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 March 31, 2021

OR

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

For the transition period from _______ to ______

Commission file number: 001-38466

GOOSEHEAD INSURANCE, INC.

(Exact name of registrant as specified in its charter)

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

(469) 480-3669

(Registrant's telephone number, including area code)

Not applicable

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

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

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

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

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

þ Yes o No

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

Large Accelerated Filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

As of April 29, 2021, there were 18,448,694 shares of Class A common stock outstanding and 18,313,389 shares of Class B common stock outstanding.

Table of contents

		Page
Part I
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37
Part II
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
SIGNATURES		39

2

Commonly used defined terms

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

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

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

•Annual Report on Form 10-K: The Company's annual report on Form 10-K for the year ended December 31, 2020.

•ASC 606 ("Topic 606"): ASU 2014-09 - Revenue from Contracts with Customers.

•ASC 842 ("Topic 842"): ASU 2016-02 - Leases.

•Carrier: An insurance company.

•Carrier Appointment: A contractual relationship with a Carrier.

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

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

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

•Corporate Channel: The Corporate Channel distributes insurance through a network of company-owned and financed operations with employees that are hired, trained and managed by Goosehead.

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

•Franchise Agreement: Agreements governing our relationships with Franchisees.

•Franchise Channel: The Franchise Channel network consists of Franchisee operations that are owned and managed by Franchisees. These business owners have a contractual relationship with Goosehead to use our processes, training, implementation, systems and back-office support team to place insurance. In exchange, Goosehead is entitled to an Initial Franchise Fee and Royalty Fees.

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

•GF: Goosehead Financial, LLC.

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

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

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

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

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

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

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

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

3

•Renewal Revenue: Renewal Commissions and Renewal Royalty Fees.

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

•Segment: One of the two Goosehead sales distribution channels, the Corporate Channel or the Franchise Channel.

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

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

Special note regarding forward-looking statements

We have made statements in this Form 10-Q that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include the potential impact of COVID-19 on the Company's business, projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Item 1A. Risk factors” in the Annual Report on Form 10-K.

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

4

PART I

Item 1. Condensed Consolidated Financial Statements (Unaudited)

		Page
Condensed Consolidated Statements of Operations		6
Condensed Consolidated Balance Sheets		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	10
Note 3	Revenues	12
Note 4	Franchise fees receivable	15
Note 5	Allowance for uncollectible agency fees	15
Note 6	Property and equipment	16
Note 7	Debt	16
Note 8	Income taxes	17
Note 9	Stockholder's equity	18
Note 10	Non-controlling interest	19
Note 11	Equity-based compensation	20
Note 12	Segment information	21
Note 13	Litigation	23

5

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended March 31,
	2021		2020
Revenues:
Commissions and agency fees	$	17,534	$	11,811
Franchise revenues	13,433		8,445
Interest income	261		169
Total revenues	31,228		20,425
Operating Expenses:
Employee compensation and benefits	21,309		13,503
General and administrative expenses	9,274		5,872
Bad debts	447		309
Depreciation and amortization	1,000		540
Total operating expenses	32,030		20,224
(Loss) income from operations	(802)		201
Other Income (Expense):
Other income	20		66
Interest expense	(601)		(604)
Loss before taxes	(1,383)		(337)
Tax expense (benefit)	(294)		(41)
Net loss	(1,089)		(296)
Less: net loss attributable to non-controlling interests	(693)		(140)
Net loss attributable to Goosehead Insurance, Inc.	$	(396)	$	(156)
Earnings per share:
Basic	$	(0.02)	$	(0.01)
Diluted	$	(0.02)	$	(0.01)
Weighted average shares of Class A common stock outstanding
Basic	18,375		15,564
Diluted	18,375		15,564

See Notes to the Condensed Consolidated Financial Statements

6

Goosehead Insurance, Inc.

Condensed Consolidated Balance Sheets

(Unaudited) 

(In thousands, except per share amounts)

	March 31,		December 31,
	2021		2020
Assets
Current Assets:
Cash and cash equivalents	$	30,797	$	24,913
Restricted cash	1,158		1,323
Commissions and agency fees receivable, net	4,895		18,604
Receivable from franchisees, net	3,379		2,100
Prepaid expenses	7,575		3,705
Total current assets	47,804		50,645
Receivable from franchisees, net of current portion	20,423		18,179
Property and equipment, net of accumulated depreciation	17,671		16,650
Right-of-use asset	23,033		22,513
Intangible assets, net of accumulated amortization	639		549
Deferred income taxes, net	77,753		73,363
Other assets	5,283		3,938
Total assets	$	192,606	$	185,837
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	7,179	$	8,101
Premiums payable	1,158		1,323
Lease liability	3,358		3,203
Contract liabilities	4,744		4,233
Note payable	4,000		3,500
Total current liabilities	20,439		20,360
Lease liability, net of current portion	33,310		32,933
Note payable, net of current portion	78,474		79,408
Contract liabilities, net of current portion	33,010		29,968
Liabilities under tax receivable agreement, net of current portion	63,678		61,572
Total liabilities	228,911		224,241
Class A common stock, $0.01 par value per share - 300,000 shares authorized, 18,448 shares issued and outstanding as of March 31, 2021, 18,304 shares issued and outstanding as of December 31, 2020	184		183
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 18,314 issued and outstanding as of March 31, 2021, 18,447 shares issued and outstanding as of December 31, 2020	183		184
Additional paid in capital	32,292		29,371
Accumulated deficit	(35,008)		(34,614)
Total stockholders' equity	(2,349)		(4,876)
Non-controlling interests	(33,956)		(33,528)
Total equity	(36,305)		(38,404)
Total liabilities and equity	$	192,606	$	185,837

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 stock	Issued shares of Class B common stock	Class A Common stock	Class B Common Stock	Additional paid in capital	Accumulated deficit	Total stockholders' equity	Non-controlling interest	Total equity
Balance, January 1, 2021	18,304	18,447	183	184	29,371	(34,614)	(4,876)	(33,528)	(38,404)
Net loss	—	—	—	—	—	(396)	(396)	(693)	(1,089)
Exercise of stock options	9		—		226		226		226
Equity-based compensation	—	—	—	—	1,941	—	1,941	—	1,941
Activity under employee stock purchase plan	2	—	—	—	205	—	205	—	205
Redemption of LLC Units	133	(133)	1	(1)	(249)	—	(249)	249	—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—	—	798	—	798	18	816
Reallocation of Non-controlling interest						2	2	(2)	—
Balance March 31, 2021	18,448	18,314	184	183	32,292	(35,008)	(2,349)	(33,956)	(36,305)

	Issued shares of Class A common stock	Issued shares of Class B common stock	Class A Common stock	Class B Common Stock	Additional paid in capital	Accumulated deficit	Total stockholders' equity	Non-controlling interest	Total equity
Balance, January 1, 2020	15,238	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 plan	3	—	—	—	116	—	116	—	116
Redemption of LLC Units	791	(791)	8	(8)	(869)	—	(869)	869	—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—	—	1,704	—	1,704	—	1,704
Balance March 31, 2020	16,032	20,264	160	202	15,891	(23,967)	(7,714)	(22,274)	(29,988)

8

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net loss	$	(1,089)	$	(296)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	1,066		747
Bad debt expense	447		309
Equity-based compensation	1,941		498
Impacts of Tax Receivable Agreement	3,420		9,659
Deferred income taxes	(3,574)		(9,659)
Noncash lease expense	13		—
Changes in operating assets and liabilities:
Receivable from franchisees	(3,694)		(809)
Commissions and agency fees receivable	13,424		2,001
Prepaid expenses	(3,870)		(3,768)
Other assets	(1,337)		(461)
Accounts payable and accrued expenses	(2,796)		(1,244)
Deferred rent	—		71
Contract liabilities	3,553		1,290
Premiums payable	(165)		196
Payments pursuant to the tax receivable agreement	549		(9)
Net cash provided by (used in) operating activities	7,888		(1,475)
Cash flows from investing activities:
Proceeds from notes receivable	10		9
Purchase of software	(165)		(60)
Purchase of property and equipment	(1,945)		(967)
Net cash used for investing activities	(2,100)		(1,018)
Cash flows from financing activities:
Debt issuance costs	—		(530)
Repayment of note payable	(500)		(26,321)
Proceeds from notes payable	—		26,921
Proceeds from the issuance of Class A common stock	431		116
Member distributions and dividends	—		(1,003)
Net cash used for financing activities	(69)		(817)
Net increase (decrease) in cash and restricted cash	5,719		(3,310)
Cash and cash equivalents, and restricted cash, beginning of period	26,236		15,260
Cash and cash equivalents, and restricted cash, end of period	$	31,955	$	11,950
Supplemental disclosures of cash flow data:
Cash paid during the year for interest	535		326
Cash paid for income taxes	—		—

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 9,810 thousand shares of Class A common stock at a price of $10.00 per share, which included 1,280 thousand shares issued pursuant to the underwriter's over-allotment option. Following completion of the Offering, GSHD owned 37.3% of Goosehead Financial, LLC (“GF”) and the Pre-IPO LLC Members owned 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 condensed consolidated financial statements.

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

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

The Company had ten and seven corporate-owned locations in operation at March 31, 2021 and 2020, respectively. Franchisees are provided access to insurance Carrier Appointments, product training, technology infrastructure, client service centers and back office services. During the three months ended March 31, 2021 and 2020, the Company onboarded 117 and 84 franchise locations, respectively, and had 987 and 679 operating franchise locations as of March 31, 2021 and 2020, respectively. No franchises were purchased by the Company during the three months ended March 31, 2021 or 2020.

All intercompany accounts and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all of the annual disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). However, in the opinion of management, these statements include all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of the condensed consolidated financial positions at March 31, 2021, the condensed consolidated results of operations, stockholders' equity and statements of cash flows for the three months ended March 31, 2021 and 2020. The interim period condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements that are included in the Annual Report on Form 10-K.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results that can be expected for the entire year. The Company experiences seasonal fluctuations of its revenue due to the timing of contingent commission revenue recognition and trends in housing market activity.

Impact of the Coronavirus (“COVID-19”) Pandemic

The extent to which the COVID-19 pandemic and the related economic impact may affect our financial condition or results of operations is uncertain. The extent of the impact on our operational and financial performance will depend on various factors, including the duration and spread of the outbreak and its impact on home sales and consumer spending. To date, the pandemic has not increased our costs of or access to capital under our term note and revolving credit facility, and we do not believe it is reasonably likely to do so in the future. In addition, we do not believe that the pandemic will affect our ongoing ability to meet the covenants in our debt instruments, including under our term note and revolving credit facility. To date, the pandemic has not impacted the collectability of receivables or adversely affected our ability to generate new business, add new franchises, or retain existing franchises or policies. Due to the nature of our business, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods.

10

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Use of Estimates

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

Income Taxes

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

Restricted Cash

The Company holds premiums received from the insured, but not yet remitted to the insurance Carrier in a fiduciary capacity. Premiums received but not yet remitted included in restricted cash were $1.2 million and $1.1 million as of March 31, 2021 and 2020, respectively.

The following is a reconciliation of our cash and restricted cash balances as presented in the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020 (in thousands):

	March 31,
	2021		2020
Cash and cash equivalents	$	30,797	$	10,831
Restricted cash	1,158		1,119
Cash and cash equivalents, and restricted cash	$	31,955	$	11,950

Recently Issued Accounting Pronouncements

Reference Rate Reform (ASU 2020-04): In March 2020, the Financial Accounting Standards Board issued ASU 2020-04. Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP if certain criteria are met to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued. ASU 2020-04 became effective on March 12, 2020 and may be applied prospectively through December 31, 2022. A substantial portion of our indebtedness bears interest at variable interest rates, primarily based on USD-LIBOR. The adoption of ASU 2020-04 did not have a material impact on our condensed consolidated financial statements. The standard will ease, if warranted, the administrative requirements for accounting for the future effects of the rate reform. We continue to monitor the impact the discontinuance of LIBOR will have on our contracts and other transactions.

Recently adopted accounting pronouncements

Simplifying the Accounting for Income Taxes (ASU 2019-12): In 2019, the Financial Accounting Standards Board issued ASU 2019-12 to simplify the accounting for income taxes. The guidance primarily addresses how to (1) recognize a deferred tax liability after we transition to or from the equity method of accounting, (2) evaluate if a step-up in the tax basis of goodwill is related to a business combination or is a separate transaction, (3) recognize all of the effects of a change in tax law in the period of enactment, including adjusting the estimated annual tax rate, and (4) include the amount of tax based on income in the income tax provision and any incremental amount as a tax not based on income for hybrid tax regimes. We adopted the guidance in the first quarter of 2021. The adoption did not have a material impact on our condensed consolidated financial statements or related disclosures.

11

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

3. Revenue

Commissions and fees

The Company earns new and renewal commissions paid by insurance Carriers and fees paid by its clients for the binding of insurance coverage. The transactions price is set as the estimated commissions to be received over the term of the policy based on an estimate of premiums placed, policy changes and cancellations, net of a constraint. These commissions and fees are earned at a point in time upon the effective date of bound insurance coverage, as no performance obligation exists after coverage is bound.

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

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

Franchise revenues

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

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

Revenue from New and Renewal Royalty Fees is recorded by applying the sales- and usage-based royalties exception. Under the sales- and usage-based exception,the Company estimates the anticipated amount of the royalties to be received over the term of the policy based on an estimate of premiums placed by the franchisee, policy changes, and cancellations, net of a constraint. Revenue from Royalty Fees is recognized over time as the placement of the underlying policies occur.

Contract costs

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

Incremental cost to obtain - The adoption of ASC 340 resulted in the Company deferring certain costs to obtain customer contracts primarily as they relate to commission-based compensation plans in the Franchise Channel, in which the Company pays an incremental amount of compensation on new Franchise Agreements. These incremental costs are deferred and amortized over a 10-year period, which is consistent with the term of the contract.

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

12

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Disaggregation of Revenue

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

Three Months Ended March 31, 2021:	Franchise Channel		Corporate Channel		Total
Type of revenue stream:
Commissions and agency fees
Renewal Commissions	$	—	$	7,757	$	7,757
New Business Commissions	—		4,616		4,616
Agency Fees	—		2,424		2,424
Contingent Commissions	2,116		621		2,737
Franchise revenues
Renewal Royalty Fees	8,746		—		8,746
New Business Royalty Fees	3,157		—		3,157
Initial Franchise Fees	1,432		—		1,432
Other Franchise Revenues	98		—		98
Interest Income	261		—		261
Total Revenues	$	15,810	$	15,418	$	31,228
Timing of revenue recognition:
Transferred at a point in time	$	—	$	14,797	$	14,797
Transferred over time	15,810		621		16,431
Total Revenues	$	15,810	$	15,418	$	31,228

13

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Three Months Ended March 31, 2020:	Franchise Channel		Corporate Channel		Total
Type of revenue stream:
Commissions and agency fees
Renewal Commissions	$	—	$	5,733	$	5,733
New Business Commissions	—		3,333		3,333
Agency Fees	—		1,686		1,686
Contingent Commissions	694		365		1,059
Franchise revenues
Renewal Royalty Fees	5,386		—		5,386
New Business Royalty Fees	2,048		—		2,048
Initial Franchise Fees	978		—		978
Other Franchise Revenues	33		—		33
Interest Income	169		—		169
Total Revenues	$	9,308	$	11,117	$	20,425
Timing of revenue recognition:
Transferred at a point in time	$	—	$	10,752	$	10,752
Transferred over time	9,308		365		9,673
Total Revenues	$	9,308	$	11,117	$	20,425

Contract Balances

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

	March 31, 2021	December 31, 2020		Increase/(decrease)
Cost to obtain franchise contracts(1)	1,587	$	1,412	$	175
Commissions and agency fees receivable, net(2)	4,895	18,604		(13,709)
Receivable from franchisees(2)	23,802	20,279		3,523
Contract liability(3)	37,754	34,201		3,553

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

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

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

Franchise fees received by the Company are recorded as contract liabilities on the Condensed Consolidated Balance Sheets. Contract liabilities are reduced as fees are recognized in revenue over the term of the franchise license. As the term of the franchise license is typically ten years, substantially all of the franchise fee revenue recognized in the period ended March 31, 2021 was included in the contract liabilities balance as of December 31, 2020.

The weighted average remaining amortization period for contract liabilities related to open franchises is 8.4 years.

14

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

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

Contract liability at December 31, 2020	$	34,201
Revenue recognized during the period	(1,432)
New deferrals(1)	4,985
Contract liability at March 31, 2021	37,754

(1) Initial Franchise Fees where the consideration is received from the customer for services which are to be transferred to the Franchisee over the term of the Franchise Agreement

4. Franchise Fees Receivable

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

	March 31, 2021		December 31, 2020
Franchise fees receivable(1)	$	28,467	$	25,757
Less: Unamortized discount(1)	(7,007)		(6,553)
Less: Allowance for uncollectible franchise fees(1)	(160)		(149)
Net franchise fees receivable(1)	$	21,300	$	19,055

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

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

Balance at December 31, 2020	$	149
Charges to bad debts	161
Write offs	(150)
Balance at March 31, 2021	$	160
Balance at December 31, 2019	$	52
Charges to bad debts	80
Write offs	(63)
Balance at March 31, 2020	$	69

5. Allowance for Uncollectible Agency Fees

Activity in the allowance for uncollectible Agency Fees was as follows (in thousands):

15

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Balance at December 31, 2020	$	468
Charges to bad debts	286
Write offs	(307)
Balance at March 31, 2021	$	447
Balance at December 31, 2019	$	178
Charges to bad debts	228
Write offs	(225)
Balance at March 31, 2020	$	181

6. Property and equipment

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

	March 31, 2021		December 31, 2020
Furniture & fixtures	$	5,784	$	4,404
Computer equipment	3,130		2,453
Network equipment	373		352
Phone system	937		937
Leasehold improvements	16,296		16,534
Total	26,520		24,680
Less accumulated depreciation	(8,849)		(8,030)
Property and equipment, net	$	17,671	$	16,650

7. Debt

On March 6, 2020, the Company refinanced its $13.0 million revolving credit facility and $40.0 million term note payable to a $25.0 million revolving credit facility and $80.0 million term note payable to finance general corporate purposes. The Company also 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. As part of the refinancing, $0.2 million of debt issuance costs from previous debt were immediately recognized as interest expense.

The $25.0 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 March 31, 2021 the Company was accruing interest at LIBOR plus 200 basis points. At March 31, 2021, the Company had $5.0 million drawn against the revolver and had a letter of credit of $0.3 million applied against the maximum borrowing availability, payable on March 6, 2023. Thus, amounts available to draw totaled $19.7 million. The revolving credit facility is collateralized by substantially all the Company’s assets, which includes rights to future commissions.

The term note is payable in quarterly installments of $0.5 million the first twelve months, $1.0 million the next twelve months and $2.0 million the last twelve months, with a balloon payment on March 6, 2023. 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. At March 31, 2021 the Company was accruing interest at LIBOR plus 200 basis points. On June 24, 2020 the Company drew down the remaining $37.9 million of the term loan. As of March 31, 2021, the Company had $78.0 million of the term note drawn.

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

16

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

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

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

	Amount
2021	3,000
2022	7,000
2023	68,000
Total	$	78,000

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 March 31, 2021, the Company was in compliance with these covenants.

Because of both instruments’ variable interest rate, the note payable balance at March 31, 2021 and December 31, 2020, 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.

8. 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 (benefit)

17

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Provision for/(benefit from) income taxes for the three months ended March 31, 2021 was $(294) thousand compared to $(41) thousand for the three months ended March 31, 2020. The effective tax rate was 21% for the three months ended March 31, 2021 and 12% for the three months ended March 31, 2020. The increase in the effective tax rate for the period ended March 31, 2021 compared to the period ended March 31, 2020 was primarily due to exercises of employee stock options in the current period resulting in excess tax deductible expenses, and increased the tax benefit during the quarter.

Deferred taxes

Deferred tax assets at March 31, 2021 were $77.8 million compared to $73.4 million at December 31, 2020. The primary contributing factor to the increase in deferred tax assets is additional redemptions of LLC Units of GF for shares of Class A common stock of GSHD during the three months ended March 31, 2021.

Tax Receivable Agreement

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

GSHD entered into a tax receivable agreement 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 months ended March 31, 2021, an aggregate of 133,300 LLC Units, respectively, were redeemed by the Pre-IPO LLC Members for newly issued shares of Class A common stock. In connection with these redemptions, GSHD received 133,300 LLC Units, which resulted in an increase in the tax basis of its investment in GF subject to the provisions of the tax receivable agreement. The Company recognized a liability for the TRA Payments due to the Pre-IPO LLC Members, representing 85% of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the redemptions of LLC Units, after concluding it was probable that such TRA Payments would be paid based on its estimates of future taxable income. As of March 31, 2021, the total amount of TRA Payments due to the Pre-IPO LLC Members under the tax receivable agreement was $66.1 million, of which $2.4 million was current and included in Accounts payables and accrued expenses on the Consolidated Balance Sheet. Future exchanges of LLC Units for Class A common stock will result in additional TRA payments.

Uncertain tax positions

GSHD has determined there are no material uncertain tax positions as of March 31, 2021.

9. Stockholders' Equity

Class A Common Stock

GSHD has a total of 18,448 thousand shares of its Class A common stock outstanding at March 31, 2021. 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 18,314 thousand shares of its Class B common stock outstanding at March 31, 2021. 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.

18

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Earnings Per Share

The following table sets forth the calculation of basic earnings per share ("EPS") based on net loss attributable to GSHD for the three months ended March 31, 2021 and 2020, divided by the basic weighted average number of Class A common stock as of March 31, 2021 and March 31, 2020 (in thousands, except per share amounts). Diluted earnings per share of Class A common stock is computed by dividing net loss attributable to GSHD by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities (in thousands, except per share amounts). The Company has 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 March 31,
	2021		2020
Numerator:
Loss before taxes	$	(1,383)	$	(337)
Less: loss before taxes attributable to non-controlling interests	(693)		(140)
Loss before taxes attributable to GSHD	(690)		(197)
Less: income tax expense (benefit) attributable to GSHD	(294)		(41)
Net income attributable to GSHD	$	(396)	$	(156)
Denominator:
Weighted average shares of Class A common stock outstanding - basic	18,375		15,564
Effect of dilutive securities:
Stock options(1)	—		—
Weighted average shares of Class A common stock outstanding - diluted	18,375		15,564
Earnings (loss) per share of Class A common stock - basic	$	(0.02)	$	(0.01)
Earnings (loss) per share of Class A common stock - diluted	$	(0.02)	$	(0.01)

(1) 1,808 and 1,840 stock options were excluded from the computation of diluted earnings per share of Class A common stock for the three months ended March 31, 2021 and 2020, respectively, because the effect would have been anti-dilutive, as we recorded a net loss for the three months ended March 31, 2021 and 2020.

10. Non-controlling interest

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.

On a quarterly basis, GF makes distributions to the LLC Unit holders on a pro rata basis to facilitate the LLC Unit holder's quarterly tax payments. For the three months ended March 31, 2021, GF made no distributions to LLC Unit holders. For the three months ended March 31, 2020, GF made distributions of $1.7 million, of which $1.0 million were made to Pre-IPO LLC Members. The remaining $0.7 million were made to GSHD and were eliminated in consolidation.

Under the amended and restated Goosehead Financial, LLC Agreement, the Pre-IPO LLC Members have the right, from and after the completion of the Offering (subject to the terms of the amended and restated Goosehead Financial, LLC Agreement), to require GSHD to redeem all or a portion of their LLC Units for, at GSHD's election,

19

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

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

During the three months ended March 31, 2021, an aggregate of 133 thousand LLC Units were redeemed by the non-controlling interest holders. Pursuant to the GF LLC Agreement, GSHD issued 133 thousand shares of Class A common stock in connection with these redemptions and received 133 thousand LLC Interests, increasing GSHD's ownership interest in GF. Simultaneously, and in connection with these redemptions, 133 thousand shares of Class B common stock were surrendered and cancelled.

The following table summarizes the ownership interest in GF as of March 31, 2021 (in thousands):

	March 31, 2021
	LLC Units	Ownership %
Number of LLC Units held by GSHD	18,448	50.2%
Number of LLC Units held by non-controlling interest holders	18,314	49.8%
Number of LLC Units outstanding	36,762	100.0%

The weighted average ownership percentages for the applicable reporting periods are used to attribute net loss to GSHD and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentage for the three months ended March 31, 2021 was 50.0%.

The following table summarizes the effects of changes in ownership in GF on the equity of GSHD for the three months ended March 31, 2021 and 2020 as follows (in thousands):

	Three Months Ended March 31,
	2021		2020
Net loss attributable to Goosehead Insurance Inc.	$	(396)	$	(156)
Transfers (to) from non-controlling interests:
Decrease in additional paid-in capital as a result of the redemption of LLC interests	(249)		(869)
Increase in additional paid-in capital as a result of activity under employee stock purchase plan	205		116
Total effect of changes in ownership interest on equity attributable to Goosehead Insurance Inc.	$	(440)	$	(909)

11. Equity-Based Compensation

Stock option expense was $1.9 million and $0.5 million for the three months ended March 31, 2021 and 2020, respectively.

On January 4, 2021, the Company granted an additional 153,500 stock options to its Board of Directors and Managing Directors at an exercise price equal to $131.87 per share. The weighted average grant date fair value of

20

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

$47.43 per option was determined using the Black-Scholes valuation model using the following weighted average assumptions:

Expected volatility	45	%
Expected dividend yield	—	%
Expected term (in years)	4.25
Risk-free interest rate	0.29	%

12. 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 net loss before interest, income taxes, depreciation and amortization, adjusted to exclude equity-based compensation and other non-operating items, including, among other things, certain non-cash charges and certain non-recurring or non-operating gains or losses (“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 tables (in thousands). 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.

21

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

	Franchise Channel		Corporate Channel		Other		Total
Three months ended March 31, 2021
Revenues:
Commissions and agency fees
Renewal Commissions	$	—	$	7,757	$	—	$	7,757
Agency Fees	—		2,424		—		2,424
New Business Commissions	—		4,616		—		4,616
Contingent Commissions	2,116		621		—		2,737
Total Commissions and Agency Fees	2,116		15,418		—		17,534
Franchise revenue
Renewal Royalty Fees	8,746		—		—		8,746
New Business Royalty Fees	3,157		—		—		3,157
Initial Franchise Fees	1,432		—		—		1,432
Other Income	98		—		—		98
Total Franchise Revenues	13,433		—		—		13,433
Interest income
Interest Income	261		—		—		261
Total Interest Income	261		—		—		261
Total Revenues	15,810		15,418		—		31,228
Operating expenses:
Employee compensation and benefits, excluding equity based compensation	7,569		11,799		—		19,368
General and administrative expenses	4,213		4,506		555		9,274
Bad debts	161		286		—		447
Total Operating Expenses	11,943		16,591		555		29,089
Adjusted EBITDA	3,867		(1,173)		(555)		2,139
Other income (expense)	20		—		—