Goosehead Insurance(GSHD) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2022, Goosehead Insurance reported a premium growth of 44% and revenue growth of 43% compared to Q4 2021, with core revenue growth for 2022 at 41% and EBITDA growth at 76% [9][50] - Total written premium for Q4 2022 increased to $585 million, reflecting a strong performance [37] - Adjusted EBITDA for the quarter grew 123% to $11.9 million, with an EBITDA margin of 21% compared to 13% in the previous year [50] - Total revenues for 2023 are expected to be between $258 million and $267 million, representing organic growth of 23% to 28% [52] Business Line Data and Key Metrics Changes - Corporate agent productivity increased by 24% year-over-year in Q4, with January 2023 showing a 44% increase and first-year agent productivity up 77% year-over-year [26][11] - The company expects to add 150 to 200 producers to the franchise system in 2023, which could equate to approximately 250 to 350 new franchisees [14][15] - The top half of franchises accounted for around 90% of new business production in 2022, indicating a disparity in performance among franchises [28][72] Market Data and Key Metrics Changes - The company faced macro headwinds, including historically low contingent commission levels and declines in housing activity, but maintained a focus on client needs to adapt and deliver strong results [19][20] - The renewal book performed exceptionally well, with a client retention rate of 88% and premium retention of 100% [70] Company Strategy and Development Direction - Goosehead Insurance aims to become the number one distributor of personal lines P&C insurance in the U.S. and is focused on investing in and expanding its core business [21][20] - The company is rationalizing its franchise system by removing underperforming franchises and reallocating resources to high-performing ones [13][32] - Strategic partnerships with mortgage brokers and real estate organizations are being pursued to enhance distribution channels [17][66] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's unique business model, which provides a competitive advantage that is difficult to replicate [20] - The company anticipates material corporate producer growth beginning in Q3 2023 as new college graduates join the team [27] - Management acknowledged the challenges posed by the housing market but emphasized the strong productivity of agents and the potential for growth in various environments [85][84] Other Important Information - The company culled over 280 underperforming franchises in 2022, which had minimal impact on growth as they accounted for only 2% of new business production [32][38] - Total operating expenses for Q4 2022 were $45.5 million, up 30% from the previous year, driven by increased headcount and investments in technology and marketing [49][76] Q&A Session Summary Question: Is the variance in productivity seen only in newer recruits or also among longer-tenured agents? - Management indicated that the productivity variance is predominantly in agents with less than two years of experience, but some longer-tenured agents also face challenges [55] Question: How does the company plan to address productivity challenges among longer-tenured agents? - Management confirmed they can identify productivity issues at the agent level and are implementing training programs to support agents throughout their careers [57] Question: What is the outlook for contingent commissions in 2023? - Management remains cautious about contingent commissions despite positive trends in written premium productivity, indicating a potential for upside but not counting on it [58] Question: How does the company view the impact of housing market headwinds versus pricing tailwinds? - Management believes that the pricing tailwinds from auto and home insurance will outweigh the housing market headwinds, positioning the company well for productivity growth [85] Question: What is the expected retention ratio for franchises moving forward? - Management anticipates that the culling of underperforming agencies will be largely complete by the end of Q2 2023, which should help stabilize retention ratios [94] Question: What went wrong with the underperforming franchises, and what solutions are being implemented? - Management noted that many franchises signed during the pandemic did not commit fully, leading to a high turnover rate. They are now focusing on quality recruitment and converting successful corporate agents into franchisees [120][122]