Goosehead Insurance Q3 2026 Earnings Call Transcript

Goosehead Insurance (NASDAQ:GSHD) reported third-quarter financial results on Monday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Goosehead Insurance reported a 17% increase in total revenue and a 13% growth in core revenue year-over-year for the third quarter of 2026, with robust new business commissions up 21%.

The company is undergoing a financial restatement due to changes in accounting practices, which will result in higher reported revenue and earnings for 2023-2025, without affecting cash flows or business operations.

Strategic initiatives include expanding their agent network to over 2,800 agents, enhancing digital and human client interaction capabilities, and leveraging partnerships with mortgage servicers and other businesses.

Management highlighted the competitive advantage provided by their technology and human capital, with a focus on omnichannel client engagement and improving service efficiency.

Future guidance maintains a positive outlook, with expectations of continued revenue growth and strategic expansion, despite acknowledging pricing pressures in the market.

Full Transcript

OPERATOR

Good day, and thank you for standing by. Welcome to the Goosehead Insurance third quarter 2026 conference call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To answer your question, please press star one one again.

Please be advised that today’s conference is being recorded. I would now like to turn the conference over to your speaker for today, Maddie Middleton. Please go ahead.

Maddie Middleton (Investor Relations)

Thank you, and good afternoon. Before we begin our formal remarks, I’d like to address the Form 8-K we filed today. As disclosed in that filing, our previously issued annual and quarterly financial statements for and as of the years and quarterly periods in 2023, 2024, and 2025, and our quarterly financial statements for the first half of 2026, should no longer be relied upon. Our review remains ongoing, so any estimated impacts we discuss today reflect our preliminary and current expectations, have not been reviewed or audited, and may change as the review progresses.

We will distinguish previously reported amounts from any updated amounts presented on the call where applicable. I also need to remind everyone that part of our discussion today may include forward-looking statements, which are based on expectations, estimates, and projections of management as of today. Forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties, and other important 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 on them. We refer you all to our recent SEC filings for a more detailed discussion of risks, uncertainties, and other important factors that could impact future operating results and financial condition. At Goosehead, we disclaim any intention or obligation 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 the call we will discuss certain financial measures that are not prepared in accordance with GAAP. Management uses these non-GAAP financial measures in 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 press release. In addition, this call is being webcast, and an archived version will be made available shortly after the call ends on the investor relations portion of the company’s website at goosehead.com. I’d like to turn the call over now to our CEO, Mark Miller.

Mark Miller (President and CEO)

Thanks, Maddie, and thank you all for joining us this afternoon. As I’m sure some of you have seen by now, we filed an 8-K regarding our previously issued financial statements. These adjustments have no impact on our cash flows or business operations, but they result in an increase in reported revenue and earnings in the affected periods. John Martin will walk through the specifics and their financial impact later in the call. We’re proud of our third quarter performance, and that’s where I’d like to focus our discussion today. Total revenue grew approximately 17% and core revenue grew 13% from the prior period. These are strong results, and I believe they reflect something bigger than the performance of any single quarter. We’ve spent years building one of the largest organically grown personal lines insurance businesses in the country, and those investments have positioned us to capitalize on an increasingly attractive market opportunity.

I want to spend a few minutes talking about why I believe that opportunity is so significant. The personal lines insurance product market has healed considerably. Carrier appetite has expanded, capacity has returned, and pricing has stabilized across much of the market. The result is a healthier, more competitive environment with more options available to consumers than we’ve seen in years. For Goosehead, this is exactly the type of environment where our model demonstrates its full value. We now have more than 2,800 agents nationwide providing local expertise in their respective markets.

Our robust product offering allows us to serve approximately 98% of homeowners across the country. When carriers are competing for business, our agents can do what they do best: evaluate clients’ individual needs and find the right coverage with the right carrier at the right price. When we get that right, we’ve established a relationship built on trust that can last for years. Our opportunity isn’t simply to sell more policies. It’s to build lasting relationships in a market where the value of an independent agent has never been more apparent.

The improvement in the product market is happening against the challenging housing market. Home closing transactions are at a 30-year low. To some extent, this is a headwind on lead flow from our traditional referral partner marketing. However, every homeowner needs insurance whether they purchased their home yesterday or 30 years ago. If you live somewhere or drive something, you need our product. Now operating across 11 states, our corporate team diversifies our geographic presence, develops new referral partner relationships, and most importantly, provides a pipeline of talent for future franchise owners.

We’re also building around our strongest franchises. Our franchisees continue to hire and become more productive. This quarter we reached a record 2.6 producers per franchise and over $30,000 in average monthly gross compensation per franchise, with some approaching $1 million per month. We’re sharpening the profile of franchise owners we recruit, targeting experienced business operators and investors with the capital and leadership to scale rapidly while continuing to develop franchise owners from our corporate agent base.

The corporate franchise flywheel continues to gain momentum with more than 180 franchise producers working in agencies owned by former corporate agents. We’re expanding through mortgage originators, servicers, and strategic partners. We’ve launched 12 embedded franchisees within businesses with established customer lead flow, with new business production up 64% from the third quarter of last year for these agencies. In some cases, we have seeded these new partnerships with experienced Goosehead talent to enable them to scale rapidly. This has become a strategic pillar of the corporate sales team.

Alongside these partnerships, enterprise sales expands our reach through institutional relationships, primarily outside the home closing transaction. Together, these channels diversify lead flow, allow partners to offer insurance at scale, and deliver the quality of clients our carriers expect. Over the past several years, we’ve invested heavily in service, both in our people and technology. Those investments are paying off; retention is steadily improving and our existing clients are referring friends and family to Goosehead. Our human agents now answer calls in less than 30 seconds over 70% of the time, and our client satisfaction score is consistently four out of five. And we only expect that to improve.

None of this happens without the infrastructure we’ve spent years building. We’ve equipped our agents with the most comprehensive product portfolio in the industry and powerful proprietary technology tools that enable them to drive industry-leading productivity. In the first half of this year, we put that technology in clients’ hands through a true digital choice shopping experience. We’ve always believed the future of insurance is both digital and human.

Clients want convenience alongside the guidance of a trusted agent, and our omnichannel platform gives them both. But technology alone doesn’t create a successful insurance business. It takes carrier relationships, product breadth, knowledgeable agents, and service that supports clients long after the sale. When you look at these opportunities together, the strength of Goosehead becomes clear. Over the last 20-plus years, we’ve built a world-class service organization, developed proprietary technology that sets us apart, attracted and developed exceptional talent, and established deep, trusted relationships with our carrier partners. Each of these capabilities is a competitive advantage on its own. Together they create a business that is extremely difficult to replicate, and we’ve done it with one primary focus in mind: the client. The client always has been and always will be the center of our universe.

My confidence in Goosehead’s teammates, strategy, purpose, and future has never been stronger. Now I’d like to turn it over to Mark Jones Jr., our President and Chief Operating Officer.

Mark Jones Jr. (President and Chief Operating Officer)

Thanks, Mark. That very commitment to the client has shaped our business since the beginning and continues to guide the investments we’re making for tomorrow. Advancements in technology are allowing us to adapt how we engage with clients at a rapid pace. Our service function is now reachable through channels that weren’t available even a few years ago—places like our web portal, mobile app, and AI voice assistant, Lilly. With no pressure from us to dictate how clients choose to interact, they’re naturally selecting the option that works best for them.

More service work than ever is being completed entirely through digital channels, nearly a third of the total workload, all within the safeguards

Mark Miller (President and CEO)

we put in place to protect clients and carriers alike. Our clients are telling us our technology, when pointed at the right specific actions, delivers just as high quality of service as our world-class team members. With a client satisfaction score on digital channels of 4.1 out of 5, the impact of that technology is felt directly in our cost to serve our service. Cost per policy in force has consistently come down over the last year, all while service levels have improved.

What I find most interesting, however, is clients are still choosing to interact with a member of our service team even when their request could be completed entirely through digital channels. Clients want human interaction because there’s a very real human element to insurance. It’s complicated, not intuitive, and the cost of getting it wrong can be severe. Many clients interacting with us are in the middle of a stressful situation. They may be in the process of purchasing their first home and want to talk through all the specifics of the coverage for what is now likely their largest asset.

They may have just had a child turn 16 and need to add them to their auto coverage, all while dealing with the emotion of having a new driver in the house. They could be filing a claim after an event that’s turned their life upside down. Our job is to be there for our clients wherever and however they need us, not force them through the most cost-effective path. That is how we build lasting trust. On the sales side, to be where our clients want to interact, we are designing our technology so that Goosehead Insurance’s capabilities can power the insurance experience across a range of interfaces. For example, if a client chooses to begin their shopping experience through their favorite AI assistant, Goosehead Insurance will be positioned to serve them there. We’re in the process of building a Model Context Protocol, or MCP, server on top of our existing services and capabilities to enable those connections.

We expect that to be live by the end of this year. We’re also improving our Generative Engine Optimization, or GEO, to make it easier for AI models and agents to find and interact with us. These enhancements will more easily allow AI agents working on a client’s behalf to engage with Goosehead Insurance and shop across our unmatched carrier network in a way that provides the appropriate context for differences in coverage and avoids boiling down a complex process solely to price.

We’ve stayed close to our carrier partners on this topic in recent discussions. One thing remains clear. Carriers are continuing to invest in the independent agent distribution channel. Today, agents place north of 70% of the $560 billion personal lines market, with independent agents continuing to take share from captives. Today, our digital agent allows clients to go from quote to issue entirely within our digital flows. However, while they can choose this path, the vast majority of clients still choose to complete the purchase after consulting one of our local agents.

Our carriers are telling us their experience in new channels matches ours. While the market may change over time and that total distribution share may shift into new channels, a considerable portion of the total addressable market is likely to persist in agent-led channels for the foreseeable future. We are positioning our model to be channel agnostic. We will have the ability to support clients digitally as they shop through whichever channel they prefer, while giving them the confidence of a licensed agent to review coverage and confirm placement of the policy. We have consistently invested ahead of changes in how clients shop for insurance and we intend to keep building for wherever they choose to engage next.

Turning to some specifics on the third quarter results, our total producer count, inclusive of corporate, enterprise and franchise producers, was 2,840, up 7% year over year. We sustained strong levels of new business production with new business commissions growing 21% year over year and new business royalty fees up 13% year over year. We anticipate delivering full-year new business commission growth at its fastest pace since 2021 and full-year new business royalty fee growth at an accelerated pace over the previous year.

Our strategic partnerships are driving real growth in new business, which can be seen in our enterprise sales team. Now with over 150 agents, this team’s new business growth rate is greater than 50% for the third quarter, their eighth consecutive quarter of greater than 50% growth, and we anticipate that to accelerate in the fourth quarter. Our executed partnerships in total now represent over 5 million potential clients and provide a captive audience with a data advantage that allow us to grow new business production at rates that would have previously been more closely tied to headcount growth.

As our digital agent technology continues to mature and new features and geographies are added, we anticipate further adoption of the end-to-end binding capability that is available within a choice model only at Goosehead Insurance. As the product market has normalized and pricing has fallen year over year, that provides us the opportunity to add more value to our clients by identifying those that may be overpaying for their existing coverage or who now have options for additional coverages and assist in placing them with an underwriter with a more competitive offering.

The result is a short-term headwind to renewal revenue, but a long-term improvement in client retention as clients feel the true value of the Goosehead Insurance model, acting as a trusted advocate on their behalf. Looking into the coming years, our core strategic pillars are simple: continuously improve the client experience and look for opportunities to take part in those improved outcomes; invest in our technology to provide access to clients in whatever channel they choose, be it through a live agent, personal AI assistant, Goosehead Insurance website or mobile app; expand our human capital advantage through our distribution forces; and penetrate deeper into the partnership ecosystem to expand revenue growth opportunities.

We have an exceptional team and an incredible runway for continued growth. This dynamic environment is tilted in Goosehead Insurance’s favor as our focus remains squarely on our clients. With that, I’ll turn the call over to John Martin to give you an update on our current financials and provide outlook for the remainder of the year. John

John

Thanks, Mark, and good afternoon, everyone. Before turning to our third quarter performance, I’d like to provide some additional color around the 8-K we filed relating to prior period financial results. In connection with the standard and ongoing review of our annual filings, we received a comment letter from the staff of the SEC regarding certain disclosures in our 2025 10-K, including our accounting for cost to obtain contracts with customers. Our North Star has always been ensuring that our financials both accurately portray the economic reality of the business and are fully compliant with GAAP.

Our historical approach to the recognition of agent compensation costs has been to expense them as incurred. While we believe this treatment reflects the underlying fundamentals of our operations, we have determined this approach does not conform with FASB standards, which require a portion of these costs to be deferred over a determined useful life. As a result, we have concluded it is necessary to restate our previously issued financial statements and recognize a portion of our compensation expense over a longer period of time.

In conjunction with this evaluation, we initiated a comprehensive review of our broader accounting policies. Through this process, we identified an additional adjustment around the presentation of certain franchise-related fees, which largely pertain to technology cost recovery. These fees were historically presented as a G&A expense offset but should be reclassified as revenue. After careful consideration, the Audit Committee of the Board of Directors, together with Management, have determined the resulting adjustments are material to certain previously issued financial statements.

These include those related to the annual periods 2023, 2024, and 2025, and the interim periods Q1 and Q2 in 2026. Accordingly, we are working to finalize and file restatements for the affected periods, as well as for our third quarter 10-Q, as soon as practical. The restatement impact related to these two items is straightforward. First, the compensation cost piece: there is less expense in-period and more placed on the balance sheet, which then amortizes over the expected benefit period. We preliminarily expect compensation expense to decrease and operating income to increase by approximately 0.5% to 5.5% of total employee compensation and benefits for each of the full year 2025 and the first half of 2026.

Second, the reclassification of certain fees charged to franchises: the impact here is simply a one-for-one gross-up of both total revenue and G&A expense by the same dollar amounts and in the same periods. We preliminarily expect the impact to be approximately $11 million to $16 million in 2025 and approximately $8 million to $13 million over the first three quarters of 2026. As a final comment on this topic, I’d highlight two primary takeaways. First, there is no change at all to our core revenues, cash flows, or the underlying economics of the business. And second, we expect the presentation impact in our restated financials to reflect increases in total revenues, operating income, and adjusted EBITDA.

And with that, let’s turn to our performance highlights for the third quarter. Policies in force grew 14% year over year to 2.1 million, and total written premiums grew 11% year over year to $1.3 billion. Total revenues grew 17% year over year to $110 million, reflecting the midpoint of the range provided in our press release. Core revenues grew 13% year over year to $95 million. Similar to last quarter, we’re pleased to see our growth driven by a combination of strong new business performance, improving retention, and increases in contingent commissions.

New business commissions grew 21% year over year to $9.1 million, and new business royalties grew 13% year over year to $9.4 million. Recruiting is stronger than ever, with our aggregate producer base now up 7% year over year for a total of 2,840 producers. As we’ve grown the producer base, we’ve continued to diversify our footprint into untapped markets, and we now have more than 65% of corporate agents located outside of Texas. In the past year alone, this mix has increased nearly 20 percentage points. We’re encouraged to see our enterprise sales team contribute outsized growth as we continue to deepen our strategic partnerships.

Enterprise sales grew headcount 71% year over year and contributed 23% of total new business commissions and agency fees. On the franchise side, our agency owners are leaning heavily into growth, with same-store sales up 29% year over year for our top 50 franchises and up 17% year over year for the entire channel. Corporate agent launch franchises are punching well above their weight class. These agencies represented 6% of total producers and contributed 15% of total new business production in the third quarter.

It’s great to see our thesis playing out here in real time. Client retention remains significantly improved at 86% and represents one of our largest opportunities as we continue to execute against initiatives that improve the overall client experience. Ancillary revenues, largely comprised of contingent commissions, grew 106% year over year to $10.3 million. This quarter’s results and our continued positive outlook on contingents are driven by favorably negotiated contracts with carriers, the volume and quality of new business written, and minimal CAT losses.

We ended the quarter with $33 million of cash and cash equivalents and $322 million of total debt outstanding. As the restatement work remains ongoing, we intend to focus the balance of today’s discussion, including Q&A, on key business drivers and operating trends, which we can speak to with confidence. We’ll provide a more fulsome discussion of expenses and profitability once the financial statements are finalized. Turning now to the balance of the year, we are reiterating our revenue and total written premium outlook for the full year 2026. We continue to expect total revenues to grow organically in the range of 12% to 19% year over year and total written premiums to grow organically in the range of 12% to 20% year over year.

Finally, stepping back from the numbers, I continue to be incredibly encouraged by the breadth of progress we’re seeing. We are expanding our producer base and geographic reach, our franchise owners are growing, and client retention has improved meaningfully. These are mutually reinforcing strengths. Our distribution brings more customers into the business, while our service, technology, and carrier relationships help us deliver more value to them over time.

In a large and fragmented market where our share remains small, we believe that combination gives us a substantial runway for continued growth. Thank you to our teammates, franchise owners, and partners for the effort that drives our progress. And thank you to everyone joining us today for your continued support of Goosehead. With that, I’d like to turn it back over to Mark Miller for closing comments.

Mark Miller (President and CEO)

Thanks, John. Before we open up for questions, I want to say a few words as this is my final call as CEO of Goosehead Insurance, as I’m retiring at the end of the year. It’s been an extraordinary journey, and I’m incredibly grateful to our teammates, our agents, our carrier partners, and our shareholders for everything they’ve done to make this so rewarding. As I transition out of this role, I’m incredibly proud of the strength of the company today and excited for the opportunities ahead.

I believe Goosehead has never been stronger, more capable, or better positioned to deliver sustained, profitable growth than it is today. Over the past several years, we’ve been very intentional about strengthening our leadership team, investing in our technology and infrastructure, and building the capabilities needed to support the company’s long-term growth. Mark Jones Jr. has played an important role in virtually everything we’ve done to prepare Goosehead for this next chapter.

He’s helped shape our strategy, strengthen our operations, and build the foundation for the future. I have tremendous confidence in Mark, in our leadership team, and in the direction of the company. This is a natural transition for the business, and I believe it positions Goosehead extremely well for the years ahead. I firmly believe Goosehead’s best days are still in front of us. With Mark at the helm, it’s been an incredible privilege to serve as CEO.

Thank you for your trust, your partnership, and your support throughout this journey. With that, I’ll open it up to questions. Operator.

OPERATOR

Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. You will hear the automated message advising your hand is raised. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. Our first question will be coming from the line of Tommy McJoint of KBW. Please go ahead.

Tommy McJoint (Analyst at KBW)

Hey, good evening. Thanks for taking my questions. The first one here is around some of your remarks on building bridges for personal AI agents. I think you mentioned you guys are developing a model context protocol to build that bridge. Is that going to entail Digital Agent 2.0 fully bindable quotes being available to be bound by personal AI agents? And along those lines, do you have to get your trusted carrier partners to opt in to that type of integration, or generally, what is the feedback from your carrier partners around this?

Mark Miller (President and CEO)

Yeah, thanks, Tommy. This is Mark. So we’ve spent a lot of time being very close to our underwriters on this topic, specifically on what’s the right way for personal AI agents to interact with the distribution channel. And ultimately, we want to be available wherever clients are attempting to interact. And so if we can make our digital agent technology available to personal AI agents in a way that is safe, protects us from a cybersecurity perspective, and provides the appropriate context, and so you can actually compare different types of coverages, because not all policies are the same, that’s how we can get lasting trust with our underwriters to allow us to be a trusted intermediary in a way that can prevent them from rapidly accumulating business that’s not going to be profitable for them.

But we’ll see how that technology develops over time. There’s still some open regulatory question marks surrounding that topic, but we want to be able to be wherever our clients want to interact.

Tommy McJoint (Analyst at KBW)

Okay, got it. Thanks for that. And then I think you said you gave some metrics around new business production at your embedded partners, working with mortgage servicers and other types of entities, that it grew, I think you said, over 64% year over year. What percentage of your total new business production does that channel now represent? And when I think about the growth there, is that in any way cannibalizing any of your other business that you would have had through a different channel previously?

Mark Jones Jr. (President and Chief Operating Officer)

Great question, Tommy. So right now, the embedded franchise partners, which this is an important distinction, those are partnerships in which that entity owns its own Goosehead franchise. Those have grown really well over the last year. They don’t make up a super material portion of franchise new business production, but it’s becoming more impactful and they’re now some of our largest franchises. If you think about the entire partnership ecosystem, that would include everything from our enterprise sales team, and that’s starting to become a reasonably material portion of the business and continuing to grow at a super rapid pace.

To your point on cannibalization, because we’ve specifically focused on people like mortgage servicers as opposed to intentionally going after originators first, there’s not really a cannibalization effect. And also remember, we’re still at very low penetration into the home closing total addressable market. So I don’t believe we’ve cannibalized any of our existing lead flow. This is all incremental to what the current business is doing.

Tommy McJoint (Analyst at KBW)

Thank you.

OPERATOR

Thank you. One moment for the next question. Our next question will be coming from the line of Brian Meredith of UBS. Please go ahead.

Brian Meredith (Analyst at UBS)

Yeah, thanks. A couple of them here. First, I’m just curious, if I look at your core revenue growth of 13%, it slowed from the second quarter. Anything kind of behind that? What’s going on there?

John

Hey, Brian, it’s John. Just to call out a few items here. One, we’re extremely proud of the 13% we were able to put up in the third quarter. I’d say there’s a couple areas I’d highlight here. One, there are a bit tougher comparisons in the third quarter than the second quarter. Two, we’re seeing a bit more pricing than we had previously anticipated in our core market specifically. And that’s more of an external factor that we obviously don’t control, but we feel good about how we’re responding and what we actually need to do to execute and maintain control around the core controllables.

And so that includes growing our producer count, growing productivity, leaning more into partnerships, and fulfilling that through enterprise sales, among other channels. And so we feel really good about the business and, you know. Yeah. And if you look at the new business numbers, I think there was a pretty strong new business quarter. I mean, corporate new business commissions up 21%. The franchise business grew 13%. In terms of new business generation, really where you’re seeing the impact is pricing in the Texas book. For the corporate side of the business, that’s been probably a larger decline in pricing than we would have expected even three months ago. But the rest of the business is generally performing very well and we’re still seeing progress in terms of client retention.

It’s just the pricing impact in Texas specifically has been a lot bigger than what we probably initially anticipated.

Brian Meredith (Analyst at UBS)

Great, thanks for that. And I’m just curious, maybe give an update on number of carriers, any new ones participating on your aggregator platform in terms of the Digital Agent. Digital Agent, yeah, Digital Agent. Sorry. Yeah. And, like, new carriers on there, kind of the progress there on Digital Agent.

Mark Miller (President and CEO)

Yeah. So we’ve made a lot of progress on Digital Agent, really hardening the technology to make sure it can scale to the size that we want it to scale at. We’re obviously still incredibly proud to have what we believe, I think, is still the only choice shopping model where clients can go quote-to-issue all the way through. And for us, the interesting learning is we’re getting thousands of people at the top end of the funnel here and the vast majority of them, somewhere throughout the process, want to kick out and talk to a human being because we largely lead with the homeowners.

So that’s a pretty complex process. Now, we’re going to continue to make UI, UX, and educational information available in the Digital Agent to continue to increase the share that we believe can go all the way through the process. But what nobody else is really, I believe, able to replicate is that human capital infrastructure across the entire country where, effectively, almost anybody starting at the top end of a digital binding flow can kick out and talk to a Goosehead agent who is largely inside their local area.

So we’re going to keep investing in that technology. I still believe that is the future of the organization, but you’re not going to get away from the need to have that human capital on the back end. And that’s the piece that’s really hard to replicate.

Brian Meredith (Analyst at UBS)

And is Digital Agent going to be able to work with, like, the Meta AIs?

Mark Miller (President and CEO)

Yeah. So that’s part of the MCP process that we’re working through, to be able to allow personal AI agents to engage with us in a safe way that minimizes risk to carriers and minimizes risk to clients. Right. There’s a whole host of questions that still need to be answered, as has the client officially requested that their agent go attempt this task, or did they give it a loose parameter like manage my finances and this is something that they’ve decided is managing a finance-type activity, or did it get express consent to go run a new insurance quote?

So there is a whole host of questions that still need to be answered on that topic, but we want to build the functionality to be able to engage in those channels in a way that provides our carriers with good access and allows our clients to choose how they interact.

Brian Meredith (Analyst at UBS)

Gotcha. Any change in carrier partners in the Digital Agent?

Mark Miller (President and CEO)

No, not as of today.

Brian Meredith (Analyst at UBS)

Great, thank you.

Mark Miller (President and CEO)

Thanks, Brian.

OPERATOR

Thank you. One moment for the next question, please. The next question is coming from the line of Randy Byner of Texas Capital Securities. Please go ahead.

Randy Byner (Analyst at Texas Capital Securities)

Hey, thanks. I’d like to follow up on the first question and just maybe, like, higher level in the third quarter or in this current quarter, it sounds like you’re not seeing direct impact from AI agent activity in the market, but just kind of on a more simple level, I just want to kind of emphasize that it sounds like most of your customers are still talking to the agents, but just in the market are you seeing an impact from perhaps other carriers who are engaging with AI agents, or is it too early in that process?

Mark Miller (President and CEO)

No, it’s still really early in that process. And we have talked to the majority of all of the major underwriters, so you could think of a pretty considerable portion of the independent agent distribution market share. We’ve had conversations at the most senior levels about how we think this is going to play out, and everybody’s thoughts are generally the same. They’re seeing an increase in bot activity and they think this probably helps with the information gathering of their direct businesses, but does not replace independent agent distribution.

It’s just a fundamentally different shopper. I can give you one anecdotal example. We’ve got our own team internally who we’re constantly checking the capability sets of these tools just to make sure we understand what’s currently available and how can we cater to those technologies. And you can send out two different bots with all the same information; they can go run from the carrier direct-to-consumer websites auto quotes with the same information, pull back quotes from the same carrier, and get 25% differences in price.

So if you’re an underwriter, that’s got to be a pretty frightening proposition. I’m not sure exactly how that issue gets solved, but that’s not an issue that you run into with an independent agent. And then the other point I would make on this topic is the cost of getting that information wrong. So you’ve probably heard the phrase liability transfer with respect to this topic before. If you’re using your own personal AI agent to go get you insurance policies, you’re transferring all the risk of those policies being wrong to yourself. So the cost of getting it wrong is actually pretty severe.

And the level of effort to get it right is really low because, again, in that test that we run internally, the amount of time it takes bots—and this will improve—but at least as of today, the amount of time it takes bots to get actionable quotes back, it’s actually longer than the amount of time it takes for a human agent to just write your policy, and one that you’re fully protected on. That agent has E&O coverage to make sure, even if they miss something, in the unlikely event that they did, that you as the client aren’t damaged.

So it’ll be an interesting and dynamic time. But we feel like we’re positioned in the right spot in the value chain. We have the right relationships with our underwriters and we have the right technology team to prepare ourselves for how the market changes.

Randy Byner (Analyst at Texas Capital Securities)

That’s a good anecdote. Just to make sure I understood it correctly. So that 25% price range, I guess we’ll call it, on the auto quotes, it was on auto that did not include homeowners quotes. That was just auto for that activity.

Mark Miller (President and CEO)

Yeah. The bots were unable to get homeowners quotes. They were able to get auto quotes with the same carrier, one being $1,000, one being $1,250, with all of the exact same information.

Randy Byner (Analyst at Texas Capital Securities)

Just one more if I can, just on pricing, where are you seeing, kind of at the midpoint across your markets, just auto and home price softening year over year in the third quarter?

John

Yeah, auto is down, call it mid-single digits, and home is down low single digits. That can be more dramatic in specific markets, places like Texas and Florida. But if you look at the policy-in-force growth rate of 14% compared to the premium growth rate of 11%, you can effectively get to an at-large average price decline of about 3 percentage points.

Randy Byner (Analyst at Texas Capital Securities)

Okay, great. Thanks. Thanks for that.

OPERATOR

Thank you. One moment for the next question. Our next question is coming from the line of Andrew Anderson of Jefferies. Please go ahead.

Andrew Anderson (Analyst at Jefferies)

Hey, good afternoon. As you expand the Digital Agent and build the MCP connection for these third-party AI assistants, should we expect any meaningful increase in technology spending, or can that be completed within the existing cost base?

Mark Miller (President and CEO)

We don’t expect to change our previous expectations on 2027 technology spend.

Andrew Anderson (Analyst at Jefferies)

Okay. And as you talk about the product market becoming a bit more competitive, can you talk about what you’re seeing in base commission rates or contingent terms and if that could help offset some of the lower premium per policy over time?

Mark Jones Jr. (President and Chief Operating Officer)

Yeah, base commission rates are continuing to be stable to improving, and that kind of depends on the specific geography. And some of that is a function of the admitted markets being pretty significantly healed, and those naturally tend to have higher commission rates. There’s been a lot of industry data, I think even from you specifically, Andrew, on the growth rates in E&S and how those have kind of leveled off with the healed admitted market. And we’ve done a really good job working with our underwriters to determine what’s the fair and right compensation for the level of growth and profitability our business is able to provide, which we believe is differentiated from the average agent, given how we go to market. So that’s kind of the core commission rate point.

And then on the contingency side, this was a really specific area of focus for us in 2026, just given how we anticipated the product market would heal and profitability would look for underwriters. I think we’ve done a great job working with our carrier partners to understand how do we maximize value for them and then how do we get to take part in that upside. And that’s going to be reflected in our contingent commissions this year. You know, I think we previously said something like 70 to 100 basis points of contingent commission expectation for the year.

We could probably confidently say that’s more like 80 to 110 basis points of premium as contingencies for this year. And we’ve done a good job writing high quality business, so the loss ratios have performed very, very well this year.

OPERATOR

Thank you. Thank you. One moment, please. Our next question will be coming from the line of Mark Hughes of Truist. Please go ahead.

Mark Hughes (Analyst at Truist)

Yeah, thank you. Good afternoon. Anything you can say about the contingent commissions outlook for the balance of the year? Any updates on those expectations?

Mark Jones Jr. (President and Chief Operating Officer)

Yeah, Mark, I would say we’re expecting contingent commissions for the full year to be between 80 and 110 basis points of total written premium. So that would reflect an improvement over our second quarter expectation, and that’s a function of delivering high growth and profitable new business as well as improvements in the quality of contracts that we have.

Mark Hughes (Analyst at Truist)

Yeah. Anything you can say, any details on the, just the restatement, the commissions paid to obtain customer contracts? Was there a particular component of the commissions or some category of counterparty that you’re paying those commissions to that are now going to be capitalized? And I hear your point, it’s going to make the P&L look even better. But what was the issue? If you could, any detail would be appreciated.

Mark Jones Jr. (President and Chief Operating Officer)

Yeah, it really stems from variable compensation paid to corporate sales agents in generation of new business. And obviously I would point you back to the 8-K for the specifics on the disclosure. But ultimately all this impact is, is we’ll be putting more expense on the balance sheet and recognizing it over a longer period of time. Now we’ll have full financial statements restated as soon as practically available. But ultimately this results in an improvement in the P&L, which is an interesting position to be in.

Mark Hughes (Analyst at Truist)

Is that going to impact EBITDA? Is that going to be corrected for or adjusted for?

Mark Jones Jr. (President and Chief Operating Officer)

Yes, we would anticipate declines in compensation expense and increases in the associated income numbers, including adjusted EBITDA, by that same amount. And so if you look at the 8-K, the 2025 range that we gave, the math on that effectuates a $1 to $11 million range with a $6 million midpoint.

Mark Hughes (Analyst at Truist)

Yeah. So this is not an EBITDA add back amortization.

Mark Jones Jr. (President and Chief Operating Officer)

No, it’s coming straight out of compensation expense, so it will result in an improvement in EBITDA.

Mark Hughes (Analyst at Truist)

Yeah. Okay. Thank you very much.

OPERATOR

Thank you. One moment please, for the next question. Our next question is coming from the line of Roland Mayor of RBC Capital Markets. Please go ahead.

Roland Mayor (Analyst at RBC Capital Markets)

Thanks and good evening. It sounded like you had already done a full accounting review, but do you expect there to be any incremental costs associated with the restatement process?

Mark Jones Jr. (President and Chief Operating Officer)

It’s hard to comment on that specifically right now. I would say we anticipate there being some portion of G&A that needs to get spent in terms of actually delivering the fully restated financial statements. I don’t anticipate that being a material number.

Roland Mayor (Analyst at RBC Capital Markets)

Thank you. And then I guess on agent productivity, you showed some nice year-over-year gains in the franchise side, but corporate agents were more stable. Is that unusual?

Mark Jones Jr. (President and Chief Operating Officer)

I wouldn’t say it’s unusual. And really, corporate agents in their first year are more impacted by the housing market than the longer tenured ones, just given they’re in the process of building their referral partner network, as well as we’ve had 48 total agents from the corporate team this year launched into other portions of the business. And that includes 19 franchises that came out of corporate that are producing at high levels, nine producers that went to work for either embedded franchises or other existing agencies, and then 20 additional producers who have gone to other productive areas of the business, including the enterprise sales team.

And usually those are some of the more productive people. So if you think back to one or two calls ago, we were talking about the real purpose of the corporate sales team is to be a talent incubator for other portions of the organization. That is performing exactly as anticipated.

Roland Mayor (Analyst at RBC Capital Markets)

Thank you. And then if I could just get one more in. We moved through hurricane season in the quarter, and I was wondering if you started to see changes in the pricing environment as companies anticipate reinsurance price cuts next year.

Mark Jones Jr. (President and Chief Operating Officer)

Yeah, I mean, the third quarter had more pricing declines in it than the second quarter did, and that may be in anticipation of reinsurance pricing coming down, although I don’t have a crystal ball. And obviously we don’t have any balance sheet risk, so we’re not directly exposed to reinsurance costs.

Roland Mayor (Analyst at RBC Capital Markets)

Appreciate the answers. Thank you.

OPERATOR

Thank you. One moment please for the next question. Our next question is coming from the line of Ryan Tornas of Cantor. Please go ahead.

Ryan Tornas (Analyst at Cantor)

Thanks. I’ve got three ones on the accounting stuff. The first one, this change I think is going to make your non-core revenues somewhere like 17% of total. So I’m just curious how you think about that now that, you know, we’ve got the initial franchise fees and this. Should we be sure that, like, too big of your business is being driven by your franchises reimbursing you, paying you, however you want to call it?

Mark Jones Jr. (President and Chief Operating Officer)

Ryan, this has existed forever. Franchisees have paid us to access the technology that we’ve spent tens of millions of dollars building over our history. This is purely a geography issue inside the P&L. So we’re not changing business decisions based on how the accounting works here. Now we want to make sure we get the accounting right, which is why we’re going through this process. But this doesn’t change anything about how we manage the business.

It also has no impact to cash flows or earnings.

Ryan Tornas (Analyst at Cantor)

Appreciated. It just changes the way we look at revenues. Take the question. So ASC 606 I think has been around since 2018. This is a 2023–2025 issue. Can you just give me some context on, you know, why is this not a 2022, 2021, 2019 issue? Why did this crop up in 2023?

Mark Jones Jr. (President and Chief Operating Officer)

Yeah, I would just refer you to the 8-K on the disclosures related to this topic.

Ryan Tornas (Analyst at Cantor)

And then just lastly, I think analysts, like myself included, have found a lot of, like, margin volatility over the years. It sounds like you’re capitalizing some stuff. Is it fair to assume that the margin profile should become more stable moving forward?

Mark Jones Jr. (President and Chief Operating Officer)

Yeah, I’ll leave it there, Ryan. Margins have only effectively gone in really one direction for the last six years. I think five or six years, they’ve effectively only gone up since the 2021 period. Now this year we messaged specifically why you should expect margin compression, and that’s a result of investments into things that we believe are going to drive faster longer-term growth, and we’re going to have the discipline to continue to make those trade-offs.

We don’t want to trade off short-term margin for long-term total profit dollars, but we are a high-growth organization. We’re three to five times the public broker average of organic growth, depending on who you’re comparing against, and we deliver pretty strong and stable margins in the high 20s, low 30 percentage points range. And I think if you ask me what I prefer to have, revenue growth faster or margin higher, I prefer to have revenue growth faster. So as we look for opportunities to drive faster revenue growth, I’m happy to make that short-term margin trade-off to drive long-term market share gains.

Ryan Tornas (Analyst at Cantor)

Thanks for the answers.

Mark Jones Jr. (President and Chief Operating Officer)

Thanks, Ryan.

OPERATOR

Thank you. One moment please, for the next question. Our next question is coming from the line of Pablo Sing Zhang of JP Morgan. Please go ahead.

Pablo Sing Zhang (Analyst at JP Morgan)

Hi, good evening. Do you have a view on when the pricing pressure will abate? I think you had originally signaled—and this might have been quite early in the year, right?—but I think one of the messages was that you expect the pricing pressure to abate in the second half. So I was wondering if you had an updated view there.

Mark Jones Jr. (President and Chief Operating Officer)

Yeah, Pablo, I think the message was really we expected the rate of improvement of client retention to be even faster than the pricing impact. And what has happened is the pricing impact has gotten more substantial in the third quarter and not been stable relative to the second quarter, which is why you’re seeing the directionality on revenue retention of renewal commissions. It’s hard for me to put a stake in the ground and tell you exactly when pricing is going to level off.

I think I tried to do that in 23 and in 24 and was ultimately not correct on those topics because of the general extremeness of the hard market. We’ll see as we start to lap some of these comparisons in terms of how soft this market has been. I don’t necessarily anticipate underwriters are going to continue to slash prices forever, but we are at the entry point of a soft market, which means we’re probably in a downward pressure on pricing for some period of time, followed by stability and then moderate price increases, which is really a better operating environment for us to be in.

Pablo Sing Zhang (Analyst at JP Morgan)

Fair enough. And then the second question, how does the pricing pressure affect your ability to maintain or expand margins just given your ongoing investments? Right. Are you seeing enough of an offset from efficiency initiatives? And I guess what I have in mind are your larger counterparts—right, obviously they’re not growing as fast as you guys, but basically all the bigger brokers at this point have some sort of expense management plan in place.

I was wondering if that’s something that you might be considering. Thanks.

Mark Miller (President and CEO)

Yeah, I would say they’re kind of two separate topics. Right. We try to manage the business on the factors that we can control while understanding what’s going on with the other factors outside of our control. And so I don’t want to be making rash business decisions in our operations based on what’s going on with pricing. We take a long-term outlook. We understand that over a long period of time, pricing will effectively look one direction. It’s not going to, over a long period of time, be swinging up and down.

And so I don’t want to be jerking the organization around like that. Having said that, we’re always looking for opportunities to get more efficient. And we talked about in our prepared remarks some of the AI initiatives associated with our service function which have gone incredibly well. We’re delivering a really excellent client service at an effectively reduced cost over the previous year, just in terms of that direct measurement. And that’s a function of us investing in technology that both aids our clients and aids our teammates and making their lives easier.

So we’re going to continue to do those kind of things as well as try and drive unit productivity so we can control how many policies we sell. We can’t control the price of what those policies are. So we’ll focus on driving as much unit productivity as possible and reducing our cost wherever we can.

OPERATOR

Thank you. One moment please, for the next question. Our next question is coming from the line of Katie Sakis of Autonomous Research. Please go ahead.

Katie Sakis (Analyst at Autonomous Research)

Hi, good evening. I wanted to follow up on the previous question about pricing pressures. I appreciate that you guys don’t have a crystal ball on what carriers in the market are going to trend towards over the next couple of quarters or years, but I do think that you guys have a fairly decent understanding of where your productivity momentum should be trending and how your overall footprint should be changing. So just curious whether or not you expect the rate of client retention improvement and overall new business growth to be able to offset the headwinds from premium retention next year.

And does that ultimately mean that we could see core revenue growth accelerate in 2027?

Mark Miller (President and CEO)

Yeah, I mean, the key to driving accelerating core revenue growth rates, and obviously I’m not going to give 2027 guidance right now, but just philosophically, the key to driving accelerated core revenue growth rates is improving client retention and ac