Thank you for standing by. This is the conference operator. Welcome to the Goosehead Insurance First Quarter 2020 Earnings Call. [Operator Instructions]. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]. I will now turn the call over to Dan Farrell, VP, Capital Markets. Please go ahead.

Thank you, and good afternoon. With us today are 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, 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 is 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. I would also like to point out that during this call, we will discuss certain financial measures that are not prepared in accordance with GAAP. Management uses these non-GAAP financial measures when planning, monitoring and evaluating our performance. We consider these non-GAAP financial measures to be useful metrics for management and investors to facilitate operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures, tax position, depreciation, amortization and certain other items that we believe are not representative of our core business. For more information regarding our use of non-GAAP financial measures, including reconciliations of these measures to the most comparable GAAP financial measures, we refer you to today's earnings release. 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, Dan, and welcome to our first quarter 2020 earnings call. I'll provide an overview of our results for the quarter and the resilience of our unique growth strategy, even in the current environment. I'll then hand it over to Mike Colby, our Chief Operating Officer, to update you on actions we have taken in response to COVID-19 and some macro trends and performance metrics we're currently observing. Our CFO, Mark Colby, will then go into greater detail on our first quarter results and outlook. Let me start with a little context. We have followed a battle-tested strategy that great companies adopt, especially in times of economic turbulence and uncertainty. Our teams have played offense and have been relentlessly externally focused on our clients and referral partners to demonstrate that Goosehead is a reliable and stable agency and partner. We've been using our full arsenal of tools and technology to continue to grow and prosper. We are also proud to report that we have neither sought any kind of government support nor have we reduced pay, furloughed or laid off any employees. Mike will review our COVID-19 response in more detail. But a few examples of actions we have taken include: one, focus and deployment of systemwide best practices to achieve full share of wallet with our clients. Two, consistent marketing to referral partners. We show up, even if it's virtually, while others don't. As a result, we gained share with existing partners and add new ones, while so many of our competitors sit the game out. We have benefited from strengthened mortgage refinance activity. Our value proposition is equally powerful to refi clients as it is to buyers. Three, we are enhancing our approaches to gaining client referrals, a lead source that is unaffected by market shocks. We are…

Thanks, Mark, and hello to everyone on the call. On prior calls, I've discussed our strategic technology initiatives focused on agent and client facing software application development, a key driver behind our ability to outperform the industry on new sales productivity, client experience and retention, and cost management. Today, I'd like to discuss our response to the COVID-19 crisis, the specific infrastructure investments we've made over the last decade to allow for a seamless transition to a virtual operating environment, and provide some insight into the business results through the month of April. Beginning the week of March 16, we reduced workforce density at all corporate offices by asking employees, who were already mobilely equipped to begin working from home. This represented approximately 40% of our corporate employee base, primarily sales, agents and recruiting team. Additionally, we indefinitely suspended all corporate travel, field support visits, in-person marketing efforts and in-person team meetings. Leveraging our cloud-based technology, video conferencing technology, and importantly, our mortgage activity database to continue referral partner marketing efforts, allowed operations for this group to be largely uninterrupted. The following week, we began the more challenging task of transitioning the remainder of our workforce to work from home in a virtual environment and also converting the two-week in-person components of our initial training program to be conducted virtually. Because of early investments made to move our technology platform and voice solution to the cloud and investments made in cyber security, this was largely a logistical challenge that involve equipping the team with the proper hardware needed to be fully productive in their homes. By March 26, our entire corporate team was seamlessly transitioned to a secure work-from-home environment and the business remained fully operational, albeit virtually. As of this call, we've been operating the business completely virtually for…

Thanks, Mike, and good afternoon to everyone on the call. For comparability purposes, my comments on our first quarter 2020 results will be discussed against the first quarter 2019 as if recognized under ASC 605. A reconciliation of ASC 606 accounting to ASC 605 accounting for 2020 has been provided as a supplemental schedule in our earnings release. For the first quarter of 2020, total written premiums, an important leading indicator of our future core and ancillary revenue growth, increased 46% to $214 million. This included Franchise premium growth of 54% to $148 million and Corporate segment premium growth of 30% to $66 million. This growth is being driven by continued high retention rates, strong new business generation and increasing agent productivity in the Franchise Channel. The continued shift in our mix to business toward the faster-growing franchise channel implies significant embedded future revenue growth as the new business premiums convert to renewal premiums after year one, at which time our royalty fees increase from 20% to 50% for ongoing renewals. At quarter end, we had over 530,000 policies in force, a 45% increase from one year ago. Our consistent and rapid year-over-year growth in both premiums and policies positions us well for long-term success. Revenues were $20.4 million for the quarter compared to $23.1 million in the prior-year period, which is skewed by the different revenue recognition used in each period. If Q1 2020 was reported under ASC 605, revenue grew 8% to $24.9 million. More importantly, core revenues increased 41% to $19.4 million, if reported under ASC 605. In the first quarter, our Franchise Channel generated core revenues of $7.9 million if reported under ASC 605, an increase of 54% from a year ago with the results driven by continued strong growth in new business and renewal royalty…

Thank you. We will now begin the Q&A session. [Operator Instructions]. The first question is from Meyer Shields of KBW. Please go ahead.

Great. Thanks, and good afternoon, good evening, everyone. This is incredibly strong. I was hoping you could talk a little bit about the impact of what seems to be dramatically rising unemployment in terms of the ability to get more agents in both channels and whether that increases the need for greater selectivity.

We are seeing very strong interest, particularly on the Corporate side where people are very much drawn in these times to a strong and stable employer. So, we're definitely seeing more interest. We are -- our hiring standards have not been compromised in any way, though, in fact, we're able to have our pick of the cream of the crop. So there is only positive impact on the Corporate side. On the Franchise side, I think it's too soon to tell. Mike, would you agree with that?

Yeah. I would agree and echo your comments. Our standards are always held at a very high level. Whether it's a tight labor market or whether labor market loosens up, we're never compromising those evaluation standards.

Okay. Fantastic. And my second question, we've heard a lot of insurers granting more flexibility to policyholders because of potential financial constraints. Is that likely to have any impact on near-term cash flows?

Yes. So, what we've heard so far from these carriers is that they're going to do this in a way where they're benefiting both the clients and the agents that sell for them. So, what we've been told again is that it's going to be economically neutral for us.

Their commitment is equally as strong to the clients that they're trying to help as it is to their agents. So there should be no impact to our economics.

Okay. Fantastic. Thank you so much.

Thanks, Meyer.

The next question -- pardon me. [Operator Instructions] The next question is from Mark Dwelle of RBC Capital Markets. Please go ahead.

Yeah. Good afternoon. The first question that I had related to the employee compensation and benefits expense. I mean it was up fairly substantially and a little bit greater rate of increase than I probably would have expected. Can you just talk in a little bit more detail about what some of the drivers were there?

Yes. For one, it's just continued hiring and it's also Q1 is a time of year where most of our employees will see their annual raises kick in. And the other thing was, as I mentioned on the call, we had some employee development expenses of over $500,000 related to our annual meeting that last year were in Q2 in 2019. But, however, in this year that meeting was held in February, so kind of fast forward to those in comparison.

Okay. Are you incurring any -- I mean this is maybe less in the quarter, but more prospectively, are you incurring incremental sales and prospecting cost just in view of kind of the modified way that you need to approach customers?

No. To be honest, we'd rather be out in the field, shaking hands and making introductions. If anything, it's the opposite. We're having to do with virtually, so we can't host those get-togethers, those happy hours and those lunches. So, we're looking for ways to reinvest those funds into other places that can help drive growth in client referrals in other ways. But if anything, I think you'll see some slight decreases in those types of marketing expenses in Q2.

Okay. And then, I mean, you had mentioned that a lot of the renewals or new business that you've been able to prospect have been driven by refinance transactions. Are you seeing any change in customer behavior as far as changes in deductibles or changes in policy limits or what have you, just people trying to navigate the current environment?

Mark, we're not seeing it that way. I mean, we're seeing new purchase business, we're also -- we're seeing refinance business, but our agents are focused on, first and foremost, making sure that the client is properly covered with the right insurance policy. And because we're working with so many different companies across the country, we can usually accommodate that at a fair price, at a competitive price. So, so far, we have not seen any type of savings effort by reducing coverage for our employees. In fact, our quality control processes would prevent that.

Okay. Those are all my questions. Thank you.

This concludes the question-and-answer session. I would like to turn the conference back over to Mark Jones for any closing remarks.

I would like to just thank everyone that joined us today. We're very proud of the results. We are working very hard for you, our shareholders, and we'll continue to do so. And thank you for your time today.

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.