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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number: 001-38466

GOOSEHEAD INSURANCE, INC.
(Exact name of registrant as specified in its charter)
Delaware82-3886022
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
1500 Solana Blvd, Building 4, Suite 4500
Westlake
Texas76262
(Address of principal executive offices)(Zip Code)

(469) 480-3669
(Registrant's telephone number, including area code)

Not applicable
(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class A Common Stock, par value $.01 per shareGSHDNASDAQ

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated filer
Non-accelerated filer  Smaller reporting company
   Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

As of July 24, 2023, there were 23,898,757 shares of Class A common stock outstanding and 13,795,166 shares of Class B common stock outstanding.



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

2


Commonly used defined terms
As used in this Quarterly Report on Form 10-Q ("Form 10-Q"), unless the context indicates or otherwise requires, the following terms have the following meanings:
 
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 fiscal year ended December 31, 2022.
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.
Total Written Premium: As of any reported date, the total amount of current (non-cancelled) gross premium that is placed with Goosehead’s portfolio of Carriers.

3


Special note regarding forward-looking statements
We have made statements in this Form 10-Q that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Item 1A. Risk factors” in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
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
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Stockholders' Equity
Condensed Consolidated Statements of Cash Flows
Notes to the Condensed Consolidated Financial Statements
Note 1Organization
Note 2Summary of significant accounting policies
Note 3Revenues
Note 4Franchise fees receivable
Note 5Allowance for uncollectible agency fees
Note 6Property and equipment
Note 7Debt
Note 8Income taxes
Note 9Stockholder's equity
Note 10Non-controlling interest
Note 11Equity-based compensation
Note 12Litigation



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,
  2023202220232022
Revenues:
Commissions and agency fees$31,173 $26,265 $56,657 $46,274 
Franchise revenues37,687 26,427 69,761 47,377 
Interest income417 330 814 649 
Total revenues69,277 53,022 127,232 94,300 
Operating Expenses:
Employee compensation and benefits37,483 31,659 74,365 63,143 
General and administrative expenses17,332 12,378 33,188 25,902 
Bad debts900 1,660 2,555 2,456 
Depreciation and amortization2,372 1,658 4,465 3,234 
Total operating expenses58,087 47,355 114,573 94,735 
Income (loss) from operations11,190 5,667 12,659 (435)
Other Income (Expense):
Interest expense(1,709)(1,114)(3,440)(1,997)
Income (loss) before taxes9,481 4,553 9,219 (2,432)
Tax expense2,301 2,164 2,220 562 
Net income (loss)7,180 2,389 6,999 (2,994)
Less: net income (loss) attributable to non-controlling interests3,514 2,047 3,414 (1,050)
Net income (loss) attributable to Goosehead Insurance, Inc.$3,666 $342 $3,585 $(1,944)
Earnings per share:
Basic$0.15 $0.02 $0.15 $(0.10)
Diluted$0.15 $0.02 $0.15 $(0.10)
Weighted average shares of Class A common stock outstanding
Basic23,689 20,454 23,448 20,348 
Diluted24,333 21,245 23,981 20,348 



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,
  20232022
Assets
Current Assets:
Cash and cash equivalents$19,131 $28,743 
Restricted cash1,790 1,644 
Commissions and agency fees receivable, net10,459 14,440 
Receivable from franchisees, net9,489 4,932 
Prepaid expenses12,046 4,334 
Total current assets52,915 54,093 
Receivable from franchisees, net of current portion15,446 23,835 
Property and equipment, net of accumulated depreciation33,176 35,347 
Right-of-use asset41,177 44,080 
Intangible assets, net of accumulated amortization12,384 4,487 
Deferred income taxes, net164,549 155,318 
Other assets3,532 4,193 
Total assets$323,179 $321,353 
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses$14,238 $15,958 
Premiums payable1,790 1,644 
Lease liability8,468 6,627 
Contract liabilities5,207 6,031 
Note payable8,125 6,875 
Total current liabilities37,828 37,135 
Lease liability, net of current portion61,662 64,947 
Note payable, net of current portion72,449 86,711 
Contract liabilities, net of current portion30,992 40,522 
Liabilities under tax receivable agreement133,696 125,662 
Total liabilities336,627 354,977 
Class A common stock, $0.01 par value per share - 300,000 shares authorized, 23,900 shares issued and outstanding as of June 30, 2023, 23,034 shares issued and outstanding as of December 31, 2022
237 228 
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 13,795 issued and outstanding as of June 30, 2023, 14,471 shares issued and outstanding as of December 31, 2022
139 146 
Additional paid in capital86,859 70,866 
Accumulated deficit(57,565)(60,570)
Total stockholders' equity 29,670 10,670 
Non-controlling interests(43,118)(44,294)
Total equity(13,448)(33,624)
Total liabilities and equity$323,179 $321,353 

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 stockIssued shares of Class B common stockClass A Common stockClass B Common StockAdditional paid in capitalAccumulated deficitTotal stockholders' equityNon-controlling interestTotal equity
Balance January 1, 202323,034 14,471 $228 $146 $70,866 $(60,570)$10,670 $(44,294)$(33,624)
Net loss— — — — — (81)(81)(100)(181)
Exercise of stock options17 — — — 173 — 173 — 173 
Equity-based compensation— — — — 6,620 — 6,620 — 6,620 
Activity under employee stock purchase plan4 — — — 201 — 201 — 201 
Redemption of LLC Units323 (323)3 (3)(990)— (990)990  
Deferred tax adjustments related to Tax Receivable Agreement— — — — 699 — 699 129 828 
Reallocation of Non-controlling interest— — — — — (103)(103)103  
Balance March 31, 202323,379 14,147 $231 $143 $77,569 $(60,754)$17,189 $(43,173)$(25,984)
Distributions— — — — — — — (5,206)(5,206)
Net income— — — — — 3,666 3,666 3,514 7,180 
Exercise of stock options167 — 2 — 3,516 — 3,518 — 3,518 
Equity-based compensation— — — — 5,872 — 5,872 — 5,872 
Activity under employee stock purchase plan2 — — — 144 — 144 — 144 
Redemption of LLC Units352 (352)4 (4)(1,112)— (1,112)1,112  
Deferred tax adjustments related to Tax Receivable Agreement— — — — 870 — 870 157 1,027 
Reallocation of Non-controlling interest— — — — — (477)(477)477  
Balance June 30, 202323,900 13,795 $237 $139 $86,859 $(57,565)$29,670 $(43,118)$(13,448)
8


Issued shares of Class A common stockIssued shares of Class B common stockClass A Common stockClass B Common StockAdditional paid in capitalAccumulated deficitTotal stockholders' equityNon-controlling interestTotal equity
Balance January 1, 202220,198 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 options19 — — — 256 — 256 256 
Equity-based compensation— — — — 5,788 — 5,788 — 5,788 
Activity under employee stock purchase plan3 — — — 214 — 214 — 214 
Redemption of LLC Units101 (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, 202220,321 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 options94 — 1 — 1,007 — 1,008 — 1,008 
Equity-based compensation— — — — 5,173 — 5,173 — 5,173 
Activity under employee stock purchase plan4 — — — 177 — 177 — 177 
Redemption of LLC Units115 (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, 202220,534 16,693 $203 $168 $58,942 $(63,290)$(3,977)$(54,770)$(58,747)


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,
  20232022
Cash flows from operating activities:
Net income (loss)$6,999 $(2,994)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization4,578 3,347 
Impairment expense3,628  
Bad debt expense2,555 2,456 
Equity-based compensation12,492 10,961 
Impacts of Tax Receivable Agreement8,497 4,353 
Deferred income taxes(7,376)(4,670)
Noncash lease activity332 2,205 
Changes in operating assets and liabilities:
Receivable from franchisees2,494 (3,584)
Commissions and agency fees receivable3,022 1,780 
Prepaid expenses(7,712)(2,410)
Other assets661 (839)
Accounts payable and accrued expenses(3,595)(4,751)
Contract liabilities(10,354)3,764 
Premiums payable(107)474 
Net cash provided by operating activities
16,114 10,092 
Cash flows from investing activities:
Proceeds from notes receivable12 21 
Purchase of software(2,496)(1,292)
Cash consideration paid for asset acquisitions(5,270) 
Purchase of property and equipment(3,532)(5,531)
Net cash used for investing activities
(11,286)(6,802)
Cash flows from financing activities:
Repayment of note payable(13,125)(1,875)
Proceeds from the issuance of Class A common stock4,037 1,654 
Member distributions and dividends(5,206) 
Net cash used for financing activities
(14,294)(221)
Net increase (decrease) in cash and restricted cash
(9,466)3,069 
Cash and cash equivalents, and restricted cash, beginning of period30,387 30,479 
Cash and cash equivalents, and restricted cash, end of period$20,921 $33,548 
Supplemental disclosures of cash flow data:
Cash paid during the period for interest$3,282 $2,143 
Cash paid for income taxes534 398 
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 12 and 15 corporate-owned locations in operation at June 30, 2023 and 2022, respectively. Franchisees are provided access to Carrier Appointments, product training, technology infrastructure, client service centers and back office services. During the three months ended June 30, 2023 and 2022, the Company onboarded 72 and 141 franchise locations, respectively, and had 1,344 and 1,344 operating franchise locations as of June 30, 2023 and 2022, respectively. No franchises were purchased during the three and six months ended June 30, 2023 and 2022.
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, 2023 and December 31, 2022, the condensed consolidated results of operations, stockholders' equity and statements of cash flows for the three and six months ended June 30, 2023 and 2022. 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 for the fiscal year ended December 31, 2022.
The results of operations for the three and six months ended June 30, 2023 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.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.
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.
Intangible Assets
Intangible assets are stated at cost less accumulated amortization and reflect amounts paid for the Company’s web domain, computer software costs, and purchased books of business (customer accounts). The web domain is amortized over a useful life of fifteen years, computer software costs are amortized over a useful life of three years, and books of business (customer accounts) are amortized over a useful life of eight years. During the three and six months ended June 30, 2023, the Company purchased books of business (customer accounts) totaling $6.4 million and $6.5 million, respectively.
11

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Asset Impairment
The Company reviews all of its identifiable assets for impairment periodically and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. In reviewing identifiable assets, if the undiscounted future cash flows were less than the carrying amount of the respective assets, an indicator of impairment would exist, and further analysis would be required to determine whether or not a loss would need to be charged against current period earnings as a component of general and administrative expenses.
Based on a review of intangible assets during the second quarter ended June 30, 2023, the Company identified a group of internally-developed software assets that had not been placed into service and would not be completed. As a result, the Company determined the assets had no fair value and recorded an impairment expense of $1.1 million related to the asset group.
Based on a review of tangible assets during the second quarter ended June 30, 2023, the Company identified two office leases that will be subleased and completed a recoverability assessment for assets at those locations. Based on the results of the recoverability assessment, the Company determined that the undiscounted cash flows of the assets were below their carrying values. As a result, the Company compared the fair values of the assets to their carrying values and recorded an impairment expense of $1.4 million of property and equipment and $1.1 million of right-of-use asset for the amount the carrying values exceeded the fair values. The Company determined the fair values by estimating sublease cash flows based on market rates for similar properties and discounted them using the Company's internal borrowing rate.
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 Carrier, in a fiduciary capacity. Premiums received but not yet remitted included in restricted cash were $1.8 million and $2.4 million as of June 30, 2023 and 2022, 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, 2023 and 2022 (in thousands):
June 30,
20232022
Cash and cash equivalents$19,131 $31,121 
Restricted cash1,790 2,427 
Cash and cash equivalents, and restricted cash$20,921 $33,548 

12

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Recently adopted 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 is effective from March 12, 2020 through December 31, 2022. In December 2022, ASU 2022-06 extended the effective period through December 31, 2024. 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. On April 26, 2023, the Company entered into an Amendment No.1 to the Second Amended and Restated Credit Agreement executing the provision to move to SOFR from LIBOR. Under the allowable expedients, a modification of a debt contract that is only a replacement of the reference rate is accounted for as a non-substantial modification.
13

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 Carriers and fees paid by its clients for the binding of insurance coverage. The transaction 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 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 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.

14

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,
2023202220232022
Type of revenue stream:
Commissions and agency fees
Renewal Commissions$18,541 $14,541 $34,359 $24,748 
New Business Commissions6,257 6,730 11,774 12,097 
Agency Fees2,404 3,114 4,634 5,751 
Contingent Commissions3,971 1,880 5,890 3,678 
Franchise revenues
Renewal Royalty Fees27,552 18,870 50,304 32,872 
New Business Royalty Fees6,267 4,821 11,909 9,113 
Initial Franchise Fees3,287 2,591 6,350 4,887 
Other Franchise Revenues581 145 1,198 505 
Interest Income417 330 814 649 
Total Revenues$69,277 $53,022 $127,232 $94,300 
Timing of revenue recognition:
Transferred at a point in time$27,202 $24,385 $50,767 $42,596 
Transferred over time42,075 28,637 76,465 51,704 
Total Revenues$69,277 $53,022 $127,232 $94,300 

Contract Balances
The following table provides information about receivables, cost to obtain, and contract liabilities from contracts with customers (in thousands):
June 30, 2023December 31, 2022Increase/(decrease)
Cost to obtain franchise contracts(1)
$2,904 $3,255 $(351)
Commissions and agency fees receivable, net(2)
10,459 14,440 (3,981)
Receivable from franchisees(2)
24,935 28,767 (3,832)
Contract liabilities(2)(3)
36,199 46,553 (10,354)
(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, 2023 was included in the contract liabilities balance as of December 31, 2022.

The weighted average remaining amortization period for contract liabilities related to open franchises is 7.5 years.

15

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Significant changes in contract liabilities are as follows (in thousands):
Contract liabilities at December 31, 2022
$46,553 
Revenue recognized during the period(6,350)
New deferrals(1)
2,780 
Write offs(2)
(6,784)
Contract liabilities at June 30, 2023
$36,199 
(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.
(2) Franchise Fees, net of recognized revenue, no longer deferred due to the termination 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, 2023December 31, 2022
Franchise fees receivable(1)
$24,324 $35,606 
Less: Unamortized discount(1)
(7,067)(9,896)
Less: Allowance for uncollectible franchise fees(1)
(421)(487)
Net franchise fees receivable(1)
$16,836 $25,223 
(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, 2022$487 
Charges to bad debts823 
Write offs(889)
Balance at June 30, 2023$421 
Balance at December 31, 2021$303 
Charges to bad debts1,341 
Write offs(1,217)
Balance at June 30, 2022$427 

5. Allowance for Uncollectible Agency Fees
Activity in the allowance for uncollectible agency fees was as follows (in thousands):
Balance at December 31, 2022$450 
Charges to bad debts876 
Write offs(673)
Balance at June 30, 2023$653 
Balance at December 31, 2021$489 
Charges to bad debts1,115 
Write offs(1,052)
Balance at June 30, 2022$552 

16

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, 2023December 31, 2022
Furniture & fixtures$11,090 $9,772 
Computer equipment4,069 4,041 
Network equipment426 423 
Phone system326 326 
Leasehold improvements36,297 36,009 
Total52,208 50,571 
Less accumulated depreciation(19,032)(15,224)
Property and equipment, net$33,176 $35,347 
Depreciation expense was $3.8 million and $2.9 million for six months ended June 30, 2023 and 2022, 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 in order to obtain a more favorable interest rate on the outstanding debt. 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.
On April 26, 2023, the Company entered into Amendment No.1 ("Amendment") of the Second Amended and Restated Credit Agreement, which provided that LIBOR should be replaced with SOFR.
The $50.0 million revolving credit facility accrues interest on amounts drawn at an initial interest rate of LIBOR plus 250 basis points, then at an interest rate determined by the Company's leverage ratio for the preceding period. At June 30, 2023 the Company was accruing interest at SOFR plus 200 basis points. At June 30, 2023, the Company had nothing 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 $49.8 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 of $65.6 million on July 21, 2026. On May 31, 2023, the Company paid an additional $10.0 million toward the term note, reducing the final balloon payment to $55.6 million. 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 225 basis points, then at an interest rate based on the Company's leverage ratio for the preceding period. At June 30, 2023 the Company was accruing interest at SOFR plus 200 basis points.
The interest rate for each leverage ratio tier is as follows:
Leverage RatioInterest Rate
< 1.50x
SOFR + 175 bps
> 1.50x
SOFR + 200 bps
> 2.50x
SOFR + 225 bps
> 3.50x
SOFR + 250 bps

17

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
2023$3,750 
20249,375 
202510,000 
202658,125 
2027 
Total$81,250 

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, 2023, the Company's maximum allowable trailing twelve months debt-to-EBITDA ratio, as defined by the credit agreement, was 4x. 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, 2023, the Company was in compliance with these covenants.
Because of both instruments’ variable interest rate, the note payable balance at June 30, 2023 and December 31, 2022, 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 expense from income taxes for the three and six months ended June 30, 2023 was $2.3 million and $2.2 million compared to $2.2 million and $0.6 million for the three and six months ended June 30, 2022. The effective tax rate was 24% and 24% for the three and six months ended June 30, 2023 and 48% and (23)% for the three and six months ended June 30, 2022. The decrease in the effective tax rate for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 was primarily due to an increase in exercises of employee stock options. The increase in the effective tax rate for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily due to an increase in pre-tax income between periods.
18

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Deferred taxes
Deferred tax assets at June 30, 2023 were $164.5 million compared to $155.3 million at December 31, 2022. 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, 2023.
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, 2023, an aggregate of 351,972 and 675,457 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 351,972 and 675,457 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, 2023, the total amount of TRA Payments due to the Pre-IPO LLC Members under the tax receivable agreement was $134.2 million, of which $0.5 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, 2023.
9. Stockholders' Equity
Class A Common Stock
GSHD has a total of 23,900 thousand shares of its Class A common stock outstanding at June 30, 2023. 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 13,795 thousand shares of its Class B common stock outstanding at June 30, 2023. 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, 2023 and 2022, divided by the basic weighted average number of Class A common stock as of June 30, 2023 and 2022 (in thousands, except per share amounts). Diluted earnings
19

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
per share of Class A common stock is computed by dividing net income attributable to GSHD by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities. 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,
2023202220232022
Numerator:
Income (loss) before taxes$9,481 $4,553 $9,219 $(2,432)
Less: income (loss) before taxes attributable to non-controlling interests3,514 2,047 3,414 (1,050)
Income (loss) before taxes attributable to GSHD5,967 2,506 5,805 (1,382)
Less: income tax expense attributable to GSHD2,301 2,164 2,220 562 
Net income (loss) attributable to GSHD$3,666 $342 $3,585 $(1,944)
Denominator:
Weighted average shares of Class A common stock outstanding - basic23,689 20,454 23,448 20,348 
Effect of dilutive securities:
Stock options(1)
644 791 533  
Weighted average shares of Class A common stock outstanding - diluted24,333 21,245 23,981 20,348 
Earnings per share of Class A common stock - basic$0.15 $0.02 $0.15 $(0.10)
Earnings per share of Class A common stock - diluted$0.15 $0.02 $0.15 $(0.10)
(1) 1,543 and 2,178 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, 2023 because the effect would have been anti-dilutive. 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 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.
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 and six months ended June 30, 2023, GF made a distribution of $12.6 million, of which $5.2 million was made to Pre-IPO LLC Members. The remaining $7.4 million was made to GSHD and was 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, 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
20

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
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, 2023, an aggregate of 352 thousand and 675 thousand LLC Units were redeemed by the non-controlling interest holders. Pursuant to the GF LLC Agreement, GSHD issued 352 thousand and 675 thousand shares of Class A common stock in connection with these redemptions and received 352 thousand and 675 thousand LLC Interests, increasing GSHD's ownership interest in GF. Simultaneously, and in connection with these redemptions, 352 thousand and 675 thousand shares of Class B common stock were surrendered and cancelled.
The following table summarizes the ownership interest in GF as of June 30, 2023 (in thousands):
June 30, 2023
LLC UnitsOwnership %
Number of LLC Units held by GSHD23,90063.4%
Number of LLC Units held by non-controlling interest holders13,79536.6%
Number of LLC Units outstanding37,695100.0%

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income to GSHD and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentages for the three and six months ended June 30, 2023 were 37.0% and 37.6%, respectively.
The following table summarizes the effects of changes in ownership in GF on the equity of GSHD for the three and six months ended June 30, 2023 and 2022 as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Net income (loss) attributable to Goosehead Insurance Inc.$3,666 $342 $3,585 $(1,944)
Transfers (to) from non-controlling interests:
Decrease in additional paid-in capital as a result of the redemption of LLC interests(1,112)(377)(2,102)(721)
Increase in additional paid-in capital as a result of activity under employee stock purchase plan144 177 345 391 
Total effect of changes in ownership interest on equity attributable to Goosehead Insurance Inc.$2,698 $142 $1,828 $(2,274)

11. Equity-Based Compensation
Stock option expense was $5.9 million and $12.5 million for the three and six months ended June 30, 2023. Stock option expense was $5.2 million and $11.0 million for the three and six months ended June 30, 2022.

12. Litigation
From time to time, GSHD may be involved in various legal proceedings, lawsuits and claims incidental to the conduct of the Company's business. The amount of any loss from the ultimate outcomes is not probable or reasonably estimable. It is the opinion of management that the resolution of outstanding claims will not have a material adverse effect on the financial position or results of operations of the Company.
21


Item 2: Management’s discussion and analysis of financial condition and results of operations

OVERVIEW
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk factors” and elsewhere in this report and in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
We are a rapidly growing personal lines independent insurance agency, reinventing the traditional approach to distributing personal lines products and services throughout the United States. We were founded with one vision in mind—to provide consumers with superior insurance coverage at the best available price and in a timely manner. By leveraging our differentiated business model and innovative technology platform, we are able to deliver to consumers a superior insurance experience. Our management team continues to own approximately 42% of the company, representing our commitment to the long-term success of the Company.
Financial Highlights for the Second Quarter of 2023:
Total revenue increased 31% from the second quarter of 2022 to $69.3 million
Core Revenue* increased by 27% from the second quarter of 2022 to $61.0 million
Total Written Premiums placed increased 36% from the prior-year period to $767.3 million
Net income increased by $4.8 million from the second quarter of 2022 to $7.2 million, or 10% of total revenues
Adjusted EBITDA* increased 85% from the second quarter of 2022 to $23.1 million, or 33% of total revenues
Basic and diluted earnings per share were $0.15 and $0.15, respectively, and Adjusted EPS* was $0.41 per share for the three months ended June 30, 2023
Policies in Force increased 21% from June 30, 2022 to 1,427,000 at June 30, 2023
Corporate sales headcount decreased 44% from June 30, 2022 to 280 at June 30, 2023
As of June 30, 2023, 146 of these Corporate sales agents had less than one year of tenure and 134 had greater than one year of tenure
Total franchises decreased 26% compared to the prior-year period to 1,728; total operating franchises had no changes from June 30, 2022 to 1,344 at June 30, 2023
In Texas as of June 30, 2023, 64 operating Franchisees had less than one year of tenure and 251 operating Franchisees had greater than one year of tenure
Outside of Texas as of June 30, 2023, 284 operating Franchisees had less than one year of tenure and 745 had greater than one year of tenure
*Core Revenue, Adjusted EBITDA and Adjusted EPS are non-GAAP measures. Reconciliation of Core Revenue to total revenue, Adjusted EBITDA to net income and Adjusted EPS to EPS, the most directly comparable financial measures presented in accordance with GAAP, are set forth under "Key performance indicators".
22


Certain income statement line items
Revenues
For the three months ended June 30, 2023, revenue increased by 31% to $69.3 million from $53.0 million for the three months ended June 30, 2022. For the six months ended June 30, 2023, revenue increased by 35% to $127.2 million from $94.3 million for the six months ended June 30, 2022. Total Written Premium growth, which we believe is the best leading indicator of future revenue, increased 36% to $767 million for the three months ended June 30, 2023 from $566 million for the three months ended June 30, 2022. Total Written Premium growth increased 38% for the six months ended June 30, 2023 to $1,405 million from $1,017 million for the six months ended June 30, 2022. Total Written Premiums drive our current and future Core Revenue and give us potential opportunities to earn Ancillary Revenue in the form of Contingent Commissions.
Our various revenue streams do not equally contribute to the long-term value of Goosehead. For instance, Renewal Revenue and Renewal Royalty Fees are more predictable and have higher margin profiles, thus are higher quality revenue streams for the Company. Alternatively, Contingent Commissions, while high margin, are unpredictable and dependent on insurance company underwriting and forces of nature and thus are lower quality revenue for the Company. Our revenue streams can be viewed in three distinct categories: Core Revenue, Cost Recovery Revenue, and Ancillary Revenue, which are non-GAAP measures. A reconciliation of Core Revenue, Cost Recovery Revenue, and Ancillary Revenue to total revenue, the most directly comparable financial measure presented in accordance with GAAP, are set forth under "Key performance indicators".
Core Revenue:
Renewal Commissions - highly predictable, higher-margin revenue stream, which is managed by our service team.
Renewal Royalty Fees - highly predictable, higher-margin revenue stream, which is managed by our service team. For policies in their first renewal term, we see an increase in our share of royalties from 20% to 50% on the commission paid by the Carriers.
New Business Commissions - predictable based on agent headcount and consistent ramp-up of agents, but lower margin than Renewal Commissions because of higher commissions paid to agents and higher back-office costs associated with policies in their first term. This revenue stream has predictably converted into higher-margin Renewal Commissions historically, and we expect this to continue moving forward.
New Business Royalty Fees - predictable based on franchise count and consistent ramp-up of franchises, but lower margin than Renewal Royalty Fees because the Company only receives a royalty fee of 20% on the commissions paid by the Carrier in the first term of every policy and higher back-office costs associated with policies in their first term. This revenue stream has predictably converted into higher-margin Renewal Royalty Fees historically, and we expect this to continue moving forward.
Agency Fees - although predictable based on agent count, Agency Fees do not renew like New Business Commissions and Renewal Commissions.

Cost Recovery Revenue:
Initial Franchise Fees - one-time Cost Recovery Revenue stream per franchise unit that covers the Company's costs to recruit, train, onboard, and support the franchise for the first year. These fees are fully earned and non-refundable when a franchise attends our initial training.
Interest Income - like Initial Franchise Fees, interest income is a Cost Recovery Revenue stream that reimburses the Company for those franchises on a payment plan.

Ancillary Revenue:
Contingent Commissions - although high margin, Contingent Commissions are unpredictable and susceptible to weather events and Carrier underwriting results. Management does not rely on Contingent Commissions for operating cash flow or budget planning.
Other Franchise Revenues - book transfer fees, marketing investments from Carriers and other items that are unpredictable and supplemental to other revenue streams.

23


We discuss below the breakdown of our revenue by stream:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2023202220232022
Core Revenue:
Renewal Commissions(1)
$18,54127 %$14,54127 %$34,35927 %$24,74826 %
Renewal Royalty Fees(2)
27,55240 %18,87036 %50,30440 %32,87235 %
New Business Commissions(1)
6,257%6,73013 %11,774%12,09713 %
New Business Royalty Fees(2)
6,267%4,821%11,909%9,11310 %
Agency Fees(1)
2,404%3,114%4,634%5,751%
Total Core Revenue61,02188 %48,07691 %112,98089 %84,58190 %
Cost Recovery Revenue:
Initial Franchise Fees(2)
3,287%2,591%6,350%4,887%
Interest Income417%330%814%649%
Total Cost Recovery Revenue3,704%2,921%7,164%5,536%
Ancillary Revenue:
Contingent Commissions(1)
3,971%1,880%5,890%3,678%
Other Franchise Revenues(2)
581%145— %1,198%505%
Total Ancillary Revenue4,552%2,025%7,088%4,183%
Total Revenues$69,277100 %$53,022100 %$127,232100 %$94,300100 %

(1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in "Commissions and agency fees" as shown on the Condensed consolidated statements of operations.
(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Franchise Revenues are included in "Franchise revenues" as shown on the Condensed consolidated statements of operations.


24


Consolidated results of operations
The following is a discussion of our consolidated results of operations for each of the three and six months ended June 30, 2023 and 2022. This information is derived from our accompanying condensed consolidated financial statements prepared in accordance with GAAP.
The following table summarizes our results of operations for the three and six months ended June 30, 2023 and 2022 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Revenues:
Commissions and agency fees$31,173 45 %$26,265 50 %$56,657 45 %$46,274 49 %
Franchise revenues37,687 54 %26,427 50 %69,761 55 %47,377 50 %
Interest income417 %330 %814 %649 %
Total revenues69,277 100 %53,022 100 %127,232 100 %94,300 100 %
Operating Expenses:
Employee compensation and benefits37,483 65 %31,659 67 %74,365 65 %63,143 67 %
General and administrative expenses17,332 30 %12,378 26 %33,188 29 %25,902 27 %
Bad debts900 %1,660 %2,555 %2,456 %
Depreciation and amortization2,372 %1,658 %4,465 %3,234 %
Total operating expenses58,087 100 %47,355 100 %114,573 100 %94,735 100 %
Income (loss) from operations11,190 5,667 12,659 (435)
Other Income (Expense):
Interest expense(1,709)(1,114)(3,440)(1,997)
Income (loss) before taxes9,481 4,553 9,219 (2,432)
Tax expense2,301 2,164 2,220 562 
Net income (loss)7,180 2,389 6,999 (2,994)
Less: net income (loss) attributable to non-controlling interests3,514 2,047 3,414 (1,050)
Net income (loss) attributable to Goosehead Insurance Inc.$3,666 $342 $3,585 $(1,944)

Revenues
For the three months ended June 30, 2023 revenue increased 31% to $69.3 million from $53.0 million for the three months ended June 30, 2022. For the six months ended June 30, 2023 revenue increased 35% to $127.2 million from $94.3 million for the six months ended June 30, 2022.
Commissions and agency fees
Commissions and agency fees consist of new business commissions, renewal commissions, agency fees, and contingent commissions.
25


The following table sets forth these revenue streams by amount and as a percentage of total commissions and agency fees for the periods indicated (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Core Revenue:
Renewal Commissions$18,541 59 %$14,541 55 %$34,359 61 %$24,748 54 %
New Business Commissions6,257 20 %6,730 26 %11,774 21 %12,097 26 %
Agency Fees2,404 %3,114 12 %4,634 %5,751 12 %
Total Core Revenue:27,202 87 %24,385 93 %50,767 90 %42,596 92 %
Ancillary Revenue:
Contingent Commissions3,971 13 %1,880 %5,890 10 %3,678 %
Commissions and agency fees$31,173 100 %$26,265 100 %$56,657 100 %$46,274 100 %

Renewal Commissions increased by $4.0 million or 28%, to $18.5 million for the three months ended June 30, 2023 from $14.5 million for the three months ended June 30, 2022. Renewal Commissions increased by $9.6 million or 39%, to $34.4 million for the six months ended June 30, 2023 from $24.7 million for the six months ended June 30, 2022. This increase was primarily attributable to an increase in the number of policies in the renewal term from June 30, 2022 to June 30, 2023 and premium rate increases, offset by a slight decline in client retention to 88% as of June 30, 2023 from 89% as of June 30, 2022.
New Business Commissions decreased by $0.5 million, or 7%, to $6.3 million for the three months ended June 30, 2023 from $6.7 million for the three months ended June 30, 2022. New Business Commissions decreased by $0.3 million or 3%, to $11.8 million for the six months ended June 30, 2023 from $12.1 million for the six months ended June 30, 2022. The decrease in New Business Commissions was primarily driven by decrease in number of Corporate Sales agents during the six months ended June 30, 2023. Revenue from Agency Fees decreased by $0.7 million or 23% to $2.4 million for the three months ended June 30, 2023 from $3.1 million for the three months ended June 30, 2022. Revenue from Agency Fees decreased by $1.1 million or 19%, to $4.6 million for the six months ended June 30, 2023 from $5.8 million for the six months ended June 30, 2022. The decrease in Agency Fees was primarily attributable to a decrease in the percentage of policies written where an Agency Fee was charged.
Revenue from Contingent Commissions increased by $2.1 million, to $4.0 million for the three months ended June 30, 2023 from $1.9 million for the three months ended June 30, 2022. Revenue from Contingent Commissions increased by $2.2 million, to $5.9 million for the six months ended June 30, 2023 from $3.7 million for the six months ended June 30, 2022. The increase during the three and six months ended June 30, 2023 was primarily attributable to an increase in Total Written Premium.
26


Franchise revenues
Franchise Revenues consist of Royalty Fees, Initial Franchise Fees, and Other Franchise Revenues.
The following table sets forth these revenue streams by amount and as a percentage of franchise revenues for the periods indicated (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2023202220232022
Core Revenues:
Renewal Royalty Fees$27,552 73 %$18,870 71 %$50,304 72 %$32,872 69 %
New Business Royalty Fees6,267 17 %4,821 18 %11,909 17 %9,113 19 %
Total Core Revenues:33,819 90 %23,691 90 %62,213 89 %41,985 89 %
Cost Recovery Revenues:
Initial Franchise Fees3,287 %2,591 10 %6,350 %4,887 10 %
Ancillary Revenues:
Other Franchise Revenues581 %145 %1,198 %505 %
Franchise revenues$37,687 100 %$26,427 100 %$69,761 100 %$47,377 100 %

Revenue from Renewal Royalty Fees increased by $8.7 million, or 46%, to $27.6 million for the three months ended June 30, 2023 from $18.9 million for the three months ended June 30, 2022. Revenue from Renewal Royalty Fees increased by $17.4 million, or 53%, to $50.3 million for the six months ended June 30, 2023 from $32.9 million for the six months ended June 30, 2022. The increase in revenue from Renewal Royalty Fees was primarily attributable to an increase in the number of policies in the renewal term and offset by a slight decline in client retention to 88% as of June 30, 2023 from 89% as of June 30, 2022.
Revenue from New Business Royalty Fees increased by $1.4 million, or 30%, to $6.3 million for the three months ended June 30, 2023 from $4.8 million for the three months ended June 30, 2022. Revenue from New Business Royalty Fees increased by $2.8 million, or 31%, to $11.9 million for the six months ended June 30, 2023 from $9.1 million for the six months ended June 30, 2022. The increase in revenue from New Business Royalty Fees was primarily attributable to an increase in total franchise producers and rising premium rates.
Revenue from Initial Franchise Fees increased by $0.7 million, or 27%, to $3.3 million for the three months ended June 30, 2023 from $2.6 million for the three months ended June 30, 2022. Revenue from Initial Franchise Fees increased by $1.5 million, or 30%, to $6.4 million for the six months ended June 30, 2023 from $4.9 million for the six months ended June 30, 2022. The primary reason for this increase is higher turnover of franchises during the year, which accelerates recognition of Initial Franchise Fees for terminated franchises.
Interest income
Interest income increased by $0.1 million, or 26%, to $0.4 million for the three months ended June 30, 2023 from $0.3 million for the three months ended June 30, 2022. Interest income increased by $0.2 million, or 25%, to $0.8 million for the six months ended June 30, 2023 from $0.6 million for the six months ended June 30, 2022. This increase was primarily attributable to additional Franchise Agreements signed under the payment plan option.
Expenses
Employee compensation and benefits
Employee compensation and benefits expenses increased by $5.8 million, or 18%, to $37.5 million for the three months ended June 30, 2023 from $31.7 million for the three months ended June 30, 2022. Employee compensation and benefits expenses increased by $11.2 million, or 18%, to $74.4 million for the six months ended June 30, 2023 from $63.1 million for the six months ended June 30, 2022. The 18% increase was primarily related to an increase in equity-based compensation of 14% related to stock option awards during the year.
27


General and administrative expenses
General and administrative expenses increased by $5.0 million, or 40%, to $17.3 million for the three months ended June 30, 2023 from $12.4 million for the three months ended June 30, 2022. General and administrative expenses increased by $7.3 million, or 28%, to $33.2 million for the six months ended June 30, 2023 from $25.9 million for the six months ended June 30, 2022. This increase was primarily attributable to $3.6 million asset impairment charges related to internally developed software and impairment of two office locations the Company determined to sublease.
Bad debts
Bad debts decreased by $0.8 million, or 46%, to $0.9 million for the three months ended June 30, 2023 from $1.7 million for the three months ended June 30, 2022. The decrease is primarily attributable to a decrease in franchise turnover during the three months ended June 30, 2023 compared to the three months ended June 30, 2022. Bad debts increased by $0.1 million, or 4%, to $2.6 million for the six months ended June 30, 2023 from $2.5 million for the six months ended June 30, 2022. The increase was primarily attributable to higher franchise turnover during the six months ended June 30, 2023 from the six months ended June 30, 2022.
Depreciation and amortization
Depreciation and amortization increased by $0.7 million, or 43%, to $2.4 million for the three months ended June 30, 2023 from $1.7 million for the three months ended June 30, 2022. Depreciation and amortization increased by $1.2 million, or 38%, to $4.5 million for the six months ended June 30, 2023 from $3.2 million for the six months ended June 30, 2022. This increase was primarily attributable to the increase in fixed assets since June 30, 2022, including the expansion of existing corporate offices and computer equipment for additional employees hired.
Interest expense
Interest expenses increased by $0.6 million for the three months ended June 30, 2023, to $1.7 million from $1.1 million for the three months ended June 30, 2022. Interest expenses increased by $1.4 million for the six months ended June 30, 2023, to $3.4 million from $2.0 million for the six months ended June 30, 2022. The primary driver of this increase was the rising interest rate environment, partially offset by a decrease in total borrowings outstanding.

Key performance indicators
Our key operating metrics are discussed below:
Total Written Premium
Total Written Premium represents for any reported period, the total amount of current (non-cancelled) gross premium that is placed with Goosehead’s portfolio of Carriers. Total Written Premium placed is an appropriate measure of operating performance because it reflects growth of our business relative to other insurance agencies.
The following tables show Total Written Premium placed by corporate agents and franchisees for the three and six months ended 2023 and 2022 (in thousands).
  Three Months Ended June 30,% Change
  20232022
Corporate sales Total Written Premium$179,638