Goosehead Insurance, Inc (NASDAQ:GSHD) Q4 2024 Earnings Call Transcript

Goosehead Insurance, Inc (NASDAQ:GSHD) Q4 2024 Earnings Call Transcript February 24, 2025

Goosehead Insurance, Inc beats earnings expectations. Reported EPS is $0.79, expectations were $0.41.

Operator: Good day, and thank you for staying advised. Welcome to the Goosehead Insurance fourth quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session. 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 one again. Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your speaker today, Dan Farrell, Vice President Capital Markets. Please go ahead.

Dan 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 expectations, estimates, and projections of management as of today. Forward-looking statements in our discussion are subject to various assumptions, risks, and uncertainties that are difficult to predict or implied, which could cause actual results to differ materially from those expressed in the forward-looking statements. These statements are not guarantees of future performance, and therefore undue reliance should not be placed on them. We refer all of you to our recent SEC filings for a more detailed discussion of risks and uncertainties that could impact future operating results and financial condition of Goosehead Insurance, Inc.

We disclaim any intention or obligation to update or revise any forward-looking statements except to the extent required by applicable law. I would also like to point out that during this call, we will discuss certain financial measures that are not prepared in accordance with GAAP. Management uses these non-GAAP financial measures when planning, monitoring, and evaluating our performance. We consider these non-GAAP financial measures to be useful metrics for management and investors to facilitate operating performance comparisons period to period by including potential differences caused by variations of capital structure, tax position, depreciation, and amortization, and certain other items that we believe are not representative of our core business.

For more information regarding the use of non-GAAP financial measures, including reconciliations of these measures to the most recent comparable GAAP financial measures, we refer you to today’s earnings release. In addition, this call is being webcast, and 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’d like to turn the call over to our President and CEO, Mark Miller.

Mark Miller: Thanks, Dan. Good afternoon, everyone, and welcome to our fourth quarter 2024 earnings call. Before we dive into the results, I want to take a moment to acknowledge those affected by the devastating events. Our thoughts are with the individuals and families impacted by this tragedy. These events serve as a powerful reminder of the critical role insurance plays in rebuilding lives, and we’re deeply thankful for our agents who are on the ground supporting clients during these most challenging times. Throughout 2024, we saw many powerful reminders of why insurance is more than a product. It’s a lifeline when it matters most. It was a year of significant natural catastrophes and insurance market challenges, which underscore the critical role we play for clients, agents, and carriers.

A recent report by Galloglyre estimated that US catastrophe-related insured losses were $117 billion in 2024, 27% higher than the five-year average. US economic losses were estimated at $222 billion, leaving a substantial insurance coverage gap. For many years, households have treated personalized insurance as a commodity, a decision based solely on cost. But the extreme events of 2024 and the recent California wildfires remind us of the risks of inadequate coverage. At the same time, premiums have increased rapidly, and certain geographies have product limitations. This has left the consumer confused on where to turn. Fortunately, Goosehead Insurance, Inc. was uniquely built for this challenging market. This is why we exist. Our expert agents, backed by a strong network of top-tier insurance carriers, simplify the complexities of insurance to find the right coverage at the best possible price.

Our agents evaluate proper deductibles, replacement costs, and key perils such as fire, wind, flood, liability, and personal policy terms. We accomplished this while providing a true shopping experience with access to over 200 carriers. Our value proposition is equally compelling for carrier partners. By leading with home, Goosehead Insurance, Inc. brings high-quality bundled clients to carriers who retain well, which drives favorable loss ratios. We work with each carrier to understand their risk appetite and then leverage technology to deliver the exact type of client they’re looking for. Delivering profitable growth for carriers allows them to open up for us even when they’re closed for other distribution partners. We’re not just a partner.

We drive growth and profitability for their businesses where and when they need it most. Turning to market conditions, over the past two years, we have successfully navigated unprecedented product challenges. I’m pleased that the market is now continuing to show gradual signs of improvement. Through the first nine months of the year, the industry statutory auto direct loss ratios were 64.5%, down from 74.8% a year ago. And homeowners’ direct loss ratios were 66.8% versus 81% a year ago. And fourth-quarter results for publicly traded personal lines companies have generally improved. Auto premium increases are slowing, and in some instances, seeing modest decreases as more carriers are continuing to open up auto product capacity and look for growth.

Homeowners’ product remained tight in Q4, but we’re seeing signs of carriers starting to open capacity or indicate they intend to open more product as the year progresses, although this varies by carrier and state. An improving market will allow us to better serve clients and lean more heavily into technology rollouts in areas such as quote to issue, that have been limited to some extent by carriers’ appetite for growth. Turning to our results, we delivered an outstanding 2024 with 20% total revenue growth, 17% core revenue growth, 29% premium growth, and EBITDA near $100 million, up 43% year over year with a record margin of 32%. Delivering these numbers in this market speaks to our team’s no-excuses mindset to deliver results. Here’s how we got there.

We reaccelerated growth by increasing producer headcount, which drove year-over-year PIF growth to 13% in Q4, up from 12% in Q3 and 11% in Q2. We believe this momentum signals even stronger growth ahead in 2025. We enhanced profitability through disciplined cost management, achieved record margin, all while continuing to make critical investments in our people and technology. We extended our leadership in technology innovation by expanding and refining proprietary tools like our quote to issue capability, AviR agent platform, and referral partner marketing technology. With these advancements, we’re setting a new standard for tech-enabled insurance. We strengthened our talent by onboarding over 800 top-tier sales agents across corporate, enterprise, and franchise distribution—a record recruitment effort.

We continue to transform our largest piece of business, franchise distribution, which accounts for 83% of our producer force. Franchise progress included scaling of existing franchises with average producers per franchise at 1.9 versus 1.6 a year ago, and franchise producers up 7% year over year. Dramatically increasing our franchise new business productivity, which was up 49% in 2024. Significantly reducing franchise terminations given higher quality across our network, improving the onboarding time and performance of new franchises. Just to give some data on overall franchise sales, total average gross pay to franchises in 2024 was up 47% when compared to 2023. Our franchises got stronger and more successful across the board despite the market getting more difficult.

Building on our achievements in 2024, we’re excited to accelerate momentum in key areas for 2025. Franchise distribution expansion will be driven by expanding recruiting of producers and onboarding of franchises. As an increasing percentage of our franchise base will look to scale their businesses. Today, roughly 38% of our franchise base has multiple producers compared to 27% two years ago. Increasing franchise launches through expanded franchise development resources. In 2024, we doubled the size of our franchise and attracted larger middle-market franchises. The types of franchises we are adding are changing. More and more, we’re looking for franchises with larger growth potential and built-in lead flow. This includes businesses like mortgage servicers and realtors that want to access insurance economics, embedding a franchise in their business.

We had early success in 2024 and we’ll ramp these efforts in 2025 with a continued focus on support, training, and resource allocation to help franchises maximize growth. We also expect to continue to convert successful corporate agents to franchises. In corporate distribution, we will be growing across both traditional corporate agents that work with referral partners and enterprise sales agents, which handle inbound digital and partnership leads. Our corporate agent count at year-end was 417, an increase of 39%, with 65 being enterprise sales agents. We’ll likely grow corporate agent count at a slower pace in 2025 given our larger starting base, particularly in enterprise sales, which doubled in 2024. Texas continues to have our largest concentration of corporate agents, but we are quickly diversifying our footprint to capitalize on changing market opportunities.

For example, we successfully launched our new Phoenix, Arizona office in Q4 and initial production per agent has been strong. New corporate offices will help revenue in underpenetrated regions and provide a consistent stream of highly skilled future franchise owners. Enterprise sales should continue to grow faster than total corporate producer count as we’re building capacity to ultimately capitalize on our robust partnership pipeline. On the technology front, we will be launching the Goosehead mobile app, empowering clients with unprecedented self-service functionality, from proof of insurance to claim tracking. And we’ll continue our expansion of our quote to issue technology across carriers and states. This technology is quickly becoming the standard that will allow the broker, carrier partner, or client to seamlessly transact business, and ultimately deliver a direct-to-client experience that opens up new pools of clients.

We strongly believe that knowledgeable and independent agents will always play a major role in personalized insurance for those clients that want and need agent expertise. These tools allow those agents to be more productive while giving us access to new clients. Additionally, we believe AI will impact virtually every aspect of how we sell and service personalized insurance in the future. To capitalize on these opportunities, we’re investing in our data infrastructure, sophisticated AI tools, and the talent necessary to design and build these capabilities. We currently use AI in a variety of ways. For our service and sales teams, we use AI to assist in auto-drafting emails, to more effectively and efficiently communicate with clients. We also utilize AI to draft code that is used in the testing of our current software.

In the near term, we expect to use AI to capture and summarize conversations with clients for our service center, which will allow us to analyze sentiment and identify service improvement opportunities in real-time. In addition, on the sales side, we intend to leverage AI to create a policy recommendation engine, creating a better experience for both the sales agent and the clients. Ultimately, AI tools are becoming ubiquitous. But the data accumulated and experience are proprietary to Goosehead Insurance, Inc. That is why we believe we have a unique opportunity to widen our moat and create a sustained AI competitive advantage. Our company is built for sustained profitable growth and we’re just getting started. We’re continuing our trajectory toward becoming a rule of sixty company with a combination of revenue growth and profit margin that exceeds 60%.

In 2024, we ended the year as a rule of fifty company, delivering 20% revenue growth and 32% EBITDA margin, an impressive result amidst challenging market conditions. I’m confident that our investments in innovation, people, and operational excellence will propel us toward and sustain rule of sixty performance for many years to come. Although we’re pleased with our success thus far, Goosehead Insurance, Inc. is just beginning its journey. As a reminder, we are still less than 1% of the US personalized market share. Backed by a clear strategy, unparalleled capabilities, a relentless commitment to precision execution, and an ever-expanding competitive moat, we are poised to redefine what’s possible in the insurance industry. Goosehead Insurance, Inc.’s future is brighter than ever, and I want to thank our employees, agents, and partners for their tireless efforts.

Your dedication and innovation fueled everything we achieved. Now I hand it over to our CFO, Mark Jones Jr., to review the financial details. Thank you.

Mark Jones Jr.: Thanks, Mark, and good afternoon to everyone on the call. Over the last year, Mark Miller and I have spoken extensively about Goosehead Insurance, Inc.’s strategy for reaccelerating growth, expanding productive headcount and agent productivity, leveraging technology, strengthening partnerships, diversifying lead sources, and most importantly, keeping the client at the center of our universe. I could not be more pleased that the fruits of our efforts are beginning to materialize in our results and should continue to benefit us in 2025 and beyond. Today, Mark Miller also talked a little bit about the overall landscape of the personal lines industry and our 2025 priorities. I’m going to hit a little deeper on these topics and provide some additional insight into our 2024 results.

Over the past two years, personalized insurance has shifted from a product that was on autopilot for many clients to a significant focus due to rapid premium increases and evolving risk exposure nationwide. Today, discussions also include policy nuances, what’s covered, and importantly, what’s not. As carriers have navigated the last couple of years to get more sustainable underwriting results, there have been changes to coverages, deductibles, and new entrants into the market that many clients are not used to. An increase in the percentage of business has shifted to the excess and surplus lines market, adding complexity for clients, referral partners, and independent agents across the industry. This is where Goosehead Insurance, Inc. thrives, solving the unique challenges of our key stakeholders through advanced technology, robust product offering, and a fully integrated back office.

Looking at our agent force, specifically the franchise business, it is now healthier than ever and positioned for strong sustainable growth. Franchise productivity grew 47% year over year in the fourth quarter and 49% for the full year. We’ve been able to achieve this through continued investment in our technological advantage, further widening our competitive moat by providing our agents with tools that we believe do not exist elsewhere in the industry. Our quote to issue platform is now at a scale where we are issuing thousands of policies each month, allowing us to learn, adapt, and deploy changes that make the platform more user-friendly and agents more targeted for our carrier partners at a really rapid pace. As we look to the future, the improving landscape for underwriting profitability should allow us to further capitalize on the development work we have done as more carriers allocate their capital to growth-based initiatives.

Year-end franchise producers totaled 2,092, up 7%, and producers per franchise was 1.9, up 19% from one year ago. As we’ve discussed in the past, growing the average number of producers per franchise is a highly leveraged strategic initiative. Each time an agency adds a producer, the productivity of everyone in that agency improves. As more of the franchise base progresses from a single producer location to scale businesses, the impact of total new business production becomes exponential. We’re still in the early stages of this powerful growth lever and expect to see continued momentum. During the fourth quarter, 37 operating agencies terminated or transferred within the network, a turnover rate of 3% for the quarter, which we believe to be a healthy level.

We launched 23 and 97 new franchises for the three months and full year ended December 31st, respectively, the quality of which can be seen directly reflected in first-year franchise productivity numbers. The productivity of first-year franchises is up 63% for the quarter and 76% for the year. We believe these strong metrics are a leading indicator of future success of these newly launched franchises. With our continued progress in our franchise development efforts, we expect to drive operating franchise count growth in 2025. Turning to our strategy surrounding middle-market franchises, these are agencies that we embed within another existing business with natural inbound lead flow. Home insurance has become a hot topic of conversation among mortgage servicers as rapid premium increases can impact the default rates of their existing books of business.

As their executive teams look to find ways to add value to their clients and solve the complex problem of national home insurance coverage, they’re left without many options to choose from. To that end, we’ve seen a significant uptick in inbound interest from national mortgage servicers to integrate into our platform, be it through a strategic partnership or through an embedded franchise. Our unique ability to provide product access from coast to coast, extraordinary client service, and technology that improves cross-sell rates differentiate our model and make us the natural choice for national brands. We recently launched an embedded franchise with a national bank containing both mortgage origination and servicing divisions. Their franchise has access to tens of thousands of clients, and through our proprietary technology, national footprint, and fully integrated back office, we believe they will be much more productive than the average franchise.

The pipeline for franchises that look just like this one is large and growing, with multiple others in various stages of implementation. This allows us to diversify our lead flow and insulate us from fluctuations in home closing transaction volumes. Corporate producers at quarter-end were 417, up 39% from a year ago. Within that 417 are 65 enterprise sales producers who are focused solely on our digital and partnership lead channels, which is now the fastest-growing division in the business. The enterprise sales team provides an additional track for career development for our traditional corporate agents as well as our top service agents, who have deep product knowledge and provide a top-tier client experience. Over the next year, we expect this team to become a more meaningful portion of the total corporate sales production.

Moving to the financial results, quarterly premiums grew 28% year over year to $966 million, and full-year premiums for 2024 were $3.81 billion, up 29% for the year. The quarter included franchise premiums of $778 million, up 33%, and corporate premiums of $187 million, up 9%. With continued stabilization in client retention and ultimately improvement in client retention over time, coupled with acceleration in new business production through productivity enhancements and total producer growth, we remain confident in our ability to drive continued high levels of premium growth in the near and medium term. Total revenues for the quarter grew to $93.9 million, representing 49% growth over the prior year period, with core revenues growing 19% to $68 million, accelerating over the 16% core revenue growth rate in the third quarter of 2024.

Further underscoring the improving health of the personal lines industry, contingent commissions for the fourth quarter were $24 million, bringing the full year to $31.4 million or 82 basis points of total written premium, substantially higher than we anticipated earlier this year. Our core loss ratios with some of our largest carriers grew significantly in the second half of the year, coupled with our continued high growth rate of total written premium, leading to a strong contingent commission year. Looking into 2025, we’re remaining conservative in our forecast compared to the 2024 levels as a percentage of premium, approximately 40 to 65 basis points, as there’s still uncertainty in how loss trends will progress. Additionally, we view our carrier relationships in total through the lens of core commissions, cost of service, technological ability, and contingent commissions, and there may be trade-offs from one year to the next in resource allocation.

Over the longer term, we see no reason to expect contingent commissions would not trend to the historical average of 80 to 85 basis points of total written premium. Cost recovery revenue for the quarter was $1.5 million, a 44% decline from the previous year period. As a reminder, franchise fees are recognized over the ten-year life of the contract, and when an agency exits the system, any unamortized revenue is accelerated and recognized upon franchise termination. Franchise turnover is down significantly year over year and has now stabilized. We expect the fourth-quarter run rate to be an appropriate forecasting guidepost for 2025, effectively growing with new franchise launches. Policies in force as of year-end were 1.7 million, a 13% increase in the second consecutive quarter of accelerating growth.

We expect to continue to drive gradual expansion in the policies in force growth rate through 2025 as our strategic initiatives to drive new business production take hold, our agent force continues to expand and mature, and client retention ultimately improves through a combination of agent training, process improvements in both sales and service, and the year-over-year increases in homeowners premiums abate. Our client retention as of year-end was stable when compared to the second and third quarters of 2024 at 84%. We see no structural impediments to our client retention returning to our historical high of 89%. Adjusted EBITDA for the quarter grew 164% to $37.4 million, up from $14.1 million in the year-ago period. This is where the true value of our model shines.

Because we have been so disciplined in avoiding the potential distraction of vertical integration or expansion into other lines of business, we’ve been able to focus on what maximizes our profitability: distributing high-quality business through our carrier partners and providing world-class client service. We are very intentional about our position in the value chain, and while that may mean we miss some periods of potential upside, we are also insulated to some extent from the volatility of underwriting results. Because of our close proximity to the client relationship, we’ve been able to build a business that can deliver consistent results through both up and down macro environments. Looking into 2025 and beyond, there’s a significant opportunity for us to capture additional market share as we expand our go-to-market strategy through strategic partnerships and further technological advancements.

Clients more and more want to interact in a digital and fully integrated environment, and we believe we have a big head start on the industry. Seizing this opportunity will take significant investment in our people, bringing in new types of talent that this industry has struggled to attract for its entire history, developing new software, and expanding on our existing highly differentiated platform. Because our existing go-to-market strategy is so tightly driven by relationships our agents make in their local community, we believe our further progress into the digital world only enhances our existing strategy. There will always be a place for a knowledgeable independent agent, and being able to meet clients via the medium they want to engage, we believe, will improve the productivity and success of our existing agents while unlocking a client pool we’ve not historically had access to.

Turning to our balance sheet, we ended the year with $54.3 million of cash on the balance sheet and total debt of $93.1 million. We were pleased to have completed a new term loan B offering of $300 million in January of 2025 and a revolving credit facility of $75 million. Cash from the new term loan was used to pay down existing debt and pay a cash dividend to shareholders totaling $205 million. We were pleased to deliver strong operating cash and free cash flow growth in 2024. Operating cash generation for the year was $71.5 million, up 41%, while free cash flow of $59.4 million increased 53% for the year. We would note that adjusted EBITDA for the fourth quarter of 2024 includes a sizable amount of contingent commission revenue that will be included in operating cash flow in the first quarter of 2025 upon collection.

Looking ahead to the coming year, our guidance for 2025 is as follows: Total revenues for the year are expected to be between $350 million and $385 million, representing organic growth of 11% on the low end and 22% on the high end. Premiums for the full year are expected to be between $4.65 billion to $4.88 billion, representing 22% organic growth on the low end of the range and 28% on the high end. Our premium and revenue forecast assume a gradual decline in pricing tailwinds through the year and conservative client retention levels. Thank you to our team for helping us deliver a record year at Goosehead Insurance, Inc. I’m incredibly excited to deliver for our clients, our employees, and our carrier partners, as well as our shareholders again in 2025.

With that, let’s open up the line for questions. Operator?

Q&A Session

Operator: Thank you. To withdraw your question, please press star one one again. Our first question comes from the line of Tommy McJoynt with KBW. Your line is now open.

Tommy McJoynt: Hey. Good afternoon, guys. Thanks for taking our questions. The magnitude of the contingent commission threw up, certainly caught us by surprise. Could you spend some time, you know, talking about how such a large number came through and along the same lines, I want to make sure I heard you correctly that you don’t think of your normalized contingent commission figure having, you know, changed relative to the historical averages because of what happened this quarter?

Mark Jones Jr.: Hey, Tommy. Yeah. Sure. Happy to provide some more insight there. So as you may recall, right, we’ve been guiding all year to around 35 to 40 basis points of premium as contingent commissions. But throughout really the fourth quarter, we started getting more of the core loss ratio information from some of our largest underwriters. And the core performance of the book was much better than we had anticipated it to be, which led to us getting some relatively large contingencies from carriers we weren’t necessarily expecting to. Looking forward to 2025, it’s hard to pinpoint exactly what that’s going to look like as there were still a lot of catastrophic losses during 2024. So there’s puts and takes from one year to the next as those contracts come through.

And as I mentioned in my prepared remarks, right, we’re looking at the relationship with the underwriters holistically. Between core commissions, service, technology, and the dynamic of the portfolio from year to year. Don’t see any reason why over time it shouldn’t be between 80 and 85 basis points of total written premium. I think this year proves that as well. But just for next year, in our current forecasting, we want to be conservative.

Tommy McJoynt: Got it. Makes sense. And then switching over, do you have any thoughts on the direction of the EBITDA margin and just 2025? And when we think about that, is there going to be any margin drag from the investments in some of those AI tools that you talked about or anything else that you would call out?

Mark Jones Jr.: Yeah. So we do plan to grow core revenue faster than what we are growing the expense base, which will naturally lead to margin expansion over time. Given that we are planning for contingencies to be a smaller portion of total written premium in 2025, that could cause kind of puts and takes on what total margin looks like, but on a core basis, so EBITDA margin excluding contingent commissions, would expect to drive margin expansion. So when you take into account all the technological advances we’re putting through the business today, the pace of that kind of depends a little bit on what the underwriters are doing as well. And what their appetite looks like as they pivot more to growth, you should expect to see us lean more into that, and we’ll provide more updates to that as the year progresses.

Tommy McJoynt: Great. Thank you.

Operator: Thank you. Our next question comes from the line of Matt Carletti with Citizens JMP. Your line is now open.

Matt Carletti: Hi. Thanks. Good afternoon. Mark, in your opening comments, you hit a couple of times on kind of product coming back to the market. And that being a good thing. That’s, you know, kind of been improving for several quarters now. Is that, you know, kind of across geographies and perils, because, obviously, different parts of the country have had their own issues. Or are you seeing it in certain places more than others and there’s certain places where either, you know, the underwriters still aren’t comfortable with a certain peril or, you know, might be regulatory or whatever it could be.

Mark Miller: Yeah, Matt. Like I said, I think it varies by product and by state. Certainly. Some states, it’s come back in a lot more quickly. Texas, we’re starting to see, you know, that’s our biggest market where most of our agents are. We’re seeing it come back into Texas more on the E and S side than the admitted side. On auto, it’s picking up very rapidly across the United States. And so, like I said, it just varies by state, by product. California, we’ve had a pretty healthy product portfolio there for a while. And we’re starting to see parts of California open up. Of course, the wildfires curtailed that for a little bit, but overall, we’re happy with the way the product’s coming back in.

Matt Carletti: Okay. Great. You got to let me into my next question, which was specific to California. Is there anything production-wise we should think about in Q1 from any underwriting moratoriums or anything like that? I mean, we have the annual guidance. We know it’s included in there. Then just given kind of the situation that California is in, kind of how you see that for Goosehead Insurance, Inc. longer term, a headwind or an opportunity?

Mark Miller: I mean, I would say we have really good product compared to competitors in California. Our agents are doing a great job of supporting clients on the ground, providing advice through all of this. Despite temporary closures, we continue to see the state pretty operational at this point. The admitted market is still tight. E and S is thriving in California. And we’re seeing things return to kind of pre-catastrophic fire kind of place. And we see significant potential for the independent brokers in California. And we will continue to increase our franchise footprint there in the future.

Matt Carletti: Great. Thanks for the color. Appreciate it.

Operator: Thank you. Our next question comes from the line of Brian Meredith with UBS. Your line is now open.

Brian Meredith: Yeah. Thanks. A couple here for you. The first one in the guidance, what are you assuming or thinking about with respect to commission rates ex contingents, and what’s going to happen with client and premium retention rates?

Mark Jones Jr.: Yeah. Hey, Brian. Thanks. So if you break down the total revenue guide and break it into its pockets, contingent commissions kind of gave you a guidepost there of generally planning for a smaller amount in 2025 compared to 2024. We talked a little bit about cost recovery revenue effectively being that the fourth quarter number is a good guidepost for your run rate for next year. And so that would lead you then to core revenue really accelerating off of what full-year 2024 was going into next year. I would expect probably over the next year, we drive average commission rate up as the admitted market starts to heal and more product access comes online. So you rely less on your state-run plans and your excess and surplus plans that have lower commission rates.

But also just a point to the product market healing, we’re now having conversations with carriers who are actively coming to us and asking to raise commission rates because they want to incentivize growth. So the product market’s healing. And then from a client and premium retention standpoint, we are expecting the pricing tailwind to slow down going into next year, and then it remains to be seen how quickly that recovery in client retention is. If those happen one to one, they kind of perfectly offset each other. But we’re being conservative with client retention. We expect to drive it up, but I can’t guarantee exactly what the number is. And then premium, your assumption should be we’re planning for basically pricing tailwinds to abate throughout the year.

Brian Meredith: Helpful. Thanks. And then my second follow-up question is, Mark, you alluded to in your comments the direct-to-consumer experience and at some point down the future, how long are we from actually that being implemented?

Mark Miller: The home is a little bit more complicated, but I’m not going to give a time frame on when we’ll actually put it out there.

Brian Meredith: Great. Thanks.

Paul Newsome: Good morning or good afternoon. Thanks for the help here. I was hoping you could go a little bit further here and maybe thinking a little bit longer term with respect to the organic growth guidance. It feels like, you know, pretty good your core revenue growth, which I think is the sort of the core organic growth for the year. But your organic growth for the rest of the next year is rather in the middle there. Right? Not much you’re in the acceleration. So maybe just sort of reconcile that to us and maybe thinking about further if there’s any thoughts here. I mean, I think some folks think that you can get to sort of some of the very high, you know, three plus percent organic growth that you always get, but are you getting too big to the point where maybe that’s really reasonable?

Mark Jones Jr.: Yeah. We’re expecting to drive accelerating core revenue growth in 2025 over 2024 when you look at the full year. Now quarter to quarter, there can be, you know, timing differences, but for the full year, you should expect to see core revenue growth accelerate 2025 over 2024. The total revenue guide includes a couple of things that we talked about in one of those previous questions, right, contingent commissions lower in 2025 compared to 2024. And then cost recovery revenue effectively at the Q4 run rate, which would make the full year lower. So all in all, we are expecting still very strong organic growth out of the business. And longer term, I think we’re doing everything we can to gear back up towards those 30% plus growth rates. Through the middle market franchise effort, through some of our QTI efforts, and driving productivity through a lot of different methods.

Paul Newsome: That’s my only question. Thank you very much for the help.

Operator: Thank you. Our next question comes from the line of Andrew Kligerman with TD Cowen. Your line is now open.

Andrew Kligerman: Hey. Afternoon. So maybe just kind of following up on Paul’s question just now with the revenue growth. Maybe tying it into your written premium guide, which would imply up 22 to 28% this year. To kind of get there, I’m looking at your franchise producer count, which was up 7%, and maybe you could provide a little more outlook, but directionally, just given that you’ve mentioned it that the franchise has stabilized in the quarter, one, I would expect that would be up producer count would be up a lot more than 7%. And then on corporate agent count, separate second, you know, up 39% this quarter. You might see that decelerate as you said, but probably not that much. So where do you see that going? That’s part two.

And then just tying it back to the written premium, if you were able to do 29% written premium growth last year with franchises not even growing that much, why wouldn’t you be able to do better than 22 to 28 this year in written premium? It would strike me that those two producer groups are on a nice trajectory and would certainly give us upside.

Mark Jones Jr.: Andrew, let me take a couple of those things first. So franchise producer count growth up 7% year over year. Talked about in our prepared remarks that the turnover rate of franchise is now really at a healthy level. You should probably expect around that rate next year, maybe slightly lower, but feel like it’s at a good healthy level where you’re promoting highly productive franchises and holding people accountable to brand standards. But having said that, it was we were still down 13 operating agencies sequentially in the quarter, but we are expecting to grow operating franchise count in 2025 and more than that grow the producer count. So you should continue to see producers per franchise expand with the level of productivity improvements we’ve been able to drive on the franchise side of the business, that should continue to drive nice levels of growth.

Where you’re seeing the relatively conservative premium growth guidance numbers is we don’t know exactly how the pricing impact is going to flow through the book. And the rate of the recovery of client retention. So we’re at 84 today’s the same number, three quarters in a row. We feel good about that, but we would like to see that be back up towards the 89 number. We don’t think there’s a real structural impediment why it can’t get back there. But part of that is macroeconomic factors, the product environment. And so as that heals, it’s very possible you get client retention improving much faster, which would naturally yield better premium results. So remember, a significant portion of our book is renewal when compared to new business. So the franchise growth while very, very good, has a lesser impact than client retention improvement.

Andrew Kligerman: I see. So that’s the big part of it. I see. Maybe going back to the macroeconomic drivers, it sounded like from an earlier question, companies are coming back offering more product. So that’s a good thing. Maybe, you know, with regard to home sales, which is another big driver, and I know I could look at the national data, but not necessarily your regions like Texas and other areas where you’re biggest. You know, how are you seeing home sales as we head into 2025, and how might that be affecting Goosehead Insurance, Inc.’s business this year?

Mark Jones Jr.: Yeah. So really the tail end of 2024 and the early portion of 2025, I think we’re seeing upticks in transaction volume. So in aggregate, lead flow, I think, is moving in the right direction. Our agents have done a good job going out to build more referral partners. We’ve started out 2025 with more referral partner activations, and I think we’ve ever had in any kind of first couple of months of the year. So it’s a positive leading indicator. Certainly, as housing transaction volume picks up, that’s a very positive thing for us because we feel these new relationships with a bunch more referral partners. But we’re also working, as we talked about in our prepared remarks, with more of these embedded type franchises that can over time help insulate the business from fluctuations in new housing transaction volume.

So get more to mortgage servicers who are really trying to capitalize on their existing book and for the most part actually just add value to their clients. It’s much less to them about building a business that pays them a lot of money. It’s more about helping retain their existing business. But similar to us, right, our goal is to drive our core business as effectively as possible. The same thing with these mortgage servicers. They want to prevent default rate and add value to their clients. It’s going to be a very good avenue for us to go down, and that will help insulate us from housing volatility.

Andrew Kligerman: Great. And if I could just sneak one last one in. You were alluding to wholesaling in the E and S markets. Goosehead Insurance, Inc. doesn’t have its own wholesale brokerage. Right? And if you don’t, why not start one?

Mark Jones Jr.: Yeah. We don’t have our own wholesale brokerage. We do distribute through multiple others to get product access to the excess and surplus lines. We we’ve looked at what that type of offering would look like and, ultimately, decided our focus is best where we drive the most value, and that’s in our core business. Not getting distracted through other types of operations to try and get an extra couple points of commission. But it’s still a small portion of the business. Now it has increased over the last couple of years, I wouldn’t expect that that trend continues indefinitely, and maybe it continues for a little bit longer with some of the challenges in Florida and California. But over time, I would expect the admitted market to go back to being the lion’s share of the business. Now we’ll keep an open mind if that doesn’t go back in that direction, but that’s not currently our expectation.

Andrew Kligerman: Got it. Thanks so much.

Operator: Thank you. Our next question comes from the line of Katie Sakys with Autonomous Research. Your line is now open.

Katie Sakys: Thanks. Good evening. My first question was about you guys’ expectations to hire in both the franchise channel and the corporate channel. How long does it take for an average hire to become margin accretive these days? And how does that compare across channels?

Mark Jones Jr.: So it depends on a couple of things. What geography they’re in and then whether they’re on the franchise side of the business or the corporate side. So on the franchise side, when we’re helping a franchise find a candidate, now remember, these are still their hire-fire decisions. We’re just helping be really a recruiting resource for them to source candidates. But when they start in their business, they’re effectively margin accretive for us almost on day one. Not a lot of costs associated with that with us. It’s not like we’re charging franchises a lot of money to do it. It’s a really nominal fee. It’s a value add for us, but they’re on the franchise’s P and L. It’s within everybody’s best interest. So almost accretive on day one, but remember, it’s 20 cents on the dollar on new business on the franchise side for production.

On the corporate side, it varies based on geography because there are differences in premium per policy. So as you can imagine, an agent in Houston produces at a different level in their first few months than an agent in somewhere like Columbus, Ohio, which has a lower value of premium per policy. So you may be able to sell the same amount of policies, you just had a lower total dollar value. So somewhere between that kind of six to eight-month time frame is usually where you start to get margin accretive.

Katie Sakys: Thank you. That’s helpful. And then kind of staying in the similar vein, thinking about the geographies where you guys are looking to either increase your franchise presence or add through the producer count per franchise. How does that compare to geographies where you’re expecting to see capacity come online in 2025?

Mark Miller: Well, that’s the key is to make those two match with each other. Right? And so we’re not saturated in any state in the United States. I would say when you compare to the overall market opportunity. But would we like to spread it out and put the agents where we think the opportunity is? Yes. And so you saw in my comments that we just opened up an office in Tempe, Arizona. That is to match up with demand in that area with good product. In Texas, as we hire more corporate agents this year, we’re trying to spread them to our other offices just until Texas capacity comes back. So I could go state by state, but that’s literally how we think about it. We have a geographic map we try to put agents where we think the demand is going to be and where we have adequate product.

Katie Sakys: If you don’t mind me asking one more follow-up. Are there any states beyond Arizona and Texas that you guys would call out?

Mark Jones Jr.: There’s a lot of white space all the way across the country. We’ve got I think it’s thirteen different growth states. We got information in our investor deck of where we’re targeting for new franchises. I wouldn’t expect to see us open a new corporate office, you know, imminently, but we will continue to evaluate where are the right places that we can launch future top desktop franchises out of the corporate team and we may plop down a few more of those offices over time in the right geographies. But we do have a corporate office footprint that spans across several different states. Right? We’ve got a Denver office, a Chicago office, Charlotte, Columbus. So we’ve got decent geographic dispersion. It’s about putting agents in those offices as opposed to the Texas offices and make sure we’ve got the right management capacity in those other offices.

Mark Miller: And we still plan to take those corporate offices and use them for feeder grounds for future franchises. And I would say that was a highly successful program over the last couple of years, taking corporate agents allowing them to have franchise ownership. They’re some of our most productive new franchises. And so we’ll continue to do that from those offices that Mark just mentioned.

Katie Sakys: Got it. Thank you so much.

Operator: Thank you. Our next question comes from the line of Michael Zaremski with BMO. Your line is now open.

Michael Zaremski: Hey, good evening. On the corporate sales agent’s account guide. And you updated us saying that just given the size absolute size being much larger, that next year’s growth probably not as big of a growth rate. Just curious, you know, now that is that you know, I thought last quarter, you know, not just nitpicking given the growth’s been phenomenal, but I thought last quarter you kind of that you know, this looked like kind of a the new the new normal for at least 2025 in terms of the corporate agent growth rate. And it seems to kind of have come down a little bit. Is is, you know, you guys have had a few more months to kind of go through all those hires and how things are working is you know, anything kind of is that is my read correct?

Mark Miller: Yeah. I mean, Michael, this is Mark Miller. What we typically see you you know that we do all of our hiring for corporate agents in the summertime off of college campuses. And will they start in in the summer months, and you typically see it naturally fall off. This year, it followed the same pattern, which is what we would expect. We still maintain super strict production standards. Some of our older, more tenured agents decided that they didn’t want to lean quite into the marketing strategy to go get new referral partners as the market got tight. And they opted out. However, our new agents that we’ve brought in in the summertime are doing extremely well, and they’re adapting to the model. We’re just trying to make sure that the corporate agents that we bring in, we don’t flood the Texas market, which is traditionally been where we put a huge percentage of our college hires.

We’re spreading them out. So we just we just slowed a little bit on the new hiring. It’s not done yet. For this year that will start in the summer. But I wouldn’t say it’s it’s dramatically it’s down a little bit, but I wouldn’t I wouldn’t say, like, I think you said died off. I wouldn’t say died off would be the word I would use for it. I would just say we slowed it down just a bit, we’ll continue to go heavy at the agent count from the franchise side. We have a what we call the agency staffing program that Mark just talked about, where we help franchises add headcount, and you’ll continue to see us add more agents per franchise going forward.

Mark Jones Jr.: Yeah. And just to layer on there, Mike, So we’re also investing into the enterprise sales team. Both of us kind of hit on a little bit in our prepared remarks. And that team will continue to grow at a higher rate just as we get more into partnerships and then flow and making sure we connect execute on all that as quickly as possible. So, over time, you’ll probably see us start to break that out for now, but still included in the corporate agent headcount. But that’s an area that’s growing really, really rapidly. And, you know, I continue to remain super bullish on the agent model that franchise agent and the corporate agent model, And you’ll see us continue to add in, but the term we always use is abortive capacity, which is we have to have the management layer to be able to absorb it.

And we’re bringing up the tenure of the corporate agents as fast as we can. And when we do, we will add more corporate agents so that we can responsibly add them to the network. And they can be productive quickly.

Michael Zaremski: Okay. Got it. In a apologies if I came off as saying died off. I just probably didn’t enunciate. I meant to kind of tick down a bit. Okay. So just a lot oh, you know, a lot of color good color you’ve given us. On the outlook, but just trying to make sure I’m clear about the large kind of the wide gap on the guidance on organic revenue growth ex supplementals and cost recovery it’s It’s if I’m if I’m incorrect, I think it’s much much wider than your historical guide. I just want to make sure I’m understanding what what’s what’s causing the you know, the the wider gap than than in the past.

Mark Jones Jr.: Yeah. Like, I’m not going to put specific numbers on the core revenue growth. What I would say again is we expect core revenue growth rate to accelerate from 2024 to 2025. And I don’t I don’t know that if you do the implicit math that it’s actually all that wide. But if you could think about what the factors are in new business growth, we feel about the way that the franchise side of the business is performing. We feel like we’ve got a big crop of new corporate agents that are going to perform very well. We’ve got a good pipeline of potential partnerships and an enterprise sales division that’s growing quite well. And then the other side of that is the renewal business. So largely driven by client retention, as well as pricing.

And so there’s there’s you know, as pricing slows down and client retention improves, the timing of that will will impact the growth rates at the renewal book. So we’re just being a little bit conservative with that in the forecasting.

Michael Zaremski: Okay. Got it. Maybe I was just looking at last year’s and it was only a three-point delta. But okay. And then just lastly, on on the same topic directionally, all the exciting things you guys are doing on on the mortgage servicer side, the national bank, you know, relationship you have. Is this a material part of your guidance at this point, or is it still kind of a small but growing?

Mark Jones Jr.: I wouldn’t say it’s massively material yet. But it is getting to a point where it’s becoming a really real piece of the business. And over the next probably year, year and a half, it will get to be pretty big. Especially if we can execute it the way that we think we can. So it’s one to keep an eye on.

Michael Zaremski: Okay. And maybe I’ll just take one last one in that someone asked on California earlier, and I thought the response, you know, was that things are, you know, still directionally open should put in our model on one Q or opening up. Just want to make sure we’re not missing anything. We two Q on contingency subs or or anything like that. Or productivity due to the tragedy in California in one Q.

Mark Jones Jr.: No. I wouldn’t expect that to really move the needle. You know, it’s not as if production was shut off for a month and then you got months of production in one month. Nothing like that. It wouldn’t be massively material. Remember, California is kind of a high single-digit market share of our total written premium. So, that’s not going to swing the needle.

Michael Zaremski: Okay. Thank you.

Operator: Thank you. Our next question comes from the line of Mark Hughes with Truist Securities. Your line is now open.

Mark Hughes: Yeah. Thank you. Good afternoon. Your premium retention report has been very steady here lately. If I were to do a little math, I might conclude that the franchise retention has gotten a little bit better, but your corporate retention has dropped off a little bit. And I’m just sort of curious. As you look at the business, is there anything that might account for a little bit of a difference in the retention one to another? Again, the overall number is holding steady in as you report. But, you know, is there some reason for a difference between the two channels?

Mark Jones Jr.: Yep. Super easy answer. So corporate, we’ve been in Texas for twenty years. And franchise, we’ve been geographically dispersed really since we started doing that in 2012. So a considerably larger portion of the book in the corporate side is located in Texas, which has been a really hard product market for a couple of years, had some of the highest year-over-year price increases, which is dragging down the Texas retention numbers. That’s part of the strategy to diversify outside of Texas in the corporate footprint, so we can normalize the book like we have in the franchise side of the business that retains it quite well.

Mark Hughes: Thank you for that. And then the interest expense, with the dividend and the current debt load, what’s a good run rate interest expense?

Mark Jones Jr.: Yeah. So $300 million term loan, I think if you read the release, it’s silver plus $350. So what I would put in your model.

Mark Hughes: Okay. Thank you very much.

Operator: Thank you. Our next question comes from the line of Pablo Singzon with JPMorgan. Your line is now open.

Pablo Singzon: Hi. Good evening. I might have missed this in the early discussion, but, you know, there’s talk right now about Humorous business in California, Moonbirds ENS, and perhaps another state. So can you talk about how Goosehead Insurance, Inc. might operate in that environment? Is there a risk of commission leakage if a Joseberg gets involved, or are you able to retain most of the economics there?

Mark Miller: I’m sorry. I didn’t quite follow that. Can you break it into pieces and we’ll try to answer it the best we can? So let’s start with the first one.

Pablo Singzon: It’s just so so it’s the premises more Homer’s business moving to Eunice. Right? So some of it, you know, California specifically. Right? If you Selling that environment, is there a risk of commission leakage if wholesale broker gets involved or are you able to retain most of the economics from selling?

Mark Jones Jr.: Yeah. So the average commission rate in the E and S book is going to be lower than the regular admitted market. I don’t expect that to be the long-term kind of go-forward strategy for the entire market. I would expect the admitted market to heal and go back to being kind of the dominant force. That may change. I might be wrong. And if that does, we will revisit this kind of wholesale discussion. But now, I don’t think that really makes sense. And it doesn’t dilute the economics all that much.

Pablo Singzon: Okay. Yep. Thank you. That makes sense. And then second question, I was wondering if you’d give a sense of the percentage price increases you’re getting for homeowners today. Right? It seems like if you look at the pricing exposure impact on the overall book, it’s about mid-teens. If you compare PIP growth and room premium growth. So, you know, with auto pricing flattening out or having come down seems like homeowners pricing, which are gross should be much higher than the teens. Is that fair or are there certain elements I’m missing? Thank you.

Mark Jones Jr.: No. That’s probably the right way to think about it. Homeowners is 61% of our book. 36% is auto. So the majority of that is going to be related to homeowners but auto is a much lower rate of increase. And there are some areas, the small percentage where we actually have seen premium declines year over year, which allows us to really go add value back to the clients and make sure we’re staying in front of them. But homeowners, yeah, it’s probably slightly higher than the total book average. Like, you called up the difference between policy and forest growth rate in premium growth rate. I think that’s the right way to look at it.

Pablo Singzon: Gotcha. Thank you.

Operator: Thank you. Our next question comes from the line of Scott Heleniak with RBC Capital Markets. Your line is now open.

Scott Heleniak: Yeah. Hello. Thanks. Just wanted to ask first on the special dividend. How you decided now was the right time to do that, the dollar amount and how often we can expect to see these types of special dividends? I know we’ve seen them before, but how are you thinking about that in terms of just investing in the business, and I know you do a little share buyback, but just how you’re thinking of that over time?

Mark Jones Jr.: Yeah. Scott, we’re in a really good position in that this business funds itself very well. Super cash flow positive. And we want to make sure we’re maintaining an efficient balance sheet. So, you know, we have been messaging now for the last year and a half. You should expect this type of transaction to come and that historically use of proceeds from something like this has been a special dividend. Now I think we also showed during 2024 the propensity to go buyback stock when there’s market dislocation. That will continue to be part of the capital management strategy. And over time, if you watch our leverage ratio, really even back all the way to 2016, we’ll lever up. Distribute cash to shareholders through one way or another, delever through earnings growth, lather rinse repeat. You should expect to see that in the future as well.

Scott Heleniak: Okay. That’s helpful. And then the only other question I would just the QTI, you said you’re issuing one thousand policies per month now. Can you talk about where that was maybe a year or two ago? And where you think you can get to maybe over the next couple of years? What there any kind of target you’re looking at in the QTI?

Mark Jones Jr.: Yeah. I would say if you roll it back a year ago, it was a very small amount of volume going through QTI. I mean, we were still in the process of building out a lot of the pipes. And we had some nice progress. But during this year, we picked up a lot of steam and, you know, we said thousands per month. I wouldn’t say it was one thousand. It’s considerably more than that. We’ve written tens of thousands of policies to the platform now. I would expect that that continues to take hold as our in our agent force as we develop more pipelines with carriers and the product becomes more online. We still have a lot of states where carriers want to do the implementation work, but they’re really waiting for underwriting profitability.

So I expect that that’s going to be the way our agents distribute in the future. I think that’s best for both clients, as well as agents, but also for carrier partners because we could be really Cefebvre and who gets to what carrier and make sure we’re meeting all of their underwriting guidelines. Really better than any independent agent out there.

Mark Miller: Yeah. The key is you don’t really connect it for a carrier and just done with it. You go carrier by state, and so we just continue to add more carriers and more states. It will take a while to get it completely embedded across the whole organization, but we see a big uptake from our agents. They really like it, and it saves a lot. It is the backbone to build out everything else that we want to do with direct connections to the carriers.

Scott Heleniak: Yep. Okay. Sounds like it was a big year for it. Thanks for the detail.

Operator: Thank you. And I’m currently showing no further questions at this time. I’d like to hand the call back over to Mark Miller for closing remarks.

Mark Miller: Okay. I just want to thank everybody for taking the time to join us today on the call. We appreciate your continued interest and support. And we’re looking forward to talking to you again in April.

Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.