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Frontdoor, Inc. (FTDR)·Q1 2025 Earnings Summary

Executive Summary

  • Frontdoor delivered a strong Q1 2025: revenue rose 13% to $426M, Adjusted EBITDA increased 41% to $100M, and gross margin reached a first‑quarter record 55% .
  • Management raised full‑year 2025 guidance across revenue ($2.03B–$2.05B), gross margin (54%–55%), and Adjusted EBITDA ($500M–$520M), and lifted repurchase target to at least $200M, signaling confidence and capital return .
  • The beat vs company outlook was driven by better‑than‑expected contract claims costs (>50% of the beat) and stronger revenue conversion; CFO noted “we exceeded expectations for both revenue and adjusted EBITDA” .
  • Strategic execution themes: organic DTC unit growth (+4%), integration of 2‑10, non‑warranty revenue scale (HVAC and Moen), and member retention at ~80% underpin trajectory and guidance raise .
  • Potential stock catalysts: sustained estimate revisions higher on margin/guidance, robust buybacks, and narrative of undervaluation (CEO cited ~8x multiple vs historical ~18x); watch tariff/weather normalization impacts embedded in H2 guide .

What Went Well and What Went Wrong

What Went Well

  • Gross margin expanded 380 bps YoY to 55%, a first‑quarter record, on favorable claims development (+$7M), process improvements, and balanced pricing levers .
  • Non‑warranty growth scaling: 2025 HVAC revenue outlook raised to $105M and Moen partnership expanded to 21 states, diversifying top line and offsetting DTC promotional pricing headwinds .
  • Retention and DTC momentum: retention at 79.9% and DTC ending members up 15% to 310k (including 2‑10, +4% organic); management’s pulsed promotional strategy is “working” to drive unit growth .
    • “Frontdoor delivered outstanding first quarter financial results… strong financial position enables us to… continue to return excess cash to shareholders” — CFO Jessica Ross .
    • “We are off to a great start in 2025 and are pleased to increase our full‑year outlook across the board” — CEO Bill Cobb .

What Went Wrong

  • DTC revenue declined 9% YoY due to promotional pricing to drive unit growth; management is accepting near‑term revenue trade‑off for long‑term member expansion .
  • Higher opex from 2‑10 integration: customer service (+$4M), G&A (+$10M), D&A (+$14M), and interest expense (+$10M) increased YoY, reflecting acquisition‑related costs .
  • Weather/incident mix: HVAC saw a $5M unfavorable weather impact and a slightly higher number of service requests per customer, partly offset by lower incidents in other trades ($4M benefit) .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Revenue ($M)$378 $383 $426
Gross Profit ($M)$195 $186 $235
Gross Profit Margin %~51.6% (computed from 195/378) 49% 55%
Net Income ($M)$34 $9 $37
Diluted EPS (GAAP)$0.43 $0.11 $0.49
Adjusted Diluted EPS (non‑GAAP)$0.44 $0.27 $0.64
Adjusted EBITDA ($M)$71 $49 $100

Revenue by Customer Channel ($M):

ChannelQ1 2024Q4 2024Q1 2025
Renewals$298 $296 $333
Real Estate (First‑Year)$27 $26 $27
Direct‑to‑Consumer (First‑Year)$36 $31 $32
Other$17 $30 $33
Total$378 $383 $426

KPIs:

KPIQ1 2024Q4 2024Q1 2025
Number of Home Warranties (M)1.96 2.12 2.10
Customer Retention Rate (%)76.3% 79.9% 79.9%
DTC Ending Member Count——310,000
Preferred Contractors Usage (%)——85%

Key cash flow and liquidity (Q1 2025):

  • Operating cash flow $124M; Free Cash Flow $117M; Unrestricted cash $322M (total cash $506M) .
  • Repurchases $105M YTD through April; net leverage ~1.9x; liquidity ~$570M per CFO commentary .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$2.00B–$2.04B $2.03B–$2.05B Raised
Gross Profit MarginFY 202551.5%–53% 54%–55% Raised
Adjusted EBITDAFY 2025$450M–$475M $500M–$520M Raised
SG&AFY 2025$640M–$660M $650M–$670M (+$10M for marketing) Raised
Other RevenueFY 2025$155M–$165M $165M–$175M Raised
Home Warranty Member CountFY 2025decline 2%–4% decline 1%–3% Raised (less negative)
CapexFY 2025$35M–$45M $35M–$45M Maintained
Effective Tax RateFY 2025~25% ~25% Maintained
Share RepurchasesFY 2025—≥$200M target Initiated/raised
Q2 RevenueQ2 2025—$600M–$605M New
Q2 Adjusted EBITDAQ2 2025—$185M–$190M New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
Technology initiatives (AHS app, video chat)App launched Oct; operational improvements, margin expansion App highlighted; non‑warranty HVAC drove Other revenue App ~200k downloads; 80k service requests; video chat solves ~17% remotely Strengthening adoption
Supply chain/tariffs/inflationFavorable weather and process improvements; margin gains Normal inflation partly offset by pricing/service fees Q1 inflation essentially flat; tariffs uncertainty; 1% inflation ≈ $10M cost; H2 conservatism Monitoring; H2 caution
Real estate channel/macroReal estate revenue −10%; macro headwinds Real estate −3%; continued macro pressure Real estate revenue flat; organic first‑year real estate members −6%; expect ~15% Q2 growth (2‑10 boost) Stabilizing with 2‑10
Pricing/trade service feesShift to higher service fees lifted margins DTC revenue −16% due to promotional pricing to drive units Pulsed promotions to drive DTC units; dynamic pricing; net ~4% price increase for 2025 Ongoing optimization
Non‑warranty services (HVAC, Moen)Other +41% YoY (HVAC) Other +67% YoY (HVAC upgrades) HVAC outlook $105M; Moen expanded to 21 states; new home structural warranty ~$44M in 2025 Broadening revenue
Contractor network——Preferred contractors at 85% of service jobs Improving quality/cost
Capital allocation/valuationCompleted $400M prior auth; new $650M 3‑yr auth Repurchased ~$160M in 2024; 2‑10 closed; new facility ≥$200M 2025 buybacks; CEO highlights ~8x EBITDA multiple undervaluation Aggressive buybacks

Management Commentary

  • “We are off to a great start in 2025 and are pleased to increase our full‑year outlook across the board” — Bill Cobb, CEO .
  • “Frontdoor delivered outstanding first quarter financial results… strong financial position enables us to… invest for growth and continue to return excess cash to shareholders through share repurchases” — Jessica Ross, CFO .
  • “We had $32M of favorable revenue conversion… and an $8M decline in contract claims costs… adjusted EBITDA exceeded the midpoint of our outlook by $25M” — Jessica Ross .
  • “We now sit at a multiple of 8 on our current midpoint guide of $510M… The math here is screaming that Frontdoor is undervalued” — Bill Cobb .

Q&A Highlights

  • Tariffs and inflation: inflation was “virtually” flat in Q1, HVAC costs down; some suppliers raising prices, but supply chain flexibility and conservatism built into H2 guide .
  • Refrigerant transition: managing old/new equipment; potential for whole system replacements; guidance raised with close monitoring .
  • Incidence/service requests: higher due to 2‑10 addition and unfavorable HVAC weather; expect ~4M incidents for the year (normalization) .
  • DTC promotions: pulsed promotional events vs month‑long; strategy sustainable with focus on member count and retention offsets .
  • Beat drivers: non‑warranty (HVAC/Moen) and renewals volume; >50% of beat from claims costs, remainder from revenue conversion .
  • Q2 channel outlook: DTC +~10%; real estate +~15% helped by 2‑10; renewals high single digit .

Estimates Context

Results vs Wall Street consensus (S&P Global):

MetricQ1 2024Q4 2024Q1 2025
Revenue Consensus Mean ($M)*376.18367.91416.39
Revenue Actual ($M)378 383 426
Primary EPS Consensus Mean ($)*0.2010.1130.378
Adjusted Diluted EPS Actual ($)0.44 0.27 0.64
# of Revenue Estimates*766
# of EPS Estimates*655
  • Q1 2025: revenue beat by ~$9.6M; Adjusted EPS beat by ~$0.26; broad‑based beat consistent with CFO remark of exceeding revenue and Adjusted EBITDA expectations .
  • Q4 2024: revenue beat of ~$15.1M; Adjusted EPS beat of ~$0.16; Q1 2024: modest revenue beat and sizable EPS beat.
    *Values retrieved from S&P Global.

Key Takeaways for Investors

  • Margin durability: 200+ bps hike to full‑year margin guidance to 54%–55% underscores process improvements, pricing discipline, and claims management; watch H2 normalization (tariffs/weather/incidence) baked into the guide .
  • Mix management: willingness to trade DTC price for unit growth, offset by renewals strength and expanding Other revenue (HVAC/Moen/new home structural warranties) .
  • Cash generation and buybacks: record FCF ($117M) and ≥$200M 2025 buybacks provide downside support; net leverage ~1.9x with ~$570M liquidity .
  • Integration progress: 2‑10 driving volume, real estate channel stabilization, and new home structural warranty revenue; SG&A guide increased to support marketing/member growth .
  • Estimates likely to move higher: raised top‑line, margin, and EBITDA guides plus demonstrated beats support positive estimate revisions and multiple re‑rating arguments .
  • Risks: tariff‑driven H2 inflation, normalization of favorable weather, incident rate rise; management highlighted levers (pricing, trade service fee, supply chain) to protect margins .
  • Near‑term trading setup: watch Q2 delivery vs $600M–$605M revenue and $185M–$190M Adjusted EBITDA, DTC unit momentum under pulsed promotions, and continued buyback cadence .