Goosehead Insurance Inc (GSHD) 2025 Q4 法說會逐字稿

Good day, everyone, and welcome to Goosehead Insurance fourth-quarter 2025 earnings conference call. (Operator Instructions) Please note, this conference is being recorded.

Now it's my pleasure to turn the call over to the Vice President of Capital Markets, Dan Farrell. Please go ahead.

Thank you, and good afternoon. 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 expectations, estimates and projections of management as of today. Forward-looking statements in our discussions are subject to various assumptions, risks, uncertainties 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 on them.

We refer all of you to our recent SEC filings for a more detailed discussion of risks and uncertainties that could impact future operating results and financial condition of Goosehead. We disclaim any intention or obligation 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 our performance.

We consider these non-GAAP financial measures to be useful metrics for management and investors to facilitate operating performance comparisons period-to-period, by including 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 the use of non-GAAP financial measures, including reconciliations of these measures to the most recent comparable GAAP financial measures, we refer you to today's earnings release. In addition, this call is being webcast and archived version will be available shortly after the call ends on the Investor Relations portion of the company's website at goosehead.com.

Now I'd like to turn the call over to our President and CEO, Mark Miller.

Thanks, Dan, and good afternoon, everyone. Thank you for joining our fourth-quarter and full year 2025 earnings call.

Before I get into the numbers, I want to take a step back and frame where we are, not just this quarter, but as a business since Goose is a company that rewards long-term thinking. Personal Lines insurance distribution is not a get-rich-quick business. As our founder, Mark Jones has said, it's a get rich over time and stay rich business and the work we do compounds when it's done correctly.

For the full year 2025, we grew total revenue 16% and adjusted EBITDA of 14% and delivered an adjusted EBITDA margin of 31%. These results didn't come from one-off wins that came from disciplined execution of our strategy and structural improvements across the organization. Several of our most important KPIs simultaneously moved up and to the right. For example, client retention continued to improve. We moved from 84% in the second-quarter to 85% in the third=quarter and we exited the year with continued upward momentum.

As we have said before, retention is the flywheel in this business. When retention improves, everything else gets easier; growth becomes more efficient, margins expand and client lifetime value increases. We also saw accelerating growth in policies in force, ending the year up 14%, increasing from 13% in the third-quarter. At the same time, we have seen strong productivity across all three distribution networks: corporate, franchise and enterprise sales.

Now let's talk about the insurance market itself. Our industry operates in well-documented cycles, moving between hard markets, driven by elevated loss ratios, capital constraints and tightening underwriting and soft markets where loss ratios normalize, capital returns and carriers compete for growth. We're currently coming out of a sustained hard market where we saw carriers raising rates, tightening underwriting guidelines and reducing capacity, actions that were difficult in the short term but necessary to restore profitability.

Today, pricing has largely caught up with loss ratios, underwriting profitability has been restored and carriers are once again in a position where they want to grow. This is the environment where Goosehead performs best. A healthier product market means more choice for our agents, better outcomes for clients, lighter service loads more stable underwriting and carrier partners that want to grow alongside us.

The added variable of AI impacting the personal line space is beginning to take hold as well. When implemented strategically in the right portion of the value chain, AI has the ability to improve outcomes for all parties. For us in the distribution portion of the value chain, maximizing efficiency with our existing clients and matching carrier risk appetite with client demand represents the largest value creation application.

However, there is significant opportunity costs associated with chasing the wrong implementation of AI. Ultimately, the tool set will be broadly available, but the secret is the data behind the tool. Because we have built such a diversified book of business across 50 states, and with hundreds of carriers, we have access to proprietary data that we believe is highly differentiated.

Tools in the market today act as quasi lead aggregator technology, providing generic information about insurance broadly in your area. From what we have seen, these tools have no choice model transacting ability and in some instances, point users to contact their local Goosehead agent. Mark Jones Jr will go into more detail about our specific plans for implementing AI in our business. We're being incredibly thoughtful about investing only where it drives real value.

While we're encouraged by the product market and the technology advancements, I'm extremely proud of what this organization accomplished over the last three years without those tailwinds. Across our franchise network, we made a deliberate decision to prioritize quality over quantity. This has resulted in meaningful productivity gains, stronger economics for franchise owners and healthier system overall. Gross payments per franchise are up 29% year-over-year.

This meaningful increase in cash flow enables our owners to reinvest in people and ultimately grow more rapidly. We expanded total producer count while reducing the number of operating agencies, exactly what we would expect to see in a system getting stronger. Producers per franchise increased from 1.9 at the start of the year to 2.1 by year-end, which is one of the longest and most powerful levers in our model.

This momentum was further evidenced by an increase in book acquisitions within the network, going from 38% in Q3 to 64 in Q4. Typically, the buyer is one of our strongest and fastest-growing agencies. So these consolidations of the entire community stronger, more resilient and positioned for growth.

On the corporate side, we did what we said we would do and fundamentally reset the corporate agent footprint. We expanded to new geographies like Tempe, Arizona and Nashville, Tennessee, and reduced concentration in well-established markets. So far in 2026, we have three new offices fully launched, with a fourth slated in April.

A portion of our corporate agents outside of Texas increased from 30% in 2022 to 52% in 2025. Since 2022, the corporate team has produced 61 new franchises through our corporate to franchise ownership path, many of which now sit in the top 5% of new business production across the entire network.

Corporate new business growth also reaccelerated in 2025, reaching its fastest pace since 2021. This year, we also gained traction on our newest distribution on the enterprise sales and partnership network. This network is incremental, efficient, and strategically important. It allows us to access portions of the market that traditional agency models simply cannot reach. In 2025, enterprise sales almost doubled new business production and partners on our platform now address millions of mortgages serviced across the country. At scale, this channel is a growth driver and margin accretive.

To summarize, the fundamentals in almost every area of our business remains sound, but we acknowledge the future of insurance distribution may look different over time as technology evolves. That is why we have been investing heavily in our technology road map for the past several years. Technology remains one of our deepest competitive advantages, and we have exponentially increased the size of the tech organization in the past three years adding skill sets not commonly found in our industry. Over the past several years, we've invested in both agent-facing tools and core infrastructure required to support a much larger organization.

To that end, Goosehead has now delivered the United States' first end-to-end choice buying experience. Our Digital Agent 2.0 platform is now live in Texas with multiple auto carriers and multiple home insurance carriers and active implementation. During 2025, we made massive strides in the hardest challenges in digital binding and we are now set to rapidly expand our product and geographic coverage.

These capabilities can only exist with deep relationships and trust with the carriers, complex integration with underwriting back-end systems, and high-scale service organization that can handle the complexity of hundreds of carriers and multiple product lines. This is not just another lead aggregation tool with an AI wrapper. This is a true frictionless digital distribution platform.

We want to give our clients the purchasing option they want, whether it is all digital, partially digital, or completely human. By leveraging our proprietary data, we can deliver that shopping experience in a way that provides carriers with high-quality and retentive clients. We have also made significant strides to enhance our client experience with technology innovation.

We launched our mobile app, giving clients the ability to manage policies across multiple carriers in one place, introduce Lilly, our AI-powered virtual phone assistant. Lilly has already handled hundreds of thousands of client interactions, streamlining the client experience and reduce the number of calls requiring agent involvement. As these tools mature, we expect continued improvement in the client experience, alongside lower servicing costs.

It is an exciting time to be in the property and casualty insurance industry, especially for Goosehead. We have hardened our model, widened our competitive moat, improved productivity and profitability and lay the foundation for what we believe will become the leading digital insurance distribution platform in the United States.

Looking ahead to 2026, our priorities remain clear and unchanged: accelerating growth within existing agencies, placing agencies in the right geographies and expanding our corporate sales organization, scaling enterprise and partnership channels, continuing to invest in technology, particularly strengthening our proprietary AI applications and building a winning culture.

What excites me most is that we're entering the next phase with improving market conditions. When the product market is healthy, everything in our system works better. Agents close more business; clients are better served carriers lean into growth and retention improves naturally. We finished 2025 in a position of strength, and our focus in 2026 is on continuing to execute against the opportunity in front of us.

I said forward that we believe Goosehead has the ability to operate at a Rule of 60 model over time with a combination of revenue growth and EBITDA margin exceeds 60% on a sustained basis. As our core KPIs continue to improve, and newer initiatives like partnerships and Digital Agent 2.0 scale, we see a clear path to progressing toward that objective.

I'm proud of the progress we've made this year, and I'm even more confident in the position we've built as we continue to work towards our long-term objective of becoming the largest distributor of personal lines insurance in our founder's lifetime. Thank you to our clients, our teammates, our carriers, and our partners.

With that, I'll turn the call over to our CFO and COO, Mark Jones.

Thanks, Mark, and good afternoon to everyone on the call. Mark Miller just walked through the broader story of the business, the progress we've made, the environment we've operated in and why we believe Goosehead is well positioned for what comes next.

I want to build on that by talking about how that strategy translates into execution and economics. What has allowed us to deliver consistent organic growth and strong profitability through a very challenging product and housing environment is not simply the result of what we did this year or last year. It is the result of maintaining a long-term mindset, staying focused on first principles, and making decisions at compound over time.

Many of the initiatives you hear us discuss today were set in motion years ago with a clear view towards durability rather than short-term optimization. Our business is built around multiple growth engines that are designed to work together. At the core is our franchise network, our focus here continues to be on productivity, quality, and long-term economics.

We are seeing continued consolidation within the network where our strongest agencies are reinvesting cash flow to hire additional producers and acquire smaller agencies in their markets. This is a healthy dynamic and raising the bar across the system, improves client outcomes and increases the lifetime value of the book. While this has impacted our revenue growth over the past couple of years, this consolidation is value creating. The acquiring agencies are significantly more productive and better positioned to grow the acquired books through cross-sell, referrals, and improved service.

You should expect to see this continue in 2026, resulting in less operating agencies but higher total producer count as that cash flow is reinvested by our agency partners. You can see this already as producer count has grown from 2,092 to 2,113, while shrinking our operating franchises from 1,103 to 1009 over the last year. The health of our franchise network can be seen in our strong same-store sales growing 19% in the fourth-quarter.

Our corporate sales organization plays a critical role in feeding the franchise system. This is where our agents are trained in the Goosehead operating model, develop deep carrier expertise and build the habits required to run a high-performing agency. Over time, this group has proven to be the highest quality source of new franchise launches in the company. That is not accidental. It is the result of years of investment in training, leadership and culture and remains a structural advantage that is difficult for competitors to replicate.

Traditional corporate sales agents were 374 at year-end, growing 6% over the prior year. As we expand our corporate sales footprint during 2026, that allows us to reach new geographies with the highest quality talent pool. We have also continued to expand our enterprise sales and partnerships business, which allows us to access pools of potential clients that our traditional go-to-market strategy does not naturally reach.

This channel is scaling quickly, growing nearly 100% in headcount, up to 115 as of year-end and is strategically important because it provides embedded lead flow, strong client trust, and highly efficient client acquisition. From an economic standpoint, these partnerships are incremental to the core business and increasingly attractive as they scale.

What ties all this together is technology. From a capital allocation standpoint, our technology team is now the single largest portion of our P&L and rapidly making progress towards our growth and efficiency initiatives. Our digital agent platform is now live with multiple auto carriers in Texas with true end-to-end bind capability, and we've already seen policies bound with no human involvement.

We know of no other company with a choice product offering and the ability to actually bind policies digitally. Our platform is now live, and we plan to rapidly expand product and market coverage. Many of these transactions are coming from existing clients, allowing agents to add policies to their books with effectively no incremental effort. We're also in active implementation with a multiple of our top home carriers right now.

In the second half of 2026, we plan to host a webcast at Investor Day to demonstrate what a true frictionless shopping experience looks like. While some clients will choose to transact directly through Goosehead owned digital channels, we believe the larger opportunity is integrating deeply with our partners.

While we are early in our journey here, the upside of deep penetration into our partners is substantial. These integrations allow us to reduce friction for their clients, solve real operational pain points, and deliver high-quality risk to our carriers at scale.

Our partners today now represent a total of 2.3 million potential clients across mortgage origination, servicing and other financial services and the pipeline of potential partners continues to grow. The majority of that partnership base is still in the implementation phase, meaning the benefits from those arrangements are not yet felt in our financial results.

We believe our national footprint broad product access and highly differentiated service offering position us as the most logical partner of choice for those looking to add a choice model personal lines insurance offering into their business. Ultimately, we expect the partnership business in tandem with the digital agent platform have the potential to be the single largest growth driver in our company's history.

As Mark Miller mentioned, we're being very thoughtful in deploying AI into the areas that actually deliver a strategic advantage and profitable growth. There are many shiny objects in the world of AI, and we are focused on only the areas that drive a real tangible value.

First, we are injecting AI into our service function to reduce friction for our clients and improve our service cost efficiency. As Mark mentioned earlier, we launched Lilly, our AI-powered virtual phone system. Lilly is already having a positive impact.

As Mark Miller mentioned, handling hundreds of thousands of client interactions and it is part of a broader set of tools we've implemented to intelligently route work, reduce complexity for our teams, and create a foundation for further automation.

Second, utilizing our data and our carrier relationships to be intelligent about matching carrier risk appetite with client demand. The reality is, unlike a normal retail operation, an underwriter is not trying to sell an insurance policy to every homeowner in the country. Each has a specific risk appetite and to successfully maximize value, you must be able to segment clients appropriately and align them with the right underwriter.

As these efforts enhance the economics across the value chain, we take part of that upside through proprietary product access and compensation plans. And third, we expect to drive new business generation through targeted marketing campaigns to drive client retention, client referrals, and cross-sells. As the product market ebbs and flows, being in front of the right clients at the right times should fuel new policy generation and existing policy retention.

We have made strong headway incorporating AI into our business where it makes the most sense and are

steadily moving towards a model where selling and servicing can occur with far less manual intervention. That evolution is only possible because of the infrastructure, carrier relationships, and operational discipline we built over more than two decades. This is not a departure from who we are. It's a continuation of it.

Turning now to our fourth-quarter and full year results. Total revenue for the quarter was $105.3 million, up 12% over the previous year quarter and $365.3 million for the full year, growing 16%. Core revenues for the quarter grew 15% to $78.2 million and grew 16% to $317.9 million for the full year as a result of continued improvement in client retention and growth in new business production from all three sales networks.

Looking into 2026, we expect low double-digit core revenue growth for the first half of the year as year-over-year pricing dynamics impact the renewal book. Additionally, the consolidation of single producer franchises results in a short-term revenue impact.

However, this effort dramatically improves the efficiency and productivity of the overall franchise network and therefore, our future growth and profitability. We expect acceleration in the second half of 2026 as year-over-year pricing changes are more consistent, client retention improvements continue and the benefits of our recent partnerships and Digital Agent 2.0 investments take hold.

Ancillary revenues, which is largely comprised of contingent commissions, was $25.3 million for the fourth-quarter, bringing the full year to $41.1 million. Contingent commissions in 2025 represented 86 basis points of total written premiums, which outperformed our expectations throughout the year. During 2026, our initial expectation for contingent commissions is between 60 and 85 basis points of total written premium.

Cost recovery revenues for the quarter was $1.8 million. As a reminder, revenues from franchise fees are recognized over the 10-year life of the agreement. When an agency exits the system, any unamortized revenue is then accelerated. We expect cost recovery revenue to be flat to down with normalized levels of franchise exits as further consolidation accrues within the network.

Total written premiums for the quarter were $1.1 billion, growing 13% over the prior year and were $4.4 billion for the full year 2025, up 17% over 2024. The quarter included franchise premiums of $896 million, up 15% and corporate premiums of $194 million, up 4%.

Policies in force grew 14% to $1.9 million, which accelerated off of the 13% growth rate in the third-quarter of 2025. We expect continued acceleration of the policies in force growth rate for the full year 2026 as client retention continues to improve, our franchises onboard new producers and expansion of our partnerships in enterprise sales business.

Adjusted EBITDA for the quarter grew 5% to $39.2 million, up from $37.4 million in the year ago period. This includes $2.9 million of incremental strategic investments in the quarter that we believe will drive long-term shareholder value. For the full year, adjusted EBITDA was $113.6 million growing 14% over the prior year and producing an adjusted EBITDA margin of 31%.

Looking into 2026, we expect margins to be modestly down as we invest in broadening our application of AI, as I discussed, and our Digital Agent 2.0 and partnerships platform. We expect these investments to deliver incremental long-term growth and margin at scale.

We ended the year with $34.4 million of cash and cash equivalents and total debt outstanding of $298.5 million. Cash flow from operations for the year was $91.8 million, up 28% from the prior year. As we mentioned, we maintain a long-term focus for our business, and you can see that in our capital allocation.

During the fourth-quarter, we repurchased and retired 323,000 shares of our Class A stock, representing $22.5 million. For the full year 2025, we acquired $81.7 million of our Class A shares and combined with 2024, nearly $145 million and over 2 million shares, representing approximately 8% of our total Class A share count as of the beginning of 2024.

Given the current market volatility, today, our Board of Directors authorized an additional $180 million share repurchase authorization and we plan to continue to be opportunistic when there's a market dislocation.

As we look into the future, many things about how our business operates will adjust based on changes in technology and adaptations to market conditions. However, some critical things will not change. We remain committed to delivering our clients the best possible value with our sales and service functions. Our clients have a choice of who they do business with, and we want to make that decision as obvious as possible.

We remain focused on the personal line section of the P&C market as this is the area where we have durable competitive advantage and specific expertise. We remain committed to organic growth as the first and foremost driver of our business as that is the most sustainable and profitable way for us to operate and we are committed to delivering our current and future agents with the best value proposition for distribution through technology, product access, and back-office support.

As we look into 2026, our guidance for the full year is as follows. Total revenues are expected to grow organically between 10% and 19%. Total written premiums are expected to grow organically between 12% and 20%. As Mark Miller said earlier, I want to echo my appreciation for the Goosehead team. Strong financial performance is never the result of a single initiative or a single quarter. It is the result of consistent execution across the organization.

I'm proud of what we accomplished in 2025 and confident in the foundation we have built through the years ahead. Thank you to our shareholders for your continued support and to our teammates for the work they view every day to make these results possible.

With that, let's open the line up for questions. Operator?

(Operator Instructions)Andrew Andersen, Jefferies.

Just in terms of the guidance for next year, how are you thinking with regards to home closing transactions? And how are you thinking about the insurance pricing environment?

Andrew, yes, this is Mark Jones. So in terms of home closings, I think you saw some interesting data come in, in December, a strong December, followed by will look like a relatively weak January. As we've talked about for the last couple of years, housing construction, while certainly not a tailwind for us hasn't necessarily been a big headwind. Our agents have done a really good job continuing to go get lead flow and through our strategic partnerships, we just continue to decouple our business from the ebbs and flows of the housing market.

So we're not counting on any improvements in housing in terms of our guidance throughout 2026. I think that would be potentially upside. And then pricing, you could probably assume the bottom end of the guidance range includes pricing that's generally down in the top end of the guidance range, you'd have moderate increases in homeowners pricing. I think that's pretty consistent with what we're seeing in the market right now.

And then as some states consider measures like profitability caps or just tighter constraints on insurance pricing, how would those types of regulatory changes impact your business model, I guess, specifically carrier appetite, maybe commission economics and your ability to maintain growth in these geographies?

Yes. I mean it will be interesting to see how that plays out. I'm not sure that, that is likely actually to happen. I know I've seen a couple of articles about that across a few different states. I don't necessarily believe that is a good thing for the whole market. But what you'll probably see is the excess and surplus lines market, that can be a little bit more nimble, probably be more durable in those areas. But we'll just have to see how that plays out.

Brian Meredith, UBS.

A couple of big picture questions. First, thanks for all the color on kind of how you're using AI, but maybe you can talk a little bit about why you don't think agents will be disintermediated through the use of AI? Clearly, that was a big topic last week.

Yes, Brian, this is Martin Miller. I'll take that one. So clearly, none of us have a crystal ball, but I'll give you my perspectives on it. Auto generally becomes more commoditized, I think, over time. It's a more standard commodity type of product.

Home remains complex and often is the largest asset for our clients. And I think they're going to be particular about how they buy that product. And selling home in general, is just a much trickier sale. It requires a lot more detail, a lot more knowledge. So I think it's going to be difficult to disintermediate the clients.

And carriers when you think about them, what they want is they don't want to sell as much product as possible, what they want to sell is the highest product to the highest quality clients, and that's what we're doing with our agents. And the majority of our clients still want some human guidance interaction in the process. And we lead with the home and cross-sell with the auto so I think it makes it even harder for us to get disintermediated in this process. I see a world where it can be a combination of fully automated, maybe in a sale of an auto product. a hybrid sort of a product or a fully human distribution.

But digital, in my opinion, just over time, increases the productivity of our agents rather than disintermediates them. One last point is just it's really, really challenging to disintermediate when the service function is such a big component of it. And what's makes us head so unique is the size and capability of our service function compared to anybody else.

Yes. Brian, I would just add, I think people really underestimate the complexity of being able to distribute in a choice model directly to consumers. There's not really a ton of underwriting demand for that, especially on the home side. B, it's 50 different state regulators. There is a ton of different product out there and the product market has and flows.

And then I would just call out, there's only from what we know of one business that can actually today buying policies end-to-end without human intervention, and that's us. Everybody else out there is lead aggregation.

Makes sense. And then I guess my second question, back to the digital agent, maybe you can dive in a little bit more on kind of what exactly that's doing because I guess the concern I have on it, is it going to actually cause customer retentions to actually start to decline here if it's easier and easier for customers to switch something like what's going on in the UK.

So Brian, we've seen so far -- and granted, it's not like we've sold tens of thousands of policies so far. We've sold some. And largely what it has been so far as existing clients who are monoline home bought an auto policy directly from goosehead.com. That actually improves client retention because it rounds out their total account helps us capture full share of wallet better.

And I think if you interact with one specific platform like we're trying to drive the industry to be Goosehead as really the place you need to purchase your insurance through. You don't have to leave Goosehead in order to get that full complete shopping experience.

And Brian, I think we're going to use it is pretty unique. Right now, you could go to goosehead.com for the state of Texas, and you can see auto carriers live that you can bind on. But when we think about how we use it over the medium term to long term, we're using it through our partner network that we've talked about that we've been adding.

So we'll go straight at like mortgage service clients, if you will, cross-sell them auto, help them with their home products in the initial loan origination process, loan closing process and as their service books come up for renewal renewing their mortgages -- or lowering their mortgage insurance.

Yes. And ultimately, the service function is what really locks in client retention for the longer term. And the service function that we've built today does what we believe is the best job in the industry of fully licensed US-based service agents who can handle the complexity of hundreds of different carriers in 50 different states.

Tommy McJoynt, KBW.

First question, along the same topic here. How did the majority of consumers that are serviced by Digital Agent 2.0 find their way to Goosehead? Is it through top-of-funnel search engines, through corporate partners? And to go further, do you think Goosehead needs to go integrate with the LLM such as ChatGPT, if that's where consumer eyeballs are going?

Yes. So Tommy, we'll certainly look at that. But we're not necessarily trying to drive a whole bunch of monoline auto business. It may be a way to generate a bunch of short-term premium, but it doesn't actually generate long-term enterprise value because that's not the most retentive business, it's not the highest quality business. And when there's a market downturn, it's typically the channel that gets shut off first.

Our distribution point with the digital agent largely going through the partnership base, gets us access to a preferred set of clients, one where we can solve pain points for the partners and give the carriers, the type of clients that they want at scale and at speed.

We're not going to go into a giant advertising campaign to try and drive eyeballs Goosehead.com, but just the economics don't work in that world. And the advertising space and personal lines is so competitive. I mean you can't watch TV for 10 minutes without seeing four different insurance ads. So that's not an area where that's going to be a good use of capital.

And as we've gone around and talk to the big home carriers, that's not what they're looking for. They just don't want massive volume of low-quality leads. They want very select customer bases, and that's what we're going to deliver to them.

Got it. That all makes sense. And then switching over to buybacks. You saw the announcement of the sort of increased authorization here. Can you talk about your appetite and capacity for buybacks as we go through the year, given where the stock is now what's the cadence of our cash flow generation typically throughout the year that should unlock perhaps more front-loaded buybacks through this year?

Yes. So I would point you to 2025, we used 80% of the full authorization that we were pretty aggressive because we thought the stock was undervalued. Looking at the valuation of where it is today, I think it's probably safe to say we think we're undervalued, hence, the repurchase authorization. We generate a really strong amount of cash. first-quarter typically has the contingent commission bonuses that actually get paid.

So it may be the biggest EBITDA quarter, but it's a big cash flow quarter. And then we've got strong flexibility in our balance sheet because we've been conservative over the long term and being diligent and not over levering. We have a revolving credit facility of $75 million, that's got same deal liquidity. So we have a lot of options, but we want to be aggressive and deploy capital in the way that's going to drive long-term shareholder value.

Mark Hughes, Truist Securities.

Yes. What is the latest number, and I apologize if you gave this earlier in the call, but the investment spending, kind of elevated investment spending in 2026?

Yes. The 2026 number is still the same that we talked about in the third-quarter call. That's $25 million to $35 million of total cash, $8 million to $11 million of that, that hits the P&L. And just for your context, fourth-quarter 2025 there was $2.9 million that hit the P&L in the Q4 related to the Digital Agent 2.0.

Yes. And you had mentioned, I think, $2.3 million potential mortgages available to you with the enterprise sales and other partners, but you're still ramping up. How many of that -- or how much of that potential is active as we sit here today? And what's the cadence for bringing the rest of that online?

Yes. A pretty small percentage of that is actually live so far today through either enterprise sales lead flow type arrangements or through embedded franchises. The embedded franchises that we have live so far today are performing really well. I think the story that having inbound lead flow already built inside your business is going to result in productivity is certainly holding true. But I get really bullish on that channel when I just look at what the potential pipeline looks like and how much we already have under contract and how the implementations are going.

So I would not say the majority of that $2.3 million is already kind of fully sending lead flow through. And then there's always going to be tweaks that we make as we learn on how to best engage with one specific audience. Is there a different marketing collateral that needs to be sent, do we need to adjust how we interact with them to drive conversion.

Understood. And then on the new business royalty fees up 6%, I think, this quarter. you talked about consolidation of the franchises that maybe impact productivity in the short term. You think that will be good for the long term. Anything else?

That category has been a little volatile up 9% in the second-quarter, but up 18% and then up 6% and maybe some of that is just underlying mortgage activity. But anything else that you would highlight around the productivity in the franchise channel?

Yes. I mean we feel actually really good about the health of the agency community. I mean same-store sales was up 19% in the fourth-quarter. As Mark Miller mentioned in his prepared remarks, gross payments to agencies was up 29%. So the franchise community is healthier than what it has been in a long time.

We feel really good about that. I think a really good leading indicator is our agency staffing program. The demand for that is really, really high. Almost higher than what we can actually fulfill. So we've got to put some more resources against that.

But our top agencies kind of that top 200 bucket is growing really, really nicely. And they're kind of more like 25% to 35% same-store sales growth so I feel really good about the direction of the franchise community. Obviously, there can be quarter-to-quarter fluctuations in the overall growth rate of new business royalties, but we're expecting that to accelerate throughout 2026. You can see it in the higher plans from our franchises.

And if I could, one more, the corporate sales headcount, how do you think that will trend in 2026?

Yes. I would expect it to trend up. I mean enterprise sales should grow pretty strong just as we've got to onboard these partners, we want to make sure we have lots on seats to fulfill the lead flow. Traditional corporate sales team; we've seen nice improvements in the agent retention. We've made some changes to the recruiting profile that not get off of college campuses but add additional talent pools of experienced sellers that we traditionally have not necessarily gone after.

And then as we've expanded geographically, and we've got three new offices here in February. We've got one more coming in the second-quarter. I feel good about the direction of the corporate sales team and expect the head count to grow, and I don't expect it to double in 2026, but expect it to grow.

But I think the opening of the new office speaks to how we feel about the product market and our ability to grow the corporate staff.

Yes. And the corporate sales team is super strategic to the long-term vision of the organization. I mean we talked about the franchises that we've launched in the last year, many of them are already in the -- not even just the top 5%, some of them are in the top five of the agency community already. So we really are able to grow what I believe is the best insurance professionals in the industry in-house.

Mike Zaremski, Bank of Montreal.

Back to the producer trend lines. Could you comment on franchise producers. It's been a bit volatile decline just a bit sequentially. I know it's better than expected last quarter. I think we heard you loud and clear about the two franchise consolidation. But how about -- do you expect producers at the franchise to increase at a more meaningful rate as the market opens up?

Yes. Our agencies are really looking forward to hiring in the fourth-quarter, you typically have your lowest recruiting of new producers, just seasonally, you don't necessarily start people going into Thanksgiving going into Christmas. But the demand for new hires is really strong, and I want to continue to push that producers per franchise number. So it was up to 2.1 here in the fourth-quarter.

I still believe 5% is a good kind of medium-term guidepost, continue to drive that up. And I think our largest agency is just about now, and we've got multiple that are over 20, some in the 30s. So the producer count is growing nicely. It's harder for you guys to see it just as the consolidation happens, but I'm feeling really good about the direction of that.

The larger the franchises, the more easily they can hire and onboard people and ramp them up. And that's what we're seeing is this consolidation is allowing the bigger ones to get bigger and have more staff. But it's just -- it's kind of blurred a bit because if you've got consolidation of the really small ones. But most of those small ones are just rolling up in the big ones that are more powerful.

Just directionally, will this consolidation dynamic kind of just work itself out of the system in '26? Or it's more of a kind of ongoing pruning and will be probably may be talking about this in '27 as well?

Yes. We talked about in the third-quarter, probably the next 12 to 18 months. So you might see that a little bit into 2027. It's hard to say exactly because some of this is driven by those franchises themselves, whether they want to continue to operate as a sole proprietor or whether they'd like to join a bigger force. But ultimately, I expect probably the number to start to slow down, but it's still going to be slightly elevated in 2026.

Got it. And lastly, moving to -- you mentioned, obviously, the importance of retention. You can see the -- I think the sequential improvement this quarter. Maybe you can talk about kind of what's embedded in the guidance range you gave in terms of are you assuming retention kind of continues glide pathing up a little bit or a lot or not at all?

Yes. So we're continuing to see client retention improve basically on a daily basis. We look at it down to two decimal points. It's the first thing I look at every single morning. It's the most important piece of the business.

So it's nice to see the trend continue up. You could probably assume the top end of the guidance range contemplates continued improvements in client retention, honestly, acceleration in the second half of the year. The bottom end of the guidance range would probably imply less improvements to potentially stalling in the client retention numbers.

We think the market is going to continue to improve. Pricing is going to likely slowdown, which should naturally improve client retention. And then we've put so much effort into our client-facing tools and the service function, we believe we should be able to drive it up.

Katie Sakys, Autonomous Research.

I wanted to circle back to the Net Promoter Score for the quarter. And normally, I wouldn't focus on this metric so much. But if I think, the lowest that we've seen in quite a while. And I just wanted to ask for a little bit more color on perhaps what impact about this quarter?

And b, circle back to the discussion of the impact of the rollout on the Digital Agent 2.0 platform and how that has sort of impacted your clients view of interacting with Goosehead and really how you foresee the further rollout of the Digital Agent 2.0 platform competing with other similar platforms from your competitors?

Sure. Let me take this one, Katie. And I'll just start by saying just a reminder, the NPS score is a trailing 12-month metric. So it still reflects a lot of the price increases that you saw early last year, and they started to taper off like third-quarter of last year, but people were in shopping mode at that point and very dissatisfied with the general broader market of insurance in general, just when we get the type of price increases they saw. So I would say it's a general affordability kind of sentiment sort of measure.

We also started working in internally a CSAT score, which instead of measuring how they felt about would they recommend Goosehead to a friend, that's the NPS score. We're starting with the CSAT score, which is how is your interaction with your Goosehead agent that you just had. That score has been on a 5-point scale, about 4.2% since we started it and holding steady. So I don't think there's been a change there. And the other thing that we look at is just retention.

And retention has consistently moved slightly up every single quarter what I think is another measure of how people are feeling about our service levels. So overall, I feel very good about it. And when you think about the tools that we've put in place with our new mobile app is probably the first thing in our Lilly, our AI automated agent. I think those two things right there have really helped client service overall.

Got it. Okay. I appreciate that color. And then I guess thinking about the year ahead and your expectations for productivity growth. Can you kind of delve into more color on those additional pools of talent that you guys are reaching into to further support your recruiting efforts and how much additional tailwinds to productivity, those more seasoned producers might be able to provide relative to like the typical profile of a traditional Goosehead new hire?

Yes. So as we go after people who have a little bit more sales experience, what I anticipate is going to happen on that is, a, the retention of those agents should be better because they're not learning whether they want to be in sales or not on our dime. They already understand if that's what the career path that they want is. I don't necessarily think there's a magic bullet between hiring somebody that's off of a college campus versus hiring somebody that's got some experience as long as you're picking the right person who knows that they want to be in sales.

And we've made a lot of investments in the training program and the management intrastate over the last six to eight months to help improve agent productivity in the corporate sales force. You can see that in the less than one-year corporate agent productivity.

And then as you look into 2026 in the third-quarter call, we talked about smoothing out the hiring time frame, which is a little bit different than what we've done in the past. That should also aid both in productivity as well as in retention of those agents because you're not launching so many of them at one time where a manager has the potential to get overloaded.

Andrew Kligerman, TD Cowen.

Okay. Just some quick follow-ups on the earlier questions. On the one with regard to the guidance, of low double to high single digits or 10% to 19%. And you touched on retention being the key variable there. What's kind of your bias thinking? Do you think retention is.

Yes. I think retention builds up. We're seeing that already. I don't have a crystal ball for what happens in the second half of 2026, but my baseline assumption would be retention continues to go up.

It's highly correlated with pricing, and we're starting to see pricing stabilize. So that would lead that and we've put a lot of extra efforts into improving retention, just better service.

Got it. And with respect to the AI questions earlier, and I completely appreciate your points about the complexity of products and how you need people to do that. But I think the market's concern is around five years from now and years from now. So does your thesis still hold 5 and 10 years from now, where do you see that disruption coming?

Yes. So Andrew, I think if you're looking out 5 or 10 years from now, the company that is best positioned to leverage AI, I believe is us. because we've got access to proprietary data that we've built over 20 years that is not only just the generic publicly available data that you may have from just doing advanced Google searching on, hey, your ZIP code generally has replacement cost of X. Now we've got almost 2 million policies across all 50 states across a broad set of carriers that we're building the infrastructure right now to leverage that to be able to make the best possible decisions on behalf of clients.

So if you're rolling this for 10 years from now and say, AI is going to be the main distribution platform, which that may or may not be true, even if it is, that should be through us. I think we're the ones best positioned to capture that by far.

Andrew, I just -- the carriers don't give access to binding authority to just anybody. And that trust that we've built up over this time makes us very, very unique and well positioned even over the long term.

Paul Newsome, Piper Sandler.

Also a little bit of a follow-up. I apologize if you already hit this or maybe you could just expand a the guidance or at least you're thinking for the next year or so, does that have any view on product availability changing over the time? I know that was at one point an issue with sales. And maybe just some general thoughts on the -- are we at the point where everyone is open. It's just not an issue? Or is there some sort of expectation that maybe it continues to get even better?

Paul, it's Mark. I would say on the auto side, it's been wide open for a bit now. The home probably 50% open towards the end of the year, pretty wide open right now. There's not a market that we operate in that we're having a significant product availability issue; carrier appetite is returning. There might be slight restrictions on some of the carriers where you have to bundle the product or something like that. But generally speaking, we've got product in every market right now.

Yes. So as you're thinking about guidance, there's not -- it doesn't really contemplate on either end of it, changes in the product environment. I don't necessarily see that coming in 2026.

(Operator Instructions)

Ryan Tunis, Cantor.

First question, I want to make sure I heard this correctly. It sounded like in your discussion of '26 objectives that you're assuming a slightly lower take rate on the contingents. So that's question one. And if that's right, I was wondering if your margin guidance, excluding contingent commissions allowance for any improvement.

Yes. Ryan, generally, we've had really strong contingent commission years the last two years in a row, 2024 and 2025. That's probably the base case assumption going into 2026, just given how that can impact both revenue and earnings in one year given that it is currently February. There's plenty of things that can still happen in the year that can swing that one direction or another. I don't think it would be prudent to just assume it's going to be eight or more basis points.

So internally, that's what we're kind of planning towards that 60 to 85. We've talked about forever that long-term average is 80 to 85 basis points and then we've shown that a couple of years in a row. But I want to make sure we give ourselves enough degrees of freedom in the event that there is some kind of catastrophic events, if there's a bad hurricane season, if there's wildfires, things like that.

So any comments on the -- any chance the margins can expand like if we exclude those? And I'm just wondering how much the decel and contingent is weighing on that margin guide.

Yes. No, the margin guide is really more around the core investments that we're making into the Digital Agent platform, into the partnership space. And just as you think about cadence and pacing of that throughout the year. There's a couple of factors I want to make sure we bring up. One, and we talked about the year-over-year comparison on changes in pricing, impacting the first half of the year more than it does in the second half of the year.

And so that's flowing through the renewal block can impact profitability as well as the revenue growth rate. And remember, we talked about hiring corporate sales agents more evenly throughout the year, which would mean that gets floated a little bit into the P&L. But generally expecting as the renewal block continues to grow and retention improves at the second half of the year, you get better year-over-year margin.

But I think if you look at it ex contingents, you're probably still expecting margin compression because of these investments that we think are going to drive long-term growth and shareholder value. help us drive towards a real industry leadership.

I guess just trying to frame these investments even going on for a little bit of time. Are you guys confident that looking out in the '27, '28, this morph into a real margin expansion story? Or is it still kind of wait and see in terms of what you might have to invest in?

Ryan, we're pretty confident that long term and at scale, this is very accretive to the mortgage profile. And to be clear, this isn't kind of infinite money pit that you see a lot of AI investments. This is very thoughtful about what we're investing in the specific teams, what we anticipate the return profile to be. So we feel really confident this is an investment that is most likely to pay off. And it is a defined time period; it's not an infinite kind of black hole of investment.

Yes. So at scale, it's going to be able to drive significant growth and significant margin opportunity.

And then just last one. I think just looking at the franchise commission rate that's come off over a point since 2023. I guess, first like how focused are you on trying to get those commission rates back up here in 2026? Or is that going to be somewhat sticky?

No. I think be a focus for us and now is absolutely the right time to be having those conversations. If you look at the last couple of years. And we always want to be a good partner and back our partners play, and we expect our partners to keep the same. So the last few years has been a challenging time to be an underwriter.

That's not necessarily the case right now. And so as you look at ways to drive the most profitable growth for a carrier, investing in your distribution channel that's been a good long-term partner for you is a good way to do that. And if you think about the franchise business specifically, there's a lot in California.

There's a lot in Florida. So over the last couple of years, that's been a lot of business to a California Fair plan and Citizens, both of which have much lower average commission rates in the market because they're not necessarily trying to incentivize you to write business on them. And then we've seen the uptick in the excess and surplus lines market over the last several years.

And I don't necessarily think that's going away. I think the growth rate probably starts to trend down. But from a positive perspective in our book, you're seeing E&S markets start to behave a lot more like the admitted market, both from an agent kind of access from a client understanding and importantly, from a compensation perspective.

Pablo Singzon, JPMorgan.

So first question, you've framed the high end and low end of guidance in terms of drivers such as pricing and retention. So should we take your comments about the first half core revenue growth being in low double digits as a representative of the midpoint? Because yes, it seems like a steep trajectory in the second half to get the mittens for the full year. So just wondering if you could comment on that point.

Yes. I mean we're expecting acceleration in the second half of the year through head count growth and really all three distribution channels, more partnership efforts coming online and continued improvements in client centrum.

Okay. But double digits for the first half in your view that sort a realistic midpoint like level for guidance, right? In other words, you're not being too conservative in setting that expectation for the first half?

Yes. I mean, remember, our philosophy that we've reiterated a lot of times is we try to be as honest as possible in our guidance and guide you to what we actually believe is going to happen.

Okay. And then next question, just on the Digital Agent 2.0. I guess is the plan to roll it out nationally ex partnerships. And I'm curious if you're actually able to measure the business you're getting from it if it's different or incremental from business that your agents would have generated anyway?

Yes. I mean the policies we balance so far are monoline home clients who have -- many of them, at least our model home clients who have gone and found an additional auto policy. So an agent was basically had no incremental effort. It now has grown their individual book of business and really received full compensation on that. I want agents engaged and excited about the digital agent, and we will be rolling this out more broadly across additional geographies as we continue to go take share in other markets.

Now it's probably not going to be something that's at least all 50 states of blitz, right? We're not going to try and sprint to South Dakota. It's obviously, in order of prioritization to make sure that we can cover the right geographies where, a, both our carriers want us to be and there is significant demand in the market. and there's good overlap with our partner client base.

Right now, Pablo, as I said earlier, we're focused on getting auto carriers on in Texas, which we've been successful in doing that. We've got a little bit more work to do there. At the same time, we're building out the connections to the home carriers for Texas, and we'll test and pilot the product in Texas and then a quick follow-on to other states where we can just replicate what we've built.

Mike Zaremski, Bank of Montreal.

Just a quick one. On premiums coming out of Texas, I think last update, that was at very high 30s. And just curious if that's -- do you expect that to stabilize and go back up? Or are we still kind of mixing out of Texas a bit?

Yes. We're continuing to diversify outside of Texas. For the full year, Texas was 40% of the premium for the fourth-quarter. Texas was 38% of the premium. So that's been a really concerted effort by us just reduced dependency on the Texas market. If you think about the last several years, that was probably the area where there was the most product construction.

So I just want to make sure we've got appropriate coverage in the right geographies where carriers want to be, where agents can be successful. So you should probably expect to see the Texas proportion of total written premium continued to decline as the rest of the country grows.

And I don't see any further questions in the queue. I will pass it back for any final comments.

Sure. I just want to thank everybody for taking the time to join the call today. As you can see, it's an exciting time to be in the personal lines brokerage business, and we look forward to talking to everybody again in April with our first-quarter results.

And this concludes our conference. Thank you for participating. You may now disconnect.