Goosehead Insurance, Inc.

Thank you for standing by. This is the conference operator. Welcome to the GoodsHead Insurance first quarter 2023 earnings call. As a reminder, all participants are in listen-only mode and the conference 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. To do 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 Farrow, 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 filings for 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 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 recent 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 An archived version will be available shortly after the call ends.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 portions of the company's website at goosehead.com. With that, I'd like to turn the call over to our chairman and CEO, Mark Jones.

Thanks, Dan, and welcome to everyone on the call. We're starting to see very tangible results from our efforts to upgrade much of the senior and middle leadership teams and manage the business in a smarter, more sophisticated, and scalable way. I'm really proud of how well our team is working together with singular focus on winning and creating value. We delivered an exceptional first quarter of 2023 with strong top and bottom line growth. Total revenue increased 40% compared to the prior year quarter. Core revenue grew 42%. And premium, the best indicator of future revenue growth, increased 41% during the quarter. Our adjusted EBITDA margin expanded approximately 1,500 basis points. While we expect to see some continued headwind in the housing market, we have more than overcome this with better, more focused execution, taking advantage of industry turbulence to gain market share. Additionally, premium pricing will likely remain a tailwind for us throughout most of 2023 as carriers take rate to try and restore their underwriting profitability. We are very fortunate to have chosen a business with stable demand across virtually all economic backdrops. If you live somewhere or drive something, you need the product we sell. We've been thoughtful in where we play in the value chain of our industry. In the segment we believe has the greatest potential for consistent, strong economics, and we operate among a competitor set that cannot adequately meet the needs of insurance buyers due to lack of one or more critical elements, product choice, industry-leading technology, and knowledgeable and professional sales and service agents. In addition to being in the right place in the value chain, our results are the product of a number of very deliberate decisions. Our clear focus on upgrading our human capital to the team needed to profitably scale our business as we transition into a large corporation. Relentless, disciplined execution against our strategy. proactive management to take advantage of economic turbulence. For example, our ongoing efforts to gain share have allowed us to grow lead flow by 55% despite the housing market slowdown of more than 20% over the last year. We're being much more strategic about utilizing and optimizing company resources and doing more with less. A great example of this in the current quarter was in corporate sales, where we grew new business premium by 3% year over year, while at the same time rationalizing headcount by 44% as we manage out unproductive agents. We're returning to the recruiting strategy that made us remarkable in the first place, one focused on quality over quantity, and that is grounded in principles of hard work, innovation, teamwork, exceptionalism, and an integrity in delivering for our clients' needs. All of this is enabling us to drive strong top and bottom line growth with expanding margins. We continue to see a strong rebound in performance in corporate sales. Q1 new business productivity per agent was up 55%, from the same period last year, with new business productivity for agents with us less than one year up 88%. Corporate sales recruiting on key college campuses is progressing well, and we have strong, high-quality classes that will be joining us in June and throughout the rest of the summer and early fall. The quality threshold is very high. with only about 5% of people interviewing with us receiving an offer, and our close rates on offers have more than doubled. Our value proposition to campus hires is truly extraordinary with a clear path to becoming a business owner as a Goosehead franchisee with very significant wealth creation opportunities after what is essentially a paid apprenticeship at corporate. We expect this to drive strong and high-quality growth over time in the development of seasoned agents eligible to become franchise owners. The retooling of our franchise business to focus on quality agencies is progressing. We continue to rationalize the base to remove unproductive franchisees that consume resources but don't contribute meaningfully to revenue or follow our model. We anticipate the turnover to peak by the end of Q2 and for franchise churn to begin to normalize again at that point. Franchise recruiting has been reorganized to focus tightly on an ideal candidate profile in specific geographies we believe represent the most attractive opportunities for us, leveraging sophisticated digital marketing campaigns with a leaner, more cost-effective, and productive sales force. We're focusing our investment of our intellectual capital to support agencies that are scaling their business. For example, the Pinto Agency in Miami just hit an important milestone, surpassing 25,000 policies in force. They represent a great model of what we would like to help many of our other franchises emulate. We couldn't be more proud of Jonathan and Mike Pinto as our partners. A key area of support we're providing is assisting with recruiting producers for franchisees. This began in the third quarter of last year when we placed five producers, ramped up to 11 producers in Q4, 18 in Q1 of this year, and we anticipate placing at least 40 producers with franchisees in the second quarter of this year and roughly 150 to 200 for the year. Historically, each of these producers have been generating equivalent revenue to launching 1.7 new agencies. Producers that have started this year tracking above historical productivity closer to what we expect from corporate account executives. We continue to execute on our plan to convert at least 30 corporate sales agents into franchisees this year. We launched seven in Q1 and continue to see very strong demand from top producing corporate agents. One of these agents to recently launch a franchise is Jessica McNally, a former corporate sales manager. Jessica launched in January and is personally producing over $20,000 a month in new commissions. She's already hired two producers. who completed training in March and were among the most productive agents in their training class. Remember that franchisees who convert from corporate perform like they are on steroids and are approximately six times as productive as an average new franchise. In Jessica's case, it's more like adding eight to ten new agencies. Over time, we plan to ramp up the number of corporate conversions We anticipate they will drive a large portion of our growth in the franchise business, which we expect to be highly profitable. Mark Miller will discuss our digital marketing and technology progress in more detail, but just to share a couple of highlights. We have added significant talent, and the team is now executing with much higher velocity and quality. Quote to issue remains a top priority, and we are tracking, to our plan to have several major carriers fully operable on QTI this year. Tech improvements to Aviator, our proprietary comparative rating application, has driven strong productivity gains with both higher close rates and package rates, which we also expect to help strengthen retention. We are pleased with the results of our digital marketing efforts, which are now producing a substantial volume of high-quality, cost-effective leads. And we're excited to further leverage these capabilities later this year to take full advantage of our emerging QTI capability. Finally, it is with mixed emotions that we announce that Ryan Langston, our longtime chief legal officer, will be transitioning out of his full-time role with GUSED to become president of N5B Capital, my family's investment arm. Ryan has been with us since 2014 and has played a major role in our development as first a private and then a public company, and has ably served as our corporate secretary. We're very grateful for his service and are pleased that he will continue to support Goosehead in an advisory role to the board. We added John O'Connor, our general counsel, about a year ago. He's been working closely with Ryan in all facets of our legal department. John is a ten-year veteran of Waube Gauchal and extremely well qualified and prepared to take over our legal team. and become corporate secretary. Overall, we're very happy with our start to 2023 and what we expect to be a strong year for profitable growth for GUSED. I'd like to thank our incredible team for their efforts and turn the time over to Mark Miller.