Goosehead Insurance(GSHD) - 2018 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For 2018, revenue grew 41% year-over-year to $60 million, achieving this growth entirely organically [10] - Fourth quarter revenue reached $14.7 million, representing a 32% year-over-year organic growth [10][27] - Total written premiums increased by 50% year-over-year to $135.1 million, with policies in force growing by 47% [11][28] - Adjusted EBITDA for the fourth quarter grew 1% year-over-year to $2.3 million, with an adjusted EBITDA margin of 16% compared to 20% in the prior year [29] Business Line Data and Key Metrics Changes - Corporate segment revenues grew 25% year-over-year to $8.5 million, driven by a 40% increase in new business commissions and agency fees [31] - Franchise channel revenues improved by 43% year-over-year to $6.2 million, supported by higher royalty fees from a larger number of operating franchises [37] - Adjusted EBITDA for the franchise channel was $1.5 million, up 64% from the prior year, with an adjusted EBITDA margin of 24% [39] Market Data and Key Metrics Changes - The company maintained an industry-leading retention rate of 88% and increased its net promoter score to 89 [11][32] - The company activated 530 new referral partners in January 2019, nearly tripling the number from the previous year despite a challenging housing market [12] Company Strategy and Development Direction - The long-term strategy focuses on rapid and responsible organic growth through hiring corporate agents, opening new franchises, and investing in technology [15] - The company aims to redefine the personal lines insurance industry and create a significant American business success story [18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about entering 2019 with a full recovery of lead volume and a strong position for continued growth [50] - The company expects total written premiums for 2019 to be between $700 million and $725 million, representing organic growth of 38% to 42% [43] Other Important Information - A special dividend of $15 million, or $0.41 per share, was approved by the board to be paid on April 1, 2019 [16][42] - The company has a robust franchise pipeline and plans to continue investing in its franchise sales team throughout 2019 [39] Q&A Session Summary Question: Thoughts on the guidance for adjusted operating income - Management indicated that due to hyper growth and ongoing investments, they prefer not to commit to a specific earnings number at this time [45] Question: Impact of tech costs and public expenses on operating expenses - Management detailed various impacts, including timing of contingent commission payments and housing market headwinds, which were anticipated [46] Question: Distribution growth and expectations for 2019 - Management discussed reallocating resources to facilitate growth and expressed confidence in recovering lead volume despite housing market challenges [48][50] Question: Update on material weaknesses in accounting - Management confirmed that they expect material weaknesses to be remediated in the upcoming 10-K filing [51] Question: Increase in referral partners and its implications - Management clarified that the increase in referral partners was for the whole company and not just the corporate channel [56] Question: Impact of auto insurance pricing environment on growth - Management believes that their growth rate will overshadow any minor price changes in the auto insurance market [60][62] Question: Status of the franchise pipeline - Management reported that the franchise pipeline has grown significantly, with active targets increasing to 65,000 [63] Question: Productivity of new business in the franchise channel - Management noted that productivity levels for agents out of Texas have remained steady, with improvements seen in agents with over a year of experience [69] Question: Guidance on contingent commissions and their growth - Management expects contingent commissions to grow as total written premiums increase [70] Question: Impact of housing market on 2019 guidance - Management considered various factors when creating guidance, indicating that they do not expect significant impacts from the housing market [72] Question: Evaluation metrics for investors - Management suggested that total written premiums and revenue growth are the best metrics for evaluating the company's success [87]