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spk00: Thank you for standing by. This is the conference operator. Welcome to the Goosehead Insurance second quarter 2021 earnings conference 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 would now like to turn the conference over to Dan Farrell, VP Capital Markets. Please go ahead.
spk08: 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, Mark Colby, Chief Financial Officer, and Brian Petillo, Vice President. By now, everyone should have access to our earnings announcements. 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 goose head 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. Today on the call, we will be providing a short video demo of our digital agent platform, which will be going live in the coming weeks. If you are dialed into the call by phone, you will be unable to view the demo and will experience a few minutes of silence between the start of the video demo and our Q&A. As such, we encourage everyone to go to the webcast link for the earnings call, which is posted on our IR website at ir.gooseheadinsurance.com. Also, if you're using a mobile device, you may need to press play when the video appears.
spk07: With that, I'd like to turn the call over to our CEO, Mark Jones. Thanks, Dan, and welcome to our second quarter 2021 results call. We had another outstanding quarter of very strong growth. On this call, I will provide a summary of our key results and highlight the meaningful investments we're making today that will be significant drivers of growth in our business for many years. Our CFO, Mark Colby, will then walk you through some greater detail on our financial results during the quarter and the declaration of a special dividend. We will then hand it over to President and COO, Mike Colby, who will discuss our new digital agent platform that will be available to consumers in the coming weeks and will provide a demonstration of this truly unique and powerful technology. Before discussing the quarter, I would like to spend a minute on a critical element of our competitive moat, our vast accumulated experience. We are a client-focused, tech-enabled company. Note the order of priority. Clients first, technology second, as an enabler. You will see this on vivid display when we demo our digital agent platform. There is nothing like it on the market. It is simple and comprehensive and importantly informed by artificial intelligence leveraging millions of actual quotes by our professional agents. There is no shortcut to gaining and being able to leverage that experience. It can't be replicated by newcomers to the industry. I strongly encourage interested people to try as many competitive shopping offerings as they're willing to endure and see what is actually available. Then try our digital platform. You will be amazed. I'd also like to say a word about margins. Our business model has a very long tail. The biggest growth investments we make this year won't begin to start showing up significantly in our revenue until 2024 and thereafter. We've modeled out our business and quantified the trade-offs between growth and margins. Because there is so much growth already embedded in our business, with a lot of effort, we could slow our growth down to 10% to 12% annually in four or five years, which would likely yield EBITDA margins in the low to mid 40s. Sounds pretty appealing. However, absolute profit dollars are maximized by keeping our pedal to the metal on growth with the margins we currently produce. While EBITDA margins in our current model may be lower, They are earned on a much larger base of business, producing more profits. In addition, it is critical to our competitive position that we maximize our conquests of the land grab in the market at this time and continue to build our competitive moat. Thus, we optimize both our economics and strategic sustainability by continuing to pursue the growth strategy we have been and making the investments necessary to do so. Now, let me turn to Q2. During the second quarter, growth across our business continued powerfully, further emphasizing our significant and expanding competitive model in the marketplace. Let me take a moment to highlight some of the substantial accomplishments during the quarter. Premium growth, the leading indicator of future revenue growth, continues to power ahead. In Q2, premiums increased 46%, while policies and force grew 48% compared to the second quarter of last year. Our premiums in the franchise channel grew 50% for the quarter, and this growth provides excellent visibility into powerful, embedded, highly profitable revenue growth as those policies reliably convert to renewal after one year, and our commission share jumps to 50% from the 20% we earn on new business. Our core revenues increased 40% over the prior year period. Total franchise count at the end of the second quarter was up 59% year over year. Operating franchises also grew 47% in the quarter compared to the year ago. Our franchise mix is becoming increasingly diversified geographically with 77% of franchises located outside of Texas compared to just 42% when we went public in 2018. Operating franchises outside of Texas grew 58% year over year. Importantly, because of our rapid growth rates, 63% of our total franchise base is either in their first year or preparing to onboard. While this cohort provides minimal premium in revenue today, their predictable launch and production ramp combined with our increasing retention rates should fuel powerful growth over the next decade and beyond. Also, while our franchise unit count is growing, the unit productive capacity is also growing. as some of our more seasoned franchises begin adding producers, which will be a larger and larger source of growth over time. Our corporate agent team was up 43% from a year ago, and continued investments in this channel are critical, as efforts in training, mentoring, and beta testing of new technology and processes helps drive our extraordinary growth and improved productivity in the more leveraged franchise channel. These agents represent the gold standard of performance in the industry with new business production levels, nearly four times industry best practice, which makes them very powerful supporting critical training, mentoring, and R&D functions for the company. During the quarter, we launched an office in Denver and will complete our remaining office openings in Columbus and San Antonio and second office openings in Chicago and Austin by year end. We are also expanding our Houston and Westlake offices in the third quarter. In addition to providing support to franchisees, these corporate offices help us scale nationally and enhance college recruiting and career advancement opportunities in both the short and long term. The 2021 office openings and expansions should sufficiently absorb our headcount growth through 2022. Client retention for the quarter was 89%, a record level for our business. Our improving client retention has been driven by significant investments we make in product, people, and technology. These improvements in retention will provide material economic benefits for our business over time, as the overwhelming majority of our profits are in renewal revenue. The service experience we provide to our clients is second to none, with a net promoter score of 92 in the quarter. I could not be more pleased with the consistent and high-quality efforts put forth by our amazing service professionals. In the coming weeks, we'll be launching our digital platform. Just as our strategy to date has been exceptionally difficult to replicate by competitors, our digital platform is unlike anything in the market. The value we leverage from our enormous client-focused accumulated experience can't be replicated by tech-focused startups. We are very excited to provide you with a demonstration of this new and innovative technology in the call. We believe this will be unique in the marketplace, providing clients with a direct digital shopping experience that leverages our massive accumulated experience and a true choice platform, all while preserving the unmatched benefits that a knowledgeable agent brings to the insurance buying process. While we are highly confident this platform will enhance new revenue opportunities over time, We also believe it further will strengthen our existing go-to-market strategy with mortgage lenders and realtors. Finally, we believe this new effortless client experience will make it easier for our existing clients to refer their friends and family to GUSET, adding additional sales opportunities for our agents from client referrals. While our organic growth top-line results were impressive, I'm also proud of our significant cash generation and strong financial position. Our consistent results and financial discipline have created a rock-solid balance sheet with a large amount of cash, rapidly decreasing debt to EBITDA leverage, and virtually no intangible assets. This provides us with significant flexibility as we look to the future. As communicated since our IPO, we want to maintain an efficient capital structure that includes some debt. In addition, excess cash will be periodically returned to our shareholders. Given these objectives, we will be raising additional debt and will be paying a $60 million, or $1.63 per share, special cash dividend to shareholders of record as of August 9, 2021. I am extremely excited about the sustained and powerful growth engine we have built. These results are further evidence of our focus on the client and on the clear benefits of a choice product offering, knowledgeable sales and service agents, and industry-leading technology that provides an unmatched insurance buying experience for our clients. Our runway in the market remains enormous, and our competitive moat grows each and every day. The substantial investments we're making today, which, by the way, flow almost entirely through the P&L, provide little premium or revenue benefit in the short term. However, they will be a substantial driver of our continued high levels of growth three, four, and five years out and beyond. In order to achieve our goal of industry leadership in the personal line space, we will stay maniacally focused on providing an unmatched client experience and continually improving all drivers of organic growth, recruiting, productivity, and retention. I want to thank our employees and franchisees for their tireless efforts in making Vucet such an exceptional company. And with that, I'll turn the call over to our CFO, Mark Colby.
spk11: Thank you, Mark, and hello to everyone on the call. As a reminder for anyone that may have joined late, you will be unable to see or hear the demo of our new digital agent platform if you only dialed in. As such, we encourage everyone to use the webcast link, which is available at ir.goosedeadinsurance.com. For the second quarter of 2021, total written premiums, the leading indicator of our future core and ancillary revenue growth, increased 46% to $399 million. This included franchise premium growth of 50% to $286 million and corporate segment premium growth of 36% to $112 million. This growth is being driven by increasing retention rates, strong new corporate and franchise agent growth, and increasing agent productivity in the franchise channel. The continued shift in our mix of business towards the faster-growing franchise channel implies significant embedded future revenue growth. as the new business premiums reliably convert to renewal premiums, at which time our royalty fee increases from 20% to 50% for ongoing renewals for the life of the policy. At quarter end, we had roughly 872,000 policies in force, a 48% increase from one year ago, and another leading indicator of the momentum of our business. Revenues were $38.2 million for the quarter, an increase of 28% from the year-ago period, while poor revenues grew 40% to $34.7 million for the quarter. Ancillary revenue, which includes contingent commissions, was $1.7 million in the quarter compared to $4.1 million a year ago. Given the weather events thus far in 2021, we anticipate that some of our contingents may trend below average as a percentage of premium for the year, with most of the contingents coming in the fourth quarter as our results with the carriers are finalized. The franchise channel generated core revenue growth of $15.4 million, an increase of 46% from the year-ago period. At the end of the second quarter, we had 1,801 total franchises, up 59% from the prior year, and 1,072 operating franchises, up 47% from a year ago. We continue to build on our strategy of national expansion within the franchise channel, with non-Texas franchises accounting for 77% of total units compared to 72% a year ago, and these non-Texas franchises continued to grow their productivity through the second quarter. We also continued to invest heavily in corporate agent hiring and national expansion to facilitate the franchise channel growth and productivity. Corporate sales agent headcount at the end of the second quarter was 452, an increase of 43% from the year-ago quarter. Corporate channel core revenues were $19.4 million in the second quarter, an increase of 36% compared to the year-ago period as new agents continued to ramp up productivity over their tenure. Total operating expenses for the second quarter of 2021 were $34.4 million, up 54% from $22.3 million in the prior year period. Compensation and benefits expense was $22.5 million for the quarter, up 41% from the year-ago period on 40% headcount growth. This increase in compensation and benefits is being driven by our ongoing investments in headcount across the organization, particularly the hiring of corporate sales agents in support of the franchise channel growth, service agents to manage our largest revenue stream, renewals, recruiting and onboarding functions to continue our growth trajectory, and systems developers to ensure our technology is on the cutting edge for our clients and internal users, as evidenced by the launch of the digital agent platform in the coming weeks. General and administrative expense for the quarter was $10.1 million, an increase of 89% from a year ago, with the increase due to an expanding real estate footprint, higher travel and entertainment expense as the U.S. economy continues to reopen, and investments in our newly designed website and client-facing portal, as well as a number of carrier integration projects. Additionally, 2020 G&A expenses were artificially low due to COVID lockdowns. The hiring of employees and onboarding of franchisees, combined with the opening of new offices, has an immediate impact to G&A expense, while the revenue benefits scale over time as we onboard agents and as they ramp up their production. Total adjusted EBITDA in the quarter was $6.8 million compared to $9.8 million in the year-ago period. We have been investing heavily for future growth in producer headcount, expanded office footprint, and our digital agent platform. While we continue to expect additional new office locations over time, we do not anticipate the same step function increase in real estate investments in 2022, as we focus on scaling within our existing square footage over the next 12 to 18 months. We also expect that the new revenue benefit from the direct client rater will begin to ramp up in 2022, helping to offset the significant development costs. We believe laying the foundation to drive growth is more strategically critical to the business than focusing on margin expansion at this time as we continue to put distance between us and any potential competitors and continue to load future growth into our business. While 2021 earnings growth is being impacted by uncertain contingent commissions and higher than normal investments to drive revenue, over the long term, we expect to deliver high and sustained levels of both revenue and profit growth. As of June 30, 2021, the company had cash and cash equivalents of $35 million. On July 21, 2021, the company refinanced its $25 million revolving credit facility and $77 million term note payable to a $50 million revolving facility, which will be partially drawn down in advance of the dividend and a $100 million term note payable. The company declared a special cash dividend of $60 million, or $1.63 per share, payable in cash on August 23rd, 2021 to shareholders of record on August 9th, 2021. Based on our experience to date, the company is reiterating its full year 2021 outlook with respect to total written premiums and revenue. Total written premiums placed for 2021 are expected to be between $1.5 billion and $1.56 billion, representing organic growth of 40% on the low end of the range to 45% on the high end of the range. Total revenues for 2021 are expected to be between $146 million and $156 million, representing organic growth of 25% on the low end of the range to 33% on the high end of the range. Our strong first half results and the important strategic investments we have been making over the last year put us in a great position for the balance of 2021 and into 2022, as we will begin to see revenue benefits emerge from the newer initiatives. With that, I would like to turn the call over to Mike Colby, our president and chief operating officer.
spk10: Thanks, Mark, and hello to everyone. We are extremely excited to be approaching the official launch of our digital agent platform, and we appreciate the opportunity to preview this technology for you today. As I have mentioned previously, this platform will provide an effortless and completely differentiated client experience compared to the incredibly cumbersome process buyers face today shopping for personal lines insurance. The online market for personalized insurance today includes one, direct-to-consumer insurance companies, two, lead generators, and three, online independent agencies. Each of these options have inherent deficiencies that negatively impact the client experience, resulting in a customer that is oftentimes frustrated, underinsured, and paying too much for their insurance solution. Direct carriers are structurally disadvantaged in that they offer only one product option with what is usually a lengthy process of gathering personal information that can include upwards of 100 questions, many of which the client will not easily be able to answer. For a choice shopping experience, the process would then have to be repeated with many different insurance carriers to determine the appropriate coverage at the best possible price. Throughout this process, clients will be presented with options to increase or decrease their costs based on coverage additions or subtractions. choices that can be confusing and at times overwhelming to the buyer. This is precisely where getting the advice of an expert agent is critical, and gaining access to agent advice on these platforms can be difficult, if offered at all. Lead generators, digital independent agencies, or some hybrid of the two, create an even more frustrating experience for the customer by misleading them to think that they're being shocked and will be presented with accurate price quotes. a similar lengthy information gathering exercise required to start the process. Then, only a few options are returned with a pricing indication, and other brand options are returned without any indication of potential price. What's happening here is typically a lead generator gathering the customer's information and selling it to multiple insurance companies and agencies, all of which will commence an incessant solicitation campaign to the customer. Disturbingly, Some of the purchasers of this data include other lead generators who turn around and sell the customer's information again, a frustrating experience by any measure and certainly lacking any consideration for consumer privacy concerns. Furthermore, due to the lack of local market expertise or bait-and-switch tactics, any price indications offered are widely underestimated and suggest impractical, even irresponsible levels of coverage. The Goosehead digital agent platform requires as little as three data points, name, date of birth, and address. Leveraging our integrated external data providers, we can populate all of their home and vehicle data, and within 60 seconds, the client will be provided with multiple home and auto quotes, which typically can vary by thousands of dollars. Because our process is driven by artificial intelligence informed by expert agent behavior over millions of quotes across the country, We provide more accurate initial quotes with appropriate coverage assumptions. It's important to note that our system learns from the behavior of licensed expert agents compared to the other artificial intelligence designs that learn from customer behavior and compounds uninformed decision making. The complexity of insurance policies and the differences in coverage options and pricing across insurance companies is exactly the area where a knowledgeable agent can add critical value. Immediately upon providing the initial quotes, we introduced the client to one of our more than 2,000 knowledgeable agents across the U.S. who will then review all available options, make recommendations, and ultimately issue the home and auto insurance policies, a process that can take as little as 15 minutes. Most importantly, we will never sell our clients personal information, whether we win their business or not. With that, we will now play a short video within the webcast where Vice President Brian Petillo will take you through the Goosehead digital agent experience. We're very excited to debut this new platform. There's truly nothing like it on the market. You don't have to take my word for it. I'll echo Mark Jones and encourage you all to test what's available on the market today. We'd like to remind you that if you're dialed in by phone, we recommend you watch the video online at ir.gooseheadinsurance.com or you will experience a few minutes of silence. Also, if you're using a mobile device, you may need to press play when the video appears. At the conclusion of the video, our call operator will open the phone lines for Q&A.
spk06: Good afternoon. My name is Brian Petillo, and I'm excited to demo our brand new digital agent platform. As you will see, we have built a quoting platform that provides an effortless experience for the client at every step of the process. Although less than 10% of consumers buy home insurance online, many will start their research using comparison sites. As Mike mentioned, these platforms are fundamentally broken, and most of these experiences end with a client's data being sold. Our platform is completely different than anything on the market today, providing the shopping experience consumers are looking for while making sure their privacy is protected. It all starts when the client visits goosehead.com or the unique link provided to each one of our agents, which routes directly to them. Our mobile-first design provides an extremely simple and intuitive interface catering to the modern consumer. After starting to type their address, we finish the pre-fill and immediately start pulling data about the home. We will ask if it's a new purchase and confirm ownership details, then display some of the most important property data where the client can update if needed or simply proceed to the next step. At this stage, we pull in the names of the client and spouse, they enter their date of birth, and we then search for any additional drivers in the household and they can easily add with one click. On the next screen, we pull in any vehicles registered to the client so they can quickly select the vehicles they want to insure. All these data integrations provide a more convenient user experience and increase the accuracy of the quotes they are about to see. The client is now done with their portion, allowing us to take the data they provided and append it with hundreds of additional data points using our agent-driven machine learning. We know, based on millions of quotes, what coverage our expert agents would recommend, given the unique risk needs of this individual client. To get a fair comparison, each company is quoting with similar coverage levels, and we are including critical coverages many clients are missing, such as replacement cost and internal water damage. we aren't presenting low-ball quotes to drive calls. Rather, we are showing accurate quotes that an expert Goosehead agent would recommend to drive a great client experience. And because of our extensive carrier integrations, within 60 seconds, a client is presented with multiple home and auto insurance quotes. Not only can they see the insurance companies we recommend, but also review other companies we shopped with to see how they compared. Our digital agent has analyzed every home carrier combined with every auto carrier to find the option that delivers the best combination of coverage and price. It's important to note that while carriers offer discounts for bundling, about half the time it ends up in the best interest of the client to choose two separate carriers. We do the analysis so that the client can simply see the best overall solution. In contrast with other online options, we never use this screen to sell clicks, where a client is then routed to another site to start the process all over again. The client is immediately introduced to one of our more than 2,000 knowledgeable agents. This is a critical differentiator. Insurance policies are complex, offering many different coverage options and pricing, and the consequences of getting this wrong can be financially catastrophic to the client. To move forward with the quotes, a client simply contacts the agent or requests a call where they will review available options, make important recommendations, and ultimately issue the home and auto policies. This is an important milestone on our roadmap to deliver a complete purchase experience, quote to issuance, informed by expert agent intelligence. We are excited to release this technology in the coming weeks and will now move into Q&A. Operator,
spk00: We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Ryan Tunis with Autonomous Research. Please go ahead.
spk12: Yeah, thanks. Just a couple on the margin front. First of all, it looks like adjusted EBITDA margins are down about 9% year over year. Is that a good way to think about how that will probably trend in the back half of the year as well relative to 2020?
spk11: Yeah. Hey, Ryan, this is Mark Colby. So specifically for this quarter, you know, we had significantly less contingent commissions than we did last year, just given we're kind of economies opening back up. We're no longer in the COVID environment. People are driving again. And so that was the main driver of the kind of margin decrease, along with some investments that we're making in things like real estate. And, you know, again, the economy is opening back up. So we're resuming a lot more travel and meals and entertainment and and those investments that we did not make last year. As far as margins go, it'll be challenging to grow EBITDA this year, just given the tough comparison to last year with contingent commissions and the much lower expense level than we thought was going to happen last year. Overall, we're continuing to hold true in our message of driving high levels of premium and revenue growth, but it will be a little more challenging year for earnings, specifically EBITDA. Got it.
spk12: And thinking about 2022, that was helpful. You mentioned that you don't expect the same ramp up in real estate costs and some of the stuff associated with the comparative rater. Could you give us an idea of what that step up this year was, though, in real estate costs and the comparative rater costs as well, just so we can, you know, kind of think about that over magnitude out of the 22? Sure.
spk11: Yeah, we are, I don't know the specific number top of mind, but probably adding 25% to our real estate at least square footage this year with these new office openings. And our plan for next year is not to open any additional offices or any expansions. So the level that you'll see by the end of the year once all these office openings happen is kind of going to be the level for next year as well. And as far as the client radar, you know, that's something we've been investing in for years now. I'd say specifically this quarter it was to the tune of several hundred thousand dollars of investment that will continue as we roll out the product. And, you know, that will be kind of more of a steady state going into next year as well. We'll continue to maintain it and add new developments, and I'm sure some additional developments will come to us. next year but again this is this is one of the bigger pieces of technology we've ever rolled out probably the biggest so um it's hard to imagine anything anything to this level would happen again next year and all the spending again is revenue revenue which we're very very excited to scale out next year yeah so on the total written premium growth another pretty good quarter there uh 46 percent year-over-year growth but the guide is for 40 to 45
spk12: So, I mean, I guess that implies some deceleration. I'm not seeing recruiting slow. So, I mean, why are you thinking that that number is going to decelerate into the back half of the year? Like, what do you have your eye on?
spk11: You know, for guidance, specifically for premium guidance, you know, we really don't want to get in the habit of changing it every single quarter. You know, we had a very strong first quarter. And we're able to raise the guidance. And that was kind of it for the first half of the year for us. We're going to continue to wait and see. You're right, recruiting momentum is continuing, as is new business generation. Another reason that we're not raising it even higher yet is just some of this COVID Delta variant, it just creates some uncertainty for us. And again, we want to be conservative in our guidance and give you guys numbers that we're extremely confident we can hit. Got it.
spk05: Thanks, Ryan. RBC Capital Markets.
spk00: Please go ahead.
spk02: Yeah, good afternoon. A couple of questions. First, related to the dividend, it's a substantial dividend, but it seems like it's more than your cash earnings over the last year to year and a half. I mean, with so much investment going on right now, why effectively borrow to pay a large dividend?
spk11: That's been a consistent part of our balance sheet strategy since we went public, Mark, is we're going to have an efficient capital structure, which involves some debt. And we deliver so quickly in our business that periodically from time to time we're going to increase that leverage. We did recently up to four times. And to your point, we don't need this cash for operating expenses or future growth, so we are going to return it to who it belongs to, and that's shareholders.
spk02: Okay. I saw the video on the new technology. It's pretty cool. One question I have related to that is how do you – I mean, there's a lot more I could say. I'm going to try to keep focused on the questions rather than like my impressions.
spk07: I appreciate that, Mark. It's hard for me not to – this is Mark Jones. It's hard for me not to sort of chuckle at that description of pretty cool. We would beg everyone in the – anyone that has any interest in this at all to drag themselves through – the competitor offerings, each one of which is singularly horrific. And then try ours at the end. Um, it, there, there is nothing like this is a complete game changer for the industry, a complete game.
spk02: As you, as you know, I'm one of those people who like looks at those competitor websites for a living. So I've, I've been, I've been to most of them. So I, I do know cool when I see it, but, um, The question that I had was really one, I guess it's kind of an internal channel conflict question, which is to say, so if I operate your website from where I happen to live in Virginia, I mean, who will get the commission credit within Goosehead for the sale I eventually place? Will that be somebody in my local market, a franchisee I maybe have never met? Or will it go through the corporate channel and be a house sale, so to speak?
spk10: Hey, Mark. This is Mike Colby. I think it's important to understand that, one, this technology cannot be developed without input and years of accumulated experience from expert agents. And secondly, it'll continue to be refined and to be developed to be even more powerful with the contribution from our agents, and ultimately the client experience can't be delivered without agent fulfillment and agent execution. So in no way are we trying to create a conflict that would undermine our agent experience. This is simply a different way to engage with customers who prefer to engage with us digitally. That's very important. One, if you're an existing client and you come to our site, our system's smart enough to route you to your existing agent. So if you're new to Goosehead, you're exploring Goosehead options, we'll start with your local area, and then we'll be distributing leads through a round-robin distribution for agents who qualify based on certain qualitative metrics. So we want to distribute the leads to agents who are going to capture the most value and deliver the highest level of lifetime customer value. I view that as a very powerful currency to encourage improvement and performance across our agent force, and our agents will not feel undermined, or we will not be creating any channel conflict with the agent. We believe in the role of the agent, and we believe this is a powerful tool to augment our agents' efforts. And we'll be completely agnostic.
spk07: Yeah, that's what I was going to say, Mark. We're going to be agnostic by channel. So what we want is the – we want the agent that's going to do the very best job with the lead to get the lead. And that – so we'll be looking at things like net promoter scores and other – you know, sort of cross-selling retention numbers, all those things that create the best client experience, but also create the best lifetime client value. And so, you know, we're sort of stepping over dollars to pick up dimes if we're worried about sort of shunting them just in-house. We, you know, we believe, and it's always been our experience that If you do the right thing for the client, the money always takes care of itself, and that's our approach here, too. It's a good question, though.
spk02: Okay. That's helpful. And one last one on that, if I may. Just any reactions from your carrier partners? I know a lot of them in the past have been, I'm going to say, resistant or concerned about being presented in comparative fashions like this. Have you gotten any feedback or any pushback from any of your carrier partners related to this?
spk10: Mark, this is Mike again. I agree. I think carriers are very reluctant to be presented in a fashion like this with the options that are currently available on the market. The key differentiator with us, again, is expert agent intelligence. We're able to, using our tool, using our data, using our agents, understand how to more efficiently match risk with risk appetite. And, in fact, our insurance company partners are very excited about that. But, again, with the absence of the agent, you'd have a very hard time convincing the insurance companies that this is in their best interest. I mean, I think you go back just not even 10 years, and you see kind of the Google insurance shopping experience, which was quickly folded really within 18 months. It was because the carriers were very concerned about the type of business they were looking at. And quite frankly, the transaction costs. But when we have an agent seamlessly integrated in the process and we can deliver high levels of close rates or we can be very precise with the company, the products that we're presenting to the customer based on the insurance company's risk appetite, it's a win-win for both of us. So I would say our partners are very excited about this kind of new tool. that we'll be able to use to drive agent productivity and create incremental revenue opportunities through new channels. We have a track record of delivering profitable growth, and they look at this as another kind of foundational tool to continue on that trajectory in the partnership.
spk02: Thanks for that. I appreciate the color, and I'll let somebody else jump on so they can express their enthusiasm more emphatically than I did.
spk07: I'm just giving you a hard time, Mark. If you weren't my friend, I wouldn't.
spk00: The next question comes from Meyer Shields with ABW. Please go ahead.
spk03: Great, thanks. I guess I will start by echoing Mark Dwell's comments about the coolness of the portal. I just have a couple of, I guess, small questions on that. No problem. I don't know Kool as well as he does. When we talk about the launch of this, is that going to be nationwide?
spk05: It is, yes.
spk03: Okay. And when you say channel agnostic, I think that means between the franchise and the corporate channel. Correct. Okay.
spk09: Were there...
spk03: additional expenses in terms of second quarter? Because I think one of the things we've noted is the margin pressure. Were there additional expenses associated with the launch that fade going forward?
spk11: Yeah. I mean, we have certain integrations that we're building out with the launch that will stick around, but I don't expect them. They might stick around for another few quarters, but again, we're talking about completely redoing our website, Mark, and some of that cost is capitalizable, not all of it. But, you know, content curations, those sorts of things, that will continue to add cost to it. But, again, I think they're going to scale very nicely compared to 2021.
spk03: And this is just a technical question, but assuming that somebody is using this in the middle of the night, is the only option available then to – Schedule a call later.
spk10: That's correct, Mayor. This is Mike again. Our agents will be connected seamlessly with the client. Expectations will be set. The client will be put on a journey roadmap with us, but we expect and will manage high levels of responsiveness and a very consistent client experience that our existing customers have grown to expect and appreciate. So, yeah, we're not going to have agents manning this 24-7 today, but I believe our prospective customers will get a lot of value out of the transparency, being able to start the process, and being able to kind of pick up the process very seamlessly with an agent.
spk03: Okay. And then really my final question is, if I'm not a Goosehead customer and I don't know that the portal exists, how does that get introduced to me?
spk10: So initially, Mayor, we'll be using this to augment our existing channels, lead channels. So I think this adds incredible value to our referral partner marketing efforts where our referral partners can use this tool to integrate us into their mortgage origination process much earlier in the process to get accurate pricing indications as they're working with their customers. I think it removes a lot of obstacles and allows our existing customers to action client referrals, which they say with the 92 Net Promoter Score that they're overwhelmingly willing to do, we think there's a lot of opportunity there. Also, on top of that, we have a lot of data to mine as it relates to existing customers with additional product cross-selling opportunities, whether it's recovered clients that we've lost over the years. We believe we can drive a lot of traffic to the site using our existing data sources, our existing sales process and lead channels. Go ahead, Brian.
spk01: Yeah, in addition to that, we also, with Ann Chalice, our new chief marketing officer, as part of this new website launch, or part of the new product launch, we're relaunching our entire website. And our website is really driven around the content strategy to develop meaningful content. that is optimized for SEO, where clients can learn about insurance if they're going online. And we believe that over time that's going to drive traffic to the site. Paid traffic is very expensive in this industry, and so we're taking more of an organic approach. But we're leveraging, we've built the entire website around driving organic traffic that we believe over time could lead to meaningful traffic on our site.
spk11: Yeah, so there will be some costs associated with content development, things like that. But one thing we're not going to be doing is, you know, all of a sudden buying daytime television commercials or Google, you know, AdWords, anything like that. We can't compete in that space. We're fighting, you know, billion-dollar ad budgets. So we've got to compete on a different playing field.
spk05: Okay, perfect. That's exactly what I wanted to know. Thank you.
spk00: The next question comes from Pablo Simpson with J.P. Morgan. Please go ahead.
spk13: Hi. So my first question is, in the work you've done in evaluating the online raters and investment, do you have a sense of the magnitude of incremental leads you will get versus, I guess, your current lead generation channels, such as referrals or real estate or mortgage brokers? I'm just wondering if you have an early sense of sort of the incremental marketing opportunity this tool would present to you. Yeah.
spk11: So we'll have a better idea of that, Pablo, kind of when we start giving our 2022 guidance. You know, we don't know how much additional lead volume will be driven in 2021. But again, we're excited about kind of the possibilities of this, and we'll have some more to say on that kind of towards the end of this year or early next year.
spk10: But the opportunity is huge. I mean, at 2020, we were involved in 14% of new mortgage originations in the state of Texas, but in less than 2% of Texas homes. There's a lot more homeowners who are living in their current homes than they are buying new homes or refinancing their current mortgage. So I think obviously this expands the market tremendously, and as we get data on traffic and consumer behavior, we'll be able to more accurately model that
spk13: got it and then my second question is just in margin so um i i guess putting aside sort of the one-timers step-up investments this year right so real estate the um expenses for the online raider um and maybe you know thinking about one or two years out when you're sure back to uh business as usual and i guess for you that means like you know recruiting growing you know 34 30 40 percent a year something like that so But I guess the context of the question is in the past when you've been growing at similar rates, you know, your margins would be the margins where, you know, north of 20 easily, maybe 25 in some years. Would that be a reasonable range to expect your margins to serve for virtue once these one-time expenses are behind us?
spk11: You know, we're not going to guide towards earnings, but you're right. I mean, we historically have been able to sustain those levels of growth at 20-plus percent margins. And in the absence of some step-up in cost, I think, you know, we would be right there. So, again, I don't want to guide to that. I'm sure some interesting investment opportunities will come along. But, you know, we want to be able to stay agile and make those investments when we can.
spk07: Pablo, it's Mark Jones. You know, just to kind of go back to what I was saying, we are optimizing – we're spending – responsibly, we do have a long history of being a private company, and we're spending my money, and that culture continues. But we're very focused on capturing opportunities, ensuring that we're expanding our competitive mode, and building a really, really defensible strategic position. So... You know, the margins are there. This is a business where even the margins are in the 40s on a steady state basis. If we slow growth down, as I said, to 10% or 12%, that's what margins are, you know, that's where the margins end up being. But that's the way to maximize total profit, total value creation, is to focus on growth, responsible growth that's not wasting money, but not getting too hung up about every point of margin. That's not our priority. Understood.
spk05: Thank you for your answers. Thanks, Pablo.
spk00: Once again, if you have a question, please press star, then one. Our next question comes from Josh Shanker with Bank of America. Please go ahead.
spk09: Yeah, thank you. Congratulations on the new launch, everybody. Two questions. Given how cool it is, do any of your age or prospective future franchisees look at this and say, I could see a path to being disintermediated? What sort of guarantees do you have that you're not trying to be agnostic about also adding a Goosehead Direct channel?
spk10: Josh, this is Mike. We've been emphatic in our communication to our agents and in our demonstration of the way we run the business that this is an agent-driven strategy. We believe in the role of the agent. We've been investing aggressively. We've built a business model around the agent and equipping them with the right product and the right tools to serve the clients. We view this as a different way to engage clients. for agents to engage our customers. And again, we can't develop this technology without the information and observing the behavior of our expert agents, and we can't continue to deliver for our clients the experience that they deserve and that they expect from us without our agents. We have a track record of being very transparent and very solid partners to our agents. I'll remind you that 93, 94% of home insurance is still purchased through an agent. The most attractive segment of the market wants to engage with an agent, wants to make smart decisions. This is about empowering our agents and allowing them to engage with customers in a digital manner. It's not at all about disintermediation. I think our agents are extremely excited about having this tool and extremely excited about the power of the tool and the opportunity that it creates for them to market their services, build their business, you know, businesses and engage their clients and provide a better experience. So I think, you know, I think that's a theoretical, you know, I think area, Josh, that you're hitting on, but our agents don't believe that. That's not part of our strategy. That's not the way we operate. And I think we're putting our money where our mouth is as it relates to, you know, really supporting and holding up our agents.
spk09: Okay, thank you for that. And are there any KPIs that you're going to be providing for how we should gauge the success of the digital platform?
spk11: Yeah, we'll continue to evaluate those and kind of determine what's appropriate to share with the street and everyone else. But, yeah, we'll certainly have additional KPIs internally that we'll be monitoring.
spk09: Thank you very much.
spk05: Thanks, Josh. Thanks, Josh.
spk00: This concludes the question and answer session. I would like to turn the conference back over to Mark Jones, chairman and CEO, for any closing remarks.
spk07: Yes, I'd like to thank everyone for joining us. And just as a reminder, the video of the digital agent platform is on our investor relations website. You can go back and look at it at any time at ir.gooseheadinsurance.com. And, uh, Thank you and good night.
spk00: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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