Frontdoor, Inc. · NASDAQ:FTDR
Frontdoor — Debt Investor Presentation (December 2024)
77 slides from Frontdoor's debt investor presentation, December 2024
Slide 1: Lender Presentation
Lender Presentation December 2024
Slide 2: 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 3: Transaction Overview
Frontdoor, Inc. Transaction Overview 3
Slide 4: Transaction Overview
Transaction Overview Frontdoor, Inc. (“Frontdoor” or the “Company”) is a leading provider of home service plans in the United States and operates under the American Home Shield and Frontdoor brands As of September 30, 2024, Frontdoor ended LTM with $1,826M in Revenue, up 4.2% year-over-year As
Slide 5: Transaction Overview (Cont'd)
Transaction Overview (Cont’d) Frontdoor’s targeted pro forma capital structure is expected to be as follows: New $250M Revolving Credit Facility due 2029, which will replace Frontdoor’s existing Revolving Credit Facility New ~$418M Term Loan A due 2029, ~$218M of which will refinance Frontdoor
Slide 6: Sources & Uses and Pro Forma Capitalization
Sources & Uses and Pro Forma Capitalization Sources Uses New 5-Year $250M Revolving Credit Facility due 2029 $- Refinance existing $250M Revolving Credit Facility due 2026 $- New 5-Year Term Loan A due 2029 418 2-10 Acquisition Purchase Price 585 New 7-Year Term Loan B due 2031 800 Repay Existing Te
Slide 7: Summary of Terms – Pro Rata
Summary of Terms – Pro Rata Borrower Frontdoor, Inc. (the “Borrower”) Facility New Revolving Credit Facility New Term Loan A Amount $250M $418M Maturity 5 years from closing 5 years from closing Amortization None 5% per annum Net First Lien Leverage Ratio Drawn Undrawn ≥ 3.0x S+200 30 bps Pricing ≥
Slide 8: Summary of Terms – Term Loan B
Summary of Terms – Term Loan B Borrower Frontdoor, Inc. (the “Borrower”) Facility Term Loan B Amount $800M Use of proceeds Refinance existing Term Loan B due 2028 and finance a portion of the 2-10 Acquisition Tenor 7 years from closing Guarantors Consistent with the existing credit facility Call pro
Slide 9: Organization Chart
Organization Chart Frontdoor, Inc. Borrower under Senior Secured Incorporated in Delaware Facilities American Home Shield Frontdoor Pro Home Streem, LLC. Non-guarantor Subsidiaries Corporation Solutions, Inc. Incorporated in Delaware Incorporated in Delaware Incorporated in Delaware Home Security of
Slide 10: Today's Speakers
Today’s Speakers Jessica Ross Matt Davis Senior Vice President & Vice President Chief Financial Officer Investor Relations & Treasurer 10
Slide 11: Key Credit Highlights
Key Credit Highlights Significant total addressable market Leading provider in U.S. Home Warranties Recurring revenue business model with strong renewal rates Strong gross margins from prior pricing actions and process improvement initiatives Capital light business model Strong cash flow
Slide 12: Company Overview
Frontdoor, Inc. Company Overview 12
Slide 13: Two Distinct Growth Engines
1 Company Frontdoor, Inc. NASDAQ: FTDR Two Distinct Growth Engines 2 Brands 13
Slide 14: We Are the Leading Provider of Home Warranties
We Are the Leading Provider of Home Warranties ~2M Home Warranties Nationwide Marketplace ~16K Contractors • ~ 4M jobs annually • Over 50 years of experience Note: All figures as of December 31, 2023 14
Slide 15: Strong and Diversified Business Model
Strong and Diversified Business Model Leading Brands Contractors Customers Employees & Partners Nationwide ~2 million Coverage Members ~1,700 Employees Core home services provider ~16,000 ~4,000 >75% Contractors Preferred Customer Retention Rate Strategic Relationships -Top Real Estate Brokers - Par
Slide 16: Significant Benefits of Our Scale
Significant Benefits of Our Scale Additional gross More members in margin to invest a local geography in growth 1 4 Ability to negotiate More service annual volume 3 2 requests from discounts with those members contractors and suppliers 16
Slide 17: Large Renewal Base
Attractive Recurring Revenue Model Real Estate 8% Large DTC Renewal 11% Base Drives Renewals 77% Predictable Revenue Note: 2023 HSP revenue (all brands); Real Estate represents First Year Real Estate, DTC represents First Year Direct-to-Consumer 17
Slide 18: We've Executed What We Said We Would Do
We’ve Executed What We Said We Would Do 1 2 Focused on Customer Growth Acquiring 2-10 3 4 Improved Retention Enhanced Margins Rates 5 Expanded On-Demand 18
Slide 19: What is a Home Warranty?
What is a Home Warranty? frontdoor
Slide 20: How our Home Warranties Work
How our Home Warranties Work A home warranty is an annual, renewable plan that covers specified home systems and appliances when they stop working due to normal wear and tear Customer chooses coverage and plan and pays monthly 1 or annual fee 2 Covered item breaks 3 Customer requests service & pays
Slide 21: Product Lineup Meets Different Customer Budgets
Product Lineup Meets Different Customer Budgets ShieldSilver ShieldGold ShieldPlatinum Systems Appliances Additional Coverage National Avg Monthly Price $43 $62 $95 Most Popular Option Note: Pricing data reflects 2023 DTC1 median monthly base price plus average option price per 2023 management estim
Slide 22: A Compelling Value Proposition: Budget Protection
A Compelling Value Proposition for Homeowners Budget Protection against Protection high cost of home repairs and replacements 22
Slide 23: A Compelling Value Proposition: Convenience
A Compelling Value Proposition for Homeowners Convenience ~4K preferred contractors ready to solve home service problems 23
Slide 24: A Compelling Value Proposition: Guarantee
A Compelling Value Proposition for Homeowners We stand behind our work Guarantee 24
Slide 25: A Compelling Value Proposition: Peace of Mind
A Compelling Value Proposition for Homeowners Having a plan for inevitable but unexpected home Peace of service needs Mind 25
Slide 26: Strong Value Proposition for Contractors
Strong Value Proposition for Contractors Contractors Access to Steady Work Infrastructure Opportunity to Paid Jobs Upsell 26
Slide 27: Our Preferred Contractor Network is What Makes Us Different
Our Preferred Contractor Network is What Makes Us Different A Preferred Our model Contractor focuses on is… aggregation of preferred contractors • Based on cost and quality scores • Designated at the market level • Focus is on quality of contractors – not quantity 27
Slide 28: Our Preferred Contractor Network Performs Most of Our Jobs
Our Preferred Contractor Network Performs Most of Our Jobs We have Who We have 4K performed ~ 16K ~ preferred 83% contractors contractors of our jobs Figures listed are from 2023 10K 28
Slide 29: Preferred Contractors Deliver…
Preferred Contractors Deliver… …Better cost …Better member outcomes outcomes Cost per claim Preferred nearly half of contractors provide: non-preferred • Faster service contractors • Better quality • Higher member retention 29
Slide 30: We Have a Substantial Total Addressable Market
We Have a Substantial Total Addressable Market 30
Slide 31: We Have a Bright Long-Term Opportunity
We Have a Bright Long-Term Opportunity Sizable Category Growth Potential 131M U.S. Households Opportunity 86M U.S. to grow Homeowners above 4% penetration ~5M Home Warranties Source: Households and Homeowners: U.S. Census Bureau, 2023; Home Service Plan Audience: Frontdoor Consumer Segmentation Stud
Slide 32: Home Warranty Category has Potential to Triple
Home Warranty Category has Potential to Triple Homes Covered by a Home Warranty (M) ~15 5 5 3 2012 2018 2023 Potential Source: Management 2024 estimates and Frontdoor consumer segmentation study 2023 32
Slide 33: Strong Consumer Value Proposition to Drive Continued Penetration
Strong Consumer Value Proposition to Drive Continued Penetration Key Drivers Busy homeowners don’t want stress from unexpected breakdowns Low savings rate driving consumers to seek financial protection Peace of Mind Millennials seek modern on-demand offerings Protection when buying an existing home
Slide 34: We Appeal to Multiple Age Groups
We Appeal to Multiple Age Groups Total Members | May 2024 Gen Z 18-24 4.5% Gen Y / Millennials 25-34 15.6% 41% Gen Y / Millennials 35-44 21.0% Gen X 45-54 21.6% Gen X / Boomers 55-64 18.3% 59% Boomers 65-74 11.5% Boomers / Silent 75+ 7.4% Source: AHS Q1 Brand & Category Study, Clear Vantage May 2024
Slide 35: We Appeal to a Diverse Range of Incomes
We Appeal to a Diverse Range of Incomes Total Members | May 2024 Under $35K 9.6% $35K - 49K 8.1% 51% $50K - 74K 16.7% $75K - 99K 16.8% $100K - 149K 23.2% 49% $150K+ 25.8% Source: AHS Q1 Brand & Category Study, Clear Vantage May 2024; Note: Total members based on AHS members only 35
Slide 36: We Appeal to Various Races & Ethnicities
We Appeal to Various Races & Ethnicities Total Members | May 2024 White 54.8% 54.8% Black 20.2% 20.2% 20.2% Latino 13.5% 13.5% Asian 6.2% 6.2% Uncoded 1.8% 1.8% Other 3.5% 3.5% Source: AHS Q1 Brand & Category Study, Clear Vantage May 2024; Note: Total members based on AHS members only 36
Slide 37: Q3 Update: Focus on Growing our Customer Base in Each Channel
Q3 Update: Focus on Growing our Customer Base in Each Channel 37
Slide 38: Real Estate
Top Priority: Add More Home Warranty Customers • Existing home sales remain challenged but inventory improving • AHS maintaining leading category share Real • Expect RE market to improve in 2025 Estate Source: Management 2023 estimates 38
Slide 39: Direct to Consumer
Top Priority: Add More Home Warranty Customers • The AHS marketing campaign is working Aided brand awareness is up Google searches are up Direct • Phase 2 to improve targeting, build to consideration and grow leads Consumer • Optimizing discount strategy 39
Slide 40: We Grew DTC Customers in the 3rd Quarter
We Grew DTC Customers in the 3rd Quarter DTC Home Warranties (in thousands) • The Marketing Campaign and Discounting Strategy are 270 271 working 264 • We now expect our annual DTC customer count to be in line with last year Q1 2024 Q2 2024 Q3 2024 Source: Company filings 40
Slide 41: Expanding Revenue Streams
We Have Momentum in Our On-Demand Business • Expect $100M in on-demand revenue this year, driven largely by New HVAC sales Expanding • Expanding partnership with Moen to 7 additional states Revenue • Marketing AHS home warranties through Streams partnerships, such as AARP 41
Slide 42: Retention Rate at Record High
Retention Rate At Record High 77.7% • Retention rates have improved 150 basis points to record high 77.7% in Q3 2024 • While channel mix shift is a large driver, our process improvements are helping: Improving customer service Renewals Expanding use of preferred contractors Moving more members
Slide 43: Introducing the American Home Shield App
Introducing the American Home Shield App Members can now… • Quickly access their account and plan information • Make and track their service requests • Take advantage of special offers • Manage their payment information Future app enhancements to come in early 2025 43
Slide 44: Frontdoor Acquiring 2-10 Home Buyers Warranty
Frontdoor Acquiring 2-10 Home Buyers Warranty 44
Slide 45: Transaction Overview
Transaction Overview • Frontdoor acquiring 2-10 Home Buyers Warranty for $585 million • All cash transaction, expected to be primarily financed with debt • Anticipated to close mid- December 45
Slide 46: 2-10 Overview
2-10 Overview Wide Geographic Coverage(1) ~1 in 5 New Homes Built Covered by 2-10 ~19k Homebuilders New Home Only New Home and HSP 45 of the top Homebuilders 40+ years in operation Strong customer service: high ratings from builders, members & contractors Note: (1) Actively sells HSPs in all states
Slide 47: Strong Deal Thesis – Accelerates Growth
Strong Deal Thesis – Accelerates Growth Acquisition Near-Term Benefits Long-Term Impact 2-10 is a Leading More Customers Improves Long- Provider of Term Growth in Diversification Customer Base, New Home Revenue and Structural Expect Synergies Earnings Warranties (NHSW) 47
Slide 48: Why We Like 2-10: Expands Customer Base
Why We Like 2-10 Expands Customer Base Adds new line Adds Cross sell Cross sell of business: complementary home on-demand New home home warranty warranties to services structural business new home to all warranties structural customers customers 48
Slide 49: Why We Like 2-10 (Cont'd)
Why We Like 2-10 (Cont’d) Powerful Business Combination Customer growth: 292K customers in 2023 Revenue growth: $187M(1) of revenue in 2023 Earnings growth: $34M(1) of Adjusted EBITDA in 2023 Business Diversification New home structural warranty is a different line of business Business Synergies Exp
Slide 50: Expect Growing Demand for New Homes
Expect Growing Demand for New Homes • U.S. is fundamentally under-built - New Home Sales demand for new homes expected to continue to rise 807 • Demand supported by demographic 781 trends and expectations for falling interest rates 700 664 • New single-family home 636 sales projected to increase ove
Slide 51: What is a New Home Structural Warranty?
What is a New Home Structural Warranty? • The builder is the customer: ~90% of NHSW revenue from repeat builders • Provides the builder coverage for structural failures by transferring the builder’s legal obligation to repair to 2-10 • Appeals to broad range of builders Industry expertise, long-stan
Slide 52: Key Product Features of NHSW
Key Product Features of NHSW 2-10’s long underwriting track record has resulted in stable and attractive margins 10-year 1-year insurance- 2-year workman- backed systems ship structural coverage coverage warranty coverage Risk transfer enables builders to focus on building 52
Slide 53: Supported by Strong Customer Base of Builders
Supported by Strong Customer Base of Builders • Target builders are small-to-medium- sized, constructing <1,000 homes a year • Builders vetted through 2-10’s underwriting criteria • Strong retention rates across ~19K builders 53
Slide 54: Complementary Home Warranty Business
Complementary Home Warranty Business 2-10’s direct-to-consumer and real estate channels, high renewal rates and contractor network complement Frontdoor’s core business DTC Real Estate Renewals Contractors 54
Slide 55: Pro Forma Revenue and Adjusted EBITDA
Pro Forma Revenue and Adjusted EBITDA Pro Forma Revenue ($M) Pro Forma Adj. EBITDA ($M) Pro Forma EBITDA margin 23.4% $2,013(1) $187(2) $472(1) $34(2) $1,826(3) $438(3) Frontdoor 2-10 Frontdoor 2-10 Note: (1) Pro Forma FTDR LTM as of Q3 2024 Plus 2-10 2023; (2) Revenue and adjusted EBITDA for 2-10 a
Slide 56: Frontdoor Offers a Strong Financial Profile
Frontdoor Offers a Strong Financial Profile Solid revenue growth Strong margins and Capital cash flows light business model 56
Slide 57: Record Financial Performance in Q3 2024
Record Financial Performance in Q3 2024 Revenue increased 3% to $540M Gross Profit Margin expanded 550 bps to 57% Net Income grew 40% to $100M Adjusted EBITDA(1) grew 29% to $165M Note: (1) See the Appendix accompanying this presentation for a reconciliation of Adjusted EBITDA, a non-GAAP measure, t
Slide 58: Frontdoor 9/30/2024 YTD Financial Summary
Frontdoor 9/30/2024 YTD Financial Summary ($ millions) Revenue Net Income Adjusted EBITDA(1) +3% +39% +31% $226 $394 $1,461 $1,414 $163 $302 YTD 2023 YTD 2024 YTD 2023 YTD 2024 YTD 2023 YTD 2024 Note: (1) See the Appendix accompanying this presentation for a reconciliation of Adjusted EBITDA, a non-
Slide 59: YTD Gross Profit Improved 14%
Frontdoor 9/30/2024 YTD Gross Profit Improved 14% ($ millions) Gross Profit +$98M Gross Profit margin 55.2% 50.1% $806 Gross Profit $708 Margin +510bps to 55% YTD 2023 YTD 2024 Note: Metrics for YTD 2024 correspond to Q3 2024 period; All comparisons versus the prior year period Q3 2023 59
Slide 60: Significant Margin Expansion Since 2022
Significant Margin Expansion Since 2022 Gross Margins 60 • Gross margins have risen ~53% over 1,000 bps in 2+ years 50 43% 40 • We are on track to deliver a 30 year of record margin 20 performance 10 0 2022 2024 Source: Frontdoor 2022 10-K, Frontdoor 2024 Q3 10-Q; Note: 2024 Gross Margin includes pr
Slide 61: Steady Revenue Growth
Steady Revenue Growth Revenue ($M) 2000 $1,780 $1,826 $1,662 1800 $1,602 $1,474 1600 1400 1200 1000 800 600 400 200 0 2020 2021 2022 2023 LTM Q3 2024 Source: Company filings 61
Slide 62: Rebound in Adjusted EBITDA Since 2022
Rebound in Adjusted EBITDA Since 2022 Adjusted EBITDA ($M)(1) EBITDA margin 24.0% 500 $438 19.5% 450 400 18.7% 350 18.3% $346 $300 12.9% $270 300 $214 250 200 150 100 50 0 2020 2021 2022 2023 LTM Q3 2024 Source: Company filings; Note: (1) See the Appendix accompanying this presentation for a reconci
Slide 63: Meaningful Free Cash Flow
Meaningful Free Cash Flow Free Cash Flow ($M)(1) 250 $235 $175 200 $170 $154 150 $102 100 50 0 2020 2021 2022 2023 LTM Q3 2024 Source: Company filings; Note: (1) See the Appendix accompanying this presentation for a reconciliation of Free Cash Flow, a non-GAAP measure, to the nearest U.S. GAAP measu
Slide 64: Capital Light Business Model
Capital Light Business Model Capital Spending ($M) 45 $40 $40 40 $32 $32 35 $31 30 25 20 15 10 5 0 2020 2021 2022 2023 LTM Q3 2024 Source: Company filings 64
Slide 65: Significant Deleveraging Since Spin-Off in 2018
Significant Deleveraging Since Spin-Off in 2018 (1) Frontdoor de-levered nearly 3x since YE 2018 3.7x 2.4x 2.2x 2.2x 2.1x 1.8x 1.3x 0.9x YE 2018 YE 2019 YE 2020 YE 2021 YE 2022 YE 2023 LTM 9/30 Combined PF (2) Net Debt / Trailing 12M EBITDA Note: (1) See the Appendix accompanying this presentation f
Slide 66: Capital Allocation Priorities
Capital Allocation Priorities Growth: Invest in the business organically and evaluate acquisitions in the larger home services space Maintain a solid financial profile and strong available liquidity: Strong cash flow from business; low capex requirements Maintain ample available cash and h
Slide 67: Key Credit Highlights
Key Credit Highlights Significant total addressable market Leading provider in U.S. Home Warranties Recurring revenue business model with strong renewal rates Strong gross margins from prior pricing actions and process improvement initiatives Capital light business model Strong cash flow
Slide 68: Q&A
Q&A 68
Slide 69: Appendix
Appendix — ~ JN
Slide 70: Frontdoor Q3 2024 Consolidated Results
Frontdoor Q3 2024 Consolidated Results Three Months Ended September 30, $ millions, except per share amounts 2024 2023 Better/(Worse) Revenue $540 $524 $16 YoY Growth 3% Gross Profit $306 $268 $38 % of revenue 56.6% 51.1% 547pts Selling and administrative expenses $154 $152 ($2) % of revenue 28.5% 2
Slide 71: Frontdoor YTD 2024 Consolidated Results
Frontdoor YTD 2024 Consolidated Results Nine Months Ended September 30, $ millions, except per share amounts 2024 2023 Better/(Worse) Revenue $1,461 $1,414 $47 YoY Growth 3% Gross Profit $806 $708 $98 % of revenue 55.2% 50.1% 508pts Selling and administrative expenses $456 $439 ($17) % of revenue 31
Slide 72: Net Income to Adjusted EBITDA Reconciliations
Frontdoor Net Income to Adjusted EBITDA Reconciliations Three Months Ended Nine Months Ended September 30, September 30, ($ millions) 2024 2023 2024 2023 Net Income $100 $71 $226 $163 Depreciation and amortization expense 10 9 28 28 Restructuring charges 3 5 5 6 Acquisition-related costs 3 - 9 - Pro
Slide 73: Net Income to Adjusted EBITDA Reconciliations (Cont'd)
Frontdoor Net Income to Adjusted EBITDA Reconciliations (Cont’d) Nine Months Ended Three Months Ended LTM Ended September 30, December 31, September 30, ($ millions) 2024 2023 2024 Net Income $226 $9 $235 Depreciation and amortization expense 28 9 37 Goodwill and intangibles impairment 5 - 5 Restruc
Slide 74: Net Income to Adjusted EBITDA Reconciliations (Cont'd)
Frontdoor Net Income to Adjusted EBITDA Reconciliations (Cont’d) Year Ended December 31, ($ millions) 2023 2022 2021 2020 2019 2018 Net Income $171 $71 $128 $112 $153 $125 Depreciation and amortization expense 37 34 35 34 24 21 Goodwill and intangibles impairment - 14 - - - - Restructuring charges 1
Slide 75: Net Cash from Operating Activities to Free Cash Flow Reconciliations
Frontdoor Net Cash Provided from Operating Activities to Free Cash Flow Reconciliations Three Months Ended Nine Months Ended September 30, September 30, ($ millions) 2024 2023 2024 2023 Net Cash Provided from Operating Activities $25 $28 $212 $139 Property additions (9) (8) (31) (23) Free Cash Flow
Slide 76: Net Debt and LTM Adjusted EBITDA Reconciliation
Frontdoor Net Debt and LTM Adjusted EBITDA Reconciliation Nine Months Ended September 30, ($ millions) 2024 2023 Term Loan A $218 $231 Term Loan B 368 371 Total Debt – Face Value (A) $585 $602 Discounts and issuance costs (4) (5) Total Debt – Book Value $582 $597 LCs Outstanding (B) 2 2 Available ca
Slide 77: 3-Year Free Cash Flow and 6-Year Net Debt Reconciliations
Frontdoor 3-Year Net Cash Provided from Operating Activities to Free Cash Flow Reconciliations Three Months Ended Twelve Months Ended December 31, December 31, ($ millions) 2023 2022 2023 2022 Net cash provided from operating activities $63 $62 $202 $142 Property additions (9) (10) (32) (40) Free ca
Frontdoor — Debt Investor Presentation (December 2024) on 6ix