Goosehead Insurance Inc

NASDAQ:GSHD

Earnings Call Transcript 2021-Q2

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the Goosehead Insurance Second Quarter 2021 Earnings Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Dan Farrell, VP Capital Markets. Please go ahead.

[Dan Farrell, Vice President]

Thank you and good afternoon. With us today are Mark Jones, Chairman and Chief Executive Officer of Goosehead; Michael Colby, President and Chief Operating Officer; Mark Colby, Chief Financial Officer; and Brian Pattillo, Vice President.

By now, everyone should have access to our earnings announcement, which was released prior to this call, which may also be found on our website at IR.GooseheadInsurance.com.

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 management as of today. The forward-looking statements in our discussion is subject to various assumptions, risks, uncertainties and other factors that are difficult to predict, and which could cause the 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 all of you to our recent filings with the SEC for a more detailed discussion of the risks and uncertainties that could impact the future operating results and financial condition of Goosehead Insurance. We disclaim any intentions or obligations 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 performance. We consider these non-GAAP financial measures to be useful metrics for management and investors to facilitate operating performance comparisons from period-to-period by excluding 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 our use of non-GAAP financial measures, including reconciliations of these measures to the most 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 www.GooseheadInsurance.com.

Today on the call, we will be providing a short video demo of our Digital Agent Platform, which will be going live in the coming weeks. If you are dialed into the call by phone, you will be unable to view the demo and will experience a few minutes of silence between the start of the video demo and our Q&A. As such, we encourage everyone to go to the webcast link for the earnings call, which is posted on our IR website at IR.GooseheadInsurance.com.

Also, if you’re using a mobile device, you may need to press play when the video appears. With that, I’d like to turn the call over to our CEO, Mark Jones.

[Mark Jones, Chairman and Chief Executive Officer]

Thanks, Dan, and welcome to our second quarter 2021 results call. We had another outstanding quarter of very strong growth. On this call, I will provide a summary of our key results and highlight the meaningful investments we’re making today that will be significant drivers of growth in our business for many years.

Our CFO, Mark Colby, will then walk you through some greater detail on our financial results during the quarter and the declaration of a special dividend. We will then hand it over to President and COO, Mike Colby, who will discuss our new Digital Agent Platform that will be available to consumers in the coming weeks and will provide a demonstration of this truly unique and powerful technology.

Before discussing the quarter, I would like to spend a minute on a critical element of our competitive moat, our vast accumulated experience. We are a client-focused tech-enabled company. Note the order of priority, clients first, technology second as an enabler. You will see this on vivid display when we demo our Digital Agent Platform. There is nothing like it on the market. It is simple and comprehensive, and importantly, informed by artificial intelligence, leveraging millions of actual quotes by our professional agents.

There is no shortcut to gaining and being able to leverage that experience. It can’t be replicated by newcomers to the industry. I strongly encourage interested people to try as many competitive shopping offerings as they’re willing to endure and see what is actually available, then try our digital platform. You will be amazed.

I’d also like to say a word about margins. Our business model has a very long tail. The biggest growth investments we make this year won’t begin to start showing up significantly in our revenue until 2024 and thereafter. We’ve modeled out our business and quantified the tradeoffs between growth and margin. Because there is so much growth already embedded in our business, with a lot of effort, we could slow our growth down to 10% to 12% annually in 4, 5 years, which would likely yield EBITDA margins in the low to mid 40%s. Sounds pretty appealing.

However, absolute profit dollars are maximized by keeping our pedal to the metal on growth, with the margins we currently produce. While EBITDA margins in our current model may be lower, they are earned on a much larger base of business producing more profits. In addition, it is critical to our competitive position that we maximize our conquests of the land grab in the market at this time, and continue to build our competitive moat. Thus, we optimize both our economics and strategic sustainability by continuing to pursue the growth strategy we have been and making the investments necessary to do so.

Now, let me turn to Q2. During the second quarter, growth across our business continued powerfully, further emphasizing our significant and expanding competitive moat in the marketplace. Let me take a moment to highlight some of the substantial accomplishments during the quarter. Premium growth, the leading indicator of future revenue growth continues to power ahead. In Q2, premiums increased 46%, while policies in force grew 48%, compared to the second quarter of last year.

Our premiums in the franchise channel grew 50% for the quarter. And this growth provides excellent visibility into powerful embedded highly profitable revenue growth, as those policies reliably convert to renewal after 1 year, and our commission share jumps to 50% from the 20%, we earn on new business. Our core revenues increased 40% over the prior year period.

Total franchise count at the end of the second quarter was up 59% year-over-year. Operating franchises also grew 47% in the quarter compared to the year ago. Our franchise mix is becoming increasingly diversified geographically with 77% of franchises located outside of Texas compared to just 42% when we went public in 2018.

Operating franchises outside of Texas grew 58% year-over-year. Importantly, because of our rapid growth rates, 63% of our total franchise base is either in their first year or preparing to onboard. Well, this cohort provides minimal premium and revenue today, their predictable launch and production ramp, combined with our increasing retention rate should fuel powerful growth over the next decade and beyond. Also, while our franchise unit count is growing, the unit productive capacity is also growing as some of our more seasoned franchises begin adding producers, which will be a larger and larger source of growth over time.

Our corporate agent team is up 43% from a year ago and continued investments in this channel are critical. As efforts in training, mentoring and beta testing of new technology and processes helps drive our extraordinary growth and improved productivity in the more leveraged franchise channel. These agents represent the gold standard of performance in the industry with new business production levels nearly 4 times industry best practice, which makes them very powerful supporting critical training, mentoring, and R&D functions for the company.

During the quarter, we launched an office in Denver, and will complete our remaining office openings in Columbus and San Antonio, and second office openings in Chicago and Austin by year end. We are also expanding our Houston Westlake offices in the third quarter. In addition to providing support to franchisees, these corporate offices help us scale nationally and enhance college recruiting and career advancement opportunities in both the short- and long-term. The 2021 office openings and expansions should deficiently absorb our headcount growth through 2022.

Client retention for the quarter was 89% a record level for our business. Our improving client retention has been driven by significant investments we make in product, people and technology. These improvements in retention will provide material economic benefits for our business over time as the overwhelming majority of our profits are in renewal revenue. The service experience we provide to our clients is second to none with a net promoter score of 92 in the quarter. I could not be more pleased with the consistent and high quality efforts put forth by our amazing service professionals.

In the coming weeks, we’ll be launching our digital platform. Just as our strategy to date has been exceptionally difficult to replicate by competitors, our digital platform is unlike anything in the market. The value we leverage from our enormous client focused accumulated experience can’t be replicated by tech focus startups. We are very excited to provide you with the demonstration of this new and innovative technology in the call.

We believe this will be unique in the marketplace providing clients with a direct digital shopping experience that leverages our massive accumulated experience in a true choice platform, all while preserving the unmatched benefits with a knowledgeable agent brings to the insurance buying process. While we are highly confident this platform will enhance new revenue opportunities over time, we also believe it further will strengthen our existing go-to-market strategy with mortgage lenders and realtors.

Finally, we believe this new effortless client experience will make it easier for our existing clients to refer their friends and family to Goosehead, adding additional sales opportunities for our agents from client referrals. While our organic growth top-line results were impressive, I’m also proud of our significant tax generation and strong financial position. Our consistent results and financial discipline have created a rock solid balance sheet with a large amount of cash, rapidly decreasing debt-to-EBITDA leverage and virtually no intangible assets.

This provides us with significant flexibility as we look to the future, as communicated since our IPO we want to maintain an efficient capital structure that includes some debt. In addition, excess cash will be periodically returned to our shareholders. Given these objectives, we will be raising additional debt. And we’ll be paying a $60 million or $1.63 per share special cash dividend to shareholders of record as of August 9, 2021.

I’m extremely excited about the sustained and powerful growth engine we have built. These results are further evidence of our focus on the client and on the clear benefits of a choice product offering, knowledgeable sales and service agents and industry leading technology that provides an unmatched insurance buying experience for our clients. Our runway in the market remains enormous and our competitive moat grows each and every day.

The substantial investments we’re making today, which by the way flow almost entirely through the P&L provide little premium or revenue benefit in the short-term. However, they will be a substantial driver of our continued high levels of growth, 3, 4 and 5 years out and beyond. In order to achieve our goal of industry leadership in the personal line space, we will stay maniacally focused on providing an unmatched client experience and continually improving all drivers of organic growth, recruiting productivity and retention.

I want to thank our employees and franchisees for their tireless efforts and making you said such an exceptional company. And with that, I’ll turn the call over to our CFO, Mark Colby.

[Mark Colby, Chief Financial Officer]

Thank you, Mark, and hello to everyone on the call. As a reminder for anyone that may have joined late, you will be unable to see or hear the demo of our new Digital Agent Platform, if you only dialed in. As such, we encourage everyone to use the webcast link which is available at ir.gooseheadinsurance.com.

For the second quarter of 2021, total written premiums, the leading indicator of our future core and ancillary revenue growth increased 46% to $399 million. This included franchise premium growth of 50% to $286 million in corporate segment premium growth of 36% to $112 million. This growth is being driven by increasing retention rates, strong new corporate and franchise agent growth and increasing agent productivity in the franchise channel.

The continued shift in our mix of business towards the faster growing franchise channel implies significant embedded future revenue growth, as the new business premiums reliably convert to renewal premiums, at which time our royalty fee increases from 20% to 50% for ongoing renewals for the life of the policy.

At quarter end, we had roughly 872,000 policies in force, a 48% increase from one year ago and another leading indicator of the momentum of our business. Revenues were $38.2 million for the quarter, an increase of 28% from the year ago period, while core revenues grew 40% to $34.7 million for the quarter.

Ancillary revenue, which includes contingent commissions, was $1.7 million in the quarter compared to $4.1 million a year ago. Given the weather events thus far in 2021, we anticipate that some of our contingents may trend below average as a percentage of premium for the year, with most of the contingents coming in the fourth quarter as our results with the carriers are finalized.

The franchise channel generated core revenue growth of $15.4 million, an increase of 46% from the year ago period. At the end of the second quarter, we had 1,801 total franchises, up 59% from the prior year, and 1,072 operating franchises, up 47% from a year ago.

We continue to build on our strategy of national expansion within the franchise channel, with non-Texas franchises accounting for 77% of total units compared to 72% a year ago, and these non-Texas franchises continue to grow their productivity through the second quarter. We also continue to invest heavily in corporate agent hiring and national expansion to facilitate the franchise channel growth and productivity.

Corporate sales agent headcount at the end of the second quarter was 452, an increase of 43% from the year ago quarter. Corporate channel core revenues were $19.4 million in the second quarter, an increase of 36% compared to the year ago period, as new agents continue to ramp up productivity over their tenure.

Total operating expenses for the second quarter of 2021 were $34.4 million, up 54% from $22.3 million in the prior year period. Compensation and benefits expense was $22.5 million for the quarter, up 41% from the year ago period on 40% headcount growth.

This increase in compensation and benefits is being driven by our ongoing investments in headcount across the organization, particularly the hiring of corporate sales agents in support of the franchise channel growth, service agents to manage our largest revenue stream renewals, recruiting and onboarding functions to continue our growth trajectory and systems developers to ensure our technology is on the cutting edge for our clients and internal users, as evidenced by the launch of the Digital Agent Platform in the coming weeks.

General and administrative expense for the quarter was $10.1 million, an increase of 89% from a year ago, with the increase due to an expanding real estate footprint, higher travel and entertainment expenses as the U.S. economy continues to reopen, and investments in our newly designed website and client-facing portal, as well as a number of carrier integration projects.

Additionally, 2020 G&A expenses were artificially low due to COVID lockdowns. The hiring of employees and onboarding your franchisees, combined with the opening of new offices has an immediate impact to G&A expense, while the revenue benefits scale over time as we onboard agents, and as they ramp up their production.

Total adjusted EBITDA in the quarter was $6.8 million, compared to $9.8 million in the year ago period. We have been investing heavily for future growth and producer headcount expanded office footprint and our Digital Agent Platform. While we continue to expect additional new office locations over time, we do not anticipate the same step function increase in real estate investments in 2022. As we focus on scaling within our existing square footage over the next 12 to 18 months.

We also expect that the new revenue benefit from the direct client rater will begin to ramp up in 2022, helping to offset the significant development costs. We believe laying the foundation to drive growth is more strategically critical to the business than focusing on margin expansion at this time, as we continue to put distance between us and any potential competitors and continue to load future growth into our business.

While 2021 earnings growth has been impacted by uncertain contingent commissions, and higher-than-normal investments to drive revenue, over the long-term we expect to deliver high and sustained levels of both revenue and profit growth.

As of June 30, 2021, the company had cash and cash equivalents of $35 million. On July 21, 2021, the company refinanced its $25 million revolving credit facility and $77 million term note payable to a $50 million revolving facility, which will be partially drawn down in advance of the dividend and a $100 million term note payable.

The company declared a special cash dividend of $60 million, or $1.63 per share, payable in cash on August 23, 2021 to shareholders of record on August 9, 2021. Based on our experience to date, the company is reiterating its full year 2021 outlook with respect to total written premiums and revenue.

Total written premiums placed for 2021 are expected to be between $1.5 billion and $1.56 billion, representing organic growth of 40% on the low-end of the range to 45% on the high-end of the range. Total revenues for 2021 are expected to be between $146 million and $156 million, representing organic growth of 25% on the low-end of the range to 33% on the high-end of the range.

Our strong first half results and the important strategic investments we have been making over the last year put us in a great position for the balance of 2021 and into 2022. As we will begin to see revenue benefits emerge from the newer initiatives.

With that, I would like to turn the call over to Mike Colby, our President and Chief Operating Officer.

[Michael Colby, President and Chief Operating Officer]

Thanks, Mark, and hello to everyone. We are extremely excited to be approaching the official launch of our Digital Agent Platform. And we appreciate the opportunity to preview this technology for you today. As I’ve mentioned previously, this platform will provide an effortless and completely differentiated client experience compared to the incredibly cumbersome process buyers face today, shopping for personal lines insurance.

The online market for personal lines insurance today includes: one, direct-to-consumer insurance companies; two, lead generators; and three, online independent agencies. Each of these options have inherent deficiencies that negatively impact the client experience, resulting in a customer that is oftentimes frustrated, underinsured and paying too much for their insurance solution.

Direct carriers are structurally disadvantaged and that they offer only one product option with what is usually a lengthy process of gathering personal information that can include upwards of 100 questions, many of which the client will not easily be able to answer.

For choice shopping experience, the process would then have to be repeated with many different insurance carriers to determine the appropriate coverage at the best possible price. Throughout this process, clients will be presented with options to increase or decrease their cost based on coverage additions or subtractions, choices that can be confusing and at times overwhelming to the buyer.

This is precisely where getting the advice of an expert agent is critical and gaining access to agent advice on these platforms can be difficult, if offered at all. Lead generators, digital independent agencies or some hybrid of the 2 create an even more frustrating experience for the customer, by misleading them to think that they’re being shot and will be presented with accurate price quotes.

A similar lengthy information gathering exercise is required to start the process. Then, only a few options are returned with a pricing indication. And other brand options are returned without any indication of potential price. What’s happening here is typically a lead generator gathering the customer’s information and selling it to multiple insurance companies and agencies. All of which will commence an incessant solicitation campaign to the customer.

Disturbingly, some of the purchasers of this data include other lead generators who turn around and sell the customer’s information again. A frustrating experience by any measure, and certainly, lacking any consideration for consumer privacy concerns.

Furthermore, due to the lack of local market expertise or bait-and-switch tactics, any price indications offered are wildly underestimated and suggest impractical, even irresponsible levels of coverage.

The Goosehead Digital Agent Platform requires as little as 3 data points: name, date of birth and address. Leveraging our integrated external data providers, we can populate all of their home and vehicle data. And within 60 seconds, the client will be provided with multiple home and auto quotes, which typically can vary by thousands of dollars.

Because our process is driven by artificial intelligence, informed by expert agent behavior over millions of quotes across the country, we provide more accurate initial quotes with appropriate coverage assumptions. It’s important to note that our system learns from the behavior of licensed expert agents, compared to the other artificial intelligence designs that learn from customer behavior and compounds uninformed decision making.

The complexity of insurance policies and the differences in coverage options and pricing across insurance companies is exactly the area where a knowledgeable agent can add critical value.

Immediately upon providing the initial quotes, we introduce the client to one of our more than 2,000 knowledgeable agents across the U.S., who will then review all available options, make recommendations, and ultimately, issues the home and auto insurance policies, a process that can take as little as 15 minutes.

Most importantly, we will never sell our client’s personal information, whether we win their business or not.

With that, we will now play a short video within the webcast, where Vice President, Brian Pattillo, will take you through the Goosehead Digital Agent experience. We’re very excited to debut this new platform. There’s truly nothing like it on the market. You don’t have to take my word for it.

I’ll echo Mark Jones and encourage you all to test what’s available on the market today. We would like to remind you that if you’re dialed in by phone, we recommend you watch the video online at IR.GooseheadInsurance.com or you will experience a few minutes of silence. Also, if you’re using a mobile device, you may need to press play when the video appears. At the conclusion of the video, our call operator will open the phone line for Q&A.

[Brian Pattillo, Vice President]

Good afternoon. My name is Brian Pattillo. And I’m excited to demo our brand new Digital Agent Platform. As you will see, we have built a quoting platform that provides an effortless experience for the client at every step of the process. Although less than 10% of consumers buy home insurance online, many will start their research using comparison sites.

As Mike mentioned, these platforms are fundamentally broken, and most of these experiences end with a client’s data being sold. Our platform is completely different than anything on the market today, providing the shopping experience consumers are looking for, while making sure their privacy is protected.

It all starts when the client visits Goosehead.com or the unique link provided to each one of our agents, which routes directly to them. Our mobile-first design provides an extremely simple and intuitive interface, catering to the modern consumer. After starting to type their address, we finish the pre-fill and immediately start pulling data about the home.

We will ask if it’s a new purchase and confirm ownership details, then display some of the most important property data where the client can update if needed or simply proceed to the next step. At this stage, we pull in the names of the client and spouse, they enter their date of birth. And we then search for any additional drivers in the household. And they can easily add with one click.

On the next screen, we pull in any vehicles registered to the client, so they can quickly select the vehicles they want to insure. All these data integrations provide a more convenient user experience and increase the accuracy of the quotes they are about to see. The client is now done with their portion, allowing us to take the data they provided and then pin it with hundreds of additional data points using our agent-driven machine learning.

We know based on millions of quotes, what coverage our expert agents would recommend, given the unique risk needs of this individual client. To get a fair comparison, each company is quoting with similar coverage levels. And we are including critical coverages many clients are missing, such as replacement cost and internal water damage.

We aren’t presenting lowball quotes to drive calls rather we are showing accurate quotes that an expert Goosehead agent would recommend to drive a great client experience. And because of our extensive carrier integrations, within 60 seconds, a client is presented with multiple home and auto insurance quotes. Not only can they see the insurance companies we recommend, but also review other companies we shopped with to see how they compare it.

Our digital agent has analyzed every home carrier combined with every auto carrier to find the option that delivers the best combination of coverage in price. It’s important to note that while carriers offer discounts for bundling about half the time, it ends up in the best interest of the client to choose 2 separate carriers. We do the analysis so the client can simply see the best overall solution.

In contrast with other online options, we never use this screen to sell clicks, where a client has been routed to another site to start the process all over again. The client is immediately introduced to one of our more than 2,000 knowledgeable agents. This is a critical differentiator. Insurance policies are complex offering many different coverage options and pricing. And the consequences of getting this wrong can be financially catastrophic to the client.

To move forward with the quotes, a client simply contacts the agent or request a call where they will review available options, make important recommendations and ultimately issue the home and auto policies. This is an important milestone on our roadmap to deliver a complete purchase experience quote issuance informed by expert agent intelligence. We are excited to release this technology in the coming weeks and we’ll now move into Q&A. Operator?

[Operator]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Ryan Tunis with Autonomous Research. Please go ahead.

[Ryan Tunis, Autonomous Research]

Yeah, thanks. Just a couple on the margin front. First of all, it looks like adjusted EBITDA margins are down about 9% year-over-year. Is that a good way to think about how that’ll probably trend in the back half of the year as well [we’re out of the 2020?] [ph]

[Mark Colby, Chief Financial Officer]

Yeah. Hey, Ryan, this is Mark Colby. So specifically for this quarter, we had significantly less contingent commissions than we did last year, just given where kind of economies opening back up, we are no longer in the COVID environment, people are driving again. And so, that was the main driver of the kind of margin decrease, along with some investments that we’re making in things like real estate. And, again, the economy is opening back up, so we’re resuming a lot more travel, and meals and entertainment, and those investments that we did not make last year.

As far as margins go there, yes, it’ll be challenging to grow EBITDA this year, just given the tough comparison to last year with contingent commissions and the much lower expense level than we thought was going to happen last year. So overall, we’re continuing to hold true in our message of driving high levels of premium and revenue growth. But it will be a little more challenging year for earnings, specifically EBITDA.

[Ryan Tunis, Autonomous Research]

Got it. And thinking about 2022, that’s helpful, you mentioned that you don’t expect the same ramp-up in real estate costs and some of their stuff associated with comparative rater. Could you give us an idea of what that step-up this year was though in real estate costs, and the comparative rater across as well, just so we can kind of think about that order of magnitude out to 2022?

[Mark Colby, Chief Financial Officer]

Yeah, we are – I don’t know the specific number top of mind, but probably adding 25% to our real estate at least, square footage this year with these new office openings. And, our plan for next year is not to open any additional offices or any expansion. So the level that you’ll see by the end of the year, once all these office openings happen, is kind of going to be the level for next year as well. And as far as the client rater, it’s something we’ve been investing in for years now. Say, specifically this quarter, it was to the tune of several hundred thousand dollars of investment that will continue as we roll out the product.

And that will be kind of more of a steady state going into next year as well. We’ll continue to maintain it and add new developments. And I’m sure some additional developments will come to us next year. But again, this is one of the bigger pieces of technology we’ve ever rolled out, probably the biggest. So it’s hard to imagine anything to this level would happen again next year. And all this spending again, I mean, this revenue, revenue, which we’re very, very excited to scale out next year.

[Ryan Tunis, Autonomous Research]

Yeah, so on the total written premium growth, another pretty good quarter there, 46% year-over-year growth, so the guide is for 40% to 45%. So, I mean, I guess, that implies some deceleration. I’m not seeing recruiting slow. So, I mean, why are you thinking that that number is going to decelerate in the back half of the year? Like what do you have your eye on?

[Mark Colby, Chief Financial Officer]

For guidance, specifically for premium guidance, we really don’t want to get in the habit of changing it every single quarter. We had a very strong first quarter and we’re able to rise the guidance and that was kind of it for the first half of the year for us. We’re going to continue to wait and see. You’re right, recruiting momentum is continuing as is new business generation.

Another reason that we’re not rising it even higher yet is just some of this COVID delta variant is, it just creates some uncertainty for us. And again, we want to be conservative in our guidance and give you guys numbers that we’re extremely confident we can hit.

[Ryan Tunis, Autonomous Research]

Got it. Thank you.

[Mark Colby, Chief Financial Officer]

Thanks, Ryan.

[Operator]

RBC Capital Markets, please go ahead.

[Mark Dwelle, RBC Capital Markets]

Yeah, good afternoon. A couple of questions. Firstly, related to the dividend, I mean, it’s a substantial dividend, but I mean it seems like it’s more than your cash earnings over the last year to year-and-a-half. I mean, with so much investment going on right now, why effectively borrow to pay a large dividend?

[Mark Colby, Chief Financial Officer]

That’s been a consistent part of our balance sheet strategy since we went public, Mark, is we’re going to have an efficient capital structure, which involves some debt. And we delever so quickly in our business that periodically from time to time we’re going to increase that leverage we did, recently up to 4 times. And to your point, we don’t need this cash for operating expenses or future growth. So we are going to return it to who it belongs to, and that’s shareholders.

[Mark Dwelle, RBC Capital Markets]

Okay. I mean, I saw the video on the new technology that’s, I mean, it’s pretty cool. One question I have related to that is, how do you – I mean, there’s a lot more I could say. I’m going to try to keep focused on the questions rather than like my impressions. It’s just that…

[Mark Jones, Chairman and Chief Executive Officer]

Well, I appreciate that, Mark. But it’s hard for me not to – this is Mark Jones. It’s hard for me not to sort of [chocolate that with] [ph] the description of pretty cool. We would beg everyone in the – anyone that has any interest in this at all to drag themselves through the competitor offerings. Each one of which is singularly horrific, and then, try ours at the end. There is nothing like – this is a complete game-changer for the industry, a complete game-changer.

[Mark Dwelle, RBC Capital Markets]

As you know, I’m one of those people who like looks at those competitor websites for a living. So I’ve been to most of them. So I do know cool when I see it. But the question that I had was really one. I guess, it’s kind of an internal channel conflict question, which is to say, so if I operate your website from where I happen to live in, in Virginia, I mean, who will get the commission credit within Goosehead for the sale I eventually place? Will that be somebody in my local market, a franchisee I maybe have never met? Or will it go through the corporate channel and be house sales so to speak?

[Michael Colby, President and Chief Operating Officer]

Hey, Mark, this is Mike Colby. I think, it’s important to understand that one is technology cannot be developed without input and years of accumulated experience from expert agents. And secondly, it will continue to be refined and to be developed to be even more powerful with the contribution from our agents.

And ultimately, the client experience can’t be delivered without your agents’ fulfillment and agent execution. So, no way, are we trying to create a conflict that would undermine our agents’ experience. This is simply a different way to engage with customers who prefer to engage with us digitally. That’s very important. But one if you’re an existing client, you come to our site; our system smart enough to allow you to your existing agent.

So if you’re new to Goosehead, you’re exploring Goosehead options. We’ll start with your local area. And then we’ll be distributing leads through a round robin distribution for agents who qualify based on certain qualitative metrics. So we want to distribute the leads to agents who are going to capture the most value and deliver the highest level of lifetime customer value. I view that is a very powerful currency to encourage improvement in performance across our agent force. And our agents will – you’re not still undermined or you will not be created any channel conflict with the agent, we believe in the role of the agent and we believe this is a powerful tool to augment our agents’ efforts.

[Mark Colby, Chief Financial Officer]

And will be [indiscernible] agnostic.

[Michael Colby, President and Chief Operating Officer]

Yeah, that’s what I was going to say, Mark, we’re going to be agnostic by channel. So what we want is the – we want the agent that’s going to do the very best job with the lead to get the lead. And that, so we’ll be looking at things like net promoter scores and other sort of cross selling retention numbers, all those things that create the best client experience, but also create the best lifetime client value. And so, we are sort of stepping over dollars to pick up dimes, if we’re worried about for shunting them, just in house. We believe, and it’s always been our experience that if you do the right thing for the client, the money always takes care of itself. And that that’s our approach here to. The good question, though.

[Mark Dwelle, RBC Capital Markets]

Okay. That’s helpful. And one last one on that, if I may. Just any reactions from your carrier partners, I know a lot of them in the past have been, I’m going to say resistant or concerned about being presented in comparative fashions like this? If you’ve gotten any feedback or any pushback from any of your carrier partners related to this?

[Michael Colby, President and Chief Operating Officer]

Mark, this is Mike, again. I agree, I think carriers are very reluctant to be presented in a fashion like this with the options that are currently available on the market. The key differentiator with us again is expert agent intelligence. We’re able to using our tool, using our data, using our agents; understand how to more efficiently match risk with risk appetite. And, in fact, our agent or insurance company partners are very excited about that.

But again, with the absence of the agent, you’d have a very hard time convincing insurance companies that this is in their best interest. I mean, I think he go back just not even 10 years. And you see kind of the Google insurance shopping experience, which was quickly folded, really within 18 months. It was because the carriers were very concerned about the type of business they were looking at.

And quite frankly, the transaction costs that when we have an agent seamlessly integrated into the process, and we can deliver high levels of close rates, or we can be very precise with the company, the products that we’re presenting to the customer based on the insurance company’s risk appetite, it’s a win-win for both of us.

So I would say our partners are very excited about this kind of new tool that we’ll be able to use to drive agent productivity and create incremental revenue opportunities through new channels. We have a track record of delivering profitable growth. And they look at this as another kind of foundational tool to continue on that trajectory in the partnership.

[Mark Dwelle, RBC Capital Markets]

Thanks for that. And I appreciate the color and I let somebody else jump on, so they express their enthusiasm emphatically than I did.

[Mark Jones, Chairman and Chief Executive Officer]

I’m just giving you a hard time, Mark. If you weren’t my friend I wouldn’t.

[Operator]

The next question comes from Meyer Shields with KBW. Please go ahead.

[Meyer Shields, Keefe, Bruyette & Woods, Inc.]

Great. Thanks. I guess, I will start by echoing Mark Dwelle’s comment about the coolness of the portal. I just had a couple of, I guess, [indiscernible].

[Mark Jones, Chairman and Chief Executive Officer]

Thank you.

[Meyer Shields, Keefe, Bruyette & Woods, Inc.]

No problem. I don’t know cool as well as he does. Is this – when we talk about the launch of this? Is that going to be nationwide?

[Mark Jones, Chairman and Chief Executive Officer]

Yeah, it is. Yes.

[Meyer Shields, Keefe, Bruyette & Woods, Inc.]

Okay. And when you said panel agnostic, I think that means between the franchise and the corporate channel.

[Mark Jones, Chairman and Chief Executive Officer]

Correct.

[Meyer Shields, Keefe, Bruyette & Woods, Inc.]

Okay. Were there additional expenses in terms of like second quarter, because I think one of the things we’ve noted is the margin pressure, were there additional expenses associated with the launch that sale going forward?

[Mark Colby, Chief Financial Officer]

Yeah, I mean, we have certain integrations that we’re building out the launch that will stick around, but I don’t expect them, it might stick around for another few quarters. But, again, we’re talking about completely redoing our website margin. And some of that cost is capitalizable, not all of it. But, content duration those sorts of things that will continue to add cost to it. But again, I think, they’re going to scale very nicely compared to 2021.

[Meyer Shields, Keefe, Bruyette & Woods, Inc.]

And this is just a technical question. But if assuming that somebody is using this in the middle of the night, is the only option available then to schedule a call for later?

[Michael Colby, President and Chief Operating Officer]

That’s correct, Meyer. This is Mike, again. Our agents will be connected seamlessly with the client expectations will be set, the client will be put on a journey roadmap with us, but we expect and we’ll manage high levels of responsiveness, and a very consistent client experience that our existing customers have grown to expect and appreciate. So, yes, we’re not going to have agents manning this 24/7 here today. But I believe our prospective customers will get a lot of value out of the transparency, being able to start the process and be able to kind of pick up the process very seamlessly with an agent.

[Meyer Shields, Keefe, Bruyette & Woods, Inc.]

Okay. And then really my final question is, if I’m not a Goosehead customer, and I don’t know that the portal exists, how does that get introduced to me?

[Michael Colby, President and Chief Operating Officer]

So initially, Meyer will be using this to augment our existing channels, lead channels. So I think this adds incredible value to our referral partner marketing efforts, where our referral partners can use this tool to integrate us into their mortgage origination process much earlier, in the process to get accurate pricing indications as they’re working with their customers. I think it removes a lot of obstacles, and allows our existing customers to action, client referrals, which they say with 92 net promoter score that they’re overwhelmingly willing to do.

We think there’s a lot of opportunity there. And also, on top of that, we have a lot of data to mine, as it relates to existing customers with additional product cross selling opportunities, whether it’s recovered clients that we’ve lost over the years, we believe we can drive a lot of traffic to the site, using that – using our existing data sources or existing sales process and lead channels. Organic…

[Meyer Shields, Keefe, Bruyette & Woods, Inc.]

Right. Got it. Go ahead.

[Michael Colby, President and Chief Operating Officer]

Yeah, in addition to that, we also with Ann Challis, our new Chief Marketing Officer, as part of this new website launch are part of the new product launch or re-launching our entire website. And our website is really driven around the content strategy to develop your meaningful content, that with optimized ratio, where clients can learn about insurance, but they’re going online. And we believe that over time, that’s going to drive traffic to the site. Paid traffic is very expensive in this industry. And so we’re taking more of an organic approach. But we’re leveraging, we built the entire website around driving organic traffic that we believe over time could be to meaningful traffic on our site.

[Mark Colby, Chief Financial Officer]

Yeah, so there will be some costs associated with content development things like that. But one thing we’re not going to be doing is, offset buying data and television commercials or Google AdWords or anything like that, but that just we can’t compete in that space where we’re fighting billion dollar ad budgets. So we got to compete on a different playing field.

[Meyer Shields, Keefe, Bruyette & Woods, Inc.]

Okay, perfect. Thank you.

[Operator]

The next question comes from Pablo Singzon with JPMorgan. Please go ahead.

[Pablo Singzon, JPMorgan Chase & Co.]

Hi. So my first question is, in the work you’ve done in evaluating the online readers and investment. The other sense of the magnitude of incremental that you will get, versus, I guess your current degeneration channels such as referrals or real estate or mortgage brokers? I’m just wondering if you have an early sense of sort of the incremental marketing opportunities as tool will present here.

[Mark Colby, Chief Financial Officer]

So we’ll have a better idea of that, Pablo, kind of when we start giving our 2022 guidance. We don’t know how much additional lead volume will be driven in 2021. But again, we’re excited about kind of the possibilities of this. And we’ll have some more to say on that kind of towards the end of this year, early next year.

[Mark Jones, Chairman and Chief Executive Officer]

But the opportunity is huge. I mean, 2020 we were involved in 14% of new mortgage originations in the state of Texas, but in less than 2% of Texas homes is a lot more homeowners who are living in their current homes, than they are buying new homes or refinancing their current mortgage. So I think, obviously, this expands the market tremendously and as we get data on traffic and consumer behavior, we’ll be able to more accurately model that.

[Pablo Singzon, JPMorgan Chase & Co.]

Got it. And then my second question is just on margin. So, I guess, putting aside serve the one-timer step up investments this year, right, so real estate that the expenses for the online rater? And maybe thinking about 1 or 2 years up and you serve back to business as usual, and I guess for us, it means like recruiting growing, 30%, 40%, or something like that. So, but I guess it’s in the context of the question in the path, when you’ve been growing at similar rates, your EBITDA margins were north of 20 easily maybe 25 in some years. Would that be a reasonable range to expect your margins [sort of revert to] [ph] once these sorts of onetime expenses are behind us?

[Mark Colby, Chief Financial Officer]

We’re not going to guide towards earnings. But you’re right, I mean, we historically have been able to sustain those levels of growth at 20%-plus margins. And in the absence of some step up and costs, I think, we would be right there. So, again, I don’t want to guide to that. I’m sure some interesting investment opportunities will come along, but we want to be able to stay agile, and make those investments when we can.

[Mark Jones, Chairman and Chief Executive Officer]

Pablo, it’s Mark Jones. Just to kind of go back to what I was saying, we are optimizing. We’re spending responsibly. We do have a long history of being a private company, and we’re spending my money, and that culture continues. But we’re very focused on capturing [Technical Difficulty] sure that we’re expanding our competitive moat, and building a really, really defensible strategic position.

So, the margins are there. This is a business where EBITDA margins are in the 40%s on a steady-state basis. If we slow growth down, as I said to 10% or 12%, that’s what margins – that’s where the margins end up being. But that’s – the way to maximize total profit, total value creation is to focus on growth, responsible growth, it’s not wasting money, but not getting too hung up about every point of margin. That’s not our priority.

[Pablo Singzon, JPMorgan Chase & Co.]

Understood, thank you for your answers.

[Mark Colby, Chief Financial Officer]

Thanks, Pablo.

[Operator]

[Operator Instructions] Our next question comes from Josh Shanker with Bank of America. Please go ahead.

[Joshua Shanker, Bank of America Merrill Lynch]

Yeah, thank you. Congratulations on the new launch, everybody.

[Mark Jones, Chairman and Chief Executive Officer]

Thanks, Josh.

[Joshua Shanker, Bank of America Merrill Lynch]

Two questions, given how cool it is, do any of your agent or prospective future franchisees look at this and say, I could see a path to being disintermediated? What sort of guarantees do you have that you’re not trying to be agnostic about also adding a Goosehead direct channel?

[Michael Colby, President and Chief Operating Officer]

Josh, this is Mike. We’ve been emphatic in our communication to our agents and in our demonstration of the way we run the business, that this is an agent kind of driven strategy. We believe in the role of the agent. We’ve been investing aggressively. We built the business model around the agent and equipping them with the right product and the right tools to serve the clients. We view this as a different way to engage, for agents to engage our customers.

And again, we can’t develop this technology without the information and the behavior and observing the behavior of our expert agents. And we can’t continue to deliver for our clients the experience that they deserve and that they expect from us without our agents. So – and we have a track record of being very transparent and very solid partners to our agents. I mean, I’ll remind you that, 93%, 94% of home insurance is still purchased through an agent.

The most attractive segment of the market wants to engage with an agent, wants to make smart decisions. This is about empowering our agents and allowing them to engage with customers in a digital manner. It’s not at all about disintermediation. I think our agents are extremely excited about having this tool and extremely excited about the power of the tool, and the opportunity that it creates for them to market their services, build their businesses, and engage their clients and provide a better experience.

So I think that’s a theoretical I think area, Josh, you’re hitting on. But our agents don’t believe that, that’s not part of our strategy, that’s not the way we operate. And I think we’re putting our money where our mouth is, as it relates to really supporting and holding up our agents.

[Joshua Shanker, Bank of America Merrill Lynch]

Okay, thank you for that. And are there any KPIs that you’re going to be providing for how we should gauge the success of the digital platform?

[Michael Colby, President and Chief Operating Officer]

Yeah, we’ll continue to evaluate those and kind of determine what’s appropriate to share with the Street and everyone else, but, yeah, we’ll certainly have additional KPIs internally that we’ll be monitoring.

[Joshua Shanker, Bank of America Merrill Lynch]

Thank you very much.

[Mark Jones, Chairman and Chief Executive Officer]

Thanks, Josh.

[Michael Colby, President and Chief Operating Officer]

Thanks, Josh.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Mark Jones, Chairman and CEO for any closing remarks.

[Mark Jones, Chairman and Chief Executive Officer]

Yes, I’d like to thank everyone for joining us. And just as a reminder, the video of the Digital Agent Platform is on our Investor Relations website. You can go back and look at it at any time at IR.GooseheadInsurance.com. And thank you and good night.

[Operator]

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.