Goosehead Insurance, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Goosehead Insurance third 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 the 1 followed by the 4 on your telephone keypad. If at any time during the conference you need to reach an operator, please press star 0. 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.gooseheadinsurance.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 the 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 FCC 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 that are not prepared in accordance with GAAP. Management uses these non-GAAP financial measures when planning, monitoring, and evaluating 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. 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 like to turn the call over to CEO Mark Jones.

Thanks, Dan, and welcome to our third quarter 2020 earnings call. I'll provide an overview of our results for the quarter, as well as our strategy and outlook for the full year. I'll then hand it over to Mike Colby, our Chief Operating Officer, to update you on some of our technology and human capital investments as well as updated actions around the global pandemic. Our CFO, Mark Colby, will then go into greater detail on our third quarter results and outlook. We delivered phenomenal results in the third quarter, exhibiting continued strong and profitable growth with exceptional service driving high levels of client retention. We also continued to invest heavily in people and technology, which we believe will sustain our momentum many years into the future. The results further validate our unique and time-tested business model. We run the business putting clients at the center of our universe. This has had a profound effect on the lens through which we view investments in our business. All of our investments are made with the guiding objective of creating better client experiences and a more loyal client base. We invest in initiatives that create client-focused competitive advantages and our disruptive impact on the industry is without peer, producing truly extraordinary organic growth while delivering high levels of profitability. We are ardent believers in the experience curve and work very deliberately to capture and leverage our accumulated experience and intellectual capital using both human and artificial intelligence. A simple example of this is the approximately 2,500 updates we have made to our proprietary CRM system just this year. We're working, we're constantly improving, and by continuously leveraging the experience curve across a larger and larger business base, we deepen our competitive moat. Management remains by far the largest owners of Goosehead stock. and our economic interests are both collectively and individually aligned with those of our outside shareholders. We run the business as long-term owners. Our decision making is geared to creating value and achieving our long-term goal of becoming the market leader in U.S. personal lines distribution in my lifetime. Throughout our history, we have been focused on the U.S. personal line space and our accumulated knowledge and operating model has benefited from that singular focus. Our technology platform designed for our agent and client needs has been iterated over many years. It incorporates the benefits of regular input and feedback both internally across our organization and externally from partners and clients. We've done this in a disciplined, focused, and economically rational way that has allowed for consistent execution on both top and bottom line results for many years. While technology is improving the consumer experience, the role of a knowledgeable agent remains central to educating and serving clients. Our platform is designed to enhance value, in the agent-client relationship, not disintermediated. We continue to invest in recruiting, training, and onboarding to add increasing levels of high-quality talent in both the corporate and franchise channels. Investments we made over the last several years are paying increasing dividends today, and our investments today will pave the way for our success in the future. In the U.S. personal lines industry, the independent agent channel is poised for continued share gains as many traditional and established personal lines insurance carriers look to other avenues to improve their growth trajectory. Within the backdrop of this ongoing market shift, we believe Goosehead is uniquely positioned to continue to gain significant share as clients increasingly see the value creation and superior insurance experience driven by a choice product portfolio, knowledgeable agents, best in class service and unmatched proprietary technology designed to address personalized client needs. Now, let me turn to our third quarter results. I'm very pleased with our execution across all aspects of our operations in the quarter. First and foremost, our recruiting team has stayed on offense with another quarter of significant talent addition to our organization in a virtual environment. Corporate sales agent headcount and total franchise count grew 60% and 52% over the prior year respectively. These newer agents have hit the ground in a full sprint with the August training class then subsequently the September class, both setting company records in production during training, all while operating primarily in a virtual setting. Premium growth, which is a key leading indicator of future revenue growth, continues to benefit from these efforts. Total premiums placed were $301 million, an increase of 49% over the third quarter of 2019. driven by strong new business growth and continued high levels of retention. Revenues were $32 million during the quarter, an increase of 51%, and core revenue increased 43%. We achieved this strong organic top-line growth while delivering EBITDA of $9.3 million in the quarter, or 29% of revenues. Inclusive of heavy investments in people and technology to continue our momentum into 2021 and beyond. We ended the quarter with 1,261 total franchises, an increase of 52% from the year-ago quarter, while operating franchises increased 41% to 823, the third consecutive quarter of accelerating year-over-year operating franchise growth. Our significant number of signed and operating franchises with less than one year of experience bodes well for transparent and powerful growth for many years to come. Corporate sales agent count at the end of the quarter was 371, up 60% versus the year-ago period. The ramp-up of our new offices in Charlotte, North Carolina and the second Houston, Texas office are proceeding well and we're on track to open a Denver, Colorado office in the summer of 2021. The growth and expanded footprint of our corporate channel plays a significant role in driving growth and profitability in the franchise channel. The corporate channel is a testing ground for new technology and development of best practices as well as training and mentoring resources for the franchise channel. We have previously highlighted the success of our virtual sales coaching program and have continued to expand this effort through the first nine months of 2020, helping drive a 30% increase in productivity among franchise participants. We continue to manage the corporate and franchise channels as one integrated whole. Efforts and investments in the corporate channel are integral to our overall success as an organization. We're also actively expanding hires across the broader organization to support our future growth and innovation. Our recruiting team currently stands at 89 compared to 60 individuals at the end of 2019. In the first nine months of the year, we increased our information systems development team by 200%, which is enabling significant progress on our technology innovation roadmap. The combination of the omnichannel experience with our world-class service team is having a meaningful positive impact on the overall insurance buying and service experience as evidenced by our increased net promoter score of 91 from 90 at the end of the second quarter and 89 at the end of 2019. As a reminder, our net promoter scores are higher than any company we've been able to identify while our costs to deliver this extraordinary level of service are roughly one quarter of industry best practice. Our technology and human capital investments will continue to drive the client and agent experiences, further strengthening our competitive advantage. Based on our results through the first nine months of 2020 and strong ongoing momentum, we are raising guidance for the year the details of which Mark Colby will cover in his section. I am extremely excited about the long-term prospects for our business. The first nine months of this year have set the stage for an exceptional 2020 under unprecedented challenges. We are keeping our foot on the gas pedal and making the important investments in people and technology to double down on our already significant competitive advantage in penetrating the enormous U.S. personal lines addressable market. I want to thank our entire Goosehead team for their dedication and enthusiasm, which makes it possible to continue to deliver for our clients, referral partners, carriers, and shareholders. With that, I'll turn the call over to Mike Colby.