Business Breakdowns
· Geoff Collette
Corporate productivity was up 27% year over year despite those difficult housing and insurance market challenges. On the franchise side, operating franchises peaked at over 1400 at the end of '22 and has stabilized around 1100. And this is where it gets really interesting. More importantly, franchise producers has remained relatively stable, peaking at around 2100 near the end of '22. And only dipping down by about 7% in early '24 and now back up to 2100. And the company's really leaned in on partnering with a subset of franchisees who are in a position to scale further by helping them recruit new producers. So producers per franchise has increased from one and a half in '22 to 1.9 by year end '24. And franchise producers were up only 7% year over year. Yet franchise new business productivity was up 49% in 24. And what's really interesting is that when a new producer is added to a franchise, it improves the productivity of everyone in the agency. And every new producer added to a high performing franchise is equivalent to launching almost two new franchises. So what they've effectively done is taking a much closer look at where to add productive capacity into their system in the most efficient manner to drive success. And another way that they've done that is creating a pathway for very successful corporate agents to launch franchises, beginning with a very high level of productivity and ambitions to scale. In 23, 30 corporate conversions yielded the equivalent of 200 typical new franchises. And this pathway from a corporate agent to a franchise owner is now a key part of the campus recruiting effort that they bring to bear. And so in 2024, they onboarded over 800 sales agents across the business, a record recruiting effort. And EBITDA margins expanded from 14% in 2021 to 32% in 2024. And EBITDA dollars increased nearly 5x over that time period. One of the things that's most interesting is the next evolution from the company where they're building out a third distribution channel.
· Matt Reustle, Geoff Collette
[00:00:00] S0: I want to just focus on the financials for a little bit and then move on. It sounds like they had this period of time where they reevaluated the business, trimmed some fat, really focused on leading into strengths. On that EBITDA margin expansion, what did it look like in 22-23? Was there a drop before you saw that increase again in ‘24? [00:00:00] S1: The margins really dropped. The company generated EBITDA margins through 2020. In 2021, they dropped to 14% and scale from there. It's important to understand, hiring corporate producers initially weighs on profitability. They ramp pretty quickly within two years. Whereas if you're putting new producers into the franchise system, there's very little cost running through the P&L that's associated with that. Effectively, management's attention was being drawn to unproductive parts of the system. And so that culling process created a much healthier system. And they just became more efficient in sort of every way. One other aspect that's important to understand just from a P&L perspective that we sort of hit on before, but it's worth highlighting: this is franchise new business. 20% of the commissions go to Goosehead in year one and the renewals 50% go to Goosehead. So there is a mechanical increase that's very significant for the renewal side of the business. And really all the money is made in the renewal side as the business continues to mix shift to renewal. That's what's really driving the increased margin profile of the business, as is the continued mix shift to franchise and away from corporate.
· Matt Reustle
[00:00:00] S0: That all makes a lot of sense just in terms of understanding the ins and outs. If we focus on the top line, obviously there's the underwriting of policies, there's a renewal of policies. How do you just think about that formula for top line growth, whether it's recruiting new franchisees, bringing them into the system policies, anything that you can get into that describes what a reasonable rate of growth is for revenue?
· Geoff Collette
[00:00:00] S1: Gross written premiums are the leading indicator of revenue growth. Agent count is really the key driver, but really productive capacity, as mentioned before, highly productive agents versus low productive agents can have a really big difference. Aside from agent count, productivity per agent is also key. There's also a component to policy premiums growing over time. In recent years that's been very significant double digits but should trend down to a more moderate single-digit pace that will improve retention. And so the way to think about the way the company is growing is across the different programs that they have. So Corporate is roughly 20% of total producers. They are hiring more quality corporate agents with a large university recruiting program. On the franchise side, which is really the main focus, they have an agent staffing program whereby Goosehead has dedicated recruiters that are helping existing franchise accelerate their growth. They're launching additional franchises with a greater focus on franchises that have the willingness and ability to scale. They've doubled the franchise development team recently. There's corporate conversions that I mentioned before launching high-performing corporate producers into new franchises. Roughly 35 or so I believe have done that since 2023. And there's also these middle-market franchises that are partnership in nature where Goosehead's effectively embedding a franchise into other businesses that have built-in lead flow companies within real estate such as mortgage servicers. And this is actually an area of the business that's effectively going to turn into like the third leg of the stool in terms of their go-to-market strategy, which I find really interesting and is supported by a lot of what they've built over time. And it's hard to replicate their value prop that they are bringing to bear.
· Matt Reustle
[00:00:00] S0: Is there a way to quantify the opportunity that would exist in that third leg?
· Geoff Collette
[00:00:00] S1: It's massive. Anyone with a mortgage is effectively going through a mortgage servicing process. Those businesses are seeking to integrate insurance economics by embedding a franchise into their existing operations or partnering with Goosehead in what they call their enterprise corporate agents where those agents are effectively being fed inbound leads rather than the core referral partner go-to-market strategy. An example of this is a partnership with Vivint Smart Home. At year end 2024, enterprise agents grew to 65, roughly doubling year over year. That embedded middle-market franchise category is really unlocking new customer pools that are distinct from their existing go-to-market approach. They have an embedded franchise with a national bank that spans both its mortgage origination and servicing divisions. These efforts are being powered by Goosehead's proprietary technology. Its digital agent and its QTI technology really enhance the productivity of those efforts and accelerate the onboarding of new agents. Goosehead's seen a significant uptick in inbound interest from national mortgage servicers to integrate with them through one of these different options. They have a unique ability to provide product access effectively nationwide with extraordinary client service and technology that helps those brands cross-sell and makes Goosehead kind of the natural partner of choice. The pipeline for those types of partners is quite large. There's really a potential for the enterprise agent production to exceed Goosehead's traditional corporate agent approach over time. Mortgage servicers could be a massive unlock. Relatedly, DTC Auto, which we touched on earlier as part of the industry, is predominantly so-called nonstandard customers. Goosehead could potentially use its digital agent, its QTI and its partnership approach to be a leader in a different segment of the market in a manner that doesn't currently exist in the market today. They're talking about all these different aspects and today they're relatively small, but they could certainly grow in terms of the size of the overall mix and it would further temper the company's exposure to the housing market dynamics that we walked through previously.