Frontdoor Raises 2026 Outlook After Q3 Revenue Rises 6%

Frontdoor Inc. raised its full-year 2026 revenue and adjusted EBITDA outlook after third-quarter revenue increased 6%, as growth in renewals and HVAC upgrades helped the home-services company absorb higher claims from extreme summer heat.

For the three months ended Sept. 30, Frontdoor generated revenue of $655 million, up from $618 million a year earlier. The company said the increase was evenly divided between price and volume. Net income rose 10% to $116 million, while diluted GAAP earnings per share increased to $1.65 from $1.42.

Adjusted EBITDA advanced 5% to $205 million, with the adjusted EBITDA margin holding relatively steady at 31%, compared with 32% in the prior-year quarter. Adjusted net income was $127 million, and adjusted diluted earnings per share climbed 15% to $1.81 from $1.58, also benefiting from a lower share count.

Renewals and HVAC upgrades support growth

Renewal-channel revenue increased 4% and represented 73% of quarterly revenue, primarily reflecting higher prices. Frontdoor ended the quarter with about 2.14 million total members, approximately 1% more than a year earlier, with positive contributions across its channels.

Renewal members, which account for roughly 74% of the total base, increased slightly. The customer retention rate reached 79.7%, up from 79.4% in the third quarter of 2025 and 79.6% in the preceding quarter. Frontdoor attributed its retention efforts to improvements in the member experience and operations.

Direct-to-consumer membership grew 4% to approximately 330,000, marking an eighth consecutive quarter of year-over-year growth. The company highlighted brand awareness, its multi-brand strategy, promotional pricing, digital improvements and AI-enabled sales tools as areas supporting customer acquisition and conversion. However, direct-to-consumer revenue declined 1% as lower pricing more than offset higher volume.

Real-estate channel membership rose 5% to about 220,000. Frontdoor said an improved capture rate over the trailing 12 months offset a challenging macroeconomic environment. Real-estate revenue increased 3%, driven by higher volume.

Non-warranty and other revenue climbed 32% and accounted for 12% of total revenue, led by HVAC upgrades. Frontdoor expects HVAC upgrade revenue of approximately $175 million for 2026, up from $128 million in 2025. Member penetration for the offering remains about 3% since 2022, leaving the company with an opportunity to cross-sell services across a base of more than 2 million existing members. Management also identified expanded contractor participation and potential services in other trades as areas for further development.

Heat and revenue mix weigh on gross margin

Gross profit increased 3% to $362 million, but gross margin declined 190 basis points to 55%. Frontdoor said record heat produced a $9 million unfavorable claims impact, while the growing contribution from HVAC upgrades also pressured the revenue mix. Labor, parts and equipment inflation provided additional headwinds.

Pricing actions, cost control, supply-chain optimization and synergies associated with 2-10 Home Buyers Warranty helped offset those pressures. Selling and administrative expenses were unchanged at $174 million, falling to 27% of revenue from 28% a year earlier.

Full-year outlook increased

Frontdoor now expects full-year 2026 revenue of $2.205 billion to $2.215 billion, compared with its previous range of $2.19 billion to $2.21 billion. The company also increased the lower end of its adjusted EBITDA forecast, projecting $590 million to $600 million versus $585 million to $600 million previously.

The company continues to expect a gross profit margin of approximately 55%, selling and administrative expenses of $685 million to $695 million, and capital expenditures of about $30 million. Its expected annual effective tax rate is now approximately 24%, compared with about 25% previously.

Frontdoor did not provide a reconciliation of its forward-looking adjusted EBITDA estimate to GAAP net income, citing the difficulty of predicting future adjusting items.

Cash flow supports additional buybacks

Free cash flow totaled $298 million for the first nine months of 2026, compared with $296 million in the prior-year period. Through the third quarter, Frontdoor used $259 million, excluding taxes and fees, to repurchase 3.7 million shares, equivalent to about 5% of shares outstanding. That represented roughly 87% of year-to-date free cash flow.

The company reported total liquidity of $680 million, consisting of $430 million in unrestricted cash and $250 million of revolving-credit capacity. It also made $22 million of required debt repayments during the period.

Frontdoor’s board approved a new $1 billion share-repurchase authorization effective in November 2026. The three-year program follows the company’s $650 million authorization from September 2024, which management expects to complete about a year ahead of schedule.

The company cautioned that its results and outlook remain exposed to risks including macroeconomic conditions, inflation, tariffs, housing-market activity, claims costs, contractor and labor availability, competition, cybersecurity issues, indebtedness and the integration and performance of 2-10 Home Buyers Warranty. Weather and seasonality remain particularly relevant after elevated claims during the quarter’s record heat.