Earnings Call Transcript
Goosehead Insurance, Inc. (GSHD)
Earnings Call Transcript - GSHD Q4 2020
Operator, Operator
Welcome to the Goosehead Insurance Fourth Quarter 2020 Earnings Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Dan Farrell, VP, Capital Markets for opening remarks. Please go ahead.
Daniel Farrell, VP, Capital Markets
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; and Mark Colby, Chief Financial Officer. 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 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.
Mark Jones, CEO
Thanks, Dan, and welcome to our fourth quarter 2020 earnings call. I'll provide a summary of our results in 2020 and highlight our overall value proposition and unique competitive advantages in the market. I will then hand it over to Mike Colby, our Chief Operating Officer, to update you on some of our technology and human capital investments. Our CFO, Mark Colby, will then go into greater detail on our fourth quarter results and outlook for 2021. We delivered an outstanding fourth quarter which capped off a phenomenal year for Goosehead Insurance. We continued our exceptional record of profitable growth in 2020 with premiums placed up 45%; revenues increasing 51% and EBITDA up 59% for the year. We also kept our foot firmly on the gas pedal investing heavily in people and our disruptive technology platform, which we believe will drive strong growth in 2021 and beyond. But we are pleased with our success in 2020. It is important to remember that we've delivered consistently high levels of growth since the inception of our company. So driving high growth is not a recent phenomenon for us. Over the last 10 years, we've grown premiums placed at a CAGR of 37%. In more recent years, we've been able to drive accelerating growth through our technology and human capital investments, while leveraging the benefits of our accumulated experience. Over the last 3 years, which represent our history as a public company, we've grown premium at a CAGR of 45% and ASC 606 revenue at a CAGR of 38%. Our investments have been meaningful, consistent and disciplined, having grown our franchises and corporate agents at a CAGR of 51% and 48%, respectively over that time. We are very proud of our consistent strong growth. It validates our unique and time-tested strategy and business model, the quality and dedication of our team and the strength of our company's culture. We earn our growth by creating value for others. To fully appreciate the value of our model, there are three lenses through which you can view us from the perspective of: one, the insurance buyer; two, the agent and three, the insurance carrier. First and most importantly, insurance buyers. The people at the center of our universe, desire to have the right coverage based on their risk tolerance at the lowest possible price, written with a reputable company who will respond quickly and fairly when they need to file a claim. Desires that we believe only an independent insurance agent can best fulfill, and then wanted to accomplish this in a simple, fast and convenient way that leverages technology for an effortless client experience. We have built a model that combines a choice product portfolio, knowledgeable sales and service agents and proprietary technology to deliver on these expectations. This approach has resulted in 88% client retention, a level we believe is industry-leading. Next, the agent's perspective. The more than 100,000 Captive Agents in the U.S are facing acute pain points in their business model. These agents lack product options in the single carrier model, have ineffective marketing playbooks, bear costs for expensive retail store locations, are generally working with severely outdated technology and spend a significant portion of their time servicing existing clients as opposed to growing their book. And the independent agent channel is comprised of small mom and pop businesses challenged in their ability to scale their agencies. Agents on the Goosehead platform immediately gain access to a broad portfolio with many of our more than 140 carrier partners, a proven and highly cost-effective go-to-market strategy of developing referral partner relationships in the home buying process, a disruptive proprietary technology and the best service centers in the world, which allow the agent to focus on growth of their book of business. Finally, insurance carriers are seeking profitable growth and their focus is on maximizing the ratio of client lifetime value to acquisition costs. Carriers see the benefit of distributing through independent agents. But that strategy usually comes with a great deal of complexity and costs in working with thousands of independent representatives with no standard training, varying levels of expertise, and no quality control functions. Working with Goosehead allows them to have scale distribution with a single point of contact. We handle all the training and enforce standards through a centralized quality control team that reviews 100% of the policies issued. We continue to make significant efforts integrating carriers onto our technology platform to make interactions with them as seamless and efficient as possible. Given our go-to-market strategy of leading with homeowners insurance, our client base tends to have more favorable characteristics of better loss experience, higher retention and multiple policy needs. Many direct and Insurtech carriers have tried to build models which eliminate the complexity of working with independent agents. What most have found is that a large portion of the market still prefers engaging with an agent in the sales process, particularly with homeowners insurance. Goosehead allows these carriers to access a very attractive segment of the market without the traditional complexities, and many of the direct Insurtech carriers are currently on our platform. Now, let me discuss our full year results in a bit more detail. I'm very pleased with our execution across all aspects of our operations in the quarter and full year. We had tremendous success in adding significant high quality talent to our organization in 2020. Corporate sales agent headcount and total franchise count grew 47% and 55% over the prior year respectively, and we expanded meaningfully in other parts of the organization including our franchise sales, service and technology teams. Overall employee count was 949 at the end of 2020, up 59% from 595 at the end of 2019. Total premiums placed for the year, the key leading indicator of future core revenue growth, were $1.074 billion, an increase of 45% over 2019 driven by strongly business growth and continued high levels of retention. Revenues were $117 million, an increase of 51% and core revenue increased 41% over the prior year. We achieved this strong organic top line growth for the year while delivering EBITDA of $27.8 million, an increase of 59% compared to 2019. We ended the year with 1,468 total franchises, an increase of 55% from the prior year, while operating franchises increased 45% to 891. The fourth consecutive quarter of accelerating year-over-year operating franchise growth. Based on past experience, we are confident that our significant number of signed and operating franchises with less than 1-year of experience bodes well for predictable and powerful growth for many years to come. Corporate sales agent count at the end of the year was 364, up 47% versus the year-ago period. It's important to remember that the majority of our corporate agents are added in the second and third quarters of the year, coinciding with college recruiting calendars. The ramp up of our new offices in Charlotte, North Carolina, and our second Houston, Texas office continue to go well. In 2021, we'll be further expanding our corporate sales footprint with new offices in Denver, Colorado, San Antonio, Texas, Henderson, Nevada and another office in the Midwest region. With our corporate and franchise expansion we had a presence in 43 states at the end of 2020, covering over 97% of the U.S population, up from 35 states at the end of 2019. The growth and expanded footprint of our corporate channel plays a significant role in driving growth and profitability in the franchise channel. The corporate channel is a testing ground for new technology and development of best practices, as well as training and mentoring resources for the franchise channel. We've previously highlighted the success of our virtual sales coaching program and have continued to expand this effort through 2020, helping drive significant increases in productivity among franchise participants. We continue to manage the corporate and franchise channels as one integrated whole. Efforts and investments in the corporate channel are integral to our overall success as an organization and form a crucial part of our competitive moat. We're also actively expanding hires across the broader organization to support our future growth and innovation. Our recruiting team currently stands at 98 compared to 61 individuals at the end of 2019. In 2020, we nearly tripled our information services development team, information systems development team, which is enabling significant progress on our technology innovation roadmap. Our omni-channel approach combined with our world-class service team is having a meaningful positive impact on the overall insurance buying and service experiences evidenced by our net promoter score of 92 from 89 at the end of 2019. As a reminder, our net promoter scores are higher than any company we've been able to identify, while our cost to deliver this extraordinary level of service are roughly one quarter of industry best practice. Let that sink in for a minute. That service in the world, at a quarter of industry best practice cost. We believe our technology and human capital investments will continue to drive the client and agent experiences, further strengthening our competitive advantage and strengthening our client retention, which currently stands at the industry-leading level of 88%. I am extremely excited about the long-term prospects for our business. The benefits of investments we made in the years preceding 2019, clearly began to emerge more meaningful in our growth rates in 2020 and we believe that the people and technology investments we made in 2019 and 2020 provide us with great visibility into strong growth for the next several years. We will remain aggressively on offense and will further our investments through 2021 and beyond as we look to expand our competitive advantage into the enormous U.S personalized addressable market. I want to thank our entire Goosehead team for their tireless efforts and enthusiasm through an unprecedented year. Our unmatched talent is what makes it possible to consistently deliver for our clients, referral partners, carriers and shareholders.
Michael Colby, COO
Thanks, Mark and hello to everyone on the call. 2020 was an era of unprecedented challenges facing businesses around the world. But these challenges also provided an opportunity to demonstrate the strength of our strategy and the expanding competitive moat we're building in the marketplace. Despite the unique operational challenges the pandemic presented, we were able to meet or exceed all of our targeted key performance indicators set at the start of the year. Further validating the significant technology and human capital investments, we made over many years and positioning us to be responsive, agile and externally focused on our clients and referral partners. Our cloud-based technology platform allowed us to pivot to an entirely virtual work environment rapidly and seamlessly, and then gradually transition back to a hybrid in-person work environment as health conditions and recommendations evolved. We now have virtually all of our workforce in the office for at least 50% of the work week. We put a priority on the successful training and onboarding of our new hires and have fully resumed in-person training for our new corporate recruits. We also provided an option for franchisee trainees to attend in person. While we feel an in-person work environment remains critical to maintaining the strength of our culture and successful onboarding of talent, there are many lessons that have been learned in the pandemic. And our operating model can look to integrate the best practices and benefits from both in-person and virtual work environments as we go forward. Now, let me turn to some of our 2020 accomplishments and efforts moving forward. We made substantial and consistent progress on our technology roadmap in 2020, improving on our already powerful platform that agents utilize to engage with clients and carriers. We remain focused on providing an omni-channel experience to interact with our clients in the way that they prefer. In late 2019, we implemented our online client portal and in 2020, we saw over 250,000 clients engage us via the direct portal. We also saw a 10x year-over-year increase in client engagement through chat and SMS channels and implemented an outbound communication engine, enabling us to build journeys involving email, SMS, push notifications and social media. Clients that have engaged through these digital channels have averaged a net promoter score of 94. We also delivered many enhancements to our comparative rater utilized by agents adding products such as flood, jewelry, renters and motorcycle to the rating platform during the year. While these were products that we have sold previously, the integration onto the comparative rater allows for easier cross selling opportunities for our agents, and ultimately improves client retention as we increase the number of clients with multiple products. During the year, we expanded our total carrier relationships to over 140 and implemented many improvements to back end carrier integrations. This is the ongoing blocking and tackling that is critical to driving efficiency and enhancing the client experience. We are increasingly utilizing carrier intelligence data on market share, growth and rate filings to inform strategic decisions in our product portfolio. In total, we added over 2,500 new features and enhancements to our platform spanning all areas of the business from sales and service to finance and human resources. We continue to invest in our technology development team to accelerate these efforts, tripling the size of our development team in 2020. Looking ahead to 2021, we're excited about a number of initiatives to further enhance the client experience. As we said previously, in 2021, we will be launching our client facing quoting platform, allowing clients to engage in a choice shopping model directly while still maintaining the benefits of a knowledgeable agent in the background. Additionally, we are making further improvements to our client portal and we'll be launching our mobile app to allow for one tap access point for clients. We will also be expanding our use of artificial intelligence to improve retention, coding accuracy and recruiting efforts among other areas. Our significant growth has been driven largely by our focus go-to-market strategy of engaging with mortgage and real estate professionals, adding value at the point of the real estate transaction. We continue to make enhancements to our proprietary mortgage and real estate partner database that we will leverage for years to come. About two-thirds of our new business is generated from this go-to-market strategy, and there is substantial runway for future growth in this area given our small share of the roughly 8 million new housing transactions annually. While we generate about a third of our new business from other client referrals currently, there are substantial actions we can take over time to expand our new business through other avenues beyond our traditional go-to-market strategy. We recently announced the addition of Ann Challis as Chief Marketing Officer. Ann will work to further develop our enterprise-wide marketing strategy including our brand strategy, sales channel enablement and digital engagement. I want to join Mark in thanking our entire team for an absolutely outstanding effort in 2020. We believe, we are exceptionally well-positioned to drive continued strong growth in 2021 and beyond.
Mark Colby, CFO
Thanks, Mike, and good afternoon to everyone on the call. For the fourth quarter of 2020, total written premiums, the key leading indicator of our future core and ancillary revenue growth increased 45% to $285 million. This included franchise premium growth of 52% to $202 million in corporate segment premium growth of 31% to $83 million. For the full year, premiums also grew 45%, exceeding the high end of our initial guidance range of 32% to 40% growth. This growth has been driven by continued high retention rates, strong new business generation, increasing agent productivity in the franchise channel and by leveraging the resources and intellectual capital of a corporate channel. The continued shift in our mix of business towards the faster growing franchise channel implies significant embedded future revenue growth, as new business premiums convert to renewal premiums after year one, at which time our royalty fees increased from 20% to 50% for ongoing renewals. At quarter end, we had over 713,000 policies in force, a 48% increase from one year ago. Revenues were $34.7 million for the quarter, an increase of 48% from the year-ago period, while core revenues increased 46% to $25.7 million. Ancillary revenue, which includes contingent commissions, grew 63% to $7.5 million for the quarter, and more than tripled to $16.9 million for the full year. We had a tremendous year for contingent commissions, driven by COVID-related lower loss ratios with our carriers. And now we'll discuss our outlook for 2021 contingent commissions shortly. For the fourth quarter, franchise channel total revenue was $16.9 million, an increase of 54% from the year-ago period. Core revenues in the franchise channel were $10.8 million, up 55% from a year ago with growth being driven by increasing franchise count, improving productivity and continued strong retention. In Texas, during 2020 new business production per franchise with more than 1-year of tenure was up 27%. And we continue to see opportunity for additional productivity improvements, as we further leverage our corporate agents in training and mentoring efforts. At the end of the fourth quarter, we had 1,468 total franchises, up 55% from the prior year, and 891 operating franchises, up 45% from a year ago. Non-Texas operating franchises now represent 74% of our total operating franchises compared to 68% a year ago. We are continuing to invest in our recurring team, which currently stands at 98 people and our future pipeline remains very strong. Corporate channel revenues were $17.7 million in the fourth quarter, an increase of 43% from the year-ago period. Core revenues in the corporate channel were $14.9 million, an increase of 40% from a year ago, with growth driven by an increase in agents and continued high levels of retention. Corporate sales headcount at the end of the fourth quarter was 364, an increase of 47% from the year-ago quarter. As a reminder, because of college recruiting for the corporate channel, the summer months are historically our largest for corporate sales onboarding, with the fourth quarter and the first quarter of the year having limited new agent additions. We continue to invest in the success of our franchise channel agents via our corporate agents, through our virtual sales coach program. Our corporate agents' virtual coaching efforts help drive an increase in productivity of over 30% among franchise participants. This is a highly leveraged area of investment not only for productivity gains, but further retention impacts from both our franchisees being more successful, and our corporate agents having additional coaching opportunities, leading to attractive career paths in leadership. Despite the increasing demands, we are putting on our corporate agents in training and mentoring of the franchise channel. In 2020, our corporate agents with more than one year of experience, were able to maintain their already exceptionally high levels of new business productivity. Total operating expenses for the fourth quarter of 2020 were $29.2 million, up 73% from $16.8 million in the prior year period. The increase from the prior period was due in part to an 81% increase in employee compensation and benefits expensed related to ongoing investments in our corporate agents franchise sales team, and information system developers. These investments should fuel our growth for many years to come. Also, strong performance from our corporate sales and recruiting teams during 2020 led to higher variable compensation for the year, primarily during the fourth quarter. General and administrative expense increased 55% as we continue to expand our real estate footprint and invest in our technology roadmap with enhancements to our client-facing portal, which we expect to unveil in 2021 and numerous additional carrier integration projects. We also continue to invest in our finance and accounting function during the year to meet our Sarbanes-Oxley requirements. Adjusted EBITDA for the quarter was $7.9 million compared to $7.5 million in the prior year, primarily due to the difference in timing of contingent commissions from 2019 to 2020. For the full year 2020, EBITDA was $27.8 million, an increase of 59% compared to 2019, with a 24% EBITDA margin for the year versus 23% a year ago. Given the volatility and timing differences that can occur with expenses from quarter to quarter, we encourage investors to focus on a full year, we're trailing four-quarter basis. As a reminder, our business model has natural operating leverage, and should continue to see gradual margin improvement over the long term. But we do not manage the business on a short-term quarterly basis. We focus on maximizing overall profits over the long term, and we are continuing to make investments for future growth that will have a moderating impact on near-term margin growth. Our business continues to generate significant cash with operating cash flow for the year of $24.6 million, an increase of 16% compared to 2019. As of December 31, 2020, the company had cash and cash equivalents of $24.9 million, and an unused line of credit of $19.7 million. Now looking ahead to 2021. We expect the total written premiums placed to be between $1.48 billion and $1.55 billion, representing organic growth of 38% to 44%. Total revenues for 2021 are expected to be between $144 million and $155 million, representing organic growth of 23% on the low end of the range to 32% on the high end of the range. This assumes continued strong growth in core revenue, partly offset by potential challenges to ancillary revenue growth from 2020. Ancillary revenue which consists primarily of contingent commissions, can swing considerably from year to year. Contingent commissions, which benefited from low COVID-related loss ratios were 155 basis points of total written premium in 2020, representing our best contingency year on record. However, in 2019, contingencies were 73 basis points of total written premium for the year. As such, we encourage investors to look at trends over the long term. Also, while it is still too early to know the impact of the recent winter storm in Texas, the event could have an impact on contingencies in 2021. Regarding the quarterly timing of contingent commissions, we would expect the majority of contentions to be recognized in the back half of the year, with the fourth quarter being the strongest in the first quarter showing minimal revenue from contentions. As a reminder, while contingent commissions can be difficult to accurately predict this early in the year, our core revenue growth represents the long-term business trends and is much more transparent with stable growth rates. We are confident that our strong 2020 and the significant investments we made during the year position us well to deliver consistent strong growth in both revenue and earnings for many years to come. I would like to thank everyone for listening.
Operator, Operator
Let's open up the lines for questions.
Ryan Tunis, Analyst
Hey, thanks. Good evening. I guess my first question is just trying to unpack the total written premium growth guide for next year. I noticed that coming into 2020, the midpoint of your guide coming into 2020 was actually a little bit higher than your operating agent growth in '19. But if I look at the midpoint of the total written premium growth this year, it's 42%. That's below the mid 40s operating franchise growth that you've achieved here in 2020. So I just tried to get a better feel for what you're assuming there. I wouldn't think you assume less productivity, but just what's going into that 42.5% midpoint?
Mark Jones, CEO
Yes, good question, Ryan. And I guess first of all, we always tried to be really disciplined and realistic on how we give guidance. We want to make sure that we can deliver for you guys. There's a lot of factors that go into that number, geography tenure franchisees, etc. We're definitely not necessarily planning on any kind of productivity decreases in 2021. But we kind of model all those things out for the year. The range we give is where we feel comfortable that we can achieve this year. If you look at our geographic expansion, the overwhelming majority of that expansion is coming from outside of Texas. And insurance rates are generally lower outside of Texas. So as that mix of business changes over time, you see a slight, it's not a degradation, but it's the revenue profile is just a little softer.
Ryan Tunis, Analyst
Got it? And I think I heard you give a productivity statistic for agents greater than one year within Texas. Curious what that looks like outside of Texas. And along those lines, can you remind us what was your total market share of Texas originations? And maybe just some indication of like some of your other new big states like Florida, Illinois, California, like what are your mortgage origination market shares look like in some of those newer states as well?
Mark Colby, CFO
Yes, so we'll have a lot more detail in the 10-K that's coming out this week about the productivity in Texas outside of Texas less than one year greater than one year. So I would say kind of wait and see on there. That the point of us getting that number for Texas. Texas is just to show how well we were able to move the needle by applying our corporate resources to our franchisees nationally, but especially in the state of Texas.
Mark Dwelle, Analyst
Yes, good afternoon. A couple of questions. In the contingent commissions. I mean, you've mentioned combined ratio, what are the main inputs to that drive? The contingency is there. I mean, I know combined ratio is certainly part of it. But are there other volume and other factors that go into play as well?
Mark Colby, CFO
Yes, volume growth rates are a part of almost every contingent commission plan we have.
Mark Jones, CEO
Underwriting profitability.
Mark Colby, CFO
Underwriting profitability is a …
Mark Jones, CEO
Loss ratios are related to the buying ratio.
Mark Colby, CFO
Loss ratios are part of the majority of our contingent commission plans as well.
Mark Dwelle, Analyst
Okay.
Michael Colby, COO
We haven’t assumed the same kind of lost profile for 2021 as we saw in 2020 because the country was shut down for a significant part of 2020, which benefited our contingents. At this point, we honestly don't know what 2021 will look like. We've tried to be as realistic as possible in estimating what contingents will be. However, that remains a major uncertainty, which is one of the reasons we encourage people to focus on two aspects to understand the underlying health of our business. First is premium growth, as it will most reflect long-term revenue and core revenue growth. The other aspect is cost recovery revenue, which comes from franchise fees. These fees are not intended to be profitable; they are meant to cover the costs of recruiting, training, and supporting new franchises. Ancillary revenues are contingent, which can be unpredictable. For instance, we had 155 basis points of premium from contingents in 2020.
Mark Colby, CFO
73.
Mark Jones, CEO
So they can swing. There are elements of it that are in our control the overall volume and the growth rate, but there's not a lot we can do about losses.
Mark Dwelle, Analyst
That makes sense. I mean, clearly the auto loss ratios are going to be probably all but impossible to duplicate. I mean, the homeowners, it's far too soon to tell and indeed, based on recent weather, which I'm sure you know well. You're probably off to a bad start, rather than a good start. So that'll make sense.
Mark Jones, CEO
But it's only February. I mean, it's just a huge question mark. We just don't know.
Mark Dwelle, Analyst
Agreed. That leads me to my second question. The state was significantly affected by the weather, and a lot of your agency base is located there. You mentioned the potential impact on contingents. Are there any expenses or costs you're facing to manage claims and serve your customers during this challenging time?
Mark Jones, CEO
So Mark, regarding the recent weather event in Texas, we express our sympathy for our customers, employees, and everyone affected across the state during this unprecedented situation. We view the customer demand as an increase in backlog rather than a loss in new policy sales, and we believe we will be able to keep up as we move into late February and March. Our main focus right now is handling the surge in demand at our service centers. Analysts are anticipating that the losses could be comparable to those experienced during Hurricane Harvey. Our team is dedicated to providing quick service to our customers, especially those who need assistance and have claims. We have a strong track record in dealing with various weather events across the country, which makes us confident in our ability to respond effectively. This situation highlights our business continuity strategy, including enabling our staff to work virtually as we did during the pandemic and expanding our service operations in different regions, such as our growth in Henderson, Nevada. We are very confident in our capability to manage through these types of incidents. Historically, during Hurricane Harvey, even when we experienced a surge in call volume, our net promoter score actually went up, demonstrating the effectiveness of our service centers, team, and leadership in handling such challenges.
Mark Colby, CFO
I'll let Mark hit more on the cost implications. Yes, we really didn't see any significant marketing effort. It's more about reallocating our teams to prioritize claims instead of other areas. Therefore, I don't expect any substantial costs to arise from this.
Mark Dwelle, Analyst
Okay, that's helpful detail. And then one last question, if I could. You mentioned a couple of times about the planned rollout of the customer facing enhancements to the customer facing portal. Do you have any more detailed guidance as to kind of when that's going to roll? Is that sort of a second half? Is it any minute now or anywhere in between, I suppose. You say anything that might help us to think about when that one kid might hit the tape.
Mark Jones, CEO
Yes, it's all we're guiding to Mark on that is 2021. And as we've said before, there's nothing within our development capabilities that would get in the way of any type of progress there. But we're relying on multiple carriers across the country to accomplish what we're setting out to do there. But we're very, very confident that we'll be able to present this in connection with a completely new rebuild of our kind of digital engagement platform that'll be led by Ann Challis, our Chief Marketing Officer. We're very confident we can bring this to market in 2021.
Mark Dwelle, Analyst
Got it. Thanks. That's all the questions.
Operator, Operator
The next question comes from Meyer Shields with KBW. Please go ahead.
Meyer Shields, Analyst
Great. Thanks so much and assuming that everyone is doing well, despite the recent bad weather in Texas. If I can drill one more question on the ancillary revenues. Is there a significant margin differential between those revenues and core revenues?
Mark Jones, CEO
Yes, I mean, they're very unreliable, but they're very high margin. I mean, straight to the bottom line. We don't share those costs with our agents. So, yes.
Meyer Shields, Analyst
Okay. That makes sense. Mark, when you were in your opening comments, you talked about hitting 140 carriers and having a number of Insuretech or direct players on the platform, or something you can talk about. Is there a point when there are too many carriers and there are inefficiencies from your perspective?
Mark Colby, CFO
Our approach has always focused on collaborating with the most significant carriers rather than trying to work with all 433 underwriters or personalized underwriters in the United States. We have chosen very strategic partners and need to be highly aware of local market demands. For instance, the products we offer in the Gulf Coast region differ significantly from those in South Florida, and likewise from what is available on the West Coast or in areas prone to brushfire risk in California. When we discuss our carrier portfolio, we are considering a wide range of risks across the nation, including various product lines such as flood insurance and jewelry insurance. Typically, any single agent in their market would be dealing with about 15 to 20 carriers, and within that, they tend to focus their production on fewer than 10, with the rest catering to niche risks. Our aim is to partner with the most reputable underwriters that can cover the entire spectrum of personal lines risks in the United States, regardless of where agents are situated.
Mark Jones, CEO
Meyer, we are also in 43 of the 50 states, but we covered 97% of the U.S population. So I wouldn't expect this run rate to continue forever of us just adding carriers. So that would probably start to normalize over time.
Michael Colby, COO
The product portfolio is very dynamic. So the carriers that make up kind of our new business profile today look very different than 5 years ago. So as carrier appetites change that plays into kind of your product strategy, as well.
Meyer Shields, Analyst
Okay. That's actually perfectly into my, I guess, final follow-up and that is, as the number of carriers expands or stabilizes, does that itself have any impact on either the basic commission, the core commission revenues or contingent commission arrangements?
Mark Jones, CEO
Well, I mean, I think theoretically, if we were to slow down growth, you would see underwriting profitability improve, which may help your contingents, I mean, it would hurt you on the growth side, but we have no intention on slowing down growth. We feel like the commission rates and the compensation agreements that we've negotiated with our carriers across the entire product spectrum and across the country are very stable, though.
Meyer Shields, Analyst
Okay. That makes sense, perfect sense. Thank you very much.
Operator, Operator
The next question comes from Josh Shanker with Bank of America. Please go ahead.
Joshua Shanker, Analyst
Good afternoon, everybody.
Mark Jones, CEO
Hi, Josh.
Joshua Shanker, Analyst
A quick question and it might be my fault. Did you say how many operating franchises do you have under coverage in this quarter? under contracts?
Mark Jones, CEO
We had 891 operating as of 12/31.
Joshua Shanker, Analyst
And then you made the comment that the premium per policy is lower outside of Texas than in Texas. Is that discernible? Are we going to see that pressure? I mean, I don't have anything modeled for that, but is that pressure going to be material, do you believe?
Mark Colby, CFO
On the property side, I don't think it will have a significant impact. We're specifically discussing property. Texas has some of the highest property insurance rates, alongside Florida and possibly New York. However, regarding auto insurance, the rates seem fairly consistent across the states where we are currently expanding. For the past six to seven years, we have diversified into multiple states outside of Texas. Therefore, I believe a lot of this is already reflected in the numbers.
Joshua Shanker, Analyst
Yes, that's what I would have thought because you mentioned, that's why I'm asking. That's how I would think about too. And then finally, in terms of sort of layering in new revenues, obviously a big hiring year in 2020, a lot of training for people who aren't yet ready for production. When should we expect those newer revenue producers, their contribution to really start hitting the calendar?
Michael Colby, COO
I mean, the trajectory of growth has remained consistent. So I think you can look backwards and anticipate what we'll see going forward with these folks. We're certainly not seeing a slowdown in their ability to ramp up.
Mark Colby, CFO
It's important to note too, that their contributions to our P&L won't be felt for several years, right, especially in the franchise channel, where our growth last year 45% growth and operating franchises contributed, I think, 7% to our royalty revenue.
Mark Jones, CEO
Right. And next year as they continue to ramp up their production as the royalty fee on the policies they wrote last year goes from 20% to 50%. All that will continue to mechanically increase revenue.
Michael Colby, COO
But their contributions are baked into the premium guidance that we …
Mark Jones, CEO
Right, right.
Joshua Shanker, Analyst
All right, I'm just trying to best do it on a production per person basis is how I my model works, and some trying to not reverse engineer that if I can avoid it.
Mark Jones, CEO
We will provide more details in the 10-K report coming out this week, which will outline productivity by employee and franchise, including distinctions based on tenure and geographic location. It's essential to consider our strategic plan to utilize our corporate assets effectively to promote success, sales, and growth in the franchise channel. We have observed the positive impact of this investment reflected in franchise productivity over the past few years.
Joshua Shanker, Analyst
Well, thank you very much.
Mark Jones, CEO
Thanks, Josh.
Operator, Operator
This concludes the question-and-answer session. I would like to turn the conference back over to Mark Jones, Chief Executive Officer for any closing remarks.
Mark Jones, CEO
I would like to thank everyone for their participation and your interest in Goosehead. Good day.
Operator, Operator
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.