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

Explicit Guidance:

• Full-Year 2026 Revenue Growth: Reiterated organic growth range of 12% to 19% year-over-year.
• Full-Year 2026 Total Written Premiums: Reiterated organic growth range of 12% to 20% year-over-year.
• New Business Commissions: Anticipating full-year growth at the fastest pace since 2021.
• New Business Royalties: Anticipating full-year growth at an accelerated pace compared to the prior year.
• Enterprise Sales Growth: Anticipating acceleration in Q4 2026, following eight consecutive quarters of >60% growth.
• Adjusted EBITDA Impact (Restatement): Preliminary expectation for FY 2025 and H1 2026 to reflect an operating income increase of 0.5% to 5.5% of total employee compensation due to capitalized agent compensation costs.
• Restatement Revenue Impact: Preliminary expectation of $11M–$16M increase in 2025 and $8M–$13M increase over the first three quarters of 2026 due to reclassification of franchise technology fees from G&A to revenue.

Business-Segment Outlook:

• Franchise Channel: Targeting "experienced business operators and investors with capital" to replace insurance-focused operators; currently seeing 17% same-store sales growth overall and 29% for top 50 franchises; corporate-to-franchise "flywheel" continues with >180 former corporate agents now owning franchises.
• Embedded Partnerships: 12 embedded franchisees launched with partners (mortgage originators/servicers); new business production in this channel up 64% YoY; expected to scale rapidly with seeded talent.
• Digital Agent & Service: Expecting MCP server (Model Context Protocol) to be live by end of 2026 to connect with personal AI agents; continuing to improve Generative Engine Optimization (GEO); service cost per policy expected to decline further as digital adoption (currently ~33% of workload) grows.
• Producer Base: Total producer count at 2,840 (up 7% YoY); corporate agents increasingly located outside Texas (>65%), with 19 new franchises launched from corporate in the past year.
• Retention: Client retention at 86%; management expects this metric to improve further in 2027 through AI-driven service initiatives and price optimization.

Market and Competitive Outlook:

• Pricing Trends: Pricing pressure continues with auto premiums down mid-single digits and homeowners down low-single digits YoY (approx. 3% aggregate); market expected to transition from current softening to stability followed by moderate price increases.
• Distribution Channel Share: Carriers continue to invest in independent agents; independent agents place >70% of the $560B personalized market; management anticipates a considerable portion of the market will remain agent-led despite digital channel growth.
• AI Agent Competition: Carriers report 25% price variance on auto quotes between competing AI bots versus human agents; human agents viewed as a "trusted intermediary" that mitigates liability and pricing errors for underwriters.
• Contingent Commissions: Expects full-year 2026 contingent commissions to represent 80 to 110 basis points of total written premium (up from prior 70–100 bps guidance) due to favorable contract terms and high-quality book.

Macro / Industry Outlook:

• Housing Market: Acknowledges home closing transactions are at a 30-year low, creating headwinds for traditional referral lead flow, but emphasizes non-transactional insurance needs (existing homeowners) remain steady.
• Product Market Cycle: Market has "healed" with expanded carrier appetite and capacity; pricing expected to undergo a cycle of downward pressure, stability, then moderate increases.
• Reinsurance: Observes pricing declines may anticipate future reinsurance rate cuts; company has no direct balance sheet exposure to reinsurance costs.
• Regulatory/Legal: Monitoring open regulatory question marks regarding personal AI agents and "loose parameters" vs. "express consent" for financial advice; expects to navigate these as technology matures.

Strategic Initiatives:

• Technology (MCP): Building a Model Context Protocol (MCP) server to enable safe, contextual integration with personal AI assistants by Q4 2026.
• Talent Incubation: Corporate sales team functioning as a talent incubator for franchise and enterprise roles; continuing to recruit experienced franchise owners and develop internal talent.
• Geographic Expansion: Continuing to diversify beyond Texas; 65% of corporate agents now outside the state (up ~20 percentage points in one year).
• Service AI: Deploying AI voice assistant ("Lilly") and digital channels to reduce cost-to-serve while maintaining high satisfaction scores (digital: 4.1/5).
• Leadership Transition: CEO Mark Miller retiring end of 2026; Mark Jones, Jr. (COO) assumes full CEO leadership; management expresses high confidence in the transition and future growth strategy.

Risks and Headwinds to Outlook:

• Pricing Volatility: Continued downward pressure on premiums in specific markets (e.g., Texas, Florida) may outpace volume growth, impacting top-line revenue.
• Restatement Uncertainty: Current financial estimates are preliminary; the ongoing SEC review and restatement process may result in further adjustments to historical financials.
• Housing Market Sensitivity: Significant headwind on lead flow from traditional mortgage referral partners if housing transaction volumes remain depressed.
• Technology/Regulatory Risk: Unresolved regulatory issues surrounding AI agent interactions could delay or alter the adoption of the MCP integration.
• Short-term Margin Trade-offs: Willing to accept short-term margin compression to drive faster revenue growth and market share gains.

Management Tone on the Future:

• Confidence Level: Extremely high; CEO Mark Miller states confidence in "teammates, strategy, purpose, and future has never been stronger."
• Strategic Clarity: Management views the current soft market as an "attractive market opportunity" where their model (aggregator + trusted human advocate) demonstrates full value.
• Guidance vs. Prior: Reiterated 2026 revenue and premium guidance despite pricing headwinds and restatement complexities; adjusted contingency commission guidance upward.
• Long-term View: Expects a "substantial runway" for growth due to low market penetration and differentiated capabilities; prioritizes long-term market share over short-term margin optimization.

Miscellaneous:

• Accounting Changes: Restatement involves capitalizing agent compensation costs (amortized over useful life) and reclassifying franchise technology fees to revenue; no impact on cash flows or underlying economics.
• Non-GAAP Measures: Continued use of non-GAAP metrics (e.g., core revenue, adjusted EBITDA) for performance evaluation, with reconciliations available in the press release.
• Webcast: Call archived at Goosehead.com.