UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
þ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedMarch 31, 20182022
OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number: 001-38466


GOOSEHEAD INSURANCE, INC.
(Exact name of registrant as specified in its charter)

Delaware82-3886022
(State or other jurisdiction of

incorporation or organization)
(IRS Employer

Identification No.)
1500 Solana Blvd, Building 4, Suite 4500
Westlake, TX
76262
Westlake
Texas76262
(Address of principal executive offices)(Zip Code)


(214) 838-5500(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 ifwhether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule-405Rule 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 and post such files).
þ Yes o No

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

As of June 7, 2018,April 27, 2022, there were 13,533,26720,416,358 shares of Class A common stock outstanding and 22,746,66716,710,886 shares of Class B common stock outstanding.





Table of contents
Page
Part IPage
Part I
Item 1.Condensed Consolidated Financial Statements (Unaudited)
5
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
1720
Item 3.Quantitative and Qualitative Disclosures About Market Risk
2733
Item 4.Controls and Procedures
2733
Part II
Item 1.Legal MattersProceedings
2834
Item 1A.Risk Factors
2834
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
2834
Item 3.Defaults Upon Senior Securities
2934
Item 4.Mine Safety Disclosures
2934
Item 5.Other Information
2934
Item 6.Exhibits
3035
3035
 




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.
Corporate Channel:•Core Revenue: The Corporate Channel distributes insurance through a networkmost predictable revenue stream for the Company, these revenues consist of company-ownedNew Business Revenue and financed operationsRenewal 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 employees thatcost recovery efforts associated with selling and financing franchises. Included in Cost Recovery Revenue are hired, trainedInitial Franchise Fees and managed by Goosehead.Interest Income.
Corporate Channel Adjusted EBITDA: Segment earnings before interest, income taxes, depreciation and amortization allocable to the Corporate Channel, adjusted to exclude Class B unit compensation.
•Franchise Agreement: Agreements governing our relationships with Franchisees.
Franchise Channel: The Franchise Channel network consists of Franchisee operations that are owned and managed by Franchisees. These business owners have a contractual relationship with Goosehead to use our processes, training, implementation, systems and back-office support team to place insurance. In exchange, Goosehead is entitled to an Initial Franchise Fee and Royalty Fees.
Franchise Channel Adjusted EBITDA: Segment earnings before interest, income taxes, depreciation and amortization, adjusted to exclude other non-operating items allocable to the Franchise Channel and Class B unit compensation.
•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 onboardingongoing support of new franchise locations.
•LLC Unit: a limited liability company unit of Goosehead Financial, LLC.
•New Business Revenue:Commission: Commissions received from Carriers relating to policies in their first term.
•New Business Revenue: New Business Commissions, Agency Fees, received from clients, and New Business Royalty Fees.
•New Business Royalty Fees: Royalty Fees received from Franchisees relating to policies in their first term.term
New Business Revenue (Corporate): Commissions received from Carriers and Agency Fees charged to clients relating to policies in their first term sold in the Corporate Channel.
•NPS: Net Promoter Score is calculated based on a single question: “How likely are you to refer Goosehead Insurance to a friend, family member or colleague?” CustomersClients that respond with a 6 or below are Detractors, a score of 7 or 8 are called Passives, and a 9 or 10 are Promoters. NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters.
•Policies in Force: As of any reported date, the total count of current (non-cancelled) policies placed by us with our Carriers.
•Pre-IPO LLC Members: The membersowners of Goosehead Financial, LLC Units of GF prior to the closing of the initial public offering of Goosehead Insurance, Inc.Offering.
•Renewal Revenue: Renewal Commissions received from Carriers and Renewal Royalty Fees received from Franchisees after the first term of policies.Fees.
Renewal Revenue (Corporate): Commissions received from Carriers after the first term of policies originally sold in the Corporate Channel.
•Royalty Fees: Fees paid by Franchisees to the Company that are tied to the gross commissions paid by the Carriers related to policies sold or renewed in the Franchise Channel.by a franchisee.
Segment: One of the two•The Offering: The initial public offering completed by Goosehead sales distribution channels, the Corporate Channel or the Franchise Channel.Insurance, Inc. on May 1, 2018.
Segment Adjusted EBITDA: Either Corporate Channel Adjusted EBITDA or Franchise Channel Adjusted EBITDA.
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 “Risk factors” in our prospectus (the “Final Prospectus”) relating to our Registration Statement on Form S-1, as amended (Registration No. 333-224080), filed with the U.S. Securities and Exchange Commission (the “SEC”) pursuant to Rule 424(b) under the U.S. Securities Act of 1933, as amended. You should specifically consider the numerous risks outlined under “Risk“Item 1A. Risk factors” in the Final Prospectus.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 prospectusForm 10-Q to conform our prior statements to actual results or revised expectations.

4


PART I


Item 1. Condensed Consolidated and Combined Financial Statements (Unaudited)
Page
Condensed Consolidated Statements of Operations
6
Condensed Consolidated Balance Sheets
7
Condensed Consolidated Statements of Stockholders' Equity
8
Condensed Consolidated Statements of Cash Flows
9
Notes to the Condensed Consolidated Financial Statements
10
Note 1Organization
10
Note 2Summary of significant accounting policies
10
Note 3Revenues
12
Note 4Franchise fees receivable
14
Note 5Allowance for uncollectible agency fees
14
Note 6Property and equipment
15
Note 7Debt
15
Note 8Income taxes
16
Note 9Stockholder's equity
17
Note 10Non-controlling interest
18
Note 11Equity-based compensation
19
Note 12Segment information
19
Note 13Litigation
19
Page
Condensed Consolidated and Combined Balance Sheets
6
Condensed Consolidated and Combined Statements of Income
7
Condensed Consolidated and Combined Statements of Members’ Deficit
8
Condensed Consolidated and Combined Statements of Cash Flows
9
Notes to the Condensed Consolidated and Combined Financial Statements
10
Note 1Organization
10
Note 2Summary of significant accounting policies
11
Note 3Franchise fees receivable
12
Note 4Allowance for uncollectible agency fees
12
Note 5Notes receivable
12
Note 6Note payable
13
Note 7Commitments and contingencies
14
Note 8Litigation
14
Note 9Segment information
14
Note 10Pro Forma Earnings Per Share
16
Note 11Subsequent Events
17







5

Goosehead Financial, LLC and Subsidiaries and Affiliates Insurance, Inc.
Condensed Consolidated and Combined Balance SheetsStatements of Operations
(Unaudited)
(In thousands, except per share amounts)
  Three Months Ended March 31,
  20222021
Revenues:
Commissions and agency fees$20,009 $17,534 
Franchise revenues20,950 13,433 
Interest income319 261 
Total revenues41,278 31,228 
Operating Expenses:
Employee compensation and benefits31,484 21,309 
General and administrative expenses13,524 9,274 
Bad debts796 447 
Depreciation and amortization1,576 1,000 
Total operating expenses47,380 32,030 
Loss from operations(6,102)(802)
Other Income (Expense):
Other income— 20 
Interest expense(883)(601)
Loss before taxes(6,985)(1,383)
Tax benefit(1,602)(294)
Net loss(5,383)(1,089)
Less: net loss attributable to non-controlling interests(3,126)(693)
Net loss attributable to Goosehead Insurance, Inc.$(2,257)$(396)
Earnings per share:
Basic$(0.11)$(0.02)
Diluted$(0.11)$(0.02)
Weighted average shares of Class A common stock outstanding
Basic20,240 18,375 
Diluted20,240 18,375 
  
 March 31 December 31
  
 2018 2017
Assets    
Current Assets    
Cash and cash equivalents $6,331,916
 $4,947,671
Restricted cash 609,632
 417,911
Commissions and agency fees receivable, net 1,767,765
 1,268,172
Receivable from franchisees, net 579,681
 564,087
Prepaid expenses 740,050
 521,362
Other assets 3,213,348
 —
Total current assets 13,242,392
 7,719,203
Receivable from franchisees, net of current portion 1,679,478
 1,360,686
Property and equipment, net of accumulated depreciation 6,866,621
 6,845,121
Intangible assets, net of accumulated amortization 235,878
 216,468
Other assets 179,075
 565,191
Total assets $22,203,444
 $16,706,669
Liabilities and Members’ Equity    
Current Liabilities:    
Accounts payable and accrued expenses $4,925,944
 $2,759,241
Premiums payable 609,632
 417,911
Unearned revenue 775,050
 1,062,050
Dividends payable —
 550,000
Deferred rent 460,674
 477,818
Note payable 500,000
 500,000
Total current liabilities 7,271,300
 5,767,020
Deferred rent, net of current portion 4,217,549
 3,916,257
Note payable, net of current portion 48,079,733
 48,156,340
Total liabilities 59,568,582
 57,839,617
Commitments and contingencies (see note 7) 
 
Members’ deficit (37,365,138) (41,132,948)
Total liabilities and members’ deficit $22,203,444
 $16,706,669




See Notes to the Condensed Consolidated and Combined Financial Statements

6




Goosehead Financial, LLC and Subsidiaries and Affiliates Insurance, Inc.
Condensed Consolidated and Combined Statements of IncomeBalance Sheets
(Unaudited)
(In thousands, except per share amounts)
  March 31,December 31,
  20222021
Assets
Current Assets:
Cash and cash equivalents$21,187 $28,526 
Restricted cash1,492 1,953 
Commissions and agency fees receivable, net8,804 12,056 
Receivable from franchisees, net252 493 
Prepaid expenses10,458 4,785 
Total current assets42,193 47,813 
Receivable from franchisees, net of current portion31,537 29,180 
Property and equipment, net of accumulated depreciation25,257 24,933 
Right-of-use asset37,421 32,656 
Intangible assets, net of accumulated amortization3,399 2,798 
Deferred income taxes, net128,977 125,676 
Other assets6,487 4,742 
Total assets$275,271 $267,798 
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses$6,742 $10,502 
Premiums payable1,492 1,953 
Lease liability5,634 4,893 
Contract liabilities6,214 6,054 
Note payable5,000 4,375 
Total current liabilities25,082 27,777 
Lease liability, net of current portion52,363 47,335 
Note payable, net of current portion117,167 118,361 
Contract liabilities, net of current portion45,362 42,554 
Liabilities under tax receivable agreement103,194 100,959 
Total liabilities343,168 336,986 
Class A common stock, $0.01 par value per share - 300,000 shares authorized, 20,321 shares issued and outstanding as of March 31, 2022, 20,198 shares issued and outstanding as of December 31, 2021201 200 
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 16,808 issued and outstanding as of March 31, 2022, 16,909 shares issued and outstanding as of December 31, 2021169 170 
Additional paid in capital52,589 46,281 
Accumulated deficit(63,406)(60,671)
Total stockholders' equity(10,447)(14,020)
Non-controlling interests(57,450)(55,168)
Total equity(67,897)(69,188)
Total liabilities and equity$275,271 $267,798 
  
 Three Months Ended March 31
  
 2018 2017
Revenues:    
Commissions and agency fees $9,595,576
 $6,361,846
Franchise revenues 4,910,528
 3,481,116
Interest income 82,777
 47,987
Total revenues 14,588,881
 9,890,949
Operating Expenses:    
Employee compensation and benefits 6,835,424
 4,867,647
General and administrative expenses 2,373,622
 1,833,599
Bad debts 279,688
 251,882
Depreciation and amortization 336,935
 137,657
Total operating expenses 9,825,669
 7,090,785
Income from operations 4,763,212
 2,800,164
Other Income (Expense):    
Interest expense (995,402) (532,715)
Net Income $3,767,810
 $2,267,449
Pro forma earnings per share:    
Basic $0.08
 $0.05
Diluted $0.08
 $0.05


See Notes to the Condensed Consolidated and Combined Financial Statements

7



Goosehead Financial, LLC and Subsidiaries and Affiliates Insurance, Inc.
Condensed Consolidated and Combined Statements of Members’ DeficitStockholders' Equity
(Unaudited)
(In thousands)
  
Total Members’
Deficit
Members’ deficit, December 31, 2017$(41,132,948)
Net income3,767,810
Capital withdrawn—
Members’ deficit, March 31, 2018$(37,365,138)
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)


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, 202118,304 18,447 183 184 29,371 (34,614)(4,876)(33,528)(38,404)
Net loss— — — — — (396)(396)(693)(1,089)
Exercise of stock options9 — 226 226 226 
Equity-based compensation— — — — 1,941 — 1,941 — 1,941 
Activity under employee stock purchase plan2 — — — 205 — 205 — 205 
Redemption of LLC Units133 (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, 202118,448 18,314 184 183 32,292 (35,008)(2,349)(33,956)(36,305)

See Notes to the Condensed Consolidated and Combined Financial Statements

8



`Goosehead Financial, LLC and Subsidiaries and AffiliatesInsurance, Inc.
Condensed Consolidated and Combined Statements of Cash Flows
(Unaudited)
  
 For the three months ended March 31
  
 2018 2017
Cash flows from operating activities:    
Net income $3,767,810
 $2,267,449
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 336,935
 137,657
Bad Debt Expense 279,688
 251,882
Changes in operating assets and liabilities:    
Commissions and agency fees receivable (705,261) (191,651)
Receivable from franchisees (413,833) (278,955)
Prepaid expenses (218,688) (245,959)
Other assets (2,827,232) (33,844)
Accounts payable and accrued expenses 2,166,702
 (153,595)
Deferred rent 284,148
 (35,079)
Premiums payable 191,721
 26,991
Unearned revenue (287,000) (255,000)
Net cash provided by operating activities 2,574,990
 1,489,896
Cash flows from investing activities:    
Changes in restricted cash (191,721) (26,991)
Proceeds from notes receivable 5,426
 31,845
Purchase of software (44,670) (21,097)
Purchase of property and equipment (334,080) (79,833)
Net cash used for investing activities (565,045) (96,076)
Cash flows from financing activities:    
Loan origination fees 49,300
 33,000
Repayment of note payable (125,000) (75,000)
Dividends paid (550,000) (500,000)
Net cash used for financing activities (625,700) (542,000)
Net increase in cash and cash equivalents 1,384,245
 851,820
Cash, beginning of period 4,947,671
 3,778,098
Cash, end of period $6,331,916
 $4,629,918
(In thousands)
  Three Months Ended March 31,
  20222021
Cash flows from operating activities:
Net loss$(5,383)$(1,089)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation and amortization1,632 1,066 
Bad debt expense796 447 
Equity-based compensation5,788 1,941 
Impacts of Tax Receivable Agreement2,235 3,420 
Deferred income taxes(2,885)(3,574)
Noncash lease activity1,004 13 
Changes in operating assets and liabilities:
Receivable from franchisees(2,397)(3,694)
Commissions and agency fees receivable2,727 13,424 
Prepaid expenses(5,673)(3,870)
Other assets(1,743)(1,337)
Accounts payable and accrued expenses(3,762)(2,796)
Contract liabilities2,968 3,553 
Premiums payable(461)(165)
Payments pursuant to the tax receivable agreement— 549 
Net cash provided by (used for) operating activities(5,154)7,888 
Cash flows from investing activities:
Proceeds from notes receivable10 10 
Purchase of software(773)(165)
Purchase of property and equipment(1,728)(1,945)
Net cash used for investing activities(2,491)(2,100)
Cash flows from financing activities:
Repayment of note payable(625)(500)
Proceeds from the issuance of Class A common stock470 431 
Net cash used for financing activities(155)(69)
Net decrease in cash and restricted cash(7,800)5,719 
Cash and cash equivalents, and restricted cash, beginning of period30,479 26,236 
Cash and cash equivalents, and restricted cash, end of period$22,679 $31,955 
Supplemental disclosures of cash flow data:
Cash paid during the year for interest1,086 535 
Cash paid for income taxes9 — 
See Notes to the Condensed Consolidated and Combined Financial Statements

9
Goosehead Financial, LLC and Subsidiaries and AffiliatesInsurance, Inc.
Notes to the Condensed Consolidated and Combined Financial Statements
(Unaudited)



1. Organization
On May 1, 2018
Goosehead Insurance, Inc. ("GSHD"(“GSHD”) completed an initial public offering (the “Offering”) of 9,809,500 shares of Class A common stock at a price of $10.00 per share, which included 1,279,500 shares issued pursuant to the underwriter's over-allotment option. GSHD becameis the sole managing member of Goosehead Financial, LLC (“GF”). The operations and has the sole voting power and control of management of GF. Accordingly, GSHD consolidates the financial results of GF represent the predecessor to GSHD prior to the Offering, and thereports non-controlling interest in GSHD’s condensed consolidated and combined entities of GF are described in more detail below.financial statements.
GF was organized on January 1, 2016 as a Delaware Limited Liability Company and is headquartered in Westlake, TX. GF
GSHD (collectively with its combined and consolidated subsidiaries, and affiliates, the “Company”) provides personal and commercial property and casualty insurance brokerage services for its clients through a network of corporate-owned agencies and franchise units across the nation.
The operations of the corporate-owned units are reflected in the financial statements of Texas Wasatch Insurance Services, L.P. (“TWIS”)—a Texas limited partnership headquartered in Westlake, TX and operating since 2003. TWIS is 99.6% owned by Goosehead Insurance Holdings, LLC (“GIH”), a wholly owned subsidiary of GF. The Company had seven15 and four10 corporate-owned locations in operation at March 31, 20182022 and 2017,2021, respectively.
The operations of the franchise units are reflected in the financial statements of Goosehead Insurance Agency, LLC (“GIA”)—a Delaware limited liability company headquartered in Westlake, TX and operating since 2011. GIA is 100% owned by GIH. Franchisees are provided access to insurance Carrier Appointments, product training, technology infrastructure, client service centers and back office services. During the three months ended March 31, 20182022 and 2017,2021, the Company sold 58onboarded 113 and 38117 franchise locations, respectively, and had 3411,268 and 220987 operating franchise locations as of March 31, 2022 and 2021, respectively. No franchises were purchased by the Company during the three months ended March 31, 20182022 or 2017.2021.

All intercompany accounts and transactions have been eliminated in consolidationconsolidation.

2. Summary of GF.
Basis of Combination
In connection with the Offering, both Goosehead Management, LLC (“GM”) and Texas Wasatch Insurance Holdings Group LLC (“TWIHG”) became wholly owned indirect subsidiaries of GF. Both GM and TWIHG are non-operating holding companies created to receive management fees from the operating entities TWIS and GIA.
All intercompany accounts and transactions have been eliminated in combination of the Company.

Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated and combined 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 and combined financial positionpositions at March 31, 2018,2022 and December 31, 2021, the condensed consolidated and combined results of operations, stockholders' equity and statements of cash flows for the periodsthree months ended March 31, 20182022 and 2017.2021. The interim period condensed consolidated and combined financial statements should be read in conjunction with the Consolidated and Combined Financial Statements that are included in the Final Prospectus.Annual Report on Form 10-K.

In accordance with Accounting Standards Codification 280 "Segment Reporting", the Company began reporting 1 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 months ended March 31, 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. Changes in consumer behavior linked to the COVID-19 pandemic may have contributed to reduced loss ratios through the twelve months ended December 31, 2020, increasing the amount of revenue from Contingent Commissions the Company received. Due to the nature of our business, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods.

10
Goosehead Financial, LLC and Subsidiaries and AffiliatesInsurance, Inc.
Notes to the Condensed Consolidated and Combined Financial Statements
(Unaudited)

2. Summary of Significant Accounting Policies

Use of Estimates

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

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

Restricted Cash
The Company holds premiums received from the insured, but not yet remitted to the insurance Carrier in a fiduciary capacity. Premiums received but not yet remitted included in restricted cash were $1.5 million and $1.2 million as of March 31, 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 three months ended March 31, 2022 and 2021 (in thousands):
March 31,
20222021
Cash and cash equivalents$21,187 $30,797 
Restricted cash1,492 1,158 
Cash and cash equivalents, and restricted cash$22,679 $31,955 


0Recently adopted accounting pronouncements
Simplifying the Accounting for Income Taxes (ASU 2019-12): In connection2019, 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 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.

11
Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
3. Revenue

Commissions and fees
The Company earns new and renewal commissions paid by insurance Carriers and fees paid by its clients for the binding of insurance coverage. The transactions price is set as the estimated commissions to be received over the term of the policy based on an estimate of premiums placed, policy changes and cancellations, net of a constraint. These commissions and fees are earned at a point in time upon the effective date of bound insurance coverage, as no performance obligation exists after coverage is bound.
For Agency Fees, the Company enters into a contract with the Offering,insured, in which the Company's performance obligation is to place an insurance policy. The transaction price of the agency fee is set at the time the sale is agreed upon, and is included in the contract. Agency Fee revenue is recognized at a point in time, which is the effective date of the policy.
Contingent commission revenue is generated from contracts between the Company and insurance carriers, for which the Company is compensated for certain growth, profitability, or other performance-based metrics. The performance obligations for contingent commissions will vary by contract, but generally include the Company increasing profitable written premium with the insurance carrier. The transaction price for contingent commissions is estimated based on all available information and is recognized over time as the Company completes its performance obligations, as the underlying policies are placed, net of a constraint.
Franchise revenues
Franchise revenues include initial franchise fees and ongoing new and renewal royalty fees from franchisees.

Revenue from initial franchise fees is generated from a contract between the Company and a franchisee. The Company's performance obligation is to provide initial training, onboarding, ongoing support and use of the Company's business operations over the period of the franchise agreement. The transaction price is set by the franchise agreement and revenue is recognized over time as the Company completes its performance obligations.
Revenue from new and renewal royalty fees is recorded by applying the sales- and usage-based royalties exception. Under the sales- and usage-based exception, the Company estimates the anticipated amount of the royalties to be received over the term of the policy based on an estimate of premiums placed by the franchisee, policy changes, and cancellations, net of a constraint. Revenue from royalty fees is recognized over time as the placement of the underlying policies occur.
Contract costs
Additionally, the Company has incurredevaluated 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 have been recorded the Company pays an incremental amount of compensation on new Franchise Agreements. These incremental costs are deferred and amortized over a 10-year period, which is consistent with the term of the contract.
Costs to fulfill - The Company has evaluated the need to capitalize costs to fulfill customer contracts and has determined that there are no costs that meet the definition for capitalization under ASC 340.

12
Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Disaggregation of Revenue
The following table disaggregates revenue by source (in otherthousands):
Three Months Ended March 31, 2022Three Months Ended March 31, 2021
Type of revenue stream:
Commissions and agency fees
Renewal Commissions$10,207 $7,757 
New Business Commissions5,367 4,616 
Agency Fees2,637 2,424 
Contingent Commissions1,798 2,737 
Franchise revenues
Renewal Royalty Fees14,002 8,746 
New Business Royalty Fees4,292 3,157 
Initial Franchise Fees2,296 1,432 
Other Franchise Revenues360 98 
Interest Income319 261 
Total Revenues$41,278 $31,228 
Timing of revenue recognition:
Transferred at a point in time$18,211 $14,797 
Transferred over time23,067 16,431 
Total Revenues$41,278 $31,228 




Contract Balances
The following table provides information about receivables, cost to obtain, and contract liabilities from contracts with customers (in thousands):
March 31, 2022December 31, 2021Increase/(decrease)
Cost to obtain franchise contracts(1)
$2,196 $1,973 $223 
Commissions and agency fees receivable, net(2)
8,804 12,056 (3,252)
Receivable from franchisees(2)
31,789 29,673 2,116 
Contract liabilities(2)(3)
51,576 48,608 2,968 
(1) Cost to obtain franchise contracts is included in Other assets on the condensed consolidated balance sheets.
(2) Includes both the current and combined balance sheet. Upon completionlong term portion of this balance.
(3) Initial Franchise Fees to be recognized over the life of the Offering, these deferred costs were charged againstcontract.


The Company records Franchise Fees as contract liabilities on the proceeds fromCondensed Consolidated Balance Sheets when the Offering with a corresponding reduction to additional paid-in capital. There were $3.2 million and $170 thousandagreement is executed. Contract liabilities are reduced as fees are recognized in revenue over the expected life of IPO related costs includedthe franchise license. As the term of the franchise license is typically ten years, substantially all of the franchise fee revenue recognized in other assets atthe period ended March 31, 2018 and December 31, 2017, respectively.

Income Taxes

Prior to the Offering, the Company was treated as a partnership for U.S. federal and applicable state and local income tax purposes. As a partnership, the Company's taxable income or loss2022 was included in the taxable incomecontract liabilities balance as of its members. Accordingly, no income tax expense has been recordedDecember 31, 2021.

The weighted average remaining amortization period for federal and state and local jurisdictions.contract liabilities related to open franchises is 8.1 years.
In connection with the Offering completed on May 1, 2018, the Company became a taxable entity.
Recently Issued Accounting Pronouncements
Statement of Cash Flows (ASU 2016-18): This standard requires that the Statement of Cash Flows explain the changes during the period of cash and cash equivalents inclusive of amounts categorized as Restricted Cash. As such, upon adoption, the Company’s consolidated and combined statement of cash flows will show the sources and uses of cash that explain the movement in the balance of cash and cash equivalents, inclusive of restricted cash, over the period presented. As an emerging growth company (“EGC”), the standard will become effective for the Company January 1, 2019.
Statement of Cash Flows (ASU 2016-15): This standard addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified and applies to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic 230. The standard will become effective for the Company on January 1, 2019. The Company has evaluated the impact of ASU 2016-15 and has determined the impact to be immaterial. The Company does not, at this time, engage in the activities being addressed.
Revenue from Contracts with Customers (ASU 2014-09): This standard supersedes the existing revenue recognition guidance and provides a new framework for recognizing revenue. The core principle of the standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The new standard also requires significantly more comprehensive disclosures than the existing standard. Guidance subsequent to ASU 2014-09 has been issued to clarify various provisions in the standard, including principal versus agent considerations, identifying performance obligations, licensing transactions, as well as various technical corrections and improvements. This standard may be adopted using either a retrospective or modified retrospective method. According to the superseding standard ASU 2015-14 that deferred the effective dates of the preceding, the standard will become effective for the Company January 1, 2019. The Company is currently in the process of evaluating the impact this standard is expected to have on the consolidated and combined financial statements. As the Company continues the evaluation during 2018, specifically as it relates to revenue recognition (commissions, contingent commissions, and franchise fees, among others), cost deferrals, systems and processes, the Company will further clarify the expected material impact of the adoption of the standard when known.



11
13
Goosehead Financial, LLC and Subsidiaries and AffiliatesInsurance, Inc.
Notes to the Condensed Consolidated and Combined Financial Statements
(Unaudited)

Significant changes in contract liabilities are as follows (in thousands):
Leases (ASU 2016-02): This standard establishes a new lease accounting model,
Contract liabilities at December 31, 2021$48,608 
Revenue recognized during the period2,296 
New deferrals(1)
672 
Contract liabilities at March 31, 202251,576 
(1) Initial Franchise Fees where the consideration is received from the customer for services which introducesare to be transferred to the recognitionFranchisee over the expected life of lease assets and liabilities for those leases classified as operating leases under previous GAAP. It should be applied using a modified retrospective approach, with the option to elect various practical expedients. Early adoption is permitted. The standard will become effective for us January 1, 2020. The Company is currently evaluating the impact this standard will have on the Company's consolidated and combined financial statements.Franchise Agreement

3.
4. Franchise Fees Receivable
The balance of Franchise fees receivable included in Receivable from franchisees consisted of the following at March 31, 2018(in thousands):
  
March 31, 2022December 31, 2021
Franchise fees receivable(1)
$43,703 $40,171 
Less: Unamortized discount(1)
(10,557)(9,518)
Less: Allowance for uncollectible franchise fees(1)
(388)(303)
Net franchise fees receivable(1)
$32,758 $30,350 
(1) Includes both the current and December 31, 2017:
long term portion of this balance
  
 March 31 December 31
  
 2018 2017
Franchise fees receivable $3,124,196
 $2,501,000
Less: Unamortized discount (1,076,754) (823,391)
Less: Allowance for uncollectible franchise fees (409,542) (335,522)
  $1,637,900
 $1,342,087
Activity in the allowance for uncollectible franchise fees was as follows:follows (in thousands):
Balance at December 31, 2021$303 
Charges to bad debts271 
Write offs(186)
Balance at March 31, 2022$388 
Balance at December 31, 2020$149 
Charges to bad debts161 
Write offs(150)
Balance at March 31, 2021$160 


Balance at December 31, 2016$193,204
Charges to bad debts140,493
Write offs(84,162)
Balance at March 31, 2017$249,535
  
Balance at December 31, 2017335,522
Charges to bad debts74,020
Write offs—
Balance at March 31, 2018$409,542

4.5. Allowance for Uncollectible Agency Fees
Activity in the allowance for uncollectible agency feesAgency Fees was as follows:follows (in thousands):
Balance at December 31, 2021$489 
Charges to bad debts525 
Write offs(499)
Balance at March 31, 2022$515 
Balance at December 31, 2020$468 
Charges to bad debts286 
Write offs(307)
Balance at March 31, 2021$447 

14
  
Balance at December 31, 2016$166,681
Charges to bad debts111,389
Write offs(133,068)
Balance at March 31, 2017$145,002
  
Balance at December 31, 2017182,509
Charges to bad debts205,668
Write offs(181,033)
Balance at March 31, 2018$207,144
 

5. Notes Receivable
In 2015, the Company entered into a $100,000 revolving line of credit with a franchisee in the form of a note receivable. The note dated December 14, 2015 has a 5-year maturity with payments due monthly and is secured by the franchisee’s commissions. The note bears interest at 7% per annum. As of March 31, 2018 and December 31,

12
Goosehead Financial, LLC and Subsidiaries and AffiliatesInsurance, Inc.
Notes to the Condensed Consolidated and Combined Financial Statements
(Unaudited)

6. Property and equipment
2017,Property and equipment consisted of the note balancefollowing (in thousands):
March 31, 2022December 31, 2021
Furniture & fixtures$7,647 $7,283 
Computer equipment3,074 3,369 
Network equipment314 514 
Phone system326 937 
Leasehold improvements24,431 25,115 
Total35,792 37,218 
Less accumulated depreciation(10,535)(12,285)
Property and equipment, net$25,257 $24,933 
Depreciation expense was $61 thousand$1.4 million and $67 thousand, of which $22 thousand$0.9 million for three months ended March 31, 2022 and $22 thousand was current.2021.

6. Note payable
7. Debt
On October 27, 2016,July 21, 2021, the Company entered into a credit agreement consisting of arefinanced its $25.0 million revolving credit facility and a$80.0 million term note payable used to pay off existing debta $50.0 million revolving credit facility and fund a distribution$100.0 million term note payable to members.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 $3,000,000$50.0 million revolving credit facility accrues interest on amounts drawn at an initial interest rate of LIBOR plus 5.50%.2.50%, then at an interest rate determined by the Company's leverage ratio for the preceding period. At March 31, 2018 and December 31, 2017,2022 the Company was accruing interest at LIBOR plus 250 basis points. At March 31, 2022, the Company had $25.0 million drawn against the revolving credit facility and had a letter of credit of $500,000$0.2 million applied against the maximum borrowing availability, at an interest rate of 5.50%, thuspayable on July 21, 2026. Thus, amounts available to draw totaled $2,500,000. No interest was paid during the three months ended March 31, 2018 or during 2017 on the revolving credit facility.$24.8 million. The revolving credit facility is collateralized by substantially all the Company’s assets, which includes rights to future commissions.

The note payable on the consolidated and combined balance sheets includes a $50,000,000 term note is payable in quarterly installments of $125,000$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 $47,250,000 on October 27, 2022. Interest is calculated at LIBOR plus 5.50% (7.20% and 6.45% at March 31, 2018 and December 31, 2017), and theJuly 21, 2026. The note is collateralized by substantially all of the Company’s assets, which includes rights to future commissions. Interest is calculated initially at LIBOR plus 2.50%, then at an interest rate based on the Company's leverage ratio for the preceding period. At March 31, 2022 the Company was accruing interest at LIBOR plus 250 basis points.
The balanceinterest rate for each leverage ratio tier is as follows:
Leverage RatioInterest Rate
< 1.50xLIBOR + 175 bps
> 1.50xLIBOR + 200 bps
> 2.50xLIBOR + 225 bps
> 3.50xLIBOR + 250 bps

15
Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Maturities of the note payable was $49,500,000, of which $500,000 was current, and $49,625,000, of which $500,000 was current, at March 31, 2018 and December 31, 2017, respectively.
Included as a reduction to the note payable are capitalized loan origination fees, the unamortized balance of which was $920,267 and $969,567 as of March 31, 2018 and December 31, 2017, respectively. The amortization of these loan origination fees is included in interest expense and totaled $49,300 and $33,000 during the three months ended March 31, 2018 and 2017, respectively.
Maturities ofterm note payable for the next five years are as follows:
follows (in thousands):
  
Amount
As of March 31, 2018: 
2018$375,000
2019500,000
2020500,000
2021500,000
202247,625,000
 $49,500,000
Amount
20223,750 
20236,875 
20249,375 
202510,000 
202668,125 
Total$98,125 

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 March 31, 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 March 31, 2018 and December 31, 2017,2022, the Company was in compliance with these covenants.
Because of both instruments’ origination date and variable interest rate, the note payable balance at March 31, 20182022 and December 31, 2017,2021, 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.

13
Goosehead Financial, LLC and Subsidiaries and Affiliates
Notes to the Condensed Consolidated and Combined Financial Statements

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.
7. Commitments8. Income Taxes
GSHD is the sole managing member of GF, which is treated as a partnership for U.S. federal and Contingencies
The Company leasesmost 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 facilities under non-cancelable operating leases, expiringmembers, including GSHD, on a pro rata basis. GSHD is subject to U.S. federal income taxes, in various years through 2029. In addition to monthly lease payments,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 lease agreements require the Company to reimburse the lessors for its portion of operating costs each year.
The following is a schedule of future minimum lease payments as ofthree months ended March 31, 2018:

 Amount
20181,083,835
20191,251,306
20201,690,476
20211,761,524
20221,604,230
Thereafter8,233,711
 $15,625,082
8. Litigation
From time2022 was $(1.6) million compared to time,$(294) thousand for the Company may be involvedthree months ended March 31, 2021. The effective tax rate was 23% for the three months ended March 31, 2022 and 21% for the three months ended March 31, 2021. The increase in various legal proceedings, lawsuits and claims incidentalthe effective tax rate for the three months ended March 31, 2022 compared to the conductthree months ended March 31, 2021 was primarily due to a decrease in exercises 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.employee stock options.
9. Segment Information
The Company has two reportable segments: Corporate Channel and Franchise Channel. The Corporate Channel consists of company-owned and financed operations with employees who are hired, trained, and managed by Goosehead. The Franchise Channel network consists of franchisee operations that are owned and managed by individual business owners. These business owners have a contractual relationship with Goosehead to use the Company's processes, systems, and back-office support team to sell insurance and manage their business. In exchange, Goosehead is entitled to an initial franchise fee and ongoing royalty fees. Allocations of contingent commissions and certain operating expenses are based on reasonable assumptions and estimates primarily using revenue, headcount and other information. The Company’s chief operating decision maker uses earnings before interest, incomeDeferred taxes depreciation and amortization, adjusted to exclude Class B unit compensation and other income (“Adjusted EBITDA”) as a performance measure to manage resources and make decisions about the business. Summarized financial information concerning the Company’s reportable segments is shown in the following table. There are no intersegment sales, only interest income and interest expense related to an intersegment line of credit, all of which eliminate in consolidation. The “Other” column includes any income and expenses not allocated to reportable segments and corporate-related items, including certain legal expenses and interest related to the note payable entered into on October 27, 2016.


14
16
Goosehead Financial, LLC and Subsidiaries and AffiliatesInsurance, Inc.
Notes to the Condensed Consolidated and Combined Financial Statements
(Unaudited)

Deferred tax assets at March 31, 2022 were $129.0 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 three months ended March 31, 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 months ended March 31, 2022, an aggregate of 100,690 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 100,690 LLC Units, which resulted in an increase in the tax basis of its investment in GF subject to the provisions of the tax receivable agreement. The Company recognized a liability for the TRA Payments due to the Pre-IPO LLC Members, representing 85% of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the redemptions of LLC Units, after concluding it was probable that such TRA Payments would be paid based on its estimates of future taxable income. As of March 31, 2022, the total amount of TRA Payments due to the Pre-IPO LLC Members under the tax receivable agreement was $103.2 million, of which $0.0 million was current and included in Accounts payables and accrued expenses on the Consolidated Balance Sheet. Future exchanges of LLC Units for Class A common stock will result in additional TRA payments.
Uncertain tax positions
GSHD has determined there are no material uncertain tax positions as of March 31, 2022.
9. Stockholders' Equity
Class A Common Stock
GSHD has a total of 20,321 thousand shares of its Class A common stock outstanding at March 31, 2022. Each share of Class A common stock holds economic rights and entitles its holder to 1 vote per share on all matters submitted to a vote of the stockholders of GSHD.
Class B Common Stock
GSHD has a total of 16,808 thousand shares of its Class B common stock outstanding at March 31, 2022. Each share of Class B common stock has no economic rights but entitles its holder to 1 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 months ended March 31, 2022 and 2021, divided by the basic weighted average number of Class A common stock as of March 31, 2022 and March 31, 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 securities. The Company has not included the effects of conversion of Class B shares to Class A shares in
17
  
Corporate
Channel
 
Franchise
Channel
 Other Total
Three months ended March 31, 2018:        
Revenues:        
Commissions and fees $7,855,665
 $1,739,911
 $—
 $9,595,576
Franchise revenues —
 4,910,528
 —
 4,910,528
Interest income —
 82,777
 —
 82,777
Total 7,855,665
 6,733,216
 —
 14,588,881
Operating expenses:        
Employee compensation and benefits 4,044,587
 2,790,837
 —
 6,835,424
General and administrative expenses 1,627,876
 745,142
 604
 2,373,622
Bad debts 205,668
 74,020
 —
 279,688
Total 5,878,131
 3,609,999
 604
 9,488,734
Adjusted EBITDA 1,977,534
 3,123,217
 (604) 5,100,147
Class B unit compensation —
 —
 —
 —
Interest expense —
 —
 (995,402) (995,402)
Depreciation and amortization (236,182) (100,753) —
 (336,935)
Net income $1,741,352
 $3,022,464
 $(996,006) $3,767,810
At March 31, 2018:        
Total Assets $10,407,528
 $5,992,548
 $5,803,368
 $22,203,444

  
Corporate
Channel
 
Franchise
Channel
 Other Total
Three months ended March 31, 2017:        
Revenues:        
Commissions and fees $5,549,105
 $812,741
 $—
 $6,361,846
Franchise revenues —
 3,481,116
 —
 3,481,116
Interest income —
 47,987
 —
 47,987
Total 5,549,105
 4,341,844
 —
 9,890,949
Operating expenses:        
Employee compensation and benefits 2,850,691
 2,016,956
 —
 4,867,647
General and administrative expenses 1,124,572
 694,143
 14,884
 1,833,599
Bad debts 111,389
 140,493
 —
 251,882
Total 4,086,652
 2,851,592
 14,884
 6,953,128
Adjusted EBITDA 1,462,453
 1,490,252
 (14,884) 2,937,821
Other income (expense) —
 —
 —
 —
Class B unit compensation —
 —
 —
 —
Interest expense —
 —
 (532,715) (532,715)
Depreciation and amortization (114,237) (23,420) —
 (137,657)
Net income $1,348,216
 $1,466,832
 $(547,599) $2,267,449
At March 31, 2017:        
Total Assets $3,269,874
 $3,299,877
 $3,433,388
 $10,003,139


15
Goosehead Financial, LLC and Subsidiaries and AffiliatesInsurance, Inc.
Notes to the Condensed Consolidated and Combined Financial Statements
(Unaudited)

the diluted EPS calculation using the "if-converted" method, because doing so has no impact on diluted EPS.
Three Months Ended March 31,
20222021
Numerator:
Loss before taxes$(6,985)$(1,383)
Less: loss before taxes attributable to non-controlling interests(3,126)(693)
Loss before taxes attributable to GSHD(3,859)(690)
Less: income tax expense (benefit) attributable to GSHD(1,602)(294)
Net loss attributable to GSHD$(2,257)$(396)
Denominator:
Weighted average shares of Class A common stock outstanding - basic20,240 18,375 
Effect of dilutive securities:
Stock options(1)
— — 
Weighted average shares of Class A common stock outstanding - diluted20,240 18,375 
Earnings per share of Class A common stock - basic$(0.11)$(0.02)
Earnings per share of Class A common stock - diluted$(0.11)$(0.02)
(1) 2,300 and 1,808 stock options were excluded from the computation of diluted earnings per share of Class A common stock for the three months ended March 31, 2022 and 2021, respectively, because the effect would have been anti-dilutive.

10. Pro Forma Earnings Per ShareNon-controlling interest
Following the Offering, GSHD becameis the sole managing member of GF and, as a result, it consolidates and combines the financial results of GF. GSHD will reportreports 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 will 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-one1-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-one1-for-one basis if GSHD, at the election of a Pre-IPO LLC Member, redeems or exchanges LLC Units of such Pre-IPO LLC Member pursuant to the terms of the amended and restated Goosehead Financial, LLC Agreement. Except for transfers to GSHD pursuant to the amended and restated Goosehead Financial, LLC Agreement or to certain permitted transferees, the Pre-IPO LLC Members are not permitted to sell, transfer or otherwise dispose of any LLC Units or shares of Class B common stock.
During the three months ended March 31, 2022, an aggregate of 101 thousand LLC Units were redeemed by the non-controlling interest holders. Pursuant to the GF LLC Agreement, GSHD issued 101 thousand shares of Class A common stock in connection with these redemptions and received 101 thousand LLC Interests, increasing GSHD's ownership interest in GF. Simultaneously, and in connection with these redemptions, and 101 thousand shares of Class B common stock were surrendered and cancelled.
18
Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the pro forma ownership interest in GF as of March 31, 2018 and December 31, 2017.2022 (in thousands):
March 31, 2022
LLC UnitsOwnership %
Number of LLC Units held by GSHD20,32154.7%
Number of LLC Units held by non-controlling interest holders16,80845.3%
Number of LLC Units outstanding37,129100.0%
 March 31, 2018 December 31, 2017
 LLC UnitsOwnership % LLC UnitsOwnership %
Pro forma number of LLC Units held by Goosehead Insurance, Inc.13,533,26737.3% 13,533,26737.3%
Pro forma number of LLC Units held by non-controlling interest holders22,746,66762.7% 22,746,66762.7%
Total pro forma number of LLC Units outstanding36,279,934100.0% 36,279,934100.0%

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income to GSHD.GSHD and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentage for the quarterthree months ended March 31, 2018 and March 31, 20172022 was 62.7%45.5%.
The following table sets forthsummarizes the calculationeffects of pro forma basic EPS based on net income attributable to GSHD. divided by the pro forma basic weighted average number of Class A common stock.
  Three Months Ended March 31
  2018
 2017
Numerator:    
Net income $3,767,810
 $2,267,449
Less: pro forma net income attributable to non-controlling interests 2,362,328
 1,421,637
Pro forma income before taxes attributable to Goosehead Insurance, Inc. $1,405,482
 $845,812
Less: pro forma income tax expense 336,332
 202,403
Pro forma net income attributable to Goosehead Insurance Inc. 1,069,150
 643,409
Denominator:    
Pro forma weighted average shares of Class A common stock outstanding 13,533,267
 13,533,267
Pro forma earnings per share $0.08
 $0.05


16
Goosehead Financial, LLC and Subsidiaries and Affiliates
Notes to the Condensed Consolidated and Combined Financial Statements

11. Subsequent Events
Credit Agreement
On April 4, 2018, GIH and the other loan parties amended and restated the credit agreement to permit the reorganization transactions undertakenchanges in connection with the Offering and provide additional flexibility under the covenants contained therein following the Offering. There was no additional borrowing as part of the amended and restated credit agreement.
The Offering
In connection with the Offering on May 1, 2018, 9,809,500 shares of Class A common stock were issued by GSHD. at a price of $10.00 per share, which included 1,279,500 shares issued pursuant to the underwriter's over-allotment option. After the Offering, 13,533,267 shares of Class A common stock were outstanding, including 3,723,767 shares issued to historical owners of GM and TWIHG.
Also on May 1, 2018, in connection with certain reorganization transactions immediately prior to the Offering, historical Class B interests in TWIHG and GM were deemed vested by converting to notes paid by a combination of Offering proceeds and shares of Class A common stock. This conversion changed the nature of the Class B interests from a profit sharing arrangement to a substantive class of equity and resulted in $6,231,910 recorded as compensation expense.
On the same day, Class B interestsownership in GF were deemed vested by converting, along with all pre-IPO Class Aon the equity on a one-to-one basis with the number of LLC units previously owned, to both LLC Units and shares of Class B common stock. This conversion changed the nature of the Class B interests from a profit sharing arrangement to a substantive class of equity, expensed under the guidance of ASC 718. At the Offering price of $10.00 per share, GSHD issued a total of 1,978,058 LLC Units and shares of Class B common stock and incurred compensation expense of $19,780,578 as part of the conversion.
Tax Receivable Agreement
GSHD entered into a tax receivable agreement with the Pre-IPO LLC Members on May 1, 2018 that provides for the payment by GSHD to the Pre-IPO LLC Members of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize as a result of (i) any increase in tax basis in GSHD's assets and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement.
During the three months ended March 31, 2018, no distributions2022 and 2021 as follows (in thousands):
Three Months Ended March 31,
20222021
Net income attributable to Goosehead Insurance Inc.$(2,257)$(396)
Transfers (to) from non-controlling interests:
Decrease in additional paid-in capital as a result of the redemption of LLC interests(344)(249)
Increase in additional paid-in capital as a result of activity under employee stock purchase plan214 205 
Total effect of changes in ownership interest on equity attributable to Goosehead Insurance Inc.$(2,387)$(440)

11. Equity-Based Compensation
Stock option expense was $5.8 million for the three months ended March 31, 2022. Stock option expense was $1.9 million for the three months ended March 31, 2021.

12. Segment Information
The Company’s Chief Operating Decision Maker, its Chief Executive Officer (“CEO”), reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates in a single reportable segment. As a result, GSHD has modified the presentation of its segment financial information with retrospective application to all prior periods presented. All of the Company’s long-lived assets are located in the United States. Since the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial statements.

13. 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 redemptions were madereasonably estimable. It is the opinion of management that triggered an increase in our tax basis.the resolution of outstanding claims will not have a material adverse effect on the financial position or results of operations of the Company.
19




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 and combined 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 Final Prospectus.Annual Report on Form 10-K.
We are a rapidly growing personal lines independent insurance agency, reinventing the traditional approach to distributing personal lines products and services throughout the United States. We were founded with one vision in mind—to provide consumers with superior insurance coverage at the best available price and in a timely manner. By leveraging our differentiated business model and innovative technology platform, we are able to deliver to consumers a superior insurance experience.
The following discussion contains references Our management team continues to own approximately 48% of the company, representing our commitment to the three months ended March 31, 2018 and March 31, 2017, which representslong-term success of the consolidated and combined financial results of our predecessor Goosehead Financial, LLC and its subsidiaries Texas Wasatch Insurance Services, LP, Goosehead Insurance Agency, LLC and its affiliates Goosehead Management, LLC and Texas Wasatch Insurance Holdings Group, LLC.Company.
Financial Highlights for the First Quarter of 2018:2022:
•Total revenue increased 47%32% from the first quarter of 20172021 to $14.6$41.3 million
Commissions and Agency fee revenues•Core Revenue* increased 51%by 37% from first quarter of 2021 to $36.5 million
•Total Written Premiums placed increased 41% from the prior-year period to $450.9 million
•Net loss increased by $4.3 million from the first quarter of 20172021 to $9.6of $5.4 million,
or (13)% of total revenues
Franchise revenues increased•Adjusted EBITDA* decreased 41% from the first quarter of 20172021 to $4.9 million
Income from operations increased 70% from the first quarter of 2017 to $4.8$1.3 million, or 33%3% of total revenuesrevenues.
Net income increased by 66% from•Basic and diluted loss per share were $(0.11), and Adjusted EPS* was $0.04 per share for the first quarter of 2017 to $3.8 million
three months ended March 31, 2022
Adjusted EBITDA*, a non-GAAP measure, increased 74% from the first quarter of 2017 to $5.1 million, or 35% of total revenues
Corporate Channel Adjusted EBITDA increased 35% from the first quarter of 2017 to $2.0 million, or 25% of Corporate Channel revenues
Franchise Channel Adjusted EBITDA increased 110% from the first quarter of 2017 to $3.1 million, or 46% of Franchise channel revenues
•Policies in Force increased 33%39% from March 31, 20172021 to 251,9721,097,000 at March 31, 2018
2022
•Corporate sales headcount increased 61%35% from March 31, 20172021 to 121490 at March 31, 20182022
◦
As of March 31, 2018, 66 of these Corporate sales agents had less than one year of tenure and 55 had greater than one year of tenure
Operating◦As of March 31, 2022, 297 of these Corporate sales agents had less than one year of tenure and 193 had greater than one year of tenure
•Total franchises increased 55%41% compared to the prior year period to 2,298; total operating franchises increased 28% from March 31, 20172021 to 3411,268 at March 31, 20182022
◦
In Texas as of March 31, 2018, 49 operating franchisees had less than one year of tenure and 149 operating franchisees had greater than one year of tenure.
◦In Texas as of March 31, 2022, 62 operating Franchisees had less than one year of tenure and 224 operating Franchisees had greater than one year of tenure.
◦Outside of Texas as of March 31, 2022, 321 operating Franchisees had less than one year of tenure and 661 had greater than one year of tenure.
◦
Outside of Texas as of March 31, 2018, 105 operating franchisees had less than one year of tenure and 38 had greater than one year of tenure.
*Core Revenue, Adjusted EBITDA is aand Adjusted EPS are non-GAAP measure.measures. Reconciliation of Core Revenue to total revenue, Adjusted EBITDA to net income and Adjusted EPS to EPS, the most directly comparable financial measuremeasures presented in accordance with GAAP, isare set forth in theunder "Key performance indicators" section.
COVID-19
Given the uncertainty regarding the duration, spread and severity of Management’s discussionCOVID-19, and analysisits variant strains, the availability, effectiveness and utilization of vaccines, and the adverse effects on the national and global economy, home sales and consumer spending, the related financial conditionimpact on our business cannot be accurately predicted at this time. We continue to monitor the rapidly evolving situation and guidance from the authorities, including federal, state and local public health officials and as a result may take additional actions. While we intend to continue to execute on our strategic plans and operational initiatives during the outbreak, in these circumstances, there may be developments outside our control requiring us to adjust our operating plan. See Item 1A. Risk factors - Risk relating to our business—The ongoing global COVID-19 pandemic has negatively impacted the global economy in a
20

significant manner and may continue to do so for an extended period of time, and could also materially adversely affect our business and operating results in the Annual Report on Form 10-K for more information.
Certain income statement line items
Revenues
For the three months ended March 31, 2022, revenue increased by 32% to $41.3 million from $31.2 million for the three months ended March 31, 2021. Total Written Premium growth, which is the best leading indicator of operationsfuture revenue growth, was 41% for the three months ended March 31, 2022. Total Written Premium increased to $451 million for the three months ended March 31, 2022 from $319 million for the three months ended March 31, 2021. Total Written Premiums drive our current and future Core Revenue and gives 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 measures 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 Form 10-Q.

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 Income - book transfer fees, marketing investments from Carriers and other items that are unpredictable and supplemental to other revenue streams.

We discuss below the breakdown of our revenue by stream:
21

Three Months Ended March 31,
(in thousands)20222021
Core Revenue:
Renewal Commissions(1)
$10,20725 %$7,75725 %
Renewal Royalty Fees(2)
14,00234 %8,74628 %
New Business Commissions(1)
5,36713 %4,61615 %
New Business Royalty Fees(2)
4,29210 %3,15710 %
Agency Fees(1)
2,6376 %2,4248 %
Total Core Revenue36,50588 %26,70086 %
Cost Recovery Revenue:
Initial Franchise Fees(2)
2,2966 %1,4325 %
Interest Income3191 %2611 %
Total Cost Recovery Revenue2,6156 %1,6935 %
Ancillary Revenue:
Contingent Commissions(1)
1,7984 %2,7379 %
Other Income(2)
3601 %98— %
Total Ancillary Revenue2,1585 %2,8359 %
Total Revenues$41,278100 %$31,228100 %

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


22

Consolidated and combined results of operations
The following is a discussion of our consolidated results of operations for each of the three months ended March 31, 20182022 and March 31, 2017.2021. This information is derived from our accompanying condensed consolidated and combined financial statements prepared in accordance with GAAP.

Three months ended March 31, 2018 compared to three months ended March 31, 2017
The following table summarizes our results of operations for the three months ended March 31, 20182022 and 2017:2021 (in thousands):
Three Months Ended March 31,
20222021
Revenues:
Commissions and agency fees$20,009 48 %$17,534 56 %
Franchise revenues20,950 51 %13,433 43 %
Interest income319 1 %261 1 %
Total revenues41,278 100 %31,228 100 %
Operating Expenses:
Employee compensation and benefits31,484 66 %21,309 67 %
General and administrative expenses13,524 29 %9,274 30 %
Bad debts796 2 %447 1 %
Depreciation and amortization1,576 3 %1,000 3 %
Total operating expenses47,380 100 %32,030 100 %
Loss from operations(6,102)(802)
Other Income (Expense):
Other income— 20 
Interest expense(883)(601)
Loss before taxes(6,985)(1,383)
Tax benefit(1,602)(294)
Loss Income(5,383)(1,089)
Less: net loss attributable to non-controlling interests(3,126)(693)
Net loss attributable to Goosehead Insurance Inc.$(2,257)$(396)
  
 Three months ended March 31,
  
 2018  2017 
Revenues:      
Commissions and agency fees $9,595,576
 66% $6,361,846
 64%
Franchise revenues 4,910,528
 34% 3,481,116
 35%
Interest income 82,777
 1% 47,987
 0.5%
Total revenues 14,588,881
 100% 9,890,949
 100%
Operating expenses:        
Employee compensation and benefits 6,835,424
 70% 4,867,647
 69%
General and administrative expenses 2,373,622
 24% 1,833,599
 26%
Bad debts 279,688
 3% 251,882
 4%
Depreciation and amortization 336,935
 3% 137,657
 2%
Total operating expenses 9,825,669
 100% 7,090,785
 100%
Income from operations 4,763,212
   2,800,164
  
Other income (expense)        
Interest expense (995,402)   (532,715)  
Net income $3,767,810
   $2,267,449
  

Revenues
For the three months ended March 31, 2018,2022 revenue increased by 47%32% to $14.6$41.3 million from $9.9$31.2 million for the three months ended March 31, 2017.2021.
23

Commissions and agency fees
Commissions and agency fees consist of new business commissions, renewal commissions, agency fees, and contingent commissions.
   Three Months Ended March 31  
   2018
 2017
 % Change
New Business Revenue (Corporate) $1,798,852
 $1,004,815
 79%
Agency Fees 1,099,136
 728,995
 51%
Renewal Revenue (Corporate) 3,903,192
 3,153,032
 24%
Contingent Commissions (Corporate) 1,054,485
 662,263
 59%
Contingent Commissions (Franchise) 1,739,911
 812,741
 114%
Commissions and agency fees $9,595,576
 $6,361,846
 51%
The following table sets forth our commissions and agency fees by amount and as a percentage of our revenues for the periods indicated (in thousands):
Three Months Ended March 31,
20222021
Core Revenue:
Renewal Commissions10,207 51 %7,757 44 %
New Business Commissions5,367 27 %4,616 26 %
Agency Fees2,637 13 %2,424 14 %
Total Core Revenue:18,211 91 %14,797 84 %
Ancillary Revenue:
Contingent Commissions1,798 9 %2,737 16 %
Commissions and agency fees$20,009 100 %$17,534 100 %


New Business Revenue (Corporate)Renewal Commissions increased by $0.8$2.5 million or 79%32%, to $1.8$10.2 million for the three months ended March 31, 20182022 from $1.0$7.8 million for the three months ended March 31, 2017, and Revenue from Agency Fees increased by $0.4 million, or 51%, to $1.1 million for the three months ended March 31, 2018 from $0.7 million for the three months ended March 31, 2017. These increases were primarily attributable to an2021. This increase in total sales agent head count to 121 at March 31, 2018, from 75 at March 31, 2017.
Renewal Revenue (Corporate) increased by $0.8 million, or 24%, to $3.9 million for the three months ended March 31, 2018 from $3.2 million for the three months ended March 31, 2017,was primarily attributable to an increase in the number of policies in the renewal term from March 31, 20172021 to 2018.March 31, 2022 plus an increase in client retention to 89% as of March 31, 2022 from 88% as of March 31, 2021.


Revenue from Contingent Commissions in the Corporate ChannelNew Business Commission increased by $0.4$0.8 million or 59%16%, to $1.1$5.4 million for the three months ended March 31, 20182022 from $0.7$4.6 million for the three months ended March 31, 2017, primarily attributable to a 31% increase in Total Written Premium2021. Revenue from March 31, 2017 to 2018. Contingent Commissions in the Franchise ChannelAgency Fees increased $0.9by $0.2 million or 114%9%, to $1.7$2.6 million for the three months ended March 31, 20182022 from $0.8$2.4 million for the three months ended March 31, 2017,2021. These increases were primarily attributable to a 52%35% increase in Total Written Premium fromtotal sales agent head count to 490 at March 31, 2017 to 2018. The Company typically receives the majority of contingent commissions during the first quarter of each year.
Franchise revenues
  
 Three months ended March 31  
  
 2018
 2017
 % Change
Royalty Fees $3,240,528
 $2,221,116
 46%
Initial Franchise Fees 1,670,000
 1,260,000
 33%
Franchise revenues $4,910,528
 $3,481,116
 41%

2022, from 363 at March 31, 2021.
Revenue from Royalty Fees increasedContingent Commissions decreased by $1.0$0.9 million, or 46%, to $3.2$1.8 million for the three months ended March 31, 20182022 from $2.2$2.7 million for the three months ended March 31, 2017.2021. During the first quarter of each year, the actual Contingent Commissions received is reconciled to the amount receivable as of year end. This change in Revenue from Contingent Commissions was primarily attributable to decreases in the amount recorded during the quarter related to this reconciliation.
Franchise revenues
Franchise Revenues consist of Royalty Fees, Initial Franchise Fees, and Other Franchise Revenues.
24

The following table sets forth our franchise revenues by amount and as a percentage of our revenues for the periods indicated (in thousands):
Three Months Ended March 31,
20222021
Core Revenues:
Renewal Royalty Fees14,002 67 %8,746 65 %
New Business Royalty Fees4,292 20 %3,157 24 %
Total Core Revenues:18,294 87 %11,903 89 %
Cost Recovery Revenues:
Initial Franchise Fees2,296 11 %1,432 11 %
Ancillary Revenues:
Other Franchise Revenues360 3 %98 1 %
Franchise revenues$20,950 100 %$13,433 100 %

Revenue from Renewal Royalty Fees increased by $5.3 million, or 60%, to $14.0 million for the three months ended March 31, 2022 from $8.7 million for the three months ended March 31, 2021. The increase in revenue from Renewal Royalty Fees was primarily attributable to an increase in the total number of operating franchises frompolicies in the renewal term and an increase in client retention to 89% as of March 31, 2017 to 2018 and the higher2022 from 88% as of March 31, 2021.
Revenue from New Business Royalty Fee rate on renewal business compared to new business (50% vs. 20%, respectively). Revenues from Initial Franchise Fees increased by $0.4$1.1 million, or 33%36%, to $1.7$4.3 million for the three months ended March 31, 20182022 from $1.3$3.2 million for the three months ended March 31, 2017.2021. The increase in revenue from Initial FranchiseNew Business Royalty Fees was primarily attributable to ana 28% increase in the total number of operating franchises that attended trainingto 1,268 at March 31, 2022, from 987 at March 31, 2021.
Revenue from Initial Franchise Fees increased by $0.9 million, or 60%, to $2.3 million for the three months ended March 31, 20172022 from $1.4 million for the three months ended March 31, 2021. The primary reason for this increase is an increase of 41% in total franchises to 2018.

2,298 at March 31, 2022, from 1,628 at March 31, 2021.
Interest income
Interest income increased by $34.8$58 thousand, or 72%22%, to $82.8$319 thousand for the three months ended March 31, 20182022 from $48.0$261 thousand for the three months ended March 31, 2017.2021. 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 $2.0$10.2 million, or 40%48%, to $6.8$31.5 million for the three months ended March 31, 20182022 from $4.9$21.3 million for the three months ended March 31, 2017. This2021. The increase was primarily attributable to anis caused by a 28% increase in total headcount from the three months ended March 31, 20172021 to the three months ended March 31, 2018.2022, as well as an increase in equity based compensation of 198%.
General and administrative expenses
General and administrative expenses increased by $0.5$4.3 million, or 29%46%, to $2.4$13.5 million for the three months ended March 31, 20182022 from $1.8$9.3 million for the three months ended March 31, 2017.2021. This increase was primarily attributable to higher costs associated with an increase in operating franchises, andtotal employees, as well as higher rent expense at ouraddition of five new corporate headquarters.office locations, and investments made in technology. Additionally, the Company hosted its annual Ascend meeting in February 2022, which did not take place in 2021 due to COVID.
Bad debts
Bad debts increased by $27.8 thousand,$0.3 million, or 11%78%, to $279.7 thousand$0.8 million for the three months ended March 31, 20182022 from $251.9 thousand$0.4 million for the three months ended March 31, 2017. This2021. The increase was driven by increases in bad debts is attributable to an increase in total franchises and an increase in revenue from Agency Fees and Initial Franchise Fees sold byfees during the company.three months ended March 31, 2022 from the three months ended March 31, 2021.
25

Depreciation and amortization
Depreciation and amortization increased by $0.2$0.6 million, or 145%58%, to $0.3$1.6 million for the three months ended March 31, 20182022 from $0.1$1.0 million for the three months ended March 31, 2017.2021. This increase was primarily attributable to the increase in fixed assets duringsince March 31, 2021, including the same period, includingopening of five additional corporate sales offices, expansion of existing corporate offices.


offices and hardware for additional employees hired.
Interest expense
Interest expenses increased by $0.5 million, or 87%, to $1.0$0.3 million for the three months ended March 31, 20182022, to $0.9 million from $0.5$0.6 million for the three months ended March 31, 2017. This increase was primarily attributable to an additional Term Loan balance added in 2017 and rising LIBOR rates during2021. The primary driver of the year.
Segment Adjusted EBITDA
Corporate Channel Adjusted EBITDA is Segment earnings before interest, income taxes, depreciation and amortization allocable to the Corporate Channel.
Corporate Channel Adjusted EBITDA increased by $0.5 million, or 35%, to $2.0 million for the three months ended March 31, 2018 from $1.5 million for the three months ended March 31, 2017, primarily attributable higher New Business Revenue (Corporate) from increased hiring and agent ramp-up, plus an increase in more profitable Renewal Revenue (Corporate), as described above, offset by employee compensation and benefits from increased hiring.

Franchise Channel Adjusted EBITDAinterest expense is Segment earnings before interest, income taxes, depreciation and amortization, adjusted to exclude other non-operating items.
Franchise Channel Adjusted EBITDA increased by $1.6 million, or 110%, to $3.1 million for the three months ended March 31, 2018 from $1.5 million for the three months ended March 31, 2017, primarily attributable to an increase in Initial Franchise Fees and New Business Revenue from an increase in operating agencies, an increase in more profitable Renewal Revenue, and an increase in Contingent Commissions, as described above.total borrowing outstanding.
Neither of Franchise Channel Adjusted EBITDA or Corporate Channel Adjusted EBITDA includes Class B unit compensation, which is recorded at the consolidated level.

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. We believe that Total Written Premium placed is an appropriate measure of operating performance because it reflects growth of our business relative to other insurance agencies.
For the three months ended March 31, 2018, we had $100.9 million inThe following tables show Total Written Premium compared to $70.7 millionplaced by corporate agents and franchisees for the three months ended March 31, 2017, representing a 43% increase and 2022and2021 (in Total Written Premium.
thousands).
  Three Months Ended March 31,% Change
  20222021
Corporate sales Total Written Premium$110,395 $88,946 24 %
Franchise sales Total Written Premium340,516 229,949 48 %
Total Written Premium$450,911 $318,895 41 %
  
 Three Months Ended March 31 % Change
  
 2018
 2017
 
Corporate Channel Total Written Premium $39,701,170
 $30,343,527
31%
Franchise Channel Total Written Premium 61,247,211
 40,369,082
52%
Total Written Premium $100,948,381
 $70,712,609
43%

Policies in Force
Policies in Force means as of any reported date, the total count of current (non-cancelled) policies placed with Goosehead’s portfolio of Carriers. We believe that Policies in Force is an appropriate measure of operating performance because it reflects growth of our business relative to other insurance agencies.
As of March 31, 2018,2022, we had 251,9721,097,000 in Policies in Force compared to 227,7641,011,000 as of December 31, 20172021 and 189,677788,000 as of March 31, 2017,2021, representing a 11%9% and 33%39% increase, respectively.


NPS
Net Promoter Score (NPS) 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. For example, if 50% of respondents were Promoters and 10% were Detractors, NPS is a 40. NPS is a useful gauge of the loyalty of client relationships and can be compared across companies and industries.
NPS has increased to 87remained steady at 91 as of March 31, 2018 from 86 as of December 31, 2017, primarily driven by2022 due to the service team’s continued focus on delivering highly differentiated service levels.
Client Retentionretention
Client Retention is 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. We believe Client Retention is useful as a measure of how well Goosehead retains clients year-over-year and minimizes defections.
Concomitant with our increase in NPS,
26

Client Retention has remained steadyconstant at 88%89% at March 31, 2018 from2022 when compared to December 31, 2017,2021, again driven by the service team’s continued focus on delivering highly differentiated service levels. For the trailing twelve months ended March 31, 2018,2022, we retained 94% of the premiums we distributed in the trailing twelve months ended March 31, 2017,2021, which is consistent withincreased modestly from the 93% premium retention at December 31, 2017.2021. Our premium retention rate is higher than our Client Retention rate as a result of both premiums increasing year over year and additional coverages sold by our sales and service team.teams.
New Business Revenue
New Business Revenue meansis commissions received from the Carrier, Agency Fees received from clients, and New Business Royalty Fees relating to policies in their first term.
For the three months ended March 31, 2018,2022, New Business Revenue grew 59%21% to $3.9$12.3 million, from $2.4$10.2 million for the three months ended March 31, 2017.2021. Growth in New Business Revenue is driven by an increase in Corporate Channel sales agent headcount of 61%35% and growth in operating franchises in the Franchise Channel of 55%28%.
Renewal Revenue
Renewal Revenue meansis commissions received from the Carrier and Renewal Royalty Fees received after the first term of a policy.
For the three months ended March 31, 2018,2022, Renewal Revenue grew 32%47% to $6.2$24.2 million, from $4.7$16.5 million for the three months ended March 31, 2017.2021. Growth in Renewal Revenue was driven by Client Retention of 88%89% at March 31, 2018.2022. As our agent force matures, on both the Corporate Channel and the Franchise Channel, the policies they wrote in prior years begins to convert from New Business Revenue to more profitable Renewal Revenue.
Non-GAAP Measures
Core Revenue, Cost Recovery Revenue, Ancillary Revenue, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EPS are not measures of financial performance under GAAP and should not be considered substitutes for total revenue (with respect to Core Revenue, Cost Recovery Revenue and Ancillary Revenue), net income (with respect to Adjusted EBITDA and Adjusted EBITDA Margin) or earnings per share (with respect to Adjusted EPS), which we consider to be the most directly comparable GAAP measures. We refer to these measures as "non-GAAP financial measures." We consider these non-GAAP financial measures to be useful metrics for management and investors to facilitate operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures, tax position, depreciation, amortization and certain other items that we believe are not representative of our core business. Core Revenue, Cost Recovery Revenue, Ancillary Revenue, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EPS have limitations as analytical tools, and when assessing our operating performance, you should not consider Core Revenue, Cost Recovery Revenue, Ancillary Revenue, Adjusted EBITDA, Adjusted EBITDA Margin, or Adjusted EPS in isolation or as substitutes for total revenue, net income, earnings per share, as applicable, or other consolidated income statement data prepared in accordance with GAAP. Other companies may calculate Core Revenue, Cost Recovery Revenue, Ancillary Revenue, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EPS differently than we do, limiting their usefulness as comparative measures.
Core Revenue
Core Revenue is a supplemental measure of our performance and includes Renewal Commissions, Renewal Royalty Fees, New Business Commissions, New Business Royalty Fees, and Agency Fees. We believe that Core Revenue is an appropriate measure of operating performance because it summarizes all of our revenues from sales of individual insurance policies.
Core Revenue increased by $9.8 million, or 37%, to $36.5 million for the three months ended March 31, 2022 from $26.7 million for the three months ended March 31, 2021. The primary drivers of the increase are increases in operating franchises, corporate agent sales headcount, the number of policies in the renewal term from March 31, 2021 to March 31, 2022, plus an increase in client retention to 89% as of March 31, 2022 from 88% as of March 31, 2021.
27

Cost Recovery Revenue
Cost Recovery Revenue is a supplemental measure of our performance and includes Initial Franchise Fees and Interest Income. We believe that Cost Recovery Revenue is an appropriate measure of operating performance because it summarizes revenues that are viewed by management as cost recovery mechanisms.
Cost Recovery Revenue increased by $0.9 million, or 54%, to $2.6 million for the three months ended March 31, 2022 from $1.7 million for the three months ended March 31, 2021. The primary driver of the increase is an increase in total franchises from March 31, 2021 to March 31, 2022.
Ancillary Revenue
Ancillary Revenue is a supplemental measure of our performance and includes Contingent Commissions and Other Income. We believe that Ancillary Revenue is an appropriate measure of operating performance because it summarizes revenues that are ancillary to our core business.
Ancillary Revenue decreased by $0.7 million to $2.2 million for the three months ended March 31, 2022 from $2.8 million for the three months ended March 31, 2021. During the first quarter of each year, the actual Contingent Commissions received is reconciled to the amount receivable as of year end. This change in Revenue from Contingent Commissions was primarily attributable to decreases in the amount recorded during the quarter related to this reconciliation.
Adjusted EBITDA
Adjusted EBITDA is a supplemental measure of our performance. We believe that Adjusted EBITDA is an appropriate measure of operating performance because it eliminates the impact of items that do not relate to business performance. Adjusted EBITDA is defined as net income (the most directly comparable GAAP measure) before interest, income taxes, depreciation and amortization, adjusted to exclude Class B unitequity-based compensation and other non-operating items, including, among other things, certain non-cash charges and certain non-recurring or non-operating gains or losses.


Adjusted EBITDA increaseddecreased by $2.2$0.9 million, or 74%(41)%, to $5.1$1.3 million for the three months ended March 31, 2018,2022 from $2.9$2.1 million for the three months ended March 31, 2017,2021. The primary driver of the decrease in Adjusted EBITDA is increases in General and Administrative expenses driven by Corporate Channel Adjusted EBITDA growth of $0.5 millionthe Ascend meeting and Franchise Channel Adjusted EBITDA growth of $1.6 million.


by increases in corporate agent headcount, operating franchises, and investments in technology, as well as decreases in Ancillary Revenue.
Adjusted EBITDA Margin
Adjusted EBITDA Margin is Adjusted EBITDA as defined above, divided by total revenue excluding other non-operating items. Adjusted EBITDA Margin is helpful in measuring profitability of operations on a consolidated and combined level.
For the three months ended March 31, 2018,2022, Adjusted EBITDA Margin was 35%3% compared to 30%7% for the three months ended March 31, 2017, primarily driven by Corporate Channel2021. The primary drivers of the decrease in Adjusted EBITDA Margin compression, offset by Franchise Channel Adjusted EBITDA Margin expansion. Corporate Channel Adjusted EBITDA Margin compression can be attributed to increasedis a decrease in revenue from Contingent Commissions and increases in General and Administrative expenses driven by increases in corporate agent headcount, operating franchises, and investments in technology.
28

Adjusted EPS
Adjusted EPS is a 61% increasesupplemental measure of our performance, defined as earnings per share (the most directly comparable GAAP measure) before non-recurring or non-operating income and expenses. Adjusted EPS is a useful measure to management because it eliminates the impact of items that do not relate to business performance.
GAAP to Non-GAAP Reconciliations
Three Months Ended March 31,
20222021
Total Revenues$41,278 $31,228 
Core Revenue:
Renewal Commissions(1)
$10,207 $7,757 
Renewal Royalty Fees(2)
14,002 8,746 
New Business Commissions(1)
5,367 4,616 
New Business Royalty Fees(2)
4,292 3,157 
Agency Fees(1)
2,637 2,424 
Total Core Revenue36,505 26,700 
Cost Recovery Revenue:
Initial Franchise Fees(2)
2,296 1,432 
Interest Income319 261 
Total Cost Recovery Revenue2,615 1,693 
Ancillary Revenue:
Contingent Commissions(1)
1,798 2,737 
Other Income(2)
360 98 
Total Ancillary Revenue2,158 2,835 
Total Revenues$41,278 $31,228 
(1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in Corporate Channel sales agent headcount. As these new sales agents ramp-up production"Commissions and beginagency fees" as shown on the Consolidated statements of operations.
(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Income are included in "Franchise revenues" as shown on the Consolidated statements of operations.

The following tables show a reconciliation from net income to receive Renewal Revenue (Corporate), we expect them to contribute to future Corporate Channel Adjusted EBITDA Margin expansion. Franchise Channel Adjusted EBITDA Margin expansion is attributed to growth in more profitable Renewal Revenue as a percentage of total revenue and the increase in Contingent Commissions.
Non-GAAP Measures
Adjusted EBITDA and Adjusted EBITDA Margin are not measures of financial performance under GAAP and should not be considered substitutes for net income, which we consider to be the most directly comparable GAAP measure. Adjusted EBITDA and Adjusted EBITDA Margin have limitations as analytical tools, and when assessing our operating performance, you should not consider Adjusted EBITDA and Adjusted EBITDA Margin in isolation or as substitutes for net income or other consolidated and combined income statement data prepared in accordance with GAAP. Other companies may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently than we do, limiting their usefulness as comparative measures.
Reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin to net income
The following table shows a reconciliation of net income to Adjusted EBITDAmargin for the three months ended March 31, 20182022 and 2017:2021 (in thousands):
Three Months Ended March 31,
 Three months ended March 3120222021
 2018
 2017
Net income $3,767,810
 $2,267,449
Net IncomeNet Income$(5,383)$(1,089)
Interest expense 995,402
 532,715
Interest expense883 601 
Depreciation and amortization 336,935
 137,657
Depreciation and amortization1,576 1,000 
Tax (benefit) expenseTax (benefit) expense(1,602)(294)
Equity-based compensationEquity-based compensation5,788 1,941 
Other (income) expenseOther (income) expense— (20)
Adjusted EBITDA $5,100,147
 $2,937,821
Adjusted EBITDA$1,262 $2,139 
Adjusted EBITDA Margin(1)
 35% 30%
Adjusted EBITDA Margin(1)
3 %7 %
(1) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Total Revenue ($5,100,147/1,262/$14,588,881)41,278), and ($2,937,821/2,139/$9,890,949)31,228) for the three months ended March 31, 20182022 and 2017.2021, respectively.


29


The following tables show a reconciliation from basic earnings per share to Adjusted EPS (non-GAAP basis) for the three months ended March 31, 2022 (in thousands, except per share amounts). Note that totals may not sum due to rounding:
Three Months Ended March 31,
20222021
Earnings per share - basic (GAAP)$(0.11)$(0.02)
Add: equity-based compensation(1)
0.16 0.05 
Adjusted EPS (non-GAAP)$0.04 $0.03 

(1) Calculated as equity-based compensation divided by sum of weighted average Class A and Class B shares [$5.8 million/(20.2 million + 16.9 million)] for the three months ended March 31, 2022 and [$1.9 million/ (18.4 million + 18.4 million)] for the three months ended March 31, 2021.


Liquidity and capital resources
Historical liquidityLiquidity and capital resources
We have managed our historical liquidity and capital requirements primarily through the receipt of revenues from our Corporate Channel and our Franchise Channel.revenues. Our primary cash flow activities involve: (1) generating cash flow from Corporate Channel operations,Commissions and Fees, which largely includes RenewalNew Business Revenue (Corporate) and New BusinessRenewal Revenue (Corporate); (2) generating cash flow from Franchise ChannelRevenues operations, which largely includes RoyaltyInitial Franchise Fees and Initial FranchiseRoyalty Fees; (3) making distributions to the Goosehead Management Holders and Texas Wasatch Holders; and (4) borrowings, interest payments and repayments under our Credit Agreement.credit agreement; and (4) issuing shares of Class A common stock. As of March 31, 2018,2022, our cash and cash equivalents balance was $6.3$21.2 million. We have used cash flow from operations primarily to pay compensation and related expenses, general, administrative and other expenses, debt service, special dividends and distributions to our owners.
Credit agreement
On October 27, 2016, Goosehead Insurance Holdings, LLC, as borrower representative, entered intoSee "Note 7. Debt" in the condensed consolidated financial statements included herein for a credit agreement (as subsequently amended, the “Credit Agreement”) with Madison Capital Funding LLC, as agent, and the lenders party thereto, consisting of a $3,000,000 revolving credit facility (the “Revolving Credit Facility”) and $30,000,000 term loan (the “Initial Term Loan”) used to pay off existing debt and fund a distribution to members. On July 14, 2017, Goosehead Insurance Holdings, LLC and the other loan parties entered into the first amendment to the Credit Agreement pursuant to which Goosehead Insurance Holdings, LLC borrowed an additional $10,000,000 term loan (the “First Additional Term Loan”) used to fund a distribution to members. On December 20, 2017, the Company executed the second amendment to the Credit Agreement to borrow an additional $10,000,000 term loan (together with the Initial Term Loan and the First Additional Term Loan, the “Term Loans”) for payment of a dividend to shareholders and to extend the maturity datediscussion of the Term Loans by one year. On April 4, 2018, Goosehead Insurance Holdings, LLC and the other loan parties amended and restated the Credit Agreement to permit the reorganization transactions in connection with the Offering. The aggregate principal amount of the Term Loans as of March 31, 2018 is $49,500,000, payable in quarterly installments of $125,000 with a balloon payment of $47,250,000 on October 27, 2022.Company's credit facilities.
Interest on the Term Loans is calculated at LIBOR plus 5.5%. The Revolving Credit Facility accrues interest on amounts drawn at LIBOR plus 5.5%. As of the date of this Form 10-Q, the Company had a letter of credit of $500,000 applied against the maximum borrowing availability under the Revolving Credit Facility, at an interest rate of 5.5%, thus amounts available to draw totaled $2,500,000. No interest was paid during the three months ended March 31, 2018 or 2017 on the Revolving Credit Facility. The Term Loans and the Revolving Credit Facility are collateralized by substantially all the Company’s assets, which includes rights to future commissions.

The Credit Agreement contains covenants that, among other things, restrict our ability to make certain restricted payments, incur additional debt, engage in certain asset sales, mergers, acquisitions or similar transactions, create liens on assets, engage in certain transactions with affiliates, change our business or make investments. Following the Offering, the Credit Agreement continued to contain these covenants, including a covenant that restricts Goosehead Financial, LLC’s ability to make dividends or other distributions to Goosehead Insurance, Inc. We may voluntarily prepay in whole or in part the outstanding principal under our Term Loans at any time prior to the maturity date. In addition, the Credit Agreement contains financial covenants requiring us to maintain our fixed charge coverage ratio at or above 1.20 to 1.00 and total debt to EBITDA (as defined in the Credit Agreement) ratio at or below 5.25 to 1.0 (with scheduled annual step downs to 5.00 to 1.00, 4.75 to 1.00, 4.50 to 1.00 and 4.25 to 1.00). Pursuant to the Credit Agreement, a change of control default will be triggered when any person or group other than Mark Jones and Robyn Jones or their controlled investment affiliates becomes the beneficial owner, directly or indirectly, of more than 50% of the aggregate ordinary voting power represented by our outstanding equity interests, unless Mark Jones and Robyn Jones or their controlled investment affiliates have the ability to elect or designate for election at least a majority of our board of directors. Such a default could result in the acceleration of repayment of our and our subsidiaries’ indebtedness, including borrowings under the Revolving Credit Facility if not waived by the lenders under the Credit Agreement. The failure by Mark Jones and Robyn Jones to maintain either a minimum voting interest in us or the ability to elect or designate for election at least a majority of our board of directors could trigger a change of control default under our Credit Agreement.







Comparative cash flows

The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated:indicated (in thousands):
Three Months Ended March 31,
 Three months ended March 31,20222021Change
 2018
 2017
Net cash provided by operating activities $2,574,990
 $1,489,896
Net cash provided by (used for) operating activitiesNet cash provided by (used for) operating activities$(5,154)$7,888 $(13,042)
Net cash used for investing activities (565,045) (96,076)Net cash used for investing activities(2,491)(2,100)(391)
Net cash used for financing activities (625,700) (542,000)Net cash used for financing activities(155)(69)(86)
Net increase in cash and cash equivalents 1,384,245
 851,820
Net increase in cash and cash equivalents(7,800)5,719 (13,519)
Cash, beginning of period 4,947,671
 3,778,098
Cash, end of period $6,331,916
 4,629,918
Cash and cash equivalents, and restricted cash, beginning of periodCash and cash equivalents, and restricted cash, beginning of period30,479 26,236 4,243 
Cash and cash equivalents, and restricted cash, end of periodCash and cash equivalents, and restricted cash, end of period$22,679 $31,955 $(9,276)
Operating activities
Net cash provided byused for operating activities was $2.6$5.2 million for the three months ended March 31, 20182022 as compared to net cash provided by operating activities of $1.5$7.9 million for the three months ended March 31, 2017.2021. This increasedecrease in net cash provided by operating activities was attributable to a $1.5 million increasedecrease in net income, offset by a $0.5 million increase incash provided from commissions and agency fees receivable, as wellreceivables of $10.7 million as a $2.8result of the receipts of contingent commissions during the period, a decrease of $1.2 million in TRA liability, and a $1.8 million increase in other assets,cash used from prepaid expense, offset by a $2.3an increase of $1.3 million increase in accounts payable and accrued expenses related to capitalized Offering costs.receivables from franchisees.
Business investment
30

Investing activities
Net cash used in business investmentfor investing activities was $0.6$2.5 million for the three months ended March 31, 20182022, compared to net cash used in investing activities of $2.1 million for the three months ended March 31, 2021. This increase was driven by continued expansion of corporate offices to support increased hiring.
Financing activities
Net cash used for financing activities was $0.2 million for the three months ended March 31, 2022 as compared to net cash used in business investmentfor financing activities of $0.1 million for the three months ended March 31, 2017.2021. This increase in net cash used in business investment activities was primarily attributable to fixed asset growth directly related to headcount increases, additional office space build-out in Houston, Austin, and the build-out of the new headquarters in Westlake, Texas, and changes in restricted cash balances.
Financing activities
Net cash used infor financing activities was $0.6 million for the three months ended March 31, 2018 as compared to net cash used in financing activities of $0.5 million for the three months ended March 31, 2017. This increase in net cash used in financing activities was primarily attributable to an increase in the principal amountrepayment of the Term Loan paid and dividends paid during the three months ended March 31, 2018 over 2017.Company's term note.
Future sources and uses of liquidity
Our initial sources of liquidity will beare (1) cash on hand, (2) net working capital, (3) cash flows from operations and (4) our Revolving Credit Facility.revolving credit facility. Based on our current expectations, we believe that these sources of liquidity will be sufficient to fund our working capital requirements and to meet our commitments in the foreseeable future.
We expect that our primary liquidity needs will comprise cash to (1) provide capital to facilitate the organic growth of our business, (2) pay operating expenses, including cash compensation to our employees, (3) make payments under the tax receivable agreement, (4) pay interest and principal due on borrowings under our Credit Agreement and (5) pay income taxes.taxes, and (6) when deemed advisable by our board of directors, pay dividends.
Dividend policy
There have been no material changes to our dividend policy as described in the Final Prospectus.


Annual Report on Form 10-K.
Tax receivable agreement

We expect to obtain an increase in our share of our tax basis of the assets when limited liability company units of GF are redeemed or exchanged by the Pre-IPO LLC Members and other qualifying transactions. This increase in tax basis may have the effect of reducing the future amounts paid to various tax authorities. The increase in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
We entered into a tax receivable agreement with the Pre-IPO LLC Members on May 1, 2018 that will provideprovides for the payment by us 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 we actually realize as a result of (i) any increase in tax basis in GSHD’sGoosehead Insurance, Inc.’s assets and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement. See “Certain"Item 13. Certain relationships and related party transactions—Tax receivable agreement”transactions, and director independence" of the Annual Report on Form 10-K.
Holders of Goosehead Financial, LLC Units (other than Goosehead Insurance, Inc.) may, subject to certain conditions and transfer restrictions described above, redeem or exchange their LLC Units for shares of Class A common stock of Goosehead Insurance, Inc. on a one-for-one basis. Goosehead Financial, LLC 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 for shares of Class A common stock occurs, which is expected to result in increases to the tax basis of the assets of Goosehead Financial, LLC at the time of a redemption or exchange of LLC Units. The redemptions or exchanges are expected to result in increases in the Final Prospectus.tax basis of the tangible and intangible assets of Goosehead Financial, LLC. These increases in tax basis may reduce the amount of tax that Goosehead Insurance, Inc. would otherwise be required to pay in the future. We have entered into a tax receivable agreement with the Pre-IPO LLC Members that provides for the payment by us 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 we actually realize as a result of (i) any increase in tax basis in Goosehead Insurance, Inc.’s assets resulting from (a) the purchase of LLC Units from any of the Pre-IPO LLC Members using the net proceeds from any future offering, (b) redemptions or exchanges by the Pre-IPO LLC Members of LLC Units for shares of our Class A common stock or (c) payments under the tax receivable agreement and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement. This payment obligation is an obligation of Goosehead Insurance, Inc. and not of Goosehead Financial, LLC. For purposes of the tax receivable agreement, the cash tax savings in income tax will be computed by comparing the actual income tax liability of Goosehead Insurance, Inc. (calculated with certain assumptions) to the amount of such taxes that Goosehead Insurance, Inc. would have been required to pay had there been no increase to the tax basis of the assets of Goosehead Financial, LLC as a result of the redemptions or exchanges and had Goosehead Insurance, Inc. not entered into the tax receivable agreement. Estimating the amount of payments that may be made under the tax receivable agreement is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. While the actual increase in tax basis, as well as the amount and timing of any payments under the tax receivable agreement, will vary depending upon a number of factors, including the timing of redemptions or exchanges, the price of shares of our Class A common stock at the time of the redemption or exchange, the extent to which such redemptions or exchanges are taxable and the
During
31

amount and timing of our income. See "Item 13. Certain relationships and related transactions, and director independence" of the three months ended March 31, 2018, no distributionsAnnual Report on Form 10-K. We anticipate that we will account for the effects of these increases in tax basis and associated payments under the tax receivable agreement arising from future redemptions or redemptions were made that triggeredexchanges as follows:
•we will record an increase in deferred tax assets for the estimated income tax effects of the increases in tax basis based on enacted federal and state tax rates at the date of the redemption or exchange;
•to the extent we estimate that we will not realize the full benefit represented by the deferred tax asset, based on an analysis that will consider, among other things, our expectation of future earnings, we will reduce the deferred tax basis.asset with a valuation allowance; and
•we will record 85% of the estimated realizable tax benefit (which is the recorded deferred tax asset less any recorded valuation allowance) as an increase to the liability due under the tax receivable agreement and the remaining 15% of the estimated realizable tax benefit as an increase to additional paid-in capital.
All of the effects of changes in any of our estimates after the date of the redemption or exchange will be included in net income. Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income.

Contractual obligations, commitments and contingencies
The following table represents our contractual obligations as of March 31, 2018,2022, aggregated by type.type (in thousands).
  
Contractual obligations, commitments and contingencies
(in thousands)TotalLess than
1 year		1-3 years3-5 yearsMore than
5 years
Operating leases(1)
$66,090 $5,190 $16,575 $16,955 $27,370 
Debt obligations payable(2)
98,125 5,000 17,500 75,625 — 
Interest expense(3)
17,586 8,313 3,203 6,070 — 
Liabilities under the tax receivable agreement(4)
103,193 — 16,353 11,864 74,976 
Total$284,994 $18,503 $53,631 $110,514 $102,346 

  
 Contractual obligations, commitments and  contingencies 
(in thousands) Total
 
Less than
1 year

 1-3 years
 3-5 years
 
More than
5 years

Operating leases(1)
 $15,625
 $1,395
 $3,097
 $3,271
 $7,862
Debt obligations payable(2)
 49,500
 500
 1,000
 48,000
 —
Total $65,125
 $1,895
 $4,097
 $51,271
 $7,862
(1)The Company leases its facilities under non-cancelable operating leases. In addition to monthly lease payments, the lease agreements require the Company to reimburse the lessors for its portion of operating costs each year. Rent expense was $1.4 million and $945 thousand for the three months ended March 31, 2022 and 2021.

(1)The Company leases its facilities under non-cancelable operating leases. In addition to monthly lease payments, the lease agreements require the Company to reimburse the lessors for its portion of operating costs each year. Rent expense was $404,806 and $159,858 for the three months ended March 31, 2018 and 2017.
(2)On October 27, 2016, the Company entered into the Credit Agreement consisting of a revolving credit facility of $3,000,000 and a term loan of $30,000,000 used to pay off existing debt and fund a distribution to members. On July 14, 2017, the Company executed the first amendment to the Credit Agreement to borrow an additional $10,000,000 term loan for payment of a dividend to shareholders. On December 20, 2017 the Company executed the second amendment to the Credit Agreement to borrow an additional $10,000,000 term loan for payment of a dividend to shareholders and to extend the maturity date of the term loans by one year.

(2)The Company refinanced its credit facilities on July 21, 2021 in the form of a $100 million term loan, and $25 million revolving credit facility, of which $25 million was drawn as of March 31, 2022.
(3)Interest expense includes interest payments on our outstanding debt obligations under our credit agreement. Our debt obligations have variable interest rates. We have calculated future interest obligations based on the interest rate for our debt obligations as of March 31, 2022.
(4)See "Item 2. Management's discussion and analysis of financial condition and results of operation - Tax receivable agreement."

Off-balance sheet arrangements
We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any activities that expose us to any liability that is not reflected in our condensed consolidated and combined financial statements except for those described under “Contractual obligations, commitments and contingencies” above.


Critical accounting policies
Our discussion and analysis of our consolidated financial condition and results of operations is based upon the accompanying condensed consolidated and combined financial statements and notes thereto, which have been prepared in accordance with GAAP. The preparation of the condensed consolidated and combined financial statements requires us to make estimates, judgments and assumptions, which we believe to be reasonable, based on the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Variances in the estimates or assumptions used to actual experience could yield materially different accounting results. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate
32

under the facts and circumstances. There have been no significant changes to our critical accounting policies as disclosed in the Final Prospectus, other than the "Capitalized IPO Related Costs" as described in Note 2 of the condensed consolidated and combined financial statements included in thisAnnual Report on Form 10-Q.10-K.




Recent accounting pronouncements
See "Note 2: Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements” under Part I, Item 1 of this Form 10-Q.


Emerging growth company
Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by FASB or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We intend to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies. We also intend take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as we qualify as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our exposure to market risks as described in "Management's discussion"Item 7A. Quantitative and analysisqualitative disclosure of financial condition and results of operations" ofmarket risks" in the Final Prospectus.Annual Report on Form 10-K.


Item 4. Controls and Procedures
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that because of the material weakness in internal control over financial reporting described in the Final Prospectus, our disclosure controls and procedures were not effective as of March 31, 2018.
In2022. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the Final Prospectus,reports we identifiedfile or submit under the Exchange Act is recorded, processed, summarized and reported material weaknesses regardingwithin the lack of adequate (i) executive management review of our GAAP financial statements, (ii) review of our accounting policies, including recent accounting pronouncements and significant transactions for thetime periods presented and (iii) information technology general controlsspecified in the areas of user accessSEC's rules and program changeforms and that such information is accumulated and communicated to management, for certain information technology systems.
Duringincluding the quarter ended March 31, 2018, we continued to implement certain measures to remediate these material weaknesses. For example, we implemented policies requiring our executive managementChief Executive Officer and audit committee to review our financial statements presented on a GAAP basis. Additionally, we have implemented policies requiring our Chief Financial Officer, controller and assistant controller (who was recently hired to assist with financial reporting requirements)allow timely decisions regarding required disclosure.
There were no changes to systematically review and document all accounting policies and procedures around significant transactions to ensure compliance with the most recent GAAP pronouncements. We believe this plan effectively remediates theour internal controlscontrol over financial reporting material weaknesses described above (i and ii), however the effectiveness of the new controls must be tested over a sufficient period of time. As such, the material weaknesses still exist as of March 31, 2018.
Additionally, to address the information technology general control material weakness described above in (iii), we have implemented a remediation plan that includes updating certain users' access to ensure that financial data is adequately restricted to appropriate personnel. We have also implemented program change management controls to ensure that any system changes are adequately reviewed and deployed through the appropriate personnel. We believe this plan effectively remediates this material weakness, however the effectiveness of the new controls must be tested over a sufficient period of time. As such, the material weaknesses still exists as of March 31, 2018.
No material costs were incurredoccurred during the quarter ended March 31, 2018 relating2022 that have materially affected, or are reasonably likely to remediation efforts discussed above.

materially affect, our internal control over financial reporting.



33

PART II


Item 1. Legal mattersProceedings
The information required by this Item is incorporated by reference to Part"Part I, Item I, Note 8. Litigation.13. Litigation" in the condensed consolidated financial statements included herein.


Item 1A. Risk factorsFactors
There have been no material changes with respect to the risk factors disclosed in the Final Prospectus.Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.
Recent Sales of Unregistered Securities
The following list sets forth information regarding all securities sold or issued by us in the three months ended March 31, 2018 and the subsequent period priorSubject to the filing of this Form 10-Q. No underwriters were involved in these sales. There was no general solicitation of investors or advertising, and we did not pay or give, directly or indirectly, any commission or other remuneration, in connection with the Offering of these shares In eachterms of the transactions described below, the recipients of the securities represented their intention to acquire the securities for investment onlyamended and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the securities issued in these transactions.
1.Following the effectiveness of our Registration Statement on Form S-1 (Registration No. 333-224080) filed in connection with the Offering, we issued 3,723,767 shares of our Class A common stock in connection with the reorganization transactions undertaken in connection with the Offering. These shares were issued to a limited number of investors, all of which had sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.
2.Following the effectiveness of our Registration Statement on Form S-1, we issued 22,746,667 shares of our Class B common stock in connection with the reorganization transactions undertaken in connection with the Offering. These shares were issued to a limited number of investors, all of which had sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment. The issued shares were exchanged on a pro rata basis and the consideration represents the same investment in the Goosehead Financial LLC business already held by such investors, but in a different form.
The offers, sales and issuances of the securities described in (1) and (2) above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act as transactions by an issuer not involving any public offering. The recipients in each of these transactions acquired the securities for investment only and not with a view to or for sale in connection with any distribution thereof.


Use of Proceeds
On April 26, 2018, our Registration Statement on Form S-1 (Registration No. 333-224080) was declared effective by the SEC in connection with Offering pursuant to which we sold an aggregate of 9,809,500 shares of our Class A common stock (including 1,279,500 shares sold pursuant to the underwriters' over-allotment option) at a price of $10.00 per share. J.P. Morgan Securities LLC and Merrill Lynch, Pierce Fenner & Smith Incorporated acted as joint book-running managers in the Offering. Keefe, Bruyette & Woods, Inc. and William Blair & Company, L.L.C. acted as co-managers in the Offering. The Offering resulted in net proceeds of approximately $87 million after deducting underwriters' discounts and commissions of $7 million and other offering expenses of $4.25 million. 
We used the net proceeds to us from the base portion of the Offering (approximately $77 million) to effect partial repayment of notes issued by the Company in exchange for the transfer of certain ownership interests in Goosehead Management, LLC and Texas Wasatch Insurance Holdings Group, LLC held by their historical owners, which include certain members of the Company’s management and board of directors, including certain persons owning 10% or more of our common stock. We used the net proceeds to us from the exercise of the underwriters’ over-allotment option to purchase fromrestated Goosehead Financial LLC a numberAgreement, each LLC Unit is redeemable (along with the cancellation of LLC Units equal to the numbercorresponding share of sharesClass B common stock) for one share of Class A common stock issued pursuant to the exercise of the underwriters’ over-allotment option. In turn, we intend to cause Goosehead Financial, LLC to use the proceeds it receives for general corporate purposes, which may include the repayment of debt.  Between the effective date of the Registration Statement and June 7, 2018, Goosehead Financial, LLC has used approximately $0 of the net proceeds from the exercise of the underwriters’ over-allotment option. None of the net proceeds from the exercise of the underwriters’ over-allotment option were used to make payments, directly or indirectly, to (i) any of our directors, officers or their associates, (ii) any persons owning 10% or more of our common shares or (iii) any of our affiliates. The intended use of the remaining net proceeds has not changed from the information mentioned in the Final Prospectus.stock.

Item 3. Defaults Upon Senior Securities
None.

Item 4. Mine Safety Disclosures
Not applicable.


Item 5. Other Information
None.

34


Item 6. Exhibits

101.INSXBRL Instance Document
101.SCHXBRL Schema Document
101.CALXBRL Calculation Linkbase Document
101.DEFXBRL Definition Linkbase Document
101.LABXBRL Label Linkbase Document
101.PREXBRL Presentation Linkbase


Signatures


Pursuant to the requirements of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.

GOOSEHEAD INSURANCE, INC.
Date:June 7, 2018April 27, 2022By:/s/ Mark E. Jones
Mark E. Jones
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date:June 7, 2018April 27, 2022By:/s/ Mark S. Colby
Mark S. Colby
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)



30
35