Q2 2023 Goosehead Insurance Inc Earnings Call
Hello, and thank you for standing by welcome to go see it and show in second quarter 2023 earnings Conference call.
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I would now like to turn the call over to Dan Farrell VP of capital markets. Sir you may begin.
Okay.
Thank you and good afternoon 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.
Statements in our discussion are subject to various assumptions risks uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them we refer.
For all of you to our recent SEC filings for more detailed discussion of the risks and uncertainties that could impact future operating results and financial condition of <unk> insurance.
We disclaim any intention or obligation 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 the 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.
<unk> operating performance comparisons from period to period.
By excluding potential differences caused by variations in capital structure tax position depreciation and amortization.
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 recent 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 In addition, this call is being webcast an archived version will be available.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 <unk> Dot com.
Now I'd like to turn the call over to our chairman and CEO Marcos.
Thanks, Dan and welcome everyone to our Q2 2023 results call I'm very pleased to report that we continue to successfully navigate challenging industry conditions with a sluggish housing market.
Ordinarily hard insurance market, meaning we've been working both smarter and harder but have delivered strong profitable growth I'm also happy to say that the decisions, we've made and actions taken over the last year to restructure our business are helping drive strong topline growth producing.
The plans are strong and we believe sustainable improvements in profitability.
Summary results for Q2 includes a 31% revenue growth, 27% core revenue growth.
36% growth in premium.
Adjusted EBITDA margin expansion of 900 basis points to 33%.
These results underscore the strength of our strategy and quality of our execution focus tightly on the distribution link in the value chain with a powerful choice model.
Our 20 year, Sam business, we've seen many challenging circumstances, but each time, we've applied the same maniacal external focus on our clients and the market.
Our competitors circled the wagons wring their hands with Orient focus internally, we've been aggressive and externally focused on capturing share.
One example of our proactive approach to industry turbulence is broadening our product portfolio.
While reduced product access as a headwind in some regions are choice model allows us to seek out carriers that are looking to gain share and distribute through asset scale.
So far this year, we've on boarded 24, new carriers to our platform.
Our technology scale quality control and unique human capital make us an attractive partner for any carrier looking to grow.
Our agents remain completely engaged in acquiring new referral partners and penetrating deeper with our existing relationships to bolster lead flow.
Because of this laser focus we have agents today, hitting all time new business production is notwithstanding.
Standing external challenges.
While we are not unaffected, we're significantly insulated from market volatility.
Underwriter are a single carrier product platform is experiencing today.
Single product platform decides to pull out of our market their agents are left with nothing to sell.
Most carriers continue to struggle with the impacts of the Covid Black Swan event in the play give inflation driving higher claims costs.
We are hopeful hopeful that the fed consume complete its job of tame inflation.
The decision, we made long ago to avoid entering the business upholding RASK is paying off powerfully now.
Well, we acknowledge the challenges we're facing we don't allow them to become an excuse for weak performance market turbulence only serves to magnify our competitive advantages.
The restructuring of our corporate sales team has yielded extraordinary results.
Activity is up 57% in the quarter compared to Q2 2022.
This growth is despite the fact that we launched seven new franchises in the quarter from among our most productive corporate agents in June we began onboarding new agents, primarily from college campuses restarting capacity growth.
Feedback from the corporate sales management team.
This group of new agents may be the strongest in corporate history.
The classic completed training in June the next year is outpacing member results to their counterparts from 2022 by more than 65%.
We're moving into the later innings of the restructuring work of our franchise business.
<unk> has been to move unproductive franchises out of the system. So we can devote our finite resources to those that are likely to produce the best yield we still have some more work to do in this regard through the remainder of the year.
We also want to be fair to people and that process takes some time that being the case I think we can safely say that the heaviest lifting is now done and we will continue the cleanup work over the next few quarters.
There are three key levers that drive future franchise capacity growth, adding new franchises recruiting producers strongly performing agencies in converting corporate agents into franchisees.
<unk> development team is the first priority is the first lever, adding new franchises and they've been focusing on specific high priority geographic areas, where we believe new franchises could be at of all successful and help our carriers gained share in markets they want to grow.
With each passing quarter, we become more effective and efficient developing strategies to attract the right candidates that coupled with our improved digital marketing strategy has generated a much more cost effective go to market strategy.
This strategy is resulting in fewer but higher quality new agencies launched that we believe will be significantly more productive and onboard producers more quickly.
Lever number two adding producers to successful franchises that are ready to scale is proceeding nicely and according to plan.
While the removal of underperforming agencies has had a muting effect on the growth of total producer count the average producer for agency is climbing.
And as a reminder to what we've said in the past. These producers have tended to be almost twice as productive as on average new franchise.
<unk> three conversion of corporate agents. The franchises is also going according to plan and we intend to launch about 30 franchisees. This year from corporate it is important to remember that these have performed like new agencies.
Alright.
Can you to produce at much higher levels than externally recruited franchise.
The source of the most capable franchise candidates is an example of a very deep competitive moat that is exceptionally difficult for competitors to mimic.
Nobody has a large super productive corporate agency like ours.
Rental for the longer term is very strong in this channel of candidates.
Our recruiting pitch on Capex as powerful as we described the account executive job as essentially a paid apprentice ship that can lead to a candidate opening their own goes head franchise. Just a few years out of college, we expect this to become a very long ever over time.
While we're pleased with the progress we've made on average franchise productivity the gap between a corporate producer in a franchise producer, but indicate there is still significant upside in franchise productivity.
We will continue to attack this with more robust training programs and investment in client and agent facing technologies launching more agencies that are our highly proactive corporate <unk> managers enhance unculture growing activities in the field.
With our emerging quote to issue technology, becoming a reality, we anticipate that corporate partnerships will be of another channel with extraordinary growth potential over time and be highly scalable Mark Miller will talk more about this opportunity in a minute.
We've made significant progress with our cue ti efforts through the second quarter and expect to launch travelers nationwide and clear cover auto products do it during the third quarter as we launch additional carriers or agents are able to be more pressure as <unk> significantly reduces the time it takes to bind.
Policy.
During the second quarter, we announced our partnership with vivid smart homes.
Lead source to supplement our existing go to market strategy and to leverage <unk> overtime. Martin Miller will also provide more details on this exciting opportunity.
Our business continues to generate significant cash flow and we take that on.
An additional $10 million of our term loan during the quarter with cash flow from operations.
Mark Jones Junior will address some of our balance sheet management opportunities in his section of this call.
We are incredibly pleased with the results our teams have been able to deliver in both the slow housing market and a challenging product environment. We believe that both of these headwinds are temporary and when we come out the other side, we expect to be a coiled spring with significant future revenue and earnings growth embedded.
With that I'll turn the tide them over to President and Chief operating Officer, Mark Miller.
Thanks, Mark and good afternoon, everyone.
As I look back on the past year I'm proud of the business decisions we made.
Speed with which our team has executed.
Maximizing revenue and profitability has required us to focus intensely on productivity of our corporate and franchise agents.
Core of our strategy was simply to drive quality across the organization.
I believe we've made meaningful progress in driving quality in almost every aspect of the business, but there is no area for a period of this progress and corporate sales.
Last fall, we raised productivity expectation across the corporate sales team.
As a result, many agents significantly increase their productivity levels.
Agents that could not meet these expectations exited the company.
These were not easy decisions.
But they allowed us to focus on sharpening the skills of our best team members and driving material productivity improvement.
Net net we dramatically increased productivity per agent and maintained overall production levels with much less cost.
From a productivity perspective. These efforts are already starting to yield significant dividends.
Activity for corporate agents has increased by 57% since this time last year.
The record levels of productivity were achieved while transferring approximately 25 of our highest producing corporate agents to franchise ownership.
While we're optimizing corporate sales productivity, we're also preparing for growth by strengthening and refocusing our recruiting function reestablishing the hiring standards that historically set <unk> apart.
Now that we've built a healthy thriving corporate sales organization. We are once again geared to hire agents rapidly over the next several years.
This summer we are quickly adding back to top tier college recruits to the corporate sales team. These hires all met our new rigorous hiring standards.
This fall we are now planning to accelerate our recruiting efforts on 12 college campuses to bring in even more high caliber talent.
We anticipate ending the year at approximately 320 corporate sales agents.
It's an exciting time to be part of this refreshed high octane corporate sales environment, which gives us confidence in our ability to successfully absorb and ramp these agents.
I could not be more pleased with the progress that Brian <unk> and his team of talented leaders and driven in a very short period of time.
On the franchise side of the business, we're also making great progress.
Overall, we're pleased with the health of our franchise community.
There are few areas, where we would like to focus on and strengthen.
Much like we did on the corporate side of the business, we're positioning the company for long term sustainable growth.
To achieve this we are being much more selective in the franchise recruiting process targeting particular geographies with low penetration and favorable market opportunity.
We are moving existing franchise owners that fail to follow the model and put in full time efforts.
We are also helping existing successful owners with hiring and scaling their businesses.
And converting some of our best corporate agents to franchise ownership.
We made strong progress in removing underperforming agents from our system, but there is still more work to be done over the next several quarters.
Our new initiative recruiting producers for franchises is evolving quickly starting to take shape.
We ended the quarter with eight recruiters and one manager fully dedicated to this effort.
And we will expand this team as demand continues to grow.
During the quarter of 119 agents were added to the existing franchise network through a combination of in house recruiting efforts and franchise direct hires.
We have the demand now we focus on hiring velocity.
Additionally, we remain very excited about our efforts to convert highly productive.
These two franchises, we converted seven agents to franchises in the quarter and they continue to launch at much higher productivity levels than traditional franchises.
Do you have an example, I'd like to highlight Colby teamster.
A high caliber corporate agent, who is based in our Columbus office.
<unk> has been with <unk> for 17 months averages around 100, new policies per month.
He has mastered our model.
By having 25 active referral partners that send him over 50 lead demand.
With the high close rate Colby consistently delivers new business revenue results of over $30000 per month.
<unk> has been approved to launch a franchise and September .
Releasing colby from corporate to launch a franchise is not only good for him.
There is also good for us.
For clothing, he will generate higher commission splits and have tremendous career opportunity being a business owner and having a clear runway to a seven figure income.
For us it will extend the life of Kobe <unk> career with <unk> and it will also highly incentivize them to record to replicate himself. Many times over by hiring is owned producers, which we believe will yield significant and accelerated growth.
We look forward to seeing what Colby accomplishes over the next several years.
Now turning to technology for just a moment.
Auto policies were three major carriers will be <unk> enabled for all states in the third quarter. We expect this momentum to continue into the fourth quarter with additional carrier implementations for both home and auto lines of business.
As a reminder, Q ti drastically reduces the time required to quote and bind policies, which will enhance the productivity of our agents, while significantly improving the purchasing experience for our clients.
Additionally, we integrated chat GBT and the aviator are internal writer.
To assist agents.
General insurance questions.
State specific guidelines.
As we continue to observe the outcomes of our sales and service agents. We may expand this functionality towards the client to help them navigate the complexities of the insurance market.
In the second quarter, we also initiated the debit partnership and completed the purchase and integration of their existing book of business.
Converting high volume enterprise leads.
As a new and exciting sales motion produce yet.
To fully capitalize on this opportunity we are building new technological capabilities that allow us to manage and convert leads at much higher levels than we have historically experienced.
We're continuing to operationalize the business partnership nationally.
We will expect to have lead flow and conversion rates optimize later this year and into 2024.
I'm also excited.
Cited about the existing pipeline of potential partnerships. We are currently working and look forward to providing more information on future.
When coupled with the changes we believe a stronger more sustainable revenue growth and increasing levels of profitability in 2024 and beyond.
I want to thank our entire team for their tireless efforts as we continue to harden our processes and operating platform for the future.
Now I'll turn the call over to Mark Jones Junior our Chief Financial Officer.
Thanks Mark.
We are very pleased to be delivering exceptional top and bottomline results in an increasingly challenging operating environment I'm incredibly proud of the discipline and grit of our team as they navigate through the unprecedented P&C product challenges.
We've continued to gain share, but our run rate our runway remains massive we will still be under 1% market share of this $390 billion industry by year end.
Done a great job of expanding our lead flow and gaining market share in this tough environment.
The current state of the P&C product market is more than offsetting the benefits, we're getting from higher rates as carriers intentionally slow new business in favor of profitability.
Importantly, we believe all the actions we have taken to address the product availability and continued real estate headwinds are making us a significantly stronger company that will be a tightly coiled spring for growth as macro factors improve.
To highlight a few of our operating improvements that will provide ongoing benefits.
Our agents have improved sales processes and activated new referral partners at an unprecedented rate we.
We expect to see tremendous benefit from in the real estate market volume Reaccelerate and product options expand.
We currently account for about four 4% of new mortgage real estate transactions in the U S up from three 7% a year ago.
While premium increases will likely level off as market conditions improve we should be writing a higher volume of business and increased premium levels further enhancing productivity and profitability.
We proactively slowed talent addition, in select states, such as California, and Florida to align productivity and opportunity for producer growth once more product has reopened in those locations.
We've worked diligently to add new viable carriers that help offset the pullback in underwriting appetite from some of our larger existing carriers.
This increased product will further enhance our ability to serve clients as the market improves.
Our agents are using the current marketing conditions to generate new lead flow and gain access to their clients earlier in the home closing process the value proposition of our choice platform has never been stronger versus our competitors.
Moving to our results we've been delivering exactly what we set out to do a year ago.
We have significantly improved our profitability and agent productivity or theres more work to be done, particularly on franchise productivity. We're now in a position to add producer capacity as evidenced by our strong recruiting class in June and expected higher through the balance of the year.
Our deliberate actions over the past year, along with the current product environment well as expected result in a temporary slowdown in our premium and revenue growth numbers through the third and fourth quarters.
But we should continue to see very strong earnings and cash generation as a result of our expense discipline and focus on quality.
As we add back to our producer count and continue to drive productivity improvement, we expect to see a reacceleration of revenue and premium growth throughout 2024.
We expect to be achieving these topline results in a much higher and still improving profitability base.
We remain confident in our ability to deliver roughly 30% premium CAGR through 2027, and EBITDA margin in the range of 30% between 2025 and 2027.
Over the longer term, we maintain the belief that our margins can be in the range of 40% as the business matures and the renewal book becomes a larger portion of total premium.
Our premium in the second quarter, the leading indicator of our future revenue increased 36% to $767 million over the prior year period. This.
This includes franchise premium of $588 million up 40% and corporate premiums of $180 million up 22% from a year ago.
Our policies in force at quarter end were $1 4 million up 21% from a year ago.
Total revenue for the quarter was $69 3 million, an increase of 31% from the year ago period.
This includes core revenue of $61 million or 27% driven by continued high client retention improves productivity per agent and pricing headwinds.
As we continue to launch more corporate agents into franchises. This creates a near term tradeoff on revenue growth because of the differences in revenue recognition, but significantly benefits longer term revenue and profitability as the productive life of the avian increases and they duplicate themselves through producer hiring.
Contingent commissions in the quarter were $4 million compared to $1 90, <unk> in a year ago as the timing of growth based contingencies are typically more uniform as compared to underwriting profitability contingencies.
We continue to expect full year contingencies to be around 40 basis points of premium for the full year.
And the franchise network operating franchises were steady in the quarter as we continued to average of the gene pool by removing underperforming franchises and replacing them with those of significantly higher quality.
Our best franchise agents have similar productivity to our top corporate agents and the agencies. We are removing from the system contributed almost nothing in the new business production.
Total franchise producers at the end of the quarter was at 2069 up 3%, we expect both operating franchise and producer count to trend flat to moderately down year over year through the balance of 2023, and then accelerate in 2024 as we finish our restructuring work and the franchise business and focus on.
Franchise productivity gains.
Importantly, the productive capacity of our agent workforce should increase at a rate faster than the total producer count as we are adding back higher quality producers to the system versus those that are being removed.
We fully expect the combination of producer growth productivity improvements and retention will support the longer term premiums growth objectives.
Shifting to expenses, we continue to perform well as we focus on expense discipline and reinvestments for growth.
Operating expenses, excluding equity based compensation and depreciation and amortization were $46 2 million.
An increase of 14% compared to the year ago quarter.
Compensation and benefits, excluding equity based compensation increased 19% driven by our investments in partnerships technology marketing and service functions, partially offset by right sizing, our producer count versus a year ago.
Other G&A expense, excluding one time impairment charges was $13 $7 million up 11% from a year ago.
Bad debt has improved to 900000 from $1 $7 million as we have substantially improved the quality of our signed but not yet launched pool of franchises.
During the quarter, we consolidated some of our existing office space, resulting in a onetime noncash impairment charge of $3 6 million.
We have continued to improve the margin profile of the company generating five consecutive quarters of EBITDA margin expansion in seven consecutive quarters of EBITDA margin expansion, excluding contingent commissions, a fantastic accomplishment for the whole team.
Adjusted EBITDA in the quarter was $23 $1 million up 85% from the year ago quarter, while adjusted EBITDA margin increased to 33% from 24% in the year ago period.
For the remainder of the year, we expect more modest margin improvement as we ramp investments for growth in a number of areas, including corporate agent head count marketing and technology.
As of June 32023, we had cash and cash equivalents of $19 $1 million. Our unused line of credit was $49 8 million and total outstanding term notes payables balance was $81 3 million at quarter end as we paid down an additional $10 million in principle.
We are managing our balance sheet very conservatively, given the insurance market conditions.
As the market re normalizes over what we expect will be the next 12 months to 18 months.
We'll be evaluating options to make our balance sheet more efficient by increasing our debt to a reasonable but conservative level.
Our guidance for the full year 2023 is as follows total.
Total written premiums placed for 2023 are expected to be between $2 89 billion and $2 98 billion, representing organic growth of 30% at the low end of the range at 35% at the high end of the range.
Total revenues for 2023 are expected to be between $260 million and $267 million, representing organic growth of 24% on the low end of the range and 28% on the high end of the range. We expect full year adjusted EBITDA margin to expand over the full year 2022.
Again, thanks to our team for their hard work and focus in delivering such strong financial results as we continue our journey to industry leadership.
With that lets open the lineup for questions operator.
Thank you, ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and like to hear your name announce.
So Ms. Joanne Your question. Please press star one again please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Matt <unk> with JMP. Your line is open.
Hey, good afternoon.
Hey, Matt.
Just have a quick one you guys covered a lot of what I had in my mind is very thorough commentary.
I guess, what I wanted to ask a little longer term.
You touched on the digital age and some of the quote to issue.
Pressure thats being made.
As you look forward.
Kind of.
How do you see the digital agent evolving I mean, I know, we're not expecting Super Bowl commercials and things like that but as we think forward as a tool for you guys to use.
How do you how do you envision it as more kind of large national carriers get unquote to issue.
At the 24 to 36 months sort of question not a not a next quarter question.
Okay.
I'll start I'll add on there, yes, I think theres a lot of ways that that can evolve over time right now, it's a fantastic marketing resource for our existing agents to hand out to rfps to generate new lead flow and we're getting a substantial amount of leads through the digital agents.
About optimizing that process and creating an inbound sales motion our team right now is very very good at hunting and generating new lead flow, which means that they're not.
Not as good at handling and inbound lead as they could be in the future. So there is plenty of room for us to go with that respect the carrier product environment right now as well as carriers are not necessarily looking to make investments in generating new leads and new distribution networks that are focused on underwriting profitability as that changes over time, we should see.
Significantly more speed and ramp in the UTI projects as well I'm very pleased with the way our technology team has been able to add carriers onto the platform. Even in today's market really is a good tool for agent productivity over time that could develop to be a very profitable.
Distribution network.
Yes, great Great answer Mark This is Mark Miller I would I would just say along the same lines right now we're trying to work the technology aspects of it out we had to back off of it a little bit kind of rebuild the foundation the.
<unk> runs on we're really proud of the team for being able to put.
Three new carriers on this quarter, and we'll kind of see where it goes from there, but I think about it in the short term is really being an automation tool for our agents.
And moving its way into service in other areas.
We will see where it goes longer term I want to see how many carriers, we can get on it but the carriers what I'm really happy about is the carriers are really leaning in and helping right now.
Yeah.
That's great Super helpful color. Thank you very much and congrats on a nice quarter.
Thanks, Matt.
Thank you ladies sandbox, where our next question.
Our next question comes from the line of Michael Saar Rimsky with BMO. Your line is open.
Hey, great good afternoon.
I guess just stepping back I took a lot of notes on all gave a lot of great color.
Lot of positive momentum, which we can clearly see in most of your kpis.
And you did use to.
Determined and prepared remarks towards the end I think ramp growth. So just curious.
Cognizant that growth was a little.
Slower than maybe some expected.
This quarter, but does it is it.
Why wouldn't you guys take up kind of your growth.
Growth rate into the back half of the year feels like there's just a lot of them.
Tim.
Including you said spending a bit more money to grow as well as the emphasis of naive question or.
Or do you feel like you're embedding some conservatism.
Yes, I think we're doing exactly what we set out to do for 2023, which was get our corporate team as productive and profitable as possible and make it incredibly healthy. So then when we add new agents enter the system. They are set up for much much more success. So we've increased our recruiting standards.
Increase the accountability on the team Brian Taylor, who leads that organization is doing a phenomenal job maximizing every single ounce of productivity. So we're generating a lot of profitability on new business. We're in and the point now where we're adding agents back into that system for significantly more productive than agents, we've ever added into the system before so we feel.
Good about the long term growth of the <unk>.
Corporate channel on the franchise side as we talked about we're still working through some of the agencies that are underperforming, but we feel great about the progress that we've made there we're seeing more agencies hire and the people that they are hiring are continuing to deliver very good profitability and productivity. We just can lead to let that burn in for the rest of 2023, and we should see growth Reaccelerate in 2020.
Sure.
Okay and.
If we.
You said to invest a little bit more near term, which could that kind of caused less of.
Uplift in the year over year margin, you're correct me, if I'm wrong, but can.
Can you just.
I know there's lots of investments are there there are a couple you'd like to highlight or is it mostly just as one of the big ones kind of hiring folks out of college that are just inherently going to be way less productive.
Anything you'd like to call out there.
Yes, we will be onboarding, a significant amount of individuals over the next we started that in June and over the next several months.
But as well investments in the marketing function to drive inbound lead flow for new franchises as well as new policies, it's significantly more efficient than having an outbound motion with hundreds of people counting the phones. So that takes a little bit of a setup on the front end, but pays off very nicely on the back end you also get a more highly qualified candidates who understands the opportunity a little bit better.
And you can prequalify them with some of the information on the estimate.
That takes some infrastructure build out some technology build out to continue to operationalize the vivid partnerships that we can maximize and get as much out of that as possible.
As well as just continuing to grow the rest of the back office to scale. The entire organization that we saw very substantial margin improvements over the last six months, we continue to expect to see margin improvement over the next six months, but probably just not at the same rate as the first half of the year.
Okay. That's helpful and maybe lastly, just.
Also kind of on the on the.
Macro level.
There is very hard to kind of market pricing on the personal line side, clearly and that's probably going to persist for that those are my words, but just curious so when we're asked.
To think about that dynamic first as you know you talked a lot about the challenging real estate market.
And also just less and less capacity to those three macro elements kind of net out to be awash ultimately.
Currently because it sounds like.
And eventually Youre talking about.
If the real estate market opens up more.
It sounds like you're saying there could be even if it hard market pricing.
Falls a bit they are still going to be some positives in the outer years.
No I would say that the product challenges in the P&C environment today are more of a drag than any of the tailwind we're seeing from pricing.
Housing is <unk>.
Certainly we would prefer it to be run in Super Hot but our agents do a really good job of just taking share when the housing market contracts like it is today, we don't expect that to continue forever. So that will be a tailwind eventually again in the future product is the thing that we're dealing with the most right now and are significant.
Out of our agents are in areas, where there is very real product challenges that will alleviate that our expectation is sometime over the next 12 to 18 months not necessarily up to us, but and we're doing a really good job of pivoting and finding new partners to distribute with as well we mentioned in our prepared remarks, we added 24 carriers onto the platform. So far this.
Year, I really think our choice platform shines in this environment better than anywhere else, but ultimately I wouldn't say, it's a net wash or even a positive I would say we're doing a good job of fighting through an incredibly challenging environment today.
And I promise as a last follow up and then how does the you've talked about.
Lack of capacity a number of times can we can we see any of that showing up in any of the kpis or is it more of a soft like you just know that your producers could produce even more if they had.
You know more or options.
Yes, we have a bunch of keybanc.
Look at internally that can point to product challenges are hamstrung in productivity a little bit.
Which makes the productivity gains, we're making today all that more impressive. So we're trying to be cognizant of not measure productivity on a dollars basis, but on a unit basis. So are we selling more policies today than we were previously per agent and the answer is yes, our agents are becoming even more productive in an environment, where they have less products to sell so that will.
Switch from being a headwind to a tailwind.
Carriers, just need some more rate to take hold.
Thank you.
Thank you.
Please standby for our next question.
Our next question comes from the line of Meyer Shields with Keefe Bruyette <unk> Woods. Your line is open.
Okay.
Hey, guys. Good afternoon. This is Tommy <unk> joint on familiar.
My question is on contingent commissions.
Obviously, we saw some good growth there in the quarter and you mentioned that there was contribution from both the growth side and the underwriting profitability side could you just put a finer point on how much of that contingent commission growth was driven by the growth side versus the profitability side.
Yes, it's really a de minimis amount related to profitability based contingencies. The reason why it looks more in this quarter comparatively the ones that are mainly volume based or more uniform throughout the year just logistically the way the revenue recognition works for GAAP.
We don't expect to have a gangbusters contingency year, we mentioned again in the prepared remarks, you should expect somewhere in the neighborhood of 40 basis points of total written premium which that is around all time lows.
I wouldn't look at the second quarter contingencies and think yes, we should continue to model that level of growth going forward.
Got it Thanks, and then my second question is just thinking out.
About this that's hard Mike hard market cycle in P&C to the extent that the rate adequacy from the personal lines carriers take longer.
Then come expect does it without in any way temper your sort of growth expectations or are you guys pretty committed at this point with your sort of recruiting a new franchise initiatives that you have for the rest of the year.
I'd say, we're pretty committed I mean, I'm not certainly wouldn't say im satisfied with the levels of productivity that we're seeing but I'm incredibly pleased with our agents' ability to continue to make productivity gains even in this challenging market. So if it continues to persist for a while okay. Our agents will get.
The increased paycheck on renewals.
Continue to have to fight through this environment from a new business perspective, but it will eventually come back the other way. So it's about patients it's about being long term greedy and not short term ingredient.
Makes sense. Thanks.
Thank you.
Please standby for our next question.
Our next question comes from the line of Mark Hughes with <unk> Securities. Your line is open.
Yes, thank you very much.
<unk>.
The margin improvement on a bit more modest through the balance of the year, but.
Coming off of a 10 point gain more modest could be two points or it could be eight points or something else I wonder if you could.
Maybe provide just a little more clarity on them.
Yes, so historically, we haven't been incredibly specific margin guidance really to give us the freedom to make decisions that may impact timing of when some expenses may flow through and so we'll continue to keep that level of I.
I would say specificity on margin guidance.
<unk> got some projects that we need to do to secure future growth as well and those require investment and whether that falls in Q3 or Q4.
Good.
Wouldn't want to get too specific on that.
Okay.
And then could you give the number for how many franchises you on boarded in the quarter.
Yes, yes.
We on boarded 72 agencies in the quarter.
And then when some of the corporate agents switchover to franchises did they.
Some of the renewal economics with them do they go from a plant start are there.
Some amount of commission volume that they take that that might switch from the.
Corporate channel to the franchise channel.
No theyre starting over.
Okay.
Great. Thank you very much.
Okay.
Thank you.
Please standby for our next question.
Okay.
Our next question comes from the line of Paul Newsome with Piper Sandler Your line is open.
Hi, good afternoon, thanks for that.
Recall in the.
Quarter.
Uh huh.
I'm sorry, if I'm just confused here, but I was hoping you could help me understand a little bit about the timing.
Corporate agent.
With you recruitment.
Is all of the folks.
<unk> been some are essentially showing up in June .
Number or does that.
You get added on in July and August as well and so I'm just trying to think about timing.
What we've been talking about.
Onboarding people.
Compared with the numbers you see.
Oh, you've got one im not crazy.
No that's very clear this is mark Miller.
They will continue to onboard throughout the summer and we will continue to recruit all the way into the fall. So we have expectations of a certain amount of recruits I won't get into that but I will say that.
My prepared remarks.
We said that we wanted to be at about 320 by the end of the year, that's what we're targeting.
It depends somewhat on what attrition levels are there our attrition levels are very low right now so it's easier to hit the number based on where we are but I can't control, where attrition goes from here, but that's about what we expect it to be.
Interesting.
Any thoughts on.
Impacted distribution upside.
Okay specific.
<unk> alone.
Thanks Archie.
Depending upon.
What's been happening with other agency system.
Question <unk>.
Why.
Yes.
Yes.
Just like your broader thoughts on what you think's happening.
Submission.
Hey, Jim.
Yes, I would say, we probably have the best carrier portfolio out there of any independent agency and I don't know that for 100% in fact, but.
I don't imagine Theres anybody with the team is as strong as ours out there acquiring new product as aggressively as we are so.
I don't like it when a carrier shuts down.
State farm shutting down in the state of California, hopefully that helps California and their DIY understand some of the challenges that they are imposing on the consumer but it is one less competitor for us out there to work against but it is an incredibly challenging market out there for anybody trying to distribute personal lines insurance I think we have the best offering so it does help us from a Ricky.
Routing standpoint, when we can say look at the number of carriers. We've onboard in your specific region that can help you out compete anybody else that would be trying to operate in an independent agency. It will be a single product platform out there.
It's definitely not necessarily a net positive, but I think we're doing it better than anybody else.
Okay I appreciate the help.
Thank you.
Please standby for our next question.
Okay.
Our next question comes from the line of Katy cycles with Autonomous Research. Your line is open.
Hi, good afternoon, I wanted to dig a little bit deeper on for most of the questions about producer economics, So I guess first.
Looks like the producer count is only up about 3% year over year I was curious you guys have any.
Bogey as to where that might end the year and.
What are some potential.
Opportunities to exceed that Mark.
Yeah. So we said in our prepared remarks that it would be flat to moderately down.
Importantly, the follow up to that is the agents that are exiting the system are doing close to if not zero and the agents were adding back into the system are much more productive than anybody we've added in four so while the agent count may.
It may be going in the direction that is inconsistent with the actual revenue generation. So the productive capacity of that workforce is continuing to increase even if the total number.
It doesn't look that way I think it's also important to remember that we we have just gone through a major restructuring exercise.
With our corporate sales force and you would expect it to be down in conjunction with that effort as we said on the call earlier that restructuring is now complete and we're seeing extraordinary.
Productivity for the new people.
As I said in my remarks that over 65% is actually about 70%.
That are our June .
Class a in Australia in June training is producing 70% more than their counterparts were a year ago, So where we're adding back some real high quality people. So.
I think that's an important context on the actual number of butts in seats.
Just to be clear as a follow up to that makes this a confusion.
Corporate sales ended the quarter at $2 88, which was up from Q1 down significantly from last year, we expect corporate sales to be ending the year around 320.
Total franchise producers, we are expecting to trend flat to moderately down in the second half.
This restructuring process is still ongoing but the ones. The ones were taking out are not very productive the ones. We're adding are much more productive. So you can average up the productivity level per agent.
That makes perfect sense. Thank you so much for the clarification, there and as a quick follow up it looks like you guys are still growing your.
Tenured agents in Texas, a little bit faster than those that are outside of Texas geography, I'm kind of curious do you anticipate that to continue to be a trend going forward.
Or do you anticipate having a bit more growth outside of Texas, you guys continue to look at hiring and.
Transitioning agents from the corporate channel into the franchise segment.
Yes, that's a great question is exactly what we're trying to do which is spread the franchise agents out more geographically across the United States.
Doesn't mean that we wouldn't support.
Our franchises in Texas, if they want to grow we hire help them hire on on their behalf.
Bring candidates to them. However, when we're looking for new franchises are candidates to be franchise owners, we're paying particular attention right now to Geos, where we have where we're underpenetrated.
So yes, I would think if you look at the map of where our franchises are you'd see more growth outside of Texas and a year from now than you do today.
Thank you and I'm, sorry, just one quick follow up to that.
We've heard quite a bit about particular states, where personal lines underwriters are no longer writing new business I'm kind of curious of those underpinned did you penetrated states that you guys can see on your own math are there any particular states that you guys would call out gross opportunities for goose had keeping in mind that these are also markets, maybe where underwriters are no longer.
Open for any business.
We are specifically prioritizing away from markets, where the underwriters are risk off.
So.
Like for example, Florida, California.
Sure.
We're only responding to inbound calls.
Florida and I don't think.
I think were completely shut off all of our recruiting activity in.
And the state of California, So what we're trying to do is focus our.
Franchise development efforts on.
The most attractive markets for our carriers.
The most attractive markets for us because we've been in Texas for 20 years, we have a big business in Texas and all of the carriers want us to give them not Texas.
Awesome. Thanks, so much.
Thank you.
Ladies sandbox, where our next question.
Our next question comes from the line of Scott <unk> with RBC capital markets. Your line is open.
Yes, Hello, I had a question on <unk>.
Ross selling I'm, just wondering what kind of traction you're getting there in terms of customers that have multiple products.
That includes some of your ancillary products to RV in Florida, and renters condo I know those are smaller but.
Just any kind of update in terms of what youre seeing on the.
The cross selling part in customers buying multiple products from you versus where it had been trending.
Yes.
Our best practice that we reach with our agent workforce as you want to try and capture full share of wallet get as many lines of business as you can.
With the client as possible.
Our agents do that best in class, probably better than any of the other insurance agents out there.
I would say it remains high and we haven't seen a material change I think in any direction on that that's a good retention lever having to another line of business adds multiple years today clients life.
So it's not a lot of news to report on that I believe our agents do it better than anybody else.
Okay and then.
This is sort of along the lines, but just curious to how much.
Increase in shopping activity that youre seeing just because of where rates are in auto and home and I imagine a lot of people or more people are coming your way.
If you can comment on that.
So just curious how many people that youre seeing are actually switching Tom to come across the goose that agent that the typical person.
Just any kind of trends there.
Yes, we are seeing a significant increase in shopping behavior from clients, which if you look at our client retention numbers remaining at 88% is strong credit to our service team for being able to deliver phenomenal a client experience in an environment, where some people have premiums going up 20% 30%.
I am very proud of our team and the way they've been able to deliver incredible service throughout this it's certainly.
Hey, tailwind for us for shopping behavior, you would expect potentially.
More clients are leaving their existing insurance agent, but it also means that our entire buckets continuing to.
Ask for re shop as well.
Okay. That's helpful and just the last one two I was just curious if you had anything where you could comment on in terms of their franchisee restructuring are we are.
Or are we kind of 80% to 90% done or is there or is there any any more context, you can offer on that.
Sure.
Okay.
We talked about the majority of it is done is that we're over the 50% line and it does just taken a little bit longer for that to work through the system given the way that the franchise law works, we need to give those agents a little bit more time to cure than you would've W. Two employee.
So the second half of the year, they are still going to be a significant number of terminations, but we do believe we are nearing the finish line.
Okay. That's helpful. Thanks.
Thank you.
Please standby for our next question.
Okay.
Our next question comes from the line of Pablo <unk> Zhong with J P. Morgan Your line is open.
Hi. Thank you my first question with a numbers question are you able to share return premiums for the corporate and franchise channels.
Sorry, what was that Pablo share what for.
Okay.
Written premium sorry, just to break down between corporate and franchise.
Yes that was included in the prepared remarks.
Okay, Alright, alright, alright.
Next question.
As I look at our policy in force or.
New business revenue growth.
Those metrics are still trending down right, but it seems like youre willing to refining distribution, you're ramping up recruitment on the corporate side.
It'd be reasonable to expect those metrics to start picking up.
Half of this year may be in certainly in 2024.
Yes, we certainly are expecting policies in force growth to Reaccelerate in the direction of 30% I would not expect that number to have a three handle in front of it in 2024, and but we're gearing the organization around achieving a 30% policy in force growth rate.
We've managed to extraordinary high levels of growth in the past.
This is something that is not theoretical to us.
We've demonstrated a very high degree of proficiency and as we complete our restructuring efforts will be.
Sort of turning on the gas all the way.
Yep understood.
That's a good segue into my next question so as.
Let me think about your long term premium growth target of I think you said, 30% CAGR.
Can you walk through the different components that build up that growth rate and I'm thinking number of agents productivity and the natural benefit from yearly premium increases I think if you look at your premium growth pre COVID-19.
And the number of agents has always grown faster than return premiums in certain makes sense right. If you think about the ramp up in those sorts of things, but I guess with this new model now how are those different components buildup at a 30% CAGR premium growth.
It's a combination of productivity improvements as well as increases in the number of sellers in the field. So I don't believe the number of sellers in the fields needs to increase at a 30% rate.
As we generate more accumulated experience, we will be getting more productive over time, and we're continuing to invest in technology and tools that make our agents more productive and again thats not theoretical either we are really seeing that in real time agents are getting better every single month is incredibly impressive.
To generate a 30% premium CAGR.
Over the next five years, you don't need 30% producer growth you need some producer growth, but really you need productivity gains you need the productive capacity to continue to increase and so that's how we're structuring the business.
Also there are three elements of producer growth right and.
Some are more productive than others. So the traditional agency, we know historically how productive. They are we should expect that to increase because we're we're just bringing on better people know, but secondly, this whole motion of adding producers to successful frac.
<unk> is relatively new.
But those people for every producer we add into a successful franchise.
They produce one six or one seven.
Times, the new business that an entire new average franchise would produce so.
That.
Channel is super leveraged and then the one that.
It is just.
The channel on.
Nuclear steroids is converting.
Corporate agents and our franchisees those guys.
Ranket out and they're they're much more productive they're as productive as many traditional franchises. So.
We're working on a part of the restructuring that we did in our corporate channel was to make sure that we could provide.
Sort of volume input too.
To see the franchised channel with new high quality franchisees, so it's different than kind.
The arithmetic you would have seen in the past just because we have these other new channels that are that are either very productive on the case of adding a producer to an existing franchise or unbelievably productive if you're converting a corporate agent into a franchise.
That's clear thank you and then the last one for me.
Maybe for Mark Jones here I think in the past when you talked about margins yet surf reference that you think the improvement will be a ratable over your long term target right and I think you had said 30%.
So I suppose in the context of a really good margin quarter, Alright, I think thats contingency your margins of 29% Alright pretty good then at your target already.
Is it still reasonable to assume that from here over the next couple of years, we should.
Have a steady upward march towards your long term target.
And clearly youre, saying that 29% is not sustainable, but just thinking about the cadence from here and how you get to that long term target.
Yes, we continue to expect to see margin expansion and improvement year over year quarter over quarter.
We don't believe that 29% is an unsustainable level now that may not happen every single quarter, some quarters have better margin profiles and others given the way the seasonality works and when hiring works and then raises work.
But I certainly don't believe that 29% as a cap for US we continue to expect strong margin expansion every year.
Alright, thank you.
Thank you.
I would now like to turn the call back to <unk>.
Mark Jones for closing remarks.
Thanks, everyone.
For your questions on the call we appreciate.
Your attention and have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Okay.
Okay.
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