Goosehead Insurance, Inc. [GSHD] Filings

10-Q 1 gshd-20240630.htm 10-Q gshd-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ______

Commission file number: 001-38466

GOOSEHEAD INSURANCE, INC.

(Exact name of registrant as specified in its charter)


Delaware			82-3886022
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)
1500 Solana Blvd, Building 4, Suite 4500
Westlake
Texas			76262
(Address of principal executive offices)			(Zip Code)

(469) 480-3669

(Registrant's telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Class A Common Stock, par value $.01 per share	GSHD	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☑ No

As of July 22, 2024, there were 24,208,239 shares of Class A common stock outstanding and 12,747,530 shares of Class B common stock outstanding.

Table of contents



		Page
Part I
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

Part II
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41

SIGNATURES		41

Commonly used defined terms

As used in this Quarterly Report on Form 10-Q ("Form 10-Q"), unless the context indicates or otherwise requires, the following terms have the following meanings:

•Ancillary Revenue: Revenue that is supplemental to our Core Revenue and Cost Recovery Revenue, Ancillary Revenue is unpredictable and often outside of the Company's control. Included in Ancillary Revenue are Contingent Commissions and other income.

•Agency Fees: Fees separate from commissions charged directly to clients for efforts performed in the issuance of new insurance policies.

•Annual Report on Form 10-K: The Company's annual report on Form 10-K for the fiscal year ended December 31, 2023.

•Carrier: An insurance company.

•Carrier Appointment: A contractual relationship with a Carrier.

•Client Retention: Calculated by comparing the number of all clients that had at least one policy in force twelve months prior to the date of measurement and still have at least one policy in force at the date of measurement.

•Contingent Commission: Revenue in the form of contractual payments from Carriers contingent upon several factors, including growth and profitability of the business placed with the Carrier.

•Core Revenue: The most predictable revenue stream for the Company, these revenues consist of New Business Revenue and Renewal Revenue. New Business Revenue is lower-margin, but fairly predictable. Renewal Revenue is higher-margin and very predictable.

•Cost Recovery Revenue: Revenue received by the Company associated with cost recovery efforts associated with selling and financing franchises. Included in Cost Recovery Revenue are Initial Franchise Fees and Interest Income.

•Franchise Agreement: Agreements governing our relationships with Franchisees.

•Franchisee: An individual or entity who has entered into a Franchise Agreement with us.

•GF: Goosehead Financial, LLC.

•Initial Franchise Fee: Contracted fees paid by Franchisees to compensate Goosehead for the training, onboarding and ongoing support of new franchise locations.

•LLC Unit: a limited liability company unit of Goosehead Financial, LLC.

•New Business Commission: Commissions received from Carriers relating to policies in their first term.

•New Business Revenue: New Business Commissions, Agency Fees, and New Business Royalty Fees.

•New Business Royalty Fees: Royalty Fees received from Franchisees relating to policies in their first term

•NPS: Net Promoter Score is calculated based on a single question: “How likely are you to refer Goosehead Insurance to a friend, family member or colleague?” Clients that respond with a score of 6 or below are Detractors, a score of 7 or 8 are called Passives, and a score of 9 or 10 are Promoters. NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters.

•Policies in Force: As of any reported date, the total count of current (non-cancelled) policies placed by us with our Carriers.

•Policy Term: The contractual period the policy provides insurance coverage to the insured.

•Pre-IPO LLC Members: owners of LLC Units of GF prior to the Offering.

•Renewal Commission: Commissions received from Carriers relating to a policy in a renewal term.

•Renewal Revenue: Renewal Commissions and Renewal Royalty Fees.

•Renewal Royalty Fees: Royalty Fees received from Franchisees relating to a policy in a renewal term.

•Royalty Fees: Fees paid by Franchisees to the Company that are tied to the gross commissions paid by the Carriers related to policies sold or renewed by a franchisee.

•The Offering: The initial public offering completed by Goosehead Insurance, Inc. on May 1, 2018.

•Total Written Premium: As of any reported date, the total amount of current (non-cancelled) gross premium that is placed by Goosehead with its portfolio of Carriers.

Special note regarding forward-looking statements

We have made statements in this Form 10-Q that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Item 1A. Risk factors” in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

The forward-looking statements included in this Form 10-Q are made only as of the date hereof. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised expectations.

PART I

Item 1. Condensed Consolidated Financial Statements (Unaudited)


		Page
Condensed Consolidated Statements of Operations		6
Condensed Consolidated Balance Sheets		7
Condensed Consolidated Statements of Stockholders' Equity		8
Condensed Consolidated Statements of Cash Flows		10
Notes to the Condensed Consolidated Financial Statements		11
Note 1	Organization	11
Note 2	Summary of significant accounting policies	11
Note 3	Revenues	14
Note 4	Franchise fees receivable	16
Note 5	Allowance for uncollectible agency fees	17
Note 6	Property and equipment	17
Note 7	Intangible assets	18
Note 8	Debt	18
Note 9	Income taxes	19
Note 10	Stockholder's equity	20
Note 11	Non-controlling interest	22
Note 12	Equity-based compensation	23


Note 13	Litigation	23

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenues:
Commissions and agency fees	$	31,619	$	31,173	$	57,840	$	56,657
Franchise revenues	46,225		37,687		84,214		69,761
Interest income	244		417		494		814
Total revenues	78,088		69,277		142,548		127,232
Operating Expenses:
Employee compensation and benefits	42,551		37,483		84,681		74,365
General and administrative expenses	16,855		17,332		34,035		33,188
Bad debts	653		900		1,780		2,555
Depreciation and amortization	2,632		2,372		5,200		4,465
Total operating expenses	62,691		58,087		125,696		114,573
Income from operations	15,397		11,190		16,852		12,659
Other Income:

Interest expense	(1,982)		(1,709)		(3,469)		(3,440)
Other income (expense)	441		—		(6,286)		—
Income before taxes	13,856		9,481		7,097		9,219
Tax (benefit) expense	2,981		2,301		(5,587)		2,220
Net income	10,875		7,180		12,684		6,999
Less: net income attributable to non-controlling interests	4,677		3,514		4,672		3,414
Net income attributable to Goosehead Insurance, Inc.	$	6,198	$	3,666	$	8,012	$	3,585
Earnings per share:
Basic	$	0.25	$	0.15	$	0.32	$	0.15
Diluted	$	0.24	$	0.15	$	0.29	$	0.15
Weighted average shares of Class A common stock outstanding
Basic	24,693		23,689		24,890		23,448
Diluted	38,031		24,333		38,435		23,981

See Notes to the Condensed Consolidated Financial Statements

Goosehead Insurance, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share amounts)


	June 30,		December 31,
	2024		2023
Assets
Current Assets:
Cash and cash equivalents	$	23,643	$	41,956
Restricted cash	2,642		2,091

Commissions and agency fees receivable, net	8,820		12,903
Receivable from franchisees, net	11,046		9,720
Prepaid expenses	6,546		7,889

Total current assets	52,697		74,559
Receivable from franchisees, net of current portion	5,994		9,269
Property and equipment, net of accumulated depreciation	27,014		30,316
Right-of-use asset	35,475		38,406
Intangible assets, net of accumulated amortization	21,269		17,266
Deferred income taxes, net	191,275		181,209
Other assets	4,483		3,867
Total assets	$	338,207	$	354,892
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	16,141	$	16,398
Premiums payable	2,642		2,091

Lease liability	9,174		8,897

Contract liabilities	3,456		4,129
Note payable	10,063		9,375
Liabilities under tax receivable agreement	4,952		—
Total current liabilities	46,428		40,890
Lease liability, net of current portion	52,614		57,382

Note payable, net of current portion	87,028		67,562
Contract liabilities, net of current portion	16,663		22,970
Liabilities under tax receivable agreement, net of current portion	155,207		149,302
Total liabilities	357,940		338,106

Class A common stock, $0.01 par value per share - 300,000 shares authorized, 24,205 shares issued and outstanding as of June 30, 2024, 24,966 shares issued and outstanding as of December 31, 2023	242		250
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 12,748 issued and outstanding as of June 30, 2024, 12,954 shares issued and outstanding as of December 31, 2023	127		130
Additional paid in capital	77,748		103,228
Accumulated deficit	(38,349)		(47,056)
Total stockholders' equity	39,768		56,552
Non-controlling interests	(59,501)		(39,766)
Total equity	(19,733)		16,786
Total liabilities and equity	$	338,207	$	354,892

See Notes to the Condensed Consolidated Financial Statements

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

(In thousands)


	Issued shares of Class A common stock	Issued shares of Class B common stock	Class A Common stock		Class B Common Stock		Additional paid in capital		Accumulated deficit		Total stockholders' equity		Non-controlling interest		Total equity
Balance January 1, 2024	24,966	12,954	$	250	$	130	$	103,228	$	(47,056)	$	56,552	$	(39,766)	$	16,786
Distributions	—	—	—		—		—		—		—		(42)		(42)
Net income (loss)	—	—	—		—		—		1,814		1,814		(5)		1,809
Exercise of stock options	65	—	1		—		1,862		—		1,863		—		1,863
Equity-based compensation	—	—	—		—		7,357		—		7,357		—		7,357
Activity under employee stock purchase plan	2	—	—		—		146		—		146		—		146
Redemption of LLC Units	196	(196)	2		(2)		(605)		—		(605)		605		—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—		—		439		—		439		(117)		322
Reallocation of Non-controlling interest	—	—	—		—		—		(217)		(217)		217		—
Balance March 31, 2024	25,230	12,758	$	252	$	128	$	112,428	$	(45,459)	$	67,349	$	(39,109)	$	28,240


Distributions	—	—	—		—		—		—		—		(2,346)		(2,346)
Share Repurchases	(1,045)	—	(10)		—		(41,953)		—		(41,963)		(21,670)		(63,633)
Net income	—	—	—		—		—		6,198		6,198		4,677		10,875
Exercise of stock options	7	—	—		—		245		—		245		—		245
Equity-based compensation	—	—	—		—		6,632		—		6,632		—		6,632
Activity under employee stock purchase plan	2	—	—		—		128		—		128		—		128
Redemption of LLC Units	10	(10)	—		—		(29)		—		(29)		29		—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—		—		295		—		295		(170)		126
Reallocation of Non-controlling interest	—	—	—		—		—		912		912		(912)		—
Balance June 30, 2024	24,205	12,748	$	242	$	127	$	77,748	$	(38,349)	$	39,768	$	(59,501)	$	(19,733)


	Issued shares of Class A common stock	Issued shares of Class B common stock	Class A Common stock		Class B Common Stock		Additional paid in capital		Accumulated deficit		Total stockholders' equity		Non-controlling interest		Total equity
Balance January 1, 2023	23,034	14,471	$	228	$	146	$	70,866	$	(60,570)	$	10,670	$	(44,294)	$	(33,624)

Net loss	—	—	—		—		—		(81)		(81)		(100)		(181)
Exercise of stock options	17	—	—		—		173		—		173		—		173
Equity-based compensation	—	—	—		—		6,620		—		6,620		—		6,620
Activity under employee stock purchase plan	4	—	—		—		201		—		201		—		201
Redemption of LLC Units	323	(323)	3		(3)		(990)		—		(990)		990		—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—		—		699		—		699		129		828
Reallocation of Non-controlling interest	—	—	—		—		—		(103)		(103)		103		—
Balance March 31, 2023	23,379	14,147	$	231	$	143	$	77,569	$	(60,754)	$	17,189	$	(43,173)	$	(25,984)


Distributions	—	—	—		—		—		—		—		(5,206)		(5,206)
Net income	—	—	—		—		—		3,666		3,666		3,514		7,180
Exercise of stock options	167	—	2		—		3,516		—		3,518		—		3,518
Equity-based compensation	—	—	—		—		5,872		—		5,872		—		5,872
Activity under employee stock purchase plan	2	—	—		—		144		—		144		—		144
Redemption of LLC Units	352	(352)	4		(4)		(1,112)		—		(1,112)		1,112		—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—		—		870		—		870		157		1,027
Reallocation of Non-controlling interest	—	—	—		—		—		(477)		(477)		477		—
Balance June 30, 2023	23,900	13,795	$	237	$	139	$	86,859	$	(57,565)	$	29,670	$	(43,118)	$	(13,448)

See Notes to the Condensed Consolidated Financial Statements

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Six Months Ended June 30,
	2024		2023
Cash flows from operating activities:
Net income	$	12,684	$	6,999
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	5,387		4,578

Impairment expense	347		3,628
Bad debt expense	1,780		2,555
Equity-based compensation	13,989		12,492
Impacts of tax receivable agreement	10,858		8,497
Deferred income taxes	(9,618)		(7,376)
Noncash lease activity	(1,814)		332
Cloud computing arrangement implementation costs	(295)		—
Changes in operating assets and liabilities:

Receivable from franchisees	1,379		2,494
Commissions and agency fees receivable	3,267		3,022
Prepaid expenses	1,343		(7,712)
Other assets	(150)		661
Accounts payable and accrued expenses	(1,235)		(3,595)
Contract liabilities	(6,980)		(10,354)

Net cash provided by operating activities	30,942		16,221
Cash flows from investing activities:
Issuance of notes receivable to franchisees	(175)		—
Proceeds from notes receivable to franchisees	12		12
Capitalized software development costs	(5,212)		(2,496)
Cash consideration paid for asset acquisitions	—		(5,270)
Purchase of property and equipment	(447)		(3,532)
Net cash used for investing activities	(5,822)		(11,286)
Cash flows from financing activities:
Customer premiums, net	320		(107)
Debt issuance costs	(621)		—
Repayment of note payable	(4,391)		(13,125)
Proceeds from notes payable	25,000		—
Proceeds from the issuance of Class A common stock	2,383		4,037
Repurchases of Class A common stock	(63,184)		—
Member distributions and dividends	(2,389)		(5,206)
Net cash used for financing activities	(42,882)		(14,401)
Net decrease in cash and cash equivalents, and restricted cash	(17,762)		(9,466)
Cash and cash equivalents, and restricted cash, beginning of period	44,047		30,387
Cash and cash equivalents, and restricted cash, end of period	$	26,285	$	20,921

Supplemental disclosures of cash flow data:
Cash paid during the period for interest	$	3,217	$	3,282
Cash paid for income taxes	986		534

See Notes to the Condensed Consolidated Financial Statements


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

1. Organization

Goosehead Insurance, Inc. (“GSHD”) is the sole managing member of Goosehead Financial, LLC (“GF”) and has the sole voting power and control of management of GF. Accordingly, GSHD consolidates the financial results of GF and reports non-controlling interest in GSHD’s condensed consolidated financial statements.

GF was organized on January 1, 2016 as a Delaware Limited Liability Company and is headquartered in Westlake, TX.

GSHD (collectively with its consolidated subsidiaries, the “Company”) provides personal and commercial property and casualty insurance brokerage services for its clients through a network of corporate-owned agencies and franchise units across the nation.

The Company had 13 and 12 corporate-owned locations in operation at June 30, 2024 and 2023, respectively. Franchisees are provided access to Carrier Appointments, product training, technology infrastructure, client service centers and back office services. During the three months ended June 30, 2024 and 2023, the Company onboarded 19 and 72 franchise locations, respectively, and had 1,122 and 1,344 operating franchise locations as of June 30, 2024 and 2023, respectively. No franchises were purchased during the three and six months ended June 30, 2024 and 2023.

All intercompany accounts and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all of the annual disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). However, in the opinion of management, these statements include all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of the condensed consolidated financial positions at June 30, 2024 and December 31, 2023, and the condensed consolidated statements of operations, stockholders' equity and statements of cash flows for the three and six months ended June 30, 2024 and 2023. The interim period condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements that are included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

The results of operations for the three and six months ended June 30, 2024 are not necessarily indicative of the results that can be expected for the entire year. The Company experiences seasonal fluctuations of its revenue due to the timing of contingent commission revenue recognition and trends in housing market activity.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

During the three months ended June 30, 2024, the Company elected to change its presentation of the cash flows associated with "Premiums payable" from operating activities to present them as financing activities, net, within the Condensed Consolidated Statement of Cash Flows within the caption "Customer premiums, net". Comparative amounts have been recast to conform to current period presentation. This reclassification had no impact on the Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets or Condensed Consolidated Statements of Stockholders' Equity.

During the three months ended March 31, 2024, the Company recorded loss on remeasurement of the tax receivable agreement ("TRA") liability within "Tax (benefit) expense". For six months ended June 30, 2024, those amounts have been reclassified to Other income (expense) within the Condensed Consolidated Statement of Operations. This reclassification had no impact on the Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Stockholders' Equity, or Condensed Consolidated Statement of Cash Flows.


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. Accordingly, actual results could differ from those estimates as more information becomes known.

Intangible Assets

Intangible assets are stated at cost less accumulated amortization and reflect amounts paid for the Company’s web domain, computer software costs, and purchased books of business (customer accounts). The web domain is amortized over a useful life of fifteen years, computer software costs are amortized over a useful life of three to ten years, and books of business (customer accounts) are amortized over a useful life of eight years.

Asset Impairment

The Company reviews all of its identifiable assets for impairment periodically and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. In reviewing identifiable assets, if the undiscounted future cash flows were less than the carrying amount of the respective assets, an indicator of impairment would exist, and further analysis would be required to determine whether or not a loss would need to be charged against current period earnings as a component of general and administrative expenses.

Based on a review of tangible assets during the three months ended March 31, 2024, the Company identified one office lease that would be subleased and completed a recoverability assessment for assets at that location. Based on the results of the recoverability assessment, the Company determined that the undiscounted cash flows of the assets were below their carrying values. As a result, the Company compared the fair values of the assets to their carrying values and recorded an impairment expense of $0.1 million for property and equipment and $0.2 million for right-of-use asset for the amount the carrying values exceeded the fair values. The Company determined the fair values by estimating sublease cash flows based on market rates for similar properties and discounted them using the Company's internal borrowing rate.

Based on a review of intangible assets during the three months ended June 30, 2023, the Company identified a group of internally-developed software assets that had not been placed into service and will not be completed. As a result, the Company determined the assets had no fair value and recorded an impairment expense of $1.1 million related to the asset group.

Based on a review of tangible assets during the three months ended June 30, 2023, the Company identified two office leases that would be subleased and completed a recoverability assessment for assets at those locations. Based on the results of the recoverability assessment, the Company determined that the undiscounted cash flows of the assets were below their carrying values. As a result, the Company compared the fair values of the assets to their carrying values and recorded an impairment expense of $1.4 million for property and equipment and $1.1 million for right-of-use asset for the amount the carrying values exceeded the fair values. The Company determined the fair values by estimating sublease cash flows based on market rates for similar properties and discounted them using the Company's internal borrowing rate.

Income Taxes

The Company accounts for income taxes pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying amounts and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Any effects of changes in income tax rates or laws are included in income tax expense in the period of enactment.

Cash and Cash Equivalents, and Restricted Cash

The Company holds premiums received from the insured, but not yet remitted to the Carrier, in a fiduciary capacity. Premiums received but not yet remitted included in restricted cash were $2.6 million and $1.8 million as of June 30, 2024 and 2023, respectively.


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

The Company earns interest on its cash balance that is held in interest-bearing checking accounts. During the three and six months ended June 30, 2024 the Company recognized $0.4 million and $0.4 million in interest income within Other income (expense) in the Condensed Consolidated Statements of Operations. No interest income was recognized during the three and six months ended June 30, 2023. As of June 30, 2024, the Company did not have any cash equivalents.

The following is a reconciliation of our cash and cash equivalents and restricted cash balances as presented in the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (in thousands):


	June 30,
	2024		2023
Cash and cash equivalents	$	23,643	$	19,131
Restricted cash	2,642		1,790
Cash and cash equivalents, and restricted cash	$	26,285	$	20,921

Accounting pronouncements not yet adopted

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). This standard requires the Company to provide further disaggregated income tax disclosures for specific categories on the effective tax rate reconciliation, as well as additional information about federal, state/local and foreign income taxes. The standard also requires the Company to annually disclose its income taxes paid (net of refunds received), disaggregated by jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The standard is to be applied on a prospective basis, although optional retrospective application is permitted. The Company is currently evaluating the impact this guidance will have on its financial statement disclosures.


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

3. Revenue

Commissions and fees

The Company earns commissions, which are paid as a percentage of the policy premiums placed by the Company, by performing its obligation to identify, place, and make effective insurance coverage on behalf of its customer, the insured. The Company defines the term of the policy as the contractual period the policy provides insurance coverage to the insured, which is typically one year or less. Commissions earned for the placement of the initial policy term for a given insurance product are recorded as New Business Commissions. New Business Commissions are earned at a point in time on the effective date of the policy, which is when the customer’s unilateral right to cancel the policy without consideration expires, as the Company has no further performance obligations for the initial term once the policy is placed and made effective.

After the initial policy term for a given insurance product, the Company earns Renewal Commissions by assisting the customer to make effective a renewal policy that satisfies the customer’s current insurance coverage needs. The Company performs this obligation by monitoring the customer’s policy to ensure a renewal is offered by the carrier and that the client promptly pays the premium. Alternatively, based on the needs of the customer, the Company may assist the customer to adjust coverage terms to satisfy its current insurance coverage needs or the Company may assist the customer to re-shop the insurance coverage to identify, place, and make effective a policy that better meets those needs. Renewal Commissions are earned at a point in time upon the effective date of the renewal policy term or upon the effective date of the replacement policy identified, placed, and made effective for the customer, which is when the customer’s unilateral right to non-renew the policy expires, as the Company has no further performance obligations for that renewal policy term.

The transaction price for commissions revenue is set as an estimate of the variable consideration to be received for the current policy term. This estimate includes the fixed consideration due based on the contractual terms of the current policy and adjustments for estimates of modifications of the contractual terms of the current policy and/or termination of the policy before the end of the current term. This variable consideration is constrained to the extent that it is probable there will not be a significant reversal of revenue.

For Agency Fees, the Company enters into a contract with the insured, in which the Company's performance obligation is to place an insurance policy. The transaction price of the agency fee is set at the time the sale is agreed upon, and is included in the contract. Agency Fee revenue is recognized at a point in time, which is the effective date of the policy.

Contingent commission revenue is generated from contracts between the Company and insurance carriers, for which the Company is compensated for certain growth, profitability, or other performance-based metrics. The performance obligations for contingent commissions will vary by contract, but generally include the Company increasing profitable written premium with the insurance carrier. The transaction price for contingent commissions is estimated based on all available information and is recognized over time as the Company completes its performance obligations, as the underlying policies are placed, net of a constraint.

The Company must estimate the amount of consideration that will be received such that a significant reversal of revenue is not probable. Contingent commissions represent a form of variable consideration associated with the placement and profitability of coverage, for which we earn commissions. Contingent commissions are estimated, with a constraint applied, and accrued in relation to the satisfaction of the performance obligations for the period over which the contract applies. The resulting effect on the timing of recognizing contingent commissions closely follows a similar pattern as our commissions and fees with any adjustments recognized when payments are received or as additional information that affects the estimate becomes available.

Franchise revenues

Franchise revenues include initial franchise fees and ongoing new and renewal royalty fees from franchisees.

Revenue from Initial Franchise Fees is generated from a contract between the Company and a franchisee. The Company's performance obligation is to provide initial training, onboarding, ongoing support and use of the Company's business operations over the period of the franchise agreement. The transaction price is set by the franchise agreement and revenue is recognized over time as the Company completes its performance obligations.


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

Initial franchise fees are recognized as revenue over the 10-year life of the franchise contract, beginning on the start date of the contract.

Revenue from New and Renewal Royalty Fees is recorded by applying the sales- and usage-based royalties exception. Under the sales- and usage-based exception, the Company recognizes revenue over time as a franchise places and makes effective a policy for an insured. The transaction price for the royalty fee for each policy made effective is set as the contractual royalty rate multiplied by an estimate of the commissions to be received by the franchise for the current term of the policy. This estimate includes the fixed consideration due based on the contractual terms of the current policy and adjustments for estimates of modifications of the contractual terms of the current policy and/or termination of the policy before the end of the current term. This variable consideration is constrained to the extent that it is probable there will not be a significant reversal of revenue.

Contract costs

Additionally, the Company has evaluated ASC Topic 340 - Other Assets and Deferred Cost (“ASC 340”) which requires companies to defer certain incremental cost to obtain customer contracts, and certain costs to fulfill customer contracts.

Incremental cost to obtain - The Company defers certain costs to obtain customer contracts primarily as they relate to commission-based compensation plans for selling new franchise agreements. These incremental costs are deferred and amortized over a 10-year period, which is consistent with the term of the contract. The balance of cost to obtain is included with Other assets on the Condensed Consolidated Balance Sheets.

Costs to fulfill - The Company has evaluated the need to capitalize costs to fulfill customer contracts and has determined that there are no costs that meet the definition for capitalization under ASC 340.

Disaggregation of Revenue

The following table disaggregates revenue by source (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Type of revenue stream:
Commissions and agency fees
Renewal Commissions	$	20,591	$	18,541	$	36,552	$	34,359
New Business Commissions	6,682		6,257		12,363		11,774
Agency Fees	2,137		2,404		4,048		4,634
Contingent Commissions	2,209		3,971		4,877		5,890
Franchise revenues
Renewal Royalty Fees	36,828		27,552		65,881		50,304
New Business Royalty Fees	7,169		6,267		13,402		11,909
Initial Franchise Fees	1,631		3,287		3,875		6,350
Other Franchise Revenues	598		581		1,055		1,198
Interest Income	244		417		494		814
Total Revenues	$	78,088	$	69,277	$	142,548	$	127,232

Timing of revenue recognition:
Transferred at a point in time	$	29,410	$	27,202	$	52,962	$	50,767
Transferred over time	48,678		42,075		89,586		76,465
Total Revenues	$	78,088	$	69,277	$	142,548	$	127,232


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

Contract Balances

The following table provides information about receivables, cost to obtain, and contract liabilities from contracts with customers (in thousands):


	June 30, 2024		December 31, 2023		Increase/(decrease)
Cost to obtain franchise contracts(1)	$	1,920	$	2,309	$	(389)
Commissions and agency fees receivable, net	8,820		12,903		(4,083)
Receivable from franchisees(2)	17,040		18,989		(1,949)
Contract liabilities(2)(3)	20,119		27,099		(6,980)

(1) Cost to obtain franchise contracts is included in Other assets on the condensed consolidated balance sheets.

(2) Includes both the current and long term portion of this balance.

(3) Initial Franchise Fees to be recognized over the life of the contract.

The Company records Franchise Fees as contract liabilities on the Condensed Consolidated Balance Sheets when the agreement is executed. Contract liabilities are reduced as fees are recognized in revenue over the expected life of the franchise license. As the term of the franchise license is typically ten years, substantially all of the franchise fee revenue recognized in the period ended June 30, 2024 was included in the contract liabilities balance as of December 31, 2023.

Significant changes in contract liabilities are as follows (in thousands):



Contract liabilities at December 31, 2023	$	27,099
Revenue recognized during the period	(3,875)
New deferrals(1)	1,595
Write offs(2)	(4,700)
Contract liabilities at June 30, 2024	$	20,119

(1) Initial Franchise Fees where the consideration is received from the franchisee for services which are to be transferred to the Franchisee over the expected life of the Franchise Agreement.

(2) Franchise Fees, net of recognized revenue, no longer deferred due to the termination of the Franchise Agreement.

4. Franchise Fees Receivable

The balance of Franchise fees receivable included in Receivable from franchisees consisted of the following (in thousands):


	June 30, 2024		December 31, 2023
Franchise fees receivable(1)	$	7,567	$	15,096
Less: Unamortized discount(1)	(2,154)		(4,388)
Less: Allowance for uncollectible franchise fees(1)	(32)		(223)
Net franchise fees receivable(1)	$	5,381	$	10,485

(1) Includes both the current and long term portion of this balance.


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

Activity in the allowance for uncollectible franchise fees was as follows (in thousands):


Balance at December 31, 2023	$	223
Charges to bad debts	379
Write offs	(570)
Balance at June 30, 2024	$	32

Balance at December 31, 2022	$	487
Charges to bad debts	823
Write offs	(889)
Balance at June 30, 2023	$	421

5. Allowance for Uncollectible Agency Fees

Activity in the allowance for uncollectible agency fees was as follows (in thousands):


Balance at December 31, 2023	$	508
Charges to bad debts	816
Write offs	(925)
Balance at June 30, 2024	$	399

Balance at December 31, 2022	$	450
Charges to bad debts	876
Write offs	(673)
Balance at June 30, 2023	$	653

6. Property and equipment

Property and equipment consisted of the following (in thousands):


	June 30, 2024		December 31, 2023
Furniture & fixtures	$	11,418	$	11,306
Computer equipment	4,727		4,482
Network equipment	478		436
Phone system	326		326
Leasehold improvements	36,244		36,285
Total	53,193		52,834
Less accumulated depreciation	(26,179)		(22,518)
Property and equipment, net	$	27,014	$	30,316

Depreciation expense was $3.7 million and $3.8 million for six months ended June 30, 2024 and 2023, respectively.


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

7. Intangible assets

Intangible assets consisted of the following (in thousands):


	June 30, 2024		December 31, 2023
Computer software & web domain	$	19,051	$	13,509
Books of business	6,895		6,895
Total	25,946		20,404
Less: accumulated amortization	(4,677)		(3,138)
Intangible assets, net	$	21,269	$	17,266

Amortization expense was $1.5 million and $0.7 million for six months ended June 30, 2024 and 2023, respectively.

8. Debt

On July 21, 2021, the Company refinanced its $25 million revolving credit facility and $80 million term note payable to a $50 million revolving credit facility and $100 million term note payable in order to obtain a more favorable interest rate on the outstanding debt. The revolving credit facility and term note are collateralized by substantially all the Company’s assets, which includes rights to future commissions and royalties.

On April 26, 2023, the Company entered into Amendment No.1 of the Second Amended and Restated Credit Agreement, which provided that LIBOR should be replaced with SOFR.

On April 24, 2024, the Company entered into Amendment No. 2 of the Second Amended and Restated Credit Agreement, increasing the term note payable by $25 million and increasing the capacity of the revolving credit facility by $25 million to a total capacity of $75 million.

As of June 30, 2024, the Company had nothing drawn against the revolving credit facility and had a letter of credit of $0.2 million applied against the maximum borrowing availability. Borrowings under the revolving credit facility are payable on July 21, 2026. Thus, amounts available to draw totaled $74.8 million. The term note is payable in quarterly installments of $2.5 million, with a balloon payment of $80.5 million on July 21, 2026.

The interest rate applicable to both the revolving credit facility and the term note for each leverage ratio tier is as follows:


Leverage Ratio			Interest Rate
< 1.50x			SOFR + 175 bps
> 1.50x			SOFR + 200 bps
> 2.50x			SOFR + 225 bps
> 3.50x			SOFR + 250 bps

As of June 30, 2024, the interest rate applicable for the credit facilities was SOFR plus 200 basis points.


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

Maturities of the term note payable for the next five years are as follows (in thousands):


	Amount
2024	$	5,031
2025	10,063
2026	83,016
2027	—
2028	—
Total	$	98,109

The Company’s note payable agreement contains certain restrictions and covenants. Under these restrictions, the Company is limited in the amount of debt incurred and distributions payable. As of June 30, 2024, the Company's maximum allowable trailing twelve months debt-to-EBITDA ratio, as defined by the credit agreement, was 4x. In addition, the credit agreement contains certain change of control provisions that, if broken, would trigger a default. Finally, the Company must maintain certain financial ratios. As of June 30, 2024, the Company was in compliance with these covenants.

Because of both instruments’ variable interest rate, the note payable balance at June 30, 2024 and December 31, 2023, approximates fair value using Level 2 inputs, described below.

The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows:

•Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets.

•Level 2—Significant other observable inputs other than Level 1 prices such as quoted prices in markets that are not active, quoted prices for similar assets or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset.

•Level 3—Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

9. Income Taxes

GSHD is the sole managing member of GF, which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, GF is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by GF is passed through to and included in the taxable income or loss of its members, including GSHD, on a pro rata basis. GSHD is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to GSHD's allocable share of income of GF.

Income tax (benefit) expense

Provision expense from income taxes was $3.0 million for the three months ended June 30, 2024 compared to $2.3 million for the three months ended June 30, 2023. The effective tax rate was 22% for the three months ended June 30, 2024 compared to 24% for the three months ended June 30, 2023. Tax benefit was $5.6 million for the six months ended June 30, 2024 compared to tax expense of $2.2 million for the six months ended June 30, 2023. The effective tax rate was (79)% for the six months ended June 30, 2024 and 24% for the six months ended June 30, 2023. The change in the effective tax rate was primarily due to changes in state apportionment and related state filing requirements.


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

Deferred taxes

Deferred tax assets at June 30, 2024 were $191.3 million compared to $181.2 million at December 31, 2023. The primary contributing factors to the increase in deferred tax assets are additional redemptions of LLC Units of GF for shares of Class A common stock of GSHD during the six months ended June 30, 2024 and an increase in the blended state tax rate due to changes in state apportionment and related state filing requirements.

Tax Receivable Agreement

GF intends to make an election under Section 754 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”) effective for each taxable year in which a redemption or exchange of LLC Units and corresponding Class B common stock for shares of Class A common stock occurs. Future taxable redemptions or exchanges are expected to result in tax basis adjustments to the assets of GF that will be allocated to the Company and thus produce favorable tax attributes. These tax attributes would not be available to GSHD in the absence of those transactions. The anticipated tax basis adjustments are expected to reduce the amount of tax that GSHD would otherwise be required to pay in the future.

GSHD entered into a tax receivable agreement ("TRA") with the Pre-IPO LLC Members on May 1, 2018 that provides for the payment by GSHD to the Pre-IPO LLC Members of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that GSHD actually realizes as a result of (i) any increase in tax basis in GSHD's assets and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement.

During the three and six months ended June 30, 2024, an aggregate of 10,008 and 206,129 LLC Units were redeemed by the Pre-IPO LLC Members for newly issued shares of Class A common stock. In connection with these redemptions, GSHD received 10,008 and 206,129 LLC Units, which resulted in an increase in the tax basis of its investment in GF subject to the provisions of the tax receivable agreement. The Company recognized a liability for the TRA Payments due to the Pre-IPO LLC Members, representing 85% of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the redemptions of LLC Units, after concluding it was probable that such TRA Payments would be paid based on its estimates of future taxable income. As of June 30, 2024, the total amount of TRA Payments due to the Pre-IPO LLC Members under the tax receivable agreement was $160.2 million, of which $5.0 million was current and included in Liabilities under tax receivable agreement within Current liabilities on the Condensed Consolidated Balance Sheet. Future exchanges of LLC Units for Class A common stock will result in additional TRA payments. Additionally, during the six months ended June 30, 2024, the Company's effective tax rate increased due to changes in state apportionment and related state filing requirements. This resulted in a remeasurement of its TRA liability of $6.7 million, which has been reported in "Other income (expense)" on the Condensed Consolidated Statement of Operations.

Uncertain tax positions

GSHD has determined there are no material uncertain tax positions as of June 30, 2024.

10. Stockholders' Equity

Class A Common Stock

GSHD has a total of 24,205 thousand shares of its Class A common stock outstanding at June 30, 2024. Each share of Class A common stock holds economic rights and entitles its holder to one vote per share on all matters submitted to a vote of the stockholders of GSHD.

Class B Common Stock

GSHD has a total of 12,748 thousand shares of its Class B common stock outstanding at June 30, 2024. Each share of Class B common stock has no economic rights but entitles its holder to one vote per share on all matters submitted to a vote of the stockholders of GSHD.

Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to GSHD's shareholders for their vote or approval, except as otherwise required by applicable law, by agreement, or by GSHD's certificate of incorporation.


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

Earnings Per Share

The following table sets forth the calculation of basic earnings per share ("EPS") based on net income attributable to GSHD for the three and six months ended June 30, 2024 and 2023, divided by the basic weighted average number of Class A common stock as of the three and six months ended June 30, 2024 and 2023 (in thousands, except per share amounts).

Diluted EPS of Class A common stock is computed by dividing net income attributable to GSHD by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

Shares of the Company’s Class B common stock do not share in the earnings or losses attributable to Goosehead Insurance, Inc. and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented. Shares of the Company’s Class B common stock are, however, considered potentially dilutive shares of Class A common stock because shares of Class B common stock, together with the related GF LLC Units, are exchangeable into shares of Class A common stock on a one-for-one basis. The Company calculates the effects of the conversion of Class B shares to Class A shares using the "if-converted" method and includes such effects in the calculation of diluted EPS if the effects are dilutive.

The following table summarizes the calculation of EPS for the three and six months ended June 30, 2024 and 2023 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Numerator:
Net income attributable to GSHD - Basic	$	6,198	$	3,666	$	8,012	$	3,585
Less: net income attributable to non-controlling interests(1)	4,677		3,514		4,672		3,414
Add: income tax effect on income attributable to non-controlling interests assuming conversion of Class B common shares(1)	(1,735)		—		(1,566)		—
Net income available to GSHD - Diluted	$	9,140	$	7,180	$	11,118	$	6,999

Denominator:
Basic EPS
Weighted average outstanding Class A common shares - Basic	24,693		23,689		24,890		23,448
Earnings per share of Class A common stock - Basic	$	0.25	$	0.15	$	0.32	$	0.15

Diluted EPS
Weighted average outstanding Class A common shares - Basic	24,693		23,689		24,890		23,448
Effect of dilutive securities:
Weighted average outstanding Class B common shares (if-converted)(1)	12,751		—		12,807		—
Stock options(2)	588		644		738		533
Weighted average outstanding Class A common shares - Diluted	38,031		24,333		38,435		23,981

Earnings per share of Class A common stock - Diluted	$	0.24	$	0.15	$	0.29	$	0.15

(1) For the three and six months ended June 30, 2024, the impact of the conversion of Class B common shares to Class A common shares calculated under the if-converted method was dilutive, and as such, (a) 12,751 and 12,807 common shares (assuming the conversion of all


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

outstanding class B common stock) were included in Weighted average outstanding Class A common shares - Diluted and (b) $2.9 million and $3.1 million of non-controlling interest net income (after incremental tax effect from assuming conversion of all outstanding class B common stock), was added back to Net income attributable to GSHD - Basic to arrive at Net income available to GSHD - diluted. For the three and six months ended June 30, 2023, the impact of the conversion of Class B common shares to Class A common shares is excluded from the calculation of Diluted EPS because inclusion of such shares would be anti-dilutive.

(2) Dilutive stock options is computed using the treasury stock method, which are not participating securities. 1,576 and 1,272 stock options were excluded from the computation of diluted earnings per share of Class A common stock for the three and six months ended June 30, 2024 because the effect would have been anti-dilutive. 1,543 and 2,178 stock options were excluded from the computation of diluted earnings per share of Class A common stock for the three and six months ended June 30, 2023 because the effect would have been anti-dilutive.

Share Repurchase Program

On April 24, 2024, our board of directors approved a share repurchase program with authorization to purchase up to $100 million of our Class A common stock through March 31, 2025. The share repurchase program does not require the Company to acquire any dollar amount or number of shares of common stock and may be modified, suspended, or discontinued at any time. The timing, manner, price and amount of any repurchases will be determined at the discretion of management in accordance with applicable securities laws and other restrictions. Class A common stock acquired under the program will be retired upon repurchase. Additionally, for every repurchased share of Class A common stock, the Company will direct GF to repurchase, at the price paid to repurchase such share, and cancel an LLC unit of GF held by the Company.

During the three months ended June 30, 2024, the Company repurchased and retired 1,045 thousand shares of Class A common stock at an average price of $60.46, for an aggregate $63.6 million. All repurchases were made in open-market transactions and recorded at their aggregate transaction cost inclusive of commissions and excise taxes. As of June 30, 2024, the Company had remaining authorization under the share repurchase program to purchase up to approximately $36.8 million of the Company's Class A common stock.

11. Non-controlling interest

GSHD is the sole managing member of GF and, as a result, it consolidates the financial results of GF. GSHD reports a non-controlling interest representing the economic interest in GF held by the other members of GF.

GF makes distributions to the LLC Unit holders on a pro rata basis to facilitate the LLC Unit holder's quarterly tax payments. For the three and six months ended June 30, 2024, GF made distributions of $6.5 million and $6.5 million, of which $2.2 million and $2.2 million was made to Pre-IPO LLC Members. The remaining $4.3 million and $4.3 million was made to GSHD and was eliminated in consolidation.

Under the amended and restated Goosehead Financial, LLC Agreement, the Pre-IPO LLC Members have the right, from and after the completion of the Offering (subject to the terms of the amended and restated Goosehead Financial, LLC Agreement), to require GSHD to redeem all or a portion of their LLC Units for, at GSHD's election, newly-issued shares of Class A common stock on a one-for-one basis or a cash payment equal to the volume weighted average market price of one share of GSHD's Class A common stock for each LLC Unit redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the amended and restated Goosehead Financial, LLC Agreement. Additionally, in the event of a redemption request by a Pre-IPO LLC Member, GSHD may, at its option, effect a direct exchange of cash or Class A common stock for LLC Units in lieu of such a redemption. Shares of Class B common stock will be cancelled on a one-for-one basis if GSHD, at the election of a Pre-IPO LLC Member, redeems or exchanges LLC Units of such Pre-IPO LLC Member pursuant to the terms of the amended and restated Goosehead Financial, LLC Agreement. Except for transfers to GSHD pursuant to the amended and restated Goosehead Financial, LLC Agreement or to certain permitted transferees, the Pre-IPO LLC Members are not permitted to sell, transfer or otherwise dispose of any LLC Units or shares of Class B common stock.

During the three and six months ended June 30, 2024, an aggregate of 10 thousand and 206 thousand LLC Units were redeemed by the non-controlling interest holders. Pursuant to the GF LLC Agreement, GSHD issued 10 thousand and 206 thousand shares of Class A common stock in connection with these redemptions and received 10 thousand and 206 thousand LLC Interests, increasing GSHD's ownership interest in GF. Simultaneously, and in connection with these redemptions, 10 thousand and 206 thousand shares of Class B common stock were surrendered and cancelled.


Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the ownership interest in GF as of June 30, 2024 (in thousands):


	June 30, 2024
	LLC Units	Ownership %
Number of LLC Units held by GSHD	24,205	65.5%
Number of LLC Units held by non-controlling interest holders	12,748	34.5%
Number of LLC Units outstanding	36,953	100.0%

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income to GSHD and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentage for the three and six months ended June 30, 2024 was 34.1% and 34.0%.

12. Equity-Based Compensation

Stock option expense was $6.6 million and $14.0 million for the three and six months ended June 30, 2024. Stock option expense was $5.9 million and $12.5 million for the three and six months ended June 30, 2023.

13. Litigation

From time to time, GSHD may be involved in various legal proceedings, lawsuits and claims incidental to the conduct of the Company's business. The Company records accruals for legal contingencies to the extent that it has concluded that it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. In the opinion of the Company's management, the likely results of any ongoing legal matters are not expected, either individually or in the aggregate, to have a material adverse effect on the Company's financial position, results of operations or cash flows.

On November 10, 2022, a verified stockholder class action complaint for declaratory relief, captioned Mickey Dollens v. Goosehead Insurance, Inc., C.A. No. 2022-1018-JTL, was filed in the Court of Chancery of the State of Delaware (the “Dollens Action”), alleging certain corporate governance documents adopted by the Company were invalid under Delaware law. On August 8, 2023, the parties entered into a proposed settlement providing for certain non-monetary benefits to the class (i.e., revisions to the Company's Stockholder Agreement). Additionally, the plaintiffs have petitioned the Court for attorneys’ fees and litigation expenses. The matter is currently stayed. While there can be no assurance regarding the ultimate outcome of the petition, the Company believes a potential loss, if any, would not be material.

Item 2: Management’s discussion and analysis of financial condition and results of operations

OVERVIEW

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk factors” and elsewhere in this report and in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

We are a rapidly growing personal lines independent insurance agency, reinventing the traditional approach to distributing personal lines products and services throughout the United States. We were founded with one vision in mind—to provide consumers with superior insurance coverage at the best available price and in a timely manner. By leveraging our differentiated business model and innovative technology platform, we are able to deliver to consumers a superior insurance experience. Our management team continues to own approximately 35% of the company, representing our commitment to the long-term success of the Company.

Financial Highlights for the Second Quarter of 2024:

•Total revenue increased 13% from the second quarter of 2023 to $78.1 million

•Core Revenue* increased by 20% from the second quarter of 2023 to $73.4 million

•Total Written Premiums placed increased 30% from the prior-year period to $998.9 million

•Net income increased by $3.7 million from the second quarter of 2023 to $10.9 million, or 14% of total revenues

•Adjusted EBITDA* increased 7% from the second quarter of 2023 to $24.7 million, or 32% of total revenues

•Basic and diluted earnings per share were $0.25 and $0.24, respectively, and Adjusted EPS* was $0.43 per share for the three months ended June 30, 2024

•Policies in Force increased 11% from June 30, 2023 to 1,588,000 at June 30, 2024

•Corporate sales headcount increased 12% from June 30, 2023 to 313 at June 30, 2024

◦As of June 30, 2024, 157 of these Corporate sales agents had less than one year of tenure and 156 had greater than one year of tenure

•Total franchises decreased 33% compared to the prior-year period to 1,165; total operating franchises decreased 17% from June 30, 2023 to 1,122 at June 30, 2024

◦As of June 30, 2024, 89 operating Franchisees had less than one year of tenure and 1,033 operating Franchisees had greater than one year of tenure

*Core Revenue, Adjusted EBITDA and Adjusted EPS are non-GAAP measures. Reconciliation of Core Revenue to total revenue, Adjusted EBITDA to net income and Adjusted EPS to EPS, the most directly comparable financial measures presented in accordance with GAAP, are set forth under "Key performance indicators".

Certain income statement line items

Revenues

For the three months ended June 30, 2024, revenue increased by 13% to $78.1 million from $69.3 million for the three months ended June 30, 2023. For the six months ended June 30, 2024, revenue increased by 12% to $142.5 million from $127.2 million for the six months ended June 30, 2023. Total Written Premium, which we believe is the best leading indicator of future revenue, increased to $999 million for the three months ended June 30, 2024 from $767 million for the three months ended June 30, 2023. Total Written Premium increased 29% for the six months ended June 30, 2024 to $1,818 million from $1,405 million for the six months ended June 30, 2023. Total Written Premiums drive our current and future Core Revenue and give us potential opportunities to earn Ancillary Revenue in the form of Contingent Commissions.

Our various revenue streams do not equally contribute to the long-term value of Goosehead. For instance, Renewal Revenue and Renewal Royalty Fees are more predictable and have higher margin profiles, thus are higher quality revenue streams for the Company. Alternatively, Contingent Commissions, while high margin, are unpredictable and dependent on insurance company underwriting and forces of nature and thus are lower quality revenue for the Company. Our revenue streams can be viewed in three distinct categories: Core Revenue, Cost Recovery Revenue, and Ancillary Revenue, which are non-GAAP measures. A reconciliation of Core Revenue, Cost Recovery Revenue, and Ancillary Revenue to total revenue, the most directly comparable financial measure presented in accordance with GAAP, are set forth under "Key performance indicators".

Core Revenue:

•Renewal Commissions - highly predictable, higher-margin revenue stream, which is managed by our service team.

•Renewal Royalty Fees - highly predictable, higher-margin revenue stream, which is managed by our service team. For policies in their first renewal term, we see an increase in our share of royalties from 20% to 50% on the commission paid by the Carriers.

•New Business Commissions - predictable based on agent headcount and consistent ramp-up of agents, but lower margin than Renewal Commissions because of higher commissions paid to agents and higher back-office costs associated with policies in their first term. This revenue stream has predictably converted into higher-margin Renewal Commissions historically, and we expect this to continue moving forward.

•New Business Royalty Fees - predictable based on franchise count and consistent ramp-up of franchises, but lower margin than Renewal Royalty Fees because the Company only receives a royalty fee of 20% on the commissions paid by the Carrier in the first term of every policy and incurs higher back-office costs associated with policies in their first term. This revenue stream has predictably converted into higher-margin Renewal Royalty Fees historically, and we expect this to continue moving forward.

•Agency Fees - although predictable based on agent count, Agency Fees do not renew like New Business Commissions and Renewal Commissions.

Cost Recovery Revenue:

•Initial Franchise Fees - one-time Cost Recovery Revenue stream per franchise unit that covers the Company's costs to recruit, train, onboard, and support the franchise for the first year. These fees are fully earned and non-refundable when a franchise attends our initial training.

•Interest Income - like Initial Franchise Fees, interest income is a Cost Recovery Revenue stream that reimburses the Company for those franchises on a payment plan.

Ancillary Revenue:

•Contingent Commissions - although high margin, Contingent Commissions are unpredictable and susceptible to weather events and Carrier underwriting results. Management does not rely on Contingent Commissions for operating cash flow or budget planning.

•Other Franchise Revenues - book transfer fees, marketing investments from Carriers and other items that are unpredictable and supplemental to other revenue streams.

We discuss below the breakdown of our revenue by stream:


	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2024			2023			2024			2023
Core Revenue:
Renewal Commissions(1)	$20,591	26	%	$18,541	27	%	$36,552	26	%	$34,359	27	%
Renewal Royalty Fees(2)	36,828	47	%	27,552	40	%	65,881	46	%	50,304	40	%
New Business Commissions(1)	6,682	9	%	6,257	9	%	12,363	9	%	11,774	9	%
New Business Royalty Fees(2)	7,169	9	%	6,267	9	%	13,402	9	%	11,909	9	%
Agency Fees(1)	2,137	3	%	2,404	3	%	4,048	3	%	4,634	4	%
Total Core Revenue	73,407	94	%	61,021	88	%	132,246	93	%	112,980	89	%
Cost Recovery Revenue:
Initial Franchise Fees(2)	1,631	2	%	3,287	5	%	3,875	3	%	6,350	5	%
Interest Income	244	—	%	417	1	%	494	—	%	814	1	%
Total Cost Recovery Revenue	1,875	2	%	3,704	5	%	4,369	3	%	7,164	6	%
Ancillary Revenue:
Contingent Commissions(1)	2,209	3	%	3,971	6	%	4,877	3	%	5,890	5	%
Other Franchise Revenues(2)	598	1	%	581	1	%	1,055	1	%	1,198	1	%
Total Ancillary Revenue	2,807	4	%	4,552	7	%	5,933	4	%	7,088	6	%
Total Revenues	$78,088	100	%	$69,277	100	%	$142,548	100	%	$127,232	100	%

(1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in "Commissions and agency fees" as shown on the Condensed consolidated statements of operations.

(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Franchise Revenues are included in "Franchise revenues" as shown on the Condensed consolidated statements of operations.

Consolidated results of operations

The following is a discussion of our consolidated results of operations for each of the three and six months ended June 30, 2024 and 2023. This information is derived from our accompanying condensed consolidated financial statements prepared in accordance with GAAP.

The following table summarizes our results of operations for the three and six months ended June 30, 2024 and 2023 (in thousands):


	Three Months Ended June 30,								Six Months Ended June 30,
	2024				2023				2024				2023
Revenues:
Commissions and agency fees	$	31,619	40	%	$	31,173	45	%	$	57,840	41	%	$	56,657	45	%
Franchise revenues	46,225		59	%	37,687		54	%	84,214		59	%	69,761		55	%
Interest income	244		—	%	417		1	%	494		—	%	814		1	%
Total revenues	78,088		100	%	69,277		100	%	142,548		100	%	127,232		100	%
Operating Expenses:
Employee compensation and benefits	42,551		68	%	37,483		65	%	84,681		67	%	74,365		65	%
General and administrative expenses	16,855		27	%	17,332		30	%	34,035		27	%	33,188		29	%
Bad debts	653		1	%	900		2	%	1,780		1	%	2,555		2	%
Depreciation and amortization	2,632		4	%	2,372		4	%	5,200		4	%	4,465		4	%
Total operating expenses	62,691		100	%	58,087		100	%	125,696		100	%	114,573		100	%
Income from operations	15,397				11,190				16,852				12,659
Other Income (Expense):

Interest expense	(1,982)				(1,709)				(3,469)				(3,440)
Other income (expense)	441				—				(6,286)				—
Income before taxes	13,856				9,481				7,097				9,219
Tax (benefit) expense	2,981				2,301				(5,587)				2,220
Net income	10,875				7,180				12,684				6,999
Less: net income attributable to non-controlling interests	4,677				3,514				4,672				3,414
Net income attributable to Goosehead Insurance, Inc.	$	6,198			$	3,666			$	8,012			$	3,585

Revenues

For the three months ended June 30, 2024 revenue increased 13% to $78.1 million from $69.3 million for the three months ended June 30, 2023. For the six months ended June 30, 2024 revenue increased 12% to $142.5 million from $127.2 million for the six months ended June 30, 2023.

Commissions and agency fees

Commissions and agency fees consist of new business commissions, renewal commissions, agency fees, and contingent commissions.

The following table sets forth these revenue streams by amount and as a percentage of total commissions and agency fees for the periods indicated (in thousands):


	Three Months Ended June 30,								Six Months Ended June 30,
	2024				2023				2024				2023
Core Revenue:
Renewal Commissions	$	20,591	65	%	$	18,541	59	%	$	36,552	63	%	$	34,359	61	%
New Business Commissions	6,682		21	%	6,257		20	%	12,363		21	%	11,774		21	%
Agency Fees	2,137		7	%	2,404		8	%	4,048		8	%	4,634		8	%
Total Core Revenue:	29,410		93	%	27,202		87	%	52,962		92	%	50,767		90	%
Ancillary Revenue:
Contingent Commissions	2,209		7	%	3,971		13	%	4,877		8	%	5,890		10	%
Commissions and agency fees	$	31,619	100	%	$	31,173	100	%	$	57,840	100	%	$	56,657	100	%

Renewal Commissions increased by $2.1 million, or 11%, to $20.6 million for the three months ended June 30, 2024 from $18.5 million for the three months ended June 30, 2023. Renewal Commissions increased by $2.2 million, or 6%, to $36.6 million for the six months ended June 30, 2024 from $34.4 million for the six months ended June 30, 2023. The increase during the three and six months ended June 30, 2024 was primarily attributable to an increase in the number of policies in the renewal term from June 30, 2023 to June 30, 2024 and premium rate increases.

New Business Commissions increased by $0.4 million, or 7%, to $6.7 million for the three months ended June 30, 2024 from $6.3 million for the three months ended June 30, 2023. New Business Commissions increased by $0.6 million, or 5%, to $12.4 million for the six months ended June 30, 2024 from $11.8 million for the six months ended June 30, 2023. The increase during the three and six months ended June 30, 2024 was primarily driven by an increase in the number of Corporate Sales agents.

Revenue from Agency Fees decreased by $0.3 million, or 11%, to $2.1 million for the three months ended June 30, 2024 from $2.4 million for the three months ended June 30, 2023. Revenue from Agency Fees decreased by $0.6 million, or 13%, to $4.0 million for the six months ended June 30, 2024 from $4.6 million for the six months ended June 30, 2023. The decrease in Agency Fees during the three and six months ended June 30, 2024 was primarily attributable to a decrease in the percentage of policies written where an Agency Fee was charged.

Revenue from Contingent Commissions decreased by $1.8 million to $2.2 million for the three months ended June 30, 2024 from $4.0 million for the three months ended June 30, 2023. Revenue from Contingent Commissions decreased by $1.0 million, to $4.9 million for the six months ended June 30, 2024 from $5.9 million for the six months ended June 30, 2023. The decrease during the three and six months ended June 30, 2024 was primarily attributable to additional profitability requirements in order to earn a contingent bonus.

Franchise revenues

Franchise Revenues consist of Royalty Fees, Initial Franchise Fees, and Other Franchise Revenues.

The following table sets forth these revenue streams by amount and as a percentage of franchise revenues for the periods indicated (in thousands):


	Three Months Ended June 30,								Six Months Ended June 30,
	2024				2023				2024				2023
Core Revenues:
Renewal Royalty Fees	$	36,828	80	%	$	27,552	73	%	$	65,881	78	%	$	50,304	72	%
New Business Royalty Fees	7,169		16	%	6,267		17	%	13,402		16	%	11,909		17	%
Total Core Revenues:	43,997		95	%	33,819		90	%	79,284		94	%	62,213		89	%
Cost Recovery Revenues:
Initial Franchise Fees	1,631		4	%	3,287		9	%	3,875		5	%	6,350		9	%
Ancillary Revenues:
Other Franchise Revenues	598		1	%	581		2	%	1,055		1	%

Goosehead Insurance, Inc. [GSHD] Filings
10-Q	[2024-07-25]
10-Q	[2024-04-25]
10-K	[2024-02-22]
10-Q	[2023-11-09]
10-Q	[2023-07-27]
10-Q	[2023-04-28]
10-K	[2023-02-27]
10-Q	[2022-10-27]
10-Q	[2022-07-28]
10-Q	[2022-04-28]
10-K	[2022-02-28]
10-Q	[2021-10-28]
10-Q	[2021-07-29]
10-Q	[2021-04-30]
10-K	[2021-02-26]
10-Q	[2020-10-30]
10-Q	[2020-07-31]
10-Q	[2020-05-04]
10-K	[2020-03-16]
10-Q	[2019-11-04]
10-Q	[2019-08-02]
10-Q	[2019-05-03]
10-K	[2019-03-14]
10-Q	[2018-11-06]
10-Q	[2018-08-08]
10-Q	[2018-06-07]
S-1	[2018-04-02]