Goosehead Insurance beat earnings expectations in the third quarter of 2024, but revenue fell short due to pressure on non-core revenue streams.
Technology-focused insurance provider Goosehead Insurance (GSHD 0.50%)reported third-quarter results on Wednesday, October 23, that missed analyst expectations on revenue but beat them on earnings. Goosehead posted adjusted earnings per share of $0.50, beating expectations of $0.45. At $78 million, sales missed the $80.54 million mark set by analysts.
Despite the decline in sales, Goosehead’s focus on its core business drove impressive 16% growth while maintaining strong customer loyalty. Overall, the quarter was characterized by operational resilience despite economic pressures, although the decline in ancillary and cost recovery revenues is a concern.
| Metric | Q3 2024 | Analyst estimate | Q3 2023 | Change (year-on-year comparison) |
|---|---|---|---|---|
| revenue | 78 million dollars | $80.54 million | 71 million dollars | 10% |
| Adjusted EPS | $0.50 | $0.45 | $0.46 | 8.7% |
| Core sales | $73.5 million | N/A | $63.1 million | 16% |
| Adjusted EBITDA | $26.1 million | N/A | $22.4 million | 16.5% |
| Net income | $12.6 million | N/A | $11.3 million | 11.5% |
Source: Goosehead Insurance. Note: Analyst estimates for the quarter are provided by FactSet. YOY = year after year. EBITDA: Earnings before interest, taxes, debt and amortization.
About Goosehead Insurance
Goosehead Insurance is a technology-driven insurance agency characterized by a proprietary platform that integrates an extensive network of franchise and corporate agents. The company specializes in providing tailored insurance solutions with support from over 150 carriers. Recent efforts have focused on technology integration to improve customer service and agent performance, key components of the successful model.
The company’s approach earned it a high Net Promoter Score (NPS) of 92, signaling exceptional customer satisfaction. Customers value the technology platform that provides fast and accurate quotes, improving customer acquisition and retention. Expanding the agent network remains a key focus, with a 4% increase in franchise producers and a significant 45% increase in corporate agent headcount.
Quarterly developments
Goosehead Insurance’s third-quarter revenue of $78 million represented a 10% increase from a year ago, but was tempered by pressure on ancillary income and cost recovery income. These areas declined by significant percentages of 38% and 49%, respectively. Nevertheless, the core business remained strong and core revenue increased 16%, driven by technological advances and expanded agent capabilities.
Notably, the company maintained written premiums at $1.03 billion, a new quarterly high, due to effective navigation of complex carrier relationships and a diverse product portfolio. The company’s above-average EPS performance reflected effective cost management and operational efficiency.
Given the company’s high valuation expectations, challenges remain, particularly in sustaining growth. The performance of non-core sources of income is an aspect that requires close monitoring, as reliance on core sources of income could pose risks to financial stability if similar stresses arise. The decline in these revenues could require strategic changes or increased diversification to maintain financial momentum.
Additionally, customer retention rates fell to 84%. For future strategic planning, there is a decrease of three percentage points compared to the rates in the third quarter of 2023, particularly with regard to customer retention and customer retention policies.
Looking ahead
Management raised its outlook and is targeting total written premiums of between $3.70 billion and $3.82 billion in 2024 (from $3.62 billion to $3.82 billion), representing growth potential of up to 29% implied. The low end of the 2024 revenue guidance was raised by $5 million to between $295 million and $310 million, demonstrating the company’s commitment to maintaining and potentially strengthening its growth trajectory. An expected increase in adjusted EBITDA margin also indicates improved operational efficiency.
Investors should focus on how Goosehead manages the high expectations of its valuation and manages its ancillary income segments. With its continued focus on technology integration and agent productivity, Goosehead Insurance appears well-positioned to meet the challenges ahead.
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