Mark Jones Jr.: Yes, 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 that 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 G&A 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.
Andrew Kligerman: That makes a lot of sense. And then, just lastly, 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?
Mark Jones Jr.: 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.
Andrew Kligerman: So, the fact that they’re seeing lower commissions isn’t going to – 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?
Mark Jones Jr.: Correct. It doesn’t change our relationship with the real estate brokers. And, a real estate volume is going to be what a real estate volume is, but I think we’re getting an upsized percentage of the leads that come out of the industry and growing.
Mark 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’ll get squeezed, and so that’ll have much less effect on us.
Operator: Thank you. [Operator instructions]. This question will come from the line of Tommy McJoynt with KBW.
Tommy McJoynt: Hey, good afternoon. Thanks for taking my questions here. You gave a good explanation on 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 was it, rate, policy count, number of producers, just explaining that premium change?
Mark Jones Jr.: Yes, 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 slide a little bit more throughout the year. Now, we have seen the peak of what we believe the — do not renews 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 premium number be closer to the high end of the range, but I would rather be conservative in the forecasting.
Tommy McJoynt: Okay, got it. And then just the other area of 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?
Mark Jones Jr.: Yes, looking at Q1 is your best estimate for what it should be that full year. So typically the first quarter is when you would get new options awarded to the managing directors here, and so 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, and 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 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.
Operator: Got it. Thanks. Our next question will come from the line of Mark Hughes with Truist Securities.
Mark Hughes: Thank you. Good afternoon. Do the new– do not renews go into that 100% premium retention measure?
Mark Jones Jr.: Yes, they do, because that would be premium that was on the books last – 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.
Mark Hughes: Okay. So it’s trailing 12. And then you talked about the NAR settlement. Do you have a rough breakout for how much of your business comes from realtors versus, say, mortgage lenders?
Mark Jones: I would say it’s definitely the majority mortgage lenders. We work quite a bit with realtors, but I would say the majority, I mean, I think probably — I would bet 75%-plus come from lenders, if you look at our referral partner business altogether, which is roughly two-thirds of our new business, probably 75% from lenders, maybe 25% from realtors.
Operator: Our next question will come from the line of Paul Newsome with Piper Sandler.
Paul Newsome: Good afternoon. Thanks for the call. I wanted to revisit the guidance change. I’m just sort of writing down sort of the pieces. I would have thought that, it sounds like retention is a problem, commissions went down, 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, are we — for example, are we actually thinking more policy-enforced growth will slow as well as part of that equation?
Mark Jones Jr.: Paul, I think we said in our prepared remarks we would expect policy-enforced growth rate to reaccelerate 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. Now, it’s still a relatively strong growth. It’s not what we’ve historically done, but we fully believe we’ll be able to drive back to kind of our historical numbers on policy-enforced growth rate. 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 becomes a tailwind. But the 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 number.
Paul Newsome: So just to be a little bit anal, was there actual sort of push out of the decelerated fifth growth a quarter before, or that was unchanged from what the prior guide says?
Mark Jones Jr.: No, 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, it’s challenging to keep those clients on if they’re getting a 100% price increase.
Paul Newsome: My second question, we were talking about productivity for the agents. Is that an average number, 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 is sort of actual productivity of, the average third year is much better than the average. Maybe that’s happening, but maybe you could talk to that. Because getting rid of your poor agents would automatically improve productivity, just from an average perspective. But maybe, is there actual by cohort productivity improvements that you can talk about?
Mark Jones Jr.: 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 time of on-boarding. And so the ramp-up of those agents is just as good as it was in the previous years. 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 franchises in that greater than one year corporate bucket.
So we are seeing very strong productivity improvements, I believe, on 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 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 tailwinds.
Operator: Thank you. Our next question will come from the line of Scott Heleniak with RBC Capital Markets.
Scott Heleniak: Yes, thanks. I just had a quick question on the franchises. You talked about adding hundreds more on the 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? I think you had said before 30. Is that still — you didn’t mention the preparator marks. I was just wondering if that’s still expected to be the case.
Mark Jones: Yes, so 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 marks that we’ll be over 375 by the end of the year, so we feel great about that. 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.
Mark Jones Jr.: 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. 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 and where we need to grow geographically.
