Mark Jones: Yes, so I would say we, we’ve had nice margin expansion the last four quarters in a row. We expect to continue improve, to improve and have margin expansion on a quarterly basis, probably not at the same rate that we had in Q1. That was a pretty substantial step function increase. So there’s several reasons for that. One of the main drivers is improving productivity, actually generating profitability on new business where, if you’re in the insurance industry, you know that you really don’t make a lot of money on new business. It’s all in the renewals but also expense discipline. And that’s not something that changes year-over-year. And if you look at some of the expenses we had in Q1 of 2022, we did a better job of managing those and finding more efficient uses of resources in Q1 of 2023.
Our assign conference this year was much more efficient and effective. We had only our agency partners there as opposed to agency partners and corporate that kind of reduced cost, but kept it as a very impactful meeting. We’re not going to sacrifice on our productivity metrics, so you shouldn’t necessarily see a change in the way profitability flows from the corporate sales force, and we’re going to continue to hold agencies to a very high standard. So you shouldn’t see the behavior of margin changing dramatically between 2023, 2024 and beyond
Michael Zaremski: That’s helpful. I guess going back just to a follow up, I want to make sure, because you on your prepared remarks, you did make a number of comments about reduced product access you but in regard to Mark Hughes’s question, you talked about kind of, there’s a natural hedge too because you’re getting a tailwind from a, I think from pricing, right? Just rates being high. So just net-net is the hard market for auto and two lessers and home, is that a net benefit still, even though you’re having to some product access challenges or is it kind of a wash?
Mark Jones: Yes, it’s probably a wash. I mean, it prevents us from adding as many policies onto the books as we possibly can, but then you do get the raise in the entire book of business, and then on the other side of the coin, you’re not getting as much contingency revenue, which is a 100% profit. So that’s part of the strategic advantage of being where we are in the value chain. But we certainly look forward to a time period where there is better product availability in some of the most populous states. And so we can have a lot more agents that are being extremely successful and kind of hyper growth.
Dan Farrell: And Mike, this is Dan. One other thing too and a lot of these states that have product challenges that we still have franchises and agents that are very successful, it’s just sometimes harder to add new agents in these states to get the additional agent appointments, et cetera.
Michael Zaremski: Got it. Maybe lastly, Mark Miller talked about, you can envision a day with, 50 or more mega franchises, how many mega franchises are there today and is there, would you be able to shed light on kind of what you, what internally you view the EBITDA margin to be on those mega franchises?
Mark Miller:
MEG:
Michael Zaremski: Thank you.
Operator: The next question comes from Mark Dwelle from RBC Capital Markets. Please go ahead.
Mark Dwelle: Yes, good afternoon. Mark Jones, I think in one of your junior, in one of your comments, I think you had suggested that there’d be slower PIF growth in the second quarter. I guess the first question is, why do you think that and what’s going to make it be better in the second half?
Mark Jones: Yes, so we’ve talked about before, kind of the reduction in corporate sales headcount does cause some slowdown in the total amount of production. Now, the productivity out of that group has been outstanding. So credit to the team, they’re doing a fantastic job. But the year-over-year comparisons get a little bit easier in the back half of the year. We have called out a large number of franchises in the last, six to eight months. We expect that to begin to normalize. There’s still work to do in Q2, but we expect that to begin to normalize in the back half of the year. And as we add more producers into agencies and spin out more corporate agents and they begin hiring, my dad talked about Jessica McNally on in his prepared remarks and how she’s already hired several people at her agency.
We have several other corporate managers that we would expect to launch and begin hiring relatively quickly, and that adds a tremendous amount of new business productivity out of one single store. So we expect PIF growth will bottom out in the second or third quarter and then begin to accelerate after that.
Mark Jones Jr.: I would just add one thing. I mean, I think we mentioned it in the prepared remarks, but the college class that we’re adding, that will start in June and then, we’ll, every summer month is fairly large. Once those get burned in and ramped up we’ll see productivity coming from those again, so we’ll, we’re not quite at the low for the corporate headcount, but pretty close to it right now. We’ve got another month and then they start.
Mark Dwelle: Got it. That’s helpful. Second question I had is, as you think about your journey towards better EBITDA margins over the next two, three, five years, however long would you say that the, your ability to deliver that is going to be more dependent upon productivity improvement or more dependent upon just maintaining a strict expense control? I realize it’s obviously going to be a little bit of both, but as you envision it, which of those levers is, is the more vital one in delivering that outcome?
Mark Jones Jr.: The longest lever delivering that outcome is retention. So retaining the existing book of business for as long as possible is what adds the maximum amount of profitability. The new business productivity adds incremental margin, absolutely. And the higher that productivity is, the better the profitability is. But in reality, keeping the clients on the books for as long as we possibly can in delivering outstanding service like our team does every day, is really the differentiator and what’s going to drive long-term margin. Maintaining expense discipline is obviously critical and we’re seeing good benefits from that so far in 2023, and I would expect that to continue. But I think far and away the biggest factor is retention.
Mark Dwelle: Okay. Thanks for that. I think those are all my questions.
Mark Jones Jr.: Great.
Operator: The next question comes from Meyer Shields from KBW. Please go ahead.
Meyer Shields: Great, thanks. I just I know we’re sort of talk about the same issue in of fifth growth going forward, but I’m a little unclear about whether these are issues stemming from internal changes or well, I should say, and or carriers that are just less interested in growth because of profitability pressures. And I was hoping you could clarify that for me.
Mark Jones: Can you repeat the question? You cut out.
Mark Jones Jr.: We broke up a little bit. Sorry.
Meyer Shields: I’m sorry. No, it’s my phone. I think I’m just trying to understand you talked about slowing PIF growth and it sounds like a lot of that is in the states where you’ve got a significant presence. And I’m trying to sort of disentangled how much of it is just looking for better growth opportunities because the market has newer Goosehead agents. How much of it is carriers in these states just less welcoming of policy cam growth?
Mark Jones: Yes, it’s certainly both of those things, but in reality, we are not saturated in any market that we’re in. Houston, for example, is our deepest market that we have agents in, and there is extremely productive agencies and corporate agents in the city of Houston that continue to grow at really rapid paces. Carrier product challenges being alleviated in the, hopefully near term future will unlock significant PIF opportunity. But as Mark Miller mentioned as well, adding new corporate agents back into the system under strong and good management that has discipline controls over productivity we’ll also have a very meaningful impact and we should be naturally seeing productivity improvement as we continue to accumulate experience every year.
Mark Miller: Meyer, I would point out that the, the product challenges with carriers are different in different regions. Like we have a lot of agents in California that have been there for a while and they have a good product portfolio. What we don’t have the ability to do because of the, sort of political environment in California is none of the carriers are able to get much in the way of much needed rate. And so they’re not adding new sort of new appointments for new agencies. So what we’ve done is we’ve just said, okay, well if we can launch people in California, but they can’t be successful, let’s not do that. Let’s launch them in markets where we have good access to product. The market demographics are good. The metropolitan areas are large.
So we’re just trying to be smarter in most markets. I would say other than California, there is some sanity to the regulatory regulators and, they will always go through the sort of hard cycle, soft cycle and, adjust rates accordingly. California’s just a very complicated beast right now, but we feel really good about basically most of the rest of the country, even if it’s not in an optimal product situation now, it will get there. And so what we’re, what we’re really trying to do with our franchise recruiting efforts is really focus on where we can put people that will maximize their probability of success.
Meyer Shields: Okay. That’s currently helpful. I think Mark Jones Jr. Had also commented on, I just want to jump a little bit more into the timing of, let’s say the corporate headcount bottoming and PIF count bottoming. Because it sounds like those are close to simultaneous. Is that accurate? Is the same thing in terms of whenever you’ve got any headwind from franchise selling?
Mark Miller: Yes, we should be onboarding a significant amount of corporate agents during the second half of Q2 and then, and a Q3 over the summer as kind of college campus recruiting hires start. And that is a contributing factor to the PIF growth bottoming out in the kind of middle of the year. So yes.
Meyer Shields: Okay, perfect.
