Goosehead Insurance, Inc.

Good day, and thank you for standing by, and welcome to Goosehead Insurance second quarter 2024 earnings conference call. At this time, our participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Farrell, Vice President, 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 the 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 you all to our recent SEC filings for a more detailed discussion of risks and uncertainties that could impact future operating results and financial condition of GUSED. We disclaim any intention or obligation to update and 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 period to period by including 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 reconciliation 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 in 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 president and CEO, Mark Miller.

Thanks, Dan, and welcome everyone to our second quarter earnings call. I'm honored to be joining for the first time as Goosehead's president and CEO. Mark and Robin Jones founded this company over 20 years ago, and they built something unique that transformed the insurance industry by providing unprecedented product choice and building an extremely talented team that puts clients at the center of our universe. I couldn't be more excited to carry on that amazing legacy and help Goosehead reach new heights. I'd like to personally thank Mark Jones for his leadership, friendship, and continued support and counsel. The transition could not have gone more smoothly, and the company feels well positioned for the next phase of our journey. Over my career, I've been part of many great leadership teams and I've seen many good business models. However, I've never been part of anything with this much potential and I believe we have a rare opportunity to change an industry and improve the lives of millions of people along the way. So that's why I'm here and why we're buying back our own stock and why I bought right alongside the company. Let me expand on what I mean. First, the opportunity for growth in personalized insurance is enormous. The total personalized industry is over $450 billion. We currently have over $3.3 billion in total written premiums, but we account for less than 1% of the total market and just 4.5% of mortgage transactions in the US. As a reminder, the majority of our referral partner leads are tied to mortgage transactions. With a market that large, there is obviously plenty of white space for us to grow organically for many years to come. Second, we are perfectly positioned to capture a larger and larger portion of that market because we simply have the best people in the industry and the best business model. It is our job to execute on that opportunity. Third, Goosehead has created a wide and deep moat that we believe is extremely difficult to replicate. We have over 950,000 clients. nearly 1.6 million policies in force, over 200 carrier partners, industry-leading technology, a national footprint, and more than 2,300 highly skilled and motivated agents. My team and I are relentlessly focused on being the largest personalized insurance distributor in the country in our founder's lifetime, and that's the same mission we've had since day one. To accomplish this goal, it's critical that we reaccelerate growth, and that that's exactly what we did in the second quarter. In Q2, we continue to see many of the same macro and industry challenges we have faced for the past two years. From 1980 to 2023, the average annual number of billion-dollar insurance claim disasters in the U.S. was 8.5. 2023 marked the fourth consecutive year of 18 or more of these size events, CPI adjusted, and this trend has continued in the first half of 2024. Many carriers have taken 20% plus price increases on home insurance over the past 12 months, but those increases have not been sufficient for them to reach their target profitability levels given inflation and bad weather frequency and severity. Until carriers feel confident they can write property insurance profitably, they will continue putting significant limitations on appointing new agents and selling new policies. We're starting to see some early signs of relief on auto insurance, but it's too early to say carrier profitability has fully turned the corner. Despite these facts, I'm pleased to report that our team of highly skilled agents and service professionals navigated the hard market extremely well, and we posted strong results that demonstrate momentum is building across the organization and growth is beginning to re-accelerate. For example, in Q2, we grew total producers for the first time in seven quarters. Total rent and premium increased 30% year-over-year in the quarter compared to 28% in Q1. Core revenue increased 20% year-over-year compared to 13% growth in Q1. And we reached the highest level of franchise agent productivity and company history, with same-store sales up 29% year-over-year. I'm incredibly proud of the way our entire team has performed in this environment. And I'm also extremely grateful for the strong partnership we have with many of our largest carriers. We understand what our partners need in this environment, where growth for them is easy, but profitability is hard. To have a great partnership, both parties must be honest and be very clear about their expectations and commitments, and both sides must commit to joint goals. We call this backing our partners' play. On our side, we deliver the highest quality clients wherever and whenever our carrier partners need them. We're uniquely positioned to deliver this value to our partners because of our comprehensive geographic footprint, highly skilled agents, targeted marketing approach, and superior technology capability. And in return, these great partners allocate to us scarce product that keep our agents fully utilized and our clients happy. Obviously, we can't control macro factors or the pace of product market recovery. but we can't focus on being a great partner that delivers attractive clients, which tend to purchase multiple policies and have better loss experience and retention within respective geographic locations. You should expect us to continue down the strategic path we have discussed on previous calls, but we will begin to push even harder on the growth levers in the business. Let me give you a few examples of how. We have a three-pronged approach to add agents to our network quickly. Hire more quality corporate agents with a larger, high-powered university recruiting program. Second, optimize our in-house agent staffing program, helping our existing agency owners accelerate growth by supporting their recruitment of exceptional agents. And third, increase the size and capability of our franchise development team. As of the end of Q2, we had 313 corporate agents, up from 292 at the end of Q1. and we expect to end the year with over 400 corporate agents. This summer, we're quickly adding many new high-quality agents to our corporate network. The Class of 2024 represents some of the best agents we have ever hired. The early results from the Class of 2024 indicate that we are ramping even faster than the Class of 2023, notwithstanding the very challenging macro conditions. Where possible, we want to build around our best existing agency partners and help them develop even larger businesses. As a result, our agents per franchise continue to increase. Since the beginning of the year, we have helped source more than 150 agents that have been hired by our existing franchises. In addition, our agency owners have hired over 200 agents on their own this year. I believe the support we're providing our agency owners is building confidence within the community that they can each have the capability to grow into larger businesses with multiple agents. We now average 1.8 agents per franchise. Last year, that number was 1.5 agents per franchise. We will also be adding new franchises in key markets around the country to grow our overall footprint. To help accelerate the number of new franchises launched, we recruited Brian Sly, a senior sales executive from AT&T, to lead our franchise development team. Brian is quickly adding key resources and preparing us for more rapid expansion in the future. In addition to adding more high-quality agents to the network, we're hyper-focused on optimizing agent productivity. One of the best ways to drive agent productivity is through technology. As a company, we're making outsized investments in our technology platform to drive current agent productivity and to enable the company to scale more efficiently in the future. Over the past two years, we have built an information technology team that we believe far exceeds the capability of anyone in the industry and rivals most pure technology companies. This technological superiority has created a unique competitive advantage and is beginning to show in the numbers. For example, we've talked about quote to issue for some time now. The utilization of that technology investment has really started to take off. Our core platform has historically allowed agents to easily shop the market for the best insurance at the best price, but when it came to binding the policy, our agents needed to go into the native carrier system and re-enter data. This re-entry process was time-consuming and suboptimal, but our QTI technology now eliminates much of this redundancy on carriers where we have built connections. Each quarter, an increasing percentage of our policies are bound using our QTI infrastructure, and the number of binds is growing exponentially as our agents become more familiar with this new technology. We still have a lot of opportunity in this area to drive efficiency, but I'm so proud of what this team has accomplished. To my knowledge, no one in the industry is doing what we are doing at this scale. These types of ongoing technology investments will rapidly help our agents become even more efficient and deliver a superior client experience. Another adjacent benefit of our technology comes in the relationship we establish with our carriers. In this profitability challenged environment, carriers are looking for partners that can drive economic benefit for them. Our technology platform delivers our partners great clients that have been accurately underwritten to their unique specifications and subjected to rigorous quality control processes. Historically, most of our technology investments have been directed towards enabling sales productivity but we believe there is tremendous opportunity to use the same technology to drive scale and quality in our service department. Service is by far our largest cost center, and many of the tasks they perform can be automated, freeing our agents to deliver an even better client experience. Improving quality and reducing costs with automation will help us significantly widen our competitive moat and expand margins. With this operating playbook focused on re-accelerating growth by adding more agents across the country and strategically investing in technology and service, I believe we are well positioned to deliver strong revenue and earnings growth in the back half of 2024 and accelerating growth in 2025. There is still much to be accomplished, but the next phase of our evolution is well mapped, and we will continue to thoughtfully focus our investments on people and technology that better serve our clients and carrier partners In my prior experience, we would often refer to a Rule of 40 company as an excellent benchmark for measuring success. That is to say, the combination of revenue growth and EBITDA margin added up to 40%. Earlier this year, I said I believe our company can reach a Rule of 60 level over time. We're not there yet, but I still believe that statement to be true if we follow our strategic plan and focus on what we can control. I want to thank our clients, employees, carriers, sales partners, and shareholders for their tremendous support on our continued journey. With that, let me turn the call over to Mark Jones, Jr., our CFO. Thanks, Mark, and good afternoon to everyone on the call.