Frontdoor Inc

NASDAQ:FTDR

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, welcome to Frontdoor's Second Quarter 2021 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 on the call.

At this time, we will begin today's call. Please go ahead, Mr. Davis.

[Matt Davis, executive]

Thank you, operator. Good afternoon, everyone, and thank you for joining Frontdoor's Second Quarter 2021 Earnings Conference Call. Joining me today are Frontdoor's Chief Executive Officer, Rex Tibbens; and Frontdoor'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 Frontdoor's website, which is located at investors.frontdoorhome.com.

As stated on Slide 2 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 Factors 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, August 4, 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 in the appendix to the presentation in order to better assist you in understanding our financial performance.

I'll now turn the call over to Rex for opening comments. Rex?

[Rexford Tibbens, executive]

Thanks, Matt, and good afternoon, everyone. This month marks the 50th anniversary of our largest brand, American Home Shield. I want to take a moment to say thank you to all the team members who built the business over the last 50 years and for the platform they provided us. Today, our team looks forward to transform the company and the industry over the next 50 years.

Since COVID-19 emerged early last year, we have navigated through unique and challenging market conditions and proven that we have a solid and resilient business model that offers homeowners protection, peace of mind and convenience. Over this time, we have executed a number of strategic initiatives to drive growth and improve the customer and contractor experience. These initiatives, coupled with a lower-than-expected level of service requests, drove solid second quarter financial results.

Now turning to Slide 4 and our 2021 objectives. Despite some market-driven challenges in our real estate channel, we are on pace to deliver the highest level of total company annual revenue growth we have seen as a stand-alone company. This momentum should continue into next year as we target double-digit revenue growth in 2022 as a result of investments in our direct-to-consumer channel, executing customer retention initiatives and the continued scaling of our emerging businesses.

We are still aiming for double-digit growth for this year, but it'll be somewhat dependent on the real estate inventory and our ability to grow other channels. In our direct-to-consumer, or DTC channel, our new product lineup remains a big hit with customers as evidenced by higher than originally forecasted sales of our [ platonic ] product.

As a reminder, our new products were launched in the second quarter of this year and provide better coverage options to our customers. Due to the success of the initial launch, we are continuing to evaluate further additions to our offering and believe the demand for premium products remains very strong.

Additionally, we are continuously testing our dynamic pricing models to further optimize customer pricing. As we expand our dynamic pricing initiatives, we'll continue to seek the optimal balance between customer growth and gross margin.

Finally, our investments in D2C marketing and customer conversion optimization continue to pay dividends, driving double-digit revenue growth and a very attractive marketing efficiency. While real estate is a great channel for us, we continue to see growth opportunities in our DTC channel that will better help us reach our long-term growth objectives.

Our second objective is to advance automation initiatives across our business. We recently announced the hiring of Tony Bacos to serve as Senior Vice President and Chief Digital Officer to help accelerate progress on this front. Tony recently served as Vice President and Chief Technology Officer for Amazon Fashion and held multiple leadership roles during the 7-year tenure with Amazon.

Prior to Amazon, he held leadership roles at Nike, Symantec and The Regence Group. Tony will be responsible for the strategy and execution of technology initiatives and investments across the organization and will play a critical role in Frontdoor's continued digital transformation.

He will drive our digital first strategy specifically aimed at improving our service delivery processes through technology and data. On prior calls, I covered some of the specific automation initiatives we are building, launching an appliance purchasing portal, adding our new contractor portal integrating our supply chain with key vendors and accelerating parts ordering. These initiatives are performing well, and we continue to ramp up adoption across our customer and contractor base.

I continue to see opportunities as it relates to furthering our digital initiatives that drive both scale and customer experience. Our third objective is to improve customer retention, which is currently at 75% on a rolling 12-month basis.

While we expect to see customer retention rates improve as global supply chain issues subside, process improvements take hold and new customer growth accelerates, our retention rates will continue to reflect the impact of the tight supply chain challenges experienced over the last year. That impact has weighed on our customer experience and retention due to the difficulties obtaining parts and replacement units.

We're expecting that the global supply chain would have improved faster and thus provide us some tailwinds to our renewal rates. While we are pleased with the meaningful improvement in availability of parts and equipment over the last several months, availability is still not at pre-pandemic levels.

Our other customer retention initiatives include improving the customer experience at key service touch points, removing friction from the renewal process, optimizing our dynamic pricing algorithms and engaging our customers outside of service claims. Speaking of customer engagement, we recently launched a new module in our customer portal that provides our customers access to discounted maintenance services as well as tips on how to maintain their homes.

We're very pleased with the engagement so far with this new feature and expected to translate into future retention gains. Our final objective for 2021 is to expand and scale our emerging businesses of ProConnect and Streem.

The expansion of these businesses will diversify our portfolio and accelerate future total company revenue growth. ProConnect remains on track to meet its 2021 revenue target of $20 million as we continue to expand into new trades such as plumbing and electrical across the 35 cities in which ProConnect operates.

Additionally, we added maintenance services under the ProConnect banner, including HVAC tune-ups. We feel our members are looking for more maintenance services, not covered under their plan, and plan to expand these services in the coming months. ProConnect launched in late 2020. And since that time, we have learned that the stand-alone revenue generation model is working well in the market today, but there's more opportunity to cross-sell to existing and prospective home service plan customers as well as increased contractor utilization.

Although we're still relatively new in the ProConnect launch, we are pleased with our current progress and expect substantial growth from this business going forward as we gain economies of scale.

In regard to Streem, we are ramping utilization across our core operations as well as monetizing our investment by adding new Software as a Service or SaaS enterprise customers. We continue to target a multipronged usage approach as both contractors and employees in our call centers can initiate a Streem call and drive adoption.

We continue to drive further contractor utilization of Streem, have seen extremely positive customer response as they provide immediate feedback and generally experienced shorter time to service request resolution. The value Streem also has a real environmental impact as we look for ways to solve customer problems without rolling a truck, which reduces the total carbon footprint related to completing a service request.

Now turning to Slide 5. We'll discuss the real estate channel in more detail. Let's start with the macro data, where we have seen the existing home sales market continue tight this year. According to latest June data from the National Association of Realtors, or NAR, we have seen the time on market dropped to a record low of 17 days. The average price for a single-family home has increased 24% over the last year to approximately $370,000, and inventory levels are a near record low of 2.6 months.

With market trends becoming more extreme, we're seeing increased challenges trying to sell a home service plan as part of the real estate transaction. This has resulted in a relatively flat home service plan unit growth and our real estate channel despite strong existing home sales growth.

This trend presents a challenge for the entire home service plan industry, regardless, while this may cause some short-term turbulence, we are leveraging our business model in the following ways: First, in our DTC channel, we launched a new marketing campaign focused on home buyers. We're also increasing our overall investment in the DTC channel versus our original plan by approximately $5 million to help mitigate the decline in real estate.

The advantage of this approach is that DTC customers renew at a rate approximately 3x higher than that of first year real estate customers, which provide tailwinds for our renewal channel heading into 2022.

I'd like to remind everyone that we won't see the full benefit of these actions until next year as we recognize revenue on a monthly basis. Second, we launched a campaign targeting both real estate agents and home buyers in order to drive better awareness of our home service plan value proposition. It is more important than ever to help homebuyers understand the advantages of having a home service plan in this tight real estate market to help them navigate the current landscape.

Many homebuyers are waiving inspections and contingencies when they purchase a home. We feel these customers now more than ever may need our services. Third, we are aggressively expanding our partnership opportunities.

We see this as another growth area for us as we expand into new channels. For example, our partnership with Mr. Cooper at the mortgage finance space is going well as we grow off a very small base. More to come as we solidify our partnerships to further grow and diversify our business. It's important to remember that these actions are addressing what we view as a short-term challenge in the real estate market and our overall growth strategy does not solely rely on rapidly growing our real estate channel.

In closing, despite these short-term challenges, Frontdoor continues to perform well. We are targeting our largest annual revenue growth as a stand-alone company. Our second quarter gross margins exceeded our expectations, and we're delivering solid adjusted EBITDA while investing more in the business.

Looking forward, we continue to target sustainable double-digit revenue growth as we execute our strategies to expand our value proposition and as our new initiatives gain traction in 2022 and beyond. I remain excited about the trajectory of our company and driving the next chapter of our digital transformation.

I'll now turn the call over to Brian. Brian?

[Brian Turcotte, executive]

Thanks, Rex, and good afternoon, everyone. Let's now turn to Slide 6, and I'll review our second quarter 2021 financial results. Revenue increased 11% versus the prior year period to $462 million driven by approximately 6 percentage points of volume growth and 4 points of higher pricing. Similar to last quarter, I would point out the volume component includes strong year-over-year growth from both ProConnect and Streem off of a small base.

Looking at our home service plan channels, revenue derived from customer renewals was up 9% versus the prior year period due to improved price realization and growth in the number of renewed home service plans. First year real estate revenue was up 4% versus the prior year period, primarily due to improved price realization. I'll speak more about our real estate channel and the outlook.

First year direct-to-consumer or D2C revenue was up 12% versus the prior year period, primarily due to an increase in marketing investments that drove growth in the number of home service plans. Revenue reported in our other channel increased $10 million over the prior year period, primarily due to continued growth at ProConnect and Streem.

Gross profit increased 11% in the second quarter versus the prior year period to $242 million, and our gross profit margin was 52%, slightly higher than the prior year period. Net income was $40 million, which includes a $30 million debt extinguishment charge related to our recent refinancing. Adjusted net income increased $9 million from the prior year period to $65 million.

The primary difference between net income and adjusted net income is the tax-effected add back of the debt extinguishment charge. Adjusted EBITDA was $114 million in the second quarter of 2021 versus $100 million in the prior year period. This was above the top end of our guidance range due to a lower-than-anticipated level of service requests in the quarter and the execution of cost management initiatives.

Let's move to the table on Slide 7, and I'll walk through the adjusted EBITDA bridge from the second quarter of 2020 to second quarter 2021. Starting at the top, we had $31 million of favorable revenue conversion in the second quarter versus the prior year period. As a reminder, revenue conversion is calculated using the estimated gross margin impact for both new home service plan revenue and price changes. Contract claims costs increased $6 million in the second quarter versus the prior year period when excluding the impact of the change from higher revenue.

The increase over the prior year period was primarily driven by unfavorable cost trends in the appliance, plumbing and HVAC trades due to industry-wide parts and equipment availability challenges and inflation, partly offset by a lower number of service requests across all trades.

Additionally, I'm pleased to report that the pandemic-driven higher service request trends in 2020 are moderating slightly faster than we originally planned, specifically on our appliance and plumbing trades. While we're still not back to 2019 levels, we do expect this favorable trend to continue in the back half of the year.

I'd also like to point out that HVAC service requests were favorable compared with our initial estimates, which was a primary driver of claims cost being lower than expected in the second quarter of 2021. This favorability may be a surprise to some, so I'll provide a little more color. Despite cooling degree days being 7% higher across the entire U.S., weather did not have a meaningful impact on our level of HVAC service requests in the second quarter of 2011 versus the second quarter of 2020.

As a reminder, cooling degree days are metric commonly used to measure energy needed to cool a building and is calculated as the degree difference between the daily mean temperature and 65 degrees Fahrenheit. The second quarter is a great example of how our service request levels don't always have a linear relationship to national weather trends as warmer weather in the west was largely offset by cooler weather in the south, where we have a higher customer concentration.

The sales and marketing costs increased $4 million in the second quarter versus the prior year and primarily included investments to drive growth in the D2C channel, ProConnect and Streem.

Customer service costs increased $3 million in the second quarter versus the prior year due to investments in customer retention initiatives and customer growth. And finally, general and administrative costs increased $3 million in the second quarter versus the prior year due to higher personnel costs and investments in technology.

Please now turn to Slide 8 for a review of our cash flow and cash position. But before we get into the cash flow details, I want to highlight the efforts of our treasury and legal teams in regard to our recently completed debt refinancing. We expect this transaction as well as the $100 million debt repayment completed in February to reduce ongoing annual cash interest expense by approximately $30 million versus 2020 based on the recent range for interest rates. We also lowered our gross debt by approximately $350 million.

Turning to cash flow. Net cash provided from operating activities was $119 million, a $21 million decrease versus the prior year period, as unfavorable changes in working capital were partially offset by higher earnings adjusted from noncash charges.

Net cash used for investing activities was $15 million, a $4 million decrease versus the prior year period, primarily due to a decrease in capital expenditures. Net cash used for financing activities was $378 million compared to $4 million in the prior year period and was almost entirely due to a reduction in gross debt.

Free cash flow calculated as net cash, provided from operating activities minus property additions, was $104 million in the 6 months ended June 30, 2021, compared to $122 million for the prior year period.

We ended the second quarter of 2021 with $323 million in total cash, which included restricted net assets of $173 million and unrestricted cash of $150 million. Our unrestricted cash, combined with $248 million of available capacity under our revolving credit facility, provides us with a solid available liquidity position of $398 million.

In addition to our solid liquidity position, Frontdoor continues to have an extremely strong financial position. You'll recall, we've launched as a public company in October 2018 at nearly 4x net leverage. We couldn't be more pleased by how far we've come in almost 3 years as our net leverage has improved to 1.8x. Also, we continue to generate robust free cash flow and we're targeting a full year 2021 adjusted EBITDA conversion to free cash flow of just under 55%.

As I reiterated last quarter, our first priority for capital allocation remains responsibly investing in the business to drive the growth levels we're now demonstrating. However, given the sizable amount of excess cash, we expect to generate again this year. We continue to search for acquisition opportunities in both the home services industry and digital space.

I'll now conclude my prepared comments with our third quarter and full year 2021 financial outlook on Slide 9. We expect our third quarter revenue to range between $470 million and $480 million, and adjusted EBITDA to range between $95 million and $105 million.

The third quarter outlook compared to the prior year period includes the following assumptions: For revenue, upper single-digit growth from the D2C and renewal channels along with a slight decrease versus prior year in our real estate channel. I should note that the new revenue initiatives that Rex detailed earlier are expected to have a larger impact over the next several quarters.

The claims cost, a continuation of favorable service request levels, specifically as it relates to improvement in pandemic trends in our appliance and plumbing trades offset by ongoing inflation and cost pressure. For SG&A, a $13 million increase in sales and marketing investments to support our growth objectives. This includes the approximately $5 million of incremental DTC spend in the third quarter, that Rex mentioned, to help offset lower real estate revenue. And we will continue to make additional investments in people and technology to support our growth.

Turning to the full year. Our updated revenue target range is $1.6 billion to $1.62 billion. The change primarily reflects the current challenge posed by the impact of the extremely tight existing home sales market on our real estate channel.

Despite this challenge, the range implies approximately 9% to 10% total revenue growth versus 2020. Our largest annual growth rate as a stand-alone company and is comprised of contributions from both price and volume and our home service plan business as well as ProConnect and Streem growth.

Our gross profit margin target is in the 48% to 49% range as we expect the benefit of lower-than-anticipated service request levels and cost management efforts to effectively offset lower real estate revenue and a higher inflation impact on claims costs.

SG&A is expected to range from $525 million to $535 million, or just under 33% of revenue. As a reminder, more than half of the increase versus prior year is comprised of higher sales and marketing investments to drive revenue growth. It also includes investments in service and retention initiatives.

I'll also note for those of you who have tried to bridge from SG&A to our adjusted EBITDA guidance that we expect noncash stock-based compensation to increase approximately $10 million in 2021 versus prior year. Additionally, our 2021 SG&A projection includes approximately $30 million of combined expense for ProConnect and Streem, as we invest to ramp their size and scale heading into 2022.

Our adjusted EBITDA outlook range remains between $280 million and $300 million, which is consistent with the prior annual guidance despite exceeding our second quarter expectations. This is due to the impact of constrained growth in the real estate channel, incremental D2C marketing investments and claims cost inflation, largely offset by the continued benefit of lower service request levels and our cost control efforts.

With that, I'll now turn the call back over to Matt to open the question-and-answer session. Matt?

[Matt Davis, executive]

Thanks, Brian. As a reminder, during the question-and-answer session, we encourage you to ask any questions that you may have, but please note that guidance is limited to the outlook we provided. Operator, let's open the line for questions.

[Operator]

[Operator Instructions] Our first question comes from set Youssef Squali from Truist.

[Nicholas Cronin, analyst]

This is Nick Cronin on for Youssef. Two, if I can. I know it's still early, but can you speak to the contribution margin differential between ProConnect and your traditional warranty business, and whether one should be higher than the other at scale?

And then secondly, what needs to happen to get the real estate segment to grow double digits in the second half of '21? I know you called out that you still expect the segment to grow 9% to 10% in the year.

[Rexford Tibbens, executive]

Nick, it's Rex. So for -- in terms of contribution margin, still, I think, early days, we continue to invest in the business. I also think it depends on the trade, right? So I think that overall, over time, the contribution margins should get closer to our home service plan margins, but I think it's really dependent on the trade. So things like carpet cleaning, for example, may not be as profitable as other areas.

We also view it as an opportunity to increase our engagement with customers. So while we may do a job for a slightly lower margins when we look at it from a long-term value perspective, it's actually more advantageous for us to do those jobs from an engagement perspective.

In terms of your second question, we certainly can't control the real estate market. But as I outlined in my prepared remarks, we're doing a couple of things to really continue to drive revenue in those areas. So certainly, as we invested more in direct-to-consumer, that will help.

Secondly, we're actually targeting real estate buyers. As I said before in the prepared remarks, the customers or home buyers are buying homes without inspections or contingencies. So we think that's a great population to market towards. And then we continue to focus on partnerships within the real estate space or adjacent to the real estate space, such as Mr. Cooper. All that said, we're not totally dependent on real estate for our growth going forward. So we still have our largest annual revenue growth for the year, even despite a pretty tight inventory from a real estate perspective.

[Operator]

The next question comes from Cory Carpenter from JPMorgan.

[Unknown Analyst]

It's Brian on for Cory. Just wondering if you could expand a bit on some of the drivers of the lower service request volume this quarter? And then also, are you back to more normalized pre-COVID levels of service requests? And how does your guide imply service request volume in the back half of this year.

[Rexford Tibbens, executive]

Brian, do you want to take that or you want me to?

[Brian Turcotte, executive]

I'm happy to, Rex. As I mentioned in my prepared remarks, HVAC in the second quarter was lower than we expected despite the cooling degree days. And also, the pandemic-related trades of appliance and plumbing are mitigating faster than we thought. So that's all good news for us. And -- that's a big part of why our instances our service requests were lower in the second quarter.

And looking forward, yes, we're assuming that's continuing as far as the pandemic trades. That it's going to continue to abate as we go to the back half of the year. And we still have some weeks left for the peak season as far as HVAC, and we'll see how that plays out. But so far, it's been working out pretty well for us.

[Operator]

The next question comes from Ian Zaffino from Oppenheimer.

[Ian Zaffino, analyst]

A couple of questions. As far as how you think about pricing and recovery, are you assuming ongoing inflation and increases in inflation, not just on your cost, but also how you kind of go to market, taking price. Are you kind of in a position right now, given all the inflation to maybe preemptively take price? That would be the first question.

And then on the acquisition front, I know you mentioned that how are you thinking of acquisitions versus buybacks? What size of acquisition would be in sweet spot? And maybe where would you want to go with leverage.

[Rexford Tibbens, executive]

Sure. I'll take -- this is Rex. I'll take the first one, and then I'll hand over to Brian. In terms of pricing, I think that average pricing is one of the key [ aspects ] of the company. And when you think about we have the ability to continually look at testing price from a geography perspective, from a risk perspective. And we've been doing that really since last year. So I think we've priced in for inflation. If we see things change, we have the ability to move on pricing pretty quickly.

[indiscernible] pricing also confirms that really customers are primarily inelastic as it relates to price. And so we have the ability to really I think use gross margin as the lever for growth and for profitability. So between those 2 things, we feel like we're pretty well positioned, thanks to dynamic pricing. Brian, do you want to talk about leverage -- or sorry, leverage, but our overall capital allocation strategy?

[Brian Turcotte, executive]

Sure. Thanks, Rex. As I mentioned, we're still acquisitive. We're going to invest in our business responsibly, first and foremost, to grow it even faster than we are now, hopefully. And -- but we are acquisitive in the areas of home services and the digital space, as I mentioned, but things -- assets are pricey today. So we're looking long and hard and Rex and I are both in vital agreement that we don't want to overpay for anything, as stewards of investor capital.

So we're going to be very careful when we look at things. And so we're still looking. The good news is, although we lowered our cash by $213 million quarter-to-quarter through our debt repayment, we still have $150 million in cash, and we'll rebuild that pretty quickly this year with our conversion from EBITDA to free cash flow. So -- and if we look at something of scale, we could obviously lever up as needed as well. So that's sort of our stack ranking right now of how we're going to use our cash, if that's helpful.

[Operator]

Next question comes from Matthew Gaudioso from Compass Point.

[Matthew Gaudioso, analyst]

Just a question on customer service. I know the investments there take a little bit of time to flow through in the form of the retention rate. I'm just wondering how you can -- or wondering if you could share any color on how those investments are going, whether you feel like they're having an impact? And then can you remind me of the sensitivity of what each percentage point of retention rate means for the top line?

[Rexford Tibbens, executive]

Sure. It's Rex. In terms of -- we've been on really a digital journey for a number of years now, really trying to leverage both data and technology to really not just change the customer experience but evolve it overall, and that's one of the reasons we acquired Streem. So we think that as we continue to make investments that allow us to touch customers sooner, allow us to change the overall cycle time as it relates to fixing their issue. And those investments will pay off from a retention perspective over time.

Right now, as the supply chain gets better and we expect that to be certainly better for us from a retention perspective. But it definitely takes time and still I still say we're -- this is a journey that we'll be on for a while as customers' expectations continue to change.

Brian, do you want to talk about the -- what the point of retention for?

[Brian Turcotte, executive]

Sure. Thanks, Rex. Yes, it's 1 percentage point is worth about $15 million to $20 million of incremental revenue on an annualized basis. And that will always depend on in-year impact on the timing of when we actually get that benefit, but it's about $15 million to $20 million.

[Operator]

The next question comes from Michael Ng from Goldman Sachs.

[Michael Ng, analyst]

I just have 2. First, I was wondering if you could just give us a more detailed update around ProConnect, how you're pacing in terms of the number and type of jobs you're offering on that and the market expansion there?

[Rexford Tibbens, executive]

Sure, Michael. So as you know, we launched into 35 cities, primarily in appliances. As we move out towards end of the year, we're adding both plumbing and electrical. And then we really found a bright spot in maintenance services as well. So our growth strategy is not only to target other customers but also target the 2.2 million customers we have today. So we're on track for our meeting our revenue commitment of $20 million and both from the expansion of trades in those 35 markets as well as adding incremental maintenance services, we think there's a real opportunity as we move into 2022 as well.

[Michael Ng, analyst]

Great. And I just wanted to follow up on some of the earlier questions around the strong gross margins in the quarter and the favorable service request levels. Would you say that was more of a function of weather, a normalization of service requests as reopening continues. Just trying to get a better sense of the sustainability of that? And also, are you seeing increased levels of customer satisfaction as the volume normalizes? And do you expect any benefits from that as it relates to retention?

[Rexford Tibbens, executive]

I'll take the back half and then pass it over to Brian. So from a customer service and retention perspective, yes, outside of any supply chain issues, we've worked very hard as the team to focus on both retention as well as cycle time and really kind of focusing on kind of speed, if you will, for -- on behalf of customers. Certainly, as the supply chain improves and we're able to get the parts and replacements that we need to help customers, that will continue to have a retention benefit for us. As it relates to kind of weather versus process improvements, that type of thing. Brian, do you want to take that one?

[Brian Turcotte, executive]

Sure. I wouldn't say weather was a benefit, but I don't think it was punitive it could have been in Q2 with HVAC service requests. But I think the exciting thing was just the mitigation of some of the pandemic-related survey trades, Michael, again, like plumbing and appliance that they're trailing off, the incident rates are going lower. They're not back to 2019 levels. I think I stated that in my prepared remarks, but they're getting better.

So -- and I don't see why that would change going forward. I think people despite the Delta variant, I think people are still exiting the home, maybe they're wearing masks, but I don't see as much pressure on our home systems going forward, just my opinion. Does that help?

[Rexford Tibbens, executive]

One thing I would add -- sorry, one thing that I would add is that we focus a lot on preferred contractors and pretty proud of the team that we continue to have a pretty high rate of dispatches with our preferred contractors as well, which will always help us from a cost perspective.

[Operator]

The next question comes from Robert Coolbrith from Wells Fargo Securities.

[Robert Coolbrith, analyst]

A couple more on the real estate channel. We know you're focusing on customer and partner education, but wondering if you could maybe talk also to share opportunities. A lot of agents have the ability to maybe steer their customer to one of multiple plan providers. So any thoughts on how you can make sure your top of mind in the channel?

And then a second one, final one on real estate. Given the sort of sale of this market dynamic that you're seeing, we imagine a greater share of planned volumes are buyer pays, or agent pays versus seller pays. So just wondering if you could maybe help us think through how that could potentially impact retention rates beneficially at some point in the near future. Any color on the mix of buyer versus agent and seller pays and differences in retention, maybe how that plays out over the next few quarters, if not years.

[Rexford Tibbens, executive]

Sure. So we're still very much engaged with our brokerage partnerships. We're in all 10 of the top 10 brokerage firms. We continue to market aggressively to our realtor partners so that we can make sure they have they're educated on kind of what our plans and the performance of those plans.

We're also focusing, as I mentioned in my prepared remarks, really a direct-to-consumer marketing effort focused on home buyers. So again, the folks who may have waived inspections or other contingencies, we have the ability now to directly market to a lot of those new homebuyers. So pretty excited that this may create a certainly a new channel for us.

But in terms of the real estate channel, we continue to target the value proposition campaign for both brokers and home buyers. We're expanding partnerships as well. From a retention perspective, keep in mind that direct-to-consumer customers retain about 3:1 to real estate. So we think that there's a real opportunity as we continue to lean into direct consumer. This will also pay future dividends as it relates to retention.

[Operator]

Ladies and gentlemen, thank you for -- thank you again for joining Frontdoor's Second Quarter 2021 Earnings Call. Today's call is now concluded.

[Rexford Tibbens, executive]

Thank you, everyone.