Bill Cobb: Okay. Let me take those, and Jessica, if you want to add anything to that. In terms of the marketing investment, we have – as Jessica pointed out earlier, we have two growth engines here. Next year, we will be spending the vast majority of our marketing money on American Home Shield. We’re still working through the exact mix. We’ll spend less on Frontdoor. But it is important to keep the vitality of the Frontdoor brand. Because to answer your second question in terms of on-demand, the catalyst for that is going to be customers, all non-AHS customers, thinking that Frontdoor is the place to go for repairs, maintenance, and upgrades. So the key is to continue to build the brand and make it synonymous with this a-la-carte offering.
That’s going to take us a while, but we have to maintain a level of pressure for next year. So that in terms of a return will probably be a negative return next year. But it’ll be part of our overall fit within our overall equation in terms of our SG&A expense, et cetera. So that’s Frontdoor and that’s how we think we can get to the on-demand piece. The other thing is the TAM on that market is much bigger than just the home warranty market, and that’s what makes us excited. We have seen with this real estate situation that people are staying in their homes longer. Well, systems are going to continue to break and so we do think that there’s a big opportunity for people who don’t want to get locked into a contract to use the on-demand piece. Now, as far as AHS investment, that’ll be a – in a more traditional sense of the spending we have for the returns we want to generate.
So that will be – I won’t get into specifics of what we’re looking for in terms of CAC or anything else. But that’ll be – that’s an existing business, that’s a business we want to invest in. We did not spend at the levels we probably should have this year, but we’re going to correct that next year. And I think with a fresh new message and really driving home the benefits of the home warranty, I’m excited that our DTC one business will start to turn around, we’ll see on real estate, and I’m really pleased with how renewals continue to be so resilient.
Eric Sheridan: Thank you.
Operator: [Operator Instructions] The next question is a follow-up question from Mark Hughes from Truist. Please go ahead, Mark. Your line is now open. Please do ensure that you are unmuted locally.
Mark Hughes: Okay. Yes. Here I am. Thank you. Good morning. Is there a particular seasonality to be on-demand? Is that a kind of Q2, Q3 along with the HVAC? Or should we think about that being more steady through the year?
Bill Cobb: I think that’s an intriguing question. I don’t think we know it. We don’t have a great answer for you now. Other than I think generally home services follow a seasonal pattern, which is spring cleaning, spring, I got to get our house in order over the summer stuff breaks, especially in the HVAC area. So I do think the seasonality would be consistent, but I can tell you that we’ve got a great empirical study on this. But I think my sense is, this maybe a little better as a year-round business, but if it just follows the pattern of our service requests, the seasonality would be the same.
Mark Hughes: And then on the real estate channel, I hear what you’re saying about higher interest rates impacting activity there, some indication perhaps at least year-over-year, some of the purchase activity could be steady or even moving up possibly. How much do you need kind of more days on market to put pressure on the sellers? Or if you could just theoretically if the existing home sales flattened out or turned positive, how much of a help would that be?
Bill Cobb: Yes. As the days on market is a big deal. I know only 21 days on market because with that level of inventory that drive demand is high against a limited number of homes. So the seller doesn’t feel. It doesn’t feel it’s necessary to attach a home warranty. I think what – if ideally it’s more like four to six months worth of inventory, that probably is more ideal for us. But we’re not sitting still, just fields and the real estate team are really starting to turn their attention, trying to engage buyer agents more, not just the seller agents to get that direct-to-consumer piece. We also have a big team lined up against trying to drive increased real estate RE 1 renewals. So there are various ways we can go at this.
The overall real estate business while we’re working through this macroeconomic effect of the industry continuing to have this severe decline. And again, the real estate business is resilient. It’s going to come back. We continue to hold our share within the amount of home warranties that are done through the real estate channel. But having said that, we’re working across a lot of different dimensions to try to drive units.
Mark Hughes: Understood. And then Jessica, did you give specific numbers for sizing the weather impact on EBITDA or the preferred contractor utilization?
Bill Cobb: Over to you, Jessica.
Jessica Ross: No.
Bill Cobb: You’re the weather person.
Jessica Ross: Yes. No, well, we definitely had less flavor on Q3 compared to prior quarters this year. We talked about last quarter there being about – sorry, last quarter we talked about the decline in the cooling degree days and that being significantly lower, this year was about 3% up compared to last year. So last quarter Q3. So that should give you some flavor into where that’s placed. Definitely less of an impact in Q3 than what we saw in the first half of the year.
Mark Hughes: And then the preferred contractor utilization?
Jessica Ross: And that’s about 83% this year. And again, 1% change in percent to preferred drives about $5 million in gross profit.
Mark Hughes: Excellent. Thank you.
Jessica Ross: Awesome. Thank you.
Operator: Ladies and gentlemen, thank you again for joining Frontdoor’s third quarter 2023 earnings call. Today’s call has now concluded.
