Goosehead Insurance, Inc (GSHD) Q4 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, and welcome to Goosehead Insurance Fourth Quarter and Full Year 2018 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this call is being recorded. It is now pleasure to introduce Senior Vice President ICR, Mr. Garrett Edson. Please go ahead, sir.

Thank you and good afternoon. With us today are your hosts, Mark Jones, Chairman and Chief Executive Officer of Goosehead; Michael Colby, President and Chief Operating Officer; and Mark Colby, Chief Financial Officer. By now everyone should have access to our earnings announcement, which was released prior to this call and which may also be found on our website at ir.gooseheadinsurance.com. 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 management as of today. The 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. We refer all of you to our recent filings with the SEC for a more detailed discussion of the risks and uncertainties that could impact the future operating results and financial condition of Goosehead Insurance. We disclaim any intentions or obligations to update or revise any forward-looking statements except to the extent required by applicable law. In addition, this call is being webcast, and an archived version will be available shortly after the call ends on the Investor Relations portion of the Company's website at www.gooseheadinsurance.com. With that, I'd now like to turn the call over to CEO, Mark Jones. Please go ahead.

Thanks, Garrett, and welcome to our full year and fourth quarter 2018 earnings call. Today, I'll provide an overview on the year and the quarter as well as our long-term strategy. I'll then hand the call over to our President and Chief Operating Officer, Mike Colby, who will update you on our technology investments and efforts that are facilitating our competitive advantage and ongoing rapid organic growth and profitability. Our CFO, Mark Colby, will then follow and provide more detail about the fourth quarter and full year results. Overall, 2018 was an exceptional year for Goosehead. In addition to executing one of 2018’s most successful IPOs, we continue to deliver on the rapid organic growth we stated we could achieve enabled by our robust, sustainable and cycled tested business model. We've built a truly disruptive model for the personal lines insurance industry, and our management team is executing effectively to ensure we continue to grow rapidly and responsibly to create long-term value for our shareholders. Our management team has a long history together and is fully aligned around our strategy. We're energized and committed to Goosehead achievement its full potential. I want to thank the entire Goosehead team for their hard work and effort and making 2018 a landmark year for our company. We continue to accelerate our organic growth in 2018 while maintaining strong profitability. We accomplished this by adding a large volume of new business and by maintaining industry leading renewal rates. This enabled us to fund significant investments in talent, technology, and public company expenses, and to record adjusted EBITDA margins equal to the prior year when we were privately held. For 2018, revenue grew 41% versus 2017 and we hit the $60 million mark and we did it all organically. By comparison we grew revenue 36% from 2016 to 2017. Accordingly, we grew at a faster rate off a larger base in 2018. For the fourth quarter, our revenue and EBITDA grew to $14.7 million and $2.3 million respectively. This represents year-over-year organic growth for the quarter of 32%, driven by both our corporate and franchise channels as we continued to invest in our technology and talent to position ourselves for significant long-term top and bottom line growth. Total written premiums rose 50% and policies in force grew 47% from the prior year as we continue to execute and win throughout the quarter. We maintained our industry leading retention rate of 88% and once again increased our world-class net promoter score to 89 continuing to raise an already high bar. On our last call, we discussed how the temporary slowdown in the housing market in the third quarter had negatively affected lead volume and that this would continue into the fourth quarter, but we also communicated that it would provide us with an opportunity to demonstrate our ability to pivot toward gaining market share through our exceptional human capital and the dynamic technology platform, which allows us to adapt very quickly to market conditions. I'm excited to share that during the fourth quarter we more than successfully navigated these challenges and exited the quarter having fully recovered our lead volume while continuing to gain market share. I also noted on our last call that we began to focus extra effort on adding more referral partners to our network in order to pick up additional lead volume and market share. Just to give you a sense of the effectiveness of our efforts in January 2018, we activated 184 new referral partners in a normal housing market. In January of this year, we activated 530 new referral partners, nearly tripling our total from the prior year despite a more challenging housing market. We can trace this considerable improvement back to the recent technology investments we've made, which have allowed our agents to become much more efficient targeting referral partners. We told you that we would overcome the housing market headwinds and we did just that and that has clearly allowed us to head into the first quarter of 2019 well positioned to continue delivering on our rapid organic growth with strong profit margins. On the talent side, we added 33 net new operating franchises in the quarter. We parked back slightly on our corporate headcount – corporate agent headcount as we reallocated some of that capacity to training and franchise support and made additional investments in sales management to facilitate what we expect to be strong growth in both channels in 2019 and beyond. These investments are intended to support our sales agents in achieving extraordinary levels of productivity. We've ramped up hiring in the first quarter and expect to record another year of strong corporate agent growth in 2019. In addition, our franchise pipeline remains very robust and our dedicated franchise sales team provides us with the opportunity to maintain the pace of growth in that channel. As I mentioned on our prior call, on-boarding top talent and investing in our people are key drivers of our success, setting us on the path to work continued long-term sales growth as well as expanded margins and profitability. Looking ahead to 2019, our overall long-term strategy remains unchanged. We will continue to focus on rapid and responsible organic growth through hiring corporate agents, opening new franchises, and investing in our disruptive technology. We will continue to provide our clients with a broadest possible choice for their personal lines insurance needs. As a critical enabler of our success, we've developed a world-class service team to help ensure that once we win a client, they remain with Goosehead providing us with steady high margin renewal revenue. Finally, we've noted consistently that we will use a sharp pencil to evaluate the cash needed to execute our growth strategy and that excess cash balances will return to the people to whom that cash belongs, our shareholders. To that end, I'm pleased to announce that we have completed this analysis for 2019 and our board has approved a special dividend of $15 million, or $0.41 a share to be paid April 1, 2019 to shareholders of record on March 18, 2019. At the risk of being repetitive, I would like to point out that our business is not one where growth can be further accelerated by throwing more money at it. We're growing as fast as we believe as responsible, given the need to absorb new people, i.e., human beings into our organization. We've been executing our model for 15 years and we've created a very robust platform that produces sustained long-term high levels of profitable growth. In 2018, we continue to demonstrate just that by delivering the kind of rapid and responsible growth that grew strong investor interest when we went public. And as a result we've positioned ourselves very well for 2019 and beyond. We are energized and committed to our long-term vision and opportunity to remain steadfast in our mission to redefine the personal lines insurance industry and to create one of the truly great American business success stories. With that, I'll turn the call over to Mike Colby to update you on the progress of some of our recent technology initiatives.

Thanks, Mark, and hello to everyone. As I noted on our last call, our technology platform is a major competitive advantage for Goosehead and is a key barrier to entry for our competition. We also discussed a number of technological advancements we are investing in that should enhance our agents' productivity and the overall client experience, ultimately contributing to growth on our top and bottom lines over the long-term. Our focus in the fourth quarter was in further building out and executing on that tech roadmap and I'll provide a brief update on where we stand. One of our most important project is the integration of our comparative rating application into our sales force platform and implementation into our sales operations. During the fourth quarter, we successfully rolled out this new functionality to three new states: Virginia, North Carolina and South Carolina. So far in the first quarter, we've added four new states: Michigan, Pennsylvania, New York and New Jersey. And over the remainder of the first quarter, we will roll it out in Maryland, Delaware, Washington, D.C. and Connecticut, rounding out the states in which our agents in the mid-Atlantic and Northeast regions currently sell policies. By the end of the first quarter, we will have this technology implemented in the stage where over 80% of our new business revenue is generated. As a reminder, the comparative rater integration allows our agents to input client data and risk rating factors into one interface, eliminating approximately 75% of the required input fields, improving accuracy and saving our agents approximately 15 minutes per quote. The comparative rater significantly enhances our overall value proposition and we expect the integration to be completed in all states later this year. Closely related to our comparative rating integration is the integration with property and vehicle data providers. In 2018, we successfully implemented an integration that brings in accurate data on the properties we’re quoting. Over the course of the first quarter, we've been investing in an integration that will automatically populate driver and vehicle information into our system. Not only do we expect this to have a positive impact on sales productivity because of the efficiencies that creates, but we expect this will drive an increase in auto cross sales, which over time should have a positive impact on retention. In addition to the comparative rater and data integrations, we continue to make strong headway with respect to the integration of our new voice solution brings central into our sales force environment, which allows our agents to engage our clients over multiple channels such as texting and live chat. We had already completed implementation in our corporate channel, and during the quarter we implemented the new technology with a good number of our franchise agents. The goal remains to complete the roll out to the entire franchise channel in 2019. It has been gratifying to see the very enthusiastic response to these new tools and high levels of user adoption from our agents. We've consistently talked about the exciting and forward thinking culture we have created at Goosehead and part of that is the almost immediate buy-in from our agents toward our constant innovation as they recognize anything we can do to bolster their efficiency and effectiveness will only benefit them to grow with the company. We will continue to innovate and invest in our technology in 2019 to position ourselves to win big over the long-term. I look forward to keeping you apprised of our progress on future calls. With that, I'll turn the call over to Mark Colby to provide some color on our fourth quarter.

Thanks, Mike, and good afternoon to everyone on the call. Let's go right into our fourth quarter results. For the fourth quarter of 2018, we've produced a 32% increase in revenues to $14.7 million, compared to $11.1 million in the prior year period. This improvement was driven by strong growth in both our corporate and franchise channels from new and renewal business and a de minimis amount of contingent commission payments. As a reminder, we receive most of our contingent commissions in the first quarter of each year. Total written premiums during the quarter, which is a good proxy for the growth of our business, once again grew 50% year-over-year to $135.1 million. At the end of the quarter, we had over 334,000 policies in force, a 47% increase from one year ago. Our key performance indicators show consistent high year-over-year growth, which positions us well for long-term success. Total adjusted EBITDA grew 1% year-over-year to $2.3 million, while we recorded adjusted EBITDA margin of 16% compared to 20% in the prior year period. Adjusted EBITDA growth was driven by higher margin renewal revenue in both channels, offset by public company costs, investments in hiring and technology, and the timing of contingent commissions, specifically a large contingent commission payment that we received in the fourth quarter of 2017 was received this year during the third quarter. Adjusted EBITDA margin in the fourth quarter of 2018 was impacted by the timing of contingent commission payments, public company costs, planned additional employee compensation and benefits related to the accelerated hiring of franchise sales agents, increased number of operating franchises and material investments in technology that we believe will provide us with competitive advantages and additional markets over time. Also, as noted previously, all investments we're making in talent and most of our investments in technology create an immediate P&L impact. However, these investments provide opportunities for improved sales and service productivity, which should fuel sustained growth in long-term margin expansion. Breaking down our results by channel, in the fourth quarter of 2018, our corporate segment grew revenues 25% over the prior year period to $8.5 million. This growth was driven by a 40% increase in new business commissions and agency fees revenue, primarily due to a rise in corporate agent headcounts of 50% from one year ago as well as a 25% increase in renewable revenue as the number of policies and their renewal term grew over the past year. As Mark discussed in his remarks, we successfully grew our market share in the quarter despite housing market headwinds leaving us well positioned to benefit in 2019 and beyond. Our net promoter score, which is the key metric of our service team, increased to 89 from 86 a year ago and was largely responsible for the continued levels of high retention. As of December 31, 2018, we had a headcount of 167 corporate sales agents, up 50% from one year ago, but down a bit from the end of September due to some planned attrition toward the end of the year, which is normal for our business and allows us to focus on the agents with the most potential to succeed. We also reallocated some corporate agent headcount to training, agency support and sales management to facilitate strong growth in both channels in 2019 and beyond. As we've noted consistently, we manage the business on an annual and long-term basis and not to the quarterly calendar. We have continued our aggressive recruiting of corporate sales agents in Q1 as our new agents become seasoned in ramp up their production and profitability over their production ultimately converts into higher margin renewal revenue. Just a reminder, because of our on-campus recruiting, the summer months are historically our largest for corporate sales on-boarding. Adjusted EBITDA in the corporate channel was $1.6 million, a slight reduction from the prior year period. Adjusted EBITDA margin was 18% versus 23% in the prior year period. Our corporate adjusted EBITDA margin remains consistent with our prior commentary that there would be some near-term pressure given housing market headwinds and our significant investments in technology. As we've noted before, it typically takes several months before an agent's commissions outpace their base salary, but we continue to expect these investments will translate into long-term margin expansion. As Mark stated previously, by the end of Q4, we were able to gain market share to the point of fully recovering lead volumes impacted by the housing market slowdown. We also saw some margin compression in the corporate channel from the timing of contingent commissions previously discussed. Our franchise channel generated revenues of $6.2 million in the fourth quarter, a 43% improvement from the prior year period driven by higher royalty fees from the larger number of operating franchises as well as the greater royalty fee generated on renewal business versus new business. As we noted on our prior call, we recently added more pre-training requirements, which linked in the period from signing of franchise to launching, which has a short term deferral impact on the franchise fee revenue and EBITDA given the fixed nature of our training and on-boarding costs. We continue to believe this refining of best practices will yield stronger long-term results with higher margin renewal revenue driven by more productive agents. As of December 31, 2018, we have 457 franchises operating, up 57% from one year ago. Our franchise pipeline remains robust and we expect to continue investing in our franchise sales team throughout 2019 to continue to develop the channel’s rapid growth, which we believe will pay off very well for the company over the long-term. Adjusted EBITDA for the franchise channel in the fourth quarter was $1.5 million, up 64% from the prior year period, while adjusted EBITDA margin was 24% versus 21% in the prior year period. This increase in adjusted EBITDA margin was driven by higher margin royalties related to policies and their renewal terms and partially offset by the delayed recognition of initial franchise fee revenues, the additional investment in our franchise sales department and the timing of contingent commissions. One of the great benefits of our model is that over time, renewable revenue, particularly in the Franchise channel, should lead us to achieve considerable long-term renewable growth and margin expansion as our mix of new business converts it to higher margin renewal business. Net income in the fourth quarter of 2018 was $605,000 compared to net income of $377,000 in the prior year period. Included in our fourth quarter results were approximately $350,000 in equity-based compensation costs. When adjusting for these expenses and including some assumed taxes on non-controlling interest, adjusted EPS in the fourth quarter of 2018 was $0.01 per share. For the full year 2018, our revenues grew 41% to $60.1 million, driven by higher commissions, agency fees, franchise royalty fees generated by renewable business and an increase in contingent commissions received. Total adjusted EBITDA for 2018 rose $0.38 to $14.8 million, while our adjusted EBITDA margin for 2018 was 25% comparable with the prior year despite the significant investments we made during 2018 as well as the additional expenses incurred from becoming a public company in April 2018. As Mark noted it was a successful year all around for Goosehead and we are well positioned to grow rapidly and responsibly in 2019 and for the long-term. As of December 31, we had cash and cash equivalents of $18.6 million as well as $48.4 million of debt outstanding. As we noted would occur on our last call, today our board of directors approved a special cash dividend of $0.41 per share or $15 million, which will be paid on April 1, 2019 to all holders of records as of the close of business on March 18th of 2019. After reviewing our cash needs, if we determine we have excess capital on our balance sheet, we expect to declare a special dividend and return that excess cash to its owners or shareholders. Finally, in an effort to provide additional transparency into our operations, we've elected to initiate a full year 2019 outlook with respect to our total written premiums and our revenue. Total written premiums for 2019 are expected to be between $700 million and $725 million, representing organic growth of 38% on the low end of the range and 42% on the high end. Total revenues for 2019 are expected to be between $80 million and $85 million, representing organic growth of 33% on the low end of the range to 41% on the high end. Our 2019 revenue guidance is based on ASC 605 accounting. We will report under ASC 606 on the Form 10-K for the year ended December 31, 2019, but we will provide a reconciliation at that time so investors can understand how we would have performed under a full-year of ASC 605. With that, I thank you for your time and we'll now open up the call for Q&A. Operator?

Thank you. [Operator Instructions] And our first question comes from the line of Christopher Campbell with KBW. Your line is now open.

Hi, good evening gentlemen. How's it going?

Good. How are you, Chris?

Good. I guess my first question is just on the guidance, so thank you, I think that's very helpful. And I know you gave the written premium and the revenue guidance. Any thoughts on the adjusted operating income or is that just kind of too variable with plans next year?

Chris, as you know, we’re in hyper growth mode and we're in a business where our investments tend to run through the P&L. There's very little investments that actually hits the balance sheet. And one of the things that's allowed us to be very, very successful is we've been nimble and been able to respond to opportunities as they come up. And we want to provide ourselves with flexibility so that if in our judgment, investment opportunities come up, we want to be able to – that are, we feel like are going to be in the best interest of shareholders, we want the flexibility to go after them and don't want to be sort of locked into a sort of a false sort of earnings commitment that, at the end of the day, I believe, if you look at the way our stock is valued, our investors value growth, we're going to do that responsibly. But we're not about to kind of put out an earnings number at this time.

Got it. That makes a lot of sense. And then just a question for Mark Colby. I guess, just how much of a drag were the tech costs and the public expenses on operating expenses this quarter?

Yes, so if you think back and revisit the third quarter earnings call, Chris, we talked about a few things. We talked about the timing of the contingent commission payments of about $660,000. We also talked about the housing market headwinds that we felt would have a few hundred thousand dollar impact during the fourth quarter. We talked about the initial franchise fee kind of elongation in the delay of when we can recognize those revenue and that was going to be a few hundred thousand dollars as well. We talked about the additional franchise sales team investments, which was about $0.25 million. We also talked about a few hundred thousand dollars of technology fee investments and some additional public company costs. Each one of those within the material amounts happened like we thought they would during the fourth quarter.

Okay, great. And then I'm just thinking about distribution growth, so franchises kind of right in line with where we thought. Corporate missed our expectations a little bit and then it was down. I guess, just any color on how you ended the year and then how that's impacting your thoughts on 2019 targets in each channel.

Yeah, we are sort of very focused and always trying to position the company to capture sort of maximum levels of profitable growth. And sometimes, that means reallocating some of our resources to roles that are going to facilitate that growth. So we did some of that in the fourth quarter where we had – we moved some people into franchise support, we moved – we made some additional investments and moved some people into sales management, and we also moved people into training. We have a really big number of people coming through training now and it's in all of our best interest to make sure that they are as well prepared as they possibly can be when they start operating their agencies or when they go live with their corporate agents. So the other thing that impacted us sort of from a revenue standpoint was these headwinds in the housing market. And during the last call, I raised that issue and I said but and – but no one heard what came after but. I said this will give us an opportunity to demonstrate that we have the capability to pivot and recover that lead volume. I think in our last call, I'm not sure too many people believed me on that, but that's in fact, exactly what we've done. We fully recovered that lead volume, so we're kind of heading into 2019 with a full head of steam and feeling very optimistic about the year.

Okay, great. And then just you know one quick question. I'm assuming the K comes out soon and I know last year, there were some material weaknesses around a few accounting items. Can you just give us an update on that, and then have these weaknesses been remediated this year?

Yeah, so again, the 10-K will come out, we're anticipating kind of next week, some time. But yes, we fully expect those material weaknesses to be remediated and removed from the 10-K going forward.

Great, well. Thanks for the all the answers. Best of luck for 2019.

Thanks, Chris.

Thanks, Chris.

Thank you. [Operator Instructions] And our next question comes from the line of Jay Cohen with Bank of America Merrill Lynch. Your line is now open.

Great, thank you. Yeah, a couple of questions. First is, Mark, on the increase in referral partners that you had mentioned, the 500-plus in January this year versus 184 in the year earlier, is that for the whole company is that just the corporate channel?

That’s for the whole company, Jay.

Is it a little apples and oranges because the geographic footprint of the company is obviously bigger than it was a year ago?

There is a – if it’s probably not completely apples to apples, but it's, at worst, it's apples to pears. I think it's quite similar. If you look at the – our business is up about 50% year-over-year or 41%, right, I am sorry…

Operating franchise…

Operating franchises are up 57% year-over-year. And some of the new referral partners were put on the boards by new agents, but others were by agents that were affected by the housing market. And when they saw their lead volume decline, we have that tool that we've kind of described in the past that has allowed them to be very focused and know exactly where the deal volume is to drive their client development efforts there. So it’s not really apples to oranges, it's pretty similar. Although when you're growing at the rate that we are, the dynamic does change a little bit year to year.

Got it, that’s helpful. I guess, second question. With auto insurance, we're getting a sense that the price increases the carriers have been pushing over the past several years seem to be slowing, some guys cutting rates. How impactful could that be for you in 2019, a less robust auto insurance pricing environment?

I think and I will let kind of Mark address this as well, but I think at the – if we were sort of flat and static, I think it could impact us. But the fact that we're growing at the rate that we are, we're just kind of a new business that's driven by new agents and new franchisees just so completely overwhelms small price changes in the market that I don't expect that to really have any material impact on us.

Got it.

Yeah, and to echo Mark, we're guiding 33% to 41% revenue growth, so any kind of plus or minus a few percentage points of rate changes, we just – it's not something we focus on. It's a little bit out of our control and so we're really just focusing on continuing to hire new agents, onboard new franchises and get them ramping up to full levels of productivity.

Got it. Got it. And then the last question, can you talk about the franchise pipeline as it sits now relative to a year ago? Has it increased, decreased, remained about the same?

Jay, this is Mike Colby. That is a very – it's a living organism, our pipeline. We're consistently adding to the pipeline and we're also killing deals that aren't viable. So it’s certainly grown. I'm not – I don't have data on the specifics of that today for this call, but we are actively growing that pipeline. I'm sorry. So if you remember, when we were going to the IPO, that number was in the kind of low 40s, 40,000 active targets in pipeline. I just got the data sent to me, 65,000 is where that pipeline sits today. So we're aggressively on the build there.

Great, that’s helpful. Thanks guys for the answers.

Thanks, Jay.

Thanks, Jay.

Thank you. And our next question comes from the line of Adam Klauber with William Blair. Your line is now open.

Good afternoon guys. Could you give us a sense of how – in the franchise channel, how was productivity on new business for out of Texas under a year and then over a year and just if you look 2017 versus 2018?

Yes. So we'll have some more data in the 10-K again on those metrics. The out of Texas less than a year, we saw relatively flat levels of productivity. We saw some nice improvements on the greater than one year agents out of Texas, which again, we're excited about. And again, yes, we’re continuing to be very pleased with our non-Texas production, especially considering that between 80% and 90% of the franchises we launched in 2018 were outside of Texas.

Okay. Contingent commissions, as you get more and more critical mass with a number of partners, are you a little leverage that into greater contingent commissions as we think about whether it's 2019, 2020?

Well, our contingent commissions, Adam, are based on typically total written premium. So as we go into those conversations with carriers, we demonstrate our ability to grow profitably with them. We're looking to structure those agreements that have growth drivers, profitability drivers. Ultimately, it all comes back to the total written premium base. So we would expect those to grow as our total written premiums grows.

Okay, that’s helpful. And then as far as when you – the guidance you issued, and thank you, that's helpful. For the quarter, I think you mentioned maybe that the housing slowdown hit you by a couple of hundred thousand. Could you – for 2019, could you sort of assume a same level of depression from the housing market? Or is it more of a matter as you've grown the distribution force, you've grown the partners and the technology, that you just don't think you'll be hit next year.

We considered a multitude of factors when we kind of created our guidance numbers, of them growing the franchise, operating franchises, corporate sales agent headcount and then some productivity assumptions as well. We're not really guiding into any of those specific metrics specific metrics, but yes, that was all considered in our 33% to 41% revenue growth guidance.

Okay, okay. And then as far as the agent business, can you give us an idea of churn levels in 2017 versus 2018?

Hey, Adam. This is Mike. I think our – we have normal attrition and our attrition rates have held steady over the years. So there's nothing concerning us at that point. I mean, just to reiterate Mark's comments on our corporate agents talent pool, our corporate channel and our franchise channel do not operate independently, they we operate in an integrated system. And our corporate system is – our Corporate channel really is an infrastructure to support our rapid franchise growth. And you should think about our corporate agents almost like a farm system where these agents know our products, they know our customers; they know our systems better than anybody else. So it’s a great talent pool to recruit from as we have to ramp up our back-office support, our sales leadership support, franchise support to support that rapid growth in the franchise channel.

Okay, thanks.

We've repurposed well over a dozen corporate agents in 2019.

2018…

I am sorry, excuse me, 2018, into those roles and big part we’re getting preparing for another solid year of growth in 2019.

Okay, thanks. And then can you remind us, I think you mentioned that maybe the change in how you're reflecting the franchise fees maybe had a couple hundred thousand impact it. One, is that, right? And then two, was that mainly more of 2018 phenomenon? Will we see that somewhat in 2019? And could you just describe that a little bit more?

Yes, definitely. So we talked in the last call that it would be a few hundred thousand dollar impact, and I think it kind of came right in line with our expectations there for Q4. We expect that to continue into the future. If we weren't growing at all, that number would kind of wash itself out over 12 months. But since we're growing at such a fast clip and consistently adding more and more franchises, we expect that delay to continue to have a slight delay in franchise fee revenue throughout 2019.

Way that we recognize franchise fee revenue right now, Adam, is when an agent comes – a franchisee comes to training, we have met our requirements for that franchise fee, and so that's when we recognize the revenue. If we're – if we have more pre-work that has – that is actually the case now before people come to training and there is – we're recruiting better agents and so they – sometimes, it takes them a little bit longer to get started because they have more to unwind in their prior career, that does kind of elongate the time between when someone starts – when someone signs and someone starts. So it effects, it doesn't affect the actual strength of the business or the growth, it's just when we can count the beans.

Right.

That it’s important to note too, given the fixed nature of our training and on-boarding cost, that few hundred thousand dollar delay affects both top line and bottom line as well.

Sure, sure, okay. That’s it. Thanks guys.

Thanks, Adam.

Thank you. And we have a follow-up question from the line of Jay Cohen with Bank of America Merrill Lynch. Your line is now open.

Thank you. I guess, as a bigger picture question, what do you think the best way is for investors to – for investors to evaluate your success? Is it revenue, is it agents? Should we essentially for the next couple of years not focus that much in margins, given the investments? How do you want people to evaluate you?

Well, at the end of day, Jay, this is a gigantic business and we're really in land grab mode. We don't have any, like, truly similar competitors to us. There is literally not another company in the business that has figured out how to drive sustained, high-levels of profitable organic growth, and so it's very unique. I'm not smart enough to tell you exactly how we should be valued, but I do think that it's probably nothing like the way that the publicly-traded commercial brokers are valued where 6% organic growth is considered good. I mean, we would hang our heads if that's all we could do.

Yeah, I am not thinking valuation. I'm not thinking valuation, I'm thinking more metrics. At the end of the year, in 2019, you guys mentioned that we had a really good year. What are the metrics that you will be focused on? It sounds less like earnings, it's more some sort of production, either premiums or agent count or revenues.

I think it’s a combination of things. I think premium is the probably single best macro metric to evaluate us on. Revenues are going to lag that a little bit because on franchise – revenue in the franchise channel, we can only – we only receive 20% of that in the first year. And so our revenue is always going to understate our kind of our true growth. But premium is probably the best single metric, revenue is probably the next. And I think year-over-year, franchise growth, agent growth are also relevant.

Got it.

But they’re…

Thanks.

Thank you. And I am showing no further questions in the queue at this time. So with that I will turn the call back over to Chairman and CEO, Mark Jones for closing remarks.

Again, I would like to thank everyone that on the call for their interest in our company. We appreciate your interest and for many of you your support. We’re going to continue to work really hard and you’re going have a management team that continues to leave everything on the field every day. And we're very proud of what we're doing and we hope to make you very proud and pleased with your investment in Goosehead. Thank you.

Ladies and gentlemen, thank you for participation in today’s conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.