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spk01: Thank you for standing by. This is the conference operator. Welcome to the Goosehead Insurance 3rd Quarter 2021 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 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. I would now like to turn the conference over to Dan Farrell, VP Capital Markets. Please go ahead.
spk06: 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. 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 SEC for a 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 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 the 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 our CEO, Mark Jones.
spk05: Thanks, Dan, and welcome to our third quarter 2021 results call. We had another outstanding quarter with continued strong growth, significant talent acquisition, and notable enhancements to our technology platform. On the call, I will provide a summary of our key results in the quarter and highlight some of the continued investments we're making today that will drive our growth for years to come. President and Chief Operating Officer Mike Colby will discuss the launch of our digital agent platform during the quarter and further improvements we've made to our products and technology. CFO Mark Colby, We'll then go into greater detail on the quarter financials and our outlook for the remainder of the year. During the third quarter, growth in all areas remained powerful against a very strong year-ago comparison, further validating our dynamic and unmatched platform that puts the client at the center of our universe. Let me take a moment to highlight some of the substantial accomplishments during the quarter. Premium growth, the key leading indicator of future revenue growth, continues to be very robust. In Q3, premiums grew 44% compared to the year-ago quarter. Policies in force were also up 44%. Our premiums in the franchise channel grew 50% for the quarter, and this growth provides excellent visibility into strong, embedded, and 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 41% over the prior year period. Total franchise count at the end of the third quarter was up 55% compared to a year ago. Operating franchises grew 38% during the quarter. Operating franchises outside of Texas grew 45% year over year. while Texas franchises increased 20% as we achieve more diversification in our book of business. Nearly 62% of our total franchise base is either in their first year or preparing to onboard. While this cohort provides minimal premium and revenue today, their predictable launch and production ramp combined with our increasing retention rates should fuel significant growth over the next decade and beyond. Also, While our franchise unit count is growing rapidly, the unit productive capacity is also growing, as some of our more seasoned franchises are beginning to scale their business with new producer additions. This will be an important growth lever going forward. Our corporate agent team is up 35% year over year, and this is particularly impressive against the extraordinary growth we experienced in 2020, where we benefited from COVID effects in the job market and hired aggressively when unemployment was nearly 15%. Continued investments in the corporate channel remain critical to our long-term success as efforts in training, mentoring, and beta testing of new technology and processes helps drive our extraordinary growth and improve productivity of the more leveraged franchise channel. As a reminder, our corporate agents produce at approximately four times industry best practice, providing critical training, mentoring, and research and development functions for the company. Our data shows that franchises within close proximity to corporate offices gain benefits in their business ramp up and overall productivity. During the quarter, we expanded our offices in Westlake, Houston, and the Woodlands, Texas. By year end, we plan to complete the office openings in Columbus, San Antonio, Austin, as well as a second office in Chicago. In addition to providing support to franchisees, these corporate offices help us scale nationally and enhance our college recruiting and career advancement opportunities in both the short and the long term. We expect these new offices to support our near-term headcount growth, and they should scale very nicely through 2022. I'm particularly proud of our continued strength in the areas of client retention and net promoter score, which were 89% and 92% respectively. This is a similar strong level to last quarter and higher than the year-ago level of 88% and 91% respectively. These improvements have taken place in a challenging environment of active weather and increasing premiums. It is also noteworthy that we are driving retention improvement despite some level of drag from new business bias, given our exceptional growth rates and strong new business production. Once a policy renews, the likelihood that it will renew again grows significantly. With new business accounting for so much of our total, overall retention rates are currently lower than we anticipate long-term. Our industry-leading and improving performance on retention and NPS are is a testament to our best-in-class service efforts, which continue to benefit from investments in product, people, and technology, and the client-first approach we bring to all aspects of our business. Even small improvements in retention provide material economic benefits for our business over time as the overwhelming majority of our profits are in renewal revenue. A significant highlight of the third quarter was the launch of our digital agent platform, and we are extremely excited with the favorable response we've received from our clients, agents, and carrier partners. We are highly confident that this tool will allow powerful new revenue opportunities over time, and in the near term will enhance our existing go-to-market strategy and strengthen our agents' other referral business efforts. This is absolutely a completely unique offering to clients in the marketplace that provides an effortless, seamless, fast, and accurate shopping experience. I continue to encourage you to try as many other competitor offerings as you're willing to endure and then try our digital agent. You will be amazed. Mike will go into greater detail on the launch of the digital agent as well as additional technology and product enhancements we're making to the platform. The digital agent is a new powerful tool for us. It is just one piece of the enormous total value proposition we bring to the entire marketplace, clients, agents, and carriers. Our consistent and significant investments across product, people, and technology over nearly two decades is key to what makes us unique. Investors frequently ask us, what's the most important thing that drives your business success? The answer is everything we do around the three pillars of our business, a choice product offering, the very best sales and service agents, and unmatched technology. There are some companies with reasonable access to product, some with good technology, not as good as ours, and some which use agents. But no company in the market brings all three of these critical elements to bear for clients with the expertise that we have. And no company has come close to delivering results like you said. Building this incredible business required the benefit of time, which provides the advantages of vast and valuable accumulated experience that can only be achieved through hard work earned with clients for nearly two decades. This is the driver of our significant and expanding competitive moat. Our company has been built with laser focus on the needs of the client, and I maintain that if our model could be replicated, it would have been by now. I couldn't be more excited for the future of Goosehead. We are by far the best positioned company in the marketplace, and we're only getting better. Our runway for growth is expansive, and our ability to take sizable market share continues to improve. We will remain consistently externally focused and maniacally driven towards our long-term goal of U.S. personal lines industry leadership. I would like to thank our amazing employees and franchisees for the tireless efforts and enthusiasm in our march toward our goals. With that, I'll turn it over to Mike.
spk09: Thanks, Mark, and hello to everyone on the call. We're very pleased with the launch of our digital agent platform, and as Mark indicated, feedback from all our key constituents has been overwhelmingly positive. This simple, seamless digital experience is highly differentiated, considering that it's powered by agent-driven machine learning. Accumulated experience from nearly two decades serving the personal line space, The vast amounts of data accumulated from over 30 million quotes designed by our expert agents across the U.S. and deep integrations with our insurance company partners and other data providers allows us to deliver a digital client experience that is unmatched in the space. I can't overstate this advantage compared to the other competing offerings using artificial intelligence powered by uninformed and inexperienced consumer behavior. Our clients make no trade-offs. They get the benefit of expert agent advice, a high-quality custom insurance solution, and competitive, transparent pricing delivered seamlessly and digitally. We're very pleased with, but not surprised by, the excellent ratings received from clients that have engaged us on this new platform, evidenced by a 96 net promoter score on this business since launch. We are continuing to enhance the digital agent platform with additional product offerings and deeper carrier integrations. Along with home and auto insurance, we're also offering flood, condos, and renters coverage options as part of the digital agent experience. Additionally, we partnered with Ethos Life this past quarter and will soon be offering life insurance coverage digitally. These product enhancements will continue to benefit the client and will also enhance cross-sell opportunities, improving the lifetime value of our clients. Specifically with flood insurance, we have seen significant improvements in retention when it's added to the client's insurance portfolios. With continued efforts around deeper carrier integrations, we expect to be able to provide full quote to issue experience to clients across multiple carriers and products in 2022. Most importantly, however, the significant benefits and safeguards that an expert agent brings to the process will not be lost to the client and will remain active and present in the background. The release of this technology, as we've done with all new technology released previously, we look to get it into the hands of our clients and agents as quickly as possible and then focus on driving user adoption, optimization, and best practice. We see immediate opportunity to leverage this technology through an enhanced referral partner experience that will allow us to capture more share of their business, increased opportunities to drive referrals from our existing clients, and increased opportunity for cross-selling as we continue to expand product on the platform. Looking further out to 2022 and beyond, we see opportunities for additional growth through targeted marketing and other digital strategies to drive traffic to the site in ways that will be economically sound. We've been able to build an amazing company with growth rates in excess of 40% a year with virtually no advertising spend. Importantly, as we look forward, we will always compete on our terms, and we'll define our field of competition to find the best ways to fully leverage our enormous competitive advantage and moat in the marketplace.
spk08: With that, I'll turn the call over to Marg. Thank you, Mike, and hello to everyone on the call. For the third quarter of 2021, total written premiums, the leading indicator of our future core and ancillary revenue growth, increased 44% to $435 million. This included franchise premium growth of 50% to $318 million and corporate segment premium growth of 32% to $117 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 948,000 policies in force, a 44% increase from a year ago, and another leading indicator of the momentum in our business. Revenues were $41.7 million for the quarter, an increase of 30% from the year-ago period. while core revenues grew 41% to $37.2 million for the quarter. Ancillary revenue, which includes contingent commissions, was $2.5 million in the quarter compared to $4.2 million a year ago. While it is difficult to predict full-year contingents, even at this stage of the year, given auto loss trend and weather activity thus far, we expect contingents in the fourth quarter will be in the $2 to $4 million range. This would put full-year contingents at $9 to $11 million, or roughly 60 to 70 basis points as a percentage of full-year premium. On a normalized go-forward basis, we believe it is reasonable to assume around 80 to 85 basis points of contingents as a percent of annual premium. However, any year can vary significantly from this level, as evidenced by 2020 and 2021 contingencies. The franchise channel generated core revenue of $17.2 million and increased of 54% from the year-ago period. At the end of the third quarter, we had roughly 1,958 total franchises, up 55% from the prior year, and 1,139 operating franchises, up 38% from a year ago. We also continue to invest heavily in corporate agent hiring and national expansion to facilitate the franchise channel growth and productivity. Corporate sales headcount at the end of the third quarter was 502, an increase of 35% from the year-ago quarter. Our corporate investments are critical to driving franchise productivity levels, and the additions we have made over the past year are an appropriate level of investment to successfully support our expanding franchise footprint. Corporate channel core revenues were $20 million in the third quarter, an increase of 32% compared to the year-ago period, as new agents continued to ramp up productivity over their tenure. Total operating expenses for the third quarter of 2021 were $38.1 million, up 52% from $25 million in the prior year period. Compensation and benefits expense was $26.1 million for the quarter, up 46% from the year-ago period on 41% headcount growth. The 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 recent launch of the digital agent platform. General and administrative expenses for the quarter were $10.1 million, an increase of 73% from a year ago, with the increase due to 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 they ramp up their production. Total adjusted EBITDA in the quarter was $6.6 million compared to $9.3 million in the prior year period. We have been investing heavily for future growth in producer headcount, expanded office footprint, and our digital agent platform. Heading into next year, we expect these investments to begin to scale nicely as we do not expect to see the same step function increase in real estate expenses. We also expect some new revenue benefit from the digital agent to ramp up and help offset initial and ongoing development costs. Although laying the foundation to drive growth is more strategically critical to the business than focusing on margin expansion at this time, we view the last two years as unusually high from an expense growth perspective. 2020 as it relates to compensation expense growth, due in part to opportunities created by the pandemic, and 2021 related to other G&A from strategic investments we have highlighted. Looking ahead to 2022, we would expect overall expense growth and margins to look roughly similar to levels observed in 2019. Over the longer term, we expect to deliver high and sustained levels of both revenue and profit growth. As of September 30th, 2021, the company had cash and cash equivalents of $25.2 million. During the third quarter of 2021, the company refinanced its $25 million revolving credit facility and $77 million term note payable to a $50 million facility and a $100 million term note payable agreement. We also have an unused line of credit of $24.8 million at quarter end. Based on our experience to date, the company is raising its full-year 2021 outlook with respect to total written premiums and revenue. Total written premiums placed for 2021 are expected to be between $1.54 billion and $1.56 billion, representing organic growth of 43% on the low end of the range to 45% on the high end of the range. Prior guidance issued was for organic premium growth between 40 and 45%. Total revenues for 2021 are expected to be between $149 million and $155 million. representing organic growth of 27% on the low end of the range to 32% on the high end of the range. This assumes continued strong growth in core revenues and $2 to $4 million of contingent commissions for the fourth quarter of 2021. Prior guidance issued was for organic revenue growth between 25% and 33%. Our strong growth through the first three quarters of 2021 and the important strategic investments we have been making over the last couple of years put us in a great position for a strong close to 2021 and continued momentum into 2022 and beyond. I want to thank everyone for their time, and with that, let's open up the lines for questions. Operator?
spk01: Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 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. Our first question comes from Matt Carletti of JMP. Please go ahead.
spk03: Hey, thanks. Good afternoon. Thanks for taking my questions. A couple questions. Mike, you commented on the new direct quarter rollout. I think you termed it overwhelmingly positive. I was hoping you could give maybe a little more color just on what you've seen either qualitatively or quantitatively in terms of quote activity, conversion rates, just kind of how things have progressed over the quarter or so that it's been live versus what your initial expectations might have been.
spk09: I think there's very limited data to provide anything quantitatively to you. I mean, it's certainly something that we're paying close attention to. And, you know, over the course of time, we'll decide kind of what are those KPIs that we want to release. I can tell you qualitatively our initial thesis of saying this is going to be a powerful tool to augment the efforts of our existing go-to-market strategy, which includes leveraging our agents' efforts and drive productivity through referral partner penetration and capturing kind of full share of business through enhanced levels of client referrals, through enhanced cross-selling opportunities, and then also on the retention front. We look at that and the data and the feedback qualitatively has been very positive and encouraging that there is certainly opportunity there. I want to just reiterate kind of what I said in the prepared remarks. This is consistent with every technology release that we've done historically. It's about speed to market. Get the technology in the hands of the users. In this case, also the consumers and our clients and then start to focus on optimization, iterating the technology through feedback from the users, and defining best practice and disseminating best practice. So we believe that it's much more valuable to have an aggressive release timeline and then focus on user adoption and optimization, and we're certainly very confident that that approach will deliver results that we manifest in the financials in the near future.
spk03: All right. Thank you. Thank you for that call. It's very helpful. And then just a numbers question, I guess, for Mark, you know, is a little bigger tax benefit in the quarter than kind of what we've seen in a lot of the recent quarters. Just wonder if there's anything, you know, outlier there, how we should think about that. And then just, you know, how we should think about tax rate going forward.
spk08: Yeah, the primary thing that's driving that is employees exercising their stock options, which creates a taxable expense that's different from the way we do it from a gap perspective. As far as modeling that out, your guess is as good as mine, really. It's all about employee behavior, when these options best, and whether or not they choose to exercise them. I think it's important, you know, absent any kind of information on options exercise activity, I think it's reasonable to assume a more normalized tax rate. And then throughout the quarter, just, you know, kind of monitor for options that are exercised to see if there's any potential tax benefit that could be created.
spk03: Okay, great. Thank you for the answers and, you know, best of luck going forward. Thanks. Thanks, Mark.
spk01: Our next question comes from Ryan Tunis of Autonomous Research. Please go ahead.
spk07: Hey, good evening, guys. So first question, I'm thinking about expenses moving forward. I think you said that next year you expect the growth rate of operating expenses to be more like 19, less like 20 and 21. These past couple of years, it's been high 40s in terms of percent expense growth. But in 2019, it was low 30s. I just wanted to make sure I heard that correctly that, you know, you're thinking that your expense growth next year will, you know, be somewhere around 30 to 35%.
spk08: Absolutely. You know, we're going to continue to make investments, but 2020 and 2021 were very unique. Uh, 2020, there was a spike in compensation expense, um, just given the labor market and our ability to, um, to onboard a bunch of employees. Right. And then for 2021, um, There was some additional spend on G&A, getting out ahead of some of our rent expense and really a step function increase there. And again, we're going to continue to hire next year. We're going to continue to grow G&A, but it will be more in line with those kind of 2019 levels.
spk05: We did open several offices this year. And with the new kind of accounting standards around leases, when you start to swing a hammer, you have to start recognizing rent expense, even though... We don't pay it until we're moved in generally. So you have some artificial inflation there as we kind of build out the office network. We don't anticipate a lot of addition next year for new offices. You should expect in 2023 that there will be, but in 2022 we don't anticipate a lot.
spk07: Got it. And then you also mentioned that franchise agent productivity is up. It's tough for me to gauge that, but I've been having a hard time getting there. I was just looking at the new business franchise royalty fees. And I think they only grew 30% this quarter. That was a deceleration versus what we've seen in the past few. So I guess my conclusion was that, you know, new business productivity was actually slipping a bit. Could you just talk a little bit about, you know, what's going on there? What are the headwinds? Is mortgage origination, commission rates, lower premium per policy in new states? I mean, what are some things to think about in terms of, you know, why that number could be decelerating?
spk08: When we talk about agent productivity increases, it's really – bifurcating between Texas and non-Texas. You know, Texas is arguably the best insurance market in the U.S. with the highest premiums, and we've been here the longest and have the biggest proof of concept here, right? And that's why we bifurcated. We're seeing growth in both Texas and non-Texas productivity. However, we launched 82% of the franchises, I believe, is the number this year outside of Texas. And so I think as... that might be kind of on a blended basis where you're seeing that in the new business royalties.
spk09: And I think there's a natural seasonality in the business that is built in. You know, it's not, you know, I think accurate to look at things quarter over quarter, but, you know, you do see natural seasonality there. I mean, the internal metrics that we look at on a support basis suggest that, you know, we're seeing, you know, very nice levels of,
spk07: the metric we look at internally but don't disclose that new business same store sales so we're very very happy with the productivity results there and I guess another kind of productivity or renewal premium type question is just you know we're talking about a hard market and personal lines both home and auto and I get that there's some issues with retention, but for those you do retain, I would think there's a one-to-one kind of relationship between rate increases and renewal commissions, the economics that flow through to you. I just want to make sure I'm thinking about that right.
spk09: Certainly a small tail end. But when you're growing organically at total rent premiums at 40 plus percent, it doesn't really make a material difference. As it relates to retention, You know, we've been through hard markets and soft markets, and the value of an independent agent with a choice product portfolio allows us to, you know, keep the client relationship intact while we move them, you know, into different, you know, insurance solutions. So we don't anticipate that being a negative impact on our retention rates.
spk08: No, in fact, our client retention has gone up from 88 to 89 recently. And, you know, because of the harder market, the premium retention has also gone up from, like 89 a couple quarters ago to 92 now. And that's why we really focus on that client retention numbers because it negates all of the premium fluctuations that can happen and are outside of our control.
spk00: Thank you.
spk01: Our next question comes from Mark Hughes of Truist. Please go ahead.
spk04: Yeah, thank you. Good afternoon. Could you maybe expand a little bit on the marketing strategies you're considering or executing on now to drive traffic for the digital agent platform? I think you said you wanted to make sure they're economically sound. I'm sort of curious what your options are in terms of what you're looking at.
spk09: Well, I can tell you what's not an option, and that's competing with the very crowded space of personal lines, P&C advertising. at $100 a click. Yeah. I mean, the customer acquisition cost in the space is absurdly high, you know, over $1,000 for a customer. That's not where we're going to compete. I think Geico spent close to $2 billion on advertising last year. So, you know, that's not where we're going to compete. It's crowded. We believe it's created a lot of noise and, quite frankly, has really been a misinformation campaign by companies you know, a lot of folks in the space. What we can do and what we've done for close to two decades now is focus on bringing the best product and the best client experience to market and leveraging kind of our referral network. We think there's digital marketing capabilities that we're building and we'll be utilizing that will allow us to amplify that effort. But it's certainly not going to be competing in that crowded space and blowing up our margins to do so.
spk05: Mark, this is Mark Jones. We've sort of taken, as Mike said, sort of the reverse order of what a lot of these competitors that call themselves lead generators do or quote generators in that They sort of came to the market with a lot of hype. They're spending a lot on marketing, but the underlying product is garbage. Where they are using AI, it's based on consumer data. So you have people making mistakes that get amplified over and over. What we did, as Mike said, we sort of developed the product. We're bringing it to market. And if we're going to be completely honest, We don't have all the answers yet as to how we're going to drive market penetration in the direct channel. We're doing a lot of things that will drive organic search results in terms of getting content out on the web. And we have our chief marketing officer working on a bunch of strategies for that. But it's a little bit like with our traditional channels of distribution. No one has ever figured out how to grow at 45% a year spending virtually nothing on advertising except us. And that gives me a lot of confidence that we're going to figure out how to drive growth there, but in a way that doesn't just destroy economic value like literally all of the other guys in this space are doing.
spk04: Understood. In terms of the expense growth for next year, you were pretty clear similar to 2019 levels. Did you say that you would look for EBITDA margins to be similar to 2021 next year?
spk08: I think we're not giving EBITDA guidance or EBITDA margin guidance, but given some of our comments, I don't think it's unreasonable to model out similar margin profiles to 2019.
spk04: Understood.
spk08: And then growing at 45 plus percent, it's hard to nail it down in any given year. What you're going to spend, definitely any given quarter. But I think that would be a fair.
spk05: You know, one of the key reasons that we don't give earnings guidance is because almost all of our investment ranks through the P&L. And we want to be nimble. We want to take advantage of opportunities. That's what's helped drive our success for almost two decades. And we're going to continue to do that.
spk04: Thank you. And then one other question. The non-controlling interest, if you just look at it simplistically relative to net income, was lower this quarter. Is that part of that tax phenomenon?
spk08: Yeah, that's part of it, too. And then, again, as we've said over time, as the historical owners trickle out from their stock sales, then that's going to continue to increase the controlling interest and decrease the non-controlling interest.
spk04: Thank you very much.
spk08: Thanks, Mark.
spk01: Our next question comes from Mark Dwell of RBC Capital Markets. Please go ahead.
spk11: Yeah, good afternoon. I think most of my questions have already been answered, but one thing I wanted to ask about, you know, just with the difficulty so many companies are having in hiring people, I was wondering how you were seeing, you know, just franchise applications and, you know, follow through to kind of, you know, fill the ranks, as it were, you know, relative to what you were seeing maybe earlier in the year or last year.
spk09: I think we're, you know... outperforming our internal expectations on the franchise sales side in a very encouraging way. We offer a value proposition that is truly unmatched to entrepreneurs to build wealth, to have a fulfilling career with a very modest initial investment, and that value proposition continues to resonate in our franchise efforts. There's not a business in America that could say there's a tailwind in the labor market right now. But nonetheless, we have a very equipped recruiting team to manage through that, and it has not slowed down kind of our growth. You can see from the guidance that we've provided on that core kind of predictive metric of revenue growth being total and premium, you know, we're still very, very confident in that. And we feel like we're well prepared to continue to sustain and accelerate that growth going into 2022. It's not to say, you know, we're not met with challenges. It's just, I think, a testament to our team's ability to navigate, you know, through those challenges. And I think it's a testament to our culture and it's a testament to to the value proposition that we provide to both employees and franchise candidates.
spk11: Thanks for the color on that. And one other just fairly brief question. I guess you refinanced or re-termed out some of your debt in the quarter. Are the terms on that any significantly different than the old? It looks like it's primarily just an expansion of, you know, of term notes.
spk08: Yep, the terms are relatively the same. With the additional leverage, we bumped up a couple tiers on the interest rate. But again, as quickly as we de-lever, as we grow our EBITDA, I expect that to come down over time.
spk11: Thanks for that. That's all my questions. Thanks, Mark.
spk01: Our next question comes from Chris Martin of KBW. Please go ahead.
spk12: Hi, guys. Thanks for having me on today. In place of a mayor as you know, it's pretty busy afternoon. And so the one question I want to ask is really about what the agent part of and also just the engagement you guys are getting and you really talked a lot about your NPS looks awesome, the agent experience, but what we're kind of seeing from the insurance side, and I can share is what one appetite to get involved with your agent portal, but also on the other end, the technological side, how easily are they able to connect into your portal, and what types of insurers have you kind of seen be able to get up and running?
spk09: I think, you know, to your first question, our insurance company partners are enthusiastically supportive of our technology endeavors, and particularly the digital agent that we've developed and that we continue to invest in. What they see is, and because the technology is powered by expert agent insights, it allows us the ability to very precisely match risk with risk appetite and drive profitable underwriting results and growth for our insurance company partners. Not to mention the fact that we have you know, almost 30 quality analysts on staff that are reviewing every single policy that we write to make sure that it's within their guidelines and within their appetite. So I'd say we've demoed this for all of our partners. And again, it's been met with enthusiastic support. You know, the second part of your, can you repeat the second part of your question?
spk12: Sure. If there are any, if you say, hurdles on the technological side for insurers to be able to actually connect into the portal, and just briefly chat about how that works and which types of... Right.
spk09: There is a massive disparity between the least capable insurance company partner buyers and the most capable. and there's partners of ours that you know would reside everywhere in between that continuum if it were up to us we'd have our technology goals accomplished five years ago so um you know because of our buying power and because of our scale and the long history of our relationship uh with these these partners you know they are willing to make um you know, differentiated levels of investment on their technology side to accomplish our shared goals. Ultimately, they're shared goals. We want to provide a great client experience. We want to drive profitable growth. We want to be the lowest cost distribution partner, you know, for these insurance companies. So what you'll see over time is, you know, our more advanced, like I mentioned in 2022, you know, having, you know, multiple carriers, you know, launched through, quote, to issue in our digital agent platform. Those carriers will roll out with those capabilities as we complete the projects with them. I can say that it's very rare that any of our partners are waiting on us. It's typically the other way around. So as new carriers... finalize these deeper integration processes and are equipped to go quote to issue, you'll see those buy now type options within the results on our digital agent platform. We'll never get to a point where all of our partners will be able to do that or that we'll be able to provide that for every segment of the market. Like for instance, our private client segment is so complicated that it wouldn't be a great client experience to ask them to do that on their own. It's too complicated. There's too much at risk. But it'll be a specific approach to different segments of the market based on where they're located geographically and what the capabilities of the carriers that are addressing those kind of local market needs, the capabilities of those companies provide. So I would expect, and I think it'll be very exciting for you all to see over the course of 2022, these folks developing these capabilities to go quote to issue. I think we'll have a critical mass of companies that allow us to provide a legitimate choice offering to all of our major markets. quote to issue by the end of next year. So we're very excited about that, excited about the progress that we're seeing, and not to mention ancillary products. Like I mentioned, Ethos Life, which is going to be a great, seamless cross-sell opportunity for us to flood insurance, landlord insurance policies, all of this that's not available anywhere today in a single platform with a choice product offering.
spk12: That's awesome. That sounds great. I guess it's kind of a follow up, but really related question is, so as you're describing all of that, and you're proving it out in the market, what is the business development look like from a kind of inbound versus outbound type of relationship there?
spk09: Right. I mean, we believe that we believe in the role of the agent, we believe the role of the agent is critical today remains. So it's a It's a technology and routing effort, and we're experiencing that from past endeavors, and we have a very solid plan to make sure that inbound traffic is routed and served expediently. And I think it's important to note and most important for our consumers to note that when They are requesting an insurance quote from an agent. We never sell the data. We protect their privacy and we assign them with a specific agent that is equipped to meet their specific local needs. And they have that one-to-one relationship. We're not trying to monetize the data in any way. So we are seeing some on a small base, some enhanced levels of inbound traffic, and have very effectively been able to route that and respond to that and deliver an excellent client experience as evidenced by a 96 net promoter score for those consumers that are engaging us on the digital agent platform.
spk12: Excellent. Thank you very much. That's all I have for now. Thanks, Chris.
spk01: Our next question comes from Pablo Singzon of JP Morgan. Please go ahead.
spk02: Thanks, and good afternoon. I think you outlined about maybe three or four incremental revenue opportunities that you see with the digital agent platform. And, you know, recognizing that it's early days, I was wondering if you could rank those opportunities based on the relative size. And I guess if we focus on one that you mentioned, increasing share but referral partners, Could you provide context and where that stands today, just in order of magnitude, and I guess the kind of opportunity you see there? Thanks.
spk09: I don't think that there would, you know, we look at those as mutually exclusive priorities. You know, we're attacking, you know, those from every angle. You know, there's a lot of value to be created across all of those efforts. Integrating into the loan origination process earlier and capturing more share of a referral partner's business is going to help anchor that account and drive agent productivity. Driving increased levels of cross-selling is going to obviously enhance our new business per new account, but also increase the lifetime value of the client through enhanced levels of retention. Putting tools into our existing clients' hands where they can, you know, shop their insurance policies when they see rate increases proactively or when they incur different life events will not only remove work from our agent's place and increase productivity, but will drive retention. So I wouldn't say that any one of those is the number one priority. I think we can attack all of those areas with vigor and not with our existing resources and not have to make any specific trade-off there. Got it. That makes sense.
spk02: And then my second question is... Sorry.
spk09: One thing that I didn't hit on is the recruiting benefit of this tool. That is going to be a lever for growth. And that's another area that, you know, anecdotally, you know, is providing us with a lot of momentum in the recruiting effort is seeing kind of this tool, this, you know, this tangible tool that agents can work with kind of during the recruiting process and understanding that there's nothing else like this on the market. I do think that's going to provide some wind in our sails as it relates to recruiting.
spk02: Understood. And then my second question is, if you measure franchise productivity in terms of premiums per franchise, that metric has been going up for you the past couple of years. I think maybe 2019 is about 900, and now it's about 1,100, so 1.1 million. I guess the question is, what kind of upside do you see that metric as more of your franchise is mature and I guess conversely, it seems like the opposite has been happening in the corporate channel. And I think in the past you had said sort of due to, you know, efforts of corporate agencies to support franchisees, also, I think a change in business mix, right, as you move out of Texas. So I guess, you know, if you could speak to those productivity metrics, you know, high level and where you see them trending over time. Thanks.
spk09: I think the productivity, it's interesting. We're seeing strong levels of productivity from our more seasoned franchisees, both from hiring producers and scaling their sales efforts, but also as they leverage technology, as they continue to become more proficient and efficient in the sales and marketing process, we're seeing individual productivity levels improve as well. That's a big area of investment for us. You know, that is the strategic rationale of our corporate channel. And we're very happy with what our corporate agents are doing, both by defining best practice, but by also, you know, working very effectively to disseminate that information and drive productivity in the franchise channel. That doesn't happen by accident. Even on the recruiting side, you know, a big part of our value proposition is to those more senior and tenured franchisees is teaching them the people process that has worked for us for nearly two decades and has allowed us to scale, you know, our corporate channel very effectively.
spk03: Great. Thanks for your answers. Thank you.
spk01: Our next question comes from Josh Shanker of Bank of America. Please go ahead.
spk10: Yeah, thank you for taking my question late. I may have missed it, but I don't think I did. What's the operating franchise under contract number for the quarter?
spk08: Sorry, I'll pull that up real quick. It was 1,801 total franchises and then operating for 1,000 countries. Yep.
spk10: Great. And I was looking at the wrong border.
spk08: Hey, Josh. It was 1958 total and 1139. 1958 was the total, yeah.
spk10: Okay, great. Thank you. And in terms of the sort of where we're looking at different states outside of Texas, where are the fastest growing states that you guys are recruiting in right now?
spk09: I think it would... it would correlate with the population, you know, centers, but also in some of our fastest-growing housing markets like you're seeing in kind of the south and southeast and kind of getting into the mountain west. Certainly, you know, we're seeing the narrative, you know, that you hear in the media of, you know, those fast-growing markets and folks kind of leaving some of the, you know, the two coasts uh, you know, into those, those markets, we're certainly, we're seeing that, uh, both from a recruiting demand, but also, um, you know, as it relates to our corporate agents and where they want to locate, but also, uh, franchise, uh, growth efforts.
spk10: Okay.
spk09: And one other unrelated question, uh, given where... Just to be specific on that, just to be specific on that, it's, it's Texas, you know, North Carolina, it's, um, Colorado, Arizona, Florida, Nevada.
spk10: And one also unrelated question. Where pricing is right now in the auto and home markets, a lot of companies are going to take rate here. Are you seeing any changes in commission rates in order to sort of close the funnel to some extent to new business, given where margins are for the underwriters?
spk09: Not for, you know, scale distributors like Goosehead. I mean, I think if you're subscale, you're certainly feeling pressure and have been for a long time. But we have very stable compensation arrangements. And in fact, as we continue to scale and deliver on, you know, our value proposition to the insurance company of, you know, high levels of growth, high levels of profitable growth, most importantly, we're seeing enhanced compensation opportunities. I mean, it doesn't There's not a step function increase in any one year, but if you look at trends over the long term, we feel very confident that our compensation levels will remain stable and grow to be more favorable.
spk10: Okay. Well, thank you for all the answers and getting into the late hour. Thank you. Thanks, Josh.
spk01: This concludes the question and answer session. I would like to turn the conference back over to Mr. Jones for any closing remarks.
spk05: I'd just like to thank everyone for listening and for your participation today and wish you all a good evening.
spk01: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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