Frontdoor, Inc.

Ladies and gentlemen, welcome to Front Door's third 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 that are on the call. At this time, we'll begin today's call. Please go ahead, Mr. Davis.

Thank you, Operator. Good morning, everyone, and thank you for joining Front Door's third quarter 2022 earnings conference call. Joining me today are Front Door's Chairman and Chief Executive Officer, Bill Cobb, 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 factor 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, November 3rd, 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 Bill Cobb for opening comments.

Bill? Thanks, Matt, and good morning, everyone. Since taking over the CEO role in June, my leadership team and I have taken quick and decisive action to tackle one of the most challenging macroeconomic environments in the company's history. And we are delivering on the initiatives outlined on our last earnings call. We are laser focused on rebuilding the core home service plan business. We are improving execution. We are taking aggressive action to fight inflation. And we are reducing our SG&A expense footprint. While we are seeing signs of better days ahead, there is more work to be done as we continue to transform Front Door. Let's begin on slide four and the actions we have taken over the last several months. First, we completed a comprehensive review of our SG&A expense footprint that resulted in a 7% workforce reduction, primarily outside of the revenue generating and service-related areas. These actions are working as we have reduced our 2020 SG&A by $45 million from our original outlook. Second, consistent with our second quarter comments, our pricing strategy continues to target a 12% to 13% price increase in 2022 compared to year-end 2021, one of the largest in the company's history. Third, we are improving execution within our core home service plan business. Under new leadership, we are changing Front Door's culture to further optimize how we operate. And lastly, we are working to advance our business transformation initiatives. I have challenged our team to reimagine how home service plans can work better for our customers and our contractors. For example, we recently completed an extensive consumer segmentation study. We have been analyzing the data and expect it will allow us to better meet the needs of different audiences. Let's now turn to slide five and the direct-to-consumer or DTC channel where we have seen a decline in demand generation for two primary reasons. First, rising marketing costs have resulted in fewer leads entering our sales funnel. Second, customers have become more price and discount sensitive, and we have seen the landscape shift as competitors have become more aggressive with price promotions. The leaders I brought in to fix these challenges have accomplished a lot over the last quarter. We have refreshed our marketing to drive more demand while also working to improve our conversion rate. Also, we upped our game with some very successful price promotions in September, and we are in the process of running more in the fourth quarter. Now turning to slide six and a review of our real estate channel. We are starting to see the housing market moderate as we exit a historically strong seller's market that has existed over the last few years. According to the National Association of Realtors, September data showed existing home sales declined nearly 24% year-over-year, an inventory increase to 3.2 months of supply from 2.4 months over the prior year period. We are also hearing commentary from our real estate brokerage partners that the market is starting to turn. In fact, many real estate companies are working to retrain their agents on best practices, such as utilizing inspections and home service plans to improve the appeal of their listings. These trends should increase the home service plan capture rate as a percentage of existing home sales. However, we are carefully monitoring the level of existing home sales as we head into 2023. as a significant decline in existing home sales will shrink the potential pool for home service plan purchases. But as I've said before, regardless of market conditions, I believe we can do a much better job of executing in real estate. I am very excited about what the team is doing to build our sales culture, fix structural misalignments, upgrade our talent, and refocus on the most impactful partnerships. Now let's turn to slide seven and the renewal channel. To date, our renewal channel is performing well. In fact, I am pleased to share our blended renewal rate actually increased in the third quarter to approximately 72%. While our customers remain generally inelastic, we are closely monitoring how our higher price increases may affect our customer base over the next several quarters. I want to be very specific about our pricing strategy. Consistent with our second quarter comments, we are still on track to deliver a 12% to 13% price increase by the end of this year. The larger benefit will actually occur next year, as our pricing actions have been weighted more to the second half of 2022. But to be clear, for 2022, we have an approximately 8% realized price increase versus the prior year. Longer term, we expect renewal rates will gradually rise as we zero in on creating a better customer experience. In conclusion, I am confident that our financial results will improve from the actions we are taking, and as the macro challenges subside, and we are already seeing signs that things might be moving in our direction as we close out 2022. I will now turn the call over to Ryan to review our financial results. Ryan?