Q4 2020 Goosehead Insurance Inc Earnings Call
Thank you for standing by this is the conference operator, welcome to the Goose HUD insurance fourth quarter, 'twenty and 'twenty earnings call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation, there will be and opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad shooting you should you need assistance during the conference call you may signal, an operator by pressing star and zero.
I would now like to turn the conference over to Dan Farrell VP capital markets for opening remarks. Please go ahead.
Thank you and good afternoon with US today are Mark Jones, Chairman and Chief Executive Officer of <unk>.
Michael Colby, President and Chief operating Officer, and Mark 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 at IR Docs, you said 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 today.
And we're looking statements and 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 of <unk> 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 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 and capital structure tax position and 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 today's earnings release. In addition, this call is being webcast an archived version will be available shortly after the call and on the Investor Relations portion of the company's website and.
Www Dot goes head insurance dot com with that I'd like to turn the call over to CEO Mark Jones.
Thanks, Dan and welcome to our fourth quarter, 'twenty and 'twenty earnings call I'll provide a summary of our results and 2020 and highlight our overall value proposition and unique competitive advantages and the market I'll then hand, it over to Mike Colby, Our Chief operating officer to update you on some of our technology and human capital investments are.
So Mark Colby will then go into greater detail on our fourth quarter results and outlook for 'twenty and 'twenty one.
We delivered an outstanding fourth quarter, which capped off a phenomenal year produce net insurance. We continued our exceptional record of profitable growth and 2020 with premiums placed up 45% revenues, increasing 51% and EBITDA up 59% for the year.
And also kept our foot firmly on the gas pedal investing heavily and people and our disruptive technology platform, which we believe will drive strong growth in 'twenty and 'twenty, one and beyond.
Well, we are pleased with our success in 'twenty and 'twenty. It is important to remember that we have delivered consistently high levels of growth since the inception of our company. So driving high growth is not a recent phenomenon for us over the last 10 years, we've grown premiums placed at a CAGR of 37% and more recent.
Here's we've been able to drive accelerating growth through our technology and human capital investments, while leveraging the benefits of our accumulated experience over the last three years, which represent our history as a public company, we've grown premium at a CAGR of 45% and ASC 606 revenue at a CAGR.
38%.
Our investments have been meaningful consistent and disciplined.
Having grown our franchises and corporate agents at a CAGR of 51% and 48% respectively over that time.
We are very proud of our consistent strong growth it validates our unique and time tested strategy and business model and the quality and dedication of our team and the strength of our company's culture.
We earn our growth by creating value for others to fully appreciate the value of our model. There are three lenses through which you can view us from the perspective of one the insurance buyer to the agent and three of the insurance carrier.
First and most importantly insurance buyers with people at the center of our universe desire to have the right coverage based on their risk tolerance at the lowest possible price written with a reputable company, who will respond quickly and fairly when they need to file a claim desires that we believe only and independent insurance.
And can best fulfill and they want to accomplish this and a simple fast and convenient way that leverages technology for and effortless client experience. We have built a model that combines a choice product portfolio non.
Eligible sales and service agents and proprietary technology to deliver on these expectations. This approach has resulted in 88% client retention a level, we believe is industry leading.
Next the agent's perspective, but more than 100000 captive agents and the U S or face and acute pain points and their business model. These agents slack product options in the single carrier model have ineffective marketing and Playbooks bear costs for expensive retail store locations are generally we are.
And was severely outdated technology and spend a significant portion of their time servicing existing clients as opposed to growing their book.
And the independent agent channel is comprised of small mom and pop businesses challenged and their ability to scale their agencies.
Agents on the Goose head platform immediately gain access to a broad portfolio with many of our more than 140 carrier partners.
Moving and highly cost effective go to market strategy of developing referral partner relationships and the home buying process.
Disruptive proprietary technology and the best service centers in the world, which allow the agent to focus on growth as their book of business.
Finally insurance carriers are seeking profitable growth and their focus is on maximizing the ratio of client and lifetime value to acquisition costs.
Carriers see the benefits of distributing through independent agents, but that strategy usually comes with a great deal of complexity and costs and working with thousands of independent representatives with no standard training varying levels of expertise and no quality control functions.
Working with Goose that allows them to have scaled distribution with a single point of contact we handle all of the training and enforce standards through a centralized quality control team that reviews and 100 percentage of the policies issued.
We continue to make significant efforts integrating carriers onto our technology platform to make interactions with them, a seamless and efficient as possible given our go to market strategy of leading with homeowners insurance, our client base tends to have more favorable characteristics of better loss experience higher retention.
And multiple policy needs, many direct and insure tech carriers have tried to build models, which eliminate the complexity of working with independent agents. What most have found is that a large portion of the market still prefers engaging with and agents and the sales process, particularly with homeowners insurance.
Goose that allows these carriers to access a very attractive segment of the market without the traditional complexities and many of the direct and and ensure that carriers are currently on our platform.
Now, let me discuss our full year results and a bit more detail I'm very pleased with our execution across all aspects of our operations in the quarter and full year, we had tremendous success and adding significant high quality talent to our organization and 2020.
Corporate sales agent head count and total franchise count grew 47% and 55% over the prior year, respectively, and we expanded meaningfully and other parts of the organization, including our franchise sales service and technology teams overall employee count was 949 at the end of 2002.
<unk> up 59% from 595 at the end of 2019.
Total premiums placed for the year, the key leading indicator of future core revenue growth 1.074 billion and increase of 45% over 2019, driven by strong new business growth and continued high levels of retention revenues were $117 million and increase of 51.
1% and core revenue increased 41% over the prior year. We achieved this strong organic top line growth for the year, well delivering EBITDA of 27 8 million and increase of 59%.
Compared to 2019, we.
We ended the year with four <unk> hundred 68, total franchises and increase of 55% from the prior year, while operating franchises increased 45% to 891 and the fourth consecutive quarter of accelerating year over year operating franchise growth.
Based on past experience, we are confident that our significant number of signed and operating franchises with less than one year of experience bodes well for predictable and powerful growth for many years to come.
Corporate sales agent count at the end of the year was 364 up 47% versus the year ago period.
It's important to remember that the majority of our corporate agents are added and the second and third quarters of the year, coinciding with college recruiting calendars, the ramp up of our new offices, and Charlotte North Carolina, and our second Houston, Texas Office continue to go well and.
2021 will be further expanding our corporate sales footprint with new offices in Denver, Colorado, San Antonio, Texas, Henderson, Nevada, and another office in the Midwest region with our corporate and franchise expansion, we had a presence and 43 states at the end of 'twenty and 'twenty covering over 97% of the U S. Popular.
<unk> up from 35 states at the end of 2019.
The growth and expanded footprint of our corporate channel plays a significant role and driving growth and profitability and the franchise channel the corporate channel as a testing ground for new technology and development of best practices as well as training and mentoring resources for the franchise channel. We've previously highlighted the success of our virtual sales.
Coaching program and have continued to expand this effort through 2020, helping drive significant increases and productivity among franchise participants we continue to manage the corporate and franchise channels as one integrated whole efforts and investments and the corporate channel are integral to our overall successes and organization and form a cash.
Crucial part of our competitive moat.
We're also actively expanding hires across the broader organization to support our future growth and innovation. Our recruiting team currently stands at 98 compared to 61 individuals' at the end of 2019 and.
In 2020, and we nearly tripled our information services development team information systems development team, which is enabling significant progress on our technology innovation roadmap.
Our omni channel approach combined with our World Class service team is having a meaningful positive impact on the overall insurance buying and service experience as evidenced by our net promoter score of 92.
89 at the end of 2019.
As a reminder, our net promoter scores are higher than any company, we've been able to identify while our cost to deliver this extraordinary level of service or roughly one quarter of industry best practice.
Let that sink in for a minute best.
Best service and the world and a quarter of industry best practice cost.
We believe our technology and human capital investments will continue to drive the client and the agent experiences further strengthening our competitive advantage and strengthening our client retention, which currently stands at the industry leading level of 88%.
I am extremely excited about the long term prospects for our business day.
Benefits of investments, we made in the years preceding 2019, clearly began to emerge more meaningful and our growth rates in 2020, and we believe that the people and technology investments. We made in 2019 and 2020 provide us with great visibility into strong growth for the next several years we will.
We remain aggressively on offense and will further our investments through 2021 and beyond as we look to expand our competitive advantage into the enormous U S personal lines addressable market.
I want to thank our entire <unk> team for their tireless efforts and enthusiasm through an unprecedented year. Our unmatched talent is what makes it possible to consistently deliver for our clients referral partners carriers and shareholders with that I'll turn the call over to Mike movie.
Thanks, Mark and Hello to everyone on the call 2020, it wasn't a year of unprecedented challenges facing businesses around the world, but these challenges also provided an opportunity to demonstrate the strength of our strategy and the expanding competitive moat, we're building and the marketplace.
Despite the unique operational challenges at hand, Demick presented we were able to meet or exceed all of our targeted key performance indicators set at the start of the year further validating the significant technology and human capital investments, we made over many years and positioning us to be responsive agile and externally focused on our clients and referral partners.
Our cloud based technology platform allowed us to pivot to an entirely virtual work environment rapidly and seamlessly and then gradually transition back to a hybrid and person work environment as health conditions and recommendations evolved.
We now have virtually all of our workforce and the office for at least 50% of the work week.
And you put a priority on the successful training and Onboarding of our new hires and have fully resumed in person training for our new corporate recruits. We also provided and option for franchisees trainees to attend in person.
While we feel and in person and work environment remains critical to maintaining the strength of our culture and successful Onboarding of talent. There are many lessons that have been learned and the pandemic and our operating model can look to integrate the best practices and benefits from both in person and virtual work environment as we go forward.
Now, let me turn to some of our 2020 accomplishments and efforts moving forward, we've made substantial and consistent progress on our technology roadmap and 2020, improving on our already powerful platform that agents utilize to engage with clients and carriers.
We remain focused on providing an omni channel experience to interact with our clients and the way that they prefer and.
And late 2019, we implemented our online client portal and in 2020, we saw over 250000 clients engage us via the direct portal.
We also saw a 10 <unk> year over year increase and client engagement through chat and SMS channels and implemented and outbound communication engine, enabling us to build journeys involving email SMS push notifications and social media.
Client set and engaged through these digital channels have averaged a net promoter score of 94.
We also delivered many enhancements to our comparative rater utilized by agents, adding products such as flood jewelry renters and motorcycle to the rating platform. During the year. While these were products that we have sold previously the integration onto the comparative rater allows for easier cross selling opportunities for our agents and ultimately improves client retention as we.
We increased the number of clients with multiple products.
During the year, we expanded our total carrier relationships to over 140 and implemented many improvements to back and carrier integrations. This is the ongoing blocking and tackling that is critical to driving efficiency and enhancing the client experience. We are increasingly utilizing carrier intelligence data on market share growth and rate filings to and.
Formed strategic decisions and our product portfolio.
In total we added over 2500, new features and enhancements to our platform spanning all areas of the business from sales and service to finance and human resources.
We continue to invest and our technology development team to accelerate these efforts tripling the size of our development team and 2020 looking.
Looking ahead to 2021, and we're excited about a number of initiatives to further enhance the client experience as we said previously and 2021, we will be launching our client facing quoting platform, allowing clients to engage and our choice shopping model directly while still maintaining the benefits of and knowledgeable agent and the background. Additionally, we are making further improvement.
And to our client portal and we'll be launching our mobile app to allow for one tap access point for clients.
We'll also be expanding our use of artificial intelligence to improve retention and quoting accuracy and recruiting efforts among other areas.
Our significant growth has been driven largely by our focus go to market strategy of engaging with mortgage and real estate professionals, adding value at the point of the real estate transaction.
We continue to make enhancements to our proprietary mortgage and real estate partner database that we will leverage for years to come.
About two thirds of our new business is generated from this go to market strategy and there is substantial runway for future growth and this area given our small share of the roughly 8 million new housing transactions annually.
While we generate about a third of our new business from other client referrals. Currently there are substantial actions, we can take over time to expand our new business through other avenues beyond our traditional go to market strategy.
Our recently announced the addition of and Charles as Chief Marketing Officer, and will work to further develop our enterprise wide marketing strategy, including all brand strategy sales channel enablement and digital engagement.
I want to join Mark and thanking our entire team for an absolutely outstanding effort. In 2020, we believe we are exceptionally well positioned to drive continued strong growth in 'twenty and 'twenty, one and beyond 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.
For the fourth quarter of 2020 total written premiums the key leading indicator of our future core and ancillary revenue growth increased 45% to $285 million.
This included franchise premium growth of 52% to $202 million and corporate segment premium growth of 31% to $83 million.
For the full year premium and premiums also grew 45% exceeding the high end of our initial guidance range of 32% to 40% growth.
This growth is being driven by continued high retention rates and strong new business generation, increasing agent productivity and the franchised channel and by leveraging the resources and intellectual capital of the corporate channel.
The continued shift and our mix of business towards the faster growing franchise channel implies significant embedded future revenue growth as new business premiums convert to renewal premiums after year, one at which time, our royalty fees increase from 20% to 50% for ongoing renewals.
At quarter, and we had over 713000 policies and force a 48% increase from one year ago.
Revenues were $34 $7 million for the quarter and increase of 48% from the year ago period, while core revenues increased 46% to $25 7 million.
Ancillary revenue, which includes contingent commissions grew 63% to $7 5 million for the quarter and more than tripled to $16 9 million for full year.
We had a tremendous year for contingent commissions driven by Covid related lower loss ratios with our carriers and I will discuss our outlook for 2021 contingent Commission shortly.
For the fourth quarter franchise channel total revenue was $16 9 million and increase of 54% from the year ago period.
Core revenues and the franchised channel were $10 8 million.
Up 55% from a year ago with growth being driven by increasing franchise count improving productivity and continued strong retention.
In Texas during 2020, new business production per franchise with more than one year of tenure was up 27% and we continue to see opportunity for additional productivity improvements as we further leverage our corporate agents and training inventory efforts.
At the end of the fourth quarter, we had 1000 and 468 total franchises up 55% from the prior year and 891 operating franchises up 45% from a year ago.
Non Texas operating franchises now represent 74% of our total operating franchises and compared to 68% a year ago.
We are continuing to invest and our recruiting team, which currently stands at 98 people and our franchise pipeline remains very strong.
And.
Corporate channel revenues were $17 $7 million and the fourth quarter and increase of 43% from the year ago period.
Core revenues and the corporate channel were $14 9 million and increase of 40% from a year ago with growth driven by an increase and agents and continued high levels of retention.
Corporate sales head count at the end of the fourth quarter was 364 and increase of 47% from the year ago quarter.
As a reminder, because of college recruiting for the corporate channel. The summer months are historically, our largest for corporate sales onboarding with the fourth quarter and the first quarter of the year, having limited new agent additions.
We continue to invest and the success of our franchise channel agents via our corporate agents through our virtual sales coach program.
Our corporate agents' virtual coaching efforts helped drive an increase and productivity of over 30% among franchise participants.
This is a highly leveraged area of investment not only for productivity gains, but further retention impacts from both our franchisees being more successful and our corporate agents, having additional coaching opportunities leading to attractive career paths and leadership.
Despite the increasing demand we are putting on our corporate agents and training and mentoring of the franchise channel and 2020, our corporate agents with more than one year of experience, we're able to maintain and are already exceptionally high levels of new business productivity.
Total operating expenses for the fourth quarter of 2020 were $29 2 million.
73% from $16 8 million and the prior year period.
The increase from the prior period was due in part two and 81% increase and employee compensation and benefits expense related to ongoing investments and our corporate agents franchise sales team and information system and developers.
These investments should fuel our growth for many years to come.
And also strong performance from our corporate sales and recruiting teams during 2020 led to higher variable compensation for the year, primarily during the fourth quarter.
General and administrative expense increased 55% as we continued to expand our real estate footprint and invest and our technology roadmap with enhancements to our client facing portal, which we expect to unveil and 2021 and numerous additional carrier integration projects.
We also continued to invest and our finance and accounting function during the year to meet our Sarbanes Oxley requirements.
Adjusted EBITDA for the quarter was $7 9 million compared to $7 5 million and the prior year, primarily due to the difference and timing of contingent commissions from 2019 to 2020.
For the full year of 2020, EBITDA was $27 8 million and increase of 59% compared to 2019 with 24% EBITDA margin for the year versus 23% a year ago.
Given the volatility and timing differences that can occur with expenses from quarter to quarter, we encourage investors to focus on our full year, we're trailing four quarter basis.
As a reminder, our business model has natural operating leverage and should continue to see gradual margin improvement over the long term.
And we do not manage the business on a short term quarterly basis.
We focus on maximizing overall profit over the long term and we are continuing to make investments for future growth that will have a moderating impact on near term margin growth.
Our business continues to generate significant cash with operating cash flow for the year of $24 6 million and increase of 16% compared to 2019.
As of December 31, 2020, the company had cash and cash equivalents of $24 $9 million and and unused line of credit of $19 7 million.
Now looking ahead to 2021, and we expect total written premiums placed to be between one and four 8 billion and.
And $155 billion representing.
Representing organic growth of 38% to 44%.
Total revenues for 2021 are expected to be between $144 million and $155 million representing.
Organic growth of 23% on the low end of the range to 32% on the high end of the range.
This assumes continued strong growth and core revenue, partly offset by potential challenges to ancillary revenue growth from 2020.
Ancillary revenue, which consists primarily of contingent commissions can swing considerably from year to year.
Contingent commissions, which benefited from low COVID-19 related loss ratios were 155 basis points of total written premium in 2020, representing our best contingency year on record.
And 2019 contingencies were 73 basis points of total written premium for the year.
As such we encourage investors to look at trends over the long term.
Also while it is still too early to know the impact of the recent winter storm in Texas.
The event could have an impact on contingencies and 2021.
Regarding the quarterly timing of contingent commissions, we would expect the majority of contingence to be recognized in the back half of the year with the fourth quarter being the strongest and the first quarter showing minimal revenue from contingents.
As a reminder, while contingent commissions can be difficult to accurately predict this early in the year our.
And our core revenue growth represents the long term business trends and has much more transparent with stable growth rates.
We are confident that our strong 2020, and the significant investments we made during the year position us well to deliver consistent strong growth and both revenue and earnings for many years to come.
I would like to thank everyone for listening and with that let's open up the lines for questions operator.
Thank you we will now begin the question and answer session.
And the question queue you May Press Star then one on your telephone keypad.
We'll hear a tone acknowledging your request if you are using a speakerphone. Please pick up your handset before pressing any key.
To withdraw your question. Please press Star then two.
We will pause for a moment as callers join the queue.
The first question comes from Ryan Tunis with Autonomous Research. Please go ahead.
Hey, Thanks, good evening.
I guess my first question is just trying to unpack. The total written premium growth guide for next year.
And I noticed that coming into 2020.
The midpoint of your guide coming into 'twenty, and 'twenty was actually a little bit higher than your operating agent growth and 19.
But if I look at the midpoint of the total written premium growth. This year, it's 42% that's below.
The mid Forty's operating and franchise growth that you've achieved here and in 2020, So just trying to get a better feel for what you're assuming there.
I wouldn't think you'd assume less productivity, but just what's what's going into the.
And that 42% midpoint.
Yeah. Good question, Ryan and I guess first of all we always try to be really disciplined and realistic on how we give guidance we want to make sure that we can deliver for you guys.
There's a lot of factors that go into that number.
Geography, 10 year franchisees et cetera.
We're definitely not.
And not necessarily planning on any kind of productivity decreases and 2021.
But when you kind of model all of those things out for the year.
The range, we've given is where we feel comfortable that we can achieve this year. If you look at our geographic expansion.
The overwhelming majority of that expansion is coming from outside of Texas and.
Insurance rates are generally lower outside of Texas.
So as that mix of business changes over time.
You see a slight and it's not a degradation but.
The revenue profile is just a little softer.
Got it and I think I heard you give a productivity statistic for aging scared and one year within Texas.
Curious what that looks like outside of Texas and along those lines could you remind us what your what was your total market share of Texas originations.
And maybe just some indication of what some of your other new Big States like Florida, Illinois, and California like what are your mortgage origination market share have looked like and some of those newer states as well.
Yes, so we'll have a lot more detail and the 10-K, that's coming out this week about the productivity and Texas outside of Texas less than one year greater than one year.
And so I would say kind of on kind of wait and see on there.
And the point of us getting that and I'm, giving that number for Texas, Texas is just to show how well we were able to kind of move the needle by applying our corporate resources to our franchisees nationally, but especially in the state of Texas.
Got it I'll re queue. Thanks.
The next question comes from Mark Dwelle with RBC capital markets. Please go ahead.
Yes, good afternoon, a couple of questions.
And.
On the contingent commissions.
I mean, you've mentioned combined ratio what are the main inputs to drive the contingencies there.
And I know combined ratio is certainly part of it but are there are there volume and other factors that go into play as well.
Yes volume growth rates are a part of almost every contingent commission plan and we have.
Underwriting profitability underwriting profitability is very component loss ratio loss ratio combined ratio loss ratios are part of the majority of our contingent commission plans as well.
Okay.
Alright that make mark we haven't assumed.
We have and assumed the same kind of <unk>.
<unk> profile for 2021 as we saw in 2020, just because the country was shut down for a good chunk of the year in 2020 and.
And our contingence benefited from that.
At this point, we honestly don't know what 2021 is going to look like and so.
We've tried to be as realistic as we can be.
And.
Estimated and what contingents are going to be but it's that's a big question, Mark which is one of the reasons why we really encourage people if you're really trying to understand the underlying health of our business look at two things one is premium growth because thats what is going to be most reflected in long.
Term revenue growth and core revenue growth the other pieces of revenue.
Cost recovery revenue was just franchise fees those arent designed to be profitable theyre designed to allow us to recover cost of recruiting training and supporting new franchises, and then and ancillary revenues our contingents.
And.
And those can just be unpredictable like as Mark said.
We had 155 basis points of premium as contingence, and 2020, and roughly 70, 30, 73 and 2019.
So they can swing there there are elements of it that are in our control.
The overall volume on the growth rate, but there's not a lot we can do about losses.
No that makes sense I mean clearly.
The auto loss ratios are going to be probably all but impossible to duplicate.
And the homeowners.
Far too soon to tell and indeed.
Indeed based on recent weather, which I am sure you know well.
And you're probably off to a bad start rather than a good start so that.
And that'll make sense.
And it's only my second question really mean it.
Sorry say that again.
I said, it's only February I mean, it's just it's a huge question Mark we just don't know.
Agreed.
And that actually brings me and my second question.
I mean, you guys were the state was heavily impacted by by weather, obviously, you have a lot of.
And of your agency base.
And the state.
You mentioned the impact it may or may not have ultimately on contingents are there any is there anything from an expense or cost standpoint that you're incurring.
And in order to field claims and service your customers during very difficult times.
So mark the way we look at this recent weather event and taxes and our <unk>.
Hearts go out to our customers employees and people all over the state that were struggling.
Through really and unprecedented event.
<unk>.
We look at the demand and customer man is more backlog not lost demand on.
And on new policy sales, so something that as we go into the back half of February and into March we think we'll be able to keep up on where we're focused right now is the surge in demand and the.
And the service center and I compare it to RV and in fact, a lot of the analysts expect losses to be at the same level as hurricane Hurricane Harvey So.
We have our team focused on expedient service to our customers prioritizing those that are in need and have claims.
Again, this is not anything new to us we've been through many weather events from all over the country. So we feel like we're very well equipped to respond to these type of events.
And I think it also emphasizes our business continuity strategy both.
Equipping our folks to work virtually as we did and the pandemic, but also continuing to expand our service operations and different parts of the country.
Like we have continued to grow out west and Henderson, Nevada. So.
And I'm very confident and our ability to manage through these type of events.
Certainly not the first time that we've had to manage large events like this and.
In fact, it's interesting statistic.
Statistic in during Hurricane Harvey when we saw a surge and call volume.
Our net promoter score actually increased.
Which I think is a testament to the the <unk>.
Capabilities of our service centers and our service team and leadership to manage through these type of these type of events I will let mark hit more on the cost implications, yes, we really didn't see any martin and nothing material at least we.
And it's more of a switching of our teams to focus on claims rather than.
Other areas, where they may be focused so I don't anticipate any large material cost to come from this.
Okay.
That's helpful detail and then one last question if I could you.
You mentioned a couple of times about the planned rollout of the customer facing.
And the enhancements to the customer facing portal do you have.
And any more detailed guidance as to kind of when that's going to roll or is that sort of a second half is it any minute now on me or anywhere in between I. Suppose you just anything that might help us think about when that Glenn and Carrie might hit the tape.
Yes.
All were guiding to mark on that is 2021 and.
As we've said before.
There is nothing within.
Within our development capabilities that would get and the way of any type of progress there, but we're relying on multiple carriers.
Across the country.
To accomplish what we're setting out to do there, but we're very very confident that we will be able to present this <unk>.
In connection with.
A completely new rebuild of our and kind of digital engagement platform that will be led by <unk>, Our chief marketing officer. We are very confident we can bring this to market in 2021.
Got it thanks, that's all my questions.
The next question comes from Meyer Shields with K B W. Please go ahead.
Great. Thanks, so much and excuse me that everyone is doing well despite the.
Recent bad weather in Texas.
If I can throw one more question on the ancillary revenues is there a significant margin differential between those revenues and core revenue.
Yeah.
They're very unreliable, but they're very high margin.
And straight to the bottom line, we don't share those costs with our.
And with our agents so yes.
Okay that makes sense.
And Mark when you were in your opening comments you talked about.
Hitting 140 carriers and I think a number of insure tech or.
Our direct players on the platform and I'm, hoping you can talk about.
Is there a point when there are too many carriers and there are inefficiencies from your perspective.
Yeah.
<unk>.
Our approach has always been to work with the most meaningful carriers and be relevant to those carriers not to aggregate every carrier.
All of the 433 underwriters personal lines underwriters and the United States.
Yes, that's been our approach we picked very strategic partners now we have to be hyper aware of local market needs.
The product that we distribute and the Gulf Coast region is very different than what we distribute and.
And the South, Florida region, which is different than and the west coast and the brush fire risk and California. So.
When we talk about our carrier portfolio, we're talking broadly across the nation addressing all sorts of nuanced risk and different regions different product lines at like flood insurance or jewelry insurance et cetera, and aggregate what any one agent would be we're working with and there.
Our market is in that kind of 15 to 20 carrier range and really even within that theyre going to concentrate their production with less than 10.
The remaining being focused on niche.
Type type of risk. So our goal is to work with the most reputable underwriters that can address.
The full range of personal lines risks and the United States No matter where agents are located.
May and were also and 43 of the 50 states, but recovered 97% of the U S population. So I wouldn't expect this run rate to continue forever robust just added carriers. So that would probably start normalize over time the product portfolio is very dynamic so the carriers that you know.
Makeup.
And of our new business profile today, and look very different than five years ago. So as carrier appetites change that plays into kind of your product strategy.
As well.
Okay.
Our fleet. It's my final follow up and that is as the number of carriers and expands our stabilizes does that itself have any impact on either the basic commission and the core commission revenues or contingent commission arrangements.
Well I mean, I think theoretically.
If we were to slow down growth you would see.
Underwriting profitability.
Improve which may help your contingents I mean, it would hurt you on the growth side, but we have no intention on.
On slowing down growth, we feel like the commission rates and the compensation agreements that we've negotiated.
With across the entire product spectrum and across the country are very stable, though.
Okay, no that makes the person and thank you very much.
Once again, if you have a question. Please press Star then one.
Okay.
The next question comes from Josh Shanker with Bank of America. Please go ahead.
Good afternoon everybody.
And you all a quick question on and it might be my fault.
Did you say, how many operating franchise that you have under coverage.
And this.
Quarter on.
On the contrary, yes, 890 <unk>, yes.
Operating was 891 at the 12 31.
And our 45% contract.
And under contract was 1468, and a 50, 55% growth.
Okay. Thank you.
And so you made the comment that the premium per policy is lower outside of Texas and then in Texas is that discernible or are we going to see that.
Pressure I mean, I don't have anything modeled for that but it is that pressure going to be material do you believe.
On the property and I don't.
I don't think materially.
We're talking about property specifically you have.
Texas is that has some of the highest property insurance rates.
With along with Florida, and maybe even New York.
But on the auto side I think.
The rates are pretty consistent across.
Cross the states that were.
And kind of grabbing grabbing share and and growing and.
But we've been diversifying across.
Multiple states outside of Texas now for.
Six years seven years, so I don't think.
Think a lot of a lot of that's already baked in and baked.
Baked into the numbers.
And that's what I would've thought catch on.
You mentioned and that's why I'm asking I, that's how I would think about too.
And then.
And finally in terms of sort of layering in new revenue is obviously, a big hiring year in 2020, a lot of training for people who aren't yet.
Ready for production when should we expect those newer.
Revenue producers and their contribution to really start hitting the calendar.
I mean, the trajectory of growth has remained consistent.
So I think you can look backwards and anticipate what we'll see.
Going going forward with these folks we are certainly not seeing a slowdown and their ability to ramp up and so.
Important to note too that their contributions to our P&L won't be felt for years right, especially on the franchise channel where our growth last year.
45% growth and operating franchises contributed I think 7% to our royalty revenue and next year as they continue to ramp up their production as the royalty fee on the policies. They wrote last year goes from 20% to 50% all of that will continue to mechanically increase revenue.
But.
Their contributions are baked into the premium guidance that right right.
Alright, and I'm, just trying and I just try and do.
And on a.
Production per person basis is how long on model works and so I'm trying to not reverse engineered that if I can avoid it.
Yeah again, we will have some some details and excuse me and the 10-K coming out this week that shows productivity by employee and by franchise.
Les and winning a greater than one year, Texas, non Texas et cetera, and I think as you digest those numbers and the 10-K I think it's important to remember kind of our strategic.
<unk> two leveraging our corporate assets to drive success sales and growth and the franchise channel.
And we've certainly seen the.
Productivity results of that investment manifest.
With with franchise productivity over the last several years.
Alright, well, thank you very much.
Thanks, Josh.
The next question comes from Ryan Tunis with Autonomous Research. Please go ahead.
Yes so.
Just a couple of quick follow ups. The first one could you give us a.
Number on franchise churn here in 2020 and remind us how that.
It compares to what you had been doing and what you think you can do.
Sure Yeah that any given quarter any given year, that's going to range from 10% to 15%.
And just the franchise count for the year.
It's important to remember, though that 10% to 15% that is leaving only contributes about 1% of our new business being produced so it's the bottom performers that are being managed out and that's true of both corporate and franchise to very stable and improving.
Okay, and then just one other one it might be missing and I'm not sure. If it's my model or it's just not a number you guys have given but.
Could you give us some feel for what was a contingent right back and 17, when we had Harvey I think this year was close to one 5%, but we had the stress test that flow for 2017, when there's a lot on Texas cat activity, what it had been and looked like that.
Yeah. So unfortunately, I don't have that number because we werent reporting under 606, so it wouldn't be apples to apples anyway, which is kind of on unfortunately, why I can only give two years and 19 and 20 in my script.
Thanks, guys I appreciate it.
This concludes our question and answer session I would like to turn the conference back over to Mark Jones, Chief Executive Officer for any closing remarks.
I'd like to thank everyone for their participation and your interest and goose that.
Good day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Okay.
Yeah.
And.
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Yeah.
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