Speaker #1: But there's a halo effect on the brands that come from talking about American HomeShield and what that does for our members. So the way we operate is we talk about our marketing funnel.

Speaker #1: It starts at the top with our broad advertising message. We use the warranty as our main message. But that's a portion of our marketing investment because there are all the elements of search marketing, direct mail, social media.

Speaker #1: There's a variety of tactics that we use in our overall marketing. That then what we do with non-warranty is that's really where marketing to our members directly.

Bill Cobb: What we do with non-warranty is that's really, we're marketing to our members directly. You know, with a 2.1 million member base, we found that it's very efficient for us. That's why we call it relatively CAC free when we talk about non-warranty. And we have such a good relationship with our contractors. They're very excited about this additional piece of business that they can put in new equipment. And frankly it has a downstream effect of less truck rolls because the equipment is so new. We think it's a virtuous cycle working together. Like I said, the primary focus is on American Home Shield, but we have a number of techniques that we're using, including some of the AI tools I referenced in my remarks.

William Cobb: What we do with non-warranty is that's really, we're marketing to our members directly. You know, with a 2.1 million member base, we found that it's very efficient for us. That's why we call it relatively CAC free when we talk about non-warranty. And we have such a good relationship with our contractors. They're very excited about this additional piece of business that they can put in new equipment. And frankly it has a downstream effect of less truck rolls because the equipment is so new. We think it's a virtuous cycle working together. Like I said, the primary focus is on American Home Shield, but we have a number of techniques that we're using, including some of the AI tools I referenced in my remarks.

Speaker #1: So with a 2.1 million member base, we found that it's very efficient for us. That's why we call it relatively CAC-free. When we talk about non-warranty.

Speaker #1: So and we have such a good relationship with our contractors. They're very excited about this additional piece of business that they can put in new equipment.

Speaker #1: And frankly, it has a downstream effect of less truck rolls because the equipment is so new. So we think it's a virtuous cycle. Working together, like I said, the primary focus is on American HomeShield, but we have a number of techniques that we're using including some of the AI tools I referenced in my remarks and it's really come together.

Bill Cobb: It's really come together. The marketing team's done a terrific job.

Speaker #1: The marketing team's done a terrific job.

William Cobb: It's really come together. The marketing team's done a terrific job.

Speaker #5: Great. Thank you.

Eric Sheridan: Great. Thank you.

Speaker #1: Thanks, Eric.

Bill Cobb: Thanks, Eric.

William Cobb: Thanks, Eric.

Speaker #2: Okay. Thank you very much. And our next question is coming from Jeff Schmidt of William Blair. Jeff, your line is live.

Operator 2: Okay. Thank you very much. Our next question is coming from Jeff Schmitt of William Blair. Jeff, your line is live.

Operator: Okay. Thank you very much. Our next question is coming from Jeff Schmitt of William Blair. Jeff, your line is live.

Speaker #6: Hi, good morning. So the new promotional strategy in real estate seems to be off to a good start. Are you seeing competitors respond to that?

Jeff Schmitt: Hi. Good morning.

Bill Cobb: Good morning.

William Cobb: Good morning.

Jeff Schmitt: The new promotional strategy in real estate seems to be off to a good start. Are you seeing competitors respond to that, or are some starting to do the same thing, or do you anticipate that happening?

Speaker #6: Are some starting to do the same thing, or do you anticipate that happening?

Speaker #1: We haven't gotten much intelligence that others have done that. Now, we believe that they probably are taking a look at that. But right now, we're trying to we're very focused on the local real estate agents.

Bill Cobb: We haven't gotten much intelligence that others have done that. We believe that they probably are taking a look at that. You know, right now we're very focused on the local real estate agent, so that's where our focus is. We haven't picked up a lot of noise around other, others trying to do that.

William Cobb: We haven't gotten much intelligence that others have done that. We believe that they probably are taking a look at that. You know, right now we're very focused on the local real estate agent, so that's where our focus is. We haven't picked up a lot of noise around other, others trying to do that.

Speaker #1: So that's where our focus is. But we haven't picked up a lot of noise around others trying to do that.

Speaker #4: Yeah, I think I'd add to our focus there in that strategy is more as Bill said in his remarks about engagement. And so I think in addition to the promotional pricing, we can drive engagement by highlighting the app, our experts, and kind of our overall improvements to customer experience.

Jason Bailey: Yeah. I think I'd add too. You know, our focus there in that strategy is more, as Bill said in his remarks, about engagement. I think in addition to the promotional pricing, you know, we can drive engagement by highlighting the app, our experts, and kinda our overall improvements to customer experience. I think this is just another tool in our kit that allows our field sales team to really succeed.

Speaker #4: And so I think this is just another tool in our kit that allows our field sales team to really succeed.

Speaker #1: Yeah, I think that's right, Jason, because I think what we try to think about is, we need to keep bringing the agent new news, whether that happens to be during a promotional pricing period or the other elements that we've added to our arsenal.

Bill Cobb: Yeah, I think that's right, Jason, because what we try to think about is we need to keep bringing the agent new news, whether that happens to be during a promotional pricing period or the other elements that we've added to our arsenal.

William Cobb: Yeah, I think that's right, Jason, because what we try to think about is we need to keep bringing the agent new news, whether that happens to be during a promotional pricing period or the other elements that we've added to our arsenal.

Speaker #6: Okay. And then so there was 5% of realized pricing in the quarter. That was better than we had expected. Did you push through another round of pricing increases in December?

Jeff Schmitt: Okay. There was 5% of realized pricing in the quarter that was better than we had expected. Did you push through another round of pricing increases in December, and at what level, or was that more from your dynamic pricing?

Speaker #6: And at what level, or was that more from pricing?

Speaker #4: I think it's no incremental pricing since our last update. I think it's just the effectiveness of our dynamic pricing tools. We're pretty much in line with where we were expecting or where we are expecting the year to land.

Jason Bailey: I think it's no incremental pricing since our last update. I think it's just, you know, the effectiveness of our dynamic pricing tools. We're pretty much in line with where we were expecting or where we are expecting-

Speaker #1: Yeah, I think, Jeff, when we talk dynamic pricing, what we're really saying is we're constantly looking at, frankly, increasing our prices. But some members get a price decrease, and that's the advantage of dynamic pricing.

Bill Cobb: Yeah

William Cobb: Yeah

Jason Bailey: The year to land.

Bill Cobb: Yeah. I think Jeff, when we talk dynamic pricing, what we're really saying is we're constantly looking at, you know, frankly increasing our prices. You know, some members get a price decrease, and that's the advantage of dynamic pricing. We really price to the person. It really was a continuation of what we're trying to do with our one twelfth at a time recognized revenue base. We're able to. You know, while there's a disadvantage that it takes 12 months for it to be fully realized, there's an advantage that we can act very quickly and enact pricing changes. That's really what we've done. I think we're pleased with that effort.

William Cobb: Yeah. I think Jeff, when we talk dynamic pricing, what we're really saying is we're constantly looking at, you know, frankly increasing our prices. You know, some members get a price decrease, and that's the advantage of dynamic pricing. We really price to the person. It really was a continuation of what we're trying to do with our one twelfth at a time recognized revenue base. We're able to. You know, while there's a disadvantage that it takes 12 months for it to be fully realized, there's an advantage that we can act very quickly and enact pricing changes. That's really what we've done. I think we're pleased with that effort.

Speaker #1: We're really priced to the person. So it really was a continuation of what we're trying to do with our 1/12th at a time recognized revenue base.

Speaker #1: We're able to while there's a disadvantage that it takes 12 months for it to be fully realized, there's an advantage that we can act very quickly and enact pricing changes.

Speaker #1: So and that's really what we've done. But I think we're pleased with that effort. I think it's also ties back to the strong renewal rates we've had, which also enables us to show a nice increase in pricing.

Bill Cobb: I think it also ties back to the strong renewal rates we've had, which also enables us to show, you know, a nice increase in pricing.

William Cobb: I think it also ties back to the strong renewal rates we've had, which also enables us to show, you know, a nice increase in pricing.

Speaker #4: Yeah, I think there's probably a little bit of timing in there compared to Q1 versus Q1 of the prior year. We're still targeting that kind of low 2 to 3 percent full-year realized price impact.

Jason Bailey: Yeah. I think there's probably a little bit of timing in there in the compared to Q1 versus Q1 of the prior year. We're still targeting that kinda low 2% to 3% full year realized price impact.

Speaker #1: Okay.

Jeff Schmitt: Okay. Great. Thank you.

Speaker #6: Great. Thank you.

Speaker #1: Thanks, Jeff.

Bill Cobb: Thanks, Jeff.

William Cobb: Thanks, Jeff.

Speaker #2: Thank you very much. And our next question is coming from Ian Zafino of Oppenheimer. Ian, your line is live.

Operator 2: Thank you very much. Our next question is coming from Ian Zaffino of Oppenheimer. Ian, your line is live.

Operator: Thank you very much. Our next question is coming from Ian Zaffino of Oppenheimer. Ian, your line is live.

Speaker #7: Hey, good morning. This is Isaac Salzen on for Ian. Thanks for taking the question.

Isaac Sellhausen: Hey, good morning. This is Isaac Sellhausen on for Ian. Thanks for taking my question.

Speaker #1: Hi. Hey, Isaac.

Speaker #7: Hey, good morning. So the question would just be on the customer retention for the quarter. It looks like that was just down slightly compared to last year.

Bill Cobb: Hi. Hey, Isaac.

William Cobb: Hi. Hey, Isaac.

David Brown: Hey, good morning. The question would just be on the customer retention for the quarter. It looks like that was just down slightly compared to last year. Not sure if that's a timing thing, maybe you could just touch on-

Isaac Sellhausen: Hey, good morning. The question would just be on the customer retention for the quarter. It looks like that was just down slightly compared to last year. Not sure if that's a timing thing, maybe you could just touch on-

Speaker #7: Not sure if that's a timing thing, but maybe you could just touch on that piece of it. Maybe in relation to the renewals channel specifically.

Isaac Sellhausen: That piece of it, maybe in relation to the renewals channel specifically, and then kind of your expectations for retention as you may move through the year.

Speaker #7: And then kind of your expectations for retention as you may move through the year.

Speaker #4: Yeah, I think thank you. It's down slightly in Q1. That's just timing of 210 rolling into the book. I think we mentioned at acquisition, their retention rates were lower than ours.

Jason Bailey: Yeah, Isaac, thank you. It's down slightly in Q1. That's just timing of 2-10 rolling into the book. I think we mentioned at acquisition their retention rates were lower than ours. Now that they're fully in our book, I'd say that's just a minor impact in the quarter. By year-end, we expect retention to be relatively flat. The other thing I'd kind of point to is, you know, our renewal rates continue to be strong. I think Bill mentioned earlier we were up almost 200 basis points year over year at the end of 2025. Now with 2-10 on our platform, that's one of the upsides we see, just as we put our tools and techniques on the base, we'll see that their rates come up to ours.

Speaker #4: Now that they're fully in our book, I'd say that's just a minor impact in the quarter. By year-end, we expect retention to be relatively flat.

Speaker #4: The other thing I'd kind of point to is our renewal rates continue to be strong. I think Bill mentioned earlier, we were up almost 200 basis points year over year.

Speaker #4: At the end of '25. And now with 210 on our platform, that's one of the upsides we see just as we put our tools and techniques on the base.

Speaker #4: We'll see that their rates come up to ours.

Speaker #1: Yeah. So Jason's right. It's a mixed issue, but AHS retention rates continue to be very strong.

Bill Cobb: Yeah. Jason's right. It's a mix issue, but AHS retention rates continue to be very strong.

William Cobb: Yeah. Jason's right. It's a mix issue, but AHS retention rates continue to be very strong.

Speaker #7: Okay. Understood. And then just as a follow-up, as far as the gross margin outlook for the year, you guys reaffirmed that. Maybe if you could just touch on the cost side.

Isaac Sellhausen: Okay. Understood. Just as a follow-up, as far as the gross margin outlook for the year, you know, can you guys reaffirm that? Maybe if you could just touch on the cost side, whether it be parts or equipment or labor, maybe just how things have trended in Q1, you know, the confidence you have in that, you know, as you move through the year to reach that margin target.

Speaker #7: Whether it be parts or equipment or labor, maybe just how things have trended in the first quarter. And then the competency you have in that.

Speaker #7: As you move through the year to reach that margin target.

Speaker #4: Yeah. We're at, I'd say, low single-digit inflation in Q1. Our contractor relations team has done a great job working with our contractor network. We feel good about our outlook for the year.

Jason Bailey: Yeah, we're at low, I'd say low single-digit inflation in Q1. Our contractor relations team has done a great job working with our contractor network. We feel good about our outlook for the year. You know, I would obviously say Bill and I are monitoring macro conditions daily and working with the team. We're pretty confident that we'll be right in line with our, with our guide. You know, the outlook is pricing flowing through similar incidence rates to prior year and then low single-digit inflation for the full year. Pretty normal weather is our expectation. We've obviously considered the mix of non-warranty as it grows all in that guide.

Speaker #4: I would obviously say Bill and I are monitoring macro conditions daily. And working with the team. So we're pretty confident that we'll be right in line with our guide.

Speaker #4: The outlook is pricing flowing through, similar incidence rates to prior year, and then low single-digit inflation. For the full year, pretty normal weather is our expectation.

Speaker #4: And then we've obviously considered the mix of non-warranty as it grows all in that guide.

Speaker #7: Okay. Great. Thanks so much.

Isaac Sellhausen: Okay. Great. Thanks so much.

Speaker #1: Because it.

Speaker #2: Thank you very much. And our next question is coming from Sergio Segura of KeyBank Capital Markets. Sergio, your line is live.

Bill Cobb: Thanks, Isaac.

William Cobb: Thanks, Isaac.

Operator 2: Thank you very much. Our next question is coming from Sergio Segura of KeyBanc Capital Markets. Sergio, your line is live.

Operator: Thank you very much. Our next question is coming from Sergio Segura of KeyBanc Capital Markets. Sergio, your line is live.

Speaker #1: Hey, Sergio.

Bill Cobb: Hey, Sergio.

William Cobb: Hey, Sergio.

Speaker #8: Hey, Bill. Good morning. Thanks for taking the questions. First question, I just had was on the full-year outlook. So do you maintain that? I guess last year, you had a pretty steady cadence of beating and raising.

Sergio Segura: Hey, Bill. Good morning. Thanks for taking the questions. First question I just had was on the full year outlook. Do you maintain that? You know, I guess last year you had a pretty steady cadence of beating and raising, you beat this quarter in Q1. Maybe just walk us through why you chose to keep the annual outlook unchanged despite the stronger than expected performance.

Speaker #8: So you beat this quarter in one Q. So maybe just walk us through why you chose to keep the annual outlook unchanged despite the stronger-than-expected performance.

Speaker #4: Yeah, Sergio. I'd say Q1 is just a little bit of timing on the beat. We are very confident in how we're operating. We just, since we just gave the guidance and obviously watching all the macro news, we felt really good about reaffirming where we are.

Jason Bailey: Yeah, Sergio, you know, I'd say Q1 is just a little bit of timing on the beat. We are very confident in how we're operating. Since we just gave the guidance and obviously watching all the macro news, we felt really good about reaffirming where we are. We think the team, both top line and bottom line, are operating very, very well. That is just kind of how we ended up on a reaffirming where we are.

Speaker #4: We think the team both top line and bottom line are operating very, very well. So that's just kind of how we ended up on a reaffirming where we are.

Speaker #1: Yeah. A little bit of an anomaly because we report Q4 so late. It's like two months into the year. And then we come right back only a month into Q2 to report Q1.

Bill Cobb: It's a little bit of an anomaly because we report Q4 so late, you know, it's like 2 months into the year, and then we come right back, only a month into Q2 to report Q1. you know, with giving the guidance 60 days ago and we felt like yes, we did beat. We, you know, it wasn't a large beat, but we're very proud of it. Well, let's reaffirm guidance at this point, and then we'll see. We'll take another look at midyear.

William Cobb: It's a little bit of an anomaly because we report Q4 so late, you know, it's like 2 months into the year, and then we come right back, only a month into Q2 to report Q1. you know, with giving the guidance 60 days ago and we felt like yes, we did beat. We, you know, it wasn't a large beat, but we're very proud of it. Well, let's reaffirm guidance at this point, and then we'll see. We'll take another look at midyear.

Speaker #1: So with giving the guidance 60 days ago and we felt like we yes, we did beat. It wasn't a large beat, but we were very proud of it.

Speaker #1: And so we felt like let's stay where let's reaffirm guidance at this point. And then we'll take another look at mid-year.

Speaker #8: Got it. Understood. And then the second one I had, which is somewhat related, has to do with just the geopolitical tensions we're seeing in the macro uncertainty that you mentioned.

Sergio Segura: Got it. Understood. The second one I had, which is somewhat related, has to do with just the geopolitical tensions we are seeing and the macro uncertainty that you mentioned. Any comments you can provide on how the higher and volatile oil prices might be impacting your input costs and how much of a swing factor that could be to margins for this year?

Speaker #8: Any comments you can provide on how the higher and volatile oil prices might be impacting your input costs and how much of a swing factor that could be to margins for this year?

Speaker #4: Yeah. Like I said a minute ago, Bill and I monitored this really probably almost hour to hour day-to-day, Sergio. But the team is operating very, very well.

Jason Bailey: Yeah. You know, like I said a minute ago, Bill and I monitor this really probably almost hour to hour, day to day, Sergio. The team is operating very, very well. You know, in Q1, we were really successful. We haven't seen a huge impact from fuel costs. It's definitely an input for our contractors, but, you know, remember, we manage costs overall on a total cost per job. The levers as we think about, there's probably four or five key tools we use to kinda manage that cost base. One, I'd start with, we're always thinking about our mix of preferred contractors and how much business we have with them and trying to optimize that mix. Two, Bill and I continue to remain laser focused on SG&A and how we control costs there and what levers we have.

Speaker #4: In Q1, we were really successful. We haven't seen a huge impact from fuel costs. It's definitely an input for our contractors. But remember, we manage costs overall on a total cost per job.

Speaker #4: And the levers, as we think about it, there's probably four or five key tools we use to kind of manage that cost base. One, I'd start with, we're always thinking about our mix of preferred contractors and how much business we have with them, and trying to optimize that mix.

Speaker #4: Two, Bill and I continue to remain laser-focused on SG&A and how we control costs there, and what levers we have. Three, we are in a great position with our supply chain and being able to manage among multiple vendors and suppliers as we think about where we want to put our volume.

Jason Bailey: Three, we are in a great position with our supply chain and being able to manage among multiple vendors and suppliers as we think about where we wanna put our volume. The last two would be probably the more normal things you'd think of, but that's how we manage our trade service fees and how we manage dynamic pricing, you know, if we need to go to that level. I think we've got a lot of tools in our toolkit to help us manage through this, as we think about kind of the big macro picture right now.

Speaker #4: And then the last two would be probably the more normal things you'd think of. But that's how we manage our trade service fees and how we manage dynamic pricing if we need to go to that level.

Speaker #4: So I think we've got a lot of tools in our toolkit to help us manage through this, as we think about kind of the big macro picture right now.

Speaker #8: Great. Thanks for taking the questions.

Sergio Segura: Great. Thanks for taking the questions.

Speaker #1: Thanks, Sergio.

Speaker #2: Thank you very much. Our next question is coming from Corey Carpenter of JPMorgan. Corey, your line is live.

Bill Cobb: Thanks, Sergio.

William Cobb: Thanks, Sergio.

Operator 2: Thank you very much. Our next question is coming from Cory Carpenter of JPMorgan. Cory, your line is live.

Operator: Thank you very much. Our next question is coming from Cory Carpenter of J.P. Morgan. Cory, your line is live.

Speaker #9: Hey, good morning. I want to, Bill, to go back to a comment you made in the prepared remarks. I think you said renewal rates for the promotional cohorts are exceeding those for the non-promotional cohorts.

Cory Carpenter: Hey, good morning. I wanted, Bill, to go back to a comment you made in the prepared remarks. I think you said renewal rates for the promotional cohorts are exceeding those for the non-promotional cohorts. Could you just expand a bit on that, obviously?

Speaker #9: Could you expand a bit on that? Obviously, that's a bit counterintuitive. And then does that make you want to lean more perhaps even into that discounting strategy?

Bill Cobb: Yeah

William Cobb: Yeah

Cory Carpenter: a bit counterintuitive. Does that make you wanna lean more perhaps even into that discount strategy?

Speaker #1: Yeah. It is counterintuitive, Corey. And we've talked about this all the time. And I pressed the team multiple times. Are these numbers right? I think it has to do with consumer behavior.

Bill Cobb: Yeah, it is counterintuitive, Cory. We talk about this all the time, and I press the team, you know, multiple times. Are these numbers right? I think it has to do with consumer behavior and beyond just home warranties. This is a tactic that a lot of consumer services companies are using where you really discount your first year, and then there's almost an expectation among consumers that, you know, I got a great deal on the first year. I'm gonna have to absorb an increase in pricing. As we've said over, we believe, or we've proven, we've been at this for about 3 years now, so we've been able to see that we're able to climb back up to the, if you will, normalized pricing level within 18 to 24 months.

William Cobb: Yeah, it is counterintuitive, Cory. We talk about this all the time, and I press the team, you know, multiple times. Are these numbers right? I think it has to do with consumer behavior and beyond just home warranties. This is a tactic that a lot of consumer services companies are using where you really discount your first year, and then there's almost an expectation among consumers that, you know, I got a great deal on the first year. I'm gonna have to absorb an increase in pricing. As we've said over, we believe, or we've proven, we've been at this for about 3 years now, so we've been able to see that we're able to climb back up to the, if you will, normalized pricing level within 18 to 24 months.

Speaker #1: Beyond just home warranties, that this is a tactic that a lot of consumer services companies are using where you really discount your first year and then there's almost an expectation among consumers that I got a great deal in the first year.

Speaker #1: I get to. I'm going to have to absorb an increase in pricing. As we've said over, we believe or we've proven, we've been at this for about three years now.

Speaker #1: So we've been able to see that we're able to climb back up to the, if you will, normalized pricing level within 18 to 24 months.

Speaker #1: Excuse me. So we test this all the time. But I think what has happened is that it just proves out that people—and it has to do with what kind of service they get.

Bill Cobb: Excuse me. We test this all the time, but I think what has happened is that it just proves out that people. It, you know, it has to do with what kind of service they get. Do they have the right contractors? You know, a lot of factors go. We had the moment of truth is really the most important piece there. I know it's counterintuitive, but we've been testing this and proving it out continuously. To your point about would this indicate that we would do more? I think that's something we pulse. You know, we stay very close to this every month in terms of how we wanna pull the trigger on promotions. We are now moving into early days of dynamic discounting so that it isn't just the broad brush.

William Cobb: Excuse me. We test this all the time, but I think what has happened is that it just proves out that people. It, you know, it has to do with what kind of service they get. Do they have the right contractors? You know, a lot of factors go. We had the moment of truth is really the most important piece there. I know it's counterintuitive, but we've been testing this and proving it out continuously. To your point about would this indicate that we would do more? I think that's something we pulse. You know, we stay very close to this every month in terms of how we wanna pull the trigger on promotions. We are now moving into early days of dynamic discounting so that it isn't just the broad brush.

Speaker #1: Do they have the right contractors? A lot of factors come up. The moment of truth is really the most important piece there. So I know it's counterintuitive, but we've been testing this and proving it out continuously.

Speaker #1: To your point about would this indicate that we would do more? I think that's something we pulse. We stay very close to this. Every month in terms of how we want to pull the trigger on promotions.

Speaker #1: We are now moving into early days of dynamic discounting so that it isn't just the broad brush. We'll continue to do broad brush promotions like 50% off.

Bill Cobb: We'll continue to do broad brush promotions, like 50% off, but we're encouraged about what's potentially gonna happen with dynamic discounting. I think we're very active in this field. Like I said, we've been at it for about 3 years, and we feel good about it. Obviously, the important point is to make sure that those renewal rates continue to stay high.

William Cobb: We'll continue to do broad brush promotions, like 50% off, but we're encouraged about what's potentially gonna happen with dynamic discounting. I think we're very active in this field. Like I said, we've been at it for about 3 years, and we feel good about it. Obviously, the important point is to make sure that those renewal rates continue to stay high.

Speaker #1: But we're encouraged about what's potentially going to happen with dynamic discounting. So I think we're very active in this field. Like I said, we've been at it for about three years.

Speaker #1: And we feel good about it. And obviously, the important point is to make sure that those renewal rates continue to stay high.

Speaker #9: And I wanted to ask one more question on macro. I know you touched on kind of the cost side question earlier. But I wanted to ask it more on the demand side.

Cory Carpenter: I wanted to ask one more question on macro. I know you touched on kind of the cost side question earlier, but I wanted to ask it more on the demand side. There's been a lot of, you know, with the potential for higher inflation and that more stress on the lower end consumer, you know, are you seeing any change at all in consumer behavior? Maybe if you could just remind us of what your kind of mix of consumers demographically looks like. Thank you.

Speaker #9: And there's been a lot of the potential for higher inflation and more stress on the lower-end consumer. Are you seeing any change at all in consumer behavior?

Speaker #9: And maybe if you could just remind us of what your kind of mix of consumers demographically looks like. Thank you.

Speaker #1: Yeah. So let me take that. So the mix of consumers is about 50% below $100,000, 50% above that. The piece that we have not seen a real impact on demand is because with budget protection that our core value proposition brings, I think it actually plays to our advantage.

Bill Cobb: Yeah. Let me take that. The mix of consumers is about, you know, 50% below $100,000, 50% above that. The piece that we have not seen a real impact on demand is because with the budget protection that our core value proposition brings, I think it actually plays to our advantage. It may hurt us a little bit in the real estate sector with the real estate market continuing to be sluggish. I think the core value proposition, which we try to hit home very, very hard, and we try to do this on a targeted basis. We've talked in the past about, you know, targeting more millennials, targeting our Hispanic markets.

William Cobb: Yeah. Let me take that. The mix of consumers is about, you know, 50% below $100,000, 50% above that. The piece that we have not seen a real impact on demand is because with the budget protection that our core value proposition brings, I think it actually plays to our advantage. It may hurt us a little bit in the real estate sector with the real estate market continuing to be sluggish. I think the core value proposition, which we try to hit home very, very hard, and we try to do this on a targeted basis. We've talked in the past about, you know, targeting more millennials, targeting our Hispanic markets.

Speaker #1: It may hurt us a little bit in the real estate sector with the real estate market continuing to be sluggish. But I think the core value proposition, which we try to hit home very hard and we try to do this on a targeted basis, we talked in the past about targeting more millennials, targeting our Hispanic markets.

Speaker #1: So I think that has worked to our advantage. So to date, we haven't seen a softness in consumer demand. You can see that from some of our numbers.

Bill Cobb: I think that is, that has worked to our advantage. To date, we haven't seen a softness in consumer demand. You can see that from some of our numbers. I think that speaks to the, to the value proposition of a home warranty.

William Cobb: I think that is, that has worked to our advantage. To date, we haven't seen a softness in consumer demand. You can see that from some of our numbers. I think that speaks to the, to the value proposition of a home warranty.

Speaker #1: So and I think that speaks to the value proposition of a home warranty.

Speaker #9: Thank you.

Cory Carpenter: Great. Thank you.

Speaker #1: Thanks, Corey.

Speaker #2: Thank you very much. And our next question is coming from Mike Rendos of Benchmark. Mike, your line is live.

Bill Cobb: Thanks, Cory.

William Cobb: Thanks, Cory.

Operator 2: Thank you very much. Our next question is coming from Michael Rendino of The Benchmark Company. Michael, your line is live.

Operator: Thank you very much. Our next question is coming from Michael Rendino of The Benchmark Company. Michael, your line is live.

Speaker #10: Hey, guys. Thanks for taking the question. Can you talk a little bit about your relationship with SkySlope, how that works, and how much business is coming through them?

Michael Rendino: Hey, guys. Thanks for taking the question.

Bill Cobb: Sure.

William Cobb: Sure.

Michael Rendino: Can you talk a little bit about your relationship with SkySlope, how that works and how much business is coming through them?

Speaker #1: Yeah. Jason's been very close to that relationship. So I'm going to let him take that, and I may add something. But go ahead, Jason.

Bill Cobb: Yeah. Jason's been very close to that relationship. I'm gonna let him take that. I may add something in. Go ahead, Jason.

William Cobb: Yeah. Jason's been very close to that relationship. I'm gonna let him take that. I may add something in. Go ahead, Jason.

Speaker #10: Yeah. Mike, SkySlope, we've had a we have an ongoing relationship with them. And the announcement you saw was an expansion of that relationship. I think we were originally in four or five states and now we're expanding to over 40 states.

Jason Bailey: Yeah, Mike. SkySlope, we have an ongoing relationship with them. The announcement you saw was an expansion of that relationship. I think we were originally in 4 or 5 states. Now we're expanding to over 40 states. You know, it is. The easiest way to describe it is think of SkySlope as a platform that makes things easier for real estate agents. For us, the way that translates is we're in that workflow, so it's easier to attach a home warranty. You know, we're pleased with the relationship. You know, again, it's just another tool for our field sales team to be successful and kind of build on the momentum they already have.

Speaker #10: It is the easiest way to describe it is think of SkySlope as a platform that makes things easier for real estate agents. And then for us, the way that translates is we're in that workflow.

Speaker #10: So it's easier to attach a home warranty we're pleased with the relationship. And again, it's just another tool for our field sales team to be successful and kind of build on the momentum they already have.

Speaker #10: Okay. And just as a follow-up, is that an exclusive situation that you have there? And also, as far as the growth in the real estate channel, where are you seeing the most growth on a regional basis?

Michael Rendino: Okay. Just as a follow-up, is that an exclusive situation that you have there? Also, you know, as far as the growth in the real estate channel, you know, where are you seeing the most growth on a regional basis, and how many competitors do you see in some of those markets?

Speaker #10: And how many competitors do you see in some of those markets? Yeah. The I'll take that in two parts. The SkySlope relationship is not exclusive.

Jason Bailey: Yeah. I'll take that in two parts. The SkySlope relationship is not exclusive. But we're really comfortable with our position there and how well we work together. On a regional basis, we're seeing success, pretty-

Speaker #10: But we're really comfortable with our position there and how well we work together. And then on a regional basis, we're seeing success.

Speaker #1: I think it's pretty consistent with our overall business. What we call the smile states and our biggest markets are Texas, California, Georgia, etc.

Bill Cobb: I think it's pretty consistent.

William Cobb: I think it's pretty consistent.

Jason Bailey: Yeah

Bill Cobb: ... with our overall business. You know, what we call the Smile States. You know, our biggest markets are Texas and California, Georgia, you know, et cetera. I think as far as competitors go, you know, in the real estate part of the, you know, DTC, we have a larger share. A smaller share, about a third in real estate because we have many more competitors. From a geographic perspective, it's pretty consistent with the way our overall business plays out.

Jason Bailey: Yeah

William Cobb: ... with our overall business. You know, what we call the Smile States. You know, our biggest markets are Texas and California, Georgia, you know, et cetera. I think as far as competitors go, you know, in the real estate part of the, you know, DTC, we have a larger share. A smaller share, about a third in real estate because we have many more competitors. From a geographic perspective, it's pretty consistent with the way our overall business plays out.

Speaker #1: I think as far as competitors go, in the real estate part of the DTC, we have a larger share. Smaller share, about a third in real estate because we have many more competitors.

Speaker #1: But from a geographic perspective, it's pretty consistent with the way our overall business plays out.

Speaker #10: Okay. Thank you.

Michael Rendino: Okay. Thank you.

Speaker #1: Thank you.

Speaker #2: Thank you very much. While we appear to have reached the end of our question and answer session and indeed the end of the conference call, it does conclude today's conference.

Bill Cobb: Thank you.

William Cobb: Thank you.

Operator 2: Thank you very much. Well, we appear to have reached the end of our question and answer session and indeed the end of the conference call. It does conclude today's conference, and you may disconnect your phone lines at this time. We thank you for your participation.

Operator: Thank you very much. Well, we appear to have reached the end of our question and answer session and indeed the end of the conference call. It does conclude today's conference, and you may disconnect your phone lines at this time. We thank you for your participation.

Bill Cobb: Thanks, Jenny.

William Cobb: Thanks, Jenny.

Operator 2: Thank you so much.

Operator: Thank you so much.

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