Q2 2021 Goosehead Insurance Inc Earnings Call

July 28, 2021

Thank you for standing by this is the conference operator, welcome to the Goose had insurance second quarter 2021 earnings conference call.

As a reminder, all participants are in listen only mode on the conference is being recorded.

After the presentation, there will be an opportunity to ask questions.

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I would now like to turn the conference over to Dan Farrell VP.

<unk> capital markets. Please go ahead.

Thank you and good afternoon with US today are Mark Jones, Chairman and Chief Executive Officer of who said, Michael Colby, President and Chief Operating Officer, Mark Colby, Chief Financial Officer, and Brian Patillo Vice President.

Now everyone should have access to our earnings announcements.

Which was released prior to this call, which May also be found on our website at IR, Doc who 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 as of today.

The forward looking statements in our discussion are subject.

Correct to various assumptions risks uncertainties and other factors that are difficult to predict and which could cause the 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 SEC for more detailed discussion of the risks and uncertainties that could impact the future operating results and financing 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.

On 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 performance.

We consider these non-GAAP financial measures to be useful metrics from management and investors to facilitate operating performance comparisons from period to period by excluding.

Potential differences caused by variations in capital structure tax position depreciation amortization and certain other items that we believe are not representative of our core business for more information regarding 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.

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 Www Dot <unk> insurance Dot com.

Today on the call, we will be providing a short video demo of our digital agent platform, which will be going live in the coming weeks.

If you are dialed into the call by phone you will be unable to view the demo and we will experience a few minutes of silence between the start of the video demo and our Q&A as such we encourage everyone to go to the webcast link for the earnings call, which is posted on our IR website at IR Doc goes head insurance dot.

<unk> Com <unk>.

Also if you were using a mobile device you may need to press play when the video appears.

With that I'd like to turn the call over to our CEO Mark Jos.

Thanks, Dan and welcome to our second quarter 2021 results call. We had another outstanding quarter of very strong growth on this call.

I will provide a summary of our key results and highlight the meaningful investments, we're making today that will be significant drivers of growth in our business for many years, our CFO Mark Colby will then walk you through some greater detail on our financial results during the quarter and the declaration of a special dividend. We will then hand it over to.

And C O O, Mike Colby, who will discuss our new digital agent platform that will be available to consumers in the coming weeks and we'll provide a demonstration of this truly unique and powerful technology.

Before discussing the quarter I would like to spend a minute on a critical element of our competitive moat.

Vas.

Present accumulated experience we.

We are a client focused tech enabled company note the order of priority clients first technology as an enabler.

You will see this on vivid display when we demo of our digital agent platform. There is nothing like it on the market.

A simple and comprehensive and importantly informed by artificial intelligence leveraging millions of actual quotes by our professional agents. There is no shortcut to gaining and being able to leverage that experience it can't be replicated by newcomers to the industry.

I strongly encourage interested.

It is people to try as many competitive shopping offerings as they are willing to endure and see what is actually available then try our digital platform.

You will be amazed.

I'd also like to say a word about margins our business model has a very long tail the biggest growth investments we make this.

Interest that won't begin to start showing up significantly in our revenue until 2024 and thereafter.

We've modeled out our business and quantified the tradeoffs between growth and margin.

Because there is so much growth already embedded in our business with a lot of effort, we could slow our growth down to 10% to.

12% annually in 4 or 5 years, which would likely yield EBITDA margins in the low to mid forties sounds pretty appealing. However, absolute profit dollars are maximized by keeping our pedal to the metal.

On growth with the margins we currently produce.

While EBITDA margins in our current model may be.

Lower their earned on a much larger base of business producing more profit. In addition, it is critical to our competitive position that we maximize our conquest of the land grab in the market at this time and continue to build our competitive mode.

Thus, we optimize both our economics and strategic.

Inability by continuing to pursue the growth strategy, we have been and making the investments necessary to do so now let me turn to Q2.

During the second quarter growth across our business continued powerfully further emphasizing our significant and expanding competitive moat in the marketplace, Let me take a moment.

To highlight some of the substantial accomplishments during the quarter premium growth.

Leading indicator of future revenue growth continues to power ahead in Q2 premiums increased 46% while policies in force grew 48% compared to the second quarter of last year.

Our premiums in the <unk>.

Franchise channel grew 50% for the quarter and this growth provides excellent visibility into powerful embedded highly profitable revenue growth as those policies reliably convert to renewal after 1 year and our commission share jumps to 50% from the 20% we earn on new business.

Our core revenues increased.

<unk>, 40% over the prior year period.

Total franchise count at the end of the second quarter was up 59% year over year operating franchises also grew 47% in the quarter compared to the year ago. Our franchise mix is becoming increasingly diversified geographically with 77% of.

[noise] franchises located outside of Texas compared to just 42% when we went public in 2018 on.

Operating franchises outside of Texas grew 58% year over year.

Importantly, because of our rapid growth rates.

63% of our total franchise basis either in their first.

Year or preparing to onboard will this cohort provides minimal premium in revenue today. They are predictable launch from production ramp combined with our increasing retention rates should fuel powerful growth over the next decade and beyond.

Also while our franchise unit count is growing the unit productive capacity.

<unk> is also growing as some of our more seasoned franchises to begin adding producers, which will be a larger and larger source of growth over time.

Our corporate agent team was up 43% from a year ago and continued investments in this channel are critical as efforts in training mentoring and beta testing of new technology.

And processes helps drive our extraordinary growth and improve productivity in the more leveraged franchise channel. These agents represent the gold standard of performance in the industry with new business production levels, nearly 4 times industry best practice, which make some very powerful supporting critical.

<unk> training mentoring and R&D functions for the company.

During the quarter, we launched an office in Denver and will complete our remaining office openings in Columbus.

And San Antonio and second office openings in Chicago, and Austin by year end.

We're also expanding our Houston on Westlake offices in the third quarter.

Train in addition to providing support to franchisees. These corporate office has helped us scale nationally and enhanced college recruiting and career advancement opportunities in both the short and long term.

The 2021 office openings and expansions should.

Sufficiently absorb our head count growth.

Through.

<unk> 2022.

Client retention for the quarter was 89% a record level for our business are improving client retention has been driven by significant investments, we make in product people and technology.

These improvements in retention will provide material economic benefits for our business.

Through time as the overwhelming majority of our profits are in renewal revenue.

The service experience, we provide to our clients is second to none with a net promoter score of 92 in the quarter I could not be more pleased with the consistent and high quality efforts put forth by our amazing service professionals.

Overtime in the coming weeks, we will be launching our digital platform just as our strategy to date has been exceptionally difficult to replicate by competitors. Our digital platform is unlike anything in the market the value we leverage from our enormous client focused accumulated experience can't be replicated by tech.

Okay startups.

We are very excited to provide you with a demonstration of this new and innovative technology in the call.

We believe this will be a unique will be unique in the marketplace, providing clients with a direct digital shopping experience that leverages, our massive accumulated experience and a true choice platform.

Tech vote, all while preserving the unmatched benefits that are knowledgeable agent brings to the insurance buying process.

While we are highly confident this platform will enhance new revenue opportunities over time. We also believe it further we will strengthen our existing go to market strategy with mortgage lenders and Realtors. Finally, we believe this new effort.

<unk> was client experience will make it easier for our existing clients to refer their friends and family to do said, adding additional sales opportunities for our agents from client referrals.

While our organic growth topline results were impressive I'm also proud of our significant cash generation and strong financial.

<unk>.

Our consistent results and financial discipline have created a rock solid balance sheet with a large amount of cash.

<unk> decreasing debt to EBITDA leverage and virtually no intangible assets.

This provides us with significant flexibility as we look to the future.

As communicate.

But since our IPO, we want to maintain an infection inefficient capital structure that includes some debt. In addition, excess cash will be periodically returned to our shareholders.

Given these objectives, we will be raising additional debt and we will be paying a $60 million or $1.63 per share special cash dividend.

<unk> to shareholders of record as of August 9.2021.

I am extremely excited about the sustained and powerful growth engine. We have built. These results are further evidence of our focus on the client and on the clear benefits of a choice product offering knowledgeable sales and service agents and.

And industry, leading technology that provides an unmatched insurance buying experience for our clients our runway and the market remains enormous and our competitive moat grows each and every day.

The substantial investments, we're making today, which by the way flow almost entirely through the P&L.

Dividend by a little premium on revenue benefit in the short term. However, they will be a substantial driver of our continued high levels of growth 3.4 and 5 years out and beyond.

In order to achieve our goal of industry leadership in the personal line space, We will stay maniacally focused on providing an unmatched client experience.

And continually improving all drivers of organic growth recruiting productivity and retention.

I want to thank our employees and franchisees for their tireless efforts and making you said such an exceptional company and with that I'll turn the call over to our CFO Mark Colby.

Thank you Mark and Hello to everyone on the call.

As a reminder for anyone that May have joined late you will be unable to see or hear the demo of our new digital agent platform. If you only dialed in as such we encourage everyone to use the webcast link which is available at IR, Doug you said insurance Dot com.

For the second quarter of 2021 total written premiums.

The leading indicator of our future core and ancillary revenue growth increased 46% to $399 million. This.

This included franchise premium growth of 50% to $286 million.

Corporate segment premium growth of 36% to $112 million this growth is being driven by.

Increasing retention rates strong, new corporate and franchise agent growth and increasing agent productivity in the franchise channel.

The continued shift in our mix of business towards the faster growing franchise channel implies significant embedded future revenue growth as the new business premiums reliably convert to renewal premiums at which time.

Royalty fee increases from 20% to 50% for ongoing renewals for the life of the policy.

At quarter end, we had roughly 872000 policies in force a 48% increase from 1 year ago, and another leading indicator of the momentum of our business.

Revenues were 38.

<unk> 2 million for the quarter, an increase of 28% from the year ago period, while core revenues grew 40% to $34.7 million for the quarter.

Ancillary revenue, which includes contingent commissions was $1.7 million in the quarter compared to $4.1 million a year ago.

Given the weather events.

Thus far in 2021, we anticipate that some of our contingents may trend below average as a percentage of premium for the year.

With most of the contingents coming in the fourth quarter as our results with the carriers are finalized.

The franchise channel generated core revenue growth of $15.4 million an increase of.

<unk>, 46% from the year ago period.

At the end of the second quarter, we had 801 total franchises up 59% from the prior year and 1072 operating franchises up 47% from a year ago.

We continued to build on our strategy of national expansion within the franchise channel with non.

Texas franchises accounting for 77% of total units compared to 72% a year ago.

And these non Texas franchises continued to grow their productivity through the second quarter.

We also continued to invest heavily in corporate agent hiring and national expansion to facilitate the franchise channel growth and productivity.

Corporate sales agent head count at the end of the second quarter was 452, an increase of 43% from the year ago quarter.

Corporate channel core revenues were $19.4 million in the second quarter, an increase of 36% compared to the year ago period, as new agents continue to ramp up productivity over their tenure.

Total operating expenses for the second quarter of 2021 were $34.4 million.

54% from $22.3 million from the prior year period.

Compensation and benefits expense was $22.5 million for the quarter up 41% from the year ago period on 40% hedged.

Head count growth.

This increase in compensation and benefits is being driven by our ongoing investments in head count across the organization.

Particularly the hiring of corporate sales agents in support of the franchised channel growth service agents to manage our largest revenue stream renewals recruiting and onboarding functions to continue our growth trajectory.

<unk> and systems developers to ensure our technology is on the cutting edge for our clients and internal users as evidenced by the launch of the digital agent platform in the coming weeks.

General and administrative expense for the quarter was $10.1 million and.

An increase of 89% from a year ago with the increase due to an.

Real estate footprint higher travel and entertainment expense as the U S economy continues to reopen and investments in our newly designed website and client facing portal as well as a number of carrier integration projects.

Additionally, 2020, G&A expenses were artificially low due to Covid lockdowns.

The hiring of employees and on boarding our franchisees combined with the opening of new offices has an immediate impact to G&A expense, while the revenue benefit scale over time, as we onboard agents and as they ramp up their production.

Total adjusted EBITDA on the quarter was $6.8 million.

Spending as compared to $9.8 million from a year ago period.

We have been investing heavily for future growth in producer head count expanded office footprint and our digital agent platform.

While we continue to expect additional new office locations over time, we do not anticipate the same step function increase in real estate investments in 2022.

As we focus on scaling within our existing square footage over the next 12 to 18 months.

We also expect that the new revenue benefit from the direct client greater will begin to ramp up in 2022, helping to offset the significant development costs.

We believe laying the foundation to drive growth as more strategically.

<unk> critical to the business and focusing on margin expansion at this time as we continue to put distance between us and any potential competitors and continued to load future growth into our business.

While 2021 earnings growth is being impacted by uncertain contingent commissions and higher than normal investments to drive revenue over the long.

We expect to deliver high and sustained levels of both revenue and profit growth.

As of June 32021, the company had cash and cash equivalents of $35 million.

On July 21, 2021, the company refinanced its $25 million revolving credit facility from <unk> 70.

On term.

Term note payable to a $50 million revolving facility, which will be partially drawn down in advance of the dividend and a $100 million term note payable.

The company declared a special cash dividend of $60 million.

Or $1.63 per share payable in cash on August 23, 2020.

1 to shareholders of record on August 19, 2021.

Based on our experience to date the company is reiterating its full year 2021 outlook with respect to total written premiums and revenue.

Total written premiums placed for 2021 are expected to be between $1.5 billion and $1.50.

$5.6 billion.

Representing organic growth of 40% on the low end of the range to 45% on the high end of the range.

Total revenues for 2021 are expected to be between $146 million on $156 million representing.

Organic growth of 25% on the low end of the range to 33% from the high.

And on the range.

Our strong first half results and the important strategic investments, we have been making over the last year put us in a great position for the balance of 2021 and into 2022 as we will begin to see revenue benefits emerge from the newer initiatives.

With that I would like to turn the call over.

Mike Colby, our president and Chief operating Officer.

Thanks, Mark and Hello to everyone. We are extremely excited to be approaching the official launch of our digital agent platform and we appreciate the opportunity to preview this technology for you today.

As I have mentioned previously this platform will provide an effortless and completely differentiated client experience.

Incredibly cumbersome process buyers face today shopping for personal lines insurance.

The online market for personal lines insurance today includes 1 direct to consumer insurance companies to lead generators and 3 online independent agencies.

Each of these options have inherent deficiencies.

Paired with negatively impacted client experience, resulting in a customer that is oftentimes frustrated under insured and paying too much for their insurance solution.

Direct carriers are structurally disadvantaged and that they offer only 1 product option with what is usually a lengthy process of gathering personal information that can.

<unk> upwards of 100 questions many of which the client will not easily be able to answer.

For choice shopping experience. The process would then have to be repeated with many different insurance carriers to determine the appropriate coverage at the best possible price.

Throughout this process clients, we presented with options.

<unk> or decrease their cost based on coverage additions or subtractions choices that can be confusing and at times overwhelming to the buyer.

This is precisely where getting the advice of an expert agent is critical in gaining access to agent advice on these platforms can be difficult if offered at all.

Lead generators digital.

To England agencies or some hybrid of the 2 creating even more frustrating experience for the customer by misleading them to think that they are being shopped and will be presented with accurate price close.

A similar lengthy information gathering exercise required to start the process.

Then only a few options on return with a pricing indications.

<unk>.

And other brand options on return without any indication of potential price.

What's happening here is typically a lead generator gathering the customers information and selling it to multiple insurance companies and agencies, all of which will commence an incessant solicitation campaign to the customer.

Disturbingly some of the purchasers of this data.

Include other lead generators, who turnaround and sell the customers information again.

A frustrating experience by any measure and certainly lacking any consideration for consumer privacy concerns.

Furthermore, due to the lack of local market expertise or baking switch tactics any.

Any price indications offered are wildly underestimated.

And suggest impractical, even irresponsible levels of coverage.

The Goose had digital agent platform requires as little as 3 data points net.

Name date of birth and address <unk>.

Leveraging our integrated external data providers, we can populate all of their home and vehicle data and within 60.

Tomato client will be provided with multiple home and auto quotes which typically can vary by thousands of dollars.

Because our process is driven by artificial intelligence informed by expert agent behavior over millions of quotes across the country. We provide more accurate initial quotes with appropriate coverage assumptions.

It is important to note that our system learns from the behavior of licensed expert agents.

<unk> to the other artificial intelligence designs that learned from customer behavior and compounds uninformed decision, making.

The complexity of insurance policies and the differences in coverage options and pricing.

The insurance companies is exactly the area, where a knowledgeable agent can add critical value.

Immediately upon providing the initial quotes we introduced the client to 1 of our more than 2000 knowledgeable agents across the U S. Who will then review all available options make recommendations and ultimately issues of home.

On auto insurance policies, a process that can take as little as 15 minutes.

Most importantly, we will never sell our clients' personal information, whether we win their business or not.

With that we will now play a short video within the webcast, where vice President Brian <unk> will take you through the <unk> digital agent experience.

Across <unk>, we're very excited to debut this new platform, there's truly nothing like it on the market you don't have to take my word for it I'll Echo Mark Jones and encourage you all the tests what's available on the market today.

We'd like to remind you that if youre dialed in by phone. We recommend you watch the video online at IR Dot goes head insurance Dot com.

Or you will experience a few minutes of silence also if youre using a mobile device you may need depressed play when the video appears at the conclusion of the video our call operator will open the phone lines for Q&A.

We will now begin the question and answer session.

To join the question queue you May Press Star then 1 on your telephone keypad.

You will hear a tone acknowledging your request.

If you were using a speakerphone please pick up your handset before pressing any keys.

To withdraw your.

Please press Star then 2.

We will pause for a moment as callers join the queue.

Okay.

The first question comes from Ryan Tunis with Autonomous research.

Please go ahead.

Yes. Thanks.

Just a couple.

Questions on the front first of all it looks like adjusted EBITDA margins are down about 9% year over year is that is that a good way to think about how that will probably trend in the back half of the year as well relative to 2020.

Yeah, Hey, Ryan this is mark Colby so specifically for this quarter you know we had significantly.

On the more contingent commissions than we did last year.

Given we're kind of economies open back up or no longer in the Covid environment people are driving again.

So that was the main driver of the kind of margin decrease along with some investments that we're making in things like real estate and <unk>.

Again, the economy is opening back.

So we are resuming a lot more travel meals and entertainment and those investments that we did not make last year.

As far as margins go there, yes, it'll it'll be challenging to grow EBITDA. This year, just given the tough comparison to last year with contingent commissions.

And the much lower expense level than we thought it was going to happen last.

Last year so.

Overall, we're continuing debt.

Hold true in our message of driving high levels of premium and revenue growth.

But it will be a little more challenging year for earnings specifically EBITDA.

Got it.

Thinking about 2022 that was helpful. You mentioned that you don't expect the same ramp up on real estate.

State class and from the stuff associated with the comparative rater could you give us an idea of what that stem from this year was low and real estate costs.

On the comparative rater cost as well just so we can know.

Kind of thinking about that order of magnitude out to 'twenty 2.

Yeah, we are.

No specific number of top of mind, but probably adding 25% to a real estate at least square footage. This year with these new office openings.

And our plan for next year is not to do opened any additional offices operating expansion. So.

The level of that Youll see by the end of the year once all of these.

It's open.

Openings happen is kind of going to be the level 4 for next year as well and as far as the client radar that's something we've been investing in for 4 years now.

Specifically this quarter it was to the tune of several hundred thousand dollars of investment.

We will continue as we as we rollout the product.

I don't.

That would be kind of more of a steady state.

Going into next year as well, we will continue to maintain it and add new developments and I'm sure. Some additional developments.

We will come to US next year, but again. This is this is 1 of the bigger pieces of technology, we've ever rolled out probably the biggest so.

<unk>.

It's hard to imagine anything anything to this level would happen again next year.

And all of the spending again as revenue revenue, which we're very very excited to scale out next year.

Yes, so on the total written premium growth.

On a pretty good quarter, there are 46% year over year growth.

But the guidance of 40 to 45.

<unk>.

So I mean, I guess that implies some deceleration I'm not.

Seeing recruiting slow so I mean.

Why are you thinking that that number is going to decelerate in the back half of the year. What do you have your eye on.

For guidance specifically for premium.

Some guidance.

We really don't want to get in the habit of changing it every single quarter. We had a very strong first quarter and we were able to raise the guidance and that was kind of it for the first half of the year for us we're going to continue to wait and see.

Recruiting momentum continuing.

As is as this new business generation.

Another reason that we're not raising it even even higher yet it's just some of this COVID-19 delta variances. It just creates some uncertainty for us and again, we want to be conservative in our guidance and give you guys numbers that were extremely confident we can hit.

Got it.

Thank you.

Okay.

Thanks, Greg.

Yeah.

RBC capital markets.

Please go ahead.

Yeah. Good afternoon, a couple of questions.

First related to the dividend.

And it's a substantial dividend.

But I mean, it seems like its more than your cash earnings over the last year to year on a half I mean.

With so much investment going on right now why effectively borrow to pay a large dividend.

That's been a consistent part of our of our balance sheet strategy since we.

Mark is.

We're going to have an efficient capital.

Structure, which involves some debt.

And now we Delever so quickly in our business that periodically from time to time, we're going to increase that leverage we did recently up to 4 times.

And to your point, we don't need this cash for operating expenses on future growth.

Went public so we are going to return it to who belongs to and that shareholders.

Okay.

With the I mean I saw the video on the new technology.

Technology, that's it's pretty cool.

On 1 question I had.

Growth to that is how do you I mean, theres a lot more I can say I'm going to China trying to keep focused on the questions rather than like my impressions I appreciate that margin.

For me.

This is mark Jones, it's hard for me not to sort of chocolate.

Truckload description, a pretty cool, we would bank everyone.

Andy.

Related to net has any interest in this also drag themselves through the competitor offerings. Each 1 of which is singularly horrific and then try ours it yet.

There is nothing like this is a complete game changer for the industry.

League game on.

Okay.

As you know on 1 of those people, who like looks at those competitor web sites for a living.

Most of them, so I do know cool and I see it.

The question that I had.

It was really 1 I guess it's.

Kind of an internal channel conflict question, which is to say so if I.

As it relate your website from where I happen to live in Virginia.

I mean, who will get the credit we will get the commission credit within goes head for the sale I eventually place will that'd be somebody in my local market a franchisee I, maybe I've never met or will it go through the corporate channel and.

B, how sales so to speak.

Hey, Mark this is Mike Colby I think it's important understand that 1 this technology cannot be developed without input and years of accumulated experience from expert agents.

Secondly, it will continue to be refined.

<unk>.

And 2.

Be developed to be even more powerful with the contribution.

From our agents.

And ultimately the decline experienced can be delivered without.

Agents fulfillment and agent excellent execution.

So in no way are we trying.

<unk> to create.

Conflict that would undermine.

Our agent experience. This is this is simply a different way to engage with customers who prefer to engage with us digitally.

That's very important.

1 if you are an existing client you come to our site our systems smart enough to rally.

Wow you to your existing agent.

So.

If youre new to you said, you're exploring to set options, we'll start with.

Your local area and then we will be.

Be distributing leads through a round robin.

Distribution for agents, who qualified based on certain qualitative.

<unk> metrics. So we want to distribute the leads to agents who are going to capture the most value and deliver the.

Highest level of lifetime customer value.

I view that as.

Very powerful currency to encourage.

Improvement in performance across.

<unk> agent force.

Our agents will.

Not feel undermined or we will not be creating any channel conflict with the agent. We believe in the role of the agent and.

And we believe this is a powerful tool.

To augment our agent's efforts and whether you've been part of our assets yes. That's.

Okay.

We're going to be agnostic by channel. So what we want is the we want the agent that's going to.

Do the very best job with the lead to get the lead.

And that so we'll be looking at things like net promoter scores on other.

Sort of cross selling.

What I was potential <unk> retention numbers retention numbers all of those things that create the best client experience, but also create the best lifetime client value and so.

<unk>.

We do.

We're sort of stepping over dollars to pick up dimes.

If we are worried about sort of shunting them just in house we.

We believe and it's always been our experience.

If you do the right thing for the client the money always takes care of itself on that.

Our approach here too.

Good question, though okay.

That's helpful.

1 last 1 on that.

If I may just.

Any reactions from your carrier partners I know a lot of them in the past.

Has been I'm going to say resistant or concerned about being presented in comparative fashions like like this.

Have you gotten any feedback or.

Any pushback from any of your carrier partners related to this.

Mark This is Mike again.

I agree I think carriers are very reluctant to be presented in a fashion like this with the options that are currently available on the market.

The key differentiator.

Peter with Us again as.

Expert agent intelligence.

We're able to using.

Using our tool using our data using our agents understand how to more efficiently match.

Match.

The risk with risk appetite.

In fact, our agent our insurance company partners are very excited about that.

But again.

With the absence of the agents you would have a very hard time convincing.

Insurance companies.

This is in.

On their best interest I mean, I think you go back just.

Not even not even 10 years and you see kind of the Google Inc.

Sharon shopping experience, which was quickly.

Folded.

Really within 18 months it was because the carriers, we're very concerned about the type of business they were.

We're looking at.

And quite frankly, the the transaction cost, but when we have an agent seamlessly integrated into the process and we can deliver high levels of close rates.

Or are we can be very precise with the.

The company the products that we're presenting to the customer based on the <unk>.

<unk> company's risk appetite.

It's a win win for both of Us.

So I would say our partners are very are very excited about.

This kind of new tool that we will be able to use to drive agent productivity and create incremental revenue opportunities through new channels.

We have a track record of delivering profitable growth.

They look at this is.

Another.

Kind of a foundational tool to continue on that trajectory in the partnership.

Thanks for that I appreciate the color and I'll, let I'll, let somebody else come on so they can express their interest.

Tcs and theoretically than I did.

I'm, just giving you a hard time, Mark if you Werent my friend I wouldn't.

Yes.

The next question comes from Meyer Shields with <unk> W. P.

Please go ahead.

Great. Thanks.

I will start by echoing smart growth comments about the coolness of the of the portal actually couple of thanks to you all.

On that.

No problem I don't know cool as well if he does is this when we talk about the launch at this is that gonna be nationwide.

Yeah.

It is.

Yes.

Okay.

Sure.

And when you say channel agnostic between the franchise on the corporate channel.

Correct correct.

Okay.

Were there additional expenses in terms of like second quarter, because I think 1 of the things we've.

So I guess noted.

Margin pressure, where there are additional expenses associated with the launch that Fei going forward.

Yes, I mean, we have certain integrations that we're building out the launch that will stick around but.

I don't expect them, maybe they might stick around for another few quarters, but again, we're talking about.

Completely redoing, our website margin and some of that cost is capitalized boules not not all of it but.

You know content curation and those sorts of things that will continue to add cost to it but again I think they're going to scale very nicely compared to 2021.

This is just a technical question, but.

Yes, assuming that somebody is using this in the middle of the night.

The only option available then too.

Schedule a call with you later.

That's that's correct. There. This is this is Mike again.

Our agents will be connected.

Seamlessly with the client expectations would be set client will be put on a.

A journey.

Roadmap with us, but we expect and we'll manage high levels of.

Responsiveness and.

Very consistent client experience debt.

Our existing customer sets have grown too and grown to expect and appreciate.

So yes, we're not going to have agents many of those 24.7.

Today, but I believe are on.

Our perspective customers will get a lot of value out of the transparency.

Being able to start the process.

Are you able to kind of pick up the process very seamlessly.

With an agent.

Okay and then maybe my final question is if I'm not a goose egg customer and I don't know the total exist how does that get introduced me.

So initially on.

Mayor will be using this to augment our existing channels.

Lee channels. So I think this adds.

Incredible value to our referral partner marketing efforts were a referral partners can use this tool to integrate.

Listen to their mortgage origination process much earlier.

In the process to get accurate pricing.

Indications as they are working with their their customers I think it removes a lot of obstacles.

It allows our existing customers to action.

Client referrals, which they.

Integrate up from 92 net promoter score that they are overwhelmingly willing to willing to do.

We think there's a lot of a lot of opportunity there.

Also on top of that we have a lot of data to mine as it relates to.

Yeah.

Existing customers with additional.

Say product cross selling opportunities, whether it's recovered clients that we've lost over over the years. We believe we can drive a lot of traffic.

To the site using that.

Using our existing.

Data sources, our existing sales process and lead channels.

Organic growth.

Okay.

But Brian Yeah.

Listen to that we also with <unk>, our new Chief marketing officer as part of that New website launched are part of the new product launch or re launching our entire website and our website is really driven around the content strategy to develop meaningful content that is optimized.

Optimized for ACO, where clients can learn about insurance if they are going online.

We believe that over time, that's going to drive traffic to the site.

Hey traffic is very expensive in this industry and so we're taking more of an organic approach, but we're leveraging what we've built the entire website around driving organic traffic.

That we believe over time could be too.

2 meaningful traffic on our site.

Yeah. So there will be some some costs associated with content development things like that but 1 thing we're not going to be doing is all of a sudden buying buying daytime TV commercials or.

Google Adwords anything like that.

Can't compete in that space, what we're finding.

Billion AD budget so.

We got to compete on a different playing field.

Okay perfect that's exactly what I wanted to know thank you.

The next question comes from Pavel Zone.

J P. Morgan. Please go ahead.

Hi, So my first question is.

Work, you've done and evaluating the online readers from investment.

Do you have a sense of the magnitude of incremental you will get versus I guess your current lead generation channels, such as referrals or real estate on mortgage brokers Im just trying to I'm. Just wondering if you havent really sense of sort of the you know.

Incremental marketing opportunity this to present to you.

So we will have it will have a better idea of that Pablo kind of when we when we start giving our 2022 guidance.

We don't know how much additional lead volume will be driven in 2021.

But again, we're excited about kind of the possibility.

<unk> of this and we'll have some more to say on that kind of towards the end of this year early next year.

But the opportunity is huge.

2020, we were involved in the 14% of new mortgage originations on the state of Texas, but in less than 2% of Texas homes, There's a lot more.

Homeowners who are living.

And on their current homes than they are buying new homes or refinancing.

Their current mortgage so I think obviously this expands the market tremendously and as we get data.

On on traffic and consumer behavior will be able to more accurately model that.

Got it.

And then my second question is just on margin so.

I guess, putting aside sort of the.

The 1 time step up investments this year I sort of real estate.

<unk> expenses for the online reader.

And maybe Adam.

Thinking about 1 or 2 years up in insurance.

Back to you.

Business as usual and I guess for you that means like recruiting growing 30 for 30% 5 percentage or something like that so but I guess the context of the question is that in the past when you've been growing at similar rates. Your margin. Your EBITDA margins were north of 20 easily maybe 25 in some years.

Would that be a reasonable range expect your margin surfer Virtu. Once these surf 1 time expenses are behind us.

We're not we're not going to guide towards towards earnings, but Youre right I mean, we.

We historically have been able to sustain those levels of growth at 20 plus percent margins and.

And in the absence of some step up in cost I think we would be right. There. So.

Again, I don't want to do on our guide to that I'm sure. Some interesting investment opportunities will come along but.

On.

<unk>.

We went out we wouldn't be able to stay agile and make those investments moving again.

Pablo It's Mark Jones.

You know just to kind of go back to what I was saying we are optimizing.

We're spending.

Q2 2021 Goosehead Insurance Inc Earnings Call

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