Following recent layoffs and a decision to sublease a chunk of its new headquarters, Asurion CEO Tony Detter looks ahead.
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One of Nashville’s biggest private companies makes billions of dollars every year by selling insurance for smart phones and repairing them when they break.
On Zoom calls in mid-July, officials at Asurion LLC explained to employees that its own operations needed fixing.
“Our mature businesses continue to perform well. What we must acknowledge is that they can’t solely prop up the company,” said a human resources executive on a video recording obtained by the Business Journal.
“We’re also in a position where our cost structure for our new businesses has outpaced their revenue and margins, which is not sustainable,” the executive added. “While we’re invested in and believe in and committed to each of these businesses, we need to make some changes to succeed.”
The layoffs and cost-cutting announced in those calls triggered a turbulent stretch at one of the most prominent technology employers in Nashville. Asurion entered the year as one of Nashville’s largest private employers by headcount, fresh off an eight-year run as the region’s largest private company by revenue, based on Business Journal research. How this revamp shakes out has implications not just for the massive employer, but also for the area’s small but quickly growing tech sector and downtown office space.
Asurion laid off approximately 1,000 people at all levels of its worldwide workforce, from Nashville to Tel Aviv, Israel — less than 5% of its global headcount, according to the company. Chief Operating Officer Barry Vandevier, who had been the company’s longtime public face in Nashville, left last month after a decade with the company. Bryan Rowe, formerly Asurion’s vice president of engineering and product, has joined Amazon.com Inc. Revenue could fall 20% or more this year in the wake of losing a key customer, according to credit rating agencies. Asurion invested $110 million to buy the assets of a money-losing public company. The company’s one-year-old, $285 million downtown headquarters is half-full on its busiest days, spurring consolidation that will free 90,000 square feet that Asurion will try to rent to others.
This isn’t the first time Asurion has expanded and contracted. Over the years, the company has borrowed billions of dollars to fund growth or payouts to its investors, then pared back that debt, and took on more again. Its debt load, rated as non-investment-grade, today stands at $12.8 billion.
Analysts have labeled Asurion as “highly leveraged,” but they aren’t alarmed. They point to the company’s profit margins, cash flow and its dominant 80% market share in the “mobile handset protection” industry as reasons why they expect growth to resume in 2023.
“We’re a home-run hitter. We feel like that [mobile] business was a home run. It is a home run,” CEO Tony Detter said in an interview. “We can continue to hit that pitch.”
To grow beyond that, Asurion is attempting to service more kinds of devices, and in different places. The company has spent big to buy a national retail chain of repair stores while also striving for a foothold in an increasingly valuable place to sell — a customer’s home — by fixing “almost anything with a power button,” including washing machines, dishwashers, internet-connected speakers and thermostats, gaming consoles and more.
“We’re not fundamentally changing our business,” Detter said. “We’re expanding where we do that, either in physical store locations or coming to you.”
That mindset is a throwback to Asurion’s origins in 1995, when investors that included current Chairman Kevin Taweel bought a company that sold roadside assistance through local wireless carriers. They pinpointed a new identity a few years later, after buying a Nashville company that had created insurance for mobile phones.
It’s not been a smooth road for the “new businesses” mentioned in the internal layoff announcement.
Asurion got into retailing three years ago by acquiring the uBreakiFix chain, which had 516 stores and a fleet of 600 vans that allowed technicians to visit customers. Asurion has ballooned the roster of stores by about 50%. Asurion is rebranding all stores as “Asurion Tech Repair & Solutions” — part of the company’s push to raise its profile, along with its new Gulch headquarters that was five years in the making.
“They expanded very rapidly and are trying to find the right dynamic to reach profitability,” said Francesca Mannarino, an associate director who tracks Asurion at ratings agency S&P Global Ratings.
Mannarino described a similar situation with Asurion’s “major appliance” division, whose repair and protection plans cover brand-name refrigerators, ovens, dryers and more.
“They entered too many markets, more than they can currently support, and are trying to find the right mix to make this a sustainable business segment,” she said.
A written S&P analysis also notes that “understaffing is resulting in a slower ramp-up” of both the retail expansion and the appliance division.
Detter noted the impact of the Covid-19 pandemic, which struck months after Asurion began its push into retail. “We had to morph because we couldn’t have customers in stores,” he said. “And we’re rebranding. Anytime you do that, you go in knowing there will be some degradation of people’s recognition of your business.
“We’ve also learned a lot about operating retail stores,” he added. “Staffing anything over the last couple of years has been tough.”
In August, Detter intensified Asurion’s effort to build a presence inside a customer’s home by snapping up assets of Enjoy Technology Inc. during that company’s bankruptcy case.
Enjoy aimed to disrupt retail by bringing the upsides of in-store shopping to the experience of ordering online. Crucially, Asurion now has Enjoy’s contract with AT&T to deliver devices ordered online and set them up at the customer’s home, creating a chance to pitch those consumers on additional offerings. It’s similar to something Asurion does for Verizon, another key client.
Enjoy Technology had negative operating cash flow exceeding $10 million per month when it filed for bankruptcy, according to court filings. Those kinds of losses “will contribute to weakened earnings in 2022-2023” for Asurion, according to S&P, before becoming accretive in 2024. At least 110 employees tied to Enjoy Technology’s Silicon Valley headquarters accepted job offers from Asurion, according to court records.
“We do enough of that work today to have the conviction we can provide that service at a low-cost rate to add revenue and profit not just to us, but to our partners,” Detter said. “The team recognizes it’ll be a difficult haul to get that cost structure down … where it’s producing profitability for us, and it’s not just a drain.”
Those are emerging sources of revenue for Asurion and ways to net new customers. The company’s mainstay has been repairing or replacing mobile devices that are lost, damaged or malfunctioning — often pairing that with tech support.
Those devices are proliferating: The average U.S. household has 22 connected devices, which is double the average from 2019, according to Deloitte.
“The last thing people will cut, if they’re trying to cut spending, is phones. Asurion saw that in the last recession; they didn’t see any material dip on that front,” said S&P Global’s Julie Herman. “That gave us comfort that Asurion could roll off some of these idiosyncratic issues, but there’s not this additional big headwind looming.”
When Detter joined Asurion in 2003, the company had more than 250 wireless customers, a dizzying web of local and regional wireless carriers. Consolidation has whittled that list to three major players: Verizon, AT&T and T-Mobile.
Asurion lost a key client after T-Mobile acquired Sprint, a deal that hit Asurion’s revenue in late 2021. T-Mobile already did business with an Asurion competitor, Assurant Inc., which is valued at $8 billion on the stock market.
Analysts said consolidation isn’t a further threat to Asurion.
“This is specialized service of replacing and repairing phones. Where else could the carriers go? Do they really want to take that in-house?” asked Bruce Ballentine, who tracks Asurion for Moody’s Investors Service. “For quite some time, carriers have been happy to outsource that, so long as they think they’re getting a good deal.”
Assurant announced a multiyear contract extension with T-Mobile last month. T-Mobile has stopped doing device repair at its own retail stores, instead directing customers to the hundreds of “CPR Cell Phone Repair by Assurant” locations.
That part of the business isn’t without risk. “The combination of newer phones being more durable and of higher quality, along with aggressive trade-in programs, is resulting in lower incidence rates — an emerging trend that is a drag on earnings,” S&P analysts noted about Asurion.
For Mannarino, one of those analysts, the biggest question for Asurion lies outside that core business.
“‘Mobile handset’ will always be their bread-and-butter,” she said. “But outside of that, what are their other growth areas, and how do those segments translate into profitability over the longer term?”
Detter is resolved to spur such growth in new and old areas of the company.
“We see the moves we’ve made as putting us in a real good position to get everything clearly prioritized so starting in 2023, we’re growing at really high rates,” he said.
For Detter, it called to mind what a senior executive said in a recent meeting: “In nature, there’sa name for things that aren’t growing: Dead.”
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