Goosehead Insurance, Inc. Class A Aktie

Good day, and thank you for standing by. Welcome to the Goosehead Insurance First Quarter 2026 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Maddie Middleton, Senior Director of Investor Relations.

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 and our discussions are subject to various assumptions, risks and uncertainties that are difficult to predict and which could cause actual results to differ materially from those expressed or implied 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 used. 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 in capital structure, tax position, depreciation, 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In addition, this call is being webcast, and an archived version will be made available shortly after the call in on the Investor Relations portion of the company's website at goosehead.com. Now I'd like to turn the call over to our CEO, Mark Miller.

Thanks, Maddie, and good afternoon, everyone. Thank you for joining us today for our first quarter 2026 earnings call. I'd like to begin by welcoming John Martin as our new Chief Financial Officer. Succeeding Mark Jones, Jr., who has been promoted to President and COO. John brings a strong combination of financial expertise, operational discipline and a background rooted in technology and e-commerce, which aligns well with our focus on execution and our high-performance culture. The team is excited to welcome, John, and I know he looks forward to engaging with our investors and analysts in the quarters ahead. We are equally thrilled to see Mark expanded leadership responsibilities.

John will report to Mark and I will work closely with both of them continuing my role as CEO. These leadership announcements are evidence of our commitment to a comprehensive succession plan and our focus on ensuring Goosehead is the right leaders for today and well into the future. Let me start by reinforcing something we've said consistently. Goosehead is a compounding business designed to drive long-term growth in policies in force, revenue earnings and ultimately, cash flow. We achieved that by operating a highly scalable distribution platform, supported by world-class service.

For the first quarter, we delivered strong and consistent financial results, with revenue growing 23% to $93 million, core revenue growing 15% to $79 million and delivering adjusted EBITDA of $24.4 million. Last quarter, we spent a significant amount of time discussing investments we're making in our digital agent platform and AI initiatives. We've been very intentional in prioritizing long-term value creation while managing to strong and sustainable margins in order to maximize shareholder returns.

Today, I want to focus on the strong start to the year and how the investments we have been making are beginning to translate into tangible business results. Goosehead has always been a technology forward distribution platform, but over the past several years, technology has become even more deeply embedded in every part of how we operate. What's in front of us today is what I believe is the single largest opportunity, our business and the broader personal lines industry has ever seen.

In nearly every industry, customers have the ability to choose how they want to interact and transact. That has not existed in the independent personal lines insurance space until now. Choice has always been part of Goosehead's DNA. Historically, that choice has been centered around access to a broad set of carrier partners. We've proven that we are a market leader in providing clients coast to coast with access to over 200 underwriting partners. But today, we're expanding that definition of choice. We're now giving clients a choice in how they prefer to actually transact. For the first time in the United States, clients can shop, quote and bind insurance through a true choice model whether that is fully digital, partially digital or entirely human-driven. During our last earnings call, we announced we went live with this capability with multiple auto carriers in Texas, including partners like Progressive, Liberty Mutual, Mercury and Root.

Today, we're excited to announce that clients can now digitally bind multiple homeowners products in Texas with carriers such as SageSure and Mercury. This is an important milestone in building a large-scale digital marketplace, which is now that much more achievable because of the real demand that now exists with our carrier partners. Carriers want this capability and they want it specifically with goosed. Because of the trusted relationships we've built over decades for access to large amounts of integrated data that drive better underwriting outcomes and our differentiated go-to-market strategy executed through highly curated client acquisition channels.

At the same time, the broader insurance shopping experience, particularly online remains fragmented and often broken, you may see advertising across social media for AI insurance agencies that claim they combined and service autonomously or headlines that declare instant best rates. Most false claims end up generating terrible experiences for the end user. Customers are frequently routed through lead aggregators and data resellers, creating the illusion of choice, but ultimately leading to confusion lack of transparency and in many cases, poor coverage decisions. Goosehead's digital agent platform is solving these pain points. We're delivering real choice, not just in product offering, but now in purchasing experience. And by implementing this platform with a targeted audience through our partnerships, we remain the trusted adviser, our clients and carrier partners rely on.

In the area of AI, we are now seeing tangible benefits as we roll out multiple use cases across our service organization. Lilly, our AI-powered virtual phone assistant is now fully resolving approximately 19% of all inbound calls without requiring transfer to a live agent. This improves speed to resolution for our clients and allows our service teams to focus on more complex and consultive interactions. In addition, we have deployed tools behind the scenes in areas such as intelligent case routing, which has allowed us to reinvest roughly 40 full-time service team members towards more complex and value-added interactions. These tools are driving real-time efficiency gains while also adding scalability to what has historically been the most complex and labor-intensive part of our business.

All of this progress is occurring alongside a rapidly improving product market. Our carrier partners are increasingly leaning into growth across both home and auto products nationwide. As pricing stabilizes and product availability expands, we are seeing consistent improvement in many of our key operating metrics. For example, our client retention continues to climb at a steady pace and we expect to achieve 86% client retention during the year. Find rates and packet rates are increasing, supporting higher agent productivity. Given these strong market conditions, we believe the time is right to more aggressively expand our offensive capability with more agents and more geographies.

When we spoke to you in February, I commented that we had fundamentally reset the corporate agent footprint. At that time, we expanded to new geographies like Tempe, Arizona and Nashville, Tennessee. We're continuing to make excellent progress on this initiative. During the quarter, we opened three additional corporate offices in Seattle, the Washington, D.C. area in Minneapolis, and we had the fourth opening in April in Indianapolis. As of the end of the first quarter, we now have more than half of our corporate agents outside of Texas.

These three offices are outperforming our expectations. But even more importantly, these offices serve a strategic purpose that far exceeds the short-term production they generate. They are quickly diversifying our agent base, making Goosehead an even more attractive partner for our major national carriers and these offices are talent incubators for future franchise ownership. Since the beginning of the year, we have launched 12 new franchises out of our corporate offices, all of which are outperforming the average franchises we have launched from outside of our ecosystem. And just their second month live, these 12 launches contributed new business production that were nearly 2.5x the average franchise.

Our existing franchise base also continues to lean into growth with 133 franchises hiring at least 1 producer during the quarter, generating nearly 50% increase in gross producer adds year-over-year. As agencies continue to focus on hiring and driving productivity, they're reaching new highs with 208 franchises hitting monthly production records during the quarter. On top of that momentum, our enterprise sales and partnership teams are rapidly gaining scale. What was a start-up inside the organization just 2 years ago, is now meaningfully contributing to total revenue. When we step back, we're building more than an insurance agency. We're building a technology-enabled distribution platform that delivers real choice, frictionless experience and better outcomes for clients and carrier partners.

I want to thank and recognize our teammates. This quarter's performance is a direct result of their discipline, execution and commitment to delivering a world-class client experience. With that, I'll turn it over to Mark Jones Jr., our President and COO.

Thanks, Mark, and good afternoon to everyone joining us. I want to echo Mark Sentiment in welcoming John as our new CFO, and I look forward to working closely with him in the future. What an exciting time it is here, like you said. We've now built the country's first choice online shopping platform in the history of the Personal Lines insurance with our Digital Agent 2.0. As we enter into a new world for insurance distribution, it's important that we take a step back and fully understand what that means for clients, carrier partners, strategic partners and agents alike.

As Mark Miller discussed, for clients, we now have choice. Not only in what underwriter you have access to, but how you engage and transact. Why did this never exist before because there's never been a personalized agency like you said. Selling and servicing multiple product lines across 50 states with over 200 carriers is a challenge no other company has been bold enough to tackle. A frictionless choice shopping model has many hurdles in development that can't easily be sold by throwing money at the problem. It takes deep domain expertise across regulators, product knowledge, client behavior and the inner workings of fragmented technology solutions across the industry. Each regulator has different requirements. Each carrier has bespoke underwriting criteria and a different technology stack with degrees of sophistication, and each client segment has unique needs and preferences.

How are we able to solve this? We've been very intentional about our location in the value chain in distribution. We built a strong and lasting relationships with our carrier partners to make sure our goals are aligned, and we can deliver a differentiated experience to them. We've been thoughtful about geographic expansion. So we understand the specific nuance of each critical state. We've spent 20 years and hundreds of millions of dollars in our company's history investing in technology to drive the industry forward. And we have always placed the client at the center of our universe. So we have a clear understanding of what matters, not just at the initial sale but that client's entire life cycle. I'm incredibly proud of our team for what we have delivered so far, but we are just getting started.

In the coming quarters, we plan to continue to expand our offering with new carrier partners roll out to additional states and add features and functionality that improve the client experience and conversion rates to maximize the economic returns. As exciting as the rollout of our Digital Agent 2.0 is I'm equally excited about the direction of our corporate, franchise and enterprise teams. As Mark Miller mentioned, we launched three new corporate offices in the quarter, including Seattle, the D.C. area in Minneapolis, all of which are hitting the ground running. As we've discussed, we're highly intentional with where we grow our presence for the benefit of our teammates, our clients and our carrier partners.

Productivity in our corporate channel continues to improve, supported by increased lead flow and better conversion from a combination of the improving product market, expansion into untapped geographies and investments in our management infrastructure. The enterprise sales team, which is fueled by our partnership efforts, continued its rapid growth in the first quarter, generating new business growth of over 70% and contributing approximately 20% of the production of new business commissions and agency fees. The partnerships that feed that team now include 2.3 million potential clients across mortgage origination and servicing as well as 4 million potential clients from other home and financial services organizations.

While there may be some overlap across our partner client base, that improves our likelihood of conversion as we increase the number of touch points we have with potential clients. The momentum we're seeing across our corporate and enterprise sales teams generated in new business commissions growth rate of 29%, the fastest pace of growth we've seen in nearly 5 years. The franchise business also saw a strong acceleration in the first quarter. Growing new business royalties by 14%. Our agency staffing program, which we call ASP continues to be a highly strategic asset, aiding our franchises in faster growth and expansion. Sourcing from the AFP program grew 53% over the prior year quarter.

Our average producers per franchise expanded to 2.3 from 1.9 a year ago. Total franchise producers at quarter end were 2,150, up 3% year-over-year. Turning to our financial results for the quarter. Total revenues for the quarter were $93.1 million, up 23% over the previous year quarter, with core revenues growing 15% to $79.5 million. As we look towards the second quarter, we expect a similar growth rate in core revenues when adjusting for the $4 million of previously unpaid renewal commissions and royalty fees that we recovered from a carrier partner in the second quarter of 2025. Throughout the second half of 2026, we expect improvements in client retention from our strategic initiatives and the improving product market to begin to outpace the impact of slower year-over-year pricing in our book of business. We expect that to result in faster core revenue growth when combined with continued strong new business generation.

Ancillary revenues, which is largely comprised of contingent commissions, was $11.9 million for the quarter, growing 141% year-over-year. Our outlook for contingent commissions on the year remains unchanged at 60 to 85 basis points of total written premiums. We will provide more updates as underwriting performance advances throughout the year. Cost recovery revenue for the quarter was $1.7 million. During the quarter, we launched 20 new franchise locations across 10 different states. We also had 10 agencies exit the system and 63 agencies consolidate into another larger franchise. Total written premiums for the quarter were $1.1 billion, growing 13% over the previous year quarter. Policies in force grew 14% for the quarter to $2 million. We expect the growth rate in policies in force to accelerate during the year as client retention continues to improve and we drove strong growth in new business production.

Adjusted EBITDA for the quarter was $24.4 million, growing 57% and delivering an adjusted EBITDA margin of 26%. During the quarter, we demonstrated strong cash generation with $22.9 million of cash flow from operations, utilizing our excess cash, combined with [ drying ] $26 million on our existing revolving credit facility. We repurchased and retired 985,000 of our Class A shares, representing $49.8 million. We believe there is a significant market dislocation in our stock price and retiree and [indiscernible] shares will generate excess shareholder return. As of the end of the quarter, we now have fewer shares outstanding than we did at the time of our IPO.

We plan to continue to be opportunistic with our remaining $148 million on our existing share repurchase authorization. We ended the quarter with $26 million of cash and cash equivalents and had total debt outstanding of $324 million. We remain committed to conservative balance sheet management and do not expect to add leverage outside of our historical precedent of 3x to 4x trailing 12-month adjusted EBITDA. We are reiterating our guidance for the full year 2026. Total revenues are expected to grow organically between 10% and 19%. Total written premiums are expected to grow organically between 12% and 20%. I'm incredibly excited about the position of our business in. Our business is healthy and delivering strong growth. And because we have been prudent stewards of our capital, we're able to invest in new and exciting technology that we believe will change the industry to our advantage. Thank you to our teammates, partners, franchises and shareholders for your continued trust. We are just getting started. With that, let's open up the line for questions. Operator?

[Operator Instructions]. And our first question comes from Andrew Andersen with Jefferies.

How should we think about the 2026 PIF acceleration? Do you view this as more renewal retention driven or new business driven? And could you also help us think about seasonality in Q2 and Q3?

Andrew, thanks for the question. So if you think about how big our book is, pretty clearly, retention is what's going to aid in PIF acceleration more than what new business will just given so much of the book is in the renewal base. We expect to see continued improvements in client retention. We mentioned in the prepared remarks that we expected to get to at least during this year. But having said that, we're seeing really strong new business momentum, which is super fun to watch, see the new business commissions line growing 29% in the first quarter. That's the fastest growth rate in the last 5 years. So it's a combination of both things, but the renewal side has a bigger impact on Pet.

From a seasonality perspective, generation of new business will likely kind of follow the normal seasonality trend, which would mean the second and the third quarter typically contribute more than the first and the fourth quarter. I'm not expecting that trend to change. And in the past, you've addressed why AI is in a disintermediation risk at policy inception. But how do you ensure that kind of increased digital convenience doesn't create a greater disintermediation risk at renewal over time? Yes. I think actually, the hurdles in the renewal side are even bigger than they are in new business generation. And that's not to downplay how challenging the new business generation aspect of this is.

There's so much in terms of competitive moat that goes into our ability to actually put policies in for us. But there is a lot of manual labor that can't easily be automated on the back end to make sure policies continue to retain that clients get all of their service needs met. I don't think people fully understand how much work goes into that. It would not be very easy to automate a lot of what we do. We've been able to take big chunks of work and automate it, but that's going to be a really long tail of stuff. And as you guys know, all of the economics in this business are in the renewals. So if you're trying to automate as much as you can, but you leave off some portion of it, you're not going to be able to actually generate profitability over the longer term.

Our next question comes from Brian Meredith with UBS.

A couple of quick questions here. First, just quickly on the digital agent, is the economics there the same as your other business from the perspective of commission rates that you're receiving from the carriers?

Yes. So it's a really interesting development, Brian. Because our go-to-market strategy with the digital agent is largely to integrate it into partners where we have good information about who the clients are and we can make sure that we're providing carriers with really high-quality business. there has been increased demand to have outsized compensation in that partner and digital agent channel. So I mean that wasn't really something that we contemplated when we started this process, but it's been a positive development that carriers have indicated they may be willing to pay more for policies distributed that way.

Interesting. And then what's the, call it, pipeline of potential new carriers on the platform, particularly for the auto insurance side?

Yes, Brian, this is Mark. We have four auto carriers now already on the platform, which gives us really good coverage. As you know, like auto is not specific to region necessarily like homes as much. So we have pretty good coverage and a couple more to be added TBD in the next 2 months. But it has been interesting to watch like initially, there was a lot of hurdles for us to jump over to explain how this product will work, how we're able to safeguard underwriters and clients for making poor decisions through digital distribution. And as we've had more and more conversations and explained why it will work so well with us. The demand from new carriers wanting to get in line to get on the platform has been really fun to watch as well. I mean there's people now saying, how do we get involved because we feel like we missed the first wave.

We're really looking, Brian, kind of where to our partners that we're working with, where do they have client needs. And we've been really focused on rolling it out in Texas and working on our conversion. So it's kind of a new muscle for us is how do you do digital conversion once you get them into the funnel, how do you get them to actually buy. And so we're really focused on Texas, and we'll roll out to the next biggest state and the carriers that we need to fill those states out.

That's great. And then one just quick numbers. Commission rates that you're seeing across your book, are we starting to see a lift?

Yes. The aggregate commission rate is now up year-over-year. which is great to see. I mean, the communication of the carriers has all been around how do we incentivize more growth. And it's -- if you want to incentivize more growth compensation is a tool that you can use pockets of the country where there was maybe higher E&S usage in previous years. You can see that in the renewal commission rates, but I don't expect that to be a long-term thing. I am happy to see the aggregate commission right now going up.

Our next question comes from Tommy McJoynt with KBW.

A couple of questions around your digital agent. First off, is that experience really entirely targeted through your enterprise partnerships? Or are you also advertising the digital agent as a full comparison and appearing in top-of-funnel search results.

Yes. We're not really trying to drive eyeballs to goosehead.com. What we want to do is put it in a place where it's going to drive the maximum value for everybody across the value chain, which we believe is through the partner channel. I think there's going to be stumble upon business. We've had stumble upon business that people buying auto and home insurance now directly through the website. But we've been really clear with our carrier partners about what the go-to-market strategy is just so we can make sure everybody is having a good experience.

And so it's largely going to be with partners. Over time, that may evolve as the brand gets a little bit bigger, but we're not necessarily going to deploy a bunch of capital to try and draw eyeballs. It's not going to be an efficient use of money.

Okay. Got it. And then my other question on digital agent. How do you balance the responsibility to the customer that's searching for insurance to the extent that they are using digital agent, and there's only a couple of carriers that may be available for homeowners quotes versus if they were to use a human Goosehead agent, they might be able to see a lot more perhaps quotes with perhaps better coverage or better pricing. How do you balance that responsibility to the customer?

Yes. So what we've tried to do is make sure areas we're bringing to the platform initially are the ones that do a disproportionate amount of the business in the geographies that we roll it out in. So we've got really strong coverage in our -- both our home and auto carriers that are on the platform now. So it's not like you're getting a random one-off carrier that shouldn't necessarily be writing a ton of business in your area. But we also are able to build into the platform, safeguards and kick outs, basically would say, you may be eligible for XYZ carrier, but that's not probably the right spot for you to be. You should talk to an agent. And that helps us prevent carriers from getting business that they shouldn't get and from clients choosing options that they probably shouldn't choose

Got it. And actually, just last one, if I could sneak it in. On the new business commissions, you said 20% of the new business is coming through. Was that the partnership channel? Or was that through digital agent. Can you clarify what that number was?

So that's coming from the enterprise sales team, which is largely the partnership channel. The digital agent is not today generating significant revenue and nor did we expect it to be generating significant revenue yet. We expect that those contributions to start to begin really in the second half of the year as it gets more deeply integrated into our partnership base. But the enterprise sales team, which is the human fulfillment of our partner engine, which has only really existed now for about 2.5 years, is growing really, really nicely and making real meaningful contributions to the revenue growth rates.

Our next question comes from Charlie Letter with BMO Capital Markets.

Maybe just on the new corporate state entries, and that you called out in the progress with Nashville and Arizona. Can you update us how much of your premium was in Texas this quarter and how you expect the evolving state mix to impact premium per policy, I guess, as we move throughout the year?

Yes. So for the first quarter, 37% of the premium was in Texas, which is down from 39% as of the end of the fourth quarter. So continuing to diversify the book, which is a really good thing. Each individual state has different kind of puts and takes on the economics of their own policies. So where you see usually lower premium per policy. Typically, you get better bind rates and better package rates. So it all kind of come out -- comes out in the wash in terms of productivity. We were really strategic in the locations that we pick. It's areas that have good demand from our carrier partners. I mean they want us to go sell new business there. They've got growing metropolitan areas. It's a good place to recruit from. It's the right kind of cost of living. So I'm really happy with where we've planted flags so far, and the -- those offices are off to really phenomenal starts.

And then maybe just one on the guidance. So the contingent commission number was really strong this quarter, but you didn't bring up the lower end of your guidance for total revenue. Can you just kind of walk us through your thinking? And I guess, what would -- how you're thinking about the cadence of revenue as we go through the year.

Yes. It was a strong contingency quarter like we've kind of talked about in the past, the first quarter always includes some kind of true-ups from the fourth quarter where we didn't have enough information to actually record revenue or there was too much uncertainty on where he would actually earn the commission. So we had an outsized number in the first quarter relative to history. That doesn't necessarily change our outlook on what contingency should be for the full year. So it didn't feel like there was a good rationale to try and update the guidance number, given we still don't know if there's going to be a hail or hurricanes or fires, right? So we'll continue to keep an eye on that throughout the year.

Just as a follow-up, nothing has changed on your view on core revenue and the cadence there, correct? SP1 Correct. Yes, correct. We're still expecting acceleration in the second half of the year as the improvements in client retention begin to outpace the kind of offset of the pricing impacts on year-over-year premium changes as well as contribution from strong new business production across all 3 sales channels really driven by agent productivity and adding a few more hands here and there.

Our next question comes from Andrew Kligerman with TD Cowen.

So I'm kind of curious on the franchise producers. Looks like you were up quite a bit year-over-year on less than a year of franchise producers, but those that have been with the company for more than a year, declined to $1,525 from 15 77%. Could you give a little color on why the -- the more experienced producers came off?

Yes, Andrew, that's really the consolidation that's been going on in the franchise community, which, as we've talked about in the past, is really a good thing and done very intentionally. In the business just to create more larger, more successful franchises. We continue to see that as super healthy. And so that's largely going to be taken out of people that have been in the system for multiple years. But what I'd like to see is that the agencies continue to reinvest that capital and hire more. So we had really strong gross adds in the first quarter. I was really pleased with that, and we're seeing good productivity of those producers. So it feels like the franchise community to me right now is probably healthier than it's been in many, many years.

And the producer per franchise office, is that number up materially year-over-year?

Yes. I think it's up something like 13% year-over-year, 18% year-over-year. So it's up to 2.2% versus last year this time, it was $1.9 million. it's moving exactly like we wanted to. I still believe we can get to about 5 producers per franchise in a reasonable time frame. And that's kind of where you start to get a real scale business that is -- operates a lot more efficiently than a sole proprietorship.

Got it, Mark. And then the other part of the same aligned question, for those producers at the firms more than a year, the productivity, franchise productivity was up remarkably from -- from 37 -- 30.6 to 37.4%. So wondering if you could provide a little color on that sharp productivity increase.

Yes. So I think that productivity number is on the per franchise right? So it's not at the producer level, that's the per franchise number. And so as more canine agencies keep hiring, that's going to help drive total productivity per location. But the individual producers underneath them are also getting more productive. That's a function of those producers ending up in franchises that are more in the top half of the community. The ones that have scaled infrastructure, they've got good management practices, they demand high levels of productivity themselves. And so we're continuing to try and push agencies to join that club, right, invest in your business, invest in your management infrastructure and hold people accountable, and that message is being well received.

Got it. And just one last one. The mortgage originators, the other home and Financial Services operations where you're embedding our enterprise product. It sounds really awesome. What is the most that keeps Goosehead with these mortgage originators and others and keeps out the competition. What's the moat there?

Yes. I think there's a lot of things that generate a pretty significant mode. I mean you can tick through the whole list, but we've got the national scale and local expertise of our agent force. So we've got more than 2,500 agents across the entire country, which means we know how to handle your house in Miami, your house and L.A. on stilts the one in the flats in Nebraska. We can handle everything that happens in your portfolio, we've got the ability to route leads appropriately, so you're getting to the best agent at the best time. We have the service function on the back end, which I believe is really differentiated in the industry. that can deliver strong levels of retention, which is where all of the actual profitability in this business is.

We have a better product offering than what we believe most other organizations have with over 200 different underwriters and the technology to bind in the human world, is we think much better than what other people have. But now we've also got the ability to bind fully digitally that. Again, I can't overstate this enough, nobody else to our knowledge has that ability to find product in one location and a choice shopping model. That is a huge competitive moat.

Our next question comes from Luke Nelson with Cantor Fitzgerald.

I'm just wondering, going back to retention, you mentioned you're expecting to get closer to 86% for 2026 plus I'm just wondering kind of can you get into a little -- some granularity around why is it taking kind of longer retention to improve than anticipated?

I wouldn't say it's taking longer than anticipated. I mean if you go back to some of the remarks we've made before, we never promised any individual quarter that it was going to tick up then. But if you remember, we were at 84% for 5 straight quarters. We've now been at $85 for I'm anticipating us to click up to 86% during this year. I'm really pleased with the direction of the client retention number. It is continuing to grind upward. We've got some specific initiatives ironed out to try and accelerate the pace of that client retention improvements. And obviously, the product market being in a really healthy spot now is super helpful for that.

Got you. And then I guess just from your understanding, do you think maybe the reason is not as high as it once was, is maybe the agents are more focused on the new business, but the service aspect doesn't have -- I guess, maybe the training to deal with the big increases on the existing business? Or just can you kind of give more detail there, at least on the programs you're trying to initiate?

No. Our agents have always -- it's always been their job to go capture new business, still deliver an excellent service when they're talking to clients, but their main focus should be capturing new business. And our service functions main focus should be retaining the existing business and really delivering an outstanding service. And we have made a ton of structural and foundational improvements into our service function in the last couple of years. We feel like we're delivering an excellent value proposition to our clients.

I think what's happening here is people are just kind of frustrated that pricing got so expensive over the last several years, and that's I don't know if that just means consumer behavior has fundamentally changed, and they feel like they need to shop it more frequently. If they do, I still think that actually benefits us because they're going to be shopping in an area where we can provide the most amount of actions with the best service. And so if you're coming from a different agency, we should be able to provide a differentiated value to you.

Okay. That makes sense. And then just my last question. I've just been looking sequentially at your Net Promoter Score just been declining since, I think, late 2024. Can you just kind of dig into what's going on there? And if you have any further details?

Yes, this is Mark. Other, Mark. I think we've said it before, the NPS score is kind of an industry sentiment sort of a score, the way we use it. steep price increases over the last 3 years, particularly in our biggest market in Texas have been pretty steep, like? So -- and FPS is a 12-month rolling average sort of number. And we've talked about we expect it to come down over time. And that's what we -- it's behaving kind of like we expected it to be. We -- I think we delivered an outstanding client experience. And it's kind of dislocated from retention rates at this point.

Mark just talked about retention rates every month continue to climb up. So they're kind of dislocated, and we do client surveys. The client survey scores are extremely strong. So we think we're delivering a really good client experience.

Our next question comes from Maxwell [ Fritzer ] with Truist.

Calling in for Mark Hughes. Your premium retention has been fairly steady here lately as you've mentioned, but doing a little math, the corporate retention has gotten substantially better over these last few quarters while franchise retention has dropped off just a bit. What is your experience in these channels that you think may be driving the difference here?

Yes. One thing I would point to is just kind of the geographic diversity of the franchise book versus the corporate book. So the franchise book has more exposure to places like Florida and California, where there was more commission rate pressure over the last several years. And so as you write more new business into the access and surplus lines or even the state-run plans, as those become a larger portion of the bucket just can drag down your revenue retention rates.

I'm not anticipating that continuing to be an issue. I'm expecting client retention to outpace that in the second half of the year versus the corporate team is much more in places like Texas, Chicago, Illinois, places like that where there is much more admitted product versus the excess and surplus lines.

Great. And then I think this was in the prepared remarks, but how many franchise locations were onboarded in the quarter?

20. 20 new agencies, 12 of which were launches from the corporate team and those are performing at about 2.5x the average external launch. So that strategy continues to be a really important one and one that is pretty strategically hard to replicate.

Our nexT question comes from Pablo Singzon with JPMorgan.

I wanted to ask about the growth in enterprise sales. I was wondering, I think you had got 70% growth year-over-year. How much of that was head count versus productivity? And I guess, how are you thinking about the channel as it scales up, right, because it generates a lot of flow. I presume there's some expected throughput for an enterprise agent, right? And depending on the flow you get, you'll match that with manpower. But if you sort of put everything together, like I guess like long-term growth and productivity or throughput versus regular corporate or regular franchise agents?

Yes. So enterprise right now, the growth is coming from a, we've got nice, stable, strong productivity, and we're adding more heads into the system. So we've built out a strong partner base, and we have what is a pretty honestly awesome pipeline of potential new partners. And so we can meter the lead flow just to make sure we don't get over our skis and can't deliver on the service we are supposed to deliver on. But we're adding heads now to the point where we feel like we can continue to execute on 100% of the lead flow. We just want to load balance that appropriately. And the tenure on that team is obviously still pretty low because it's only existed for a couple of years. But you're seeing at the top end of the tenure curve, the people who have been with us for a while now perform equal, if not better, than the average corporate franchise agent.

But over time, it's still a three-pronged approach, right? We want the enterprise team to be there to operate at speed and deliver for our partners. We want the corporate team to be there to be the talent incubator for the entire organization to demonstrate best practice to show kind of high how productivity can be and generate good profitability. And then the franchise team is kind of the growth engine that can get to every place in the country without this massive infrastructure that's required to run the corporate team.

Our next question comes from Roland Mayer with RBC Capital Markets.

I wanted to just ask on the -- last quarter, you talked about EBITDA margins being flat to down a little this year. And I was wondering if this quarter changes that expectation.

Yes. So if you look ex contingencies, I would say the expense base was slightly lower than what we were initially planning for in the first quarter, which is really just a function of timing of hires. So if you're looking at the compensation expense in Q1, I think it only grew 5%. And I wouldn't expect that trend to continue throughout the rest of the year as we onboard more talent to deliver digital agent integration into partners, kind of marketing conversion type things as well as additional sales head count and then some more service head count just to handle the additional workload that comes throughout the year as we continue to sell new policies.

On the G&A side, big G&A first quarter because we had our conference with our franchise community, our top end of our franchise community in the first quarter of this year. which was in the second quarter of last year. So that was approximately about $1.5 million of expense in Q1 that was not in Q1 last year. So if you round all that out, timing of compensation was a little bit delayed relative to Q1 initial expectations. So you should think of that as maybe high teens, low 20% growth rates throughout the remainder of the year. And G&A was higher in Q1 than it will likely be throughout the rest of the year, but it doesn't necessarily change our margin outlook for the full year because we still have some digital agent investments to make, we want to be leaning into growth right now.

Our next question comes from Katie Sakys with Autonomous Research.

I just wanted to circle back on some of the questions about our revenue growth. I think you previously framed first half as coming in closer to low double digits when we heard from you in February. Clearly, 1Q outperformed that. Do you expect 2Q to also sort of trend higher than those initial low double-digit expectations before it further accelerates into the back half of the year?

Yes. So Katy, I would just make sure you're tracking the $4 million from the second quarter of last year. That's a year-over-year comparison challenge. And we talked about low double-digit first half, not necessarily in each individual quarter. And in our prepared remarks, we said core revenue growth rate when you adjust for that $4 million comparison challenge will look similar to the first quarter number. And then from that point, you should be expecting to see kind of the renewal book begin to improve its performance, it's going to drive faster core revenue growth rates.

Makes sense. And then I think you guys had previously a couple of quarters ago suggested that on an annual basis, you expect about 10% of your corporate agents to launch their own franchises. Is that still the right launch rate to be thinking about?

Yes. So that's certainly the right launch rate to be thinking about over time. And if you look at the last 12 months, we've launched 30 corporate agents into franchises, which is kind of ballpark-ish, 10%. And then kind of a new development, which is a close adjacency is for some of our embedded partner franchises as well as our kind of larger-scale agencies. We've actually seeded them with a few corporate agents to help supercharge their growth. And that's really just when it is a good fit for that corporate agent. Maybe they want to move to that geography where that franchise is and it's a good fit for the partner or the other franchise.

So if you include those, we've now launched in the last 12 months, 30 corporate agents into their own franchise and placed 10 into existing agencies or partners. Which is completely aligned with the strategy we want to do, right? We want the corporate team to be the talent incubator. It's where we grow the best of the best. So that's a great way to supercharge growth on the franchise side of the business.

[Operator Instructions]. And I'm not showing any further questions at this time. I would now like to turn the call back over to Mark Miller for any closing remarks.

Yes. I just want to thank everybody for joining us today. It's an exciting time to be part of the Goosehead business, and we look forward to talking to everybody again in July for our second quarter call.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.

Good day, everyone, and welcome to Goosehead Insurance Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.

Now it's my pleasure to turn the call over to the Vice President of Capital Markets, Dan Farrell. Please go ahead.

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 discussions are subject to various assumptions, risks, uncertainties that are difficult to predict and which could cause actual results to differ materially from those expressed or implied 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. 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 in capital structure, tax position, depreciation, 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 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.

Thanks, Dan, and good afternoon, everyone. Thank you for joining our fourth quarter and full year 2025 earnings call. Before I get into the numbers, I want to take a step back and frame where we are, not just this quarter, but as a business since Goose is a company that rewards long-term thinking. Personal Lines insurance distribution is not a get-rich-quick business. As our founder, Mark Jones has said, it's a get rich over time and stay rich business and the work we do compounds when it's done correctly.

For the full year 2025, we grew total revenue 16% and adjusted EBITDA of 14% and delivered an adjusted EBITDA margin of 31%. These results didn't come from one-off wins that came from disciplined execution of our strategy and structural improvements across the organization. Several of our most important KPIs simultaneously moved up and to the right. For example, client retention continued to improve. We moved from 84% in the second quarter to 85% in the third quarter and we exited the year with continued upward momentum.

As we have said before, retention is the flywheel in this business. When retention improves, everything else gets easier; growth becomes more efficient, margins expand and client lifetime value increases. We also saw accelerating growth in policies in force, ending the year up 14%, increasing from 13% in the third quarter. At the same time, we have seen strong productivity across all 3 distribution networks: corporate, franchise and enterprise sales.

Now let's talk about the insurance market itself. Our industry operates in well-documented cycles, moving between hard markets, driven by elevated loss ratios, capital constraints and tightening underwriting and soft markets where loss ratios normalize, capital returns and carriers compete for growth. We're currently coming out of a sustained hard market where we saw carriers raising rates, tightening underwriting guidelines and reducing capacity, actions that were difficult in the short term but necessary to restore profitability.

Today, pricing has largely caught up with loss ratios, underwriting profitability has been restored and carriers are once again in a position where they want to grow. This is the environment where Goosehead performs best. A healthier product market means more choice for our agents, better outcomes for clients, lighter service loads more stable underwriting and carrier partners that want to grow alongside us.

The added variable of AI impacting the personal line space is beginning to take hold as well. When implemented strategically in the right portion of the value chain, AI has the ability to improve outcomes for all parties. For us in the distribution portion of the value chain, maximizing efficiency with our existing clients and matching carrier risk appetite with client demand represents the largest value creation application.

However, there is significant opportunity costs associated with chasing the wrong implementation of AI. Ultimately, the tool set will be broadly available, but the secret is the data behind the tool. Because we have built such a diversified book of business across 50 states, and with hundreds of carriers, we have access to proprietary data that we believe is highly differentiated.

Tools in the market today act as quasi lead aggregator technology, providing generic information about insurance broadly in your area. From what we have seen, these tools have no choice model transacting ability and in some instances, point users to contact their local Goosehead agent. Mark Jones Jr will go into more detail about our specific plans for implementing AI in our business. we're being incredibly thoughtful about investing only where it drives real value.

While we're encouraged by the product market and the technology advancements, I'm extremely proud of what this organization accomplished over the last 3 years without those tailwinds. Across our franchise network, we made a deliberate decision to prioritize quality over quantity. This has resulted in meaningful productivity gains, stronger economics for franchise owners and healthier system overall. Gross payments per franchise are up 29% year-over-year. This meaningful increase in cash flow enables our owners to reinvest in people and ultimately grow more rapidly.

We expanded total producer count while reducing the number of operating agencies, exactly what we would expect to see in a system getting stronger. Producers per franchise increased from 1.9 at the start of the year to 2.1 by year-end, which is 1 of the longest and most powerful levers in our model. This momentum was further evidenced by an increase in book acquisitions within the network, going from 38% in Q3 to 64 in Q4. Typically, the buyer is one of our strongest and fastest-growing agencies. So these consolidations of the entire community stronger, more resilient and positioned for growth.

On the corporate side, we did what we said we would do and fundamentally reset the corporate agent footprint. We expanded to new geographies like Tempe, Arizona and Nashville, Tennessee and reduced concentration in well-established markets. So far in 2026, we have 3 new offices fully launched, with a fourth slated in April.

A portion of our corporate agents outside of Texas increased from 30% in 2022 to 52% in 2025. Since 2022, the corporate team has produced 61 new franchises through our corporate to franchise ownership path, many of which now sit in the top 5% of new business production across the entire network.

Corporate new business growth also reaccelerated in 2025, reaching its fastest pace since 2021. This year, we also gained traction on our newest distribution on the enterprise sales and partnership network. This network is incremental, efficient and strategically important. It allows us to access portions of the market that traditional agency models simply cannot reach. In 2025, enterprise sales almost doubled new business production and partners on our platform now address millions of mortgages serviced across the country. At scale, this channel is a growth driver and margin accretive.

To summarize, the fundamentals in almost every area of our business remains sound, but we acknowledge the future of insurance distribution may look different over time as technology evolves. That is why we have been investing heavily in our technology road map for the past several years.

Technology remains one of our deepest competitive advantages, and we have exponentially increased the size of the tech organization in the past 3 years. adding skill sets not commonly found in our industry. Over the past several years, we've invested in both agent-facing tools and core infrastructure required to support a much larger organization. To that end, Goosehead has now delivered the United States' first end-to-end choice buying experience.

Our Digital Agent 2.0 platform is now live in Texas with multiple auto carriers and multiple home insurance carriers and active implementation. During 2025, we made massive strides in the hardest challenges in digital binding and we are now set to rapidly expand our product and geographic coverage.

These capabilities can only exist with deep relationships and trust with the carriers, complex integration with underwriting back-end systems, and high-scale service organization that can handle the complexity of hundreds of carriers and multiple product lines. This is not just another lead aggregation tool with an AI wrapper. This is a true frictionless digital distribution platform.

We want to give our clients the purchasing option they want, whether it is all digital, partially digital or completely human. By leveraging our proprietary data, we can deliver that shopping experience in a way that provides carriers with high-quality and retentive clients. We have also made significant strides to enhance our client experience with technology innovation.

We launched our mobile app, giving clients the ability to manage policies across multiple carriers in 1 place, introduce Lilly, our AI-powered virtual phone assistant. Lilly has already handled hundreds of thousands of client interactions, streamlining the client experience and reduce the number of calls requiring agent involvement. As these tools mature, we expect continued improvement in the client experience, alongside lower servicing costs.

It is an exciting time to be in the property and casualty insurance industry, especially for Goosehead. We have hardened our model, widened our competitive moat, improved productivity and profitability and lay the foundation for what we believe will become the leading digital insurance distribution platform in the United States.

Looking ahead to 2026, our priorities remain clear and unchanged: accelerating growth within existing agencies, placing agencies in the right geographies and expanding our corporate sales organization, scaling enterprise and partnership channels, continuing to invest in technology, particularly strengthening our proprietary AI applications and building a winning culture.

What excites me most is that we're entering the next phase with improving market conditions. When the product market is healthy, everything in our system works better. agents close more business, clients are better served carriers lean into growth and retention improves naturally. We finished 2025 in a position of strength, and our focus in 2026 is on continuing to execute against the opportunity in front of us.

I said forward that we believe Goosehead has the ability to operate at a Rule of 60 model over time with a combination of revenue growth and EBITDA margin exceeds 60% on a sustained basis. As our core KPIs continue to improve, and newer initiatives like partnerships and Digital Agent 2.0 scale, we see a clear path to progressing toward that objective. I'm proud of the progress we've made this year, and I'm even more confident in the position we've built as we continue to work towards our long-term objective of becoming the largest distributor of personal lines insurance in our founder's lifetime. Thank you to our clients, our teammates, our carriers and our partners.

With that, I'll turn the call over to our CFO and COO, Mark Jones, Jr.

Thanks, Mark, and good afternoon to everyone on the call. Mark Miller just walked through the broader story of the business, the progress we've made, the environment we've operated in and why we believe Goosehead is well positioned for what comes next.

I want to build on that by talking about how that strategy translates into execution and economics. What has allowed us to deliver consistent organic growth and strong profitability through a very challenging product and housing environment is not simply the result of what we did this year or last year. It is the result of maintaining a long-term mindset, staying focused on first principles and making decisions at compound over time.

Many of the initiatives you hear us discuss today were set in motion years ago with a clear view towards durability rather than short-term optimization. Our business is built around multiple growth engines that are designed to work together. At the core is our franchise network. Our focus here continues to be on productivity, quality and long-term economics.

We are seeing continued consolidation within the network where our strongest agencies are reinvesting cash flow to hire additional producers and acquire smaller agencies in their markets. This is a healthy dynamic and raising the bar across the system, improves client outcomes and increases the lifetime value of the book. While this has impacted our revenue growth over the past couple of years, this consolidation is value creating. The acquiring agencies are significantly more productive and better positioned to grow the acquired books through cross-sell, referrals and improved service.

You should expect to see this continue in 2026, resulting in less operating agencies but higher total producer count as that cash flow is reinvested by our agency partners. You can see this already as producer count has grown from 2,092 to 2,113, while shrinking our operating franchises from 1,103 to 1009 over the last year. The health of our franchise network can be seen in our strong same-store sales growing 19% in the fourth quarter.

Our corporate sales organization plays a critical role in feeding the franchise system. This is where our agents are trained in the Goosehead operating model, develop deep carrier expertise and build the habits required to run a high-performing agency. Over time, this group has proven to be the highest quality source of new franchise launches in the company. That is not accidental. It is the result of years of investment in training, leadership and culture and remains a structural advantage that is difficult for competitors to replicate.

Traditional corporate sales agents were 374 at year-end, growing 6% over the prior year. As we expand our corporate sales footprint during 2026, that allows us to reach new geographies with the highest quality talent pool. We have also continued to expand our enterprise sales and partnerships business, which allows us to access pools of potential clients that our traditional go-to-market strategy does not naturally reach. This channel is scaling quickly, growing nearly 100% in headcount, up to 115 as of year-end and is strategically important because it provides embedded lead flow, strong client trust and highly efficient client acquisition. From an economic standpoint, these partnerships are incremental to the core business and increasingly attractive as they scale.

What ties all this together is technology. From a capital allocation standpoint, our technology team is now the single largest portion of our P&L and rapidly making progress towards our growth and efficiency initiatives. Our digital agent platform is now live with multiple auto carriers in Texas with true end-to-end bind capability, and we've already seen policies bound with no human involvement.

We know of no other company with a choice product offering and the ability to actually bind policies digitally. Our platform is now live, and we plan to rapidly expand product and market coverage. Many of these transactions are coming from existing clients, allowing agents to add policies to their books with effectively no incremental effort. We're also in active implementation with a multiple of our top home carriers right now. In the second half of 2026, we plan to host a webcast at Investor Day to demonstrate what a true frictionless shopping experience looks like.

While some clients will choose to transact directly through Goosehead owned digital channels, we believe the larger opportunity is integrating deeply with our partners. While we are early in our journey here, the upside of deep penetration into our partners is substantial. These integrations allow us to reduce friction for their clients, solve real operational pain points and deliver high-quality risk to our carriers at scale.

Our partners today now represent a total of 2.3 million potential clients across mortgage origination, servicing and other financial services and the pipeline of potential partners continues to grow. The majority of that partnership base is still in the implementation phase, meaning the benefits from those arrangements are not yet felt in our financial results.

We believe our national footprint broad product access and highly differentiated service offering position us as the most logical partner of choice for those looking to add a choice model personal lines insurance offering into their business. Ultimately, we expect the partnership business in tandem with the digital agent platform have the potential to be the single largest growth driver in our company's history.

As Mark Miller mentioned, we're being very thoughtful in deploying AI into the areas that actually deliver a strategic advantage and profitable growth. There are many shiny objects in the world of AI, and we are focused on only the areas that drive a real tangible value. First, we are injecting AI into our service function to reduce friction for our clients and improve our service cost efficiency. As Mark mentioned earlier, we launched Lilly, our AI-powered virtual phone system. Lilly is already having a positive impact.

As Mark Miller mentioned, handling hundreds of thousands of client interactions and it is part of a broader set of tools we've implemented to intelligently route work, reduce complexity for our teams and create a foundation for further automation.

Second, utilizing our data and our carrier relationships to be intelligent about matching carrier risk appetite with client demand. The reality is, unlike a normal retail operation, an underwriter is not trying to sell an insurance policy to every homeowner in the country. Each has a specific risk appetite and to successfully maximize value, you must be able to segment clients appropriately and align them with the right underwriter. As these efforts enhance the economics across the value chain, we take part of that upside through proprietary product access and compensation plans.

And third, we expect to drive new business generation through targeted marketing campaigns to drive client retention, client referrals and cross-sells. As the product market ebbs and flows, being in front of the right clients at the right times should fuel new policy generation and existing policy retention.

We have made strong headway incorporating AI into our business where it makes the most sense and are steadily moving towards a model where selling and servicing can occur with far less manual intervention. That evolution is only possible because of the infrastructure, carrier relationships and operational discipline we built over more than 2 decades. This is not a departure from who we are. It's a continuation of it.

Turning now to our fourth quarter and full year results. Total revenue for the quarter was $105.3 million, up 12% over the previous year quarter and $365.3 million for the full year, growing 16%. Core revenues for the quarter grew 15% to $78.2 million and grew 16% to $317.9 million for the full year as a result of continued improvement in client retention and growth in new business production from all 3 sales networks.

Looking into 2026, we expect low double-digit core revenue growth for the first half of the year as year-over-year pricing dynamics impact the renewal book. Additionally, the consolidation of single producer franchises results in a short-term revenue impact. However, this effort dramatically improves the efficiency and productivity of the overall franchise network and therefore, our future growth and profitability.

We expect acceleration in the second half of 2026 as year-over-year pricing changes are more consistent, client retention improvements continue and the benefits of our recent partnerships and Digital Agent 2.0 investments take hold.

Ancillary revenues, which is largely comprised of contingent commissions, was $25.3 million for the fourth quarter, bringing the full year to $41.1 million. Contingent commissions in 2025 represented 86 basis points of total written premiums, which outperformed our expectations throughout the year. During 2026, our initial expectation for contingent commissions is between 60 and 85 basis points of total written premium.

Cost recovery revenues for the quarter was $1.8 million. As a reminder, revenues from franchise fees are recognized over the 10-year life of the agreement. When an agency exits the system, any unamortized revenue is then accelerated. We expect cost recovery revenue to be flat to down with normalized levels of franchise exits as further consolidation accrues within the network.

Total written premiums for the quarter were $1.1 billion, growing 13% over the prior year and were $4.4 billion for the full year 2025, up 17% over 2024. The quarter included franchise premiums of $896 million, up 15% and corporate premiums of $194 million, up 4%.

Policies in force grew 14% to $1.9 million, which accelerated off of the 13% growth rate in the third quarter of 2025. We expect continued acceleration of the policies in force growth rate for the full year 2026 as client retention continues to improve, our franchises onboard new producers and expansion of our partnerships in enterprise sales business.

Adjusted EBITDA for the quarter grew 5% to $39.2 million, up from $37.4 million in the year ago period. This includes $2.9 million of incremental strategic investments in the quarter that we believe will drive long-term shareholder value. For the full year, adjusted EBITDA was $113.6 million growing 14% over the prior year and producing an adjusted EBITDA margin of 31%.

Looking into 2026, we expect margins to be modestly down as we invest in broadening our application of AI, as I discussed, and our Digital Agent 2.0 and partnerships platform. We expect these investments to deliver incremental long-term growth and margin at scale.

We ended the year with $34.4 million of cash and cash equivalents and total debt outstanding of $298.5 million. Cash flow from operations for the year was $91.8 million, up 28% from the prior year. As we mentioned, we maintain a long-term focus for our business, and you can see that in our capital allocation.

During the fourth quarter, we repurchased and retired 323,000 shares of our Class A stock, representing $22.5 million. For the full year 2025, we acquired $81.7 million of our Class A shares and combined with 2024, nearly $145 million and over 2 million shares, representing approximately 8% of our total Class A share count as of the beginning of 2024. Given the current market volatility, today, our Board of Directors authorized an additional $180 million share repurchase authorization and we plan to continue to be opportunistic when there's a market dislocation.

As we look into the future, many things about how our business operates will adjust based on changes in technology and adaptations to market conditions. However, some critical things will not change. We remain committed to delivering our clients the best possible value with our sales and service functions. Our clients have a choice of who they do business with, and we want to make that decision as obvious as possible.

We remain focused on the personal line section of the P&C market as this is the area where we have durable competitive advantage and specific expertise. We remain committed to organic growth as the first and foremost driver of our business as that is the most sustainable and profitable way for us to operate. and we are committed to delivering our current and future agents with the best value proposition for distribution through technology, product access and back-office support.

As we look into 2026, our guidance for the full year is as follows: Total revenues are expected to grow organically between 10% and 19%. Total written premiums are expected to grow organically between 12% and 20%.

As Mark Miller said earlier, I want to echo my appreciation for the Goosehead team. Strong financial performance is never the result of a single initiative or a single quarter. It is the result of consistent execution across the organization. I'm proud of what we accomplished in 2025 and confident in the foundation we have built through the years ahead. Thank you to our shareholders for your continued support and to our teammates for the work they view every day to make these results possible.

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

[Operator Instructions] Our first question comes from the line of Andrew Andersen with Jefferies.

Just in terms of the guidance for next year, how are you thinking with regards to home closing transactions? And how are you thinking about the insurance pricing environment?

Andrew, yes, this is Mark Jones. So in terms of home closings, I think you saw some interesting data come in, in December, a strong December, followed by will look like a relatively weak January. As we've talked about for the last couple of years, housing construction, while certainly not a tailwind for us hasn't necessarily been a big headwind. Our agents have done a really good job continuing to go get lead flow and through our strategic partnerships, we just continue to decouple our business from the ebbs and flows of the housing market.

So we're not counting on any improvements in housing in terms of our guidance throughout 2026. I think that would be potentially upside. And then pricing, you could probably assume the bottom end of the guidance range includes pricing that's generally down in the top end of the guidance range, you'd have moderate increases in homeowners pricing. I think that's pretty consistent with what we're seeing in the market right now.

And then as some states consider measures like profitability caps or just tighter constraints on insurance pricing, how would those types of regulatory changes impact your business model, I guess, specifically carrier appetite, maybe commission economics and your ability to maintain growth in these geographies?

Yes. I mean it will be interesting to see how that plays out. I'm not sure that, that is likely actually to happen. I know I've seen a couple of articles about that across a few different states. I don't necessarily believe that is a good thing for the whole market. But what you'll probably see is the excess and surplus lines market, that can be a little bit more nimble, probably be more durable in those areas. But we'll just have to see how that plays out.

One moment for our next question, please. It comes from the line of Brian Meredith with UBS.

A couple of big picture questions. First, thanks for all the color on kind of how you're using AI, but maybe you can talk a little bit about why you don't think agents will be disintermediated through the use of AI? Clearly, that was a big topic last week.

Yes, Brian, this is Martin Miller. I'll take that one. So clearly, none of us have a crystal ball, but I'll give you my perspectives on it. Auto generally becomes more commoditized, I think, over time. It's a more standard commodity type of product. Home remains complex and often is the largest asset for our clients. And I think they're going to be particular about how they buy that product. And selling home in general, is just a much trickier sale. It requires a lot more detail, a lot more knowledge. So I think it's going to be difficult to disintermediate the clients.

And carriers when you think about them, what they want is they don't want to sell as much product as possible, what they want to sell is the highest product to the highest quality clients, and that's what we're doing with our agents. And the majority of our clients still want some human guidance interaction in the process. And we lead with the home and cross-sell with the auto so I think it makes it even harder for us to get disintermediated in this process. I see a world where it can be a combination of fully automated, maybe in a sale of an auto product. a hybrid sort of a product or a fully human distribution. But digital, in my opinion, just over time, increases the productivity of our agents rather than disintermediates them.

One last point is just it's really, really challenging to disintermediate when the service function is such a big component of it. And what's makes us head so unique is the size and capability of our service function compared to anybody else.

Yes. Brian, I would just add, I think people really underestimate the complexity of being able to distribute in a choice model directly to consumers. There's not really a ton of underwriting demand for that, especially on the home side. B, it's 50 different state regulators. There is a ton of different product out there and the product market has and flows. And then I would just call out, there's only from what we know of 1 business that can actually today buying policies end-to-end without human intervention, and that's us. Everybody else out there is lead aggregation.

Makes sense. And then I guess my second question, back to the digital agent, maybe you can dive in a little bit more on kind of what exactly that's doing because I guess the concern I have on it, is it going to actually cause customer retentions to actually start to decline here if it's easier and easier for customers to switch something like what's going on in the U.K.

So Brian, we've seen so far -- and granted, it's not like we've sold tens of thousands of policies so far. We've sold some. And largely what it has been so far as existing clients who are monoline home bought an auto policy directly from goosehead.com. That actually improves client retention because it rounds out their total account helps us capture full share of wallet better. And I think if you interact with one specific platform like we're trying to drive the industry to be Goosehead as really the place you need to purchase your insurance through. You don't have to leave Goosehead in order to get that full complete shopping experience.

And Brian, I think we're going to use it is pretty unique. Right now, you could go to goosehead.com for the state of Texas, and you can see auto carriers live that you can bind on. But when we think about how we use it over the medium term to long term, we're using it through our partner network that we've talked about that we've been adding. So we'll go straight at like mortgage service clients, if you will, cross-sell them auto, help them with their home products in the initial loan origination process, loan closing process and as their service books come up for renewal renewing their mortgages -- or lowering their mortgage insurance.

Yes. And ultimately, the service function is what really locks in client retention for the longer term. And the service function that we've built today does what we believe is the best job in the industry of fully licensed U.S.-based service agents who can handle the complexity of hundreds of different carriers in 50 different states.

Our next question comes from the line of Tommy McJoynt with KBW.

First question, along the same topic here. How did the majority of consumers that are serviced by Digital Agent 2.0 find their way to Goosehead? Is it through top-of-funnel search engines, through corporate partners? And to go further, do you think Goosehead needs to go integrate with the LLM such as ChatGPT, if that's where consumer eyeballs are going?

Yes. So Tommy, we'll certainly look at that. But we're not necessarily trying to drive a whole bunch of monoline auto business. It may be a way to generate a bunch of short-term premium, but it doesn't actually generate long-term enterprise value because that's not the most retentive business, it's not the highest quality business. And when there's a market downturn, it's typically the channel that gets shut off first. Our distribution point with the digital agent largely going through the partnership base, gets us access to a preferred set of clients, one where we can solve pain points for the partners and give the carriers, the type of clients that they want at scale and at speed.

We're not going to go into a giant advertising campaign to try and drive eyeballs Goosehead.com, but just the economics don't work in that world. And the advertising space and personal lines is so competitive. I mean you can't watch TV for 10 minutes without seeing 4 different insurance ads. So that's not an area where that's going to be a good use of capital.

And as we've gone around and talk to the big home carriers, that's not what they're looking for. They just don't want massive volume of low-quality leads. They want very select customer bases, and that's what we're going to deliver to them.

Got it. That all makes sense. And then switching over to buybacks. You saw the announcement of the sort of increased authorization here. Can you talk about your appetite and capacity for buybacks as we go through the year, given where the stock is now what's the cadence of our cash flow generation typically throughout the year that should unlock perhaps more front-loaded buybacks through this year?

Yes. So I would point you to 2025, we used 80% of the full authorization that we were pretty aggressive because we thought the stock was undervalued. Looking at the valuation of where it is today, I think it's probably safe to say we think we're undervalued, hence, the repurchase authorization. We generate a really strong amount of cash. First quarter typically has the contingent commission bonuses that actually get paid. So it may be the biggest EBITDA quarter, but it's a big cash flow quarter.

And then we've got strong flexibility in our balance sheet because we've been conservative over the long term and being diligent and not over levering. We have a revolving credit facility of $75 million, that's got same deal liquidity. So we have a lot of options, but we want to be aggressive and deploy capital in the way that's going to drive long-term shareholder value.

Our next question comes from the line of Mark Hughes with Truist Securities.

Yes. What is the latest number, and I apologize if you gave this earlier in the call, but the investment spending, kind of elevated investment spending in 2026?

Yes. The 2026 number is still the same that we talked about in the third quarter call. That's $25 million to $35 million of total cash, $8 million to $11 million of that, that hits the P&L. And just for your context, fourth quarter 2025 there was $2.9 million that hit the P&L in the Q4 related to the Digital Agent 2.0.

Yes. And you had mentioned, I think, $2.3 million potential mortgages available to you with the enterprise sales and other partners, but you're still ramping up. How many of that -- or how much of that potential is active as we sit here today? And what's the cadence for bringing the rest of that online?

Yes. A pretty small percentage of that is actually live so far today through either enterprise sales lead flow type arrangements or through embedded franchises. The embedded franchises that we have live so far today are performing really well. I think the story that having inbound lead flow already built inside your business is going to result in productivity is certainly holding true. But I get really bullish on that channel when I just look at what the potential pipeline looks like and how much we already have under contract and how the implementations are going.

So I would not say the majority of that $2.3 million is already kind of fully sending lead flow through. And then there's always going to be tweaks that we make as we learn on how to best engage with one specific audience. Is there a different marketing collateral that needs to be sent, do we need to adjust how we interact with them to drive conversion.

Understood. And then on the new business royalty fees up 6%, I think, this quarter. you talked about consolidation of the franchises that maybe impact productivity in the short term. You think that will be good for the long term. Anything else? That category has been a little volatile up 9% in the second quarter, but up 18% and then up 6% and maybe some of that is just underlying mortgage activity. But anything else that you would highlight around the productivity in the franchise channel?

Yes. I mean we feel actually really good about the health of the agency community. I mean same-store sales was up 19% in the fourth quarter. As Mark Miller mentioned in his prepared remarks, gross payments to agencies was up 29%. So the franchise community is healthier than what it has been in a long time. We feel really good about that. I think a really good leading indicator is our agency staffing program. The demand for that is really, really high. almost higher than what we can actually fulfill. So we've got to put some more resources against that.

But our top agencies kind of that top 200 bucket is growing really, really nicely. And they're kind of more like 25% to 35% same-store sales growth so I feel really good about the direction of the franchise community. Obviously, there can be quarter-to-quarter fluctuations in the overall growth rate of new business royalties, but we're expecting that to accelerate throughout 2026. You can see it in the higher plans from our franchises.

And if I could, one more, the corporate sales headcount, how do you think that will trend in 2026?

Yes. I would expect it to trend up. I mean enterprise sales should grow pretty strong just as we've got to onboard these partners, we want to make sure we have lots on seats to fulfill the lead flow. Traditional corporate sales team, we've seen nice improvements in the agent retention. We've made some changes to the recruiting profile that not get off of college campuses, but add additional talent pools of experienced sellers that we traditionally have not necessarily gone after.

And then as we've expanded geographically, and we've got 3 new offices here in February. We've got 1 more coming in the second quarter. I feel good about the direction of the corporate sales team and expect the head count to grow, and I don't expect it to double in 2026, but expect it to grow.

But I think the opening of the new office speaks to how we feel about the product market and our ability to grow the corporate staff. .

Yes. And the corporate sales team is super strategic to the long-term vision of the organization. I mean we talked about the franchises that we've launched in the last year, many of them are already in the -- not even just the top 5%, some of them are in the top 5 of the agency community already. So we really are able to grow what I believe is the best insurance professionals in the industry in-house.

Our next question comes from the line of Mike Zaremski with Bank of Montreal.

Back to the producer trend lines. Could you comment on franchise producers. It's been a bit volatile decline just a bit sequentially. I know it's better than expected last quarter. I think we heard you loud and clear about the to franchise consolidation. But how about -- do you expect producers at the franchise to increase at a more meaningful rate as the market opens up?

Yes. Our agencies are really looking forward to hiring in the fourth quarter, you typically have your lowest recruiting of new producers, just seasonally, you don't necessarily start people going into Thanksgiving going into Christmas. But the demand for new hires is really strong, and I want to continue to push that producers per franchise number. So it was up to 2.1 here in the fourth quarter.

I still believe 5% is a good kind of medium-term guidepost, continue to drive that up. And I think our largest agency is just about now, and we've got multiple that are over 20, some in the 30s. So the producer count is growing nicely. It's harder for you guys to see it just as the consolidation happens, but I'm feeling really good about the direction of that.

The larger the franchises, the more easily they can hire and onboard people and ramp them up. And that's what we're seeing is this consolidation is allowing the bigger ones to get bigger and have more staff. But it's just -- it's kind of blurred a bit because if you've got consolidation of the really small ones. But most of those small ones are just rolling up in the big ones that are more powerful.

Just directionally, will this consolidation dynamic kind of just work itself out of the system in '26? Or it's more of a kind of ongoing pruning and will be probably may be talking about this in '27 as well?

Yes. We talked about in the third quarter, probably the next 12 to 18 months. So you might see that a little bit into 2027. It's hard to say exactly because some of this is driven by those franchises themselves, whether they want to continue to operate as a sole proprietor or whether they'd like to join a bigger force. But ultimately, I expect probably the number to start to slow down, but it's still going to be slightly elevated in 2026.

Got it. And lastly, moving to -- you mentioned, obviously, the importance of retention. You can see the -- I think the sequential improvement this quarter. Maybe you can talk about kind of what's embedded in the guidance range you gave in terms of are you assuming retention kind of continues glide pathing up a little bit or a lot or not at all?

Yes. So we're continuing to see client retention improve basically on a daily basis. We look at it down to 2 decimal points. It's the first thing I look at every single morning. It's the most important piece of the business. So it's nice to see the trend continue up. You could probably assume the top end of the guidance range contemplates continued improvements in client retention, honestly, acceleration in the second half of the year. The bottom end of the guidance range would probably imply less improvements to potentially stalling in the client retention numbers.

We think the market is going to continue to improve. Pricing is going to likely slow down, which should naturally improve client retention. And then we've put so much effort into our client-facing tools and the service function, we believe we should be able to drive it up.

Our next question comes from the line of Katie Sakys with Autonomous Research.

I wanted to circle back to the Net Promoter Score for the quarter. And normally, I wouldn't focus on this metric so much. But if I think, the lowest that we've seen in quite a while. And I just wanted to ask for a little bit more color on perhaps what impact about this quarter? And b, circle back to the discussion of the impact of the rollout on the Digital Agent 2.0 platform and how that has sort of impacted your clients view of interacting with Goosehead and really how you foresee the further rollout of the Digital Agent 2.0 platform competing with other similar platforms from your competitors?

Sure. Let me take this one, Katie. And I'll just start by saying just a reminder, the NPS score is a trailing 12-month metric. So it still reflects a lot of the price increases that you saw early last year, and they started to taper off like third quarter of last year, but people were in shopping mode at that point and very dissatisfied with the general broader market of insurance in general, just when we get the type of price increases they saw. So I would say it's a general affordability kind of sentiment sort of measure.

We also started working in internally a CSAT score, which instead of measuring how they felt about would they recommend Goosehead to a friend, that's the NPS score. We're starting with the CSAT score, which is how is your interaction with your Goosehead agent that you just had. That score has been on a 5-point scale, about 4.2% since we started it and holding steady. So I don't think there's been a change there. And the other thing that we look at is just retention. And retention has consistently moved slightly up every single quarter what I think is another measure of how people are feeling about our service levels.

So overall, I feel very good about it. And when you think about the tools that we've put in place with our new mobile app is probably the first thing in our Lilly, our AI automated agent. I think those 2 things right there have really helped client service overall.

Got it. Okay. I appreciate that color. And then I guess thinking about the year ahead and your expectations for productivity growth. Can you kind of delve into more color on those additional pools of talent that you guys are reaching into to further support your recruiting efforts and how much additional tailwinds to productivity, those more seasoned producers might be able to provide relative to like the typical profile of a traditional Goosehead new hire?

Yes. So as we go after people who have a little bit more sales experience, what I anticipate is going to happen on that is, a, the retention of those agents should be better because they're not learning whether they want to be in sales or not on our dime. They already understand if that's what the career path that they want is. I don't necessarily think there's a magic bullet between hiring somebody that's off of a college campus versus hiring somebody that's got some experience as long as you're picking the right person who knows that they want to be in sales.

And we've made a lot of investments in the training program and the management intrastate over the last 6 to 8 months to help improve agent productivity in the corporate sales force. You can see that in the less than 1-year corporate agent productivity. And then as you look into 2026 in the third quarter call, we talked about smoothing out the hiring time frame, which is a little bit different than what we've done in the past. That should also aid both in productivity as well as in retention of those agents because you're not launching so many of them at one time where a manager has the potential to get overloaded.

Our next question comes from the line of Andrew Kligerman with TD Cowen.

Okay. Just some quick follow-ups on the earlier questions. On the one with regard to the guidance, of low double to high single digits or 10% to 19%. And you touched on retention being the key variable there. What's kind of your bias thinking? Do you think retention is...

Yes. I think retention builds up. We're seeing that already. I don't have a crystal ball for what happens in the second half of 2026, but my baseline assumption would be retention continues to go up.

It's highly correlated with pricing, and we're starting to see pricing stabilize. So that would lead that and we've put a lot of extra efforts into improving retention, just better service.

Got it. And with respect to the AI questions earlier, and I completely appreciate your points about the complexity of products and how you need people to do that. But I think the market's concern is around 5 years from now and years from now. So does your thesis still hold 5 and 10 years from now, where do you see that disruption coming?

Yes. So Andrew, I think if you're looking out 5 or 10 years from now, the company that is best positioned to leverage AI, I believe is us. because we've got access to proprietary data that we've built over 20 years that is not only just the generic publicly available data that you may have from just doing advanced Google searching on, hey, your ZIP code generally has replacement cost of X. Now we've got almost 2 million policies across all 50 states across a broad set of carriers that we're building the infrastructure right now to leverage that to be able to make the best possible decisions on behalf of clients.

So if you're rolling this for 10 years from now and say, AI is going to be the main distribution platform, which that may or may not be true, even if it is, that should be through us. I think we're the ones best positioned to capture that by far.

Andrew, I just -- the carriers don't give access to binding authority to just anybody. And that trust that we've built up over this time makes us very, very unique and well positioned even over the long term. .

Our next question comes from the line of Paul Newsome with Piper Sandler.

Also a little bit of a follow-up. I apologize if you already hit this or maybe you could just expand a the guidance or at least you're thinking for the next year or so, does that have any view on product availability changing over the time? I know that was at 1 point an issue with sales? And maybe just some general thoughts on the -- are we at the point where everyone is open. It's just not an issue? Or is there some sort of expectation that maybe it continues to get even better?

Paul, it's Mark. I would say on the auto side, it's been wide open for a bit now. The home probably 50% open towards the end of the year, pretty wide open right now. There's not a market that we operate in that we're having a significant product availability issue, carrier appetite is returning. There might be slight restrictions on some of the carriers where you have to bundle the product or something like that. But generally speaking, we've got product in every market right now.

Yes. So as you're thinking about guidance, there's not -- it doesn't really contemplate on either end of it, changes in the product environment. I don't necessarily see that coming in 2026.

[Operator Instructions] Our next question comes from the line Ryan Tunis with Cantor.

First question, I want to make sure I heard this correctly. It sounded like in your discussion of '26 objectives that you're assuming a slightly lower take rate on the contingents. So that's question one. And if that's right, I was wondering if your margin guidance, excluding contingent commissions allowance for any improvement.

Yes. Ryan, generally, we've had really strong contingent commission years the last 2 years in a row, 2024 and 2025. That's probably the base case assumption going into 2026, just given how that can impact both revenue and earnings in 1 year given that it is currently February. There's plenty of things that can still happen in the year that can swing that one direction or another. I don't think it would be prudent to just assume it's going to be 8 or more basis points.

So internally, that's what we're kind of planning towards that 60 to 85. We've talked about forever that long-term average is 80 to 85 basis points and then we've shown that a couple of years in a row. But I want to make sure we give ourselves enough degrees of freedom in the event that there is some kind of catastrophic events, if there's a bad hurricane season, if there's wildfires, things like that.

So any comments on the -- any chance the margins can expand like if we exclude those? And I'm just wondering how much the decel and contingent is weighing on that margin guide.

Yes. No, the margin guide is really more around the core investments that we're making into the Digital Agent platform, into the partnership space. And just as you think about cadence and pacing of that throughout the year. There's a couple of factors I want to make sure we bring up. One, and we talked about the year-over-year comparison on changes in pricing, impacting the first half of the year more than it does in the second half of the year. And so that's flowing through the renewal block can impact profitability as well as the revenue growth rate.

And remember, we talked about hiring corporate sales agents more evenly throughout the year, which would mean that gets floated a little bit into the P&L. But generally expecting as the renewal block continues to grow and retention improves at the second half of the year, you get better year-over-year margin. But I think if you look at it ex contingents, you're probably still expecting margin compression because of these investments that we think are going to drive long-term growth and shareholder value. help us drive towards a real industry leadership.

I guess just trying to frame these investments even going on for a little bit of time. Are you guys confident that looking out in the '27, '28, this morph into a real margin expansion story? Or is it still kind of wait and see in terms of what you might have to invest in?

Ryan, we're pretty confident that long term and at scale, this is very accretive to the mortgage profile. And to be clear, this isn't kind of infinite money pit that you see a lot of AI investments. This is very thoughtful about what we're investing in the specific teams, what we anticipate the return profile to be. So we feel really confident this is an investment that is most likely to pay off. And it is a defined time period, it's not an infinite kind of black hole of investment. Yes. So at scale, it's going to be able to drive significant growth and significant margin opportunity.

And then just last one. I think just looking at the franchise commission rate that's come off over a point since 2023. I guess, first like how focused are you on trying to get those commission rates back up here in 2026? Or is that going to be somewhat sticky?

No. I think be a focus for us, and now is absolutely the right time to be having those conversations. If you look at the last couple of years. And we always want to be a good partner and back our partners play, and we expect our partners to keep the same. So the last few years has been a challenging time to be an underwriter. That's not necessarily the case right now. And so as you look at ways to drive the most profitable growth for a carrier, investing in your distribution channel that's been a good long-term partner for you is a good way to do that.

And if you think about the franchise business specifically, there's a lot in California. There's a lot in Florida. So over the last couple of years, that's been a lot of business to a California Fair plan and Citizens, both of which have much lower average commission rates in the market because they're not necessarily trying to incentivize you to write business on them. And then we've seen the uptick in the excess and surplus lines market over the last several years.

And I don't necessarily think that's going away. I think the growth rate probably starts to trend down. But from a positive perspective in our book, you're seeing E&S markets start to behave a lot more like the admitted market, both from an agent kind of access from a client understanding and importantly, from a compensation perspective.

One moment for our next question. It comes from the line of Pablo Singzon with JPMorgan.

So first question, you've framed the high end and low end of guidance in terms of drivers such as pricing and retention. So should we take your comments about the first half core revenue growth being in low double digits as a representative of the midpoint? Because yes, it seems like a steep trajectory in the second half to get the midteens for the full year. So just wondering if you could comment on that point.

Yes. I mean we're expecting acceleration in the second half of the year through head count growth and really all 3 distribution channels, more partnership efforts coming online and continued improvements in client centrum.

Okay. But double digits for the first half in your view that sort a realistic midpoint like level for guidance, right? In other words, you're not being too conservative in setting that expectation for the first half?

Yes. I mean, remember, our philosophy that we've reiterated a lot of times is we try to be as honest as possible in our guidance and guide you to what we actually believe is going to happen.

Okay. And then next question, just on the Digital Agent 2.0. I guess is the plan to roll it out nationally ex partnerships. And I'm curious if you're actually able to measure the business you're getting from it, if it's different or incremental from business that your agents would have generated anyway?

Yes. I mean the policies we balance so far are monoline home clients who have -- many of them, at least our model home clients who have gone and found an additional auto policy. So an agent was basically had no incremental effort. It now has grown their individual book of business and really received full compensation on that. I want agents engaged and excited about the digital agent, and we will be rolling this out more broadly across additional geographies as we continue to go take share in other markets.

Now it's probably not going to be something that's at least all 50 states of blitz, right? We're not going to try and sprint to South Dakota. It's obviously, in order of prioritization to make sure that we can cover the right geographies where, a, both our carriers want us to be and there is significant demand in the market. and there's good overlap with our partner client base.

Right now, Pablo, as I said earlier, we're focused on getting auto carriers on in Texas, which we've been successful in doing that. We've got a little bit more work to do there. At the same time, we're building out the connections to the home carriers for Texas, and we'll test and pilot the product in Texas and then a quick follow-on to other states where we can just replicate what we've built.

And our last question will come from Mike Zaremski with a follow-up with Bank of Montreal.

Just a quick one. On premiums coming out of Texas, I think last update, that was at very high 30s. And just curious if that's -- do you expect that to stabilize and go back up? Or are we still kind of mixing out of Texas a bit?

Yes. We're continuing to diversify outside of Texas. For the full year, Texas was 40% of the premium for the fourth quarter. Texas was 38% of the premium. So that's been a really concerted effort by us just reduced dependency on the Texas market. If you think about the last several years, that was probably the area where there was the most product construction. So I just want to make sure we've got appropriate coverage in the right geographies where carriers want to be, where agents can be successful. So you should probably expect to see the Texas proportion of total written premium continued to decline as the rest of the country grows.

And I don't see any further questions in the queue. I will pass it back for any final comments.

Sure. I just want to thank everybody for taking the time to join the call today. As you can see, it's an exciting time to be in the personal lines brokerage business, and we look forward to talking to everybody again in April with our first quarter results.

And this concludes our conference. Thank you for participating. You may now disconnect.

Good day everyone, and welcome to Goosehead Insurance Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

Now it's my pleasure to turn the call over to Dan Farrell. Please go ahead.

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 discussions are subject to various assumptions, risks, uncertainties that are difficult to predict and which could cause actual results to differ materially from those expressed or implied 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. 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 in capital structure, tax position, depreciation, 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 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.

Thanks, Dan. Good afternoon, everyone, and thank you for joining our Q3 2025 earnings call. We are pleased with the results this quarter as they reflect continued momentum and strong execution. Our sites remain squarely focused on our goal to become the largest distributor of personal lines insurance in the U.S. and our founders lifetime.

It has now been slightly over 3 years since I joined Goosehead, and I've never been more excited about the direction we're headed. What originally drew me into this business with the strong fundamentals and market dynamics that create the opportunity for durable and sustainable growth to hit a few of the most critical points. We distribute a product with almost completely inelastic demand. If you live somewhere or drive something, you must have insurance. We operate in an industry with over $530 billion of total written premium annually. We have made great progress towards industry leadership over the past several years, growing from just over $2 billion in premiums in 2022 to over $4 billion this year.

Interestingly, we still represent less than 1% of total market share. So our runway for future growth is enormous. Our industry remains fragmented. No individual distributor has more than 20% market share which provides us freedom of movement across every market in the country and allows us to accelerate share capture. Our choice model and national scale are highly differentiated. We've worked incredibly hard to build out a product portfolio of national brands and niche regional products that allow our agents to be successful in just about every market in the country.

Clients demand choice, and we have built a platform that provides a superior shopping experience. The competitive set, specifically in the personal line space as major gaps in meeting client needs. Single-product platforms, like direct online distribution and captive agencies can't meet the clients' needs for choice. Subscale independent agencies generally lack the necessary service capabilities, product depth and technology to deliver an exceptional client experience. This very favorable backdrop attracted me here, and each one of these points remains true today. There are no structural limitations to our growth and we believe we are positioned better than anyone else for long-term industry leadership.

During our second quarter earnings call, I laid out 5 key strategic initiatives: supporting accelerated expansion of our existing agencies, placing the right new franchise owners in the right geographies, expanding our corporate team to further support top decile agency growth, ramping new go-to-market motions through our enterprise sales and partnership teams and developing new and maturing technologies. The first 3 key strategic initiatives relate directly to maximizing growth of the franchise channel and we have made great progress here.

For example, in Q3, our Agency Staffing Program, which we call ASP, helped our franchise owners place 90 new producers into their agencies, a record for 1 quarter. We have identified the top markets to launch new franchises in and we are aggressively pursuing that strategy, launching 34 new agencies across 13 different states during the quarter. We launched 10 corporate agents into franchises during the quarter, resulting in new business production equal to 77 average franchise producers.

To further support corporate agents launching into the right geographies, we opened our newest corporate office in Nashville, Tennessee on October 1 and have identified the next several locations for 2026. Expanding the corporate office footprint creates amazing career opportunities for our corporate teammates and exceeds new geographies with top decile future franchise talent. Our newest go-to-market team, the enterprise sales team, which takes inbound leads from a diversified set of partners continues to scale, growing over 100% versus Q3 last year. We've also made meaningful progress on our AI initiatives implementing new tools into our service delivery function to improve the client experience, reduce complexity and drive unit costs down.

On our previous earnings call, we talked about several new partnerships that took the form of a Goosehead franchise. I'm excited to share another win this quarter. Goosehead has partnered with a top 20 mortgage originator and servicer who upon launch immediately will be poised to become one of the largest agencies in the Goosehead system. We believe our industry knowledge, seamless user experience and white glove service will deliver an unparalleled client experience. Just to frame the size of the partnership business, we have already signed or taken live on our platform, partners that represent in total more than 1 million home loan serviced and 75,000 home closings annually. Our partners we have a captive audience, a great reputation with our clients and a specific need to solve client pain points are the perfect place to insert the Goosehead shopping experience.

Over the years, Goosehead has become known for its innovative business model and technology. We have spent hundreds of thousands of hours and millions of dollars on building a technology stack that widens and deepens our competitive moat. Going back to 2018, we were unsatisfied with the comparative rating tools available in the market. So we built our own. We call that technology Aviator and it allows our agents to quote more efficiently. We built a client-facing quoting tool, our digital agent that today provides lead flow to agents across the country and gives clients a real look at potential insurance options. We then deepened our integrations with a number of our carriers developing quote-to-issue technology within Aviator that allows our agents to bind policies without ever leaving the Goosehead ecosystem, speeding up time to close and reducing friction.

Building this foundation has been critical for the next step in our evolution, direct-to-consumer technology, which will integrate our quote-to-issue technology into our existing client-facing digital agent. We believe the digital agent will revolutionize how personal lines insurance is distributed, and it will break through the human capital bottleneck. Over the next year, we plan to deploy this tool to our existing and new partnerships. Leveraging their client relationships to provide a tailored insurance shopping experience that ultimately maximizes value creation across the entire distribution chain.

For our carrier partners, delivering the highest quality client by utilizing precise client segmentation analysis and target marketing. For our distribution partners, increasing the lifetime value of their clients and solving pain points in their existing business. For our agents increased productivity, allowing them to focus on marketing and cross-selling into our existing client base. For Goosehead by driving high growth and high-margin business at scale, and most importantly, for our clients, providing a world-class insurance shopping experience that doesn't exist in the U.S. today.

This incredible opportunity is about investing for the long term and remaining laser-focused on delivering shareholder value. Mark Jones, Jr. will give you more specifics on the timing and level of investment. We have an exciting road ahead of us at Goosehead as we enter into what appears to be a stable pricing cycle that we believe will allow our business to operate much more efficiently, resulting in higher client retention, higher buying rates, higher package rates, higher contingent commissions and most importantly, higher client satisfaction.

As I turn this call over, I am pleased with our performance. This quarter demonstrates that we continue to gain momentum, remain focused on our clients, empower our teammates and execute with excellence. We have a massive head start on our competition and I'm confident in our team. I would like to sincerely thank the Goosehead team for their hard work.

With that, I will hand the call over to Mark Jones, Jr., our CFO and COO.

Thanks, Mark, and good afternoon to everyone joining us today. My 9-year anniversary with you said is on Monday. But in reality, I've been around the business since its inception. I've seen or been directly involved in every iteration, every major decision, every success and every mistake from the front row. I can say with complete conviction this is the most exciting time in our company's 22-year history. We are literally building the future of personal lines distribution in real time.

As Mark Miller mentioned, our evolution of the digital agent to allow a frictionless experience for clients, which paired with our strategic partnerships is a massive opportunity for Goosehead to rapidly take share in a sustainable and profitable fashion. For many years, the investor community has asked us why we can't simply invest more money to drive faster growth. Our limitation has always been our ability to absorb new agents into existing teams, not a capital constraint. With the next iteration of our digital agent, we now have the opportunity to utilize our strong cash flow to invest aggressively in areas that break the human capital bottleneck and allow for much more rapid growth in the future. While we believe the independent agent will remain a critical piece for personal lines distribution, we also recognize there's a growing portion of the population that wants to interact and transact digitally.

With that segment of the population, the bottleneck to growth isn't how many producers we add or how productive each producer is, but how seamless and educational we can make the process for clients and about capturing the maximum amount of lead flow. Today, we're going to talk about the investments we're making in both of those areas, the technology build and the business enablement through partnerships. While both are well underway, now is the time to double down and aggressively drive towards a full-scale platform. Let's review several numbers.

In 2025, so far, we have invested $10.9 million into the digital agent platform, of which $8 million has been capitalized and $2.9 million recognized into operating expenses. During 2026 and 2027, in each year, we expect to invest between $25 million and $35 million and anticipate approximately 70% or $17 million to $24 million to be capitalized with the remaining $8 million to $11 million flowing through operating expenses. Operating expenses will include approximately $7 million to $10 million in headcount costs between both technology and partnership enablement and an additional $1 million in G&A. We expect revenue contributions to begin in the second half of 2026 with meaningful acceleration as additional carriers, states and partners come online throughout 2027 and beyond.

The digital agent provides us the ability to efficiently penetrate significant portions of our total addressable market in a much more scalable fashion than our traditional referral partner relationships. Because of this, we believe the digital agent can add substantial incremental growth on top of our existing business with the potential to drive to 40% plus total written premium growth within the next 5 years. As Mark Miller mentioned, during the quarter, we signed a new partnership with a top 20 mortgage originator and servicer. This new partnership and others already on our platform are the ideal place to implement the next iteration of our digital agent. By integrating with our partners, we will be able to utilize the full depth of our data to provide actionable insights into what coverages make the most sense for a particular client and pairing that with newly developed AI tools, be able to risk match with carrier demand in their geography. This is critically important because it allows us to deliver exceptional value to clients, partners and carriers.

While these new go-to-market motions are exciting and will be important for the medium and long term, our core business continues to perform and gain momentum. Franchise producers at quarter end were 2,124 up 1% from a year ago and producers per franchise was 2, growing 6% over the previous year. As we have previously discussed, consolidation in our franchise network is continuing to take place. Our best agencies are reinvesting their cash flow into 2 main areas for growth: first, onboarding new producers; and second, acquiring other franchise owners in their regions to further grow their total cash generation. Our most productive agencies are the ones most active in franchise consolidation, which helps further drive value creation as they onboard the newly acquired book and reach out to the existing client base. Acquiring agencies during the quarter had 3x higher average productivity per producer than agencies that were acquired.

Operating franchise count for the quarter was 1,068 a decrease of 4% over the previous year. This is intentional and drives higher performance from the existing franchise base and further protects our brand. We expect operating franchises to continue to decline for the next 12 to 18 months, however, we anticipate continued growth in producer count during that time.

Our corporate team delivered its highest growth quarter in nearly 4 years, generating new business commissions growth of 20% year-over-year accelerating off of 13% in the second quarter of this year. Our strategy with our corporate sales team can be boiled down into one simple goal to become a talent incubator for the rest of the organization. This team is the best place in our business to learn the Goosehead operating model. Our agents learn the value proposition to our clients and referral partners, the nuance of individual carriers, our systems and management practices, how to take care of clients on a daily basis and are grounded in the Goosehead winning culture.

Success for our corporate sales team should be measured in terms of franchise launches, 10-year adjusted productivity and turnover. When we are consistently populating the country with high-quality franchises out of corporate, demonstrating best practices while setting the bar for productivity and minimizing turnover, our corporate sales team is executing exactly as designed.

During 2025, we will launch a total of 10 franchises from our corporate sales team and looking into 2026, we expect that to be at least 20 with a medium-term goal of 50 or more a year. Turnover is trending in the right direction, but remains higher than our targeted level. We expect to reduce turnover with 3 key actions: first, reducing the sales manager span of control. Second, by investing in additional training and development programs that help our agents come down the learning curve faster and create a greater sense of connection to the organization. And third, as we look into 2026, smoothing out hiring of new corporate agents through the first 3 quarters of 2026 with limited onboarding in the fourth quarter.

Our corporate sales team ended the quarter with 523 total agents up 14% over the previous year, inclusive of 423 traditional corporate sales agents and 100 enterprise sales agents. The product market has improved dramatically over the last several months with national brands becoming more available, new entrants into important markets and more stable year-over-year pricing throughout the book of business. As we progress through the rest of 2025 and into 2026, we expect the product market to become a tailwind rather than the headwind it has been for the last 3.5 years.

Remember, our business functions much more efficiently in a stable pricing environment. More product is available close rates and cross-sell rates for our agents improve, the burden on our service team comes down, client retention improves and contingent commissions become more meaningful. Simply put, lower year-over-year premium increases are a great thing for our business.

During the third quarter, we generated strong profitable growth. Total revenue grew 16% over the previous year to $90.4 million, core revenue growing 14% to $83.9 million and adjusted EBITDA growing 14% to $29.7 million. Adjusting for our renewal commission recovery in the second quarter of $4 million, core revenue year-over-year accelerated 131 basis points during the third quarter. We expect continued acceleration in the fourth quarter and improvement for the full year 2026.

As of quarter end, client retention improved to 85% after 4 consecutive quarters at 84%. We expect to see continued improvement in client retention over time as we enter into a softer pricing cycle. We see no structural reason our client retention cannot ultimately return to or exceed our previous high of 89% given the level of investment we made into our service delivery function and client-facing tools like our mobile app. Policies in force at quarter end were $1.9 million, a 13% increase over the previous year period. The policy in force growth rate, while still 13%, has accelerated 37 basis points during the quarter, and we anticipate further acceleration in the fourth quarter.

Total written premiums was $1.2 billion for the quarter, up 15% from a year ago. This includes franchise premiums of $976 million, up 18% and corporate premiums of $206 million, an increase of 1% from a year ago. We anticipate similar year-over-year growth in total written premiums in the fourth quarter as improvements in client retention are offset by pricing declines followed by acceleration through 2026.

Contingent commissions for the quarter were $4.5 million compared to $2.5 million in the previous year, an increase of 82%. Based on current carrier loss performance and the frequency of catastrophic events in 2025, we now expect contingent commissions of 55 to 80 basis points as a percentage of total written premium. While our outlook has improved, there remains a wide range of potential outcomes for the fourth quarter.

Cost recovery revenue was $1.5 million compared to $1.6 million a year ago. Adjusted EBITDA for the quarter grew 14% to $29.7 million from $26.1 million in the prior year period. Adjusted EBITDA margin for the quarter was 33% compared to 34% a year ago. Adjusted EBITDA margin, excluding the effect of contingent commissions, was 29% compared to 31% a year ago. As of quarter end, we had $51.6 million of cash and cash equivalents and total debt outstanding of $299 million. Because of our strong cash generation and conservative balance sheet management, we are afforded optionality in how we drive shareholder value.

During the quarter, we repurchased and retired 685,000 of our outstanding Class A shares, utilizing $58.7 million of our share repurchase authorization. We are incredibly confident in our trajectory and view the current market dynamics as a great buying opportunity for our organization and a lever to further compound earnings per share growth. We are reiterating our guidance for the full year 2025. Total revenues are expected to be between $350 million and $385 million, representing organic growth of 11% in the low end of the range and 22% on the high end of the range. Total written premiums placed for 2025 are expected to be between $4.38 billion and $4.65 billion, representing organic growth of 15% on the low end of the range and 22% on the high end of the range.

Before we open it up for questions, I would like to recognize and thank the Goosehead team for another quarter of disciplined execution, hard work and commitment. Also, thank you to our valued partners who continue to make our journey to industry leadership on reality and importantly, our clients, who we strive to serve with excellence.

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

[Operator Instructions] It comes from the line of Brian Meredith with UBS.

A couple of [indiscernible] for you. First one, I'm just curious, now that you have the enterprises becoming bigger and bigger. Maybe you could kind of break out kind of the margin profile of franchise versus corporate versus enterprise as we kind of think about it in kind of the growth rates you think longer term in those different channels.

Yes. Brian, thanks for the question. So the enterprise sales business, we've structured it so that the margin profile of that over the longer term is actually more impactful than the regular corporate or franchise business. So ultimately, in the short term, investing it and starting it from 0, it doesn't have the same margin. But over the longer term, it will generate higher levels of profitability than the franchise or corporate business.

The franchise business is still, however, the driving force of the entire organization. It's something like 80% of the total written premium and the vast majority of the agency force. It's growing at a nice rate. Right now, you saw 17% new business royalty fee growth in the third quarter that accelerated off to 9% in the second quarter. So we're really pleased with that, but we would like it to be growing even faster than it is. And so what we're doing about that is just continuing to add new producers into the best possible agencies, help them find the right people and then arm them with the right tools to be as successful as possible.

And then on the corporate side, you probably noticed that growth rate continuing to accelerate. The first quarter, 1%, the second quarter, 13%, third quarter, 22%. That team is going to continue to grow, but strategically into the right geographies with really the big purpose of launching franchises out of that. In the future, it's possible that you see disclosures broken out again, but the margin profile of that core business looks relatively consistent to how it has looked historically with the natural operating leverage year-over-year.

Got you. So just what you're kind of saying is that when you think about it, margin profile is going to be enterprise ultimately be the biggest income franchise some corporate. So as the franchise is growing faster and enterprise is growing faster than corporate, that should have a really favorable impact on margins.

Yes, that's right. Over time, at scale, right?

Yes. Okay. And then a question on the digital agent. It sounds really interesting what you're doing there. I guess the question I have is, one, how many carriers do you have on that digital agent right now? And what is the kind of pushback and resistance from a carrier perspective to be involved in that?

Brian, this is Mark Miller. I'll take that. So I would think about it in multiple ways. The digital agent that we've had for several years out there that hangs off the goosehead.com site. We're of a shopping engine there than an actual booking engine. And then we've been talking about QTI integrations for some time now. There's about 12 carriers, I think, a mixture of home and auto that we built QTI connections for. What we're talking about with [ DTC ], which we kind of called -- continue the name of digital agent, you'll see us start using digital agent because we just want to come up with another new name.

With digital agent, we're connecting that front end with the back-end capability. And we've talked to the major carriers that we need to integrate. Right now, our strategy is to go out with a handful of home and a handful of auto carriers at the same time. And we've talked to those carriers. And I would say their position is very strong and supportive of what we're doing there.

Is from Andrew Kligerman with TD Cowen.

I guess the first question is around home sales, home prices. What are you seeing there? And how is that affecting your written premium right now?

Yes. I mean we're not seeing any progress in housing activity. It's still a really depressed levels. The good news is, for us, we are such a small percentage of the market share that there's still just opportunity for us to go make more loan officer and realtor lead sources. So we've been continuing to do that, which is helping our teams continue to generate incremental lead flow. But the flip side of that is when you see an uptick in housing total volume, we've now got more total endpoints sending us leave than we've ever had before. So it will be a much bigger tailwind when housing starts to increase and it is a headwind right now.

I mean it would certainly be favorable for us if housing starts to pick up. But right now, I think we've done a fantastic job of building out the entire referral partner network to capture as much lead flows as we possibly can and continue to take share in our existing markets.

And I would just add on top, but I would say the biggest positive right now is just the reentry of insurance back into the market. So it's opening back up pretty quickly right now. And I talked about auto last time opening up the housing market is opening up pretty quickly, which kind of accelerates what Mark just talked about with the housing market. It's an accelerator on it.

I see. And then the second question would be around franchise producer counts, which I think you've been emphasizing is more important than the actual franchise numbers. So we're looking at a quarter where the producer counts up about 1% year-over-year, 2% sequentially. And then I think, Mark Jones, you said you're going to add 10 franchises for the balance of the year, a minimum of 20 next year. So how could we think about producer count growing maybe for the balance of the year or next year? Or just what's kind of -- when do you think you'll get to like a run rate? And what would that be in terms of year-over-year?

So Andrew, a couple of things to unpack there. One, you mentioned 10 franchise launches this year. Is that specifically corporate agents who are launching franchises. And do you expect that number in 2026 and a medium-term goal of 50. We're continuing to put new agencies into the system. I think we launched 34 in the third quarter. But this franchise consolidation effort is continuing to take place. I said in my prepared remarks, these agencies that are actually acquiring in the market as productive as the ones that are exiting the market. So it's not purely about the number of producers. It's about where they're located and which franchises that they're in. So we're going to continue to help our agencies source as much as we can to drive that producer count growth. I expect to see consistent producer count growth.

Now it may not be perfect every single quarter that you get consistent sequential growth. But over time, we expect to continue to drive expansion in the producer number. And we did talk about in the prepared remarks, you should expect the operating franchise count come down for the next year, 1.5 years. That is a really good thing for the business. It protects the brand and make sure we have the right agencies working in the right geographies. But you'll continue to see producers per franchise expand.

Got it. So grow the producer count, no particular numbers right now, but it's just more the quality of the situation.

Our next question is from Ryan Tunis with Cantor.

Thanks. I guess I'm just curious why we're not a little bit more upbeat about the revenue trajectory here just given, again, like, yes, had the -- means kind of reopening Texas, et cetera, we haven't had any real catastrophes this year. It seems like all the homeowners companies will want to get back in there. We're kind of reiterating revenue guidance. So I'm just kind of wondering like why are we not -- and yes, you guys bought back $60 million of stock. I'm just wondering why that's not kind of the main focal point here?

Ryan, I think we're really optimistic about the direction of the business, right? We've been finding an incredibly challenging product market for the last 3.5 years, and we're just now starting to enter a soft cycle that we don't know how long it's going to last for. But if you look at history, the soft cycles typically end up being longer than the hard cycles, I think we've got producers generally in the right geographies. We're continuing to expand the geographies that we have the corporate agent footprint in so we can capture as much market share across the country as possible.

Your point on carrier loss ratios having a really good year. I mean there's certainly potential upside to the contingent commission numbers. You saw that last year where we had a really strong fourth quarter that was not necessarily exactly what we forecasted. Is that within the realm of possibility for this year? Yes, certainly. But I think we feel very optimistic about the direction of the business. The quality of the agent force is getting is getting better. Client retention is improving, which is really the longest lever for future growth and growing premium. So we're very satisfied with the direction of the organization. I think you can see that with the $60 million buyback.

And I would just add, I would say the product market is about 80% healed -- rough estimation, right? So it's not 100% healed. And some of it doesn't come back until January like we've been notified that the product will be back in January, but it's not there yet in some of our key markets. So we feel a lot better about where we are today versus where we were a year ago, but still not completely back to a normal market yet.

Ryan, this is Dan. Just to clarify, and Mark in his comments did indicate that we expect to have fourth quarter core revenue growth better than what we put up in the third quarter on a year-over-year basis and then acceleration in 2026 as well. And then on premium growth similar in the fourth quarter than it was in the third quarter and that acceleration next year as well. So I think we are positive that we're in an accelerating phase.

And we had a very large contingency last year in the fourth quarter, contingency quarter.

Got it. Okay. So like if we get Jurassic Park back online here, [indiscernible], I guess, in January. How do we think about the margin trajectory? Like if you have the view that carriers all of a sudden, the product is really going to be there next year, which is our view. Should we still just be thinking about like onepoint of margin expansion? Or are you guys going to fall to the bottom line?

Yes. So Ryan, I would say if you look at the core business, the franchise and corporate business, you should expect to see normal operating margin operating leverage happened on a year-over-year basis, just as more of the book comes to renewal and you get better productivity out of agents from a healthier product environment. Remember in our prepared remarks, we talked about this investment that we're making in the digital agent, which will yield approximately $8 million to $11 million into operating expenses. So you should necessarily be thinking about margin expansion in that context.

And it's kind of similar to the carriers, right, they have a new business bias in their loss ratios. We compensate much more heavily on new business and there's more back office expense associated with that. So in periods where we can really lay into growth because the product is out there. We're going to do that. That helps maximize long-term profit dollars.

One moment for our next question. It comes from Tommy McJoynt with KBW.

So it looks like there is still a wide range embedded in the full year outlook despite just a couple of months to go. So what needs to happen, either [indiscernible] had specific or just in terms of the market backdrop to get to the high end of these ranges. And along the same lines, it looks like the contingent guide was raised 15 basis points at the midpoint, which by my math is about a 2% tailwind to revenue. So was that offset by a reduction in core revenues or other types of revenues? I just want to clarify that.

Yes, Tommy, I would say, yes, I certainly recognize there's a wide range for the fourth quarter. As we saw last year, contingent commissions are pretty variable near the end of the year. It's been a really good loss ratio loss ratio a year for our underwriters. It's been a pretty light catastrophic year. It was a light hail season in [ DFW ], which is tremendously helpful. It would be placing some pretty false precision on it to say we can call that number super precisely.

I think there is upside to the forecast that we put out there. I'm not ready to commit to that yet, but that's kind of why the revenue range is so wide because there is still, as I mentioned, a wide range of potential outcomes with contingent commissions. We've seen it go one way and another way in the fourth quarter, really in the last 2 consecutive years. So it's hard to be super precise on that specific line. On the core revenue, we did tell you should expect acceleration in the fourth quarter over the third quarter numbers.

Great. And then going over to the digital agent side. Thanks for giving us some of those numbers around the investment spend and some of the expectations around what that can drive the growth. I want to clarify the 40% total written premium growth opportunity over the next 5 years that you referenced. What is that in dollar terms? Or just what is the baseline for that 40%? And then does that factor in any cannibalization risk of the core business?

So Tommy, I would say if you're looking at the third quarter, we grew total written premiums 15%. We think the ability to penetrate additional markets that we're not necessarily penetrating today through this digital platform could allow the business to within the next 5 years, be growing total written premium at a 40% plus rate. As you think about how our traditional corporate and franchise agents go to market today, they're basically attacking 4 million-ish home closing transactions a year.

And the starting point for this digital agent is integrating into our partners who are largely mortgage servicers and to a lesser extent, originators. We said in our prepared remarks, our current partners represent around 1 million mortgages serviced. Those are clients that we're not even really trying to go after today with our current go-to-market strategy. Likely the conversion ratio on those may not be potentially exactly as high but just from a sizing perspective, we have 1.2 million clients on our existing book today. The partners that we currently have are 1 million clients. So you could see how that's a really compelling opportunity to add a significant amount of market share in a relatively short period of time if you can optimize the tech integrations and get the funnel converting at a really high rate.

Great. And I'll just sneak one more in. The stock now is at a price about $17 lower than the average price that you bought back stock during the quarter. Can you talk about your appetite and capacity to do more buybacks here and how that balances with the investment spend that you need on the digital agent side?

Yes. I mean the great news is this business generates a ton of cash. And we've been really conservative with our balance sheet for our entire history. So we have a lot of optionality. You're right, we did buy back stock at a level that is over where the share price is today. We still have $36 million on our existing authorization as of the end of the third quarter. So there's still opportunity to continue to act strategically in the market.

One moment for our next question. That comes from the line of Michael Zaremski with BMO.

Great. Regarding the auto and home pricing kind of year-over-year decel that's taking place, impacting some of your KPIs. I know you've talked in the past, and I think we've had a tough time quantifying it kind of how much of that is coming from kind of a mix shift to lower cost states or geographies. Is there a way to help frame that or to figure out it's still a drag that's playing through the KPIs?

Yes. Good question, Michael. I think there is 2 ways to look at it that kind of can help explain the story. So we've got premium retention for the quarter of 93% against client retention of 85%. So that would indicate 8% year-over-year price increase on the existing book of business. So that doesn't really factor into geographic dispersion. That's policies that are on the books last year compared to the same policies this year.

The geographic dispersion I would point you to policy in force growth rate of 13% versus premium growth rate of 15%. And that's going to take into account the impact of going from markets like Houston that have really high average premium per policy to markets like Columbus, which are a different level of premium per policy. It's easier buying rate easier package right, but each individual policy isn't worth exactly the same amount of dollars. So that's how I would look at it that way. Premium versus client retention tells you the change in price of the existing policies. And then PIF growth versus premium growth tells you the change in the average premium per policy.

Okay. That's super helpful. Regarding franchise growth, I guess, in keeping in line with kind of a shift to different markets a bit. Are there any major geographies or metros that you're near capacity?

No, I don't think so. I mean we've got 1.2 million clients, right? There's 8 million households in the city of Houston. So there's a long way to go in every specific geography. But we don't want to be is super dependent on one specific product market. So if you get a bad storm season in like Louisiana, I don't want to be relying on just New Orleans for my future growth. So we've been very intentional about trying to diversify the total risk pool. So we're not overly relying on one individual market. But there's nowhere that we feel like we are saturated that we can't grow anymore because we have either too many producers or too much of the book. That's just not a reality. We're a long way away from that.

I would say there are certain markets that we know that we're not saturated nearly at all, right? Like there's a lot of markets that we need more penetration in, and that's what we're really focused on is how do we get franchises in every geo, especially the ones with the best insurance markets.

Got it. And lastly, kind of sticking to a follow-up to both my questions. So when you kind of talk about feeling good about an upward trajectory, next year in some of the KPIs and growth. Is there a way on a macro level for you to frame whether you're baking in an expectation for, say, home and auto pricing to decel further from kind of current run rates? Or or for this kind of geographic mix to lower-cost dates to kind of not be a drag anymore? Or is there any kind of macro overlay you'd be willing to touch on at this point?

Yes. I mean I would probably expect you're going to see continued progress and price stabilization. So we have markets that are basically flat year-over-year now. We have markets that are still kind of high teens. I expect those markets that are high teens to continue to trend down into the single-digit type growth numbers. And I think if you look at the revenue retention numbers in the second half of next year, they'll start to perform improving at the same rate the client retention is improving because what you're seeing right now is the price deceleration is happening faster than the client retention improvement, which just means you don't get that full benefit into revenue retention.

But on a year-over-year basis, next year, you won't have that same dynamic, which means you get better renewal revenue retention growing with your client retention, which we expect to continue to improve.

Got it. And lastly, on the some of these kind of joint ventures in my words with the mortgage participants, servicers, for example, that are now kind of actually in place. Is there any quantification you want to offer on kind of how that should play out in the income statement in the quarters to come?

Yes. I mean what you'll see is that will largely materialize at least the ones on the platform today through new business royalties initially because most of the mortgage servicer and origination partnerships that we've done to date have been in the form of a franchise agreement. And they would have to be that's just how they've that materialized so far because these guys want to actually own the business, they want to manage the employees and capture the economic value associated with that.

So you'll see that in, a, improving franchise productivity. You'll see it in continued growth in producers per franchise because they've got captive audiences that can sustain significantly higher number of producers per franchise than what probably the average franchise would be able to do right off of the bat. And then over time, you see that continue to materialize through renewable royalty fees.

Our next question is from Katie Sakys with Autonomous Research.

I guess circling back to client retention. I mean it's great to see that, that number is finally coming up on a sequential basis. If I kind of think about the net of headwinds and tailwinds facing the broader personal lines market next year, how much improvement off that 85% client retention number is realistic next year? And how much of that might be coming from your service delivery tools coming online fully?

Yes. I mean I can't promise any specific number, but we're really encouraged by the current trajectory of it. The rate of improvement right now is faster than the rate of decline that it was leading into the trough. So the mirror image is actually an improving environment. If that holds true, then you can just kind of look backwards at the previous quarters and see what that trajectory looks like. We have spent a lot of resource into client-facing tools into automation that improves our service delivery into our mobile app that should help create stickier clients and with a stable pricing environment, we expect that, that will create stickier clients.

So ultimately, continue to expect it to improve. I can't give you a perfect answer on exactly the pace of improvement.

And then kind of shifting to the written premium retention figure. I mean, down again sequentially this quarter. I think I have the direction of the impact of pricing all sorted out? And if I kind of think about potential magnitude for next year, in relationship improvement to client retention. Is it fair to say that we might be around a trough for written premium retention here, especially in the context of a 94% baseline that you guys have previously referred to?

Yes. I mean premium retention will ultimately be guided by what underwriters want to do with their pricing. So it's hard for me to make a perfect call on it because it's not necessarily with inside my control. But if you've got average year-over-year premium increase of 5%, and we've got 85%, 86% client retention, then you should expect 90, 91 type premium retention. So it's ultimately just going to be client retention plus pricing will get you to your premium retention number.

Our next question is from the line of Mark Hughes with Truist Securities.

Were there any onetime revenue adjustments this quarter. I think you had $4 million last quarter suggested there might be some in the second half, if I remember properly.

No, nothing onetime in the quarter. What we said in the second quarter was there was going to be improvement in the commission rate from that carrier that we recovered the $4 million from, which that did happen, but that's an ongoing permanent thing. So nothing onetime in nature in the third quarter at all.

Very good. And then the cost that you laid out for 2026 and '27, $8 million to $11 million in OpEx, how should we think about that? Would you suggest that, that's incremental to what we might have thought about going in and [indiscernible] the business last quarter. now you've given the more specific detail on costs. Are you telling us that, that's largely incremental to the prior model?

Yes. I mean that's what we're trying to get across is that is incremental investment on top of the normal business. So if you didn't have that, you would expect the normal operating leverage that we get on an annual basis from growing the renewal book. This is on top of that, which is why we said previously, I wouldn't necessarily think about margin expansion, considering we've got $8 million to $11 million that's going to be flowing to the P&L relative to this investment. That wouldn't have otherwise been there. And we do think it's absolutely the right thing to do for the business for the long term and has the potential to unlock potentially a very significant growth opportunity for us.

And then on the productivity within the franchise, the new business royalty fees, really nice surge from the first half, up substantially in the third quarter. Anything specific you could call out? I think you've touched on it. You've obviously been pursuing a lot of initiatives, but anything else you noticed in the quarter that had the fish jumping in the boat, so to speak?

Yes. I don't think there was anything super special. It was just kind of continued execution on the plans that we've been rolling out for the last while. The franchise community doesn't turn remarkably quickly. So you got to have faith and confidence in the decisions that you're making that you believe are going to drive aggregate productivity improvements. Great to see continued hiring from the top half of agencies. Those are the ones that really drive the incremental growth. We're getting a lot of very positive feedback from the franchise community. The consolidation efforts has actually aided in productivity because you're getting people out of the system who are largely taking up space and not necessarily contributing massively to growth.

So while you may have variability on a quarter-to-quarter basis and what the aggregate growth rate looks like. It's absolutely going in the right direction. I mean franchise productivity per agency is up 19% in the quarter. I'd love to see that on 1% producer growth.

It's really encouraging to see what we're seeing from our corporate agents that have gone into franchise ownership. We're getting some incremental lift out of those guys. So yes, it pulls down corporate but these franchise owners that came out of corporate stay with us a long time and they produce massive amounts of productivity.

Our next question is from Paul Newsome with Piper Sandler.

Just a couple of quick follow-ups on the digital investments. What's the amortization schedule for the stuff that's capitalized? Does that get [indiscernible] [ 3 ] years?

Yes. It's typically 10 years for software similar to this. So that's what I would expect.

So we expect to have [ 1/10 ] of that to be [indiscernible]?

Correct.

And then when we think about the whole for acceleration growth next year, how much just the digital piece matter? You mentioned you thought that would be you see some productivity in the second half of the year. But is it -- when you think about your optimism for next year, is that primarily because of the other pieces that are moving in the right direction or so almost more [indiscernible] the improvement if a lot of this has to do with the technology you're putting in, then I guess we'd expect more improvement in the back half of the year than maybe early on.

Yes. I mean the way we've been talking about core revenue and premium growth rates going into next year does not really contemplate much attribution from the digital agent. We expect that, that's going to start to contribute in the second half of next year. But remember, the baseline for that distribution channel is basically 0. So it's starting from nothing. It's going to we expect to be able to provide significant growth over the longer term.

But I wouldn't expect to see material uplift in growth numbers in the second half of 2026, specifically related to that. I would expect continued consistent improvement through both the corporate and franchise business as well as the enterprise sales business continuing to pick up steam. I mean, that team just continues to grow at 100% year-over-year, which is awesome to see.

And we have a follow-up from the line of Mark Hughes with Truist Securities.

Just one quick follow-up. On the renewal commissions, a little bit of a dip in the third quarter after double-digit growth in the 2Q '25. What was behind that? Well, I guess some of that was the -- I think the onetimers in 2Q. So I get that. How about just when we think about renewal commissions having turned negative in the third quarter?

Yes. I mean if you go back to the second quarter and you take $3 million out of the renewal commissions number, that was the recovery. We actually improved the revenue retention rate in Q3 over Q2. So the decline in that is really just a function of the math, right? Remember, we produced basically a consistent amount in the corporate team for the last 4 years. Now we've got growth going again on the corporate side of the business, 22% commissions -- business commissions growth. That's going to aid the renewal book in the future. But if you produce consistently for 4 straight years, that's the math. That's naturally what shakes out with the renewal book. But ultimately, the revenue retention number did improve in Q3.

Thank you. And this concludes our Q&A session for today. Thank you, and I will pass it back to Mr. Mark Miller for concluding comments.

Yes. I just want to thank everybody for taking the time to join the call today. We appreciate your continued support and interest. Look forward to talking to you again in the remaining year with our Q4 results.

And with that, we conclude our conference. Thank you all for participating. You may now disconnect.

Thank you for standing by, and welcome to the Goosehead Insurance Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Dan Farrell, Vice President, Capital Markets.

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, uncertainties that are difficult to predict and which could cause actual results to differ materially from those expressed or implied 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. 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, 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 in 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 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.

Thanks, Dan. Good afternoon, and thank you for joining our Q2 earnings call. Before we begin, I want to take a moment to acknowledge the devastating floods that struck Texas earlier this month. As a company rooted in Texas, this is not only where we do business, but these are the communities where we serve. We are working hard to support our employees, clients and agency owners during this devastating time where tragically lives were lost. Catastrophic events such as these are unfortunately a constant reminder of why we exist. Our hearts go out to the families affected by the devastation and our Goosehead team is here to support you.

Here at Goosehead, we continue to pursue our goal to become the largest distributor of personal lines insurance in the U.S. and our founders lifetime. We've steadily ramped our BaaS distribution network, which has grown to over 2,500 licensed agents and 200-plus carriers. Our growth plan centers around a few key strategic initiatives: supporting the accelerated expansion of our existing agencies, a strategy we've continued to optimize over the last several years; placing the right new franchise owners in the right geographies; expanding our corporate team to further support top decile agency growth; ramping new go-to-market motions through our enterprise sales and partnership teams, developing new and maturing technologies to help us win the AIR's race and accelerate our path to industry leadership.

I'm going to expand on each of these topics that Mark Jones, Jr., our CFO, will provide more information about the quarter's results. First, our agency staffing program, which we call ASP has been a highly strategic asset for Goosehead. Simply put, this program helps existing agency owners find talented agents to grow their franchises. 20 years of industry experience has allowed our recruiting function to gain unique insight into identifying the highest potential sales agent recruits. We have leveraged our knowledge to create an internal recruiting firm that is dedicated to sourcing top talent to put in front of our most successful agency owners.

Since the inception of this program in Q4 of 2022 our agencies hired over 500 producers sourced through this internal recruiting firm with 132 starting in 2025, and roughly 150 more slated to start before the end of the year. When an agency owner adds an incremental producer, the productivity of all agents in that franchise improves. They had accountability, share best practices and lead flow. The feedback we've received from our franchise community has been incredibly positive on this program. It allows our agency owners to focus on what they do best, capture lead flow and drive sales teams. Allowing them to outsource a very time-consuming recruitment process to our trusted ASP team, who presents them with highly qualified talent.

One example of this in practice is Troy Crop, an agency owner in Tucson, Arizona, we served as an Army Ranger and as a previous state farm agent. In July of 2021, Troy opened his Goosehead franchise and has since grown his agency to 9 producers, 7 of which were recruited through the agency staffing program. Today, Troy Crop is not just an agency owner. He's a sophisticated business owner with a $10 million plus premium book and over 6,500 policies in force. He has been part of our most advanced agency training programs, most of which focus on business growth. And he has put those trainings in practice by acquiring 2 other agency books as well as opening a second office location with 2 more office locations in the pipeline. We're incredibly proud of the business Troy has grown thus far and look forward to seeing them continue to grow in our ecosystem.

To find the next group of agencies that look like Troy crop, our franchise development team has built pipelines into new talent sources that we believe have the grit, intelligence and leadership capability to be successful in our ecosystem. First, we developed a program to attract franchises from the veteran community. We believe former service members possess many of the intangibles that we know separate our top agencies from those in the middle of the pack. They're smart, determined and execution-oriented. And most importantly, they know how to follow a proven business model. As a son of a veteran, veterans are near and dear to my heart for the tremendous personal sacrifices they made to our nation and many have proven to be excellent franchise owners like Troy.

We have also recently rolled out a new MBA franchise development program. As we've discussed in the past, we want our franchise community to evolve from largely consisting of solo agent operations to a tightened community consisting of more growth-oriented owners that have multiple agents with multiple locations. By leveraging our existing campus relationships, we can provide an incredibly compelling offer of business ownership for current or recent MBA graduates. This initiative includes an accelerated training program that allows for rapid ramp and sets them up to scale by leveraging their entrepreneurial business education. While we're very excited about our veteran and MBA initiatives, it is abundantly clear to us that the single best source of new franchise owners is our own corporate sales department.

Our corporate sales agents are steeped in the Goosehead corporate culture and highly educated and experienced in the Goosehead business model. As a reminder, when a corporate agent launches a franchise, they are up to 10x more productive than the average new franchise launch and have a very clear path to a 7-figure income. To further support the growth of both the corporate footprint and franchise community in the right geographies, we recently expanded into Arizona with the launch of our Tempe office. This has been the most successful new office launch in many years. This location should help us seed new high-powered franchises in the western half of the U.S. that we might otherwise not have been able to reach with our corporate footprint.

We're also now announcing plans to launch in Nashville, Tennessee office in the fourth quarter of this year. We've developed a repeatable blueprint for successful office expansion and plan to continue to leverage that in the most strategic geographies over the next several years. Over the past decade, we have refined a highly sophisticated go-to-market strategy that focused on corporate and franchise agents and building strong relationships with individual loan officers and realtors. This strategy has proven to be extremely scalable and highly profitable. However, for the past 2 years, we have been quickly developing a new sales motion that we believe will be a solid third leg of the stool. We call it our enterprise sales and partnerships team. This new group has grown exponentially over the last year and continues to accelerate.

I'm excited to announce 2 additional strategic partnerships that we'll be launching from this team. First, Baird & Warner is 1 of the most prestigious real estate firms in Illinois, founded 170 years ago. They currently have more than 2,000 realtors, over 40 loan officers and a title operation. They're launching a Goosehead franchise inside their existing business that allows them to further reduce friction in the home buying process, provide better outcomes for clients and capture insurance economics. They generate over 10,000 transaction analyte, which should allow them to scale rapidly.

In the last month, we have also entered into a partnership with Fay Servicing, a large prominent mortgage servicer founded in 2007. Their partnership with Goosehead allows them to solve industry pain points and address the rising cost of home affordability by providing a robust portfolio of home insurance offerings to their existing clients. base franchise has the embedded lead flow that could rapidly take them from a new franchise launch to 1 of the largest agencies in our system. While both of these partnerships are Goosehead franchises, we also have a robust pipeline of traditional partners who would like to offer insurance products to their client base, but do not necessarily want the complexity of owning and operating the business. Because we can provide multiple ways to engage with our Tech First platform supported by agents nationwide, we believe we're the partner of choice for organizations looking to add value to their clients while capturing very compelling economics.

I believe our industry will be profoundly impacted by the rapid development of new technologies, particularly in the AI space. The list of potential use cases for AI in our business is incredibly long. However, we're thinking strategically and focused on what we believe will generate the maximum return. First, we're already leveraging AI to optimize the client experience for our existing book of business while reducing the cost to service. Second, we will utilize our data and carrier relationships to create the U.S. first direct-to-consumer marketplace that maximizes outcomes across the value chain. We want to create a frictionless process that stands true to our founding principles making the client at the center of our universe. Our data should allow us to be intelligent about matching carrier risk appetite with client demand to optimize outcomes across the value chain.

And third, we expect to capture additional market share through pinpoint marketing campaigns to drive client referrals and cross-sells. We know that we provide a differentiated client experience, and we should be leveraging that to continue to drive new business and fuel future growth. We built a tech team with the human capital and the appropriate infrastructure that we believe is highly capable of delivering on each of the critical initiatives. Even with all the progress we've made in AI and tech, the foundation of our business hasn't changed. Great companies are built on great people. To date, we've been able to build a great business by attracting talent that doesn't exist elsewhere in the industry by having high standards for the quality of our work and by operating the utmost levels of integrity. While our day-to-day operations may shift in the coming years, our commitment to our people will not change.

We will continue to invest in training, coaching and leadership development that will take our already phenomenal talent to the next level. It has been a challenging fight for the last several years battling a historically hard product and housing market. But we're coming out the other side poised for rapid and profitable growth with full commitment to our goals. I would like to sincerely thank our employees, franchisees, carrier partners and shareholders. We're just getting started.

I'll now turn the call over to Mark Jones Jr.

Thanks, Mark, and good afternoon to everyone on the call. I'm extremely pleased with the work our management team has been doing and the substantial investments we have made in people, technology, AI and partnerships that is setting the foundation for our next phase of rapid growth at Goosehead. For the last several years, we've been delivering strong results through the most constricted product market over the last 50 years. As we look to the back half of 2025 and importantly, into 2026 and beyond, the landscape for underwriting demand and capacity is becoming increasingly clearer every day. The challenging product market has made us a much stronger company across all facets of our operations. We built a scalable infrastructure invested in our management and human capital and develop the technology skill sets to be a company many multiples the size we are today.

Mark Miller touched on the longest levers to continue to drive growth for our business. I'm going to touch on the economics of a couple of those items and provide an update for the quarter's results and outlook for the future. We've made strong progress on our efforts to expand our go-to-market strategy through our enterprise sales and partnerships team the most rapidly growing division in the company. This team is highly nimble and strategic as it allows us to further insulate ourselves from cyclicality in the housing market and gain access to pools of clients that our traditional go-to-market strategy doesn't naturally reach such as homebuilders and those not currently involved in a home closing transaction. This team is rapidly gaining momentum producing 88% more new business in the second quarter than in the previous year period and growing 41% sequentially over the first quarter of 2025. We believe the growth curve of this unit has the potential to be both exponential on earnings and revenue.

As Mark mentioned, we recently entered into a couple of new strategic partnerships that take the form of a franchise agreement. The benefits of these new partners will materialize in our P&L initially through new business royalties through our 20% share and then into renewal royalties, where our economics become really interesting at 50% of the commission value. We plan to continue to expand our partnership aperture through new avenues in the coming quarters and ultimately use these relationships as the most logical jumping off point of the direct-to-consumer marketplace for hard at work developing.

In corporate, we have taken steps to align our physical footprint with the most attractive markets, quickly expanding into Arizona with the launch of our Tempe office, doubling down across the country in Denver, Columbus, Charlotte and Chicago offices and beginning the expansion efforts of our 13th -- office in the Nashville market. Our former corporate agents continue to be the highest quality possible franchise launches, hiring rapidly and setting new records for new business productivity. This strategy is 1 that our competitors cannot easily replicate because they lack access to the pools of talent that we have spent decades cultivating, the technology infrastructure that we have spent millions of dollars building, and the deep referral partner relationships agents develop while part of the corporate team.

Our corporate sales team ended the quarter with 479 total agents, up 53% over the previous year comprised of 379 traditional corporate sales agents and 100 enterprise sales agents. After multiple years of consistent total output, our corporate new business commissions is now growing at 13% compared to the prior year, the fastest corporate growth in the last 3 years, and we expect that to accelerate through the rest of the year. Franchise producers at quarter end were 2085, up 5% from a year ago, and producers per franchise was 1.9, growing 14% over the previous year. As we review our franchise community, it's easy to identify which agencies are fully committed to growth, following the business model and hiring aggressively.

Our top 200 franchises have nearly 4x as many producers per franchise as their peers. And as a result, they grow significantly faster. This elite group of agencies, just like Troy Crop, as Mark Miller discussed, look a lot like our corporate offices. They build cultures of excellence, have high standards for production and quality, and they have big goals that they pursue aggressively. Agencies in our top 200 grew their new business by over 30% in the second quarter and their gross earnings was also up 30%, allowing them to continually reinvest into growth. During the quarter, we launched 16 new franchises across 12 states, 8 existing agencies were terminated and 30 operating franchises consolidated into another existing agency. The data validates that the continued consolidation in our franchise network is a net positive. Over the last 12 months, the productivity of the purchasing agency increased 21% as they can more effectively capture value from the existing books of business.

As Mark Miller stated, the first place that AI is taking hold in our organization is the area that bears the most costs, our service team. We have built large language models that reduce complexity for our service agents speed up the time to resolution for our clients and allow us to forecast service demand with great precision. For the first time in company history, we expect the cost of service delivery to be less in the second half of the year than it was in the first half of the year all while continuing to improve the client experience. This allows us to further invest in growth opportunities and technology which increases our ability to scale at a rapid pace. The next place we are aggressively pursuing new technologies is creating a true online choice shopping platform, but we are calling the direct-to-consumer marketplace. We believe the independent agent will always have a place in personal lines distribution, and we are committed to being a market leader in that space.

We also recognize the tremendous opportunity in front of us to radically change how personal lines insurance is distributed in the United States. Through precise client segmentation and detailed risk matching models, we believe we can create a marketplace that not only rapidly fuels our growth, but provides the best possible outcomes for our clients and our carrier partners. Deploying this tool first through our partnership channel allows us to ensure our carrier partners get access to the highest quality client base. This will require significant investment, but the opportunity presents an incredibly asymmetric upside case. Disruption is in our DNA, and we do not plan on stopping now.

Finally, maximizing the economic value of our existing client base to generate referrals, cross-sales and identify gaps and protection in our clients' portfolio represents another significant growth opportunity that can be greatly impacted by AI. We now have over 1 million clients and over 1.8 million policies in force, meaning we have a significant and diverse captive audience who have placed their trust in us to present the most logical and valuable options for their personal lines insurance. Deploying technology strategically here can help us better capture full share of wallet with our clients, improve client retention and generate client referrals.

Turning to our second quarter results. We delivered another quarter of growth and profitability with total revenue growing 20% over the previous year to $94 million, Core Revenue growing 18% to $86.8 million and adjusted EBITDA growing 18% to $29.2 million, producing an adjusted EBITDA margin of 31% for the quarter. We remain committed to a balanced approach of organic top line revenue growth with strong profitability. Our deliberate focus on organic growth provides high quality and consistent earnings, builds real competitive advantage, and has no dependency on cooperation from the capital markets to fuel our business.

Client retention for the quarter saw continued progress and while still at 84%, we're now seeing consistent basis point rises in retention over time. We are confident that the strategic actions we have taken, combined with greater product availability, will result in an increase in client retention in the second half of the year, providing a tailwind to what has been roughly a 2-year headwind in growth and profitability. We also expect that our average commission rate will begin to increase throughout the remainder of this year and into 2026, as our mix of new business and renewals naturally shifts back to the admitted product and away from state-run insurers of last resort and more complex nonadmitted product.

During the quarter, we recovered $4 million of past due renewal commissions and royalty fees from an existing large carrier partner and increased our commission for all existing business. This increased commission rate should result in the benefit in our existing renewal book with this carrier of approximately $1.5 million for the second half of the year. Total written premiums were $1.2 billion for the quarter, up 18% from a year ago. This included franchise premiums of $959 million, up 21% and corporate premiums of $217 million, an increase of 6% from a year ago. As a result of continued consolidation in our franchise community, which we believe is very positive for the health of the entire network, franchise new business premiums grew 13%.

Contingent Commissions for the quarter were $4.5 million compared to $2.2 million in the previous year, an increase of 103%. We continue to maintain our forecast of 40 to 65 basis points of Contingent Commissions as a percentage of total written premium. However, there is a wide range of potential outcomes depending on carrier underwriting performance and catastrophic loss activity. Cost Recovery Revenue, which is largely initial franchise fees, was $1.4 million compared to $1.9 million in the year ago period. Policies in force at quarter end were $1.8 million a 13% increase over the previous year.

Adjusted EBITDA for the quarter grew 18% to $29.2 million, up from $24.7 million in the prior year period. Adjusted EBITDA margin for the quarter was 31%, and adjusted EBITDA margin, excluding the effect of Contingent Commissions, was 28%. We Included in G&A for the quarter is a onetime noncash impairment charge of $4.7 million related to changes in our real estate footprint in Chicago, Columbus and Las Vegas. As of quarter end, we had $92.4 million of cash and cash equivalents and total debt outstanding of $299.3 million. On July 9, we successfully repriced our existing term loan from accruing interest at SOFR plus 350 basis points to SOFR plus 300 basis points reducing our interest burden by approximately $1.5 million annually.

During the quarter, we generated $28.9 million of cash flow from operations, representing a 53% increase over the prior year period. During the quarter, we repurchased and retired 5,600 of our Class A shares and have $99.5 million available on our outstanding repurchase authorization.

We are reiterating our 2025 revenue guidance and revising our premium guidance for the year. Total revenues for the full year are expected to be between $350 million and $385 million representing organic growth of 11% on the low end of the range and 22% on the high end of the range. Total written premiums for the full year are expected to be between $4.38 billion and $4.65 billion, representing organic growth of 15% on the low end of the range and 22% on the high end of the range. Our adjustment to premium guidance reflects a near-term gap where premium increase moderation is outpacing the recovery in client retention. We believe this is a short-term phenomenon and the benefits from a more normalized product environment will ultimately more than offset the rate decline. Importantly, our revenue guidance is unchanged to reflect the improving average commission rate in our book of business, allowing us to capture more dollars of revenue from the same dollars of premium.

I am incredibly excited to watch the next evolution of Goosehead as we transition from an insurance distribution organization aided by technology to a technology organization aided by the best insurance professionals in the country. Thank you to the Goosehead team and to all those who place their confidence in us.

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

And our first question for today comes from the line of Tommy McJoynt from KBW.

The first one here is you mentioned the upside to commissions as a percentage of written premiums as volumes move away from state-backed carriers and the surplus lines. Is there any way you could quantify that? Are you currently running something in the order of 25 basis points below average? Or is it a whole percentage point? Any way to roughly quantify that.

Yes. Tommy, this is Mark Jones. Over the last couple of years, as more business has shifted towards the excess and surplus lines market and the state on plans market. There's just been a gradual and consistent decline in the average commission rate. We think we're at the point now where that is inverting back in the other direction as you're getting more of the national product available in specific regions that were pretty heavily impacted by that. So without putting a specific number on it, if you go back and look at the last couple of years, the ratio between premium to the gross numbers on the P&L to take your new business royalties divided by 0.2. Your new business -- your renewal royalty is divided by 0.5 and take the gross numbers from commissions and renewals. You can get to where generally the commission rate was 2 years ago and to where it is now. Expect the trend to be kind of similar in terms of the recovery. So we think it's a very positive thing for the business, not just for our own economics, but also for the insurance industry in general.

Yes. And the majority of that rate shift was just mix, right?

Yes.

Got it. And so no reason I can't get back to where it was 2 years ago. Just to clarify.

No.

Okay. And then just a follow-up question, another area. I want to make sure I heard you correctly. You mentioned the cost of servicing being down in the second half of the year relative to the for the first. Is that cost of the risk referring to kind of the total expense base? Or what are you explicitly referring to the cost of service?

Yes. Really, the total cost of our service department. So not the whole back office expense base, but the service department is the biggest portion P&L. And this is the first time in company history. We've been able to deliver what we expect to be really strong scale out of that department in the second half of the year through leveraging AI to better route cases and meet client needs. So it's exciting for us to see those things start to materialize. But what's even more exciting is the impact that has to the client experience. It's going to continue to get better over time. And we should be able to drive incremental margin improvement in the future.

Now just looking at the rest of this year, right, you got to remember, we hired a bunch of new producers in June. So their cost is not fully baked into the run rate. We have a big class coming in July, coming in August. So you should expect margin pressure in Q3 relative to Q2. And then improvement in Q4. But that comment specifically on service is to document some of the improvements we've made leveraging technology.

Great. And you're referring to margin excluding the contingents, right, when you talk about margin?

Correct. Yes.

And our next question comes from the line of Michael Zaremski from BMO.

I guess, a follow-up on some of the comments on kind of the mix shift timing drag in terms of the revenues versus the premium dynamics right now. Is that coming from -- if you look at like premiums per policy in force, I think it's up 4% year-over-year, so it's been decelerating. Is that what you're referring to? And is that coming from the kind of dynamic you've talked about in the past of moving -- accelerating sales but work cost states, like, for example, Arizona, more sales there versus like historical levels in Texas? Or what other dynamics would be -- I know there's other dynamics you talked about, if you could help out to be helpful.

Yes. So it's 2 things. One, it's putting more business into lower premium states, which we've done that very intentionally things like the Columbus, Ohio market for our corporate sales team generates a ton of policy productivity, but obviously, the policies there are less from a premium perspective than they are in Houston. And we've been doing that very intentionally across the country to kind of reduce Texas exposure. And now at the same time, you're getting to the point where premiums are leveling off on a growth rate on a year-over-year basis for the same policy. So everywhere outside of Texas, on average, the book is increasing at a much lower rate. Texas is still increasing pretty aggressively. But then if you talk about the actual dollars of revenue per that premium, that's come down over the last couple of years with commission rate pressure just from business mix shift, and we expect that -- the trend to reverse in basically the same fashion in the future. And as you think about just converting that into revenue dollars, that's why I see the revenue guidance, we still feel really confident on.

Okay. Got it. That's helpful. And you guys discussed some -- a lot of new initiatives or some of them are existing, some of them new like the Baird & Warner I guess, joint venture, you could call it, the servicing agreements. How many of these items -- if any of them are baked into your guidance and if they are in the guide, how material are they?

Yes. None of that is baked into the guide at this point given those are relatively new. Baird & Warner launched our franchise in July of this year, and the Fay agreement just got done. We're really excited about those. We've made really good progress in the partnership space, and we expect that to be a really meaningful portion of the business over time. And importantly, really the best place to interject the direct-to-consumer marketplace that we're building. But none of that is baked into this year's assumptions. Those things take a little bit of time to materialize. But once they get moving, it opens into a really big snowball pretty fast.

Got it. And lastly, you talked about it, I think, a couple of times in the remarks about kind of expecting your commission rate or take rate there might be another term for us to kind of I think we saw a bit of an inflection this quarter and you expect it to continue to improve as the -- this kind of the -- I guess, probably the profitability of the carriers improves and they open up their kind of their appetite a bit more. Is that -- is the line of sight fairly clear right now? Or is there still a bit of uncertainty in certain locations, depending on kind of how the wind blows during hurricane season, maybe that's always the case. But I'm just kind of curious how -- if things sound like your outlook might sound like a little bit better on the commission rate than it was quarter ago, if I'm understanding correctly.

Yes, I would definitely say we feel like the product environment is in a better position today than it was on our first quarter call. We are seeing progress from the big admitted carriers coming back into markets in specific locations. More businesses flowing away from the state-run plans, which is a super positive thing, not just for us but also for clients. So generally, feeling much more optimistic about the product environment now as opposed to the first quarter and certainly relative to last year.

I think what we said on the last call, I'll just reiterate that the auto market is pretty wide open right now. So we've got plenty of product in every geo, admitted carriers there. And when you look at the home market, it's very geo dependent. Some look a lot better than others. But overall, I would say, improving dramatically over the last 6 months or so, and carriers are starting to run incentives for growth, things we haven't seen in a long time, which then naturally the commission rates kind of follow those national carriers in the admitted market instead of doing state-run plans, which for the last 3 years, we've had to do a lot of state-run plans because that was the only carrier that was available in certain states.

And our next question comes from the line of Andrew Kligerman from TD Cowen.

So I'd like to unpack some of the figures towards the end of your press release. Maybe starting with the total franchise producers. And you mentioned it's up 5% year-over-year. But since year-end, it's down slightly to 2,085 producers. Is there something seasonal there? Or is there -- I would have thought more -- we'd be seeing more producers on a sequential basis?

Yes. Great question, Andrew. What I would say there is it's a bit seasonal. But more than anything, what we've seen is some mergers and consolidations of the smaller franchises into the larger ones, which is very common in a franchise or sort of environment when they get to a certain age. The smaller ones start to consolidate with the bigger ones. And we looked at it as very favorable to our overall ecosystem. The bigger ones will take that cash and reinvest it in producers where some of the smaller ones would not and that's exactly what we're seeing. So we've seen a lot of orders, if you will, for our ASP program to help staff up these larger agencies. And we've got a lot of agents that started in July, and we'll have a lot more starting in August. So I think it's just a timing thing.

Yes, you should see it up sequentially in the third quarter relative to the second quarter. And like we talked about, our kind of top bucket of agencies, they've got 4x as many producers per franchise as the rest of the group. And you're getting more agencies now kind of getting into that big scaling mode makes us feel really confident about the direction of the franchise community.

Got it. And then maybe moving down a bit. It looks like corporate agent productivity, both under a year and over a year was down year-over-year. Then I looked at the franchise productivity those under a year productivity was down. And then, of course, I guess based on what you've been saying, those franchises with more than a year of experience, that was up a lot, like 20%. And I assume maybe that's part of the emerging activity, but maybe a little color on why those other 3 components were down and why franchises with more than a year were up 20-ish percent?

Yes, sure. Happy to talk about it. So less than 1 year corporate agents, the tenure of that group is down 24% year-over-year. So productivity being down 13% compared to tenure down 24%actually means they're on a tenure adjusted basis, significantly more productive. I think that's a good thing. Now the tenure of that team will come up next year. But this year, we do have another big class in July, another big class in August. So you're going to see more tenure dilution in the third quarter. We're going to keep building that corporate team because it's the best place to launch franchises out of that's less than 1 year, greater than 1 year. Previous year's numbers include not as many franchise launches. So we launched a lot of agencies out of last year's greater than 1-year bucket. And if you didn't launch those franchises, so you can back them out of the math, that productivity is actually up 2%. So we feel really good about that.

Similar story on the less than 1-year franchises. Last year's less than 1-year franchise included 24 corporate launches. This year has only included 6 in that bucket. And we talked about how those can be up to 10x as productive as the average franchise. It makes a meaningful difference, especially in the less than 1-year group because there's just less franchises in that bucket. And then in the greater than 1 year, they just keep scaling, there's more agencies that are hiring. We feel really great about the direction of that team.

That was super helpful. And then just the last one, premium retention, 99% in a year ago quarter, 95% this quarter. Still good. I mean does that -- I'm just not quite sure what that implies. Is rate coming down in some instances? Or just help me think through that.

Yes. Rate is leveling off. So the rate of increase and premiums year-over-year is leveling off that rates decline. Client retention is improving. Now it's still showing at 84%, but we see it basically going up basis points every single day. So we feel confident about that continuing to accelerate in the second half of the year. But we should be getting to a point relatively soon. where premium retention and client retention go in the same direction and there's just a small gap between the 2 of them for normal year-over-year pricing. I mean I've said it publicly many, many times, I'd much rather have a kind of 5% to 7% year-over-year pricing impact as opposed to a 20%. It's just a much healthier market for everybody in that situation.

And our next question comes from the line of Paul Newsome from Piper Sandler.

I was hoping you could give us a few more thoughts on the direct channel comments that you were making. Is this tied to what you had previously been working on? And I guess maybe any thoughts about what a significant investment could be prospectively. Because I think in the past, there was really heavy tech expenses that came to the system and was something that we talked about a little bit in the past.

Yes, Paul. So to go back to the previous investments, I think you're talking about QTI investments there. And all of that stuff that we've done over the last few years on QTI help enable what we're talking about. So it opens up the connections between us and the carriers. So that code is all very valuable and still really relevant. When you think about our new enterprise opportunities that we have, there's a good opportunity to cross-sell into our existing book and sell into these enterprise clients using a direct-to-consumer sort of interface, which brings a very targeted client to the carrier, which is what they would want in a more automated fashion than what we do today. Now on the size of the tech investment, I think we're still scaling out all that, and we'll provide more color down the road. But we're working on the sizing of that project right now and staffing it.

Great. Completely different question. Did the increased proportion of your business that was from state funds or residual businesses policies impact the Contingent Commissions. Is that part of the story that you get less contingency on those kind of policies. I simply don't know the answer.

Are you asking if we get less Contingent Commissions associated with the renewal book?

Associated with probably right from the state-run plan premiums.

Yes. No, there's no contingencies associated with the state run plans. The state run plans are not trying to incentivize agents to put business there. It's simply there as a backstop for when there's not other product available for our client, specifically related to kind of our forecast and guide for Contingent Commissions this year. Like I said in my prepared remarks, there really is a wide range of outcomes that could happen here. I mean we had a really light hail season in DFW, which is super positive for underwriter profitability. We don't know what's going to happen with hurricane season. So we'll see how that plays out. It could certainly be better than what we're expecting, although I'm not ready to promise that at this point. We'll have a lot more clarity. And certainly, by the fourth quarter, likely by the third quarter, we'll have a lot more clarity on what contingencies look like for the year.

But if you just -- just so I make sure I'm not confused. If you write a higher proportion of nonresidual fund or recall policies that gives you more opportunities for Contingent Commissions. Is that fair?

Yes. Less policies on state run plans should equal a higher percentage of policies earn Contingent Commissions, yes.

Our next question comes from the line of Katie Sakys from Autonomous Research.

I wanted to circle back to the 28% adjusted EBITDA margin, excluding the impact of the impairment expense this quarter. If I want to take a look at your adjusted EBITDA margin ex contingent thus far this year. To put up expansion for the full year 2025, I think it implies fairly significant improvement over the back half of the year. Would you mind kind of walking us through where you think some of the drivers of that expansion might come from? And if possible, quantify how much margin expansion you guys are kind of getting a sight line on for the full year at this point?

Yes, Katie, so I think in a previous question, I talked about the third quarter you should expect to see weaker margin relative to the second quarter and on a year-over-year basis because we have a significant amount of new hires coming in and also now expanding into the Nashville market, in the fourth quarter and doing some of these very interesting tech investments. Margin ex contingents, it wouldn't surprise me if it is down slightly for the full year, although we firmly believe making the right decisions to maximize long-term profit dollars.

But as the client retention continues to improve, that could certainly aid that as our corporate agents come down the ramp-up curve and generate more productivity per agent that generates incremental margin opportunity. But you shouldn't be surprised to see it ticked down slightly in the third quarter, ticked up slightly in the fourth quarter and potentially on the year, some slight compression because we're very intentionally making investments that are going to drive long-term value.

I would say we're going to continue to be super cautious on our spending, but this is what we've been waiting for, for several years is to accelerate into the growth opportunity. And based on what we're seeing from the carriers, it's the time to press on it with more agents.

Yes. It feels like we've got a really interesting window of opportunity here where the product market is turning around. The technology is at a point now where we can really lean into it. And the partnerships that we're bringing on, which do take incremental investment to operationalize kind of each 1 of them. All of those things drive really nice long-term growth opportunities, and I want to make sure we're being disciplined enough to invest in those things as opposed to just arbitrarily dragging down cost.

Yes, I can appreciate a more long-term view here. I guess perhaps following up on the adjustment to the full year 2025 guidance. I think I've reconciled all the different mining pieces there and how they impact premium growth and revenue growth this year. But I assume that you guys also have more or less some sort of mental model built for 2026 at this point. Any changes to how you guys are thinking internally about the growth opportunity in 2026? And any quantification that you can provide us?

Yes. So we're not ready to give 2026 guidance at this point, but I can certainly speak in generalities about where the business is going. So going to continue to expand the corporate team, going to be placing agents in the appropriate geographies where they have the highest likelihood of success and holding people accountable to really high standards. I mean we've got multiples industry best practice on the corporate team in terms of productivity. And same thing on the franchise side of the business. We're going to keep investing in our biggest and best agencies while pumping in new blood into the system from our NDA program, which we're feeling really good about from the veteran program and continuing to launch corporate agents into franchises.

So if you break down some of the individual pieces, the second half of the year, you should see really -- second half of 2025, I should say. You should see really strong acceleration in new business commissions generated from the corporate and enterprise teams. You should see new business royalty fees relatively consistent levels of production because we've got a really good group of agencies today, we're being really intentional about the ones that we consolidate into franchises. And then the pace of recovery of client retention will drive that renewal book. And obviously, that's the biggest lever to growth because it's the majority of our revenue.

Got it. And then if I could just sneak one more in. On your discussion of the recovery of past due commissions this quarter. How much more of that do you guys see potentially still sitting ahead of you for the rest of the year? Are there other carrier partners where you still need to recover past due commissions? And the example of the $1.5 million commission rate increase that you mentioned with a specific carrier partner. Is that a one-off example? Or is that pretty representative of the degree to which commission rates are changing across your average book?

Yes. I mean that specifically is a one-off example, but we are seeing continuous improvement and specifically engagement from our carrier partners on trying to incentivize growth in the best way as possible. I mean, more and more of the conversations with carriers now are how do we get in front of your agents more frequently, what do we need to do to continue to drive growth. And obviously, one of the levers is compensation. We have other things in the mix with other carriers regarding commission rates, but we were satisfied to get that $4 million recovery and that's showing up in renewal commissions and royalty fees, and that should generate another incremental $1.5 million throughout the second half of this year with improvement in the average commission rate.

And our next question comes from the line of Mark Hughes from Truist Securities.

Yes. The $4 million gain, are you able to share how much within each category?

Yes. Renewal commissions was $3 million, renewal royalty fees was $1 million of that net that's where they showed up. And so you can see what the revenue retention would have been absent that, which is a better guidepost for the third quarter than what you're seeing on the face right now.

Yes. And I assume were there any expenses related to that? Was there a commission payout? Or what was the flow-through from that $4 million?

Yes. Agents were shared some compensation associated with the recovery.

Yes. Any change in your experience, just your ability to convert leads. It seems like there's been a drop off in kind of applications or more contracts are falling through. So are you seeing anything in terms of your ability to convert leads either because of the nature of the housing market or because of availability of product, which seems like it ought to be getting better and the housing market presumably will improve. But I'm just sort of curious what you're seeing short term here.

Yes. I mean, product availability is beginning to improve. And so that's right now, not necessarily a significant headwind relative to the first quarter. Certainly compared to the historical numbers that we're used to. The housing market and specifically kind of cancellations of mortgage applications does result in an increase in what we call false starts. Basically policies that we write that don't end up actually become ineffective. That's certainly a short-term thing, which means that there's potential upside in the future to mortgage cancellations coming down.

Yes. And then one final question. You had a very big increase in the corporate agent count last year. How should we think about the magnitude of what you're looking at this year again?

Yes. Last year, a bigger portion of the class started in July and August. This year, we front-loaded a little bit more of that in June, and we still do have a good size class that comes in July and August, but not quite as much relative to last year. You'll still see the numbers grow sequentially in the third quarter. And then typically, in the fourth quarter, you just get normal attrition and not much onboarding. So without giving you specific guidance, the head count is going to go, it should be up from here by the end of the year.

And our next question comes from the line of Pablo Singzon from JPMorgan.

It sounds like homeowners and personal auto have become more competitive versus several years ago, perhaps Brazil automotive owners. As the impact of tariffs begins to roll through -- do you see the environment changing and how that might affect your business?

Yes, I would say 1 place you'll see it is what we just talked about a minute ago, you'll see a shift to the admitted markets from kind of the state-run carriers because in a lot of places, we just didn't have the product availability. You'll also see our conversion rates are something that we look at, like how many times do you quote versus how many times do you actually close on the policy with more product availability, you close it a much more frequent way. So each lead is worth a lot more if you can close at a faster rate. So I believe that's what we'll see. You'll see carriers -- we're already seeing it incentivize some growth and a commission mix upward to more profitable carriers.

Pablo, sorry, were you asking about tariffs specifically? I want to make sure we covered your question.

Yes. About tariffs, yes.

I'm sorry, I missed it. I didn't quite understand. I didn't see the -- hear the tariff part.

I'm not sure that tariffs is really going to make impact on our business. I mean there's certainly the possibility that it increases their repair cost for autos and kind of roots and lumber, things like that. But we're obviously downstream of that. We're not the ones underwriting the product. we'll distribute it. I don't think it's going to change in sort of like severity or frequency. So maybe there's an increase in premiums associated with that, but I don't think it causes any restriction in the product market.

We certainly haven't heard anything about it from our carriers at this point.

Yes. And then second question, can you talk about demand on the new business side. So it's clearly capacity opening up is just good retention is picking up too as well. But are you seeing more applications coming in? And maybe because it's more shopping or perhaps underlying markets getting better like housing?

Yes. I mean we're still such a low percentage of market share in terms of home closing transactions across the country that we're still able to just go get more referral partners to maintain our lead flow. I would say definitely lead flow per referral partner is down, but our team knows exactly what to do to go develop more lead sources and continue to execute on their new business quotas. So expect that to be a tailwind in the future when housing recovers, but housing is certainly down year-over-year.

But we've been able to keep lead flow pretty consistent.

Yes.

Okay. And then just last one for me. Where do you expect client retention and premium retention settling longer term right? Because I think now we're in a period of normalization, but where you see those 2 numbers longer in term?

I mean client retention, I think our historical high was 89% I think it's pretty reasonable to say that we get back to that over time. We will -- I would imagine we'll end up better than that at some point that I can give you a specific time line on that. I mean we learn more every day about how to better serve clients' needs. And as we continue to roll out technology that makes it easier to be a client and easier to handle your own insurance portfolio and interact with us however you want to, I would expect that increases client retention over time. And then premium retention should just be a function of client retention plus pricing. So if you're going to normalize kind of 5% to 7% pricing year and you've got 89% premium retention, you should expect kind of 94-ish if you have 89% client retention, 94-ish premium retention.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Mark Miller for any further remarks.

All right. I just want to thank everybody for taking the time to join the call today. I appreciate your continued support and interest. And once again, we look forward to speaking to you on the third quarter earnings call.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.