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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 September 30, 2021
OR
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)
Delaware82-3886022
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
1500 Solana Blvd, Building 4, Suite 4500
Westlake
Texas76262
(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 ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class A Common Stock, par value $.01 per shareGSHDNASDAQ

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 October 27, 2021, there were 19,798,351 shares of Class A common stock outstanding and 17,226,519 shares of Class B common stock outstanding.



Table of contents
 Page
Part I
Item 1.Condensed Consolidated Financial Statements (Unaudited)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety Disclosures
Item 5.Other Information
Item 6.Exhibits
 

2


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 year ended December 31, 2020.
ASC 606 ("Topic 606"): ASU 2014-09 - Revenue from Contracts with Customers.
ASC 842 ("Topic 842"): ASU 2016-02 - Leases.
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.
Corporate Channel: The Corporate Channel distributes insurance through a network of company-owned and financed operations with employees that are hired, trained and managed by Goosehead.
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.
Franchise Channel: The Franchise Channel network consists of Franchisee operations that are owned and managed by Franchisees. These business owners have a contractual relationship with Goosehead to use our processes, training, implementation, systems and back-office support team to place insurance. In exchange, Goosehead is entitled to an Initial Franchise Fee and Royalty Fees.
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 6 or below are Detractors, a score of 7 or 8 are called Passives, and a 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.
Pre-IPO LLC Members: owners of LLC Units of GF prior to the Offering.
3


Renewal Revenue: Renewal Commissions and Renewal Royalty Fees.
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 in the Franchise Channel.
Segment: One of the two Goosehead sales distribution channels, the Corporate Channel or the Franchise Channel.
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 with Goosehead’s 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 the potential impact of COVID-19 on the Company's business, 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.
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.
4


PART I

Item 1. Condensed Consolidated Financial Statements (Unaudited)
Page
Condensed Consolidated Statements of Operations
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Stockholders' Equity
Condensed Consolidated Statements of Cash Flows
Notes to the Condensed Consolidated Financial Statements
Note 1Organization
Note 2Summary of significant accounting policies
Note 3Revenues
Note 4Franchise fees receivable
Note 5Allowance for uncollectible agency fees
Note 6Property and equipment
Note 7Debt
Note 8Income taxes
Note 9Stockholder's equity
Note 10Non-controlling interest
Note 11Equity-based compensation
Note 12Dividends
Note 13Segment information
Note 14Litigation



5


Goosehead Insurance, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
  Three Months Ended September 30,Nine Months Ended September 30,
  2021202020212020
Revenues:
Commissions and agency fees$22,420 $19,385 $61,007 $49,444 
Franchise revenues18,960 12,418 49,234 32,347 
Interest income301 212 841 573 
Total revenues41,681 32,015 111,082 82,364 
Operating Expenses:
Employee compensation and benefits26,078 17,901 69,862 47,308 
General and administrative expenses10,141 5,872 29,549 17,108 
Bad debts732 376 1,825 1,004 
Depreciation and amortization1,188 900 3,320 2,152 
Total operating expenses38,139 25,049 104,556 67,572 
Income from operations3,542 6,966 6,526 14,792 
Other Income (Expense):
Other income7 10 146 76 
Interest expense(756)(582)(1,903)(1,665)
Income before taxes2,793 6,394 4,769 13,203 
Tax expense (benefit)(2,575)(331)(2,646)(612)
Net Income5,368 6,725 7,415 13,815 
Less: net income attributable to non-controlling interests1,332 3,458 2,288 7,325 
Net Income attributable to Goosehead Insurance, Inc.$4,036 $3,267 $5,127 $6,490 
Earnings per share:
Basic$0.21 $0.19 $0.27 $0.39 
Diluted$0.19 $0.17 $0.25 $0.36 
Weighted average shares of Class A common stock outstanding
Basic19,559 17,376 18,903 16,466 
Diluted21,206 18,915 20,570 17,926 
Dividends declared per share$1.63 $1.15 $1.63 $1.15 



See Notes to the Condensed Consolidated Financial Statements
6



Goosehead Insurance, Inc.
Condensed Consolidated Balance Sheets
(Unaudited) 
(In thousands, except per share amounts)
  September 30,December 31,
  20212020
Assets
Current Assets:
Cash and cash equivalents$25,512 $24,913 
Restricted cash1,179 1,323 
Commissions and agency fees receivable, net8,349 18,604 
Receivable from franchisees, net866 2,100 
Prepaid expenses6,487 3,705 
Total current assets42,393 50,645 
Receivable from franchisees, net of current portion25,734 18,179 
Property and equipment, net of accumulated depreciation21,794 16,650 
Right-of-use asset35,384 22,513 
Intangible assets, net of accumulated amortization2,256 549 
Deferred income taxes, net114,376 73,363 
Other assets5,203 3,938 
Total assets$247,140 $185,837 
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses$10,643 $8,101 
Premiums payable1,179 1,323 
Lease liability4,400 3,203 
Contract liabilities5,646 4,233 
Note payable3,750 3,500 
Total current liabilities25,618 20,360 
Lease liability, net of current portion47,200 32,933 
Note payable, net of current portion119,555 79,408 
Contract liabilities, net of current portion38,963 29,968 
Liabilities under tax receivable agreement, net of current portion91,488 61,572 
Total liabilities322,824 224,241 
Class A common stock, $0.01 par value per share - 300,000 shares authorized, 19,786 shares issued and outstanding as of September 30, 2021, 18,304 shares issued and outstanding as of December 31, 2020
196 183 
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 17,239 issued and outstanding as of September 30, 2021, 18,447 shares issued and outstanding as of December 31, 2020
173 184 
Additional paid in capital41,820 29,371 
Accumulated deficit(61,049)(34,614)
Total stockholders' equity(18,860)(4,876)
Non-controlling interests(56,824)(33,528)
Total equity(75,684)(38,404)
Total liabilities and equity$247,140 $185,837 

See Notes to the Condensed Consolidated Financial Statements
7


Goosehead Insurance, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In thousands)
8


Issued shares of Class A common stockIssued shares of Class B common stockClass A Common stockClass B Common StockAdditional paid in capitalAccumulated deficitTotal stockholders' equityNon-controlling interestTotal equity
Balance, January 1, 202118,304 18,447 183 184 29,371 (34,614)(4,876)(33,528)(38,404)
Net income— — — — — (396)(396)(693)(1,089)
Exercise of stock options9 — 226 226 226 
Equity-based compensation— — — — 1,941 — 1,941 — 1,941 
Activity under employee stock purchase plan2 — — — 205 — 205 — 205 
Redemption of LLC Units133 (133)1 (1)(249)— (249)249  
Deferred tax adjustments related to Tax Receivable Agreement— — — — 798 — 798 18 816 
Reallocation of Non-controlling interest2 2 (2) 
Balance March 31, 202118,448 18,314 184 183 32,292 (35,008)(2,349)(33,956)(36,305)
Net income— — — — — 1,487 1,487 1,649 3,136 
Exercise of stock options31 — — — 439 — 439 — 439 
Equity-based compensation— — — — 1,851 — 1,851 — 1,851 
Activity under employee stock purchase plan2 — — — 214 — 214 — 214 
Redemption of LLC Units728 (728)7 (7)(1,280)— (1,280)1,280  
Deferred tax adjustments related to Tax Receivable Agreement— — — — 3,063 — 3,063 101 3,164 
Reallocation of Non-controlling interest— — — — — (6)(6)6  
Balance June 30, 202119,209 17,586 191 176 36,579 (33,527)3,419 (30,920)(27,501)
Dividends declared— — — — — (31,657)(31,657)(28,343)(60,000)
Net income— — — — — 4,036 4,036 1,332 5,368 
Exercise of stock options229 — 2 — 2,309 — 2,311 — 2,311 
Equity-based compensation— — — — 1,851 — 1,851 — 1,851 
Activity under employee stock purchase plan1 — — — 194 — 194 — 194 
Redemption of LLC Units347 (347)3 (3)(1,144)— (1,144)1,144  
Deferred tax adjustments related to Tax Receivable Agreement— — — — 2,031 — 2,031 62 2,093 
Reallocation of Non-controlling interest— — — — — 99 99 (99) 
Balance September 30, 202119,786 17,239 196 173 41,820 (61,049)(18,860)(56,824)(75,684)
9


Issued shares of Class A common stockIssued shares of Class B common stockClass A Common stockClass B Common StockAdditional paid in capitalAccumulated deficitTotal stockholders' equityNon-controlling interestTotal equity
Balance, January 1, 202015,238 21,055 152 210 14,442 (23,811)(9,007)(22,000)(31,007)
Distributions— — — — — — — (1,003)(1,003)
Net income— — — — — (156)(156)(140)(296)
Equity-based compensation— — — — 498 — 498 — 498 
Activity under employee stock purchase plan3 — — — 116 — 116 — 116 
Redemption of LLC Units791 (791)8 (8)(869)— (869)869  
Deferred tax adjustments related to Tax Receivable Agreement— — — — 1,704 — 1,704 — 1,704 
Balance March 31, 202016,032 20,264 160 202 15,891 (23,967)(7,714)(22,274)(29,988)
Distributions— — — — — — — (859)(859)
Net income— — — — — 3,379 3,379 4,007 7,386 
Exercise of stock options241 — 3 — 2,404 — 2,407 — 2,407 
Equity-based compensation— — — — 1,416 — 1,416 — 1,416 
Activity under employee stock purchase plan2 — — — 138 — 138 — 138 
Redemption of LLC Units809 (809)8 (8)(762)— (762)762  
Deferred tax adjustments related to Tax Receivable Agreement— — — — 2,261 — 2,261 53 2,314 
Reallocation of Non-controlling interest— — — — 63 63 (63) 
Balance June 30, 202017,084 19,455 171 194 21,348 (20,525)1,188 (18,374)(17,186)
Distributions— — — — — — — (835)(835)
Dividends declared— — — — — (19,895)(19,895)(22,105)(42,000)
Net income— — — — — 3,267 3,267 3,458 6,725 
Exercise of stock options116 — 1 — 1,160 — 1,161 — 1,161 
Equity-based compensation— — — — 1,416 — 1,416 — 1,416 
Activity under employee stock purchase plan2 — — — 142 — 142 — 142 
Redemption of LLC Units297 (297)3 (3)(577)(577)577  
Deferred tax adjustments related to Tax Receivable Agreement— — — — 1,112 — 1,112 33 1,145 
Reallocation of Non-controlling interest— — — — — 51 51 (51) 
Balance September 30, 202017,499 19,158 175 191 24,601 (37,102)(12,135)(37,297)(49,432)
See Notes to the Condensed Consolidated Financial Statements
10


Goosehead Insurance, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
  Nine Months Ended September 30,
  20212020
Cash flows from operating activities:
Net income$7,415 $13,815 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization3,508 2,499 
Bad debt expense1,825 1,004 
Equity-based compensation5,644 3,330 
Impacts of Tax Receivable Agreement31,884 28,815 
Deferred income taxes(34,942)(28,077)
Noncash lease activity2,594  
Changes in operating assets and liabilities:
Receivable from franchisees(6,861)(4,029)
Commissions and agency fees receivable8,947 (5,731)
Prepaid expenses(2,782)(1,916)
Other assets(1,257)(2,432)
Accounts payable and accrued expenses1,113 (495)
Deferred rent 1,023 
Contract liabilities10,408 6,789 
Premiums payable(144)455 
Payments pursuant to the tax receivable agreement(549)(9)
Net cash provided by operating activities26,803 15,041 
Cash flows from investing activities:
Proceeds from notes receivable24 26 
Purchase of software(1,989)(318)
Purchase of property and equipment(8,181)(4,765)
Net cash used for investing activities(10,146)(5,057)
Cash flows from financing activities:
Debt issuance costs(666)(677)
Repayment of note payable(3,744)(27,321)
Proceeds from notes payable44,619 64,821 
Proceeds from the issuance of Class A common stock3,589 3,965 
Member distributions and dividends(60,000)(44,697)
Net cash provided by (used for) financing activities(16,202)(3,909)
Net increase in cash and restricted cash455 6,075 
Cash and cash equivalents, and restricted cash, beginning of period26,236 15,260 
Cash and cash equivalents, and restricted cash, end of period$26,691 $21,335 
Supplemental disclosures of cash flow data:
Cash paid during the year for interest1,715 1,318 
Cash paid for income taxes272 270 
See Notes to the Condensed Consolidated Financial Statements
11

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 12 and 9 corporate-owned locations in operation at September 30, 2021 and 2020, respectively. Franchisees are provided access to insurance Carrier Appointments, product training, technology infrastructure, client service centers and back office services. During the three months ended September 30, 2021 and 2020, the Company onboarded 92 and 110 franchise locations, respectively, and had 1,139 and 823 operating franchise locations as of September 30, 2021 and 2020, respectively. No franchises were purchased by the Company during the three and nine months ended September 30, 2021 or 2020.
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 September 30, 2021, the condensed consolidated results of operations, stockholders' equity and statements of cash flows for the three and nine months ended September 30, 2021 and 2020. 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.
The results of operations for the three and nine months ended September 30, 2021 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.
Impact of the Coronavirus (“COVID-19”) Pandemic
The extent to which the COVID-19 pandemic and the related economic impact may affect our financial condition or results of operations is uncertain. The extent of the impact on our operational and financial performance will depend on various factors, including the availability, effectiveness and utilization of vaccines for COVID-19 and its variant strains, the duration, severity and spread of the outbreak, including as a result of new variants,and its impact on home sales and consumer spending. To date, the pandemic has not increased our costs of or access to capital under our term note and revolving credit facility, and we do not believe it is reasonably likely to do so in the future. In addition, we do not believe that the pandemic will affect our ongoing ability to meet the covenants in our debt instruments, including under our term note and revolving credit facility. To date, the pandemic has not impacted the collectability of receivables or adversely affected our ability to generate new business, add new franchises, or retain existing franchises or policies. Due to the nature of our business, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods.
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
12

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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.
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.
Restricted Cash
The Company holds premiums received from the insured, but not yet remitted to the insurance Carrier in a fiduciary capacity. Premiums received but not yet remitted included in restricted cash were $1.2 million and $1.4 million as of September 30, 2021 and 2020, respectively.
The following is a reconciliation of our cash and restricted cash balances as presented in the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 (in thousands):
September 30,
20212020
Cash and cash equivalents$25,512 $19,957 
Restricted cash1,179 1,378 
Cash and cash equivalents, and restricted cash$26,691 $21,335 

Recently Issued Accounting Pronouncements
Reference Rate Reform (ASU 2020-04): In March 2020, the Financial Accounting Standards Board issued ASU 2020-04. Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP if certain criteria are met to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued. ASU 2020-04 became effective on March 12, 2020 and may be applied prospectively through December 31, 2022. A substantial portion of our indebtedness bears interest at variable interest rates, primarily based on USD-LIBOR. The adoption of ASU 2020-04 did not have a material impact on our condensed consolidated financial statements. The standard will ease, if warranted, the administrative requirements for accounting for the future effects of the rate reform. Our debt agreement contains a provision to move to the Secured Overnight Financing Rate ("SOFR") if or when LIBOR is phased out.
Recently adopted accounting pronouncements
Simplifying the Accounting for Income Taxes (ASU 2019-12): In 2019, the Financial Accounting Standards Board issued ASU 2019-12 to simplify the accounting for income taxes. The guidance primarily addresses how to (1) recognize a deferred tax liability after we transition to or from the equity method of accounting, (2) evaluate if a step-up in the tax basis of goodwill is related to a business combination or is a separate transaction, (3) recognize all of the effects of a change in tax law in the period of enactment, including adjusting the estimated annual tax rate, and (4) include the amount of tax based on income in the income tax provision and any incremental amount as a tax not based on income for hybrid tax regimes. We adopted the guidance in the first quarter of 2021. The adoption did not have a material impact on our condensed consolidated financial statements or related disclosures.

3. Revenue

Commissions and fees
The Company earns new and renewal commissions paid by insurance Carriers and fees paid by its clients for the binding of insurance coverage. The transactions price is set as the estimated commissions to be received over the term of the policy based on an estimate of premiums placed, policy changes and cancellations, net of a constraint.
13

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
These commissions and fees are earned at a point in time upon the effective date of bound insurance coverage, as no performance obligation exists after coverage is bound.
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.
Franchise revenues
Franchise