Q4 2023 Goosehead Insurance Inc Earnings Call
Participants
Dan Farrell; Vice President - Capital Markets; Goosehead Insurance Inc
Mark Jones; Chairman of the Board, Chief Executive Officer; Goosehead Insurance Inc
Mark Miller; President & COO; Goosehead Insurance Inc
Paul Newsome; Analyst; Piper Sandler & Co
Brian Meredith; Analyst; UBS Investment Bank
Andrew Kligerman; Analyst; TD Cowen
Meyer Shields; Analyst; Keefe, Bruyette, & Woods, Inc.
Scott Heleniak; Analyst; RBC Capital Markets
Michael Zaremski; Analyst; BMO Capital Markets Equity Research
Pablo Singzon; Analyst; JPMorgan Chase & Co.
Presentation
Operator
Ladies and gentlemen, thank you for standing by, and welcome to Goosehead Insurance Fourth Quarter 2023 earnings conference call. (Operator Instructions) Again, please be advised that today's conference is being recorded. I would like now to turn the conference over to your first speaker today, Dan Farrell, VP capital markets. Please go ahead.
Dan Farrell
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 the management as of today 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. And we refer you to all of our recent SEC filings.
For more detailed discussions of risks and uncertainties that could impact future operating results and financial condition of Goosehead. We disclaim any intention or obligation to update and revise any forward-looking statements except to the extent required by applicable law. And I would also like to point out that during the 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 from 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.
Our core business for more information regarding the use of non-GAAP financial measures, including reconciliations of these measures to the most recent comparable GAAP financial measures, we refer you to today's earnings release in addition, this call is being webcast and archived version will be available shortly after the call ends on the Investor Relations portion of the Company's website at Goosehead.com.
Now I'd like to turn the call over to our Chairman and CEO, Mark Jones.
Mark Jones
Thanks, Dan, and welcome, everyone on the call. By now, you should all have had a chance to read the two press releases that went out prior to this call, I will address our management transition plans at the conclusion of our prepared remarks before getting into our 2023 results. I'd like to share some background context on the master plan that we've been executing against for the last 18 months.
The basics of that plan were to refocus our efforts and resources around profitable growth, remove any barriers to profitable growth and protect and strengthen our competitive moat. We are pleased with both the pace of execution of the master plan and the results we are seeing and are right on schedule. Much of our time effort and resources were focused on revamping our sales networks, yielding dramatic gains in agent productivity during Q4, we reorganized our sales management functions into one consolidated team that works across both corporate and franchise under the leadership of Brian Portillo.
This has enabled us to better leverage our intellectual capital and is delivering great productivity growth. As a reminder, Brian took over the corporate sales function in late 2022. Corporate productivity was up 27% in 2023 relative to the prior year, even more exciting. We saw 1st year corporate agent productivity grow 46%. Productivity per franchise was up 30% in Q4 following our management realignments, even in the context of some pretty heavy industry headwinds during the year.
We also rightsized our cost structure in a way that continued to support high levels of growth but at the same time, allowed us to deliver much better margins. We invested and continue to invest aggressively in our quote to issue technology, which has profoundly expanded our competitive moat unlocking productivity of our sales agents, simplifying service delivery and over time, potentially opening the aperture for other distribution channels feels like this create a virtuous cycle where agent success enhances our recurring value proposition drives better agent retention and ultimately facilitates more rapid and profitable growth.
Our human capital is the secret sauce that make us an extraordinary company, and we continue to focus on building that we leveled up our recruiting practices by returning to our roots with uncompromising quality standards. These efforts are bearing fruit with 1st year corporate agent productivity up 46% from 2022. As I mentioned earlier, we're also investing in our highest potential franchises through additional leadership support, providing dedicated recruiting resources and implementing new training programs at important inflection points now that our sales teams are much more productive and we have the right cost structure and organization supporting the business.
We're beginning to reignite growth in sales capacity in each of our distribution networks. We're growing corporate sales headcount up to our absorptive capacity. We're expanding our partnership networks to drive growth in our new enterprise sales unit. We're dialing up sales capacity in the franchise business through a combination of helping our agency partners, recruit producers and adding high-quality franchisees.
We launched what we call our middle market agency business development team in Q4 focused on helping mortgage lenders and realtors bolt their own goals, Goosehead agencies onto their core businesses. Interest is high, and the pipeline of active opportunities is very rich. And exciting. While we're in the early stages of this capacity growth, we're seeing tangible results with corporate sales head count up 20% from its low of around 250 and producers per franchise up 7% from last year.
Now turning briefly to our 2023 results. Total written premiums grew 34% for the year. Total revenues were up 25% for the year. Adjusted EBITDA grew 90% in 2023 and adjusted EBITDA margin expanded about 900 basis points to 27% on the year. We plan to continue to grow our corporate team in 2024 and for the foreseeable future, which will support the conversion of more corporate agents into franchisees as a reminder, when we launch a corporate agent into their own franchise, we're not only creating a top decile agency, but we're also retaining and expanding the productive capacity of converting agents as they scale their agencies.
During 2023, we launched 30 corporate agents into franchises and have already seen several of them adding new producers in just their 1st year as a reminder, these 30 corporate conversions yield production equivalent to about 200 franchises that we hunt in the wild. This remains an incredibly long lever for us and a massive competitive moat. No other insurance agency has an asset like our scale team of highly skilled, hard-working and disciplined corporate agents.
We further invested in our highest potential franchises during 2023 rolling out a producer recruiting program that has seen immediate success 2023 with the hardest product market we've seen in our 20 years of operations as underwriters struggled to take premium rate fast enough to offset the increasing costs of claims. To combat this, we developed more resources, deployed more resources to our carrier management function to work with our most important carrier partners to maximize product access for our agents.
We're very encouraged to see signs of the product market beginning to thaw and hope to see broader product access around midyear. This year on top of historic product restrictions for many carriers, we faced substantial headwinds in the housing market as existing home sales fell to 28 year low. It would have been easy for our agents to panic wringing their hands and say it's out of our control, but that's not part of our DNA.
We continue to deliver through these headwinds by doing what we do best, execute our value proposition with referral partners to maximize our inbound lead flow, which was at an all-time high in 2023 and deliver an exceptional client experience. Since our last earnings call, we've launched five new carriers on our quota issue platform, including progressive auto, our QTI. platform improves the client experience increases, agent productivity and improves our ability to deliver carriers to business that matches their underwriting and risk appetite.
I normally conclude our internal financial review meetings with a single comment. This is a damn good business. Let me explain why. This is a damn good business. We operate in a highly fragmented, approximately $450 billion premium industry where we account for less than 1% of market share. If you live some wear or drive something you need the product that we sell, we remain disciplined and focused on the link in the value chain where we can and do win in distribution.
We don't get distracted by shiny objects, and we have a firm belief that ideas need to compete in a marketplace. So when we arrive at the office for work. We check our egos at the door. Our entire business model is based on placing the client at the center of our universe, which has allowed us to deliver world-class NPS scores and maintained client retention at levels that allow us to aggressively attack new business growth while maintaining strong profitability.
The competitive set in Personal Lines distribution cannot fully meet the needs of today's clients. Single carrier platforms do not offer the power of choice and other independent agents lack the industry-leading technology. We've spent decades building on the back of our millions of proprietary quotes. The industry has historically not attracted the very best talent Goosehead on the other hand have.
So we find ourselves possessing massive competitive advantage in an industry that for all intents and purposes is of infinite size with very attractive recurring economics, deeply aware of what we are and what we are not and I am grateful every day we face the competitive set that we do. We believe the only thing that could stop us from reaching our full potential becoming the largest distributor of personal lines insurance in the United States during my lifetime is our own execution, and we do not plan to let that out. But I'm very excited for our future. And I want to thank our team for a tremendous 2023.
With that, I'll turn the call over to Mark Miller to go more in-depth about our operations for the quarter and the year.
Mark Miller
Thanks, Mark. And good afternoon, everyone. As Mark mentioned, 18 months ago, we thoughtfully architected a master plan that included a list of initiatives designed to improve quality and execution across the organization. Our goal is to transform Goosehead into an even better company, one that could grow faster and more profitably at scale and expand our already wide competitive moat.
We knew that by executing our plan, we would slow the revenue growth in the short term, but we believe these actions would build a stronger foundation to deliver sustained high levels of both revenue and earnings growth in the future. In some areas we were able to move quickly and start realizing benefits in the P&L within a few quarters and other areas we need to invest in people and processes and develop new business capabilities.
Even when executed with precision. These types of growth initiatives can take multiple quarters to bear fruit. I'm pleased to report that in 2023, we executed exceptionally well against these initiatives. We restructured our corporate and franchise agent force to drive higher levels of productivity. We doubled down on our recruiting function and raised our hiring standards to bring significantly more high-quality talent. We drove cost discipline across the organization.
We built a new enterprise capability that widens our distribution aperture toward more effectively with inbound lead flow from our online digital agent and partnerships. And we built a world-class technology team that has successfully developed what we believe is the best agent shopping platform in the industry. And we have proven we can directly integrate that technology with the largest carriers in the industry to bind to manage policies with strong execution in 2023.
We are now ready to start pulling the levers to accelerate PIP growth. In 2024, we plan to add distribution capacity across both corporate and franchise networks. Our corporate recruiters have already locked in a significant portion of our new agent needs for 2024. And our agency staffing program is on pace to help our agency partners recruit several hundred high-caliber agents this year.
As we mentioned previously, these agents that we help place in thriving franchises are nearly 1.5 times more productive than the average new franchise. We plan to continue increasing corporate and franchise agent productivity by leveraging improved sales processes and technology. With our new management structure, we believe we can continue to reduce the gap between franchise and corporate agent productivity and our expanding QTI capabilities should improve improve overall efficiency of our entire agent force.
In addition, our new enterprise sales and partnership network efforts are starting to add meaningful volumes. We believe we can further improve our already strong service function to effectively support our growing renewal base, enhance the client experience and ultimately drive client retention.
Let me take a moment to go a bit deeper on some of the achievements in 2023 and how we believe this sets us up for profitable growth in 2024 and beyond. We saw a dramatic improvement in our new corporate and franchise agent productivity in 2023. And we believe the runway for further improvement is substantial, particularly as the challenging macroenvironment ultimately abates for the year.
Our corporate new business revenue productivity on a cash basis, which will be disclosed in the 10-K, increased 27%. Our agents with less than one year of experience, increased new business productivity by 46%, a remarkable accomplishment in the current environment and a testament to the value of returning to our roots with our recruiting strategy. We saw substantial franchise productivity improvement in the back half of 2023, particularly in the fourth quarter compared to the first half of the year. We have now seen four consecutive quarters of franchise productivity improvement.
Specifically, we saw a 30% increase in Q4 versus the prior year. To put this in perspective, franchise productivity in the fourth quarter was the highest on record. We believe there is substantial runway for continued improvement in franchise productivity as we reduce the gap between corporate and franchise agents with better technology training and recruiting and Brian, to tell his leadership, we are managing corporate agents and guiding franchise agents as one cohesive team.
We believe that the changes that Brian has implemented already helped to drive fourth quarter gains. Our recruiting function was significantly upgraded in 2023, and we now have the foundation and process to bring on larger numbers of high-quality producers in corporate we ended the year at 300 agents up from the low of around 250 in the middle of the second quarter. We're now confident in our ability to significantly grow corporate producer count while maintaining quality in 2024.
On the franchise side, we intentionally reduced the number of franchises recruited and focused on dramatically improving the quality and launch speed our fonts. Our franchises are now launching around 20% faster than they were the prior in the prior year and are 29% more productive than they were this time last year. We have been franchising for over a decade now and we are continuously improving our model on who and where we want to launch franchises.
We are currently focusing our franchise recruiting efforts on underrepresented geographies and on owners that want to run large multi agent growth businesses. It is important to reiterate that our franchise growth is no longer about simply growing the number of franchises is about growing productive capacity and overall producer headcount. One of the most efficient ways to accomplish this objective is by helping our best agency partners grow more quickly, let me highlight one example to illustrate how this new muscle works at one of our top franchises.
Secondary agency is one of the most successful franchises in the country. The owners, Ryan and Scott secondary Brothers are masters at onboarding and ramping up agents at Goosehead. We're exceptional at sourcing high caliber sales talent. Last year we created the agency sourcing program to help franchises like SAC areas, find talent more quickly in May of 2023, through said, help the secondary agency recruit Dmitry Kent and his first eight months, Dmitry averaged a little over $13,000 in monthly new business revenue earning him Rookie of the Year Award in November finished with $30,000 in new business revenue in just seven months.
This is just one small example of how we work with our existing franchises to maximize growth. Ultimately, removing under-producing franchises has muted our overall producer growth numbers in recent quarters, but I'm confident we will see strong overall franchise growth production in 2024, driven by adding high-quality new franchises, scaling existing franchises, driving productivity gains and converting high performing corporate agents to franchises.
In addition to sales productivity gains, our dramatic profitability improvement in 2023 was driven by very disciplined P&L management. Since taking on the CFO role Mark Jones junior has personally taken on responsibility of the expense structure and helped drive cost discipline across the Company. Thanks to Mark's contributions, we're starting to realize unit cost improvements and some of our largest expense categories such a service. We believe we have the best service function in the industry, but we also know we can get even better and more efficient over time towards that objective.
We recently announced the hire of David McCann has Chief Service Officer. David brings substantial experience operating a large service function at USA. David is uniquely qualified to help take service function to the next level, bringing benefits to clients and driving further scale efficiencies, which will be key to building a service department that can support an organization and client base that we believe will be multiple times its current size.
In 2023, we made substantial progress in laying a solid technology foundation for the future. One great example of this progress is the rollout of our quote to issue capability. We launched five carriers on QTI. since our last call, and we have ambitious targets for ramping this technology. In 2024, we expect a substantial portion of our carrier volume to be QTI. enabled by the end of the year. We believe this technology will drive significant efficiency for the sales agents and service agents over the next several years.
And this technology will greatly strengthen our ability around enterprise sales and partnership opportunities for much of my career when a company's year-over-year revenue growth and EBITDA margin added up to 40, we would say the company was performing well at a Rule of 40 supplied. The company was balancing growth and profitability effectively over the long term, I believe you said, can perform at a Rule of 60 level with a healthy balance of revenue growth rate and EBITDA margin very few companies can sustain these levels of financial performance over a long period of time.
But we believe our unique business model, huge addressable market market and wide competitive moat make it completely possible. I want to thank the entire Goosehead team that worked tirelessly to make dramatic improvements to the organization. I couldn't be more pleased with the progress we've made over the past year and our strong positioning for 2024 and beyond to drive accelerating high-quality and sustainable growth.
With that, let me turn the call over to our CFO, Mark Jones, Junior.
Thanks, Mark. Marc senior and Mark Miller have both referred to our master plan. Let me take a minute to provide more details of that plan. What we've accomplished to date and what you expect in 2024, first and foremost in our plan was to refocus on profitable growth and remove any barriers to future profitable growth when we kicked off this plan.
Corporate sales headcount was just over 500, but we were not delivering the productivity that could drive the level of margin. We know this business should produce. We evaluated our management resources, our recruiting practices and our incentive structure and ultimately decided that the best step we could take would be to reset the size of the team with total productivity being the guidepost for the appropriate team composition, essentially a shrink to grow strategy.
We reached our productivity targets a 56% increase at a headcount of around 250 and have been adding back productive capacity with the only limiting factor being our absorptive capacity. We took a similar approach in the franchise network. The business was carrying too many underproductive agencies that were blocking other successful agencies from onboarding, new referral partners, putting our brand in the market and clogging up management resources.
We shifted our focus from the number of operating agencies to what we view as the true measure of productive capacity, the number of producers and begin healing that network by investing in additional management resources, fostering engagement and incentivizing monthly goals where possible. We began aggressively culling underperforming agencies early in 2022 and have made great progress to date through the combination of franchise calling and new producer onboarding.
We transitioned from a peak of just over 2,100 producers to a much healthier 1,957 at year end, while seen fourth quarter productivity gains of 30% because we were aggressive in executing to our plan in 2023. We are already seeing the strategic initiatives bear fruit. Total new business production on the year was up 12%, while the average producer count company-wide was down 5% as planned, we have reaccelerated growth in new business production as total new business production in the fourth quarter was up 14% over the prior year. Reestablishing these high levels of productivity in corporate and driving significant improvement, particularly in the fourth quarter in the franchise network allows us to shift our focus back to a rapid and responsible growth.
Looking forward to 2024, we are excited to be transitioning into the next phase of our overall plan faster and more profitable revenue growth. We will achieve that through a few specific strategic actions, meaningful growth in corporate agent headcount, particularly in the second and third quarters of the year.
Further investment in our franchise agent staffing program for which we have significant demand and through productivity enhancements from a combination of strategically timed training programs and increased leverage of our proprietary QTI. technology across all of our sales and service functions, which will drive new business productivity and client retention. On top of that, we expect to onboard additional strategic partnerships that further decouple our results from the housing market and allow us to reach new clients outside of our traditional go-to-market strategy.
All of those items on the backdrop of what we believe will be an improving macro environment as opposed to a deteriorating one gives us tremendous confidence in our ability to drive a reacceleration in growth while expanding our margins.
Moving on to some specifics for our fourth quarter and full year results. For the quarter, total written premiums, the key leading indicator for future revenues were $756 million, an increase of 29% from the year ago period. This includes $584 million of franchise premiums, up 33% and $172 million of corporate premiums up 18% for the quarter.
For the full year 2023, our premiums grew 34% to just under $3 billion. While we have been experiencing tailwinds from carrier pricing actions. It is important to call out the secondary effect of that as less product availability in many of our key markets such as Texas, California, Florida, and New York. The impact to new business productivity from carrier restrictions has more than offset the tailwinds from increasing average premium per policy. We believe this makes our significant productivity improvements, particularly in the franchise side of the business, representing, 87% of our total productive capacity.
All the more exciting during the fourth quarter, our existing agency saw 23% same-store sales growth driven by both improvements in the productivity of the existing agents and by increasing the average number of producers per franchise from 1.49 a year ago. To 1.6 at year end 2023 policies in-force grew 16% versus the year ago quarter.
Again, as we expected, we anticipate growth in policies in force to accelerate in the second half of 2024 with further acceleration in 2025 as we continue through our master plan to onboard new producers, improve our service functions, maximize retention, launch, additional strategic partnerships and continue to add carriers to our QTI. platform. This very short-term slowdown in top line growth, but not bottom line profitability. It's just how we mapped out our plan 18 months ago.
Total revenue for the quarter grew 10% to $63 million, and for the full year, total revenue was up 25%. To $261 million. Core revenue for the quarter also grew 10% and was up 24% for the full year. As planned, we intentionally slowed overall premium growth and had a larger portion of our growth driven by the franchise network while reducing our average corporate agent headcount as we reestablished our profitable base because we recognize only our royalty fee as revenue in the franchise distribution.
This creates a lag from new business production growth to core revenue growth as production continues to accelerate in 2024. We should see more meaningful revenue acceleration in 2025. Contingent commissions for the quarter were $3 million versus $2 million a year ago. For the full year, contingent commissions were $13.7 million compared to $7.7 million and represented 46 basis points of total written premium for 2024.
We are assuming contingent commissions to be roughly 35 basis points of total written premium. Longer-term, we see no impediments to contingent commissions getting back to the historical average of 80 basis points of total written premium. However, we are remaining cautious and prudent in our near term forecasting as the timing and pace of the recovery of profitability for carriers has uncertainty and is not entirely within our control cost recovery.
Revenue for the quarter was $2.8 million compared to $3.3 million in the year ago quarter. For the full year, cost recovery revenue was $12.7 million compared to $12.3 million in 2022. For 2024, we are expecting cost recovery revenue to decline moderately from the 2023 levels as we have dramatically improved the health of our franchise network, resulting in fewer franchise terminations and less accelerated recognition of initial franchise fees. For GAAP purposes, it is important to remember that this changes, nothing from a cash basis as we collect franchise fees at the time of training and they're nonrefundable at that point.
But we are required to recognize the revenue over a 10-year period or the life of the franchise as year over year franchise turnover normalizes, we would expect this line item to grow at a level consistent with franchise launches, franchise producer count ended the year at 1,957, down 7% from the year-ago period. And high levels of terminations are masking what we believe to be strong growth in overall productive capacity for the franchise distribution.
For the full year, we lost 209 franchises and terminated 396 franchises with the increasing resources we have put into our agent staffing program. We expect total agents placed into existing scaling franchises to increase in 2024 for driving an increase in the average number of producers per franchise, an important stat for our scale in agencies each time they add a producer and improves the average productivity of everyone in their agency. This is an incredibly powerful tool for parabolic growth for both our franchisees and us.
Adjusted EBITDA in the quarter was $14.1 million compared to $11.9 million in the year ago quarter. For the full year, adjusted EBITDA increased 90% to $69.8 million. Our adjusted EBITDA margin for the full year increased about 900 basis points to 27% at the beginning of 2023, we indicated an intermediate term adjusted EBITDA margin goal of 30% plus over the next three to five years with strong execution in 2023. We now expect to achieve that goal closer to the shorter end of that timeframe. We plan to manage the business to consistently grow margin on an annual basis and continue to believe that longer term, we can operate the business around a 40% margin.
As of December 31, 2023, we had cash and cash equivalents of $42 million. Our unused line of credit was $49.8 million and total outstanding term notes payable balance was $77.5 million, given our low leverage levels. We have significant flexibility with which we plan to utilize to optimize our balance sheet in 2024. Our guidance for the full year 2024 is as follows. Total written premiums placed are expected to be between $3.7 billion and $3.85 billion, representing 25% organic growth on the low end of the range and 30% organic growth on the high end of the range.
Total revenues are expected to be between $310 million,$320 million, representing 19% organic growth in the low end of the range and 22% organic growth in the high end adjusted EBITDA margin is expected to expand for the full year as a reminder, our philosophy on guidance has always been to be as transparent and accurate as possible. We guide to what we actually believe we will achieve during the year. I can't thank our team enough for their hard work and discipline, delivering just what we set out to do in 2023. And I'm looking forward to doing that again in 2024.
At this point, I'd like to turn the call back over to our Chairman and CEO Mark Jones.
Mark Jones
As Sue said, marks 2024 as our 21st year in business. I'd like to take a moment to reflect on a few of our important milestones to date. After I spent 14 years at Bain & Co. my wife, Robin and I founded you said in October '23, my view of the personal lines insurance industry was that it was a redeemable broken. It was old and slow-moving, not client centric and honestly, quite boring. So we started with a fresh approach. Conceptually, it wasn't complicated just put the client at the center of our universe and build the business around them.
We didn't start with some analysis business model and trying to improve that. We started from scratch a blank sheet of paper. My experience of being taught me that smart people will figure out great solutions to the most complex problems if we apply ourselves. So I set out to build a team of really smart, albeit an experienced people, all committed to doing something really special to create one of the truly great American business success stories.
After launching the business in '23, we opened our first satellite office in Houston and 29 in 2012, we sold our first franchise to JC. and Patti harder in 2018. We took you said public in one of the most successful IPOs of that year. Since then, our stock is up approximately 800% versus returns for the S&P 500 of a little more than 100% in 2020. We generated over $1 billion in premium for the first time and expect to be well north of $3 billion this year.
As the Company grew, we invested in our management team with an eye to the future needs of the Company, trying to have the right team in place to manage the business when it was two or three times its current size. The most important change has been Mark Miller joining us nearly two years ago as President and COO. He had previously served on our Board since 2018 and continues to do so. Mark has brought a deep reservoir of business experience and maturity and discipline to our company that has resulted in stronger operating effectiveness and productivity and enabled much higher levels of profitability.
Mark and I have worked very hard together to assemble what we view as the right senior leadership team. And Bruce said, and that team is working very effectively together. I have great confidence in their ability to deliver for our clients, business partners and shareholders for many years to come. Given our progress to date and the current state of the company, I feel like now was the right time for me to transition my role out of the day-to-day operations of the Company.
So I can focus more of my time on other priorities in my life, such as family and philanthropy effective July 1, 2024, I will transition to an Executive Chairman role. Mark Miller will become President and Chief Executive Officer. At that time, I continue to be by far the largest owner of Q-Cells stock. Our family owns about one-third of the outstanding shares and a large portion of our family's wealth continues to be invested in this company. I am fully committed to its success. I'm not retiring and I'm not going away.
As I've said before, when I go away, it will be in a box, but going forward, my team will be focused on supporting our strategy development work, mentoring, our executives and our most important franchise partners serving as a resource and sounding board as needed for our leadership team and continuing to lead the work of our Board of Directors.
Our mission remains the same as it was when we started the Company to become the number one distributor of personal lines insurance in the United States during my lifetime, I'm very excited about our tremendous foundation for highly profitable growth and the amazing runway in front of us. I am fully committed and look forward to continuing to be engaged and contributing to making who said one of the truly great American business success stories.
With that, I'll turn the call back to the operator to open the line up for questions.
Question and Answer Session
Operator
(Operator Instructions)
Paul Newsome, Piper Sandler.
Paul Newsome
Good morning. Congratulations on the transitions transitions to both you and them. I wanted to ask maybe and I know you guys did talk touch on this too prepared remarks, but a little bit more on the disconnect between written premium growth and revenue growth in your expectations.
I would expect so that has to do with the contingents obviously some, but it looks like there's maybe something else in there as well to get to substantially lower revenue growth than written premium growth. Maybe you could just talk about that more?
Yes, Paul, thanks for the question. This is Mark junior. So looking at 2024, as a reminder, when we write new business on the franchise side of the business, we only recognize our royalty as the revenue, which is $0.2 compared to the corporate side. And a lot of our investments are going into placing producers and launching new, highly successful franchises and driving productivity on that side of the business that shows up in premium before it shows up in revenue growth.
So then you look forward to 2025 to see that spring loading function as that 20% new business converts into 50% of renewal.
Paul Newsome
And then relatedly, I'm surprised that the amount of contingent commissions as a percent of premium, is it expected to fall. And I kind of think of my personal lines results being about as bad as they could get in the last two years, and we've seen some companies make a transition to profitability in the fourth quarter. So is that essentially a lag effect from what's happened with the personal lines profitability?
Or is there something else in there? It is reducing contingent commissions that isn't related necessarily to the profitability of the personal lines. Right. Is there a mix down also commissions versus production?
Look looking at where carriers are having more success now you're starting to see the auto side of the business start to unfold a little bit as loss ratios improved 2023 on the home side was just about as bad as it has ever been. And so when you think about our go-to-market strategy and how much of our book is made up of home, which is a much more preferred client, but this was a really bad loss year for carriers on the home side, we're not expecting that to get materially better in 2024.
So I don't want to over-promise on contingencies. We're going to be conservative on that outwardly, and I would love to see that home side thaw, but we're going to see the auto side come around first.
Mark Jones
2024 contingencies are based on 2023 loss ratios.
Yes.
Mark Jones
So there is that lag effect?
Correct.
Operator
Great automotive, both your questions. But thank you for the help, and really appreciate.
Mark Miller
Thanks, Paul.
Operator
Brian Meredith, UBS.
Brian Meredith
Yes, thanks, I got a couple of them quickly here for your first, just looking at the content, the commissions and agency fees, it really slowed from a growth perspective in the fourth quarter and it looks like a lot of that. It's because of what was going on. No commissions. Was there anything unusual in that number? Any kind of reversals or something that may have happened that caused it will be slow.
Mark Miller
No. When you when you're looking at the commissions and fees line, really agency fees because we that's probably the least important line in our revenue as it doesn't renew and a lot of that gets paid to the agents anyway. And as we diversify our footprint outside of Texas into more states where the Department of Insurance does not allow you to charge fees. Naturally, that slows from a growth rate perspective.
But also remember on the corporate side of the business, we went through a lot of cutting starting in 2022 and through the middle of 2023. And so you saw that new business productivity increase, but the aggregate amount of production remained relatively flat. So that had a really nice positive impact on the earnings of the secondary effect of that as you have less flown into renewals the next year.
So looking at the growth rate in that, nobody to go back and look at the growth rate in new business commissions in 2022 to see what happens to renewals and 23.
Brian Meredith
Got you. It makes sense.
Mark Miller
Yes. And we do it. We do expect to see that reaccelerate very early in 2024.
Brian Meredith
Perfect. And then second, just quick question here. What is your kind of expectations with respect to leads from mortgage originators as you look into 2020?
Mark Jones
Yes. I mean, the smart Miller and brought Brian Taylor, who leads the sales organization is here with me on. I think it Our expectation is that the housing market continues to stay challenging, but we found a way to power through it. And we're just we're literally going out and just making more referral partner relationships out there, which increases our lead flow. So I think we can continue to see our lead flow at least as strong as it is now and continue to work on our sales process. Brian, anything you want to add?
Brian Meredith
Yes, I would I would argue, obviously, the 2023 housing results were not good, but we were able to power through that and drive productivity. And it's really just about managing the activity. We have such a low percent market share of new purchases still. There's lots of business out there. We just have to go hunt, go develop new relationships and we're able to power through it. So our intention is to continue on with those additional investments going into this year on?
It's hard to say exactly when housing does this year, but I feel very confident we can power through any challenges or headwinds on housing, the number of proprietary RP. search tool that just refresh everyone on I guess.
We have a proprietary kind of referral partner database that allows us to know exactly who is doing the transactions and which ones work with and which ones were not. So every month we're looking at, okay, which realtors which loan officers are doing the volume that are not working with us currently, and our agents proactively go out and build relationships with those.
So that technology has been a huge help, and we have stayed extremely proactive and aggressive during this time, many insurance agents have sat back and dealt with all of the retail shops and renewal activity on our agents have gone out and aggressively build more relationships during this time to counteract the slowdown.
Mark Jones
And I would just add one thing. I think we're also expecting to see lead flow pickup from some of our new lead sources on we mentioned kind of the mid-market business and also our partnerships are starting to take hold. So I think all of that leads to solid expectations for lead flow next year for this year.
Brian Meredith
Thank you.
Operator
Andrew Kligerman, TD Cowen.
Andrew Kligerman
Hey, thanks a lot. Congratulations to Mark Miller on the promotion, and I guess they'll still be a mark is the CTO from Sun?
Mark Miller
So actually, I think, Patrick, I think San Diego, we stood out to me around here that.
Andrew Kligerman
Yes, sorry, that was really bad. So in any event, just tacking on to a pause in Brian's questions, just following up on the contingent then if I'm taking a very optimistic view about the turn in auto underwriting performance, homeowners, underwriting performance. I could see a material move when you're citing contingent commissions in 2025. If I'm taking optimistic view right?
Mark Jones
Yes, that's exactly how I would look at it, Andrew. I mean, I think 2025, we would expect to see some kind of progression back towards the mean of historical averages of 80 basis points of total written premium. And I would be surprised if we get all the way back there in 2025. But it's a very big premium number by that point. And so any move in that makes a pretty big difference to not only the top line, but the bottom line because that is effectively 100% profit.
Andrew Kligerman
It makes it makes a lot of sense. And then what Brian was asking about the new business commissions, I guess it makes sense in the context of the corporate agents being down to 300 versus three, 10 year over year. And then the franchise producers, even though they're more productive, they're down five, 10%. So so I guess the question then would be on you've got 300 corporate agents. We where can that get to in the end of at the end of this year? And same thing on the 1,957 franchise agents, you know, could you how are you thinking about growth in both of those channels in terms of numbers of agents?
Mark Miller
This is Martin or I'll take that one on on the corporate side, we've had a very successful recruiting season, which kind of for us starts in the fall in college campuses, and they're not all signed up yet. But like I mentioned in my comments, we feel really good about the class and that we've signed up so far. So there's still more work to go, but we would expect to see a significant increase in the corporate producer headcount this year by the end of the year.
But I'm not going to peg an exact number because we're not done with the recruiting cycle yet on the franchise side, we're more focused on making the agencies that we have stronger and adding producers to those franchises. So I think what you'll see is the number of producers per agency go up over time and on, we're really focused on closing the gap between the productivity of a corporate agent and a franchise agent and I think we can meaningfully meaningfully move that up.
So what I'm what I'm trying to say is the end goal here is productive output across both channels. And I think we can we can meaningfully increase both productive productive output on both channels and in the coming year.
Mark Jones
Yes, Andrew, I would just add one thing to your to your initial comments you're talking about new business commissions. As a reminder, we did launch 30 of our absolute best corporate agents into franchises during this year. And so you can take our productivity numbers that are in the K that are just going to come out and you can see what would that have done to new business commissions had we had those all30 year I see.
Andrew Kligerman
And just to kind of add onto that, it looks like you're almost done with the restructuring right by the end of the first half of this year. That'll be done and I get that productivity is key, but you actually could increase the number of agents given that that restructuring is coming winding down, right?
Mark Miller
Yes. I mean, we should see the turnover of franchises begin to slow in 2024, and that will happen over time. You shouldn't expect to see that naturally happen just in the first quarter and we're going to continue to recruit as aggressively as we can on behalf of our agencies because they're telling us we want to hire, we need your help. And those are really powerful tools for driving productivity, not just for that individual agent, but for everybody in their franchise. So yes, it's very possible you could see growth in the producer count number, but we're also not going to reduce our quality standards on our existing force.
Mark Jones
And the way it works in reality is we set we set a minimum standard of production for the franchises and we expect them to get over as the average productivity of the franchises increases. I think you'll naturally see less of them, you know, on leave leave the system, but I do believe we will continue to keep the standard where it is and keep moving franchises up in the productivity range.
Andrew Kligerman
Helpful. Thank you.
Operator
Meyer Shields, Keefe, Bruyette, & Woods.
Meyer Shields
Great. Thanks so much and congratulations to really everyone on a move forward. A couple of technical questions on the supplemental disclosure, which is really helpful. Thank you.
When we look at the franchise productivity, I can't tell what the denominator of that. It's the franchises are the producers.
Mark Miller
It's a franchise.
Meyer Shields
Okay, perfect. I was hoping, and I think I'm sure that the shift of corporate agents to the franchise channel is a big part of what we look at the productivity for the more experienced cover agents that went down. Is there any way of disentangling how much of that is because the superstars are leaving? Is there any other headwind that we should be thinking about.
Mark Miller
It is we can quantify that for you pretty easily. So if you were to include those 30 corporate agents that we launched into franchises, this year that greater than one year bucket of corporate agents would have had a 19% increase in productivity. So that does have a meaningful impact to the team. We could take out. I think the line we've used before as agents are new to their steroids and put them into franchises.
Mark Jones
And we did have a really full move into, I believe to right?
Yes, yes.
Mark Miller
I'm sorry, I missed that handful moved into Engine Management.
Mark Jones
So as we prepare to add more corporate agents, we need to up-level the management team and they don't sell, but.
Meyer Shields
Okay, perfect. And then one last question, if I can, as will give us a sense of the pricing physically on the home side that are built into the premium and revenue vacation?
Mark Miller
Yes. I mean, we're still expecting some some pricing tailwinds, at least through the first half of the year. We're not going to put a specific number on it. But really we're focused on driving policy productivity and reigniting policy in force growth rate, which you should see in the second half of the year.
Meyer Shields
Perfect. Thank you very much.
Operator
Scott Heleniak, RBC Capital Markets.
Scott Heleniak
Yes, thanks again, and congrats all to everybody to their Just a quick question on the arm. The revenue guidance that you're talking about here, and you mentioned on the basically revenue trends expected to get better in the second half of 24 and into 2025 D., talk more about what's going to be the drivers behind that? Is that is that new hires? Is that productivity? Is it market conditions or just kind of combination of all those or any anything else that's going to and I guess resulting in better revenue trends in the second half of the year versus the first half?
Mark Miller
Yes, it's kind of all of those things, Scott. So if you think about our corporate team, which they have 100% revenue recognition on new business compared to the franchise side as 20. So we're going to onboard a pretty large class this summer of corporate agents that we've got through our recruiting pipeline right now, which we'll start to see that flow through the new business lines in this in the second and third quarter and on the franchise side of the business as we reaccelerated the growth in Q4 of 2023, we've talked a lot about the spring loading factor of how that will now impact the next year.
And so you start to see that new business convert into renewal in the second half of 2024. On top of that, I mentioned in my prepared remarks, we do expect to see an improving macro environment as opposed to a deteriorating one in 2024 for both from a product side and hopefully from a home market housing market side. But even if the housing market doesn't improve, our agents have shown they can still go out there and generate kind of record number of leads. And so we think there's a lot of things that are going to go right for us, especially in the second half of the year. And so we're feeling very confident.
Scott Heleniak
Okay. That's helpful. And then on the EBITDA margin guidance, I know you're not going to talk a whole lot about what it's going to be just up year over year, but is there any other expense items that we should kind of keep in mind versus versus 23 that might be different, either either up or down compared to the 23 levels as we as we get into the year, particularly the second half of the year and some of those and the agents are onboarded?
Mark Miller
I mean, I will just watch your quarter and I mean, you should assume that as we onboard a significant number of corporate agents and late in the second quarter and early in the third quarter that will flow through your compensation expense lines. Your G&A shouldn't. I'm very, I would say, materially from the cadence in 2023 that to drive margin expansion, which we plan to do again in 2024, you have to get some scale in both those comp and G&A line. So as you're looking at your model. That's something I'd point you to.
Scott Heleniak
Okay. Thanks. Appreciate it.
Operator
Michael Zaremski, BMO.
Michael Zaremski
Thanks. And I think some of the transmission, two quick questions from the airport. So hopefully there's no background noise, but are on the contingents first on the lag in terms of payment to you all, can you give us any context on six month versus 12 month policies between home and our auto, so we can kind of better understand that lag.
And just on Secondly, on the DM lack of pure appetites and under the current underwriting environment in certain ZIP codes or states, can you further unpack and what's been going on and how you're viewing the carrier appetite changes in your kind of guidance in '24? Thanks.
Mark Miller
Yes. So just to briefly touch on the contingency piece at 12 months versus six months that that doesn't really factor into how the contingent commission contracts work. And we've gotten a couple of questions occasionally on the how much six month policies, the right and so that's just a tool carriers use when they want to rewrite a little bit faster.
Typically only happens on the auto side, you don't see six month home policies. So that the home policies are still all 12 months. You do see an increase in the amount of six month policies. You're right, but it's still not the majority of the business. We just do see an increase a bit during hard market for auto.
Mark Jones
And I think the second part of the question was about the carrier market and what do we see there I'll take that one. So just to frame the question up a little bit on roughly slightly over 50% of our business is home and of that 50% and about 50% of that is in the state of Texas and Texas was hit, as you know, very hard by the weather over the last several years, particularly hail in the spring of last year, a lot of carriers pulled out of the market or put additional restrictions on selling Texas.
So it's been, as Martin mentioned in opening remarks, one of the hardest markets that we've seen. We haven't seen it all the all the major carriers come back into the market yet, but we have gotten an indication of that. Carriers are interested in coming back in, especially in auto. So auto looks particularly good right now. And then home early indications are good. So the Texas home market is very important to us on California got really hard for a while. It's gotten a little bit better, but generally it comes in a couple of forms.
Carriers can pull completely out of a market or they can restrict new on new appointments. We're still restricted in some states on appointments for new franchises. So it helps us really narrow our vision and where we want to add new franchises because we want to be in places where they can get full appointments. But we see the market softening over the next year. And I think that really like when we look about our forward look forward on forecast, it implies that we think the market's going to get better over time.
Michael Zaremski
And same thing as a quick follow-up on the if the trend is towards more six month policies that put any incremental pressure on your agents in terms of them having to do a little more work on renewal, they get the step down in their commission rate upon renewal if they're going from 12 to six? Or is that not not something we should really be thinking about? Thanks, guys.
Mark Miller
It's not a big issue for agents. If you do the math, the step-down in the commission rate versus the re-rating faster, but it doesn't really cause that big of an impact to the individual agents, not it does give a policy more opportunity to re-rate faster. So it should help actually drive premium growth. And then frankly, on our end, the commission rate does step down.
Michael Zaremski
Thank you.
Operator
Pablo Singzon, JPMorgan.
Pablo Singzon
Hi, thank you. As the productivity gains are encouraging, I guess I'd be interested to hear if you expect the same pace of gains in '24 And longer term, what kind of trajectory are you?
Mark Jones
Well, I guess the question I was having a hard time understanding exactly what you said. I think you said, do we expect the same kind of productivity gains in the coming years in that?
Pablo Singzon
Well, could I clarify or and let me let me let me go through it again. Apologies. I mean, I think it's a good point. Yes. So yes, it's 23. Clearly a good year for productivity gains, outsized right like low double digits of the ocean is do you expect the same pace in 24 and longer term factory RES?
Mark Jones
Yes, I would say when we look at corporate, we're very proud of the turnaround and productivity improvement. We still believe that there is more room to grow on the corporate side. And that just comes from productivity gains on maturing of the agent base as they the tenure increases on the franchise side, I think is where you really see the opportunity with 2000 approximately 2000 agents out there and what their productivity level is versus a corporate agent.
There's no mathematical reason why our franchise agent can't get to the same productivity level as a corporate. And I think the structural changes that we made to the franchise area towards the end of 2023, really make me optimistic about what the future looks like of the franchise business. And I give Brian Patel and his team, a lot of credit with that, we structurally change how we interact and engage with franchises rather than just putting them through training and then letting them loose on.
We're managing their activities more closely now and helping educate them helping them with their sales processes, helping them with their budgets and goals, incentivizing them a really, really long program of things that we've done with the franchises, but it's been incredibly successful. And I think there's a long runway to continue to improve performance in the franchise side of the business. Okay.
Pablo Singzon
That makes sense. And then the second question from me, just on the guidance. I just wanted to confirm that you expect margins expand next year even with contingents down. Is that correct?
Mark Jones
Correct.
Pablo Singzon
All right. Thank you.
Operator
I show no further questions at this time. I would now like to turn the call back to Mark Miller for closing.
Mark Miller
Well, I want to thank everybody for joining us and appreciate your participation and support of the stock in your questions. And with that, I will turn it on close the call. Thank you.
Operator
This concludes today's conference call. Thank you for you participants your participation. You may now disconnect.
