GOOSEHEAD INSURANCE THIRD QUARTER 2026 EARNINGS CONFERENCE CALL - GOOSEHEAD INSURANCE INC

Financial Performance:

• Total revenue grew 17% year-over-year to $110 million; core revenue grew 13% year-over-year to $95 million.
• Policies and force increased 14% year-over-year to 2.1 million; total written premiums grew 11% year-over-year to $1.3 billion.
• New business commissions rose 21% year-over-year to $9.1 million; new business royalties increased 13% year-over-year to $5.1 million (note: transcript says "$5.1 billion" but context suggests $5.1 million based on revenue scale).
• Ancillary revenues (contingent commissions) surged 106% year-over-year to $10.3 million.
• Client retention improved to 86%.
• Adjusted EBITDA and operating income are projected to increase due to restatement of agent compensation costs (capitalizing acquisition costs) and reclassification of franchise fees to revenue.
• Cash position: $33 million in cash and cash equivalents; $322 million in total debt outstanding.
• No change to cash flows or underlying business economics despite the restatement.

Guidance and Future Outlook:

• Full-year 2026 revenue growth guidance reiterated at 12% to 19% year-over-year.
• Full-year 2026 total written premium growth guidance reiterated at 12% to 20% year-over-year.
• Anticipates full-year new business commission growth at the fastest pace since 2021.
• Expects to deliver accelerated full-year new business royalties growth compared to the previous year.
• CEO Mark Miller confirmed retirement at year-end; Mark Jones, Jr. assumed leadership for the future.
• Strategy focuses on accelerating franchise new business production and improving client retention to offset potential pricing headwinds.

Business Segments and Product Lines:

• Producers: Total producer count reached 2,840 (up 7% YoY); 65% of corporate agents now located outside Texas.
• Franchises: Same-store sales up 29% for top 50 franchises and 17% for the entire channel; record 2.6 producers per franchise and average monthly gross compensation over $30,000 (some approaching $1 million/month).
• Corporate-to-Franchise Flywheel: Over 180 producers launched from corporate agents now run franchises; these "corporate-launched" franchises represented 6% of producers but 15% of new business production.
• Embedded Franchises: 12 embedded franchisees launched with strategic partners (mortgage originators/servicers), driving new business production up 64% YoY.
• Enterprise Sales: Team grew 71% YoY to over 150 agents; new business growth exceeded 50% in Q3 with 8 consecutive quarters of >60% growth.
• Technology: Digital "Choice Shopping" experience launched; service cost per policy declining as 33% of service work is now completed digitally; AI voice assistant "Lilly" and Model Context Protocol (MCP) server for AI agent integration expected by year-end.

Market and Competitive Landscape:

• Personalized insurance market conditions have improved with expanded carrier appetite, returned capacity, and stabilized pricing, though home closing transactions remain at a 30-year low.
• Independent agents continue to gain share, placing over 70% of the $560 billion personalized market.
• Pricing pressures observed: auto premiums down mid-single digits, homeowners down low-single digits; effective average price decline estimated at ~3%.
• Pricing declines in Texas and Florida noted as more dramatic than other regions.
• Competitive advantage cited as the ability to combine human agent expertise with proprietary technology, distinguishing from pure digital or direct-to-consumer models.

Risks and Challenges:

• Accounting Restatement: SEC comment letter led to restatement of 2023-2025 and H1 2026 financials due to agent compensation capitalization requirements and franchise fee reclassification; restatements pending.
• Housing Market: Low home closing transactions impact traditional referral lead flow.
• Pricing Volatility: Continued softening of pricing in certain markets (e.g., Texas) creates short-term headwinds for renewal revenue, despite long-term retention benefits.
• AI Integration: Regulatory uncertainty and cybersecurity risks regarding personal AI agent integration.
• Operational: Transition of CEO from Mark Miller to Mark Jones, Jr. at year-end.

Management Commentary and Tone:

• Tone is confident and forward-looking, emphasizing the company's strong positioning despite market headwinds.
• Management expressed pride in the "client-first" strategy, highlighting that client trust and retention are the primary drivers of value.
• CEO Mark Miller expressed strong confidence in Mark Jones, Jr. and the leadership team's ability to sustain growth.
• Management emphasized a channel-agnostic approach, willing to serve clients via digital, human, or AI interfaces.
• Confidence in the "corporate-to-franchise" talent incubation model as a key growth driver.

Analyst Questions and Answers:

• AI/Technology: Management confirmed they are building an MCP server to allow personal AI agents to interact with Goosehead safely, though regulatory questions remain; no immediate impact on core metrics yet.
• Embedded Partners: Embedded franchise partnerships are growing rapidly (64% growth) but represent a non-material portion of total new business; no cannibalization of existing channels observed.
• Core Revenue Growth: Q3 core revenue growth (13%) was lower than Q2 due to tougher comparisons and unexpected pricing declines in Texas; management expects strong new business to offset.
• Carrier Digital Agent: No new carriers added to the digital agent platform recently; focus remains on technology hardening and UI/UX to increase the share of clients who complete binding digitally.
• Restatement Details: The restatement involves capitalizing variable compensation for corporate sales agents and reclassifying franchise fees; this will improve reported operating income and EBITDA by reducing expense recognition and increasing revenue, with no cash impact.
• Pricing Outlook: Pricing pressure is expected to continue into the near term before stabilizing and potentially increasing; management is not making operational changes based on short-term pricing moves.
• Franchise Strategy: Company will continue to recruit both internal corporate agents (for high productivity) and external "wild" entrepreneurs (serial owners with capital); both channels are value-accretive.

Other Key Points:

• The company has 2,800+ agents nationwide covering 98% of homeowners.
• Digital service interactions maintain a 4.1/5 satisfaction score, comparable to human agent interactions.
• Management expects to finalize and file restated financials as soon as practical.
• The "human capital infrastructure" (licensed agents) is highlighted as a difficult-to-replicate moat against pure digital automation.
• The company views the current soft market as an opportunity to add value by helping clients find lower prices or better coverage, fostering long-term loyalty.