Goosehead Insurance(GSHD) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue grew 20% year-over-year to $94 million, with core revenue increasing 18% to $86.8 million and adjusted EBITDA rising 18% to $29.2 million, resulting in an adjusted EBITDA margin of 31% for the quarter [33][34][37] - Total written premiums reached $1.2 billion for the quarter, up 18% from the previous year, including franchise premiums of $959 million (up 21%) and corporate premiums of $217 million (up 6%) [35] - Contingent commissions for the quarter were $4.5 million, a 103% increase from $2.2 million in the previous year [36] Business Line Data and Key Metrics Changes - Franchise producers at quarter end were 2,085, up 5% from a year ago, with producers per franchise growing 14% to 1.9 [28] - The corporate sales team ended the quarter with 479 total agents, a 53% increase over the previous year, with corporate new business commissions growing at 13% compared to the prior year [27] - Agencies in the top 200 grew their new business by over 30% in the second quarter, with gross earnings also up 30% [29] Market Data and Key Metrics Changes - The company has expanded into Arizona with the launch of a new office in Tempe, which has been the most successful new office launch in years [14] - The enterprise sales and partnerships team produced 88% more new business in the second quarter compared to the previous year and grew 41% sequentially over the first quarter of 2025 [26] - Policies in force at quarter end were 1.8 million, a 13% increase over the previous year [36] Company Strategy and Development Direction - The company aims to become the largest distributor of personal lines insurance in the U.S. and is focusing on expanding its distribution network, which has grown to over 2,500 licensed agents and 200 carriers [6][7] - Strategic initiatives include optimizing agency staffing programs, expanding corporate teams, and developing new technologies to enhance market leadership [7][20] - The company is also pursuing partnerships with established firms to enhance its market presence and streamline the home buying process [16][18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the improving product environment and the potential for rapid and profitable growth, particularly as the underwriting demand and capacity landscape becomes clearer [24][22] - The company anticipates that client retention will improve, which is expected to positively impact revenue growth in the second half of the year [34][76] - Management highlighted the importance of leveraging AI to optimize client experience and reduce service costs, with expectations for a decrease in service delivery costs in the second half of the year [30][31] Other Important Information - The company has successfully repriced its existing term loan, reducing its interest burden by approximately $1.5 million annually [37] - The company generated $28.9 million of cash flow from operations, representing a 53% increase over the prior year period [38] - The company is reiterating its 2025 revenue guidance, expecting total revenues to be between $350 million and $385 million, reflecting organic growth of 11% to 22% [39] Q&A Session Summary Question: Can you quantify the upside to commissions as a percentage of written premiums? - Management indicated that there has been a gradual decline in average commission rates due to a shift towards excess and surplus lines, but they expect this trend to reverse as more national products become available [42][43][45] Question: Is the cost of servicing down in the second half of the year? - Management confirmed that the total cost of the service department is expected to decrease, driven by AI improvements that enhance efficiency and client experience [47][48] Question: What dynamics are affecting premiums per policy in force? - Management noted that the intentional shift towards lower premium states and the leveling off of premium growth rates are influencing the dynamics [54][55] Question: Are new initiatives baked into your guidance? - Management clarified that new initiatives are not included in the current guidance as they are relatively new and will take time to materialize [57] Question: What is the outlook for commission rates? - Management expressed optimism about the product environment improving, with more business flowing away from state-run plans, which should positively impact commission rates [61][62] Question: What is the reason for the slight decrease in total franchise producers since year-end? - Management explained that seasonal factors and consolidation of smaller franchises into larger ones are contributing to the slight decrease [68][70] Question: What is the outlook for premium retention? - Management indicated that while client retention is currently at 84%, they expect it to improve, aligning more closely with premium retention in the near future [76]