UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2022

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 July 27, 2022, there were 20,543,160 shares of Class A common stock outstanding and 16,683,886 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	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
Part II
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
SIGNATURES		37

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, 2021.

•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.

•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.

•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.

•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 by a franchisee.

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

3

•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		10
Notes to the Condensed Consolidated Financial Statements		11
Note 1	Organization	11
Note 2	Summary of significant accounting policies	11
Note 3	Revenues	13
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	20
Note 13	Litigation	21

5

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues:
Commissions and agency fees	$	26,265	$	21,053	$	46,274	$	38,587
Franchise revenues	26,427		16,841		47,377		30,274
Interest income	330		279		649		540
Total revenues	53,022		38,173		94,300		69,401
Operating Expenses:
Employee compensation and benefits	31,659		22,475		63,143		43,784
General and administrative expenses	12,378		10,134		25,902		19,408
Bad debts	1,660		646		2,456		1,093
Depreciation and amortization	1,658		1,132		3,234		2,132
Total operating expenses	47,355		34,387		94,735		66,417
Income (loss) from operations	5,667		3,786		(435)		2,984
Other Income (Expense):
Other income	—		119		—		139
Interest expense	(1,114)		(546)		(1,997)		(1,147)
Income (loss) before taxes	4,553		3,359		(2,432)		1,976
Tax expense (benefit)	2,164		223		562		(71)
Net income (loss)	2,389		3,136		(2,994)		2,047
Less: net income (loss) attributable to non-controlling interests	2,047		1,649		(1,050)		956
Net income (loss) attributable to Goosehead Insurance, Inc.	$	342	$	1,487	$	(1,944)	$	1,091
Earnings per share:
Basic	$	0.02	$	0.08	$	(0.10)	$	0.06
Diluted	$	0.02	$	0.07	$	(0.10)	$	0.05
Weighted average shares of Class A common stock outstanding
Basic	20,454		18,774		20,348		18,574
Diluted	21,245		20,367		20,348		20,251

See Notes to the Condensed Consolidated Financial Statements

6

Goosehead Insurance, Inc.

Condensed Consolidated Balance Sheets

(Unaudited) 

(In thousands, except per share amounts)

	June 30,		December 31,
	2022		2021
Assets
Current Assets:
Cash and cash equivalents	$	31,121	$	28,526
Restricted cash	2,427		1,953
Commissions and agency fees receivable, net	9,161		12,056
Receivable from franchisees, net	1,206		493
Prepaid expenses	7,195		4,785
Total current assets	51,110		47,813
Receivable from franchisees, net of current portion	30,689		29,180
Property and equipment, net of accumulated depreciation	27,571		24,933
Right-of-use asset	41,418		32,656
Intangible assets, net of accumulated amortization	3,749		2,798
Deferred income taxes, net	131,164		125,676
Other assets	5,585		4,742
Total assets	$	291,286	$	267,798
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	5,753	$	10,502
Premiums payable	2,427		1,953
Lease liability	6,026		4,893
Contract liabilities	6,363		6,054
Note payable	5,625		4,375
Total current liabilities	26,194		27,777
Lease liability, net of current portion	57,169		47,335
Note payable, net of current portion	115,349		118,361
Contract liabilities, net of current portion	46,009		42,554
Liabilities under tax receivable agreement	105,312		100,959
Total liabilities	350,033		336,986
Class A common stock, $0.01 par value per share - 300,000 shares authorized, 20,534 shares issued and outstanding as of June 30, 2022, 20,198 shares issued and outstanding as of December 31, 2021	203		200
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 16,693 issued and outstanding as of June 30, 2022, 16,909 shares issued and outstanding as of December 31, 2021	168		170
Additional paid in capital	58,942		46,281
Accumulated deficit	(63,290)		(60,671)
Total stockholders' equity	(3,977)		(14,020)
Non-controlling interests	(54,770)		(55,168)
Total equity	(58,747)		(69,188)
Total liabilities and equity	$	291,286	$	267,798

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, 2022	20,198	16,909	$	200	$	170	$	46,281	$	(60,671)	$	(14,020)	$	(55,168)	$	(69,188)
Net loss	—	—	—		—		—		(2,257)		(2,257)		(3,126)		(5,383)
Exercise of stock options	19	—	—		—		256		—		256		—		256
Equity-based compensation	—	—	—		—		5,788		—		5,788		—		5,788
Activity under employee stock purchase plan	3	—	—		—		214		—		214		—		214
Redemption of LLC Units	101	(101)	1		(1)		(344)		—		(344)		344		—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—		—		394		—		394		22		416
Reallocation of Non-controlling interest	—	—	—		—		—		(478)		(478)		478		—
Balance March 31, 2022	20,321	16,808	$	201	$	169	$	52,589	$	(63,406)	$	(10,447)	$	(57,450)	$	(67,897)

Net income	—	—	—		—		—		342		342		2,047		2,389
Exercise of stock options	94	—	1		—		1,007		—		1,008		—		1,008
Equity-based compensation	—	—	—		—		5,173		—		5,173		—		5,173
Activity under employee stock purchase plan	4	—	—		—		177		—		177		—		177
Redemption of LLC Units	115	(115)	1		(1)		(377)		—		(377)		377		—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—		—		373		—		373		30		403
Reallocation of Non-controlling interest	—	—	—		—		—		(226)		(226)		226		—
Balance June 30, 2022	20,534	16,693	$	203	$	168	$	58,942	$	(63,290)	$	(3,977)	$	(54,770)	$	(58,747)

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)
Distributions	—	—	—		—		—		—		—				—
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)

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 31, 2021	19,209	17,586	$	191	$	176	$	36,579	$	(33,527)	$	3,419	$	(30,920)	$	(27,501)

See Notes to the Condensed Consolidated Financial Statements

9

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	(2,994)	$	2,047
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	3,347		2,264
Bad debt expense	2,456		1,093
Equity-based compensation	10,961		3,793
Impacts of Tax Receivable Agreement	4,353		20,628
Deferred income taxes	(4,670)		(20,772)
Noncash lease activity	2,205		5,080
Changes in operating assets and liabilities:
Receivable from franchisees	(3,584)		(6,112)
Commissions and agency fees receivable	1,780		11,745
Prepaid expenses	(2,410)		(3,689)
Other assets	(839)		(1,303)
Accounts payable and accrued expenses	(4,751)		(1,649)
Contract liabilities	3,764		7,188
Premiums payable	474		228
Payments pursuant to the tax receivable agreement	—		(549)
Net cash provided by operating activities	10,092		19,992
Cash flows from investing activities:
Proceeds from notes receivable	21		17
Purchase of software	(1,292)		(1,369)
Purchase of property and equipment	(5,531)		(7,934)
Net cash used for investing activities	(6,802)		(9,286)
Cash flows from financing activities:
Repayment of note payable	(1,875)		(1,500)
Proceeds from the issuance of Class A common stock	1,654		1,084
Net cash used for financing activities	(221)		(416)
Net increase in cash and restricted cash	3,069		10,290
Cash and cash equivalents, and restricted cash, beginning of period	30,479		26,236
Cash and cash equivalents, and restricted cash, end of period	$	33,548	$	36,526
Supplemental disclosures of cash flow data:
Cash paid during the period for interest	2,143		1,015
Cash paid for income taxes	398		262

See Notes to the Condensed Consolidated Financial Statements

10

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 15 and 11 corporate-owned locations in operation at June 30, 2022 and 2021, 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 June 30, 2022 and 2021, the Company onboarded 141 and 108 franchise locations, respectively, and had 1,344 and 1,072 operating franchise locations as of June 30, 2022 and 2021, respectively. No franchises were purchased by the Company during the three and six months ended June 30, 2022 or 2021.

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 June 30, 2022 and December 31, 2021, the condensed consolidated results of operations, stockholders' equity and statements of cash flows for the three and six months ended June 30, 2022 and 2021. 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.

In accordance with Accounting Standards Codification 280 "Segment Reporting", and in the first quarter of 2022, the Company began reporting one operating segment due to changes in how the Company's chief operating decision maker assesses the Company's performance and allocates resources. See Note 12 "Segment Reporting".

The results of operations for the three and six months ended June 30, 2022 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

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. While contingent commissions initially benefited from lower loss ratios in the early part of the pandemic, we now anticipate lower contingent commissions as customers return to pre-pandemic driving patterns and loss ratios increase. The pandemic has also contributed to inflationary pressures and supply chain disruptions, and these challenges could persist if governments continue to impose lockdowns, quarantine requirements and other restrictions in order to control rates of COVID-19 infections. For example, increased inflation may result in increased labor costs and increased losses for our carriers, which in turn could negatively impact Contingent Commissions the Company

11

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

receives in the near term. 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 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 $2.4 million and $1.6 million as of June 30, 2022 and 2021, 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 six months ended June 30, 2022 and 2021 (in thousands):

	June 30,
	2022		2021
Cash and cash equivalents	$	31,121	$	34,975
Restricted cash	2,427		1,551
Cash and cash equivalents, and restricted cash	$	33,548	$	36,526

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.

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 is effective from March 12, 2020 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.

12

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

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 for the franchise sales team, 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.

13

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Disaggregation of Revenue

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Type of revenue stream:
Commissions and agency fees
Renewal Commissions	$	14,541	$	10,310	$	24,748	$	18,067
New Business Commissions	6,730		5,944		12,097		10,560
Agency Fees	3,114		3,105		5,751		5,529
Contingent Commissions	1,880		1,694		3,678		4,431
Franchise revenues
Renewal Royalty Fees	18,870		11,670		32,872		20,416
New Business Royalty Fees	4,821		3,680		9,113		6,837
Initial Franchise Fees	2,591		1,458		4,887		2,890
Other Franchise Revenues	145		33		505		131
Interest Income	330		279		649		540
Total Revenues	$	53,022	$	38,173	$	94,300	$	69,401
Timing of revenue recognition:
Transferred at a point in time	$	24,385	$	19,359	$	42,596	$	34,156
Transferred over time	28,637		18,814		51,704		35,245
Total Revenues	$	53,022	$	38,173	$	94,300	$	69,401

Contract Balances

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

	June 30, 2022		December 31, 2021		Increase/(decrease)
Cost to obtain franchise contracts(1)	$	2,627	$	1,973	$	654
Commissions and agency fees receivable, net(2)	9,161		12,056		(2,895)
Receivable from franchisees(2)	31,895		29,673		2,222
Contract liabilities(2)(3)	52,372		48,608		3,764

(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.

The Company records Franchise Fees as contract liabilities on the Condensed Consolidated Balance Sheets when the agreement is executed. Contract liabilities are reduced as fees are recognized in revenue over the expected life 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 June 30, 2022 was included in the contract liabilities balance as of December 31, 2021.

14

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

The weighted average remaining amortization period for contract liabilities related to open franchises is 8.1 years.

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

Contract liabilities at December 31, 2021	$	48,608
Revenue recognized during the period	(4,887)
New deferrals(1)	8,651
Contract liabilities at June 30, 2022	$	52,372

(1) Initial Franchise Fees where the consideration is received from the franchisee for services which are to be transferred to the Franchisee over the expected life 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):

	June 30, 2022		December 31, 2021
Franchise fees receivable(1)	$	43,133	$	40,171
Less: Unamortized discount(1)	(10,824)		(9,518)
Less: Allowance for uncollectible franchise fees(1)	(427)		(303)
Net franchise fees receivable(1)	$	31,882	$	30,350

(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, 2021	$	303
Charges to bad debts	1,341
Write offs	(1,217)
Balance at June 30, 2022	$	427
Balance at December 31, 2020	$	149
Charges to bad debts	296
Write offs	(305)
Balance at June 30, 2021	$	140

5. Allowance for Uncollectible Agency Fees

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

Balance at December 31, 2021	$	489
Charges to bad debts	1,115
Write offs	(1,052)
Balance at June 30, 2022	$	552
Balance at December 31, 2020	$	468
Charges to bad debts	797
Write offs	(708)
Balance at June 30, 2021	$	557

15

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

6. Property and equipment

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

	June 30, 2022		December 31, 2021
Furniture & fixtures	$	7,743	$	7,283
Computer equipment	3,967		3,369
Network equipment	320		514
Phone system	326		937
Leasehold improvements	27,241		25,115
Total	39,597		37,218
Less accumulated depreciation	(12,026)		(12,285)
Property and equipment, net	$	27,571	$	24,933

Depreciation expense was $2.9 million and $2.1 million for six months ended June 30, 2022 and 2021, respectively.

7. Debt

On July 21, 2021, the Company refinanced its $25.0 million revolving credit facility and $80.0 million term note payable to a $50.0 million revolving credit facility and $100.0 million term note payable to finance general corporate purposes and the special dividend. 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 by an additional $25.0 million.

The $50.0 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 June 30, 2022 the Company was accruing interest at LIBOR plus 250 basis points. At June 30, 2022, the Company had $25.0 million drawn against the revolving credit facility and had a letter of credit of $0.2 million applied against the maximum borrowing availability, payable on July 21, 2026. Thus, amounts available to draw totaled $24.8 million. The revolving credit facility is collateralized by substantially all the Company’s assets, which includes rights to future commissions and royalties.

The term note is payable in quarterly installments of $0.6 million the first twelve months, $1.3 million the next twelve months, $1.9 million the next twelve months, and $2.5 million the last twenty-four months, with a balloon payment on July 21, 2026. The note is collateralized by substantially all of the Company’s assets, which includes rights to future commissions and royalties. 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 June 30, 2022 the Company was accruing interest at LIBOR plus 250 basis points.

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

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

16

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

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

	Amount
2022	2,500
2023	6,875
2024	9,375
2025	10,000
2026	68,125
Total	$	96,875

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. As of June 30, 2022, the Company's maximum allowable trailing twelve months debt-to-EBITDA ratio, as defined by the credit agreement, was 4.5x. 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, 2022, the Company was in compliance with these covenants.

Because of both instruments’ variable interest rate, the note payable balance at June 30, 2022 and December 31, 2021, 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

GSHD is 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)

Provision for/(benefit from) income taxes for the three and six months ended June 30, 2022 was $2.2 million and $0.6 million compared to $0.2 million and $(0.1) million for the three and six months ended June 30, 2021, respectively. The effective tax rate was 48% and (23)% for the three and six months ended June 30, 2022 and 7% and (4)% for the three and six months ended June 30, 2021. The increase in the effective tax rate for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021 was primarily due to a decrease in exercises of employee stock options.

Deferred taxes

17

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Deferred tax assets at June 30, 2022 were $131.2 million compared to $125.7 million at December 31, 2021. 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 six months ended June 30, 2022.

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 and six months ended June 30, 2022, an aggregate of 114,767 and 215,457 LLC Units were redeemed by the Pre-IPO LLC Members for newly issued shares of Class A common stock. In connection with these redemptions, GSHD received 114,767 and 215,457 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 June 30, 2022, the total amount of TRA Payments due to the Pre-IPO LLC Members under the tax receivable agreement was $105.3 million, of which $0.0 million was current and included in Accounts payables and accrued expenses on the Condensed 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 June 30, 2022.

9. Stockholders' Equity

Class A Common Stock

GSHD has a total of 20,534 shares of its Class A common stock outstanding at June 30, 2022. 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 16,693 shares of its Class B common stock outstanding at June 30, 2022. 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.

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, 2022 and 2021, divided by the basic weighted average number of Class A common stock as of June 30, 2022 and 2021 (in thousands, except per share amounts). 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

18

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

securities. 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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Numerator:
Income (loss) before taxes	$	4,553	$	3,359	$	(2,432)	$	1,976
Less: income (loss) before taxes attributable to non-controlling interests	2,047		1,649		(1,050)		956
Income (loss) before taxes attributable to GSHD	2,506		1,710		(1,382)		1,020
Less: income tax expense (benefit) attributable to GSHD	2,164		223		562		(71)
Net income (loss) attributable to GSHD	$	342	$	1,487	$	(1,944)	$	1,091
Denominator:
Weighted average shares of Class A common stock outstanding - basic	20,454		18,774		20,348		18,574
Effect of dilutive securities:
Stock options(1)	791		1,593		—		1,677
Weighted average shares of Class A common stock outstanding - diluted	21,245		20,367		20,348		20,251
Earnings per share of Class A common stock - basic	$	0.02	$	0.08	$	(0.10)	$	0.06
Earnings per share of Class A common stock - diluted	$	0.02	$	0.07	$	(0.10)	$	0.05

(1) 2,388 and 3,179 stock options were excluded from the computation of diluted earnings per share of Class A common stock for the three and six months ended June 30, 2022, respectively, because the effect would have been anti-dilutive. 109 and 78 stock options were excluded from the computation of diluted earnings per share of Class A common stock for the three and six months ended June 30, 2021, respectively, because the effect would have been anti-dilutive.

10. Non-controlling interest

GSHD is 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.

During the three and six months ended June 30, 2022, an aggregate of 115 thousand and 215 thousand LLC Units were redeemed by the non-controlling interest holders. Pursuant to the GF LLC Agreement, GSHD issued 115 thousand and 215 thousand shares of Class A common stock in connection with these redemptions and

19

Goosehead Insurance, Inc.

Notes to the Condensed Consolidated Financial Statements
(Unaudited)

received 115 thousand and 215 thousand LLC Interests, increasing GSHD's ownership interest in GF. Simultaneously, and in connection with these redemptions, and 115 thousand and 215 thousand shares of Class B common stock were surrendered and cancelled.

The following table summarizes the ownership interest in GF as of June 30, 2022 (in thousands):

	June 30, 2022
	LLC Units	Ownership %
Number of LLC Units held by GSHD	20,534	55.2%
Number of LLC Units held by non-controlling interest holders