Goosehead Insurance, Inc.

Greetings and welcome to the Goosehead Insurance 3rd Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Garrett Edson, Senior Vice President of ICR. Thank you, sir. You may begin.

Thank you and good morning. With us today are your hosts, Mark Jones, Chairman and Chief Executive Officer of Goosehead, Michael Kolbe, President and Chief Operating Officer, and Mark Kolbe, Chief Financial Officer. By now, everyone should have access to our earnings announcement, which was released prior to this call, which may also be found on our website at ir.gooseheadinsurance.com. Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements and Thank you for joining us. Thank you for joining us. I would also like to point out that during this call we will discuss certain financial measures that are not prepared in accordance with GAAP. Management uses these non-GAAP financial measures when planning, monitoring and evaluating our performance. We consider these non-GAAP financial measures to be useful metrics for management and investors to facilitate operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures for more information regarding our use of non-GAAP financial measures including reconciliations of these measures to the most comparable GAAP financial measures we refer you to today's earnings release In addition, this call is being webcast and an archived version will be available shortly after the call ends on the investor relations portion of the company's website at www.gooseheadinsurance.com. With that, I'd now like to turn the call over to CEO Mark Jones. Please go ahead.

Thanks, Garrett, and welcome to our third quarter 2019 earnings call. As we've done on previous calls, I'll provide an overview of the quarter and year-to-date, as well as discuss our long-term strategy. I'll then hand the call over to our President and Chief Operating Officer, Mike Colby, who will update you on our technology development progress and how our ongoing innovation continues to support our high levels of sustained, rapid, organic growth and profitability. Our CFO, Mark Colby, will then follow and provide more detail about our third quarter and year-to-date results. Let me start by focusing on the most important bellwether in assessing the strength of our core organic growth strategy, premium growth. During the third quarter, we delivered 44% organic premium growth over Q3 of 2018 to $202 million. Revenue grew 32% from the prior year quarter to $21.2 million. Year to date, we grew premiums and revenue by 45% and 40% to $543 million and $63.7 million, respectively. During the third quarter, two-thirds of our premium growth was realized in our franchise channel, where our royalties are 20% of revenue for the first term of a policy and 50% on renewals. While this weighting of new business toward the franchise channel causes a gap between premium growth and revenue growth in the first term of policies, it creates a spring loading of top and bottom line future growth as new business converts to renewal. We maintained our 88% client retention rate in the most recent quarter, which gives us a high degree of confidence in our ability to realize this mechanical revenue and earnings growth in the future. Overall, our franchise channel continues to perform extremely well. The accelerated growth we've achieved in this channel this year is due primarily to investments we've made over the last several years in our talent and technology. Investments in our corporate channel have also been critical to our success in the franchise channel. Our corporate team drives the development of our intellectual capital, tests new ideas and technologies, serve as trainers, coaches, and mentors to our franchise partners and set performance standards and best practices that make Goosehead the envy of our industry. We believe these investments create increasingly insurmountable barriers for those who wish to challenge us and position us well for achieving our goal of industry leadership. At the end of the quarter, franchise unit count had grown 49% from Q3 2018 to 828, while operating franchises grew 38% to 583. Both the quantity and quality of business being generated by our new franchisees continues to grow, aided by our decision to institute additional work modules prior to new agency owners attending onsite training at our corporate headquarters. In addition, enhancements in recruiting, onboarding, training, coaching, support and technology are making a major difference in accelerating new franchisees' productivity and contributions to Goosehead. We also continue to retain a robust pipeline of franchises in the implementation phase. Corporate sales headcount grew 33% from 2018 to 232 as we continue to have another successful year of recruitment in that channel. I'd like to highlight just one of our recent initiatives to leverage the resources of our corporate channel to drive accelerated growth in the franchise channel. Earlier this year, we introduced a sales coaching pilot to our franchisees that is supported by some of our most talented corporate agents. As part of the program, a corporate agent will take on a group of franchise agents and provide them with detailed coaching on sales process, lead development, time management optimization, closing best practices, and referral partner relationship management. This pilot program has developed tremendous traction in a short period of time. Three months after completion, our franchisees participating in the program have increased their production by an average of more than 55%. I'm frequently asked by investors which distribution channel is our priority. The answer is both. We could not achieve the results we do in our franchise channel without our industry-leading corporate channel to support it. We manage the business in a fully integrated manner across both channels, and this creates incredible competitive advantage that is exceptionally difficult for potential competitors to replicate. In addition to achieving great top-line growth, we also saw strong earnings growth during the quarter and year to date, accompanied by margin expansion. During the third quarter, adjusted EBITDA grew 37% compared to the prior year period to $4.6 million, while adjusted EBITDA margin expanded from 21% in Q3 of 2018 to 22% in 2019. Profits generated by our renewal business more than offset our investments in technology and talent. Year-to-date, adjusted EBITDA grew to $18.8 million, A 51% increase over 2018 and adjusted EBITDA margin expanded to 29%. Policies in force increased 45% from the prior year at 448,000 and we once again maintained our industry-leading client retention rate of 88% and world-class net promoter score of 90. Our service team's ongoing commitment to excellence helps ensure that we're able to maximize client retention Thank you for joining us today. and significantly grow our business and profitability over the longer term. In summary, we had a very strong quarter. We have a simple business with a clear strategy and our team continues to execute very effectively. We have built extraordinary competitive advantage over time with human capital and technology that is without peer in our industry. The result is a highly defensible competitive mode. All of that being said, we recognize the criticality of keeping laser focused on the prize of industry leadership and on keeping the pedal to the metal so as to create maximum distance between ourselves and others who may wish to challenge us. We feel privileged for the trust our investors place in our team, and you have our commitment to leave it all on the field every day. I'm proud of what we've accomplished, but we are just getting started. I'll now turn the call over to Mike to update you on the progress of some of our recent technology initiatives.