Frontdoor, Inc. Q1 FY2020 Earnings Call

Thank you, operator. Good morning, everyone and thank you for participating in frontdoor’s first quarter 2020 earnings conference call. Joining me on today’s call are frontdoor’s Chief Executive Officer, Rex Tibbens and frontdoor’s Chief Financial Officer, Brian Turcotte. The press release and slide presentation that will be used during today’s call can be found on the Investor Relations section of frontdoor’s website, which is located at investors.frontdoorhome.com. As stated on Slide 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, May 6, 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 may 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 the 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. Finally, we are all working remotely during this call and apologize in advance for any audio issues that might occur. Please bear with us if this happens during our remarks or Q&A portion of the call. I will now turn the call over to Rex for opening comments. Rex?

Thanks, Matt and good morning everyone. Before I jump into our business results, on behalf of myself and the entire frontdoor team, I want to extend my deep appreciation to those serving in the healthcare field, first responders and those that provide essential services through grocery stores, pharmacies, home service contractors and so much more. They have helped keep our nation going during this unprecedented time and are the true frontline heroes in America today. We would like to thank them all for what they do and express our gratitude for their sacrifices. Turning to our business, frontdoor had a strong first quarter, both from a financial and operational perspective. I am especially proud of our team’s early and decisive actions in response to COVID-19. We moved mountains, and we did not miss a beat operationally. I’m certain that the increased focus in ingenuity we have developed from this crisis will result in us emerging as a stronger and more nimble organization. Earlier this year, I asked Raj Midha, our former CMO, to take on a new role of being the Senior Vice President and General Manager of our American Home Shield and HSA business. I’ve relied on Raj’s insightful counsel since I started and I am truly excited as he now focuses on the strategy and execution of our largest brands. In March, we hired Jason Marshall as our Chief Marketing Officer. Jason most recently served as CMO of Porch.com, and has held several leadership roles at other companies such as SolarWinds and Party City. We look forward to Jason driving growth and innovation across all facets and brands of our organization, especially as we re-imagine the company from a digital perspective. Jason has deep expertise in digital marketing and technology, and we are excited to have him on the team. Finally, in light of COVID-19 shelter in place orders, we accelerated the deployment of our stream technology to our contractors and real estate partners in March at no cost to them. We are already seeing the benefits of enabling remote services to help homeowners during these unique times. Streem is beginning to teach contractors and customers alike what we already know: a good experience doesn’t always require being present in the home. Turning to Slide 5, I want to go into more detail about the actions frontdoor has taken in response to the COVID-19 crisis. We have all been on quite a journey in the last few months. I’m incredibly proud of the frontdoor team and the great job they have done in maintaining normal operations for our customers. Two of our house rules revolve around obsessing about customers and being owners. Our team is certainly living up to those rules. Our contractor services have been deemed essential by state and local governments. This allows us to keep our contractors, many of whom are small business owners, working and safely providing important repairs to homeowners. When COVID-19 emerged, our first priority was to protect our associates and their families. We moved quickly and formed a cross-functional business continuity team to lead the crisis response. Working around the clock, the team was able to virtualize our company in just over a week in March. We moved all of our approximately 2,200 employees to a work-from-home environment, including our four call centers, while transitioning to a cloud-based contact center system at the same time. This transition was completed without any disruptions to our service. It was a massive undertaking and was only successful through the brute force of our technology, product and customer service teams, and I could not be more proud of their efforts. At frontdoor, our employees are our most important asset. To be successful as a company, we need our employees to operate at full capacity and we don’t anticipate any layoffs at this time. In fact, we are continuing to recruit and hire great talent across our business remotely. We are leaning into our contractor and real estate agent partnerships during this time, and we will emerge from this stronger together. As I mentioned earlier, we expedited the rollout of our Streem technology, making it available free of charge for preferred contractors and leading real estate partners to transform how they interact with customers and clients now and in the future. Frontdoor will continue to work with local, state and federal government to advocate on behalf of our contractor network to ensure that we remain categorized as essential services and provide our contractors with the resources and information they need to keep our customers and communities safe. This includes communications on how to pre-screen customers, active social distancing during service calls and managing customer conversations. We also secured 200,000 PPE masks for distribution to our contractors who lack the necessary production equipment. Nearly all of our contractors are still operating, accepting jobs and performing essential home services for our customers. In fact, some of these contractors that removed themselves from service due to COVID-19 concerns are coming back online. Our supply chain has not been materially impacted in light of the COVID-19 crisis. We have had sufficient access to parts and replacement appliances and systems. The average age for a system or appliance repair is about 10 years, and the necessary parts are generally already in stock. We also source many of our replacement systems such as hot water heaters and air conditioners from companies that have production in the U.S. and Mexico. While some of the production facilities and our supply chain have been impacted, we don’t single-source any parts or replacements and don’t see any significant impact to our business at this time. While the situation remains fluid, our supply chain team is carefully monitoring the situation and our supply position on a daily basis. Finally, we continue to furnish essential home services to our customers. We are providing them with additional information when a service request is made and have established a separate hotline to address COVID-19 questions, which has allowed us to maintain normal and safe operations. Although we do not see any significant changes in customer service request behavior in March, April claims incidents were below the prior year. We are investigating whether this reduction was due to mild weather or was COVID-19 concerns, driving some customers to postpone service requests to avoid having a contractor enter their home. We’re also looking into whether customers sheltering at home could impact claims later this year. For example, we don’t currently believe that the increased usage of certain systems, such as HVAC, will result in an appreciable increase in claims severity. As you know, the developments around COVID-19 are consistently changing. We will continue to nimbly respond to developments in real-time to mitigate the business impact. I will now turn to Slide 6, where I would normally provide an update on our 2020 objectives. However, in this environment, I felt it was more appropriate to focus on how we are navigating through this uncertain time. First, we are looking to mitigate the revenue impact from COVID-19. At this time, we believe our main exposure is within the first-year real estate channel, where we are closely monitoring the macroeconomic environment. We have seen industry reports that anticipate the second quarter of 2020 will be materially below 2019 but will then begin to recover in the back half of the year. This will clearly have an adverse impact on our home service plans sold through this channel. We also expect a delayed effect once the market reboots as it can take a couple of months before we would expect to see a meaningful uptick in home service plan sales. Given this backdrop, our real estate group is leveraging our new sales team structure and deepening broker partnerships to increase our share of home service plans sold in the real estate market. We are also encouraged by real estate agents using our streaming technology to virtually show houses, which we believe could lead to more sales of our service plans. Finally, we expect to reallocate a portion of the marketing dollars originally earmarked for real estate to further drive our direct-to-consumer channel. Leaning into the DTC channel worked well for us during the financial crisis in 2008 and 2009, and we believe this is a lever that will work for us today. In our direct-to-consumer channel, demand continues to remain solid. We launched a new advertising campaign in April as we reboot our marketing efforts. If you’ve already seen our new broadcast ads showing on prime time TV, I encourage you to look them up online as they have been well received by consumers. We have seen a sharp decline in advertising rates, especially in broadcast. In response, we’re increasing spend in areas where prices have greatly fallen and conversion remains strong. As advertising costs decline and viewership increases from consumers staying home more, we have seen our marketing efficiency improve. As you may recall, our DTC channel performs better from a retention perspective as well, which could provide some significant tailwinds for the next year. We are also seeing customer renewals remain strong during this time. Our overall retention rate was steady at 75% in the first quarter, and we have seen that trend extend through April. Our cross-functional teams continue to make progress on a wide-ranging set of objectives to improve our product, customer experience and resulting retention. Efforts include reducing cycle time, improving customer satisfaction ratings and addressing process gaps in our call centers. It is still too early to predict if these efforts will offset the potential impact of COVID-19 in 2020. However, we do believe that our value proposition of budget protection and convenience are enhanced during times of economic uncertainty and as customers stay home more. We entered this period of uncertainty with a strong balance sheet, substantial liquidity and a resilient business model that generates positive cash flow. It allows us to leverage our strengths and push forward with improving our business when others are pulling back. We understand that some smaller home service plan businesses that are exiting the market are experiencing service issues. We continue to look at acquisitions as a way to further increase our growth trajectory. Both in the home service plan business as well as technology companies such as Streem, multiples seem to be contracting, so we are keeping our eyes open to take advantage of tuck-in home services and technology opportunities. Next, we are continuing to advance our process improvements. Now that we have moved employees to a work-from-home environment, we’re continuing to focus on other ways to improve. For example, we are very excited about the new cloud-based contact center system that will allow for a better experience and improve productivity. Our technology teams have an aggressive prioritized list of goals for this year to continue to build new technology that allows us to be more efficient and nimble, and our operations teams continue to execute on our goals with higher efficiency and cost reduction. Finally, we are accelerating strategic initiatives. Given COVID-19, we have reprioritized several of our initiatives for 2020, including the accelerated stream and the deployment of our cloud-based contact center system to assist with working in a remote world. We are still advancing our rollout of Candu, but have pushed out the expansion into other trades by a quarter or two due to technology resources being pulled into other COVID-19 related projects. Candu has been providing essential services as well. We have not seen a decline in demand. We just need to refocus some of our technology teams for the quarter. These are just a few examples of our organization’s flexibility as we are able to pivot our objectives and work across teams to get things done quickly. In conclusion, we entered this period of uncertainty from a position of strength, and our business is uniquely adept to successfully navigate these challenges. I’m incredibly proud of the team’s efforts to take quick and decisive actions that allowed us to maintain a consistent level of business operations. I believe this event will only make us stronger as a company. I will now turn the call over to Brian, who will cover our financial results in more detail. Brian?

Thank you, Rex and good morning. Let’s now turn to Slide 7 and I will review the key financial results for the first quarter of 2020 versus the prior year period. We had a strong first quarter as revenue increased 8% versus the prior year period to $294 million, driven by approximately 6 points of higher price and 2 points from increased volume. If we look at our three channels, revenue derived from customer renewals was up 10% versus the prior year period due to improved price realization and overall growth in the number of home service plans due in part to our customer retention improvement initiatives. First year real estate revenue was up 2% versus the prior year period, reflecting improved price realization, offset in part by a decline in the number of first-year real estate home service plans. And first-year direct-to-consumer revenue was up 7% versus the prior year period, reflecting growth in the number of first-year direct-to-consumer home service plans, mostly driven by increased investments in marketing and improved price realization. I would like to remind everyone that we recognize revenue evenly over the course of our annual contracts. This blunts the impact of any missed first-year real estate sales in the early quarters until they are worked into our base. Thus, our reported revenue and the related impact will somewhat lag any macroeconomic trends impacting our business in a particular quarter. Gross profit increased 15% in the first quarter versus the prior year period to $147 million, while gross profit margin increased 270 basis points to 50%. Bad debt remained relatively flat in the first quarter versus the prior year period as we did not experience a material year-over-year increase in amounts owed by our customers. Net income was relatively flat versus the prior year period at $13 million, while adjusted EBITDA increased 9% to $47 million. I will now walk you through the first quarter adjusted EBITDA bridge on Slide 8. Starting at the top, we had $18 million of favorable revenue conversion in the first quarter of 2020 versus the prior year period, including $17 million from higher price and $1 million from increased volume. Excluding the impact of the change from higher revenue, contract claims costs were relatively flat in the first quarter of 2020 versus the prior year period. This was primarily due to a low number of service requests due in part to a favorable weather impact of approximately $4 million, offset by an increase in the underlying cost of repairs. The higher cost of repairs consists of normal labor, parts, appliance and systems inflation partly offset by the benefits driven by process improvements and cost reduction initiatives. Sales and marketing costs increased $7 million versus the prior year period mostly driven by incremental marketing spend to drive home service plan sales growth, primarily in the direct-to-consumer channel. The $4 million increase in customer service cost was primarily driven by investments to improve the customer experience and increase retention. And finally, we had $5 million of higher general and administrative expenses in the first quarter versus the prior year period, primarily due to higher personnel costs, consisting mainly of technology personnel. Please now turn to Slide 9 for a review of our cash flow and cash position. Net cash provided from operating activities in the first quarter was $60 million, an $8 million increase versus the prior year period primarily driven by our higher earnings and a decrease in cash required for working capital needs. Net cash used from investing activities was $3 million, a decline of $2 million versus the prior year period primarily due to an increase in cash flow from marketable securities transactions. Net cash used for financing activities was $3 million in the first quarter, a $1 million increase versus the prior year period, primarily comprised of debt payments. Free cash flow, which we calculate as net cash provided from operating activities minus property additions, was $52 million for the first quarter of 2020, $5 million higher than the prior year period. This 11% increase was primarily due to a decrease in cash required for working capital needs and higher adjusted EBITDA. Cash and marketable securities totaled $484 million at the end of the first quarter, a $49 million increase compared to December 31, 2019. Of that total, restricted net assets required to meet state regulatory requirements was $169 million, while the remaining $315 million were unrestricted and available to use for any business purpose. Our available liquidity at the end of the first quarter was $565 million, including the aforementioned $315 million of unrestricted cash plus an available un-drawn revolving credit facility of $250 million. We view our available liquidity and ability to generate cash to be a significant advantage as we navigate through this uncertain economic environment. Unlike many companies that are less liquid and taking extreme measures to build cash reserves during these uncertain times, we have the opportunity to continue to invest in our business, both organically and inorganically, for the foreseeable future while meeting our cash needs. For example, we generated enough cash in the first quarter of this year to nearly cover our full year debt service of approximately $60 million. In regard to our capital structure, there’s one point worth noting. Those of you that have followed frontdoor since our spin-off from ServiceMaster in October 2018 will recall that our leverage ratio, our net debt divided by adjusted EBITDA, was initially 3.9x. The good news is that our leverage ratio has continued to drop each and every quarter since the spin-off, and was 2.2x at the end of the first quarter 2020, well within our most recent target leverage of 2.0 to 2.5x. This is a remarkable achievement and a testament to the strength of our business model. I will now conclude my prepared remarks with some comments regarding our financial outlook. Based on our preliminary April results, in our current forecast for May and June, we expect our second quarter 2020 revenue to range between $410 million and $420 million compared to $388 million in the prior year period. We also expect adjusted EBITDA to range between $95 million and $105 million compared to $105 million in the prior year period. This outlook assumes the early impact of lower first-year real estate home service plan sales beginning to flow through, driven by the unfavorable impact of COVID-19 on U.S. existing home sales projected for the second quarter. Despite projected negative impacts on the home resale market and our real estate channel, we continue to model positive year-over-year growth in our direct-to-consumer and renewal channels for the second quarter. We will continue to monitor this impact and any subsequent change to these macroeconomic and existing home sale conditions. In regard to the full year, we have withdrawn our full-year financial outlook at this time due to the uncertainty surrounding the impact of COVID-19 on the general economy and primarily, on our real estate channel during the back half of the year. Because missed home service plan sales amortize into our revenue base 1/12 at a time, we will see some pressure early, but our overall recognized revenue and any related slowdown will generally lag the macroeconomic trends, as I mentioned previously. And similar to the second quarter outlook, we continue to model positive year-over-year revenue growth in our direct-to-consumer and renewal channels in the back half of the year. Please note that we plan to reevaluate our position on providing a full-year outlook when we report our second quarter results in early August. In taking a page from the successful playbook used during the 2008 to 2009 financial crisis, and as Rex mentioned, we expect to reallocate a portion of the marketing dollars originally earmarked for real estate to drive additional growth in our direct-to-consumer channel. As a reminder, our home service plan business grew annual revenue approximately 4% and 2% in 2008 and 2009, respectively, by focusing its efforts on driving the direct-to-consumer and customer renewal channels. In closing, I would like to stress that in response to the potential unfavorable revenue impact of COVID-19, we are closely reviewing all key expense areas to reduce non-customer-facing costs and also taking actions to deliver the cost efficiencies that we had built into our original 2020 operating plan. For example, we have significantly reduced our plans for new hires to those critical positions needed most to drive the business, and we have put a hold on travel and entertainment and employee relocations until further notice. And we have other levers we can pull if needed. At frontdoor, we remain just as bullish about the long-term prospects of our business today as we were before the pandemic. In the near term, we are simply making some adjustments to our outlook based on the volatility in existing home sales. Even with these adjustments, we are still projecting stronger annual revenue growth in 2020 than the low single-digit growth we achieved during the financial crisis. We remain extremely well-positioned even during these times of economic distress to leverage our financial strength and continue to grow our business. With that, I’ll now turn the call back over to Matt to open the question-and-answer session. Matt?

Great. I hope everyone is doing well. Thank you very much for the question. I just have two. The first one is on Candu. Rex, you talked about delaying trade expansion by a quarter or two. Could you talk a little bit about your decision there and whether or not geographic expansion is affected? And is the $15 million to $20 million of technology and Candu investments for 2020 still the appropriate way to think about it? And then secondly, given the current expectations for the U.S. real estate market, could you just talk about how we should think about when real estate first-year sales will be most impacted from a revenue perspective, appreciating that those impacts will flow through over time? Thank you very much.

Michael, I hope you’re doing well as well. In terms of Candu, I said a quarter or two, but probably more like one quarter. It’s just simply – you can imagine that during these times, we’ve pulled our technology teams to help virtualize the company. We did it in a little over a week. So that certainly took away from some of our mainstream opportunities but it’s a slight delay. I don’t want to – I want to make sure that everyone understands it’s not – we are talking about six months here, we are talking about maybe a month or two. So maybe a quarter or two is a little strong. The team continues to execute, and we haven’t seen any real change in demand. Actually, we’re seeing great demand with Candu. So it’s just a matter of getting the technology folks kind of back in line with expanding the trade, which again, I think it’s a slight delay. In terms of geographic expansion, we’re in five cities now. We think that’s kind of the right level at the moment. Every week, we’re seeing kind of increased demand like we had planned. So I think all systems are go for Candu. In terms of the investment, I think we’re still on track for the $20 million to $30 million total for the year. I don’t see that changing as well. Again, it’s just a slight delay from a technology perspective, but not a delay from an operational or our strategic plans around Candu. And then in terms of your question about real estate, one thing to consider, I believe Brian covered this in his comments as well, as we kind of go from listings when you buy a home, obviously, there’s a lag between when you buy it, when you close. That will certainly – we will be watching that closely. That will be, as existing home sales begin to pick up, we will see a lag before we see revenue as well. And then keep in mind, as Brian mentioned as well, because we recognize revenue 1/12 at a time, you will see that slowly increase kind of quarter-on-quarter. Right now, it’s hard to tell you, it’s going to be this much in Q2, and then you can see it flow out for the rest of the year because we just simply don’t know the total impact of COVID-19 just yet. But safe to say that there’s going to be some definitely slowing in real estate. That’s why we’re really leaning into direct-to-consumer. We’re really seeing some good opportunities from a marketing perspective and then really happy that our renewal rates have remained steady at 75%.

Thanks for the questions. Hope everyone is well. Two for me as well. Just Rex, maybe as you reallocate marketing dollars to direct-to-consumer, and now with Jason on as CMO, could you talk a bit more about your marketing strategy this year? And maybe what you’re seeing in April around new customer additions in that channel, in particular? And then maybe secondly, on Streem, while it’s still early, curious to hear early adoption reception you’re seeing from your service providers and real estate partners? And what type of role that could play longer term? Thank you.

Okay, great. Good to hear from you, Cory. Yes. So from a Streem perspective, we’ve accelerated the rollout of Streem, both for contractors as well as real estate agents. Both have been well received mances our realtors to really provide virtual showings in this environment. For our contractors, they’ve really leaned into the technology and this really allows them to see what the issue is without having to be inside the home, and help that homeowner. So both of those have been, I think, very well received. We continue to be very bullish about Streem and the Streem team, still working on partnerships and that type of thing. But – I think this is probably one of our – certainly, one of our better acquisitions and really loving what the Streem team has been putting together during this financial crisis. And I apologize. I think I’m having a senior moment here. What was your first question?

Good morning, everyone. I wanted to follow up on that last question. For direct-to-consumer marketing, strategically, are you focusing – is it in markets that you’re historically very strong? Or are you working – or is it more focused on markets that maybe your penetration has been less, if I think back to the spin-off and the smile state graph? Just wondering kind of where you’re targeting, where you’re trying to fill capacity and strategically, how you’re thinking about direct-to-consumer marketing?

Good morning. Yes and yes. So we have both a national strategy as well as a local strategy. So certainly, moving into kind of – have more geomarketing from a digital perspective, from a broadcast perspective, they’ll tend to be more national. But Jason and the team have been digging in on really being able to target our marketing to the areas that we want to focus on. But it’s not just smile states. We’re seeing good traction in other places in the U.S. early – prior to COVID-19. So really with the growth the team has been able to drive kind of outside the smile states. And then obviously, we want to lean in even more where we have a strong position. So both nationally and locally, we’re focused from a DTC perspective.

Great. Thank you, guys. And I hope you are all well. Two questions. I guess for me as well. The first is around something, Rex, you said in your prepared remarks about April claims incidents were below prior year, which, obviously, had a very nice effect on your gross margin. I wanted you to maybe speak to weather versus maybe sheltering at home type of impact, obviously, because the two would have quite different outcomes, particularly if the risk of seeing a spike in claim incidents post-COVID, if it’s just a shelter in at home situation? And second, a follow-up to Brian’s question about the balance sheet. And by the way, congrats on, obviously, being in a really, really strong position in this kind of environment from a financial standpoint, balance sheet standpoint. But as you look at potential M&A, can you speak to maybe tech versus – or tuck-in technology kind of enablement acquisitions versus geographic expansion? You have a very strong presence in certain areas of the country, not in others if you can maybe just speak to availability of basically, assets to buy throughout the country? And then, I guess, related, just in terms of your debt leverage, I think you’re at 2.2, Brian said earlier. How high would you let that spike in pursuing the right acquisition?

Yes. Good to hear your voice, Youssef. I think from a – I will take the last one first and I might have to – you might have to remind me of the other questions. But certainly, we take a very calculated approach to M&A. There is obviously a lot of things out in the market. But we want to make sure that one it would pass from a culture perspective. Two, we are not giving away all the synergy value just to get the asset. So when it comes to either a regional tuck-in from home service plan or technology, we really look at both. Certainly, there is not a lot of regional players out there that are our scale. I think there might be some smaller ones that may provide some value. But from a technology perspective, we do think that there is – there is technology out there that can help propel our vision and we are not prepared to kind of focus on the call, kind of what areas, obviously, that makes the price go up. So we do see opportunities in the technology space. We’re being opportunistic where there’s opportunity in the home service plan space. In terms of how high we’ll let the leverage go, that’s really – we haven’t had those conversations. Certainly, we came out almost 4x and we’re now down – I think we stand to be down close to two, our goal of two this year, for sure. So we can de-leverage very quickly. I don’t know what the right number is, if it’s four or higher, but we haven’t found an acquisition that would challenge those assumptions. So all those things, we have to really think through, but obviously, going above four would, I think, raise some eyebrows and we just have to – we have to think through it. We can de-lever very quickly. And then I am sorry, your other two questions were what? Yes. April is kind of a shoulder month for us. So it was down slightly. It wasn’t like a major decline. Certainly, probably needs a little more analysis on kind of what was weather and what was the other impacts? I think there is some concern out there of, while people are just kind of holding back and they don’t want you in your house. I think if it’s certainly something that you need to sustain life, like hot water and air conditioning and heating then certainly you are willing to have someone come in wearing the proper protective equipment to provide that essential service, maybe if it’s a leaky faucet or something you are willing to put off for a little while. So I suspect that it’s a mix of the two, but I’m not expecting a tidal wave of claims from folks who have been sheltering in place. I think there – certainly we will have our normal peak demand coming up in the hotter months, but I am not expecting a big wave. I think it was down slightly, probably due to weather and maybe a small impact to people who are sheltering in place. But April is a shoulder month. So a lot of times, you will have favorable weather in April and it pushes into May. So I think nothing material I would point out. Thank you, operator and thank you to all our analysts who participated on our call today. We are making adjustments as a result of COVID-19, and I would like to thank our team again for working incredibly hard to transition our entire company to a work from home environment while seamlessly maintaining our service levels. It was truly an amazing feat. Frontdoor remains well positioned during this period of uncertainty. We have a strong business model, substantial liquidity and a resilient workforce that will all allow us to become more nimble and stronger as a result of this unprecedented crunch. I hope that all of you and your families stay safe during this time, and look forward to seeing you in person again soon. Thank you.

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

Our first question is from Michael Ng of Goldman Sachs. Please proceed. Ladies and gentlemen, thank you for your participation. You may disconnect your lines and log off the webcast at this time and have a wonderful day.