Frontdoor Announces Third-Quarter 2020 Revenue Increase of 8 Percent to $440 Million; Home Service Plan Growth Accelerated to 4 Percent; Customer Retention Increased to 76 Percent; Expanded On-Demand Offering to 35 Cities

MEMPHIS, Tenn.–(BUSINESS WIRE)–Frontdoor, Inc. (NASDAQ: FTDR), the nation’s leading provider of home service plans, today announced third-quarter 2020 results.

Third-Quarter 2020 Summary

• Revenue increased eight percent to $440 million
• Gross profit margin of 49 percent
• Net income of $49 million
• Adjusted EBITDA of $91 million
• Available liquidity of $624 million
• Strong demand and retention initiatives resulted in better than expected revenue growth, improved customer retention to 76 percent and increased home service plan growth to 4 percent
• Consumers are spending more time at home due to COVID-19, which enhances the customer value proposition and results in higher near-term service request demand
• Streem’s augmented reality technology recently featured by Apple and Google; partnerships now include Lowe’s, Best Buy, British Gas and CLEAResult
• Launched ProConnect and expanded on-demand offering to 35 cities; expect to complete approximately 80,000 service requests and add additional trades in 2021 with continued growth in 2022

“We continue to execute several key strategic objectives that will accelerate our long-term growth trajectory,” said Chief Executive Officer Rex Tibbens. “We are seeing the benefits of our marketing investments, growing our emerging businesses and expanding dynamic pricing. While we are still in the early stages of improving the customer experience, our investments in technology, business processes and training have resulted in higher customer retention and strengthened our foundation for further operational improvements. Finally, I want to thank all of our associates, contractors and customers as we continue to manage through COVID-19. Our team is rallying around this challenge, and I am certain we are becoming a stronger organization as a result.”

“Our third quarter results reflect stronger than anticipated revenue growth, primarily as a result of improved real estate fundamentals,” said Chief Financial Officer Brian Turcotte. “However, COVID-19 continued to unfavorably impact our Adjusted EBITDA in the third quarter. We experienced increased service requests and industry-wide appliance availability challenges, which impacted claims costs, while opportunistically increasing marketing investments to drive sales growth. In response to the higher costs, we are taking aggressive actions to increase our gross profit margin, such as leveraging dynamic pricing and improving our processes. Looking to 2021, we expect revenue growth to accelerate and margins to benefit from the favorable actions we are taking today.”

Third-Quarter 2020 Results

* not meaningful

Third-quarter 2020 revenue increased eight percent over the prior year period. Renewal revenue increased nine percent due to growth in the number of renewed home service plans, driven, in part, by customer retention initiatives, and improved price realization. First-year real estate revenue declined two percent, reflecting a decline in the number of first-year real estate home service plans, partly offset by improved price realization. First-year real estate revenue continues to reflect the adverse impact of COVID-19 on existing U.S. home sales during the second quarter. First-year direct-to-consumer revenue increased 13 percent, reflecting growth in the number of home service plans, mostly driven by increased investments in marketing, and improved price realization.

Third-quarter 2020 net income was $49 million, or diluted earnings per share of $0.57.

Third-quarter 2020 Adjusted EBITDA of $91 million was $15 million lower than the prior year period, as $28 million of higher revenue conversion⁽³⁾ was more than offset by:

• $19 million of higher contract claims costs in third-quarter 2020 versus prior year, excluding the impact of claims costs related to the change in revenue;
• $16 million of increased sales and marketing costs, primarily investments to drive growth in the direct-to-consumer channel; and
• $6 million of higher customer service costs, primarily related to managing a higher number of service requests and investments in customer retention initiatives.

The $19 million increase in contract claims costs was primarily driven by both a higher number of service requests and increased costs in the appliance and plumbing trades, as well as normal inflation. The higher number of service requests was primarily a result of customers spending more time at home in response to COVID-19. The increased costs in the appliance trade were driven in part by industry-wide appliance availability challenges. Contract claims costs also reflect a favorable weather impact of approximately $1 million and process improvement benefits.

Cash Flow

Net cash provided from operating activities was $154 million for the nine months ended September 30, 2020, the same as the prior year period.

Net cash used for investing activities was $25 million for the nine months ended September 30, 2020, compared to $19 million for the prior year period. The increase was primarily driven by an increase in capital expenditures, mostly to support investments in technology.

Net cash used for financing activities was $6 million for the nine months ended September 30, 2020, the same as the prior year period, primarily related to required debt payments.

Free Cash Flow was $127 million for the nine months ended September 30, 2020, compared to $138 million for the prior year period. The decrease was primarily due to higher capital expenditures.

Cash and marketable securities increased $3 million to $551 million from June 30, 2020 to September 30, 2020, and included restricted net assets of $176 million and Unrestricted Cash of $374 million.

Available liquidity was $624 million at September 30, 2020, consisting of the $374 million of Unrestricted Cash and an undrawn revolving credit facility of $250 million.

Fourth-Quarter 2020 Outlook

• Revenue of $315 million to $325 million.
• Adjusted EBITDA⁽²⁾ of $28 million to $32 million, which reflects a continuation of higher service request demand and additional investments in customer service.

Full-Year 2020 Outlook

• Revenue of $1,460 million to $1,470 million.
• Gross margin of 48 percent to 49 percent.
• Adjusted EBITDA⁽²⁾ of approximately $266 million to $270 million.
• Capital expenditures of $35 million to $40 million.

   

Third-Quarter 2020 Earnings Conference Call

Frontdoor has scheduled a conference call today, November 4, 2020, at 3:30 p.m. Central time (4:30 p.m. Eastern time). During the call, Rex Tibbens, Chief Executive Officer, and Brian Turcotte, Chief Financial Officer, will discuss the company’s operational performance and financial results for third-quarter 2020 and respond to questions from the investment community. To participate on the conference call, interested parties should call 1-844-750-4895 (or international participants, 1-412-317-5291). 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 1-877-344-7529 and enter conference ID 10148657 (international participants: 1-412-317-0088, conference ID 10148657).

About Frontdoor

Frontdoor is a company that’s obsessed with taking the hassle out of owning a home. With services powered by people and enabled by technology, it is the parent company of four home service plan brands: American Home Shield, HSA, Landmark and OneGuard, as well as American Home Shield ProConnect, an on-demand service offering for home repairs and maintenance, and Streem, a technology company that enables businesses to serve customers through an enhanced augmented reality, computer vision and machine learning platform. Frontdoor serves 2.2 million customers across the U.S. through a network of approximately 17,000 pre-qualified contractor firms that employ approximately 60,000 technicians. The company’s flexible home service plans help customers protect and maintain their homes from costly and unexpected breakdowns of essential home systems and appliances. With nearly 50 years of experience, the company responds to over four million service requests annually. For details, visit http://www.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, prospects, and the impact of COVID-19 on Frontdoor’s business. 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: the impact of the global COVID-19 pandemic; weather conditions and seasonality; weakening general economic conditions; lawsuits, enforcement actions and other claims by third parties or governmental authorities; the effects of our substantial indebtedness; the success of our business strategies; and failure to achieve some or all of the expected benefits of our separation from ServiceMaster Global Holdings, Inc. 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, you should 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 2019 Annual Report on Form 10-K filed and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as such factors may be further 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 these 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 Securities and Exchange Commission, 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: provision for income taxes; interest expense; depreciation and amortization expense; non-cash stock-based compensation expense; restructuring charges; Spin-off charges; secondary offering costs; 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, Spin-off charges 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; Spin-off charges; secondary offering costs; 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 2019 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.

The following table presents reconciliations of net cash provided from operating activities to Free Cash Flow.

Contacts

Investor Relations:

Matt Davis

901.701.5199

ir@frontdoorhome.com

Media:
Nicole Ritchie

901.701.5198

mediacenter@frontdoorhome.com

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