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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, 2019
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 November 1, 2019, there were 15,206,440 shares of Class A common stock outstanding and 21,082,051 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:
 
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, 2018.
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.
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, adjusted to exclude equity-based compensation.
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 and equity-based compensation.
Franchisee: An individual or entity who has entered into a Franchise Agreement with us.
Initial Franchise Fee: Contracted fees paid by Franchisees to compensate Goosehead for the training and onboarding of new franchise locations.
GF: Goosehead Financial, LLC.
GM: Goosehead Management, LLC.
LLC Unit: a limited liability company unit of Goosehead Financial, LLC.
New Business Revenue: Commissions received from Carriers, Agency Fees received from clients, and Royalty Fees received from Franchisees relating to policies in their first term.
New Business Revenue (Corporate): Commissions received from Carriers and Agency Fees charged to clients relating to policies in their first term sold in the Corporate Channel.
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?” Customers 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: The members of Goosehead Financial, LLC prior to the closing of the initial public offering of Goosehead Insurance, Inc., which primarily consist of members of management.
Renewal Revenue: Commissions received from Carriers and Royalty Fees received from Franchisees after the first term of policies.
Renewal Revenue (Corporate): Commissions received from Carriers after the first term of policies originally sold in the Corporate Channel.
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.
TWIHG: Texas Wasatch Insurance Holdings Group, LLC.
3


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 our 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 3Franchise Fees Receivable
Note 4Allowance for Uncollectible Agency Fees
Note 5Property and equipment
Note 6Note Payable
Note 7Commitments and Contingencies
Note 8Income Taxes
Note 9Stockholders' Equity
Note 10Equity-Based Compensation
Note 11Dividends
Note 12Segment Information
Note 13Litigation



5


Goosehead Insurance, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
  Three Months Ended September 30,Nine Months Ended September 30,
  2019201820192018
Revenues:
Commissions and agency fees$11,739  $9,760  $38,672  $28,072  
Franchise revenues9,261  6,180  24,564  17,060  
Interest income169  114  452  299  
Total revenues21,169  16,054  63,688  45,431  
Operating Expenses:
Employee compensation and benefits (including Class B unit compensation of $0 for the three and nine months ended September 30, 2019, and $0 and $26,134 for the three and nine months ended September 30, 2018, respectively)11,412  8,956  30,981  49,646  
General and administrative expenses5,169  3,694  13,800  9,093  
Bad debts399  399  1,282  984  
Depreciation and amortization516  352  1,391  1,039  
Total operating expenses17,496  13,401  47,454  60,762  
Income (loss) from operations3,673  2,653  16,234  (15,331) 
Other Income (Expense):
Other income (expense)  (22)   (22) 
Interest expense(609) (1,631) (1,861) (3,598) 
Income (loss) before taxes3,064  1,000  14,373  (18,951) 
Tax expense301  164  1,475  318  
Net income (loss)2,763  836  12,898  (19,269) 
Less: net income (loss) attributable to non-controlling interests1,765  595  8,525  (10,278) 
Net income (loss) attributable to Goosehead Insurance, Inc.$998  $241  $4,373  $(8,991) 
Earnings (loss) per share:
Basic$0.07  $0.02  $0.30  $(0.66) 
Diluted$0.06  $0.02  $0.27  $(0.66) 
Weighted average shares of Class A common stock outstanding
Basic15,140  13,533  14,746  13,533  
Diluted16,451  14,614  15,936  13,533  
Dividends declared per share$  $  $0.41  $  

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,
  20192018
Assets
Current Assets:
Cash and cash equivalents$10,820  $18,635  
Restricted cash728  376  
Commissions and agency fees receivable, net2,181  2,016  
Receivable from franchisees, net1,474  703  
Prepaid expenses1,829  1,109  
Other assets69    
Total current assets17,101  22,839  
Receivable from franchisees, net of current portion2,607  2,048  
Property and equipment, net of accumulated depreciation9,610  7,575  
Intangible assets, net of accumulated amortization442  248  
Deferred income taxes, net14,503  1,958  
Other assets158  130  
Total assets$44,421  $34,798  
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses$4,355  $3,978  
Premiums payable728  376  
Unearned revenue330  530  
Deferred rent632  428  
Note payable3,500  2,500  
Total current liabilities9,545  7,812  
Deferred rent, net of current portion6,712  4,548  
Note payable, net of current portion43,355  45,947  
Liabilities under tax receivable agreement, net of current portion12,659  1,694  
Total liabilities72,271  60,001  
Commitments and contingencies (see note 7)
Class A common stock, $0.01 par value per share - 300,000 shares authorized, 15,173 shares issued and outstanding as of September 30, 2019, 13,800 shares issued and outstanding as of December 31, 2018
152  138  
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 21,115 issued and outstanding as of September 30, 2019, 22,486 shares issued and outstanding as of December 31, 2018
210  224  
Additional paid in capital13,792  11,899  
Accumulated deficit(22,350) (20,761) 
Total stockholders' equity(8,196) (8,500) 
Non-controlling interests(19,654) (16,703) 
Total equity(27,850) (25,203) 
Total liabilities and stockholders' equity$44,421  $34,798  

See Notes to the Condensed Consolidated Financial Statements
7


Goosehead Insurance, Inc.
Condensed Consolidated Statement 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, December 31, 201813,799  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) 
Distributions—  —  —  —  —  —  —  (786) (786) 
Net income—  —  —  —  —  998  998  1,765  2,763  
Equity-based compensation—  —  —  —  396  —  396  —  396  
Redemption of LLC Units160  (160) 2  (2) (145) —  (145) 145    
Deferred tax adjustments related to Tax Receivable Agreement—  —  —  —  325  —  325  —  325  
Balance September 30, 201915,173  21,115  152  210  13,792  (22,350) (8,196) (19,654) (27,850) 

8


Members' deficitIssued 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 at December 31, 2017(41,133)                 (41,133) 
Net Income3,768  —  —  —  —  —  —  —  —  3,768  
Capital withdrawn  —  —  —  —  —  —  —  —    
Balance March 31, 2018(37,365)                 (37,365) 
Net income prior to the Reorganization Transactions621  —  —  —  —  —  —  —  —  621  
Distributions prior to the Reorganization Transactions(1,278) —  —  —  —  —  —  —  —  (1,278) 
Balance prior to the Reorganization Transactions(38,022) —  —  —  —  —  —  —  —  (38,022) 
Effects of the Reorganization Transactions38,022  —  22,747  —  227  (94,180) (21,562) (115,515) (36,241) (113,734) 
Initial non-controlling interest allocation—  —  —  —  —  (18,920) —  (18,920) 18,920    
Issuance of Class A common stock sold in initial public offering, net of offering costs—  13,533  —  135  —  123,994  —  124,129  —  124,129  
Distributions subsequent to initial public offering—  —  —  —  —  —  —  —  (745) (745) 
Net income subsequent to initial public offering—  —  —  —  —  —  566  566  951  1,517  
Equity-based compensation subsequent to initial public offering—  —  —  —  —  260  —  260  —  260  
Deferred tax adjustments—  —  —  —  —  (89) —  (89) —  (89) 
Balance June 30, 2018  13,533  22,747  135  227  11,065  (20,996) (9,569) (17,115) (26,684) 
Additional capitalized offering costs on initial public offering—  —  —  —  —  (119) —  (119) —  (119) 
Distributions subsequent to initial public offering—  —  —  —  —  —  —  —  (900) (900) 
Net income subsequent to initial public offering—  —  —  —  —  —  145  145  693  838  
Equity-based compensation subsequent to initial public offering—  —  —  —  —  344  —  344  —  344  
Deferred tax adjustments—  —  —  —  —  —  —  —  —    
Balance September 30, 2018  13,533  22,747  135  227  11,290  (20,851) (9,199) (17,322) (26,521) 
Distributions subsequent to initial public offering—  —  —  —  —  —  —  —  (90) (90) 
Net income subsequent to initial public offering—  —  —  —  —  —  90  90  515  605  
Equity-based compensation subsequent to initial public offering—  —  —  —  —  345  —  345  —  345  
Activity under employee stock purchase plan—  5  —  —  —  143  —  143  —  143  
Redemption of LLC Units—  261  (261) 3  (3) (194) —  (194) 194    
Deferred tax adjustments related to Tax Receivable Agreement—  —  —  —  —  315  —