Q4 2021 Frontdoor Inc Earnings Call
Ladies and gentlemen, welcome to the front doors fourth quarter and full year 2021 earnings call.
Today's call is being recorded and broadcast on the Internet.
Beginning today's call is Matt Davis, Vice President of Investor Relations and Treasurer, and he will introduce the other speakers on the call at this time, we'll begin today's call. Please go ahead Mr. Davis.
Thank you operator.
Good afternoon, everyone and thank you for joining a front door its fourth quarter and full year 2021 earnings conference call.
Joining me today are <unk>, Chief Executive Officer, Bret Stephens and front doors, Chief Financial Officer, Brian Turcotte.
The press release and slide presentation that will be used to read todays call can be found on the Investor Relations section of front doors website, which is located at investors got front door home Dot com.
As stated on slide two of the presentation I'd like to remind you that this call and webcast may contain forward looking statements.
These statements are subject to various risks and uncertainties, which could cause actual results to differ materially from those discussed here today.
These risk factors are explained in detail in the company's filings with the SEC.
Please refer to the risk 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.
Worry 24th 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.
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'll now turn the call over to Rex for opening comments Rex.
Thanks, Matt and good afternoon, everyone.
Turning to slide four our team delivered another strong here if we continue to build a solid foundation for success and we remain extremely optimistic about front doors long term vision.
Before I review, our near term objectives, I would like to take a moment to ground us all while we believe there's an incredible opportunity ahead of us the front door.
The broader home services industry has roughly $500 billion with repair and maintenance comprising roughly half of the market opportunity.
Our core home service plan business is primarily focused on home repair, but we're also growing into old maintenance services through our shield platinum offering and our pro connect business more broadly.
The home service plan and category remains significantly underpenetrated.
There are an estimated 6 million home service plan customers in the U S compared to roughly 130 million single family homes for a penetration rate of approximately 4%.
This is a substantial opportunity in the home repair category alone and create two distinct opportunities for front door.
First we're re imagining how homeowners consume home services and believe there's a real opportunity to create a digital first service experience.
Would that be for home repair or home maintenance.
We need to eclipse the days of sending out someone to understand the problems and move to the days, where we can diagnose and troubleshoot remotely providing a digital experience that is good for the customer cost effective for our company and better for our environment.
Second beyond our core home service plan business Pokertek midstream are pivotal to providing deeper category penetration of the home services industry.
Broken that gives the emerging ondemand business that straddles both home repair and maintenance services, while extreme technology is an enabler for the entire home service industry.
Used outside of our traditional business stream is also a SaaS recurring revenue platform with external customers using our technology.
As we move more towards a digital first experience, we have the opportunity to provide that experience and technology to other companies outside the front door.
That's the home service plan, and founder and leader, but doors positioned to be the primary beneficiary of the growth from that digital first experience.
In order to realize that potential we need to re imagine home repair and maintenance provide a more consistent customer experience and expand our value proposition.
Transformations are rarely easy and we are still in the early stages of digitizing our operations, while enhancing the growth of our core business and further expanding pro connect in stream.
Although we have experienced some near term headwinds impacting our recent financial performance, we remain steadfast in our mission and strongly and are resolved for the future of this business.
I would like to remind our listeners that we have spent the vast majority of our public company life in the middle of a pandemic.
Still in spite of that we have shown a highly resilient business model.
Annual revenue, nearly 30% and generated nearly $1 billion and adjusted EBITDA since we spun in 2018.
We are just getting started and imagine what we can do once the short term market pressures and the pandemic subsides.
Now turning to slide five and an overview of our 2021 performance.
Your front door delivered strong results, Brian will walk through the numbers in a moment, but a few highlights to consider we.
We increased revenue, 9%, which is the highest annual growth rate as a public company we.
We did this despite a 4% decline in our real estate channel revenue.
We also grew gross margin increased adjusted EBITDA, 11% to $300 million and generate over $150 million in free cash flow.
Additionally, Brian in our finance and legal teams did a great job refinancing our debt structure in the middle of last year to significantly improve our financial profile.
They also utilize over $450 million of cash to repay approximately $350 million of debt and then launched our share repurchase program in September .
In just four short months, we repurchased over $100 million in shares as part of our efforts to return value to shareholders.
I want to acknowledge that our fourth quarter performance was significantly impacted by the sharp increase in inflationary pressure that emerged in the second half of the year.
I think it's no secret that inflationary pressures are real across all businesses, but we look forward to walking through our approach to help mitigate this new reality.
Additional in 2020 . One highlights include launching our new direct to consumer or DTC product lineup over delivering on our pro connect revenue target of $20 million. We're also driving operational improvements that helped to offset much of the external pressures specifically in the second and third quarter of last year, we exceeded our adjusted EBITDA outlook.
Lastly, I am proud of the launch of our first sustainability report I'd like to thank all the team members who are instrumental in producing it.
This is a strong first step and increasing investor transparency in our company's efforts and example of our commitment to enhancing the environment.
Pending our social initiatives involving our governance practices.
For example, there's been meaningful progress over the past year on our ability to reduce contractor truck rolls as a result of using <unk> technology and the ongoing annuity environmental benefits, we expect it will generate.
In addition, we seeded our first campaigns to drive awareness to the prospects of a career in the skilled trades by providing trade school scholarships and investing in hands on work experiences for high school students.
Now turning to slide six and a review of our five top objectives for 2022.
First we are focused on increasing demand growth in our core home service plan business.
Second we are looking to advance the customer service experience and increase customer retention, which requires us to rethink our service delivery strategy.
Third we're going to further strengthen our business processes continue to dynamically adjust prices and leverage our scale to address rising cost inflation.
Fourth our team is working hard to expand the depth of our pro connect offering and increased utilization of our stream technology in our core business as well as with third party commercial customers.
And fifth.
Transformation.
The technology team will be making progress to advance our digital transformation that will support our objectives and continue to build a strong foundation for the future.
Let's dive deeper into some of the top priorities I just outlined on slide seven.
I am pleased to report that our DTC business is showing some green shoots from the improvements we talked about on our last earnings call.
As previously discussed the team faced several challenges in the middle of 2021 that impacted sales growth.
Quickly pivoted and implemented a set of improvement efforts. These efforts have been working well and we feel these issues are largely behind us as we ended the year on a positive note in terms of customer addition.
But did you see team is currently executing against their new plan and we now have visibility that those actions have been working.
These efforts include growing our audience and expanding into new media partners by increasing the investment in our DTC channel. We continue to focus on diversifying our marketing spend it's a new mediums.
Some of these efforts will also help us optimize our customer acquisition costs by improving our advertising effectiveness.
Additionally, we continue to aggressively invest in optimizing our e-commerce platform and digital marketing efforts to improve our conversion funnel by utilizing data science and machine learning.
And finally, we are also diversifying our demand mix, including further expanding DTC sales to recent home buyers as well as adding insurance and mortgage partnerships.
We expect these new commercial partnerships to start small and then grow over time.
Turning to our real estate channel, where we have been seeing volatility as a result of the unprecedented sellers market.
2021 existing home sales hit a 15 year high of $6 1 million units sold which creates a large pool of homes to sell home services plans too.
However.
We struggled to place our products as part of those real estate transaction, the macro economic environment for home service plans remains under pressure amid very low hold inventory.
The National Association of Realtors, R&R reported that inventory of unsold existing homes fell to a new all time low of 860000 at the end of December or only one six months of supply.
This compares to a normal market of around four to five months of inventory.
Median existing home prices increased nearly 16% to $350000 the longest earning string of increases a record.
As a result front doors real estate channel declined in 2021, which will create some near term pressure in our renewable channel as well.
For 2022 <unk>.
He is forecasting a 3% decline in existing home sales to approximately 6 million homes.
Our real estate channel is predicting that the tight seller's market will largely continue despite expectations are rising mortgage rates and some improvement in inventory levels.
In response to this environment, we are taking the following actions.
Aggressively looking to expand our channel share with our largest real estate partners completing a strategic realignment of our real estate sales organization to focus on key geographic markets.
And further we will be launching our newly expanded product lineup and the real estate channel that is comparable to our new DTC products in the next few months.
Similar to our DTC channel, we expect this tiered product lineup will be well received by customers and a real estate broker partners given the improved coverage.
Real estate is a great channel for us and we are determined to rebuild our demand footprint.
Given the decline in new customers last year and tight home inventory levels. It will take time.
As I stated last quarter, we continue to look to expand commercial partnerships that would offset the volatility within the real estate portion of our business.
Well then the renewal channel we are redoubling, our efforts to improve our customer retention rate from 74, 2% at the end of last year.
Closer to 75% by the end of 2022.
The decline is mostly due to a drop in new customers, specifically in our real estate channel.
We can do to empower every homeowner to feel confident any controls or home through initiatives such as working to significantly improve the service experience and reduce our cancel rates over time by leveraging a digital first signs that by continuing to optimize dynamic pricing.
Properly studied member expectations by simplifying our contract language and enhancing our product coverage.
Building on our success of offering Prokinetic maintenance services to current hsp members by expanding the assortment of services available to them.
And optimizing their renewal experience through deeper personalization and better use of technology.
Now turning to slide eight and a review of our technology objectives.
The North Star for our technology team is to improve the service experience through a digital first approach for both our customer and contract or experiences.
Well I'll telephone calls will remain an important option for customers and contractors to communicate with front door. We are focused on creating simple and efficient digital self service experiences that will over time become the default channel for most of the interaction.
This includes launching a customer facing service app as part of the experience, which is a starting point on our journey to meet customers where they are today.
Our goal is to fully integrate our street technology within the customer service process and within the self contained app environment.
They'll still need to drive customer adoption and continue enhancing our mobile capabilities over time. Additionally, we also believe there is an operational and cost opportunity for us to drive a digital first experience by reducing the number of phone calls and reducing manual touch points along the repair journey.
For contractors, we are working to improve interfaces and processes that will help improve service times.
This includes digital first solutions for contractors to utilize for coverages authorization until April collection, and sharing a service request activities.
As a leader at home data, we want to make it easier and more straightforward to do business with us and we will advance that goal this year.
Within front door will be leveraging technology to speed service delivery and enhanced the customer experience.
Improving the vendor selection process by using machine learning and better data integration across a unified service request platform for better and faster service delivery.
We are also making additional investments to modernize our technology infrastructure and improve availability and scalability.
This is expected to result in a gradual improvement over time, and we expect to see some of the benefits of these efforts this year.
There is an abundance of opportunity to meaningfully advance our technology platforms. This year I look forward to updating you on our progress over the next several quarters.
Now turning to slide nine and a review of our actions to grow pro connect revenue to $40 million in 2022.
We brought in a new leader for Pokertek with extensive marketing experience and tech enabled on demand businesses, such as Uber and smart Hot.
While we had the same strategy to move into the on demand home services space will be focusing our growth in key markets, while continuing to add new services to those markets.
Demand exists for a convenient delivery of home services.
We're working to provide the key ingredients for a digital first ondemand platform changes the way people solve for their home services needs.
Our vision for broken eggs to become the one stop shop for on demand solutions that homeowners will go to when they are looking to resolve any of their home repair and maintenance fee at.
At the tap a button they will have access to vetted and highly rated professionals there'll be experts in solving their issues in a timely manner with top quality service at a fair price.
Let me expand on how we're planning on achieving our $40 million revenue target this year.
Our target is based on an expectation that we will continue to build out the depth of our service offerings across the 35 cities. We currently operate in.
Specifically, we'll be laser focused on going deeper within the top 20 markets well do this by adding maintenance services and HVAC upgrades in order to give customers more reasons to come back to the platform on a more frequent basis.
We have a significant greenfield growth opportunity in front of US we are essentially moving to strengthen our foundation.
There is more work, we can do on the marketing front by improving our marketing efficiency, increasing cross selling opportunities among our brands and further leveraging our contractor base.
We continue to leverage the symbiotic relationship with our core home service plan business embedded stable of contractors, we expect to grow our pro connect operations, including contractor density in response by moving to a more automated process. It didn't really adjusting our marketing strategy.
But the improvements, we're making I am optimistic that we will capture the opportunity to accelerate our journey to the customer and process to deliver the best possible experience every time.
Now turning to slide 10, and our stream objectives for 2022, which are both internal and external internally. We are focused on expanding <unk> utilization across our core home service plan business to improve customer service improve contractor engagement and response time as well as improve our environmental impact.
These efforts are primarily around driving customer and contractor adoption further integrating virtual diagnosis into our service experience, especially for our appliance service request.
We completed over 100000 stream sessions in our home service plan business in 2021 and we were looking to increase usage about roughly 50%. This year by training more of our agents and contractors, but how to use an offer upstream calls starting to surface request.
Externally, we have great partners, there using a yard rich technology to change the way they interact and engage with our customers.
Our primary focus and reason for acquiring stream once they use it as a catalyst for our digital first vision another.
Another benefit of this small but growing business, it's a SaaS business model that we are monetizing.
It also has the potential to be a higher lifetime value with multi year contracts that allow for Atlanta and expand business model.
On this front, we are focused on expanding our enterprise customer base for example, extremely low as recently announced the special commerce product that Lowe's will release in the coming months.
In closing our mission has not changed our North Star continues to focus on re imagining home repair and maintenance and being the enabler to remove the hassle from homeownership.
We strongly believe that we have a robust long term opportunity to deepen our reach in the larger $500 billion home services industry as we pursue on demand home services and increased penetration in the home repair category we.
We were taking the right actions to build a strong foundation and drive sustainable long term growth that will drive improved financial performance in the future.
I'll now turn the call over to Bryan Bryan.
Thanks, Rex and good afternoon, everyone in 2021, the entire front door organization did a tremendous job of dealing with significant external volatility.
Despite ongoing customer acquisition service and supply chain challenges presented by the pandemic.
Our team delivered strong year over year improvements to our financial results.
I'd like to start with a high level review of our fourth quarter financial results shown on slide 11.
And then focus on the recent steep rise and inflationary cost pressures.
Sponsors to mitigate those costs as we entered 2022.
Fourth quarter 2021 revenue increased 5% versus the prior year period to $340 million as a result of higher pricing and a mix shift to higher priced products in our home service plan business.
Strong growth from both pro conduct and scream offset in part by lower volume in first year real estate.
Croaker neck in stream revenue, which are included in our other channel were $9 million and $3 million respectively.
Gross profit increased 2% in the fourth quarter versus the prior year period to $141 million and our gross profit margin was 41%.
Net income was $7 million for fourth quarter 2021 versus $2 million in the prior year period as higher gross profit lower interest expense were partially offset by increased investments in sales and marketing and technology and higher personnel costs.
Adjusted net income increased $2 million over the prior year period to $9 million.
Adjusted EBITDA was $28 million in the fourth quarter were $4 million lower than the prior year period.
I will now provide context to the year over year decline.
Let's turn to slide 12, and I'll discuss the recent acceleration of inflationary cost pressures in the second half of the year that impacted our financial results in the fourth quarter.
In short claims costs came in significantly higher than we originally guided to during our earnings call in October .
And this surge in cost inflation came from four main factors.
First and most significantly we experienced much higher contractor costs than expected due to a steep rise in the cost of the parts and equipment they supply directly.
As well as much higher labor and fuel expenses.
This was a sharp deviation from the trends we had experienced through mid August and significantly more severe than we had expected for the balance of 2021.
Second the omicron variance spiked after we reported third quarter earnings in late October exacerbating the inflationary trends and also drove a higher number of service requests than we were expecting in the fourth quarter as many of our customers returned to sheltering at home.
Third the higher than expected growth in the adoption of our new product offerings resulted in higher claims costs.
While we continue to see excellent trends, where our new platinum products that we believe will benefit us over the longer term.
Customer satisfaction and higher renewal rates it was more popular than we projected and resulted in higher costs than anticipated.
And fourth we took certain actions to improve the service experience for our customers that drove higher than expected costs.
Focused on improving service request cycle times. These actions included a higher mix of contractor supplying their own parts.
Well as improvements to our appliance replacement processes.
These changes were made in response to global supply chain challenges and occurred at the same time, the rapid inflation was entering our cost structure.
Well likely question investors May have is why didn't you speak to the higher inflation. When you provided your fourth quarter outlook.
A level set we had seen very favorable cost trends in the second and third quarters that led to our substantial EBITDA beats versus forecast in those quarters than we had expected those favorable trends to continue into the fourth quarter.
As you May recall I had mentioned on the third quarter earnings call that we were anticipating higher inflationary cost pressures in 2022 as.
As we had already begun on our negotiations with our parts and equipment vendors and we're preparing for our projections for increased contractor costs.
While our strategic sourcing team did a great job managing our direct spend all year.
The significant spike in labor fuel parts and equipment costs.
<unk>, our contractors was not anticipated in the fourth quarter.
To provide more context, I'll dive deeper into what transpired in the second half of last year and what actions, we're taking to mitigate the cost pressures in 2022.
First we saw higher cost per claim throughout the year, but not to the level experienced in the second half.
In 2021.
The full year cost per service request increased over 7% versus 2020 levels. However, we only saw low single digit increases in the first half of the year and then experienced upper single digit inflation in the second half of the year.
Good news is that after the first quarter 2021 service requests decline from their pandemic related highs in 2020, and although not back to pre pandemic levels helped to offset the cost inflation impact on gross profit.
For full year 2021 surface request declined about 2% versus prior year to approximately $4 6 million as a result of fewer customers sheltering at home.
Second our visibility to the higher cost was delayed as many contractors were behind and submitting their invoices due to heavy workloads and reduced staffing levels.
This was the main driver of the increased development of prior period claims costs, which primarily related to the third quarter.
As I mentioned, we were expecting the third and fourth quarter service calls to increase at a mid single digit rate versus the prior year, but they were actually in the upper single digit range.
Unfortunately, we traditionally don't have clear visibility into real time contractor costs.
Especially when contractors directly supply their own parts and equipment, but.
But we have initiatives in flight to address that.
This is quite different compared to the great visibility, we have into our own direct spend for parts and equipment.
Third there was an unprecedented surge in broad inflation that surprised the entire industry, mainly toward the end of the year.
We saw a consumer price index increase of 7% in December impacted the larger economy, but cost inflation rose much faster than that to the home services industry.
In December .
The producer price index year over year increase for appliances was 21%.
Water heater prices were estimated to be up 45%.
And steel prices are up nearly 70%.
While we were surprised by both a rapid turn in skills inflation that impacted our contractors.
The team quickly took actions not only to partially mitigate the impact but also to improve visibility going forward.
As a result of the current environment.
We are continuing to aggressively address rising inflation and ongoing global supply chain challenges through the following actions.
First raising rates using our dynamic pricing models, while focusing on minimizing the impact of customer growth.
We are targeting a mid single digit price increase in 2022 with price contributing to the majority of the growth and the remainder from a shift in product mix.
Well, we began increasing prices dynamically in our DTC channel in 2021.
We have just begun increasing prices for renewals.
It will increase prices in the real estate channel early in the second quarter.
Second implementing a host of process improvements with contractors.
This includes increasing the percent of jobs given to our preferred contractors and redoubling, our contractor relations efforts around recruiting and managing contractors.
While the total number of contractor firms handling service request Russ declined to approximately 17000 at the end of 2021.
The number of preferred contractors actually increased slightly versus prior year.
Third driving broader use of technology and automating processes, such as increasing adoption of our contract with portal to provide more timely and greater visibility of the cost trends and fourth expanding our supply chain efforts. This includes broadening the types of parts and equipment that we can supply to our contractors.
This will assist our efforts to drive contractors source, a higher share of parts and equipment through front door, where we can leverage our national purchasing scale.
It also includes expanding our supplier base.
Increasing usage of our appliance purchasing portal and.
And improving access to appliance parts with contractors in our largest markets.
Until the global supply chain returns to a near pre pandemic operating efficiency.
Which is not expected until at least the second half of 2022.
We'll continue to deal with parts and equipment cost inflation. However.
Our supply chain improve <unk>.
Entity pricing decreases in parts and equipment inventory availability improves.
We believe that we will have an opportunity to renegotiate pricing with our suppliers.
Similarly, we continue to monitor changes in broader economic conditions impacting contractor labor rates.
And their related impact on our claims clause.
Let's move to the table on slide 13 kind of walk through the adjusted EBITDA Bridge from fourth quarter 2020, the fourth quarter 2021.
Starting at the top we had $10 million of favorable revenue conversion in the fourth quarter versus the prior year period.
Contract claims costs increased $7 million in the fourth quarter versus the prior year period.
The increase was primarily driven by an acceleration of the inflationary cost pressure across all trades as I, just mentioned as well as $12 million incremental costs, resulting from the development of prior period claims primarily in the third quarter.
The increase was partly offset by the lower number of service requests and process improvement benefits.
Sales and marketing costs increased $4 million in the fourth quarter versus the prior year period.
I remember really related to increased investments to drive growth in home service plans pro connect and screen.
Customer service costs decreased $3 million in the fourth quarter versus the prior year period, primarily due to the lower number of service requests.
And finally general and administrative costs increased $6 million in the fourth quarter due to higher personnel costs and investments in technology.
Let's turn to slide 14, and I'll review, our full year 2021 financial results.
Full year 2021 revenue increased 9% versus the prior year to $1.602 billion primarily.
Were really driven by higher pricing and migration to higher priced products and strong year over year growth both broken out can stream.
Well 2021 did not reach the revenue levels. We had originally projected one year ago, we still delivered our highest full year annual revenue growth is front door.
Higher price and the changes in product mix accounted for about 5% of our revenue growth while volume accounted for about 3% of the increase.
Looking at our home service plan channels full year revenue derived from customer renewals was up 9% versus the prior year due to improved price realization and growth in the number of renewed home service plans.
Full year 2021 first year real estate revenue was down 4% versus the prior year.
Primarily due to a lower number of home service plans in this channel offset in part by improved price realization.
The number of home service plans and our real estate channel declined due to the historically challenging seller's market driven in part by record low home inventory levels.
Full year 2021 first year DTC channel revenue was up 10% versus the prior year.
Primarily due to improved price realization.
Mix shift to higher priced products and growth in the number of home service plans in this channel.
Full year revenue.
<unk> and our other channel increased $30 million over the prior year.
Primarily due to continued growth at broker that can screen.
Full year revenue for <unk> was $23 million.
Dream reached $10 million.
Gross profit increased 10% to $784 million in 2021, and our gross profit margin was 49%.
This was 40 basis points higher than 2020.
Primarily due to favorable price and product mix and a decline in the number of service requests that was mostly offset by an increase in contract claims costs.
Net income was $128 million or $16 million higher than the prior year.
While adjusted net income increased 22% from the prior year to $161 million.
Full year, adjusted EBITDA was $300 million, an increase of $29 million or 11% versus the prior year.
Let's move to the table on slide 15, and I'll walk through the adjusted EBITDA Bridge from full year 2020 to full year 2021.
Starting at the top we had $93 million of favorable revenue conversion in 2021 versus the prior year.
Full year contract claims costs increased $23 million versus the prior year when excluding the impact of the change from higher revenue.
Similar to what I mentioned for the fourth quarter adjusted EBITDA Bridge. The business was impacted by increased cost pressure across all trades due to industry wide parts and equipment availability challenges in high inflationary trends offset in part by a lower number of service requests and process improvement benefits.
Full year sales and marketing costs increased $20 million versus the prior year.
Primarily due to investments in the DTC channel pro connect and stream.
And finally full year general and administrative costs increased $15 million versus the prior year due to higher personnel costs and investments in technology.
Please now turn to slide 16 for a review of our cash flow and cash position for full year 2021 compared to the prior year.
Net cash provided from operating activities was $185 million for the year ended December 31, 2021, and was comprised of $223 million in earnings adjusted for noncash charges offset in part by $38 million of cash used for working capital the.
The cash used for working capital was primarily driven by a lower deferred revenue balance related to a decline in the number of first year real estate home service plans.
As a reminder, in the real estate channel, we typically collect payment for the annual value of the home service plan upfront through the close process when the homes sold and these funds are reported as deferred revenue on the balance sheet until recognized each month.
Net cash used for investing activities was $31 million. It was primarily comprised of technology related capital expenditures.
Net cash used for financing activities was $489 million, reflecting debt reduction and refinancing in the first half of the year and $103 million used for share repurchases in the second half of the year.
Free cash flow calculated as net cash provided from operating activities minus property additions was $154 million for the year ended December 31 2021.
$175 million for the prior year.
We ended the year with $262 million in cash.
Restricted net assets totaled $175 million in unrestricted cash and marketable securities totaled $88 million.
Our unrestricted cash combined with $248 million of available capacity under our revolving credit facility provides us with a solid available liquidity position of $336 million.
Turning to slide 17, our capital allocation strategy remains consistent first we're targeting investments to drive growth, which includes both organic investments and acquisitions.
Our M&A strategy continues to evolve.
What remains focused on opportunities in our core business.
Across the larger home services space as.
As well as technology platforms.
Our second objective is to provide a prudent debt structure for the long term and we achieved our objective with the debt repayment and refinancing completed in June last year the.
The benefits of this refinancing show up on our balance sheet and on the interest expense line.
Which now has an expense run rate approximately half that of the 2020 level.
And finally, our third objective is to return value to you our shareholders.
With the refinancing completed our capital allocation strategy progressed to the point, where we instituted the aforementioned share repurchase program at September .
It is our intention to return the majority of our excess cash to shareholders over the next few years through this program, but we could certainly pause the program for a strategic acquisition or other considerations as detailed in our public filings.
I'll now conclude my prepared remarks, with our current thoughts regarding the outlook for first quarter and full year 2022 on slide 18.
We expect our first quarter 2022 revenue to be within a range of 345 million to $355 million, which reflects double digit percent revenue increases in both the DTC and renewal channels.
Offset by a decline of approximately 20%.
In real estate channel revenue.
We will continue to see pressure on the first year real estate channel as the lower customer counts from the seller's market began in late 2020 and extended throughout 2021 roll through our 2022 revenue.
First quarter adjusted EBITDA is expected to range between $25 million and $35 million, which is.
Below the prior year period as higher inflationary cost trends are anticipated to continue through at least the first half of 2022 as well as increased investments to drive top line growth and improve the customer experience.
Turning to full year 2022.
Revenue is projected to be within a range of $1 7 billion to $173 billion and applies a year over year revenue growth rate of approximately 6% to 8%.
The full year revenue growth assumptions include the following.
Double digit revenue growth in the DTC channel.
<unk> comprised of higher price and the continued shift in product mix to higher priced products.
Upper single digit revenue growth and the renewal channel driven primarily by price realization as.
As a result of our dynamic pricing initiatives and higher renewal customer counts.
And the decline in real estate channel revenue of just over 10%.
Due to continuation of historically challenging seller's market so on a consolidated basis.
Core home service plan business revenue growth is expected to be in the mid single digits.
And while we're targeting low single digit customer growth in 2022. This increase were more favorably impact reported revenue in 2023.
In regard to pro connect.
Revenue is expected to reach about $40 million.
Primarily due to expectations of a higher number of jobs completed by deepening offerings across a similar geographic footprint. Additionally.
Additionally, stream revenue is expected to be between 10 million and $15 million in 2022.
Our full year 2022 gross profit margin is expected to be in a range between $46 five and 47, 5%.
Driven primarily by the continuation of inflationary cost pressures, partly offset by higher pricing and process improvement efforts that are projected to have a greater impact in the second half of the year.
We anticipate the number of service request for 2022 to be relatively flat versus prior year. However, our outlook assumes a high single digit percent increase in cost per service request that remains fairly consistent throughout the year.
I should note that our long term gross profit margin target for our core home service plan business remains the same which is approximately 50%.
We believe that our actions and improving market conditions will alleviate the short term margin pressures. We are currently experiencing and then we should quickly get back to our target.
We're targeting full year 2022, SG&A to range from approximately $550 million to $575 million or about 33% of total revenue.
Just over half of the increase relates to investments in sales and marketing to drive growth and the remainder includes higher G&A expense, including a $10 million increase in noncash stock based compensation.
And slightly higher service costs.
Full year 2022, SG&A also includes approximately $40 million of pro connect and Scream operating expense.
Based on these inputs full year 2022, adjusted EBITDA is targeted to range between $265 million and $295 million.
In conclusion, while our near term performance continues to be impacted by pandemic, driven inflationary cost pressures and challenges in the real estate market.
We have an aggressive set of actions and flight to navigate through those challenges. We also remain confident in our long term outlook for the business and are continuing to invest for growth and building a strong foundation for the future.
With that I'll turn the call back over to Matt to open the question and answer session Matt.
Thanks, Brian as a reminder, during the question a huge recession. We encourage you to ask any questions that you may have but please note that our guidance is limited to the outlook we provided.
Operator, let's open the line for questions.
Absolutely.
We will now begin the Q&A session. If you would like to ask a question. Please press star followed by one or you touched on keep at.
If for any reason you would like to remove that question. Please press star followed by Tim again to ask a question press Star one.
As a reminder, if you are using a speaker phone. Please remember it to pick up your handset before asking your question.
We'll pause briefly to allow questions to generate in Q.
The first question is from the line of Eric hearing with Goldman Sachs. You May proceed.
Thanks, so much for taking the question I know, we'll talk a lot about inflation, but maybe if I could start with a bigger picture. One when you think about those strategic priorities for capital and the way you think the business is aligned for the medium to long term can you help frame up for investors what you see as some of the big picture items, where youre, making decisions to build into.
Generally on the product side of the position of the company against dollars invested in the business versus opportunities, where you might be able to accelerate some of the opportunity by going out and strategically allocating capital towards buying assets and integrating assets against the sort of large scale opportunity over the longer term. Thanks, so much.
Sure. Thanks for the question this is Rex.
We continue to focus on growing demand in our.
Our core home service plan business.
That requires no additional.
Marketing spend as we grow and then.
We continue to also.
Advance our technology platforms to make it easier for customers too.
To consume our services and then we talked a lot about being digital first so that we.
We start to change how the industry.
<unk> provides services to customers so along those lines.
As it relates to both customer experience and even retention, yes, we will.
Continue to make the investments needed in the business.
And if we see opportunities.
Inorganically certainly.
We continue to do so.
Look at those things so.
The people are that he primarily.
Game changers, such as you know we acquired stream back in 2019.
We continue to look for technologies that will help us.
Kind of in that build versus buy.
The decision.
Thank you.
The next question is from the line of Brian Fitzgerald with Wells Fargo. You May proceed.
Thanks, guys.
Uninflated and it's been a background factor for a while now and thanks for the color on Oh, Micron and shelter in place and.
Higher period claims coming in and so some delayed visibility unique now is there anything else to call out in terms of the pace of change there.
In terms of causing it to inflect up as you're coming through the fourth quarter. Yeah. In the deck, you talked about new products or services that you're introducing that had an impact maybe some more color. There and then an addendum there as his omicron as that wave is hopefully crest. At this point are you seeing any relief.
On labor rates or ability to source more from from your preferred network.
Hey, rich I'll start and hand, it over to Brian as well in terms of our of our product mix.
Last year, we launched our kind of good better best strategy shield platinum being our highest.
Service product in terms of offering both more coverages as well as.
Maintenance services as well and it's really taken off customers seem to really really enjoyed the product.
So that's that's what Brian talks about the kind of that mix shift.
Even more to our our platinum product, which we think helps us from a from a longer term retention perspective.
As it relates to two kind of labor one of the things that we have focused on this year is is really strengthening the core of our contractor base as it relates to.
Our preferred contractors, so we increased our percent of preferred.
Contractors this year as well we continue to focus in that area. We are seeing I think.
We saw a tightness in terms of more of the fringe our network contractors, who we hadn't used sparingly, obviously I think they were having a hard time.
Getting getting labor as well, but I think it was.
All the great things about the front door and kind of the boat that we built is this symbiotic relationship with our preferred contractors.
I think they really help us this year as well.
Brian anything else you would add from a <unk> perspective.
Yeah, Thanks, Rick and thanks for the question Brian .
Hopefully the context I provider knows a lot of.
A lot of context, hopefully it was helpful to you.
I think we've got a pretty good handle on the cost once we got visibility in November and December of what transpired in the third quarter and then into the fourth quarter. So I feel fairly confident we know what's going on as far as our costs. The only exception to that could be you know what's going on.
In the Ukraine, and Russia and.
I'm sure the oil companies are going to take this opportunity to raise.
No.
Cost of oil and gas will go up as a result, so the fuel impact on our contractors would probably be something we have to take into account that I think overall, we have a pretty good feel for our cost at this point.
Thanks Brooks Thanks, Brian .
Thank you.
Yeah.
Thank you the next.
Question is from the line of Cory Carpenter with Jpmorgan you May proceed.
Great. Thank you I'm going to stick with inflation just curious.
How do you think about how much of the elevated cost youre seeing or temporary versus perhaps some structurally higher cost going forward and then related to the last quarter. You mentioned, taking price in some situations is leading to slightly more cancels and expected. So I guess my question is you know how much more room do you feel like you have on taking price going for.
Forward, especially some of the inflation proves to be stickier. Thank you.
Yeah, Thanks, Cory I'll I'll.
I'll start and hand over to Brian certainly.
One of the great.
Great. Thank that we built.
Around dynamic pricing is really being able to.
Look at our customer base.
Within decile of how they use the product.
And be able to kind of measure our elasticity along along those decile said our models hasn't changed so I think our customer base still remains fairly inelastic.
Especially as we.
Increase the level of.
Products in that.
The assortment if you will the selection of products, we think that that only helps us going forward. So we think we can continue to leverage dynamic pricing.
Our models continue to.
I think to get better and better over time, especially as we look at things in terms of.
Is it plus nine basis as well as our usage models.
There seem to be paying off.
Well for US and then I think we can continue to you know.
Just remind the audience, we we recognize revenue revenue to 12 at a time so as you make these changes.
We certainly have already made changes within the direct to consumer channel, we will be making changes.
Changes in the real estate channel in.
The Q2 timeframe as well so.
Play out I think we have a.
As Brian mentioned in his comments, we have the ability to really kind of get back to.
Our kind of.
Our goal of 50% for gross margins.
Brian anything else you'd add.
Yeah. Thanks Rex.
I think when it comes to our contractors wage inflation.
I I'm not sure that's transitory that feels like something could be sticky for quite a while.
So I'm, assuming that's going to keep going but I think when it comes to parts and equipment. You know as I mentioned, we have an opportunity. There you know as supply chain improve which we think there theyre starting to especially in the back half of the year.
And then these commodity prices come down.
The parts and inventory availability will improve.
And given our scale and leverage we will renegotiate with our our vendors for parts and equipment and you know I think there we have leverage and we can reduce those costs and again the more we source.
Versus our contractors sourcing parks equipment, the better off we'll be from a cost perspective.
Yeah.
Okay. Thank you.
Yeah.
Thank you.
The next question is from the line of Justin Patterson with Keybanc capital markets. You May proceed.
Great. Thank you very much two if I can first how are you thinking about scaling broken act over the year is it staying largely in existing markets and building depth or are there factors that would cause you to expand in new markets and then secondly, just how are you thinking about some of the learnings you've made around.
Marketing over the year, you've got a really kind of three channels are direct to consumer.
The broader real estate piece, and then and then broken Act. So just any kind of learnings you have around customer acquisition and how you're rethinking LTV would be helpful. Thank you.
Yes, sure, let's let's take <unk> first and then we'll dive into the marketing piece.
We still are operating across the 35 cities. Our goal is to go even deeper.
Into our top 20 markets, we think building out the depth of service offerings.
Continues to be the right strategy for us to return a $40 million of revenue target.
We also had been pleasantly surprised by the maintenance services that we built and we also think that.
We continue to offer our existing customers things like HVAC upgrades.
Gives them more.
Our reasons to come back to our platform on a more frequent basis and certainly more.
People are kind of come back and use use the platform that certainly that repeat rate if you will as well help drive.
Our help lower rather our overall customer acquisition costs. So our strategy hasn't hasn't changed we still think this is a great opportunity for us to take the hassle out of owning a home give customers the transparency of upfront pricing and then.
That kind of peace of mind of not having to go find a I've got it in skilled contractor on their own. So we still think the long term thesis is absolutely there.
For 2022, it's really about continuing to build out those depth in our service offerings, especially in the top top 20 markets.
Continue to drive the experience continue to drive repeat business to lower the CAC.
As it relates to marketing.
We've definitely learned a lot just like as I was talking about dynamic pricing, there's been a lot of work around.
Marketing in general certainly from a direct to consumer perspective.
We've really been growing your audience and expanding into new media partners.
We've been able to optimize our acquisition costs by.
Focusing on conversion and the effectiveness of our advertising and then you know last year, we rebuilt our ecommerce platform to even further allow us to continue to focus on conversion through through a b testing did.
And through machine learning, so a lot of a lot of work's been done around that.
Think about that.
Now almost four years theres been kind of.
Groundswell difference in terms of how.
How we are how we go to the market.
And so I think.
That's why we're we're kind of bullish on or at least direct to consumer as it relates to.
Getting back to double digit growth I think while the work we are doing from a retention perspective will help as well and we do it from a from a real estate perspective.
We are going to launch this year.
The same kind of product lineup as we did in direct to consumer last year that kind of good better best strategy, We think from a marketing perspective that helped us as well.
Yeah.
Thank you.
Yeah.
Again to ask a question please press star one.
There are no additional questions at this time I will now pass it back to much Timmins for any closing remarks.
Thank you operator, and as I mentioned at the end of my prepared remarks, our mission has not changed our North Star continues to focus on re imagining home repair and maintenance and being the enabler to remove the hassle for homeownership.
Strongly believes that we have a robust long term opportunity to deepen our reach into the larger 500 billion dollar home services industry as we pursue onto that home services and increased penetration in the home repair category.
We are taking the right actions to build a strong foundation and deliver sustainable long term growth that will drive improved financial performance in the future.
Thanks again for your time today and look forward to updating you again soon.
That concludes today's conference call. Thank you and have a great day.
Yeah.
Yeah.
Uh huh.
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