Goosehead Insurance, Inc.

Good day, and thank you for standing by, and welcome to Goosehead Insurance Third Quarter 2024 Earning Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will 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. So now I'd like to hand the conference over to your speaker today, Dan Farrell, Vice President of 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 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 to all our recent SEC filings for 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 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 period to period by including 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 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. 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 President and CEO, Mark Millick.

Thanks, Dan, and good afternoon, everyone. Thank you for joining our third quarter earnings call. Two years ago when I joined the executive team, we had some significant challenges in the business that required intense focus. We had allowed our recruiting standards to slide, and our organization had a rising level of unproductive corporate and franchise agents. This challenge was amplified by the fact that we were also facing the economic upheaval triggered by the pandemic and the increase in intense weather-related events. Our team confronted these challenges head on, and as a result, today our franchises are healthier and our agents are more productive. We have achieved record profitability, and for the first time in our company history, Goosehead Insurance has reached the milestone of $1 billion in premium within a single quarter. For point of reference, this is 10 times the size we were at our IPO in April 2018. This transformation is a testament to our unwavering commitment to our strategic operating plan, innovation, and the resiliency of our team. While the insurance industry dynamics seem to continuously change, our value proposition for our clients and carrier partners remains constant. For our clients, we deliver unrivaled choice, candid advice, and concierge service. For our carriers, we provide broad and efficient distribution. With every policy we issue, every connection we foster, and every decision we make, we're building a legacy of trust and value. We will continue to lead the way in personal lines insurance distribution with our industry-leading technology and highly trained agents. We have taken many decisive actions the past couple of years designed to strengthen our business, and we know we're healthier than ever. We have expanded our margins while investing in technology and service, and to gain a competitive advantage. This challenging product market has forced us to develop more operational discipline, allowing us to adapt to opportunities more quickly. Thanks to those investments, we are confidently beginning to re-accelerate growth with more agents and broader geographic distribution. Growing our corporate agent base requires a strong recruiting engine at major universities. Franchise agent growth takes a highly skilled franchise development team sourcing entrepreneurs that want to build a business. Once a franchise is established, we help our owners find talented agents to grow their businesses. We've invested heavily in building a world-class talent acquisition function that has the capability to recruit hundreds of corporate agents off college campuses each year. This year's college recruiting class is the largest group we have ever recruited, and we believe the highest quality. As a result, our corporate agent headcount grew from 276 in Q2 2023 to 458 at the end of Q3 2024. Given confidence in our improved recruiting process and sales management, we have decided to open a new corporate office early next year in Phoenix with a goal of expanding and diversifying our footprint. This office offers an exciting new career path for corporate agents and supports Western U.S. franchise expansion. We still believe one of the best ways to grow a healthy franchise business is by placing some of our best corporate agents into franchise ownership in under-penetrated geographies. Corporate agents that convert to franchises tend to stay longer, produce more, and replicate themselves. As an example, last quarter, Tyler Silver, an ex-corporate agent turned franchise owner, sold over $100,000 in new business revenue, a remarkable first-year accomplishment. Tyler joined Goosehead four years ago in our Fort Worth office. We recruited him from the University of Florida, but he's a native of North Carolina. He spent three years in Texas perfecting his sales processes and acquiring leadership skills that would benefit his ability to build a large franchise in the future. A year ago this month, Tyler opened his franchise in Raleigh, North Carolina. Over the past year, Tyler has established a sizable referral partner network in his area, rebuilt a substantial book, and more recently hired his first producer. Tyler represents the type of individual that could build a thriving multi-agent, multi-location franchise operation in the future. Our recruiting engine has also been extremely successful in helping source new agents for our existing franchises. We call this our Agency Staffing Program, or ASP for short. Through the first nine months of this year, our scaling franchises have hired over 500 producers, with ASP sourcing about half of those. And our producers recruited through the ASP have generated more than $1 million in incremental recurring revenue. This program, coupled with the franchisee's own recruiting efforts, has increased our average agents per franchise to 1.9 from 1.6 a year ago. We expect to continue to drive this number higher, creating the potential for exponential growth and new business production. To recruit more qualified franchises across the country, we have more than doubled the size of our franchise development team in the past six months. In Q3, we added 30 new franchises from 17 different states. We believe this is one of the most talented groups of owners we have ever launched and strongly supports our strategic initiative to diversify our agent force across the United States. Our efforts to rationalize the franchise base over the past couple of years has proven to be successful. and the financial health of the entire franchise community has materially improved. During Q3, 36 operating franchises exited the system versus 89 a year ago using the same compliance standards. The other part of the revenue equation is getting more productivity out of each agent. The insurance product market and housing market conditions can factor into how productive our agents are at any given time. However, we continue to stay focused on what we can control to mitigate any external forces. To combat market headwinds, we have intensified our agent training programs and refined our referral partner marketing techniques to generate more leads per agent per day. Our franchise productivity improved 52% year over year, thanks in large part to increased referral partner activations leading to higher leads per agent, conversions of top performing corporate agents into franchise ownership, and the growth of scaling franchises. These franchises tend to have higher productivity levels per agent due to more highly refined sales processes. On the corporate side of the business, we are investing heavily in growing capacity, which naturally decreases tenure and productivity. However, we believe the corporate sales team is now well positioned for the future. Expanding on the product market for just a moment, as you have likely seen, auto insurance is showing signs of improvement, with carriers gradually opening capacity and and rate increases starting to ease. While we're seeing positive momentum on auto, the homeowners market remains challenged. However, we are seeing signs of market stabilization and potential for future product expansion as carriers reach rate adequacy and make changes to policy terms and conditions. As of now, we do not know the financial impacts of the recent catastrophic hurricanes that hit Florida, Georgia, and North Carolina, and more importantly, Our hearts go out to the people affected by Helene and Milton. We still believe that homeowners insurance will be an increasingly attractive line for carriers given pricing updates, underwriting changes, and the favorable client profile across all product lines. We're uniquely positioned to bring high-quality clients to our carriers given our go-to-market strategy that leads with the homeowners transaction first. Regardless of market turbulence, we are pleased to report that we're beginning to see retention rates stabilize. Client retention was flat at 84% for the second quarter to the third quarter of this year. This is after multiple quarters in a row of sequential declines due to historically high premium rate increases driving client shopping activity. Stability in our client retention is a huge factor in the reacceleration of our policy-enforced growth rate to 12% in the quarter 2020. compared to 11% in Q2. And we have confidence that retention will return to historically high levels over time as the product environment inevitably improves. We have strengthened our business, expanded our margins, and sharpened our operational discipline, enabling us to adapt swiftly to accelerate growth. Our recruiting efforts are thriving. We've doubled down on our franchise development capability. Our retention rates are stabilizing. and margins are improving. As we celebrate the remarkable achievement of hitting $1 billion in premium for the quarter and look ahead, I want to extend my gratitude to our dedicated employees, franchise partners, and carriers. Together, we're redefining how insurance is distributed. With that, I'll turn over the call to Mark Jones, Jr., our CFO.