Q3 2024 Frontdoor Inc Earnings Call
Ladies and gentlemen, welcome to front doors third quarter 2024 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 will begin today's call. Please go ahead Mr. Davis.
Matt Davis: Thank you operator.
Matt Davis: Good morning, everyone and thank you for joining front doors third quarter 2024 earnings conference call.
And a special thank you for joining the Monday before the election.
Matt Davis: Joining me today are front doors, chairman and Chief Executive Officer, Bill Com, and <unk>, Chief Financial Officer, Jessica Ross.
The press release and slide presentation that will be used during today's call can be found on the investor Relations section of front doors website.
Matt Davis: Which is located at investors Dot front door home Dot com.
Matt Davis: There is also additional detail about our front door brand.
At front door dot com and in our new mobile App that you can download in the App store and at Google play.
As stated on slide three 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.
Matt Davis: 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.
Matt Davis: All forward looking statements are made as of today November 4th 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.
Matt Davis: We will also reference certain non-GAAP financial measures throughout today's call we.
We have 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.
Speaker Change: I will now turn the call over to Bill Com for opening comments.
Bill.
Bill: David and good morning, everyone I want to start by highlighting our dramatic improvement over the last two plus years when I came into the business in 2020 to our gross margins were at an all time low of 43%.
Bill: That has changed today, we are increasing our 2020 for gross margin outlook to about 53%, an all time high not.
Bill: Not many companies can show and over 1000 basis point margin improvement in such a short timeframe.
Bill: Turning to slide five we delivered a record financial performance in the third quarter.
Bill: Revenue increased 3% to $540 million.
Bill: Gross profit margin expanded 550 basis points to 57%.
Net income grew 40% to $100 million adjusted EBITDA grew 29% to $165 million and we have used $119 million to repurchase three 2 million shares year to date through August.
Bill: And probably the best news of all as we will show you shortly our marketing and discounting efforts are working the DTC customer count actually grew in the third quarter versus the second quarter and we're now forecasting that our ending 2020 for DTC customer count will be in line with a year ago. This is the <unk>.
Bill: Yes, we have been working toward.
Bill: While we are very pleased with the recent trajectory of the DTC business growing our home warranty customer base continues to be our number one strategic priority. Our other key strategic priority our priorities are to expand our on demand business and to close the acquisition of 210 homebuyers warranty.
Speaking of the acquisition our integration team continues to work with to tend to prepare for a smooth transition. The regulatory approval process is nearing completion and we are now just waiting for approval from California.
Bill: Bottom line the acquisition remains on track to close in the fourth quarter.
Bill: Okay. So here is how I'm going to lay out the next few minutes first I'm going to discuss what's happening with home warranties in both the real estate and DTC channels.
Bill: Followed by our momentum and on demand than renewals and finally, a major milestone in our customer experience journey, the new Hs App.
Bill: Starting with the real estate the market continues to flounder.
According to the September report from the National Association of Realtors or nor the annual run rate of home sales decreased to $3 8 million homes, the lowest in 2014 years.
Bill: Additionally, mortgage rates and home prices remain elevated.
Bill: Simply put with fewer homes being sold there are fewer opportunities to attach a home warranty.
Bill: For some context, our first year real estate customer count is down almost 14% in the third quarter versus the prior year and down more than half from five years ago.
Bill: But there is some positive momentum with some positive movement existing home inventory is rising narrow it for three months of supply which is the highest it's been in the last four years.
Bill: Further mortgage rates are down from a year ago.
Bill: Finally American home Shield has continued to maintain its category leading share of warranties attached to home purchases.
Bill: Turning to slide 11 in the direct to consumer channel, let's start with the performance of the marketing campaign in short it is working.
Bill: For starters, we have significantly grown Hs aided brand awareness. It has jumped from 39% in 2022 to over 54% today due to the brand relaunch and marketing campaign.
Bill: And awareness is also a recent research shows that about 40% of homeowners now recognize at least one of the three warranty and a TV spots in a crowded media space. That's a very good number.
Bill: Google searches for Hs are also up year over year, but I need to make a key point here. There has been some confusion that searches are down according to Google trends, let me provide some clarity Google trends is a snapshot of how popular your search term is relative to all search terms. It is not representative.
Bill: Of a specific brands performance overtime.
Bill: Even Google says you should not use Google trends for insights or predictive analytics.
Bill: So the fact is Google searches for Hs are actually up through September.
Speaker Change: How do we know that.
We get our information directly from Google and we certainly do pay for that.
Bill: This information represents true volume over time and is much more brand specific accurate and comprehensive.
So to be clear the first year of the campaign has been successful as we move forward into the second phase of the IHS marketing campaign, we will continue to build brand awareness in 2025, there are more focused and targeted approach.
Bill: That builds consideration and grows leads we will share. These plans in much more detail at our Investor Day in New York on February 27.
Bill: We are also optimizing our price discounting strategy. This is what smart brands do in times of market softness brands must adjust to changing consumer behavior.
Bill: To be clear, we are not relying solely on aggressive discounting we understand it's not a long term strategy.
Bill: But it's where we are seeing strong demand and conversion.
In summary, within the DTC channel awareness as a brand searches are up.
Bill: Demand and conversion are up and our customer count is up again. This is what we have been working toward it.
Bill: Now, let me step away from our traditional home warranty business and talk about our on demand business, we expect to generate over $100 million in on demand revenue. This year, primarily due to our new HVAC program, which continues to deliver great results.
Bill: Regarding our new partnership with.
Sorry.
Bill: As announced in our press release last week.
Bill: We are currently expanding that business to seven additional states. In addition to California front door will soon be the exclusive installer of Mone, Smart shutoff valves, and Idaho, Arizona, Utah, Oregon, Texas, Georgia, and South Carolina.
Bill: We are also making excellent progress on marketing DTC home warranties to different demographics and channels of distribution.
Bill: RP is a great example of an alternative way to go to market by targeting different segments of their membership we have been able to grow unit sales with AARP by 25% year over year.
Bill: Now turning to renewals this continues to be a great story for us.
Bill: Retention rates in the third quarter improved 150 basis points to a record high of 77, 7%.
Speaker Change: That is amazing.
Bill: While channel mix shift as the primary driver. This improvement improvement is also the result of a lot of tremendous work by our team improving customer service expanding use of preferred contractors getting more members on autopay and increasing member engagement throughout the customer journey.
Bill: Finally, one of the things I'm. Most excited about is the progress we're making on enhancing our customer experience and a major milestone we launched in Hs App a few days ago. This is a big deal and we will make our formal public announcement on Thursday.
Bill: With easy convenient service right at their fingertips. Our members can now quickly access their account and planet brand information, making track their service requests take advantage of special offers.
And manage their payment information information all through the convenience of their phone we.
Bill: We will have additional enhancements to the app over the coming months. We believe these enhancements will further differentiate American home shield from the competition. We are super excited about the App and I encourage everyone listening to download the app now through Google play or the App store I think it will be impressed.
Bill: So with that I'll now turn the call over to Jessica for more on our record third quarter financials, Jessica Thanks, Bill and good morning, everyone.
Jessica Ross: I want to start with a clear message to all of our stakeholders. Thanks to our financial position has never been stronger.
Jessica Ross: We delivered another exceptional adjusted EBITDA would be we increased our full year outlook for the second time this year.
We are generating a record amount of cash and we remain focused on returning that cash to investors through share repurchases.
Jessica Ross: Specific to our third quarter financial summary on slide 15, you'll see that revenue increased 3% versus the prior year period to $540 million net.
Bill: Net income increased 40% to $100 million and adjusted EBITDA increased 29% Q1 hundred $65 million.
Bill: Let's take a moment to review, our third quarter revenue, which landed at $540 million versus our guided midpoint of about $537 million. This.
Bill: This is a bit of almost $3 million.
Bill: Now on slide 16, you'll see gross profit increased 14% versus the prior year period kept $306 million and gross profit margin improved 550 basis points to a record 57%.
Bill: Let's now move to the adjusted EBITDA Bridge on Slide 17.
Bill: Starting at the top we had $17 million of favorable revenue conversion driven by a 4% increase in price over the prior year period.
This was partially offset by a 1% decline in volume.
Bill: As a reminder, this includes the impact of a lower home warranty volume, which was partially offset by an $11 million increase in non warranty sales.
Bill: Turning to contract claims cost, which decreased $21 million.
This was primarily driven by a lower number of service requests per customer.
Bill: Transition to higher trade service fees and continued process improvement initiatives.
Let's now take a moment to unpack each of Dallas.
Bill: Third quarter customer incidence rates or some of the lowest that we have ever seen primarily due to three reasons.
Bill: First we had $14 million of favorable weather as cooling degree days were down 16% versus the prior year period.
Bill: Second we have made significant process improvements over the last two years and we are now executing better than ever we are doing a better job of getting the right contractor to the right customer at the right time, which results in a better customer experience and reduces costs and noise in our system.
Some of the process improvements include a moving more of our service requests to preferred contractors, we had a record third quarter high with 85% of our job's going to preferred contractors. This is an outstanding result, especially given that this was in the middle of our peak summer season.
Our high cost claims or <unk> program.
Bill: And C leveraging our bulk purchasing power with our suppliers to optimize availability and achieve better prices.
Bill: And the third reason our incidence rate is down as the transition to higher trade service fees, which has resulted in a temporary and expected decline in the number of services per customer as we typically see a short term change in customer behavior until they become accustomed to the new amounts.
Bill: The increase in trade service fees is also driving a lower net cost per service request in 2024.
As you May recall, our service fees are a contra Costa claims expense on our income statement when.
When combined with a normalized inflationary environment front doors third quarter inflation rate was essentially flat.
Bill: This is on a net cost per service request basis as the increase in trade $17, mostly offset external inflation.
In summary, adjusted EBITDA increased to $165 million, which exceeded the midpoint of our outlet by $30 million.
Bill: The difference is primarily driven by over $10 million of favorable weather approximately $10 million of lower SG&A due to timing.
Bill: $3 million of favorable claims costs development and better than expected benefits from process improvements.
Let's now turn to slide 18 for a review of our statement of cash flows.
With strong earnings strong cash flows net.
Bill: Net cash provided from operating activities was a record $212 million for the nine months ended September 30, as a result of our exceptionally strong earnings and was primarily comprised of $281 million in earnings adjusted for noncash charges and $66 million in cash used for working cap.
Bill: At all.
Net cash used for investing activities was $31 million and was primarily comprised of capital expenditures related to investments in technology.
Bill: Net cash used for financing activities was $131 million and was comprised of $119 million of share repurchases as well as $13 million of scheduled debt payments.
Free cash flow increased 56% to a record $181 million for the nine months ended September 30th.
We ended the quarter with $375 million in cash this was comprised of $161 million of restricted cash and $214 million of unrestricted cash and.
And we remain focused on using our cash to buy back shares. For example, we are extremely pleased that we were able to complete the three year $400 million share repurchase program before it expired in early September.
Bill: This is especially impressive since we paused share repurchases for almost a year and 2022.
As a reminder, last quarter, we announced our new three year $650 million share repurchase authorization that started on September 4th.
This amount is 63% higher than our previous three year authorization.
Bill: Now, let's turn to our outlook on slide 19.
Bill: Given that there is less than two months remaining in the year and that the fourth quarter is typically our lowest volume quarter. We are moving our outlook to point estimates versus providing range as.
Bill: While this is a departure from our standard practice for this quarter. We felt that this would help our investors better understand our estimates for the remainder of the year.
Now for the fourth quarter, we expect our revenue to be approximately $367 million, which reflects a low single digit increase in our renewals channel.
A decline of approximately 10% and our real estate channel driven by volume.
Bill: A decline of approximately 20% in our D to C channel, primarily due to our discounting strategy.
And an approximately $5 million increase in other revenue.
For the fourth quarter adjusted EBITDA is expected to come in at approximately $36 million.
Bill: Let's now move to our full year outlook, starting with revenue.
We are increasing our revenue outlook to approximately $183 billion or a 3% increase which includes a mid single digit increase in realized price.
Really offset by a mid single digit decline in realized volume.
This assumes a mid single digit increase in the renewal channel.
A roughly 15% decline in the real estate, indeed, a fee channels.
Bill: It also assumes other revenue which includes on demand will increased 40% to approximately $110 million.
The growth over the prior year is almost entirely driven by higher new HVAC sales, which is trending towards $85 million in 2024.
One brief note of caution here.
Bill: Our guide includes only a minor amount of revenue from <unk> in 2024.
It's still early and while we are very excited about where this relationship can go we will provide more details at our investor day.
From a customer account perspective, we still expect the number of total home warranty to decline approximately 4% in 2024.
As I close my comments on the revenue outlook and bridge to our gross margin guide I want to provide some additional context on our pricing strategy.
We significantly raised prices in 2022 in response to the highly inflationary environment and the dramatic increase in external costs to service our customers.
Bill: We were not only pricing for inflation experienced in 2022, but also for expected inflation in 2023.
Since then inflation has come in much lower than expected, but because of our model. It is taken nearly two years for those price increases to run their course.
Because of that we have now initiated a new mid single digit price increase that will slightly benefit the fourth quarter and carry over into 2025.
Bill: Now moving to gross profit, where we are raising our full year margin outlook to be approximately 53%, which would be a new record for our business.
However, it does incorporate several favorable items, we have taken a lot of price. We have had a lot of favorable weather and our system has not been stressed with high levels of claims.
Now, let's turn to our full year, SG&A outlook, which we expect to be about $605 million.
Based on all of these inputs, we are increasing our full year adjusted EBITDA guide to be approximately $430 million.
Bill: Our full year outlook also includes $19 million of interest income and reflects stock compensation expense of approximately $27 million.
And finally, we expect our full year capital expenditures to be approximately $40 million and the annual effective tax rate to be approximately 25%.
In summary, <unk> financial position has never been stronger.
Bill: We are generating record earnings record cash flows and we are on target to buy back a record amount of shares.
We are making the investments to grow this business and we are doing so from a position of strength and I am extremely excited to see how those investments will drive future growth.
Finally, before we take your questions I am sure. Our plan for 2025 is top of mind for you, but we're not quite ready to discuss that plan today.
The acquisition of <unk> is still pending and we want to make sure we account for that before we finalize our plan for 2025 and beyond.
We'll be ready to present all of those details to you at Investor Day.
With that I will now turn it over to the operator to start Q&A.
Yeah.
Speaker Change: Thank you at this time, we will be conducting a question and answer session.
Speaker Change: I would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: Thank you.
Speaker Change: Our first question is coming from Cory Carpenter with Jpmorgan your line of life.
Cory Carpenter: Thanks, and good morning, Bill I wanted to ask you about the H, yes.
Speaker Change: At lunch.
Cory Carpenter: How do you plan on marketing and rolling that out any details you can provide and then bigger picture how do you see this impacting your business over time, and then I have a follow up for Josh. Thank you.
Okay.
Bill: We just rolled it out probably wont be downloaded Corey.
Speaker Change: It's a it's a member focused so this is really designed to appeal to our members.
Bill: All about our user experiences to enhancing our user experience I mean, theres some downstream benefits that it makes our service request process more efficient and people can build directly through the app as opposed to always having to pick up the phone. So theres a lot of benefits that come from from the user experience and I think it's a modern it's a modern <unk>.
Bill: <unk> move it also can be the catalyst for further enhancements that we will have down the road. So in terms of marketing we will be starting by if you will marketing into our existing members and then as far as broader communications I mean I think.
Bill: Youll see it in action I don't think we will just necessarily announce we have a new app, but it's going to be part of our overall brand character of our brand image.
Speaker Change: So we're excited about what it can do for our members and I think the.
Speaker Change: The modernity look it'll give us broadly will help us to drive hopefully additional members.
Speaker Change: Thank you and then just could you just on that you mentioned in your prepared remarks that you're initiating a mid single digit percentage price increase I believe.
Speaker Change: Could you just expand a bit is that across all your channels are certain channels that youre targeting and kind of how you expect that to roll through the P&L before June next year. Thank you acquire with no. Thanks, sorry, with our price increases those are I'm really focus to the renewal channel. So hopefully that answers. Your question, we rolled those out to the renewal book.
Bill: Yes, because.
Bill: Real estate, we hold pretty constant and obviously, where the market has been we were looking at any pricing action. There and then DTC one is part of.
Bill: All the discounting stuff, we talked about earlier so.
Speaker Change: As Jessica said think of it is through the renewals Joe.
Speaker Change: Great. Thank you.
Cory Carpenter: Thanks Corey.
Speaker Change: Thank you. Our next question is coming from.
Speaker Change: <unk> with.
Speaker Change: With Oppenheimer Your line is live.
Speaker Change: Hi, great. Thank you very much.
Speaker Change: I wanted to also ask on the pricing side and kind of how you're arriving at you.
Speaker Change: Price increases I guess, we're kind of facing some down demand.
Speaker Change: And just kind of trying to understand the decision balancing between price and volume.
Speaker Change: Yeah, No I think as I shared in my prepared remarks, we obviously price for about high inflationary environment in 2022.
As we're going forward I mean, we definitely think that pricing should be more in line with what we're seeing from an inflation perspective.
Speaker Change: And you know we've also got our dynamic pricing strategy.
Speaker Change: And a capability that will be used as we've all that those pricing increases.
Speaker Change: Our retail channel.
Speaker Change: So one of the things we do is we obviously monitor our elasticity is all the time and we're fortunate as you heard our retention rate continues to be quite strong.
Speaker Change: The renewal channel, which is as Jessica said is primarily where the price increases are happening in the DTC channel, we're being very aggressive on bringing in first year members, which is really the feeder into the book.
Speaker Change: The backbone of our business the renewal book.
Cory Carpenter: Okay. Thanks, and then.
Cory Carpenter: Let me talk about the launch of.
Cory Carpenter: Oh, sorry.
Cory Carpenter: Eight.
Cory Carpenter: I'm sorry.
Cory Carpenter: Talk about the different gaming not launch and maybe this this front door.
Speaker Change: Launch one of the differences there and then is there any kind of concern of cannibalization in the front door product at all thanks.
Speaker Change: Yes, no. It's an important point to note. The IHS App is designed for our existing members and is focused on the home warranty business. The front door is open to anyone.
Cory Carpenter: It also is a catalyst for overall on demand business. So that is so we don't see we see them working in tandem because they are serving different markets. So we're excited to have both as a part of the overall front door, Inc. Business and I think they serve two different purposes that can work in tandem.
Speaker Change: Okay. Thank you very much.
Speaker Change: Yeah.
Speaker Change: Thanks, Dan.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question is coming from <unk> <unk> with Keybanc. Your line is live.
Speaker Change: Hey, good morning, Thanks for taking the questions.
Speaker Change: Wanted to start I guess, what the real estate channel. So it looks like the customer count there was stable and I think revenue came in slightly above where you guys previously guided despite existing home sales actually declined this quarter.
Speaker Change: I was wondering if that implies any improvements youre seeing attach rates and maybe just more broadly we've been stuck in a seller's market strong seller's market for some time now.
Speaker Change: Are there any signs that you're seeing that we're returning to a more balanced market in real estate.
Speaker Change: Yes, I think overall I'd say credit you know as you said the trend being better.
Speaker Change: Notwithstanding it's still a very tough market.
Speaker Change: Some of the execution that we've done in our sales team has done it done an excellent job.
Speaker Change: Grinding really for every units again, so I don't want to get ahead of ourselves on real estate as we said the market continues to flounder, but there are a few elements as we've talked about.
Speaker Change: The listings is now over four months worth of supply in mortgage rates.
Speaker Change: Should continue to fall I heard today, there may be a rate cut coming.
Speaker Change: Very soon.
Speaker Change: We have done a good job of keeping our attach rate up.
Speaker Change: Relative to our competition so to your point there are some elements that seem to be on.
Speaker Change: On the macro side coming our way, but we don't want to get ahead of ourselves on that we've been kind of calling for this all along we still believe the market is going to rebound.
Speaker Change: The real estate.
Speaker Change: Professional experts, whereas market in 2014 years.
Speaker Change: So I think this is going to be.
Speaker Change: I don't want to go all the way through we'll talk about this more at Investor day in February.
Speaker Change: I don't want to call. It a tailwind at this point, but I think things are stabilizing and we certainly hope they're going to turn up very soon.
Speaker Change: Got it that's helpful and maybe a second one on the DTC channel you saw that the customer count and the accelerated there so congrats on that.
Speaker Change: Hoping can you just talk about maybe the drivers behind that was that more of the marketing strategy. I think you guys talked about a more targeted marketing strategy last quarter. If that was driving the results or is that more of the discounting strategy and then the <unk>.
Speaker Change: To that we saw you guys did lower the SG&A outlook with any of that marketing spend that you're lowering there and just given the successes that is so like white pullback when youre seeing some success in that channel. Thank you.
Speaker Change: Sergio I Love your questions is yes.
Sergio: Yes, yes, and yes, but let me go back.
Speaker Change: So.
Speaker Change: And we certainly wanted to talk about.
Speaker Change: Our Google information since you have been very keen to point out Google trends.
Speaker Change: But look the information we got from Google as our searches are up.
Speaker Change: Discounting has been a good thing for us demand and conversion of rope.
Speaker Change: The campaign, we believe has worked very well with the awareness numbers I cited earlier. So I think there is there is not one element I think the discounting is a bit of a blunt instrument, but we feel that it's been effective.
Speaker Change: Sure.
Speaker Change: And especially effective in terms of our long term value of the customer. So that's that's really what we're doing we're taking advantage of this.
Speaker Change: <unk> for us to generate the.
Speaker Change: EBITDA growth that we have.
Speaker Change: To reinvest in the.
Speaker Change: In the brand and that is part of what you see in Q4 that we did.
Speaker Change: We are looking to use some of the SG&A to do some incremental marketing, which is really going to impact 2025. So so yes, I think your instincts are right. It is across the board and we love the trend and hopefully it'll continue.
Speaker Change: Great how are you doing.
Speaker Change: Thank you. Our next question is coming from Jeff Schmitt with William Blair. Your line is live.
Jeff Schmitt: Hi, good morning.
Jeff Schmitt: Question on the direct channel how much of an impact do you think your promotional strategy will have on retention rates there when prices step up to those customers.
Speaker Change: I think you mentioned last quarter that.
Speaker Change: Do you think they will hold up well, but is there anything new you learn there anymore that you could add on on how much of an impact that will have.
Speaker Change: Yes.
Speaker Change: Started the deep discounting in March of last year. So we have been tracking very closely that cohort.
Speaker Change: As we go forward.
Speaker Change: Fortunately, we have seen that as we.
Speaker Change: As we start to renew one year out et cetera that the.
Speaker Change: The retention rate.
Speaker Change: Renewals are holding.
Speaker Change: That the cancel rate is not outsized relative to anybody else I think we will touch on this more at Investor day, but it's the right question to ask how does it impact one year later and so far.
Speaker Change: We've been pleased with the effort on that.
Speaker Change: First year renewal after that 50% of all.
Speaker Change: Okay.
Speaker Change: And then how is the attachment rate in the real estate channel trending like where is that today versus last few quarters or even the last few years.
Speaker Change: And do you have any concerns I guess with mortgage rates.
Speaker Change: Moving back up they were heading towards six now theyre going going north so and any thoughts on if that will have an impact here.
Speaker Change: Yeah, Let me take the first part and then separate delivered in the second word.
Speaker Change: The attach rate has fallen for the industry you know.
Speaker Change: Home warranties, where it used to be pretty.
Speaker Change: Pretty steady at around 30% of our high Twenty's, it's now in the teens.
Speaker Change: The point, we were making earlier was.
As that has happened we have maintained our share of.
Speaker Change: <unk>.
Speaker Change: Our fair share in terms of attachment rate, but it hasnt rate has fallen and that is a concern for the industry in terms of mortgage rates and the like I don't think it'll have any different effects and just hopefully it'll start to raise the overall market.
Speaker Change: People will see that as mortgage rates are falling I mean people are going to want to buy a new house, they're going to want to sell their old house, we're going to take the equity that they have in there. So so we see a lot of the <unk>.
Speaker Change: Sidney natural reasons, why the market will improve but I don't think the interest rates are going to have much of an impact on that.
Speaker Change: Attachment rates I don't know just because you have a different.
Speaker Change: I think I I agree.
Speaker Change: I think the one thing with the mortgage rates right now just as we're saying kind of interest rates that we see them slowing but you know just in recent times, they're popping back up a little bit so it'll be caught won't being cautiously optimistic on that fiber.
Speaker Change: Mhm.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thanks, Jeff Thanks, Jeff.
Speaker Change: Thank you. Our next question is coming from Eric Sheridan with Goldman Sachs. Your line of sight.
Eric Sheridan: Thanks, so much for taking the question maybe two if I could just first broadly on the competitive landscape I think we talked a lot. So far on the call on the demand landscape you find yourself in and both sides of the business, but how are you finding the competitive landscape.
Eric Sheridan: Or are there pockets, where maybe competition is either more elevated or less elevated than maybe you anticipated. When you think about the beginning of this year and how sort of 2024 played out and then I know, we're going to get an update more broadly in the <unk> acquisition at the analyst day, but any key learnings about the elements of accelerating.
Speaker Change: Growth Inorganically in the business through acquisition versus building and scaling products yourself that maybe you are some of the key takeaways from 2024 that might involve inform elements of our strategy into 2025 and beyond thanks. So much.
Speaker Change: Yes, I'll take the first one I know you wanted to take the second one just in terms of competition.
Speaker Change: There are a number of our direct competitors are private companies. So we don't have a lot of information et cetera, where you can hear in the marketplace. There are a couple of public.
Speaker Change: Generally as a division of a public company.
Speaker Change: They have obviously seen our aggressive discounting and they have responded in that I think we've been effective.
Speaker Change: In that regard so there isn't any.
Speaker Change: Any product enhancements or anything of note I think a number of competitors are focused on the real estate business. Our DTC business has a higher share for us than it is in real estate, even though remember one in both so I think competitively we feel like we're in.
Speaker Change: We're in good shape on that.
Speaker Change: But just from an M&A landscape and you hit it Eric we are still very very focused on 210, and what we can learn from that I think going forward as we think about capital allocation I always wanted to think about healthy and organic growth and how that balances with <unk>.
Speaker Change: Our focus on.
Speaker Change: On an organic growth.
Speaker Change: And we're going to continue to evaluate that going for it I think the one thing just in terms of our deal strategy. We're still looking at what's out there in the market and we'd be very focused on things that are going to grow revenue for our customers and grow EBITDA.
Speaker Change: Yes, just to be clear Eric.
Eric Sheridan: We have a lot to absorb with the integration of 210. So there's nothing on the horizon that I would say from a acquisition perspective, I mean, we can always keep that open we are very committed to buying back shares.
Speaker Change: With our excess cash so.
Speaker Change: It's not that we won't look at that at some point down the road, but right now.
Speaker Change: Absorbing <unk> 10 is going to take a loss, it's a heavy lift for us that we're excited about what it can do we'll talk more about it in February.
Speaker Change: But in terms of where we're going that that's going to be our focus for the immediate future.
Speaker Change: Thanks, so much.
Eric Sheridan: Thanks, Eric.
Speaker Change: Thank you. Our final question today is coming from Mark Hughes with tourists Securities. Your line is live.
Mark Hughes: Yes, Thank you and good morning.
Speaker Change: Hi.
Mark Hughes: Good morning on the HVAC sales, you've done really well ramping that up is there still potential for that to be.
Speaker Change: Kind of outsized contributors to growth rolling it out to different region different contractors, what are the dynamics there.
Speaker Change: Yes, I think.
Speaker Change: You nailed it.
Speaker Change: We're doing with our contractor relations team, they're rolling out.
Speaker Change: Market by market it is a.
Speaker Change: It is a sale that you have to get the contractors onboard and the contractors want to be on board because the economics that they can get from this and as you know we've talked about this.
Speaker Change: In the past, it's a great value proposition, we give it.
Speaker Change: Our consumer a breakout of I'm, a new customer of HVAC.
Speaker Change: Just install my new my new HVAC last week.
Speaker Change: I can't I can't talk about fourth quarter, I guess, Matt, but that will that will be part of the part of the numbers.
Speaker Change: But now what we're doing is.
Speaker Change: We were in Kansas City, a couple of weeks ago, we're going market by market and enhancing the overall piece, we have stronger markets.
Speaker Change: And I think what we can talk about is kind of a full potential analysis, when we get to February but but we think that there is a lot of a lot of blue Sky out there for HVAC and then with regard to mow and we haven't said.
Speaker Change: Got it.
Speaker Change: Put a note of caution out there.
Speaker Change: You heard me say that we're expanding seven more states will have more to say about it in February but.
Speaker Change: But we think thats on a nice build and they're a great partner and we love working with them.
Speaker Change: Do you think the Mowen can that'd be material in 2025.
Speaker Change: If material.
Speaker Change: Points at least.
Speaker Change: Well Thats a great tier four at our Investor Day February 27th in New York, saying that we'll talk about it one of their I don't want to jump ahead, just know things were still in the Middle Avenue and rolled out to those additional states here I think the point is though mark you hit it right like new HVAC, we've learned a lot from it it's been a great growth opportunity.
Speaker Change: Opportunity for Us and I think that's going to give us a lot of good learnings as we think about expanding into two other capabilities as well.
Speaker Change: If I might ask one more just can you talk about the trade service fees.
Speaker Change: Sort of dampen claims frequency until the consumer gets used to it.
Speaker Change: Yes.
Speaker Change: The usual timing of that.
Speaker Change: That process.
Speaker Change: I think you had mentioned that was maybe something that would impact the fourth quarter as well.
Speaker Change: Is that fair or how long does it.
Speaker Change: I mean, I think the way I think about it you have to think about it as we roll those out very similar to a pricing increase so it is at the core.
Speaker Change: Contract.
Speaker Change: Item on our claims cards, but we launched that on the back half of 2022 and the process takes 12 to 24 months to rollout bear exactly like pricing. So as we think about pricing kind of reaching its run in Q4. Our TSS are doing the same thing and then just from a behavior perspective. It takes typically.
Speaker Change: When you look at maybe a year or so for people to just get hired to that trade service fee and start calling in for repairs again.
Speaker Change: Got it.
Speaker Change: Is it fair to say that you've kind of it does.
Speaker Change: And of course, yes, it's run its course, that's exactly exactly what I'm, saying.
Speaker Change: Yes, Okay alright, thank you.
Speaker Change: Thanks Mark.
Speaker Change: Thank you so much.
Speaker Change: We have reached the end of our question and answer session. So I was I will turn the call over to Mr. Bill Cobb for his closing remarks. Thank.
Bill Cobb: Thank you very much before we sign off I want to reiterate some final points as you heard me say last quarter and it's worth repeating here in our strategy and plan is about near term realism and long term optimism while macroeconomic factors continue to challenge member growth for all home warranty providers, we remain very bullish about this category and especially.
Speaker Change: Actually our strategy to continue driving awareness and consideration.
Speaker Change: There are millions of untapped homeowners, who could benefit from a home warranty as well as our on demand offerings like the new HVAC program.
Speaker Change: That said I would like you to reflect on what's been accomplished over the past two years.
Speaker Change: We are focused on customer growth and we're seeing positive momentum on our campaign and the relaunch of the American home Shield brand.
Speaker Change: These efforts are working and as I mentioned earlier, we now expect our annual DTC customer counts to be in line with last year.
Speaker Change: We are also exploring strategic M&A to accelerate our growth and the acquisition of <unk> is proceeding on track to close in Q4.
Speaker Change: We have enhanced our margins, we continue to drive high customer retention rates with the third quarter setting a record of 77, 7%.
We've expanded our on demand business, it's doing very well <unk> sales as well as our growing partnerships with <unk> and others.
Speaker Change: And finally, we continue to return excess cash to shareholders through share buybacks and with our new $650 million share repurchase authorization, we remain committed to continuing share repurchases.
Speaker Change: So you can see a lot has been accomplished we've done what we said we would do on that note I hope these facts and the results of another absolutely amazing quarter of financial performance are giving you. Good reason to believe in front door for the long term. Thank you and I look forward to seeing all of you in New York on February 27th for our Investor Day. Thanks again.
Speaker Change: Thank you ladies and gentlemen. This concludes today's conference and you may disconnect at this time and we thank you for your participation.
Speaker Change: Disconnect.