Frontdoor Inc
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Frontdoor Inc
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Ladies and gentlemen, welcome to Frontdoor's Second Quarter 2022 Earnings Call. [Operator Instructions]
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'll begin today's call. Please go ahead, Mr. Davis.
Thank you, operator. Good morning, everyone, and thank you for joining Frontdoor's Second Quarter 2022 Earnings Conference Call. Joining me today are Frontdoor's Chairman and Chief Executive Officer, Bill Cobb, 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 3 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 the appendix to the presentation in order to better assist you in understanding our financial performance.
Before I turn the call over to Bill for opening comments, let me start with a brief introduction. As many of you know, Bill has been Chairman since the spin-off of Frontdoor, and he assumed the CEO role at the beginning of June. Bill is a tenured executive, with over 35 years of business experience at world-class market-leading companies. He has served on several boards and was the President and Chief Executive Officer of H&R Block from 2011 to 2017. Prior to that, he had extensive corporate and marketing experience through various leadership roles at eBay, Pepsi and Pizza Hut from 1987 to 2008. You can find more on Bill's background on Frontdoor's website.
I am very pleased to now turn the call over to Frontdoor's new CEO, Bill Cobb, for opening comments. Bill?
Thanks, Matt, and hi, everyone. It is great to be here to speak with all of you. I look forward to getting out and meeting our investors over the next several months, and I'm extremely excited about the opportunity to lead the next phase of Frontdoor's journey.
Let me start on Slide 4 by saying that over the last few months, I have been able to meet with a broader group of Frontdoor's associates, and I continue to be impressed with the level of talent across the organization. I am also very bullish on the company's future, as we know, there is substantial demand for home repair and maintenance services across the United States.
I am confident that we have a great business with a bright long-term future ahead of us. However, we are facing some significant near-term issues that are worse than I expected coming into this position. We are looking at a macroeconomic environment that continues to deteriorate, rapid cost inflation, declining consumer sentiment and a dynamic global backdrop marked by war, rising geopolitical tensions and global supply chain disruptions. So let me state it right up front.
We are lowering our full year 2022 adjusted EBITDA to be in a range of $170 million to $190 million as a result of these factors. These are difficult times, and I have been struck by the magnitude of the impact on our financial outlook. But let me be clear, we will work our way through it and emerge stronger for it. I still completely believe in the future of this company, and the last two months in the job has only increased by conviction despite the tough outlook for 2022.
Frontdoor competes in the growing home services space, has a great recurring revenue business model, a strong management team and a solid foundation as the leader in the home service plan category.
Let's turn to Slide 5, and review some of the changes that are currently underway at Frontdoor as we are moving quickly to improve execution and better balance revenue growth and earnings. Specifically, our teams are working on the following areas: first, we have determined that priority one is to zero in on rebuilding the core home service plan business. We are the leader in the home service plan category.
We offer consumers both peace of mind and budget protection against inevitable and unexpected expenses and the inconvenience of breakdowns to major systems and appliances. Our home service plans do this by leveraging the convenience of our prequalified network of 17,000 contractors that we partner with. This is a great recurring revenue business with significant upside, given our powerful marketplace model.
That means that our new businesses will be transitioning to a supporting role. ProConnect has not performed up to our expectations, and my team is working to complete a full study of how to improve our on-demand offering as it does not make sense to continue to lose money in the current approach. But to be clear, an on-demand offering remains an important element to realizing our long-term potential, and that has not changed.
We are extremely optimistic about how an on-demand approach still gives us the potential to broaden our reach to a much larger pool of customers than what we can capture today under a home service plan. We are looking to go much deeper into this market and completely restate our offering as I think we can execute much better in this area.
Now turning to Streem. We love the Streem technology's ability to remotely troubleshoot issues around the home and provide real-time feedback to our customers and contractors. However, going forward, we will be laser-focused on integrating Streem into the core business and less focus on selling this technology platform to third-party customers. This will have the added benefit of reducing our costs.
Second, we have reorganized key parts of the company to increase our focus on execution. We now have clear and separate teams dedicated to marketing, sales and product, which I will speak to in a moment. They are supported by operations, service, technology and our other internal functions to create a seamless end-to-end operating role. Third, we are working to address the rapid acceleration in claims cost inflation. I have put together a cross-functional team across finance and contractor relations to really dig into this and reevaluate how we can better control our costs.
Brian will go into the details more in a minute. And four, we are undertaking a comprehensive review of our total SG&A expense footprint, which is expected to be completed in the third quarter of this year. While we continue to generate positive cash flow and have a strong balance sheet, we have to adapt to the current business environment and reduce expenses.
Now turning to Slide 6, where I want to share some of the guiding principles that I'm using to look at all aspects of the company. First, we will approach the business with a comprehensive focus on the customer and increased focus on our branding approach. While I generally feel good about our overall approach to growing the business, I don't believe we have executed up to our potential, and we are not growing the market as well as we should.
Our goal is to offer one straightforward, consistently great experience. We operate in a complex category, and we must improve how we go to market. As part of this effort, we are also undertaking a broad customer segmentation study. This will give us better insight into how the customers' view of their home has changed since the start of the pandemic and the work-from-home expansion.
Second, we will have a detailed and focused technology road map as we continue to digitize our business. This group is led by Tony Bacos, our Chief Digital Officer, who is a well-known industry leader that came to us from Amazon. Tony has helped us to really focus our digital priorities at Frontdoor.
We remain committed to investing in our digital transformation as it will help us drive a superior customer and contractor experience as well as cost savings over the long term. Third, we want to simplify all aspects of our business. One of my early impressions since becoming CEO is how complex our legacy internal processes and systems remain.
We want to reinvent how we interact with customers, contractors and other partners to reduce manual work. As we are in the process of reevaluating so many areas of our company, we plan to hold an Investor Day in early March of 2023. This will allow investors to meet the senior leaders of our management team and allow us to share more details on how we are transforming this company.
Now turning to Slide 7 and a quick review of the business. Taking over the CEO role has provided me with a deeper understanding of the challenges our business is facing. As I mentioned earlier, I think we know a much better job of executing, specifically on the overall sales process to drive revenue growth across all of our channels. That is why I reorganized the company to better define roles and focus on building our brand and providing us with an end-to-end view of the consumer.
We hired Kathy Collins as our Chief Marketing Officer. Kathy is an accomplished leader with broad experiences across all facets of marketing. She most recently served as Chief Sales and Marketing Officer for a large medical benefits provider. Prior to that, she held various roles around marketing strategy, product development and client experience at Lee Jeans, Massage Envy and H&R Block. And she specializes in transforming brands of legacy businesses. We also hired Jessica Fields as our Chief Sales Officer. Jes will have responsibility for real estate and direct-to-consumer sales and business development across the Frontdoor portfolio. Jes was previously with Rocket Mortgage, where she was in charge of driving revenue and partnerships across the company. Prior to that, she had a variety of sales experiences at International Bancard and Sears. With her prior real estate experience, Jes is bringing new ideas on how to improve our go-to-market real estate sales efforts.
Additionally, Raj Midha has transitioned to lead home service plan, product and pricing across all of our brands. Raj brings a wealth of home service plan experience, given his leadership roles in marketing, strategy and product development at Frontdoor, American Home Shield and ServiceMaster over the last 13 years.
By realigning these teams, we expect to increase focus on the customer, develop a more consistent sales methodology and improve accountability throughout the sales funnel. As part of this effort, we are evaluating changes to our overall marketing and branding strategy. We are also looking at our products, which should be transparent, simple, easy to understand and use.
While still early days, we have already identified opportunities to execute better and drive more sales over time. In the near term, our revenue growth will be primarily impacted by the challenges we are facing in selling home service plans in our real estate channel. The record low days on market continue to support a strong seller's market which, in turn, makes it difficult for us to attach our home service plan as part of a real estate transaction.
This trend appeared to continue through June based on the most recent data from the National Association of Realtors. Existing home sales declined 14% year-over-year. Inventory data was mixed as the supply of homes increased to three months from 2.5 months, yet the days on market declined again to just 14 days and all cash offers increased from 23% to 25%. However, we believe that the real estate market has already entered a period of transition.
Mortgage rates have increased to 5.5%, and we are hearing commentary from our real estate brokerage partners that the market dynamics are quickly shifting as multiple offers are diminishing and inspections are becoming the norm once again. Let me be clear. We believe that the sales decline in our real estate channel is not permanent, and we are optimistic that improvements in these leading indicators will result in a more favorable market environment to sell home service plans as the real estate market normalizes.
Regardless of market conditions, I believe that we can do a better job of executing in our real estate channel. Jes is working to change our sales culture and increase accountability. We are prioritizing leads in the strongest markets and aggressively deploying our field sales team to improve conversion. These changes are expected to improve our overall capture rate in all market conditions.
In conclusion, there is a high level of energy across the company as we are moving quickly to make improvements at Frontdoor, and I am confident that we will turn things around. I have already made changes to our leadership team. We are aggressively addressing the challenging economic environment. We are taking steps to improve the execution and substantially reduce costs, and we are reimagining the industry that we founded. Longer term, our opportunity to profitably grow the business has not changed.
We remain extremely confident in the underlying fundamentals for the following reasons: First, demand for home repair and maintenance services continues to grow, and is supported by changing demographics and recent home nesting trends; second, there is tremendous demand for digital transformation in the home services space; third, there is massive potential to deepen Frontdoor's market penetration as we improve our branding; and finally, there is significant opportunity to grow through our on-demand offering.
I will now turn the call over to Brian to review our financial results.
Thanks, Bill, and good morning, everyone.
Please turn to Slide 8, and I'll review our second quarter 2022 financial results. Second quarter 2022 revenue increased 5% versus the prior year period to $487 million as a result of higher pricing and a mix shift to higher-priced products in our home service plan business, which more than offset a slight decline in customer volume.
Looking at our home service plan channels, second quarter revenue derived from customer renewals increased 10% versus the prior year period due to growth in the number of renewed home service plans and improved price realization. First year real estate revenue decreased 26% versus the prior year period, reflecting a continued decline in the number of home service plans in this channel, offset in part by improved price realization.
The decline in the number of home service plans in this channel was due to the ongoing challenges presented by the seller's market, driven in part by extremely low home inventory levels across the U.S. First year direct-to-consumer, or D2C, revenue increased 15% versus the prior year period due to improved price realization and a mix shift to higher-priced products as the volume was relatively flat.
Second quarter revenue reported in our other channel increased $5 million over the prior year period, primarily driven by ProConnect growth. Gross profit declined 13% in the second quarter versus the prior year period to $211 million, and our gross profit margin was 43%. I'll speak to the inflationary cost pressures that unfavorably impacted gross profit in a moment. Moving down to income statement.
I would point out that as part of our efforts to better match our office space footprint to our current needs and also to reduce operating expense, we are entering into a sublease for our downtown Memphis headquarters. Our plans are to do a smaller and less expensive space, which is more centrally located for our Memphis-based employee population.
While this action resulted in a noncash impairment charge of $11 million in the second quarter related to our headquarters facility operating lease right-of-use assets and leasehold improvements, the cash flow and adjusted EBITDA impacts over the remainder of our lease term are expected to be positive. Net income decreased $7 million in the second quarter of 2022 to $33 million. Adjusted net income decreased $22 million over the prior year period to $44 million. Adjusted EBITDA was $77 million in the second quarter or $37 million lower than the prior year period.
Let's move to the table on Slide 9, and I'll provide context for the year-over-year decline in second quarter adjusted EBITDA. Starting at the top, we had $23 million of favorable revenue conversion in the second quarter of 2022 versus the prior year period. Contract claims costs increased $53 million in the second quarter versus the prior year period, primarily driven by an acceleration of inflationary cost pressures, including rising contract-related expenses and higher parts and equipment costs.
Second quarter claims costs were also unfavorably impacted by approximately $4 million from the extremely hot weather across the country, primarily in May. Additionally, contract claims cost for the second quarter of 2022 include a $7 million unfavorable adjustment related to the adverse cost development of prior period claims.
Sales and marketing costs increased $6 million in the second quarter versus the prior year period, primarily related to increased investments in the DTC channel and ProConnect. And finally, general and administrative costs increased one million dollar in the second quarter, primarily due to increased professional fees. I'll now go into more detail on the significant claims cost inflation we're experiencing as a result of the challenging macroeconomic environment, the effects on the business and our ongoing cost mitigation strategies.
Over the 12 months ended June 2022, the consumer price index increased 9.1%, not only the largest 12-month increase in over 40 years, but also included an acceleration over the last two months of the second quarter. Furthermore, we are seeing cost inflation in home services rising even faster.
For example, in June, our contractors were faced with fuel costs that were up over 60% versus one year ago. We also saw the producing price index for heating and air conditioning equipment and appliances up over 20% and 15%, respectively. It is one of the most challenging environments we've ever faced, and it continues to evolve as issues such as the war in Ukraine and its impact on fuel prices and rolling COVID lockdowns in China impacting the global supply chain. However, we are seeing some green shoots as certain commodity prices are now declining.
For example, cold-rolled steel, a critical component in the manufacture of water heaters and HVAC equipment, declined 20% in June versus the prior year period. Additionally, as I mentioned last quarter, while we have great pricing visibility and an ability to influence our own direct purchases of parts and equipment, we don't have that same level of real-time visibility into our contractor costs.
Our contractors, for the most part, who are small business owners, generally pass along their higher cost to us. And as they can take months to complete their billing process, our ability to identify and manage accelerating contractor costs in the near term is limited. I believe it would be helpful to provide more context as to how the current environment impacts Frontdoor's operations.
The challenging macroeconomic environment, including higher parts and equipment costs and contractor-related inflation, resulted in our second quarter year-over-year cost per service request increasing about 23%, which was much higher than the mid- to high-teens increase we experienced in the first quarter.
We believe the main drivers of this inflation are: first, a rapid acceleration of contractor-related costs, including higher fuel costs, operating costs and labor rates. It also includes a substantial increase in contractor supply parts and equipment costs; second, our product mix now includes broader coverage offerings, such as our new Platinum product, which has both a higher price point and a higher service cost; and third, although still within our projected ranges, we are paying higher prices for parts and equipment we directly source.
As we've mentioned in the past, implementing additional price increases is a lever we can pull to help cover higher inflation, and we've already taken two price increases earlier this year. We will continue to look for opportunities to increase price while minimizing the impact to our customer count. We are currently working on launching an update to our dynamic pricing model. We will take that opportunity to implement a third round of price increases for certain products in the second half of the year. As a result, we are now targeting a 12% to 13% overall price increase in 2022.
However, it's worth noting that with our annual service plan structure, price increases take time to be realized. And while we started the process early this year, they will provide more revenue and gross profit benefit in 2023. I also wanted to remind you that our price testing continues to show that our customers are mostly priced in elastic.
And we expect to be able to continue to increase our price over time to cover inflationary pressures. Beyond price, our top priority is working to improve visibility into our contractor cost trends and then to mitigate the impact of the inflation on our margins. Let me explain some of our initiatives in more detail.
First, we are continuing to improve our processes. These actions primarily focus on how we engage and utilize our contractors, including increasing the percent of total jobs assigned to our preferred contractors. We're also expanding our recruiting efforts to increase our contractor count and create more competition for contractor selection in key markets. Our contract relations team is also improving our end-to-end operating processes in an effort to further mitigate cost increases.
One example is they now require a review of all service risk cost estimates over a certain dollar limit from nonpreferred contractors to manage our cost exposure. Second, we are continuing to maximize our strategic sourcing efforts by broadening the Frontdoor parts and equipment sourcing network and supplying lower cost materials to our contractors than they could have purchased on their own. Another example is offering our contractors direct buy programs for water heaters and HVAC equipment that we purchase at much lower prices.
The added benefit of this program is that it's digital and reduces the number of inbound phone calls from contractors. And third, we are undertaking a comprehensive review of our SG&A expenses and have already identified a number of cost reduction opportunities that will result in over $30 million of improvement to our original full year 2022 SG&A guidance.
Please now turn to Slide 10 for a review of our cash flow and cash position. Net cash provided from operating activities was $94 million for the six months ended June 30, 2022, and was comprised of $68 million in earnings adjusted for noncash charges and $26 million of cash provided from working capital.
Net cash used for investing activities was $19 million and was primarily comprised of technology-related capital expenditures. Net cash used for financing activities was $69 million, primarily driven by $59 million used for share repurchases. Since launching the $400 million share repurchase program last September, we have repurchased $162 million worth of shares or 40% of the total program.
I should note that we continue to prioritize share repurchases in our capital allocation strategy and remain committed to returning cash to our valued shareholders. However, like many other companies, the amount of additional share repurchases, if any, will depend on the macroeconomic environment and how our business performs throughout the rest of 2022. Free cash flow, calculated as net cash provided from operating activities minus property additions, was $75 million for the six months ended June 30, 2022, compared to $104 million for the prior year.
We ended the second quarter of 2022 with $269 million in cash. Restricted net assets totaled $159 million and unrestricted cash totaled $109 million. However, unrestricted cash, combined with $248 million of available capacity under our revolving credit facility, provides us with a solid available liquidity position of $357 million.
I'll now conclude my prepared remarks with our current thoughts regarding the financial outlook for the third quarter and updated full year 2022 provided on Slide 11. We expect our third quarter 2022 revenue to be within a range of $470 million to $480 million, which reflects an increase in direct-to-consumer and renewal channel revenue versus the prior year period, partly offset by approximately 30% decline in real estate channel revenue.
Third quarter adjusted EBITDA is expected to range between $65 million and $75 million, which is below the prior year period and driven by the accelerating inflationary cost trends, the impact of the July heat wave on HVAC claims and the challenging real estate environment.
Turning to our updated full year 2022 outlook, revenue is projected to be within a range of $1.63 billion to $1.65 billion. The full year revenue growth assumptions include upper single-digit revenue growth in the D2C and renewal channels and a nearly 30% decrease in the real estate channel, driven by the historically challenging seller's market and extremely low levels of home inventory.
On a consolidated basis, our core home service plan business revenue growth is now expected to be in the low single digits. Customer count is expected to decline by approximately five percent in 2022, primarily driven by the weakness in first year real estate sales. Additionally, reductions in ProConnect marketing investment in the back half of the year will lower the full year revenue target to $30 million to $35 million.
Our full year 2022 gross profit margin is projected to be between 41% and 42% as a result of the challenging macroeconomic conditions, including an acceleration of inflationary cost pressures, which is partly offset by higher pricing and process improvement efforts. This projection assumes that inflation will be 20% on a cost per service request basis, and the actual number of service requests will be slightly down versus prior year.
We're now targeting full year 2022 SG&A to range between $525 million and $535 million, including a stock compensation expense target of approximately $28 million. The $30 million decrease from our original 2022 guidance primarily relates to the SG&A expense reduction actions I mentioned earlier. Based on these updated inputs, full year 2022 adjusted EBITDA is expected to range between $170 million and $190 million.
With that, I'll now turn the call back over to Bill for closing comments before Matt opens the question-and-answer session. Bill?
Thanks, Brian.
A couple of final thoughts. This management team is not pleased with where we are with this outlook. Our Board has directed me to make the changes necessary as quickly as possible. As a result, we are working with a high level of intensity to do everything we can to improve our results for the rest of 2022 and put ourselves in the right footing heading into next year.
With that, I'll now turn the call back over to Matt to open the question-and-answer session. Matt?
Thanks Bill. [Operator Instructions] Please note that our guidance is limited to the outlook we've provided. Operator, let's open the line for questions.
[Operator Instructions] Our first questions comes from Ian Zaffino from Oppenheimer. Your line is now open. Please go ahead.
Great. Thanks For taking my question. Bill, I wanted to ask a few things now that you're in the CEO seat. You mentioned ProConnect really not performing the way it should be. What exactly is going wrong there? Why does it continue to lose money? Is it basically a scaling thing? Is there something else wrong with the product? Maybe help us understand what you identify as the issues there? And maybe what you can do to sort of get it back on the right track? And then I have a follow-up. Thanks.
Yes. I think we have -- starting at the beginning, I think we have a branding issue. The term ProConnect may not have been the best term; and two, it has a ProConnect -- it's a pretty generic item. And we haven't really spent beyond building that brand and explaining really what it is about.
Second, I think we expanded too quickly. We expanded to too many cities and too many trades as opposed to building up our process and the way it happens. So we kind of spread out to, I think, 35 cities or so. We had all of our major trades. And we, in hindsight, probably should have been focused on maybe find us trade in limited number of markets.
Third, I think the way we engage with contractors and their value proposition was not enticing to contractors. So I think we had some trouble getting contractors, and I think they're a little confused by the proposition. So that's why, as I said in the script, there's a whole overhaul that we're looking at in terms of how we go to market. But let me try to step back then, and I can follow up if I didn't fully answer your question. We have the home service plan, which is primarily a repair and replace model.
What we want to do with our on-demand offering is have a repair and maintenance offering so that we are focused on areas that you don't have to access our business, our brand because you don't have a year-long subscription. We think that in tandem, a subscription model, the year -- annual contracts plus an ability to engage with us on a one-off a la carte, whatever you want to call it, basis around repair and maintenance is really an ideal blending of our overall business model.
So I think, like I said earlier, this is important to keep our focus on, on-demand. We've got to restage the ProConnect business. And in the interim, we're continuing to support it, albeit at lower levels. So we'll continue to see revenue coming out of this year. And there's been some good work done by the current team on funnel improvements and interaction with our customers and our contractors. So it's going to be important as we go forward, but it just hasn't been executed the way we probably should have.
Okay. Thank you. That's helpful. And then on the real estate side, I know you laid out a bunch of the headwinds you're seeing at the sort of macro. But are you also seeing maybe a share shift inside that market, maybe you're not holding the share like you intended to, you're not growing the share like you want to? And if that's the case, what do you plan to do about it? How do you plan to address that? And then if I just sneak in one other question, maybe for Brian, is third quarter has been very hot so far. What are you assuming as far as headwinds from the weather and increased service calls? Thanks.
Yes. So Ian, let me address the real estate piece because while I won't comment specifically on whether we've lost share or not, let's put it this way, we have to gain share. Our performance in real estate is not to the level notwithstanding a challenging market. And Jes Fields, our new Chief Sales Officer, is all over this.
She has brought in a new sales culture, she's brought in accountability, and she's doing things that are blocking and tackling. She's got now -- everybody has a weekly field sales plan, there's a weekly training module every week that the field agents have to go into. She is completely focused on real estate and not trying to chase a bunch of other opportunities, which maybe we should get to later on.
Right now, we need to fix real estate, and Jes is all over that. She's so much energy and she's really brought a dynamism, if you will, I think that's a word, to our sales process. So I couldn't be more thrilled with her hiring. And I believe she is sort of a no-excuses person, and she believes there are going to be five million to six millions of homes sold this year, and we need to get our fair share of that. Brian, I'll turn it over to you for the other question.
Thanks, Bill, and good morning, Ian. Regarding the third quarter and HVAC claims, we've had the benefit of seeing July, and it was a hot July, but we've built that into our forecast and also maybe a little more hot weather in August. And we start to trail off towards the end of the third quarter, obviously, with HVAC claims. So I think we've built that into our guidance, but we're not sitting pat watching the weather.
As I mentioned in my prepared remarks, we're improving our processes to lower our cost. We're trying to move to the mid-range, mid-80s for our preferred contractors. We're expanding our recruiting for contractors. We're improving the end-to-end processes, as I mentioned in the call. And also on the sourcing side, trying to lower our costs through maximizing our sourcing efforts and purchasing lower cost materials that our contractors could purchase. So we're watching the weather, we're trying to reduce our costs and things we can control. Is that helpful?
Thank you. Our next question comes from Youssef Squali from Truist Securities. Please go ahead. Your line is now open.
Hi. Good morning guys. This is Nick Cronin, on for Youssef. Can you just talk a little bit about the pace of price increases? I think you said you've gone through two already this year with another to go. And any impact you're seeing on customer churn? And then secondly, just for Streem, is that still on track to do $10 million to $15 million this year? I know you called out ProConnect going down. Thanks.
So let me take the price increase piece, and Brian, please augment whatever comments I make. As Brian said, we have taken two price increases, we're planning on a third. We are targeting it, well -- by the time the year ends, we will have taken approximately a 12% to 13% increase in price. Any churn or declines have been as expected, as we've said all along.
We are generally inelastic. We don't take that for granted. So we're doing everything to market and provide value to our customers. But given this incredible inflation and contractor costs, we're somewhat forced into taking pricing beyond what we might normally have expected.
So as you noted, we will have a decline in customers this year, but that is primarily due to the real estate channel. So I feel pretty good about how we're controlling and managing and staging the pricing actions that we're taking. But I'll turn the rest over to you, Brian.
No, I think you covered it well, Bill. I would -- the only thing I'd say, Nick, is that 12% to 13% price increase, if you look at it on an annualized basis, on our revenue base, that increase more than covers the COGS increase we're going to have this year. And although we're not going to see it all this year, as I described in my comments, we'll see the benefits next year. But that just shows the power of pricing with our model.
Got it. And then Streem, is that on pace to do $10 million to $15 million still?
Yes, Streem is not going to track that way again. As Bill described, we're going to view that as a technology play for us. We love the business, but it's more of a technology play supporting our core home service plan business. So we're investing less money into that business to find customers and enterprise customers. So that volume, we -- that revenue will be much lower this year than that.
And you've built that in the guidance -- the revenue guide we gave you, that's included.
That's included in the guidance, yes.
Great. Thanks guys.
It will be less than $10 million.
Our next question comes from Justin Patterson from KeyBanc. Your line is now open. Please go ahead.
Great. Thank you very much. Perhaps just a big picture one around the home service plan opportunity. This is a product that's been in market for quite some time now. How do you think about just the attractiveness of that opportunity? Where you are in market share penetration? And what the incremental investments are to really grow home service plan adoption more meaningfully? Thank you.
Yes. Justin, it's one I ponder every day, if you will. Part of the reason we're doing the customer segmentation study, which we haven't done for a few years, is to state the obvious. The world has changed and certainly the home being so much more a centerpiece of your complete life. We've got to understand those dynamics. The research -- the tracking work we do, there is still a need for repair, home maintenance, replacement of major systems.
So I think the core market, the addressable market -- and we talk a lot about $500 billion total addressable market. I'm trying to get to a real total addressable market for us. We're not going to get into the renovation business. But I do think that between the on-demand area and home service plans, we're going to have a sufficiently large business to try to attack.
So I think the opportunity is still there. I do believe we have to modernize our approach. I think there are some steps we have to take on the product and the offering. We took some steps this year with our Platinum product, which expanded services. We're able to get an additional pricing opportunities there, but we also ran into more service costs, and we launched that in the year where we had all the issues that Brian talked about with contractor costs. So I think there's some rebalancing we need to do.
But I think, overall, the market is still there. As for investment, diving through all of that right now, I think we can still have a very healthy financial model as we go forward. I think we just have to figure out what's the best way to go to market with that in terms of our marketing, our sales effort, and that's really what we're grinding on right now.
Operator. Is there another call?
Our next question comes from Eric Sheridan from Goldman Sachs. Please go ahead. Your line is now open.
Thanks for taking the question. Maybe taking a step back, I know we've talked a lot about the short term on the call. But Bill, you're new to the role you have now in the organization. It's been a couple of months since you took on that role. Can you give us a little bit of your perspective of what you've seen from inside the company? And how you think about your agenda versus maybe what in prior periods the company was focused on? And how you think about affecting change inside the organization? Maybe that's question one.
And then two, just coming back to the real estate. Again, zooming out, understood blocking and tackling renewed focus around gaining share. Can you give us a little bit sense of like how the market share dynamic changes? Like what should we be thinking of in terms of the ramp of putting investments behind wanting to change the dynamic in real estate and actually seeing it come through in the results? And how much of that is in your control as a result of investments versus out of your control just because of the broader real estate environment. Thanks for the back..
Okay. And if I didn't get all that, come back at it. But in terms of my perspective relative to where we were. At the highest level, the strategy has not changed. We still believe that there's a lot of vitality in home service plans. And we still believe that there is an opportunity for us, notwithstanding we may not have executed it particularly well to date in the on-demand piece. So that is the highest level, is unchanged. What has changed is the increased emphasis I put on home service plans. I think, previously, we're really trying to build Streem off the platform as a separate business, if you will, in ProConnect.
And I think I've come to believe that we need to be more centered almost call it one business and use the assets that we have with Streem, use the learning that we have with ProConnect, use the ability for us to evolve the home service plan piece to really build a better offering as we go forward. That is what a couple of minutes ago is what we're grinding on.
So I think the company, generally, the broad population is really excited about the direction we're going in. There's a lot of people who -- I've used the term around the company, let's reinvent the category we invented, and that's a little bit of the mantra that we're using internally as we really are questioning all elements of that. And I think we can have a very exciting modern offering.
We continue to make steps on our digital transformation. It reminds me a little bit of when I walked in to H&R Block, and Block made their major strategic error 15 years before I got there in 2011 when they didn't engage within the digital area. They said it's going to cannibalize their business, they listened to the franchisees. And we didn't really have a very good digital offering. By the time I left there, we had a product that in some reviews was superior to TurboTax. Same situation here. We've been talking about a digital transformation.
I'm really, really impressed with Tony Bacos, the people he's brought in with him in terms of the way he is relentlessly focusing on that. So I think we've got a lot of things lined up here. I've got some new members of the management team that I'm fired up about in terms of marketing and sales. And then Raj, who's working on product and pricing is just -- his experience is just invaluable.
So we're pretty jazzed about our opportunity as we go forward, notwithstanding the no one's happy with where we are in 2022. As far as real estate goes, I think what Jes and I have talked about is we've got to stop worrying about where the market is going. As Jes pointed out, when she presented to our Board last week, we're still going to have five million or six million homes sold next year. That's what our focus needs to be.
We need to be in the game with regard to all those sales. We have just re-upped our partnership with Anywhere, former Realogy. We've got a partnership with HSOA. I was with Jes last week on a sales call with another partner that we're trying to build a trusted partner relationship with.
So we are trying to go at a high level with major real estate houses, and yet -- and also do it, grind it out real estate agent by real estate agent. So as I said a little bit earlier, it's a lot of blocking and tackling. We got to make sure that we have coverage. We got to make sure we have plans. We got to make sure we have targets, and that's really the spirit that Jes has brought forward.
[Operator Instructions] Our next question comes from Brian Fitzgerald from Wells Fargo. Please go ahead Brian.
Thank you. We wanted to ask about the dynamics you're seeing, maybe more in general, in repair, in extensions, in the maintenance, maybe into home improvement over time. With the macro headwinds rising, are you seeing any shifts in consumer behavior resonating through dynamics, getting more frugal, maybe more tolerance for fixing versus replacing, anything you can tell there?
It's a great question, Brian. I think I would describe it right now as swirling winds. I think a lot of people have -- with the downturn in the stock market, with really some uncertainty generally, with the way inflation has impacted people at the grocery store, in restaurant and all the other areas, I don't think we have a full picture of this right now because it has been -- the pace has been brisk. I think, generally, these things normalize. My experience is we're going through the shock, we're going to get through it.
People are going to still want to buy a new home, people still want to their home, people are still going to need to maintain their home, repair systems, et cetera. Let's try and keep talking about the broad perspective for this company is actually quite strong. We have to execute better. There's no doubt about that. But I think that we still see things -- while there's some shocks to the system, we still see things that point to a positive future. And we'll get through this stage both as a company, and, I think in general, as an economy, and then we'll go from there.
That concludes our Q&A session for today. I will now hand back to the management team for closing remarks.
Thank you for participating this morning in our Q2 earnings call. We look forward to speaking with you going forward. Thank you.
Ladies and gentlemen, thank you again for joining Frontdoor's second quarter 2022 earnings call. Today's call is now concluded.