Good day and thank you for standing by. Welcome to the Goosehead Insurance First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Dan Farrell, Vice President, Capital Markets. 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 the expectations, estimates, and projections of the management as of today. Forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties, and other factors 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 upon them. We refer you all to our recent SEC filings for 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 and revise any forward-looking statements except to the extent required by actual law. I would also like to point out that during the 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, 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. An archived version will be available shortly after the call ends on the investor relations portion of the company's website at goosehead.com.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 would like to turn the call over to our Chairman and CEO, Mark Jones. Thanks, Dan, and welcome everyone to our first quarter call. I'm very pleased with the progress we've made toward our goals. Personal lines insurance distribution is a quintessential long-tail business. I tell people all the time that it is not a get-rich-quick business. It's a get-rich-over-time-but-stay-rich business. Driving substantive change in our company generally takes many quarters to achieve, but those changes, when made, tend to be very sticky and sustained. I am pleased to report that our hard work over the last year and a half bore more fruit in the first quarter. Franchise producer headcount has begun growing again. We ended the quarter with 1,963 producers. Our recruitment efforts to support franchisees that want to add producers are going extremely well, with a total of 168 producers being placed in existing agencies during Q1. As a reminder, when an agency adds a new producer, on average, it improves the productivity of everyone in that agency. So helping our franchise partners add producers remains an incredibly long lever for us and an important area of focus. Our focus on enhancing the quality of our producers is also driving very large productivity gains. First-year franchise productivity is up 86% year-over-year, but the gains are not limited to that cohort. Our existing franchises have delivered 19% same-store sales growth in the first quarter on the heels of 23% same-store sales growth in the fourth quarter. Our franchise network currently accounts for 78% of our premium volume, so productivity gains here can really move the growth and earnings needles over time. We're also proud to have continued to deliver strong margins through smart cost discipline and maniacal focus on productivity. We believe all of these enhancements to be structural and will benefit our business for years to come. As I prepare to hand off the CEO role to Mark Miller, I'm very happy with the capabilities of our senior team and the way they are working so effectively together. While we're excited for these wins, in the short term, we're facing some temporary headwinds. We are operating in the hardest insurance market and macro environment we've experienced in our 20+ years in business. That being said, we know that insurance is a market that cycles between hard and soft, and these cycles impact product pricing and availability with derivative impacts on client retention. Historically, hard market cycles last 2-4 years. Our current cycle has been amplified by the COVID Black Swan event, but we have reason for optimism as carriers report gains in profitability resulting from rate increases to cover inflation's impact on claims costs as well as product rationalization. When even California's insurance regulators allow carriers to price more rationally, you know that the first steps toward market normalcy are close at hand. An example of how this can affect our business: in March, we saw same-store sales increases of 107% in California. There's a positive to the temporary market challenges we face in strengthening the long-term health of our business because we have been forced to level up our game, enhancing and hardening our skills, and adding to our competitive arsenal. We are seeing very temporary challenges in our retention rates, but are highly confident we will return to our historically high retention as we progress through the current market cycle. While we navigate the current environment, we're committed to continuing to deliver on our earnings growth through aggressive cost management and careful scrutiny on where we invest the dollar of our capital and an hour of our time. Our smartest shareholders, and these are the bulk of our largest investors, understand the dynamics of our business, our structural improvements, and our transitory challenges. They invest for the long term and know these temporary headwinds will have a trivial impact on our long-term results. I'm pleased to announce that our board of directors has authorized a substantial stock buyback plan, which we will utilize as we see fit to take advantage of market dislocations. You'll hear more about this later on in the call. I believe we are better positioned today to deliver on our long-term goal, which is becoming the largest distributor of personal lines insurance in the United States during my lifetime, than we have ever been in our company's history. We will continue to remain maniacally focused on what we do best: deliver world-class service for our clients, deliver the best agent experience, and bring the most favorable and attractive client risks available to underwriters at our carrier partners. Thank you to our team for delivering on another successful quarter. And with that, I will turn the call over to our President and Chief Operating Officer, Mark Miller. Thanks, Mark, and good afternoon, everyone. To summarize operations in Q1, I'll provide updates on three key areas: franchise productivity, commission retention, and producer headcount. First, let's dive into franchise productivity. The franchise network now accounts for 87% of our total agent count and 80% of new business production. After a 30% increase in franchise productivity in Q4 2023, we saw an even stronger 42% increase in Q1 of 2024. This improvement was led by an 86% increase in our less-than-one-year franchises. We know first-year productivity strongly correlates to long-term franchise success, so we believe our newer vintage of franchises will perform very well for many years to come. We have had relentless focus on quality over quantity for the past year, targeting candidates with the desire and strong skill set to grow a scaling multi-agent business. We're starting to see signs this strategy is bearing fruit as we continue to launch higher quality and faster-ramping new franchises. If you dive into what's driving the increased productivity, it's primarily an increase in the number of referral partner leads per agent. With the challenging insurance environment putting downward pressure on close rates, the only solution to drive productivity is to get more leads, and the best way to do that is by marketing to referral partners. Going into Q4, we doubled down on our referral partner marketing strategy. These efforts take time, and they had some impact on Q4, but they are the primary driver of Q1 productivity growth. As a reminder, our agents have access to an exclusive tool that shows them the production data of every loan originator in America. These mortgage professionals all have an insurance agent they refer clients to, but many are frustrated with that experience. Some refer business to a captive agent who only has one offering and may not be competitive. Others refer to an independent agent, but they're frustrated by the turnaround time on proof of insurance, which can cause closing delays. Goosehead agents offer more value to these referral partners than any other agent in the industry. Our value centers on three components: choice - we have the most robust product offering in the industry to make sure we find clients the right coverage at the right price; speed - we have a service team dedicated to servicing these referral partners, which means we can get them proof of insurance in under an hour; partnership - our local agents will partner with loan officers to market to Realtors and generate more business. The challenging home insurance environment and higher interest rates have made our value proposition to these referral partners more pronounced than ever. We're also providing more support and training to our agents on executing this strategy than ever before. For example, over the past two quarters, we have been sending out sales leaders into the field to go execute on half-day referral partner visits with our agents. After one of these field visits, we generally see a greater than 75% lift in the number of referral partner leads that agent gets over the following month. In Q1, we saw a 27% year-over-year improvement in the number of referral partner activations. This was the best quarter on record. We believe these investments will allow us to sustain high levels of productivity for years to come. What's more exciting is that as the housing market improves, these new referral partners will send a higher volume of leads to our agents, and as the insurance market improves, our agents will close those leads at higher rates, leading to increased productivity. We are incredibly encouraged by the trends in the franchise productivity. As a reminder, these productivity gains do not immediately materialize on a revenue line. They will, however, boost revenue as policies renew in the second year, as royalties contractually go from 20%-50%. Second, let's dive into commission retention. Because of a combination of inflation, higher reinsurance cost, and unprecedented weather activity, insurance underwriters experienced some of the worst results on record in 2022 and 2023. To fix that, carriers have taken aggressive price increases, changed underwriting guidelines, and decided to not renew many policies. Nowhere is this more pronounced than Texas homeowners insurance, our largest concentration of clients. Texas homeowners insurance went up over 20% in 2023, over twice the national average rate. These rate increases have led to unprecedented shopping activity. In addition, in Texas, there are a few large captive carriers who haven't raised rates as aggressively and are losing $ billions. These losses are not sustainable, but the increased shopping activity and mispriced captives have led to a decrease in client retention. In addition, two carriers who have been under extreme financial distress significantly lowered commission rates, which is having a near-term negative impact on our commission retention. Importantly, the carriers who are truly partners, such as Progressive, SageSure, Safeco, and Mercury, among many others, have taken a long-term view and not impacted commissions at all. These carriers know that agents have a long-term memory, and they want to maintain a great reputation so that they can start growing again when the time is right. The good news is we see no impediment to being able to get back to our historic retention levels as the market heals. Texas is generally a more flexible state that will allow insurance carriers to make the changes they need in order to open back up for business. Many carriers are moving to higher deductibles and depreciable roof schedules to create a product where they can be profitable. As our carrier partners open back up and the captive carriers raise rates, we believe our retention will go back to 89%+. Third, let's dive into producer headcount growth. We continue to believe that helping our existing franchises add producers is one of the longest levers in our business. Helping source a new producer for an existing franchise provides incredible value to our franchises and is very low-cost for us. Every new producer added to a high-performing franchise is the equivalent of launching almost two new franchises. Additionally, when a new producer is added, we see productivity of everyone else in the franchise increase. Our scaling franchises added 168 producers in the quarter through a combination of our corporate recruiting program and their own sourcing efforts. Producers per franchise ended the quarter at 1.7 compared to 1.6 in Q4 and 1.51 a year ago. Our team dedicated to recruiting franchise producers now totals 17, and we expect this team to help us add several hundred more producers to the franchise network this year. As a result, we believe overall franchise producer count will grow from current levels, and we will see an increasing number of agents per franchise. Franchise producers ended the quarter at 1,963, up from 1,957 in the fourth quarter. This represents the first sequential producer growth in the last six quarters. One great example of an agency adding agents quickly is the Gary Miller Agency out of Flowery Branch, Georgia. Gary, who's no relation to me, launched back in March of 2020, and he has been a part of our agency staffing program since inception. Gary has hired six producers in his agency as a result. He has had great success utilizing this program, particularly with the producer Zach Miller- Hogg. Over the quarter, Zach produced approximately $15,000 in new business revenue per month, which is around 2.6 times higher than the average producer in Georgia. We will continue to assist Gary in recruiting top talent to his agency as his hiring needs continue. On corporate, we've had tremendous success with college recruiting and have locked in the majority of signings for our summer class. We expect to end the year with at least 375 corporate agents. Many of these agents view their time at corporate as a paid apprenticeship. They come in for a few years, learn to be an expert at their craft, develop a large referral partner network, gain leadership experience, and then go launch a franchise. This opportunity is allowing us to attract higher-caliber talent than ever before. One example of this is Noah Taxman. Noah joined our Denver corporate office in August after graduating from the University of Denver. He immediately found success activating new referral partner relationships and started generating over $20,000 per month in revenue within three months. Now, Noah is in his seventh month, and he is now generating over $30,000 per month in revenue and continuing to grow. Noah will likely earn over $175,000 in his first year out of college, and he will have many compelling Goosehead career options in the future. This opportunity is unrivaled on campus, and we continue to recruit top talent to join an industry that has historically struggled to do so. Recruiting this level of talent and then launching them into franchises remains one of our largest competitive advantages. We will continue to capitalize on this strategy and grow our corporate team up to our absorptive capacity. To summarize, in Q1, we created structural changes that are here to stay. We're incredibly excited about the gains in franchise productivity and headcount growth. We know the market headwinds will eventually abate, and when they do, we believe we are perfectly positioned to rapidly reaccelerate revenue growth. We're extraordinarily confident we have the right strategy and the right team to execute our long-term vision of becoming the largest distributor of personal lines insurance in our founder's lifetime. With that, I will turn the call over to Mark Jones, Jr., to give more color on our financial results. Thanks, Mark, and good afternoon to everyone on the call. In the first quarter of 2024, we began our growth reacceleration phase. Total revenue, core revenue, new business premium growth, and franchise producer count all accelerated sequentially over the fourth quarter of 2023. On top of that, we generated more cash than in the first quarter and any year in our company's history. We have placed a tremendous amount of scrutiny in every aspect of our business within our control and made strategic decisions to minimize the impact of forces outside of our control. Quarter-end, total franchise producers were 1,963, up from 1,957 as of year-end. As Mark Jones mentioned, our existing franchises added 168 producers into their agencies, growing our producers per franchise for the fifth consecutive quarter to 1.7. As a reminder, adding a producer to an existing agency typically drives the production equivalent of two new agencies. Our agency staffing program has been delivering strong results, which should drive a virtuous cycle of continued momentum in the franchise business. Each time a franchise onboards a successful producer, they become more confident in the program and generate cash flow to fund the next producer and overall growth of their agency. As a reminder, each time a producer is added to a franchise, it improves the productivity of everyone in that agency. This remains an incredibly powerful tool for future new business growth. Corporate producers at quarter-end were 292, up 6% from the prior year period. We are excited about the health of our corporate team, and we're now in a position to onboard a new class of college recruits over the summer. We've already locked in a significant portion of our summer class with approximately 65% of planned hires having already signed their offer letters. We expect by the end of the year, our corporate agent headcount will be over 375, which sets us up to drive further acceleration in new business production in 2025. Mark Miller discussed some of the challenges we have faced in the carrier environment and how those have impacted not only new business generation but also retention rates. One avenue we've taken to combat those impacts is to increase our marketing efforts to drive additional lead flow. Because our close rates have seen a temporary decline, we need to generate more at the top of the funnel to fill the gap. In the first quarter, in the face of cyclical lows in housing activity, we generated a 31% increase in lead flow per agent over the prior year period through a combination of increased share of wallet with our existing referral partners, new referral partner activations, and lead flow diversification from strategic partnerships. As the temporary headwind of product availability inevitably abates, we believe there is significant upside in productivity through converting a higher percentage of this increased lead flow. Total written premiums, the leading indicator for future revenues, grew 28% over the prior year period to $819 million. This includes franchise premium growth of 32% to $650 million and corporate premium growth of 15% to $169 million. The first quarter was the second consecutive quarter we observed an acceleration of new business premium in both distribution networks, with franchise new business premium up 19% and corporate new business growth up 11%. The building momentum in new business premium is being partially offset by the continued slowing of our renewal premiums due to declining retention rates related to the temporary market challenges. As carrier profitability is restored through a combination of pricing increases and modifications to underwriting models, we expect that our client retention will progress back towards our historical long-term average of 89%. We've made significant investments and improvements in the quality of our service function that give us confidence in our ability to drive increasing client retention as the carrier market normalizes. Total revenues for the quarter grew to $64.5 million, representing 11% growth over the prior year period, with core revenues of $58.8 million, representing 13% growth over the prior year period, both accelerating sequentially over the fourth quarter of 2023. As we have previously mentioned, a larger and accelerating portion of our core revenues is being driven by the franchise network, with 60% of the first quarter's core revenue coming from royalty fees compared to 55% in the first quarter of 2023. We expect this trend to continue as franchises onboard producers and reduce the productivity gap between the average corporate producer and the average franchise producer. This has a lag effect on revenue growth rates as we recognize only our 20% royalty fee in the first term of a policy, which steps up to 50% in each subsequent term. Policies in force grew 13% versus the year-ago quarter as the temporary declines in retention rates are muting the impact of improved new business generation. We expect to see a reacceleration in the policies in force growth rate beginning in the third quarter of this year. Contingent commissions for the quarter were $2.7 million versus $1.9 million a year ago. For 2024, we are assuming contingent commissions to be roughly 35 basis points of total written premium. We are expecting approximately $1 million of contingent commissions in the second quarter compared to $4 million of contingents in the year-ago period. Longer term, we expect to see contingent commissions returning to the historical average of 80 basis points of total written premium. However, we are remaining cautious and prudent in our near-term forecasting as the timing and pace of the recovery of profitability for carriers, a major driver of contingent commissions, has uncertainty and is not entirely within our control. Cost recovery revenue for the quarter was $2.5 million compared to $3.5 million in the year-ago quarter. For 2024, we are expecting cost recovery revenue to decline moderately from the 2023 levels as we have dramatically improved the health of our franchise network, resulting in fewer franchise terminations and less accelerated recognition of initial franchise fees for GAAP purposes. It is important to remember that this changes nothing from a cash basis as we collect franchise fees at the time of training and they're non-refundable at that point, but we are required to recognize the revenue over a 10-year period or the life of the franchise. Adjusted EBITDA grew to $11.7 million in the quarter compared to $10.2 million in the year-ago period. Adjusted EBITDA margin for the quarter held steady at 18% compared to the year-ago period. We continue to expect total margin expansion for the full year as we remain focused on cost management to mitigate the bottom-line impact of moderately lower revenue growth expectations for the near term. We expect a majority of the margin expansion for the year to occur during the fourth quarter as our class of new corporate agents ramp up production, the accelerating franchise new business from the fourth quarter of 2023 converts to more profitable renewal business, and the timing of year-over-year contingent commissions. As a result of increased business in various geographies, we have now met certain state tax nexus thresholds, which result in additional state tax filings. Because of these additional state tax filings, our significant deferred tax assets produced large state deferred taxes, resulting in a current period benefit for future state tax deductions. As of March 31st, 2024, we had cash and cash equivalents of $51 million. Our unused line of credit was $49.8 million, and total outstanding term notes payable balance was $75.6 million. Operating cash flow generated in the quarter was $11.9 million compared to a use of cash of operations of $639,000 a year ago. Our free cash flow generated in the quarter was $9.1 million compared to a use of cash of $4.2 million in the year-ago period. As a reminder, the first quarter generally represents our seasonally weakest quarter of the year from an earnings and cash generation perspective. Given the uncertainty in the carrier product environment and its temporary impact on client retention, we are revising our guidance for the full year. As a reminder, our philosophy on guidance is to be as transparent and accurate as possible. We guide to what we actually believe we will achieve for the year. For the full year 2024, total written premiums placed are expected to be between $3.62 billion and $3.82 billion, representing 22% organic growth on the low end of the range and 29% organic growth on the high end of the range. Total revenues are expected to be between $290 million and $310 million, representing 11% organic growth on the low end of the range and 19% organic growth on the high end of the range. Adjusted EBITDA margin is expected to expand for the full year. The reduction in the high end of our guidance largely incorporates the experience we've seen in Q1. The low end of our guidance range is incorporating the possibility of continued temporary decline in retention rates and performance of the renewal book in the near term. We've made significant structural and foundational improvements to the core business that we believe will continue to drive performance for many years to come. The insurance market has a long history of hard and soft cycles, and the current challenges we are facing are transitory. We remain incredibly excited about the future of our organization and have more confidence in the underlying operations than ever. Our balance sheet flexibility and strong cash generation provide us with additional options to create shareholder value. Our current net debt to trailing adjusted EBITDA is just 0.3x, and over the last 12 months, we've generated operating cash of $63 million. Historically, we have favored returning significant excess cash to shareholders in the form of special dividends. However, we believe there's a significant dislocation in our current valuation versus our long-term earnings growth expectations. As a result, our board of directors approved a $100 million share repurchase authorization in connection with an upsizing of our existing credit facility. The upsized facility will include an expansion of our revolving credit facility to $75 million and an increase of the total term loan of $25 million while maintaining the existing pricing grid and tenor of the agreement. Given our current valuation, we believe that shares of Goosehead stock represent an attractive buying opportunity. I want to thank our leadership team, our service team, our sales agents, our carrier partners, and our shareholders for their support as we continue on our path to industry leadership. With that, let's open the lineup for questions. Operator? As a reminder, if you'd like to ask a question at this time, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question will come from the line of Matt Carletti with Citizens JMP. Hey, thanks. Good afternoon. Hey, Matt. My first question is a little bit asking you to look at your feel like your crystal ball, but you obviously talked a lot about the product environment, and I think that's no surprise. Anybody paying attention to personal lines, I think, is talking about it a lot. Where do you think we are kind of in that process? You guys see it on the ground day to day. Does it feel later innings? Are you starting to feel that the underwriters are thinking they're in a good spot in terms of pricing and getting changes in terms of conditions into the book, and you expect an improvement in the not-too-distant future, or do you think it's a little more middle innings and time will tell? Hey, Matt. This is Mark Miller. How are you doing? Good. How are you? I'll start, and then I think Brian and I are probably closest to it because when the carrier executive teams come in, we usually talk to them. I would say break it down by home and then auto or auto then home. I would say auto is improving more quickly towards the end of that cycle, and we're starting to see some of the major carriers come back in. On the home side, our expectation was it would start to recover by kind of this time about, and it's been slower than our expectations would be. We still have carriers that are in the market and offering product at reasonably good prices, but the broader coverage of places like Texas is pretty tough right now still. So we're waiting and seeing. But I don't know whether we're at the end of the cycle, but I would say we're towards at least the middle of it and coming out of it. But Brian, what's your opinion? Yeah, I think that's exactly right. I mean, you look at Progressive results, who have been posting mid-80s combined ratio. They're looking to dial up growth now, and they're starting to dial back restrictions. Some of the bundled carriers are waiting to dial back auto restrictions until the home is in a better place. And to Mark's point, I think home is a little bit still wait and see, especially in markets like Texas. So I think probably more middle innings on home, later innings on auto. That makes sense. We've seen, I mean, we've seen a big correction in California over late, which gives me some optimism. Yep. Yeah, that makes perfect. This is Mark Jones, Matt. We are seeing some early progress in that, for example, Progressive Home, their combined ratio has come down substantially from its highs, which doesn't necessarily mean that we're at the end of the game yet, but it is at least a light at the end of the tunnel, and we don't think it's a train. Yeah. And the ones that moved quickly, I think they're, so it's different by carrier. Some moved quickly and raised their price, and they're becoming profitable now. Other ones relate to the game. And like we'd said on the calls, there are a handful of captives that are mispriced compared to everybody else that have not raised price yet. So it kind of depends what they do. Yep. Got it. And then if I could ask you if that was the right way to ask this is, but I guess you provide us with 2024 guidance, and you got a little more conservative, and I thought you gave a lot of really good color on why that is. I'd imagine you have some form of 2025 guidance internally. And as you think through this being temporary and understanding your model in terms of how premiums convert into revenue and things like that, given kind of the change in the 2024 guidance over the last quarter or so, was there any change in that kind of internal view of what 2025 might look like? Same, better, worse? No, Matt. This is Mark Jr. No. Looking at 2025, we're going to be putting a lot more players on the field here over the next few months as we onboard the new college class. And our first-year corporate agents are ramping up just as well, if not better, on many instances as they have in the previous year. So we feel very good about that. And our existing agencies are continuing to hire. You saw that producer count number grow sequentially for the first time this quarter in a while. So we feel very good about the new business generation looking into 2025. And our expectation is, as the product market normalizes, you actually start to get a tailwind from client retention as opposed to as big of a headwind as it has been right now. So we're not really having any changes in expectations for what 2025 or longer than that looks like. And the other thing is, as carriers restore profitability, the contingent commissions number starts to look very attractive as you grow your premium base and start to get a higher percentage of that as contingencies, which are, again, 100% earnings. The other point I would make is we made comments in the prepared remarks that we've taken steps to kind of rationalize the cost base to make sure that we don't sacrifice bottom-line earnings while we're kind of dealing with a short-term headwind on the revenue growth number. All of those costs don't immediately get put back into the P&L in 2025. So you come out of this leaner and more effective as soon as you get some more normal product environment. Yeah. Super helpful. Thank you for the caller. Thanks, Matt. Our next question will come from the line of Brian Meredith with UBS. Brian, your line is now open. Thank you. A couple of them here for you. First of all, I'm just curious. Looking at and maybe this has to do with the fact that you're getting some commission rate cuts, but if I look at corporate call it core revenues divided by call it corporate written premium, and the same thing for franchise call it fees divided by the franchise kind of premiums, it's kind of been consistently declining over the last couple of years. I'm curious, is that because of what's going on with commission rates, or is there something else going on there? Yeah. So commission rates is part of it, and we mentioned it's just a couple of carriers. That's not a broad-scale issue. A lot of it is just as the mix shifts from the corporate side driving the majority of not necessarily the majority, but the majority of the growth in new business production to the franchise side driving the majority of the growth that naturally just causes the lag from premium to revenue growth, considering it's 20% on the first term of a policy and 50% subsequent to that. That's really the largest driver of that. And we've talked a lot about over the last couple of years, the rationalization of the corporate team after we kind of peaked at that 506 headcount. That just causes a little bit of a short-term drag in your total aggregate new business production. Although it made material improvements to the health of the corporate team, it was the right decision. But we expect that to continue to grow into the future, which you'll see then flow into renewals in the following years. Gotcha. Would the mix of auto versus home affect that too? Because I would assume auto commissions are lower than home. We don't see a big difference in commission rates between product lines. Where that would be impacted is just a carrier do not renewing a policy, whether it's a home or an auto. So if your auto is retaining better because carriers feel like they've got better pricing, to the extent of disproportionate amount of your book as home, that could impact you there, which ours is 55% home. Gotcha. And then my second question, just curious, looking at your corporate sales agents with greater than one-year tenure, they continue to decline. Is that going to be bottoming out here soon? And I appreciate you're going to have a lot more corporate agents at the end of the year, but I assume that's going to also meaningfully impact productivity overall if you've got a much lower percentage of one-year tenured agents or greater. Yeah. I mean, we talked about this a little bit in the last call. As you continue to launch out franchises and promote people into management out of that tenure bucket, it naturally kind of places a cap in what that productivity looks like because you're taking your best, most productive agents and putting them into a different distribution network, either on the franchise side or in management. So I don't necessarily expect to continue to see the slide that we have seen this year, but you got to remember, looking at this year versus last year, we just had started the franchise launch program. And so you've got 35 people at this point who were included in that number at the beginning of last year who are now not included in that number. As your year-over-year trend normalizes looking into 2025, you shouldn't see that kind of impact, although you may see a little bit more of that this year as we continue to pump out more franchises and the year-over-year numbers look a little askew. Great. Thank you. Thank you. One moment for our next question. Our next question will come from the line of Michael Zaremski with BMO. Hey. Good afternoon. Maybe going back to the comments about some carriers cutting your commissions. I guess just in hindsight, it kind of makes sense being an analyst because the carriers are seeking to improve their profitability. So I'm just kind of and this is a lever, but I'm just kind of curious then. So how much of this is just a new trend that just surprised you all, and you're baking into your guidance in case other carriers do the same? And then on the contingents, I'm assuming that this would impact contingents. So unless the carriers eventually went back to the old, better commission structure, why would contingents go back to their historical levels over time? Yeah. Mike, just to your comment on the guidance, we are not expecting to see any more of that. This was a very isolated situation. Mark Miller can give some more color on that. It also shouldn't impact the contingent commissions because those are not carriers that we were receiving contingencies from in 2023 or were expecting to in 2024. So it doesn't impact what the medium or longer-term outlook on contingencies look like. And also, I would argue that the vast majority of carriers understand the benefit of having an independent agent that knows how to distribute your product very successfully. And this is a very short-sighted move. Yeah. This is Mark Miller. I'll just jump on that comment for a second. First of all, I think this is short-term in nature. I've not seen or had any discussions with any other carriers. These are two carriers that, as we mentioned in the call, that were financially distressed. They came to us and said, "We're in a financial position where we need to back away." So this was Homeowners of America and Hippo. They wanted to pull out of the market, and they wanted to reduce commissions as a result of it. One of those carriers dramatically changed the contracts for our clients underneath it as well. So it's not even the same paper. I haven't seen that out of any of our major carriers other than those two. And the market naturally adjusts to the carriers that have the right paper at the right price. In this case, they don't. So the market's correcting itself. So when I say it's temporary, the business starts to move to other carriers. Okay. All right. That's great. That's great color on that. Just switching gears a bit, and I believe you teased this out in the prepared remarks, but I'm still going to ask it because I feel like it's somewhat complicated. So when we look at the revenue guide versus the premium written guide, you have a much bigger decline in the guide on the revenues. And so are you explaining that more of your revenues are more of your premiums are going to come from the franchise segment, from new producers? So that's driving the delta, or is there more which offer has a lower commission? Yeah. That's exactly right, Mike. So with the performance we've seen thus far this year, the franchise side of the business is doing a really, really great job of continuing to drive productivity. And our expectation is that will happen for the remainder of the year as well. And so you feel the impact of that immediately in premium. That's why you see the premium guide move is not as large as the revenue guide move. But that doesn't have the same impact in revenue, right? It's $0.20 on the dollar. So you're exactly right on that. Okay. Okay. Got it. And I guess lastly, I don't know how much you can say, but there's been rumblings in the insurance trade rags about a very large auto insurance carrier, maybe the third largest in the U.S., potentially looking to enter the IA channel. I don't know if you could say anything, or if that's something that you've heard too, or maybe that could help in terms of the product you all have to offer your clients. Hey. This is Brian. Yeah. Our belief, I mean, we've seen this trend happen for years now where there's been movement both on the captive side and on the direct side towards the independent channel. If you look at some of the big captives have made big acquisitions and done moves to focus on a choice model. And then similar on direct, companies that really sought to go direct to consumer have pivoted going to a dual distribution model, really following Progressive's moves. We know that what Progressive calls the Robinson client, right? It's $200 billion of the market. It's the preferred home auto customer that retains, performs well. I think every auto carrier wants more of that type of business. I can't speak to any specific carrier, but we do believe that the trend will continue and that more of the direct carriers and captives will embrace independent distribution to go after that segment of the market. Thank you. Thank you. Our next question will come from the line of Andrew Kligerman with TD Cowen. Hey, everybody. And I apologize in advance for the background noise. But before I get into my questions, could I just ask a couple of quick statistics? One being, you're citing 89% retention. Where was it this quarter? And then with regard to Hippo and Homeowners of America, what percentage of your book of business are those two carriers? I mean, it kind of sounds like a real non-event when I hear the names of the two companies. Hey, Andrew. So client retention for the quarter, 85%. Just to hit on your first one. On your second question there, we had been in business with Homeowners of America for a really long time. And so over a period of time, we had built up a really nice partnership and a relatively sizable book of business. And as they've made decisions that they're going to make, a lot of that book of business has rotated off to other carriers as naturally the value to the client and to the agent has declined in that product. So just naturally, that happens. It may not have seemed like that's a super big carrier, but they were a relatively important partner for us in the early days. So that had. In regions like Texas, they were really big. Hippo and Homeowners of America were both large for us. I see. And the commission reduction, how much was that? Yeah. I don't think we're going to get into specifics on the rate, but it was enough for us to call it out. Okay. Fair enough. Thank you. And then with regard to expenses, I saw that G&A only went up 8%, which was great, but the employee comp was up 14%. You listed out a lot of reasons in the press release, but I'm wondering if you, A, could have tempered that a bit more and, B, maybe clarify a little bit why it was up that much just given the pressures on revenue. Yeah. I mean, how we secure our future revenue growth is by continuing to hire and onboard really, really talented people. And so we've said forever our secret sauce is the human capital we're able to bring to the table that's so differentiated in the industry. So we believe strongly in continuing to do that. So while we can manage the cost bar very well with G&A on that side of the business, I don't want to limit who we're hiring and who we're bringing into the system because that's going to be a short-term decision that's going to have long-term impact. That makes a lot of sense. And then just lastly, there was some new legislation reducing commissions for real estate agents. Does that concern you at all? Should that have any pressure on you as you move forward? I mean, we've seen some recent interest on the franchise side of real estate brokers wanting to get into insurance as a side business, but I haven't seen any other negative to our business. So the fact that they're seeing lower commissions isn't going to—I mean, home sales will be what home sales will be, and you'll still get your leads. Is that how you're thinking about it? Correct. It doesn't change our relationship with the real estate brokers. And real estate volume is going to be what real estate volume is. But I think we're getting an upsized percentage of the leads that come out of the industry and growing. Well, and we're also targeting for referral partners the highest volume Realtors, and they're not going to be the ones that are affected. It'll be the lower productivity Realtors that'll get squeezed, and so that'll have much less effect on us. Got it. Thanks so much. Thanks, Andrew. Thank you. One moment for our next question. This question will come from the line of Tommy McJoynt with KBW. Hey. Good afternoon. Thanks for taking my questions here. You gave a good explanation on sort of the bridging, the change, and the guidance on the revenues. Just want to make sure I understand kind of the lowering the lower end of the range on the premium side. If you could just kind of bridge that, what changed there in terms of was it rate, policy count, number of producers? Just explaining that premium change. Yeah. That's largely a function of retention. And so if we don't get the home market to stabilize as quickly as we would like, there is the opportunity for client retention to continue to slide a little bit more throughout the year. Now, we have seen the peak of what we believe the do-not-renewals from carriers is, so we should be on the back half of that. But really, it's a function of client retention being slightly lower than what it has historically been. So certainly, if that returns faster than what we are expecting, you could see that premium number be closer to the high end of the range, but I would rather be conservative in the forecasting. Okay. Got it. And then just the other area of question, on the expense side, and it sounded like you may have touched on this, but do you have visibility into what equity-based comp should be for the rest of the year? And then as we think about kind of into 2025, is there any reason that it should either step up or step down year-over-year, just given what you know about vesting schedules related to that? Yeah. Looking at Q1 as your best estimate for what it should be that full year. So typically, the first quarter is when you would get new options awarded to the managing directors here. And so then a similar number to that would be recorded in each quarter of the year. Looking at 2025, there'll be additional options that are awarded to the senior team, and at which point you would see a step up in equity-based compensation. Just as a reminder, our philosophy on that has been kind of between 1%-2% of the share count is an appropriate level for the dilution because the Black-Scholes valuation, given the volatility in our stock, tends to overvalue the actual economic reality of those options awarded to the employees. Got it. Thanks. Our next question will come from the line of Mark Hughes with Truist Securities. Thank you. Good afternoon. Do the do-not-renews go into that 100% premium retention measure? Yes, they do because that would be premium that was on the books last year that will not be on the books this year. So that premium retention is a trailing 12 number, and so it's kind of got a lag effect on what exactly is happening in the book. But yes, they are included in that. Okay. So it's trailing 12. And then you talked about the NAR settlement. Do you have a rough breakout for how much of your business comes from Realtors versus, say, mortgage lenders? I would say it's definitely in the majority mortgage lenders. We work quite a bit with Realtors, but I would say the majority, I mean, I think probably I would bet 75% + come from lenders. If you look at our referral partner business altogether, which is roughly two-thirds of our new business, probably 75% from lenders, maybe 25% from Realtors. Very good. Thank you. Thank you. Our next question will come from the line of Paul Newsome with Piper Sandler. Good afternoon. Thanks for the call. I wanted to revisit the guidance change. I'm just sort of writing down sort of the pieces. I would have thought that it sounds like retention's a problem, commissions went down, but that should have been offset by the fairly large price increases we've seen for home and auto. I guess the question is, is there another piece in there that we're missing? I was thinking, are we for example, are we actually thinking policies in force growth will slow as well as part of that equation? Yeah. Paul, I think we said in our prepared remarks, we would expect policies in force growth rate to reaccelerate in the third quarter of this year, which we do believe that will be the case, which means you do have one more quarter of deceleration in that number. Now, it's still, I think, relatively strong growth. It's not what we've historically done, but we fully believe we'll be able to drive back to kind of our historical numbers on policies in force growth rate. The revenue guide is truly a function of client retention as a temporary, very temporary headwind. We expect that that will improve ideally by the end of this year, but certainly in 2025, at which point it becomes a tailwind. But the new business productivity, especially on the franchise side of the business, is doing very, very well, and that's why you see the premium number not move as much as the revenue number. So, just to be a little bit amiable, was there actual sort of a push out of the decelerated PIF growth a quarter before, or that was unchanged from what the prior guidance was? No, that number is unchanged. It's just a function of the amount of policies that are renewing. And so maybe it's moved by a couple of weeks. It's not necessarily moved massively. But if you just think about how much of the book is home and how challenged the home environment is now, it's challenging to keep those clients on if they're getting a 100% price increase. My second question, when we were talking about productivity for the agents, is that an average number, or are we looking at sort of cohorts? I would imagine cohorts as they age become more productive regardless. So I was wondering if there's any way to sort of tease out what is sort of actual productivity of so the average 3rd year is much better than the average and maybe that's happening, but maybe you could talk to that because getting rid of your poor agents would automatically improve productivity just from an averaging perspective. But maybe is there actual by-cohort productivity improvements that you can talk about? Yeah. Yeah. There definitely is. So if you look at the productivity disclosures that we provide, you'll see it's broken down into less than one year and greater than one year agents on both the franchise and the corporate side. On the corporate side, the tenure of that bucket is actually a couple of months lower this year than what it was last year just from time and of onboarding. And so the ramp-up of those agents is just as good as it was in the previous years. We feel very good about that first-year corporate agent productivity. On the greater than one-year bucket, we talked about a little bit already that transition of corporate agents into franchises or into management. And so if you adjusted for those items, you can do the math. It's around 19% productivity improvement if you kept those same agents that launched franchises in that greater than 1-year corporate bucket. So we are seeing very strong productivity improvements, I believe, in the corporate side. On the franchise side of the business, it's even more profound. And so if you look at just the same-store sales numbers, which has nothing to do with the amount of agents that you're calling, it's this franchise existed this year and this franchise existed last year. Q4, that number was 22%. It's up again another 19% in Q1, and we feel like that's going to continue to grow. So we feel very good about the productivity of the agent force, and we don't necessarily see a cap on that in the near term, especially if you get some product tailwinds. Great. Appreciate the help as always. Yep. Thank you. Our next question will come from the line of Scott Heleniak with RBC Capital Markets. Yeah. Thanks. Just had a quick question on the franchises. You talked about adding hundreds more on the franchise producers. Is that mainly going to be to the existing franchises like you have now? And can you talk about the franchise conversions? Are those still on track to, I think you had said before, 30? Is that still, you didn't mention in the prepared remarks, so I was just wondering if that's still expected to be the case? Yeah. So I think we've talked about this year in 2024, it would be more like 20-30, not necessarily that full 30. Remember, we started the year with less corporate agents in 2024 than we did in 2023, so it was just a smaller pool to pick from. As that team grows, which it will in 2024, we indicated on the prepared remarks that we'll be over 375 by the end of the year, so we feel great about that. But producers into existing franchises, yes, that will be hundreds more this year. We're going to continue to launch more high-quality franchises, but I think the vast majority of your producer growth is going to be coming out of producers into existing agencies, which obviously, just as a reminder, creates much more productive capacity than adding a new franchise. And about half of those people being added to the franchises come through our recruiting program that we've established, which I said has 17 recruiters now doing nothing but full-time recruiting for franchises. The other half come from franchises recruiting on their own. And then we're less worried about the quantity of new franchises that we launch and more about the quality of the franchises. And so we're just being very selective about people we're letting into the franchise network right now and being very selective about the states. So we're very state-specific right now and where we need to grow geographically. Got it. Understood. And then just a quick question, Mark, you referenced the margin expansion comment. You said most of that would come from Q4. Do you still expect margins to be up in Q2, in Q3 year-over-year? I know the majority is Q4, but do you have anything out on Q2 and Q3? Yeah. Just the timing of contingents in the second and third quarter compared to the previous year, you could see the total margin percentage down on a year-over-year basis. But if you look at the core margin, you should still get good scale out of it. Although remember, we're about to onboard a significant number of corporate agents, and that cost doesn't just hit as soon as they start, which is largely June, July, August, September. A lot of those onboarding costs, licensing, things like that happen before they start. So you should see the compensation lines growing in the second and third quarter, and then you get nice scale as they ramp up their production throughout the summer and into Q4. Okay. Just last one, too, on retention. I know it's been talked about a lot, and you're targeting 89%. You're at 85% now. But is that being dragged down by what's happening in Texas? Is it significantly different by state? And so if things lift in one or two states, then it kind of brings it up, or is it just pretty similar across the board? Yes. I mean, all states have a bit of a retention issue compared to our historic numbers, but Texas is by far our largest state. Home is our largest product, and Texas is really suffering right now just from availability of product. And one indicator of what's going on is Texas premiums are up. I believe the number is 23% year-over-year. If you look on a national average, they're up about 10% or 11%. So it's up twice as much, and our shopping activity mirrors that. So we look at how many people we have asking for reshops. They get upset when their price goes up by a certain amount. That's a trigger point. So 20%, I want to shop. And so shopping activity for the number of policies is up twice as much, and a lot of that is coming out of Texas. And so until the home carriers come back into the market, we're going to fight retention as hard as we can, but it's going to be a struggle. Yeah. No, that's good detail. Thanks a lot. Our next question will come from the line of Pablo Singzon with J.P. Morgan. Hi. Good evening. I just wanted to follow up on the commission disclosure. When were they cut exactly just so that we have a better sense of when the impact started and when that should be fully in the run rate? And then, I guess, related to that, what part of the book is Texas versus non-Texas? I know corporate is mostly Texas. Franchising is, I think, a 4th Texas, but if you could sort of give us an update on the mix there. Thank you. Yeah. I think the whole book is about 54%-55% Texas. So it's still a big disproportionate amount, sorry, 45% Texas. So it's a disproportionate amount Texas. And we really started to feel the effects of those commission impacts here in the first quarter. Okay. Then my second question, I was a bit surprised by the positive comments in California just given all the announced exits or pauses by carriers and homeowners. I know some of those comments have been made by captive insurers, right, so maybe not directly relevant to you. But in your view, is what's happening in California, the dislocation there, a net positive or negative? Definitely a net positive. So our business has gone up significantly in California, and we have the product availability. So our agents have told me that they haven't seen an environment like this before in a long time. And then last, sorry if I missed this, the buyback program, will that be financed by operating cash flow or the increased net capacity? Just want to get a sense of how that will be funded. Thank you. Yeah. It's a combination of the both. And so in our prepared remarks, we mentioned that the term loan is being increased by $25 million, and so that transaction closed today. So a portion of the buyback plan will be funded by that. A portion of it will be funded by operating cash flow. And as needed, we will draw down on the revolver capacity to fund any additional share repurchases. Got it. Thank you. Thank you. That concludes today's question and answer session. I'd like to turn the call back to Mark Jones for closing remarks. Thanks, everyone. We appreciate your participation on the call. This concludes today's conference call. Thank you for participating. You may now disconnect.