Q4 2019 Earnings Call
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I'd now like to turn the conference Oprah <unk>, Dan Farrell VP capital markets.
Please go ahead.
Thank you and good afternoon.
With us today, Mark Jones, Chairman and Chief Executive Officer, You said, Michael Colby, President and Chief operating Officer, and more Colby Chief Financial Officer.
By now everyone should have access to our earnings announcement, which was released prior to this call.
Which may also be found on our website <unk> IR doctors had insurance dot com.
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.
The 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 filings with the FCC for more detailed discussion of the risks and uncertainties that could impact the future operating results and financial condition abuse had 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 may discuss certain financial measures that are not prepared in accordance with gap.
Management uses these non-GAAP financial measures, one 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 structures tax position depreciation amortization.
And certain other items that we believe are not representative of our core business.
For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures to the most comparable GAAP financial measures. We refer you to todays earnings release. In addition, this call is being webcast and an archived version will be available shortly after.
The call ads on the Investor Relations portion of the company's website at Www Dot do set insurance dotcom.
With that I'd like to turn the call over to CEO Mark Joe's.
Thanks, Dan and welcome to our fourth quarter and full year 2019 earnings call I'll provide an overview of our results for the year as well as our strategy and outlook I'll then handed over to Mike Colby, Our President and Chief operating officer to discuss some of our recent people and technology investments that are advice.
Answering are already significant competitive advantage.
Our CFO Mark Koby will then go into greater detail on our fourth quarter and full year results as well as a detailed discussion on the impacts of adopting AMC six so six.
2019 was a phenomenal year for do said, which further demonstrated the strength of our platform and our significant competitive advantage in the marketplace.
In 2019, we continue to drive high levels of organic growth, while maintaining strong profitability.
We view premium growth is the most important measure of the overall effectiveness of our overall growth strategy.
For the full year 2019 premiums place were $739 million.
This represented an increase of 45% from 28 team, which exceeded the high end of the guidance range, we provided a year ago of 38% to 42% growth.
Well our growth rates are impressive they're not a new phenomenon for us we've been delivering very high levels of organic growth for many years in fact for the five years ending in 2019, our premium growth compound annual growth rate was 45%.
In the fourth quarter, our revenue grew 39% and EBITDA grew 81% using assay six so five our historical accounting methodology.
For the full year 2019, using assay six so five we delivered revenue growth of 40%, which was at the high end of our initial guidance of 33% to 41% and EBITDA growth of 55%.
We're required to implement assay six so six for our 2019 full year reporting.
It is important to remember that implementing assay six so six has no impact on the fundamental economics of our business as evidenced by operating cash flow, which is not affected by the accounting change more than doubling to $21.2 million for the full year 2019.
However, it does change the way we report our results to our owners.
Well the governing bodies to establish accounting rules have a set of objectives with AMC six so six we do not believe those rules at clarity and understanding our particular business.
Accordingly, we will do our best to explain the metrics that management uses to assess our performance with the hope we're providing more insight to the investment community.
The balance of our business continues to shift toward our franchise channel.
This is important to understand because of the way premium converts to revenue.
In a franchise channel.
We earned 20% royalties on the first term of a policy and 50% on renewal terms, so as a larger relative share of new businesses generated in the franchise channel there will be a growing gap between premium growth and revenue growth.
Given our 88% client retention rate, we see approximately 120% mechanical revenue growth as a policy converts from new to renewal so strong premium growth today drive strong revenue growth tomorrow.
Our franchise channel now represent 67% of our overall premium.
Compared to 62% in 2018.
Well, our business has natural operating leverage and potential for margin expansion overtime, our strategic focus remains delivering strong revenue and earnings growth over the long term.
When faced with a trade off between short term profits and much larger long term profits. We always managed for the long term with an item maximizing total profitability overtime.
Our management team continues to own the majority of the company. So we are well aligned with other owners and we'll continue to focus on delivering shareholder value over the long term.
We continue to average up the gene pool with higher quality franchise recruits overtime.
Total franchises at year end were 948, an increase of 47% from the year ago period.
Operating franchises increased 34% for the year to 614.
Signed franchises, which has yet to go into operation were 334 at the end of the quarter.
Our recruitment of higher quality franchise agents has resulted in an elongation of average time between signing the franchise agreement and going live because these individuals frequently have more complex business circumstances to unwind before they can open their goose at franchise.
This is another positive indicator of future growth momentum as the sign franchises gradually transitioned to operating status and begin ramping up business production.
Our corporate channel ended the year with sales head count of 248.
An increase of 49% from the year ago period.
I want to continue to highlight the corporate channel represents a unique and vital component of our overall growth strategy and competitive advantage.
We utilize the corporate channel to test and refine new technology and sales processes.
This allows us to refine and identify best practices that are then rolled out across the franchise channel.
Well these are separate channels, we manage them as one integrated growth strategy for the company.
Our tremendous success that franchise channel is in large part dependent on our continued investment in and support of the corporate channel. Likewise success within our franchise channel creates unique and highly attractive career and professional development opportunities for our corporate agents in the field. The success of this model is evident in.
Continued improvement in our overall agent product numbers within the franchise channel.
Let me provide one brief example of how we leverage our corporate channel to enhance performance of our franchise channel.
Last year, we pilot test, it's something we called our virtual sales coach program.
This involves select corporate agents, managing and mentoring a handful of franchise agents each for a three month period.
Three months after completion of the pilot average productivity of participating franchisees was over 55% higher than the historical ramp up of their peers.
This is just one of many initiatives, we run that help our franchisees achieve extraordinary levels of productivity.
Without our corporate channel these tools would not be available to us.
In April we'll be opening new corporate offices in Charlotte North Carolina, furthering our geographic reach of the corporate channel to drive new business and provide ongoing support to regional franchises across start eastern state footprint.
Our current geographic coverage encompasses approximately 90% of the U.S. population.
In addition to our people and geographic expansion, we've added to our already industry, leading technology platform in 2019 and have exciting plans for enhancements going forward.
Mike will go into greater detail around some of these investments in his remarks.
I'd like to take a moment to discuss our balance sheet strategy over the long term, we plan to maintain and efficient capital structure that includes an appropriate amount of death in March we raised $85 million of new debt a portion of which will be used to pay down our existing notes payable of $46.5 million.
Well this increases our near term leverage ratios to a level inline with our historical borrowings.
Our balance sheet de levers very quickly given our pace of growth.
As I've said previously we carefully assess the cash needed to fund our growth strategy every year and set aside what is necessary plus a conservative cushion.
Given the current uncertainty in the marketplace related to the Corona virus, we're going to preserve our balance sheet flexibility and for the time being maintain our higher cash position.
I would like to highlight that today, we have seen no negative impact on our business due to uncertainties related to the Corona virus lead flow and productivity remain very strong.
The underlying market demand for homeowners and auto insurance is extremely stable essentially if you live somewhere or drive something unique to buy the product, we sell either from us or a competitor.
That being the case our management team has taken what we believed to be prudent actions to avoid potential disruptions to our business in the event they become necessary.
This includes forward buying of Ikea equipment, where the supply chain may be exposed to disruption.
And preparing for key employee groups were promote we if it becomes necessary.
We anticipate that any potential negative impacts on beauty said will be temporary in nature, only and we continue to have a great deal of optimism and enthusiasm for our long term prospects.
We are very fortunate to have the investor base that we do.
It includes some of the highest quality long term investors in the world. We appreciate the support of our owners and are proud to call. Your partners in creating one of the great American business success stories.
Lastly, I want to thank our management team employees and franchisees for their tremendous efforts in 2019.
Management's ownership interest in the company represent the vast majority of our individual networks.
We remain highly motivated and energized to continue to deliver strong growth responsibly as we progress along the path to becoming the leading personal lines distributor in the United States with that I'll turn the call over to Mike.
Thanks, Mark and Hello to everyone.
Over the course of 2019, we made strong progress on our technology innovation roadmap.
Progress was seeing with new tools, and many new enhancements of existing tools being introduced to agents and clients.
In addition, we made major strides with a number of important carrier integration projects that will provide important building blocks for future innovation.
Ill now provide you all with a recap of our 2019 technology projects that we've discussed on prior calls as well as some insight into our 2020 technology agenda.
Our custom built comparative rating application has been successfully implemented across both our agent channels covering 99% of our new business production for homeowners and auto lines of business.
We've completed data integrations over 29 team that provide real time property vehicle driver information and now with less than 10 data entry points, we can generate homeowners and auto insurance quotes from a multitude of companies in a matter of seconds.
We are now investing to enhance the rating application and two key areas.
One last mile integration that will allow our agents to manage the entire sales process from quote to issuance within the app and to developing rating capabilities for other personal property and casualty lines of business.
The last mile integration work is underway and while we are reliant on the capabilities and timing of our carrier partners. We have a full commitment of our key partners to accomplish this.
In the first quarter of 2020, we introduced flood insurance rating capabilities and the application, giving our agents the ability to offer either federal or private flood insurance coverage seamlessly and their homeowners insurance quoting process.
Having this capability is important for a couple of reasons first flood insurance is an important sometimes required coverage for many homeowners and the traditional way of obtaining it can be very cumbersome.
Recent studies suggest that a homeowner is many times more likely to have it flood loss than a fire loss over the course of a 30 year mortgage.
Sadly many consumers go without this affordable and important coverage because of poor advice or no advice at all on the part of our competitors.
Secondly, the flood insurance policy has proven to be a very strong anchor policy in client accounts.
Removing obstacles that prevent agents from selling more flood insurance will have a meaningful retention impact over time.
In addition to flood insurance, we're working to include dwelling property lines of business in the comparative rating application. These policies cover properties owned by landlords and represent approximately 12% of our agents business.
Having the ability to work with increased efficiency across a broader amount of property coverages is important to continued improvement in the client experience both for our insurance clients and our referral partners.
In the fourth quarter of 2019, we implemented our online client portal for new clients.
This is provided a much simpler and more secure onboarding experience as well as some basic self service capabilities for these clients.
We've now had over 50000 clients engage us for service via the online portal and a 93 MPS from those service interactions suggest a much improved client experience.
Over 2020, we will provide access to the online portal to all existing clients and focus on making the user experience more intuitive. Additionally, our backend servicing integration work is well underway with our key carrier partners, which will allow for a more robust self servicing capabilities and the portal.
We're bringing together our advance comparative rating application deep integrations with our carrier partners and data providers and our online servicing portal to create a much improved and complete personal lines experience for both agents and clients.
This project has a longer runway, but we're excited about the continued progress towards becoming the first company to provide a complete online quote to bind offering of a choice model to our clients.
In addition to all of this we've implemented advanced analytics and AI in our service center focused on improving retention introduce new omnichannel client engagement capabilities into our service center enhanced our mortgage activity database to provide a more complete view of the home buying transactions and included over 1500 other end.
Incidents or new features to our technology platform over the course of the year.
At the time of this call we've increased our internal technology development team by 80% compared to a year ago.
Our team remains enthusiastically committed to our long term objective of industry leadership, and we understand the innovation and technology plays a key role in accomplishing this.
I'd like to Echo March sentiment and thank our entire team of employees agents insurance carrier partners and technology partners for their commitment to excellence and constant innovation.
We are rapidly expanding the capability gap between us and our competitors and our culture of continuous improvement provides us with an incredible competitive mode.
With that I'll turn the call over to Mark Colby to provide color on our financial performance.
Thanks, Mike and good afternoon to everyone on the call.
With this quarter's earnings release and in our 2019 10-K filing we are implementing the new revenue recognition accounting standard assay six so six.
Before I review the May impacts of this accounting convention I'd like to highlight some changes we have made to our presentation of revenue that more closely aligns with how management thinks about the business.
We view revenue in three distinct tiers. The first tier is core revenue.
This includes commissions and fees that we earned from selling insurance and by driving high levels of retention through unmatched client service.
Core revenues are driven primarily by factors largely within the control of management.
And are the most indicative revenue measure of our success executing our core organic growth strategy.
The second tier is what we referred to as cost recovery revenue.
This includes initial franchise fees, which cover our cost to recruit train onboard and support our franchises for the first year.
As well as a small amounts of associated interest income for those franchises financing the initial franchise fee.
The third tier relates to ancillary revenue and includes primarily contingent commissions.
Contingent commissions are less predictable and are largely driven by a number of factors outside the control of management, such as weather events and carrier underwriting accuracy.
Overtime contingencies are expected to grow as our overall premium base expands.
While not precisely predictable in any given year, they're more predictable over a multi year timeframe.
Over the last four years contingent commissions received during the year have averaged 94 basis points of annual premium.
Regarding the impact of assay six us six I would like to reiterate that this revenue recognition accounting change has zero impact on the cash flows or overall economics of our business as evidenced by our $21.2 million of operating cash flow for 2019 more than double the level from a year.
Go.
Looking at our different revenue buckets core revenues isn't materially impacted decreasing only $52000 under the new standard.
The area that we'll see the most significant impact is the initial franchise fees within cost recovery revenue.
Historically, we recognize the initial franchise fees when a new franchise agent attends training in the fees are fully earned nonrefundable. According to the franchise contract.
SC six so six requires that we differ in recognize this revenue over the 10 year life of the contract.
Which decreases our 2019 initial franchise fee revenue by $2.9 million under the new standard.
Despite this accounting treatment. The initial franchise fees remained fully nonrefundable, even if it franchise leaves you said.
The other area impacted by the accounting change is contingent commissions within ancillary revenue.
Historically, we have recognized contingents, when we get cash or a statement from the carrier, indicating how much cash we will overseas.
That typically happens in the first quarter related to prior year activity.
With assay six so six these revenues will be recognized over the period. They are earned.
So it shifts the recognition of a large portion of the contingencies that were previously recognized in the first quarter and accelerates them to the prior year, mostly the third and fourth quarters as growth in loss ratio data becomes more known.
This will result in a bit more of a smoothing an acceleration of the contingent commissions overtime.
In 2019, our business placed with carriers was impacted by a large number of weather events, which produced above average losses during the year.
Came after year end 2018 of below average loss ratios.
The impact was a decrease in 2019 contingent commission revenue of $3.7 million under the new standard.
In the supplemental disclosures at the end of the press release.
We have included quarterly financials for 2019 under both assay six so five in the new assay six so six accounting methods to assist you in modeling under SC six so six on a go forward basis.
Finally, before diving into the results I want to take the opportunity to thank our finance and accounting team for the hard work and long hours required to implement this massive undertaking.
Now getting into our results in more detail.
For the fourth quarter of 2019, we grew revenue 59% from the prior year period to $23.4 million.
If reported under FC six so five revenue would have grown 39% organically to $20.4 million.
The primary difference in the growth rates during the quarter relates to contingent commissions that were accelerated from Q1 2020 to Q4 2019.
Slightly offset by decreases in initial franchise fees.
For the full year revenue grew 29% from the prior year period to $77.5 million.
If reported under assay six so five full year revenue would have increased 40% to $84.1 million.
The difference between the two full years related to a $2.9 million decrease two initial franchise fees.
$3.7 million decrease to contingent commissions as recognized under assay six so six.
Revenue growth for the full year was driven by strong growth in both the corporate and franchise channels for both new and renewal business.
Core revenues, which exclude initial franchise fees and contingent commissions increased 36% for both the fourth quarter and full year if reported under assay six so five.
Total written premiums and important leading indicator of our future core and ancillary revenue growth increased 45% to 196 million for the fourth quarter.
For the four year total written premiums were $739 million also an increase of 45%.
Continued strong growth in franchise premiums implies significant embedded future revenue growth as new business premiums convert to renewal premiums after one year and we increased our royalties from 20% to 50% on an ongoing renewal basis.
As Mark mentioned, our mix of business continues to shift toward the franchise channel, which in 2019 accounted for 67% of premiums versus 62% in 2018.
Because of the difference in royalties, we earn on new versus renewal business in the franchise channel.
We should expect to see an increasing short term gap between premium growth in revenue growth.
Being said strong premium growth today in the franchise channel should yield strong higher margin revenue growth in the future.
At the end of the quarter, we had over 482000 policies in force a 44% increase from one year ago.
We continue to generate consistent in rapid year over year growth positioning us well for long term success.
Our franchise channel generated revenues of $11 million in the fourth quarter.
Reported under assay six so five franchise revenue grew 54% to $9.5 million.
The results were driven by continued strong growth in new and renewal royalty fees.
For the full year franchise channel revenues were $34.7 million.
If reported under assay six so five.
Franchise channel revenue would have grown 52% to $39.3 million.
At year end, we had 948 total franchises up 47% from the prior year and 614 operating franchises up 34% from a year ago.
Our franchise pipeline remains robust and we're continuing to grow our franchise recruiting team, which currently stands at 62 to further advance growth.
Non Texas franchises, which grew 71% versus a year ago now account for 76% of total franchises versus 65% as total franchises a year ago.
We continue to significant reinvest in our talent and technology to support our high levels of franchise growth.
And as a reminder, the cost of most of these investments immediately run through our PNM.
Corporate channel revenues were $12.2 million in the fourth quarter.
If reported under assay six so five.
Corporate channel revenues would have increased 28% to $10.9 million.
For the full year corporate channel revenues were $42.8 million.
If reported under assay six Centsfive corporate channel revenues would have increased 31% to $44.8 million.
Separate sales head count at year end was 248, an increase of 49% over the prior year.
Agents with less than one year of experience increased 57% to 141.
While the corporate agents with less than one year of experience at immediate cost impact to the team now.
The extension in this area should bode well for future revenue as their production ramps up over the next two to three years.
We also continue to expand investments in our corporate agents to both grow this channel into further sustain high levels of productivity within our franchise channel.
We remain confident these investments will help to fuel sustained high revenue growth and strong earnings growth over the long term.
2020 investments include targeted office expansion, such as the opening of our Charlotte North Carolina office and expansions in our existing offices in Fort Worth, Texas, Houston, Texas, Irving, Texas, and Henderson, Nevada, as well as expansion of our headquarters in Westlake, Texas.
While we report the franchise in corporate channels as separate segments, we manage the business as an integrated hole to drive overall company revenue growth and to maximize profit dollars over the long term.
Adjusted EBITDA for the full year was $17.5 million.
If reported under FC six so five adjusted EBITDA would have grown 55% to $22.9 million.
Adjusted EBITDA margin for 2019 under assay six so six was 23%.
Adjusted EBITDA margin in 2019, if reported under as these six so five was 27% compared to 25% in 2018.
Looking ahead to 2020.
We expect total written premiums placed to be between $975 million in $1.035 billion.
Representing organic growth of 32% to 40%.
Total revenues under assay six so six are expected to be in the range of $100 million to $105 million.
Representing organic growth of 29% 36%.
While we do not provide bottom line guidance, we expect ongoing investments in people and technology as well as certain one time accounting and public company expenses will have in moderating effect on margin improvement in 2020.
To date, our business has been unaffected by uncertainty surrounding the impact of the kroner virus.
While the underlying demand for homeowners and auto insurance is stable management is taking actions it considers prudent to minimize impacts on our operations should conditions change.
As of December 31st 2019, the company had cash and cash equivalents of $14.3 million and unused line of credit of $2.7 million and outstanding debt $46.5 million.
As Mark indicated in his remarks, we will look to maintain inefficient capital structure as our earnings growth.
On March six 2020.
We added $38.5 million of additional debt, bringing the total debt balance to 85 million along with $20 million of unused line of credit.
We delivered outstanding top and bottom line results in 2019, while making meaningful investments in people and technology to drive future growth towards our objective of becoming the largest personal lines distributor in the U.S.
Our business remains well positioned to deliver consistent in sizable growth in both revenue and earnings for many years to come.
With that I'd like to thank everyone for listening and we will now open up the lines for QNX.
Operator.
We will now begin the question answer session.
The joined the question Q you made press Star then one on a telephone keypad.
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Please press Star then too.
Well, a pause for a moment as callers join the queue.
The first question comes.
Comes from matter Shields with KBW. Please go ahead.
Great. Thanks, so much so two quick questions really one of the account I get the both on the accounting side first.
R&D contingent commission going to be.
Yeah, I think case and the contingent commissions are going to be restricted to just the third and fourth quarter of every year is that what we should be modeling it.
Well really depends on the nature of the contingency if it's purely growth based we can we have better data throughout the year that we can recognize that revenue.
Theres any kind of loss ratio component as you can imagine as you can imagine over the first and second quarters. We don't have enough data for how the loss ratios are going to perform for the full year. So we can.
Confidently, making assumptions for revenue.
In the third quarter, and especially the fourth quarter round out we'll have a lot more more insight.
Okay, but it's not zeroed out first half the year.
Not necessarily but I honestly wouldn't expect much the first half of the year.
Okay. That's helpful.
Just wondering is there you're talking about the investments that you're making.
Staying long term growth and I'll make a lot of sense is there any seasonality in terms of when that will emerge in 2020.
Well a lot of our investments are are kind of throughout the year in people and technology, we've been making those investments for several years and and so I wouldn't.
Necessarily expect a step function increase in those investments, but we'll kind of gradually make them throughout the year as we see those opportunities.
And my are almost all of our investments a flow through the pinedale.
So they show up real time.
Almost nothing bad so now I'll get it.
That's perfect. Thanks, so much.
Thank you. Thank you.
Once again, if you have a question. Please press Star then one.
The next question comes from Mark Dwelle with RBC capital markets. Please go ahead.
Yeah. Good afternoon, Chris just a couple of questions.
Within the.
I guess within the the revised reporting a between renewal and new business Commission I.
I guess this this doesn't really give any any breakdown between what portion is corporate channel versus a franchisee channel that's something that you'd be able to provide on ongoing basis. Just so that we can kind of track the relative flows between the two.
Yeah, absolutely I believe it's actually and some of the supplemental schedules to the to the earnings release, there should be a breakdown.
By channel.
Okay.
And then the the.
The second question that I had.
Related to the to the franchise fees.
Well.
I guess I gather from your description of those those those should be relatively flat quarter on quarter, but with presumably some.
Inclined to them as you continue to add to add new franchises that the right way to think about it.
That's correct, there's going to be a lot less variability and those because.
You know under six so five and dependent on how many franchises, we launched that quarter.
With this we're still recognizing revenue on franchises that are very first franchises that we signed.
And so you'll see kind of a lot more of a steady increase overtime.
The other question our headwinds from at least one area that yeah. Mark. This is one area that gap diverges significantly from economic reality, because those franchise fees are fully earned when someone and their nonrefundable when someone comes to training.
And under any circumstances, if they leave they are still on the hook for those so the deferral and amortization of.
A franchise fees is is one of the reasons for that I pointed out early on in my call.
In my text is that we're trying to do everything we can to provide a little more insight as to how management looks at the business as opposed to gap because GAAP only models the franchise via county.
Okay.
Yeah, I mean, I guess I would I would think that all else equal relative to how I might have thought about this before the implementation.
That's one area, where what all areas of the business fundamentally growing that's one area that will not really see growth.
A material amount of growth.
Because the vast majority of what we're recognizing through there is essentially things that have already happened.
Exactly so I think the focus for you and for the investment community will be more on our capesize like premium growth in operating franchises total franchises.
Those types of sales has become even more important.
And then just to make sure I I'm pretty sure. This is right, but there are not any any six so six first six so five effects with respect to the operating expenses. It's all just it's entirely or a revenue.
An extent that ratios are changed its because of the revenue component not because of anything on the there's some line, yes, theres. Some some minor changes to the expense items, but you'll see in the reconciliation kind of the second to last table in the earnings release.
I was kind of all the all the piano impacts of the transition and there's a some changes in the employee compensation and as well as the bad debt expense.
Okay, I missed that but I say it now that's I mean.
Minor in scheme of things Okay.
And then.
[music].
Last question that I had was more and more of an operational question somewhere early on you mentioned Oprah <unk> opening new corporate offices in Charlotte.
Is that primarily to be a franchise assistance or are you actually going to be seeking and soliciting.
New business from that location.
Mark This is Michael it's consistent with the way we've operated all of our corporate offices. So our it'll be staffed with sales agents, who are responsible for marketing and building their book of business, but they have also very real responsibilities to support the franchise owners in that region.
Okay.
All right so I mean it.
It's both then it's a sales office they hadn't day support office.
Right got it and that goes for the through all of our corporate channels, while much of it that specific office.
Right, Okay, I think Thats all my question. Thank you.
Thanks Mark.
The next question is from Adam Klauber with William Blair. Please go ahead.
Hi, good afternoon.
Hi, Adam when you guys.
When you guys said your 2020 guidance.
Do you think about well the virus did you add a cushion if the virus slows down economic activity.
[laughter].
Yeah, we have some cushion in that guidance for certain scenarios I think.
You know.
As far as accretive I wish, we just don't know enough about yet and how it's going to impact our business.
We're confident that it will have minimal impact, but again, we'll kind of keep to keep the street updated as we go long. After Q1 in Q2, just to kind of see see our open up to that guidance. So so far out and we're not seeing any impact whatsoever from the Corona violent virus lead volume is very strong product.
Liberty is strong same store sales growth is strong.
We're just not we're not seeing it other than the route in the stock market.
Right.
And then as far as taking are taking the right. We're making words were taking the right measures to make sure that weekend, we have business continuity. So that we can keep our service center opened for our clients.
Our employees, our mobile equipped and can operate effectively just as effectively as they do here in the office if from their homes. So we feel like you know this was a short term.
The challenge, it's a you will face in the market, but we'll be able to weather the storm.
Very nicely.
Great.
And then how was Sherman and franchise outside Taxistan 2019 versus 2018 more on a relative percentage basis.
No we really have we disclose that number consolidated but Texas and non Texas.
You know we've disclosed in the past the numbers, 15% of the franchises that churn.
It's actually come down a little bit to 12% over the last couple of quarters that we can we feel comfortable that trend and now.
But it's important to remember that 12% that turn only account for 1% to 2% of our new business being generated.
There's not been successful in our system.
Okay, there they're generally.
As the voting full time effort right. That's the issue there not working full time.
Right.
And then how big is a franchise recruiting division today versus say 12 months ago.
Our total agent recruiting 62, yeah, just over 60, 60 people, which would represents about a 50% increase.
Year over year.
Okay.
And then finally I know in 19, you were wrapping up a fair amount and on the East coast.
Could you give us an idea.
Okay got it Big State, New York, New Jersey, one or two others. How many franchises do you have today on the east coast compared to what you had a year ago.
Yes.
Perfect.
Yeah, it without giving specific state by state, we are continuing to grow their aggressively and not only that but those those franchises are becoming more and more successful every year. We've had tremendous success not only in that region, but throughout the country, Colorado has been another great state for US, Michigan, Illinois continues to be good as do California, Florida. So.
We're really seeing tremendous success outside of Texas and within Texas.
Okay, and then sorry, one final question the margin.
Like investing for growth, which is great.
Do you expect the margin to be more flat or maybe up but just not as much as it would've been if you weren't investing.
Yeah, again, we don't give guidance to specific margin but.
I would expect.
Built into our business, there's some operating leverage.
So I would expect for that you're kind of existing franchises always for there to be continued operating leverage as they mature, but we're continuing to invest in growth you want to be flexible we don't want to commit to a margin number and then pass a good investment because we promised certain margin so.
That being the case, we manage costs like we're still a private company.
You know with management owning the majority of the company we are.
We're very very careful on on costs.
Okay, great. Thanks, Thanks for the answers guys.
Thanks, Adam.
This concludes the question and answer session I.
I would like to to the conference back over to done for al for any closing remarks.
Oh This is mark Jones I'd like to thank everyone for participating and we appreciate your support.
This concludes todays conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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Yes.
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