Goosehead Insurance, Inc.

Hello, and thank you for standing by. Welcome to Goosehead Insurance Second Quarter 2023 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. I would now like to turn the call over to Dan Farrell, VP of Capital Markets. Sir, you may begin.

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 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 intention 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 the 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, and 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 An archived version will be available shortly after the call ends on the investor relations portion of the company's website at goosehead.com. Now I'd like to turn the call over to our chairman and CEO, Mark Jones.

Thanks, Dan, and welcome everyone to our Q2 2023 results call. I'm very pleased to report that we continue to successfully navigate challenging industry conditions with a sluggish housing market and an extraordinarily hard insurance market. meaning we've been working both smarter and harder, but have delivered strong profitable growth. I'm also happy to say that the decisions we've made and actions taken over the last year to restructure our business are helping drive strong top-line growth, producing the planned, strong, and we believe sustainable improvements in profitability. Summary results for Q2 include 31% revenue growth, 27% core revenue growth, 36% growth in premium, and adjusted EBITDA margin expansion of 900 basis points to 33%. These results underscore the strength of our strategy and quality of our execution, focused tightly on the distribution link in the value chain with a powerful choice model. Our 20 years in business, we've seen many challenging circumstances, but each time we've applied the same maniacal external focus on our clients and the market. While our competitors circle the wagons, wring their hands with worry and focus internally, we've been aggressive and externally focused on capturing share. One example of our proactive approach to industry turbulence is broadening our product portfolio. While reduced product access is a headwind in some regions, our choice model allows us to seek out carriers that are looking to gain share and distribute through us at scale. So far this year, we've onboarded 24 new carriers to our platform. Our technology, scale, quality control, and unique human capital make us an attractive partner for any carrier looking to grow. Our agents remain completely engaged in acquiring new referral partners and penetrating deeper with their existing relationships to bolster lead flow. Because of this laser focus, we have agents today hitting all-time new business production highs, notwithstanding external challenges. While we're not unaffected, we are significantly insulated from market volatility that an underwriter or a single carrier product platform is experiencing today. When a single product platform decides to pull out of a market, their agents are left with nothing to sell. Most carriers continue to struggle with the impacts of the COVID Black Swan event and the plague of inflation driving higher claims costs. We are hopeful that the Fed can soon complete its job of taming inflation. The decision we made long ago to avoid entering the business of holding risk is paying off powerfully now. While we acknowledge the challenges we're facing, we don't allow them to become an excuse for weak performance. Market turbulence only serves to magnify our competitive advantages. The restructuring of our corporate sales team has yielded extraordinary results. Productivity is up 57% in the quarter compared to Q2 2022. This growth is despite the fact that we launched seven new franchises in the quarter from among our most productive corporate agents. In June, we began onboarding new agents primarily from college campuses, restarting capacity growth again. Feedback from the corporate sales management team has been that this group of new agents may be the strongest in corporate history. The class that completed training in June this year is outpacing the results of their counterparts from 2022 by more than 65%. We're moving into the later innings of the restructuring work of our franchise business. Our focus has been to move unproductive franchises out of the system so we can devote our finite resources to those that are likely to produce the best yield. We still have some more work to do in this regard through the remainder of the year. We also want to be fair to people and that process takes some time. That being the case, I think we can safely say that the heaviest lifting is now done and we'll continue the cleanup work over the next few quarters. There are three key levers that drive future franchise capacity growth. Adding new franchises, recruiting producers into strongly performing agencies, and converting corporate agents into franchisees. Franchise development's team's priority is the first lever, adding new franchises. And they've been focusing on specific high-priority geographic areas where we believe new franchises could be the most successful and help our carriers gain share in markets they want to grow. With each passing quarter, we become more effective and efficient in developing strategies to attract the right candidates. That, coupled with our improved digital marketing strategy, has generated a much more cost-effective go-to-market strategy. This strategy is resulting in fewer but higher quality new agencies launched that we believe will be significantly more productive and onboard producers more quickly. Lever number two, adding producers to successful franchises that are ready to scale, is proceeding nicely and according to plan. While the removal of underperforming agencies has had a muting effect on the growth of total producer count, the average producer for agency is climbing. And as a reminder to what we've said in the past, these producers have tended to be almost twice as productive as an average new franchise. Level three, conversion of corporate agents to franchises, is also going according to plan, and we intend to launch about 30 franchisees this year from corporate. It is important to remember that these have performed like new agencies on steroids and continue to produce at much higher levels than an externally recruited franchise. This source of the most capable franchise candidates is an example of a very deep competitive mode that is exceptionally difficult for competitors to mimic because nobody has a large super productive corporate agency like ours. Momentum for the longer term is very strong in this channel of candidates. Our recruiting pitch on campus is powerful as we describe the account executive job as essentially a paid apprenticeship that can lead to a candidate opening their own Goosehead franchise just a few years out of college. We expect this to become a very long lever over time. While we're pleased with the progress we've made on average franchise productivity, the gap between a corporate producer and a franchise producer would indicate there's still significant upside in franchise productivity. We will continue to attack this with more robust training programs, investment in client and agent-facing technologies, launching more agencies out of our highly productive corporate agents and managers, and hands-on culture building activities in the field. With our emerging quote-to-issue technology becoming a reality, we anticipate that corporate partnerships will become another channel with extraordinary growth potential over time and be highly scalable. Mark Miller will talk more about this opportunity in a minute. We've made significant progress with our QTI efforts through the second quarter and expect to launch travelers, nationwide, and clear cover auto products during the third quarter. As we launch additional carriers, our agents are able to be more efficient as QTI significantly reduces the time it takes to bind a policy. During the second quarter, we announced our partnership with Vivint Smart Homes as a new lead source to supplement our existing go-to-market strategy and to leverage QTI over time. Mark Miller will also provide more details on this exciting opportunity. Our business continues to generate significant cash flow, and we paid down an additional $10 million of our term loan during the quarter with cash flow from operations. Mark Jones, Jr. will address some of our balance sheet management opportunities in his section of this call. We are incredibly pleased with the results our team's been able to deliver in both a slow housing market and a challenging product environment. We believe that both of these headwinds are temporary, and when we come out the other side, we expect to be a tightly coiled spring with significant future revenue and earnings growth embedded. With that, I'll turn the time over to President and Chief Operating Officer Mark Miller.