Frontdoor, Inc.

Ladies and gentlemen, welcome to Front Door's first quarter 2022 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.

Thank you, Operator. Good afternoon, everyone, and thank you for joining Front Door's first quarter 2022 earnings conference call. Joining me today are Front Door's Chief Executive Officer, Rex Tibbins, and Front Door's Chief Financial Officer, Brian Turcotte. The press release and slide presentation that will be used during today's call can be found on the investor relations section of Front Door's website, which is located at investors.frontdoorhome.com. 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. Please refer to the risk factors section in our filings for a more detailed discussion of our forward-looking statements and the risks and uncertainties related to such statements. All forward-looking statements are made as of today, May 5th, and, except as required by law, the company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. We will also reference certain non-GAAP financial measures throughout today's call. We have included definitions of these terms and reconciliations of these non-GAAP financial measures 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 Rex for opening comments. Rex?

Thanks, Matt, and good afternoon, everyone. Front Door delivered another strong quarter of revenue growth despite continuing macroeconomic headwinds. Today, we plan to focus our discussion on two near-term external challenges, cost inflation and the real estate market, and our long-term opportunity. Beyond these challenges, the rest of our business is generally on target with what we laid out last quarter. Turning to slide four, where we will provide an overall business update and how we are addressing the challenging macroeconomic environment. First, we are moving with urgency to address accelerating inflation. Brian will address this topic in more detail, but in short, U.S. inflation rates are rising at the highest level since 1981. Inflation in the home services space is rising faster than the overall economy. As a result, we are seeing service costs accelerate faster than we anticipated and higher than we priced for. In response, we are redoubling our efforts to address rising inflation and support our customers and contractors during this extraordinary time. Contractors across the country are experiencing record costs as they help us resolve the hassle of owning a home. We are intentionally working with our contractor network to find innovative ways to reduce costs and improve customer service in these unprecedented times, but this comes with a near-term cost. Separately, our real estate channel continues to be impacted by a historically strong seller's market as a result of extremely low home inventory levels. This is driving a decline in our first-year real estate sales, and I'll address this topic shortly. Much of the near-term pressure from inflation in real estate is macro in nature. It is not intrinsic to our normal business operations. We remain focused on improving the key drivers of our business and focusing on controlling the controllable. While we continue to work on mitigating the external factors, many of them remain beyond our control in the near term. Despite these challenges, it is in this environment that our resilient business model and scale demonstrates the ability to grow revenue and generate strong cash flow. While others are cutting back, we are able to continue investing in our customer experience and develop our contract community in order to drive long-term performance. We believe we have a tremendous growth opportunity ahead of us and continue to propel our strategic initiatives while building a strong foundation for future success. Now turning to the real estate channel on slide five. In short, the real estate channel has been underperforming our expectations. When we provided our previous full-year outlook in February, we expected to sell approximately the same number of home service plans in our real estate channel as we did in 2021. However, it remains increasingly difficult to sell a home service plan when inventory levels remain extremely low and the seller has significant leverage in a transaction. There are three market statistics from the National Association of Realtors, or NAR, that we believe highlight this trend, including days on market declined to 17 days in March, according to NAR. This was down from 18 days in the prior year period and less than half of the levels seen before the pandemic. The second metric is inventory of unsold homes, which NAR reported was approximately 950,000 at the end of March, or only two months of supply. This is well below a normal market of around four to five months of inventory. The third metric is the percentage of cash sales, which NAR reported was approximately 30% in March. This is up from 23% in the prior year period. This dramatic increase, reflecting the significant percentage of homes being purchased by investors, has been a contributing factor impacting our ability to sell home service plans since these investor buyers are not naturally inclined to buy our product themselves, and they shrink the inventory levels available to individual purchasers that are more likely to purchase a service plan. As a result of external market pressure, we are now expecting our real estate channel revenues to significantly decline in 2022. In response to this environment, we continue to be focused on the following actions. First, investing more in our direct consumer or DDC channel and our renewal channel to help offset some of the impact from lower real estate channel sales. We're also expanding our partnership strategy to help diversify our revenue over time. Within the real estate channel, we're aggressively looking to expand our channel share with our largest real estate partners. are completing a strategic realignment of our real estate sales organization to focus on key geographic markets and we've recently launched the new good better best home service plans in our real estate channel a comparable product we launched last year in our dnc channel they're the most comprehensive products we've ever offered and we believe will help us better position our products in the market to be clear now these actions will fix our real estate channel overnight However, we believe that this channel is core to our home service plan business, and we'll continue to rebuild our demand footprint over time as the macro market factors become more favorable and our improvements take hold. Now turning to slide six in our review of our top objectives for 2022. I'll start by reminding you that our objectives have not changed since our last call. Let's now dive deeper into some of these priorities and how we are progressing through the early part of 2022. back into their DSC channel where the team continues to perform well after making improvements in late 2021. We remain on target of providing double-digit revenue growth as we did this quarter. Our comments from last quarter still hold true. The marketing team stabilized our platform late last year. We expect that to continue through 2022. Our spending, media footprint, and conversion funnel are all operating as expected, and we continue to make minor changes to optimize the platform. For example, our e-commerce platform is working well, and we are catching a broader net with our media coverage than this time last year. In the renewal channel, our team continues to improve the renewal process. We've increased the number of customer outreach touchpoints, improved call center staffing and training, and leveraged technology to make it easier to renew your home service plan. In fact, we are just launching a new feature where you can upgrade your plan through our online platform. While it's still early, we believe there is a lot of potential around upgrading more of our customer base to the more inclusive Platinum offering, which provides both coverage and maintenance services. We are still looking to improve overall customer retention in 2022. However, the decline in real estate sales and higher pricing will have an impact on our total customer count. In response, we continue to progress these initiatives I've spoken about previously. We are working to improve the service experience by leveraging technology in our digital-first focus, such as Stream, to make it easier for customers to interact with us and for us to walk in their shoes. For example, we just began offering a new click-to-call feature that allows customers to more easily launch a Stream call to drive better customer adoption. We're also committed to further our progress on the service delivery experience by allowing for more digital self-service options, utilizing more preferred contractors, and by continuing to optimize dynamic pricing. Over the last few years, we have improved our self-service capabilities and are now processing more than half of our initial customer interactions through My Account or automated phone system. As we roll out our customer app later this year, we think we can make our self-service capabilities even better. While Front Door is facing some near-term external challenges around accelerating inflation rates in the macro real estate environment that are beyond our control, we remain focused on improving the key drivers of our business and focusing on controlling the controllable. We strongly believe in our long-term vision of transforming the home services space and taking the hassle out of home services. I leave you with three reasons to believe in Front Door. First, we continue to prosperly grow this business despite the pandemic and current macroeconomic conditions. As I stated in our last call, we spent the majority of our public company life in uncertain times, and yet we continue to deliver profitable growth. Second, we are uniquely positioned to transform an antiquated and inefficient industry, one that begs for disruption. We strongly believe we have the knowledge and scale to transform into a digital first model that allows you to solve your home hassles in a much more delightful way. Last, we continue to build products that bundle traditional home service plans and new maintenance services to provide a more holistic and complete set of offerings for not only our current customers, but for those who may not need a home service plan, thus reaching a much larger audience. This industry is ripe for digital transformation and has a massive opportunity to grow into on-demand services, and that's exactly what we plan to do. I'll now turn the call over to Brian to review our financial results. Brian?