Slide 1: Fourth-Quarter & Full-Year 2023 Earnings Webcast
Fourth-Quarter & Full-Year 2023 Earnings Webcast February 28, 2024
Slide 2: Today's Speakers
Today’s Speakers Bill Cobb Jessica Ross Matt Davis Chairman & Senior Vice President & Vice President Chief Executive Officer Chief Financial Officer Investor Relations & Treasurer
Slide 3: Forward Looking Statements; Non-GAAP Financial Measures
Forward Looking Statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, in particular, projected future performance and any statements
Slide 4: Record Financial Performance in 2023
Record Financial Performance in 2023 Financial Driven by Decisive Actions to Performance Improve Execution Revenue increased 7% to $1.78B Took aggressive actions on inflation Gross margins rebounded 700 bps to 50%, a 9-year high Delivered on pricing actions Adjusted EBITDA(1) rose 62% to Improved pr
Slide 5: 2024 Objectives
2024 Objectives • Focus on Customer Growth • Relaunch the American Home Shield Brand • Expand On-Demand Revenue • Deliver Consistent Margins 5
Slide 6: Significant Opportunity for Home Warranties
Significant Opportunity for Home Warranties Sizable Category Growth Potential Relevant Value Proposition 130M U.S. 1 Financial protection Households Opportunity 2 Convenience to grow 86M U.S. Homeowners above 4% 3 Peace of mind penetration ~5M Home Warranties Sources: Households and Homeowners: U.S.
Slide 7: AHS Best Positioned to Capitalize on Category Potential
AHS Best Positioned to Capitalize on Category Potential AHS Advantages ~2M • Largest home warranty company ~16K Members with scale Contractors • Over 50 years of experience • ~4M jobs annually All figures as of December 31, 2023 7
Slide 8: Reigniting Unit Growth Through Brand Relaunch
Reigniting Unit Growth Through Brand Relaunch • Educating homeowners on what it means to “warranty your home” • Innovative ad campaign • New tagline and logo • Celebrity spokesperson • New website • Launching in early April 8
Slide 9: Optimizing Real Estate Channel in Response to Market Conditions
Optimizing Real Estate Channel in Response to Market Conditions Existing Home Sales (M) Real Estate Update: • 2023 existing home sales lowest since 1995 6.1 • Inventory remains tight at 36 5.0 days in January 4.1 • Taken steps to optimize our real estate channel • Expect to be well positioned when m
Slide 10: Retention Rates Continued to Improve in 2023
Retention Rates Continued to Improve in 2023 Retention Rates Retention Highlights: • Mix shift benefit 76.2% • Improving onboarding 75.7% and increasing engagement • Autopay increased to 86% in 2023 74.2% • 1% improvement = ~$20M revenue 2021 2022 2023 10
Slide 11: Significant Potential for On-Demand Services
Significant Potential for On-Demand Services • 2023: Launched new Frontdoor brand; HVAC sales exceeded expectations • 2024: Reprioritizing resources to further drive HVAC sales and build technology capabilities for on- demand services • 2025 and beyond: Expand into on- demand repair and maintenance
Slide 12: Fourth Quarter 2023 Financial Summary
Fourth Quarter 2023 Financial Summary ($ millions) Revenue Net Income Adjusted EBITDA(1) +8% +4% +35% 45 366 9 33 339 8 Q4 2022 Q4 2023 Q4 2022 Q4 2023 Q4 2022 Q4 2023 (1) See the Appendix accompanying this presentation for a reconciliation of Adjusted EBITDA, a non-GAAP measure, to the nearest U.S.
Slide 13: Fourth Quarter 2023 Gross Profit Improved 22%
Fourth Quarter 2023 Gross Profit Improved 22% ($ millions) Gross Profit +22% 177 Gross Profit 145 Margin +570bps to 48% Q4 2022 Q4 2023 13
Slide 14: Fourth Quarter 2023 Adjusted EBITDA Improved 35%
Fourth Quarter 2023 Adjusted EBITDA Improved 35% ($ millions) Three Months Ended December 31, 2022 $33 Impact of change in revenue(2) 29 Contract claims costs(3) 4 Q4 Sales and marketing costs (17) Adjusted General and administrative costs (6) EBITDA(1) Interest and net investment income 2 +35% Othe
Slide 15: Full Year 2023 Financial Summary
Full Year 2023 Financial Summary ($ millions) Revenue Net Income Adjusted EBITDA(1) +7% +141% +62% 1,780 171 346 214 1,662 71 2022 2023 2022 2023 2022 2023 (1) See the Appendix accompanying this presentation for a reconciliation of Adjusted EBITDA, a non-GAAP measure, to the nearest U.S. GAAP measur
Slide 16: Full Year 2023 Gross Profit Improved 25%
Full Year 2023 Gross Profit Improved 25% ($ millions) Gross Profit +25% 885 710 Gross Profit Margin +700bps to 50% 2022 2023 16
Slide 17: We Took Decisive Action to Improve Margins
We Took Decisive Action to Improve Margins Increased prices in response to rising inflation Improved cost control and planning process Leveraged purchasing power with suppliers and contractors Improved processes; implemented high-cost job review 17
Slide 18: Full Year 2023 Adjusted EBITDA Improved 62%
Full Year 2023 Adjusted EBITDA Improved 62% ($ millions) Twelve Months Ended December 31, 2022 $214 Impact of change in revenue(2) 126 Contract claims costs(3) 52 FY Sales and marketing costs (46) Adjusted Customer Service costs 6 EBITDA(1) General and administrative costs (15) +62% Interest and net
Slide 19: Full Year 2023 Free Cash Flow Improved 49%
Full Year 2023 Free Cash Flow Improved 49% ($ millions) Twelve Months Ended December 31, Free Cash Share Flow(1) Repurchases Net cash provided from 2023 2022 (used for): $170M $120M Operating Activities 202 142 Investing Activities (32) (35) Total Cash Financing Activities (137) (77) Cash increase/(
Slide 20: Capital Structure Continues to Improve
Capital Structure Continues to Improve $882M • #1: Growth through organic and M&A opportunities • #2: Maintain a strong 3.7x $568M financial profile $432M • #3: Return excess cash to shareholders 2.1x • Targeting $100M of share repurchases in 2024 1.2x YE 2018 YE 2020 YE 2023 (1) Net Debt Net Debt /
Slide 21: Q1 2024 and FY 2024 Outlook
Q1 2024 and FY 2024 Outlook Q1 2024 Outlook Q1 2023 Results Low High Revenue ($ millions) 367 370 380 Adjusted EBITDA ($ millions) (1)(2) 54 40 50 FY 2023 Results FY 2024 Outlook Revenue ($ billions) 1.78 1.81 1.84 Gross Profit Margin (%) 50 48.5 49.5 SG&A ($ millions) 581 580 595 Adjusted EBITDA ($
Slide 22: FTDR Delivering Strong Adjusted EBITDA Growth
FTDR Delivering Strong Adjusted EBITDA Growth ($ millions) 355 Projected 2-Year 214 EBITDA CAGR Nearly 30% 2022 2024E Note: See the Appendix accompanying this presentation for a reconciliation of Adjusted EBITDA, a non-GAAP measure, to the nearest GAAP measure. See “Reconciliations of Non-GAAP Finan
Slide 23: Reasons to Invest in Frontdoor
Reasons to Invest in Frontdoor • Leader in home warranty category • Great core business with recurring revenue model • Targeting consistent gross margin profile in 2024 • Generate a significant amount of cash 23
Slide 24: FTDR Multiple at All-Time Low
FTDR Multiple at All-Time Low 20.0x ~18x 15.0x 10.0x Frontdoor peak multiple Frontdoor ~9x current 5.0x multiple 0.0x Sep-18 Jun-19 Mar-20 Dec-20 Oct-21 Jul-22 Apr-23 Jan-24 Source: FactSet as of 1/8/2024; analysis based on enterprise value compared to next twelve month Adjusted EBITDA estimates 24
Slide 25: Appendix
Open the Frontdoor Appendix
Slide 26: Q4 2023 Consolidated Results
Q4 2023 $ millions, except per share amounts Three Months Ended December 31, 2023 2022 Better /(Worse) Consolidated Revenue YOY Growth $ 366 $ 339 $ 27 8% Results Gross Profit % of revenue 177 48.3% 145 42.6% 32 570 pts Note: See elsewhere in this Appendix for a reconciliation of Adjusted Selling an
Slide 27: FY 2023 Consolidated Results
FY 2023 $ millions, except per share amounts Twelve Months Ended December 31, 2023 2022 Better /(Worse) Consolidated Revenue YOY Growth $ 1,780 $ 1,662 $ 118 7% Results Gross Profit % of revenue 885 49.7% 710 42.7% 175 700 bps Note: See elsewhere in this Appendix for a reconciliation of Adjusted Sel
Slide 28: Net Income to Adjusted EBITDA Reconciliations
Net Income to Adjusted EBITDA Reconciliations Three Months Ended Twelve Months Ended December 31, December 31, ($ millions) 2023 2022 2023 2022 Net Income $ 9 $ 8 $ 171 $ 71 Depreciation and amortization expense 9 9 37 34 Goodwill and intangibles impairment — — — 14 Restructuring charges 9 2 16 20 P
Slide 29: Net Income to Adjusted EBITDA Reconciliations (Cont.)
Net Income to Adjusted EBITDA Reconciliations (Cont.) Three Months Ended March 31, ($ millions) 2023 2022 Net Income $ 22 $ 2 Depreciation and amortization expense 9 8 Goodwill and intangibles impairment — — Restructuring charges 1 — Provision for income taxes 7 2 Non-cash stock-based compensation e
Slide 30: Net Cash Provided from Operating Activities to Free Cash Flow Reconciliations
Net Cash Provided from Operating Activities to Free Cash Flow Reconciliations Three Months Ended Twelve Months Ended December 31, December 31, ($ millions) 2023 2022 2023 2022 Net Cash Provided from Operating Activities $ 63 $ 62 $ 202 $ 142 Property additions (9) (10) (32) (40) Free Cash Flow $ 54