Exhibit 99.1
Frontdoor Announces Full-Year 2019 Revenue Increase of 8 Percent to $1.36 Billion;
Net Income Improved 23 Percent to $153 Million
MEMPHIS, TENN. — February 26, 2020 —Frontdoor, Inc. (NASDAQ: FTDR), the nation’s leading provider of home service plans, today announced fourth-quarter and full-year 2019 results.
Financial Results | ||||||||||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
$ millions (except as noted) | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||
Revenue | $ | 300 | $ | 279 | 7 | % | $ | 1,365 | $ | 1,258 | 8 | % | ||||||||||||
Gross Profit | 139 | 125 | 11 | % | 678 | 572 | 18 | % | ||||||||||||||||
Net Income | 19 | 17 | 11 | % | 153 | 125 | 23 | % | ||||||||||||||||
Diluted Earnings per Share | 0.22 | 0.20 | 10 | % | 1.80 | 1.47 | 22 | % | ||||||||||||||||
Adjusted Net Income(1) | 21 | 19 | 11 | % | 162 | 150 | 8 | % | ||||||||||||||||
Adjusted Diluted Earnings per Share(1) | 0.25 | 0.23 | 10 | % | 1.90 | 1.77 | 7 | % | ||||||||||||||||
Adjusted EBITDA(1) | 48 | 47 | 3 | % | 303 | 238 | 27 | % | ||||||||||||||||
Home Service Plans (number in millions) | 2.2 | 2.1 | 3 | % |
Fourth-Quarter 2019 Summary
• | Revenue increased seven percent to $300 million |
• | Gross profit margin increased 170 basis points to 46 percent |
• | Net income increased 11 percent to $19 million |
• | Adjusted EBITDA increased three percent to $48 million |
• | Successfully launched Candu offering and completed Streem acquisition |
Full-Year 2019 Summary
• | Revenue increased eight percent to $1.36 billion |
• | Gross profit margin increased 420 basis points to 50 percent |
• | Net income increased 23 percent to $153 million |
• | Adjusted EBITDA increased $65 million to $303 million; Adjusted EBITDA Margin(1) improved 325 basis points to 22 percent |
• | Net Cash Provided from Operating Activities was $200 million; Free Cash Flow(1) improved 10 percent to $178 million |
Full-Year 2020 Outlook
• | Revenue of $1.47 billion to $1.49 billion |
• | Adjusted EBITDA(2) of $300 million to $320 million |
“Last year was a foundational period for our company as we successfully improved business processes, launched Candu, ouron-demand offering, and completed the acquisition of Streem,” said Chief Executive Officer Rex Tibbens. “In 2020, we will focus on drivingtop-line growth and providing new solutions to our customers, which will further strengthen our platform and provide long-term value for our stakeholders.”
“Our financial performance dramatically improved in 2019,” said Chief Financial Officer Brian Turcotte. “We increased Adjusted EBITDA by nearly 30 percent and generated $200 million in cash from operations. Our 2020 outlook reflects our commitment to grow the business, diversify our revenue streams and drive further process improvements.”
Fourth-Quarter 2019 Results
Revenue by Major Customer Acquisition Channel | ||||||||||||
Three Months Ended | ||||||||||||
December 31, | ||||||||||||
$ millions | 2019 | 2018 | Change | |||||||||
Renewals | $ | 204 | $ | 187 | 10 | % | ||||||
Real estate (First-Year) | 56 | 57 | — | % | ||||||||
Direct-to-consumer (First-Year) | 36 | 34 | 5 | % | ||||||||
Other | 3 | 1 | * | |||||||||
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Total | $ | 300 | $ | 279 | 7 | % |
* | not meaningful |
Fourth-quarter 2019 revenue increased seven percent over the prior year period. Renewal revenue increased 10 percent, primarily driven by growth in the number of home service plans and improved price realization. First-year real estate revenue was relatively flat with the prior year as improved price realization was offset by a decline in new unit sales. First-yeardirect-to-consumer revenue increased five percent, primarily due to growth in new sales that was mostly driven by increased investments in marketing.
Fourth-quarter 2019 net income was $19 million, or diluted earnings per share of $0.22, versus $17 million in fourth-quarter 2018, or diluted earnings per share of $0.20. Fourth-quarter 2019 net income included a $16 million favorable impact from higher revenue conversion(3) that was mostly offset by a $15 million increase in selling and administrative expenses.
Period-over-Period Adjusted EBITDA Bridge | ||||
$ millions | ||||
Three Months Ended December 31, 2018 | $ | 47 | ||
Impact of change in revenue | 16 | |||
Contract claims costs | (1 | ) | ||
Sales, marketing and customer service costs | (6 | ) | ||
General and administrative costs | (7 | ) | ||
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Three Months Ended December 31, 2019 | $ | 48 |
Fourth-quarter 2019 Adjusted EBITDA of $48 million was three percent higher than the prior year period, primarily due to $16 million of higher revenue conversion(3), partially offset by:
• | $1 million of higher contract claims costs, consisting of: |
• | $3 million in process improvements and cost reduction initiatives, |
• | $3 million net favorable impact of adjustments related to contract claims cost development, and |
• | $2 million in lower claims incidence driven by seasonally mild weather, more than offset by |
• | $9 million in higher inflation and tariff costs; |
• | $6 million of increased sales, marketing and customer service costs, primarily investments in thedirect-to-consumer channel; and |
• | $7 million of increased general and administrative costs, primarily higher personnel costs. |
2
Full-Year 2019 Results
Revenue by Major Customer Acquisition Channel | ||||||||||||
Year Ended | ||||||||||||
December 31, | ||||||||||||
$ millions | 2019 | 2018 | Change | |||||||||
Renewals | $ | 926 | $ | 835 | 11 | % | ||||||
Real estate (First-Year) | 263 | 262 | — | % | ||||||||
Direct-to-consumer (First-Year) | 167 | 156 | 7 | % | ||||||||
Other | 8 | 6 | * | |||||||||
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Total | $ | 1,365 | $ | 1,258 | 8 | % |
* | not meaningful |
Full-year 2019 revenue increased eight percent over the prior year period. Renewal revenue increased 11 percent, primarily driven by growth in the number of home service plans and improved price realization. First-year real estate revenue was relatively flat with the prior year as improved price realization was offset by a decline in new unit sales. First-yeardirect-to-consumer revenue increased seven percent, primarily due to growth in new sales that was mostly driven by increased investments in marketing.
Full-year 2019 net income was $153 million, or diluted earnings per share of $1.80, versus $125 million, or diluted earnings per share of $1.47 in 2018. Full-year 2019 net income included a $74 million favorable impact from higher revenue conversion(3), a $37 million decrease in contract claims costs and $22 million in lowerSpin-off charges. These benefits were partially offset by a $54 million increase in selling and administrative expenses, and a $39 million increase in interest expense related to the debt offering completed in August 2018 in conjunction with theSpin-off.
Period-over-Period Adjusted EBITDA Bridge | ||||
$ millions | ||||
Year Ended December 31, 2018 | $ | 238 | ||
Impact of change in revenue | 74 | |||
Contract claims costs | 37 | |||
Sales, marketing and customer service costs | (19 | ) | ||
Spin-offdis-synergies | (4 | ) | ||
General and administrative costs | (25 | ) | ||
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Year Ended December 31, 2019 | $ | 303 |
Full-year 2019 Adjusted EBITDA of $303 million was 27 percent higher than the prior year period, primarily due to the following items:
• | $74 million of higher revenue conversion(3), including the net contribution from new customers and higher pricing; |
• | $37 million of lower contract claims costs, consisting of: |
• | $30 million from process improvements and cost reduction initiatives, |
• | $22 million favorable impact from seasonally mild weather on claims incidence, and |
• | $10 million net favorable impact of adjustments related to contract claims cost development, partially offset by |
• | $25 million in higher inflation and tariff costs; |
• | $19 million of increased sales, marketing and customer service costs, primarily in thedirect-to-consumer channel; |
• | $4 million in higherspin-offdis-synergies, primarily related to the separation of technology systems; and |
• | $25 million of increased general and administrative costs, including higher personnel costs of $10 million, insurance-related costs of $7 million, incentive compensation expense of $5 million, and a $3 million increase in other general and administrative costs, primarily consisting of professional fees. |
3
Cash Flow
Year Ended December 31, | ||||||||
$ millions | 2019 | 2018 | ||||||
Net cash provided from (used for): | ||||||||
Operating Activities | $ | 200 | $ | 189 | ||||
Investing Activities | (61 | ) | (10 | ) | ||||
Financing Activities | (7 | ) | (165 | ) | ||||
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Cash increase during the period | $ | 132 | $ | 14 |
For the twelve months ended December 31, 2019, net cash provided from operating activities was $200 million, an increase of $11 million from the twelve months ended December 31, 2018. Working capital was an $11 million source of cash for the twelve months ended December 31, 2019 compared to a $32 million source of cash for the prior year period.
Net cash used for investing activities was $61 million for the twelve months ended December 31, 2019 compared to $10 million for the prior year period. The change in investing activities was primarily due to the acquisition of Streem in the fourth quarter of 2019, as well as a reduction in cash flows from marketable securities transactions.
Net cash used for financing activities was $7 million for the twelve months ended December 31, 2019 and was primarily related to debt payments. This compares to $165 million for the twelve months ended December 31, 2018, which was primarily related to net cash transfers to our former parent that occurred prior to theSpin-off.
Free Cash Flow(1) was $178 million for the twelve months ended December 31, 2019 compared to $163 million for the prior year period. The increase of $16 million includes higher Adjusted EBITDA and lower payments forSpin-off charges, partially offset by higher cash payments for interest and taxes.
Cash and marketable securities totaled $434 million as of December 31, 2019, a $129 million increase from December 31, 2018.
Total restricted net assets decreased to $168 million at December 31, 2019 from $202 million at September 30, 2019.
Full-Year 2020 Outlook
• | Revenue is anticipated to range from $1.47 billion to $1.49 billion; |
• | Gross profit margin is anticipated to range from 49 to 50 percent; |
• | Adjusted EBITDA(2) is anticipated to range from $300 million to $320 million; |
• | Capital expenditures are anticipated to range from $30 million to $40 million; and |
• | Annual Effective Tax Rate is anticipated to be approximately 25 percent. |
Additionally, first-quarter 2020 Adjusted EBITDA(2) is anticipated to range from $40 million to $45 million.
4
Fourth-Quarter and Full-Year 2019 Earnings Conference Call
Frontdoor has scheduled a conference call today, February 26, 2020, at 8:00 a.m. Central time (9:00 a.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 fourth-quarter and full-year 2019. They will also discuss the full-year 2020 outlook and respond to questions from the investment community. To participate on the conference call, interested parties should call877-407-8291 (or international participants,201-689-8345). 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’sinvestor relations home page. The call will be available for replay for approximately 60 days. To access the replay of this call, please call877-660-6853 and enter conference ID 13698519 (international participants:201-612-7415, conference ID 13698519).
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 Candu Home Solutions, anon-demand membership service 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 17,000pre-qualified contractor firms that employ approximately 60,000 technicians. The company’s customizable 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, visitfrontdoorhome.com.
References in this news release to “ServiceMaster” refer to ServiceMaster Global Holdings, Inc. and its consolidated subsidiaries. References to the“Spin-off” refer to thespin-off by ServiceMaster of the ownership and operations of its businesses operated under the American Home Shield, HSA, OneGuard and Landmark brand names into Frontdoor, which was completed on October 1, 2018 and resulted in Frontdoor operating as an independent, publicly traded company trading on Nasdaq under the symbol “FTDR”.
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: 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 theSpin-off. 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 as well as the disclosure contained in Item 1A. Risk Factors in our 2018 Annual Report on Form10-K filed 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 atsec.gov, and via Frontdoor’s website atfrontdoorhome.com.
Spin-off Impact to Financials
The accompanying consolidated and combined financial statements for periods prior to theSpin-off include all revenues, costs, assets and liabilities directly attributable to us. ServiceMaster’s debt and corresponding interest expense were not allocated to us for periods prior to theSpin-off since we were not the legal obligor of the debt. The accompanying consolidated and combined financial statements include expense allocations for certain corporate functions historically provided by ServiceMaster. These allocations may not be indicative of the level of expense which would have been incurred had the company operated as a separate entity prior to theSpin-off, nor are these costs necessarily indicative of costs we may incur in the future.
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Non-GAAP Financial Measures
To supplement Frontdoor’s results presented in accordance with accounting principles generally accepted in the United States (“GAAP”), Frontdoor has disclosed thenon-GAAP financial measures of Adjusted EBITDA, Adjusted EBITDA Margin, Free Cash Flow, Adjusted Net Income, and Adjusted Diluted Earnings per Share.
We define “Adjusted EBITDA” as net income before: provision for income taxes; interest expense; interest income from affiliate; depreciation and amortization expense;non-cash stock-based compensation expense; restructuring charges;Spin-off charges; secondary offering costs; affiliate royalty expense; (gain) loss on insured home service plan claims; and othernon-operating expenses. We believe Adjusted EBITDA is useful for investors, analysts and other interested parties as it facilitatescompany-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, arrangements with affiliates and equity-based, long-term incentive plans.
We define “Adjusted EBITDA Margin” as Adjusted EBITDA divided by revenue. We believe Adjusted EBITDA Margin is useful for investors, analysts and other interested parties as it facilitatescompany-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, arrangements with affiliates 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 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 GAAP. Free Cash Flow is useful as a supplemental measure of our liquidity. Management uses Free Cash Flow to facilitatecompany-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; affiliate royalty expense; interest income from affiliate; (gain) loss on insured home service plan claims; othernon-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 facilitatescompany-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.
See the schedules attached hereto for additional information and reconciliations of suchnon-GAAP financial measures. Management believes thesenon-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 thesenon-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 GAAP. In addition, thesenon-GAAP financial measures may not be the same as similarly entitled measures reported by other companies.
For further information, contact:
Investor Relations:
Matt Davis
901.701.5199
ir@frontdoorhome.com
Media:
Nicole Ritchie
901.701.5198
nicole.ritchie@frontdoorhome.com
(1) | See “Reconciliations ofNon-GAAP Financial Measures” accompanying this release for a reconciliation of Adjusted Net Income, Adjusted Diluted Earnings per Share, Adjusted EBITDA, Adjusted EBITDA Margin, and Free Cash Flow, each anon-GAAP measure, to the nearest GAAP measure. See“Non-GAAP Financial Measures” included in this release for descriptions of calculations of these measures. |
(2) | A reconciliation of the forward-looking first-quarter and full-year 2020 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 is calculated using the estimated gross margin impact of new home service plan revenue along with the impact of price changes. |
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frontdoor, inc.
Consolidated and Combined Statements of Operations and Comprehensive Income (Unaudited)
($ millions)
Three Months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue | $ | 300 | $ | 279 | $ | 1,365 | $ | 1,258 | ||||||||
Cost of services rendered | 161 | 155 | 687 | 686 | ||||||||||||
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Gross Profit | 139 | 125 | 678 | 572 | ||||||||||||
Selling and administrative expenses | 95 | 80 | 392 | 338 | ||||||||||||
Depreciation and amortization expense | 6 | 6 | 24 | 21 | ||||||||||||
Restructuring charges | 1 | — | 1 | 3 | ||||||||||||
Spin-off charges | — | 1 | 1 | 24 | ||||||||||||
Affiliate royalty expense | — | — | — | 1 | ||||||||||||
Interest expense | 15 | 15 | 62 | 23 | ||||||||||||
Interest income from affiliate | — | — | — | (2 | ) | |||||||||||
Interest and net investment income | (2 | ) | (1 | ) | (6 | ) | (2 | ) | ||||||||
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Income before Income Taxes | 23 | 23 | 204 | 166 | ||||||||||||
Provision for income taxes | 5 | 6 | 51 | 42 | ||||||||||||
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Net Income | $ | 19 | $ | 17 | $ | 153 | $ | 125 | ||||||||
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Other Comprehensive Income (Loss), Net of Income Taxes: | ||||||||||||||||
Net unrealized gain/(loss) on derivative instruments | 4 | (9 | ) | (12 | ) | (9 | ) | |||||||||
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Total Comprehensive Income | $ | 23 | $ | 8 | $ | 141 | $ | 116 | ||||||||
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Earnings per Share: | ||||||||||||||||
Basic | $ | 0.22 | $ | 0.20 | $ | 1.81 | $ | 1.47 | ||||||||
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Diluted | $ | 0.22 | $ | 0.20 | $ | 1.80 | $ | 1.47 | ||||||||
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Weighted-average Common Shares Outstanding: | ||||||||||||||||
Basic | 84.8 | 84.5 | 84.7 | 84.5 | ||||||||||||
Diluted | 85.1 | 84.7 | 84.9 | 84.7 |
7
frontdoor, inc.
Consolidated Statements of Financial Position (Unaudited)
($ millions)
As of | ||||||||
December 31, | ||||||||
2019 | 2018 | |||||||
Assets: | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 428 | $ | 296 | ||||
Marketable securities | 7 | 9 | ||||||
Receivables, less allowance of $2 | 11 | 12 | ||||||
Prepaid expenses and other assets | 16 | 13 | ||||||
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Total Current Assets | 461 | 330 | ||||||
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Other Assets: | ||||||||
Property and equipment, net | 51 | 47 | ||||||
Goodwill | 501 | 476 | ||||||
Intangible assets, net | 191 | 158 | ||||||
Operating leaseright-of-use assets | 17 | — | ||||||
Deferred customer acquisition costs | 18 | 21 | ||||||
Other assets | 11 | 10 | ||||||
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Total Assets | $ | 1,250 | $ | 1,041 | ||||
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Liabilities and Shareholders’ Equity: | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 48 | $ | 41 | ||||
Accrued liabilities: | ||||||||
Payroll and related expenses | 17 | 10 | ||||||
Home service plan claims | 66 | 67 | ||||||
Interest payable | 9 | 9 | ||||||
Other | 29 | 26 | ||||||
Deferred revenue | 188 | 185 | ||||||
Current portion of long-term debt | 7 | 7 | ||||||
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Total Current Liabilities | 364 | 345 | ||||||
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Long-Term Debt | 973 | 977 | ||||||
Other Long-Term Liabilities: | ||||||||
Deferred taxes | 45 | 39 | ||||||
Operating lease liabilities | 20 | — | ||||||
Other long-term obligations | 27 | 24 | ||||||
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Total Other Long-Term Liabilities | 92 | 63 | ||||||
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Commitments and Contingencies | ||||||||
Shareholders’ Equity: | ||||||||
Common stock, $.01 par value; 2,000,000,000 shares authorized; 85,309,260 shares issued and outstanding at December 31, 2019 and 84,545,152 shares issued and outstanding at December 31, 2018 | 1 | 1 | ||||||
Additionalpaid-in capital | 29 | 1 | ||||||
Accumulated deficit | (188 | ) | (336 | ) | ||||
Accumulated other comprehensive loss | (21 | ) | (9 | ) | ||||
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Total Deficit | (179 | ) | (344 | ) | ||||
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Total Liabilities and Shareholders’ Equity | $ | 1,250 | $ | 1,041 | ||||
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8
frontdoor, inc.
Consolidated and Combined Statements of Cash Flows (Unaudited)
($ millions)
Year Ended | ||||||||
December 31, | ||||||||
2019 | 2018 | |||||||
Cash and Cash Equivalents at Beginning of Period | $ | 296 | $ | 282 | ||||
Cash Flows from Operating Activities: | ||||||||
Net Income | 153 | 125 | ||||||
Adjustments to reconcile net income to net cash provided from operating activities: | ||||||||
Depreciation and amortization expense | 24 | 21 | ||||||
Deferred income tax provision | (1 | ) | 7 | |||||
Stock-based compensation expense | 9 | 4 | ||||||
Restructuring charges | 1 | 3 | ||||||
Payments for restructuring charges | (1 | ) | (5 | ) | ||||
Spin-off charges | 1 | 24 | ||||||
Payments forspin-off charges | (1 | ) | (23 | ) | ||||
Other | 4 | 1 | ||||||
Change in working capital, net of acquisitions: | ||||||||
Receivables | 1 | 4 | ||||||
Prepaid expenses and other current assets | 2 | (1 | ) | |||||
Accounts payable | 7 | 8 | ||||||
Deferred revenue | 3 | 1 | ||||||
Accrued liabilities | (1 | ) | 7 | |||||
Accrued interest payable | — | 9 | ||||||
Current income taxes | (1 | ) | 4 | |||||
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Net Cash Provided from Operating Activities | 200 | 189 | ||||||
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Cash Flows from Investing Activities | ||||||||
Purchases of property and equipment | (22 | ) | (27 | ) | ||||
Business acquisitions, net of cash acquired | (38 | ) | — | |||||
Purchases ofavailable-for-sale securities | (7 | ) | (15 | ) | ||||
Sales and maturities ofavailable-for-sale securities | 9 | 32 | ||||||
Other investing activities | (4 | ) | — | |||||
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Net Cash Used for Investing Activities | (61 | ) | (10 | ) | ||||
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Cash Flows from Financing Activities | ||||||||
Payments of debt and finance lease obligations | (7 | ) | (10 | ) | ||||
Net transfers to Parent | — | (137 | ) | |||||
Discount paid on issuance of debt | — | (2 | ) | |||||
Debt issuance costs paid | — | (16 | ) | |||||
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Net Cash Used for Financing Activities | (7 | ) | (165 | ) | ||||
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Cash Increase During the Period | 132 | 14 | ||||||
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Cash and Cash Equivalents at End of Period | $ | 428 | $ | 296 | ||||
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9
Reconciliations ofNon-GAAP Financial Measures
The following table presents reconciliations of net income to Adjusted Net Income.
Three Months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
($ millions except per share amounts) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net Income | $ | 19 | $ | 17 | $ | 153 | $ | 125 | ||||||||
Amortization expense | 1 | 2 | 6 | 8 | ||||||||||||
Restructuring charges | 1 | — | 1 | 3 | ||||||||||||
Spin-off charges | — | 1 | 1 | 24 | ||||||||||||
Affiliate royalty expense | — | — | — | 1 | ||||||||||||
Interest income from affiliate | — | — | — | (2 | ) | |||||||||||
Gain on insured home service plan claims | — | — | — | (2 | ) | |||||||||||
Secondary offering costs | — | — | 2 | — | ||||||||||||
Other | 1 | — | — | — | ||||||||||||
Tax impact of adjustments | — | (1 | ) | (2 | ) | (7 | ) | |||||||||
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Adjusted Net Income | $ | 21 | $ | 19 | $ | 162 | $ | 150 | ||||||||
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Adjusted Earnings per Share: | ||||||||||||||||
Basic | $ | 0.25 | $ | 0.23 | $ | 1.91 | $ | 1.78 | ||||||||
Diluted | $ | 0.25 | $ | 0.23 | $ | 1.90 | $ | 1.77 | ||||||||
Weighted-average common shares outstanding: | ||||||||||||||||
Basic | 84.8 | 84.5 | 84.7 | 84.5 | ||||||||||||
Diluted | 85.1 | 84.7 | 84.9 | 84.7 |
The following table presents reconciliations of net cash provided from operating activities to Free Cash Flow.
Three Months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
(In millions) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net Cash Provided from Operating Activities | $ | 47 | $ | 63 | $ | 200 | $ | 189 | ||||||||
Property Additions | (7 | ) | (5 | ) | (22 | ) | (27 | ) | ||||||||
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Free Cash Flow | $ | 40 | $ | 58 | $ | 178 | $ | 163 | ||||||||
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The following table presents reconciliations of net income to Adjusted EBITDA.
Three Months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
(In millions) | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net Income | $ | 19 | $ | 17 | $ | 153 | $ | 125 | ||||||||
Depreciation and amortization expense | 6 | 6 | 24 | 21 | ||||||||||||
Restructuring charges | 1 | — | 1 | 3 | ||||||||||||
Spin-off charges | — | 1 | 1 | 24 | ||||||||||||
Provision for income taxes | 5 | 6 | 51 | 42 | ||||||||||||
Non-cash stock-based compensation expense | 2 | 1 | 9 | 4 | ||||||||||||
Affiliate royalty expense | — | — | — | 1 | ||||||||||||
Interest expense | 15 | 15 | 62 | 23 | ||||||||||||
Interest income from affiliate | — | — | — | (2 | ) | |||||||||||
Secondary offering costs | — | — | 2 | — | ||||||||||||
Gain on insured home service plan claims | — | — | — | (2 | ) | |||||||||||
Other | 1 | — | — | — | ||||||||||||
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Adjusted EBITDA | $ | 48 | $ | 47 | $ | 303 | $ | 238 | ||||||||
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Revenue | $ | 300 | $ | 279 | $ | 1,365 | $ | 1,258 | ||||||||
Net Income Margin | 6 | % | 6 | % | 11 | % | 10 | % | ||||||||
Adjusted EBITDA Margin | 16 | % | 17 | % | 22 | % | 19 | % |
Key Business Metrics
As of December 31, | ||||||||
2019 | 2018 | |||||||
Growth in number of home service plans | 3 | % | 6 | % | ||||
Customer retention rate | 75 | % | 75 | % |
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