UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q

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

For the quarterly period endedJune 30, 2018

OR

o 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, TX	76262
(Address of principal executive offices)	(Zip Code)

(214) 838-5500

(Registrant's telephone number, including area code)

Not applicable

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

Indicate by check mark if 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule-405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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	o		Accelerated filer	o
Non-accelerated filer	þ	(Do not check if a smaller reporting company)	Smaller reporting company	o
			Emerging growth company	þ

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. o

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

As of August 8, 2018, there were 13,533,267 shares of Class A common stock outstanding and 22,746,667 shares of Class B common stock outstanding.

Table of contents

		Page
Part I
Item 1.	Financial Statements (Unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
Part II
Item 1.	Legal Matters	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
SIGNATURES		38

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.

• 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.

• 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.

• 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.

• 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.

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 “Risk factors” in our prospectus (the “Final Prospectus”) relating to our Registration Statement on Form S-1, as amended (Registration No. 333-224080), filed with the U.S. Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) under the U.S. Securities Act of 1933, as amended. You should specifically consider the numerous risks outlined under “Risk factors” in the Final Prospectus.

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 prospectus to conform our prior statements to actual results or revised expectations.

4

PART I

Item 1. Condensed Consolidated Financial Statements (Unaudited)

		Page
Condensed Consolidated Balance Sheets		6
Condensed Consolidated Statements of Income		7
Condensed Consolidated Statements of Stockholders' Equity		8
Condensed Consolidated Statements of Cash Flows		9
Notes to the Condensed Consolidated Financial Statements		10
Note 1	Organization	10
Note 2	Summary of Significant Accounting Policies	11
Note 3	Franchise Fees Receivable	12
Note 4	Allowance for Uncollectible Agency Fees	12
Note 5	Note Payable	13
Note 6	Commitments and Contingencies	14
Note 7	Income Taxes	14
Note 8	Other Income	15
Note 9	Stockholder's Equity	16
Note 10	Equity-Based Compensation	18
Note 11	Segment Information	19
Note 12	Litigation	22
Note 13	Subsequent Events	22

5

Goosehead Insurance, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

	June 30			December 31
	2018			2017
Assets
Current Assets
Cash and cash equivalents	$	18,938,455		$	4,947,671
Restricted cash	616,414			417,911
Commissions and agency fees receivable, net	1,958,539			1,268,172
Receivable from franchisees, net	396,922			564,087
Prepaid expenses	937,826			521,362
Total current assets	22,848,156			7,719,203
Receivable from franchisees, net of current portion	1,841,844			1,360,686
Property and equipment, net of accumulated depreciation	6,934,029			6,845,121
Intangible assets, net of accumulated amortization	241,286			216,468
Other assets	149,806			565,191
Total assets	$	32,015,121		$	16,706,669
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	4,305,386		$	2,759,241
Premiums payable	616,414			417,911
Unearned revenue	510,000			1,062,050
Dividends payable	—			550,000
Deferred rent	420,850			477,818
Note payable	500,000			500,000
Total current liabilities	6,352,650			5,767,020
Deferred income taxes, net	90,532			—
Deferred rent, net of current portion	4,252,020			3,916,257
Note payable, net of current portion	48,004,034			48,156,340
Total liabilities	58,699,236			57,839,617
Commitments and contingencies (see note 6)
Members’ deficit	—			(41,132,948		)
Class A common stock, $.01 par value per share - 300,000,000 shares authorized, 13,533,267 shares issued and outstanding as of June 30, 2018, zero issued and outstanding as of December 31, 2017	135,333			—
Class B common stock, $.01 par value per share - 50,000,000 shares authorized, 22,746,667 issued and outstanding as of June 30, 2018, zero issued and outstanding as of December 31, 2017	227,467			—
Additional paid in capital	89,033,692			—
Accumulated deficit	(7,558,112		)	—
Total stockholders' equity and members' deficit	81,838,380			(41,132,948		)
Non-controlling interests	(108,522,495		)	—
Total equity	(26,684,115		)	(41,132,948		)
Total liabilities and stockholders' equity	$	32,015,121		$	16,706,669

See Notes to the Condensed Consolidated Financial Statements

6

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

	Three Months Ended June 30						Six Months Ended June 30
	2018			2017			2018			2017
Revenues:
Commissions and agency fees	$	8,716,016		$	6,854,232		$	18,311,592		$	13,216,078
Franchise revenues	5,969,392			3,969,912			10,879,920			7,451,028
Interest income	102,304			54,486			185,081			102,473
Total revenues	14,787,712			10,878,630			29,376,593			20,769,579
Operating Expenses:
Employee compensation and benefits (including Class B unit compensation of $26,134,271 for the three and six months ended June 30, 2018 and $184,613 for the three and six months ended 2017)	33,854,619			5,575,415			40,690,044			10,443,062
General and administrative expenses	3,025,695			2,011,268			5,399,317			3,844,867
Bad debts	305,965			323,208			585,654			575,090
Depreciation and amortization	350,548			158,177			687,483			295,834
Total operating expenses	37,536,827			8,068,068			47,362,498			15,158,853
(Loss) Income from operations	(22,749,115		)	2,810,562			(17,985,905		)	5,610,726
Other Income (Expense):
Other Income	—			3,540,932			—			3,540,932
Interest expense	(972,158		)	(527,038		)	(1,967,560		)	(1,059,753		)
(Loss) Income before taxes	(23,721,273		)	5,824,456			(19,953,465		)	8,091,905
Income tax expense	154,093			—			154,093			—
Net (Loss) Income	(23,875,366		)	5,824,456			(20,107,558		)	8,091,905
Less: net (loss) income attributable to non-controlling interests	(14,640,985		)	5,824,456			(10,873,177		)	8,091,905
Net (Loss) Income attributable to Goosehead Insurance, Inc.	$	(9,234,381	)	$	—		$	(9,234,381	)	$	—
Earnings per share:
Basic	$	(0.68	)	n/a			$	(0.68	)	n/a
Diluted	$	(0.68	)	n/a			$	(0.68	)	n/a
Weighted average shares of Class A common stock outstanding
Basic	13,533,267			n/a			13,533,267			n/a
Diluted	13,533,267			n/a			13,533,267			n/a
Pro forma net income:
Pro forma income before taxes attributable to Goosehead Insurance, Inc.	n/a			2,172,659			n/a			3,018,471
Pro forma income tax expense	n/a			$	(519,266	)	n/a			$	(721,415	)
Pro forma net income attributable to Goosehead Insurance, Inc.	n/a			$	1,653,393		n/a			$	2,297,056
Pro forma earnings per share:
Basic	n/a			$	0.12		n/a			$	0.17
Diluted	n/a			$	0.12		n/a			$	0.16
Pro forma weighted average shares of Class A common stock outstanding:
Basic	n/a			13,533,267			n/a			13,533,267
Diluted	n/a			14,329,293			n/a			14,329,293

See Notes to the Condensed Consolidated Financial Statements

7

Goosehead Insurance, Inc.

Condensed Consolidated Statement of Stockholders' Equity

(Unaudited)

	Members' deficit			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, December 31, 2017	$	(41,132,948	)	—	—	$	—	$	—	$	—		$	—		$	—		$	—		$	(41,132,948	)
Net income prior to the Reorganization Transactions	4,388,937			—	—	—		—		—			—			—			—			4,388,937
Distributions prior to the Reorganization Transactions	(1,278,249		)	—	—	—		—		—			—			—			—			(1,278,249		)
Balance prior to the Reorganization Transactions	(38,022,260		)	—	—	—		—		—			—			—			—			(38,022,260		)
Effects of the Reorganization Transactions	38,022,260			—	22,746,667	—		227,467		(132,202,468		)	(7,378,625		)	(139,353,626		)	(12,401,967		)	(113,733,333		)
Initial non-controlling interest allocation	—			—	—	—		—		97,071,040			—			97,071,040			(97,071,040		)	—
Issuance of Class A common stock sold in initial public offering, net of offering costs	—			13,533,267	—	135,333		—		123,994,257			—			124,129,590			—			124,129,590
Distributions subsequent to initial public offering	—			—	—	—		—		—			(745,000		)	(745,000		)	—			(745,000		)
Net income subsequent to initial public offering	—			—	—	—		—		—			565,513			565,513			950,512			1,516,025
Equity-based compensation subsequent to initial public offering	—			—	—	—		—		259,727			—			259,727			—			259,727
Deferred tax adjustments	—			—	—	—		—		(88,864		)	—			(88,864		)	—			(88,864		)
Balance June 30, 2018	$	—		13,533,267	22,746,667	$	135,333	$	227,467	$	89,033,692		$	(7,558,112	)	$	81,838,380		$	(108,522,495	)	$	(26,684,115	)

See Notes to the Condensed Consolidated Financial Statements

8

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the six months ended June 30
	2018			2017
Cash flows from operating activities:
Net (loss) income	$	(20,107,558	)	$	8,091,905
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	687,483			295,834
Bad debt expense	585,654			575,090
Equity-based compensation	26,272,248			—
Deferred income taxes	1,667			—
Changes in operating assets and liabilities:
Commissions and agency fees receivable	(1,113,522		)	(366,478		)
Receivable from franchisees	(487,344		)	(920,310		)
Prepaid expenses	(416,464		)	(223,101		)
Other assets	415,385			(147,344		)
Accounts payable and accrued expenses	1,546,144			140,932
Deferred rent	278,795			(79,790		)
Premiums payable	198,503			251,515
Unearned revenue	(552,050		)	(140,000		)
Net cash provided by operating activities	7,308,941			7,478,253
Cash flows from investing activities:
Changes in restricted cash	(198,503		)	(251,515		)
Proceeds from notes receivable	10,852			288,494
Purchase of software	(79,170		)	(93,297		)
Purchase of property and equipment	(722,944		)	(877,583		)
Net cash used for investing activities	(989,765		)	(933,901		)
Cash flows from financing activities:
Loan origination fees	98,600			66,000
Repayment of note payable	(250,000		)	(150,000		)
Proceeds from the issuance of Class A common stock sold in initial public offering, net of underwriting discounts and offering costs	86,891,920			—
Member distributions	(79,068,912		)	(2,565,387		)
Net cash provided by (used for) financing activities	7,671,608			(2,649,387		)
Net increase in cash and cash equivalents	13,990,784			3,894,965
Cash, beginning of period	4,947,671			3,778,098
Cash, end of period	$	18,938,455		$	7,673,063
Supplemental disclosures:
Management fee note repayment through issuance of Class A common stock	$	37,237,670		$	—

See Notes to the Condensed Consolidated Financial Statements

9

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. Organization

On May 1, 2018 Goosehead Insurance, Inc. ("GSHD") completed an initial public offering (the “Offering”) of 9,809,500 shares of Class A common stock at a price of $10.00 per share, which included 1,279,500 shares issued pursuant to the underwriter's over-allotment option. GSHD became the sole managing member of Goosehead Financial, LLC (“GF”). GF was organized on January 1, 2016 as a Delaware Limited Liability Company and is headquartered in Westlake, TX. The operations of GF represent the predecessor to GSHD prior to the Offering, and the consolidated and combined entities of GF are described in more detail below. Information for any periods prior to May 1, 2018 relates to GF and its subsidiaries and affiliates.

GSHD (collectively with its combined and consolidated subsidiaries and affiliates, 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 operations of the corporate-owned units are recorded in Texas Wasatch Insurance Services, L.P. (“TWIS”)—a Texas limited partnership headquartered in Westlake, TX and operating since 2003. TWIS is 99.6% owned by Goosehead Insurance Holdings, LLC (“GIH”), a wholly owned subsidiary of GF. The Company had seven and four corporate-owned locations in operation at June 30, 2018 and 2017, respectively.

The operations of the franchise units are recorded in Goosehead Insurance Agency, LLC (“GIA”)—a Delaware limited liability company headquartered in Westlake, TX and operating since 2011. GIA is 100% owned by GIH. Franchisees are provided access to insurance Carrier Appointments, product training, technology infrastructure, client service centers and back office services. During the three months ended June 30, 2018 and 2017, the Company sold 55 and 34 franchise locations, respectively and had 385 and 244 operating franchise locations as of June 30, 2018 and 2017, respectively. No franchises were purchased by the Company during the three months ended June 30, 2018 or 2017.

In connection with the Offering, both Goosehead Management, LLC (“GM”) and Texas Wasatch Insurance Holdings Group LLC (“TWIHG”) became wholly owned indirect subsidiaries of GF. Both GM and TWIHG are non-operating holding companies created to receive management fees from the operating entities TWIS and GIA.

All intercompany accounts and transactions have been eliminated in consolidation of GF.

Reorganization Transactions

In connection with the Offering, the company completed the following transactions (the "Reorganization Transactions"):

• The GF limited liability company agreement was amended to, among other things, i) appoint GSHD as the sole managing member of GF and ii) modify the capital structure of GF by reclassifying the interests previously held by Pre-IPO LLC Members into a single new class of non-voting LLC Units.

• GSHD was authorized to issue two classes of common stock. 9,809,500 shares of Class A common stock were issued pursuant to the Offering, including the underwriters' over-allotment option. 22,746,667 shares of Class B common stock were issued to the Pre-IPO LLC Members in an amount equal to the number of LLC Units held by each such Pre-IPO LLC Member in exchange for certain management rights of GF. Each share of Class A common stock and Class B common stock entitles its holder to one vote per share on all matters submitted to a vote of GSHD's stockholders. Each share of Class B common stock can be exchanged for one share of Class A common stock or, at GSHD's discretion, a cash payment equal to the volume weighted average market price of one share of Class A common stock, thus canceling the share of Class B common stock on a one-for-one basis.

• The Goosehead Management Holders and Texas Wasatch Holders indirectly transferred their ownership interests in GM and TWIHG, respectively, to GSHD in exchange for the Goosehead Management Note and Texas Wasatch Note. The aggregate principal amount of the Goosehead Management Note and the Texas Wasatch Note was approximately $114 million. Because the net proceeds from the Offering were insufficient to repay the aggregate principal amount of the notes, 3,723,767 shares of Class A common stock were issued to the Goosehead Management Holders and the Texas Wasatch Holders for the difference. GSHD contributed direct and indirect ownership interests in each of TWIHG and GM to GF.

10

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Following completion of the Reorganization Transactions and the Offering, GSHD owns 37.3% of GF and the Pre-IPO LLC Members own the remaining 62.7%. GSHD is the sole managing member of GF and, although GSHD holds a minority economic interest in GF, GSHD 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 consolidated financial statements.

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 position at June 30, 2018, and the condensed consolidated results of operations, and cash flows for the periods ended June 30, 2018 and 2017. The interim period condensed consolidated financial statements should be read in conjunction with the Consolidated and Combined Financial Statements that are included in the Final Prospectus.

2. Summary of Significant Accounting Policies

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.

Capitalized IPO Related Costs

In connection with the Offering, the Company incurred costs which were recorded in other assets on the condensed consolidated balance sheet. Upon completion of the Offering, these deferred costs were charged against the proceeds from the Offering with a corresponding reduction to additional paid-in capital. There were $0 and $170 thousand of IPO related costs included in other assets at June 30, 2018 and December 31, 2017, respectively.

Income Taxes

Prior to the Offering, GF was treated as a partnership for U.S. federal and applicable state and local income tax purposes. As a partnership, GF's taxable income or loss was included in the taxable income of its members. Accordingly, no income tax expense was recorded for federal and state and local jurisdictions for periods prior to the Offering.

In connection with the Offering completed on May 1, 2018, the Company became a taxable entity.

Recently Issued Accounting Pronouncements

Statement of Cash Flows (ASU 2016-18): This standard requires that the Statement of Cash Flows explain the changes during the period of cash and cash equivalents inclusive of amounts categorized as Restricted Cash. As such, upon adoption, the Company’s consolidated statement of cash flows will show the sources and uses of cash that explain the movement in the balance of cash and cash equivalents, inclusive of restricted cash, over the period presented. As an emerging growth company (“EGC”), the standard will become effective for the Company January 1, 2019. The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements.

Statement of Cash Flows (ASU 2016-15): This standard addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified and applies to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The standard will become effective for the Company on January 1, 2019. The Company has evaluated the impact of ASU 2016-15 and has determined the impact to be immaterial. The Company does not, at this time, engage in the activities being addressed by the standard.

Revenue from Contracts with Customers (ASU 2014-09): This standard supersedes the existing revenue recognition guidance and provides a new framework for recognizing revenue. The core principle of the standard is

11

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new standard also requires significantly more comprehensive disclosures than the existing standard. Guidance subsequent to ASU 2014-09 has been issued to clarify various provisions in the standard, including principal versus agent considerations, identifying performance obligations, licensing transactions, as well as various technical corrections and improvements. This standard may be adopted using either a retrospective or modified retrospective method. According to the superseding standard ASU 2015-14 that deferred the effective dates of the preceding, the standard will become effective for the Company January 1, 2019. The Company is currently in the process of evaluating the impact this standard is expected to have on the consolidated financial statements and expects to adopt the modified retrospective method. The Company expects a material change in the timing of when Contingent Commissions and Initial Franchise Fees are recorded as revenue. As the Company continues the evaluation during 2018, specifically as it relates to revenue recognition (commissions, contingent commissions, and franchise fees, among others), cost deferrals, and systems and processes, the Company will further clarify the expected material impact of the adoption of the standard when it becomes known.

Leases (ASU 2016-02): This standard establishes a new lease accounting model, which introduces the recognition of lease assets and liabilities for those leases classified as operating leases under previous GAAP. It should be applied using a modified retrospective approach, with the option to elect various practical expedients. Early adoption is permitted. The standard will become effective for the Company January 1, 2020. The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements.

3. Franchise Fees Receivable

The balance of Franchise fees receivable included in Receivable from franchisees consisted of the following at June 30, 2018 and December 31, 2017:

	June 30			December 31
	2018			2017
Franchise fees receivable	$	3,494,516		$	2,501,000
Less: Unamortized discount	(1,226,136		)	(823,391		)
Less: Allowance for uncollectible franchise fees	(453,730		)	(335,522		)
Total franchise fees receivable	$	1,814,650		$	1,342,087

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

Balance at December 31, 2016	$	193,204
Charges to bad debts	143,364
Write offs	(34,650		)
Balance at June 30, 2017	$	301,918
Balance at December 31, 2017	$	335,522
Charges to bad debts	162,499
Write offs	(44,291		)
Balance at June 30, 2018	$	453,730

4. Allowance for Uncollectible Agency Fees

12

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

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

Balance at December 31, 2016	$	166,681
Charges to bad debts	291,233
Write offs	(275,850		)
Balance at June 30, 2017	$	182,064
Balance at December 31, 2017	$	182,509
Charges to bad debts	423,155
Write offs	(382,192		)
Balance at June 30, 2018	$	223,472

5. Note Payable

On October 27, 2016, GF entered into a credit agreement consisting of a revolving credit facility used for general liquidity and working capital and a note payable used to pay off existing debt and fund a distribution to members.

The $3,000,000 revolving credit facility accrues interest on amounts drawn at LIBOR plus 5.50%. At June 30, 2018 and December 31, 2017, GSHD and GF, respectively, had a letter of credit of $500,000 applied against the maximum borrowing availability, at an interest rate of 5.50%, thus amounts available to draw totaled $2,500,000. No interest was paid during the six months ended June 30, 2018 or during 2017 on the revolving credit facility. The revolving credit facility is collateralized by substantially all the Company’s assets, which includes rights to future commissions.

The note payable on the consolidated balance sheets includes a $50,000,000 term note payable in quarterly installments of $125,000 with a balloon payment of $47,250,000 on October 27, 2022. Interest is calculated at LIBOR plus 5.50% (7.59% and 6.45% at June 30, 2018 and December 31, 2017), and the note is collateralized by substantially all of the Company’s assets, which includes rights to future commissions. The balance of the note payable was $49,375,000, of which $500,000 was current, and $49,625,000, of which $500,000 was current, at June 30, 2018 and December 31, 2017, respectively.

Included as a reduction to the note payable are capitalized loan origination fees, the unamortized balance of which was $870,967 and $969,567 as of June 30, 2018 and December 31, 2017, respectively. The amortization of these loan origination fees is included in interest expense and totaled $49,300 and $98,600 for the three and six months ended June 30, 2018, respectively, and $33,000 and $66,000 for the three and six months ended June 30, 2017, respectively.

Maturities of note payable for the next five years are as follows:

	Amount
As of June 30, 2018:
2018	$	250,000
2019	500,000
2020	500,000
2021	500,000
2022	47,625,000
	$	49,375,000

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. 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, 2018 and December 31, 2017, GSHD and GF, respectively, were in compliance with these covenants. Because of both instruments’ origination date and variable interest rate, the note

13

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

payable balance at June 30, 2018 and December 31, 2017, 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.

The Company refinanced its credit facilities on August 3, 2018. See "Note 13: Subsequent Events" under Part I, Item 1 of this Form 10-Q.

6. Commitments and Contingencies

The Company leases its facilities under non-cancelable operating leases, expiring in various years through 2029. In addition to monthly lease payments, the lease agreements require the Company to reimburse the lessors for its portion of operating costs each year.

The following is a schedule of future minimum lease payments as of June 30, 2018:

	Amount
2018	$	679,704
2019	1,317,199
2020	1,780,670
2021	1,854,344
2022	1,699,678
2023-2029	8,356,742
	$	15,688,337

7. Income Taxes

As a result of the Reorganization Transactions and the Offering, GSHD became 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 expense

A reconciliation of income tax expense computed at the U.S. federal statutory income tax rate to the income tax expense recognized is as follows:

14

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

	Three months ended						Six months ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017
(Loss) Income before taxes	$	(23,721,273	)	$	5,824,456		$	(19,953,465	)	$	8,091,905
Less: income prior to the Reorganization Transactions	(621,127		)	(5,824,456		)	(4,388,937		)	(8,091,905		)
Less: income attributable to non-controlling interests	15,262,112			—			15,262,114			—
(Loss) Income attributable to Goosehead Insurance, Inc. before taxes	$	(9,080,288	)	$	—		$	(9,080,288	)	$	—
Income taxes at U.S. federal statutory rate	(1,908,381		)	—			(1,908,381		)	—
State and local income taxes, net of federal benefit	11,608			—			11,608			—
Permanent differences	2,050,866			—			2,050,866			—
Income tax expense	$	154,093		$	—		$	154,093		$	—

Deferred tax assets and liabilities

The components of deferred tax assets and liabilities are as follows:

	June 30, 2018			December 31, 2017
Investment in partnership	(90,532		)	—
Net deferred tax asset (liability)	$	(90,532	)	$	—

Uncertain tax positions

GSHD has determined there are no material uncertain tax positions as of June 30, 2018.

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 us 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 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 month period ended June 30, 2018, no distributions or redemptions were made that triggered an increase in GSHD's tax basis.

8. Other Income

On June 1, 2017, GF executed a buyout agreement with a franchisee per the terms of a franchise agreement executed in 2014. As part of the buyout, the departing franchisee purchased Goosehead’s economic interests in future royalty fees. Goosehead recognized a $3.5 million gain on the transaction in June 2017 which is included in Other income on the consolidated statement of income.

15

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

9. Stockholders' Equity

Class A Common Stock

GSHD has a total of 13,533,267 shares of its Class A common stock outstanding at June 30, 2018. 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 22,746,667 shares of its Class B common stock outstanding at June 30, 2018. 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.

Non-Controlling Interests

Following the Offering, GSHD became 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.

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.

The following table summarizes the ownership interest in GF as of June 30, 2018.

	June 30, 2018
	LLC Units	Ownership %
Number of LLC Units held by Goosehead Insurance, Inc.	13,533,267	37.3%
Number of LLC Units held by non-controlling interest holders	22,746,667	62.7%
Number of LLC Units outstanding	36,279,934	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, 2018 was 62.7%. All net income prior to the Offering is attributed to non-controlling interest holders.

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, 2018, divided by the basic weighted average number of

16

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Class A common stock as of June 30, 2018. Diluted earnings per share 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. We have not included the effects of conversion of Class B shares to Class A shares in the diluted EPS calculation using the "if-converted" method, because doing so has no impact on diluted EPS.

	Three Months Ended			Six Months Ended
	June 30, 2018			June 30, 2018
Numerator:
Net loss before taxes	$	(23,721,273	)	$	(19,953,465	)
Less: net loss attributable to non-controlling interests	(14,640,985		)	(10,873,177		)
Loss before taxes attributable to Goosehead Insurance, Inc.	(9,080,288		)	(9,080,288		)
Less: income tax expense	154,093			154,093
Net loss attributable to Goosehead Insurance, Inc.(1)	$	(9,234,381	)	$	(9,234,381	)
Denominator:
Weighted average shares of Class A common stock outstanding	13,533,267			13,533,267
Effect of dilutive securities:
Stock options(2)	—			—
Weighted average shares of Class A common stock outstanding - diluted	13,533,267			13,533,267
Earnings per share of Class A common stock - basic	$	(0.68	)	$	(0.68	)
Earnings per share of Class A common stock - diluted	$	(0.68	)	$	(0.68	)

(1) Net income attributable to Goosehead Insurance, Inc. excludes all net income prior to the Offering.

(2) 1,649,866 stock options were excluded from the computation of diluted earnings per share of Class A common stock because the effect would have been anti-dilutive, as we recorded a net loss for the three and six months ended June 30, 2018.

The following table sets forth the calculation of pro forma basic EPS based on pro forma net income attributable to GSHD for the three and six months ended June 30, 2017, divided by the pro forma basic weighted average number of Class A common stock as of June 30, 2017. Pro forma diluted earnings per share of Class A common stock is computed by dividing pro forma net income attributable to GSHD by the pro forma weighted average number of shares of Class A common stock outstanding adjusted to give effect to pro forma potentially dilutive securities.

17

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

	Three Months Ended		Six Months Ended
	June 30, 2017		June 30, 2017
Numerator:
Net income	$	5,824,456	$	8,091,905
Less: pro forma net income attributable to non-controlling interests	3,651,797		5,073,434
Pro forma income before taxes attributable to Goosehead Insurance, Inc.	2,172,659		3,018,471
Less: pro forma income tax expense	519,266		721,415
Pro forma net income attributable to Goosehead Insurance, Inc.	$	1,653,393	$	2,297,056
Denominator:
Pro forma weighted average shares of Class A common stock outstanding - basic	13,533,267		13,533,267
Pro forma effect of dilutive securities:
Pro forma stock options	796,026		796,026
Pro forma weighted average shares of Class A common stock outstanding - diluted	14,329,293		14,329,293
Pro forma earnings per share of Class A common stock - basic	$	0.12	$	0.17
Pro forma earnings per share of Class A common stock - diluted	$	0.12	$	0.16

10. Equity-Based Compensation

A summary of equity-based compensation expense during the three and six months ended June 30, 2018 and June 30, 2017 is as follows:

	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
Class B unit compensation	$	26,134,272	$	184,613	$	26,134,272	$	184,613
Stock options	259,727		—		259,727		—
Equity-based compensation expense	$	26,393,999	$	184,613	$	26,393,999	$	184,613

Class B unit compensation:

Prior to the Offering, certain Pre-IPO LLC Members held non-vesting and non-voting Class B units. In accordance with accounting guidance, any dividends paid to Class B unit holders are recognized as compensation expense when declared, as the Class B non-vesting units are considered to be a non-substantive class of equity. Dividends paid to Class B unit holders prior to the Offering, included in employee compensation and benefits, totaled $122 thousand for the three and six months ended June 30, 2018 and $185 thousand for the three and six ended June 30, 2017.

In connection with the Reorganization Transactions, immediately prior to the Offering, historical Class B interests in TWIHG and GM vested by converting to the Texas Wasatch Note and Goosehead Management Note, respectively, paid with a combination of proceeds from the Offering and shares of Class A common stock. This conversion changed the nature of the Class B interests from a profit sharing arrangement to a substantive class of equity and were expensed under the guidance of ASC 718. At the Offering price of $10.00 per share, GSHD incurred total compensation expense of $6.2 million in connection with the conversion. Class B interests in GF were also deemed vested by converting, along with all pre-offering Class A equity, on a one-to-one basis with the number of LLC units previously owned, to both LLC Units and shares of Class B common stock. This conversion changed the nature of the Class B interests from a profit sharing arrangement to a substantive class of equity and were expensed under the guidance of ASC 718. At the initial public offering price of $10.00 per share, the Company issued a total of 1,978,058 LLC Units and shares of Class B common stock and incurred total compensation expense of $19.8 million as part of the conversion.

18

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

Stock options:

In connection with the IPO, GSHD granted 1,649,866 options to directors and certain employees. The stock options were granted with a strike price of $10.00 per share (the initial public offering price). The 364,866 director stock options vest quarterly over a three year period, and the 1,285,000 employee stock options vest annually from 2020 to 2022. The grant date fair value was determined using the Black-Scholes valuation model using the following assumptions:

Expected volatility	25	%
Expected dividend yield	—	%
Expected term (in years)	5.95
Risk-free interest rate	2.59	%

GSHD will recognize the total compensation expense of $5.2 million related to such option grants on a straight-line basis over the requisite service period of the award recipient (three years for directors and four years for certain employees).

In April 2018, GSHD adopted the Omnibus Incentive Plan, which reserved 1,500,000 shares of Class A Common Stock for delivery to directors, officers, and managing directors in connection with future awards granted under the plan. GSHD also adopted an Employee Stock Purchase Plan, which reserved 20,000 shares of Class A Common Stock for delivery to employees. There were no shares outstanding on either of these plans at June 30, 2018.

11. Segment Information

The Company has two reportable segments: Corporate Channel and Franchise Channel. The Corporate Channel consists of company-owned and financed operations with employees who are hired, trained, and managed by Goosehead. The Franchise Channel network consists of franchisee operations that are owned and managed by individual business owners. These business owners have a contractual relationship with Goosehead to use the Company's processes, systems, and back-office support team to sell insurance and manage their business. In exchange, Goosehead is entitled to an initial franchise fee and ongoing royalty fees. Allocations of contingent commissions and certain operating expenses are based on reasonable assumptions and estimates primarily using revenue, headcount and other information. The Company’s chief operating decision maker uses earnings before interest, income taxes, depreciation and amortization, adjusted to exclude equity-based compensation and other income (“Adjusted EBITDA”) as a performance measure to manage resources and make decisions about the business. Summarized financial information concerning the Company’s reportable segments is shown in the following table. There are no intersegment sales, only interest income and interest expense related to an intersegment line of credit, all of which eliminate in consolidation. The “Other” column includes any income and expenses not allocated to reportable segments and corporate-related items, including equity-based compensation, certain legal expenses and interest related to the note payable.

19

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

	Corporate Channel			Franchise Channel			Other			Total
Three months ended June 30, 2018:
Revenues:
Commissions and fees	$	8,525,189		$	190,827		$	—		$	8,716,016
Franchise revenues	—			5,969,392			—			5,969,392
Interest income	—			102,304			—			102,304
Total	8,525,189			6,262,523			—			14,787,712
Operating expenses:
Employee compensation and benefits, excluding equity-based compensation	4,608,735			2,851,885			—			7,460,620
General and administrative expenses	1,793,893			1,112,789			119,013			3,025,695
Bad debts	217,487			88,478			—			305,965
Total	6,620,115			4,053,152			119,013			10,792,280
Adjusted EBITDA	1,905,074			2,209,371			(119,013		)	3,995,432
Equity-based compensation	—			—			(26,393,999		)	(26,393,999		)
Interest expense	—			—			(972,158		)	(972,158		)
Depreciation and amortization	(238,086		)	(112,462		)	—			(350,548		)
Income tax expense	—			—			(154,093		)	(154,093		)
Net (loss) income	$	1,666,988		$	2,096,909		$	(27,639,263	)	$	(23,875,366	)
At June 30, 2018:
Total Assets	$	12,823,537		$	6,146,738		$	13,044,846		$	32,015,121

	Corporate Channel			Franchise Channel			Other			Total
Three months ended June 30, 2017:
Revenues:
Commissions and fees	$	6,517,864		$	336,368		$	—		$	6,854,232
Franchise revenues	—			3,969,912			—			3,969,912
Interest income	—			54,486			—			54,486
Total	6,517,864			4,360,766			—			10,878,630
Operating expenses:
Employee compensation and benefits, excluding equity-based compensation	3,266,789			2,124,013			—			5,390,802
General and administrative expenses	1,169,317			831,577			10,374			2,011,268
Bad debts	179,844			143,364			—			323,208
Total	4,615,950			3,098,954			10,374			7,725,278
Adjusted EBITDA	1,901,914			1,261,812			(10,374		)	3,153,352
Other income (expense)	—			3,540,932			—			3,540,932
Equity-based compensation	—			—			(184,613		)	(184,613		)
Interest expense	—			—			(527,038		)	(527,038		)
Depreciation and amortization	(131,104		)	(27,073		)	—			(158,177		)
Income tax expense	—			—			—			—
Net (loss) income	$	1,770,810		$	4,775,671		$	(722,025	)	$	5,824,456
At June 30, 2017:
Total Assets	$	3,801,297		$	3,384,357		$	7,123,896		$	14,309,550

20

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

	Corporate Channel			Franchise Channel			Other			Total
Six months ended June 30, 2018:
Revenues:
Commissions and fees	$	16,380,854		$	1,930,738		$	—		$	18,311,592
Franchise revenues	—			10,879,920			—			10,879,920
Interest income	—			185,081			—			185,081
Total	16,380,854			12,995,739			—			29,376,593
Operating expenses:
Employee compensation and benefits, excluding equity-based compensation	8,653,323			5,642,722			—			14,296,045
General and administrative expenses	3,421,769			1,857,931			119,617			5,399,317
Bad debts	423,155			162,499			—			585,654
Total	12,498,247			7,663,152			119,617			20,281,016
Adjusted EBITDA	3,882,607			5,332,587			(119,617		)	9,095,577
Equity-based compensation	—			—			(26,393,999		)	(26,393,999		)
Interest expense	—			—			(1,967,560		)	(1,967,560		)
Depreciation and amortization	(474,268		)	(213,215		)	—			(687,483		)
Income tax expense	—			—			(154,093		)	(154,093		)
Net (loss) income	$	3,408,339		$	5,119,372		$	(28,635,269	)	$	(20,107,558	)
At June 30, 2018:
Total Assets	$	12,823,537		$	6,146,738		$	13,044,846		$	32,015,121

	Corporate Channel			Franchise Channel			Other			Total
Six months ended June 30, 2017:
Revenues:
Commissions and fees	$	12,066,969		$	1,149,109		$	—		$	13,216,078
Franchise revenues	—			7,451,028			—			7,451,028
Interest income	—			102,473			—			102,473
Total	12,066,969			8,702,610			—			20,769,579
Operating expenses:
Employee compensation and benefits, excluding equity-based compensation	6,117,480			4,140,969			—			10,258,449
General and administrative expenses	2,293,889			1,525,720			25,258			3,844,867
Bad debts	291,233			283,857			—			575,090
Total	8,702,602			5,950,546			25,258			14,678,406
Adjusted EBITDA	3,364,367			2,752,064			(25,258		)	6,091,173
Other income (expense)	—			3,540,932			—			3,540,932
Equity-based compensation	—			—			(184,613		)	(184,613		)
Interest expense	—			—			(1,059,753		)	(1,059,753		)
Depreciation and amortization	(245,341		)	(50,493		)	—			(295,834		)
Income tax expense	—			—			—			—
Net (loss) income	$	3,119,026		$	6,242,503		$	(1,269,624	)	$	8,091,905
At June 30, 2017:
Total Assets	$	3,801,297		$	3,384,357		$	7,123,896		$	14,309,550

21

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

12. 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 amount of any loss from the ultimate outcomes is not probable or reasonably estimable. It is the opinion of management that the resolution of outstanding claims will not have a material adverse effect on the financial position or results of operations of the Company.

13. Subsequent Events

On August 3, 2018, the Company refinanced its $3.0 million revolving credit facility and $50.0 million term note payable to a $13.0 million revolving credit facility and $40.0 million term note payable in order to obtain a more favorable interest rate on the outstanding debt. The Company has the right, subject to approval by the administrative agent and each issuing bank, to increase the commitments under the credit facilities an additional $50.0 million.

The $13.0 million revolving credit facility accrues interest on amounts drawn at an initial interest rate of LIBOR plus 2.50%, then at an interest rate determined by the Company's leverage ratio for the preceding period. At August 3, 2018, the Company had $10.0 million drawn against the revolver. At August 3, 2018, the Company had a letter of credit of $500,000 applied against the maximum borrowing availability, thus amounts available to draw totaled $2,500,000. The revolving credit facility is collateralized by substantially all the Company’s assets, which includes rights to future commissions.

The $40.0 million term note is payable in quarterly installments of $500,000 the first twelve months, $750,000 the next twelve months, and $1,250,000 the last twelve months, with a balloon payment on August 3, 2021, and the note is collateralized by substantially all of the Company’s assets, which includes rights to future commissions. Interest is calculated initially at LIBOR plus 2.50%, then at an interest rate based on the Company's leverage ratio for the preceding period.

The interest rate for each leverage ratio tier are as follows:

Leverage Ratio	Interest Rate
< 1.50x	LIBOR + 175.0 bps
> 1.50x	LIBOR + 200.0 bps
> 2.50x	LIBOR + 225.0 bps
> 3.50x	LIBOR + 250.0 bps

Maturities of note payable for the next four years are as follows:

	Amount
As of August 3, 2018:
2018	$	1,000,000
2019	2,500,000
2020	4,000,000
2021	32,500,000
	$	40,000,000

The loan origination fees will be reflected as a reduction to the note balance and will be amortized through interest expense over three years (the term of the note payable). The amortization of these loan origination fees is included in interest expense. As part of the refinancing, $871 thousand of prior capitalized loan origination fees will be recognized as interest expense in the third quarter of 2018.

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. 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 August 3, 2018, the Company was in compliance with these covenants.

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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 the Final Prospectus.

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.

The following discussion contains references to the three and six months ended June 30, 2018 and June 30, 2017, which represents the consolidated and combined financial results of our predecessor Goosehead Financial, LLC and its subsidiaries Texas Wasatch Insurance Services, LP, Goosehead Insurance Agency, LLC and its affiliates Goosehead Management, LLC and Texas Wasatch Insurance Holdings Group, LLC.

Financial Highlights for the Second Quarter of 2018:

• Total revenue increased 36% from the second quarter of 2017 to $14.8 million

• Commissions and Agency fee revenues increased 27% from the second quarter of 2017 to $8.7 million

• Franchise revenues increased 50% from the second quarter of 2017 to $6.0 million

• Income from operations decreased 909% from the second quarter of 2017 to a loss of $22.7 million, or 154% of total revenues

• Net income decreased by 510% from the second quarter of 2017 to a loss of $23.9 million

• Adjusted EBITDA*, a non-GAAP measure, increased 27% from the second quarter of 2017 to $4.0 million, or 27% of total revenues

• Corporate Channel Adjusted EBITDA increased 0% from the second quarter of 2017 to $1.9 million, or 22% of Corporate Channel revenues

• Franchise Channel Adjusted EBITDA increased 75% from the second quarter of 2017 to $2.2 million, or 35% of Franchise channel revenues

• Policies in Force increased 49% from June 30, 2017 to 282,369 at June 30, 2018

• Corporate sales headcount increased 74% from June 30, 2017 to 148 at June 30, 2018

◦ As of June 30, 2018, 93 of these Corporate sales agents had less than one year of tenure and 55 had greater than one year of tenure

• Operating franchises increased 58% from June 30, 2017 to 385 at June 30, 2018

◦ In Texas as of June 30, 2018, 45 operating franchisees had less than one year of tenure and 159 operating franchisees had greater than one year of tenure.

◦ Outside of Texas as of June 30, 2018, 130 operating franchisees had less than one year of tenure and 51 had greater than one year of tenure.

*Adjusted EBITDA is a non-GAAP measure. Reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure presented in accordance with GAAP, is set forth in the "Key performance indicators" section of Management’s discussion and analysis of financial condition and results of operations of this Form 10-Q.

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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, 2018 and June 30, 2017. This information is derived from our accompanying consolidated financial statements prepared in accordance with GAAP.

Three and six months ended June 30, 2018 compared to three and six months ended June 30, 2017

The following table summarizes our results of operations for the three months ended June 30, 2018 and 2017:

	Three Months Ended June 30
	2018					2017
Revenues:
Commissions and agency fees	$	8,716,016		59	%	$	6,854,232		63	%
Franchise revenues	5,969,392			40	%	3,969,912			36	%
Interest income	102,304			1	%	54,486			1	%
Total revenues	14,787,712			100	%	10,878,630			100	%
Operating Expenses:
Employee compensation and benefits (including Class B unit compensation of $26,134,271 for the three and six months ended June 30, 2018 and $184,613 for the three and six months ended 2017)	33,854,619			90	%	5,575,415			69	%
General and administrative expenses	3,025,695			8	%	2,011,268			25	%
Bad debts	305,965			1	%	323,208			4	%
Depreciation and amortization	350,548			1	%	158,177			2	%
Total operating expenses	37,536,827			100	%	8,068,068			100	%
(Loss) Income from operations	(22,749,115		)			2,810,562
Other Income (Expense):
Other Income	—					3,540,932
Interest expense	(972,158		)			(527,038		)
(Loss) Income before taxes	(23,721,273		)			5,824,456
Income tax expense	154,093					—
Net (Loss) Income	(23,875,366		)			5,824,456
Less: net (loss) income attributable to non-controlling interests	(14,640,985		)			5,824,456
Net (Loss) Income attributable to Goosehead Insurance, Inc.	$	(9,234,381	)			$	—

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The following table summarizes our results of operations for the six months ended June 30, 2018 and 2017:

	Six Months Ended June 30
	2018					2017
Revenues:
Commissions and agency fees	$	18,311,592		62	%	$	13,216,078		64	%
Franchise revenues	10,879,920			37	%	7,451,028			36	%
Interest income	185,081			1	%	102,473			—	%
Total revenues	29,376,593			100	%	20,769,579			100	%
Operating Expenses:
Employee compensation and benefits (including Class B unit compensation of $26,134,271 for the three and six months ended June 30, 2018 and $184,613 for the three and six months ended 2017)	40,690,044			86	%	10,443,062			69	%
General and administrative expenses	5,399,317			11	%	3,844,867			25	%
Bad debts	585,654			1	%	575,090			4	%
Depreciation and amortization	687,483			1	%	295,834			2	%
Total operating expenses	47,362,498			100	%	15,158,853			100	%
(Loss) Income from operations	(17,985,905		)			5,610,726
Other Income (Expense):
Other Income	—					3,540,932
Interest expense	(1,967,560		)			(1,059,753		)
(Loss) Income before taxes	(19,953,465		)			8,091,905
Income tax expense	154,093					—
Net (Loss) Income	(20,107,558		)			8,091,905
Less: net (loss) income attributable to non-controlling interests	(10,873,177		)			8,091,905
Net (Loss) Income attributable to Goosehead Insurance, Inc.	$	(9,234,381	)			$	—

Revenues

For the three months ended June 30, 2018, revenue increased by 36% to $14.8 million from $10.9 million for the three months ended June 30, 2017. For the six months ended June 30, 2018, revenue increased by 41% to $29.4 million from $20.8 million for the six months ended June 30, 2017.

Commissions and agency fees

	Three Months Ended June 30						Six months ended June 30,
	2018		2017		% Change		2018		2017		% Change
New Business Revenue (Corporate)	$	2,310,878	$	1,360,378	70	%	$	4,109,731	$	2,365,193	74	%
Agency Fees	1,353,382		870,668		55	%	2,452,518		1,599,663		53	%
Renewal Revenue (Corporate)	4,827,330		4,105,697		18	%	8,730,521		7,258,729		20	%
Contingent Commissions (Corporate)	33,599		181,121		(81	)%	1,088,084		843,384		29	%
Contingent Commissions (Franchise)	190,827		336,368		(43	)%	1,930,738		1,149,109		68	%
Commissions and agency fees	$	8,716,016	$	6,854,232	27	%	$	18,311,592	$	13,216,078	39	%

New Business Revenue (Corporate) increased by $1.0 million, or 70%, to $2.3 million for the three months ended June 30, 2018 from $1.4 million for the three months ended June 30, 2017, and increased by $1.7 million, or 74%, to $4.1 million for the six months ended June 30, 2018 from $2.4 million for the six months ended June 30, 2017. Revenue from Agency Fees increased by $0.5 million, or 55%, to $1.4 million for the three months ended June 30, 2018 from $0.9 million for the three months ended June 30, 2017, and increased by $0.9 million, or 53%, to $2.5 million for the six months ended June 30, 2018 from $1.6 million for the six months ended June 30, 2017. These increases were primarily attributable to an increase in total sales agent head count to 148 at June 30, 2018, from 85 at June 30, 2017, a 74% increase.

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Renewal Revenue (Corporate) increased by $722 thousand or 18%, to $4.8 million for the three months ended June 30, 2018 from $4.1 million for the three months ended June 30, 2017, and increased by $1.5 million or 20%, to $8.7 million for the six months ended June 30, 2018 from $7.3 million for the six months ended June 30, 2017. These increases are primarily attributable to an increase in the number of policies in the renewal term from June 30, 2017 to 2018.

Revenue from Contingent Commissions in the Corporate Channel decreased by $148 thousand, or 81%, to $34 thousand for the three months ended June 30, 2018 from $181 thousand for the three months ended June 30, 2017, and increased by $245 thousand, or 29%, to $1.1 million for the six months ended June 30, 2018 from $843 thousand for the six months ended June 30, 2017. The decrease between the three month periods is due to the timing of the receipt of Contingent Commissions, as the Company typically receives the majority of contingent commissions during the first quarter of each year. The increase between the six month periods is primarily attributable to the increase in Total Written Premium from June 30, 2017 to 2018.

Revenue from Contingent Commissions in the Franchise Channel decreased $146 thousand, or 43% to $191 thousand for the three months ended June 30, 2018 from $336 thousand for the three months ended June 30, 2017, and increased $782 thousand, or 68% to $1.9 million for the six months ended June 30, 2018 from $1.1 million for the six months ended June 30, 2017. The decrease between the three month periods is due to the timing of the receipt of Contingent Commissions, as the Company typically receives the majority of contingent commissions during the first quarter of each year. The increase between the six month periods is primarily attributable to the increase in Total Written Premium from June 30, 2017 to 2018.

Franchise revenues