Goosehead Insurance Inc (GSHD) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and thank you for your patience. You've joined the Goosehead Insurance Third Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference may be recorded.

I would now like to turn the call over to your host, Senior Vice President, ICR, Garrett Edson. Sir, you may begin.

Thank you, and good afternoon. With us today are your hosts: Mark Jones, Chairman and Chief Executive Officer of Goosehead; Michael Colby, President and Chief Operating Officer; and Mark Colby, Chief Financial Officer. By now, everyone should have access to our earnings announcement, which was released prior to this call and 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 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 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. In addition, this call is being webcast and an archived version will be available shortly after the call ends on the Investor Relations portion of the company's website at www.gooseheadinsurance.com.

With that, I'd now like to turn the call over to CEO, Mark Jones. Please go ahead.

Thanks, Garrett, and welcome to our third quarter 2018 earnings call. Thank you to everyone for participating on our call and for your continued interest in Goosehead. Today, I will provide an overview on the quarter and some additional perspective on our long-term strategy. I'll then hand the call over to our President and Chief Operating Officer, Mike Colby, who will discuss some of our technological investments that we expect will enhance our competitive advantage in existing channels, open additional distribution channels for us in the future and facilitate our ongoing growth in revenue and profitability. Our CFO, Mark Colby, will then follow and provide more detail about our third quarter results.

In the third quarter, we continued to realize strong organic growth across our corporate and franchise channels, and we delivered another quarter of strong profitability. We continue to focus in a laser-like manner on executing our strategy, and we believe this will continue to allow us to create sustained long-term value for our shareholders.

For the quarter, revenue and adjusted EBITDA grew to $16.1 million and $3.1 million, respectively. This represents year-over-year growth of 49% for revenue and adjusted EBITDA growth of 42%.

Total written premium rose 50% and policies in force grew 50% from the prior year as we continue to execute and win. On top of our strong growth, we maintained our industry-leading retention rates and actually increased our world-class Net Promoter Score to 88, which I'm particularly proud of given the high bar we already set.

This quarter gave us the opportunity to demonstrate the robustness of our new business development strategy, which centers on supporting professionals involved in the home and mortgage closing process. We normally see a seasonal slowdown in the housing market after the summer months are over and kids are back in school. However, this year, the referral partners who work with us saw a much bigger reduction in transaction volume, more than double the levels we've typically seen. While this produced some headwinds for us that will most likely carry into the fourth quarter, we were able to quickly pivot and pick up share by adding more referral partners to our network.

In Texas, for example, Goosehead gained approximately 100 basis points of market share of home closings we insured by the end of the third quarter, underscoring our ability to respond to changing market conditions quickly so that our growth continues relatively unabated. We believe that by the end of the fourth quarter, our continuing share gains will have offset current housing market-related volume reductions.

We also remained on a rapid recruiting pace that we set during the second quarter, bringing on 26 new corporate agents and adding 39 net new operating franchises to our platform as of September 30. While we accelerated the onboarding of agents and franchises over the past few months, we're hiring the right people and properly training them to succeed, which sets us on the path toward continued long-term sales growth as well as expanded margins and profitability. Our franchise pipeline remains robust and provides us with an abundant opportunity for growth in that channel.

Goosehead was again rated a top company to work for by the Dallas Morning News for the third year in a row in 2018. Onboarding talent and investing in our people continues to be a key driver of our success. We are investing appropriately in the business to set us up for a successful 2019 and even more importantly, beyond.

For those who may be less familiar with Goosehead, I wanted to talk a little bit more about our long-term strategy and our organization. We have built a truly unique and dynamic business. There are very few companies in any industry producing organic revenue growth over 40% year-over-year while generating attractive profits. The insurance distribution industry is typically characterized by low single digit organic revenue growth with EBITDA margins in the mid-20s. We are highly differentiated, and we are disrupting one of the largest industries in the country. We focus on personal lines and I believe we are the best in the world at what we do.

One reporter with Franchise Times described Goosehead as, "feasting on the lackluster service provided by many rivals in the industry." Because we have a relatively homogenous client base and product offering, we're able to create economies of scale in the delivery of world-class service, and we are maniacally focused and do not get distracted by shiny objects.

Because our growth is organic and not acquired, we believe we're generating a higher quality and more sustainable kind of growth and earnings. While we can never say never if the right deal ever came to us, we do not need mergers and acquisitions to succeed. We can win long-term by executing on our current organic focused strategy. There are lots of groups playing the M&A game, and they are good at it and they're competing like crazy among themselves. We are alone in the heavy organic growth game, and we like it that way.

Mike will talk about our tech investments where there are a number of really exciting developments that over time, could provide meaningful additional growth opportunities. We take pride in our ability to be nimble and to quickly incorporate new strategies and technologies into our business model on an ongoing basis.

You've heard us discuss on numerous occasions that we do not focus on quarterly performance. We measure ourselves by annual performance and by hitting our long-term goals. The big opportunity for Goosehead is scaling the business as quickly as possible, creating strong growth in new business that turns into higher-margin renewal business. Accordingly, we make the investments we consider prudent to facilitate and accelerate our growth. It is important to understand that unlike acquisitions, which are mostly capitalized on a company's balance sheet, when we invest in people and technology, it generally runs through our P&L and is not capitalized. Thus, there can be a near-term impact on our earnings whenever we make strategic investments in our business.

Based on our experience and history, the investments we make in human capital and technology typically provide a return within 24 to 48 months. While we're focused on the long-term creation of value, it is hard not to notice the volatility in our stock price from day-to-day and week-to-week. It has become crystal clear to me that the only thing we can really manage or control is how we run our business, and so that is where we focus. While we need to report each quarter and our stock trades every day, everything we do is focused on capturing the incredible growth opportunities we have and on long-term value creation for everyone in our business ecosystem. That includes our investors, employees, franchisees, carrier partners, referral partners and of course, our clients.

Rapid growth in new business will convert to rapid growth in renewal revenues in the future, bringing with it expanded profitably. After 15 years of building Goosehead, making the right decisions for the long term has created an extraordinary growth machine that produces sustained cash flow and earnings. We recognize this is a marathon, a fast marathon, and not a sprint.

This company is very personal to me as Goosehead's largest shareholder. It is my intention to personally remain the largest shareholder for the foreseeable future because I believe in our long-term market and value creation opportunities. While members of our senior management team have entered into a 10b5-1 plan, all of us have the overwhelming majority of our net worth in Goosehead, making us fully aligned with our public shareholders.

Our board and I have ensured that our incentive compensation structure for management is completely aligned with the shareholders. Our team primarily builds their wealth through stock options and outright stock ownership, which become more valuable as the stock appreciates. We do not go through the contortions that many companies do to create complex incentive plans where the management team can still get rich even if shareholders don't. Our people make money when our shareholders do, and we don't make money when our shareholders don't. Full stop.

Just a couple of additional words on our senior management team. We are peculiar and I mean this in a very positive way, the team is deeply committed to winning in our industry. We let ideas compete in a marketplace to determine the best course of action. The relationship between our company and our people goes far beyond the financial relationship. There is a deep personal commitment to reaching our collective full potential and winning in our industry. This commitment is a key driver behind Goosehead being recognized as one of the nation's top ranked company cultures by Entrepreneur Magazine. We don't have any mercenaries who are here for a quick buck and move on. It's truly different and it is powerful.

To sum up, we continue to believe Goosehead represents an excellent opportunity for shareholders and the management team continues to put our money where our mouth is. We are pleased for the opportunity to demonstrate the strength and flexibility of our business development model as we successfully deal with current housing market headwinds, and we're excited to be investing in technology that will both allow us to capture the incredible growth opportunities in our current channels and importantly, to add new high-volume channels over time. We're energized and committed to our long-term vision and opportunity, and plan to continue to refine -- redefine one of the largest industries in the country and for that matter, in the world.

I'll now turn the call over to Mike Colby to discuss some of our recent technology investments and what they mean long-term for Goosehead.

Thanks, Mark, and hello to everyone. As Mark has noted on numerous occasions, innovation is part of the DNA at Goosehead. We've created an exciting and forward-thinking culture where we're constantly evolving and improving our ability to deliver the best experience for our customers and our team. A major focus of ours is in the consistent investment in advancing our technology. We've talked before about the technology platform, enabling all of our strategic accomplishments and providing us with an ongoing competitive advantage. It would take an enormous amount of time, human capital and funding to replicate our platform, providing us with a very real barrier to entry.

Today and on future calls, we want to take you further behind the scenes to talk more about the new capabilities we've developed and how each better positions us to win over the long term.

While our growth in 2018 has been strong, we would also say that this year has been transformational for Goosehead with respect to the enhancement of our technology platform. Our objectives are to increase the efficiency and effectiveness of our sales and service agents, creating productivity and client experience improvements that will lead to increased revenue and profitability over time. It's important to point out that our past and present development efforts have been focused on agent-facing technology. However, we're laying the foundation for exciting new omnichannel capabilities that will face our clients and referral partners in the future. We've developed a road map that we believe can leverage our technology backbone, industry expertise and accumulated experience to make Goosehead the first major insurance broker to bring a complete and integrated online choice model buying experience to the U.S. market. We believe this will create significant incremental growth opportunities for us over time.

This year, our primary areas of investment have been around application integrations, data source integrations, analytics and artificial intelligence and cybersecurity. After listening closely to our sales agents, we've integrated our comparative rating application into our salesforce platform. Now instead of needing to enter data into multiple systems to get pricing from our carriers and process new policy sales, our agents input client data and risk rating factors into 1 interface, eliminating redundancy, improving accuracy and significantly expediting the entire sales process. This integration, in connection with the data source integration we'll discuss later, eliminates approximately 75% of the required input fields, while at the same time, incorporating best practices from our top-performing agents automatically into every quoting interaction, saving our agents approximately 15 minutes per quote. These new capabilities address a real pain point for sales agents and create real efficiencies, enhancing our value proposition to both agents and clients. It's consistent investments like this that have allowed us to dramatically outperform the industry on sales productivity and client loyalty. We've successfully rolled out this new technology to all of our corporate and franchise agents in Texas, California and Illinois, and plan to be systemwide by 2019.

In addition to the comparative rater, we've fully transitioned away from the traditional on-premise telecommunication system to the cloud with Ring Central's unified communication platform. This has been fully integrated into our salesforce environment, providing our sales and service agents with new omnichannel capabilities, enhanced call analytics, including voice analytics, and new mobile capabilities. Our agents can now engage our clients in new ways such as text messaging and live chat. Basically, we can go wherever the client goes. This addresses demand that we see from clients today to engage them in ways other than the traditional voice and email channels, creating a differentiated insurance buying experience.

We've implemented this new voice technology in all of our corporate offices as well as in all of the franchise agents offices and that have launched since the second quarter of this year. Our goal is to have it fully rolled out to the entire franchise channel in 2019.

Next, we recently completed several critical data source integration projects within our tech platform that we expect will pay off handsomely for us as we grow. First, we've integrated with a data source that automatically pulls in property data from every single county in the U.S., providing us with information on insurable risk such as age of home, construction type, square footage and roof type. This, in connection with our comparative rating application I previously mentioned, allows for a far more efficient and accurate quoting process, creating opportunities for increased productivity and further enhancing the client experience.

Second, we've created a proprietary database that provides mortgage activity data across the country down to an extremely detailed level. Our sales agents now have the ability to market their services to large volume mortgage lenders with more sophistication and pinpoint accuracy.

And finally, in partnership with our insurance carriers, we've created back-end integrations that allow for increased automation in the service centers. With these new application and data integration capabilities, we have a heightened level of visibility across our entire business cycle, allowing us to leverage exciting new technologies on the analytics and artificial intelligence front. We're using new tools that allow our business leaders to quickly analyze large volumes of data across a number of dimensions to more rapidly assess agent performance and market opportunities.

In the future, we plan to embed these key measures into the agents' user interface so that we can deliver actionable insights contextually. We're also beginning to leverage artificial intelligence to answer key business questions, uncover insights, and make predictions based on our comprehensive data. A current application of this new technology allows us to predict client defections and take proactive steps to retain our clients. We can efficiently evaluate millions of data points to make accurate predictions and leverage machine learning to make us smarter every time a client defects.

Client retention is the longest lever in our business but this technology has many uses, and we plan to expand it to sales, recruiting and many other areas of the business in the future.

This has been, and will continue to be, a massive effort by our team and to replicate these efforts would take an enormous amount of time and money. Along with enhanced efficiency, improved service delivery and better analytic capability, our technology provides us with a valuable competitive mode.

In summary, you don't develop world-class customer service and our growth numbers by resting on your laurels. You need to be constantly innovating to stay ahead. That's exactly how we operate at Goosehead, and the technology investments we're making now and will continue to make in the future, will position us even more strongly to win over the long term. We look forward to providing you with additional updates on our tech initiatives on future calls.

And with that, I'll turn it over to Mark Colby to provide some color on our third quarter.

Thanks, Mike, and good afternoon to everyone on the call. Let's go right into our third quarter results. For the third quarter of 2018, we produced a 49% increase in revenues to $16.1 million, compared to $10.8 million in the prior year period. This improvement was driven by strong growth in both our corporate and franchise channels from new and renewal business as well as $660,000 in contingent commission payments received in the quarter that were initially expected to receive in the fourth quarter. As a result of the timing shift, we do not expect to receive any contingent commission payments in the fourth quarter.

Total written premiums during the quarter, which is a good proxy for the growth of our business, also grew 50% year-over-year to $140.3 million. At the end of the quarter, we had over 310,000 policies in force, a 50% increase from one year ago, and 10% sequential growth from the end of the second quarter of 2018. We continue to produce consistent high year-over-year growth in our key performance indicators, which positions us well for long-term success.

As Mark mentioned earlier, a larger-than-expected slowdown in the housing market was a headwind we battled during Q3. Fortunately, our sales process and proprietary technology allow our sales agents to pivot relatively quickly to expanding market share during times of slower lead volume. However, because of the time it takes to develop relationships and truly see the benefits of additional marketing efforts, we believe new business production will also be impacted somewhat in Q4. That being said, all signs suggest our fundamental go-to-market strategy remains very robust and competitively defensible. So we remain confident the impact at Goosehead of these headwinds are purely a temporary phenomenon.

Based on the market share growth we are seeing, we believe by the end of Q4 we will have offset the current housing market-related headwinds. Total adjusted EBITDA grew 42% year-over-year to $3.4 million, while we recorded adjusted EBITDA margin of 21% compared to 22% in the prior year period. Adjusted EBITDA growth was driven by higher-margin renewal revenue in both channels and the timing of contingent commissions, while adjusted EBITDA margin in the third quarter of 2018 was impacted by additional employee compensation and benefits related to our decision to accelerate hiring of franchise sales agents.

As we've noted in the past, any accelerated hiring causes us to incur more upfront employee compensation and related G&A expense, which naturally impacts our margin in the short term while they begin to ramp their productivity.

We also made significant additional investments of a few hundred thousand dollars into technology that we believe will provide us with competitive advantages in additional markets over time.

Finally, our ongoing costs related to being a public company have proven to be approximately $100,000 more per quarter than originally anticipated. All the investments we're making in people and most of the investments we're making in technology create an immediate P&L impact, but these strategic investments are positioning us well to further improve sales and service productivity, ultimately leading to sustained growth and margin expansion over time.

Breaking down our results by channel: In the third quarter of 2018, our corporate segment grew revenues 41% over the prior year period to $9.4 million. This growth was driven by a 65% increase in new business and agency fees revenue, primarily due to a rising corporate agent headcount to 55% as well as a 19% increase in renewal revenue as the number of policies in the renewal term grew over the past year. We're extremely pleased with the growth in new business and agency fees revenue, considering the housing market headwinds we experienced and believe we'll continue to experience.

Our Net Promoter Score, which is the key metric of our service team, increased to 88 from 86 a year ago and was largely responsible for the continued high levels of retention.

As of September 30, 2018, we had headcount of 174 corporate sales agents, up 55% from one year ago and up 18% since June 30, 2018. Even with the near-term impacts previously discussed, we were able to grow our adjusted EBITDA in the corporate channel 39% in the quarter to $2.0 million.

Adjusted EBITDA margin was 21% versus 22% in the prior year period. Our corporate adjusted EBITDA margin is also consistent with our prior commentary that there will be some near-term pressure, given our recent and significant investments in agent hiring. As a reminder, it typically takes several months before an employee's commissions outpace their base salary, but we continue to expect the investments will translate into long-term margin expansion. Additionally, we made great strides over the past couple of quarters in terms of training and onboarding the large influx of agents, which should position us well into the longer term to win new business and gain market share.

Our franchise channel generated revenues of $6.7 million, a 60% improvement from the prior year period driven by higher royalty fees from a larger number of operating franchises as well as the greater royalty fee generated on renewal business versus new business.

We continue to refine and develop best practices for how and when our new franchises launch. An agent's success is largely dependent on how successful they are during training and within the first several months of going live. Because of this, we have added more pre-training requirements, lengthening the period from signing a franchise to launching.

While better for the strength of our business, this does defer the timing of when we can recognize initial franchise fee revenue. We expect a short-term deferral of initial franchise fee revenue of about $300,000 per quarter, which flows directly to EBITDA, given the fixed nature of our training and onboarding cost. However, we believe this will yield stronger long-term results with higher-margin renewal revenue driven by more productive agents.

As of September 30, 2018, we had 424 franchises operating, up 59% from 1 year ago and up 10% since June 30, 2018. We also continue to have a robust franchise pipeline and expect to further grow this channel.

We invested an additional $250,000 in our franchise sales team during Q3, including additional hiring, traveling and other sales costs that we expect to pay off handsomely in the long-term.

Adjusted EBITDA for the franchise channel was $1.8 million, up 75% from the prior year period; while adjusted EBITDA margin was 28% versus 25% in the prior year period.

The increase in adjusted EBITDA margin was driven by higher-margin royalties related to policies and their renewal terms and partially offset by the delayed recognition of initial franchise fee revenues and the additional investments we made in our franchise sales department. Remember, over time, the benefits from renewal revenue, particularly in the franchise channel, should lead us to achieve considerable long-term renewal growth and margin expansion as our mix of new business converts into higher-margin renewal business.

Net income for the third quarter of 2018 was $0.8 million compared to net income of $0.2 million in the prior year period. Included in our third quarter results were $871,000 in one-time loan origination charges from previous debt, immediately recognized upon refinancing and approximately $350,000 in equity-based compensation related to the IPO. We would expect to incur some ongoing equity compensation expense as part of our overall compensation moving forward. When adjusting for those expenses, adjusted EPS in the third quarter of 2018 was $0.05 per share.

On August 3, as we previously communicated, we refinanced our debt with a new $40 million term note payable and a $13 million revolving credit facility, reducing our borrowing cost by at least 300 basis points. The company has the option, subject to approval, to increase the commitments under the credit facilities an additional $50 million. While we incurred the one-time interest expense charge in the quarter as a result of the refinancing, beginning in the fourth quarter, we expect to achieve ongoing interest expense savings in excess of $1.4 million on an annual basis.

As of September 30, we had cash and cash equivalents of $18.1 million as well as $48.9 million of debt outstanding.

With that, I thank you for your time, and we'll now open up the call for Q&A. Operator?

(Operator Instructions) Your first question comes from the line of Chris Campbell of KBW.

Yes. I guess, kind of first question, just talking about the trading plan, which I think will definitely help the liquidity and dampen the volatility in the stock. So I guess, how should we think about modeling the dilution over time within the plan? And then, what variables could impact that in like a particular quarter?

Yes. Really, Chris, there shouldn't be any dilution impact from it. Using the adjusted EPS number, we will always account to make -- to account for Class Bs that will be converted to Class A and the income tax impact of all that. So really, the way to look at it is just kind of net income divided by the total of Class A plus class B expenses plus a couple of adjustments, which we've laid out in the earnings release.

Okay. So there's no new like options or shares or restricted shares or anything like that?

No, there's no -- just the options from the IPO. Those are the only options that will have any kind of dilutive effect in the future.

Okay. And then like how, I guess, how many of those will be outstanding on a share equivalent basis?

There's 1.6 million shares related to the IPO that are outstanding.

Okay, and that's above the current share account, correct?

Correct.

Okay, got it. And then just kind of looking at the balance sheet, particularly cash and cash equivalents, I know you just refinanced the debt. But you've had $18 million the past two -- few quarters. I can't imagine you need that much to run the business day to day. So just how are you thinking about deploying that into the business? Is that more technology? Could that be accelerating your growth plans? Expanding into new corporate offices? I guess, just how are you thinking about putting that money to work?

Chris, it's Mark Jones. As we -- as I have mentioned previously, we're not in a business where you can grow faster just by throwing more money at it. We are growing as quickly as we can responsibly absorb new people and new franchises. So we will be deploying some of that cash in technology investments. And the -- I think one of the really important things for people to take away from this is the insight that kind of Mike communicated when he was talking about our tech investments that we have -- we are now in a position that we can start to point some of those things at consumers and at referral partners, which opens up -- which will open up over time, as significant incremental growth opportunities over and above anything that we've sort of built into our forecast at this point. So we'll be using some of it for that but primarily, what we're going to do is fundamentally, when we get to the end of Q1 or when we close out the year, we will determine what our cash needs are. And as anyone that heard me as we were going through the roadshow that asked me about this, I said, we're going to retain the cash in the business that we need to fund sort of growth, but the cash that we don't need is going to be returned to the people that own that cash, which is our shareholders. So it's premature to announce any sort of specific dividend, but I would anticipate that there will be some dividend in the first quarter.

Got it. And so are you thinking of that just as like an annual special dividend-type of capital management process you would go through just after you finalize your budgeting process?

That's exactly how we're thinking of it, Chris.

Okay. Got it. That makes a lot of sense, so thanks for that color. And I guess just kind of on the homeowners headwinds, it sounds like -- I mean, you've still got still awesome growth rates, but it sounds like there could be a little bit of weakness relative to the strong results in homeowners lead gen. So I guess just what metrics are you seeing the biggest pressure on right now in homeowners? And then how sensitive is the new business production to the interest rate movements that we're seeing?

Chris, this is Mike Colby. I can't speak exactly to the interest rate movement and how that's impacting the home sales. That's not my area of expertise, but I can tell you that we've seen a more dramatic decline in housing sales towards the end of the third quarter than we've seen in previous years. So what that means is our team has to pivot and find new relationships to bring online. And we've started to see very good results with that, as Mark mentioned in his prepared remarks, that we saw about 100 basis points of share grab towards the end of the third quarter, suggesting that our team is being successful turning on those new relationships.

So we anticipate being able to sort of backfill slowness in the market, as it's presented itself thus far, by the end of first quarter. So we'll see some headwinds for the fourth quarter but we are really good at gaining share, and we'll continue to do that.

Okay, got it. And then just one more if I could circle back kind of to like the capital management issue. I guess, just how do you think about your day-to-day cash needs relative to the premium you're generating, the employees, et cetera, like your different cost drivers? What would be like a way that we can think about kind of potentially modeling that?

Well, again, Chris, I'm very simple-minded. I think it's important that we have an efficient capital structure, so that's going to include debt and equity. And as a rule of thumb from a capital management standpoint, I -- my rule of thumb is if your debt service costs or covenants ever have an impact on operating decisions that you're making, you've got too much debt. If they are completely irrelevant to any operating decisions you make, which our debt level is, then you're okay. So we generate cash every month. Our operations are very cash flow positive. And so as we go throughout the year, we accumulate cash. And as I said, when we close out the year, we'll see where we're at and what we anticipate our needs are going to be in 2019, and we'll return cash that we don't need to the shareholders. I will also say that over time, we will look at making sure that we have an appropriate amount of debt on our balance sheet so that we have an efficient cost -- an efficient capital structure. We feel like our current capital structure is nice and efficient.

(Operator Instructions) Our next question comes from the line of Adam Klauber of William Blair.

A couple of different questions. The franchise count has -- it's almost doubled in, yes, maybe the last 1.5 years, it has doubled. Is there any reason that will slow down? And instead of that, the law of large numbers going from 200 to 400, to double again, you have to go to 800. So will that pace, just law of large numbers, begin to slow somewhat?

Adam, this is Mike. Yes, we're seeing our value proposition to the agents resonate strongly across the country in the markets that we're focused on. When you provide your agents with a choice model so that they can serve their clients better, when you give them smart technology to go-to-market and when you take all of the non-sales activity -- non-sales-related activity away from them, they're able to grow larger books of business faster and more profitably. That is really resonating. So our growth year-over-year is consistent with our past years, and we expect that trajectory to continue going forward. We don't see any reason why that would slow down. Year-over-year, at the end of Q3, we had 424 operating agencies. That was up 59% from the same time last year.

And Adam, this is Mark Colby. One of the things that's really encouraging to us is the success we've had outside of Texas. During the year, we've launched over 80% of our franchises have been outside this state and during Q3, about 90% of the franchises that we launched were outside of the state. Not only are we launching a bunch outside of Texas, they are also more productive than ever outside of the state. So again, we're extremely encouraged with that.

Great. And can you give us, I guess, some idea of how is that productivity, I guess, the franchises non-Texas, how is that running now compared to 1 year, 1.5 years ago? How is that improving?

Yes. We're not disclosing that information right now. That will be part of the 10-K. It's part of the kind of -- we'd like to get a whole year of data before we disclose that just because of some of the seasonality with the insurance market.

Okay. So we can -- so 10-K, we'll be able to get better granularity in that.

Similar disclosures to what we had in the S-1.

That will be helpful. But do you think the productivity out-of-state franchises is actually getting better, is that over time, not just quarter-over-quarter, is that...

Year to date, we've seen some improvement there.

We're fortunate in that we are -- that the more successful we get, the more really high-quality candidates we attract. And so the gene pool is getting constantly averaged up.

Okay, okay. And does it help that as you move to other states, I mean, is the home value higher on average than Texas? Does it help also?

Adam, the home value is not typically the driver of insurance costs. It's the risk. So although home values are very sort of reasonable, in Texas, we have among the very highest property insurance rates in the country, because you've got both hurricane exposure along the southern coast and you've got tornado and hail exposure in the northern part of the state. And so there's -- home values are typically not the leading indicator of premium.

Yes, that make sense. Okay. But then as far as talking about the impact of the housing market, when new business commissions and agency fees, does that mean next quarter, they may be flattish or do you think they should be done moderately compared to this quarter?

Our best estimate so far is that it will have probably a couple of hundred thousand dollar impact on our new business revenue for Q4.

Okay, okay. That's helpful. And then I think you mentioned that given a bit of a slower market that you've begun to pivot, I guess, what other strategies are the corporate agents and the franchises using? Is it different than going to the real estate channel?

No, it's the same strategy, Adam, it's just you have to -- when your current relationships slow down, and again, we have a very small market share, so there's still a lot of market that we can pivot to and grab. So if I'm working with a loan officer or a realtor whose business drops, I can increase my efforts of establishing new relationships and activating those relationships. It takes a little bit of time but that's what we were focused on towards the end of Q3 and what we'll continue to focus on in Q4 is activating those new relationships to backfill for any type of decrease in volume. And we're confident that through Q4, we're going to be able to do that. And yes, that's a good point. The technology that we've rolled out, that I mentioned, allows us to be much more effective than we have been in the past because our agents know, down to the individual kind of loan officer, where the mortgage activity is happening, and they can focus their efforts with precision in understanding exactly kind of where they can focus their marketing activity to generate lead volume.

(Operator Instructions) As there are no further questions at this time, I'd like to turn the call back over to Mark Jones for any closing remarks. Sir?

Thank you, and thank you to everyone that has taken an interest and listened to our call. I know many of you are shareholders, and we look forward to being in business with you for the long term. Thank you, and good night.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.