Frontdoor Inc

NASDAQ:FTDR

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, welcome to Frontdoor's Fourth Quarter and Full Year 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'll 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 Fourth Quarter and Full Year 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 in 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, February 24 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.

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

[Rexford Tibbens, executive]

Thanks, Matt, and good afternoon, everyone. Turning to Slide 4. Our team delivered another strong year as we continue to build a solid foundation for success, and we remain extremely optimistic about Frontdoor's long-term vision.

Before I review our near-term objectives, I would like to take a moment to ground us all on why we believe there's incredible opportunity ahead of us at Frontdoor. The broader home services industry is roughly $500 billion, with repair and maintenance comprising roughly half of the market opportunity. Our core home service plan business is primarily focused on home repair, but we're also growing into home maintenance services through our Shield Platinum offering and our ProConnect business more broadly.

The home service plan category remains significantly underpenetrated. There are an estimated 6 million home service planning customers in the U.S. compared to roughly 130 million single-family homes for a penetration rate of approximately 4%. This is a substantial opportunity in the home repair category alone and creates 2 distinct opportunities for Frontdoor.

First, we are reimagining how homeowners consume home services and believe there is a real opportunity to create a digital-first service experience, whether that be for home repair or home maintenance. We need to eclipse the days of sending out someone to understand the problem and move to the days where we can diagnose and troubleshoot remotely, providing a digital experience that is good for the customer, cost effective for our company and better for our environment.

Second, beyond our core home service plan business, ProConnect and Streem are pivotal to providing deeper category penetration of the home services industry. ProConnect is the emerging on-demand business that straddles both home repair and maintenance services while our Streem technology is the enabler for the entire home service industry.

Used outside of our traditional business, Streem is also a SaaS recurring revenue platform with external customers using our technology. As we move more towards a digital-first experience, we have the opportunity to provide that experience and technology to other companies outside of Frontdoor.

As a home service plan founder and leader, Frontdoor is positioned to be the primary beneficiary of the growth from the digital-first experience. In order to realize that potential, we need to reimagine home repair and maintenance, provide a more consistent customer experience and expand our value proposition.

Transformations are rarely easy, and we are still in the early stages of digitizing our operations by enhancing the growth of our core business and further expanding ProConnect and Streem. Although we have experienced some near-term headwinds impacting our recent financial performance, we remain steadfast in our mission and strong in our resolve for the future of this business.

I would like to remind our listeners that we have spent the vast majority of our public company life in the middle of the pandemic. Still, in spite of that, we have shown a highly resilient business model that has grown annual revenue nearly 30% and generated nearly $1 billion in adjusted EBITDA since we spun in 2018. We are just getting started and imagine what we can do once the short term market pressures and the pandemic subside.

Now turning to Slide 5, an overview of our 2021 performance. Last year, Frontdoor delivered strong results. Brian will walk through the numbers in a moment, but a few highlights to consider.

We increased revenue 9%, which is our highest annual growth rate as a public company. We did this despite a 4% decline in our real estate channel revenue. We also grew gross margin, increased adjusted EBITDA 11% to $300 million and generated over $150 million in free cash flow.

Additionally, Brian and our finance and legal teams did a great job refinancing our debt structure in the middle of last year to significantly improve our financial profile. We also utilized over $450 million of cash to repay approximately $350 million of debt and then launched our share repurchase program in September. In just 4 short months, we repurchased over $100 million in shares as part of our efforts to return value to shareholders.

I want to acknowledge that our fourth quarter performance was significantly impacted by the sharp increase in inflationary pressure that emerged in the second half of the year. I think it's no secret that inflationary pressures are real across all businesses, but we look forward to walking through our approach to help mitigate this new reality.

Additional 2021 highlights include launching our new direct-to-consumer or DTC product lineup, overdelivering on our ProConnect revenue target of $20 million but also driving operational improvements that help offset much of the external pressures, specifically in the second and third quarter of last year when we exceeded our adjusted EBITDA outlook.

Lastly, I'm proud of the launch of our first sustainability report. I'd like to thank all the team members who are instrumental in producing it. This is a strong first step in increasing investor transparency in our company's efforts, an example of our commitment to enhancing the environment, expanding our social initiatives and evolving our governance practices.

For example, there has been meaningful progress over the past year on our ability to reduce contractor truck rolls as a result of using Streem technology and the ongoing annuity of environmental benefits we expect it will generate. In addition, we exceeded our first campaigns to drive awareness to the prospects of the career at a skilled trade by providing trade school scholarships and investing in hands-on work experiences for high school students.

Now turning to Slide 6 in a review of our 5 top objectives for 2022. First, we are focused on increasing demand growth in our core home service plan business. Second, we are looking to advance the customer service experience and increase customer retention, which requires us to rethink our service delivery strategy. Third, we're going to further strengthen our business processes, continue to dynamically adjust prices and leverage our scale to address rising cost inflation. Fourth, our team is working hard to expand the depth of our ProConnect offering and increase utilization of our Streem technology in our core business as well as with third-party commercial customers. And fifth, digital transformation. The technology team will be making progress to advance our digital transformation that will support our objectives to continue to build a strong foundation for the future.

Let's dive deeper into some of the top priorities I just outlined on Slide 7. I am pleased to report that our DTC business is showing some green shoots from the improvements we talked about on our last earnings call.

As previously discussed, the team faced several challenges in the middle of 2021 that impacted sales growth. The team quickly pivoted and implemented a set of improvement efforts. These efforts have been working well, and we feel these issues are largely behind us and ended the year on a positive note in terms of customer addition.

The DTC team is currently executing against our new plan, and we now have visibility that those actions have been working. These efforts include growing our audience and expanding into new media partners by increasing the investment in our DTC channel. We continue to focus on diversifying our marketing spend into new mediums. Some of these efforts will also help us optimize customer acquisition costs by improving our advertising effectiveness.

Additionally, we continue to aggressively invest in optimizing our e-commerce platform and digital marketing efforts to improve our conversion funnel by utilizing data science and machine learning.

And finally, we are also diversifying our demand mix including further expanding DTC sales to recent homebuyers as well as adding insurance and mortgage partnerships. We expect these new commercial partnerships to start small and then grow over time.

Turning to our real estate channel, where we have been seeing volatility as a result of the unprecedented sellers market. In 2021, existing home sales hit a 15-year high of 6.1 million units sold, which creates a large pool of homes to sell home services plans to. However, we struggled to place our products as part of those real estate transactions. The macroeconomic environment for home service plans remains under pressure amid very low hold inventory. The National Association of Realtors, or NAR, reported that inventory of unsold existing homes fell to a new all-time low of 850,000 at the end of December or only 1.6 months of supply. This compares to a normal market of around 4 to 5 months of inventory. Median existing home prices increased nearly 16% to $350,000, the longest earnings string of increases on record. As a result, Frontdoor's real estate channel declined in 2021, which will create some near-term pressure in our renewal channel as well.

For 2022, NAR is forecasting a 3% decline in existing home sales to approximately 6 million homes. Our real estate channel is predicting that the tight sellers market will largely continue despite expectations of rising mortgage rates and some improvement in inventory levels.

In response to this environment, we are taking the following actions, aggressively looking to expand our channel share with our largest real estate partners, completing a strategic realignment of our real estate sales organization to focus on key geographic markets. And further, we'll be launching a newly expanded product line up in the real estate channel that is comparable to our new DTC products in the next few months.

Similar to our DTC channel, we expect this tiered product line up will be well received by customers in our real estate broker partners given the improved coverage. Real estate is a great channel for us, and we are determined to rebuild our demand footprint. But given the decline in new customers last year and tight home inventory levels, it will take time.

As I stated last quarter, we continue to look to expand commercial partnerships that would offset the volatility within the real estate portion of our business.

Within the renewal channel, we are redoubling our efforts to improve our customer retention rate from 74.2% at the end of last year, being closer to 75% by the end of 2022. While the decline is mostly due to a drop in new customers, specifically in our real estate channel, there is much we can do to empower every homeowner to feel confident and he controls our homes through initiatives such as working to significantly improve the service experience and reduce our cancel rates over time by leveraging a digital first mindset and by continuing to optimize dynamic pricing, properly study member expectations by simplifying our contract language, enhancing our products' coverage, building on our success of offering ProConnect maintenance services to current HSP members by expanding the assortment of services available to them and optimizing the renewal experience through deeper personalization and better use of technology.

Now turning to Slide 8 in a review of our technology objectives. The North Star for our technology team is to improve the service experience through a digital-first approach for both our customer and contractor experiences. While telephone calls will remain an important option for customers and contractors to communicate with Frontdoor, we are focused on creating simple and efficient digital self-service experiences that will, over time, become the default channel for most interactions. This includes launching a customer-facing service app as part of the experience which is a starting point on our journey to meet customers where they are today. Our goal is to fully integrate our Streem technology within the customer service process and within the self-contained app environment. We're spending to drive customer adoption and continue enhancing our mobile capabilities over time. Additionally, we also believe there is an operational and cost opportunity for us to drive a digital-first experience by reducing the number of phone calls and reducing manual touch points along the repair journey.

For contractors, we are working to improve interfaces and processes that will help improve service times. This includes digital-first solutions for contractors to utilize for coverages, authorizations and to enable collection and sharing of service request activities. As a leader in home data, we want to make it easier and more straightforward to do business with us, and we will advance that goal this year. Within Frontdoor, we'll be leveraging technology to speed service delivery and enhance the customer experience. This includes improving the vendor selection process by using machine learning and better data integration across the unified service request platform for better and faster service delivery.

We are also making additional investments to modernize our technology infrastructure and improve availability and scalability. This is expected to rise in a gradual improvement over time. And we expect to see some of the benefit of these efforts this year.

There is an abundance of opportunity to meaningfully advance our technology platforms this year and I look forward to updating you on our progress over the next several quarters.

Now turning to Slide 9 in a review of our actions to grow ProConnect revenue to $40 million in 2022. We brought in a new leader for ProConnect with extensive market experience in tech-enabled on-demand businesses such as Uber and SmartHop. While we have the same strategy to move into the on-demand home services space, we'll be focusing our growth in key markets while continuing to add new services to those markets.

Untapped demand exists for a convenient delivery of home services. We are working to provide the key ingredients for our digital-first, on-demand platform that changes the way people solve for their home services needs. Our vision for ProConnect is to become the one-stop shop for on-demand solutions that homeowners will go to when they're looking to resolve any of their home repair and maintenance fees. At a tap of a button, they will have access to vetted and highly rated professionals, they'll be experts in solving their issues in a timely manner with top quality service at a fair price.

Let me expand on how we're planning on achieving our $40 million revenue target this year. Our target is based on an expectation that we will continue to build out the depth of our service offerings across the 35 cities we currently operate in. Specifically, we'll be laser-focused on going deeper within the top 20 markets. We'll do this by adding maintenance services and HVAC upgrades in order to give customers more reasons to come back to the platform on a more frequent basis.

We have a significant greenfield growth opportunity in front of us, and we are intentionally moving to strengthen our foundation. There is more work we can do on the marketing front by improving our marketing efficiency, increasing cross-selling opportunities among our brands and further leveraging our contractor base. As we continue to leverage the symbiotic relationship with our core home service plan business' embedded stable of contractors, we expect to grow our ProConnect operations including contractor density and response by moving to a more automated process and then readjusting our marketing strategy.

With the improvements we are making, I am optimistic that we will capture the opportunity to accelerate our journey to the customer and process and deliver the best possible experience every time.

Now turning to Slide 10 in our Streem objectives for 2022, which are both internal and external. Internally, we are focused on expanding Streem utilization across our core home service plan business to improve customer service, improve contracting and response time as well as improve our environmental impact. These efforts are primarily around driving customer and contractor adoption to further integrating virtual diagnosis into our service experience especially for our appliance service requests. We completed over 100,000 Streem AR sessions in our home service plan business in 2021, and we are looking to increase usage by roughly 50% this year by training more of our agents and contractors on how to use and offer up Streem calls during the service request.

Externally, we have great partners that are using AR-enriched technology to change the way they interact and engage with the customers, our primary focus and reason for acquiring Streem was to use it as a catalyst for our digital-first vision. Another benefit of this small but growing business is that it's a SaaS business model that we are monetizing. It also has the potential to be a higher lifetime value with multiyear contracts that allow for a land-and-expand business model. On this front, we are focused on expanding our enterprise customer base. For example, Streem and Lowe's recently announced a spatial commerce product that Lowe's will release in the coming months.

In closing, our mission has not changed, our North Star continues to focus on reimagining home repair and maintenance and being the enabler to remove the hassle from homeownership. We strongly believe that we have a robust long-term opportunity to deepen our reach in the larger $500 billion home services industry as we pursue on-demand home services and increased penetration in the home repair category. We are taking the right actions to build a strong foundation and drive sustainable long-term growth that will drive improved financial performance in the future.

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

[Brian Turcotte, executive]

Thanks, Rex, and good afternoon, everyone. In 2021, the entire Frontdoor organization did a tremendous job of dealing with significant external volatility. Despite ongoing customer acquisition, service and supply chain challenges presented by the pandemic, our team delivered strong year-over-year improvements to our financial results.

I'd like to start with a high-level review of our fourth quarter financial results shown on Slide 11 and then focus on the recent steep rise in inflationary cost pressures and our response to mitigate those costs as we enter 2022.

Fourth quarter 2021 revenue increased 5% versus the prior year period to $340 million as a result of higher pricing and a mix shift to higher priced products in our home service plan business and strong growth from both ProConnect and Streem, offset in part by lower volume in first year real estate.

ProConnect and Streem revenue, which are included in our other channel were $9 million and $3 million, respectively.

Gross profit increased 2% in the fourth quarter versus the prior year period to $141 million, and our gross profit margin was 41%.

Net income was $7 million for fourth quarter 2021 versus $2 million in the prior year period as higher gross profit and lower interest expense were partially offset by increased investments in sales and marketing and technology and higher personnel costs.

Adjusted net income increased $2 million over the prior year period to $9 million.

Adjusted EBITDA was $28 million in the fourth quarter or $4 million lower than the prior year period. And I'll now provide context for the year-over-year decline.

Let's turn to Slide 12 and I'll discuss the recent acceleration of inflationary cost pressures in the second half of the year that impacted our financial results in the fourth quarter. In short, claims costs came in significantly higher than we originally guided during our earnings call in October. And this surge in cost inflation came from 4 main factors. First and most significantly, we experienced much higher contractor costs than expected due to the steep rise in the cost of the parts and equipment they supply directly as well as much higher labor and fuel expenses. This was a sharp deviation from the trends we had experienced through mid-August and significantly more severe than we had expected for the balance of 2021.

Second, the Omicron variant spiked after we reported third quarter earnings in late October, exacerbating the inflationary trends and also drove a higher number of service requests than we were expecting in the fourth quarter as many of our customers return to sheltering at home.

Third, the higher-than-expected growth in the adoption of our new product offerings resulted in higher claims costs. While we continue to see excellent trends from our new Platinum product that we believe will benefit us over the longer term through improved customer satisfaction and higher renewal rates, it was more popular than we projected and resulted in higher costs than anticipated.

And fourth, we took certain actions to improve the service experience for our customers that drove higher-than-expected costs. Focused on improving service request cycle times, these actions included a higher mix of contractors supplying their own parts as well as improvements to our appliance replacement processes. These changes were made in response to global supply chain challenges and occurred at the same time the rapid inflation that is entering our cost structure.

A likely question an investor may have is why didn't you speak to the higher inflation when you provided your fourth quarter outlook? To level set, we have seen very favorable cost trends in the second and third quarters that led to our substantial EBITDA beats versus forecast in those quarters and we had expected those favorable trends to continue into the fourth quarter.

As you may recall, I mentioned on the third quarter earnings call that we were anticipating higher inflationary cost pressures in 2022 as we had already begun our negotiations with our parts and equipment vendors and preparing for our projections for increased contractor costs.

While our strategic sourcing team did a great job managing our direct spend all year, the significant spike in labor, fuel, parts and equipment costs that impacted our contractors was not anticipated in the fourth quarter.

To provide more context, I'll dive deeper into what transpired in the second half of last year and what actions we're taking to mitigate the cost pressures in 2022.

First, we saw higher cost per claim throughout the year but not to the level experienced in the second half. In 2021, the full year cost per service request increased over 7% versus 2020 levels. However, we only saw low a single-digit increase in the first half of the year and then experienced upper single-digit inflation in the second half of the year. The good news is that after first quarter 2021, service requests declined from their pandemic-related highs in 2020 and although not back to pre-pandemic levels, helped offset the cost inflation impact on gross profit.

For full year 2021, service requests declined about 2% versus prior year to approximately 4.6 million as a result of fewer customers sheltering at home.

Second, our visibility to the higher cost was delayed as many contractors were behind in submitting their invoices due to heavy workloads and reduced staffing levels. This was the main driver of the increased development of prior period claims costs, which primarily related to the third quarter. As I mentioned, we were expecting the third and fourth quarter service costs to increase at a mid-single-digit rate versus the prior year, but they were actually in the upper single-digit range.

Unfortunately, we traditionally don't have clear visibility into realtime contractor costs, especially when contractors directly supply their own parts and equipment, but we have initiatives in flight to address that. This is quite different compared to the great visibility we have into our own direct spend for parts and equipment.

Third, there was an unprecedented surge in broad inflation that surprised the entire industry mainly toward the end of the year. We saw a consumer price index increase of 7% in December impact the larger economy, and cost inflation rose much faster than that for the home services industry.

In December, the producer price index year-over-year increase for appliances was 21%. Water heater prices were estimated to be up 45%, and steel prices were up nearly 70%.

While we were surprised by both the rapid turn and scale of inflation that impacted our contractors, the team quickly took actions not only to partially mitigate the impact, but also to improve visibility going forward.

As a result of the current environment, we are continuing to aggressively address rising inflation and ongoing global supply chain challenges through the following actions: First, raising rates using our dynamic pricing models while focusing on minimizing the impact to customer growth. We are targeting a mid-single-digit price increase in 2022 with price contributing to the majority of the growth and the remainder from a shift in product mix.

While we began increasing prices dynamically in our DTC channel in 2021, we have just begun increasing prices for renewals, and we'll increase prices in the real estate channel early in the second quarter.

Second, implementing a host of process improvements with contractors. This includes increasing the percent of jobs given to our preferred contractors and redoubling our contract relations efforts around recruiting and managing contractors.

While the total number of contractor firms handling service requests for us declined to approximately 17,000 at the end of 2021, the number of preferred contractors actually increased slightly versus prior year.

Third, driving broader use of technology and automating processes such as increasing adoption of our contractor portal to provide more timely and greater visibility to cost trends; and fourth, expanding our supply chain efforts. This includes broadening the types of parts and equipment that we can supply to our contractors. This will assist our efforts to drive contractors to source a higher share of parts and equipment through Frontdoor, where we can leverage our national purchasing scale.

It also includes expanding our supplier base, increasing usage of our appliance purchasing portal and improving access to appliance parts for contractors in largest markets.

Until the global supply chain returns to a near pre-pandemic operating efficiency, which is not expected until at least the second half of 2022, we will continue to deal with parts and equipment cost inflation. However, as supply chains improve, commodity pricing decreases and parts and equipment inventory availability improves, we believe that we will have an opportunity to renegotiate pricing with our suppliers.

Similarly, we continue to monitor changes and broader economic conditions impacting contractor labor rates and their related impact on our claims costs.

Let's move to the table on Slide 13, and I'll walk through the adjusted EBITDA bridge from fourth quarter 2020 to fourth quarter 2021. Starting at the top, we had $10 million of favorable revenue conversion in the fourth quarter versus the prior year period.

Contract claims costs increased $7 million in the fourth quarter versus the prior year period. The increase was primarily driven by an acceleration of the inflationary cost pressure across all trades, as I just mentioned, as well as $12 million of incremental costs resulting from the development of prior period claims primarily in the third quarter. The increase was partly offset by the lower number of service requests and process improvement benefits.

Sales and marketing costs increased $4 million in the fourth quarter versus the prior year period, primarily related to increased investments to drive growth in home service plans, ProConnect and Streem.

Customer service costs decreased $3 million in the fourth quarter versus the prior year period, primarily due to the lower number of service requests.

And finally, general and administrative costs increased $6 million in the fourth quarter due to higher personnel costs and investments in technology.

Let's turn to Slide 14, and I'll review our full year 2021 financial results. Full year 2021 revenue increased 9% versus the prior year to $1.602 billion, primarily driven by higher pricing, a migration to higher-priced products and strong year-over-year growth in both ProConnect and Streem. While 2021 did not reach the revenue levels we had originally projected 1 year ago, we still delivered our highest full year annual revenue growth as Frontdoor. Higher price and the changes in product mix accounted for about 5% of our revenue growth while volume accounted for about 3% of the increase.

Looking at our home service plan channels, full year revenue derived from customer renewals was up 9% versus the prior year due to improved price realization and growth in the number of renewed home service plans.

Full year 2021 first year real estate revenue was down 4% versus the prior year, primarily due to a lower number of home service plans in this channel, offset in part by improved price realization.

The number of home service plans in the real estate channel declined due to the historically challenging sellers market, driven in part by record low home inventory levels. Full year 2021 first year GSE channel revenue was up 10% versus the prior year, primarily due to improved price realization, a mix shift to higher-priced products, and growth in the number of home service plans in this channel.

Full year revenue reported in our other channel increased $30 million over the prior year, primarily due to continued growth at ProConnect and Streem. Full year revenue for ProConnect was $23 million and Streem reached $10 million.

Gross profit increased 10% to $784 million in 2021, and our gross profit margin was 49%. This was 40 basis points higher than 2020, primarily due to favorable price and product mix and a decline in the number of service requests that was mostly offset by an increase in contract claims costs.

Net income was $128 million or $16 million higher than the prior year, while adjusted net income increased 22% from the prior year to $161 million.

Full year adjusted EBITDA was $300 million, an increase of $29 million or 11% versus the prior year.

Let's move to the table on Slide 15, and I'll walk through the EBITDA bridge from full year 2020 to full year 2021. Starting at the top, we had $93 million of favorable revenue conversion in 2021 versus the prior year. Full year contract claims costs increased $23 million versus the prior year when excluding the impact of the change from higher revenue.

Similar to what I mentioned for the fourth quarter adjusted EBITDA bridge, the business was impacted by increased cost pressure across all trades due to industry-wide parts and equipment availability challenges and high inflationary trends, offset in part by a lower number of service requests and process improvement benefits.

Full year sales and marketing costs increased $20 million versus the prior year, primarily due to investments in the DTC channel, ProConnect and Streem.

And finally, full year general and administrative costs increased $15 million versus the prior year due to higher personnel costs and investments in technology.

Please now turn to Slide 16 for a review of our cash flow and cash position for full year 2021 compared to the prior year. Net cash provided from operating activities was $185 million for the year ended December 31, 2021. It was comprised of $223 million in earnings adjusted for noncash charges, offset in part by $38 million of cash used for working capital. The cash used for working capital was primarily driven by a lower deferred revenue balance related to a decline in the number of first year real estate home service plans.

As a reminder, in the real estate channel, we typically collect payment for the annual value of the home service plan upfront through the closed process when the home is sold. And these funds are reported as deferred revenue on the balance sheet until recognized each month.

Net cash used for investing activities was $31 million. It is primarily comprised of technology-related capital expenditures.

Net cash used for financing activities was $489 million, reflecting debt reduction and refinancing in the first half of the year and $103 million used for share repurchase in the second half of the year.

Free cash flow, calculated as net cash provided from operating activities minus property additions, was $154 million for the year ended December 31, 2021, compared to $175 million for the prior year.

We ended the year with $262 million in cash. Restricted net assets totaled $175 million, and unrestricted cash and marketable securities totaled $88 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 $336 million.

Turning to Slide 17. Our capital allocation strategy remains consistent. First, we're targeting investments to drive growth, which includes both organic investments and acquisitions.

Our M&A strategy continues to evolve but remains focused on opportunities in our core business across the larger home services space, as well as technology platforms.

Our second objective is to provide a prudent debt structure for the long term, and we achieved our objective with the debt repayment and refinancing completed in June last year. The benefits of this refinance will show up on our balance sheet and on the interest expense line, which now has an expense run rate approximately half that of the 2020 level.

And finally, our third objective is to return value to you, our shareholders. With the refinancing completed, our capital allocation strategy progressed to the point where we instituted the aforementioned share repurchase program in September. It's our intention to return the majority of our excess cash to shareholders over the next few years through this program, but we could certainly pause the program for a strategic acquisition or other considerations as detailed in our public filings.

I'll now conclude my prepared remarks with our current thoughts regarding the outlook for first quarter and full year 2022 on Slide 18. We expect our first quarter 2022 revenue to be within a range of $345 million to $355 million, which reflects double-digit percent revenue increases in both the DTC and renewal channels, partly offset by a decline of approximately 20% in real estate channel revenue. We will continue to see pressure on the first-year real estate channel as the lower customer counts from the sellers market began in late 2020 and extended throughout 2021 and rolled through our 2022 revenue.

First quarter adjusted EBITDA is expected to range between $25 million and $35 million, which is slightly below the prior year period as higher inflationary cost trends are anticipated to continue through at least the first half of 2022 as well as increased investments to drive top line growth and improve the customer experience.

Turning to full year 2022, revenue is projected to be within a range of $1.7 billion to $1.73 billion and implies a year-over-year revenue growth rate of approximately 6% to 8%.

The full year revenue growth assumptions include the following: double-digit revenue growth in the DTC channel, largely comprised of higher price and the continued shift in product mix to higher-priced products, upper single-digit revenue growth in the renewal channel, driven primarily by price realization as a result of our dynamic pricing initiatives and higher renewal customer accounts and a decline in real estate channel revenue of just over 10% due to continuation of the historically challenging sellers market.

So on a consolidated basis, our core home service plan business revenue growth is expected to be in the mid-single digits. And while we're targeting low single-digit customer in 2022, this increase will more favorably impact reported revenue in 2023.

In regard to ProConnect, revenue is expected to reach about $40 million, primarily due to expectations of a higher number of jobs completed by deepening offerings across a similar geographic footprint. Additionally, Streem revenue is expected to be between $10 million and $15 million in 2022.

Our full year 2022 gross profit margin is expected to be in a range between 46.5% and 47.5%, driven primarily by the continuation of inflationary cost pressures partly offset by higher pricing and process improvement efforts that are projected to have a greater impact in the second half of the year.

We anticipate the number of service requests for 2022 to be relatively flat versus prior year. However, our outlook assumes a high single-digit percent increase in cost per service request that remains fairly consistent throughout the year. I should note that our long-term gross profit margin target for our core home service plan business remains the same, which is approximately 50%. We believe that our actions and improving market conditions will alleviate the short term margin pressures we are currently experiencing and then we should quickly get back to our target.

We're targeting full year 2022 SG&A to range from approximately $550 million to $575 million or about 33% of total revenue. Just over half of the increase relates to investments in sales and marketing to drive growth, and the remainder includes higher G&A expense, including a $10 million increase in non-cash, stock-based compensation and slightly higher service costs.

Full year 2022 SG&A also includes approximately $40 million of ProConnect and Streem operating expense. Based on these inputs, full year 2022 adjusted EBITDA is targeted to range between $265 million and $295 million.

In conclusion, while our near-term performance continues to be impacted by pandemic-driven inflationary cost pressures and challenges in the real estate market, we have an aggressive set of actions in flight to navigate through those challenges. We also remain confident in our long-term outlook for the business and are continuing to invest for growth and building a strong foundation for the future.

With that, I'll 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 our guidance is limited to the outlook we've provided.

Operator, let's open the line for questions.

[Operator]

[Operator Instructions] The first question is from the line of Eric Sheridan with Goldman Sachs.

[Eric Sheridan, analyst]

I know we'll talk a lot about inflation today, but maybe if I could start with a bigger picture one. When you think about those strategic priorities for capital and the way you take the business is aligned for the medium to long term. Can you help frame up for investors what you see as some of the big picture items where you're making decisions to build internally on the product side and position the company against dollars invested in the business versus opportunities where you might be able to accelerate some of the opportunity by going on strategically allocating capital towards buying assets and integrating assets against the sort of large-scaled opportunity over the longer term?

[Rexford Tibbens, executive]

Sure. Thanks for question. This is Rex. We're -- we continue to focus on growing demand in our core home service plan business that requires additional marketing spend as we grow. And then we'll continue to also advance our technology platforms to make it easier for customers to consume our services. And then we talked a lot about being digital first so that we start to change how the industry provides services to customers.

So along those lines, and as it relates to both customer experience and even retention, we'll continue to make the investments needed in the business. And if we see opportunities inorganically, certainly, we continue to look at those things. So with the, primarily, game changers such as we acquired Streem back in 2019, we continue to look for technology that will help us kind of in that build versus buy decision.

[Operator]

The next question is from the line of Brian Fitzgerald with Wells Fargo.

[Brian Fitzgerald, analyst]

On inflation, it's been a background factor for a while now, and thanks for the color on Omicron and shelter-in-place and prior period claims coming in and so some delayed visibility unique now. Is there anything else to call out in terms of the pace of change there in terms of causing it to inflect up as you're coming through the fourth quarter? In the deck, you talked about new products and services that you introduced and that had an impact. Maybe some more color there? And then at an addendum there, as Omicron, as that wave is hopefully crest at this point, are you seeing any relief on labor rates or ability to source more from your preferred network?

[Rexford Tibbens, executive]

It's Rex. I'll start and hand over to Brian as well. In terms of our product mix, we -- last year, we launched our kind of Good, Better, Best strategy, Shield Platinum being our highest service product in terms of offering both more coverages as well as maintenance services as well. And it's really taken off. Customers seem to really enjoy the product. So that's what Brian talks about, the kind of that mix shift, shifting more to our Platinum product, which we think helps us from a longer-term retention perspective.

As it relates to kind of labor, one of the things that we have focused on this year is really strengthening the core of our contractor base as it relates to our preferred contractors, so we increased our percent of preferred contractors this year as well. We continue to focus in that area.

We are seeing, I think -- we saw a tightness in terms of more of the fringe, our network contractors that we kind of used sparingly. Obviously, I think they were having a hard time gaining labor as well. But I think one of the great things about Frontdoor and kind of the moat that we've built is this symbiotic relationship with our preferred contractors that seemed to really help us this year as well. Brian, anything else you'd add from an inflationary perspective?

[Brian Turcotte, executive]

Yes. Thanks, Rex, and thanks for the question, Brian. And hopefully, the context that provided, there was a lot of a lot of context. Hopefully it was helpful to you.

The -- I think we've got a pretty good handle on the cost once we got visibility in November and December, what transpired in the third quarter and then into the fourth quarter. So I feel fairly confident we know what's going on as far as our costs.

The only exception to that could be what's going on in the Ukraine and with Russia, and I'm sure the oil company is going to take this opportunity to raise -- the cost of oil and gas will go up as a result. So the fuel impact on our contractors will probably be something we have to take into account. But I think overall, we have a pretty good feel for our cost at this point.

[Operator]

The next question is from the line of Cory Carpenter with JPMorgan.

[Cory Carpenter, analyst]

I'm going to stick with inflation. Just curious, how do you think about how much of elevated costs you're seeing are temporary versus perhaps some structurally higher costs going forward?

And then relatedly, last quarter, you mentioned taking price and some situations is leading to slightly more cancels than expected. So I guess my question is how much more room do you feel like you have on taking price going forward, especially if some of the inflation proves to be stickier?

[Rexford Tibbens, executive]

Yes. Thanks, Cory. I'll start and hand over to Brian. Certainly, one of the, I think, the great thing that we've built around dynamic pricing is really being able to look at our customer base within deciles of how they use the product and be able to kind of measure our elasticity along those deciles. And our model hasn't changed, so I think our customer base still remains fairly inelastic, especially as we increase the level of products and the assortment, if you will, the selection of products, we think that only helps us going forward.

So we think we can continue to leverage dynamic pricing. Our models continue to I think get better and better over time, especially as we look at things in terms of is this plus-non basis as well, as usage models, those seem to be paying off well for us. And then I think we can continue to -- just to remind the audience, we recognize revenue 12 at a time. So as we make these changes, we've certainly have already made changes within the kind of direct-to-consumer and renewals channel. We'll be making changes in the real estate channel and in the Q2 time frame as well. So as those play out, I think we have -- as Brian mentioned in his comments, we have an ability to really kind of get back to our kind of -- our goal of 50% for gross margins. Brian, anything else you'd add?

[Matt Davis, executive]

Yes. Yes. Thanks, Rex. Yes. I think when it comes to our contractors' wage inflation, Cory, I'm not sure that's transitory. That feels like something could be sticky for quite a while. So I'm assuming that's going to keep going. But I think when it comes to parts and equipment, as I mentioned, we have an opportunity there. As supply chains improve, which we think they're starting to and especially in the back half of the year, and then these commodity prices come down, the parts and inventory availability will improve.

And given our scale leverage, we will renegotiate with our vendors for parts and equipment. And I think there, we have leverage and we can reduce those costs. And again, the more we source versus our contractors sourcing parts and equipment, the better off we'll be from a cost perspective.

[Operator]

The next question is from the line of Justin Patterson with KeyBanc Capital Markets.

[Justin Patterson, analyst]

Two if I can. First, how are you thinking about scaling ProConnect over the year? Is it staying largely in existing markets and building debt or there are factors that don't cause you to expand in new markets?

And then secondly, just how are you thinking about some of the learnings you've made around marketing over the years? You've got really kind of 3 channels here, direct-to-consumer, the broader real estate piece, and then ProConnect. So just any kind of learnings you have around customer acquisition and how you're rethinking LTV would be helpful.

[Rexford Tibbens, executive]

Yes, sure. Let's take the ProConnect first, and then we'll dive into the marketing piece. We still are operating across the 35 cities. Our goal is to go even deeper into our top 20 markets. We think building out the depth of service offerings is -- continues to be the right strategy for us to reach our $40 million revenue target.

We also have been pleasantly surprised by the maintenance services that we've built. And we also think that as we continue to offer our existing customers, things like HVAC upgrades, this gives them more reasons to come back to our platform on a more frequent basis. And certainly, the more people kind of come back and use the platform, that's certainly a repeat rate, if you will, as it will help drive or help lower rather our overall customer acquisition costs.

So our strategy hasn't changed. We still think this is a great opportunity for us to take the hassle out of owning a home, give customers the transparency of upfront pricing and then that kind of peace of mind of not having to go find a vetted and skilled contractor on their own. So we still think the long-term thesis is absolutely there. Before 2022, it's really about continuing to build out those depth of service offerings, especially in the top 20 markets, continue to drive the experience, continue to drive repeat business to lower the CAC.

As it relates to marketing, we've definitely learned a lot just like, as I was talking about, dynamic pricing. There's been a lot of work around marketing in general. Certainly, from a direct-to-consumer perspective, we've really been growing our audience and expanding into new media partners. We've been able to optimize our acquisition cost by focusing on conversion and effectiveness of our advertising. And then last year, we rebuilt our e-commerce platform to even further allow us to continue to focus on conversion through A/B testing and through machine learning. So a lot of work has been done around that. I think about the now almost 4 years, there's been kind of an incredible groundswell difference in terms of how we go to the market.

And so I think that's why we're kind of bullish on at least direct-to-consumer as it relates to getting back to double-digit growth. I think a lot of the work we've been doing from a retention perspective will help as well. From a real estate perspective, we are going to launch this year the same kind of product lineup that we did in direct-to-consumer last year, that kind of Good, Better, Best strategy, we think, from a marketing perspective, that helped us as well.

[Operator]

[Operator Instructions] There are no additional questions at this time. I will now pass it back to Rex Tibbens for any closing remarks.

[Rexford Tibbens, executive]

Thank you, operator. As I mentioned at the end of my prepared remarks, our mission has not changed. Our north star continues to focus on reimaging home repair and maintenance and being the enabler to remove the hassle for home ownership. We strongly believe that we have a robust long-term opportunity to deepen our reach into the larger $500 billion home services industry as we pursue on-demand home services and increased penetration in the home repair category. We are taking the right actions to build a strong foundation and deliver sustainable long-term growth that will drive improved financial performance in the future.

Thanks again for your time today, and we look forward to updating you again soon.

[Operator]

That concludes today's conference call. Thank you and have a great day.