Goosehead Insurance (GSHD) and Everbridge (EVBG) Report Q3 Earnings
Goosehead Insurance (GSHD) reported last night and the stock has pulled back a little throughout today’s trading session. This is not concerning to me. I am keeping at buy and suggest continuing to average in as I believe we remain in the early innings of a unique, long-term growth story in the personal lines insurance market.
The results: Q3 revenue was up 49% to $16 million (beating by $850K) while adjusted EPS of $0.05 was in-line with expectations. The beat was largely driven by franchise fees that were pulled into Q3 that will not repeat in Q4, as well as strong results in the Corporate Channel. Written premiums were up 50% to $140.3 million and policies in force were up 50% to 310,009. EBITDA margin shrank by 1% to 21% due to hiring, technology investments and increased franchise count. These are OK by me. Goosehead ended Q3 with $18.1 million in cash.
Goosehead’s Corporate Channel (61% of total revenue) grew by 41% to $9.4 million, in part because of a 55% increase in Corporate sales agent headcount, which now sits at 174.
Franchise Channel revenue (38% of total revenue) grew by 60% to $6.7 million, driven by greater royalty fees on renewal business and higher initial franchise fees.
Management dedicated a good portion of their prepared remarks on the conference call to talking about how they are in this business for the long-haul and don’t intend to impart any of the usual shenanigans when it comes to insider stock sales, stock options, etc. That said, the stock is still likely to be somewhat volatile as publicly-traded shares increase slowly over time due to management converting Class B shares (not public) to Class A (publicly-traded). Expect it, know it’s good to increase liquidity, and you won’t be surprised. Management intends to stick to their lane and grow organically, while investing in their technology platform and business model to drive differentiation from the competition.
One such investment is a recent integration of insurance comparative rating applications into the Salesforce.com-powered platform. This eliminates redundancy and roughly 75% of the required data entry and means sales agents can save around 15 minutes per quote, while also sharing best practices. Goosehead has also created a proprietary database of mortgage activity across the country to help agents focus their efforts on the large volume mortgage lenders, who are most likely to generate homeowners’ insurance policy volume.
On that note management said the housing slowdown was roughly twice as pronounced as what it has typically seen at the end of the summer (evidence of which we’ve seen in housing and construction-related stocks). This created a headwind for policy origination from referral partners. It added new referral partners to its network quickly to overcome some of the challenges, but I think it’s fair to expect Goosehead to focus on competitive wins throughout the winter as the housing market slows down. They are a fierce competitor, and still have relatively small market share so slower times will be a good test of their business model.
One piece of big news: expect a special dividend in Q1 2019. I doubt this news will become common knowledge, so it could be a catalyst on the day it’s announced. I wouldn’t try to trade around it though. It’s just a signal that more dividends are likely in the future as management intends to share the wealth.
In short, Goosehead continues to execute and grow roughly 10-times faster than its industry. That makes it an expensive stock on conventional metrics, but rapid growth stocks are almost always expensive. Today’s weakness affords long-term investors another opportunity to pick up a few shares. Keeping at Buy. BUY.
Everbridge (EVBG) beat on both the top and bottom line last night and shares have advanced slowly throughout the day. The stock is among the strongest in the cloud software space and if you don’t own any you can pick up a few around this level. For those that are still maintaining their position and are a little hesitant to buy anything in this market, just keep holding.
The results: Revenue was up 42.5% to $38.9 million and beat by $820K while adjusted EPS of -$0.10 beat by $0.02. Customer count increased by 29% to 4,267 and Everbridge added 109 in the quarter. Management issued full-year 2018 guidance that was above expectations. Revenue is expected to be around $146 million while EPS should be around -$0.56.
New products, including IT Alerting (up 40%), Safety Connection (up over 100%) and Visual Command Center (up over 100%) now account for 50% of all new sales, while Mass Notification solutions accounted for the other 50%. It’s good to see new solutions resonating with the market, especially in such a meaningful way. Multiproduct deals reached 107 in the quarter; that’s up 95% over the same quarter last year. Average sales price was up 33% to $55K. International revenue was up 20%.
Revenue mix is 54% corporate, 32% state and local government and 14% healthcare. New customer wins/expansions in the quarter included LabCorp, Goodyear Tire & Rubber Company (GT), Shopify (SHOP) and Alternation. Everbridge also landed the University Medical Center at El Paso, Orlando Health, Ohio Emergency Management, Indiana National Guard, Massachusetts Bay Transit Authority, and New Orleans, Nashville and Anchorage airports. International wins included Chevron, Takeda Pharma, Credit Suisse, Foxhole Finance, the Bank of Tokyo, CaixaBank (3rd largest in Spain), the country of Iceland, Oslo, Norway, and the Indian state of Andhra Pradesh (50 million people).
Back here at home Everbridge continues to make progress in the U.S. government space after gaining FedRAMP authorization. It sees a $1 billion market here in the government space. It landed the U.S. Dept of Agriculture, the U.S. Postal Service, the U.S. Census Bureau and the U.S. Army, for whom it will support JARVISS, a global threat information sharing system. This is a military-grade system that can be leveraged by other DoD agencies.
The big picture story here is still good as Everbridge is now much more than a messaging platform. It’s growing rapidly in the U.S. and abroad, landing new customers and expanding relationships with existing ones, and just beginning to serve the U.S. government. There will be bumps in the road to be sure. But big picture, Everbridge looks good. Keep Holding. HOLD.