Goosehead Insurance, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Goosehead Insurance first quarter 2020 earnings call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I will now turn the call over to Dan Farrell, VP Capital Markets. Please go ahead.

Thank you, and good afternoon. With us today are Mark Jones, Chairman and Chief Executive Officer of Goosehead, Michael Colby, President and Chief Operating Officer, and Mark Colby, 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.goosedeadinsurance.com. Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements, which are based on the expectations, estimates, and projections of management as of today. The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties, and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance and, therefore, undue reliance should not be placed upon them. We refer all of you to our recent filings with the FTC for more detailed discussion of the risks and uncertainties that could impact the future operating results and financial condition of Goosehead Insurance. We disclaim any intentions or obligations to update or revise any forward-looking statements except to the extent required by applicable law. I would also like to point out that during this call we will discuss certain financial measures 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 structure, tax position, depreciation, amortization, and certain other items that we believe are not representative of our core business. 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 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 like to turn the call over to CEO Mark Jones. Please go ahead.

Thanks, Dan, and welcome to our first quarter 2020 earnings call. I'll provide an overview of our results for the quarter and the resilience of our unique growth strategy, even in the current environment. I'll then hand it over to Mike Colby, our Chief Operating Officer, to update you on actions we've taken in response to COVID-19 and some macro trends and performance metrics we are currently observing. Our CFO, Mark Colby, will then go into greater detail on our first quarter results and outlook. Let me start with a little context. We have followed a battle-tested strategy that great companies adopt, especially in times of economic turbulence and uncertainty. Our teams have played offense and have been relentlessly externally focused on our clients and referral partners to demonstrate that Goosehead is a reliable, and Stable Agency and Partner. We've been using our full arsenal of tools and technology to continue to grow and prosper. We are also proud to report that we have neither sought any kind of government support, nor have we reduced pay, furloughed or laid off any employees. Mike will review our COVID-19 response in more detail, but a few examples of actions we have taken include, one, Focus and deployment of system-wide best practices to achieve full share of wallet with our clients. Two, consistent marketing to referral partners. We show up, even if it's virtually, while others don't. As a result, we gain share with existing partners and add new ones while so many of our competitors sit the game out. We have benefited from strengthened mortgage refinance activity. Our value proposition is equally powerful to refi clients as it is to buyers. We are enhancing our approaches to gaining client referrals, a lead source that is unaffected by market shocks. We are confident that our already formidable competitive moat will only be strengthened as we come through this coronavirus challenge. Thank you. Thank you. Thank you. along with some one-time public company expenses. Despite transitioning our entire team to working remotely, we have had a strong finish to the quarter while fully maintaining all of our service quality metrics. This is yet another example of the extraordinary human capital and resourcefulness that exists at all levels of the company. We continued to drive very strong growth in April, with preliminary year-over-year premium growth estimated at over 40%. Underlying demand in our industry is very attractive and stable. If you live somewhere or drive something, you have to buy personal lines insurance, either from us or a competitor. Our client retention remained constant at 88% in Q1. As a reminder, our business is similar to annuity aggregation. Roughly 30% of annual revenue is new business, and the rest is recurring renewal business. Historically, about two-thirds of new business is tied to the housing market, while the remainder is client referrals. We've built a unique and well-tested distribution model and have invested heavily in proprietary technology to drive growth in good times and in bad. Based on what we know today, we are reiterating our prior guidance for 2020 premium and revenue growth. Let me remind you that our company does not play games with guidance. We do not underpromise so that we can overdeliver. When we give guidance, it represents our best estimates of what we expect the actual numbers to be. If, in the future, our estimates change, we will let you know. but our annual expectations remain unchanged at this point. While we recognize that COVID-19 is an unprecedented event that will continue to negatively impact the broader economy, we are confident we will continue to perform well through these challenging times. Historically, we've demonstrated our ability to quickly pivot to add referral partners when existing ones experience a softening of demand. This is enabled by our extraordinary human capital and our proprietary technology that allows our people to be laser focused and highly productive in their marketing efforts. Our corporate channel functions as an incubator to test and refine new technology and sales processes and to develop best practices which can then be rolled out across the company into the franchise channel. Last quarter we highlighted the initial success of our virtual sales coaching pilot program and will look to continue to expand this initiative through 2020 and beyond. While the corporate and franchise channels are separate on paper, we manage them as one integrated whole. Our success in the franchise channel is in large part dependent on our continued investment in and support of the corporate channel. The success of this integrated model is evident in the continued growth in agent productivity, within the franchise channel, and we continue to see significant opportunity to further leverage this into the future. As our mix of business continues to shift more to the franchise channel, it is important to understand how premium converts to revenue. In the franchise channel, we earn 20% royalties on the first term of a policy and 50% on renewal terms. So as a larger relative share of new business is generated in the franchise channel, There will be a growing gap between premium growth and revenue growth. Given our 88% client retention rate, we see approximately 120% mechanical revenue growth as a policy converts from new to renewal, so strong premium growth today drives strong revenue growth tomorrow. That is why we view premium growth as the most important leading indicator of our future revenue growth. In the first quarter of 2020, premiums placed were $214 million, an increase of 46% from the year-ago quarter. In the quarter, we saw acceleration of new business growth in both the franchise and corporate channels. Franchise premiums for the quarter increased 54%, with new business premiums showing increasing rates of growth in each of the last four quarters. Total corporate premiums for the quarter increased 30%, with new business premium growing 42% over the prior year. This was a substantial accomplishment given the increasing responsibilities the corporate channel bears in training and mentoring of franchise agents. We're continuing to succeed in adding higher quality franchise recruits over time. Total franchises at the end of the first quarter were 1,012, an increase of 45% from the year-ago period. Operating franchise increased 36% in the quarter to 679. Our corporate channel ended the first quarter with sales agent headcount of 241, an increase of 31% from the year-ago period. Our business remains on offense, investing in talent, technology, and innovation with maniacal external focus and our clients and referral partners. Mike Colby will provide more detail on the current operating environment and some of our activity and key performance metrics through April and his remarks. I want to take a moment and thank our management team, employees, and franchisees for their incredible efforts, particularly over the last couple of months. Our success is made possible through their hard work, laser-like external focus, and adaptability. I could not be more excited about our long-term growth prospects. We have a talented and highly motivated team, industry-leading technology, and a proven disruptive business model to continue to grab share of a gigantic market. With that, I'll turn the call over to Mike Colby.