Goosehead Insurance, Inc.

Thank you for standing by. This is the conference operator. Welcome to the Goosehead Insurance fourth quarter 2022 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.

Thank you and good afternoon. 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 SEC filing for a more detailed discussion of the risks and uncertainties that could impact future operating results and financial condition of Goosehead Insurance. We disclaim any intentions or obligation 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 various variations in capital structure, tax addition, 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 An archived version will be available shortly after the call ends on the investor relations portion of the company's website at www.gooseheadinsurance.com.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.

Thanks, Dan, and welcome everyone to our fourth quarter and 2022 earnings call. I will provide an overview of the key strategic accomplishments of 2022 and how they help position us for our next phase of top and bottom line growth. President and COO Mark Miller will then take you through some greater detail around driving operational excellence across the organization. And Mark Jones, Jr., our CFO, will review our financials and outlook for 2023 and beyond. I'd like to start by sharing that Q4 of 2022 gave us another opportunity to demonstrate the strength and resiliency of our business model. We overcame housing market headwinds. delivering premium growth of 44% and revenue growth of 43% compared to Q4 2021. Core revenue growth for 2022 was 41% and EBITDA grew 76% as we gained nearly 400 basis points of EBITDA margin. 2022 was a year of substantial change that we believe was critical for sustaining future high levels of profitable growth as we become a much larger organization. Among these many efforts included an upgrade of the management team across the organization. We've now completed a repositioning of corporate sales to enable us to return to profitable growth in that segment of the business. Early results have been excellent with December new business productivity growing 44% from a year earlier. In January 23, new business productivity also up 44%. year over year. What's most exciting to me and what bodes so well for our future growth is that January 2023 new business productivity for first-year corporate agents was up 77% from January 2022. We've begun implementing the program to facilitate migration of select corporate agents over to the franchise network very successfully. We market this to recruits as a form of paid apprenticeship. So far in 2023, we've launched 60 agencies from corporate and expect to launch a total of at least 30 this year. We are thrilled with the operating results to date. Mark Miller will provide more details in his section, but to give you a preview, these corporate conversions have been six times as productive as an average new franchise. So if this remains consistent, launching 30 this year has the potential to drive similar production growth as adding roughly 180 new operating franchises. This opportunity is proving very popular in the talent pools from which we recruit, driving strong demand for Goosehead as an employer of choice for top talent. We've also reset recruiting expectations to our historical standards of quality and anticipate material corporate producer growth beginning in Q3 as the next crop of new college graduates join our team. We continue to rationalize our franchise system, focusing on removing underperforming franchises and reallocating resources toward high performing ones that are in the scaling phase of their business. Our experience has shown that adding producers to our most productive franchisees is a powerful growth driver. On average, these agents deliver about 1.7 times the new business as adding an incremental franchise. Accordingly, we've created a dedicated team in corporate to support franchise hiring efforts and expect our franchisees to add 150 to 200 producers to the system this year. Based on precedent, we believe the capacity of these new producers could equate to roughly 250 to 350 new franchises. Our franchise producer recruiting efforts, combined with conversion of corporate agents into franchisees, represent powerful opportunities to turbocharge the growth of our franchise business. Rationalizing the franchise system takes a little longer than corporate because of constraints in our franchise agreement. That being said, we believe these efforts will be largely complete by the end of the second quarter. We've continued to strengthen our service capacity, focused on setting and achieving strong KPIs in service delivery to support and enhance the most profitable piece of our business, our growing renewable book. This has been accomplished by service agent hiring, reducing turnover, and leveraging lower cost offshore resources to handle non-client facing clerical work. We're expanding our channels of distribution through partnerships. The previous announced partnerships with the National Association of Mortgage Brokers and the Association of Independent Mortgage Experts are good first steps. We're in discussions to partner with several large mortgage lenders and servicers to provide insurance to their new and enforced blocks of business. We're also in discussions with several national real estate organizations. Implementation of digital marketing efforts around cross-selling and other referral business contributed significantly to growth in 2022 and is showing further momentum as we progress into 2023. We're also building on our previous investments to create a world-class technology organization that enhances the client experience, delivers on our potential with quote to issue, and accelerates the accomplishment of other key strategic priorities. While we've benefited from pricing tailwinds that will likely continue through 2023, we've also faced macro headwinds, including historically low contingent commission levels, and declines in housing activity across the country. We have never allowed the macro environment to be the primary factor driving our results. We remain externally focused on our clients in the market, continuing to adapt and evolve so that we can deliver strong results in any environment. The future of our business continues to be very bright. We believe that our unique business model provides us with a powerful competitive mode. Replicating our accumulated experience and technological leadership would require massive investment in both dollars and time and can't be achieved quickly through acquisitions. The good news is we believe the people who have the money to legitimately challenge us don't have the patience to wait for years and years for a return. We remain focused on investing in and expanding our core business to strengthen our competitive position, and our aspiration remains steadfast on becoming the number one distributor of personalized P&C insurance in the country during my lifetime. With that, I'll turn the call over to our President and COO, Mark Miller.