Earnings Call Transcript
Goosehead Insurance, Inc. (GSHD)
Earnings Call Transcript - GSHD Q3 2024
Operator, Operator
Good day, and thank you for standing by. And welcome to Goosehead Insurance Third Quarter 2024 Earning Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentations, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Farrell, Vice President of Capital Markets. Please go ahead.
Daniel Farrell, Vice President of Capital Markets
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 the expectations, estimates, and projections of management as of today. Forward-looking statements in our discussion are subject to various assumptions, risks, and 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 upon them. We refer you to all our recent SEC filings for a more detailed discussion of risks and uncertainties that could impact future operating results and the 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, and amortization and certain other items that we believe are not representative of our core business. For more information regarding the use of these 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 In addition, this call is being webcast, and an archived version will be available shortly after the call ends on the Investor Relations portion of the company's website at goosehead.com.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.
Mark Miller, President and CEO
Thanks, Dan, and good afternoon, everyone. Thank you for joining our third quarter earnings call. Two years ago, when I joined the executive team, we had some significant challenges in the business that required intense focus. We had allowed our recruiting standards to slide, and our organization had a rising level of unproductive corporate and franchise agents. This challenge was amplified by the fact that we were also facing the economic upheaval triggered by the pandemic and the increase in intense weather-related events. Our team confronted these challenges head-on, and as a result, today, our franchises are healthier and our agents are more productive. We have achieved record profitability, and for the first time in our company history, Goosehead Insurance has reached the milestone of $1 billion in premium within a single quarter. For a point of reference, this is 10 times the size we were at our IPO in April 2018. This transformation is a testament to our unwavering commitment to our strategic operating plan, innovation, and the resiliency of our team. While the insurance industry dynamics seem to continuously change, our value proposition for our clients and carrier partners remains constant. For our clients, we deliver unrivaled choice, candid advice, and concierge service. For our carriers, we provide broad and efficient distribution. With every policy we issue, every connection we foster, and every decision we make, we're building a legacy of trust and value. We will continue to lead the way in personal lines insurance distribution with our industry-leading technology and highly trained agents. We have taken many decisive actions in the past couple of years designed to strengthen our business, and we know we're healthier than ever. We have expanded our margins while investing in technology and service to gain a competitive advantage. This challenging product market has forced us to develop more operational discipline, allowing us to adapt to opportunities more quickly. Thanks to those investments, we are confidently beginning to reaccelerate growth with more agents and broader geographic distribution. Growing our corporate agent base requires a strong recruiting engine at major universities. Franchise agent growth takes a highly skilled franchise development team, sourcing entrepreneurs that want to build the business. Once a franchise is established, we help our owners find talented agents to grow their businesses. We have invested heavily in building a world-class talent acquisition function that has the capability to recruit hundreds of corporate agents from college campuses each year. This year's college recruiting class is the largest group we have ever recruited, and we believe the highest quality. As a result, our corporate agent headcount grew from 276 in Q2 2023 to 458 at the end of Q3 2024. Given confidence in our improved recruiting process and sales management, we have decided to open a new corporate office early next year in Phoenix with the goal of expanding and diversifying our footprint. This office offers an exciting new career path for corporate agents and supports Western U.S. franchise expansion. We still believe one of the best ways to grow a healthy franchise business is by placing some of our best corporate agents into franchise ownership in underpenetrated geographies. Corporate agents that convert to franchises tend to stay longer, produce more, and replicate themselves. As an example, last quarter, Tyler Silver, a former corporate agent turned franchise owner sold over $100,000 in new business revenue. A remarkable first-year accomplishment. Tyler joined Goosehead four years ago in our Fort Worth office. We recruited him from the University of Florida, but he's a native of North Carolina. He spent three years in Texas perfecting his sales processes and acquiring leadership skills that would benefit his ability to build a large franchise in the future. A year ago this month, Tyler opened his franchise in Raleigh, North Carolina. Over the past year, Tyler has established a sizable referral partner network in his area, rebuilt a substantial book, and more recently hired his first producer. Tyler represents the type of individual that could build a thriving multi-agent, multi-location franchise operation in the future. Our recruiting engine has also been extremely successful in helping source new agents for our existing franchises. We call this our agency staffing program, or ASP for short. Through the first nine months of this year, our scaling franchises have hired over 500 producers with ASP sourcing about half of those. And our producers recruited through the ASP have generated more than $1 million of incremental recurring revenue. This program, coupled with the franchisees' own recruiting efforts, has increased our average agents per franchise to 1.9 from 1.6 a year ago. We expect to continue to drive this number higher, creating the potential for exponential growth in new business production. To recruit more qualified franchises across the country, we have more than doubled the size of our franchise development team in the past six months. In Q3, we added 30 new franchises from 17 different states. We believe this is one of the most talented groups of owners we have ever launched and strongly supports our strategic initiative to diversify our agent force across the United States. Our efforts to rationalize the franchise base over the past couple of years has proven to be successful and the financial health of the entire franchise community has materially improved. During Q3, 36 operating franchises exited the system versus 89 a year ago using the same compliance standards. The other part of the revenue equation is getting more productivity out of each agent. The insurance product market and housing market conditions can factor into how productive our agents are at any given time. However, we continue to stay focused on what we can control to mitigate any external forces. To combat market headwinds, we have intensified our agent training programs and refined our referral partner marketing techniques to generate more leads per agent per day. Our franchise productivity improved 52% year-over-year, thanks in large part to increased referral partner activations leading to higher leads per agent, conversions of top-performing corporate agents into franchise ownership, and the growth of scaling franchises. These franchises tend to have higher productivity levels per agent due to more highly refined sales processes. On the corporate side of the business, we are investing heavily in growing capacity, which naturally decreases tenure and productivity. However, we believe the corporate sales team is now well positioned for the future. Expanding on the product market for just a moment. As you've likely seen, auto insurance is showing signs of improvement with carriers gradually opening capacity and rate increases starting to ease. While we're seeing positive momentum on auto, the homeowners market remains challenged. However, we are seeing signs of market stabilization and potential for future product expansion as carriers reach rate adequacy and make changes to policy terms and conditions. As of now, we do not know the financial impacts of the recent catastrophic hurricanes that hit Florida, Georgia, and North Carolina. More importantly, our hearts go out to the people affected by Helene and Milton. We still believe that homeowners insurance will be an increasingly attractive line for carriers given pricing updates, underwriting changes, and the favorable client profile across all product lines. We are uniquely positioned to bring high-quality clients to our carriers given our go-to-market strategy that leads with the homeowners transaction first. Regardless of market turbulence, we are pleased to report that we're beginning to see retention rates stabilize. Client retention was flat at 84% for the second quarter to the third quarter of this year. This is after multiple quarters in a row of sequential declines due to historically high premium rate increases driving client shopping activity. Stability in our client retention is a huge factor in the reacceleration of our policy in force growth rate to 12% in the quarter compared to 11% in Q2. We have confidence that retention will return to historically high levels over time as the product environment inevitably improves. We have strengthened our business, expanded our margins, and sharpened our operational discipline, enabling us to adapt swiftly to accelerate growth. Our recruiting efforts are thriving. We've doubled down on our franchise development capability. Our retention rates are stabilizing, and margins are improving. As we celebrate the remarkable achievement of hitting $1 billion in premium for the quarter and look ahead, I want to extend my gratitude to our dedicated employees, franchise partners, and carriers. Together, we're redefining how insurance is distributed. With that, I'll turn over the call to Mark Jones Jr., our CFO.
Mark Jones, CFO
Thanks, Mark, and good afternoon to everyone on the call. We delivered exceptional results in the third quarter that further demonstrate our building growth momentum despite what is still a very challenging product and real estate environment. Our continued execution exemplifies the strength and consistency of our business model. Our business is very naturally hedged, allowing us to deliver strong growth and improving margin in varying macro environments. As product availability constricts and premiums rise, it places some additional challenges on new business production but drives up the value of the entire renewal book. As premium growth rates level off, product becomes more available, allowing us to drive significant new business production growth, retain a higher percentage of our existing book, and earn more favorable contingent commissions. We have resisted the temptation to expand and venture into other areas or to vertically integrate across the insurance spectrum, potentially putting our core business at risk. We believe we operate in the most favorable portion of the insurance value chain, and we will remain maniacally focused on what we do best, personal lines insurance brokerage. The growth opportunity that lies in front of us is massive as we still represent less than 1% of the market share of the $480 billion U.S. personal lines market. We possess a substantial competitive moat, and we'll remain disciplined in our execution and commitment to our long-term goal of becoming the largest distributor of personal lines insurance in our founders' lifetime. At quarter end, total franchise producers were 2,093, up from 1,995 as of the second quarter of 2024. Our agency force continues to get stronger and continues to scale, growing producers per franchise for the seventh consecutive quarter to 1.9. This is an important statistic because, as we've discussed in the past, each time a franchise onboards a producer, it improves the productivity of everyone in that agency, creating exponential growth opportunities. We believe our franchises are now healthier than ever as same-store sales were up 26% over the previous year, and average gross pay per franchise was up 56% in the quarter compared to the prior year. We continue to believe investing to help our franchises build large-scale agencies will be a significant growth lever over the long term. We are committed to helping our franchises reach their full potential and will invest accordingly in training and technology to ensure our mutual success. Corporate producers at quarter-end were 458, up 45% from the year-ago level of 316. While it is still early, the initial indications are this summer recruiting class is one of the strongest and highest quality we have recruited. Given the seasonality of our recruiting, which is largely in the second and third quarter, coupled with normal attrition, we expect corporate agent headcount to end the year down slightly from the third quarter level. We are already actively recruiting on 15 college campuses and look forward to driving further corporate agent growth in 2025 and beyond. The growth of our corporate force is crucial to supporting the franchise network and having the ability to launch top-performing corporate agents into franchises across the country. Moving to our results. Total written premiums, the leading indicator of future revenues grew 28% over the prior year period to $1 billion. This represented a record level of quarterly premium for the company and the first time quarterly premium exceeded $1 billion. This includes franchise premium growth of 33% to $825 million and corporate premium growth of 12% to $204 million. Our improving productivity, particularly in the franchise network, along with stabilizing client retention, give us confidence in our ability to continue to drive high levels of premium growth in the near and medium term. Total revenues for the quarter grew to $78 million, representing 10% growth over the prior year period, with core revenues of $73.5 million, up 16% for the quarter. As our new corporate agents progress through their first few months of selling, our franchisees continue to reach new highs in productivity, and we feel the benefit from stable client retention, we expect to drive faster core revenue growth in the fourth quarter compared to the third quarter. As a result of dramatically lower franchise turnover, cost recovery revenue declined 40% during the quarter to $1.6 million, further underscoring the stability and strength of our franchisees. During the quarter, we terminated or transferred 36 operating agencies compared to 89 in the previous year, which resulted in lower accelerated franchise fee revenue. As we discussed in the second quarter, the health of the franchise network is stronger than ever, and we expect to deliver growth in the total operating franchises in 2025, which will result in a more normalized growth rate and cost recovery revenue. Ancillary revenues, which includes contingent commissions, were $2.9 million, down 44% from the year-ago period. Given the core loss ratio improvement of our carrier partners observed thus far in 2024, we believe there is potential upside to our previous expectation of 35 basis points for the full year of total written premium as contingent commissions. However, that information will not crystallize until the fourth quarter. The overall health of the auto market and underwriters approaching premium adequacy in the home market give us confidence that we will see improvement in contingent commissions in 2025. We strive to provide our carrier partners with the highest growth and most profitable business we can with the objective of becoming the lowest-cost distributor for our underwriters. Our technology and our broad agent force allow us to more precisely match carrier underwriting appetite with client demand in the market, which should drive efficiency in product availability and compensation over time. Policies in force were $1.6 million, an increase of 12% compared to 11% in the previous quarter. This represented the first sequential improvement in the policies in force year-over-year growth rate in the last 13 quarters. We expect to drive gradual improvement in the policy in force growth rate through 2025 as our agents become more productive through advancements in the tenure curve, what we believe will be an improving macro environment, and stable client retention rates. We expect client retention to begin to improve as the home market improves and the rate of premium increases year-over-year begins to abate. We see no impediments to our client retention returning to our historical high of 89%. Adjusted EBITDA for the quarter was up 17% to $26.1 million from $22.4 million a year ago. And adjusted EBITDA margin expanded 193 basis points to 34% for the quarter compared to 32% in the year-ago period. We remain very disciplined in our cost controls while still investing strategically in areas like human capital development and technology to secure our future growth. We are matching our level of investment into new business-generating technology with the technical ability of our carrier partners. As they deploy more resources into growth-facing technology, we will do the same. We expect to deliver on our objective of margin improvement for the full year and anticipate continuing to do so in future years. Our business continues to demonstrate strong cash generation, increasing operating cash flow for the quarter to $59 million from $37.4 million, an increase of 58%. At the end of the third quarter, we had $50.1 million of cash and cash equivalents. Our unused line of credit was $74.8 million, and total outstanding notes payable was $95.6 million. This puts our debt to trailing four-quarter EBITDA at 1.2 times and net debt to trailing four-quarter EBITDA at just 0.6 times. Our strong cash generation and significant balance sheet flexibility provide us with ample optionality to drive shareholder value through capital returns. As we have previously stated, we will look to maintain an efficient balance sheet with conservative debt leverage. As our current debt facility matures in July of 2026, meaning it becomes current on our balance sheet in July of 2025, we have begun reviewing options for a new term loan and revolving credit facility. Consistent with our historical stance, we are comfortable with leverage levels of approximately 3 to 4 times our trailing four-quarter EBITDA, and given our strong cash generation and consistent earnings growth, we delever very quickly. In the past, we have elected for special dividends, and you should expect that to remain a component of our capital return strategy. However, as we have shown this year, we will remain opportunistic with our share repurchase program and will likely include repurchases as a portion of the longer-term capital management strategy. We are raising our guidance for the full year 2024 as follows: Total written premiums placed are expected to be between $3.7 billion and $3.82 billion, representing 25% growth on the low end of the range and 29% growth on the high end of the range. Total revenues are expected to be between $295 million and $310 million, representing 13% organic growth at the low end of the range and 19% organic growth at the high end of the range. Adjusted EBITDA margin is expected to expand for the full year 2024. Thank you to our clients, our carrier partners, our service team, our franchisees, and everyone at Goosehead for delivering a fantastic third quarter. With that, let's open up the line for questions.
Operator, Operator
Thank you. Our first question comes from Matt Carletti from Citizens JMP. Your line is now open.
Matt Carletti, Analyst
Thanks, good afternoon. Mark Miller, you mentioned product availability and referred to market stabilization. Could you elaborate on that? Specifically, I'm curious about the key regions where you're significant, like Texas and California, which have faced tough product availability challenges. What are you observing in those areas?
Mark Miller, President and CEO
Yeah, Matt, how are you doing?
Matt Carletti, Analyst
Doing great. How about you?
Mark Miller, President and CEO
Yeah, overall, like I said in my prepared comments, the auto product is starting to return. Carriers are beginning to change their home products, which gives me a lot of optimism that product will start to come into some of the more challenged markets like Texas. And when I say change their product, I mean, depreciable roofs, higher deductibles. And we've talked to a lot of carriers, I believe product will start to flow back into the market pretty quickly, but I don't know exactly when. And I think we still deliver a huge benefit to our clients to find the product and to our carriers delivering them the right clients. But we still have products in every market. It's just thinner.
Matt Carletti, Analyst
Okay. That's helpful. And then if I could, just a numbers question quickly. G&A expenses took a pretty good step down in the quarter from about $1.5 million lower than kind of where it ran in the first couple of quarters of the year. Is there anything in particular going on in that number that we should carry forward or not carry forward?
Mark Miller, President and CEO
No, no one-offs or anything specific to call out. We've been really disciplined with what we're going to invest in. We want to make sure we're making all the investments we need to, to secure future growth, but be really cautious and make sure if there's something that can wait, we're going to wait.
Matt Carletti, Analyst
Okay, great. Thanks a lot. Appreciate it.
Mark Miller, President and CEO
Thanks, Matt.
Operator, Operator
And our next question comes from Brian Meredith from UBS. Your line is now open.
Brian Meredith, Analyst
Thank you. A couple of them here for you. The first one, going back to Matt's question a little bit, maybe you can talk a little bit about how competitive your product is in some of those areas like Texas and California, particularly relative to captives. Are you seeing any rate going up at some of the captives? And while you've got product, like I said, is it competitive right now?
Mark Miller, President and CEO
Brian, this is Mark Miller. Yeah, I think it's competitive in most places. I mean it's not as competitive as it used to be against some of the captives. But we are seeing the captives starting to raise their prices. And our carriers are on the front end of price increases. We're starting to see those prices stabilize. And so it's all starting to balance out, and I still think we've got decent lead flow coming in despite a challenging housing market, and we've got decent product to sell.
Brian Meredith, Analyst
I understand that some carriers on your platform have actually been pulling back. Is that correct?
Mark Miller, President and CEO
I won't mention specific names, but you're clearly aware of the market situation with some carriers who are temporarily shutting down markets. They have been strong partners for us, and we will support their decisions, and they will eventually return to the market.
Brian Meredith, Analyst
Got you. And then the second question, I'm just curious, good outlook, it sounds like with respect to client retention. Do you think we've hit that bottom at this point at 84% and kind of gradually start to work our way up from here? Or is there a potential for it to tick down again?
Mark Jones, CFO
Yeah. I mean this is Mark Jones. We've talked about a lot that our client retention decline is really largely based on pricing action. And so you could see in the third quarter, we had less price increase in the book, just the difference between the PIF growth and the premium growth rates. You can see the decline in the pricing, which naturally results in better client retention. So assuming that you continue to get stable pricing, we would expect client retention to remain here and then eventually tick back up. Through 2025, that's probably a good assumption. There could be puts and takes in any given quarter.
Brian Meredith, Analyst
Helpful. Thank you.
Operator, Operator
Thank you. One moment for our next question. And our next question comes from Tommy McJoynt from KBW. Your line is now open.
Tommy McJoynt, Analyst
Hey, guys. Thanks for taking my questions. When you talk about some of the new referral partner activations, are you diversifying away from sources in and around the home sale? And along the same lines, can you talk about how your corporate class is performing just with that key referral source of home sale volumes remaining somewhat challenged?
Mark Miller, President and CEO
I mean, that will be our primary go-to-market strategy, continuing to focus on the home closing transactions. Now of course, once you get that first lead built up with a referral partner, they continue to send you leads. If leads go down, we go back out and we get more referral partners. So that's how we keep the lead volume up. And it kind of spring loads us for when market activity improves, that we've got those referral partners built up.
Mark Jones, CFO
Yeah. I think something that's important to remember is we just still represent such a small percentage of the market share nationally. It's just over 5% in new home closings. So a significant amount of runway still to go in almost every single geography. And even in Texas, we still have plenty of room to grow. We just want to match our agent footprint with what really the carrier demand is.
Mark Miller, President and CEO
I think your second part of the question was just about how are the new agents performing. It's too early to tell. I mean that class just started. They come with a summer graduation for college students. So it's June to September, but early indications are very positive compared to prior classes. And I think it's the highest quality class we've ever recruited.
Mark Jones, CFO
Yeah. From a 10-year adjusted perspective, the productivity is just as high, if not higher than the previous year's class, which was also a very good class. And honestly, these new agents don't know anything different. I mean the housing data came out today. It's another bad month for housing, and yet we still delivered more leads than we have in the previous months. So our agents are doing a good job with our proprietary technology, being able to find the right lead sources.
Tommy McJoynt, Analyst
Got it. Thanks for that. And then separately, did the hurricanes have any notable impact on revenues in the quarter, either looking at the third quarter events and then as you think about Milton, perhaps the impact on the fourth quarter?
Mark Jones, CFO
Yeah. So typically, what happens when a hurricane comes in is carriers will put a moratorium on new business in the path of that hurricane. And so usually, what happens is you'll see a slowdown in production in that region for a week, maybe two weeks, and then that builds back up and comes through. So with the timing of Helene right at the end of the quarter, you didn't get to see any of that that came in after the hurricane passed through. So some of that got pushed into the fourth quarter. With Milton, it's really just timing in between where it was in the month. So it doesn't typically end up impacting new business in the long term, but can cause it to shift from quarter-to-quarter if it happens right at the end of the quarter.
Tommy McJoynt, Analyst
Okay. Can you quantify the potential impact of Helene given that it occurred in the last week or two?
Mark Jones, CFO
But if you just think about where our agents are, I think Florida is our second largest state. So without giving you any real numbers, just kind of a general indication. That's where we have a lot of agents.
Tommy McJoynt, Analyst
Make sense. Thank you.
Operator, Operator
Thank you. One moment for our next question. And our next question comes from Michael Zaremski from BMO. Your line is now open.
Michael Zaremski, Analyst
Thank you. Good afternoon. I have a couple of questions regarding the revenue guidance, specifically the revenue and premium guidance. First, I'm curious about the high and low end of revenue for the year. It seems surprising that there is still such a wide range this late in the year. Could you provide some insight into the factors we should consider that could influence whether we reach the high or low end of that range?
Mark Jones, CFO
Yeah. I mean we still are operating in a relatively volatile environment, a, from a product availability perspective. Carriers are coming in and out of markets. And from a contingent perspective, which can have a pretty big impact on the total revenue number. We still won't have enough information to really make a call on that until probably late November when you get enough loss data. So that can cause a pretty dramatic change in the revenue number. And we feel like, based on our core loss ratio performance that we've seen some improvements in the contingency expectation, you can see how that would impact the bottom end of the revenue guidance. From a premium perspective, the franchise side of the business is performing very, very well. And just remember that, that doesn't really impact revenue in year one. It impacts the premium immediately because that's 100% whereas the revenue is $0.20 on the dollar. And so if you look at the agencies that we've launched so far this year, our less than one-year franchise productivity is up 133% year-over-year. So they're really doing a fantastic job, and that impacts premium more than it impacts revenue.
Michael Zaremski, Analyst
Okay. That's helpful and makes sense on the contingents. Okay. So sticking to revenue in the premium guidance SoFi, look at the 4Q guide, it includes a pretty material improvement in the ratio of revenues divided by premiums. I don't want to put answers in your mouth, but I think it's because you're growing corporate so much more than franchises. But I'm trying to understand what's driving that? And is it a permanent step-up in that ratio?
Mark Jones, CFO
So really, I would point you to some of the contingency commentary, which that doesn't impact the premium number and that can move the revenue number pretty materially. And those are largely binary. So if you're right on the edge of a loss ratio qualifier for a contingency, you could be getting millions of dollars or you could be getting 0 dollars. But that doesn't really impact the premium numbers at all. So that can change your ratio of revenue to premium in any given quarter.
Michael Zaremski, Analyst
Okay. Got it. And lastly on franchise growth and also corporate agent growth. So clearly, a great corporate hiring number, much better than expected. I guess, I don't know how much you can say, but would you say kind of this is the new algorithm, and we should expect if things work out with this class, we should expect a similar rate of growth summer next year or for the full year next year? Yeah, I guess somewhere right, you were still doing some culling and some corrective actions earlier this year. And I guess also, can you remind us, similarly about kind of how to think about the graduation rate. I think you've talked about it historically of corporates potentially graduating and buying into the franchise model.
Mark Miller, President and CEO
I'll address the first part of your question. You're correct that most of our hiring for corporate agents took place in June, July, and August, with a little activity in September. We're now focusing on next year's recruitment efforts, aiming for a greater presence on more campuses and increasing diversity, particularly to support our new office in Phoenix. This new location gives us more capacity compared to last year, and we are very optimistic about the quality of the new recruits we have onboarded. Although we anticipate a decrease in the number of corporate agents toward the end of the year as some may not work out or choose to leave, we are planning to prioritize agent recruitment for next summer's group. I'm not ready to provide specific numbers yet, but I am confident in what we're doing and the exceptional quality of agents we are bringing in. On the franchise front, we did reduce the number of franchises in our system this quarter but added about 30 new, high-quality franchises. We're emphasizing quality over quantity and have invested in our franchise development team. While adding more franchises will naturally boost the number of agency producers, our ASP program is performing exceedingly well. Thanks to effective coaching and a healthy franchise network, many franchises are starting to recruit their own producers, with 500 new producers added in the franchise community, half of whom came through the ASP program. Additionally, first-year franchise productivity has increased by 133%, which underscores the superior quality of the franchises we are currently adding.
Michael Zaremski, Analyst
Okay. That's helpful. Just one quick follow-up. When we examine the growth of corporate sales agents from the second to the third quarter, should we consider any one-time factors as we look ahead to the third quarter of '25? Or was this simply a strong recruiting year, and if everything goes well, we can expect similar processes to continue next year?
Mark Jones, CFO
Yeah. I would say nothing one-time. I think the amount of growth you saw 2Q to 3Q, you will likely see somewhere around that similar size next year. It's about developing the right amount of managers to absorb all those people we've talked a lot in our past about absorptive capacity. We don't want to overload our management bench, and we want to make sure our agents are as successful as possible. So we want to keep growing the corporate team to provide new leadership opportunities and also launch franchises across the country. So we've got to continue to invest there.
Mark Miller, President and CEO
What you're seeing is what we talked about last year with building up the capability of the talent acquisition team and it would take a while to recruit off of college campuses and they go to graduate and come in. You're seeing that first class of really having a really world-class development team, talent acquisition team to bring in new candidates. So that capability will exist next year.
Michael Zaremski, Analyst
Okay. If you don't mind, I'll do one more follow-up. Regarding the pace of agent growth, which has been much better than expected, will that have any impact? It clearly hasn't had any negative effect on margins in the near term, right? It certainly hasn't this quarter.
Mark Jones, CFO
They've done a good job getting productive very quickly, which makes them pretty accretive to the P&L. I mean you will see some increased compensation and benefits expense in the fourth quarter just related to having those agents on the books for the full quarter because obviously, they didn't all start on July 1, they started throughout the quarter. So you'll see a little bit of that, but they should also be producing enough to get pretty close to offsetting their costs.
Michael Zaremski, Analyst
Thank you.
Operator, Operator
Thank you. One moment for our next question. And the next question comes from Mark Hughes from Truist Securities. Your line is now open.
Mark Hughes, Analyst
Thank you. Good afternoon. I think you mentioned this, but the 35 basis point guidance for contingents this year suggests a substantial increase in absolute dollars for contingent commissions. It seems like you have good visibility on that.
Mark Jones, CFO
Yeah. So what we talked about in our prepared remarks is that's been our expectation all year thus far, was 35 basis points of total written premium as contingents for the full year. At this point, given the way our core loss ratios have been with some of our biggest underwriters, we think that there's some upside to that. It remains to be seen exactly what that is. And like I mentioned, that won't crystallize until the fourth quarter. So there's still some uncertainty there. But I think the way that the book has performed and what we've been able to do in terms of driving carrier profitability should result in a higher contingency outlook for this year and most likely next year as well.
Mark Hughes, Analyst
Very good. And then the question on core revenue relative to written premium. I think you addressed that in an earlier question. Is there anything on mix of, say, homeowners versus auto or geography that's influencing that, that's boosting the written premium relative to the core revenue?
Mark Jones, CFO
No, that's really dependent on franchise performance. When franchises accelerate new business production, premium growth outpaces core revenue because revenue yields only $0.20 on the dollar, while premiums are all gross. Consistent year-over-year acceleration in the franchise side of the business can balance these factors. However, in a year like this one, where the franchise gained significant momentum in the fourth quarter of last year and has performed exceptionally well so far this year, that leads to a widening gap.
Mark Hughes, Analyst
Thank you very much.
Operator, Operator
Thank you. One moment for our next question. And the next question comes from Andrew Kligerman from TD Cowen. Your line is now open.
Andrew Kligerman, Analyst
Can you hear me now? Can you hear me?
Mark Jones, CFO
Yeah, we got you, Andrew.
Andrew Kligerman, Analyst
Okay. Great. So looking at your EBITDA margin of a really strong 34%, 190 bps up year-over-year. And as I look at the various components, the expenses, the interest expense, the depreciation, the tax, you talked about being tight on G&A. It was all lower than we had anticipated. Now, in other quarters, it kind of bumps around year-over-year. Like last quarter, EBITDA was down versus the year-ago quarter. So my question for you is, could you talk about each of the expense line items and how they're likely to play out going forward? And whether 190 basis points year-over-year is something sustainable because your guidance is only that EBITDA margins will be up year-over-year.
Mark Jones, CFO
Yeah, Andrew, what I would say is that's going to continue to be what our guidance is. Is that adjusted EBITDA margin will be up year-over-year, especially if you exclude contingencies. So I'm not going to get more specific than that in terms of the margin numbers. But from a cost growth perspective, you can match really your compensation growth rates when we onboard a significant number of people, which in the sales function is largely in the summer, which that's typically when the seasonality of the book runs the hottest. That would mean that we need to have the most service heads as well. So you onboard service people a few months earlier than you onboard salespeople and then your salespeople mostly come in the summer time frame. So you see increases in comp and benefits in the second and third quarter relative to the first. And then from a G&A expense perspective, it depends on what actually happens in that year when you see the step up. So it's a little bit less consistent from a timing perspective than it is employee comp and benefits because we're launching the Phoenix office here in the fourth quarter of this year, that's going to cause a slight increase in G&A expense related to that build-out, some travel expenses to getting agents out of our Texas geographies into the Phoenix geography. So there will be things like that that happen on a year-to-year basis, but what we're committed to is continuing to drive margin expansion, excluding contingencies on an annual basis. And you should see, again, nice margin expansion in the fourth quarter of this year.
Andrew Kligerman, Analyst
Margin year-over-year in the fourth quarter.
Mark Jones, CFO
Correct.
Andrew Kligerman, Analyst
That was very helpful. Regarding the corporate agents, it’s impressive that the new agents with less than a year of tenure reached 277 in the quarter compared to 132 previously. You also mentioned the addition of the Phoenix office. While I may not have fully grasped the earlier responses, I believe that 277 could significantly increase next year. My question is, you’ve indicated multiple times that this group of corporate recruits is the best you’ve ever had. What makes it so high quality?
Mark Miller, President and CEO
I'll start with just I mentioned a moment ago that the quality of the corporate agents is a function of how we recruit, where we recruit the scrutiny with which we put on those agents. And we mentioned several quarters ago that during the COVID period, our recruiting criteria was not as stringent as it is today. So we have put more recruiters out there recruiting at more college campuses, recruiting to higher standards, and putting them through a very rigorous interview process.
Mark Jones, CFO
And we've revamped training and onboarding programs as well to make that process more efficient and more effective, so you can get them down the learning curve better. And if you think about the environment that these new agents are coming into, the fact that they're performing as well as they are in such a constricted product environment, with housing transactions well down, you should expect that they performed better than what we have historically as product becomes more available, housing starts to pick back up, more QTI functionality becomes online. It's a lot easier for us to ramp up agents in a good environment than it is in a challenging one. So I'm really pleased with how we're doing this so far.
Andrew Kligerman, Analyst
That's awesome. And then maybe just to sneak in one last one. You talked about the captives raising prices. Just curious, what about the big dog captive State Farm? Are they finally kind of leveled out? Or are they still flat to down in pricing as you see the competition there?
Mark Jones, CFO
Yeah. I mean what I would tell you is we have a market for pretty much everybody that's out there. And so where we are competitive will depend on what the pricing of other players that aren't on our platform looks like in that market. So I can't speak to somebody's specific pricing models. But we're doing a good job using our technology and our carrier relationships to provide our agents with the product they need.
Andrew Kligerman, Analyst
And do you feel like your carriers are kind of gaining steam versus the captives in general?
Mark Jones, CFO
It depends on the geography. There's puts and takes everywhere, some markets are better than others.
Andrew Kligerman, Analyst
Got it. Thanks a lot.
Operator, Operator
Thank you. One moment for our next question. And the next question comes from Pablo Singzon from JPM. Your line is now open.
Pablo Singzon, Analyst
Hi, thanks for fitting me in. My first question is about your perspective on the duration of the pricing agreement with homeowners and insurance. Once that market stabilizes, how do you view the advantages you'll gain from pricing and exposure?
Mark Jones, CFO
Yeah. Pablo, I think every time I've tried to guess on this, I have been wrong. But I would tell you the business is really naturally hedged, like I talked about in my prepared remarks. So when you see the pricing of homeowners level off, you get better client retention, which just means you retain a significant amount of your earnings from one year to the next because that's where all the profitability is. We don't really make much money on new business production. It's all on the renewal book. And then you get a higher amount of payout from a contingent commission program. And you get a good value proposition to your referral partners because you're winning a higher percentage of the deals, you get happier agents because they're winning a higher percentage of the deals. So I don't necessarily love it. When prices are up 15% year-over-year, I'd be much happier at a high single-digit rate, where you're still getting nice kind of inflation protection raises on your book, but your agents are winning consistently. Client retention is consistently high. So I can't give you a perfect timeline on what that looks like, but we're starting to see early indications of good loss ratios from underwriters.
Pablo Singzon, Analyst
Thank you. And then my second question, sort of a follow-up to the other questions that have been asked on the call, right. But I think one standout aspect of this quarter versus your expense control. And as mentioned, G&A was a standout. Is there any way to quantitatively frame how you're thinking about the trajectory there? Because if you take a simple metric, like year-over-year growth, I think it was up 2%, which is probably the lowest you've ever experienced. So as you think about the line like G&A, how are you guys managing that, right? So obviously, it's going to be lower than revenue growth, but any help on how to think about that more quantitatively?
Mark Jones, CFO
Yeah. If you remember after the first quarter, when we lowered our revenue guidance, immediately, what we did was try and reevaluate everything that we are investing in, in 2024 and make sure that it was strategically exactly what we needed to do to secure growth for '24 and for '25. So we're going to keep making all of those investments that we need to. And you shouldn't expect to see 2% growth in G&A, looking at 2025, but I'm not going to give you specific guidance on that. What I will tell you is you should expect to see G&A and compensation and benefits growing slower than total revenue on an annual basis because we're committed to driving margin expansion.
Pablo Singzon, Analyst
Okay. It makes sense. And then last for me, just a numbers question, and apologies if I missed this. Can we have the written premiums for the corporate and franchising channels, please?
Mark Jones, CFO
I believe that was in the prepared remarks. But if it wasn't, you should be able to find that in the 10-Q, which should be out sometime.
Pablo Singzon, Analyst
Got you. Thank you.
Operator, Operator
Thank you. One moment for our next question. And the next question comes from Scott Heleniak from RBC Capital Markets. Your line is now open.
Scott Heleniak, Analyst
Yeah, thanks. Just wondering if you could expand on the opening of the corporate office in Phoenix. Just talk about your market presence that you have there and the opportunity you feel like is out there out West compared to where you are now and kind of what drove that, the new corporate office out there.
Mark Jones, CFO
When considering the opening of a new corporate office, which we haven't done in several years, we evaluate our existing franchise coverage. In Arizona, while we do have some good franchises, our presence is not significant. We also lack many franchises that extend into California and other western states. We assess the local schools and their programs, and Tempe has a strong feeder program that aligns with our needs. Additionally, we analyze the carrier environment to determine if it's a favorable market for us, and it is; Arizona proves to be a strong market. Parts of California also show promise, but we do not plan to open an office there. We apply the same evaluation criteria to every market we consider.
Scott Heleniak, Analyst
Okay. Got it. That makes sense. And then just my other question to follow up. I just wonder if you can talk about just kind of the shopping activity you're seeing out there in the last few months versus the previous few quarters. Has that settled down at all? Do you feel like that's peaking or just any observations that you can share on kind of what your agents are seeing out there?
Mark Jones, CFO
Yeah, I wish I could tell you it settled down, but it really hasn't. Pricing has slowed down just barely a little bit in the third quarter compared to the second quarter. But as those clients still get their renewals? I know personally for me, my insurance is up 30% and my deductible doubled. So that doesn't feel great for me. I had a re-shop personally on my account. So there's still a lot of shopping activity going on in the market. And that makes, I think that productivity numbers look all more impressive because they're doing a lot more work in the day to generate the level of productivity they're doing.
Scott Heleniak, Analyst
Okay, thanks a lot.
Operator, Operator
Thank you. One moment for our next question. And the next question comes from Katie Sakys from Autonomous Research. Your line is now open.
Katie Sakys, Analyst
Good evening. First question for you guys. We've talked about the cadence of margin expansion being a little bit more weighted to the back half of this year, and you've noted that it should be the most robust in the fourth quarter. Can we expect a similar cadence to margin improvement in 2025?
Mark Jones, CFO
Typically, when considering the seasonality of earnings, various contingencies can significantly affect results from quarter to quarter. Generally, you receive more information regarding these contingencies in the third and fourth quarters compared to the first and second quarters. This can lead to increased margins in the latter half of the year. Additionally, as new producers begin onboarding around late May and early June, they start to yield results. The consistency of housing transactions typically occurs in the second and third quarters, driving a lot of new business production, which means more renewals will come in during these quarters. Therefore, you can expect EBITDA growth to align closely with new business production, with contingencies in the latter half of the year typically leading to significant year-over-year expansion.
Katie Sakys, Analyst
Okay. Thank you for your help. In a previous question, you mentioned that this group of corporate recruits has slightly different economics compared to earlier groups. Considering those differences, what...
Mark Jones, CFO
Let me be clear, I probably didn't state that properly earlier. I'm talking about like how you retain agents, not vs. how their commission flows or work or anything like that. So it shouldn't be any kind of change to your model.
Katie Sakys, Analyst
Okay. I think still in terms of the impact that this most recent class of corporate recruits should have on margins at the end of their first year of work. How does that net impact differ for this class in light of improved productivity versus previous classes?
Mark Jones, CFO
Typically, if you've got better productivity, you should expect to receive better margin on the same number of agents. And just from an economic perspective, really what we're doing is trying to shift some of the economics more toward being about retention of the employees. We want to make sure people get through their first year. They can see the whole benefits of working in our systems and the differentiation that we have compared to the other jobs that are out there. That's really all this. It shouldn't impact your modeling of the economics of a corporate agent.
Katie Sakys, Analyst
Thank you.
Operator, Operator
I would now like to turn the call back over to CEO, Mark Miller.
Mark Miller, President and CEO
I wanted to thank everyone for taking the time to join us today. I appreciate the continued investment and support. We look forward to talking to you again in February.
Operator, Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.