Q1 2024 Goosehead Insurance Inc Earnings Call

Okay.

Operator: Good day, and thank you for standing by. Welcome to the Goosehead Insurance first quarter 2024 earnings conference call.

Good day, and thank you for standing by.

Speaker Change: Welcome to the crews had insurance first quarter 2024 earnings conference call.

Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 one again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Dan Farrell, Vice President, Capital Markets.

Speaker Change: At this time all participants are in a listen only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised.

To withdraw your question. Please press star one again.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: I'd now like to hand, the conference over to Dan Farrell Vice President.

Daniel D. Farrell: 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 the 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 actual results to differ materially from those expressed or implied in the forward-looking statements.

Speaker Change: Markets.

Daniel D. Farrell: Please go ahead.

Daniel D. Farrell: 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 the 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.

Daniel D. Farrell: 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 you all to our recent SEC filings for more detailed discussion of risks and uncertainties that could impact future operating results and financial condition of <unk>.

Daniel D. Farrell: These statements are not guarantees of future performance and, therefore, undue reliance should not be placed upon them. We refer you all to our recent SEC filings for more detailed discussion of risks and uncertainties that could impact future operating results and financial condition of Goosehead. We disclaim any intention or obligation to update and revise any forward-looking statements except to the extent required by law.

Daniel D. Farrell: We disclaim any intention or obligation to update and revise any forward looking statements except to the extent required by applicable law.

Daniel D. Farrell: 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 to facilitate operating performance comparisons from period to period by including 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.

Daniel D. Farrell: 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.

Daniel D. Farrell: Agent 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 period to period by including potential differences caused by variations in capital structure tax position depreciation amortization and certain.

Daniel D. Farrell: Other items that we believe are not representative of our core business.

Daniel D. Farrell: 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 goosehead.com. Now, I would like to turn the call over to our chairman and CEO, Mark Jones.

Daniel D. Farrell: For more information regarding the use of non-GAAP financial measures, including reconciliations of these measures.

Daniel D. Farrell: 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.

Daniel D. Farrell: Now I'd like to turn the call over to our chairman and CEO Mark Jones.

Mark E. Jones: Thanks Dan, and welcome everyone to our first quarterly call. I'm very pleased with the progress we have made toward our goal. Personal lines insurance distribution is a quintessential long tail business. I tell people all the time that it is not a get-rich-quick business; it's a get-rich-over-time-but-stay-rich business. Driving substantive change in our company generally takes many quarters to achieve, but those changes, when made, tend to be very sticky and sustained. I am pleased to report that our hard work over the last year and a half bore more fruit in the first quarter. Franchise producer headcount has begun growing again. We ended the quarter with 1,963 producers.

Mark E. Jones: Thanks, Dan and welcome everyone to our first quarter call I am very pleased with the progress we have made toward our goals.

Mark E. Jones: Personal lines insurance distribution is a quintessential long tail business I tell people all the time that it is not a get rich quick business, it's a get rich over time, but stay rich business.

Mark E. Jones: Driving substantive change in our company generally takes.

Mark E. Jones: Many quarters to achieve but those changes were made tend to be very sticky and sustained.

Mark E. Jones: I am pleased to report that our hard work over the last year and a half or more fruit in the first quarter franchise producer head count has begun growing again, we ended the quarter with 19 163 producers.

Mark E. Jones: Our recruitment efforts to support franchisees that want to add producers are going extremely well, with a total of 168 producers being placed in existing agencies during Q1. As a reminder, when an agency adds a new producer, on average, it improves the productivity of everyone in that agency. So helping our franchise partners and producers remains an incredibly important lever for us and an important area of focus. Our focus on enhancing the quality of our producers is also driving very large productivity gains.

Mark E. Jones: Our recruitment efforts to support franchisees that want to add producers are going extremely well with a total of 168 producers being placed in existing agencies during Q1.

As a reminder, when an agency adds a new producer on average it improves the productivity of everyone in that agency, so, helping our franchise partners and producers.

Mark E. Jones: Remains an incredibly long lever for us and an important area of focus.

Mark E. Jones: Our focus on enhancing the quality of our producers is also driving very large productivity gains.

Mark E. Jones: First year franchise productivity is up 86% year over year, but the gains are not limited to that cohort. Our existing franchises delivered 19% same store sales growth in the first quarter on the heels of 23% same store sales growth in the fourth quarter. Our franchise network currently accounts for 78% of our premium volume.

Mark E. Jones: First year franchise productivity is up 86% year over year, but the gains are not limited to that cohort our existing franchises have delivered 19% same store sales growth in the first quarter on the heels of 23% same store sales growth in the fourth quarter.

Mark E. Jones: Our franchise network currently accounts for 78% of our premium volume.

Mark E. Jones: So productivity gains here can really move growth and earnings yields over time. We're also proud to have continued to deliver strong margins through smart cost discipline and a maniacal focus on productivity. We believe all of these enhancements to be structural and will benefit our business for years to come. As I prepare to hand off the CEO role to Mark Miller, I'm very happy with the capabilities of our senior team and the way they are working so effectively together.

Mark E. Jones: So productivity gains here can really move the growth and earnings Neil's overtime.

Mark E. Jones: We're also proud to have continued to deliver strong margins through smart cost discipline and maniacal focus on productivity.

Mark E. Jones: We believe all of these enhancements to be structural and will benefit our business for years to come.

Mark E. Jones: As I prepare to hand off the CEO role to Mark Miller, I am very happy with the capabilities of our senior team and the way they are working so effectively together.

Mark E. Jones: While we're excited about these wins, in the short term, we're facing some temporary headwinds. We are operating in the hardest insurance market and macro environment we've experienced in our 20 plus years in business. That being said, we know that insurance is a market that cycles between hard and soft, and these cycles impact product pricing and availability with derivative impacts on client retention. Historically, hard market cycles last two to four years. However, our current cycle has been amplified by the COVID black swan event.

Mark E. Jones: Well, we're excited for these wins in the short term, we're facing some temporary headwinds.

Mark E. Jones: We are operating in the hardest insurance market and macro environment, we have experienced in our 20 plus years in business that being said, we know that that insurance is a market that cycles between hard and soft and these cycles impact product pricing and availability with derivative impacts on client retention.

Mark E. Jones: Historically hard market cycles last two to four years.

Mark E. Jones: Our current cycle has been amplified by the Covid Black Swan event.

Mark E. Jones: But we have reason for optimism as carriers report gains in profitability resulting from rate increases to cover inflation's impact on claims costs, as well as product rationalization. When even California's insurance regulators allow carriers to price more rationally, you know that the first steps toward market normalcy are close at hand. As an example of how this can affect our business, in March, we saw same-store sales increases of 107% in California.

Mark E. Jones: But we have reason for optimism as carriers report gains in profitability, resulting from rate increases to cover inflation impact on claims cost as well as product rationalization.

Mark E. Jones: When even California insurance regulators allow carriers to price more rationally you know that the first steps toward market normalcy are close at hand.

Mark E. Jones: An example of how this can affect our business in March we saw same store sales increases of 107% in California.

Mark E. Jones: There's a positive to the temporary market challenges we face in strengthening the long-term health of our business because we have been forced to level up our game, enhancing and hardening our skills, and adding to our competitive arsenal. We are seeing very temporary challenges in our retention rates, but we are highly confident we will return to our historically high retention as we progress through the current market cycle. While we navigate the current environment, we're committed to continuing to deliver on our earnings growth through aggressive cost management and careful scrutiny of where we invest the dollar of our capital in an hour of our time.

Mark E. Jones: There is a positive to the temporary market challenges, we face and strengthening the long term health of our business, because we have been forced to level up or gain enhancing and hardening, our skills and adding to our competitive Arsenal.

Mark E. Jones: We are seeing very temporary challenges and our retention rates, but are highly confident we will return to our historically high retention as we progress through the current market cycle.

Mark E. Jones: While we navigate the current environment, we're committed to continuing to deliver on our earnings growth through aggressive cost management and careful scrutiny on where we invest the dollar of our capital in an hour of our time.

Mark E. Jones: Our smartest shareholders, and this is the bulk of our largest investors, understand the dynamics of our business, our structural improvements, and our transitory challenges. They invest for the long term and know these temporary headwinds will have a trivial impact on our long-term results. I'm pleased to announce that our Board of Directors has authorized a substantial stock buyback plan which we will utilize as we seek to take advantage of market dislocation. You'll hear more about this later in the call.

Mark E. Jones: Our smartest shareholders and these are the bulk of our largest investors understand the dynamics of our business are structural improvements and are transitory challenges.

Mark E. Jones: We invest for the long term and know these temporary headwinds will have a trivial impact on our long term results.

I am pleased to announce that our board of directors has authorized a substantial stock buyback plan, which we will utilize as we see fit to take advantage of market dislocations and Youll hear more about this later on in the call.

Mark E. Jones: I believe we are better positioned today to deliver on our long-term goal, which is to become the largest distributor of personalized insurance in the United States during my lifetime than we have ever been in our company's history. We will continue to remain maniacally focused on what we do best, deliver world-class service for our clients, deliver the best agent experience, and bring the most favorable and attractive client risks available to underwriters at our carrier partners. Thank you to our team for delivering another successful quarter, and with that, I will turn the call over to our President and Chief Operating Officer, Mark Miller.

Mark E. Jones: I believe we are better positioned today to deliver on our long term goal, which is becoming the largest distributor of personal lines insurance in the United States during my lifetime.

Mark E. Jones: I've ever been in our company's history we.

Mark E. Jones: We will continue to remain maniacally focused on what we do best deliver World class service for our clients deliver the best agent experience and bringing the most favorable and attractive client risks available to underwriters at our carrier partners.

Mark E. Jones: Thank you to our team for delivering on another successful quarter and with that I will turn the call over to our President and Chief operating Officer Mark Miller.

Mark K. Miller: Thanks, Mark, and good afternoon, everyone. To summarize operations in Q1, I'll provide updates on three key areas: franchise productivity, commission retention, and producer headcount. First, let's dive into franchise productivity. The Franchise Network now accounts for 87% of our total agent count and 80% of new business production. After a 30% increase in franchise productivity in Q4 2023, we saw an even stronger 42% increase in Q1 of 2024. This improvement was led by an 86% increase in our less than one year old franchise. We know first year productivity strongly correlates to long-term franchise success, so we believe our newer vintage franchises will perform very well for many years to come.

Mark K. Miller: Thanks, Mark and good afternoon, everyone to summarize operations in Q1 I'll provide updates on three key areas franchise productivity Commission retention and producer head count.

Mark K. Miller: First let's dive into franchise productivity.

The franchise network now accounts for 87% of our total agent count and 80% of new business production.

Mark K. Miller: After a 30% increase in franchise productivity in Q4 2023, we.

Mark K. Miller: We saw an even stronger at 42% increase in Q1 of 2024.

Mark K. Miller: This improvement was led by an 86% increase in our less than one year franchises.

Mark K. Miller: We know first year productivity strongly correlates to long term franchise success. So we believe our newer vintage of franchises will perform very well for many years to come.

Mark K. Miller: We have had a relentless focus on quality over quantity for the past year, targeting candidates with the desire and strong skill set to grow a scalable multi-agent business. We're starting to see signs this strategy is bearing fruit as we continue to launch higher quality and faster growing new franchises. If you dive into what's driving the increased productivity, it's primarily an increase in the number of referral partner leads per agent. With the challenging insurance environment putting downward pressure on close rates, the only solution to drive productivity is to get more leads.

We've had a relentless focus on quality over quantity for the past year targeting candidates with the desire and strong skill set to grow our scaling multi agent business. We're starting to see signs of this strategy is bearing fruit as we continue to launch higher quality and fast ramping new franchises.

Mark K. Miller: If you dive into what's driving the increased productivity, it's primarily an increase in the number of referral partner leads per agent.

Mark K. Miller: With the challenging insurance environment, putting downward pressure on close rates. The only solution to drive productivity is to get more leads and the best way to do that is by marketing to referral partners.

Mark K. Miller: And the best way to do that is by marketing to referral partners. Going into Q4, we doubled down on our referral partner marketing strategy. These efforts take time, and they had some impact on Q4, but they are the primary driver of Q1 productivity growth. As a reminder, our agents have access to an exclusive tool that shows them the production data of every loan originator in America.

Mark K. Miller: Going into Q4, we doubled down on our referral partner marketing strategy.

Mark K. Miller: These efforts take time and they had some impact on Q4.

Mark K. Miller: But they are the primary driver of Q1 productivity growth as a reminder, our agents have access to an exclusive tool that shows them. The production data of every loan originator in America.

Mark K. Miller: These mortgage professionals all have an insurance agent they refer clients to, but many are frustrated with that experience. Some refer business to a captive agent who only has one offering and may not be competitive. Others refer to an independent agent, but they're frustrated by the turnaround time on proof of insurance, which can cause closing delays. Goosehead agents offer more value to these referral partners than any other agent in the industry. Our value centers on three components: choice.

Mark K. Miller: These mortgage professionals all have an insurance agent they refer clients too, but many are frustrated with that experience.

Mark K. Miller: Some are for our business to a captive agent, who only has one offering and may not be competitive.

Mark K. Miller: Others refer to an independent agent, but they are frustrated by the turnaround time on proof of insurance, which can cost closing delays.

<unk> agents offer more value to these referral partners than any other agent in the industry.

Mark K. Miller: Our value centers on three components choice.

Mark K. Miller: We have the most robust product offering in the industry to make sure we find clients the right coverage at the right price, speed. We have a service team dedicated to servicing these referral partners, which means we can get them proof of insurance in under an hour. In partnership, our local agents will partner with loan officers to market to realtors and generate more business. The challenging home insurance environment and higher interest rates have made our value proposition to these referral partners more pronounced than ever.

Mark K. Miller: We have the most robust product offering in the industry to make sure we find clients the right coverage at the right price.

Mark K. Miller: Speed we.

Mark K. Miller: We are a service team dedicated to servicing these referral partners, which means we can get them proof of insurance in under an hour.

Mark K. Miller: Partnership our local agents will partner with loan officers to market to realtors and generate more business.

Mark K. Miller: The challenging home insurance environment, and higher interest rates have made our value proposition to these referral partners more pronounced than ever.

Mark K. Miller: We're also providing more support and training to our agents on executing this strategy than ever before. For example, over the past two quarters, we have been sending out sales leaders into the field to go on half-day referral partner visits with our agents.

Mark K. Miller: We're also providing more support and training to our agents on executing this strategy than ever before.

Mark K. Miller: For example over the past two quarters, we have been sending out sales leaders into the field to go execute on half day referral partner visits with our agents.

Mark K. Miller: After one of these field visits, we generally see a greater than 75% lift in the number of referral partner leads that agent gets over the following month. In Q1, we saw a 27% year-over-year improvement in the number of referral partner activations. This was the best quarter on record.

Mark K. Miller: After one of these field visits we generally see a greater than 75% lift in the number of referral partner leads that agent gets over the following month.

Mark K. Miller: In Q1, we saw a 27% year over year improvement in the number of referral partner Activations. This was the best quarter on record.

Mark K. Miller: We believe these investments will allow us to sustain high levels of productivity for years to come. What's more exciting is that as the housing market improves, these new referral partners will send a higher volume of leads to our agents, and as the insurance market improves, our agents will close those leads at higher rates, leading to increased productivity. We are incredibly encouraged by the trends in franchise productivity. As a reminder, these productivity gains do not immediately materialize in a revenue line.

Mark K. Miller: We believe these investments will allow us to sustain high levels of productivity for years to come.

Mark K. Miller: What's more exciting is that as the housing market improves these new referral partners will send a higher volume of leads to our agents and as the insurance market improves our agents will close those leads at higher rates leading to increased productivity.

Mark K. Miller: We are incredibly encouraged by the trends in the franchise productivity.

Mark K. Miller: As a reminder, these productivity gains do not immediately materialize on a revenue line. They will however, boost revenue as policies renew in the second year as royalties contractually go from 20% to 50%.

Mark K. Miller: They will, however, boost revenue as policies renew in the second year as royalties contractually go from 20% to 50%. Second, let's dive into commission retention. Because of a combination of inflation.

Mark K. Miller: Second let's dive into commission retention.

Mark K. Miller: Because of a combination of inflation.

Mark K. Miller: Higher reinsurance costs and unprecedented weather activity, insurance underwriters experienced some of the worst results on record in 2022 and 2023. To fix that, carriers are taking aggressive price increases, changing underwriting guidelines, and decided not to renew many policies. Nowhere is this more pronounced than Texas homeowners insurance, our largest concentration of clients. Texas homeowners insurance went up over 20% in 2023, more than twice the national average rate.

Mark K. Miller: Higher reinsurance cost and unprecedented weather activity insurance underwriters experienced some of the worst results on record in 2010, and 2022 and 2023.

Mark K. Miller: To fix that carriers have taken aggressive price increases changed underwriting guidelines and decided to not renew many policies.

Mark K. Miller: Nowhere is this more pronounced than Texas homeowners insurance, our largest concentration of clients.

Mark K. Miller: Texas homeowners insurance went up over 20% in 2023.

Mark K. Miller: Over twice the national average rate.

Mark K. Miller: These rate increases have led to unprecedented shopping activity. In addition, in Texas, there are a few large captive carriers who haven't raised rates as aggressively and are losing billions of dollars. These losses are not sustainable, but the increased shopping activity and mispriced captives have led to a decrease in client retention. In addition, two carriers who have been in extreme financial distress significantly lowered commission rates, which is having a near-term negative impact on our commission retention.

Mark K. Miller: These rate increases have led to unprecedented shopping activity in.

Mark K. Miller: In addition in Texas, there are a few large captive carriers, who havent raised rates as aggressively and are losing billions of dollars.

Mark K. Miller: These losses are not sustainable, but the increased shopping activity and mispriced captives have led to a decrease in client retention.

Mark K. Miller: In addition to carriers, who have been under extreme financial distress significantly lowered commission rates, which is having a near term negative impact on our commission retention.

Mark K. Miller: Importantly, the carriers who are truly partners, such as Progressive, SageSure, Safeco, and Mercury, among many others, have taken a long-term view and not impacted commissions at all. These carriers know that agents have a long-term memory, and they want to maintain a great reputation so that they can start growing again when the time is right. The good news is we see no impediment to being able to get back to our historic retention levels as the market heals. Texas is generally a more flexible state that will allow insurance carriers to make the changes they need in order to open back up for business.

Mark K. Miller: Importantly, the carriers, who are truly partners such as progressive Sage <unk> Sage Cowen Mercury among many others have taken a long term view and not impacted commissions at all.

These carriers note that agents have a long term memory and they want to maintain a great reputation. So that they can start growing again when the time is right.

Mark K. Miller: The good news is we see no impediments to being able to get back to our historic retention levels as the market heals.

Mark K. Miller: Texas is generally a more flexible state that will allow insurance carriers to make the changes they need in order to open back up for business.

Mark K. Miller: Many carriers are moving to higher deductibles and depreciable roof schedules to create a product where they can be profitable. As our carrier partners open back up, and the captive carriers raise rates, we believe our retention will go back to 89% plus. Third, let's dive into producer headcount growth. We continue to believe that helping our existing franchises add producers is one of the longest levers in our business. Helping source a new producer for an existing franchise provides incredible value to our franchisees and is at a very low cost for us.

Mark K. Miller: Many carriers are moving to higher deductibles and depreciable roof schedules to create a product where they can be profitable.

Mark K. Miller: As our carrier partners open backup and the captive carriers raise rates, we believe our retention will go back to 89% plus.

Mark K. Miller: Third, let's dive into producer head count growth, we continue to believe that helping our existing franchises add producers as one of the longest levers in our business health.

Mark K. Miller: Helping source of new producer for an existing franchise provides incredible value to our franchises and is very low cost for us.

Mark K. Miller: Every new producer added to a high-performing franchise is the equivalent of launching almost two new franchises. Additionally, when a new producer is added, we see productivity increase among everyone else in the franchise. Our scaling franchises added 168 producers in the quarter through a combination of our corporate recruiting program and their own sourcing efforts. Producers per franchise ended the quarter at 1.7 compared to 1.6 in Q4 and 1.51 a year ago.

Mark K. Miller: Every new producer added to our high performing franchises the equivalent of launching almost two new franchises.

Mark K. Miller: Additionally, when a new producer has added we see productivity of everyone else in the franchise increase.

Mark K. Miller: Our scaling franchises added 168 producers in the quarter through a combination of our corporate recruiting program and their own sourcing efforts.

Mark K. Miller: Users per franchise ended the quarter at $1 seven compared to one six in Q4 and $1 five one a year ago.

Mark K. Miller: Our team dedicated to recruiting franchise producers now totals 17, and we expect this team to help us add several hundred more producers to the franchise network this year. As a result, we believe the overall number of franchise producers will grow from current levels, and we will see an increasing number of agents per franchise. Franchise producers ended the quarter at 1,963, up from 1,957 in the fourth quarter. This represents the first sequential producer growth in the last six quarters.

Mark K. Miller: Our team dedicated to recruiting franchise producers now totaled 17, when we expect this team to help us add several hundred more producers to the franchise network. This year.

Mark K. Miller: As a result, we believe overall franchise producer count will grow from current levels and we will see an increasing number of agents per franchise.

Mark K. Miller: Franchise producers ended the quarter at 1963 up from 1957 in the fourth quarter.

Mark K. Miller: This represents the first sequential producer growth in the last six quarters.

Mark K. Miller: One great example of an agency adding agents quickly is the Gary Miller Agency out of Flowery Branch, Georgia. Gary, who's no relation to me, launched back in March of 2020, and he has been a part of our agency staffing program since inception. Gary has hired six producers in his agency as a result. He has had great success utilizing this program, particularly with producer Zach Miller-Hawg.

Mark K. Miller: One Great example of an agency, adding agents quickly is the Gary Miller agency out of Flowery branch GA.

Mark K. Miller: Gary has no relation to me launched back in March of 2020, and he has been a part of our agency staffing program since inception.

Mark K. Miller: He has hired six producers in its agency as a result.

Mark K. Miller: He has had great success utilizing this program, particularly with the producer Zack Miller Hog.

Mark K. Miller: Over the quarter, Zach produced approximately $15,000 in new business revenue per month, which is around 2.6 times higher than the average producer in Georgia. We will continue to assist Gary in recruiting top talent to his agency as his hiring needs continue. On corporate, we've had tremendous success with college recruiting and have locked in the majority of signings for our summer class. We expect to end the year with at least 375 corporate offices. Many of these agents view their time at corporate as a paid apprenticeship.

Mark K. Miller: Over the quarter Zach produced approximately $15000 in new business revenue per month, which is around two six times higher than the average producer in Georgia.

Mark K. Miller: We will continue to assist Gary and recruiting top talent to its agency as his hiring needs continue.

On corporate we've had tremendous success with college recruiting and have locked in the majority of signings for our summer class.

Mark K. Miller: We expect to end the year with at least 375 corporate agents.

Mark K. Miller: Many of these agents do their time at corporate as a paid apprenticeship.

Mark K. Miller: They come in for a few years, learn to be an expert at their craft, develop a large referral partner network, gain leadership experience, and then go launch a franchise. This opportunity is allowing us to attract higher-caliber talent than ever before. One example of this is no attacks.

Mark K. Miller: They come in for a few years learned to be an expert at their craft.

Mark K. Miller: Developed a large referral partner network gained leadership experience and then go launch a franchise. This.

Mark K. Miller: This opportunity is allowing us to attract higher caliber talent than ever before.

Mark K. Miller: One example of this is no attachment Noah joined our Denver Corporate office in August after graduating from the University of Denver.

Mark K. Miller: Noah joined our Denver corporate office in August after graduating from the University of Denver. He immediately found success activating new referral partner relationships and started generating over $20,000 per month in revenue within three months. Now Inouye is in his seventh month, and he is now generating over $30,000 per month in revenue and continuing to grow. Noah will likely earn over $175,000 in his first year out of college.

Mark K. Miller: He immediately found success activating new referral partner relationships and started generating over $20000 per month in revenue within three months.

Mark K. Miller: Now I know has been a seventh month and he is now generating over $30000 per month in revenue and continuing to grow.

Mark K. Miller: No it will likely learn over $175000 in its first year out of college and it will have many compelling juice and career options in the future.

Mark E. Jones: And you will have many compelling Goosehead career options in the future. This opportunity is unrivaled on campus, and we continue to recruit top talent to join an industry that has historically struggled to do so. Recruiting this level of talent and then launching them into franchises remains one of our largest competitive advantages. We will continue to capitalize on this strategy and grow our corporate team up to our absorptive capacity. To summarize, in Q1, we made structural changes that are here to stay.

Mark K. Miller: This opportunity is unrivaled on campus and we continue to recruit top talent to join an industry that has historically struggled to do so.

Mark K. Miller: Recruiting this level of talent and then launching them into franchises remains one of our largest competitive advantages.

Mark K. Miller: We will continue to capitalize on this strategy and grow our corporate team up to our absorptive capacity.

Mark K. Miller: To summarize in Q1, we created structural changes that are here to stay we are incredibly excited about the gains in franchise productivity and head count growth.

Mark E. Jones: We're incredibly excited about the gains in franchise productivity and headcount growth. We know the market headwinds will eventually abate, and when they do, we believe we are perfectly positioned to rapidly re-accelerate revenue growth. We're extraordinarily confident we have the right strategy and the right team to execute our long-term vision of becoming the largest distributor of personalized insurance in our founder's life. With that, I will turn the call over to Mark Jones, Jr. to give more color on our financial results.

Mark K. Miller: We know the market headwinds will eventually abate and when they do we believe we are perfectly positioned to rapidly it reaccelerate revenue growth.

Mark K. Miller: We are extraordinarily confident we have the right strategy and the right team to execute our long term vision of becoming the largest distributor of personal lines insurance and our founders lifetime.

Speaker Change: With that I will turn the call over to Mark Jones Junior to give more color on our financial results.

Mark E. Jones: Thanks, Mark, and good afternoon to everyone on the call. In the first quarter of 2024, we began our growth reacceleration phase. Total revenue, core revenue, new business premium growth, and franchise producer count all accelerated sequentially over the fourth quarter of 2023. On top of that, we generated more cash than in the first quarter of any year in our company's history. We have placed a tremendous amount of scrutiny on every aspect of our business within our control and made strategic decisions to minimize the impact of forces outside of our control.

Speaker Change: Thanks, Mark and good afternoon to everyone on the call in the first quarter of 2024, we began our growth Reacceleration phrase total revenue core revenue new business premium growth and franchise producer count all accelerated sequentially over the fourth quarter of 2023.

Speaker Change: On top of that we generated more cash than in the first quarter in any year in our company's history.

Speaker Change: We have placed a tremendous amount of scrutiny in every aspect of our business within our control and made strategic decisions to minimize the impact of forces outside of our control.

Mark E. Jones: Quarter-end, total franchise producers were 1,963, up from 1,957 as of year-end. As Mark Jones mentioned, our existing franchisees have added 168 producers to their agencies, growing our producers per franchise for the fifth consecutive quarter to 1.7. As a reminder, adding a producer to an existing agency typically drives the production equivalent of two new agencies.

Speaker Change: Quarter end total franchise producers were 1963 up from 1957 as of year end as Mark Jones mentioned, our existing franchises added 168 producers into their agencies growing our producers per franchise for the fifth consecutive quarter to one 7%.

Speaker Change: As a reminder, adding a producer to an existing agency typically drives the production equivalent of two new agencies.

Mark E. Jones: Our agency staffing program has been delivering strong results, which should drive a virtuous cycle of continued momentum in the franchise business. Each time a franchise onboards a successful producer, they become more confident in the program and generate cash flow to fund the next producer and overall growth of their agency. As a reminder, each time a producer is added to a franchise, it improves the productivity of everyone in that agency. This remains an incredibly powerful tool for future new business growth. Corporate producers at quarter end were 292, up 6% from the prior year period.

Speaker Change: Our agency staffing program has been delivering strong results, which should drive a virtuous cycle of continued momentum in the franchise business.

Speaker Change: Each time, a franchise onboard a successful producer they become more confident in the program and generate cash flow to fund the next producer and overall growth of the agency.

Speaker Change: As a reminder, each time a producer has added to our franchise. It improves the productivity of everyone. In that agency. This remains an incredibly powerful tool for future new business growth.

Speaker Change: Corporate producers at quarter end were 292 up 6% from the prior year period we.

Mark E. Jones: We are excited about the health of our corporate team, and we're now in a position to onboard a new class of college recruits over the summer. We've already locked in a significant portion of our summer class, with approximately 65% of plant hires having already signed their offer letters. We expect by the end of the year, our corporate agent headcount will be over 375, which sets us up to drive further acceleration and new business production in 2025.

Speaker Change: We are excited about the health of our corporate team and we're now in a position to onboard a new class of college of crudes over the summer.

Speaker Change: We have already locked in a significant portion of our summer class, but approximately 65% of planned hires having already signed their offer letters.

We expect by the end of the year, our corporate agent head count will be over 375, which sets us up to drive further acceleration in new business production in 2025.

Mark E. Jones: Mark Miller discussed some of the challenges we have faced in the carrier environment and how those have impacted not only new business generation, but also retention rates. One avenue we've taken to combat those impacts is to increase our marketing efforts to drive additional lead flow. Because our close rates have seen a temporary decline, we need to generate more at the top of the funnel to fill the gap. In the first quarter, in the face of cyclical lows in housing activity, we generated a 31% increase in lead flow per agent over the prior year period through a combination of increased share of wallet with our existing referral partners, new referral partner activations, and lead flow diversification from strategic partnerships.

Speaker Change: Mark Miller discuss some of the challenges we have faced in the carrier environment and how those have impacted not only new business generation, but also retention rates.

Speaker Change: One Avenue, we have taken to combat those impacts is to increase our marketing efforts to drive additional lead flow.

Speaker Change: Because of our close rates have seen a temporary decline we need to generate more of the top of the funnel to fill the gap and.

Speaker Change: In the first quarter in the face of cyclical lows in housing activity, we generated a 31% increase in lead flow per agent over the prior year period through a combination of increased share of wallet with our existing referral partners, new referral partner Activations and lead flow diversification from strategic partnerships.

Mark E. Jones: As the temporary headwind of product availability inevitably abates, we believe there is significant upside to productivity through converting a higher percentage of this increased lead. Total written premiums, the leading indicator for future revenues, grew 28% over the prior year period to $819 million. This included franchise premium growth of 32% to $650 million and corporate premium growth of 15% to $169 million. The first quarter was the second consecutive quarter we observed an acceleration of new business growth in both distribution networks, with franchise new business growth up 19% and corporate new business growth up 11%.

Speaker Change: As a temporary headwind of product availability inevitably abates. We believe there is significant upside in productivity through converting a higher percentage of this increased lead flow.

Speaker Change: Total written premiums the leading indicator for future revenues grew 28% over the prior year period to $819 million.

Speaker Change: This includes franchise premium growth of 32% to $650 million and corporate premium growth of 15% to $169 million.

Speaker Change: The first quarter was the second consecutive quarter, we observed an acceleration of new business premium in both distribution networks with franchise, new business premium up 19% and corporate new business growth up 11%.

Mark E. Jones: The building momentum in new business premiums is being partially offset by the continued slowing of our renewal premiums due to declining retention rates related to the temporary market challenge. As carrier profitability is restored through a combination of pricing increases and modifications to underwriting models, we expect that our client retention will progress back towards our historical long-term average of 89 percent. We've made significant investments and improvements in the quality of our service function that give us confidence in our ability to drive increasing client retention as the carrier market normalizes.

Building momentum and new business premium is being partially offset by the continued slowing of a renewal premiums due to declining retention rates related to the temporary market challenges.

Speaker Change: As carrier profitability is restored through a combination of pricing increases and modifications to underwriting models, we expect that our client retention will progress back towards our historical long term average of 89%.

Speaker Change: We've made significant investments and improvements in the quality of our service function that gives us confidence in our ability to drive increasing client retention as the carrier market normalizes.

Mark E. Jones: Total revenues for the quarter grew to $64.5 million, representing 11% growth over the prior year period, with core revenues of $58.8 million, representing 13% growth over the prior year period, both accelerating sequentially over the fourth quarter of 2023. As we previously mentioned, a larger and increasing portion of our core revenues is being driven by the franchise network, with 60% of the first quarter's core revenue coming from royalty fees, compared to 55% in the first quarter of 2023.

Speaker Change: Total revenues for the quarter grew to $64 $5 million, representing 11% growth over the prior year period with core revenues of $58 8 million, representing 13% growth over the prior year period, both accelerating sequentially over the fourth quarter of 2023.

Speaker Change: As we've previously mentioned a larger and accelerating portion of our core revenues is being driven by the franchise network with 60% of the first quarter's core revenue coming from royalty fees compared to 55% in the first quarter of 2023.

Mark E. Jones: We expect this trend to continue as franchises onboard producers and reduce the productivity gap between the average corporate producer and the average franchise producer. This has a lag effect on revenue growth rates, as we recognize only our 20% royalty fee in the first term of a policy, which steps up to 50% in each subsequent term. Policies in force grew 13% versus the year-ago quarter as temporary declines in retention rates are muting the impact of improved new business generation. We expect to see a re-acceleration in the policy-enforced growth rate beginning in the third quarter of this year.

We expect this trend to continue as franchises onboard producers and reduce the productivity gap between the average corporate producer and the average franchise producer decides.

Speaker Change: This has a lag effect on revenue growth rates as we recognize only our 20% royalty fee in the first terminal policy, which steps up to 50% in each subsequent term.

Speaker Change: Policies in force grew 13% versus the year ago quarter as the temporary declines in retention rates are muting the impact of improved new business generation we.

Speaker Change: We expect to see a reacceleration in the policy in force growth rate beginning in the third quarter of this year.

Mark E. Jones: Contingent commissions for the quarter were $2.7 million versus $1.9 million a year ago. For 2024, we are assuming contingent commissions to be roughly 35 basis points of total written premium. We are expecting approximately $1 million of contingent commissions in the second quarter compared to $4 million of contingents in the year-ago period. Longer term, we expect to see contingent commissions returning to the historical average of 80 basis points of total written premium.

Speaker Change: Contingent commissions for the quarter with $2 7 million versus $1 $9 million a year ago.

Speaker Change: For 2024, we are assuming contingent commissions to be roughly 35 basis points of total written premium.

Speaker Change: We are expecting approximately $1 million of contingent commissions in the second quarter compared to $4 million of contingents in the year ago period.

Speaker Change: Longer term, we expect to see contingent commissions returning to the historical average of 80 basis points of total written premium.

Mark E. Jones: However, we are remaining cautious and prudent in our near-term forecasting as the timing and pace of the recovery of profitability for carriers, a major driver of contingent commissions, have uncertainty and is not entirely within our control. Cost recovery revenue for the quarter was $2.5 million compared to $3.5 million in the year-ago quarter. For 2024, we are expecting cost recovery revenue to decline moderately from the 2023 levels as we have dramatically improved the health of our franchise network, resulting in fewer franchise terminations and less accelerated recognition of initial franchise fees for gap purposes.

Speaker Change: However, we are remaining cautious and prudent in our near term forecasting as the timing and pace of the recovery of profitability for carriers, a major driver of contingent commissions has uncertainty and is not entirely within our control.

Speaker Change: Cost recovery revenue for the quarter was $2 5 million compared to $3 $5 million in the year ago quarter.

Speaker Change: For 2024, we are expecting cost recovery revenue to decline moderately from the 2023 levels as we have dramatically improved the health of our franchise network resulted in fewer franchise termination and less accelerated recognition of initial franchise fees for GAAP purposes.

Mark E. Jones: It is important to remember that this changes nothing from a cash basis as we collect franchise fees at the time of training, and they're non-refundable at that point, but we are required to recognize the revenue over a 10-year period or the life of the franchise. Adjusted EBITDA grew to $11.7 million in the quarter compared to $10.2 million in the year-ago period. Adjusted EBITDA margin for the quarter held steady at 18% compared to the year-ago period.

Speaker Change: It is important to remember that this changes nothing from a cash basis as we collect franchise fees at the time of training and they're nonrefundable at that point, but we are required to recognize the revenue over a 10 year period or the life of the franchise.

Speaker Change: Adjusted EBITDA grew to $11 $7 million in the quarter compared to $10 2 million in the year ago period.

Speaker Change: Adjusted EBITDA margin for the quarter held steady at 18% compared to the year ago period.

Mark E. Jones: We continue to expect total margin expansion for the full year as we remain focused on cost management to mitigate the bottom line impact of moderately lower revenue growth expectations in the near term. We expect a majority of the margin expansion for the year to occur during the fourth quarter, as our class of new corporate agents ramps up production, the accelerating franchise new business from the fourth quarter of 2023 converts to more profitable renewal business, and the timing of year-over-year contingent commission.

Speaker Change: We continue to expect total margin expansion for the full year as we remain focused on cost management to mitigate the bottom line impact of moderately lower revenue growth expectations for the near term.

Speaker Change: We expect the majority of the margin expansion for the year to occur during the fourth quarter as our class of new corporate agents ramp up production the accelerating franchise new business from the fourth quarter of 2023 converts to more profitable renewal business and the timing of year over year contingent commissions.

Mark E. Jones: As a result of increased business in various geographies, we have now met certain state tax nexus thresholds, which result in additional state tax filings. Because of these additional state tax filings, our significant deferred tax assets have produced large amounts of state deferred taxes, resulting in a current period benefit for future state tax deductions. As of March 31st, 2024, we had cash and cash equivalents of $51 million, our unused line of credit was $49.8 million, and the total outstanding term notes payable balance was $75.6 million.

Speaker Change: As a result of increased business in various geographies. We have now met certain state tax Nexus thresholds, which result in additional state tax filings.

Speaker Change: Because of these additional state tax filings are significant deferred tax assets produced large state deferred taxes, resulting in a current period benefit for future state tax deductions.

Speaker Change: As of March 31, 2024, we had cash and cash equivalents of $51 million. Our unused line of credit was $49 8 million and total outstanding term notes payable balance was $75 6 million.

Mark E. Jones: Operating cash flow generated in the quarter was $11.9 million compared to a use of cash from operations of $639,000 a year ago. Our free cash flow generated in the quarter was $9.1 million compared to a use of cash of $4.2 million in the year-ago period. As a reminder, the first quarter generally represents our seasonally weakest quarter of the year from an earnings and cash generation perspective.

Speaker Change: Operating cash flow generated in the quarter was $11 $9 million.

Speaker Change: Compared to a use of cash of operations of 639000, a year ago.

Speaker Change: Our free cash flow generated in the quarter was $9 1 million compared to a use of cash of $4 2 million in the year ago period.

Speaker Change: As a reminder, the first quarter generally represents our seasonally weakest quarter of the year from an earnings and cash generation perspective.

Mark E. Jones: Given the uncertainty in the carrier product environment and its temporary impact on client retention, we are revising our guidance for the full year. As a reminder, our philosophy on guidance is to be as transparent and accurate as possible; we guide to what we actually believe we will achieve for the year. For the full year 2024, total written premiums placed are expected to be between $3.62 billion and $3.82 billion, representing 22% organic growth on the low end of the range and 29% growth on the high end of the range.

Speaker Change: Given the uncertainty in the carrier product environment and its temporary impact on client retention, we are revising our guidance for the full year.

Speaker Change: As a reminder, our philosophy on guidance is to be as transparent and accurate as possible. We guide to what we actually believe we will achieve for the year.

Speaker Change: For the full year 2024 total written premiums placed are expected to be between 362 billion.

Speaker Change: And 382 billion.

Speaker Change: 22% organic growth in the low end of the range and 29% growth on the high end of the range.

Mark E. Jones: Total revenues are expected to be between $290 million and $310 million, representing 11% organic growth in the low end of the range and 19% organic growth in the high end. Adjusted EBITDA margin is expected to expand for the full year. The reduction in the high end of our guidance largely incorporates the experience we've seen in Q1. The low end of our guidance range is incorporating the possibility of continued temporary decline in retention rates and performance of the renewal book in the near term.

Speaker Change: Total revenues are expected to be between $290 million and $310 million.

Speaker Change: Representing a 11% organic growth in the low end of the range and 19% organic growth in the high end of the range.

Speaker Change: Adjusted EBITDA margin is expected to expand for the full year.

Speaker Change: The reduction in the high end of our guidance largely incorporate the experience we've seen in Q1, the low end of our guidance range is incorporating the possibility of continued temporary decline in retention rates and performance of the renewal book in the near term.

Mark E. Jones: We've made significant structural and foundational improvements to the core business that we believe will continue to drive performance for many years to come. The insurance market has a long history of hard and soft cycles, and the current challenges we are facing are transitory. We remain incredibly excited about the future of our organization and have more confidence in the underlying operations than ever. Our balance sheet flexibility and strong cash generation provide us with additional options to create shareholder value.

Speaker Change: We've made significant structural and foundational improvements in our core business that we believe will continue to drive performance for many years to come.

Speaker Change: The insurance market has a long history of hard and soft cycles and the current challenges. We are facing are transitory. We remain incredibly excited about the future of our organization and have more confidence in the underlying operations than ever.

Speaker Change: Our balance sheet flexibility and strong cash generation provide us with additional options to create shareholder value.

Mark E. Jones: Our current net debt to Trailing Adjusted EBITDA is just 0.3 times, and over the last 12 months, we've generated operating cash of $63 million. Historically, we have favored returning significant excess cash to shareholders in the form of special dividends. However, we believe there is a significant dislocation in our current valuation versus our long-term earnings growth expectation. As a result, our Board of Directors approved a $100 million share repurchase authorization in connection with an upsizing of our existing credit facility.

Speaker Change: Our current net debt to trailing adjusted EBITDA is just <unk> three times and over the last 12 months, we've generated operating cash of $63 million.

Speaker Change: Storage, we have favored returning significant excess cash to shareholders in the form of special dividends.

Speaker Change: However, we believe there is a significant dislocation in our current valuation versus our long term earnings growth expectations.

Speaker Change: As a result, our board of directors approved a $100 million share repurchase authorization and in connection with an upsizing of our existing credit facility.

Speaker Change: The Upsized facility will include an expansion of our revolving credit facility to $75 million and an increase of the total term loan of $25 million while.

Speaker Change: Painting, the existing pricing grid and tenor of the agreement.

Mark E. Jones: The sized facility will include an expansion of our revolving credit facility to $75 million and an increase to the total term loan of $25 million while maintaining the existing pricing grid and tenor of the agreement. Given our current valuation, we believe that shares of Goosehead stock represent an attractive buying opportunity. I want to thank our leadership team, our service team, our sales agents, our carrier partners, and our shareholders for their support as we continue on our path to industry leadership. With that, let's open the line up for questions. Operator? As a reminder,

Speaker Change: Given our current valuation we believe the shares of <unk> stock represents an attractive buying opportunity.

Speaker Change: I want to thank our leadership team our service team our sales agents, our carrier partners and our shareholders for their support as we continue on our path to industry leadership with that lets open the lineup for questions operator.

Speaker Change: As a reminder, if you'd like to ask a question at this time. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Speaker Change: Our first question will come from the line of Matt <unk> with citizens JMP.

Matt: Hey, Thanks, good afternoon.

Matt: Hey, Matt.

Matt: My first question is little bit asking you to look at your Crystal ball, but you obviously talked a lot about product environment and I think that's no surprise anybody paying attention to personal lines I think.

Operator: As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Our first question will come from the line of Matt Carletti with Citizens JMP.

Matt: Talking about it a lot.

Matt: <unk>.

Matt: Where do you think we are kind of in that that process that you guys see it on the ground day to day does it feel later innings are you starting to feel that.

Matt: The underwriters are thinking they're in a good spot in terms of pricing and youre getting changes in terms of conditions into the book and you expect an improvement in the not too distant future or do you think it's a little more middle innings and.

Matthew John Carletti: My first question is a little bit asking you to look at your crystal ball, but you obviously talked a lot about the product environment, and I think that's no surprise. Anybody paying attention to personal lines, I think, is talking about it a lot.

Speaker Change: Time will tell.

Speaker Change: Yes.

Speaker Change: Hey, Matt This is Martin on how you doing.

I'll start and then I think Brian and I are probably closest to it because when the carrier.

Martin: Executive teams come in we usually talk to them.

Martin: I would say it break it down by home and then auto.

Mark K. Miller: Hey Matt, this is Mark Miller. How are you doing? Good. How are you?

Martin: Our auto and home I would say auto is improving more quickly towards the end of that cycle and we're starting to see some of the major carriers come back in on.

Mark K. Miller: What is your opinion? Yeah, I think that's exactly right.

Martin: On the home side, our expectation was it would start to recover by kind of this time about.

Mark K. Miller: I mean, you look at Progressive Results, who have been posting mid-80s combined ratios. They're looking to dial up growth now, and they're starting to dial back restrictions. Some of the bundled carriers are waiting to dial back auto restrictions until the home is in a better place. And, you know, to Mark's point, I think home is a little bit still a wait-and-see game, especially in markets like Texas. So, I think probably more middle innings on home, and later innings on auto.

Martin: And it's been slower than our expectations would be we still have carriers that are in the market.

Martin: Offering product at reasonably good prices.

Martin: But the broader broader coverage of are places like Texas pretty tough right now still so we're waiting and seeing but I don't know whether were at the end of the cycle, but I would say we're towards that.

Martin: At least the middle of it and coming out of it but Brian Whats Your opinion, yes, I think that's exactly right I mean look at progressive results.

Brian: Do you have been posting mid <unk> combined ratio theyre looking to dial up growth now and they're starting to dial back restrictions. Some of the bundled carriers are waiting to dial back auto restrictions until the home is in a better place and get to Mark's point I think home is a little bit still wait and see especially in markets like Texas. So I think probably more middle innings on home later.

Mark E. Jones: That makes sense. We've seen a big correction in California, which gives me some optimism. And we are seeing some early progress. This is Mark Jones, Matt. We are seeing some early progress in that, like for example, Progressive Home, their combined ratio has come down substantially from its eyes, which doesn't necessarily mean that we're at the end of the game yet, but it is, at least, a light at the end of the tunnel, and we don't think it's a train.

Brian: On auto.

Speaker Change: That makes sense.

Speaker Change: I mean, we've seen a big correction in like California.

Speaker Change: Which gives me some optimism yes, yes.

Speaker Change: Yes that makes perfect.

Speaker Change: We are seeing some early we are seeing this is Marc Marc Jones, Matt we are seeing some early progress and that the.

Speaker Change: For example, a progressive home their combined ratio has come down substantially from its high.

Speaker Change: Doesn't necessarily mean that we're at the end of the game yet, but it is at least.

Speaker Change: It's a light at the end of the tunnel and we don't think its a train.

Mark E. Jones: Yeah, and the ones that moved quickly, so it's different by carrier. Some moved quickly and raised their prices, and they're becoming profitable now. Other ones relate to the game, and like we said on the calls, there are a handful of captives that are mispriced compared to everybody else that have not raised their prices yet, so it kind of depends on what they do.

Speaker Change: Ones that moves quickly.

Speaker Change: So it's different by carrier some moved quickly and raised their price and they are becoming profitable.

Speaker Change: Now.

Speaker Change: Other ones relate to the game and like we said on the call.

Speaker Change: There are a handful of captives that are mispriced compared to everybody else, but have not raised price yet so it kind of depends what they do.

Speaker Change: Got it.

Mark E. Jones: given the kind of change in the 24 guidance over the last quarter or so, was there any change in that kind of internal view of what 25 might look like? same, better, worse.

Speaker Change: And then if I could ask you.

Speaker Change: Is the right way to ask this is but I guess like you provide us a 24 guidance.

Speaker Change: Got it got a little more conservative than I thought you gave a lot of really good color on why that is.

Mark E. Jones: Now, Matt, this is Mark Jr. Now, looking at 2025, you know, we're going to be putting a lot more players on the field here over the next few months as we onboard the new college class, and our first year corporate agents are ramping up just as well, if not better, in many instances than they were in the previous year. So, we feel very good about that, and our existing agencies are continuing to recruit.

Speaker Change: I'd imagine you have some form of 25 guidance internally.

Speaker Change: And as we think as you think through this as being temporary and understanding your model in terms of how our premiums convert revenue and things like that.

Speaker Change: Given kind of the change in the 'twenty four guidance over the last quarter or so.

Speaker Change: Was there any change in that kind of an internal view of what 25 might look like.

Speaker Change: Same better or worse.

Mark E. Jones: Matt This is Mark Junior note looking at 2025, we're going to be putting a lot more players on the field here over the next few months as we onboard the new College class in our first year corporate agents are ramping up just as well if not better than many emphasis as they have in the previous year. So we feel very good about that and our existing agencies are continuing to <unk>.

Mark E. Jones: You know, you saw that producer count grow sequentially for the first time this quarter in a while. So, we feel very good about the new business generation looking into 2025, and our expectation is that as the product market normalizes, you'll actually start to get a tailwind from client retention as opposed to as big of a headwind as it has been right now. So, we don't really have any changes in expectations for what 2025 or longer than that looks like, and the other thing is, as carriers restore profitability, the contingent commissions number start to look very attractive as you grow your premium base and start to get a higher percentage of that as contingencies, which are again 100% earnings.

Speaker Change: You saw that producer count number grow sequentially for the first time this quarter in a while so we feel very good about the new business generation looking into 2025, and our expectation is as the product market normalizes, you'll actually start to get a tailwind from client retention as opposed to speak of a headwind as it has been right now so we're not really have any.

Speaker Change: And expectations for what 2025 or longer than that looks like and the other thing is as carriers of store profitability that contingent commissions number start to look very attractive as you grow your premium base and start to get a higher percentage of that is contingencies, which are again, 100% earnings and the other point I would make is we made comments in the prepared remarks that we've take.

Mark E. Jones: The other point I would make is that we've made comments in the prepared remarks that we've taken steps to kind of rationalize the cost base to make sure that we don't sacrifice bottom-line earnings while we're kind of dealing with a short-term headwind on the revenue growth number. So all of those costs don't immediately get put back into the P&L in 2025. So you come out of this leaner and more effective as soon as you get some more normal products. Super helpful. Thank you for the correction.

Speaker Change: And steps to kind of rationalize the cost base to make sure that we don't sacrifice bottom line earnings lower kind of dealing with the short term had another revenue growth number.

Speaker Change: Those all of those costs don't immediately get put back into the P&L in 2025. So you come out of this leaner and more effective as soon as you get some more normal product environment.

Operator: Super helpful. Thank you for the call.

Speaker Change: Super helpful. Thank you for the color.

Speaker Change: Thanks, Matt.

Brian Robert Meredith: Our next question will come from the line of Brian Meredith with UBS. Brian, your line is now open.

Speaker Change: Yes.

Speaker Change: Our next question will come from the line of Brian Meredith with UBS.

Brian Robert Meredith: Brian Your line is now open.

Brian Robert Meredith: Thank you. I have a couple of them here for you. First, I'm just curious, looking at, and maybe that has to do with the fact that you're getting some commission rate cuts, but if I look at, you know, corporate, call it core revenues divided by, call it corporate written premium, and the same thing for franchise called fees divided by the franchise kind of premiums, it's kind of been consistently declining over the last, you know, couple of years. I'm curious, is that because of what's going on with commission rates, or is there something else going on there?

Brian Robert Meredith: Thank you.

Brian Robert Meredith: A couple of them here for you first of all I'm just curious looking at and maybe this has to do with the fact that Youre getting some commission rate cuts, but if I look at.

Brian Robert Meredith: Corporate call. It core revenues divided by call. It corporate written premium and the same thing for franchise called fees divided by the franchise premiums, it's kind of been consistently declining over the last couple of years.

Brian Robert Meredith: I'm curious is that because of what's going on with.

Brian Robert Meredith: With commission rates or is there something else going on there.

Mark E. Jones: Yeah, so commission rates are part of it, and we mentioned it's just a couple of carriers. That's not a broad-scale issue.

Speaker Change: Yes, So commission rates as part of it and we mentioned it is just a couple of carriers thats not a broad scale issue.

Mark E. Jones: A lot of it is just as the mix shifts from the corporate side driving the majority of – not necessarily the majority, but the majority of the growth in new business production to the franchise side driving the majority of the growth that naturally just causes the lag from premium to revenue growth, considering it's 20 percent on the first term of a policy and 50 percent subsequent to that. That's really the largest driver of that, and we've talked a lot about over the last couple of years about rationalizing the corporate team after we kind of peaked at that 506 headcount.

Speaker Change: A lot of it is just as the mix shifts from the corporate side driving the majority of not necessarily the majority, but the majority of the growth in new business production to the franchise side driving the majority of the growth that naturally just causes the lag from premium to revenue growth considering it's 20% in the first term of a policy and 50% subsequent to that that's really the largest driver of that.

Speaker Change: We've talked a lot about over the last couple of years, the rationalization of the corporate team after we.

Mark E. Jones: That just causes a little bit of a short-term drag on your total aggregate new business production, although it made material improvements to the health of the corporate team. It was the right decision. But we expect that to continue to grow into the future, which you'll see flow into renewals in the following year.

Speaker Change: Kind of peaked at that 506 head count.

That just causes a little bit of a short term drag on your total aggregate new business production, although it made material improvements to the health of the corporate team. It was the right decision, but we expect that to continue to grow into the future, which youll see that flow into renewals in the following years.

Mark E. Jones: Gotcha. Would the mix of auto versus home affect that, too? Because I would assume auto commissions are lower than home.

Speaker Change: Got it with the mix of auto versus home affect that too because I would assume auto commissions are lower than home.

Mark E. Jones: We don't see a big difference in commission rates between product lines. Where that would be impacted is just a carrier not renewing a policy, whether it's a home or an auto. So if your auto is retaining better because carriers feel like they've got better pricing, to the extent a disproportionate amount of your book is home, that could impact you there, which ours is 55% home.

Speaker Change: We don't see a big difference in commission rates between product lines.

Speaker Change: Where that would be impacted as just a carrier do not renewing our policy, whether it's a home or an auto Sofia auto is retaining better because carriers feel like they've got better pricing.

Speaker Change: To the extent that disproportionate amount of your book is hall that could impact you, there, which is 55% home.

Mark E. Jones: Gotcha. And then my second question, just curious; looking at your corporate sales agents with greater than one year of tenure, do they continue to decline? Is that going to be bottoming out here soon? And I appreciate you're going to have a lot more agents at the end of the year, but I assume that's going to also meaningfully impact productivity overall if you've got a much lower percentage when you're, Yeah, I mean, we talked about this a little bit in the last call as you continue to

Speaker Change: Gotcha and then my second question just curious.

Speaker Change: Looking at your corporate sales agents with greater than one year tenure year. They continued to decline is that going to be bottoming out here soon and I appreciate you're going to have a lot more corporate agents at the end of the year, but I assume that's going to also.

Speaker Change: Meaningfully impact productivity overall, if you've got a much lower percentage of when your tenured agents greater yes, I mean, we talked about this a little bit in the last call. As you continue to launch out franchises and promote people into management out of that 10 year bucket and naturally kind of places of cap and what that productivity looks like because you are taking your best most productive agents.

Mark E. Jones: Yeah, I mean, we talked about this a little bit in the last call. As you continue to launch franchises and promote people into management out of that tenure bucket, it naturally kind of places a cap on what that productivity looks like because you're taking your best, most productive agents and putting them into a different distribution network either on the franchise side or in management. So I don't necessarily expect to continue to see the slide that we have seen this year, but you've got to remember, looking at this year versus last year, we just started the franchise launch program, and so you've got 35 people at this point who were included in that number at the beginning of last year who are now not included in that number.

Speaker Change: And putting them into a different distribution network either on the franchise side or in management.

Speaker Change: So I don't necessarily expect to continue to see the slide that we have seen.

Speaker Change: This year, but you got to remember looking at this year versus last year. We just had started the franchise launch program and so you've got 35 people at this point who are included in that number at the beginning of last year, who are now not included in that number so as your year over year trend normalizes looking into 2025, you shouldn't see that kind of impact you may see a little bit more of that this year.

Mark E. Jones: So as your year-over-year trend normalizes looking into 2025, you shouldn't see that kind of impact, although you may see a little bit more of that this year as we continue to pump out more franchises and the year-over-year numbers look a little askew.

Speaker Change: As we continue to pump out more franchises in a year over year numbers look a little a SKU.

Speaker Change: Great. Thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Yeah.

Speaker Change: Our next question will come from the line of Michael <unk> with BMO.

Operator: Thank you. One moment for our next question. The next question will come from the line of Michael Zaremski with BMO.

Hey.

Michael: Good afternoon.

Maybe going back to the.

Michael David Zaremski: I'll go back to the comments about some carriers cutting your commissions. I guess just, you know, in hindsight, it kind of makes sense, you know, being an analyst because the carriers are seeking to improve their profitability, so I'm just kind of, and this is a lever, but I'm just kind of curious then, so how much of this is just a new trend that just surprised you all and you're baking into your guidance in case other carriers do the same.

Michael: The comments about.

Some carriers.

Michael: Hunting garik commissions.

Michael: I guess just.

Michael: Look in hindsight, it kind of makes sense now being an analyst because the carriers are seeking to improve their profitability. So I'm just kind of.

Michael: This is a lever, but I'm just kind of curious then so if.

Michael: How much of this is just a new trend that just surprised you all in youre baking into your guidance that in case other other carriers do the same and then on the contingents I'm assuming that this would impact contingence, so unless the carriers eventually.

Michael David Zaremski: And then on the contingents, I'm assuming that this would impact contingents. So unless the carriers eventually went back to the old, better, commission structure, why would contingents go back to their, you know, historical levels over time?

Michael: Went back to the old better.

Michael: Yeah.

Commission structure plywood contingent scope back to there.

Historical levels.

Mark E. Jones: Yeah, Mike, just to your comment on the guidance, we are not expecting to see any more of that. This was a very isolated situation.

Michael: Over time.

Speaker Change: Yes, Mike just to add to your comment on the guidance, we are not expecting to see any more of that this was very isolated situations and mark Miller can give some more color on that it also shouldnt impacts that contingent commissions because those are not carriers that we were receiving contingencies from that in 2020 through or we're expecting to in 2020.

Mark E. Jones: Mark Miller can get some more color on that. It also shouldn't impact the contingent commissions because those are not carriers that we were receiving contingencies from in 2023, or we're expecting to in 2024. So it doesn't impact what the medium or longer-term outlook on contingencies looks like. And also, I would argue that the vast majority of carriers understand the benefit of having an independent agent that knows how to distribute your product very successfully. And this is a very shortsighted person.

Mark K. Miller: So it doesn't impact with the medium or longer term outlook on contingencies looked like and also I would argue that the vast majority of carriers understand the benefit of having an independent agent that knows how to distribute your product very successfully and this is a very shortsighted move yes.

Mark K. Miller: Yeah, I'll just, this is Mark Miller. I'll just jump on that comment for a second. First of all, I think this is short-term in nature. I have not seen or had any discussions with any other carriers. These are two carriers that, as we mentioned in the call, are financially distressed. They came to us and said, "We are in a financial position where we need to back away. So this was Homeowners of America and HIPPO.

Mark K. Miller: Yes, I'll just this is Martin I'll just jump on that comment for a second.

Martin: First of all I think this is short term in nature I have not seen or heard.

Had any discussions with any other carriers. These are two carriers that.

Martin: As we mentioned in this in the call that we're financially distressed they came to US and said we are in a financial position, where we need to back away. So this was.

Mark K. Miller: They wanted to pull out of the market, and they wanted to reduce commissions as a result of it. One of those carriers dramatically changed the contracts for our clients under it as well, so it's not even the same paper. I haven't seen that out of any of our major carriers other than those two, and the market naturally adjusts to the carriers that have the right paper at the right price. In this case, they don't, so the market's correcting itself. So when I say it's temporary, business starts to move to other carriers.

Martin: Homeowners of America in Hippo, they wanted to pull out of the market and they wanted to reduce commissions as a result of it.

Martin: One of those carriers dramatically changed the contracts for our clients' underneath it as well so it's not even the same paper I havent seen that out of any other major carriers other than those two.

Martin: And the market naturally adjust to the carriers that have the right paper at the right price.

Martin: This case they don't so the market's correcting itself. So when I say, it's temporary it starts the business starts to move to other carriers.

Speaker Change: Okay, Alright, that's great that's great color on that.

Mark K. Miller: Okay, that's great. That's a great color on that.

Michael David Zaremski: Just switching gears a bit, and I believe you teased this out in your prepared remarks, but I'm still going to ask it because I feel like it's somewhat complicated. So when we look at the revenue guide versus the premium written guide, you know, you have a much bigger decline in the guide on revenues. And so is the, are you explaining that more of your revenues are, more of your premiums are going to come from the franchise segment from new producers? So that's, that's driving the Delta, or is there more, which, you know, offer has a lower commission?

Speaker Change: Just switching gears a bit.

I believe you tease this out in the press.

Speaker Change: Prepared remarks, but I was hoping to ask because I feel like it's somewhat complicated so when we look at the.

The revenue guide.

Speaker Change: That's versus the premium raising guide you have a much bigger decline than the guide on the revenues and so it is.

Speaker Change: Explaining that more of your revenues are more of your premiums are going to come from the franchise.

Speaker Change: <unk> from some new producers. So that's that's driving the delta or is there mark.

Speaker Change: <unk> has a slower commission.

Mark E. Jones: Yeah, that's exactly right, Mike. So with the performance we've seen thus far this year, the franchise side of the business is doing a really, really great job of continuing to drive productivity, and our expectation is that will happen for the remainder of the year as well, and so you feel the impact of that immediately in premium. That's why you see the premium guide move is not as large as the revenue guide move, but that doesn't have the same impact on revenue, right? It's 20 cents on the dollar, so you're exactly right on that.

Yes, that's exactly right, Mike so with the performance we've seen thus far this year the franchise side of the business is doing.

Speaker Change: Really really great job of continuing to drive productivity and our expectation is that will happen for the remainder of the year as well until you feel the impact of that immediately in premium. That's why you see the premium guide move is not as large as that revenue guide move but that doesn't have the same impact in revenue right. It's 20 cents on the dollar so youre exactly right on that.

Speaker Change: Okay. Okay got it I guess lastly, I don't how much you can say, but.

Brian Pattillo: Okay, okay, got it. I guess lastly, I don't know how much you can say, but there's, you know, been rumblings in the trade rags, the insurance trade rags, about a very large auto insurance carrier, maybe the third largest in the U.S., potentially looking to enter the IA channel. I don't know if you could say anything or if that's, you know, something that you've heard too, or maybe that could help in terms of the product you all have to offer your clients. Hey, this is Brian. Yeah, our

Speaker Change: There's been rumblings in the trade Rag insurance trade rags about a very large auto insurance carrier, maybe the third largest in the U S potentially looking to enter the IAA channel I don't know if you could say anything or if thats something that.

Speaker Change: You have heard two or maybe because maybe that could help in terms of the product you all have to offer your clients.

Brian Pattillo: Hey, this is Brian. Yeah, our belief, I mean, we've seen this trend happen for years now, where there's been movement both on the captive side and on the direct side towards the independent channel. If you look at some of the big captives have made big acquisitions and done moves to focus on a choice model, and then, similar to direct companies that really sought to go direct to consumer, they have pivoted, going to a dual distribution model, you know, really following progressive moves. We know that what progressive calls the Robinson client, right?

Speaker Change: Hey, this is Brian yes, our belief I mean, we've seen this trend happen for years now where there has been movement both on the captive side and on the direct side towards the independent channel. If you look at some of the big captives have made big acquisitions and <unk> to focus on a choice model and Lora.

Speaker Change: Companies that really thought to go direct to consumer have pivoted going to a dual distribution model really following progressive mirrors, we know that yes, what progressive caused the Robinson client right $200 billion of the market that preferred home auto customer that retains performed well I think every auto.

Operator: It's $200 billion of the market, the preferred home auto customer that retains and performs well. I think every auto carrier wants more of that type of business. So, you know, I can't speak to any specific carrier, but we do believe that the trend will continue and that more of the direct carriers and captives will embrace independent distribution to go after that segment of the market.

Speaker Change: Carrier wants more of that type of business. So I can't speak to any specific carrier, but we do believe that that trend will continue and that more of the direct carriers and captives will embrace independent distribution to go after that segment of the market.

Andrew Scott Kligerman: Our next question will come from the line of Andrew Kligerman with TD Kellyn.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Our next question will come from the line of Andrew <unk> with Cowen.

Mark E. Jones: Hey everybody, I apologize in advance for the background noise, but before I get into my questions, could I just ask a couple of quick statistics? One being that you're citing 89% retention. Where was it this quarter? And then, with regard to HIPPO and Homeowners of America, what percentage of your book of business is that two carriers? I mean, it kind of sounds like a real non-event when I hear the names of the two companies.

Andrew: Hey, everybody and then I apologize in advance for the background noise.

Andrew: Before I get into my questions can I just ask a couple of quick.

Andrew: One being you are citing 89% retention.

Andrew: Where was it this quarter and then with regard to.

Andrew: Hippo in homeowners of America, what percentage of your book of business are those two carriers.

Andrew: And it sounds like a real non event when I hear the name so the two companies.

Mark E. Jones: Hey Andrew, client retention for the quarter was 85%. On your second question, you know, we have been in business with Homeowners of America for a long time, so over a period of time, we've built up a really nice partnership and a relatively sizable book of business, and as they've made decisions that they're going to make, a lot of that book of business has rotated off to other carriers as, naturally, It may not have seemed like that they were a super big carrier, but they were a relatively important partner for us in the early days.

Speaker Change: Hey, Andrew so client retention for the quarter, 85%.

Speaker Change: And on your first one.

Andrew: On your second question there.

Andrew: We had been in business with homeowners of America for a long time and so over a period of time, we had built up a really nice partnership.

Andrew: A relatively sizable book of business.

Andrew: As they've made decisions that theyre going to make a lot of that book of business is rotated off to other carriers as naturally the value to the client and the agent has declined and that product. So just naturally that happens it may not have seemed like that.

Super Big carrier, but they were relatively important partner for us in the early days.

Mark E. Jones: The big geographies like Texas were really big. Hippo and Hoak were both large for us. I see. And the commission reduction, how much was that?

Andrew: So that had like.

Andrew: Texas. They were they were really big Hippo in hillock robust large for us.

Speaker Change: I see and the commission reduction how much what's that.

Mark E. Jones: Yeah, I don't think we're going to get into specifics on the rate, but it was enough for us to call it out.

Speaker Change: Yes, I think we're going to get into specifics on the rate, but it was enough for us to call it out.

Mark E. Jones: Okay, fair enough. Thank you.

Speaker Change: Okay Fair enough. Thank you and then with regard to expenses I saw that G&A only went up 8% which was great.

Mark E. Jones: And then with regard to expenses, I saw that G&A only went up 8%, which was great, but the employee comp was up 14%. You listed out a lot of reasons in the press release, but I'm wondering if you could have tempered that a bit more and B, Maybe clarified a little bit why it was up that much, just given the pressures on revenue.

But the employee comp was up 14% you listed out a lot of <unk>.

<unk> in the press release, but I'm wondering if you could.

Speaker Change: Could have tempered that a bit more in the.

Speaker Change: <unk>.

Speaker Change: Maybe clarify a little bit why it was up.

Speaker Change: That much just given the pressures on revenue.

Mark E. Jones: I mean, how we secure our future revenue growth is by continuing to hire and onboard really, really talented people. And so, we've said forever, our secret sauce is the human capital we're able to bring to the table that's so differentiated in the industry. So we believe strongly in continuing to do that. So while we can manage the cost bar very well with GNA on that side of the business, I don't want to limit who we're hiring and who we're bringing into the system, because that's going to be a short-term decision that's going to have a long-term impact.

Speaker Change: I mean, how we secure our future revenue growth is by continuing to hire and onboard really really talented people and so we've said forever. Our secret sauce is the human capital, we are able to bring to the table that so differentiated in the industry. So we believe strongly in continuing to do that so while we can manage the cost bar very well with G&A.

Speaker Change: On that side of the business I don't want to limit, who we're hiring and who were bringing into the system because thats going to be.

Mark E. Jones: That makes a lot of sense. And then, just lastly, you know, there was some new legislation reducing commissions for real estate agents. Does that concern you at all? Should that have any pressure on you as you move forward?

Speaker Change: Short term decision that's going to have long term impact.

That makes a lot of sense and then just lastly.

Speaker Change: There was some new legislation.

Speaker Change: Do think commissions for real estate agents does that concern you at all should that have any pressure on you as you move forward.

Mark E. Jones: I mean, we've seen some recent interest on the franchise side of real estate brokers wanting to get into insurance as a side business, but I haven't seen any other negatives to our business.

Speaker Change: I mean, we've seen some recent interest on the franchise side of real estate brokers wanting to get into insurance as a side business, but I haven't seen any other negative to our business.

Mark E. Jones: So the fact that they're seeing lower commissions isn't going to affect, I mean, home sales will be what home sales will be, and you'll still get your lead. Is that how you're thinking about it?

Speaker Change: So the fact that they're seeing lower commissions.

Speaker Change: I mean on sales will be with home sales will be and Youll still get Ya Li.

Mark E. Jones: Correct. It doesn't change our relationship with the real estate brokers. Real estate volume is going to be what real estate volume is, but I think we're getting an oversized percentage of the leads that come out of the industry and growing.

Speaker Change: We're thinking about it.

Speaker Change: Correct It doesn't change our relationship with the with the real estate brokers.

And our.

Speaker Change: Our real estate volume is going to be a real estate volume Miss but I think we're getting an upsize or percentage of the leads that come out of the industry and growing well and we're also.

Mark E. Jones: Well, and we're also targeting, for referral partners, the highest volume realtors, and they're not going to be the ones that are affected; it'll be the lower productivity realtors that will get squeezed, and so that'll have much less of an effect on them. Got it.

Speaker Change: We're also targeting for referral partners, the highest volume realtors and theyre not going to be the ones that are affected there'll be the lower productivity.

Speaker Change: <unk> still get squeezed and so that will have much less effect on us.

Mark E. Jones: Got it. Thanks so much.

Speaker Change: Got it thanks, so much.

Operator: Thank you. One moment for our next question. This question will come from the line of Tommy Mcjoynt with KBW.

Speaker Change: Thanks, Andrew.

Speaker Change: Thank you one moment for our next question.

Speaker Change: This question will come from the line of Tommy Mckeith joined with K B W.

Thomas Patrick Mcjoynt: Hey, good afternoon. Thanks for taking my questions here.

Thomas Patrick Mcjoynt: Hey, good afternoon, thanks for taking my questions here.

Thomas Patrick Mcjoynt: You gave a good explanation of sort of the bridging, the change, and the guidance on the revenues. Just want to make sure I understand kind of the lowering, the lower end of the range on the premium side. If you could just kind of bridge that, what changed there in terms of rate, policy count, number of producers, just explaining that premium. Yeah, that's large.

You you gave a good explanation on sort of the bridging the change in the guidance on the revenues just wanted to make sure I understand.

Thomas Patrick Mcjoynt: Kind of lowering the lower end of the range on the premium side. If you can just kind of.

Thomas Patrick Mcjoynt: Bridge that what changed there in terms of was it.

Thomas Patrick Mcjoynt: Rate policy count number of producers just explaining that premium change.

Mark E. Jones: That's largely a function of retention, and so if we don't get the home market to stabilize as quickly as we would like, there is the opportunity for client retention to continue to slip a little bit more throughout the year. Now we have seen the peak of what we believe the number of customers who do not renew from carriers is, so we should be on the back half of that, but really, it's a function of client retention being slightly lower than what it has historically been. So certainly, if that returns faster than what we are expecting, you could see that that premium number be closer to the high end of the range, but I would rather be conservative in the forecast.

Yes, thats largely a function of retention and so if if we don't get the home market to stabilize as quickly as we would like.

There is the opportunity for client retention to continue to slide a little bit more throughout the year and now we have seen the peak of what we believe that do not renews from carriers is so we should be on the back half of that.

Thomas Patrick Mcjoynt: But really it's a function of client retention being slightly lower than what it has historically been so.

Thomas Patrick Mcjoynt: Certainly if that returns fashion than what we are expecting you could see that that premium number be closer to the high end of the range, but I would rather be conservative in our forecasting.

Mark E. Jones: Okay, got it. And then just the other question on the expense side, and it sounded like you may have touched on this, but do you have visibility into what equity-based comp should be for the rest of the year? And then as we think about kind of into 2025, is there any reason that it should either step up or step down year over year, just given what you know about vesting schedules related to that? Yeah, looking at Q1 is your best estimate for what it should be. That full

Speaker Change: Okay got it.

Speaker Change: And then just the other question on the expense side I mean, it sounded like you may have touched on this but do you have visibility into what equity based comp should be for the rest of the year.

Speaker Change: And then as we think about kind of into 2025 is there any reason that it should either step up or step down year over year, just given what you know about vesting schedule is related to that.

Speaker Change: Yes, looking at Q1 is your best estimate for what it should be that that full year. So typically the first quarter is when you would get new options awarded.

Operator: Yeah, looking at Q1 is your best estimate for what it should be for that full year. Typically, the first quarter is when you would get new options awarded to the managing directors here. And so then that's a similar number to that which would be recorded in each quarter of the year. Looking at 2025, there will be additional options that are awarded to the senior team, at which point you would see a step up in equity-based compensation.

Speaker Change: The managing directors here and so then that's a similar number to that would be recorded in each quarter of the year looking at 2025, there will be additional options that are awarded to the senior team at which point you would see a step up in equity based compensation just as a reminder, our philosophy on that has been kind of between 1% and 2% of the share count is an appropriate level for.

Operator: Just as a reminder, our philosophy on that has been kind of between one and 2% of the share count is an appropriate level for the dilution because the Black-Scholes valuation, given the volatility in our stock, tends to overvalue the actual economic reality of those options awarded to the employer.

Speaker Change: The dilution because the black scholes valuation given the volatility in our stock tends to overvalue. The actual economic reality of those options awarded to the employees.

Mark Douglas Hughes: Our next question will come from the line of Mark Hughes with Truist Securities. Thank you. Good afternoon.

Speaker Change: Yeah.

Got it thanks.

Speaker Change: Okay.

Speaker Change: Our next question will come from the line of Mark Hughes with <unk> Securities.

Mark Douglas Hughes: Okay. Thank you and good afternoon.

Mark E. Jones: Do the do not renews go into that 100% premium retention measure?

Mark Douglas Hughes: The new do not renew as go into that 100% premium retention measure.

Mark E. Jones: Yes, they do. Because that would be the premium that was on the books last year that will not be on the books this year. And so that premium retention is a trailing 12 number. And so it's kind of got a lag effect on what exactly is happening in the book. But yes, they are included in that. Okay, good. And then

Mark Douglas Hughes: Yes, they do because that would be premium that was on the books last year that will not be on the books. This year and so that premium retention as it is a trailing 12 number and so it's kind of got a lag effect on what exactly is happening in the book, but yes. They are included in that.

Speaker Change: Okay great.

Speaker Change: Hello.

Speaker Change: And then.

Mark E. Jones: I would say it's definitely the majority mortgage lenders. We work quite a bit with realtors, yeah, but I would say the majority, I mean, I think probably 75% plus come from lenders. If you look at our referral partner business altogether, which is roughly two-thirds of our new business, you know, probably 75% come from lenders, maybe 25%.

Yes.

Speaker Change: I will talk about.

Speaker Change: The <unk> settlement.

Speaker Change: You have a rough breakout for how much of your business comes from reoccurring versus mortgage lenders.

Speaker Change: I would say, it's definitely in the majority of mortgage lenders.

Speaker Change: We worked quite a bit with realtors.

Speaker Change: Yes, but I would say the majority I mean, I think probably our debt, 75% plus come from lenders that if you look at our referral partner business altogether, which is roughly two thirds of our new business, yes, probably 75% from lenders maybe 25% for realtors.

Speaker Change: Very good thank you.

Operator: Our next question will come from the line of Paul Newsome with Piper Sandler.

Speaker Change: Thank you.

Speaker Change: Our next question will come from the line of Paul Newsome with Piper Sandler.

Jon Paul Newsome: Good afternoon, thanks for the call. I wanted to revisit the guidance change and just sort of write down the pieces. I would have thought that, you know, retention is a problem, commissions went down, and But that should have been offset by the fairly large price increases we've seen for home and auto. I guess the question is, is there another piece in there that we're missing? And I was thinking, for example, are we actually thinking more policy enforced growth will slow as well as part of that equation?

Jon Paul Newsome: Good afternoon, thanks for the call.

Jon Paul Newsome: I wanted to revisit the guidance change.

Jon Paul Newsome: I'm, just sort of writing down some of the pieces.

Jon Paul Newsome: I would have thought that it sounds like retention is a problem commissions went down and.

Jon Paul Newsome: But that should have been offset by the fairly large price increases we've seen for home and auto.

Speaker Change: I guess.

Speaker Change: Is is there another piece in there that we're missing and I was thinking for example, where we actually thinking more policy in force growth will slow as well.

Mark E. Jones: Paul, I think we said in our prepared remarks we would expect the policy-enforced growth rate to re-accelerate in the third quarter of this year, which we do believe that will be the case, which means you do have one more quarter of deceleration in that number, but it's still relatively strong growth. It's not what we've historically done, but we fully believe we'll be able to drive back to our historical numbers on policy-enforced growth rates.

Speaker Change: As part of that equation.

Speaker Change: Yeah, Paul I think we said in our prepared remarks, we would expect policy in force growth rate to Reaccelerate in the third quarter of this year, which we do believe that will be the case.

Jon Paul Newsome: Which means you do have one more quarter of deceleration in that number that it's still I think relatively strong growth, it's not what we've historically.

Jon Paul Newsome: <unk> done, but we fully believe we will be able to drive back to kind of our historical numbers on policy in force growth rate. The revenue guide is truly a function of client retention as a temporary very temporary headwinds, we expect that that will improve ideally by the end of this year, but certainly in 2025 at which point it becomes a tailwind.

Mark E. Jones: The revenue guide is truly a function of client retention as a temporary, very temporary headwind. We expect that that will improve ideally by the end of this year but certainly in 2025, at which point it will become a tailwind. But new business productivity, especially on the franchise side of the business, is doing very, very well. And that's why you see the premium number not move as much as the revenue.

Jon Paul Newsome: But the new business productivity, especially on the franchise side of the business is doing very very well and Thats why you see the premium number not move as much as the revenue number.

Jon Paul Newsome: So just to be a little bit anal, was there actually a sort of push out of the decelerated pith growth a quarter before, or was that unchanged from what the prior guy?

Jon Paul Newsome: So.

Jon Paul Newsome: Just to be a little bit anal.

Jon Paul Newsome: Was there actual.

Jon Paul Newsome: Sort of a push out of the decelerated fifth growth quarter.

Jon Paul Newsome: Before or whether that was unchanged from the prior guidance.

Mark E. Jones: Now that number is unchanged, it's just a function of the amount of policies that are renewing. So maybe it's moved by a couple of weeks; it's not necessarily moved massively, but if you just think about how much of the book is home and how challenging the home environment is now, it's challenging to keep those clients on if they're getting a 100% price increase.

Jon Paul Newsome: Now that that number is unchanged. It's just a function of the amount of policies that are renewing and so maybe it's moved by a couple of weeks, it's not necessarily moved massively but if you just think about how much of the book is home and how challenged the home environment is now.

Jon Paul Newsome: It is challenging to keep those clients honest theyre getting a 100% price increase.

Jon Paul Newsome: And my second question: we were talking about productivity for agents. Is that an average number?

Speaker Change: And my second question, when we're talking about Protiviti.

Speaker Change: For the agents.

Mark E. Jones: Or are we looking at sort of like cohorts? And I would imagine cohorts, as they age, become more productive, regardless. So I was wondering if there's any way to sort of tease out what the sort of actual proactivity of the average third year is much better than the average. And maybe that's happening, but maybe you could talk about that, because getting rid of your poor agents would automatically improve productivity from an adventure perspective, but maybe, you know, there are actual improvements in proactivity by cohort that you can talk about.

Speaker Change: Is that an average number or are we looking at sort of my cohorts.

Speaker Change: And I would imagine cohorts as they age and become more productive regardless. So I was wondering if theres any way to sort of tease out what is sort of actual.

Speaker Change: Productivity.

Speaker Change: The average third year is much better than the average.

Speaker Change: And maybe that's happening, but maybe you could talk to that.

Speaker Change: <unk>.

Speaker Change: Getting rid of your poor agents.

Speaker Change: Automatically improve productivity.

Speaker Change: From an average perspective, but maybe.

Speaker Change: Actual.

Speaker Change: By cohort.

Jon Paul Newsome: Yeah, yeah, there definitely is. So if you look at the productivity disclosures that we provide, you'll see it's broken down into less than one year and greater than one year agents on both the franchise and the corporate side. On the corporate side, the tenure of that bucket is actually a couple of months lower this year than it was last year, just from time of onboarding. And so the ramp-up of those agents is just as good as it was in previous years.

Speaker Change: Productivity improvements that you can talk about.

Speaker Change: Yes, yes, there definitely is so if you look at the productivity disclosures that we provide you'll see it's broken down into less than one year and greater than one year agents on both the franchise and the corporate side on the corporate side. The tenure of that bucket is actually a couple of months lower this year than what it was last year just from timing of Onboarding and so the ramp up of those agents is just as <unk>.

Jon Paul Newsome: We feel very good about that first year corporate agent productivity. On the greater than one year bucket, we talked about a little bit already the transition of corporate agents into franchises or into management. And so if you adjusted for those items, you can do the math; it's around a 19% productivity improvement if you kept those same agents that launched franchises in that greater than one year corporate bucket. So we are seeing very strong productivity improvements, I believe, on the corporate side.

Speaker Change: Good as it was in the previous year. So we feel very good about that first year corporate agent productivity on the greater than one year bucket, we talked about a little bit already that transition of corporate agents into franchises or into management and so if you adjusted for those items you can do the math, it's around 19% productivity improvement. If you kept those same agents that launched franchise.

Speaker Change: In that greater than one year corporate bucket. So we are seeing very strong productivity improvements I believe in the corporate side on the franchise side of the business, it's even more profound and so if you look at just the same store sales numbers, which has nothing to do with the amount of agents that youre, calling it. This franchise existed this year and this franchise existed last year Q4 that number was 22% it's up again.

Jon Paul Newsome: On the franchise side of the business, it's even more profound. And so if you look at just the same store sales numbers, which has nothing to do with the number of agents that you're calling, if this franchise existed this year and this franchise existed last year, Q4, that number was 22%. It's up again another 19% in Q1. And we feel like that's going to continue to grow. So we feel very good about the productivity of the agent force, and we don't necessarily see a cap on that in the near term, especially if you get some product tailwind. We appreciate the help.

Speaker Change: Another 19% in Q1, we feel like that's going to continue to grow. So we feel very good about the productivity of the agent force and we don't necessarily see a cap on that in the near term, especially if we get some product <unk>.

Operator: Great. I appreciate the help, as always.

Speaker Change: Great I appreciate the help as always.

Speaker Change: Yes.

Scott Gregory Heleniak: Our next question will come from the line of Scott Heleniak with RBC Capital Markets.

Thank you.

Our next question will come from the line of Scott <unk> with RBC capital markets.

Scott Gregory Heleniak: Yeah, thanks. I just wanted to ask a quick question about the franchises. You talked about adding hundreds more franchise producers. Is that mainly going to be to the existing franchises, like you have now? And can you talk about the franchise conversions? Are they still on track to, I think you had said, before 30? Is that still the case? You didn't mention it in the prepared remarks. I was just wondering if that's still expected to be the case.

Scott: Yes. Thanks.

Scott: Wanted to I just had a quick question on the franchises you talked about adding hundreds more on franchise producers is that mainly going to be to the existing franchises like quite you have now and can you talk about the franchise conversions.

Scott: Are there still on track I think you had said before 30 is that is that still.

Scott: You Didnt mentioned in the prepared remarks I was just wondering if thats still.

Mark E. Jones: Yeah, so we, I think we talked about this year in 2024, it would be more like 20 to 30, not necessarily that full 30. Remember, we started the year with fewer corporate agents in 2024 than we did in 2023. So it's just a smaller pool to pick from. As that team grows, which it will in 2024, we indicated on the preparator marks that we'll be over 375 by the end of the year. So we feel great about that.

Scott: Expected to be the case.

Speaker Change: Yes, so we I think we've talked about this year in 2024, it would be more like 20% to 30 not necessarily that full 30 remember we started the year with less corporate agents in 2024 than we did in 2023. So it's just a smaller pool to pick from as that team grows which it will in 2024, we indicated on the prepared remarks that will be over 375 by the end of the year.

Mark E. Jones: But producers into existing franchises, yes, that will be hundreds more this year. We're going to continue to launch more high-quality franchises. But I think the vast majority of your producer growth is going to be coming out of producers into existing agencies, which obviously, just as a reminder, creates much more productive capacity than adding a new franchise, about half of those people being added to the franchises come through our recruiting program that we've established, which I said has 17 recruiters now doing nothing but full-time recruiting for franchises.

Scott: So we feel great about that but producers into existing franchises, yes that will be hundreds more of this year, we're going to continue to launch more high quality franchises and I think the vast majority of your producer growth is going to be coming out of producers into existing agencies, which obviously just as a reminder, creates much more productive capacity than adding a new franchise.

Scott: About half of those half.

Scott: Half of those people being added to the franchises come through our recruiting program that we've established which I've said has 17 recruiters now is doing nothing but full time recruiting for franchises. The other half come from franchises recruiting on their own.

Mark E. Jones: The other half come from franchises recruiting on their own. And then we're less worried about the quantity of new franchises that we launch and more about the quality of the franchises. And so we're just being very selective about people we're letting into the franchise network right now and being very selective about the states. So we're very state-specific right now on where we need to grow geographically.

Scott: And then we are we're less worried about the quantity of new franchises that we launch.

Scott: And more about the quality of the franchises and so we're just being very selective about people were leading into the franchise network right now.

Scott: And being very selective about the states. So we're very state specific right now and where we need to grow geographically.

Scott Gregory Heleniak: Got it, understood. And then just a quick question, Mark, you referenced the margin expansion comment. You said most of that would come from Q4. Do you still expect margins to be up in Q2 and Q3 year over year? I said, I know the majority is Q4, but do you have any thoughts on Q2 and Q3?

Speaker Change: Got it understood.

Speaker Change: And then just a quick question Mark you referenced.

Speaker Change: The margin expansion comment you said most of that will come from Q4.

Speaker Change: Do you still expect margins to be up in Q2, and Q3 year over year.

Speaker Change: I know the majority of Q4, but do you have any anything getting out on Q2 and Q3.

Mark E. Jones: Yeah, just the timing of contingents in the second and third quarter compared to the previous year. You could see the total margin percentage down on a year-over-year basis. But if you look at the core margin, you should still get a good scale out of it. Although, remember, we're about to onboard a significant number of corporate agents, and that cost doesn't just hit as soon as they start, which is largely June, July, August, and September.

Mark: Yes, just the timing of contingents in the second and third quarter compared to the previous year.

Mark: You could see the total margin percentage down on a year over year basis, but if you look at the core margin you should still get good scale out of it. Although remember we're about to onboard a significant number of corporate agents and that cost doesn't just hit as soon as they start which is largely June July August September a lot of those onboarding cost licensing and things like that happened before they start.

Mark E. Jones: A lot of those onboarding costs, licensing, things like that happen before they start. So you should see the compensation lines growing in the second and third quarter, and then you get nice scale as they ramp up their production throughout the summer and into Q4.

Mark: So you should see the compensation lines growing in the second and third quarter, and then you get nice scale as they ramp up their production throughout the summer and into Q4.

Scott Gregory Heleniak: Okay, and just last one on retention. I know it's been talked about a lot, and you're targeting 89%. You're at 85 now.

Speaker Change: Okay, and just last one on retention.

Speaker Change: Ben talked about a lot and you're targeting 89% year 85, now but is that is that being dragged down by what's happening in Texas is that is it significantly different by state.

Scott Gregory Heleniak: But is that is that being dragged down by what's happening in Texas? Is that significantly different by state, or are things left in one or two states and it kind of brings it up? Or is it just pretty pretty similar across the board?

Speaker Change: So things less than one or two states and it kind of brings it up or is it just pretty pretty similar across the board.

Mark E. Jones: All states have a bit of a retention issue compared to our historic numbers, but Texas is by far our largest state. Home is our largest product, and Texas is really suffering right now just from the lack of product. And one indicator of what's going on is Texas premiums are up; I believe the number is 23% year over year. But if you look at the national average, they're up about 10 or 11%. So it's up twice as much, and our shopping activity mirrors that.

Speaker Change: Yes, I mean all.

Speaker Change: All states have a bit of a retention issue compared to our historic numbers, but Texas is by far our largest state home is our largest product in Texas is really suffering right now just from availability of product.

Speaker Change: One indicator of what's going on is.

Speaker Change: Texas premiums are up I believe the number is 23% year over year.

Speaker Change: If you look on a national average they are up about 10 or 11%.

Speaker Change: So its up twice as much in our shopping activity mirrors that so we look at how many people we have asking for re shops. They get upset when their price goes up by a certain amount that's a trigger point, so 20% I want to shop and so its shopping activity for the number of policies was up twice as much and a lot of that is coming out of Texas.

Mark E. Jones: So we look at how many people we have asking for reshops. They get upset when their price goes up by a certain amount. That's a trigger point. So 20%, I want to shop. And so shopping activity for the number of policies is up twice as much, and a lot of that is coming out of Texas. And so until the home carriers come back into the market, we're gonna fight retention as hard as we can, but it's gonna be a struggle.

Speaker Change: And so until the home carriers come back into the market, we're going to fight retention as hard as we can but it's going to be a struggle.

Scott Gregory Heleniak: Yeah, no, that's good detail.

Operator: That's good detail. Thanks a lot.

Speaker Change: Yeah, no that's good detail thanks, a lot.

Pablo Augusto Serrano Singzon: Our next question will come from the line of Pablo Singzon with J.P. Morgan.

Speaker Change: Our next question will come from the line of Pablo <unk> with JP Morgan.

Pablo Augusto Serrano Singzon: Hi, good evening. I just wanted to follow up on the commission disclosure. When were they cut exactly? Just so we have a better sense of when the impact started and when it should be fully in the running. And then, related to that, what part of the book is about Texas or non-Texas? I know corporate is mostly in Texas, franchising is, I think, a fourth of Texas, but, Please give us an update on the news. Yeah,

Pablo: Hi, Good evening I, just wanted to follow up on the.

Pablo: Okay Commission disclosure when were they cut exactly just so that we have a better sense of when the impact started in.

Pablo: When that should be fully into the run rate.

Pablo: And then I guess related to that what part of the book is Texas non Texas I know corporate is mostly Texas franchising is I think a fourth Texas, but if you could sort of like.

Mark E. Jones: Yeah, I think the whole book is about 54-55% Texas, so it's still a big disproportionate amount. Sorry, 45% Texas, so it's a disproportionate amount of Texas. And we really started to feel the effects of those commission impacts here in the first

Pablo: Give us an update on the mix there. Thank you.

Speaker Change: Yes, I think the whole book is about 50, 455% in Texas. So it's still a big disproportionate amount, it's about 45%, Texas. So it's a disproportionate amount of Texas.

Speaker Change: We really started to feel the effects of those commission impacts here in the first quarter.

Mark E. Jones: And then my second question: I was a bit surprised by the positive comments in California, just given, you know, all the announced exits or pauses by carriers and homeowners. And I know some of those comments have been made by captive insurers, right? So maybe not directly relevant to you. But in your view, is what's happening in California, the dislocation there, net positive or negative?

Speaker Change: Okay.

Speaker Change: And then my second question.

Speaker Change: A bit surprised by the positive comments on California, just given all the announced exits are positive areas in homeowners.

Speaker Change: I know some of those comments have been made by our captive insurers right. So maybe not directly relevant to you but.

In your view.

Speaker Change: Is it what's happening in California, the dislocation there a net positive or negative.

Mark E. Jones: Definitely a net positive. So, our business has gone up significantly in California, and we have product availability. Agents have told me that they haven't seen an environment like this before in a long time.

Speaker Change: Definitely a net positive so our business has gone up significantly in California, and we have the product availability. So our agents have.

Speaker Change: I have told me that they haven't seen an environment like this before in a long time.

Mark E. Jones: And then last, sorry if I missed the buyback program, will that be financed by operating cash flow or increased net capacity? I just wanted to get a sense of how they'll Yeah, it's a combination of the both. And so in their prepared

Speaker Change: Okay.

And then lastly, sorry, if I missed the buyback program was that can be financed by operating cash flow or the increase that capacity.

Speaker Change: Just wanted to get a sense of.

Mark E. Jones: Yeah, it's a combination of the both, and so in their prepared remarks, we mentioned that the term loan is being increased by $25 million, and so that transaction closed today. So a portion of the buyback plan will be funded by that, a portion of it will be funded by operating cash flow, and as needed, we will draw down on the revolver capacity to fund any additional share repurchases.

Speaker Change: How that will be funded thank you.

Speaker Change: Yes, it's a combination of both and so.

Speaker Change: In their prepared remarks, we mentioned that the term loan is being increased by $25 million and so that transaction closed today. So a portion of the buyback plan will be funded by that a portion of it will be funded by operating cash flow and as needed. We will drawdown on the revolver capacity to fund any additional share repurchases.

Mark E. Jones: That concludes today's question and answer session. I'd like to turn the call back to Mark Jones for his closing remarks.

Speaker Change: Got it thank you.

Speaker Change: Thank you.

Speaker Change: That concludes today's question and answer session I would like to turn the call back to Mark Jones for closing remarks.

Mark E. Jones: Thanks everyone, we appreciate your participation on the call.

Mark E. Jones: Thanks, everyone. We appreciate your participation on the call.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Mark E. Jones: This.

Mark E. Jones: Today's conference call.

Speaker Change: You for participating you may now disconnect.

Speaker Change: Yes.

Speaker Change: [music].