FDD Talk: Goosehead Insurance Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Goosehead Insurance franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Goosehead Insurance franchise, based on Item 7 of the company’s 2019 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Goosehead Insurance franchise, based on Items 5 and 6 of the company’s 2019 FDD

• Section IV – Number of franchised and company-owned Goosehead Insurance outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD

• Section V – Presentation and analysis of Goosehead Insurance’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:

• 2018 average gross revenue and premium for the 303 franchise producers, representing 237 Goosehead Insurance franchised businesses, who were included in the charts because (a) they operated during Goosehead Insurance’s entire 2018 fiscal year (January 1, 2018 to December 31, 2018), (b) had a start date on or before January 1, 2018 and were still operating as of February 11, 2019, (c) worked for a franchisee that was, during that period, in compliance with, and not in default of, the franchise agreement, and (d) had a role where a majority of their time was dedicated to new business production, grouped by tenure (1 year, 2 years, and 3+ years)

• 2018 average gross revenue and premium for the 77 TWG producers who were included in the charts because (a) they operated during Goosehead Insurance’s entire 2018 fiscal year (January 1, 2018 to December 31, 2018), (b) had a start date on or before January 1, 2018 and were still employed as of December 31, 2018, and (c) had a role where a majority of their time was dedicated to new business production, grouped by tenure (1 year, 2 years, and 3+ years)

Section I – Background Information

11 Things You Need to Know About the Goosehead Insurance Franchise

Announces Select Preliminary Key Performance Indicators for Fourth Quarter and Year-End 2019

1.  Near the end of January 2020, Goosehead Insurance announced select preliminary fourth quarter and year-end 2019 key performance indicators, including preliminary estimated revenue under ASC 605 for the fourth quarter ended December 31, 2019, provided in connection with the company’s annual internal meeting in February 2020.

2.  Goosehead highlighted the following:

• Revenue under accounting guidance ASC 605 (based on currently available information, which is subject to change; Goosehead Insurance expects to release full fourth quarter and full year 2019 results in March 2020) for the fourth quarter of 2019 is expected to be between $20.1 million and $20.3 million, representing organic growth of between 37% and 38% from the fourth quarter of 2018.

• For the full year 2019, revenue under accounting guidance ASC 605 is expected to be between $83.8 million and $84.0 million, representing organic growth of between 39% and 40% from 2018.

• Total written premiums placed grew 45% to $196 million in the fourth quarter of 2019, compared to $135 million during the fourth quarter of 2018. Total written premiums placed in 2019 were $739 million, an increase of 45% from 2018.

• Policies in force grew 44% to 482,000 at year-end 2019, compared to 334,000 at year-end 2018.

• Corporate sales headcount of 248 as of December 31, 2019 was up 49% year-over-year.

• Total franchises increased 47% compared to the prior-year period to 948 as of December 31, 2019; total operating franchises grew 34% compared to the prior-year period to 614.

3.  Also during Q4 of 2019, Goosehead Insurance’s mix of business continued to proportionately shift toward its Franchise Channel, as has been the case throughout 2019. This shift creates a growing short-term gap between premium growth and revenue growth.

4.  Mark Colby, CFO of Goosehead Insurance, explained the significance of this shift, “We believe that premium growth is the best leading indicator of future revenue growth, particularly in our Franchise Channel. We are extremely pleased to have grown premiums written by 45% in 2019. Because Goosehead’s royalties in the Franchise Channel on new business are 20%, but jump to 50% on renewal, strong premium growth today creates a spring-loading of future revenue growth as policies mature from new business to renewal.”

5.  Mark E. Jones, chairman and CEO, added, “Our team delivered another year of strong organic growth in 2019, which is another testament to the predictability and reliability of our business model. We are also very pleased that we continue to attract increasingly high-quality franchise candidates to our system. We are excited to review the results we are announcing now with our team during our 2020 internal annual meeting. We have built a better mouse trap and we believe the company is very well-positioned to continue to sustain very high levels of profitable growth in 2020 and beyond.”

Strengthens Senior Management Team with New Additions and Promotions

6.  In mid-January 2020, Goosehead Insurance announced senior officer promotions and new management additions, recognizing the strength and contributions of existing leadership and enhancing and investing in management depth and capabilities to support future growth.

7.  The following people are now part of Goosehead’s senior management team:

• Dan Farrell has joined as vice president – capital markets. In this role, a key responsibility will be leading the Investor Relations and Public Relations efforts. Farrell was previously a sell-side equity analyst covering the insurance sector for 16 years and more recently served as head of investor relations for Marsh & McLennan Companies and head of strategy for Mercer. He will report to CFO Mark Colby.

• Brian Pattillo has been promoted to vice president. Pattillo joined the company in 2009 and in recent years his role had broadened greatly, helping to contribute to success in a variety of initiatives particularly in the areas of technology development and implementation. He will continue to report to COO Mike Colby.

• Mark E. Jones Jr. has been promoted to vice president – finance. Jones has served in a variety of roles within the finance team over the last decade, most recently as controller. He made significant contributions in strengthening the finance function leading up to and following the company’s initial public offering. Jones will continue to report to CFO Mark Colby.

• Matt Hunt has been promoted to managing director. Hunt began his career with the company in 2010 and currently serves as the Chicago office head. He has been instrumental in starting new offices in Houston, Austin, and Chicago and helps drive development of the company’s franchise partners. Hunt will continue to report to VP Gary Delavan.

• Anthony Roland has joined as controller. Roland joins Goosehead with over 10 years of experience, most recently from Dallas-based Exeter Finance, where he served as director, accounting policy, financial reporting and analysis. He previously served in various roles in big four public accounting and consulting firms. Roland will report to Mark Jones Jr.

8.  Mark E. Jones, chairman and CEO of Goosehead Insurance, stated, “Our people represent our most important competitive advantage. We are delighted to welcome Dan and Anthony to our senior team, who bring unique skills and experiences to bear. Brian, Mark and Matt have all played crucial roles in our efforts to grow and develop this outstanding company and we are pleased to recognize their extraordinary contributions.”

Company History

9.  Goosehead Insurance was founded in 2003 by Robyn Jones, a real estate investor, and her husband Mark Jones, who was a senior partner at Bain & Co. at the time. The Joneses wanted to transform the insurance industry by putting their clients first and building the business around those clients, and delivering the best service possible. Instead of modeling Goosehead after other agencies, the Joneses designed a business model focused on providing the best service, the best value, and the best experience for their clients.

10.  Initially, the Joneses called their business TWG Insurance and started franchising in 2011. A few years later, in 2014, the agency consolidated its corporate and franchise operations under the Goosehead name. Over the next few years, Goosehead Insurance has grown around the United States and the business ended 2017 with a net income of $8.7 million. There are now Goosehead Insurance agency franchises all across the country.

Entrepreneur’s Franchise 500

11.  Goosehead Insurance ranked No. 129 on Entrepreneur’s 2020 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of Goosehead Insurance franchise costs, based on Item 7 of the company’s 2019 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Goosehead Insurance’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2016

• Outlets at the Start of the Year:  125
• Outlets at the End of the Year:  190
• Net Change:  +65

2017

• Outlets at the Start of the Year:  190
• Outlets at the End of the Year:  292
• Net Change:  +102

2018

• Outlets at the Start of the Year:  292
• Outlets at the End of the Year:  457
• Net Change:  +165

Company-Owned

2016

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2017

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

2018

• Outlets at the Start of the Year:  0
• Outlets at the End of the Year:  0
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis

• Below Goosehead Insurance provides historical performance of “producers” of its franchisees during its fiscal year ended December 31, 2018.

• The franchisor’s affiliate, TWG, engages in the insurance services business under the name “Goosehead Insurance” and using the Proprietary Marks. TWG has been operating as a national independent insurance agency since 2003. The company has offices in Westlake, Texas; Irving, Texas; Ft. Worth, Texas; Houston, Texas; The Woodlands, Texas; Austin, Texas; and Rosemont, Illinois.

• A “producer” for the purposes of this Item 19 is an individual who works for a franchisee as an agent or for TWG as an employee and has devoted full-time efforts to a production role as of December 31, 2018.

• Except as identified below, all franchisees and TWG agents that were in operation for at least one full year as of December 31, 2018, are included.

• Two types of information are provided below, the average gross revenues per producer and the value of premiums generated per producer.

• Differences in state laws (for example, some states – like California and Florida – do not allow for the payment of “agency fees” whereas fees are allowed in Texas and Illinois) may negatively affect the results of franchisees and/or producers in certain states.

• The data used to compile the information in this Item 19 is derived from agency fees and sales commissions paid directly to Goosehead Insurance.

• “Gross Revenue” means the amount of Commissions and Agency Fees, net of reversals of Commissions for policy cancellations or policy changes and net of Agency Fee refunds, for insurance services provided by the Franchised Business.

• Gross Revenue does not include any Premiums or Policy Fees collected by the Franchised Business on behalf of any insurance carrier.

• The Gross Revenue noted in this Item 19 are the total Gross Revenues paid, on a cash basis, by Goosehead Insurance’s carriers to it and recognized during the 2018 fiscal year (January 1, 2018 to December 31, 2018).

• “Premium” is paid by a client to the insurance carrier for insurance coverage. The Premiums noted in this Item 19 are the Premiums from Goosehead Insurance’s insurance carrier statements recognized during the 2018 fiscal year (January 1, 2018 to December 31, 2018).

Part 1 – Information for Franchise Producers (2018)

• There were 303 franchise producers, representing 237 franchised businesses, who were included in the charts because they operated during Goosehead Insurance’s entire 2018 fiscal year (January 1, 2018 to December 31, 2018) and met certain criteria, noted below.

• Each of the franchise producers included: (a) had a start date on or before January 1, 2018 and were still operating as of February 11, 2019, (b) worked for a franchisee that was, during that period, in compliance with, and not in default of, the franchise agreement, and (c) had a role where a majority of their time was dedicated to new business production.

• 45 franchise producers who operated during the entire 2018 fiscal year were not included in the results because they did not meet these criteria.

• “Tenure” is defined as the number of full years an agent has devoted full time efforts to a production role as of December 31, 2018.

A. Gross Revenue Per Franchise Producer (2018)

• Total Number of Franchise Producers:  303

Tenure: 1 Year