FTDR - NASDAQ

Ladies and gentlemen, welcome to Frontdoor’s third quarter 2024 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, and 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 third quarter 2024 earnings conference call, and a special thank you for joining the Monday before the election. Joining me today are Frontdoor's Chairman and Chief Executive Officer, Bill Cobb, and Frontdoor's Chief Financial Officer, Jessica Ross. 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 located at investors.Frontdoorhome.com. There is also additional detail about our Frontdoor brand at frontdoor.com and in our new mobile app that you can download in the App Store and at Google Play. 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. 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. All forward-looking statements are made as of today, November 4th, and except as required by law, the company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. We will also reference certain non-GAAP financial measures throughout today's call. We have 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?

Thanks, Matt Davis, and good morning, everyone. I want to start by highlighting our dramatic improvement over the last two plus years. When I came into the business in 2022, our gross margins were at an all-time low of 43%. That has changed. Today, we are increasing our 2024 gross margin outlook to about 53%, an all-time high. Not many companies can show an over 1,000 basis point margin improvement in such a short timeframe. Turning to Slide 5, we delivered record financial performance in the third quarter. Revenue increased 3% to $540 million. Gross profit margin expanded 550 basis points to 57%. Net income grew 40% to $100 million. Adjusted EBITDA grew 29% to $165 million, and we have used $119 million to repurchase 3.2 million shares year-to-date through August. And probably the best news of all, as we'll show you shortly, our marketing and discounting efforts are working. The DTC customer count actually grew in the third quarter versus the second quarter, and we're now forecasting that our ending 2024 DTC customer count will be in line with a year ago. This is the progress we have been working toward. While we are very pleased with the recent trajectory of the DTC business, growing our home warranty customer base continues to be our number one strategic priority. Our other key strategic prior priorities are to expand our on-demand business and to close the acquisition of 2-10 Home Buyers Warranty. Speaking of the acquisition, our integration team continues to work with 2-10 to prepare for a smooth transition. The regulatory approval process is nearing completion, and we are now just waiting for approval from California. Bottom line, the acquisition remains on track to close in the fourth quarter. Okay, so here's how I'm going to lay out the next few minutes. First, I'm going to discuss what's happening with home warranties in both the real estate and DTC channels, followed by our momentum in on-demand, then renewals, and finally, a major milestone in our customer experience journey, the new AHS app. Starting with real estate, the market continues to flounder. According to the September report from the National Association of Realtors, or NAR, the annual run rate of home sales decreased to 3.8 million homes, the lowest in 14 years. Additionally, mortgage rates and home prices remain elevated. Simply put, with fewer homes being sold, there are fewer opportunities to attach a home warranty. For some context, our first year real estate customer count is down almost 14% in the third quarter versus the prior year, and down more than half from five years ago, but there is some positive movement. Existing home inventory is rising, now at 4.3 months of supply, which is the highest it's been in the last four years. Further, mortgage rates are down from a year ago. Finally, American Home Shield has continued to maintain its category-leading share of warranties attached to home purchases. Turning to Slide 11 and the direct-to-consumer channel, let's start with the performance of the marketing campaign. In short, it is working. For starters, we have significantly grown AHS-aided brand awareness. It's jumped from 39% in 2022 to over 54% today due to the brand relaunch and marketing campaign. Ad awareness is also up. Recent research shows that about 40% of homeowners now recognize at least one of the three warranty in a TV spots. In a crowded media space, that's a very good number. Google searches for AHS are also up year-over-year, but I need to make a key point here. There has been some confusion that searches are down according to Google Trends. Let me provide some clarity. Google Trends is a snapshot of how popular your search term is relative to all search terms. It is not representative of a specific brand's performance over time. Even Google says you should not use Google Trends for insights or predictive analytics. So, the fact is, Google searches for AHS are actually up through September. How do we know that? We get our information directly from Google, and we certainly do pay for that. This information represents true volume over time and is much more brand-specific, accurate and comprehensive. So, to be clear, the first year of the campaign has been successful. As we move forward into the second phase of the AHS marketing campaign, we'll continue to build brand awareness in 2025 through a more focused and targeted approach that builds consideration and grows leads. We'll share these plans in much more detail at our Investor Day in New York on February 27th. We're also optimizing our price discounting strategy. This is what smart brands do. In times of market softness, brands must suggest to changing consumer behavior. To be clear, we are not relying solely on aggressive discounting. We understand it’s not a long-term strategy, but it's where we are seeing strong demand and conversion. In summary, within the DTC channel, awareness is up, brand searches are up, demand and conversion are up, and our customer count is up. Again, this is what we have been working toward. Now, let me step away from our traditional home warranty business and talk about our on-demand business. We expect to generate over $100 million in on-demand revenue this year, primarily due to our new HVAC program, which continues to deliver great results. Regarding our new partnership with Moen, as announced in our press release last week, we are currently expanding that business to seven additional States. In addition to California, Frontdoor will still soon be the exclusive installer of Moen’s smart shutoff valves in Idaho, Arizona, Utah, Oregon, Texas, Georgia, and South Carolina. We are also making excellent progress on marketing DTC home warranties to different demographics and channels of distribution. AARP is a great example of an alternative way to go to market. By targeting different segments of their membership, we have been able to grow unit sales with AARP by 25% year-over-year. Now, turning to renewals, this continues to be a great story for us. Retention rates in the third quarter improved 150 basis points to a record high of 77.7%. That is amazing. While channel mix shift is the primary driver, this improvement is also the result of a lot of tremendous work by our team, improving customer service, expanding use of preferred contractors, getting more members on auto pay, and increasing member engagement throughout the customer journey. Finally, one of the things I'm most excited about is the progress we're making on enhancing our customer experience. In a major milestone, we launched an AHS app a few days ago. This is a big deal, and we'll make our formal public announcement on Thursday. With easy, convenient service right at their fingertips, our members can now quickly access their account and plan information, make and track their service requests, take advantage of special offers, and manage their payment information, all through the convenience of their phone. We'll have additional enhancements to the app over the coming months. We believe these enhancements will further differentiate American Home Shield from the competition. We are super excited about the app, and I encourage everyone listening to download the app now through Google Play or the App Store. I think you'll be impressed. So, with that, I'll now turn the call over to Jessica for more on our record Third quarter financials. Jessica?

Thanks, Bill, and good morning, everyone. I want to start with a clear message to all of our stakeholders. Frontdoor's financial position has never been stronger. We delivered another exceptional adjusted EBITDA beat, we increased our full-year outlook for the second time this year, we are generating a record amount of cash, and we remain focused on returning that cash to investors through Share Repurchases. Specific to our third quarter financial summary on Slide 15, you'll see that revenue increased 3% versus the prior year period to $540 million. Net income increased 40% to $100 million, and adjusted EBITDA increased 29% to $165 million. Let's take a moment to review our third quarter revenue, which landed at $540 million versus our guided midpoint of about $537 million. This is a beat of almost $3 million. Now on Slide 16, you will see gross profit increased 14% versus the prior year period to $306 million, and gross profit margin improved 550 basis points to a record 57%. Let's now move to the adjusted EBITDA bridge on Slide 17. Starting at the top, we had $17 million of favorable revenue conversion, driven by a 4% increase in price over the prior year period. This was partially offset by a 1% decline in volume. As a reminder, this includes the impact of lower home warranty volume, which was partially offset by an $11 million increase in non-warranty sales. Turning to contract claims costs, which decreased $21 million. This was primarily driven by a lower number of service requests per customer, a transition to higher trade service fees, and continued process improvement initiatives. Let's now take a moment to unpack each of those. Third quarter customer incidents rates were some of the lowest that we have ever seen, primarily due to three reasons. First, we had $14 million of favorable weather, as cooling degree days were down 16% versus the prior year period. Second, we have made significant process improvements over the last two years, and we are now executing better than ever. We are doing a better job of getting the right contractor to the right customer at the right time, which results in a better customer experience and reduces costs and noise in our system. Some of the process improvements include, A, moving more of our service requests to preferred contractors. We had a record third quarter high, with 85% of our jobs going to preferred contractors. This is an outstanding result, especially given that this was in the middle of our peak summer season. B, our high-cost claims review program. And C, leveraging our bulk purchasing power with our suppliers to optimize availability and achieve better prices. And the third reason our incident rate is down is the transition to higher trade service fees, which has resulted in a temporary and expected decline in the number of service requests per customer, as we typically see a short-term change in customer behavior until they become accustomed to the new amounts. The increase in trade service fees is also driving a lower net cost per service request in 2024. As you may recall, our service fees are a contra-cost to claims expense on our income statement. When combined with a normalized inflationary environment, Frontdoor’s third quarter inflation rate was essentially flat. Again, this is on a net cost per service request basis, as the increase in trade service fee dollars mostly offset external inflation. In summary, adjusted EBITDA increased to $165 million, which exceeded the midpoint of our outlook by $30 million. The difference was primarily driven by over $10 million of favorable weather, approximately $10 million of lower SG&A due to timing, $3 million of favorable claims cost development, and better than expected benefits from process improvements. Let's now turn to Slide 18 for our review of our statement of cash flows With strong earnings comes strong cash flows. Net cash provided from operating activities was a record $212 million for the nine months ended September 30th as a result of our exceptionally strong earnings, and was primarily comprised of $281 million in earnings adjusted for non-cash charges and $66 million in cash used for working capital. Net cash used for investing activities was $31 million, and was primarily comprised of capital expenditures related to investments in technology. Net cash used for financing activities was $131 million, and was comprised of $119 million of share purchases, as well as $13 million of scheduled debt payments. Free cash flow increased 56% to a record $181 million for the nine months ended September 30th. We ended the quarter with $375 million in cash. This was comprised of $161 million of restricted cash, and $214 million of unrestricted cash, and we focused on using our cash to buy back shares. For example, we are extremely pleased that we were able to complete the three-year $400 million share repurchase program before it expired in early September. This is especially impressive since we paused share repurchases for almost a year in 2022. As a reminder, last quarter we announced our new three-year $650 million share repurchase authorization that started on September 4th. This amount is 63% higher than our previous three-year authorization. Now, let's turn to our outlook on Slide 19. Given that there is less than two months remaining in the year, and that the fourth quarter is typically our lowest volume quarter, we are moving our outlook to point estimates versus providing ranges. While this is a departure from our standard practice for this quarter, we felt that this would help our investors better understand our estimates for the remainder of the year. Now, for the fourth quarter, we expect our revenue to be approximately $367 million, which reflects a low single-digit increase in our renewals channel, a decline of approximately 10% in our real estate channel, driven by volume, a decline of approximately 20% in our DTC channel, primarily due to our discounting strategy, and an approximately $5 million increase in other revenue. For the fourth quarter, adjusted EBITDA is expected to come in at approximately $36 million. Let's now move to our full year outlook, starting with revenue. We are increasing our revenue outlook to approximately $1.83 billion or a 3% increase, which includes a mid-single-digit increase in realized price, partially offset by a mid-single-digit decline in realized volume. This assumes a mid-single digit increase in the renewals channel, a roughly 15% decline in the real estate and DTC channels. It also assumes other revenue, which includes on-demand, will increase 40% to approximately $110 million. The growth over the prior year is almost entirely driven by higher new HVAC sales, which is trending towards $85 million in 2024. One brief note of caution here, our guide includes only a minor amount of revenue from Moen in 2024. It's still early, and while we are very excited about where this relationship can go, we will provide more details at our Investor Day. From a customer count perspective, we still expect the number of total home warranties to decline approximately 4% in 2024. As I close my comments on the revenue outlook and bridge to our growth margin guide, I want to provide some additional context on our pricing strategy. We significantly raised prices in 2022 in response to the highly inflationary environment and the dramatic increase in external costs to service our customers. We were not only pricing for inflation experienced in 2022, but also for expected inflation in 2023. Since then, inflation has come in much lower than expected, but because of our model, it has taken nearly two years for those price increases to run their course. Because of that, we have now initiated a new mid-single-digit price increase that will slightly benefit the fourth quarter and carry over into 2025. Now, moving to gross profit where we are raising our full-year margin outlook to be approximately 53%, which would be a new record for our business. However, it does incorporate several favorable items. We have taken a lot of price. We have had a lot of favorable weather, and our system has not been stressed with high levels of claims. Now let's turn to our full-year SG&A outlook, which we expect to be about $605 million. Based on all of these inputs, we are increasing our full-year adjusted EBITDA guide to be approximately $430 million. Our full-year outlook also includes $19 million of interest income, and reflects stock compensation expense of approximately $27 million. And finally, we expect our full-year capital expenditures to be approximately $40 million, and the annual effective tax rate to be approximately 25%. In summary, Frontdoor's financial position has never been stronger. We are generating record earnings, record cash flows, and we are on target to buy back a record amount of shares. We are making the investments to grow this business, and we are doing so from a position of strength, and I am extremely excited to see how those investments will drive future growth. Finally, before we take your questions, I'm sure our plan for 2025 is top of mind for you, but we're not quite ready to discuss that plan today. The acquisition of 2-10 is still pending, and we want to make sure we account for that before we finalize our plans for 2025 and beyond. We'll be ready to present all of those details to you at Investor Day. With that, I will now turn it over to the operator to start Q&A.

[Operator Instructions] Our first question is coming from Cory Carpenter with JP Morgan. Your line is live.

Thanks, and good morning. Bill, I wanted to ask you about the AHS app launch. Just how do you plan on marketing and rolling that out? Any details you could provide? And then bigger picture, how do you see this impacting your business over time? And then I have a follow-up for Jess. Thank you.

Okay. yes, we just rolled it out. I hope you downloaded it, Cory. It's a member-focused app. So, this is really designed to appeal to our members. It's all about our user experience. It's enhancing our user experience. I mean, there are some downstream benefits that it makes our service request process more efficient. People can deal directly through the app as opposed to always having to pick up the phone. So, there's a lot of benefits that come from the user experience, and I think it's a modern brand move. It also can be the catalyst for further enhancements that we'll have down the road. So, in terms of marketing it, we will be starting by, if you will, marketing it to our existing members. And then as far as broader communications, I mean, I think you'll see it in action. I don't think we'll just necessarily announce we have a new app, but it's going to be part of our overall brand character, our brand image. So, we're excited about what it can do for our members, and I think the modernity look it'll give us broadly, will help us to drive hopefully additional members.

Thank you. And then, Jessica, just on the - you mentioned in your prepared remarks that you're initiating a mid-single-digit percent price increase, I believe. Could you just expand a bit? Is that across all your channels or certain channels that you're targeting and kind of how you expect that to roll through the P&L in 4Q next year? Thank you.

Well, Cory, with - no, thanks, Cory. With our price increases, those are really focused through the renewals channel. So, hopefully that answers your question. We roll those out through the renewals book.

Yes, because real estate we hold pretty constant, and obviously the way the market's been, we aren't looking at any pricing action there. And then DTC one is part of all the discounting stuff we talked about earlier. So, as Jessica said, think of it as through the renewals channel.

Thank you.

Thank you. Our next question is coming from Ian

Thank you very much. I wanted to also ask on the pricing side and kind of how are you arriving at your price increases? I guess we're kind of facing some down demand and just kind of trying to understand your decision balancing between price and volume. Thanks.

Yes, no, I think as I shared in my prepared remarks, we obviously priced for the high inflationary environment in 2022. As we're going forward, I mean, we definitely think that pricing should be more in line with what we're seeing from an inflation perspective. And I think, Ian, you know we've also got our dynamic pricing strategy and capability that will be used as we roll those pricing increases out amongst our renewal channel.

So, Ian, one of the things we do is we obviously monitor our elasticities all the time, and we're fortunate, as you heard, our retention rate continues to be quite strong in the renewal channel, which, as Jessica said, is primarily where the price increases are happening. In the DTC channel, we're being very aggressive on bringing in first year members, which is really the feeder into the backbone of our business, the renewal book.

Okay, thanks. And then maybe talk about the launch of the AHS app talk about the difference between that launch and maybe this Frontdoor launch, what are the differences there. And then is there any kind of concern of cannibalization in the Frontdoor product at all? Thanks.

Yes, no, it's an important point to note. The AHS app is designed for our existing members and is focused on the home warranty business. The Frontdoor app is open to anyone. And it also is the catalyst for our overall on-demand business. So, we don't see - we see them working in tandem because they are serving different markets. So, we're excited to have both as a part of the overall Frontdoor Inc. business, and I think they serve two different purposes that can work in tandem.

Okay, thank you very much.

Thank you. Our next question is coming from Sergio Segura with KeyBanc. Your line is live.

Hey, good morning. Thanks for taking the questions. Wanted to start, I guess, with the real estate channel. So, it looked like the customer account there was stable, and I think revenue came in slightly above where you guys previously guided, despite existing home sales actually declining this quarter. So, I was wondering if that implies any improvements you're seeing in attach rates. And maybe just more broadly, we've been stuck in a sellers’ market, strong sellers’ market for some time now. Are there any signs that you're seeing that we're returning to a more balanced market in real estate?

Yes, I think overall, I think I credit as you said, the trend being better, notwithstanding it’s still a very tough market. Some of the execution that we've done, our sales team has done an excellent job grinding really for every unit they can. So, I don't want to get ahead of ourselves on real estate. As we said, the market continues to flounder, but there are a few elements, as we talked about. The listings is now over four months’ worth of supply. Mortgage rates should continue to fall. I heard today there may be a rate cut coming very soon. We have done a good job of keeping our attach rate up relative to our competition. So, to your point, there are some elements that seem to be on the macro side coming our way, but we don't want to get ahead of ourselves on that. We've been kind of calling for this all along. We still believe the market's going to rebound, all the real estate professional or experts, worst market in 14 years and the like. So, I think this is going to be - I don't want to go all the way to - we will talk about this more at Investor Day in February. I don't want to call it a tailwind at this point, but I think things are stabilizing and we certainly hope they're going to turn up very soon.

Got it. That's helpful. And maybe a second one on the DTC channel. We saw that the customer count accelerated there, so congrats on that. Hoping, can you just talk about maybe the drivers behind that. Was that more of the marketing strategy? I think you guys talked about a more targeted marketing strategy last quarter, if that was driving the results, or is that more of the discounting strategy? And then related to that, we saw you guys did lower the SG&A outlook. Was any of that marketing spend that you're lowering there, and just given the success, if that is so, like why pull back when you're seeing some success in that channel? Thank you.

Sergio, I love your questions. It’s kind of yes, yes and yes, but let me go - let me unpack that. So, and we we certainly wanted to talk about our Google information since you have been very keen to point out Google trends. But look, the information we got from Google is our searches are up. Discounting has been a good thing for us. Demand and conversion are up. The campaign, we believe, has worked very well with the awareness numbers I cited earlier. So, I think there's not one element. I think the discounting is a bit of a blunt instrument, but we feel it's been effective in - and especially effective in terms of the long-term value of the customer. So, that's really what we're doing. We're taking advantage of this ability for us to generate the EBITDA growth that we have to reinvest in the brand. And that is part of what you see in Q4 that we did. We are looking to use some of the SG&A to do some incremental marketing, which is really going to impact 2025. So, yes, I think your instincts are right. It is across the board, and we love the trend and hopefully, it'll continue.

Great. Thank you.

Thank you. Our next question is coming from Jeff Schmitt with William Blair. Your line is live.

Hi, good morning. A question on the direct channel. How much of an impact do you think your promotional strategy will have on retention rates there when prices step up for those customers? I think you mentioned last quarter that you think they'll hold up well, but is there anything new you learned there or anymore that you could add on how much of an impact that'll have?

Yes, so we started the deep discounting in March of last year. So, we've been tracking very closely that cohort as we go forward. Fortunately, we have seen that as we start to renew one year out, et cetera, that the retention - that renewals are holding, that the cancel rate is not outsized relative to any anybody else. I think we'll touch on this more at Investor Day, but it is the right question to ask that how does it impact one year later? And so far, we've been pleased with the effort on the first year renewal after the 50% off.

Okay. And then how is the attachment rate in the real estate channel trending? Like, where is that today versus last few quarters or even last few years? And do you have any concerns, I guess, with mortgage rates sort of moving back up? They were heading towards six. Now they're going north. So, any thoughts on if that will have an impact here?

Yes, let me take the first part and this, and then separate that from the second part. The attach rate has fallen for the industry home warranties where it used to be pretty steady at around 30% are high 20s. It's now in the teens. What the point we were making earlier was, as that has happened, we have maintained our fair share in terms of attachment rate, but the attachment rate has fallen, and that is a concern for the industry. In terms of mortgage rates and the like, I don't think it'll have any different effect than just, hopefully it'll start to raise the overall market that people will see that as mortgage rates are falling, I mean, people are going to want to buy a new house, they're going to want to sell their old house, they want to take the equity that they have in there. So, we see a lot of the natural reasons why the market will improve, but I don't think the interest rates are going to have much of an impact on attachment rates. I don't know, Jessica, if you have a different take on that.

No, I think I agree. I think the one thing with the mortgage rates right now, just as we're seeing kind of interest rates, we see them flowing, but just in recent times, they're popping back up a little bit. So, we’re being cautiously optimistic on that front.

Okay, great. Thank you.

Thank you. Our next question is coming from Eric Sheridan with Goldman Sachs. Your line is live.

Thanks so much for taking the question. Maybe two, if I could. Just first broadly on the competitive landscape, I think we talked a lot so far on the call on the demand landscape you find yourself in, in both sides of the business, but how are you finding the competitive landscape and where are there pockets where maybe competition is either more elevated or less elevated than maybe you anticipated when you think about the beginning of this year and how sort of 2024 played out? And then I know we're going to get an update more broadly on the 2-10 acquisition at the Analyst Day, but any key learnings about the elements of accelerating growth inorganically in the business through acquisition versus building and scaling products yourself that maybe are some of the key takeaways from 2024 that might involve inform elements of strategy into 2025 and beyond? Thanks so much.

Yes, I'll take the first one and you want to take the second one, Jessica? In terms of competition, a number of our direct competitors are private companies. So, we don't have a lot of information except what we can hear in the marketplace. There are a couple of public - generally it's a division of a public company. They have obviously seen our aggressive discounting and they have responded in that. I think we've been effective in that regard. So, there isn't any product enhancements or anything of note. I think a number of competitors are focused on the real estate business. Our DTC business is a higher share for us than it is in real estate, even though we're number one in both. So, I think competitively, we feel like we're in good shape on that. You want to take a second?

Yes, no, just from an M&A landscape, you hit it, Eric. We are still very, very focused on 2-10 and what we can learn from that. I think going forward as we think about capital allocation, I always want to think about healthy inorganic growth and how that balances with our focus on organic growth. And we're going to continue to evaluate that going forward. I think the one thing, just in terms of our deal strategy, we're still looking at what's out there in the market and we'd be very focused on things that are going to grow revenue, grow customers, and grow EBITDA.

Yes, just to be clear, Eric, we have a lot to absorb with the integration of 2-10. So, there's nothing on the horizon that I would say from an acquisition perspective. I mean, we can always keep that open. We are very committed to buying back shares with our excess cash. So, it's not that we won't look at that at some point down the road, but right now absorbing 2-10 is going to take a lot. It’s a heavy lift for us. We're excited about what it can do. We'll talk more about it in February. But in terms of where we're going, that's going to be our focus for the immediate future.

Thanks so much.

Thank you. Our final question today is coming from Mark Hughes with Truist Securities. Your line is live.

Yes. Thank you. Good morning. On the HVAC sales, you've done really well, ramping that up. Is there's still potential for that to be a kind of outsized contributor to growth, rolling it out to different regions, different contractors? What are the dynamics there?

Yes, I think you nailed it. What we're doing with our contractor relations team, they're rolling out market by market. It is a sale that you have to get the contractors on board, and the contractors want to be on board because of the economics that they can get from this. And it is - we've talked about this in the past, it's a great value proposition. We give a consumer a break. I'm a new customer of HVAC. Just installed my new HVAC last week. So, I can't talk about fourth quarter, I guess, Matt, but that'll be part of the numbers. But no, what we're doing is, we were in Kansas City a couple of weeks ago. We’re going market by market, enhancing the overall piece. We have stronger markets. And I think what we can talk about is kind of a full potential analysis when we get to February. But we think that there's a lot of a lot of blue sky out there for HVAC. And then with regard to Moen, we haven't said - Jessica put the note of caution out there. You heard me say that we're expanding in seven more States. We'll have more to say about it in February, but we think that's on a nice build and they're a great partner and we love working with them.

Do you think Moen, can that be material in 2025? Its materiality is a few points at least?

Well, that's a great tee up for our Investor Day, February 27th in New York City. No, we'll talk about it more there. I don't want to jump ahead just now, because we're still in the middle - we haven't even rolled out to those additional States yet.

I think the point is though, Mark, you hit it, right? Like new HVAC, we've learned a lot from it. It's been a great growth opportunity for us, and I think that's going to give us a lot of good learnings as we think about expanding into two other capabilities as well.

If I might ask one more, Jessica, you talked about the trade service fees sort of dampen claims frequency until the consumer gets used to it. What is the usual timing of that process? I think you had mentioned that was maybe something that would impact the fourth quarter as well. Is that fair? How long does that proceed?

I think - I mean, the way I think about it, you have to think about it it's, we roll those out very similar to a pricing increase. So, it's a contra item on our claims costs, but we launched that on the back half of 2022, and the process takes 12 to 24 months to roll out, exactly like pricing. So, as we think about pricing kind of reaching its run in Q4, TSFs are doing the same thing. And then just from a behavior perspective, typically we look at maybe a year or so for people to just get hired to that trade service fee and start calling in for repairs again.

So, is that fair to say that you've come that probably has run its course?

Yes, it's run its course. That's exactly what I'm saying, Mark.

Yes. Okay. All right, thank you.

Thank you so much. We have reached the end of our question-and-answer session, so I will now turn the call over to Mr. Bill Cobb for his closing remarks.

Thank you very much. Before we sign off, I want to reiterate some final points. As you heard me say last quarter, and it's worth repeating here, our strategy and plan is about near-term realism and long term optimism. While macroeconomic factors continue to challenge member growth for all home warranty providers, we remain very bullish about this category and especially our strategy to continue driving awareness and consideration. There are millions of untapped homeowners who could benefit from a home warranty, as well as our on-demand offerings like the new HVAC program. That said, I'd like you to reflect on what's been accomplished over the past two years. We have focused on customer growth and we're seeing positive momentum on our campaign and the relaunch of the American Home Shield brand. These efforts are working, and as I mentioned earlier, we now expect our annual DTC customer count to be in line with last year. We've also explored strategic M&A to accelerate our growth. And the acquisition of 2-10 is proceeding on track to close in Q4. We have enhanced our margins. We continue to drive high customer attention rates, with the third quarter setting a record at 77.7%. We've expanded our on-demand business. It's doing very well through HVAC sales, as well as our growing partnerships with Moen and others. And finally, we continue to return excess cash to shareholders through share buybacks. And with our new $650 million share repurchase authorization, we remain committed to continuing share repurchases. So, you can see a lot has been accomplished. We've done what we said we would do. On that note, I hope these facts and the results of another absolutely amazing quarter of financial performance, are giving you good reason to believe in Frontdoor for the long-term. Thank you, and I look forward to seeing all of you in New York on February 27th for our Investor Day. Thanks again.