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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 June 30, 2020
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 July 31, 2020, there were 17,268,171 shares of Class A common stock outstanding and 19,270,133 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 Matters
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
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, 2019.
ASC 605: Legacy revenue recognition standard ASC 605, Revenue Recognition. This legacy revenue recognition was used for periods prior to the fourth quarter of 2019.
ASC 606 ("Topic 606"): ASU 2014-09 - Revenue from Contracts with Customers.
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.
Corporate Channel Adjusted EBITDA: Segment earnings before interest, income taxes, depreciation and amortization allocable to the Corporate Channel.
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.
Franchise Channel Adjusted EBITDA: Segment earnings before interest, income taxes, depreciation and amortization, adjusted to exclude other non-operating items allocable to the Franchise Channel.
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
3


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.
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.
Segment Adjusted EBITDA: Either Corporate Channel Adjusted EBITDA or Franchise Channel Adjusted EBITDA.
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 Income
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 8Commitments and contingencies
Note 9Income taxes
Note 10Stockholder's equity
Note 11Non-controlling interest
Note 12Equity-based compensation
Note 13Dividends
Note 14Segment information
Note 15Litigation
Note 16Subsequent events



5


Goosehead Insurance, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
  Three Months Ended June 30,Six Months Ended June 30,
  
2020 1
2019 2
2020 1
2019 2
Revenues:
Commissions and agency fees$18,248  $10,763  $30,059  $26,933  
Franchise revenues11,484  8,475  19,929  15,303  
Interest income192  148  361  283  
Total revenues29,924  19,386  50,349  42,519  
Operating Expenses:
Employee compensation and benefits15,904  10,378  29,407  19,569  
General and administrative expenses5,364  4,201  11,236  8,631  
Bad debts319  482  628  883  
Depreciation and amortization712  452  1,252  875  
Total operating expenses22,299  15,513  42,523  29,958  
Income from operations7,625  3,873  7,826  12,561  
Other Income (Expense):
Other income    66    
Interest expense(479) (626) (1,083) (1,252) 
Income before taxes7,146  3,247  6,809  11,309  
Tax expense (benefit)(240) 430  (281) 1,174  
Net income7,386  2,817  7,090  10,135  
Less: net income attributable to non-controlling interests4,007  1,914  3,867  6,760  
Net income attributable to Goosehead Insurance, Inc.$3,379  $903  $3,223  $3,375  
Earnings per share:
Basic$0.21  $0.06  $0.20  $0.23  
Diluted$0.19  $0.06  $0.18  $0.22  
Weighted average shares of Class A common stock outstanding
Basic16,458  14,876  16,011  14,545  
Diluted17,947  16,065  17,432  15,685  
Dividends declared per share$  $  $  $0.41  

(1) - The three and six months ended June 30, 2020 are reported under ASC 606
(2) - The three and six months ended June 30, 2019 are reported under ASC 605

See Notes to the Condensed Consolidated Financial Statements
6



Goosehead Insurance, Inc.
Condensed Consolidated Balance Sheets
(Unaudited) 
(In thousands, except per share amounts)
  June 30,December 31,
  20202019
Assets
Current Assets:
Cash and cash equivalents$54,318  $14,337  
Restricted cash1,488  923  
Commissions and agency fees receivable, net7,628  6,884  
Receivable from franchisees, net3,944  2,602  
Prepaid expenses4,981  1,987  
Total current assets72,359  26,733  
Receivable from franchisees, net of current portion13,199  11,014  
Property and equipment, net of accumulated depreciation12,349  9,542  
Intangible assets, net of accumulated amortization491  445  
Deferred income taxes, net41,424  15,537  
Other assets2,767  1,357  
Total assets$142,589  $64,628  
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses$4,152  $5,033  
Premiums payable1,488  923  
Deferred rent881  683  
Contract liabilities3,365  2,771  
Note payable2,500  4,000  
Total current liabilities12,386  13,410  
Deferred rent, net of current portion7,571  6,681  
Note payable, net of current portion81,272  42,161  
Contract liabilities, net of current portion23,395  20,024  
Liabilities under tax receivable agreement, net of current portion35,151  13,359  
Total liabilities159,775  95,635  
Commitments and contingencies (see note 8)
Class A common stock, $0.01 par value per share - 300,000 shares authorized, 17,084 shares issued and outstanding as of June 30, 2020, 15,238 shares issued and outstanding as of December 31, 2019
171  152  
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 19,455 issued and outstanding as of June 30, 2020, 21,055 shares issued and outstanding as of December 31, 2019
194  210  
Additional paid in capital21,348  14,442  
Accumulated deficit(20,525) (23,811) 
Total stockholders' equity1,188  (9,007) 
Non-controlling interests(18,374) (22,000) 
Total equity(17,186) (31,007) 
Total liabilities and equity$142,589  $64,628  

See Notes to the Condensed Consolidated Financial Statements
7


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


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 loss—  —  —  —  —  (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) 
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, 201913,799  22,486  138  224  11,899  (20,761) (8,500) (16,703) (25,203) 
Distributions—  —  —  —  —  —  —  (245) (245) 
Dividends declared—  —  —  —  —  (5,962) (5,962) (9,038) (15,000) 
Net income—  —  —  —  —  2,472  2,472  4,846  7,318  
Equity-based compensation—  —  —  —  368  —  368  —  368  
Redemption of LLC Units723  (723) 7  (7) (679) —  (679) 679    
Deferred tax adjustments related to Tax Receivable Agreement—  —  —  —  911  —  911  —  911  
Balance March 31, 201914,522  21,763  145  217  12,499  (24,251) (11,390) (20,461) (31,851) 
Distributions—  —  —  —  —  —  —  (2,708) (2,708) 
Net income—  —  —  —  —  903  903  1,914  2,817  
Equity-based compensation—  —  —  —  368  —  368  —  368  
Activity under employee stock purchase plan3  —  —  —  142  —  142  —  142  
Redemption of LLC Units488  (488) 5  (5) (477) —  (477) 477  —  
Deferred tax adjustments related to Tax Receivable Agreement—  —  —  —  684  —  684  —  684  
Balance June 30, 201915,013  21,275  150  212  13,216  (23,348) (9,770) (20,778) (30,548) 


See Notes to the Condensed Consolidated Financial Statements
9


Goosehead Insurance, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
  Six Months Ended June 30,
  20202019
Cash flows from operating activities:
Net income$7,090  $10,135  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization1,540  982  
Bad debt expense628  883  
Equity-based compensation1,914  736  
Impacts of Tax Receivable Agreement22,472  9,126  
Deferred income taxes(21,869) (8,945) 
Changes in operating assets and liabilities:
Receivable from franchisees(3,682) (1,438) 
Commissions and agency fees receivable(1,235) (892) 
Prepaid expenses(2,994) (