Goosehead Insurance (GSHD) Reports
Goosehead Insurance (GSHD) reported this morning and will host a conference call at 8:30 a.m. I’m including a quick overview now and will detail any learnings from the conference call later. On to the results. The headline numbers showed a slight miss on revenue. Third-quarter revenue was up 31.9% to $21.2 million, which was $400K short of consensus. Adjusted EPS of $0.08 was in line.
Franchise Channel revenue was up 47% to $9.8 million, which I believe is about $500K ahead of expectations. Corporate Channel revenue was up 21% to $11.3 million, which is a little lighter than expected.
Total written premiums placed were up 44% to $202.1 million with two-thirds coming from the Franchise Channel. The total number of franchises grew 49% to 828. Of these, 583 are currently operating, which is up 38%. The gap between the number of franchises and operating franchises illustrates that there is a time delay in getting them signed and getting them up and running. No surprise there.
Growth in the Franchise Channel is a big part of the investment thesis and it seems to be tracking quite well. But it won’t hit revenue in a big way right away. In the Franchise Channel 20% of revenue is received when the first policy is written, then 50% when policies renew. That means a year from now revenue from the policies written in Q3 in the Franchise Channel policies will be roughly 2.5 times higher, assuming 100% retention (which won’t happen, but you get the picture). All in, policies in force grew 45% to 448K. Corporate sales headcount rose 33% to 232.
It will be interesting to hear what management has to say on the conference call. But the bottom line is that Goosehead is raising its 2019 outlook to 33% to 41% revenue growth, which implies $80 million to $85 million. Consensus is for 33% revenue growth so this is a meaningful increase. Management sees total written premiums placed in 2019 up 40% to 43% in a range of $715 million to $730 million. I don’t expect a big move in this stock on these results since GSHD is already trading 2% below all-time highs. But you never know. In my opinion this report shows that the long-term growth trajectory is intact and we’re in good shape here. Buy on any weakness. If the stock gaps higher, be a little conservative but you can still nibble. BUY.