Q3 2021 Goosehead Insurance Inc Earnings Call

[music].

Thank you for standing by this is the conference operator, welcome to the Goose head insurance third quarter 2021 earnings call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation there'll be an opportunity to ask questions to join the question queue.

Press Star then one on your telephone keypad should you need assistance during the conference call you May signal, an operator by pressing star Zero I would now like to turn the conference over to Dan Farrell VP capital markets. Please go ahead.

Thank you and good afternoon with US today are Mark Jones, Chairman and Chief Executive Officer, Pete said, 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, 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 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 the actual.

All of the different 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.

For all of you to our recent filings with the SEC for a more detailed discussion of the risks and uncertainties that could impact our 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'd 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 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 the 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 ends on the Investor Relations portion of the company's website at Www doctors had.

Insurance dot com with that I'd like to turn the call over to our CEO Mark Jones.

Thanks, Dan and welcome to our third quarter 2021 results call. We had another outstanding quarter with continued strong growth significant talent acquisition and notable enhancements to our technology platform on the call I will provide a summary of our key results in the quarter and highlight some of the continued investment.

We're making today that will drive our growth for years to come.

President and Chief operating Officer, Mike Colby will discuss the launch of our digital agent platform during the quarter and further improvements we've made to our products and technology CFO Mark Colby.

Well then go into greater detail on the quarter financials, and our outlook for the remainder of the year.

During the third quarter growth in all areas remain powerful against a very strong year ago comparison further validating our dynamic an unmatched platform.

To put the client at the center of our Universe, Let me take a moment to highlight some of the substantial accomplishments during the quarter.

Premium growth the key leading indicator of future revenue growth continues to be very robust in Q3 premiums grew 44% compared to the year ago quarter policies in force were also up 44%.

Our premiums in the franchise channel grew 50% for the quarter and this growth provides excellent visibility into strong embedded and highly profitable revenue growth.

Those policies reliably convert to renewal after one year on our commission share jumps to 50% from the 20% we earn on new business.

Our core revenues increased 41% over the prior year period.

Total franchise count at the end of the third quarter was up 55% compared to a year ago operating franchises grew 38% during the quarter.

Operating franchises outside of Texas grew 45% year over year, while Texas franchises it increased 20%.

As we achieve more diversification.

In our book of business, nearly 62% of our total franchise basis, either in their first year or preparing to onboard.

While this cohort provides minimal premium in revenue today, they are predictable launch and production ramp combined with our increasing retention rates should fuel significant growth over the next decade and beyond.

Also while our franchise unit count is growing rapidly the unit productive capacity is also growing as some of our more seasoned franchises are beginning to scale their business.

With new producer additions this will be an important growth lever going forward.

Our corporate agent team was up 35% year over year.

This is particularly impressive against the extraordinary growth we experienced in 2020.

While we benefited from Covid effects in the job market and hired aggressively when unemployment was nearly 15%.

<unk> investments in the corporate channel remain critical to our long term success as efforts in training mentoring and beta testing of new technology and processes helps drive our extraordinary growth and improved productivity of the more leveraged franchise channel.

As a reminder, our corporate agents produced at approximately four times industry best practice, providing critical training mentoring and research and development functions for the company. Our data shows that franchises within close proximity to corporate offices gain benefits in their business ramp up and overall productivity.

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During the quarter, we expanded our offices in Westlake Houston in the Woodlands, Texas.

By year end, we plan to complete the office openings in Columbus, San Antonio Austin, as well as the second office in Chicago.

In addition to providing support for franchisees. These corporate offices to help us scale nationally and enhance our college recruiting and career advancement opportunities in both the short and the long term.

We expect these new offices to support our near term head count growth and they should scale very nicely through 2022.

I am, particularly proud of our continued strength in the areas of client retention and net promoter score, which were 89% and 92, respectively.

This is a similar strong level to last quarter and higher than the year ago level of 88% and 91, respectively.

These improvements have taken place in a challenging environment of active weather and increasing premiums.

It's also noteworthy that we are driving retention improvements despite some level of drag from new business bias, given our exceptional growth rates and strong new business production.

Once a policy renews the likelihood that it will renew again grows significantly.

With new business accounting for so much of our total overall retention rates are currently lower than we anticipate long term.

Our industry, leading and improving performance on retention and NPS is a testament to our best in class service efforts, which continue to benefit from investments in product people and technology.

And the client first approach, we bring to all aspects of our business.

Even small improvements in retention provide material economic benefits for our business over time as the overwhelming majority of our profits are in renewal revenue.

A significant highlight of the third quarter was the launch of our digital agent platform and we are extremely excited with the favorable response, we've received from our clients' agents and carrier partners. We are highly confident that this tool will allow powerful new revenue opportunities over time and in the near term will enhance our existing.

<unk> go to market strategy and strengthen our agents other referral business efforts.

This is absolutely a completely unique offering to clients in the marketplace that provides an effortless seamless fast and accurate shopping experience.

I continue to encourage you to try as many other competitor offerings as youre willing to endure and then try our digital agent you will be amazed Mike will go into greater detail on the launch of the digital age and yes.

As well as additional technology and product enhancements, we're making to the platform.

Well the digital agent as a new powerful tool for us. It is just one piece of the enormous total value proposition, we bring to the entire marketplace clients agents and carriers are consistent and significant investments across product people and technology.

Over nearly two decades is key to what makes us unique invest.

Investors frequently ask us what's the most important thing that drives your business success. The answer is everything we do around the three pillars of our business a choice product offering the very best sales and service agents and unmatched technology. There are some companies with reasonable access to product some with good.

<unk> not as good as ours, and some which use agents, but no company in the market brings all three of these critical elements to bear for clients with the expertise that we have.

And no company has come close to delivering results like you said.

Building this incredible business required the benefit of time, which provides the advantages are vast and valuable accumulated experience that can only be achieved through hard work.

Earned with clients for nearly two decades. This is the driver of our significant and an.

And in competitive moat, our company has been built with laser focus on the needs of the client and I maintain that if our model could be replicated it would've been by now.

I couldnt be more excited for the future goes head we are by far the best positioned company in the marketplace and we're only getting better.

Run way for growth is expensive and our ability to take sizable market share continues to improve we were ranked remained consistently externally focused on maniacally driven towards our long term goal of U S personal lines industry leadership.

Like to thank our amazing employees and franchisees for their tireless efforts and enthusiasm in our March toward our goals with that I'll turn it over to Mike.

Thanks, Mark and Hello to everyone on the call. We're very pleased with the launch of our digital agent platform and as Martin indicated feedback from all our key constituents has been overwhelmingly positive.

This is simple seamless digital experience is highly differentiated considering that it's powered by agent driven machine learning.

Accumulated experience from nearly two decades, serving the personal line space. The vast amounts of data accumulated from over $30 million quotes designed by our expert agents across the U S and deep integrations with our insurance company partners and other data providers allows us to deliver a digital client experience that is unmatched in the space.

I can't overstate disadvantage compared to the other competing offerings using artificial intelligence powered by uninformed and inexperienced consumer behaviors.

Our clients make no trade offs, they get the benefit of expert agents face a high quality custom insurance solution and competitive transparent pricing delivered seamlessly and digitally.

Very pleased with but not surprised by the excellent ratings received from clients that are engaged in some of this new platform evidenced by a 96 net promoter score on this business since launch.

We are continuing to enhance the digital AG platform with additional product offerings and deeper carrier integrations.

Along with home and auto insurance, we're also offering flood condos and renters coverage options as part of the digital agent experience. Additionally.

Additionally, we partner with eat those life this past quarter, and we'll soon be offering life insurance coverage digitally.

These product enhancements will continue to benefit the client and will also enhance cross sell opportunities improving the lifetime value of our clients.

Specifically with flood insurance, we have seen significant improvements in retention when it's added to the clients' insurance portfolios.

Yeah.

With continued efforts around deeper carrier integrations.

We expect to be able to provide full quote to issue experience to clients across multiple carriers and products in 2022 most.

Most importantly, however, these significant benefits and safeguards that an expert agent brings to the process will not be lost to the client and will remain active and present in the background.

But at least with this technology.

As we've done with all new technology released previously we'd look to get it into the hands of our clients and agents that as quickly as possible and then focus on driving user adoption optimization and best practice, we see immediate opportunity to leverage this technology through an enhanced referral partner experience that will allow us to capture more share of their.

Business increased opportunities to drive referrals from our existing clients and increased opportunity for cross selling as we continue to expand product and the platform.

Looking further out to 2022 and beyond we see opportunities for additional growth through targeted marketing and other digital strategies to drive traffic to the site in ways that will be economically sound.

We've been able to build an amazing company with growth rates in excess of 40% a year with virtually no advertising spend and importantly, as we look forward. We will always compete on our terms and will define actually all the competition to find the best ways to fully leverage our enormous competitive advantage and boat in the marketplace.

With that I'll turn the call over to Mark.

Thank you, Mike and Hello to everyone on the call for the third quarter of 2021 total written premiums the leading indicator of our future core and ancillary revenue growth increased 44% to $435 million. This included franchise premium growth of 50% to $318 million and corporate segment Prime.

Liam growth of 32% to $117 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.

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.

Which time, our royalty fee increases from 20% to 50% for ongoing renewals for the life of the policy.

At quarter end, we had roughly 948000 policies in force a 44% increase from a year ago and another leading indicator of the momentum in our business.

Revenues were $41 7 million for the quarter, an increase of 30% from the year ago period, while core revenues grew 41% to $37 2 million for the quarter.

Ancillary revenue, which includes contingent commissions was $2 $5 million in the quarter compared to $4 $2 million a year ago.

While it is difficult difficult to predict full year contingent even at this stage of the year.

Given auto loss trend and whether activity. Thus far we expect contingence in the fourth quarter will be in the $2 million to $4 million range.

This would put full year contingence at 9% to $11 million or roughly 60 to 70 basis points as a percentage of full year premium.

On a normalized go forward basis, we believe it is reasonable to assume around 80% to 85 basis points of contingent as a percent of annual premium.

However, any year can vary significantly from this level as evidenced by 2020 and 2021 contingencies.

The franchise channel generated core revenue of $17 2 million, an increase of 54% from the year ago period.

At the end of the third quarter, we had roughly 1958 total franchises up 55% from the prior year and 1139 operating franchises up 38% from a year ago.

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

Corporate sales head count at the end of the third quarter was 502, an increase of 35% from the year ago quarter.

Our corporate investments are critical to driving franchise productivity levels and the additions we have made over the past year are an appropriate level of investment to successfully support our expanding franchise footprint.

Corporate channel core revenues were $20 million in the third quarter, an increase of 32% compared to the year ago period, as new agents continue to ramp up productivity over their tenure.

Total operating expenses for the third quarter of 2021 were $38 $1 million.

Up 52% from $25 million in the prior year period.

Compensation and benefits expense was $26 1 million for the quarter up 46% from the year ago period, and 41% head count growth.

The 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 and supported the franchise channel growth service agents to manage our largest revenue stream renewals.

Recruiting and Onboarding functions to continue our growth trajectory and system developers to ensure our technology is on the cutting edge for our clients and internal users as evidenced by the recent launch of the digital agent platform.

General and administrative expenses for the quarter were $10 1 million and.

An increase of 73% from a year ago with the increase due to expanding 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 the number of carrier integration projects.

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

<unk> of employees and Onboarding, our franchisees combined with the opening of new offices has an immediate impact to G&A expense, while the revenue benefit scale overtime as we onboard agents and they ramp up their production.

Total adjusted EBITDA in the quarter was $6 6 million compared to $9 3 million in the prior year period, we have been investing heavily for future growth in producer head count expanded office footprint and our digital agent platform.

Heading into next year, we expect these investments to begin to scale nicely as we do not expect to see the same step function increase in real estate expense.

We also expect some new revenue benefit from the digital agent to ramp up and help offset initial and ongoing development costs.

Although laying the foundation to drive growth as more strategically critical to the business and focusing on margin expansion at this time.

We view the last two years as unusually high from an expense growth perspective, 2020, as it relates to compensation expense growth due in part to opportunities created by the pandemic in 2021 related to other G&A from strategic investments we have highlighted.

Looking ahead to 2022, we would expect overall expense growth and margins to look roughly similar to levels observed in 2019.

Over the longer term, we expect to deliver high and sustained levels of both revenue and profit growth.

As of September 32021, the company had cash and cash equivalents of $25 2 million during the third quarter of 2021, the company refinanced its $25 million revolving credit facility and $77 million term note payable to a $50 million facility and a 100.

Term note payable agreement.

We also unused line of credit of $24 8 million at quarter end.

Based on our experience to date the company is raising 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 54 billion and $1 $56 billion Rep.

Representing organic growth of 43% from the low end of the range to 45% on the high end of the range.

Prior guidance issued was for organic premium growth between 40 and 45%.

Total revenues for 2021 are expected to be between $149 million from $155 million.

Resenting organic growth of 27% on the low end of the range to 32% in the high end of the range.

This assumes continued strong growth in core revenues and $2 million to $4 million of contingent commissions for the fourth quarter of 2021.

Prior guidance issued was for organic revenue growth between 25% and 33%.

Our strong growth through the first three quarters of 2021 and the important strategic investments we've been making over the last couple of years put us in a great position for a strong close to 2021 and continued momentum into 2022 and beyond.

I want to thank everyone for their time 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, you'll hear a tone acknowledging your request.

You are using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then two we will pause for a moment of callers join the queue.

Okay.

Okay.

Our first question comes from Matt <unk> of JMP. Please go ahead.

Hey, Thanks, good afternoon, thanks for taking my questions.

A couple of questions. Mike you commented on the the new direct quarter rollout I think you termed it overwhelmingly overwhelmingly positive I was hoping you could give maybe a little more color just on.

And what you're seeing either qualitatively or quantitatively in terms of quote activity conversion rates, just kind of how how things have progressed over the quarter. So that it's been live.

Versus what your initial expectations side of it.

Yeah.

I think theres very limited data to provide anything quantitatively to you I mean, it's certainly something that we're paying close attention to.

Over the course of time, we'll decide kind of what are those kpis that we want to release I can tell you qualitatively.

Our.

It'll thesis of saying this is going to be a powerful tool to augment the efforts of our existing go to market strategy, which includes <unk>.

Leveraging our agents.

Efforts and drive productivity through referral partner penetration and capturing kind of full share of business.

<unk> enhanced levels of client referrals.

Through enhanced cross selling opportunities.

And then also on the retention front.

We look at that.

The data and the feedback qualitatively has been.

Then very positive and encouraging.

But there is certainly opportunity there.

I did want to just.

Reiterate kind of what I said in the prepared remarks.

This is consistent with every technology release that.

We have done historically.

It's about <unk>.

Speed to market get the technology in the hands of the users in this case also.

Our consumers and our clients.

And then start to focus on optimization iterating the <unk>.

Technology through feedback from the users.

And defining best practice and disseminate best practice, so we believe that it's much more valuable to.

Having aggressive release timeline, and then focus on user adoption and optimization and we're certainly very confident that that approach will.

Deliver results that we.

Manifest in the financials.

In the near future.

Alright. Thank you. Thank you for that color. That's very helpful. And then just a numbers question I guess for Mark.

Yeah.

That's a little bigger tax benefit in the quarter than kind of what we've seen in a lot of the recent quarters just wonder if there's anything.

Outlier there how we should think about that and then just.

And how we should think about tax rate going forward.

Yes, the primary thing thats driving that as employees exercising stock options, which creates a taxable expense.

Different from the way, we do it for from a GAAP perspective.

From Starz modelling that out it's your guess is as good as mine really it's all about employee behavior.

When when these options vest and whether or not they choose to exercise them I think it's important absence any kind of information on an option exercise activity I think it's reasonable to assume a more normalized tax rate and then throughout the quarter just kind of monitor sort of options that are exercised to see if theres any potential tax benefit that could be created.

Okay, great. Thank you for the answers and.

Best of luck going forward. Thanks.

Thanks, Mike.

Our next question comes from Ryan Tunis of Autonomous Research. Please go ahead.

Hey, good evening guys.

First question on.

I'm thinking about expenses moving forward I think you said that next year, you expect the growth rate of operating expenses to be more like 19.

Unless like 2020. One these past couple of years, it's been a high forty's.

In terms of percent expense growth, but in 2019. It was low thirties I just wanted to make sure I heard that correctly that you're thinking that your expense growth next year.

Be somewhere around 30% to 35%.

Absolutely we're going to continue to make investments by 2020 in 2021, we're very unique.

Thousand 20, there was a spike in compensation expense.

Just given the labor market and our ability to.

John Board, a bunch of employees right and then for 2021.

There was some additional spend on G&A getting out ahead of some of our rent expense and really a step function increase there.

And again, we're going to continue to hire next year, we're going to continue to grow G&A, but it'll be more in line with those kind of.

<unk> 2019 levels, we did several offices and with the new kind of accounting standards around leases. When you. When you start to swing a hammer do you have to start recognizing rent expense, even though we don't pay it. So were moved in general So you have some.

Artificial inflation there as we kind of build out the office network, we don't anticipate.

A lot of addition.

Next year four new offices.

Should expect.

2023, but there will be but in 2022.

We don't anticipate a lot.

Got it and then.

Then you also mentioned that franchise agent productivity is up.

It's tough for me to gauge that but.

I was having a hard time getting there I was just looking at the franchise the new business franchise royalty fees.

And I'm the only grew 30% this quarter that was a deceleration versus what we've seen in the past SKU.

My conclusion was that.

New business productivity was actually slipping a bit could you just talk a little bit about.

What's going on there what are the headwinds.

Mortgage origination commission rate lower.

Premium.

Our policy in new states.

What are some things to think about in terms of why that number could be decelerating.

When we talk about agent productivity increases it's really.

Bifurcated between Texas and non Texas.

Texas has argued.

Arguably the best insurance market in the U S.

The highest premiums and we've been here the longest and have the biggest proof of concept here, but.

It's why we bifurcated, we're seeing growth in both Texas and non Texas productivity. However, we have launched 82% of the franchises I believe is the number this year outside of Texas.

I think as that might be kind of on a blended basis, where youre seeing that in the new business royalties.

I think there is a natural seasonality in the business that is built in.

It's not I think.

Accurate to look at things quarter over quarter, but you do see natural natural seasonality there.

Are there I mean, the internal metrics that we look at it on a reported basis suggest that yes, we are.

We're seeing.

They are very nice levels of.

The metric we look at internally, we don't disclose that new business same store sales. So we're very very happy with.

Productivity results there.

And I guess, another kind of productivity or renewal premium type question is just we're talking about a hard market in personal lines, both home and auto.

Yeah.

I get that there's some issues with retention, but although you do retain I would think there is a one to one kind of relationship between rate increases and.

Renewal Commission the economics it flow through to you I just want to make sure I'm thinking about that right.

Okay.

Mall tailwind.

But when you're growing organically.

Total written premiums.

<unk> 40, plus percent it doesn't really make a material amount.

<unk> difference as it relates to retention.

We've been through hard markets and soft markets and the value of an independent agent with a choice product portfolio allows us to keep the client relationship intact, while we move them into different insurance. So.

<unk>, so we don't anticipate that being a negative impact on our retention rates now in fact, our client retention has gone up from 88 to 89 recently.

And because of that the harder market. The premium retention is also gone up from <unk> 89, a couple of quarters ago to 92 now.

That's why we really focus on that client retention numbers because it.

Taking it negates all of the premium fluctuations that can happen in our outside of our control.

Thank you.

Our next question comes from Mark Hughes of choice. Please go ahead.

Yes, Thank you and good afternoon.

You too.

Maybe expand a little bit on the marketing strategies, you're considering or executing on now to drive traffic for the digital age. It platform. I think you said that you wanted to make sure that economically sound.

Curious what your options are.

In terms of what Youre looking at.

Well I can tell you, what's not an option and thats.

Competing with the very crowded space those personal lines P&C advertising at a $100 a click.

I mean, the customer acquisition costs.

And the spaces absurdly high over $1000 for the customer, but that's not where we're going to compete I think.

Geico spent close to $2 billion on advertising last year. So.

That's not where we're going to compete it's crowded we believe it has created a lot of noise and quite frankly has really been a descent misinformation campaign by you know a lot of folks in the space.

What we can do and what we've done for close to two decades now is focus on bringing the best product and the best client experience to market.

And leveraging.

Kind of our referral network, we think there is digital marketing.

Capabilities that we're building and we will be utilizing that will allow us to amplify that effort.

But it's certainly not.

Going to be competing and that crowded space.

Space and blowing up.

Our margins to do so.

Mark This is Mark Jones.

We sort of taken that as Mike said, the sort of the reverse order of what a lot of these competitors.

Call themselves lead generators.

Do our quote generators and that they sort of came to the market with a lot of hype, they're spending a lot on marketing, but the underlying product is garbage.

It's.

They are.

They are using AI, it's based on consumer data. So you have people, making mistakes they get amplified over and over.

What we did as Mike said, we sort of develop the product, we're bringing it to market and if we're going to be completely honest.

We don't have all the answers yet as to how we're going to sort of drive market penetration and the direct channel we're doing a lot of things.

That will drive organic search results in terms of sort of getting content out on the web and we have our chief marketing officer, working on sort of a bunch of strategies for that but it's a little bit like with our our sort of traditional channels of distribution.

No one has ever figured out how to grow at 45% a year spending virtually nothing on advertising except us.

And.

That gives me a lot of confidence that we're going to figure out how to how to drive growth there, but in a way that doesn't just destroy economic value like.

Literally all of the other guys in this space are doing.

Understood.

In terms of the expense growth for next year, you were pretty clear similar to 2019 levels did you say that you would look for EBITDA margins to be similar to 2021 next year.

I think it's we're not giving EBITDA guidance, our EBITDA margin guidance, but given some of our comments I don't think it's unreasonable to model out similar margin profiles between 19.

Understood and then again growing at 45 plus percent, it's hard to nail it down in any given year, what youre going to spend definitely any given quarter, but.

I think that would be a fair one.

One of the key reasons that we don't give earnings guidance, because almost all of our investment rates through the P&L and we want to be nimble, we want to take advantage of opportunities. That's what's helped drive our success for almost two decades, and we're going to continue to do that.

Thank you and then one other question that Noncontrolling interest.

If you just look at it simplistically relative to net income was lower this quarter.

Part of that tax phenomenon.

Yes, yes, that's part of it too and then again as we've said over time is as the historical owners trickle out.

Some of their stock sales, then thats going to continue to increase the controlling interest and decrease the noncontrolling interest.

Yes.

Thank you very much.

Thanks Mark.

Our next question comes from Mark Dwelle of RBC capital markets. Please go ahead.

Yes, good afternoon.

My questions have already been answered, but one thing I wanted to ask about.

Just with the difficulty so many companies are having and hiring people I was wondering how you were seeing just franchise applications and.

Follow through to kind of fill.

Fill the ranks as it were.

Relative to what you were seeing maybe earlier in the year last year.

I think we are.

<unk>.

Outperforming our internal expectations on the franchise sales side.

Yes.

And a very encouraging way, we offer a value proposition that is truly unmatched to entrepreneurs.

To build wealth to fulfilling career with a very modest initial investment and that value proposition continues.

Continues to resonate and our franchise efforts.

There is not a business in America that could say there is a.

A tailwind in the labor market right now.

But nonetheless, we have a very.

Quit recruiter.

Our recruiting team.

To manage through that and it is not.

Slowdown kind of are.

Our growth what you can see from the guidance that we've provided on that core.

It kind of predictive metric of revenue growth being told written premium.

We're still very very confident in that and we feel like we're well prepared to continue to sustain and accelerate that growth going into 2022, it's not to say, yes, we're not met with challenges. It's just I think a testament to our team's ability to navigate through those through.

Some of those challenges that I think it's a testament to our culture and it's a testament to.

The value proposition that we provide to both employees and franchise.

Candidates.

Thanks for the color on that.

One other just fairly brief question I guess, you refinanced or re termed out some of your debt.

In the quarter.

Terms on that any significantly different than the old it looks like it was primarily just an expansion of <unk>.

Terminal.

Yep Yep terms are relatively the same with the additional leverage.

Bumped up a couple tiers on the on the interest rate, but again as quickly as we de lever as we grow our EBITDA I expect.

Is that to come down over time.

Quickly.

Hi.

Thanks for that that's all my questions.

Thanks Mark.

Our next question comes from Chris Martin of TB W. Please go ahead.

Hi, guys. Thanks for having me on today.

Uh huh.

Or is it pretty busy afternoon.

And there's a whole bunch of things.

Wanted to ask is really about the agent part of it also just engagement you guys are getting and you really talked a lot about your.

Your NPS.

Awesome.

The agent experience.

Experienced.

It's kind of seen from the insurance.

And I can share is like one appetite.

Get involved with your agent portal, but also on the other and technology side.

Easily or are they able to connect.

To your portal.

And what types of materials that we've kind of seen being able to get up and running.

I think to your.

Your first question our insurance company partners are enthusiastically supportive.

Our technology endeavors, and particularly the digital agents.

Platform that we've developed that we continue to invest in.

What they see and because the technology is powered by expert agents insights.

It allows us the ability to very precisely match risk with risk appetite and drive profitable underwriting results.

Our results and growth.

For our insurance company partners not to mention the fact that we have.

Almost 30 quality analysts on staff that are reviewing every single policy that we write to make sure that it's within their guidelines.

And within there they're appetite.

So I'd say we've demo this for all of our partners.

And again, it's been met with enthusiastic support.

The second the second part of your can you repeat the second part of your question.

Sure.

There are any hurdles on the technological side for insurers to be able to actually connect into the portal and breathe.

Briefly chat about how that works and.

Which types of it.

Original mash et cetera, yes.

There is a massive disparity between the least capable insurance company partner of ours in the most capable.

And there is partners of ours that would reside everywhere in between that continuum.

If it were up to us we'd have our technology goals accomplished five years ago.

So.

Because of our buying power and because of our scale and the long history of our relationship.

With these partners.

They are willing to make.

<unk> differentiated levels of investment on their technology side to accomplish.

Our shared goals ultimately their shared goals, we want to provide a great client experience, we want to drive profitable growth, we want to be the lowest cost distribution partner.

For these insurance companies.

So what youll see over time is our more advanced like I mentioned in 2022.

Having multiple.

Multiple carriers.

Launched through yes.

Quote to issue.

In our digital agent platform.

And that will those carriers will rollout with those capabilities.

As we.

Complete kind of the projects with them I can say that it's very rare that any of our partners are waiting on us it's typically.

As new carriers.

Finalize these deeper integration processes.

Are equipped to go quote to issue Youll see those by now type options within the results on our digital agent platform.

We will never get to a point, where all of our partners well.

It will be able to do that or that we will be able to provide that for every segment of the market like for instance are private.

Private client segment is so complicated that it wouldn't be a great client experience to ask them to do that on their own it's too complicated there's too much at risk.

Where they're located geographically and what the.

The capabilities of the carriers that are addressing those kind of local.

Kind of market needs.

The capabilities of those companies provide so I would expect I think it will be very exciting for you all to see over the course of 2022.

These folks.

Developing these capabilities to go quote to issue I think we will have.

A critical mass of companies that allow us to provide a legitimate.

Joyce.

Offering too.

All of our major markets.

Quote to issue.

Into next year. So we're very excited about that excited about the progress.

That we're seeing and not to mentioned ancillary products like I mentioned, the ethos life, which is going to be a great seamless.

Cross sell opportunity for us to flood insurance.

Landlord insurance policies all of it thats not available anywhere today in a single platform with a choice product offering.

That's awesome.

It sounds great I guess is that kind of a follow up related question is as you're describing all of that and you.

You are proving out in the market.

Does the business development look like from a kind of inbound versus outbound poker.

Our relationship there.

Yeah.

Right I mean, we believe that we believe in the role of the agent. We believe the role of the agent is critical today remains intact.

So it's a.

It's a technology.

In routing.

Effort.

And we're very experienced in that from past endeavors and believe we have a very solid plan to make sure that.

Bound traffic is routed in served expediently.

And I think it's important to note an important for most important for our consumers to note that when you.

Requesting an insurance quote from an agent we never saw the data we protect their privacy and we assign them with a specific agent that is equipped to meet their <unk>.

Specific local needs.

And they have that one to one relationship we're not.

Monetize.

The data in any way so.

We are yes, we are seeing some on a small base and enhanced levels of inbound traffic and.

Very effectively been able to route that.

And respond to that.

And deliver an excellent client experience as evidenced by our 96 net promoter score for for those consumers that are engaging us on the net on the digital agent platform.

Excellent. Thank you very much that's all I have for now.

Thanks, Chris.

Our next question comes from Pablo Cingal of Jpmorgan. Please go ahead.

Thanks, and good afternoon.

I think you all thinking about maybe three or four incremental revenue opportunities that you see with the digital agent platform.

Recognizing that it's early days I was wondering if you could rank those opportunities based on the relative size and I guess that would be focused on the one that you mentioned increasing share, but a referral partners.

Could you provide context on where that stands today, just order of magnitude and I guess, the kind of opportunity you see there.

I don't think that there would we look at those as mutually exclusive priorities were.

Tacking.

From from every angle.

You know.

There's a lot of value to be created.

Cross all of those efforts.

Integrating into the loan origination process earlier, and capturing more share of our referral partners business is going to help anchor that account and drive agent productivity.

Driving.

Increased.

Increased levels of cross selling is going to obviously enhance our our new business per new account, but also increase the life time value of the of the client through enhanced levels of retention.

Putting tools.

Into our existing clients hands, where they can.

You know.

Shop, there their insurance policies, when they see rate increases proactively or when they incur different life events.

Not only remove work from our agents place and increase productivity, but will drive retention.

I wouldn't say that any one of those is the number one priority I think we can attack all of those areas with vigor.

And not with our existing resources and not have to make any specific trade off there.

Got it that makes sense and then.

My second question is one of them.

Pablo.

Sorry, Yes, one thing that I didn't hit on is this the recruiting benefit of this tool.

That is going to be a lever for growth and that's another area that anecdotally.

Is providing us with a lot of momentum.

And the recruiting effort has seen kind of this tool this is tangible tool.

That agents can.

It can work with kind of during the recruiting process and understanding that there is nothing else like this on the market I do think thats going to.

Provide some wind in our sales as it relates to recruiting.

Understood.

And then my second question is if you measure franchise productivity in terms of premiums for our franchise.

That metric has been going up for you. The past couple of years I think maybe 2019 is about 900 and now it's about.

1100, so $1 1 million.

I guess the question is what kind of upside do you see that metric as more of your franchises mature and I guess Conversely, it seems like the opposite Thats been happening in the corporate channel.

I think in the past you had said that surplus due to efforts of corporate agents as part franchise E. Also I think a change in business mix right as you move out of Texas. So I guess you know.

If you could speak to those productivity metrics high level, and where you see them trending over time. Thanks.

I think I think the productivity. It's interesting we're seeing strong levels of productivity from our more seasoned franchisees both from.

Hiring producers and scaling their sales efforts, but also as they leverage technology as they continue.

To become more proficient and efficient in the sales and marketing process, we're seeing kind of individual.

Productivity levels improve as well and that's a big area of investment for us.

That is the strategic rationale of our corporate channel.

And we're very happy with.

What our corporate agents are doing both by defining best practice, but also.

We are working very effectively to disseminate that information and drive productivity in the franchise channel that doesn't happen by accident.

Even on the on the recruiting side.

A big part of our value proposition to those more senior.

And tenured franchisees is teaching them the people process.

That has worked for us for nearly two decades and has allowed us to scale, our corporate channel very effectively.

Great. Thanks for your answers.

Thank you.

Our next question comes from Josh Shanker of Bank of America. Please go ahead.

Yes. Thank you for taking my question I may have missed it but I don't think I did.

What's the operating franchises under contract number for the quarter.

So ill pull that up real quick.

Yes.

Sure.

801.

Total franchises and then operator.

Hello, guys.

Yes.

Okay, Great and I was looking at Hey.

Hey, Josh $1, 58, total and $11 39.

19%.

Okay, great. Thank you.

And so in terms of.

Sort of.

We're looking at different states outside of Texas, where are the fastest growing states that you guys are recruiting in right now.

Okay.

I think.

It would correlate with.

The population.

Centers, but also.

Some of our fastest growing housing markets like youre, seeing and kind of the south and southeast.

And kind of getting into the mountain west.

Certainly yes.

We're seeing that.

The narrative you hear in the media.

Those fast growing markets and folks kind of leaving some of the.

Tucows.

Into those markets, where certainly we're seeing that both from a recruiting demand but also.

As it relates to our corporate agents and where they want to locate but also.

Franchise growth efforts.

Okay, and one other unrelated question, given where could be specific on that.

Josh can be considered on that its Texas.

North Carolina.

Colorado, Arizona, Florida.

Nevada.

That's correct.

And also unrelated question.

Pricing is right now in the auto and home markets a lot of companies are going to take rate here are you seeing any changes in commission rates.

In order to sort of close the funnel to some extent to new business, given where margins are for the underwriters.

No not for.

Scale distributors like like you said I mean, I think if you're sub scale you are certainly feeling pressure and have been for a long time, but.

But we have very stable comp.

Compensation arrangements and in fact, as we continue to scale.

Deliver on our.

Our value proposition to the insurance company of high.

High levels of growth high levels of profitable growth. Most importantly, we're seeing enhanced compensation opportunities I mean, it doesn't there's not a step function increase in any one year, but if you look at trends over the long term, yes, we still.

Confident that.

Our compensation.

Levels will remain stable.

And then grow it would be more favorable.

Okay, well, thank you for all the answers and getting into late hour. Thank you.

Sure. Thanks, Josh.

This concludes the question and answer session I would like to turn the conference back over to Mr. Jones for any closing remarks.

Just like to thank everyone for listening and for your participation today and wish you all good evening.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

Yeah.

Okay.

Okay.

Yeah.

Yes.

Okay.

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