Goosehead Insurance Inc (GSHD) 2021 Q2 法說會逐字稿

Thank you for standing by. This is the conference operator. Welcome to the Goosehead Insurance Second Quarter 2021 Earnings Conference Call. (Operator Instructions)

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

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 are 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.

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 mode. 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 trade-offs 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 or 5 years, which would likely yield EBITDA margins in the low to mid-40s. 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 conquest of the land grab in the market at this time and continue to build our competitive mode. 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 mode 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. While this cohort provides minimal premium in revenue today, their predictable launch and production ramp, combined with our increasing retention rates 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 began 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 improve productivity in the more leveraged franchise channel. These agents represent the gold standard of performance in the industry with new business production levels, nearly 4x 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 we'll 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 and West Lake 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 sufficiently absorb a 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 focused 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 a unique -- will be unique in the marketplace, providing clients with a direct digital shopping experience that leverages our massive accumulated experience and a true choice platform, all while preserving the unmatched benefits that 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 cash 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 am 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 mode 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 in making Goosehead such an exceptional company.

And with that, I'll turn the call over to our CFO, Mark Colby.

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 and 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 1 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 a 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 expense 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 of 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 in 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 is being 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 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 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.

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 have 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; 2, lead generators; and 3, 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 a 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 are some hybrid of the 2, creating even more frustrating experience for the customer by misleading them to think that they're being shopped 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 customers' 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 customers' 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 widely 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 and formed 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 introduced 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 issue the home and auto insurance policies, a process that can take as little as 15 minutes. Most importantly, we will never sell our clients' 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 are 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 lines for Q&A.

(Operator Instructions) The first question comes from Ryan Tunis with Autonomous Research.

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 will probably trend in the back half of the year as well relative to 2020?

So specifically for this quarter, we had significantly less contingent commissions than we did last year, just given what we're kind of -- the economy is opening back up. We're 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 though, yes, it will 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.

And thinking about 2022, that is helpful, you mentioned that you don't expect the same ramp-up in real estate costs and some of the stuff associated with the 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 costs as well, just so we can think about that order of magnitude out to '22?

Yes. We are -- I don't know, specific numbers 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 rate, that's something we've been investing in for years now. I'd 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 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 the spending again is this revenue, which we're very, very excited to scale-out next year.

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

Yes. 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 were able to raise 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 raising it even higher yet is just some of this COVID delta variant -- 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.

(technical difficulty) RBC Capital Markets.

A couple of questions. First, related to the dividend, I mean it's a substantial dividend, but it seems like it's more than your cash earnings over the last year to year and a half. I mean there is so much investment going on right now why effectively borrow to pay a large dividend?

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 now 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 4x. 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.

Okay. With the -- I mean, I saw the video on the new technology. That's -- 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.

I appreciate that, Mark. It's hard for me -- this is Mark Jones. It's hard for me not to sort of chuck about that. The description is 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.

As you know, I'm one of those people who looks at those comparative 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 Virginia, 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 a house sale, so to speak?

I think it's important to understand that, one, this 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 be delivered without agent fulfillment and agent execution. So in no way are we trying to create a conflict that would undermine our agent experience. This is simply a different way to engage with customers who prefer to engage with us digitally. That's very important.

One, if you're an existing client, you come to our site, our system is smart enough to route 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 as a very powerful currency to encourage improvement in performance across our agent force. And our agents will not feel undermined or we will not be creating 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 agent's efforts.

Yes. 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 cross-selling -- retention numbers, all those things that create the best client experience, but also create the best lifetime client value. And so we're sort of stepping over dollars to pick up dimes that we're worried about sort of 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's our approach here, too. It's a good question, though.

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. Have you gotten any feedback or any pushback from any of your carrier partners related to this?

I agree. I think carriers are very reluctant to be presented in a fashion like this with the options that are currently available in 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 -- our insurance company partners are very excited about that. But again, with the absence of the agent, you have a very hard time convincing insurance companies that this is in their best interest.

I mean, I think you 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. But 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 the agent productivity and create incremental revenue opportunities through new channels. It's -- 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.

I appreciate the color, and I'll let somebody else jump on so they can express their enthusiasm more emphatically than I did.

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

The next question comes from Meyer Shields with KBW.

I guess, I will start by echoing Mark Dwelle's comments about the coolness of the portal. Just a couple of, I guess…

Thank you.

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?

It is. Yes.

And when you take channel-agnostic is it between the franchise and the corporate channel?

Correct.

Correct.

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 fade going forward?

Yes. We have certain integrations that we're building out with the launch that will stick around. But I don't expect them -- they might stick around for another few quarters. But again, we're talking about completely redoing our website, Mark. And some of that cost is capitalizable, not all of it. But content curations, 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.

And this is just a technical question, but assuming that somebody is using this in the middle of the night, is the only option available then to schedule a call would be later?

That's correct, Meyer. Our agents will be connected seamlessly with the client expectations will be set. They -- the client will be put on a journey road map with us, but we expect and will 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 year-to-date. 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 pick up the process very seamlessly with an agent.

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?

So initially, Meyer, we'll 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 the 92 Net Promoter Score that they're overwhelmingly willing to do. We think there's a lot of opportunity there.

Among -- 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 source as our existing sales process and lead channels. Organic…

In addition to that, we also -- with Ann Challis, our new Chief Marketing Officer, as part of that new website launch or part of the new chronic launch or relaunching our entire website, and our website is really driven around the content strategy to develop meaningful content that is optimized for SEO, where clients can learn about insurance, they're going online. And we believe that over time, that's going to drive traffic to the site. Pay traffic is very expensive in this industry, and so we're taking more of an organic approach. But we're leveraging -- we've built the entire website around driving organic traffic that we believe over time could lead to meaningful traffic on our site.

Yes. So there will be some costs associated with content development, things like that. But one thing we're not going to be doing is, all of a sudden, buying daytime television commercials or Google Adwords, or anything like that. There's just -- we can't compete in that space. We're fighting $1 billion ad budget. So we've got to compete on a different playing field.

The next question comes from Pablo Singzon with JPMorgan.

So my first question is, in the work you've done in evaluating the online radars and investment, do you have a sense of the magnitude of incremental leads you will get versus, I guess, your current key generation channels such as referrals or real estate or mortgage brokers? Just trying to -- I'm just wondering if you have an early sense of sort of the incremental marketing opportunity that's tool to you.

Yes. 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 stay in that kind of towards the end of this year or early next year.

But the opportunity is huge. I mean at 2020, we were involved in 14% of new mortgage originations in the state of Texas, but in less than 2% of Texas homes. There's 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.

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

We're not going to guide towards earnings. But you're right. I mean we've historically have been able to sustain those levels of growth at 20-plus percent margins. And in the absence of some step-up in cost, I think we would be right there. So again, I don't want to guide to that. We -- 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.

Pablo, 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 opportunity (technical difficulty) sure that we're expanding our competitive mode and building a really, really defensible strategic position. So the margins are there.

This is a business where EBITDA margins are in the 40s on a steady-state basis. If we slow growth down, as I said, to 10% or 12%, that's what margins are -- 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.

(Operator Instructions) Our next question comes from Josh Shanker with Bank of America.

Congratulations on the new launch, everybody. 2 questions. Given how cool it is, do any of your age or prospective future franchise who'd look at this and say, I could see a path being disintermediated, what sort of guarantees do you have that you're not trying to be agnostic about also adding a Goosehead direct channel?

Josh, we've been emphatic in our communication to our agents and in our demonstration of the way we run the business, that it's -- 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 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.

And are there any KPIs that you're going to be providing for how we should gauge the success of the digital platform?

Yes. We'll continue to evaluate those and kind of determine what's appropriate to share with the history and everyone else. But yes, we'll certainly have additional KPIs internally that will be monitoring.

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.

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.

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