Good day, and thank you for standing by. Welcome to the Goosehead Insurance First Quarter 2024 Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Dan Farrell, Vice President, Capital Markets. Please go ahead.

Thank you, and good afternoon. 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 the management as of today. 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 you all to our recent SEC filings for a more detailed discussion of risks and uncertainties that could impact future operating results and financial conditions of Goosehead. We disclaim any intention or obligation to update and revise any forward-looking statements except to the extent required by actual law. I would also like to point out that during the 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 period to period by including potential differences caused by variations in capital structure, tax position, depreciation, amortization and certain other items that we believe are not representative of our core business. For more information regarding the use of non-GAAP financial measures, including reconciliations of these measures to the most recent comparable GAAP financial measures, we refer you to today's earnings release. In addition, this call is being webcast. An archived version will be available shortly after the call ends on the Investor Relations portion of the company's website at goosehead.com. Now I would like to turn the call over to our Chairman and CEO, Mark Jones.

Thanks, Dan, and welcome, everyone, to our first quarter call. I'm very pleased with the progress we have made toward our goals. Personal Lines Insurance distribution is a quintessential long tail business. I tell people all the time that it is not a give-uick business. It's to get ridge over time but Staybridge business, driving substantive change in our company generally takes many quarters to achieve, but those changes when made tend to be very sticky and sustained. I am pleased to report that our hard work over the last 1.5 years bore more fruit in the first quarter. Franchise producer head count has begun growing again. We ended the quarter with 1,963 producers. Our recruitment efforts to support franchisees that want to add producers are going extremely well with a total of 168 producers being placed in existing agencies during Q1. As a reminder, when an agency adds a new producer, on average, it improves the productivity of everyone in that agency. So helping our franchise partners and producers remain an incredibly long lever for us and an important area of focus. Our focus on enhancing the quality of our producers is also driving very large productivity gains. First year franchise productivity is up 86% year-over-year, but the gains are not limited to that cohort. Our existing franchises have delivered 19% same-store sales growth in the first quarter on the heels of 23% same-store sales growth in the fourth quarter. Our franchise network currently accounts for 78% of our premium volume. So productivity gains here can really move the growth and earnings deals over time. We're also proud to have continued to deliver strong margins through smart cost discipline and maniacal focus on productivity. We believe all of these enhancements to be structural and will benefit our business for…

Thanks, Mark, and good afternoon, everyone. To summarize operations in Q1, I'll provide updates on 3 key areas: franchise productivity, commission retention and producer head count. First, let's dive into franchise productivity. The franchise network now accounts for 87% of our total agent count and 80% of new business production. After a 30% increase in franchise productivity in Q4 2023, we saw an even stronger 42% increase in Q1 of 2024. This improvement was led by an 86% increase in our less than 1-year franchises. We note first year productivity strongly correlates to long-term franchise success. So we believe our newer vintage of franchises will perform very well for many years to come. We have had a relentless focus on quality over quantity for the past year, targeting candidates with the desire and strong skill set to grow a scaling multi-agent business. We're starting to see signs this strategy is bearing fruit as we continue to launch higher quality and faster ramping new franchises. If you dive into what's driving the increased productivity, it's primarily an increase in the number of referral partner leads per agent. With the challenging insurance environment, putting downward pressure on close rates, the only solution to drive productivity is to get more leads. And the best way to do that is by marketing to referral partners. Going into Q4, we doubled down on our formal partner marketing strategy. These efforts take time, and they had some impact on Q4, but they are the primary driver of Q1 productivity growth. As a reminder, our agents have access to an exclusive tool that shows them the production data of every loan originator in America. These mortgage professionals all have an insurance agent they refer clients to, but many are frustrated with that experience. Some of our business…

Thanks, Mark, and good afternoon to everyone on the call. In the first quarter of 2024, we began our growth reacceleration phase. Total revenue, core revenue, new business premium growth and franchise producer count all accelerated sequentially over the fourth quarter of 2023. On top of that, we generated more cash than in the first quarter in any year in our company's history. We have placed a tremendous amount of scrutiny in every aspect of our business within our control and made strategic decisions to minimize the impact of forces outside of our control. Quarter end, total franchise producers were 1,963 up from 1,957 as of the year-end. As Mark Jones mentioned, our existing franchises added 168 producers into their agencies, growing our producers per franchise for the fifth consecutive quarter to 1.7%. As a reminder, adding a predicter to an existing agency typically drives the production equivalent of 2 new agencies. Our agency staffing program has been delivering strong results, which should drive a virtuous cycle of continued momentum in the franchise business. Each time a franchise onboards a successful producer, they become more confident in the program and generate cash flow to fund the next producer and overall growth of their agency. As a reminder, each time a producer is added to a franchise, it improves the productivity of everyone in that agency. This remains an incredibly powerful tool for future new business growth. Corporate producers at quarter end were 292, up 6% from the prior year period. We are excited about the health of our corporate team, and we're now in a position to onboard a new class of corporate to cruise over the summer. We've already locked in a significant portion of our summer class with approximately 65% of planned hires having already signed their offer…

[Operator Instructions]. Our first question will come from the line of Matt Carletti with Citizens JMB.

My first question is a little bit asking if you fit out your crystal ball, but you obviously talked a lot about the product environment. And I think that's no surprise like anybody is paying attention to personal lines, I think, is talking about it a lot. Just where do you think we are kind of in that process? Like you guys see it on the ground day-to-day. Does it feel later innings? Are you starting to feel that the underwriters are thinking we're in a good spot in terms of pricing and getting changes in terms of conditions into the book and you expect an improvement in the not-too-distant future? Or do you think it's a little more middle innings and time will come.

Matt, this is Mark Miller. I'll start and then I think Brian and I are probably closest to it because when the carrier executive teams come in, we usually talk to them. I would say break it down by home and then auto or auto then home. I would say auto is improving more quickly towards the end of that cycle, and we're starting to see some of the major carriers come back in. On the home side, our expectation was it would start to recover by kind of this time about, and it's been slower than our expectations would be. We still have carriers that are in the market and offering product at reasonably good prices, but the broader coverage of places like Texas, pretty tough right now still. So we're waiting and seeing. But I don't know whether we're at the end of the cycle, but I would say we're towards at least the middle of it and coming out of it. But Brian, what's your opinion?

Yes, I think that's exactly right. When you look at progressive results you have been posting mid- combined ratio. They're looking to dial up growth now and they're starting to dial back restrictions. Some of the bundled carriers are waiting to dive back auto restrictions until the home is in a better place. And to add to Mark's point, I think home is a little bit still late and see, especially in markets like Texas. So I think probably more mill innings on home, later innings in auto.

Yes. That makes sense. I mean we see a big correction like California which gives me some optimism...

We are seeing some early -- we are -- this is Mark Jones, Matt. We are seeing some early progress in that the -- like, for example, Progressive Home, their combined ratio has come down substantially from its size, which doesn't necessarily mean that we're at the end of the game yet, but it is at least, it's a light at the end of the tunnel and we don't think it's a train.

Yes. And the ones that moves quickly, I think the -- so it's different by carriers. Some moves quickly and raise their price and they're becoming profitable now. Other ones relate to the game. And like we've said on the call, there are a handful of captives that are mispriced compared to everybody else but have not raised the price yet. So it kind of depends on what they do.

Got it. And then if I could ask you, was the right way to ask this is, but I guess, like you provided the 24% guidance and you got a little more conservative and I thought you made a lot of really good color on why that is. I'd imagine you have some form of '25 guidance internally. And as we -- as you think through this being temporary and understanding your model in terms of how premiums convert to revenue and things like that, given kind of the change in the '24 guidance over the last quarter or so, was there any change in that kind of internal view of what '25 might look like staying better or worse?

No. Matt, this is Mark Junior Jones. Looking at 2025, we're going to be putting a lot more players in the field here over the next few months as we onboard the new college class and our first year corporate agents are ramping up just as well, if not better, in many indications they have in the previous year. So we feel very good about that. And our existing agencies are continuing to hire. You saw that producer count number grow sequentially for the first time this quarter in the while. So we feel very good about the new business generation looking into 2025. And our expectation is as the product market normalizes, you actually sort of get a tailwind from client retention as opposed to as big of a headwind as it has been right now. So we're not really have any changes in expectations for what 2025 or longer than that looks like. And the other thing is as carriers restore profitability, the contingent commission number starts to look very attractive as you grow your premium base and start to get a higher percentage of that as contingencies, which are, again, 100% earnings. The other point I would make is we made comments in the prepared remarks that we've taken steps to kind of rationalize the cost base to make sure that we don't sacrifice bottom line earnings where we're kind of dealing with a short-term had another revenue growth number. Those -- all of those costs don't immediately get put back in the P&L in 2025. So you come out of this leaner and more effective as soon as you get to a more normal product environment.

Our next question will come from the line of Brian Meredith with UBS.

A couple here for you. First, I'm just curious, looking at and maybe that's just to do with the fact that you're getting some commission rate cuts. But if I look at corporate, call it, core revenues divided by, call it, corporate written premium and the same thing for franchise called fees divided by the franchise kind of premiums. It's kind of been consistently declining over the last couple of years. I'm curious, is that because of what's going on with commission rates? Or is there something else going on there?

Yes. So commission rates is part of it, and we mentioned it's just a couple of carriers. It's not a broad scale issue. A lot of it is just as the mix shifts from the corporate side, driving the majority of -- not necessarily the majority, but the majority of the growth in new business production to the franchise side driving the majority of the growth that naturally just causes the lag from premium revenue growth, considering 20% on the first terminal policy and 50% subsequent to that. That's really the largest driver of that. And we talked a lot about over the last couple of years, the rationalization of the corporate team after we kind of peak 506 head count. That just causes a little bit of a short-term drag in your total aggregate new business production, although it made material improvements to the health of the corporate team, it was the right decision. But we expect that to continue to grow into the future, which you'll see that flow into renewals in the following years.

Got you. Would the mix of auto versus home affect that too, though would assume auto commissions are lower than home?

We don't see a big difference in commission rate between product lines. Where that would be impacted is just a carrier do not renewing a policy, whether it's a home or an auto. So if your auto is retaining better because carriers feel like they've got better pricing, to the extent a disproportionate amount of your book is all that could impact you there, which ours is 55% home.

Got you. And then my second question, just curious, looking at your corporate sales agents with greater than 1 year tenure to continue to decline. Is that going to be bottoming out here soon? And I appreciate you're going to have a lot more corporate agents at the end of the year, but I assume that's going to also meaningfully impact productivity overall is you've got a much lower percentage of when your tenured agentsm greater.

Yes. I mean we talked about this a little bit in the last call. As you continue to launch out franchises and promote people into management out of that tenure bucket and naturally kind of places the cap and what that productivity looks like because you're taking your best, most productive agents and putting them into a different distribution network, either on the franchise side or in management. So I don't necessarily expect to continue to see the slide that we have seen this year. But you got to remember, looking at this year versus last year, we just have started the franchise launch program. And so you've got 35 people at this point who are included in that number at the beginning of last year, who are now not included in that number. So as the year-over-year trend normalizes looking into 2025, you shouldn't see that kind of impact. Although you may see a little bit more of that this year as we continue to pump out more franchises and the year-over-year numbers look a little skewed.

Our next question will come from the line of Michael Zaremski with BMO.

Maybe going back to the comments about some carriers cutting their commissions. I guess just look in hindsight, I think it kind of makes sense being an analyst because the carriers are seeking to improve their profitability. So I'm just kind of into the lever, but I'm just kind of curious then if -- how much of this is just a new trend that just surprised you all and you're baking into your guidance in case other carriers do the same? And then on contingent I'm assuming that this would impact contingent. So unless the carriers have actually went back to the old better commission structure, I would continue to go back to their historical levels over time.

Mike, just to your comment on the guidance, we are not expecting to see any more of that. This is very an isolated situation, and Mark Miller can give some more color on that. It also shouldn't impact the contingent commissions because those are not carriers that we were receiving contingencies from in 2023 or we're expecting to in 2024. So it doesn't impact what the medium or longer-term outlook on contingency look like. And also, I would argue that the vast majority of carriers understand the benefit of having an independent agent that knows how to distribute your product very successfully. And this is a very shortsighted move.

Yes, I'll just -- this is Mark Miller. I'll just jump on that comment for a second. First of all, I think this is short term in nature. I've not seen or had any discussions with any other carriers. These are 2 carriers that, as we mentioned in the call, they were financially distressed, they came to us and said, we are in a potential position where we need to back away. So this was Homeowners of America and HIPPO. They wanted to pull out of the market and they wanted to reduce commissions as a result of it. One of those carriers dramatically changed the contracts for our clients underneath it as well. So it's not even the same paper. I haven't seen that out of any of our major carriers other than those 2. And the market naturally adjusts to the carriers that have the right paper at the right price. In this case, they don't, so the market is correcting itself. So when I say it's temporary, it starts -- the business starts to move to other carriers.

Okay. Just switching gears a bit, and I believe you teased this out in the prepared remarks, but I just want to ask it because I feel like it's more complicated. So when we look at the revenue guide versus the premium written guide, you have a much bigger decline in the guide on the revenues. And so are you explaining that more of your revenues or more of your [indiscernible] comes from the franchise segment from new producers. So that's driving the delta? Or is there more -- os is that an offer as a lower commission.

Yes, that's exactly right, Mike. So with the performance we've seen thus far this year, the franchise side of the business is doing a really, really great job of continuing to drive productivity, and our expectations now will happen for the remainder of the year as well. And so you feel the impact of that immediately in premium. That's why you see the premium guide move is not as large as a revenue guide move, but that doesn't have the same impact on revenue, right? It's $0.20 on the dollar. So you're exactly right on that.

Okay. Got it. I guess, lastly, I don't know how much you can say, but there has been levels in the trade rags, insurance trade rags about a very large auto insurance carrier, maybe the third largest in the U.S. potentially looking to enter the [indiscernible]. I don't know if you could say anything? Or is that something that you've had to or maybe that could help in terms of the product you all have to offer your clients?

This is Brian. Yes, our belief, I mean we've seen this trend happen for years now where there's been movement both on the captive side and on the direct side towards the independent channel. If you look at some of the big captives have made big acquisitions and done moves to focus on a choice model and then similar in direct companies that really thought to go direct-to-consumer, has hesitated going to a dual distribution model really following Progressive news. We know that what Progressive calls the Robinson Client, right, $200 billion of the market is the preferred home auto customer that retains performs well. I think every auto carrier wants more of that type of business. So I can't speak to any specific carrier, but we do believe that the trend will continue and that more of the direct carrier and captive will embrace independent distribution to go after that segment of the market.

Our next question will come from the line of Andrew Kligerman.

And I apologize in advance for the background noise. But before I get into my questions, can I just ask a couple of quick statistics. One being, you're citing 89% retention. Where was it this quarter? And then with regard to HIPPO and Homeowners of America, what percentage of your book of business are those 2 carriers? I mean, it kind of sounds like a real nonevent when I hear the names of these 2 components.

Andrew. So client retention for the quarter, 85% [indiscernible]. On your second question there, we have been in business with Homeowners America for a longtime. And so over a period of time, we've built up a really nice partnership and a relatively sizable book of business. And as they've made decisions that they're going to make, a lot of that book of business has rotated off to other carriers as naturally the value to the client and to the agent has declined in that product. So just naturally, that happens. It may not have seemed like that's a super big carrier, but they were a relatively important partner for us in the early days.

So that has...

As Mark is saying they were like as they were really big HIPPO and auto [indiscernible] for us.

I see. And the commission reduction, how much was that?

Yes. I don't think we're going to get into specifics on the rate, but it was enough for us to call it out.

Okay. Fair enough. And then with regard to expenses, I saw that G&A only went up 8%, which was great. But the employee comp was up 14%, you listed out a lot of reasons in the press release, but I'm wondering if you, a, could have tempered that a bit more; and b, maybe clarify a little bit why it was up that much just given the pressures on revenue.

I mean, how we secure our future revenue growth is by continuing to hire and onboard really, really talented people. And so we've set forever our secret sauce is that human capital we're able to bring to the table that's so differentiated in the industry. So we believe strongly and continuing to do that. So while we can manage the cost bar very well with G&A on that side of the business, I don't want to limit who we're hiring and who we're bringing into the system because that's going to be a short-term decision that's going to have long-term impact.

That makes a lot of sense. And then just lastly, there was some new legislation reducing commissions to real estate agents. Does that concern you at all? Should that have any pressure on you as you move forward?

I mean we've seen some recent interest on the franchise side of real estate brokers wanting to get into insurance as a side business, but I haven't seen any other negative to our business.

So the fact that they're seeing lower commissions isn't going to -- I mean home sales will be what home sales will be and you'll still get your lead? Is that how you're thinking about it?

Correct. It doesn't change our relationship with the real estate brokers and real estate volume is going to be a real estate volume is, but I think we're getting an upsized percentage of the leads that come out of the industry and growing well, and we're also targeting for the referral partners, the highest volume realtors and they're not going to be the ones that are affected. It will be the lower productivity realtors to get squeezed. And so that will have much less effect on us.

This question will come from the line of Tommy McJoynt with KBW.

You gave a good explanation on sort of the bridging the change in the guidance on the revenues. I just want to make sure I understand kind of the lowering the lower end of the range on the premium side. If you could just kind of bridge what changed there in terms of whether rate policy count number of producers just explaining that premium change?

That's largely a function of retention. And so if we don't get the home market to stabilize as quickly as we would like, there is the opportunity for client retention to continue to slide a little bit more throughout the year. Now we have seeing the peak of what we believe that do not reduce from carriers is, so we should be on the back half of that. But really, it's a function of client retention being slightly lower than what it has historically been. So certainly, if that returns faster than what we are expecting, you could see that premium never getting closer to the high end of the range, but I would rather be conservative in the forecasting.

Okay. Got it. And then just the other question on the expense side, and it sounds like you may have touched on this, but do you have visibility into what equity-based comp should be for the rest of the year? And then as we think about kind of into 2025, is there any reason that it should either step up or step down year-over-year just given what you know about vesting schedules related to that?

Yes. Looking at Q1 as your past estimate for what it should be that full year. So typically, the first quarter is when you get new options awarded to the managing directors here. And so then that -- a similar number to that would be recorded in each quarter of the year. Looking at 2025, there will be additional options that are awarded to the senior team and at which point you would see a step up in equity-based compensation. Just as a reminder, our philosophy on that has been kind of between 1% and 2% of the share count is an appropriate level for the dilution because the Blackships valuation given the volatility in our stock tends to overvalue the actual economic reality of those options awarded to the employees.

Our next question will come from the line of Mark Hughes with Truist Securities.

The -- you do not renew going to the 100% premium retention measure.

Yes, they do because that would be a premium that was on the books last year that will not be on the books this year. And so that premium retention is a trailing 12 number. And so it's kind of got a lag effect on what exactly is happening in the book. But yes, they are included in that.

Okay. That's great [indiscernible] And then you talk about the NAR settlement. Can you have a rough breakout for how much of your business comes from realtor versus a mortgage lender.

I would say definitely a majority mortgage lenders. We work quite a bit with realtors. But obviously the majority I mean, I think probably of that 75% plus comes from lenders. If you look at our referral partner business altogether, which is roughly 2/3 of our new business, probably 75% from lenders is maybe 25% from realtors.

Our next question will come from the line of Paul Newsome with Piper Sandler.

I wanted to revisit the guidance change and just sort of laying down sort of the pieces. I would have thought that sounds like retention is a problem, commissions were down and -- but that should have been offset by the fairly large price increases we've seen for home and auto. I guess the question is, is there another piece in there that we're missing? And I was thinking, are we -- for example, are we actually thinking more policy in force growth will slow as well as part of that equation.

Yes. Paul, I think we said in our prepared remarks, we would expect policy-in-force growth rate to reaccelerate in the third quarter of this year, which we do believe that will be the case, which means you do have one more quarter of deceleration in that number. Now it's still, I think, relatively strong growth. It's not what we've historically done, but we fully believe we'll be able to drive back to kind of our historical numbers on policy in force growth rate. The revenue guide is truly a function of client retention as a temporary, very temporary headwind. We expect that, that will improve ideally by the end of this year, but certainly in 2025, at this point it becomes a tailwind. But the new business productivity section on the franchise side of the business is doing very, very well. And that's why you see the premium number not move as much as the revenue number.

So just to do a little bit , was the actual sort of push out of the decelerated PIP growth the quarter before that was unchanged from -- with the prior guidance is?

No, that number is unchanged. It's just a function of the amount of policies that are renewing. So maybe it's moved by a couple of weeks. It's not necessarily moved massively. But if you just think about how much of the book is home and how challenged the home environment is now, it's challenging to keep those clients on it. They're getting a 100% price increase.

And my second question, we were talking about productivity for the agents. Is that an average number? Or are we looking at sort of by cohorts? And I would imagine cohorts as they age become more productive regardless. So I was wondering if there's any way to sort of tease out what is sort of actual productivity of like the average this year is much better than the average. But maybe that's happening, but maybe you could talk to that. Is it -- because getting rid of your [indiscernible] agents would automatically improve productivity just from an average perspective, but maybe is there actual by cohort productivity improvements that you can talk about?

Yes. Yes, there definitely is. So if you look at the productivity disclosures that we provide, you'll see it broken down into less than 1 year greater than 1-year agents on both the branches and the corporate side. On the corporate side, the tenure of that bucket is actually a couple of months lower this year than what it was last year, just from timing of onboarding. And so the ramp-up of those agents is just as good as it was in the previous years. We feel very good about that first year corporate agent productivity. On the greater than 1-year bucket, we talked about a little bit already that transition of corporate agents into franchises or in management. And so if you adjust it for those items, you can do the math, it's around 19% productivity improvement if you kept those same agents that launched franchises in that greater than 1-year corporate bucket. So we are seeing very strong productivity improvements, I believe, in the corporate side. On the franchise side of the business, it's even more profound. And so if you look at just the same-store sales numbers, which has nothing to do with the amount of agents that you're pulling this franchise existed this year and this franchise exited last year, Q4, that number was 22%. It's up again another 19% in Q1, and we feel like that's going to continue to grow. So we feel very good about the productivity of the agent force, and we don't necessarily see a cap on that in the near term, especially if you get some product tailwinds.

Our next question will come from the line of Scott Heleniak with RBC Capital Markets.

Yes. Just wanted -- I just had a quick question on the franchises. You talked about adding hundreds more on the franchise producers. Is that mainly going to be to the existing franchises like you have now? And can you talk about the franchise conversions? Are they still on track? I think you had said before 30? Is that still -- you didn't mention in the prepared remark. So I was just wondering if that's still expected to be the case.

Yes. So we -- I think we've talked about this year in 2024, it would be more like $20 million to $30 million, not necessarily that full $30 million. Remember, we started the year with less corporate agents in 2024 than we did in 2023. So which is a smaller pool to pick from. As that team grows, which it will, in 2024, we indicated on the prepared remarks that we'll be over 375 by the end of the year. So we feel great about that. But producers into existing franchises, yes, that will be hundreds more this year. We're going to continue to launch more high-quality franchises. But I think the vast majority of your producer growth is going to be coming out of producers into existing agencies, which obviously, just as a reminder, creates much more productive capacity than adding a new franchise.

Half of those people being added to the franchises come through our recruiting program that we've established, which I said has 17 recruiters now doing nothing but full-time recruiting for franchises. The other half come from franchises recruiting on their own. And then we're less worried about the quantity of new franchises that we launch and more about the quality of the franchises. And so we're just being very selective about people we're letting into the franchise network right now and being very selective about the state. So we're very state-specific right now in where we need to grow geographically.

Got it. Understood. And then just a quick question. Mark, you referenced the margin expansion comment. You said most of that would come from Q4. Do you still expect margins to be up in Q2 and Q3 year-over-year? I said and I know the majority is Q4, but do you have anything you add on Q2 and Q3.

Yes. Just the timing of contingents in the second and third quarter compared to the previous year, you could see the total margin percentage down on a year-over-year basis. But I do get the core margin, you should still get good scale out of it. Although, remember, we're about to onboard a significant number of corporate agents and that cost doesn't reupdate as soon as they start, which is largely due in July, August, September, a lot of onboarding costs, licensing, things like that happen before they start. So you should see the compensation lines growing in the second and third quarter and then you get a nice scale as they ramp up their production throughout the summer and into Q4.

Okay. And just last one, too, on retention. I know it's been talked about a lot and you're targeting 89% or 85% now. But is that being dragged down by what's happening in Texas? Is that -- is it significantly different by state and so things lift in 1 or 2 states and it kind of brings it up? Or is it just pretty similar across the board?

Yes. I mean all states have a bit of a retention issue compared to our historic numbers, but Texas is, by far, our largest state. Home is our largest product and Texas is really suffering right now just from availability of product. And one indicator of what's going on is Texas premiums are up, I believe the number is 23% year-over-year. If you look on a national average, they're up about 10% or 11%. So it's up twice as much in our shopping activity mirrors that. So we look at how many people we have asked them for reshop, they get upset when their price goes up by a certain amount, that's a trigger point. So 20%, I want to shop. And so shopping activity for the number of policies is up twice as much and a lot of that is coming out of Texas. And so until the home carriers come back into the market, we're going to fight retention as hard as we can, but it's going to be a struggle.

Our next question will come from the line of Pablo Augusto Singzon with JPMorgan.

I just wanted to follow up on the commission disclosure. When were they thought exactly just so that we have a better sense of when the impact started and when that should be fully in the run rate. And then I guess related to that, what part of the book is that as a response? Because I know corporate is multi-texas franchising, I think of sectors, but if you could give us an update on the mix there?

Yes. I think the whole book is about 54% or 55% in Texas. So it's still a big disproportionate and that it's got 45% Texas. So it's a disproportionate amount, Texas. And we really sort of feel the effects of those commission impacts here in the first quarter.

Okay. And then my second question, I was a little bit surprised by the patrons in California, just given all the amounts exit or plus bears and homeowners. And I know some of those comments have been made by captive insurers, right? So maybe not directly relevant to. But in your view, is what's happening in California, the dislocation there net positive or negative?

It's definitely a net positive. So our business is on a significantly in California, and we have the product availability. So our agents have told me that they haven't seen an environment like this before in a long time.

And then last, sorry, if I missed the buyback program, will that be financed by operating cash flow or the increase that capacity. I just wanted to get a sense of how that will be funded.

Yes. It's a combination of the both. And so in their prepared remarks, you mentioned that the term loan is being increased by $25 million, and so that transaction closed today. So a portion of the buyback plan will be funded by that. Unfortunately, it will be funded by operating cash flow. And as needed, we will draw down on the revolver capacity to fund the additional share repurchases.

That concludes today's question-and-answer session. I'd like to turn the call back to Mark Jones for closing remarks.

Thanks, everyone. We appreciate your participation on the call.

This concludes today's conference call. Thank you for participating. You may now disconnect.