Q1 2020 Earnings Call
Ladies and gentlemen, welcome to the front doors first quarter 2020 earnings call today's call is being recorded a broadcast on the internet.
Beginning today's call is not Davis, Vice President of Investor Relations and Treasurer.
Well introduce the other speakers on the call at this time well begin today's call. Please go ahead Mr. Davis.
Thank you operator.
Good morning, everyone and thank you for participating in front doors first quarter 2020, <unk> earnings conference call.
Joining me on todays call or front doors, Chief Executive Officer, Reits trends and bring doors, Chief Financial Officer, Brian trick Huh.
The press release in slide presentation that will be used during today's call can be found on the Investor Relations section of front doors web site, which is located outside investors Dod funding to work home Dot com.
As stated on slide through 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 US do you see.
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 other today may six 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 may also reference certain non-GAAP financial measures throughout todays call.
We have included definitions of these terms and reconciliations of these non-GAAP financial measures. So the ministry 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.
Finally, we're all working remotely during this call and apologize in advance for any audio issues that might occur. Please bear with us. If this happens during our remarks or Q and a portion of the call.
I'll now turn the call over to rest for opening comments right.
Thanks, Matt Good morning, everyone.
Before I jump into our business results on behalf of myself and the entire front door team I want to extend my deep appreciation to those serving in the health care field first responders and that was the provided central services through grocery stores pharmacies home service contractors and so much more.
Yeah, well keep our nation going during the summer pets, the time and are the true frontline here in America today.
Good thank all them all what they do and express my gratitude for their sacrifices.
Turning to our business Adore had a strong first quarter, both from a financial and operational perspective.
I'm, especially proud of our team early and decisive actions in response to covert 19, They move mountains and we do not Miss a beat operationally I'm certain that the increased focus ingenuity, you're developing this crisis will result in us emerging as a stronger and more nimble organization.
Earlier this year as Raj Mehta art, former CMO take on her new role of being the senior Vice President and General manager of our American home Shield actually say, yes.
<unk> Rogers Insightful Council since I started and I'm truly excited I think now focuses on the strategy and execution of our largest brands.
In March we hired Jason Marshall, that's our Chief marketing Officer trace. The most recently served that CMO of pork start cost that's held several leadership roles and other companies such as solar winds and party city.
We look forward to Jason's driving growth and innovation across all facets of brands our organization, especially as we re imagined the company from a digital perspective.
Jason has deep expertise in digital marketing and technology, we're excited to have them on the team.
Finally in light of coking like teen shelter in place order first week celebrate the deployment of our stream technology to our contractors and real estate partners in March at no cost about.
So we're already seeing the benefits of enabling remote services to help homeowners during that unique times.
Dream is beginning to teach contractors and customer to like what we already know a good experience doesn't always mean, having to be present no.
Turning to slide five I want to go into more detail about the actions front door has taken in response to the coven 19 crisis.
We have all been on quite a journey the last few months I.
I'm incredibly proud of the front door team a great job they have done maintaining normal operations for our customers.
Two of our house rolls revolve around obsessing about customers and being owners Archie certainly living up to those rules.
Our contractor services have been deemed the central by state and local governments.
With allows us to keep our contractors, many of whom our small business owners working and safely providing important repairs to homeowners.
When conducting emerged our first priority was to protect our associates and their families.
We move quickly and formed a cross functional business continuity team to lead the crisis response.
You know round the clock the team was able to virtualize our company a little over a week in March.
We moved all of our approximately twitch their employees they work from home environment, including our four call centers, all true thing to new cloud based contact center system at the same time.
This transaction was completed without any disruptions to our service.
It was a massive undertaking it was only successful through the brute force our technology product and customer service teams that cannot be more proud of our other efforts.
But front door our employees, our most important asset.
To be successful the company, we need our employees to operate at full capacity and we don't anticipate any layoffs at this time.
Fact, we're continuing to recruit and higher grade kill across our business remotely.
Our lean into our contractor and real estate agent partnerships. During this time, we will emerge from the stronger together.
As I mentioned earlier, we expedited the rollout of our street technology, making available free of charge prefer contractors, leading real estate partners to transform how they interact with customers and clients now and in the future.
Our door will continue to work with local state and federal governments to advocate on behalf of our contractor network to ensure that remaining categorize central services and provide our contractors what the resources information they need to keep our customers and community safe.
This includes communications the how the prescreen customers.
Total distancing during service calls and manage customer conversations.
We also secured 200000 pbms for distribution to our contractors, who lack the necessary part production equipment.
Nearly all of our contractors are still operating accepting jobs and performing a central home services for our customers.
In fact, some of these contractors that removed themselves from Sir.
Due to covert 19 concerns are coming back online.
Our supply chain has not been materially impacted light koby 19 crisis, we have had sufficient access to parts and replacement appliances and systems.
The average age persistent more appliance repair is about 10 years the necessary parts are generally Oregon stock.
We also source many of our replacement systems, such as hot water heaters and air conditioners from companies the production in the U.S. and Mexico.
Some of the production facilities and our supply chain have been impacted we don't single source any parts of replacements don't see any significant impact to our business at this time.
Oh situation remains fluid our supply chain team is carefully monitoring the situation and our supply position on a daily basis.
Finally continued to furnish essential home services to our customers, we're providing them with additional information when a service request is made and have establish a separate hotline to address poet 19 questions, which has allowed us to maintain normal and safe operations.
Although we do not see any significant changes in customer service request behavior in March April claims incidents was below prior year.
We're investigating at this reduction was due to mild weather or I was hoping 19 concerns driving some customers to postpone service requests to avoid having a contractor into their help.
We're also looking into other customer sheltering at home could impact claimed later this year.
Sample. We don't currently believe that increased usage of certain systems, such as they should be a C will result in an appreciable.
Number or severity of claims.
As you know developments around October 19 that consistently changing we will continue to nimbly respond to developments in real time to mitigate the business impact.
I'll now turn to slide six where I would normally provide an update on our 2020 objectives.
However, this environment I felt is more appropriate to focus on how we're navigating through this uncertain time.
First we are looking to mitigate the revenue impact from cobot 19.
At this time, we believe our main exposure within the first year real estate channel, we are closely watching the macroeconomic environment.
We have seen in airports anticipate the second quarter at 2020.
Materially below 2019, so well then began to recover in the back half of the year.
Well clearly have adverse impact on our home service plan sold to this channel.
We also expect the delayed effect once the market re boots as it can take a couple months before we would expect to see a meaningful uptick in the home service planned sales.
Given this backdrop, our real estate group is leveraging our new sales team structure and deepening broker partnerships to increase our share of home service plans sold and the real estate market.
We're also encouraged by real estate agents, using our stripping technology to virtually show houses, which we believe could lead to more sales of our service plans.
Finally, we expect to reallocate a portion of the marketing dollars originally earmarked for real estate to further drive our direct consumer channel.
Leading into the DTC channel worked well for us during the financial crisis in 2008 in 2009. We believe this is a lever that will work for us today.
Our direct to consumer channel demand continues to remain solid we launched a new advertising campaign in April as we rebuilt our marketing efforts.
I seen our new broadcast ads showing on primetime TV I encourage you to look them up online as they have been well received by consumers.
We've seen a sharp decline in advertising rates, especially in broadcast in response, we are increasing spend in areas where prices have greatly fallen and conversion remains strong.
As advertising cost decline viewership increases from consumer staying home more we've seen our marketing efficiency improve.
As you May recall, our DTC channel performs better from a retention perspective, as well, which could provide some much needed tailwinds for the next year.
We're also seeing customer renewals remained strong during this time.
Our overall retention rate as.
Steady 75% in the first quarter, we've seen that trend extend through April.
Cross functional teams continued to make progress on a wide range instead of objectives to improve our product customer experience, resulting retention.
Efforts include reducing cycle time, improving customer satisfaction ratings addressing process gaps in our call centers.
It's still too early to predict that these efforts will offset the potential impact of Cowen 19 and 2020.
However, we do believe that our value proposition a bunch of protection and convenience our enhanced during times of economic uncertainty and customer staying home more.
We entered into this period of uncertainty with a strong balance sheet substantial liquidity and resilient business model that generate positive cash flow.
Allows us to leverage our strengths that push for with improving our business what others are pulling back.
I understand that some smaller home service plan businesses are exiting the market or experienced in service issues. We continue to look at acquisitions as a way to further increase our growth trajectory.
Both in the home service plan business as well as technology companies such as stream.
A couple seem to be contracting so we're keeping our out to take advantage of tuck in home services and technology opportunities.
Next well continue to advance our process improvements now that we've moved employees to work from home environment or continue to focus on other ways to improve.
For example, we're very excited about the new cloud based contact center system that will allow for a better experience and improved productivity.
Technology teams have an aggressive prioritized list of goals for this year to continue to build new technology allows us to be more efficient and nimble and our operations teams continue to execute on our goals higher efficiency and cost reduction.
Finally, we are accelerating strategic initiatives, given Coleman 19, reprioritize several of our initiatives for 2020.
We accelerated stream in the deployment of our cloud based contact center system to assist with working in a remote world.
Still advancing our rollout of can't do but that pushed out the expansion into other trades by a quarter or to do just technology resources being pulled into other co 19 related projects.
And do it by providing essential services as well, we've not seen a decline in the man we didn't need to refocus some of our technology teams for the quarter.
It was just a few examples of our organizations double this as we are able to pivot our objectives and work across teams to get things done quickly.
In conclusion, we entered this period of uncertainty from a position of strength and our business is uniquely at depth to successfully navigate these challenges.
I'm incredibly proud of the team's effort to take quick and decisive actions that allowed us maintain that consistent level of business operations. I believe this event will only make a stronger as a company.
I'll now turn the call over to Brian who will cover our financial results in more detail Brian.
Thank you reckon good morning, let's now turn to slide seven and I'll review the key financial results for the first quarter 2020 versus the prior year period.
We had a strong first quarter as revenue increased 8% versus the prior year period to $294 million driven by approximately six points of higher price in two points from increased volume.
If we look at our three channels revenue derived from customer renewals was up 10% versus the prior year period due to improved price realization and overall growth in the number of home service plans due in part to our customer retention improvement initiatives.
First year real estate revenue was up 2% versus the prior year period, reflecting improved price realization offset in part by a decline in the number first year real estate homes your was plants.
And first year direct to consumer rather than it was up 7% versus the prior year period, reflecting growth in the number of first year direct to consumer home service plans, mostly driven by increased investments in marketing and improved price realization.
I would like to remind everyone that we recognize revenue evenly over the course of our annual contracts. This belongs to the impact any Miss first your real estate sales in the early quarters.
We'll be a worked into our base, thus our reported revenue and the related impact.
Somewhat lag any macroeconomic trends impacting our business in a particular quarter.
Gross profit increased 15% in the first quarter versus the prior year period to $147 million.
Gross profit margin increased 270 basis points to 50%.
Bad debt remained relatively flat in the first quarter versus the prior year period.
We did not experience a material year over year, increasing amounts owed by our customers.
Net income was relatively flat versus prior year period at $13 million, while adjusted EBITDA increased 9% to $47 million.
I'll now walk you through the first quarter adjusted EBITDA Bridge on slide eight starting at the top we had $18 million a favorable revenue conversion in the first quarter 2020 versus prior year period, including $17 million from higher price and $1 million from increased volume.
Excluding the impact of the change from higher revenue contract claims costs were relatively flat in the first quarter 2020 versus the prior year period. This was primarily due to a lower number of service requests due in part to favorable weather impacts of approximately $4 million offset by an increase in the underlying cost repairs.
Hi, Rick cost repairs consist of normal labor parts appliances systems inflation, partly offset by the benefits driven by process improvements and cost reduction initiatives.
Sales and marketing cost increased $7 million versus the prior year period, mostly driven by incremental marketing spend to drive home service plan sales growth.
Primarily in the direct to consumer channels.
The $4 million, increasing customer service cost was primarily driven by investments to improve the customer experience and increased retention.
Finally, we had $5 million of higher general and administrative expenses in the first quarter versus the prior year period, primarily due to higher personnel costs, consisting mainly of technology personnel.
Please now turn to slide nine.
For a review of our cash flow in cash position.
Net cash provided from operating activities in the first quarter was $60 million, an 8 million dollar increase versus the prior year period, primarily driven by our higher earnings in a decrease in cash required for working capital needs.
Net cash used from investing activities was $3 million a decline of $2 million versus the prior year period, primarily due to an increasing cash flow from marketable securities transactions.
Cash used for financing activities was $3 million in the first quarter, a 1 million dollar increase versus the prior year period.
Primarily comprised of debt payments.
Free cash flow, which we calculate as net cash provided from operating activities minus property additions was $52 million from the first quarter of 2000 $25 million higher than the prior year period.
This 11% increase was primarily due to a decrease in cash required for working capital needs and higher adjusted EBITDA.
Cash and marketable securities totaled $484 million at the end of first quarter, a 49 million dollar increase compared to December 31 2019.
Total restricted net assets required to meet state regulatory requirements was $169 million.
While the remaining $315 million were unrestricted and available to use for any business purpose.
Our available liquidity at the end of the first quarter was $565 million, including the aforementioned $350 million unrestricted cash plus an available undrawn revolving credit facility of $250 million.
We view our available liquidity.
An ability to generate cash to be significant advantage as we navigate through this uncertain economic environment.
Unlike many companies that are less liquid.
Taking extreme measures to build cash reserves. During these uncertain times, we have the opportunity continue to invest in our business with organically and inorganically for the foreseeable future while meeting our cash needs. For example, we generated enough cash in the first quarter of this year nearly cover our full year debt service.
Approximately $60 million.
In regard to our capital structure.
There is one point worth noting.
It was a view that have followed front door since our spinoff from Servicemaster in October 2018 will recall that our leverage ratio or net debt divided by adjusted EBITDA was initially 3.9 times. The good news is that our leverage ratio has continued to drop each and every quarter since the spin off and it was 2.2 times at the end of the first quarter 2000.
20, well within our most recent target leverage of two to two and a half times.
This is a remarkable achievement in a testament to the strength of our business model.
I'll now conclude my prepared remarks, with some comments regarding our financial outlook.
Based on our preliminary April results.
In our current forecasts for May and June we expect our second quarter 2020 revenue to range between 410 million and $420 million compared to $388 million in the prior year period. We also expect adjusted EBITDA to range between 95 and $105 million compared to 105.
Million dollars in the prior year period.
This outlook assumes the early impact of lower first your real estate home service plan sales beginning to flow through driven by the unfavorable impact of Kobin 19 on U.S. existing home sales projected for the second quarter.
Despite the projected negative impact on the home resale market and our real estate channel. We continue to model positive year over year growth in our direct to consumer renewal channels for the second quarter.
We will continue to monitor this impact in any subsequent change to these macroeconomic and existing homesale conditions.
In regard to the full year, we have withdrawn our full year financial outlook at this time due to the uncertainty around the impact of Cobot 19 on the general economy, and primarily on our real estate channel during the back half the year.
Because missed home service plan sales amortized into our revenue base 112 at a time, we will see some pressure early or overall recognize revenue.
And any related slowdown will generally lag the macroeconomic trends as I mentioned previously.
And similar to the second quarter outlook, we continue to model positive year over year revenue growth in our direct to consumer and renewal channels in the back half of the year.
Please note that we plan, we reevaluate our position on providing a full year outlook. We report our second quarter results in early August.
And taking a page from the successful playbook used during the 2008 2009 financial crisis and as Rich mentioned, we expect to reallocate a portion of the marketing dollars originally earmarked for real estate to drive additional growth in our direct to consumer channel as a reminder, our home service plan business grew.
Annual revenue approximately 4% and 2% in 2008 in 2009, respectively by focusing its efforts on driving the direct to consumer and customer renewal channels.
In closing I would like to stress it in response to central unfavorable revenue impacted Kobin 19, we are closely reviewing all key expense areas to reduce non customer facing costs.
And also taking actions to deliver the cost efficiencies, we had built into our original 2020 operating plan.
For example, we have significantly reduce our plans for new hires so those critical positions needed most to drive the business and put a hold on travel and entertainment and employee relocations until further notice and we have other levers we can pull if needed.
At front door, we remain justice bullish about the long term prospects of our business today as we were before the pandemic in the near term, we're simply making some adjustments to our outlook based on the volatility in existing homesales, even with these adjustments we are still projecting stronger annual revenue growth in 2020 than the low.
No single digit growth, we achieved during the financial crisis, we remain extremely well positioned.
Even during these times of economic distress to leverage our financial strength and continue to grow our business.
With that.
I'll now turn the call back over to Matt doping the question and answer session Matt.
Thanks, Brian as a reminder, during the question answer session. We encourage you to ask any questions that you may have some please note that guidance is limited to the second quarter outlook, we provided our press release.
Operator, let's open the line for questions.
Thank you the floor is now open for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time a confirmation total indicate your line is in the question Q.
Press Star to if he would like to remove your question from the Q for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys. Once again that is star one to register questions at this time.
Our first question is coming from Michael English of Goldman Sachs. Please go ahead.
Great I hope everyone is doing well. Thank you very much for the question I just have to.
The first one is on can do direct you talked about delaying trade expansion by a quarter too.
Can you talk a little bit about your decision, there and whether or not geographic expansion has affected and is the $15 million to $20 million a technology and can do investments for 2020.
It's still the appropriate way to think about it and then secondly, given the current expectations for the US real estate market could you just talk about how we should think about when real estate first year sales will be most impacted from a revenue perspective.
Appreciating that.
Those impacts will flow through over time, thank you very much.
Hey, Michael I hope you're doing well.
As well.
In terms in terms of can do.
No.
I see a quarter or two but probably probably more like one quarter Mrs simply.
You can imagine that during these times, we pulled our technology teams to.
Yeah help help Virtualized the company.
We did a little over a week, so I certainly took away from.
Some our mainstream opportunities, but it's a slight delay I don't want to want to make sure if I understand it's not.
You're talking about six months here, we're talking about.
A month or two so quarter to a little strong.
The team continued to execute.
And.
We have we haven't seen any real change demand actually losing seeing great demand with can do.
So it's just a matter of of being the technology those kind of back in line.
With expanding the trade, which.
Yes slight delay.
Terms of of geographic expansion.
You know we Werent five cities now, we think thats kind of the right right level at the moment.
Every week, we're seeing kind of increased demand like like we've had planned so.
I think all systems or go for can do in terms in terms of the investment.
I think we're still we're still on track for.
For the 20 to 30 million.
Total for the year.
Once you got changes as well again, just a slight slight delay by technology perspective, but not not delay from an operational or our strategic plans around can do.
And then in terms of your question.
About real estate.
One thing to consider I believe Brian covered this in his comments as well as we kind of go from from listings.
When you buy a home obviously, there's a there's a lag between when you buy when you close that will certainly be watching that closely.
There will be.
As.
Existing home sales begin to pick up we will lag before.
We see revenue as well and then keep in mind as Brian mentioned as well that.
You know because we recognize revenue of 12 at the time, you're going to see.
Yes, yes slowly increase quarter on quarter right now it's hard to tell you know it's going to be this much in Q2, and then you can see pulled out for the rest of year, because we're just simply don't know.
The total impact of October 19, just yet.
Thanks to say that there's going to be.
You know some definitely slowing in real estate, that's why we're really leaning into.
Direct consumer we're you know.
Really seeing some some great opportunities from a marketing perspective, and then really happy that our renewal rates have remained steady at 75%.
Great. Thank you very much really color racks much appreciated.
Absolutely.
Thank you. Our next question is coming from 40 Carpenter of JP Morgan. Please go ahead.
Thanks for the questions, Okay drones well.
Two for me as well just Rex maybe as you reallocate marketing dollars to Jack's consumer and now with Jason on as a CMO could you talk a bit more about your marketing strategy. This year.
And maybe what you're seeing in April around new customer additions in that channel in particular on and then maybe second the on stream. While it's still early curious to hear fairly adoption. Your assumption you're seeing from your service providers and real estate partners and what type of rule that could plate longer term. Thank you.
Okay, great great to hear from Nucor.
Yes, so from a.
From a stream perspective, you know, we we've accelerated the rollout of stream, both our contractors as well as as real estate agents. Both have been well received allows our realtors too.
You know really provide virtual showings in this environment for our contractors they really.
Leaned into the technology and that this really allows them to see what the issue is having to <unk> inside the home.
And help at homeowner so all those have been I think very well received.
Yes, we continue to be very bullish about stream in the stream team.
You know still working on partnerships and that type of thing but.
I think this is probably one of our sort of our better acquisitions and really.
Let me with the string team has been.
Putting together during this this financial crisis.
And.
I apologize I think about in the senior moment here what was your has your first question.
Oh, Yeah, just on on direct to consumer marketing.
More energy market Shadier there this year.
Yep Yep, sorry, so so from a direct to consumer perspective.
No as as other companies have pulled back.
Moreover, RAC meeting and so.
We're seeing an incredible amount of marketing efficiencies, especially in the broadcast segments. I mean, you can imagine.
Some of those segments that pulled out of Brock gas that really brings down the cost to make it more form for us.
Serendipitously we.
Had a new AD campaign.
Rolling off at the same I'm, so taking advantage of much.
Less expensive television ads.
From a digital perspective, we're seeing.
Less pressure from a digital marketing perspective, so we've we've really leaned in from that and we're seeing great great traction.
Actually in April.
So I'm not.
We're pretty bullish on direct to consumer.
So does that cover all your question.
Yes. Thank you.
Thank you. Our next question is coming from Chris Gamaitoni of Compass point. Please go ahead.
Hi, good morning, everyone.
I wanted to follow up on that on that last question for direct to consumer marketing.
Strategically are you focusing is it in markets that you're historically very strong or are you working or is it more focused on markets that maybe your penetration has been less I think back to the.
You know the spin off in the smiles the graph I'm just wondering.
Kind of where you're targeting where you're trying to fill capacity add.
Strategically, how you're thinking about a direct to consumer marketing.
Hi, Good morning, then, yes, and yes. So so we have multi national strategy as well as a local strategy.
Certainly.
Moving to be into.
Trying to have more and geo targeted advertising from a digital perspective.
From a.
Broadcast perspective, though tend to be be more national but.
Jason the team have been digging in on really be able to target our marketing to the areas that we want to focus on.
Thats not to Smile states, we're seeing good traction.
In other places.
Yes, yes.
Prior to it because were 19 so.
Really pleased with the growth.
These mail to drive kind of outside the smell states.
And then obviously, we want to lean and even more.
We have a strong position so.
Both both nationally and locally we're focused from a DTC perspective.
And what's the decision making process to identify who you target geo targeted not asking a specific market asking.
How do you find markets to look out versus one or two focus on person once you don't.
Well you know first first thing I wanted to look at our supply position right. So obviously, you don't want to target areas, where it might be behind them.
On contract.
Those two.
Our contact relations team I do a great job in terms of ensuring that we're we have a really good supply position.
So we work together looking at where do we have supply working we drive more than.
That's a from a geo our local perspective.
That's that's one strategy than from a broadcast perspective, obviously, you want to try to target areas where you.
You know you think there you'll have more more efficiency as well so.
You know, there's there's some data science behind.
Where where we target.
Okay.
And then regarding stream.
Yeah, how we thought about the monetization or.
Opportunity from.
Kind of rolling out.
Both I think you know their differences and contractors real Realtors, what do you can get opportunity is where we in the process any additional color on how is it conceptualize the potential you know benefits whether its synergistic just through additional marketing channels better loyalty.
What is what does the current situation in your expansion of that doing for your future business. How do you think about it.
Yes, well during the crisis will provide free of charge, both contractors and real terms as we come out of this.
[noise] then certainly there is a potential for either deeper relationships with.
Our realty brokers. So this could be something we provide as a.
Yes, this nervous to too.
Our top meters.
Theres a revenue model behind that there's a lot different ways. We're looking at it from Realty perspective from a contractor perspective.
Yeah, Okay, maybe for all their business. So so certainly there are an opportunity there.
As we were thinking through our preferred contractors is something that we we offer them.
For free so again, that's all things, we're working through and the other real value stream beyond those two channels is that I see a big opportunity or.
For third party expansion as well I mean, the level of outreach during this crisis or people who want to use.
Meanwhile, with pretty phenomenal, so that's making sure that we would think.
We think about how how to monetize those opportunities well.
Very much focused in that area.
Alright, perfect. Thank so much.
Yeah.
Thank you. Our next question is coming from Ralph Schackart of William Blair. Please go ahead.
Good morning to if I could please reps you touched on this a bit in the prepared remarks.
In terms of I think you've said that front door will emerge stronger outside the crisis. Just curious if you could maybe give us a couple of points on how you're thinking about that little bit more color on the great and then you also.
By insurance and metrics.
The business performed.
Financial crisis in no way just curious how a co bid.
Compares to away.
This point, both from a customer behavior and then the claims that you're observing versus that thank you.
Yes, so I think that.
Since since we launched or some of the company out in October 18.
Yeah, you certainly have theyve seen kind of the journey with us that weve definitely.
I run the company on the inputs and make sound decisions on.
Both data and really applying technology to problems.
You know this pandemic with 33 million people employed I think will be.
Our have a far greater impact and then away no nine and I think we have opportunity too.
Okay outpace that growth that we solenoid node on.
Not really speaks to the resilience of the business model.
You know one of things that we we we've always said is that if one channel.
Has has softness.
Clarity when I'm thinking the level of softness from covert 19, but you do have the opportunity to going into other channels. So.
The marketing efficiency, we're seeing the direct to consumer channel, while it may not.
Offset completely.
The pressure, we're seeing and real estate we are.
Seeing growth in that channel, we are seeing more opportunity and we're taking advantage of that opportunity.
I also think.
You know the too.
Reasons someone purchase the parts and service plan the value proposition is really around.
Budget protection and convenience and.
Now that are we're seeing stable renewal rates I think that speaks to too.
How customers value that product or not.
You know this area that discretionary spend if you will.
And then you know, we're we're well positioned with a.
Pretty strong balance sheet. So we see there's opportunities are there could be opportunities in the markets too.
Yes, we do tuck in acquisition.
You know to have has come out even stronger so.
This is Brian mentioned in his prepared remarks, I am just as bullish on a bus business I was in October of 2018 and.
I think we're just you know we're just getting started.
That's helpful. Thank you worked.
Yeah.
Thank you. Our next question is coming from Kevin Mcveigh of Credit Suisse. Please go ahead.
Great. Thank you and two fuels Stacey.
Rich, Brian can you give us a sense.
Right.
You know the business transitions better this cycle that it didnt GFC recognizing the GFC was obviously hasn't played any puts and takes as you think about just the trajectory of the business and then is it kind of the ability to leverage stream and things like that that allow you to come to navigate this more efficiently you just now.
Any thoughts on the two cycles is as we think about the business gearing up the term.
Yes, so did that you know certainly.
When it comes to.
Where we are today versus a way to nine as I mentioned mentioned before where a lot different company in terms of how how is how we operate.
Certainly the level of data and how we drive to the series decisions.
Very different.
Yes, just explain the resiliency of a go direct consumer and our renewal channels by renewals, but honestly two thirds of our revenue and then you know in times of crisis, you're reaching out to your partners in both real estate and in.
Your contract you know your contractor force and your offer them tools to make their life better.
One of things. We've also done for contractors is yes, and send up or a process the thing out 200000.
He masks so that they can do their job.
Those things pay dividends longer term.
I think we're building incremental revenue streams like I know extreme but I can do we'll absolutely become.
Meaningful revenue stream forces in the future all those things allow us to be even more resilient and we were in a way to know nine.
And like I said before I think this pandemic well.
Well certainly overshadow, what we saw Illinois no not.
And then that it would it be attended the prime in the non prime contractors, the ability to kind of leverage tumors and primarily quote contractor.
Kevin as hard here, you get if we weren't huh.
Yes.
Sure Mike.
You strip and would that be across the entire contractor spectrum over that be more kinda, you're you're focused.
Prime contractors as opposed to non.
Well, it's certainly you know you always start with our preferred contractors, because we have a deep deep its relationship with them.
But certainly I think stream longer term.
Could be leveraged by.
By any contractor you know the.
It's a game changer in terms of.
How you virtualize support the game changer in terms of how you virtualize.
You are not having to me legal arola truck and meals to go into someone's home as he was wrong. You can start a you know a video chat with that person and begin to really.
Explore and understand capture that data so that when you show up you have the right are the right place in them and the right Tech so.
But we're just getting started with the stream.
That's helpful and then.
I appreciate the Q2 guidance in then it sounds like you could potentially reengage full year and the next quarter. So what would what would you need to see to kind of reengage and full year guidance are there any kind of particular areas. It you'd want to see little bit more visibility on before you kind of reengaging the full year outlook.
Yes, I mean, certainly was 33 million people employed we want to make sure that.
Now that doesn't get worse to as America, I guess goes back to work one that will be you won't be a light switch moment, so I think certain.
Cities in regions will unlock sooner than others and yeah. Those are all icons of uncertainty that we just need to look at.
Clearly from a real estate perspective.
You know it just depends on how fast that comes back I mean, obviously summer months or better than in other months because a lot of times families are moving in.
In between the school cycles, which you know schools are definitely been disrupted as well. So there's a lot of unknowns and if those unknowns become known as we move into August timeframe B M.
Provide.
Guidance for the year.
Super Thank you.
Thank you.
Thank you. Our next question is coming from Brian Fitzgerald of Wells Fargo. Please go ahead.
Oh, thanks, guys.
One quick clarification that a couple other ones with seems you say you're extending it for free to all contractors that just for now during co bid.
For how long amended the roll into a licensing type of situation. That's just a clarification and then a follow up to the previous.
Conversation are you able to shift more volumes into your preferred.
Contract networks would work being potentially a bit slower than normal or.
The normal.
Or do you do you want to prioritize spreading around the service calls around a bit to kind of continue to develop the contractor network.
That one last one sorry.
I'm just curious about your view of the of the level of fragmentation space and are there are there a role opportunities in geographies or tool sets that are that are more apparent now than ever before as we're kinda in this this macro dislocation.
Thanks.
Sure. So in terms a dream, we're offering free for 90 days.
Yeah, we'll figure out.
On a monetize it after after that point the teams.
Your brokerage firms are contractor teams kind of working both those angles, but.
But during during the crisis, we don't want to we want to prop from that we want to be helpful to our real estate and and contractor partners.
In terms of.
The.
You know the preferred contractors definitely.
We we take a very I've already rhythmic approach to.
How we dispatch.
Our contractor network, we're seeing obviously higher higher number for contractors.
We want to make sure that.
But keep them busy obviously, you can't be 100%, a real or the network. So.
We have a very I think good algorithm of how the you know how to to.
Just back to the jobs and we'll continue to to look at that but I think it's good working very well this crisis when things I will say is that although.
You know a little lighter and in April.
We're still very busy we're in a central service and.
Right now, there's a key wave and cross, Arizona, California, we certainly been.
I've been very busy so.
Yes, not having work hasn't really been big issue for us.
And then.
Last in terms of roll up opportunity certainly.
Yeah, we're coming from a position of strength and you know as both a comp and a strong balance sheet.
Well, we'll continue to look at opportunities I assume multiples will come down from this.
Well, that's you know tuck in opportunities for or or home service plan business or.
Technology tuck ins that will allow us to.
To propel our our.
Can do strategy faster.
We'll continue to look at those things so were we assume that there will be.
Companies out there who.
You don't have a stronger balance sheet and may.
Maybe an opportunity there so.
Couple of answers your three questions.
Yeah, Thanks for experts yet.
Yes. Thank you.
Thank you. Our next question is coming from Youssef Squali of Suntrust. Please go ahead.
Great. Thank you guys and I hope you all well two questions I guess for me as well. The first is around something risks you said in your prepared remarks about April claims incidents were below prior year, which obviously.
Had a very nice effects on your gross margin wanted you to maybe speak to whether versus maybe a sheltering at home type of impact obviously, because the the two would have kind of quite different outcomes, particularly.
The risk of seeing the spike in claim incidence gold. It if it's just a shelter in at home situation and second follow up to Brian's question about the balance sheet and by the way congrats.
Fleet being in a really really strong position in this kind of the environment from a financial standpoint balance sheet standpoint, but as you look at potential M&A can you speak to maybe tag versus or tuck in technology kind of enablement.
Acquisition versus geographic expansion, you have very strong present certain.
Areas of the country not in others.
You can maybe just speak to ability of basically acid goodbye.
Yeah.
Throughout the country and then.
I guess related to it in terms of your debt leverage you I think you're at 2.2, Brian said earlier, how high would you let that bike and pursue into right acquisition. Thank you.
Hi, good good to hear your voice usage.
No I think from a.
Yes, I'll I'll take the last one first and the amount to my to remind me of the other questions but.
Certainly.
Where we take a very I think calculator approach to M&A.
There's obviously a lot of things up on the market but.
We want to make sure that one it would pass from a from a cultural perspective.
You know it.
We're not we're not giving away all the synergy value.
Just so just to get the asset so.
You know were when it comes either you know a regional tuck in from home service plan or technology.
We were really look at both certainly there's not a lot of a regional players out there that.
Our our scale.
I think.
Yeah, maybe some smaller ones that it may provide some some value but.
From a technology perspective, we do think that there's you know there's technology out there that can help propel our our vision, we're not prepared to kind of focus on.
In the call kind of what areas, obviously that that that it makes the price go up so.
We do see do you see opportunities in the technology space, we're being opportunistic.
Where there is opportunity and home service plan space.
In terms of how high level, let the leverage go that's really yes, we haven't had those conversations.
Certainly we came out almost four times and.
We're now down.
I think we we extend to be down close to two our goal to this year for sure. So we can deleverage very quickly.
I don't know at the right number as of its you know for higher.
But we just haven't we haven't found that acquisition that would.
You know challenge those assumptions so.
No.
Although the things we would we have truly think through but obviously going above four would.
I think racism eyebrows on incentive I think through we can deliver very quickly.
And then I'm sorry, your your other two questions were what.
Yeah. My other question were just around something you said in your prepared remarks around April claims incident coming in Colombia.
Try to figure out what's weather impact would shelter at home and how to look at it may be in future quarters, particularly if there is a spike in a claim incidents but school that.
Yes, april's kind of a shoulder month for us. So it was down slightly it wasn't like you know.
Like a major decline you know certainly.
I need a little more analysis of kind of what was weather and.
What was other impacts I think there is.
Some some concern out there of all people just kind of holding back in the or not they want they don't once you're in your house, Yes, I think if it's certainly something that you need to sustain life like a hot water and air crushing and.
In heating and certainly you're willing to have someone come in you know wearing the proper protective equipment.
To to provide that essential service.
Maybe if it's a wiki fossett or something you're willing to.
Put off for a little while so I I suspect that.
It's a mix of the two but I'm not I'm not expecting a tidal wave.
Claims.
From folks who have been sheltering in place I think there certainly will have a normal.
Demand.
Coming up in the hotter and hotter months.
I'm not expecting a big went because I think it was down slightly probably.
Due to weather.
And maybe a small impact to the people who were sheltering in place, but April to shoulder months. So.
Lot of times, you have favorable weather in April and it pushes into may so.
I think.
No nothing.
Material I point out.
Thanks, Rick.
Yeah. Thank you.
Thank you at this time I would like to turn the floor back over to Rick Davis for closing comments.
Thank you operator, and thank you to all our analysts to participate on our call today, we're making adjustments as a result of co 19, and I'd like to thank our team again for working incredibly hard to transition our entire company to work from home environment.
Seamlessly maintaining our service levels.
I was truly amazing feat.
Front door remains well positioned during this period of uncertainty we have a strong business model substantial liquidity in a resilient workforce that will allow us to become more nimble and stronger as a result of this unprecedented punch.
I hope that all of you and your family stay safe during this time and look forward to see new person again soon thank you.
Ladies and gentlemen, thank you for your participation you may disconnect. Your lines are log off the webcast at this time and have a wonderful day.
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