Goosehead Insurance, Inc. Q3 FY2024 earnings call

• Two years ago, the company faced challenges but has since transformed, reaching $1 billion in quarterly premium for the first time. - Recruiting engine is thriving: corporate agent headcount grew from 276 in Q2 2023 to 458 in Q3 2024; opened a new corporate office in Phoenix. - Franchise development: more than doubled franchise development team in six months, added 30 new franchises in Q3 from 17 states; average agents per franchise increased to 1.9 from 1.6. - Agent productivity: franchise productivity improved 52% year-over-year; corporate side investing in growing capacity. - Product market: auto insurance showing improvement, homeowners market challenged but signs of stabilization; client retention rates stabilized at 84%.

Total written premiums, the leading indicator of future revenues, grew 28% over the prior year period to $1 billion. Franchise premium growth was 33% to $825 million and corporate premium growth was 12% to $204 million. Total revenues for the quarter grew to $78 million, with core revenues of $73.5 million, up 16% for the quarter. Adjusted EBITDA for the quarter was up 17% to $26.1 million from $22.4 million a year ago, and adjusted EBITDA margin expanded 193 basis points to 34% for the quarter compared to 32% in the year-ago period.

• Total written premiums placed are expected to be between $3.7 billion and $3.82 billion, representing 25% to 29% growth. - Total revenues are expected to be between $295 million and $310 million, representing 13% to 19% organic growth. - Adjusted EBITDA margin is expected to expand for the full year 2024.

• Product market dynamics and weather-related events can impact results. - Uncertainty in carrier pricing and product availability. - Potential financial impacts from catastrophic events like hurricanes.

Q: Could you go into more detail about product availability, especially in Texas and California?

A: Auto product is starting to return, carriers changing home products like depreciable roofs and higher deductibles, but product flow back to challenged markets is not exact.

Q: Any specific reason for the step down in G&A expenses?

A: No one-offs, just disciplined investment with waiting on non-essential investments.

Q: How competitive is your product relative to captives in areas like Texas and California?

A: Competitive in most places, captives starting to raise prices, but prices are stabilizing.

Q: Are you diversifying away from home sale referral sources?

A: Primary go-to-market strategy is focusing on home closing transactions, and will get more referral partners if leads go down.

Q: What's driving the revenue guidance range and the ratio of revenues divided by premiums?

A: Volatility in product availability and contingencies impact revenue, with contingencies being binary and potentially moving revenue significantly.

Q: Can you talk about the pace of corporate agent growth and its impact on margins?

A: Corporate agent growth is due to improved recruiting and training, new agents are high quality, and they are accretive to the P&L but may have some comp and benefits increase in the fourth quarter.

Q: Expand on the opening of the corporate office in Phoenix?

A: Looked at coverage, schools, and carrier environment; Arizona has good potential and Tempe has a good feeder program.

Q: How has shopping activity been and its impact?

A: Shopping activity hasn't settled down much, pricing has slowed slightly but still active, and agents are working hard with proprietary technology.