NASDAQ:FTDR Frontdoor Q1 2023 Earnings Report $31.93 -0.77 (-2.35%) Closing price 04/21/2025 04:00 PM EasternExtended Trading$39.99 +8.06 (+25.24%) As of 08:34 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Flexsteel Industries EPS ResultsActual EPS$0.29Consensus EPS $0.07Beat/MissBeat by +$0.22One Year Ago EPS$0.04Flexsteel Industries Revenue ResultsActual Revenue$367.00 millionExpected Revenue$360.74 millionBeat/MissBeat by +$6.26 millionYoY Revenue Growth+4.60%Flexsteel Industries Announcement DetailsQuarterQ1 2023Date5/4/2023TimeBefore Market OpensConference Call DateThursday, May 4, 2023Conference Call Time8:30AM ETUpcoming EarningsFrontdoor's Q1 2025 earnings is scheduled for Thursday, May 1, 2025, with a conference call scheduled at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Frontdoor Q1 2023 Earnings Call TranscriptProvided by QuartrMay 4, 2023 ShareLink copied to clipboard.There are 10 speakers on the call. Operator00:00:00And gentlemen, welcome to Frontdoor's First Quarter 2023 Earnings Call. Today's call is being recorded and broadcast on the Internet. Beginning today's call is Mats Davies, 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. Operator00:00:18Davis. Speaker 100:00:21Thank you, operator. Good morning, everyone, and thank you for joining Frontera's 1st 2023 Earnings Conference Call. Joining me today are Frontdoor's Chairman and Chief Executive Officer, Bill Cobb And Fluentor's Chief Financial Officer, Jessica Ross. Let me start by reminding you that we are coming off our Investor Day in early March And there is a lot more detail about our company and our strategy in the Investor Day presentation, which we will be referring back to during today's call. 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 investors. Speaker 100:01:01Frontdoorhome.com. There's also additional detail about our new Frontdoor brand atfrontdoor.com and in our new mobile app that you can download in the App Store and on 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. Speaker 100:01:37Please refer to the Risk Factors 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, May 4, 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 the 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. Speaker 200:02:24Bill? Thanks, Matt, and good morning, everyone. Before we get into the details of our Q1 earnings call, I wanted to address our full year 2023 outlook. Let me be clear. While we had a tremendous Q1, we will not be raising our full year 2023 outlook at this time. Speaker 200:02:43It is not our practice to raise our outlook after just 1 quarter. It's too early to do that. We are heading into our peak summer season, which typically has much higher claims. Additionally, our Q1 financial results benefited from favorable timing around SG and A spend and weather. On the revenue side, our go to market channels remain challenged And it is still too early to assess the revenue profile of our new Fronthor brand. Speaker 200:03:12So with that, let's jump into Slide 4 of the web deck. I am pleased to report that we are making good progress on advancing our strategic initiatives that we laid out at our Investor Day in March. As I just mentioned, our Q1 financial results were significantly better than expected. We saw gross margins expand as our prior pricing actions are flowing through. Cost pressures continue to moderate and our process improvement initiatives are beginning to take hold. Speaker 200:03:41For example, we drove a significant increase in preferred contractor utilization, which rose 270 basis points to a 10 year high of 84% in the Q1. Additionally, we continue to make progress in sourcing more parts replacement equipment for our contractors, where our larger size enables us to purchase at a substantial discount. We also increased our direct to consumer or DTC demand, which I will cover in more detail shortly. And in April, we launched Frontdoor, Our one stop app for all things home maintenance and repair. While it remains early in the year, we are delivering on what we said we would do We look forward to continuing our progress throughout the rest of 2023. Speaker 200:04:31Now let's turn to Slide 5, where I will cover the new Frontdoor app that was launched in April. We reviewed the new offering in detail at our Investor Day. In short, we believe that we have really differentiated our offering through the video chat with an expert feature, which will revolutionize how homeowners maintain and repair their homes. Our team has supported this launch with an innovative and talked about marketing campaign. Some of you have probably already seen our fun and compelling TV and digital spots. Speaker 200:05:05Our robust marketing effort also leverages several strategic partnerships such as Major League Baseball's Opening Week, Home and Garden TV And NFL Draft Week. We also have a program with Amazon, which will land the Frontdoor brand on millions of doorsteps across the country Through our customized box design that will happen mid summer. All of these efforts are working. Since our launch 3 weeks ago, the app has now been downloaded over 165,000 times. We look forward to sharing more details next quarter, but for now we are very pleased with the pace of downloads. Speaker 200:05:51Now let's turn to Slide 6, which serves as a quick reminder of our Frontdoor product lineup. Frontdoor Basic is a free offering where consumers can download the app at no cost and get one free video chat with an expert. The free product also includes rich content, including maintenance tips and repair videos. It's a great way to introduce the product and encourage upgrading to our more robust offering Frontera Prime. At $99 per year, Prime includes everything in the Basic plan, but members get 3 video chats per year. Speaker 200:06:27They also get access to steeply discounted HVAC systems with available financing and special member pricing on home products and services. If you haven't already done so, I encourage you to download the app and try it out for yourself. You can also go to frontdoor.com for more details. Now moving to Frontdoor Pro, on demand home services with a la carte pricing. This is our service delivery channel rather than a consumer facing offering. Speaker 200:06:59Its services are available through both the Frontdoor and AHS brands. We are very excited about the potential growth in Frontoire Pro, which could be one of the largest revenue streams for the new brand. Specifically, we are extremely optimistic about our HVAC upgrade offering that is exceeding our revenue expectations so far this year. Turning to Slide 7 and our upcoming Frontdoor Premium product that will be coming out in June. Premium is our reinvention of the home service plan. Speaker 200:07:31It is our goal to make this an easy convenient one stop shop for everything homeowners need to repair and maintain their homes. It's an annual membership plan that starts at $35 per month. Premium includes all the benefits of Frontdoor Basic and Prime, And it will cover the same systems and appliances that we do today under American Home Shield with an additional option for HVAC coverage. For premium members, it is easy to make service requests through the app. For a flat service fee of $100 We will fix the covered item or the member will be provided with a payout of $500 In the case of those who elect HVAC coverage, the payout will be $1,000 This process allows for a more digitally enhanced And transparent experience, while enabling us to better predict costs. Speaker 200:08:29Additionally, for premium members receiving a payout, We will work with them to replace their system or appliance. This includes all of the Prime discounts previously mentioned. Now turning to Slide 8, where I will provide a business update on American Home Shield, starting with the DTC channel. First, I want to be clear That we have 2 growth engines and we are as equally focused on growing American Home Shield as we are on launching the new Frontdoor brand. DTC has been a tremendous growth platform for us. Speaker 200:09:03And while it has been challenged recently, we are redoubling our efforts to get this channel back to positive In fact, our team has really been digging into the main drivers of the recent decline. While it is an ongoing body of work, The team has identified 3 main issues impacting near term demand. The first main issue is price. Over the past year, we significantly raised price for our home service plans in response to inflation. This was done with a goal of getting our gross margins back to And that the category for new consumers might not be as inelastic in this market environment. Speaker 200:09:51On the other hand, We have been pleasantly surprised by the stronger than expected elasticity in our renewal channel as our renewal rates have improved. Inflation is the 2nd main issue impacting near term demand. We have seen that higher inflation has impacted consumer sentiment and behavior. Further, with inflation comes rising media costs, creating additional pressure on our go to market strategies. In response to these recent findings, we have pivoted our discounting strategy. Speaker 200:10:24Since we last spoke to you at our Investor Day, We have explored new discounting strategies and continue to test and learn how to better attract new DTC members. While we are pleased with these learnings and some of these early sales trends, we want to see more results before we adjust our full year PTC expectations. Additionally, we have also taken steps to improve conversion. We are becoming more efficient at converting the demand we do generate. And is the 3rd main issue impacting near term demand. Speaker 200:11:05We had reduced DTC marketing spend in our original 2023 operating plan for AHS. This was done to improve overall marketing efficiency. Now that we are seeing better marketing effectiveness, we have decided to increase our spend compared to our initial plan in 2023. We will also work to continue to optimize marketing throughout the remainder of the year. Those are the near term actions we are taking to address the decline in DTC sales. Speaker 200:11:35Longer term, we will and promote our products over the competition. We are also continuing our work to optimize pricing and discounting as we refresh our value proposition with key consumer segments. Now turning to Slide 9 and our real estate channel. The National Association of Realtors Updated the adjusted annual rate of existing home sales for March to 4,400,000 homes or a 22% decline over the prior year period. Inventory levels remain low and only 2.6 months of supply, which is one of the main drivers delaying the transition to a more balanced buyer and seller market. Speaker 200:12:29Regardless of market conditions, Our sales team is focused on improving sales accountability through data usage and market level dashboards. But at this point, it remains a challenging market to sell home service plans. Now turning to Slide 10 and our renewal channel. As I mentioned earlier, customer retention rates are coming in better than expected despite a targeted realized price increase of 11% in 2023. Retention rates actually increased 180 basis points to 75.9% in the 1st quarter. Speaker 200:13:06While channel mix shift is clearly a driver, our dynamic pricing strategies are delivering a price increase that our existing customers still find tremendous value We also continue to work on process improvements to drive members to renew. Now in closing, we are off to a great start in 2023. We continue to expect our financial results to improve over 2022 As our prior pricing actions take hold, inflation headwinds continue to moderate and as we expand our process improvement efforts. As I told you at our Investor Day, we now have 2 growth engines that are focused on different consumer segments that will drive the business for years to come. I will now turn the call over to Jessica to review our financial results. Speaker 200:13:55Jessica? Speaker 300:13:56Thanks, Bill, and good morning, everyone. Please turn to Slide 11, and I'll take you through our Q1 2023 financial results. Starting at the top of our income statement, Where first quarter revenue increased 4% versus the prior year period to $367,000,000 driven by a 10% increase from price, which more than offset the 5% decline in volume. Now let's move to Slide 12, where I'll review our revenue by channel. 1st quarter revenue derived from customer renewals increased 13% versus the prior year period due to realization of pricing actions taken last year. Speaker 300:14:361st year real estate revenue decreased 28% versus the prior year period, reflecting a continued decline in the number of home service Plans sold due to the strong sellers market. 1st year DTC revenue decreased 5% versus the prior year period due to the items still covered earlier. Now let's turn to Slide 13. Gross profit for the quarter increased $26,000,000 to $170,000,000 This resulted in a 5.40 basis Point increase in our gross profit margin to 46%. The gross profit improvement was primarily driven by higher realized price, A lower number of service requests driven by favorable weather as well as a moderation of inflationary cost pressures as our cost per service request came in slightly better than expected at 7%. Speaker 300:15:30Our first Quarter gross profit also reflects operational improvements we have made to the business, such as increasing the percentage of jobs we assign to our preferred contractors by 2 70 basis points to a 10 year high of 84%, as Bill mentioned earlier. Our management team continues to be focused on initiatives such as this to drive operational excellence and sustainable margin improvement for our shareholders. On Slide 14, you'll see that net income increased $20,000,000 in the Q1 of 2023 to $22,000,000 as a result of higher gross margins and favorable timing of SG and A expenses. Adjusted net income increased $20,000,000 over the prior year period to $23,000,000 Adjusted EBITDA improved $29,000,000 to $54,000,000 Let's move to the tax table on Slide 15, and I'll provide more We had $22,000,000 of favorable revenue conversion. Contract claims costs decreased $4,000,000 in the 1st quarter, primarily driven by a lower number of service requests per member and $6,000,000 of favorable development, slightly offset by inflationary cost pressures. Speaker 300:16:56Sales and marketing costs increased $3,000,000 in the 1st quarter, primarily driven by efforts to grow the direct to consumer channel. Customer service costs decreased $2,000,000 in the 1st quarter, driven by a lower number of service requests. And finally, interest and net investment income increased $3,000,000 as a result of rising interest rates on cash deposits. In summary, our Q1 adjusted EBITDA was roughly split between favorable gross margin and SG and A costs as well as continued execution of process improvement. Please now turn to Slide 16 for a review of our Q1 cash flow. Speaker 300:17:38Net cash provided from operating activities was $60,000,000 for the 3 months ended March 31, 2023, which is comprised of $34,000,000 in earnings adjusted for non cash charges and $26,000,000 in cash provided from working capital. Cash provided from working capital was primarily driven by seasonality as our Q1 can be an exceptionally strong cash generation period. Net cash used for investing activities was $8,000,000 for the 3 months ended March 31, 2023, and was primarily comprised of capital expenditures related to investments in technology. Net cash used for financing activities was $7,000,000 for the 3 months ended March 31, 2023, and was primarily comprised of debt payments. On Page 17, you will see that our free cash flow calculated as net cash provided from operating activities less property additions Was $52,000,000 for the 3 months ended March 31, 2023. Speaker 300:18:40We are projecting approximately $100,000,000 of free cash flow for the full year. We ended the Q1 with $337,000,000 in cash. This was comprised of $150,000,000 of restricted net assets And unrestricted cash of $187,000,000 I covered our capital allocation strategy in detail at our Investor Day in March. The main message I want to deliver on this call is that we have a solid financial position, our unrestricted cash is growing along with our confidence in the business, And it remains our intention to return approximately $80,000,000 of cash to shareholders through our existing share repurchase program in 2023. Now turning to Slide 18, I'll conclude my prepared remarks with our current thoughts regarding the financial outlook for the Q2 and full year 2023. Speaker 300:19:35We expect our 2nd quarter revenue to be within a range of $505,000,000 to $520,000,000 This reflects a nearly 15% increase in the renewal channel, partially offset by a roughly 25% decline in the real estate channel And a low double digit revenue decline in the DTC channel. 2nd quarter adjusted EBITDA is Message will range between $80,000,000 $90,000,000 an increase of $10,000,000 from the prior year period as a result of higher gross margin. This outlook also includes a meaningful increase in SG and A as we invest in the new frontdoor brand that Bill spoke about earlier. Turning to our full year outlook, we are maintaining our revenue range of $1,700,000,000 to $1,740,000,000 The full year assumptions include approximately 10% revenue growth in the renewal channel, a low double digit revenue decline in the DTC channel And a nearly 20% decrease in the real estate channel. We continue to expect approximately 11% growth from higher price, which will more than offset a 6% decline from lower volume. Speaker 300:20:48Note that we priced for higher inflation than what we are currently seeing in 2023. We also expect our home service plan member count decline in the mid to upper single digits in 2023. We slightly raised our full year gross profit margin outlook to be between 43.5% 46%. This reflects the benefit of prior pricing actions flowing through and a moderation of inflation. This also assumes that inflation will average approximately 9% on a cost per service request basis and the number of member service We'll be down in the mid single digit range to approximately $4,200,000 Additionally, We increased our full year SG and A target by $10,000,000 from last quarter to now range between $570,000,000 $595,000,000 This increase is related to investments and marketing spend for American Home Shield. Speaker 300:21:49However, we are working to improve our marketing efficiency and our Current outlook continues to reflect lower AHS marketing spend compared to prior year. Our outlook assumes approximately $60,000,000 Marketing spend associated with the launch of the new Frontdoor brand. Based on these updated inputs, we maintained our full year Adjusted EBITDA range to be between $220,000,000 $240,000,000 This includes stock compensation expense of approximately $30,000,000 And $12,000,000 of interest income. We are carefully monitoring inflation, SG and A investments, weather and other variables as we evaluate the back half of the year. And finally, we're projecting our full year capital expenditures to range between 35 $45,000,000 and the annual effective tax rate to be approximately 26%. Speaker 300:22:45In conclusion, We delivered strong Q1 results as our pricing actions continue to flow through, cost pressures moderated and as we benefited from several Favorable items related to timing. We remain confident in our long term business outlook as we continue to invest in building a strong foundation for our future. With that, I'll now turn the call back over to Matt for questions. Speaker 100:23:11Thanks, Jessica. As a reminder, during the question and answer session, We encourage you to ask any questions that you may have, but please note that guidance is limited to the outlook we've provided. Operator, let's open the line for questions. Operator00:23:27Thank you. Our first question for today comes from Cory Carpenter of JPMorgan. Corie, your line is now open. Please go ahead. Speaker 400:23:51Thank you. I have one question on the new brand and one question on American Home Shield. For Frontdoor, could you just talk about how the consumers are engaging with the app, those who have downloaded it thus far? Just what features you're seeing the most engagement with? And then on the service print on American Home Shield side, could you just give us an update on where you are with consolidating your 4 brands under American Home Shield And what the next steps are? Speaker 400:24:17Thank you. Speaker 200:24:20All right. Thanks, Corey. Let me take both those and Jessica please Weighing with anything else. So in terms of engagement, the goal right now is to get we're launching a new brand. So the Goal here is to get people to access the brand, download it, register and then try our video chat. Speaker 200:24:40So I'm not going to go into the details About specific numbers and everything, but what we have found is that the user experience here It has been played to rave reviews. The experts we have hired in all the key trades and even the handyman Group that we've hired are excited, they're energized, they're on the side of the consumer and the feedback we're getting And a lot of us have done video chats ourselves. And it's really I mean, I keep saying it's changing the culture of our company to have real experts in the company. So When you have something of interest that like this product, I've done a bunch of media interviews with things that are consumer The reporters to a person have been talking about how this is long overdue and that a user experience like this, I'm very confident that we're on to something with this approach. So more to come in the Q2. Speaker 200:25:42In terms of the AHS Consolidation or the overall with the brands. That's moving along. Nothing really to report. We're managing the OneGuard And Landmark Consolidation, we are moving AHS into those markets. So It's something that's going to take a while to do because we have renewal products. Speaker 200:26:06This is going to run out for a couple of years. So but it's on track, Nothing really to report, but at this point, I feel good about the way the team is executing on this. Speaker 400:26:20Okay. Thank you. Operator00:26:24Thank you. Our next question comes from Maxwell Fraser from Tourette. Maxwell, your line is now open. Please go ahead. Speaker 500:26:33Hi, good morning. I'm calling in for Mark Hughes today. And I was wondering if you could provide some more color around the Frontal Work Prime and more specifically, if we head into some sort of mild recession, What are your expectations for consumers' appetite for a subscription service? Speaker 200:26:54Yes. I think that the flavor around it is what I talked about. When you upgrade from basic, you get 3 video chats. There are also discounts on HVAC systems that has available financing. We have special member pricing in addition to the video chats. Speaker 200:27:13So I think that this is actually something that could play very well in a recessionary environment because The for $99 you're going to get someone who knows what they're doing and whatever the various repair issues you might have in your home To help you and be on your side too, we've had some calls where people have called in that they've gotten an estimate on a new system And we've had our experts go through and tell them whether that's a good deal or not. We've had other situations where What the experts really pride themselves on, they want to solve the problem on the spot versus having to do service calls. So I think there are a lot of elements here as people engage With the app more and more and with the brand where people are going to see the value that they get for this is really quite high. So I don't think obviously, we're all trying to figure out the recessionary impacts. That's part of the reason why we're being very cautious on our outlook. Speaker 200:28:11But I do think that this product is going to play very well in the future. Speaker 300:28:17Yes. I think one of the other things I'd add there though, one of the additional discounts on home services and products. And I think heading into a recession, consumers are looking for the best deal, which is another It's a benefit of the Prime offering. Speaker 500:28:34Thank you. Also staying on the recession topic, If the Fed starts cutting rates in a lower rate environment, do you think that we'll see like a boost in the real estate channel? Speaker 200:28:48I would think so. I'm not going to because as mortgage rates would come down, I mean mortgage rates Are having an impact on the real estate channel. It's pretty clear that that's happened. So I do think that that will give The macro environment of real estate, which is really suffering right now, Boop. So I think your premise is correct. Speaker 500:29:11Okay. Thank you. That's all I have. Operator00:29:15Thank you. Our next question comes from Ian Zaffino from Oppenheimer. Ian, your line is now open. Please go ahead. Speaker 400:29:23Okay, great. Thank you very much. I guess the question would really be again on the DTC side. Jessica, I don't know if you gave us actually price versus volume in DTC, what you're expecting going forward. And I guess really the question is that I know DTC was taking a lot of price last year, like when do you think you hit that or bumped up against that elasticity? Speaker 400:29:48And given the elasticity, how are you actually thinking about your focus on, let's just say, price versus retention And what we should expect from there? Thanks. Speaker 200:30:02So I'll take the first part, Ian. I think that this is something, as I said in our in my commentary, we've looked hard at. I think there has been it's been a tough situation. We had to raise prices given the rapid increase in costs that we certainly faced last year. So we're up against that, which is why we pivoted on our discounting strategy and been more aggressive on that. Speaker 200:30:27And we're 6 weeks or so into that, but I think that We're feeling good about the early sales trends and we'll talk more about that in Q2. So I think it's something we continue to test and refine. Ultimately, this company is driven by the renewal side. That's really where we do our best efforts. And obviously, we have to keep feeding that funnel. Speaker 200:30:47So we will continue to work hard on trying to bring as many members in as we can. But I'm really pleased with what we've been able to do, notwithstanding the price increases with the renewals with our renewals effort. I think the thing that's not seen in the numbers, if you will, is the tremendous work being done by our technology, our digital teams, Our marketing teams, our product teams in terms of on the margin getting people to renew at higher rates. So I'm really pleased with the executional efforts and the process improvement situation that has happened within the company. So Renewals are always going to be most important, but we're only as good as how we can continue to feed that funnel. Speaker 300:31:32Yes. And Ian, just on the details, Directionally, we've given that the increase in revenue is going to be largely priced overall and the B2C channel low double digit decline for the year. Speaker 400:31:47Okay. But basically, I would imagine DTC would track Similarly to kind of the overall numbers you were giving, or would you Basically, maybe take less price, and then have better volume. Speaker 300:32:04Yes. Yes. That's a part of it. Speaker 200:32:06Yes. I think that's part of what we're saying when we say we're pivoting our discounting strategy. Speaker 400:32:09Yes. Perfect. And then the other question would be On inflation, I guess you're still saying 9%. Is there a potential for you to come in better than that? Are you just trying to be conservative when you think about your cost pressures? Speaker 400:32:29Thanks. Speaker 200:32:30Yes, I think that since I took over nearly a year ago, we've been conservative in general. The 9% we think is the right number given the We had some favorable situations like Jessica talked about with weather and the like during Q1 where it came in at 7%, but We're comfortable with the 9% as the right guidance to give you. Speaker 400:32:55All right. Thank you very much. Speaker 300:32:58Thanks, Ian. Thanks, Ian. Operator00:33:01Thank you. Our next question comes from Justin Patterson of KeyBanc. Justin, your line is now open. Please go ahead. Speaker 600:33:12Great. Thank you very much and good morning. 2, if I can. First, I just wanted to go back to the video call commentary. It sounds like you're seeing some nice early results in terms of cutting down service calls, doing more solving from a distance. Speaker 600:33:29How much more room do you have do you think you have there in terms of just improving that level of adoption and seeing the cost benefit? And then the second question is just around the preferred contractors, great progress with a 10 year high there. How much more room do you think we have to go there? Or is that just more of, say, a byproduct of the period, less service requests just inflated that number? Thank you. Speaker 200:33:56Yes. So first of all, on the video calls, we're 3 weeks in, 3 weeks in a couple of days. The early indications are really, really very positive. So that's something that we're going to continue to work on. The other piece that I want to point out, this is a new concept. Speaker 200:34:15I mean, we have gotten some people, it's free. What's the cash? How much is the cut? And there is no cash. So it's going to take some time for this to settle in. Speaker 200:34:25I think with The awareness we've built, as I talked about, the talked about marketing campaign, people singing the song, this is all great stuff. But what it comes down to is the user experience and that's where the strength of this video chat with an expert comes in. And that's why I'm confident That as this becomes more well known, as people understand the proposition, this is a very, very complete and thorough We're calling it revolutionizing home and repair. This is going to take some time to get there, but we're really pleased by the interest from people and I'm really pleased ultimately With the job these experts are doing and the user experience they have. And now, Jessica, do you want to take the preferred contractor piece or you want me to go? Speaker 300:35:12No, I think On preferred contractors, we're continuing to be focused on executing on that initiative. Evan and team are doing an excellent job there and we're Speaker 200:35:26I do think so Justin and though, yes, The lower service request did help us with that, but some of the process improvement priorities we put together, I think we're really enhancing The contractor relations team to drive that number. So I think there's a lot of things working in the right direction on that. Speaker 600:35:48Great. Thank Speaker 300:35:50you. Thanks, Justin. Operator00:35:53Thank you. Our next question comes from Brian Fitzgerald of Wells Fargo. Brian, your line is now open. Please go ahead. Speaker 700:36:03Thanks. I wanted to just follow-up on Justin's question is maybe a little bit on the preferred contract network. Anything you could tell us about the favorability to gross margin from that? And then also the runway to continue growing that maybe specifically as you get into the busier part of the year. And then last piece on that preferred contract network. Speaker 700:36:24I think you've said in the past, it's a bit of a balancing act there as you Continue to feed other contractors to grow the preferred network, but also maintain some flexibilities. Are you pushing up Against any limits there in terms of that balancing act? Speaker 300:36:41So just I think just on your question on gross margin, We've given kind of a 1% change in our preferred contractor rate translates to about $5,000,000 of gross profit, but that obviously varies By contractor, trade and geography. Speaker 200:36:56I think with regard to the contractor piece, one of the things that we have found Is with the awareness building that we're doing on Frontdoor, the Contractor Relations team is getting calls about I want to be a contractor. So I think that we're going to get to a point where an unintended consequence of our efforts is that we may be getting More and better contractors wanting to come into the fold here. So I don't think that there's a limitation in terms of Running out of, if you will, contractor supply. So that's been a nice add on. Like I said, it's very early days, But we've been pleased with that. Speaker 200:37:34So I want to make sure that that have we answered your questions, Brian? Speaker 700:37:38Yes. Yes, that's right. Thanks, guys. Speaker 800:37:42Okay. Thank you. Thank you. Operator00:37:46Our next question comes from Eric Sheridan of Goldman Sachs. Eric, your line is now open. Please go ahead. Speaker 800:37:54Thanks so much. Maybe a 2 parter, if I could, on marketing. I know we've talked a little bit about it on Call already, but is there any sort of visibility you've got now in terms of which partnerships or which channels around the new marketing efforts you're the most Excited about or what we might see that you want to sort of amplify or push into certain channels or partnerships as you go through the year, Because the early reaction is maybe exceeding your expectations. And then second, can you just remind us a little bit how Think about marketing as we move through the year. Obviously, you're in this sort of brand building environment right now in the front half of the year, but how should we think about The cadence of marketing as we move through the year once you're beyond this initial push around the brand? Speaker 800:38:38Thanks so much. Speaker 200:38:40Yes. Okay. To your first question, the NFL Draft weekend was phenomenal in terms of downloads. And it was really I give Kathy Collins and her team a lot of credit because you got a lot of people sitting around, a lot of time in between draft picks and It really was a good weekend for us, if you will. We're very excited about this Amazon initiative, which is dropping in mid summer, which essentially we've done A tie in with Amazon where the boxes will be branded, you'll still have their logo obviously and their brand, but We'll have a wrapper around it all about front door and we think that the irony of right at your front door of the box, the whole thing works together and The whole line, which is really resonating with people to open the front door has worked out well. Speaker 200:39:30In terms of the cadence and marketing, We will begin to shift more marketing effort to premium in about a month. So that will continue to drive people 2, we think that the interest level is driven by the video chat with an expert, but we will drive more and more people to premium as we move into the summer months. So that will become a bigger part of our initiative. At the same time, as Jessica pointed out, AHS spend will be on the increase. We might have cut it down a little bit too much. Speaker 200:40:05So We're getting pretty good efficiencies. We're pivoting our discounting strategy. We're going to support that with additional marketing. So I feel good about where we're headed on that regard to. Speaker 500:40:17Thanks for the color. Speaker 800:40:20Thank you. Operator00:40:23Our next question comes from Jeff Schmitt of William Blair. Jeff, your line is now open. Please go ahead. Speaker 900:40:31Hi, good morning. What percentage of parts and equipment is frontdoor sourcing now versus before the pandemic? And how much is that helping on the Reduced sort of claims costs or inflation, can you put any numbers behind that? Speaker 200:40:49Yes, we're digging that number out for you right now, Jeff. Speaker 900:40:54Okay. Okay. And then one on Yes. We can get come back to that. Speaker 300:41:02Yes. So I was just first on the second question. Speaker 900:41:06Okay. And then on favorable development looks to be $6,000,000 in Speaker 200:41:11the quarter. What Speaker 900:41:12Period was that related to and I'm just looking at I guess the Q4 I think it was $25,000,000 which felt like almost sort of a true up for last year. So what is the what period is that $6,000,000 related to? Speaker 200:41:27So on the contractor I believe the number is we just exceeded 50%, is that correct, which is up from last year. We're less than that because supply was in such Such high demand. On the second question, I'll defer to Jessica and then. Speaker 300:41:43Yes, we just don't we don't break out the 6,000,000. Speaker 900:41:48Okay. All right. Thank you. Speaker 300:41:52Thanks, Jeff. Thank you. Operator00:41:55Thank you. At this time, we have no further questions. Ladies and gentlemen, thank you again for joining Frontdoor's Q1 2023 earnings call. Today's call is now concluded.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallFrontdoor Q1 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Flexsteel Industries Earnings HeadlinesDeutsche Börse (DBOEY) Projected to Post Quarterly Earnings on TuesdayApril 20 at 1:45 AM | americanbankingnews.comBNP Paribas Exane erhöht Kursziel für Deutsche BörseApril 14, 2025 | de.investing.comAltucher: Turn $900 into $108,000 in just 12 months?We are entering the final Trump Bump of our lives. But the biggest returns will not be in the stock market.April 22, 2025 | Paradigm Press (Ad)Deutsche Börse's (ETR:DB1) Shareholders Will Receive A Bigger Dividend Than Last YearApril 1, 2025 | finance.yahoo.comDeutsche Boerse’s Clearstream to Offer Bitcoin, Ether CustodyMarch 11, 2025 | bloomberg.comDeutsche Boerse AG (DB1Gn)March 8, 2025 | uk.investing.comSee More Deutsche Börse Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Flexsteel Industries? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Flexsteel Industries and other key companies, straight to your email. Email Address About Flexsteel IndustriesFlexsteel Industries (NASDAQ:FLXS), together with its subsidiaries, operates as a manufacturer, importer, and markets of upholstered furniture for residential and contract markets in the United States. 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There are 10 speakers on the call. Operator00:00:00And gentlemen, welcome to Frontdoor's First Quarter 2023 Earnings Call. Today's call is being recorded and broadcast on the Internet. Beginning today's call is Mats Davies, 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. Operator00:00:18Davis. Speaker 100:00:21Thank you, operator. Good morning, everyone, and thank you for joining Frontera's 1st 2023 Earnings Conference Call. Joining me today are Frontdoor's Chairman and Chief Executive Officer, Bill Cobb And Fluentor's Chief Financial Officer, Jessica Ross. Let me start by reminding you that we are coming off our Investor Day in early March And there is a lot more detail about our company and our strategy in the Investor Day presentation, which we will be referring back to during today's call. 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 investors. Speaker 100:01:01Frontdoorhome.com. There's also additional detail about our new Frontdoor brand atfrontdoor.com and in our new mobile app that you can download in the App Store and on 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. Speaker 100:01:37Please refer to the Risk Factors 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, May 4, 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 the 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. Speaker 200:02:24Bill? Thanks, Matt, and good morning, everyone. Before we get into the details of our Q1 earnings call, I wanted to address our full year 2023 outlook. Let me be clear. While we had a tremendous Q1, we will not be raising our full year 2023 outlook at this time. Speaker 200:02:43It is not our practice to raise our outlook after just 1 quarter. It's too early to do that. We are heading into our peak summer season, which typically has much higher claims. Additionally, our Q1 financial results benefited from favorable timing around SG and A spend and weather. On the revenue side, our go to market channels remain challenged And it is still too early to assess the revenue profile of our new Fronthor brand. Speaker 200:03:12So with that, let's jump into Slide 4 of the web deck. I am pleased to report that we are making good progress on advancing our strategic initiatives that we laid out at our Investor Day in March. As I just mentioned, our Q1 financial results were significantly better than expected. We saw gross margins expand as our prior pricing actions are flowing through. Cost pressures continue to moderate and our process improvement initiatives are beginning to take hold. Speaker 200:03:41For example, we drove a significant increase in preferred contractor utilization, which rose 270 basis points to a 10 year high of 84% in the Q1. Additionally, we continue to make progress in sourcing more parts replacement equipment for our contractors, where our larger size enables us to purchase at a substantial discount. We also increased our direct to consumer or DTC demand, which I will cover in more detail shortly. And in April, we launched Frontdoor, Our one stop app for all things home maintenance and repair. While it remains early in the year, we are delivering on what we said we would do We look forward to continuing our progress throughout the rest of 2023. Speaker 200:04:31Now let's turn to Slide 5, where I will cover the new Frontdoor app that was launched in April. We reviewed the new offering in detail at our Investor Day. In short, we believe that we have really differentiated our offering through the video chat with an expert feature, which will revolutionize how homeowners maintain and repair their homes. Our team has supported this launch with an innovative and talked about marketing campaign. Some of you have probably already seen our fun and compelling TV and digital spots. Speaker 200:05:05Our robust marketing effort also leverages several strategic partnerships such as Major League Baseball's Opening Week, Home and Garden TV And NFL Draft Week. We also have a program with Amazon, which will land the Frontdoor brand on millions of doorsteps across the country Through our customized box design that will happen mid summer. All of these efforts are working. Since our launch 3 weeks ago, the app has now been downloaded over 165,000 times. We look forward to sharing more details next quarter, but for now we are very pleased with the pace of downloads. Speaker 200:05:51Now let's turn to Slide 6, which serves as a quick reminder of our Frontdoor product lineup. Frontdoor Basic is a free offering where consumers can download the app at no cost and get one free video chat with an expert. The free product also includes rich content, including maintenance tips and repair videos. It's a great way to introduce the product and encourage upgrading to our more robust offering Frontera Prime. At $99 per year, Prime includes everything in the Basic plan, but members get 3 video chats per year. Speaker 200:06:27They also get access to steeply discounted HVAC systems with available financing and special member pricing on home products and services. If you haven't already done so, I encourage you to download the app and try it out for yourself. You can also go to frontdoor.com for more details. Now moving to Frontdoor Pro, on demand home services with a la carte pricing. This is our service delivery channel rather than a consumer facing offering. Speaker 200:06:59Its services are available through both the Frontdoor and AHS brands. We are very excited about the potential growth in Frontoire Pro, which could be one of the largest revenue streams for the new brand. Specifically, we are extremely optimistic about our HVAC upgrade offering that is exceeding our revenue expectations so far this year. Turning to Slide 7 and our upcoming Frontdoor Premium product that will be coming out in June. Premium is our reinvention of the home service plan. Speaker 200:07:31It is our goal to make this an easy convenient one stop shop for everything homeowners need to repair and maintain their homes. It's an annual membership plan that starts at $35 per month. Premium includes all the benefits of Frontdoor Basic and Prime, And it will cover the same systems and appliances that we do today under American Home Shield with an additional option for HVAC coverage. For premium members, it is easy to make service requests through the app. For a flat service fee of $100 We will fix the covered item or the member will be provided with a payout of $500 In the case of those who elect HVAC coverage, the payout will be $1,000 This process allows for a more digitally enhanced And transparent experience, while enabling us to better predict costs. Speaker 200:08:29Additionally, for premium members receiving a payout, We will work with them to replace their system or appliance. This includes all of the Prime discounts previously mentioned. Now turning to Slide 8, where I will provide a business update on American Home Shield, starting with the DTC channel. First, I want to be clear That we have 2 growth engines and we are as equally focused on growing American Home Shield as we are on launching the new Frontdoor brand. DTC has been a tremendous growth platform for us. Speaker 200:09:03And while it has been challenged recently, we are redoubling our efforts to get this channel back to positive In fact, our team has really been digging into the main drivers of the recent decline. While it is an ongoing body of work, The team has identified 3 main issues impacting near term demand. The first main issue is price. Over the past year, we significantly raised price for our home service plans in response to inflation. This was done with a goal of getting our gross margins back to And that the category for new consumers might not be as inelastic in this market environment. Speaker 200:09:51On the other hand, We have been pleasantly surprised by the stronger than expected elasticity in our renewal channel as our renewal rates have improved. Inflation is the 2nd main issue impacting near term demand. We have seen that higher inflation has impacted consumer sentiment and behavior. Further, with inflation comes rising media costs, creating additional pressure on our go to market strategies. In response to these recent findings, we have pivoted our discounting strategy. Speaker 200:10:24Since we last spoke to you at our Investor Day, We have explored new discounting strategies and continue to test and learn how to better attract new DTC members. While we are pleased with these learnings and some of these early sales trends, we want to see more results before we adjust our full year PTC expectations. Additionally, we have also taken steps to improve conversion. We are becoming more efficient at converting the demand we do generate. And is the 3rd main issue impacting near term demand. Speaker 200:11:05We had reduced DTC marketing spend in our original 2023 operating plan for AHS. This was done to improve overall marketing efficiency. Now that we are seeing better marketing effectiveness, we have decided to increase our spend compared to our initial plan in 2023. We will also work to continue to optimize marketing throughout the remainder of the year. Those are the near term actions we are taking to address the decline in DTC sales. Speaker 200:11:35Longer term, we will and promote our products over the competition. We are also continuing our work to optimize pricing and discounting as we refresh our value proposition with key consumer segments. Now turning to Slide 9 and our real estate channel. The National Association of Realtors Updated the adjusted annual rate of existing home sales for March to 4,400,000 homes or a 22% decline over the prior year period. Inventory levels remain low and only 2.6 months of supply, which is one of the main drivers delaying the transition to a more balanced buyer and seller market. Speaker 200:12:29Regardless of market conditions, Our sales team is focused on improving sales accountability through data usage and market level dashboards. But at this point, it remains a challenging market to sell home service plans. Now turning to Slide 10 and our renewal channel. As I mentioned earlier, customer retention rates are coming in better than expected despite a targeted realized price increase of 11% in 2023. Retention rates actually increased 180 basis points to 75.9% in the 1st quarter. Speaker 200:13:06While channel mix shift is clearly a driver, our dynamic pricing strategies are delivering a price increase that our existing customers still find tremendous value We also continue to work on process improvements to drive members to renew. Now in closing, we are off to a great start in 2023. We continue to expect our financial results to improve over 2022 As our prior pricing actions take hold, inflation headwinds continue to moderate and as we expand our process improvement efforts. As I told you at our Investor Day, we now have 2 growth engines that are focused on different consumer segments that will drive the business for years to come. I will now turn the call over to Jessica to review our financial results. Speaker 200:13:55Jessica? Speaker 300:13:56Thanks, Bill, and good morning, everyone. Please turn to Slide 11, and I'll take you through our Q1 2023 financial results. Starting at the top of our income statement, Where first quarter revenue increased 4% versus the prior year period to $367,000,000 driven by a 10% increase from price, which more than offset the 5% decline in volume. Now let's move to Slide 12, where I'll review our revenue by channel. 1st quarter revenue derived from customer renewals increased 13% versus the prior year period due to realization of pricing actions taken last year. Speaker 300:14:361st year real estate revenue decreased 28% versus the prior year period, reflecting a continued decline in the number of home service Plans sold due to the strong sellers market. 1st year DTC revenue decreased 5% versus the prior year period due to the items still covered earlier. Now let's turn to Slide 13. Gross profit for the quarter increased $26,000,000 to $170,000,000 This resulted in a 5.40 basis Point increase in our gross profit margin to 46%. The gross profit improvement was primarily driven by higher realized price, A lower number of service requests driven by favorable weather as well as a moderation of inflationary cost pressures as our cost per service request came in slightly better than expected at 7%. Speaker 300:15:30Our first Quarter gross profit also reflects operational improvements we have made to the business, such as increasing the percentage of jobs we assign to our preferred contractors by 2 70 basis points to a 10 year high of 84%, as Bill mentioned earlier. Our management team continues to be focused on initiatives such as this to drive operational excellence and sustainable margin improvement for our shareholders. On Slide 14, you'll see that net income increased $20,000,000 in the Q1 of 2023 to $22,000,000 as a result of higher gross margins and favorable timing of SG and A expenses. Adjusted net income increased $20,000,000 over the prior year period to $23,000,000 Adjusted EBITDA improved $29,000,000 to $54,000,000 Let's move to the tax table on Slide 15, and I'll provide more We had $22,000,000 of favorable revenue conversion. Contract claims costs decreased $4,000,000 in the 1st quarter, primarily driven by a lower number of service requests per member and $6,000,000 of favorable development, slightly offset by inflationary cost pressures. Speaker 300:16:56Sales and marketing costs increased $3,000,000 in the 1st quarter, primarily driven by efforts to grow the direct to consumer channel. Customer service costs decreased $2,000,000 in the 1st quarter, driven by a lower number of service requests. And finally, interest and net investment income increased $3,000,000 as a result of rising interest rates on cash deposits. In summary, our Q1 adjusted EBITDA was roughly split between favorable gross margin and SG and A costs as well as continued execution of process improvement. Please now turn to Slide 16 for a review of our Q1 cash flow. Speaker 300:17:38Net cash provided from operating activities was $60,000,000 for the 3 months ended March 31, 2023, which is comprised of $34,000,000 in earnings adjusted for non cash charges and $26,000,000 in cash provided from working capital. Cash provided from working capital was primarily driven by seasonality as our Q1 can be an exceptionally strong cash generation period. Net cash used for investing activities was $8,000,000 for the 3 months ended March 31, 2023, and was primarily comprised of capital expenditures related to investments in technology. Net cash used for financing activities was $7,000,000 for the 3 months ended March 31, 2023, and was primarily comprised of debt payments. On Page 17, you will see that our free cash flow calculated as net cash provided from operating activities less property additions Was $52,000,000 for the 3 months ended March 31, 2023. Speaker 300:18:40We are projecting approximately $100,000,000 of free cash flow for the full year. We ended the Q1 with $337,000,000 in cash. This was comprised of $150,000,000 of restricted net assets And unrestricted cash of $187,000,000 I covered our capital allocation strategy in detail at our Investor Day in March. The main message I want to deliver on this call is that we have a solid financial position, our unrestricted cash is growing along with our confidence in the business, And it remains our intention to return approximately $80,000,000 of cash to shareholders through our existing share repurchase program in 2023. Now turning to Slide 18, I'll conclude my prepared remarks with our current thoughts regarding the financial outlook for the Q2 and full year 2023. Speaker 300:19:35We expect our 2nd quarter revenue to be within a range of $505,000,000 to $520,000,000 This reflects a nearly 15% increase in the renewal channel, partially offset by a roughly 25% decline in the real estate channel And a low double digit revenue decline in the DTC channel. 2nd quarter adjusted EBITDA is Message will range between $80,000,000 $90,000,000 an increase of $10,000,000 from the prior year period as a result of higher gross margin. This outlook also includes a meaningful increase in SG and A as we invest in the new frontdoor brand that Bill spoke about earlier. Turning to our full year outlook, we are maintaining our revenue range of $1,700,000,000 to $1,740,000,000 The full year assumptions include approximately 10% revenue growth in the renewal channel, a low double digit revenue decline in the DTC channel And a nearly 20% decrease in the real estate channel. We continue to expect approximately 11% growth from higher price, which will more than offset a 6% decline from lower volume. Speaker 300:20:48Note that we priced for higher inflation than what we are currently seeing in 2023. We also expect our home service plan member count decline in the mid to upper single digits in 2023. We slightly raised our full year gross profit margin outlook to be between 43.5% 46%. This reflects the benefit of prior pricing actions flowing through and a moderation of inflation. This also assumes that inflation will average approximately 9% on a cost per service request basis and the number of member service We'll be down in the mid single digit range to approximately $4,200,000 Additionally, We increased our full year SG and A target by $10,000,000 from last quarter to now range between $570,000,000 $595,000,000 This increase is related to investments and marketing spend for American Home Shield. Speaker 300:21:49However, we are working to improve our marketing efficiency and our Current outlook continues to reflect lower AHS marketing spend compared to prior year. Our outlook assumes approximately $60,000,000 Marketing spend associated with the launch of the new Frontdoor brand. Based on these updated inputs, we maintained our full year Adjusted EBITDA range to be between $220,000,000 $240,000,000 This includes stock compensation expense of approximately $30,000,000 And $12,000,000 of interest income. We are carefully monitoring inflation, SG and A investments, weather and other variables as we evaluate the back half of the year. And finally, we're projecting our full year capital expenditures to range between 35 $45,000,000 and the annual effective tax rate to be approximately 26%. Speaker 300:22:45In conclusion, We delivered strong Q1 results as our pricing actions continue to flow through, cost pressures moderated and as we benefited from several Favorable items related to timing. We remain confident in our long term business outlook as we continue to invest in building a strong foundation for our future. With that, I'll now turn the call back over to Matt for questions. Speaker 100:23:11Thanks, Jessica. As a reminder, during the question and answer session, We encourage you to ask any questions that you may have, but please note that guidance is limited to the outlook we've provided. Operator, let's open the line for questions. Operator00:23:27Thank you. Our first question for today comes from Cory Carpenter of JPMorgan. Corie, your line is now open. Please go ahead. Speaker 400:23:51Thank you. I have one question on the new brand and one question on American Home Shield. For Frontdoor, could you just talk about how the consumers are engaging with the app, those who have downloaded it thus far? Just what features you're seeing the most engagement with? And then on the service print on American Home Shield side, could you just give us an update on where you are with consolidating your 4 brands under American Home Shield And what the next steps are? Speaker 400:24:17Thank you. Speaker 200:24:20All right. Thanks, Corey. Let me take both those and Jessica please Weighing with anything else. So in terms of engagement, the goal right now is to get we're launching a new brand. So the Goal here is to get people to access the brand, download it, register and then try our video chat. Speaker 200:24:40So I'm not going to go into the details About specific numbers and everything, but what we have found is that the user experience here It has been played to rave reviews. The experts we have hired in all the key trades and even the handyman Group that we've hired are excited, they're energized, they're on the side of the consumer and the feedback we're getting And a lot of us have done video chats ourselves. And it's really I mean, I keep saying it's changing the culture of our company to have real experts in the company. So When you have something of interest that like this product, I've done a bunch of media interviews with things that are consumer The reporters to a person have been talking about how this is long overdue and that a user experience like this, I'm very confident that we're on to something with this approach. So more to come in the Q2. Speaker 200:25:42In terms of the AHS Consolidation or the overall with the brands. That's moving along. Nothing really to report. We're managing the OneGuard And Landmark Consolidation, we are moving AHS into those markets. So It's something that's going to take a while to do because we have renewal products. Speaker 200:26:06This is going to run out for a couple of years. So but it's on track, Nothing really to report, but at this point, I feel good about the way the team is executing on this. Speaker 400:26:20Okay. Thank you. Operator00:26:24Thank you. Our next question comes from Maxwell Fraser from Tourette. Maxwell, your line is now open. Please go ahead. Speaker 500:26:33Hi, good morning. I'm calling in for Mark Hughes today. And I was wondering if you could provide some more color around the Frontal Work Prime and more specifically, if we head into some sort of mild recession, What are your expectations for consumers' appetite for a subscription service? Speaker 200:26:54Yes. I think that the flavor around it is what I talked about. When you upgrade from basic, you get 3 video chats. There are also discounts on HVAC systems that has available financing. We have special member pricing in addition to the video chats. Speaker 200:27:13So I think that this is actually something that could play very well in a recessionary environment because The for $99 you're going to get someone who knows what they're doing and whatever the various repair issues you might have in your home To help you and be on your side too, we've had some calls where people have called in that they've gotten an estimate on a new system And we've had our experts go through and tell them whether that's a good deal or not. We've had other situations where What the experts really pride themselves on, they want to solve the problem on the spot versus having to do service calls. So I think there are a lot of elements here as people engage With the app more and more and with the brand where people are going to see the value that they get for this is really quite high. So I don't think obviously, we're all trying to figure out the recessionary impacts. That's part of the reason why we're being very cautious on our outlook. Speaker 200:28:11But I do think that this product is going to play very well in the future. Speaker 300:28:17Yes. I think one of the other things I'd add there though, one of the additional discounts on home services and products. And I think heading into a recession, consumers are looking for the best deal, which is another It's a benefit of the Prime offering. Speaker 500:28:34Thank you. Also staying on the recession topic, If the Fed starts cutting rates in a lower rate environment, do you think that we'll see like a boost in the real estate channel? Speaker 200:28:48I would think so. I'm not going to because as mortgage rates would come down, I mean mortgage rates Are having an impact on the real estate channel. It's pretty clear that that's happened. So I do think that that will give The macro environment of real estate, which is really suffering right now, Boop. So I think your premise is correct. Speaker 500:29:11Okay. Thank you. That's all I have. Operator00:29:15Thank you. Our next question comes from Ian Zaffino from Oppenheimer. Ian, your line is now open. Please go ahead. Speaker 400:29:23Okay, great. Thank you very much. I guess the question would really be again on the DTC side. Jessica, I don't know if you gave us actually price versus volume in DTC, what you're expecting going forward. And I guess really the question is that I know DTC was taking a lot of price last year, like when do you think you hit that or bumped up against that elasticity? Speaker 400:29:48And given the elasticity, how are you actually thinking about your focus on, let's just say, price versus retention And what we should expect from there? Thanks. Speaker 200:30:02So I'll take the first part, Ian. I think that this is something, as I said in our in my commentary, we've looked hard at. I think there has been it's been a tough situation. We had to raise prices given the rapid increase in costs that we certainly faced last year. So we're up against that, which is why we pivoted on our discounting strategy and been more aggressive on that. Speaker 200:30:27And we're 6 weeks or so into that, but I think that We're feeling good about the early sales trends and we'll talk more about that in Q2. So I think it's something we continue to test and refine. Ultimately, this company is driven by the renewal side. That's really where we do our best efforts. And obviously, we have to keep feeding that funnel. Speaker 200:30:47So we will continue to work hard on trying to bring as many members in as we can. But I'm really pleased with what we've been able to do, notwithstanding the price increases with the renewals with our renewals effort. I think the thing that's not seen in the numbers, if you will, is the tremendous work being done by our technology, our digital teams, Our marketing teams, our product teams in terms of on the margin getting people to renew at higher rates. So I'm really pleased with the executional efforts and the process improvement situation that has happened within the company. So Renewals are always going to be most important, but we're only as good as how we can continue to feed that funnel. Speaker 300:31:32Yes. And Ian, just on the details, Directionally, we've given that the increase in revenue is going to be largely priced overall and the B2C channel low double digit decline for the year. Speaker 400:31:47Okay. But basically, I would imagine DTC would track Similarly to kind of the overall numbers you were giving, or would you Basically, maybe take less price, and then have better volume. Speaker 300:32:04Yes. Yes. That's a part of it. Speaker 200:32:06Yes. I think that's part of what we're saying when we say we're pivoting our discounting strategy. Speaker 400:32:09Yes. Perfect. And then the other question would be On inflation, I guess you're still saying 9%. Is there a potential for you to come in better than that? Are you just trying to be conservative when you think about your cost pressures? Speaker 400:32:29Thanks. Speaker 200:32:30Yes, I think that since I took over nearly a year ago, we've been conservative in general. The 9% we think is the right number given the We had some favorable situations like Jessica talked about with weather and the like during Q1 where it came in at 7%, but We're comfortable with the 9% as the right guidance to give you. Speaker 400:32:55All right. Thank you very much. Speaker 300:32:58Thanks, Ian. Thanks, Ian. Operator00:33:01Thank you. Our next question comes from Justin Patterson of KeyBanc. Justin, your line is now open. Please go ahead. Speaker 600:33:12Great. Thank you very much and good morning. 2, if I can. First, I just wanted to go back to the video call commentary. It sounds like you're seeing some nice early results in terms of cutting down service calls, doing more solving from a distance. Speaker 600:33:29How much more room do you have do you think you have there in terms of just improving that level of adoption and seeing the cost benefit? And then the second question is just around the preferred contractors, great progress with a 10 year high there. How much more room do you think we have to go there? Or is that just more of, say, a byproduct of the period, less service requests just inflated that number? Thank you. Speaker 200:33:56Yes. So first of all, on the video calls, we're 3 weeks in, 3 weeks in a couple of days. The early indications are really, really very positive. So that's something that we're going to continue to work on. The other piece that I want to point out, this is a new concept. Speaker 200:34:15I mean, we have gotten some people, it's free. What's the cash? How much is the cut? And there is no cash. So it's going to take some time for this to settle in. Speaker 200:34:25I think with The awareness we've built, as I talked about, the talked about marketing campaign, people singing the song, this is all great stuff. But what it comes down to is the user experience and that's where the strength of this video chat with an expert comes in. And that's why I'm confident That as this becomes more well known, as people understand the proposition, this is a very, very complete and thorough We're calling it revolutionizing home and repair. This is going to take some time to get there, but we're really pleased by the interest from people and I'm really pleased ultimately With the job these experts are doing and the user experience they have. And now, Jessica, do you want to take the preferred contractor piece or you want me to go? Speaker 300:35:12No, I think On preferred contractors, we're continuing to be focused on executing on that initiative. Evan and team are doing an excellent job there and we're Speaker 200:35:26I do think so Justin and though, yes, The lower service request did help us with that, but some of the process improvement priorities we put together, I think we're really enhancing The contractor relations team to drive that number. So I think there's a lot of things working in the right direction on that. Speaker 600:35:48Great. Thank Speaker 300:35:50you. Thanks, Justin. Operator00:35:53Thank you. Our next question comes from Brian Fitzgerald of Wells Fargo. Brian, your line is now open. Please go ahead. Speaker 700:36:03Thanks. I wanted to just follow-up on Justin's question is maybe a little bit on the preferred contract network. Anything you could tell us about the favorability to gross margin from that? And then also the runway to continue growing that maybe specifically as you get into the busier part of the year. And then last piece on that preferred contract network. Speaker 700:36:24I think you've said in the past, it's a bit of a balancing act there as you Continue to feed other contractors to grow the preferred network, but also maintain some flexibilities. Are you pushing up Against any limits there in terms of that balancing act? Speaker 300:36:41So just I think just on your question on gross margin, We've given kind of a 1% change in our preferred contractor rate translates to about $5,000,000 of gross profit, but that obviously varies By contractor, trade and geography. Speaker 200:36:56I think with regard to the contractor piece, one of the things that we have found Is with the awareness building that we're doing on Frontdoor, the Contractor Relations team is getting calls about I want to be a contractor. So I think that we're going to get to a point where an unintended consequence of our efforts is that we may be getting More and better contractors wanting to come into the fold here. So I don't think that there's a limitation in terms of Running out of, if you will, contractor supply. So that's been a nice add on. Like I said, it's very early days, But we've been pleased with that. Speaker 200:37:34So I want to make sure that that have we answered your questions, Brian? Speaker 700:37:38Yes. Yes, that's right. Thanks, guys. Speaker 800:37:42Okay. Thank you. Thank you. Operator00:37:46Our next question comes from Eric Sheridan of Goldman Sachs. Eric, your line is now open. Please go ahead. Speaker 800:37:54Thanks so much. Maybe a 2 parter, if I could, on marketing. I know we've talked a little bit about it on Call already, but is there any sort of visibility you've got now in terms of which partnerships or which channels around the new marketing efforts you're the most Excited about or what we might see that you want to sort of amplify or push into certain channels or partnerships as you go through the year, Because the early reaction is maybe exceeding your expectations. And then second, can you just remind us a little bit how Think about marketing as we move through the year. Obviously, you're in this sort of brand building environment right now in the front half of the year, but how should we think about The cadence of marketing as we move through the year once you're beyond this initial push around the brand? Speaker 800:38:38Thanks so much. Speaker 200:38:40Yes. Okay. To your first question, the NFL Draft weekend was phenomenal in terms of downloads. And it was really I give Kathy Collins and her team a lot of credit because you got a lot of people sitting around, a lot of time in between draft picks and It really was a good weekend for us, if you will. We're very excited about this Amazon initiative, which is dropping in mid summer, which essentially we've done A tie in with Amazon where the boxes will be branded, you'll still have their logo obviously and their brand, but We'll have a wrapper around it all about front door and we think that the irony of right at your front door of the box, the whole thing works together and The whole line, which is really resonating with people to open the front door has worked out well. Speaker 200:39:30In terms of the cadence and marketing, We will begin to shift more marketing effort to premium in about a month. So that will continue to drive people 2, we think that the interest level is driven by the video chat with an expert, but we will drive more and more people to premium as we move into the summer months. So that will become a bigger part of our initiative. At the same time, as Jessica pointed out, AHS spend will be on the increase. We might have cut it down a little bit too much. Speaker 200:40:05So We're getting pretty good efficiencies. We're pivoting our discounting strategy. We're going to support that with additional marketing. So I feel good about where we're headed on that regard to. Speaker 500:40:17Thanks for the color. Speaker 800:40:20Thank you. Operator00:40:23Our next question comes from Jeff Schmitt of William Blair. Jeff, your line is now open. Please go ahead. Speaker 900:40:31Hi, good morning. What percentage of parts and equipment is frontdoor sourcing now versus before the pandemic? And how much is that helping on the Reduced sort of claims costs or inflation, can you put any numbers behind that? Speaker 200:40:49Yes, we're digging that number out for you right now, Jeff. Speaker 900:40:54Okay. Okay. And then one on Yes. We can get come back to that. Speaker 300:41:02Yes. So I was just first on the second question. Speaker 900:41:06Okay. And then on favorable development looks to be $6,000,000 in Speaker 200:41:11the quarter. What Speaker 900:41:12Period was that related to and I'm just looking at I guess the Q4 I think it was $25,000,000 which felt like almost sort of a true up for last year. So what is the what period is that $6,000,000 related to? Speaker 200:41:27So on the contractor I believe the number is we just exceeded 50%, is that correct, which is up from last year. We're less than that because supply was in such Such high demand. On the second question, I'll defer to Jessica and then. Speaker 300:41:43Yes, we just don't we don't break out the 6,000,000. Speaker 900:41:48Okay. All right. Thank you. Speaker 300:41:52Thanks, Jeff. Thank you. Operator00:41:55Thank you. At this time, we have no further questions. Ladies and gentlemen, thank you again for joining Frontdoor's Q1 2023 earnings call. Today's call is now concluded.Read morePowered by