UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2021

OR

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

For the transition period from _______ to ______

Commission file number: 001-38466

GOOSEHEAD INSURANCE, INC.

(Exact name of registrant as specified in its charter)

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

Table of contents

		Page
Part I
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43
Part II
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 3.	Defaults Upon Senior Securities	44
Item 4.	Mine Safety Disclosures	44
Item 5.	Other Information	44
Item 6.	Exhibits	45
SIGNATURES		45

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		11
Notes to the Condensed Consolidated Financial Statements		12
Note 1	Organization	12
Note 2	Summary of significant accounting policies	12
Note 3	Revenues	13
Note 4	Franchise fees receivable	17
Note 5	Allowance for uncollectible agency fees	18
Note 6	Property and equipment	18
Note 7	Debt	18
Note 8	Income taxes	20
Note 9	Stockholder's equity	21
Note 10	Non-controlling interest	22
Note 11	Equity-based compensation	23
Note 12	Dividends	24
Note 13	Segment information	25
Note 14	Litigation	29

5

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
Commissions and agency fees	$	22,420	$	19,385	$	61,007	$	49,444
Franchise revenues	18,960		12,418		49,234		32,347
Interest income	301		212		841		573
Total revenues	41,681		32,015		111,082		82,364
Operating Expenses:
Employee compensation and benefits	26,078		17,901		69,862		47,308
General and administrative expenses	10,141		5,872		29,549		17,108
Bad debts	732		376		1,825		1,004
Depreciation and amortization	1,188		900		3,320		2,152
Total operating expenses	38,139		25,049		104,556		67,572
Income from operations	3,542		6,966		6,526		14,792
Other Income (Expense):
Other income	7		10		146		76
Interest expense	(756)		(582)		(1,903)		(1,665)
Income before taxes	2,793		6,394		4,769		13,203
Tax expense (benefit)	(2,575)		(331)		(2,646)		(612)
Net Income	5,368		6,725		7,415		13,815
Less: net income attributable to non-controlling interests	1,332		3,458		2,288		7,325
Net Income attributable to Goosehead Insurance, Inc.	$	4,036	$	3,267	$	5,127	$	6,490
Earnings per share:
Basic	$	0.21	$	0.19	$	0.27	$	0.39
Diluted	$	0.19	$	0.17	$	0.25	$	0.36
Weighted average shares of Class A common stock outstanding
Basic	19,559		17,376		18,903		16,466
Diluted	21,206		18,915		20,570		17,926
Dividends declared per share	$	1.63	$	1.15	$	1.63	$	1.15

See Notes to the Condensed Consolidated Financial Statements

6

Goosehead Insurance, Inc.

Condensed Consolidated Balance Sheets

(Unaudited) 

(In thousands, except per share amounts)

	September 30,		December 31,
	2021		2020
Assets
Current Assets:
Cash and cash equivalents	$	25,512	$	24,913
Restricted cash	1,179		1,323
Commissions and agency fees receivable, net	8,349		18,604
Receivable from franchisees, net	866		2,100
Prepaid expenses	6,487		3,705
Total current assets	42,393		50,645
Receivable from franchisees, net of current portion	25,734		18,179
Property and equipment, net of accumulated depreciation	21,794		16,650
Right-of-use asset	35,384		22,513
Intangible assets, net of accumulated amortization	2,256		549
Deferred income taxes, net	114,376		73,363
Other assets	5,203		3,938
Total assets	$	247,140	$	185,837
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	10,643	$	8,101
Premiums payable	1,179		1,323
Lease liability	4,400		3,203
Contract liabilities	5,646		4,233
Note payable	3,750		3,500
Total current liabilities	25,618		20,360
Lease liability, net of current portion	47,200		32,933
Note payable, net of current portion	119,555		79,408
Contract liabilities, net of current portion	38,963		29,968
Liabilities under tax receivable agreement, net of current portion	91,488		61,572
Total liabilities	322,824		224,241
Class A common stock, $0.01 par value per share - 300,000 shares authorized, 19,786 shares issued and outstanding as of September 30, 2021, 18,304 shares issued and outstanding as of December 31, 2020	196		183
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 17,239 issued and outstanding as of September 30, 2021, 18,447 shares issued and outstanding as of December 31, 2020	173		184
Additional paid in capital	41,820		29,371
Accumulated deficit	(61,049)		(34,614)
Total stockholders' equity	(18,860)		(4,876)
Non-controlling interests	(56,824)		(33,528)
Total equity	(75,684)		(38,404)
Total liabilities and equity	$	247,140	$	185,837

See Notes to the Condensed Consolidated Financial Statements

7

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

(In thousands)

8

	Issued shares of Class A common 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 income	—	—	—	—	—	(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)
Net income	—	—	—	—	—	1,487	1,487	1,649	3,136
Exercise of stock options	31	—	—	—	439	—	439	—	439
Equity-based compensation	—	—	—	—	1,851	—	1,851	—	1,851
Activity under employee stock purchase plan	2	—	—	—	214	—	214	—	214
Redemption of LLC Units	728	(728)	7	(7)	(1,280)	—	(1,280)	1,280	—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—	—	3,063	—	3,063	101	3,164
Reallocation of Non-controlling interest	—	—	—	—	—	(6)	(6)	6	—
Balance June 30, 2021	19,209	17,586	191	176	36,579	(33,527)	3,419	(30,920)	(27,501)
Dividends declared	—	—	—	—	—	(31,657)	(31,657)	(28,343)	(60,000)
Net income	—	—	—	—	—	4,036	4,036	1,332	5,368
Exercise of stock options	229	—	2	—	2,309	—	2,311	—	2,311
Equity-based compensation	—	—	—	—	1,851	—	1,851	—	1,851
Activity under employee stock purchase plan	1	—	—	—	194	—	194	—	194
Redemption of LLC Units	347	(347)	3	(3)	(1,144)	—	(1,144)	1,144	—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—	—	2,031	—	2,031	62	2,093
Reallocation of Non-controlling interest	—	—	—	—	—	99	99	(99)	—
Balance September 30, 2021	19,786	17,239	196	173	41,820	(61,049)	(18,860)	(56,824)	(75,684)

9

	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 income	—	—	—	—	—	(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)
Distributions	—	—	—	—	—	—	—	(859)	(859)
Net income	—	—	—	—	—	3,379	3,379	4,007	7,386
Exercise of stock options	241	—	3	—	2,404	—	2,407	—	2,407
Equity-based compensation	—	—	—	—	1,416	—	1,416	—	1,416
Activity under employee stock purchase plan	2	—	—	—	138	—	138	—	138
Redemption of LLC Units	809	(809)	8	(8)	(762)	—	(762)	762	—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—	—	2,261	—	2,261	53	2,314
Reallocation of Non-controlling interest	—	—	—		—	63	63	(63)	—
Balance June 30, 2020	17,084	19,455	171	194	21,348	(20,525)	1,188	(18,374)	(17,186)
Distributions	—	—	—	—	—	—	—	(835)	(835)
Dividends declared	—	—	—	—	—	(19,895)	(19,895)	(22,105)	(42,000)
Net income	—	—	—	—	—	3,267	3,267	3,458	6,725
Exercise of stock options	116	—	1	—	1,160	—	1,161	—	1,161
Equity-based compensation	—	—	—	—	1,416	—	1,416	—	1,416
Activity under employee stock purchase plan	2	—	—	—	142	—	142	—	142
Redemption of LLC Units	297	(297)	3	(3)	(577)		(577)	577	—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—	—	1,112	—	1,112	33	1,145
Reallocation of Non-controlling interest	—	—	—	—	—	51	51	(51)	—
Balance September 30, 2020	17,499	19,158	175	191	24,601	(37,102)	(12,135)	(37,297)	(49,432)

See Notes to the Condensed Consolidated Financial Statements

10

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	7,415	$	13,815
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,508		2,499
Bad debt expense	1,825		1,004
Equity-based compensation	5,644		3,330
Impacts of Tax Receivable Agreement	31,884		28,815
Deferred income taxes	(34,942)		(28,077)
Noncash lease activity	2,594		—
Changes in operating assets and liabilities:
Receivable from franchisees	(6,861)		(4,029)
Commissions and agency fees receivable	8,947		(5,731)
Prepaid expenses	(2,782)		(1,916)
Other assets	(1,257)		(2,432)
Accounts payable and accrued expenses	1,113		(495)
Deferred rent	—		1,023
Contract liabilities	10,408		6,789
Premiums payable	(144)		455
Payments pursuant to the tax receivable agreement	(549)		(9)
Net cash provided by operating activities	26,803		15,041
Cash flows from investing activities:
Proceeds from notes receivable	24		26
Purchase of software	(1,989)		(318)
Purchase of property and equipment	(8,181)		(4,765)
Net cash used for investing activities	(10,146)		(5,057)
Cash flows from financing activities:
Debt issuance costs	(666)		(677)
Repayment of note payable	(3,744)		(27,321)
Proceeds from notes payable	44,619		64,821
Proceeds from the issuance of Class A common stock	3,589		3,965
Member distributions and dividends	(60,000)		(44,697)
Net cash provided by (used for) financing activities	(16,202)		(3,909)
Net increase in cash and restricted cash	455		6,075
Cash and cash equivalents, and restricted cash, beginning of period	26,236		15,260
Cash and cash equivalents, and restricted cash, end of period	$	26,691	$	21,335
Supplemental disclosures of cash flow data:
Cash paid during the year for interest	1,715		1,318
Cash paid for income taxes	272		270

See Notes to the Condensed Consolidated Financial Statements

11

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

1. Organization

Goosehead Insurance, Inc. (“GSHD”) is the sole managing member of Goosehead Financial, LLC (“GF”) and has the sole voting power and control of management of GF. Accordingly, GSHD consolidates the financial results of GF and reports non-controlling interest in GSHD’s condensed consolidated financial statements.

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

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

The Company had 12 and 9 corporate-owned locations in operation at September 30, 2021 and 2020, respectively. Franchisees are provided access to insurance Carrier Appointments, product training, technology infrastructure, client service centers and back office services. During the three months ended September 30, 2021 and 2020, the Company onboarded 92 and 110 franchise locations, respectively, and had 1,139 and 823 operating franchise locations as of September 30, 2021 and 2020, respectively. No franchises were purchased by the Company during the three and nine months ended September 30, 2021 or 2020.

All intercompany accounts and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all of the annual disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). However, in the opinion of management, these statements include all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of the condensed consolidated financial positions at September 30, 2021, the condensed consolidated results of operations, stockholders' equity and statements of cash flows for the three and nine months ended September 30, 2021 and 2020. The interim period condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements that are included in the Annual Report on Form 10-K.

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that can be expected for the entire year. The Company experiences seasonal fluctuations of its revenue due to the timing of contingent commission revenue recognition and trends in housing market activity.

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

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

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date

12

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

of the financial statements, and the reported amounts of revenues and expenses during the reported period. Accordingly, actual results could differ from those estimates as more information becomes known.

Income Taxes

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

Restricted Cash

The Company holds premiums received from the insured, but not yet remitted to the insurance Carrier in a fiduciary capacity. Premiums received but not yet remitted included in restricted cash were $1.2 million and $1.4 million as of September 30, 2021 and 2020, respectively.

The following is a reconciliation of our cash and restricted cash balances as presented in the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 (in thousands):

	September 30,
	2021		2020
Cash and cash equivalents	$	25,512	$	19,957
Restricted cash	1,179		1,378
Cash and cash equivalents, and restricted cash	$	26,691	$	21,335

Recently Issued Accounting Pronouncements

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

Recently adopted accounting pronouncements

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

3. Revenue

Commissions and fees

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

13

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

These commissions and fees are earned at a point in time upon the effective date of bound insurance coverage, as no performance obligation exists after coverage is bound.

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

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

Franchise revenues

Franchise 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.

14

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 September 30, 2021:	Franchise Channel		Corporate Channel		Total
Type of revenue stream:
Commissions and agency fees
Renewal Commissions	$	—	$	10,969	$