Q & A Highlights

Q: In the real estate channel, that 7% growth in member count seems pretty strong in this environment. How much price sensitivity or elasticity do you see there? Is the price useful in terms of trying to improve attachment rates? A: William Cobb (Chairman and CEO): We use some discounting in real estate on a selective basis, but not at the level of the DTC area. The growth is driven by a combination of factors, including a more local focus, education about our app and improvements, and a "grind" by the real estate team. We are very pleased with the 7% showing for Q2.

Q: You talked about kind of refining some of the strategy around 2-10. How do you position 2-10 differently than the American Home Shield brand? What's the dynamic there that differentiates in the mind of potential customers? A: William Cobb (Chairman and CEO): It's not really that different. We call it our multi-brand strategy, as the basic value proposition for home warranty is the same. We are focused on the renewal book of 2-10, which has been very strong since coming onto the platform. We are applying the AHS toolkit to meaningfully grow the 2-10 brand, which is exactly the kind of value creation we can drive when we put our full weight behind a smaller brand.

Q: I just wanted to drill down a little bit more on the real estate business and member count. So nice growth there. But can you tell us maybe -- because if we look at it, existing home sales were kind of flat, but yet your customer count grew. How much of that was driven by, let's just say, attachment rate or maybe just market share gains? And maybe specifically, can you tell us what kind of this local strategy is and what people are doing on your side to sign more real estate customers up? A: William Cobb (Chairman and CEO): The local strategy involves investing money at the local level with franchisees and brokers rather than writing big checks to corporate areas. This has helped increase the number of sessions with agents. We also introduced discounting about nine months ago, which gives agents something to sell against. Additionally, improving inventory levels allow sellers to attach home warranties more than they did a few years back. It's a grinding business, but the combination of these factors drove the attach rate up 30 basis points and member count up 7%.

Q: On the HVAC upgrade side, that's actually going very well. How do you feel about future growth in that business and what you're seeing? And maybe you could touch upon margins a little bit. And then any kind of comments on how the business performs with refrigerant changes? There's the 410A changes or at least implementations of that. So maybe any color there, too. A: William Cobb (Chairman and CEO) and Jason Bailey (SVP and CFO): We are on to something here and have refined the model. We are applying pricing tools and getting more targeted geographically. We have penetrated about 3% of our member base so far, and we think penetration rates can go very high because HVAC equipment wears out at different times. The downstream effect is positive because newer equipment reduces claims. Jason Bailey added that margins are lower than the home warranty product, probably low 20%, but dynamic pricing should move that up over time. The refrigerant changes haven't had a big impact on the ability to sell and implement the upgrade program.

Q: And then on the raised outlook on both the renewals channel and the realized pricing. Is there any broad-based pricing increase in there? Or is it more just kind of dynamically pricing and you guys are seeing the benefit from that? A: Jason Bailey (SVP and CFO): We'd attribute that mostly to the optimization around dynamic pricing. We are also seeing continued strong performance in our renewal rates. It's a combination of both, but we just get better with incremental investment in tools like dynamic pricing.

Q: Can you comment more on the real estate side? Are there any particular brokers that you're more or less aligned with, given that industry continues to consolidate? A: William Cobb (Chairman and CEO): I probably wouldn't comment directly on which brokers. With the size of our business, we have to deal across all brokers. There's been a lot of talk about the fact that we no longer have an MSA with Compass, but we still continue to do a lot of business with them. We have a great history with a lot of their agents and brokers, and we deal with virtually all of the companies to run a national business.

Q: And when you talk about your service providers and your preferred contractors, can you comment a little bit on how you feel about your coverage there over major MSAs? Is this something that the company might consider improving? Or is it comfortable with its level of coverage of preferred contractors? What's the direction there and the impact on the cost side? A: William Cobb (Chairman and CEO) and Jason Bailey (SVP and CFO): We have about 17,000 contractors in our network, of which about 4,000 are preferred contractors. We have national coverage and constantly refresh that amount by rating contractors on both cost and quality. Jason Bailey added that we have very good coverage in major MSAs, and the preferred rate is near all-time company highs at 84%. A 1% change in the preferred rate is estimated to be worth between $8 million and $10 million in gross profit.

Q: And I didn't hear any comments on appliance sales. I thought that was part of the strategy somewhat along the HVAC. Is that still ongoing? A: William Cobb (Chairman and CEO): That's our next trade that we're moving into. It's moving out of pilot now, and we're expanding it more in Q4. We feel good about the pilot and how it's going. We've established the essence of the model with HVAC, and while it's a lower price point, there are a lot more appliances in the home. It will be the second trade we start to expand nationally.

Q: And just lastly, when you talk about dynamic pricing, can you expand a little bit on that? What are the dynamics that contribute to dynamic pricing? A: Jason Bailey (SVP and CFO) and William Cobb (Chairman and CEO): We've refined our dynamic pricing models over the last four to five years, with the primary focus on the renewal book. There are over 60 factors that go into the model, including geography, size of the home, past experience

For the complete transcript of the earnings call, please refer to the full earnings call transcript .