Gross Profit Margin Expanded 510 bps to 51%;
Net Income of $34 Million and Adjusted EBITDA(1) of $71 Million;
Raising Full-Year 2024 Gross Profit Margin and Adjusted EBITDA(2)
Outlook; Relaunched the American Home Shield Brand in April
Frontdoor, Inc. (NASDAQ: FTDR), the nation’s leading provider of
home warranties, today announced its first-quarter 2024
results.
Financial Results
Three Months Ended
March 31,
$ millions (except as noted)
2024
2023
Change
Revenue
$
378
$
367
3
%
Gross Profit
195
170
14
%
Net Income
34
22
56
%
Diluted Earnings per Share
0.43
0.27
62
%
Adjusted Net Income(1)
35
23
49
%
Adjusted Diluted Earnings per Share(1)
0.44
0.29
54
%
Adjusted EBITDA(1)
71
54
33
%
Home Warranties (number in millions)
1.96
2.09
(6
)%
First-Quarter 2024 Summary
- Revenue increased 3% to $378 million and was comprised of an
11% increase from price that was partly offset by an 8% decline
from lower volume
- Gross profit margin expanded 510 basis points to 51% as a
result of higher realized price, a transition to higher service
fees and continued process improvement initiatives that was partly
offset by inflationary cost pressures
- Net income and Diluted earnings per share increased to $34
million and $0.43, respectively
- Adjusted EBITDA(1) increased 33% to $71 million
- Net cash provided from operating activities of $84
million
Full-Year 2024 Outlook
- Maintaining revenue range of $1.81 billion to $1.84
billion
- Increasing gross profit margin range to approximately
50.0%
- Increasing Adjusted EBITDA(2) range to $360 million to $370
million
“Frontdoor continues to operate extremely well and is off to a
strong start in 2024," said Chairman and Chief Executive Officer
Bill Cobb. “While earnings continue to exceed expectations, our top
priority is to find new and innovative ways to increase demand for
our services. The American Home Shield brand relaunch is a
significant component of this strategy, and I am very pleased with
the initial reaction to our new celebrity spokesperson, Rachel
Dratch, as 'Warrantina'. We are truly bringing a refreshed and high
energy look to our brand and are optimistic it will improve the
growth trajectory for home warranties for years to come."
“I am extremely pleased with our first-quarter financial
performance,” said Chief Financial Officer Jessica Ross. “We
substantially beat our first-quarter Adjusted EBITDA outlook as we
continue to deliver and execute on our margin expansion
initiatives. As a result, we are increasing our full-year 2024
gross profit margin and Adjusted EBITDA targets while continuing to
make investments to drive growth."
First-Quarter 2024 Results
Revenue by Customer
Channel
Three Months Ended
March 31,
$ millions
2024
2023
Change
Renewals
$
298
$
278
7
%
Real estate (First-Year)
27
33
(17
)%
Direct-to-consumer (First-Year)
36
44
(19
)%
Other
17
11
49
%
Total
$
378
$
367
3
%
First-quarter 2024 revenue increased 3% to $378 million, which
was comprised of an 11% increase from price that was partially
offset by an 8% decline from lower volume.
- Renewal revenue increased 7% due to improved price realization
that was partially offset by lower volume;
- Real estate revenue decreased 17% due to lower sales as a
result of the challenging real estate market that was partially
offset by improved price realization;
- Direct-to-consumer revenue decreased 19% primarily due to lower
sales, which we believe was driven by a decline in overall category
demand for home warranties; and
- Other revenue increased $6 million due to higher on-demand home
services, primarily new HVAC sales.
First-quarter 2024 net income was $34 million, or diluted
earnings per share of $0.43.
Period-over-Period Adjusted
EBITDA(1) Bridge
(In millions)
Three Months Ended March 31, 2023
$
54
Impact of change in revenue
14
Contract claims costs
10
Sales and marketing costs
(7
)
Customer service costs
1
General and administrative costs
(3
)
Interest and net investment income
1
Three Months Ended March 31, 2024
$
71
First-quarter 2024 Adjusted EBITDA(1) of $71 million increased
33% versus the prior year period, and includes:
- $14 million from higher revenue conversion(3), as price
increases were partly offset by lower volume;
- $10 million of lower contract claims costs(4), excluding the
impact of claims costs related to the change in revenue. The
decrease in contract claims costs reflects:
- A transition to higher service fees that drove a lower number
of service requests per customer as well as improved net cost per
service request;
- Continued process improvement initiatives, specifically better
cost management across our contractor network; partially offset
by
- Ongoing inflationary cost pressures from our contractor
network, replacement parts and equipment; and
- Favorable claims cost development of $1 million, compared to a
$6 million favorable cost development in the first quarter of
2023
- $7 million of higher sales and marketing costs, primarily
investments to drive direct-to-consumer sales; and
- $3 million of higher G&A costs primarily due to increased
personnel costs.
Cash Flow
Three Months Ended
March 31,
(In millions)
2024
2023
Net cash provided from (used for):
Operating activities
$
84
$
60
Investing activities
(10
)
(8
)
Financing activities
(21
)
(7
)
Cash increase during the period
$
53
$
45
Net cash provided from operating activities was $84 million for
the three months ended March 31, 2024 and was comprised of $51
million in earnings adjusted for non-cash charges and $34 million
in cash provided from working capital, partially offset by $1
million in payments for restructuring charges.
Net cash used for investing activities was $10 million for the
three months ended March 31, 2024 and was primarily comprised of
capital expenditures related to technology projects.
Net cash used for financing activities was $21 million for the
three months ended March 31, 2024 and was primarily comprised of
$13 million (including taxes and fees) to repurchase 0.4 million
shares and $4 million of scheduled debt payments.
Free Cash Flow(1) was $73 million for the three months ended
March 31, 2024.
Cash as of March 31, 2024 was $378 million and was comprised of
$165 million of restricted net assets and $213 million of
Unrestricted Cash.
Capital Allocation Update
- Consistent with our stated capital allocation strategy, the
company repurchased $33 million of shares in March and April. The
company expects to continue to use excess cash to repurchase shares
under our current 3-year, $400 million authorization, absent any
acquisitions.
Second-Quarter 2024 Outlook
- Revenue of $530 million to $540 million, a 2% increase over the
prior-year period.
- Adjusted EBITDA(2) of $130 million to $140 million, a 12%
increase over the prior-year period.
Updated Full-Year 2024 Outlook
- Revenue to grow approximately 2% to 3% to $1.81 billion to
$1.84 billion. Key assumptions include:
- A mid-single digit increase in renewals channel revenue;
- Approximately 10% decline in direct-to-consumer channel
revenue;
- A 15% to 20% decline in real estate channel revenue;
- Approximately 30% increase in other revenue, which is primarily
driven by the new HVAC program;
- The number of home warranties is expected to decline 1% to
3%.
- Increasing gross profit margin to approximately 50%.
- SG&A of $580 million to $595 million.
- Increasing Adjusted EBITDA(2) to $360 million to $370
million.
- Capital expenditures of approximately $35 million to $45
million.
- Annual effective tax rate of approximately 25%.
First-Quarter 2024 Earnings Conference Call
Frontdoor has scheduled a conference call today, May 2, 2024, at
7:30 a.m. Central time (8:30 a.m. Eastern time). During the call,
Bill Cobb, Chairman and Chief Executive Officer, and Jessica Ross,
Chief Financial Officer, will discuss the company’s operational
performance and financial results for first-quarter 2024 and
respond to questions from the investment community. To participate
on the conference call, interested parties should call
1-833-470-1428 (or international participants, 1-929-526-1599) and
enter conference ID 300812. Additionally, the conference call will
be available via webcast which will include a slide presentation
highlighting the company’s results. To participate via webcast and
view the slide presentation, visit Frontdoor’s investor relations
home page. The call will be available for replay for approximately
60 days. To access the replay of this call, please call
1-866-813-9403 and enter conference ID 139025 (international
participants: +44-204-525-0658, conference ID 139025).
About Frontdoor, Inc.
Frontdoor is reimagining how homeowners maintain and repair
their most valuable asset – their home. As the parent company of
two leading brands, we bring over 50 years of experience in
providing our members with comprehensive options to protect their
homes from costly and unexpected breakdowns through our extensive
network of pre-qualified professional contractors. American Home
Shield, the category leader in home warranties with approximately
two million members, gives homeowners budget protection and
convenience, covering up to 23 essential home systems and
appliances. Frontdoor is a cutting edge, one-stop app for home
repair and maintenance. Enabled by our Streem technology, the app
empowers homeowners by connecting them in real time through video
chat with pre-qualified experts to diagnose and solve their
problems. The Frontdoor app also offers homeowners a range of other
benefits including DIY tips, discounts and more. For more
information about American Home Shield and Frontdoor, please visit
frontdoorhome.com.
Forward-Looking Statements
This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended,
including, in particular, projected future performance and any
statements about Frontdoor’s plans, strategies and prospects.
Forward-looking statements can be identified by the use of
forward-looking terms such as “believe,” “expect,” “estimate,”
“could,” “should,” “intend,” “may,” “plan,” “seek,” “anticipate,”
“project,” “will,” “shall,” “would,” “aim,” or other comparable
terms. These forward-looking statements are subject to known and
unknown risks and uncertainties, many of which may be beyond our
control. Such risks and uncertainties include, but are not limited
to: changes in macroeconomic conditions, including inflation and
global supply chain challenges, especially as they may affect
existing home sales, interest rates, consumer confidence or labor
availability; the success of our business strategies; the ability
of our marketing efforts to be successful or cost-effective; our
dependence on our real estate and direct-to-consumer customer
acquisition channels and our renewal channel; changes in the source
and intensity of competition in our market; our ability to attract,
retain and maintain positive relations with third-party contractors
and vendors; increases in parts, appliance and home system prices,
and other operating costs; our ability to attract and retain
qualified key employees and labor availability in our customer
service operations; our dependence on third-party vendors,
including business process outsourcers, and third-party component
suppliers; cybersecurity breaches, disruptions or failures in our
technology systems; our ability to protect the security of personal
information about our customers; lawsuits, enforcement actions and
other claims by third parties or governmental authorities; evolving
corporate governance and disclosure regulations and expectations
related to environmental, social and governance matters; physical
effects of climate change, including adverse weather conditions and
Acts of God, along with the increased focus on sustainability;
increases in tariffs or changes to import/export regulations; our
ability to protect our intellectual property and other material
proprietary rights; negative reputational and financial impacts
resulting from acquisitions or strategic transactions; requirement
to recognize impairment charges; third-party use of our trademarks
as search engine keywords to direct our potential customers to
their own websites; inappropriate use of social media by us or
other parties to harm our reputation; special risks applicable to
operations outside the United States by us or our business process
outsource providers; a return on investment in our common stock is
dependent on appreciation in the price; restrictions in our
certificate of incorporation related to an acquisition of us or to
our lawsuits against us or our directors or officers; the effects
of our significant indebtedness; increases in interest rates
increasing the cost of servicing our indebtedness; increased
borrowing costs due to lowering or withdrawal of the credit
ratings, outlook or watch assigned to us, our debt securities or
our credit facilities; and our ability to generate significant cash
needed to fund our operations and service our debt. We caution you
that forward-looking statements are not guarantees of future
performance or outcomes and that actual performance and outcomes,
including, without limitation, our actual results of operations,
financial condition and liquidity, and the development of new
markets or market segments in which we operate, may differ
materially from those made in or suggested by the forward-looking
statements contained in this news release. For a discussion of
other important factors that could cause Frontdoor’s results to
differ materially from those expressed in, or implied by, the
forward-looking statements included in this document, refer to the
risks and uncertainties detailed from time to time in Frontdoor’s
periodic reports filed with the SEC, including the disclosure
contained in Item 1A.
Risk Factors in our 2023 Annual Report on Form 10-K filed with
the SEC, as such factors may be updated from time to time in
Frontdoor’s periodic filings with the SEC. Except as required by
law, Frontdoor does not undertake any obligation to update or
revise the forward-looking statements to reflect new information or
events or circumstances that occur after the date of this news
release or to reflect the occurrence of unanticipated events or
otherwise. Readers are advised to review Frontdoor’s filings with
the SEC, which are available from the SEC’s EDGAR database at
sec.gov, and via Frontdoor’s website at frontdoorhome.com.
Non-GAAP Financial Measures
To supplement Frontdoor’s results presented in accordance with
accounting principles generally accepted in the United States
(“U.S. GAAP”), Frontdoor has disclosed the non-GAAP financial
measures of Adjusted EBITDA, Free Cash Flow, Adjusted Net Income,
Adjusted Diluted Earnings Per Share, and Unrestricted Cash.
We define "Adjusted EBITDA" as net income before depreciation
and amortization expense; goodwill and intangibles impairment;
restructuring charges; provision for income taxes; non-cash
stock-based compensation expense; interest expense; loss on
extinguishment of debt; and other non-operating expenses. We
believe Adjusted EBITDA is useful for investors, analysts and other
interested parties as it facilitates company-to-company operating
performance comparisons by excluding potential differences caused
by variations in capital structures, taxation, the age and book
depreciation of facilities and equipment, restructuring initiatives
and equity-based, long-term incentive plans.
We define “Free Cash Flow” as net cash provided from operating
activities less property additions. Free Cash Flow is not a
measurement of our financial performance or liquidity under U.S.
GAAP and does not purport to be an alternative to net cash provided
from operating activities or any other performance or liquidity
measures derived in accordance with U.S. GAAP. Free Cash Flow is
useful as a supplemental measure of our liquidity. Management uses
Free Cash Flow to facilitate company-to-company cash flow
comparisons, which may vary from company-to-company for reasons
unrelated to operating performance.
We define “Adjusted Net Income” as net income before:
amortization expense; restructuring charges; loss on extinguishment
of debt; other non-operating expenses; and the tax impact of the
aforementioned adjustments. We believe Adjusted Net Income is
useful for investors, analysts and other interested parties as it
facilitates company-to-company operating performance comparisons by
excluding potential differences caused by items listed in this
definition.
We define “Adjusted Diluted Earnings per Share” as Adjusted Net
Income divided by the weighted-average diluted common shares
outstanding.
We define “Unrestricted Cash” as cash not subject to third-party
restrictions. For additional information related to our third-party
restrictions, see “Liquidity and Capital Resources — Liquidity”
under the heading “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in our 2023 Annual
Report on Form 10-K filed with the SEC.
See the schedules attached hereto for additional information and
reconciliations of such non-GAAP financial measures. Management
believes these non-GAAP financial measures provide useful
supplemental information for its and investors’ evaluation of
Frontdoor’s business performance and are useful for
period-over-period comparisons of the performance of Frontdoor’s
business. While we believe that these non-GAAP financial measures
are useful in evaluating our business, this information should be
considered as supplemental in nature and is not meant to be
considered in isolation or as a substitute for the related
financial information prepared in accordance with U.S. GAAP. In
addition, these non-GAAP financial measures may not be the same as
similarly entitled measures reported by other companies.
© 2024 Frontdoor, Inc. All rights reserved. The following terms,
which may be used in this press release, are trademarks of
Frontdoor, Inc. and its subsidiaries: Frontdoor®, American Home
Shield®, HSA™, OneGuard®, Landmark Home Warranty®, Streem®, the
Streem logo and the Frontdoor logo. All other trademarks used
herein are the property of their respective owners.
(1)
See “Reconciliations of Non-GAAP Financial
Measures” accompanying this release for a reconciliation of
Adjusted EBITDA, Free Cash Flow, Adjusted Net Income and Adjusted
Diluted Earnings per Share, each a non-GAAP measure, to the nearest
GAAP measure. See “Non-GAAP Financial Measures” included in this
release for descriptions of calculations of these measures. Amounts
presented in the reconciliations and other tables presented herein
may not sum due to rounding.
(2)
A reconciliation of the forward-looking
second-quarter and full-year 2024 Adjusted EBITDA outlook to net
income cannot be provided without unreasonable effort because of
the inherent difficulty of accurately forecasting the occurrence
and financial impact of the various adjusting items necessary for
such reconciliation that have not yet occurred, are out of our
control, or cannot be reasonably predicted. For the same reasons,
the company is unable to assess the probable significance of the
unavailable information, which could have a material impact on its
future GAAP financial results.
(3)
Revenue conversion includes the impact of
the change in the number of home warranties as well as the impact
of year-over-year price changes. The impact of the change in the
number of home warranties considers the associated revenue on those
plans less an estimate of contract claims costs based on margin
experience in the prior year period.
(4)
Contract claims costs includes the impact
of changes in service request incidence, inflation and other
drivers associated with the number of home warranties in the prior
year period. The impact on contract claims costs resulting from
year-over-year changes in the number of home warranties is included
in revenue conversion above.
Frontdoor, Inc.
Consolidated Statements of
Operations and Comprehensive Income (Unaudited)
(In millions, except per share
data)
Three Months Ended
March 31,
2024
2023
Revenue
$
378
$
367
Cost of services rendered
184
197
Gross Profit
195
170
Selling and administrative expenses
135
125
Depreciation and amortization expense
9
9
Restructuring charges
—
1
Interest expense
10
10
Interest and net investment income
(5
)
(3
)
Income before Income Taxes
45
29
Provision for income taxes
11
7
Net Income
$
34
$
22
Other Comprehensive Income (Loss), Net
of Income Taxes:
Unrealized gain (loss) on derivative
instruments, net of income taxes
2
(2
)
Total Other Comprehensive Income
(Loss), Net of Income Taxes
2
(2
)
Comprehensive Income
$
35
$
20
Earnings per Share:
Basic
$
0.43
$
0.27
Diluted
$
0.43
$
0.27
Weighted-average Common Shares
Outstanding:
Basic
78.3
81.5
Diluted
79.0
81.9
Frontdoor, Inc.
Condensed Consolidated
Statements of Financial Position (Unaudited)
(In millions, except share
data)
As of
March 31,
December 31,
2024
2023
Assets:
Current Assets:
Cash and cash equivalents
$
378
325
Receivables, less allowance of $4 and $5,
respectively
4
6
Prepaid expenses and other current
assets
30
32
Total Current Assets
412
363
Other Assets:
Property and equipment, net
64
60
Goodwill
503
503
Intangible assets, net
143
143
Operating lease right-of-use assets
7
3
Deferred customer acquisition costs
11
12
Other assets
6
5
Total Assets
$
1,146
1,089
Liabilities and Shareholders'
Equity:
Current Liabilities:
Accounts payable
$
70
76
Accrued liabilities:
Payroll and related expenses
18
38
Home warranty claims
64
76
Other
33
22
Deferred revenue
158
102
Current portion of long-term debt
17
17
Total Current Liabilities
360
331
Long-Term Debt
573
577
Other Long-Term Liabilities:
Deferred tax liabilities, net
25
25
Operating lease liabilities
20
16
Other long-term liabilities
5
5
Total Other Long-Term Liabilities
51
46
Commitments and Contingencies
Shareholders' Equity:
Common stock, $0.01 par value;
2,000,000,000 shares authorized; 86,871,669 shares issued and
78,296,296 shares outstanding as of March 31, 2024 and 86,553,387
shares issued and 78,378,511 shares outstanding as of December 31,
2023
1
1
Additional paid-in capital
120
117
Retained earnings
330
296
Accumulated other comprehensive income
7
6
Less treasury stock, at cost; 8,575,373
shares as of March 31, 2024 and 8,174,876 shares as of December 31,
2023
(296
)
(283
)
Total Shareholders' Equity
162
136
Total Liabilities and Shareholders'
Equity
$
1,146
1,089
Frontdoor, Inc.
Consolidated Statements of
Cash Flows (Unaudited)
(In millions)
Three Months Ended
March 31,
2024
2023
Cash and Cash Equivalents at Beginning
of Period
$
325
$
292
Cash Flows from Operating
Activities:
Net Income
34
22
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization expense
9
9
Deferred income tax benefit
—
(2
)
Stock-based compensation expense
7
5
Restructuring charges
—
1
Payments for restructuring charges
(1
)
(1
)
Other
1
—
Changes in working capital:
Receivables
1
(1
)
Prepaid expenses and other current
assets
2
(6
)
Accounts payable
(7
)
2
Deferred revenue
57
46
Accrued liabilities
(31
)
(24
)
Current income taxes
11
9
Net Cash Provided from Operating
Activities
84
60
Cash Flows from Investing
Activities:
Purchases of property and equipment
(10
)
(8
)
Net Cash Used for Investing
Activities
(10
)
(8
)
Cash Flows from Financing
Activities:
Repayments of debt
(4
)
(4
)
Repurchase of common stock
(13
)
—
Other financing activities
(4
)
(3
)
Net Cash Used for Financing
Activities
(21
)
(7
)
Cash Increase During the Period
53
45
Cash and Cash Equivalents at End of
Period
$
378
$
337
Reconciliations of Non-GAAP
Financial Measures
The following table presents
reconciliations of net income to Adjusted Net Income.
Three Months Ended
March 31,
(In millions, except per share
amounts)
2024
2023
Net Income
$
34
$
22
Amortization expense
1
1
Restructuring charges
—
1
Tax impact of adjustments
—
(1
)
Adjusted Net Income
$
35
$
23
Adjusted Earnings per Share:
Basic
$
0.43
$
0.27
Diluted
$
0.43
$
0.27
Weighted-average common shares
outstanding:
Basic
78.3
81.5
Diluted
79.0
81.9
The following table presents
reconciliations of net cash provided from operating activities to
Free Cash Flow.
Three Months Ended
March 31,
(In millions)
2024
2023
Net cash provided from operating
activities
$
84
$
60
Property additions
(10
)
(8
)
Free Cash Flow
$
73
$
52
The following table presents
reconciliations of net income to Adjusted EBITDA.
Three Months Ended
March 31,
(In millions)
2024
2023
Net Income
$
34
$
22
Depreciation and amortization expense
9
9
Restructuring charges
—
1
Provision for income taxes
11
7
Non-cash stock-based compensation
expense
7
5
Interest expense
10
10
Adjusted EBITDA
$
71
$
54
Key Business Metrics
As of March 31,
2024
2023
Number of home warranties (in
millions)
1.96
2.09
Renewals
1.51
1.56
First-Year Direct-To-Consumer
0.27
0.30
First-Year Real Estate
0.19
0.24
Reduction in number of home warranties
(6
)
%
(4
)
%
Customer retention rate(1)
76.3
%
75.9
%
(1)
Customer retention rate is presented on a
rolling 12-month basis in order to avoid seasonal anomalies.
Source: Frontdoor, Inc. FTDR-Financial
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240502693654/en/
Investor Relations: Matt Davis 901.701.5199
ir@frontdoorhome.com
Media: Tom Collins 901.701.5198
mediacenter@frontdoorhome.com
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