Q2 2024 Frontdoor Inc Earnings Call
Hello all and thank you for joining us for Frontdoor's second quarter 2024 earnings call. We'll begin shortly. Thank you for your patience.
Unknown Attendee: School. We'll begin shortly. Thank you for your patience.
Unknown Attendee: Ladies and gentlemen, welcome to Frontdoor's second quarter 2024 earnings call. Today's call is being recorded and broadcast on the Internet.
Operator: Ladies and gentlemen, welcome to Frontdoor's second quarter 2024 earnings call. Today's call is being recorded and broadcast on the internet. At this time, we'll begin today's call. Please go ahead, Mr. Davis.
Speaker Change: Ladies and gentlemen, welcome to Frontdoor's second quarter 2024 earnings call. Today's call is being recorded and broadcast on the internet.
Matthew Davis: Beginning today's call is Matt Davis, Vice President of Investor Relations and Treasurer, who introduced the other speakers on the call. At this time, we'll begin today's call.
Matt Davis: Beginning today's call is Matt Davis, Vice President of Investor Relations and Treasurer, and he'll introduce the other speakers on the call.
Matthew Davis: Please go ahead, Mr. Davis. Thank you, operator.
Speaker Change: At this time, we will begin today's call. Please go ahead, Mr. Davis.
Matthew Davis: Good morning, everyone, and thank you for joining Frontdoor's second quarter 2024 earnings conference call. Joining me today are Frontdoor's chairman and chief executive officer, Bill Cobb, and Frontdoor's chief financial officer, Jessica Ross. The press release and flight presentation that will be used during today's call can be found on the Investor Relations section of Frontdoor's website, which is located at investors.frontdoorhome.com. There's also additional detail about Frontdoor about our brand at Frontdoor.com and in our new mobile app that you can download in the App Store and at Google Play.
Matt Davis: Thank you, Operator. Good morning, everyone, and thank you for joining Frontdoor's second quarter 2024 earnings conference call. Joining me today are Frontdoor's Chairman and Chief Executive Officer, Bill Cobb, and Frontdoor's Chief Financial Officer, Jessica Ross.
Matthew S. Davis: Joining me today are Frontdoor's Chairman and Chief Executive Officer, Bill Cobb, and Frontdoor's Chief Financial Officer, Jessica Ross. There's also additional detail about Frontdoor and our brand at Frontdoor.com and in our new mobile app that you can download in the App Store and at Google Play.
Speaker Change: The press release and slide presentation that will be used during today's call can be found on the investor relations section of Frontdoor's website, which is located at investors.frontdoorhome.com. There's also additional detail about Frontdoor, about our brand.
Speaker Change: at Frontdoor.com and in our new mobile app that you can download in the App Store and at Google Play.
Matthew Davis: As stated on flight three, the presentation, I'd like to remind you that this call and webcast may contain board-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 factor section in our filings for a more detailed discussion of our forward-looking statements and the risks and uncertainties related to such statements.
Matthew S. Davis: As stated on slide 3 of the presentation, I'd like to remind you that this call and webcast may contain forward-looking statements. All forward-looking statements are made as of today, August 1, and, except as required by law, the company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events, or otherwise. We've included definitions of these terms and reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures in our press release and the appendix to the presentation in order to better assist you in understanding our financial performance. I will now turn the call over to Bill Cobb for opening comments.
Speaker Change: As stated on slide 3 of the presentation, I'd like to remind you that this call and webcast may contain forward-looking statements. These statements are subject to various risks and uncertainties, which could cause actual results to differ materially from those discussed here today.
Speaker Change: 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.
Matthew Davis: All board-looking statements are made as of today, August 1st, and, except as required by law, the company undertakes no obligation to update any forward-looking statements, whether as a reference certain non-GAAP financial measures throughout today's call. We've included definitions of these terms and recommendations of these non-GAAP financial measures to their most comparable GAAP financial measures in our press release and the appendix to the presentation in order to assist you in understanding our financial performance.
Matthew Davis: I will now turn the call over to Bill Cobb for opening comments.
William C. Cobb: The main update for today, and this is really great news, is that the applicable federal Hartscott-Rodino waiting period to close the transaction has expired. We are reaching more homeowners through our virtual experts and network of independent contractors, effectively growing our share of wallet across our member base, and leveraging these great partnerships to meet the repair, replacement, and maintenance needs of every homeowner. We are also continuing to build out our technology capabilities to grow alternative revenue streams. I believe this is a story of near-term realism and long-term optimism. As we've seen in recent earnings announcements from several leading companies, consumers are stressed.
William Cobb: Bill, thanks Matt Davis, and good morning everyone. Frontdoor aim continues to operate consistently well, and this was a record quarter for financial performance. As you can see on slide four, in the second quarter, revenue grew 4% to $542 million. Our gross margin expanded 470 basis points to a record 56%; adjusted EBITDA grew 31% to $158 million. Free cash below more than doubled to $91 million. And we have used $83 million of cash to repurchase 2.5 million shares year-to-date through July.
Speaker Change: Thanks, Matt Davis, and good morning, everyone. Frontdoor, Inc. continues to operate consistently well, and this was a record quarter for financial performance.
Speaker Change: And we have used $83 million of cash to repurchase 2.5 million shares year-to-date through July .
William Cobb: Now moving to slide five in our strategic objectives. To be clear, our number one strategic priority remains growing our customer base through more sales of home warranties. While we strongly believe in the long-term growth opportunity of the home warranty category, which I will return to in a few slides, we must face the near-term reality that macroeconomic headwinds are impacting home warranty sales. As a result, we are taking the prudent step of slightly lowering our outlook for member count, which Jessica will cover in her section. Our number two strategic objective is to continue growing our on-demand business.
William Cobb: This has become a very important line of our business that has already proven its worth, and we're just getting started.
Speaker Change: Our number two strategic objective is to continue growing our on-demand business. This has become a very important line of our business that has already proven its worth, and we're just getting started.
William Cobb: And finally, our third strategic objective is to close the acquisition of 210 Home Buyers Warranty. So let's move to slide six and a quick refresh on 210 and where the acquisition stands. As you heard me say in June, this is a great business, and there's a leading provider of new home structural warranties. It's a perfect strategic fit for us. We will gain more customers. We will diversify our product portfolio into an adjacent category. And we expect to generate significant synergies, all of which will generate long-term benefits. On the acquisition itself, our integration team continues to work with 210 to prepare for a smooth transition of ownership.
Speaker Change: And finally, our third strategic objective is to close the acquisition of a $210 homebuyer's warranty.
Speaker Change: As you heard me say in June , this is a great business, and as a leading provider of new home structural warranties, it's a perfect strategic fit for us.
Speaker Change: On the acquisition itself, our integration team continues to work with 210 to prepare for a smooth transition of ownership. In fact, our team has been in Denver this week.
William Cobb: In fact, our team has been in Denver this week. The main update for today, and this is really great news, is that the applicable federal Hart-Scott-Rodino waiting period to close a transaction has expired. Now, we continue to wait for regulatory approval from a handful of states. Bottom line, the acquisition remains on track to close in the fourth quarter.
Speaker Change: The main update for today, and this is really great news, is that the applicable federal Hart-Scott-Rodino waiting period to close the transaction has expired.
Speaker Change: Now, we continue to wait for regulatory approval from a handful of states. Bottom line, the acquisition remains on track to close in the fourth quarter.
William Cobb: Moving to slide seven, let's now look at operational areas that are doing exceptionally well, starting with our on-demand business. This is proven to be a real success, and we think it presents a great opportunity with plenty of runway. We are realizing our vision of providing a consolidated ecosystem for all things home. We are reaching more homeowners through our virtual experts and network of independent contractors, effectively growing our share of wallet across our member base, and leveraging these great partnerships to meet the repair, replacement, and maintenance needs of every homeowner. For example, our new HRAC program has taken off.
Speaker Change: This has proven to be a real success, and we think it presents a great opportunity with plenty of runway. We are realizing our vision of providing a consolidated ecosystem for all things home.
Speaker Change: We are reaching more homeowners through our virtual experts and network of independent contractors, effectively growing our share of wallet across our member base, and leveraging these great partnerships to meet the repair, replacement, and maintenance needs of every homeowner.
William Cobb: For all of 2023, this program delivered $50 million of revenue, and we are on track to far surpass that number this year. We are also continuing to build out our technology capabilities to grow alternative revenue streams. Our new partnership with Moen is a great example of this. Frontdoor, through our independent plumbing contractors, is the exclusive provider for installing Moen water shutoff valves in California homes, insured by Farmers Insurance. This is a growing opportunity as farmers and other insurers are requiring these valves to prevent water damage. And it's not just in California. In fact, Moen and farmers have asked us to expand into a number of other states before the end of the year.
Speaker Change: We are also continuing to build out our technology capabilities to grow alternative revenue streams.
William Cobb: We'll have more to say about this during our Q3 earnings call in November.
William Cobb: Now moving this slide, a customer retention continues to be another terrific story for us. Our second quarter retention rate grew to an all-time high of 76.6%. While this includes a lower mix of real estate customers, our team has also done a great job of engaging members throughout the customer journey, improving customer service, expanding use of preferred contractors, and moving more members to auto pay, which finished last year at 86%.
Speaker Change: Now moving to slide A, customer attention continues to be another terrific story for us.
Speaker Change: Our second quarter retention rate grew to an all-time high of 76.6 percent.
Speaker Change: While this includes a lower mix of real estate customers, our team has also done a great job of engaging members throughout the customer journey.
William Cobb: Now let's move to slide nine and a look at some of the cyclical issues that remain a challenge for our business. I believe this is a story of near-term realism and long-term optimism. As we've seen in recent earnings announcements from several leading companies, consumers are at a grasp, spending less, and this is impacting our category and many other sectors of the U.S. economy. The good news for us is that American Home Shield, already the leading player in the category, has actually outperformed our top competitors nationally. This is based on our analysis of data from the California Department of Insurance, which maintains nationwide data on home warranty providers based in California.
Speaker Change: Now let's move to slide 9 and a look at some of the cyclical issues that remain a challenge for our business. I believe this is a story of near-term realism and long-term optimism.
William C. Cobb: The good news for us is that American Home Shield, already the leading player in the category, has actually outperformed our top competitors nationally. Last December, existing home sales were projected to be $4.7 million in 2024. That's a 5% decline year over year, and as this graph shows, this is amongst the lowest real estate activity in 30 years. NAR also said home prices grew 4% year over year to a record median price of $427,000. While the current situation is bad, it will change.
William Cobb: Additionally, real estate continues to be a major near-term headwind for the category. It's been a significant drag on our business for three years now, and it's likely to remain so for the balance of 2024.
Speaker Change: Additionally, real estate continues to be a major near-term headwind for the category. It's been a significant drag on our business for three years now, and it's likely to remain so for the balance of 2024.
William Cobb: To that point, on slide 10, let's take a closer look at the real estate market today. In short, things are not improving. Last December, existing home sales were projected to be 4.7 million in 2024. However, that is not going to happen. According to the most recent report from the National Association of Realtors, the annual run rate of home sales has decreased to 3.9 million homes. That's a 5% decline year over year, and as this graph shows, this is amongst the lowest real estate activity in 30 years. NAR also said home prices grew 4% year over year to a record median price of $427,000.
Speaker Change: To that point, on slide 10, let's take a closer look at the real estate market today. In short, things are not improving.
William Cobb: Mortgage rates also remain elevated, and inventory remains low. While the current situation is bad, it will change. The real estate market has been through down cycles before, and it will come out of this one eventually. We will continue to make refinements that will have a better position when the market does turn.
Speaker Change: Mortgage rates also remain elevated and inventory remains low. While the current situation is bad, it will change. The real estate market has been through down cycles before and it will come out of this one eventually.
William C. Cobb: The real estate market has been through down cycles before, and it will come out of this one eventually. This analysis shows that AHS has wide appeal across key demographics, all age, income, and ethnic segments. About 60% of our customer base are Boomers and Gen X, and about 40% skew younger between Millennials, Gen Y, and Gen Z. Now let's move to slide 16 and the comprehensive actions we are taking now to improve home warranty sales; brand awareness is now at 50%, double our nearest competitor.
William Cobb: Turning to slide 13, to better understand the challenges facing home warranties, we completed a deep dive on the American Home Shield customer base in May. This analysis showed that AHS has wide appeal across keen demographics, all ages, income, and ethnic sex. Let me be clear, the customer base for AHS is not aging out. About 60% of our customer base are Boomers and Gen X, and about 40% skew younger between Millennials, Gen Y and Gen Z. In fact, AHS overindexes with the primary home buying segment of 35 to 54 year olds.
Speaker Change: Let me be clear, the customer base for AHS is not aging out. About 60% of our customer base are Boomers and Gen X, and about 40% skew younger between Millennials, Gen Y, and Gen Z.
Speaker Change: In fact, AHS over-indexes with the primary home buying segment of 35- to 54-year-olds.
William Cobb: Now let's look at income on slide 14. AHS resonates with various levels of household income, and contrary to some perceptions, AHS is not an offering that skews start lowering income households. In fact, our analysis shows that about half of our members have annual household incomes over $100,000, with the other half making less. In aggregate, the data on the AHS customer base also reveals that we have long-term opportunities to drive more targeted acquisition.
Speaker Change: Now let's look at income on slide 14.
William Cobb: On slide 15, we can see the race and ethnicity makeup of our member base. As we said, millennials are the sweet spot of future home buyers, and the data indicates they are favorably disposed to home warranties. Within that millennial profile, while AHS currently overindexes on Black homeowners, we believe there is even more opportunity with this segment, as well as with Latinos.
Speaker Change: On slide 15, we can see the race and ethnicity makeup of our member base. As we said, millennials are the sweet spot of future homebuyers, and the data indicates they are favorably disposed to home warranties.
William Cobb: We'll have more to say about these opportunities during our Investor Day presentation.
William Cobb: Now let's move to slide 16, and the comprehensive actions we are taking now to improve home warranty sales. In April, we launched the new marketing campaign for AHS, yielding strong results. Brand awareness is now at 50%, double our nearest competitor. Google searches for AHS are up 6%. AHS.com website sessions have increased over 30%. In essence, the brand relaunches doing exactly what we hoped it would do: drive demand and brand engagement. We are also deploying programs in the short term to grow members, such as our focus discounting strategy. In March of 2023, we ran a 50% off promotion.
Speaker Change: Now let's move to slide 16 and the comprehensive actions we are taking now to improve home warranty sales. In April , we launched the new marketing campaign for AHS, yielding strong results.
Speaker Change: Google searches for AHS are up 6%. AHS.com website sessions have increased over 30%. In essence, the brand relaunch is doing exactly what we hoped it would do, drive demand and brand engagement.
William C. Cobb: In essence, the brand relaunch is doing exactly what we hoped it would do, driving demand and brand engagement. We are also deploying programs in the short term to grow members, such as our Focused Discounting Strategy. With this success, we are confident in using time-bound discounts to acquire and retain new members going forward. Furthermore, we are drilling down on educating consumers about the value of a home warranty and improving our targeting of homeowners at a point when they are most likely to convert, such as following the recent purchase of an expensive appliance.
Speaker Change: We are also deploying programs in the short term to grow members, such as our FOCUS discounting strategy.
William Cobb: What we learned is that members renewed 12 months later at a retention rate and stepped up price similar to those who were not initially discounted. With this learning, we ran another 50% off promotion throughout the month of July 2024 that yield is very positive results. With this success, we are confident in using time-bound discounts to acquire and retain new members going forward.
Speaker Change: With this learning, we ran another 50% off promotion throughout the month of July 2024 that yielded very positive results.
Speaker Change: With this success, we are confident in using time-bound discounts to acquire and retain new members going forward. Now, looking further out, we are moving to the next phase of the AHS brand relaunch.
William Cobb: Looking further out, we are moving to the next phase of the AHS brand relaunch. Drilling down on educating consumers about the value of a home warranty and improving our targeting of homeowners at a point when they are most likely to convert, such as following the recent purchase of an expensive appliance.
William Cobb: Moving to slide 17, here are the primary reasons we remain bullish about the long-term opportunity for home warranties. First, the market for home warranties is huge. 85 million homeowners. Through our research, we believe there are approximately 5 million homeowners with warranties today. We believe there is an opportunity to capture at least 10 million more. Second, this situation presents a massive opportunity to educate homeowners about the benefits of a home warranty. State. For millions of consumers being pinched by the cost of living, home warranties remain an excellent way to guard against unplanned expenses. Furthermore, our research shows that peace of mind is the number one reason our members own a home warranty.
William C. Cobb: First, the market for home warranties is huge. There are 85 million homeowners. Furthermore, our research shows that peace of mind is the number one reason our members own a home warranty. Third, U.S. demographics are conducive to future member expansion.
Speaker Change: For millions of consumers being pinched by the cost of living, home warranties remain an excellent way to guard against unplanned expenses. Furthermore, our research shows that peace of mind is the number one reason our members own a home warranty.
William Cobb: Third, US demographics are conducive to future member expansion. Millennials are coming to the forefront as the primary group of homeowners, and we know we have significant opportunities with certain subgroups of this population. Finally, as the industry leader, we have a proven track record of innovation. The rapid rise of our on-demand offerings is a clear demonstration of how we're using technology to meet the needs of homeowners in the ways they want to be served. Together, all of these factors give us optimism about the long-term demand for home warranties.
Speaker Change: Finally, as the industry leader, we have a proven track record of innovation. The rapid rise of our on-demand offerings is a clear demonstration of how we are using technology to meet the needs of homeowners and the ways they want to be served.
Speaker Change: Together, all of these factors give us optimism about the long-term demand for home warranties. And on that high note, I'll now turn it over to Jessica for the financials of the quarter.
Jessica Ross: And on that high note, I'll now turn it over to Jessica for the financials of the quarter.
Jessica P. Ross: Thanks, Bill, and good morning, everyone. Let's turn to slide 18, where you will see that Frontdoor delivered another quarter of strong financial performance. Revenue increased 4% versus the prior year period to $542 million. Let's now move to the bridge on slide 20, where I'll provide more context for the year-over-year improvement in second quarter adjusted EBITDA. As a reminder, this includes the impact of a lower home warranty volume, which was partially offset by an $11 million increase in new HVAC sales. Now turning to contract claims cost, which decreased $17 million, driven by a transition to higher trade service fees and continued process improvement initiatives, as the increase in trade service fee dollars more than offset external inflation.
Jessica Ross: Thanks, Bill, and good morning, everyone. Let's turn to Slide 18, where you will see that Frontdoor delivered another quarter of strong financial performance. Revenue increased 4% versus the prior year period to $542 million. Net income increased 32% to $92 million, and adjusted EBITDA increased 31% to $158 million. On Slide 19, you will see growth profit increased 13% versus the prior year period to $306 million, and growth profit margin improved 470 basis points to a record 56%.
Jessica: Thanks, Bill. And good morning, everyone. Let's turn to slide 18, where you will see that Frontdoor delivered another quarter of strong financial performance.
Jessica: On slide 19, you will see gross profit increased 13% versus the prior year period to $306 million, and gross profit margin improved 470 basis points to a record 56%.
Jessica Ross: Let's now move to the bridge on Slide 20, where I'll provide more context for the year-over-year improvement in second quarter adjusted EBITDA. Starting at the top, we had $17 million of favorable revenue conversion, driven by a 7% increase in price over the prior year period. This was partially offset by a 3% decline in volume. As a reminder, this includes the impact of lower home warranty volume, which was partially offset by an $11 million increase in new HVAC sales. Now turning to contract claims cost, which decreased $17 million, driven by a transition to higher-trade service fees, and continues process improvement initiative.
Jessica: Let's now move to the bridge on slide 20 where I'll provide more context for the year-over-year improvement in second quarter adjusted EBITDA.
Speaker Change: Starting at the top, we have $17 million of favorable revenue conversion, driven by a 7% increase in price over the prior year period.
Jessica: This was partially offset by a 3% decline in volume.
Jessica: As a reminder, this includes the impact of lower home warranty volume, which was partially offset by an $11 million increase in new HVAC sales.
Jessica Ross: As a reminder, we increased our trade service fees in 2022 in response to inflationary cost pressures, including higher contract-related expenses and greater parts and equipment costs. The transition to higher-trade service fees has two impacts on our business. First, higher-trade service fees result in a lower net cost per service request, as these fees are a contract cost to claim the expense on our income statement. When combined with a normalized inflationary environment, front door second quarter inflation rate on a net cost per service request basis was slightly favorable. As the increase in trade service fee dollars more than offset external inflation.
Jessica: As a reminder, we increased our trade service fees in 2022 in response to inflationary cost pressures, including higher contractor-related expenses and greater parts and equipment costs.
Jessica Ross: Second, higher service fees result in a temporary decline in the number of service requests per customer. As we typically see a short-term change in customer behavior until they become accustomed to the new amount. Additionally, our team continues to be laser-focused on cost management, and we continue to benefit from the process improvement initiatives implemented over the past few years. These include our high cost claims review program, leveraging our bulk purchasing power with our suppliers, and moving more of our service requests to preferred contractors, which reached a record high 85% in the second quarter. This is an outstanding result, especially given that this is the beginning of our peak season and directly attributable to the great work our contractor relations team is doing to strengthen relationships across our contractor network.
Jessica P. Ross: Second, higher service fees result in a temporary decline in the number of service requests per customer, as we typically see a short-term change in customer behavior until they become accustomed to the new amount and move more of our service requests to preferred contractors, which reached a record high 85% in the second quarter. We anticipated a higher number of service requests in HVAC given the high favorability we saw in the second quarter of 2023, driven by mild weather.
Jessica: Second, prior service fees result in a temporary decline in the number of service requests per customer, as we typically see a short-term change in customer behavior until they become accustomed to the new amount.
Jessica: and moving more of our service requests to preferred contractors, which reached a record high 85% in the second quarter.
Jessica Ross: Contract claims costs were also negatively impacted by weather by approximately $4 million. Now moving to sales and marketing costs, which decreased $3 million over the prior year period, primarily due to sales optimization efforts. And finally, general and administrative costs increased $2 million, primarily due to increased personnel costs, partially offset by a decrease in professional fees.
Jessica: Now moving to sales and marketing costs, which decreased $3 million over the prior year period, primarily due to sales optimization efforts.
Jessica: And finally, general and administrative costs increased $2 million, primarily due to increased personnel costs partially offset by a decrease in professional fees.
Jessica Ross: In summary, adjusted EBITDA increased to $158 million, which exceeded the midpoint of our outlook by $23 million. I want to take a moment to provide some context here. Approximately $10 million of a beat was due to a lower number of service requests compared to our expectations, primarily in the HVAC trade. We anticipated a higher number of service requests in HVAC, given the large favorability we saw in the second quarter of 2023, driven by mild weather. And that is what happened as cooling debris days increased 20%. However, we only saw a moderate increase in the HVAC incidence rate, which was driven by other factors, such as the change in trade service fees and geographic concentration of our customer base.
Jessica: In summary, adjusted EBITDA increased to $158 million, which exceeded the midpoint of our outlook by $23 million.
Jessica: I want to take a moment to provide some context here.
Jessica P. Ross: And that is what happened as cooling degree days increased 20%. However, we only saw a moderate increase in the HVAC incidence rate, which was driven by other factors, such as the change in trade service fees and geographic concentration of our customer base.
Speaker Change: However, we only saw a moderate increase in the HVAC incidence rate, which was driven by other factors, such as the change in trade service fees and geographic concentration of our customer base.
Jessica Ross: Our earnings beat also reflects an $8 million benefit from process improvement initiatives, such as preferred contractor utilization, increasing to 85%. Finally, we had $5 million from favorable claims cost adjustment related to prior periods.
Jessica Ross: Let's now turn to slide 21 for a review of our state and cash flow. Net cash provided from operating activities was $187 million for the six months ended June 30th, as a result of our exceptionally strong earnings and was comprised of $158 million in earnings, adjusted for non-cash charges, and $28 million in cash provided from working capital that was primarily driven by seasonality. Net cash used for investing activities was $22 million and was primarily comprised of capital expenditures related to investments in technology. Net cash used for financing activities was $71 million and was comprised of $58 million of share repurchases, as well as $8 million of scheduled debt payments.
Jessica: Let's now turn to slide 21 for a review of our Statement of Cash Flows.
Jessica: and was comprised of $158 million in earnings adjusted for non-cash charges.
Jessica: Net cash used for investing activities was $22 million and was primarily comprised of capital expenditures related to investments in technology.
Jessica: Net cash used for financing activities was 71 million dollars and was comprised of 58 million dollars of share repurchases as well as 8 million dollars of scheduled debt payments.
Jessica Ross: We ended a quarter with $419 million in cash. This was comprised of $167 million of restricted cash and $252 million of unrestricted cash. I would like to point out that we ended the second quarter with a high amount of unrestricted cash. This is due to timing and seasonality of our claims cost and is expected to reverse in the third quarter.
Jessica P. Ross: We ended the quarter with $419 million in cash. I would like to point out that we ended the second quarter with a high amount of unrestricted cash. This is due to the timing and seasonality of our claims costs and is expected to reverse in the third quarter. Our number one priority is growth, and we continue to target closing the 210 acquisition in the fourth quarter, which will add more customers, more revenue, and more earnings.
Jessica: I would like to point out that we ended the second quarter with a high amount of unrestricted cash. This is due to timing and seasonality of our claims costs and is expected to reverse in the third quarter.
Jessica: We are also extremely pleased to highlight Frontdoor's strong free cash flow conversion of $164 million, or 72% of EBITDA, for the six months ended June 30th.
Jessica Ross: We are in the strongest financial position this company has ever been in, and with this strength, we are able to deliver on each aspect of our capital allocation strategy. Let me give you an update on each of our priorities. Our number one priority is growth, and we continue to target closing the 210 acquisition in the fourth quarter, which will add more customers, more revenue, and more earnings. Our second objective is to ensure we have a solid financial profile. Our net leverage ratio was less than one times at the end of the second quarter. This is well below our targeted range of two to two and a half times, which we anticipate getting back to after the 210 acquisition closes.
Jessica: Now turning to slide 22 where I'll provide an update on our capital structure.
Jessica: We are in the strongest financial position this company has ever been in. And with this strength, we are able to deliver on each aspect of our capital allocation strategy.
Jessica: Let me give you an update on each of our priorities.
Jessica: Our number one priority is growth, and we continue to target closing the 210 acquisition in the fourth quarter, which will add more customers, more revenue, and more earnings.
Jessica: Our second objective is to ensure we have a solid financial profile.
Jessica: Our net leverage ratio was less than one times at the end of the second quarter. This is well below our targeted range of two to two and a half times, which we anticipate getting back to after the 210 acquisition closes.
Jessica Ross: And finally, our third objective is to return cash to shareholders. Year today, through the end of July, we used $83 million to repurchase 2.5 million shares. This brings our total to $364 million since we initiated our $400 million share repurchase program in 2021. Additionally, as Bill said earlier, our board just approved a new three-year, $650 million share repurchase authorization that starts on September 4, 2024. This amount is 63% higher than our current three-year authorization. In summary, we are fortunate to be in a position where we can dramatically increase our ability to repurchase shares at the same time we are completing the largest acquisition in the company's history.
Jessica: This brings our total to $364 million since we initiated our $400 million share repurchase program in 2021.
Jessica: Additionally, as Bill said earlier, our board just approved a new 3-year, $650 million dollar share repurchase authorization that starts on September 4th, 2024.
Bill: This amount is 63% higher than our current 3-year authorization.
Jessica P. Ross: In summary, we are fortunate to be in a position where we can dramatically increase our ability to repurchase shares at the same time we are completing the largest acquisition in the company's history. And I believe both of these actions will deliver substantial shareholder value over time. We expect our third-quarter revenue to be between $530 and $545 million, which reflects a decline in both our real estate and DTC channels of slightly over 10%. This is almost entirely driven by higher new HVAC sales.
Speaker Change: In summary, we are fortunate to be in a position where we can dramatically increase our ability to repurchase shares at the same time we are completing the largest acquisition in the company's history. And I believe both of these actions will deliver substantial shareholder value over time.
Jessica Ross: And I believe both of these actions will deliver substantial shareholder value over time.
Jessica Ross: Now, turning to slide 23, where I will walk through our third quarter and full year 2024 outlook. We expect our third quarter revenue to be between $530 and $545 million, which reflects a mid-single-digit increase in our renewal channel, a decline in both our real estate and DTC channels of slightly over 10%, and an approximately $10 million increase in other revenue. Third quarter adjusted EBITDA is expected to range between $130 and $140 million, up about $7 million over the prior year period at the midpoint. Now, turning to our full year 2024 outlook, starting with revenue, where we are maintaining our range at $1.81 to $1.84 billion, which includes a mid-single-digit increase in realized price.
Speaker Change: Now turning to slide 23, where I will walk through our third quarter and full year 2024 outlook.
Bill: A mid-single-digit increase in our renewables channel, a decline in both our real estate and D2C channels of slightly over 10%, and an approximately $10 million increase in other revenue.
Bill: Third quarter adjusted EBITDA is expected to range between $130 and $140 million, up about $7 million over the prior year period at the midpoint.
Jessica Ross: Partially offset by a mid single-digit decline and realized volume. This assumes a mid single-digit increase in the renewals channel and a roughly 15% decline in both the real estate and DTC channels. It also assumes other revenue will now increase approximately 40% to approximately 110 million. This is almost entirely driven by higher new HVAC sales. We are now expecting the number of home warranties to decline 3% in 2024.
Bill: This assumes a mid-single-digit increase in the renewables channel and a roughly 15% decline in both the real estate and B2C channels.
Jessica Ross: Now turning to our gross profit margin outlook. I want to call out that our first half-gross margin was 54%; however, gross profit margin is expected to be lower in the second half of the year for the following reasons. Lower contributions from realized price and trade services and increase in the number of service requests per customer for the balance of the year. And finally, we expect to see normal, low single-digit inflation for the duration of 2024. The net effect is that we are raising our full-year gross profit margin outlook to be slightly above 51%.
Jessica P. Ross: Now turning to our gross profit margin outlook, I want to call out that our first half gross margin was 54%. However, gross profit margin is expected to be lower in the second half of the year for the following reasons: lower contributions from realized prices and trade service fees. We are increasing our full-year SG&A range to be between $605 and $615 million to account for an additional $10 million investment to drive organic growth and customer retention initiatives.
Bill: Now turning to our gross profit margin outlook, I want to call out that our first half gross margin was 54%. However, gross profit margin is expected to be lower in the second half of the year for the following reasons.
Bill: An increase in the number of service requests per customer for the balance of the year.
Jessica Ross: We are increasing our full-year SG&A range to be between $605 and $615 million to account for an additional $10 million investment to drive organic growth and customer retention initiatives. This also includes an estimated 15 million of transaction costs related to closing the Q10 acquisition, which is excluded from adjusted EBITDA. Based on these updated inputs, we are increasing our full-year adjusted EBITDA range to be between $385 and $395 million. Our full-year outlook also includes $16 million of interest income and reflects stock compensation expense of approximately $28 million. And finally, we expect our full-year capital expenditures to range between $35 and $45 million, and the annual effective tax rate to be approximately 25%.
Bill: We are increasing our full-year SG&A range to be between $605 and $615 million to account for an additional $10 million investment to drive organic growth and customer retention initiatives.
Bill: This also includes an estimated $15 million of transaction costs related to closing the 210 acquisition, which is excluded from adjusted EBITDA.
Bill: Based on these updated inputs, we are increasing our full-year adjusted EBITDA range to be between $385 million and $395 million.
Bill: Our full year outlook also includes $16 million of interest income and reflects stock compensation expense of approximately $28 million.
Jessica P. Ross: And finally, we expect our full-year capital expenditures to range between $35 and $45 million, and the annual effective tax rate to be approximately 25 percent. After we announced the acquisition of Q10, we felt it was more important to focus the team on delivering on integration and synergy planning for the balance of 2024. And we can then come back to you at Investor Day to share more details on the combined business.
Bill: And finally, we expect our full-year capital expenditures to range between $35 and $45 million and the annual effective tax rate to be approximately 25%.
Jessica Ross: In conclusion, we continue to deliver exceptionally strong financial results, and our businesses operating consistently well.
Bill: In conclusion, we continue to deliver exceptionally strong financial results, and our business is operating consistently well.
Jessica Ross: Before I turn the call over to Bill, I would like to tell you about a change in our Investor Day date, which we are moving to February 27, 2025. After we announced the acquisition of Q10, we felt it was more important to focus the team on delivering on integration and synergy planning for the balance of 2024. And we can then come back to you at Investor Day to share more details on the combined business.
Bill: Before I turn the call over to Bill, I would like to tell you about a change in our Investor Day date, which we are moving to February 27, 2025.
William Cobb: With that, I will now turn the call back over to Bill.
William Cobb: Thanks, Jessica.
William Cobb: I want to re-emphasize what I said earlier about near-term realism and long-term optimism. While we face the realism of near-term challenges on the real estate and BGC fronts, our long-term optimism about home warranties is strong. And over the past two years, we have done what we said we would do. We've taken several decisive actions to position the company for the long haul. We've explored strategic M&H to accelerate our growth, and the acquisition of Q10 is proceeding. We're seeing positive momentum with the relaunch of our American Home-Shield brand. We've positioned ourselves team for the eventual turnaround in the real estate channel.
Bill: Thanks, Jessica. I want to reemphasize what I said earlier about near-term realism and long-term optimism.
William C. Cobb: And over the past two years, we have done what we said we would do. We've taken several decisive actions to position the company for the long haul. We've explored strategic M&A to accelerate our growth, and the acquisition of 210 is proceeding. We've positioned our sales team for the eventual turnaround in the real estate channel, as demonstrated by our new $650 million share repurchase authorization, which is a 63% increase over our previous authorization. The message here is simple.
Bill: And over the past two years, we have done what we said we would do. We've taken several decisive actions to position the company for the long haul.
William Cobb: We continue to drive higher customer attention rates. Our HVAC on-demand business is doing exceptionally well, and our partnership with Moan is showing tremendous potential. Over the past 18 months, we have stabilized our margins, and we remain confident in our long-term margin growth while. Finally, we continue to return excess cash to shareholders who share my VACs. As demonstrated by our new $650 million share repurchase authorization, which is a 63% increase over our previous authorization. As you can see, we have a lot of great news, and that's why I continue to be so optimistic about the future of our business.
Bill: We continue to drive higher customer retention rates.
Bill: Over the past 18 months, we have stabilized our margins, and we remain confident in our long-term margin profile.
Bill: Finally, we continue to return excess cash to shareholders through share buybacks, as demonstrated by our new $650 million share repurchase authorization, which is a 63% increase over our previous authorization.
William Cobb: But, our valuation doesn't reflect these facts, and that leads into my final point. We showed this slide in February; the data on the slide has been updated to the end of July. However, taking into account the guidance we just provided, our multiple has actually declined to eight times as of today.
Bill: We showed this slide in February . The data on the slide has been updated through the end of July .
William Cobb: The message here is simple. Our stock remains significantly undervalued.
Matthew Davis: With that, Jessica and I are now ready to take your questions, operator.
Bill: Our stock remains significantly undervalued.
Bill: With that, Jessica and I are now ready to take your questions. Operator?
Unknown Attendee: Thank you.
Unknown Attendee: Please press star followed by the number one if you'd like to ask a question, and ensure your device is unmuted locally when it's your attempt to speak. If you change your mind or your question has already been answered, you can withdraw your question by pressing star followed by the number two.
Speaker Change: Thank you. Please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak.
Bill: If you change your mind or your question has already been answered, you can withdraw your question by pressing star followed by the number 2.
Jeffrey Schmitt: Our first question today comes from Jeff Schmidt with William Blair.
Operator: Our first question today comes from Jeff Schmitt with William Blair. Please go ahead, your line is open.
William Cobb: Please go ahead; your line is open. Hi, thank you. Could you give us an update on your pricing strategy over the next year? I know you said you're going to focus more on discounting than kind of broad price cuts. You mentioned that in the past, but maybe if you could refresh us on why you're taking that route, and how does the competitive environment look? Are they discounting as well?
Speaker Change: Hi, thank you.
Speaker Change: Could you give us an update on your pricing strategy over the next year?
Speaker Change: I know you said you're going to focus more on...
Jeffrey Paul Schmitt: And, you know, kind of how does a competitive environment look? Are they discounting, you know, as well?
William Cobb: Yeah, hi Jeff. So let me let me split this into, you know, BTC one and then renewal pricing. So, with the renewal pricing, we're going to be consistent. We will, we will have an increase, but not the level that we've done in the, you know, in the past couple of years. So, but there will be there will be a pricing action. I would know on on new, you know, BTC one, we will be at a competitive price. And as we said, use targeted discounts on a time-bounded basis as a tool to not only grow new members, but we're very pleased by the work we've done in terms of being able to renew people, even when they are faced with an aggressive discount.
Speaker Change: DTG1, and then Renewal Pricing. So with Renewal Pricing, we're going to be consistent. We will have an increase, but not to the level.
Speaker Change: that we've done in the past couple of years. But there will be a pricing action on renewal.
Speaker Change: On new, you know, BTC-1.
William Cobb: So I think it's going to be more of what we're doing right now, with the added piece. I think we've talked about this. We're going to have a more almost historic way of looking at our pricing for renewals. And I think that reflects, you know, the new user is more elastic and the renewal user isn't more analistic customer. Okay. Yeah. That makes sense.
Jeffrey Paul Schmitt: Okay, yeah, that makes sense. And then you lowered your full-year outlook for direct growth to a decline of 15%. Could you maybe discuss what drove that? Is it just too tough of an environment, I guess for that, for the pricing strategy to move the needle a ton there? Or just tough broad industry trends?
William Cobb: And then you lowered your full year outlook for direct growth to a decline of 15%. Could you maybe discuss what drove that? It's just too tough of an environment. I guess for that, for the pricing strategy to move the needle, a ton there, or just, just tough broad industry trends. Yeah, I think they'll hit it, and it's creptamated at the end of the day. Consumers are stressed; they're spending last. We entered this year expecting interest cuts and the real estate market to rebound, and it just simply hasn't. So we are adjusting to reflect the current macro.
Speaker Change: Yeah, I think Bill hit it in his script. I mean, at the end of the day, consumers are stressed, they're spending less. We entered this year expecting interest cuts and the real estate market to rebound and it just simply hasn't. So we are adjusting to reflect the current macro.
William Cobb: Yeah, I think Jeff, we grinded over this one a lot. I think we, you know, I said near-term realism, the categories down, you know, we showed you the day that when we talked about the data from the California Department of Insurance, which looks at all national providers who are based in California, and while we're performing better than they are, you know, there's nothing to brag about because we're all we've all declined, so it's a tough. Jessica said macro, but the specific home warranty category continues to be slow, and you know, I think the overhang of real estate is really affecting that.
William C. Cobb: Yeah, I think Jeff and I grinded over this one a lot. I think we, you know, I said near-term realism. The category is down. You know, we showed you the data where we talked about the data from the California Department of Insurance, which looks at all national providers who are based in California. And while we're performing better than they are, you know, there's nothing to brag about because we've all declined. So it's a tough, as Jessica said, macro, but the specific home warranty category continues to, you know, be slow. And, you know, I think the overhang of real estate is really affecting that.
Speaker Change: categories down, you know, we showed you the data where we talked about the data from the California Department of Insurance, which looks at
Jessica: All national providers who are based in California, and while we're performing better than they are, you know, there's nothing to brag about because we're all, we've all declined. So it's a tough, as Jessica said, macro, but the specific home warranty category continues to, you know, be slow. And, you know, I think the overhang of real estate is really affecting that.
Jeffrey Schmitt: Great. Thank you. Very helpful. Thanks, Jeff.
Speaker Change: Great. Thank you. Very helpful.
Sergio Segura: And the next question comes from Sergio Segura with KeyBank. Please go ahead. Great. Thanks for taking the questions. I'm hoping you could dive into the moment partnership a little bit more, just, you know, how big of an opportunity is this for the business. And I guess, you know, taking a step back and taking a bigger picture view. You envision partnerships like this being more of a strategic priority in the future. Any thoughts on that would be helpful. Thank you.
Operator: Our next question comes from Sergio Segura with KeyBank. Please go ahead.
Jeff: Thanks, Jeff.
Speaker Change: Great, thanks for taking the questions. I was hoping you could dive into the the Moen partnership a little bit more. Just, you know, how big of an opportunity is this for the business? And I guess, you know, taking a
William Cobb: Yeah, we're not ready to share the numbers on Moan. We're off to a very fast start, and logically it's a terrific opportunity for us, even if it's just with Farmers Insurance as they look to expand into other states. Moan is also proven to be a terrific partner, and our plumbing contractors are thrilled to be doing this, you know, at this point in California, but looking to expand that. But I think it is an indication of the type of approaches we want to take, where I think our on-demand business or non-warranty business really is trying to do two things.
Sergio Roberto Segura: Yeah, we're not ready yet.
Speaker Change: Yeah, we're not ready to share the numbers on Moen. We are off to a very fast start and logically it's a terrific opportunity for us.
Speaker Change: Even if it's just with farmer's insurance as they look to expand.
Speaker Change: into other states. Moen has also proven to be a terrific partner, and our plumbing contractors are thrilled to be doing this, you know, at this point in California, but looking to expand that.
William Cobb: We've got this user base of American Home Shield members 1.9 million to a million strong that we can grow share of wallet with as they are a lot of their systems reach end of life. And then we have this ability to go directly to the consumer, and I think that, you know, with the leveraging the contractor network we have, which is really one of the one of the core capabilities of this company. We have a lot of opportunity in a lot of different ways, and that's why we're so excited about the on demand side.
William Cobb: Got it, and maybe a second question. Thanks for the demographic breakdown in the presentation; thought that was really helpful and interesting to see. I'm curious, you know, since you've relaunched the American Home Shield brand, have you seen any differences in the types of customers coming into the sale funnel compared to your existing customer base? Anything that call out there would be very helpful.
Speaker Change: Got it. And maybe a second question. Thanks for the demographic breakdown in the presentation. I thought that was really helpful and interesting to see. I'm curious, you know, since you relaunched the American Home Shield brand, have you seen any differences in the types of customers coming into the sales funnel compared to your existing customer base? Anything that called out there would be very helpful. Thank you.
William Cobb: Thank you. Yeah, I don't want to go into the specifics, but, you know, as we indicated in the demographic data, we are resonating more. You know, that's our one of the say, this is not just an old person's brand or lower income brand. We are seeing a broad base group of folks come through, and I think the stuff we did with the relaunch, you know, the new the new tagline, the new logo, the new look, the advertising, and the website, which we were really pleased with the increase in visits to the website. So it's been a broad based group there, but we're pleased with how the relaunch is starting. Relaunches take time, you know, there are a long term play and what you're looking to do is make sure your consumer indicators are going in the right direction, and they certainly are in this case.
Speaker Change: Yeah, I don't want to go into the specifics, but you know as we indicated in the demographic data
Speaker Change: So, it's been a broad-based group there, but we're pleased with how the relaunch has started. And relaunches, they take time. They're a long-term play, and what you're looking to do is make sure your consumer indicators are going in the right direction, and they certainly are in this case.
Unknown Attendee: Thank you. Okay. Thanks, Bill. Thanks for your thoughts. Thank you, Jerry.
Operator: Okay, thanks, Bill. Thanks for your thoughts.
Speaker Change: Okay. Thanks, Bill. Thanks for your thoughts.
Sergio: Thank you, Sergio.
Unknown Attendee: Anyone else have a question?
Maxwell Fritscher: Absolutely. Our next question comes from Maxwell Fritscher with Truist. Go ahead.
Operator: Absolutely. Our next question comes from Maxwell Fritzscher with Truist.
Maxwell Fritscher: Hi, good morning. I'm on from Mark Hughes. I was wondering about the contribution to the margin from the HVAC on demand or, more broadly, the other channel this quarter. So we said it was about $11 million increase over a prior year coming from HVAC. So again, you know, it just continues to be a bright spot for us, and really outperforming as we continue to expand the program. Yeah, I think to your question, the margin contribution, we're not going to go into specifically. We have indicated that it's a lower margin than certainly at home, warranty piece, but we're not going to indicate exactly how much and you know, do us right now.
Speaker Change: Please go ahead.
Speaker Change: So we said there's about $11 million increase over prior year coming from HVAC. So again, you know, just continues to be a bright spot for us.
Speaker Change: and really outperforming as we continue to expand the program.
Speaker Change: Yeah, I think, to your question, the margin contribution, we're not going to go into specifically. We have indicated that it's a lower margin than certainly the home warranty piece, but we're not going to indicate exactly how much and, you know, to us right now, it's all a matter of how it all comes together as a total P&L.
William Cobb: It's all a matter of how it all comes together as a total P&L. Got it. Understood. And then you had mentioned that the HVAC service requests were down in the quarter due to the geography of your customers. Is that a similar trend you're seeing before in 3Q, as it seems the warmer weather has continued? Well, I think there's a couple of reasons. So I think lower incidence, as I said, there was an impact just with the change to trade service fees that drive just a change in customer behavior in the near term, where they may be a little bit more thoughtful about filing for service requests.
Brian Nicholas Fitzgerald: I understood you had mentioned that the HVAC service requests were down in the quarter due to the geography of your customers. Is that a similar trend you're seeing thus far in 3Q as it seems the warmer weather has continued?
Speaker Change: Got it, understood. And then you had mentioned that the HVAC service requests were down in the quarter due to geography of your customers. Is that a similar trend you're seeing thus far in 3Q as it seems the warmer weather has continued?
Speaker Change: Well, I think there's a couple of reasons. So I think lower incidence, as I said, there was an impact just with the change to trade service fees that drives just a change in customer behavior in the near term, where they may be a little bit more thoughtful about filing for a service request. I think the other thing that we're really diving into is the impact that the new HVAC program is also having. I think that it's, you know, transitioning a service request into a new HVAC sale, which this is a new program for us. We're still digging into that. But I think the combination of the incidents, as well as, you know, the impact that new HVAC is having had really probably the largest drivers if you think about the impact on overall incidence for the quarter. It definitely was a little bit.
William Cobb: I think the other thing that we're really diving into is the impact of the new HVAC program is also having. I think that it's, you know, transitioning a service request into a new HVAC sale, which this is a new program for us. We're still digging into that, but I think the combination of the incidence as well as, you know, the impact that new HVAC is having had really probably the largest drivers to think about the impact on overall incidence for the quarter. It definitely was a little bit head scratching, right? Because I've looked at the overall increase in cooling to three days year over year.
William Cobb: But yeah, our HVAC incidents were down. So some good benefits for us in the quarter, but definitely something we continue to dig into. Yeah, we're not going to go into Q3 specifically, but it's, if I say it's all in the guidance that we gave for the full year.
Jessica P. Ross: Yeah, we're not going to go into Q3 specifically, but it's suffice to say it's all in the guidance that we gave for the full year.
Maxwell Fritscher: Very helpful. Thank you.
Daniel Fyfe: Next question comes from Daniel Fyfe with JP Morgan. Please go ahead. Thanks for the questions.
Speaker Change: Got it. Very helpful. Thank you.
Speaker Change: Our next question comes from Daniel Pfeiffer with JPMorgan. Please go ahead.
Daniel Fyfe: For the first, obviously, HVAC upgrades have been a huge success, but I'm wondering if you could give any color on expectations for which category you might want to lean into more within on the man outside of partnerships. And then I'd follow up. Yeah, I have to say our second area is the Moment partnership. We're not ready to talk through other. Other other alternatives, but as suffice to say that our corporate partnerships team is hard at work. And I think with the HVAC success and then staying with Moment, we are getting a lot of interest from here.
Daniel Pfeiffer: Hey, thanks for the questions. For the first, obviously HVAC upgrades have been a huge success, but I'm wondering if you could give any color on expectations for which category you might want to lead into more within on-demand outside of, you know, partnerships? And then I have a follow-up.
William C. Cobb: Yeah, I would say our second area is the Moen partnership. We're not ready to talk through other alternatives, but suffice to say that our corporate partnerships team is hard at work. And I think with the HVAC success and then staying with Moen, we are getting a lot of interest from folks. So really, what we want to do is not only work with the partner but work with our contractor network to decide, you know, can we deploy our contractors? Can we execute it? And that's been part of the early success for Moen because our plumbing group has really jumped on this and is executing beautifully.
Speaker Change: Other other alternatives, but suffice to say that our corporate partnerships team is hard at work. And I think with the HVAC
William Cobb: So really what we want to do is not only work with the partner, but work with our contractor network to decide, you know, can we deploy our contractors? Can we execute it? And that's been part of the early success for Mo, and because our plumbing group has really has really jumped on this and is executing beautifully.
Speaker Change: success, and then same with Moen, we are getting a lot of interest from folks. So really what we want to do is not only work with the partner, but work with our contractor network to decide, you know, can we deploy our contractors, can we execute it? And that's been part of the early success for Moen because our plumbing group has really jumped on this and is executing beautifully.
William Cobb: Gotcha.
William Cobb: And then for the second, can you maybe talk about your expectations for marketing spend for the remainder of the year and maybe whether it makes sense to pull back a little given the macro headwinds and consumer weakness. Thanks. Yeah, I actually want to go the other way. I want to spend into it because I think we have our brand strength. We just relaunched the brand. I mean, we indicated in Jessica's talk, you know, we were looking at an incremental $10 million to try to drive demand and retention initiatives. We're figuring out what the best way to deploy that is.
Speaker Change: Gotcha, and then for the second, can you maybe talk about your expectations for marketing spend for the remainder of the year and maybe whether it makes, you know, sense to pull back a little given the macro headwinds and consumer weakness? Thanks.
Unknown Attendee: Unknown Attendee: Yeah, I actually did
Speaker Change: Yeah, I actually want to go the other way. I want to spend into it because I think we have our brand strength. We just relaunched the brand. I mean, we indicated in Jessica's talk, you know, we're looking at an incremental $10 million.
Speaker Change: to try to drive demand and retention initiatives.
William Cobb: But we, yeah, we want to we're thinking more of the opposite direction, which is we still think there are great opportunities. We think we have momentum here. And so we're going to try to try to drive into it. It's not all the money in the world. We're taking, I think we're going to make use of the prudent word again, prudent investments. But we're looking to continue to grow. We want to keep the hammer down. Thanks.
Speaker Change: but we
Speaker Change: Yeah, we want to, we're thinking more in the opposite direction, which is we still think there are great opportunities. We think we have momentum here.
Isaac Sellhausen: And our next question is from Isaac. So how's it with Open Hiver? Please go ahead.
Isaac Sellhausen: Hey, good morning. It's as it gone for Ian. Thanks for taking the question. Congrats on the short quarter. My first is on the gross profit margin target. Now that you're sort of exceeding the pre-COVID margins, is there anything structural that has changed in the business that would, you know, make these margins sustainable over the longer term? You know, I know you mentioned margins will moderate in the second half of the year for a few reasons, but you know, you monetize new initiatives like the front door app could, you know, margins go higher over the long term.
William Cobb: No, I think I want to continue to just talk about kind of our long term focus, which we've guided to upper 40%. You know, it's a little alluded to. We're not ready to talk about really on-demand margins specifically, but they are lower than the traditional home warranty business. So I think that as we think about what the long term margin profile is, again, it's that upper 40s, which really incorporates the balance we anticipate as we continue to grow on demand.
Unknown Attendee: Unknown Attendee No, I think not
Bill: No, I think I want to continue to just talk about kind of our long-term focus, which we've guided to upper 40%. You know, as Bill alluded to, we're not ready to talk about really on-demand margins specifically, but they are lower than the traditional home warranty business. So, I think that as we think about what the long-term margin profile is, again, it's that upper 40s, which really incorporates the balance we anticipate as we continue to grow on-demand.
Isaac Sellhausen: Okay, understood.
William Cobb: And then just a quick one on the 2 to 10 acquisition. How large is the traditional home warranty business within that? And maybe how does it compare to others in the space and H.S.?
William Cobb: Yeah, stay tuned on that, Isaac. We are, you know, we gave the broad numbers for two jam in terms of the number of customers they have, you know, today around 300,000. Their revenues are around 200 million. They're either dollars or 40 million.
William Cobb: We have an idea that's closed, you know, the way we're going to combine the companies. That's why one of the reasons why we pushed back Investor Day; we want to come to you with a full look at it. You know, right now, we have to operate as independent companies while we're meeting with 2 10 on organization and structure and things like that. We really can't get into business plans or anything like that. So more to come, but obviously in the model that we put together that made us decide to go after. And to make this investment, we saw enough indicators that said, I think this is going to be a great value-added acquisition for our shareholders.
Speaker Change: a full look at it. You know, right now we have to operate as independent companies while we're meeting with 210 on
Speaker Change: Organization and structure and things like that we really can't get into business plans or anything like that so.
Isaac Sellhausen: Dean. Okay, great. Thank you very much. Thanks, Isaac. Thank you.
Operator: Okay, great. Thank you very much.
Speaker Change: Okay, great. Thank you very much.
Unknown Attendee: We have no further questions, so this concludes today's call. Thank you for joining. You may now disconnect your line. Thank you all.
Speaker Change: Thank you. We have no further questions, so this concludes today's call. Thank you for joining. You may now disconnect your line.