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Jun 30, 2023
Frontdoor Q2 2023 Earnings Report
Frontdoor's Q2 2023 performance was marked by a 7% increase in revenue, a significant expansion in gross profit margin, and a substantial rise in net income and Adjusted EBITDA.
Key Takeaways
Frontdoor reported a 7% increase in revenue to $523 million, driven by price increases, which were partially offset by a decline in volume. Gross profit margin improved significantly due to higher prices, favorable weather conditions, and process improvements. Net income more than doubled, and Adjusted EBITDA rose by 57%. The company also raised its full-year outlook for revenue and Adjusted EBITDA.
Revenue increased by 7% to $523 million, driven by a 9% increase from price, partly offset by a 2% decline in volume.
Gross profit margin increased by 840 basis points to 52% due to higher realized price, favorable weather trends, moderation of inflation, and process improvement initiatives.
Net income more than doubled to $70 million.
Adjusted EBITDA increased by 57% to $121 million.
Frontdoor
Frontdoor
Frontdoor Revenue by Segment
Revenue by Segment
Renewals Revenue
CapyFin.comOther Revenue
CapyFin.com Forward Guidance
Frontdoor provided the following guidance: Revenue of $500 million to $515 million, a 5% increase over the prior year period, reflecting approximately 15% growth in the renewals channel, partially offset by an approximately mid-20% decline in the first-year real estate channel and approximately a 15% decline in the first year direct to consumer channel. Adjusted EBITDA of $80 million to $90 million, a 7% increase over the prior year period. Increased revenue outlook to $1.73 billion to $1.75 billion, or approximately 5% higher than the prior year. Increased Adjusted EBITDA outlook to $260 million to $280 million.
Positive Outlook
- Renewals channel revenue growth increased to the low double-digit range given stronger than expected year-to-date retention.
- Other revenue of approximately $60 million, driven by growth in on-demand services, primarily HVAC upgrade services sold through Frontdoor Pro that is partly offset by lower Streem revenue
- Increased gross profit margin to 45.5% to 47.5%. The increase from the prior outlook is primarily due to favorability in the first half of the year.
- Capital expenditures remains at approximately $35 to $45 million, primarily consisting of technology investments.
- The company is increasing its full year share repurchase target to approximately $100 million.
Challenges Ahead
- Direct-to-Consumer channel revenue decline remains in the low double-digit range as an improvement in volume has been offset by lower price compared to original expectations.
- Real Estate channel revenue decline increased to the mid-20% range due to lower existing home inventory and a stronger seller’s market than originally expected.
- Number of home service plans is expected to decline in the mid to upper single digits.
- Narrowed SG&A outlook to $575 million to $590 million.
- Annual effective tax rate remains at approximately 26%.
Revenue & Expenses
Visualization of income flow from segment revenue to net income