Q1 2023 Frontdoor Inc Earnings Call

I'll conclude my prepared remarks, with our current thoughts regarding our financial outlook for the second quarter and full year 2023.

We expect our second quarter revenue to be within a range of 505 million to $520 million.

This reflects a nearly 15% increase in the renewal channel, partially offset by a roughly 25% decline in the real estate channel and a low double digit revenue decline in the DTC channel.

Second quarter, adjusted EBITDA is expected to range between $80 million and $90 million.

An increase of $10 million from the prior year period as a result of higher gross margin.

This outlook ultimate includes a meaningful increase in SG&A as we invest in the new frontier brand that bill spoke about earlier.

Turning to our full year outlook, we are maintaining our revenue range of one seven to $1 $74 billion.

The full year assumptions include approximately 10% revenue growth in the renewal channel.

A low double digit revenue decline in the DTC channel and a nearly 20% decrease in mobile estate channel.

We continue to expect approximately 11% growth from higher price, which were more than offset a 6% decline from lower volume.

Note that we've priced for higher inflation than what we're currently seeing in 2023.

We also expect our home service plan member Count declined in the mid to upper single digits in 2023.

We slightly raised our full year gross profit margin outlook to be between $43 five and 46%.

This reflects the benefit of prior pricing actions flowing through and a moderation of inflation.

This also assumes that inflation will average approximately 9% on a cost per service for class basis, and the number of member services will be down in the mid single digit range to approximately $4 2 million.

Additionally, we increased our full year SG&A target by $10 million from last quarter to now range between 570 and $595 million.

This increase is related to investments in marketing spend for American home Shield.

However, we are working to improve our marketing efficiency and our current outlook continues to reflect lower HVAC marketing spend compared to prior year.

Our outlook assumes approximately $60 million of marketing spend associated with the launch of the new front door brands.

Based on these updated inputs, we maintained our full year adjusted EBITDA range to be between 220 and $240 million.

This includes stock compensation expense of approximately $30 million and $12 million of interest income.

We are carefully monitoring inflation SG&A investments weather and other variables as we evaluate the back half of the year.

And finally, we're projecting our full year capital expenditures to range between 35, and $45 million and the annual effective tax rate to be approximately 26%.

In conclusion, we delivered strong first quarter results as our pricing actions continue to flow through cost pressures moderate it and as we benefited from several several favorable items at a later time.

We remain confident in our long term business outlook as we continue to invest in building a strong foundation for the future.

With that I'll now turn the call back over to Matt for questions.

Jessica.

Minor during the question and answer session. We encourage you to ask any questions that you may have but please note that guidance is limited to the outlook we provided.

Operator, let's open the line for questions.

Thank you.

If you'd like to ask a question that you can press star followed by one on your telephone keypad.

Alright, ma'am is that the user experience here is has been played the rave reviews. The exports we have hired in all the key trades and even even the handyman.

Excited their energize there on the side of the consumer and the feedback we're getting in a lot of us have done video chats ourselves and it's really I mean, I I keep saying, it's changing the culture of our company to have real experts in the company. So when you have a son.

I'm very confident that we're on to something with this approach so more to come in the second quarter in terms of the a J a H S consolidation or the overall with the with the branch that's moving along nothing really to report we're managing the one guard and.

So, but it's on track nothing really to report but.

At this point I feel good about the way the team has execute animals.

Okay. Thank you.

Thank you on.

Next question comes from Maxwell fresh up from Trust Maxwell.

<unk>. Please go ahead.

Hi, good morning, I'm, calling <unk>.

<unk> today and I was wondering if you could provide some more color around the front door crime and more specifically.

If we head into some sort of a mild recession, what are your expectations for consumers appetite for a <unk> subscription service.

Yeah, I think that.

The flavor around it is what I talked about when you upgrade from basic you'll get three video checks they.

They are also discounts on <unk> systems. It has available financing, we have special member pricing and.

In addition to the video checks.

So I think that this is actually something that could play very well in a recessionary environment because the for $99 you're going to get.

What the experts really pride themselves on they want to solve the problem on the spot versus having to do service calls. So I think there are a lot of elements here as people engaged with the app more and more than what the brand where people are going to see the value that they get for this is really quite fine so I.

I don't think obviously, we're all trying to figure out the recessionary impacts that's part of the reason why we're being very cautious on our outlook, but but.

Product is gonna play very well in the future.

One or the other thing that Alabama.

Thank you also staying on the recession topic, if the feds started cutting rates and a lower rate environment. Do you do you think that will will see like a boost in the real estate channel.

I would think so you know I'm not going to.

Because as as mortgage rates would come down I mean mortgage rates are having an impact on the real estate channel.

It's pretty clear that that's happened so I do think that that will give.

The macro environment of real estate, which is really suffering right now so.

So I think your premises correct.

Okay. Thank you that's all.

Thank you next question comes from an <unk> Oppenheimer.

Your lifestyle <unk>. Please go ahead.

<unk> was taking a lot of price last year like when do you think you hit that or bumped up against that of last successfully.

And given the rash tends to be how would you actually thinking about your focus on let's just say price versus retention on what we should expect from there Uhm Fox.

So I'll I'll take the first part in I think that this is something as I said in our.

Then my commentary we've looked hard at I think I think there has been you know it's been a it's been a tough situation we had to raise prices given the rapid increase in costs that was certainly replace last year. So we're up against that.

Which is why we pivoted on our discounting strategy and been more aggressive on that and.

We are six weeks or so into that but I think that we are feeling good about the early sales training and we'll talk more about that in queue too. So I think it's something we continue to test and refine ultimately this company is driven by the renewal side.

That's really where we do our best efforts.

And obviously, we have to keep feeding a bundle. So we will continue to work hard on trying to bring as many members and as we can but I'm really pleased with what.

What we've been able to do notwithstanding the price increases with their nose with our renewals effort I think the thing that's not seen in the numbers. If you will it's a tremendous work being done by our technology, our digital teams or marketing teams are product teams in terms of on the margin getting people to renew.

At higher rates, so I'm really pleased with the execution will efforts in the process improvement.

Situation that has happened within the company so.

No those are always going to be most important but we're only as good as how we can continue to feed that that final yeah and he just ran a decaf.

<unk> <unk> <unk> <unk>.

<unk>.

Yeah.

Maybe take less price.

Perfect and then the other question would be on inflation.

Yeah, I guess, you're still paying 9% is there potential for you to come in better than that are you just trying to be conservative when you think about your cost pressures.

Thanks.

Yeah, I think since I since I took over nearly a year ago, we've been conservative in general the 9%. We think is the right number of giving them. The situation. We had some some favorable situations like Jessica talked about with the weather and the like.

During Q1, where it came in at 7%, but we're comfortable with the 9% as the right the right guidance to give you.

Alright, Thank you very much.

Thank you.

Thank you Uhm next question comes from Justin Patterson of Keybanc, Justin Your line of <unk>. Please go ahead.

It sounds like you're saying some nice early results in terms of cutting down service.

You know how much more room do you have do you think you have there in terms of just improving that level of adoption and seeing the cost benefit and then the second question is just around the preferred contractors great progress with upon your high there how much more room do you think we have to go there or is that just more of say a bypass.

Perfect. Okay oriented less service request just inflated that number thank you.

Yeah. So first of all in the video calls.

For three weeks in three weeks in a couple of days the.

The early indications are really really very positive.

So that's something that we're going to continue to.

To work on the other piece that I want to point out this is a new concept.

We have gotten some people it's free.

What's the cats, how much does it and there is no K. So it's gonna take some time for this to settle in I think with the awareness we build.

We will have a wrapper around it all about front door and we think that the irony of right at your front door or the box the whole thing work together in the whole the whole line, which is really resonating with people to open the front door is work that well in terms of the cadence and marketing we will begin to shift more marketing effort to premium.