UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20202021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number: 001-38466

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

Delaware82-3886022
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
1500 Solana Blvd, Building 4, Suite 4500
Westlake
Texas76262
(Address of principal executive offices)(Zip Code)

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

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

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

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

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

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

As of July 31, 2020,28, 2021, there were 17,268,17119,391,860 shares of Class A common stock outstanding and 19,270,13317,402,589 shares of Class B common stock outstanding.



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

2


Commonly used defined terms
As used in this Quarterly Report on Form 10-Q ("Form 10-Q"), unless the context indicates or otherwise requires, the following terms have the following meanings:
 
Ancillary Revenue: Revenue that is supplemental to our Core Revenue and Cost Recovery Revenue, Ancillary Revenue is unpredictable and often outside of the Company's control. Included in Ancillary Revenue are Contingent Commissions and other income.
Agency Fees: Fees separate from commissions charged directly to clients for efforts performed in the issuance of new insurance policies.
Annual Report on Form 10-K: The Company's annual report on Form 10-K for the year ended December 31, 2019.
ASC 605: Legacy revenue recognition standard ASC 605, Revenue Recognition. This legacy revenue recognition was used for periods prior to the fourth quarter of 2019.2020.
ASC 606 ("Topic 606"): ASU 2014-09 - Revenue from Contracts with Customers.
ASC 842 ("Topic 842"): ASU 2016-02 - Leases.
Carrier: An insurance company.
Carrier Appointment: A contractual relationship with a Carrier.
Client Retention: Calculated by comparing the number of all clients that had at least one policy in force twelve months prior to the date of measurement and still have at least one policy in force at the date of measurement.
Contingent Commission: Revenue in the form of contractual payments from Carriers contingent upon several factors, including growth and profitability of the business placed with the Carrier.
Core Revenue: The most predictable revenue stream for the Company, these revenues consist of New Business Revenue and Renewal Revenue. New Business Revenue is lower-margin, but fairly predictable. Renewal Revenue is higher-margin and very predictable.
Corporate Channel: The Corporate Channel distributes insurance through a network of company-owned and financed operations with employees that are hired, trained and managed by Goosehead.
Corporate Channel Adjusted EBITDA: Segment earnings before interest, income taxes, depreciation and amortization allocable to the Corporate Channel.
Cost Recovery Revenue: Revenue received by the Company associated with cost recovery efforts associated with selling and financing franchises. Included in Cost Recovery Revenue are Initial Franchise Fees and Interest Income.
Franchise Agreement: Agreements governing our relationships with Franchisees.
Franchise Channel: The Franchise Channel network consists of Franchisee operations that are owned and managed by Franchisees. These business owners have a contractual relationship with Goosehead to use our processes, training, implementation, systems and back-office support team to place insurance. In exchange, Goosehead is entitled to an Initial Franchise Fee and Royalty Fees.
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.
Franchisee: An individual or entity who has entered into a Franchise Agreement with us.
GF: Goosehead Financial, LLC.
Initial Franchise Fee: Contracted fees paid by Franchisees to compensate Goosehead for the training, onboarding and ongoing support of new franchise locations.
LLC Unit: a limited liability company unit of Goosehead Financial, LLC.
New Business Commission: Commissions received from Carriers relating to policies in their first term.
New Business Revenue: New Business Commissions, Agency Fees, and New Business Royalty Fees.
New Business Royalty Fees: Royalty Fees received from Franchisees relating to policies in their first term
3


NPS: Net Promoter Score is calculated based on a single question: “How likely are you to refer Goosehead Insurance to a friend, family member or colleague?” Clients that respond with a 6 or below are Detractors, a score of 7 or 8 are called Passives, and a 9 or 10 are Promoters. NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters.
Policies in Force: As of any reported date, the total count of current (non-cancelled) policies placed by us with our Carriers.
Pre-IPO LLC Members: owners of LLC Units of GF prior to the Offering.
3


Renewal Revenue: Renewal Commissions and Renewal Royalty Fees.
Royalty Fees: Fees paid by Franchisees to the Company that are tied to the gross commissions paid by the Carriers related to policies sold or renewed in the Franchise Channel.
Segment: One of the two Goosehead sales distribution channels, the Corporate Channel or the Franchise Channel.
Segment Adjusted EBITDA: Either Corporate Channel Adjusted EBITDA or Franchise Channel Adjusted EBITDA.
The Offering: The initial public offering completed by Goosehead Insurance, Inc. on May 1, 2018.
Total Written Premium: As of any reported date, the total amount of current (non-cancelled) gross premium that is placed with Goosehead’s portfolio of Carriers.

Special note regarding forward-looking statements
We have made statements in this Form 10-Q that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include the potential impact of COVID-19 on the Company's business, projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Item 1A. Risk factors” in the Annual Report on Form 10-K.
The forward-looking statements included in this Form 10-Q are made only as of the date hereof. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised expectations.
4


PART I

Item 1. Condensed Consolidated Financial Statements (Unaudited)
Page
Condensed Consolidated Statements of IncomeOperations
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Stockholders' Equity
Condensed Consolidated Statements of Cash Flows
Notes to the Condensed Consolidated Financial Statements
Note 1Organization
Note 2Summary of significant accounting policies
Note 3Revenues
Note 4Franchise fees receivable
Note 5Allowance for uncollectible agency fees
Note 6Property and equipment
Note 7Debt
Note 8Commitments and contingenciesIncome taxes
Note 9Stockholder's equity
Note 10Non-controlling interest
Note 911Income taxesEquity-based compensation
Note 1012Stockholder's equitySegment information
Note 11Non-controlling interest
Note 12Equity-based compensation
Note 13DividendsLitigation
Note 14Segment information
Note 15Litigation
Note 16Subsequent events



5


Goosehead Insurance, Inc.
Condensed Consolidated Statements of IncomeOperations
(Unaudited)
(In thousands, except per share amounts)
  Three Months Ended June 30,Six Months Ended June 30,
  
2020 1
2019 2
2020 1
2019 2
Revenues:
Commissions and agency fees$18,248  $10,763  $30,059  $26,933  
Franchise revenues11,484  8,475  19,929  15,303  
Interest income192  148  361  283  
Total revenues29,924  19,386  50,349  42,519  
Operating Expenses:
Employee compensation and benefits15,904  10,378  29,407  19,569  
General and administrative expenses5,364  4,201  11,236  8,631  
Bad debts319  482  628  883  
Depreciation and amortization712  452  1,252  875  
Total operating expenses22,299  15,513  42,523  29,958  
Income from operations7,625  3,873  7,826  12,561  
Other Income (Expense):
Other income—  —  66  —  
Interest expense(479) (626) (1,083) (1,252) 
Income before taxes7,146  3,247  6,809  11,309  
Tax expense (benefit)(240) 430  (281) 1,174  
Net income7,386  2,817  7,090  10,135  
Less: net income attributable to non-controlling interests4,007  1,914  3,867  6,760  
Net income attributable to Goosehead Insurance, Inc.$3,379  $903  $3,223  $3,375  
Earnings per share:
Basic$0.21  $0.06  $0.20  $0.23  
Diluted$0.19  $0.06  $0.18  $0.22  
Weighted average shares of Class A common stock outstanding
Basic16,458  14,876  16,011  14,545  
Diluted17,947  16,065  17,432  15,685  
Dividends declared per share$—  $—  $—  $0.41  
  Three Months Ended June 30,Six Months Ended June 30,
  2021202020212020
Revenues:
Commissions and agency fees$21,053 $18,248 $38,587 $30,059 
Franchise revenues16,841 11,484 30,274 19,929 
Interest income279 192 540 361 
Total revenues38,173 29,924 69,401 50,349 
Operating Expenses:
Employee compensation and benefits22,475 15,904 43,784 29,407 
General and administrative expenses10,134 5,364 19,408 11,236 
Bad debts646 319 1,093 628 
Depreciation and amortization1,132 712 2,132 1,252 
Total operating expenses34,387 22,299 66,417 42,523 
Income from operations3,786 7,625 2,984 7,826 
Other Income (Expense):
Other income119 139 66 
Interest expense(546)(479)(1,147)(1,083)
Income before taxes3,359 7,146 1,976 6,809 
Tax expense (benefit)223 (240)(71)(281)
Net Income3,136 7,386 2,047 7,090 
Less: net income (loss) attributable to non-controlling interests1,649 4,007 956 3,867 
Net Income attributable to Goosehead Insurance, Inc.$1,487 $3,379 $1,091 $3,223 
Earnings per share:
Basic$0.08 $0.21 $0.06 $0.20 
Diluted$0.07 $0.19 $0.05 $0.18 
Weighted average shares of Class A common stock outstanding
Basic18,774 16,458 18,574 16,011 
Diluted20,367 17,947 20,251 17,432 

(1) - The three and six months ended June 30, 2020 are reported under ASC 606
(2) - The three and six months ended June 30, 2019 are reported under ASC 605

See Notes to the Condensed Consolidated Financial Statements
6



Goosehead Insurance, Inc.
Condensed Consolidated Balance Sheets
(Unaudited) 
(In thousands, except per share amounts)
  June 30,December 31,
  20202019
Assets
Current Assets:
Cash and cash equivalents$54,318  $14,337  
Restricted cash1,488  923  
Commissions and agency fees receivable, net7,628  6,884  
Receivable from franchisees, net3,944  2,602  
Prepaid expenses4,981  1,987  
Total current assets72,359  26,733  
Receivable from franchisees, net of current portion13,199  11,014  
Property and equipment, net of accumulated depreciation12,349  9,542  
Intangible assets, net of accumulated amortization491  445  
Deferred income taxes, net41,424  15,537  
Other assets2,767  1,357  
Total assets$142,589  $64,628  
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses$4,152  $5,033  
Premiums payable1,488  923  
Deferred rent881  683  
Contract liabilities3,365  2,771  
Note payable2,500  4,000  
Total current liabilities12,386  13,410  
Deferred rent, net of current portion7,571  6,681  
Note payable, net of current portion81,272  42,161  
Contract liabilities, net of current portion23,395  20,024  
Liabilities under tax receivable agreement, net of current portion35,151  13,359  
Total liabilities159,775  95,635  
Commitments and contingencies (see note 8)
Class A common stock, $0.01 par value per share - 300,000 shares authorized, 17,084 shares issued and outstanding as of June 30, 2020, 15,238 shares issued and outstanding as of December 31, 2019171  152  
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 19,455 issued and outstanding as of June 30, 2020, 21,055 shares issued and outstanding as of December 31, 2019194  210  
Additional paid in capital21,348  14,442  
Accumulated deficit(20,525) (23,811) 
Total stockholders' equity1,188  (9,007) 
Non-controlling interests(18,374) (22,000) 
Total equity(17,186) (31,007) 
Total liabilities and equity$142,589  $64,628  
  June 30,December 31,
  20212020
Assets
Current Assets:
Cash and cash equivalents$34,975 $24,913 
Restricted cash1,551 1,323 
Commissions and agency fees receivable, net6,063 18,604 
Receivable from franchisees, net2,724 2,100 
Prepaid expenses7,394 3,705 
Total current assets52,707 50,645 
Receivable from franchisees, net of current portion23,354 18,179 
Property and equipment, net of accumulated depreciation22,618 16,650 
Right-of-use asset34,207 22,513 
Intangible assets, net of accumulated amortization1,756 549 
Deferred income taxes, net98,114 73,363 
Other assets5,247 3,938 
Total assets$238,003 $185,837 
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses$7,884 $8,101 
Premiums payable1,551 1,323 
Lease liability4,360 3,203 
Contract liabilities5,189 4,233 
Note payable5,000 3,500 
Total current liabilities23,984 20,360 
Lease liability, net of current portion48,549 32,933 
Note payable, net of current portion76,539 79,408 
Contract liabilities, net of current portion36,200 29,968 
Liabilities under tax receivable agreement, net of current portion80,232 61,572 
Total liabilities265,504 224,241 
Class A common stock, $0.01 par value per share - 300,000 shares authorized, 19,209 shares issued and outstanding as of June 30, 2021, 18,304 shares issued and outstanding as of December 31, 2020191 183 
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 17,586 issued and outstanding as of June 30, 2021, 18,447 shares issued and outstanding as of December 31, 2020176 184 
Additional paid in capital36,579 29,371 
Accumulated deficit(33,527)(34,614)
Total stockholders' equity3,419 (4,876)
Non-controlling interests(30,920)(33,528)
Total equity(27,501)(38,404)
Total liabilities and equity$238,003 $185,837 

See Notes to the Condensed Consolidated Financial Statements
7


Goosehead Insurance, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In thousands)


Issued shares of Class A common stockIssued shares of Class B common stockClass A Common stockClass B Common StockAdditional paid in capitalAccumulated deficitTotal stockholders' equityNon-controlling interestTotal equityIssued 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, 202015,238  21,055  152  210  14,442  (23,811) (9,007) (22,000) (31,007) 
Distributions—  —  —  —  —  —  —  (1,003) (1,003) 
Net loss—  —  —  —  —  (156) (156) (140) (296) 
Equity-based compensation—  —  —  —  498  —  498  —  498  
Activity under employee stock purchase plan —  —  —  116  —  116  —  116  
Redemption of LLC Units791  (791)  (8) (869) —  (869) 869  —  
Deferred tax adjustments related to Tax Receivable Agreement—  —  —  —  1,704  —  1,704  —  1,704  
Balance March 31, 202016,032  20,264  160  202  15,891  (23,967) (7,714) (22,274) (29,988) 
Distributions—  —  —  —  —  —  —  (859) (859) 
Balance, January 1, 2021Balance, January 1, 202118,304 18,447 183 184 29,371 (34,614)(4,876)(33,528)(38,404)
Net incomeNet income—  —  —  —  —  3,379  3,379  4,007  7,386  Net income— — — — — (396)(396)(693)(1,089)
Exercise of stock optionsExercise of stock options241  —   —  2,404  —  2,407  —  2,407  Exercise of stock options— 226 226 226 
Equity-based compensationEquity-based compensation—  —  —  —  1,416  —  1,416  —  1,416  Equity-based compensation— — — — 1,941 — 1,941 — 1,941 
Activity under employee stock purchase planActivity under employee stock purchase plan —  —  —  138  —  138  —  138  Activity under employee stock purchase plan— — — 205 — 205 — 205 
Redemption of LLC UnitsRedemption of LLC Units809  (809)  (8) (762) —  (762) 762  —  Redemption of LLC Units133 (133)(1)(249)— (249)249 
Deferred tax adjustments related to Tax Receivable AgreementDeferred tax adjustments related to Tax Receivable Agreement—  —  —  —  2,261  —  2,261  53  2,314  Deferred tax adjustments related to Tax Receivable Agreement— — — — 798 — 798 18 816 
Reallocation of Non-controlling interestReallocation of Non-controlling interest—  —  —  —  63  63  (63) —  Reallocation of Non-controlling interest(2)
Balance June 30, 202017,084  19,455  171  194  21,348  (20,525) 1,188  (18,374) (17,186) 
Balance March 31, 2021Balance March 31, 202118,448 18,314 184 183 32,292 (35,008)(2,349)(33,956)(36,305)
Net incomeNet income— — — — — 1,487 1,487 1,649 3,136 
Exercise of stock optionsExercise of stock options31 — — — 439 — 439 — 439 
Equity-based compensationEquity-based compensation— — — — 1,851 — 1,851 — 1,851 
Activity under employee stock purchase planActivity under employee stock purchase plan— — — 214 — 214 — 214 
Redemption of LLC UnitsRedemption of LLC Units728 (728)(7)(1,280)— (1,280)1,280 
Deferred tax adjustments related to Tax Receivable AgreementDeferred tax adjustments related to Tax Receivable Agreement— — — — 3,063 — 3,063 101 3,164 
Reallocation of Non-controlling interestReallocation of Non-controlling interest— — — — — (6)(6)
Balance June 30, 2021Balance June 30, 202119,209 17,586 191 176 36,579 (33,527)3,419 (30,920)(27,501)
8


Issued shares of Class A common stockIssued shares of Class B common stockClass A Common stockClass B Common StockAdditional paid in capitalAccumulated deficitTotal stockholders' equityNon-controlling interestTotal equityIssued 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, 201913,799  22,486  138  224  11,899  (20,761) (8,500) (16,703) (25,203) 
Distributions—  —  —  —  —  —  —  (245) (245) 
Dividends declared—  —  —  —  —  (5,962) (5,962) (9,038) (15,000) 
Net income—  —  —  —  —  2,472  2,472  4,846  7,318  
Equity-based compensation—  —  —  —  368  —  368  —  368  
Redemption of LLC Units723  (723)  (7) (679) —  (679) 679  —  
Deferred tax adjustments related to Tax Receivable Agreement—  —  —  —  911  —  911  —  911  
Balance March 31, 201914,522  21,763  145  217  12,499  (24,251) (11,390) (20,461) (31,851) 
Balance, January 1, 2020Balance, January 1, 202015,238 21,055 152 210 14,442 (23,811)(9,007)(22,000)(31,007)
DistributionsDistributions—  —  —  —  —  —  —  (2,708) (2,708) Distributions— — — — — — — (1,003)(1,003)
Net incomeNet income—  —  —  —  —  903  903  1,914  2,817  Net income— — — — — (156)(156)(140)(296)
Equity-based compensationEquity-based compensation—  —  —  —  368  —  368  —  368  Equity-based compensation— — — — 498 — 498 — 498 
Activity under employee stock purchase planActivity under employee stock purchase plan —  —  —  142  —  142  —  142  Activity under employee stock purchase plan— — — 116 — 116 — 116 
Redemption of LLC UnitsRedemption of LLC Units488  (488)  (5) (477) —  (477) 477  —  Redemption of LLC Units791 (791)(8)(869)— (869)869 
Deferred tax adjustments related to Tax Receivable AgreementDeferred tax adjustments related to Tax Receivable Agreement—  —  —  —  684  —  684  —  684  Deferred tax adjustments related to Tax Receivable Agreement— — — — 1,704 — 1,704 — 1,704 
Balance June 30, 201915,013  21,275  150  212  13,216  (23,348) (9,770) (20,778) (30,548) 
Balance March 31, 2020Balance March 31, 202016,032 20,264 160 202 15,891 (23,967)(7,714)(22,274)(29,988)
DistributionsDistributions— — — — — — — (859)(859)
Net incomeNet income— — — — — 3,379 3,379 4,007 7,386 
Exercise of stock optionsExercise of stock options241 — — 2,404 — 2,407 — 2,407 
Equity-based compensationEquity-based compensation— — — — 1,416 — 1,416 — 1,416 
Activity under employee stock purchase planActivity under employee stock purchase plan— — — 138 — 138 — 138 
Redemption of LLC UnitsRedemption of LLC Units809 (809)(8)(762)— (762)762 
Deferred tax adjustments related to Tax Receivable AgreementDeferred tax adjustments related to Tax Receivable Agreement— — — — 2,261 — 2,261 53 2,314 
Reallocation of Non-controlling interestReallocation of Non-controlling interest— — — — 63 63 (63)
Balance June 30, 2020Balance June 30, 202017,084 19,455 171 194 21,348 (20,525)1,188 (18,374)(17,186)


See Notes to the Condensed Consolidated Financial Statements
9


Goosehead Insurance, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
  Six Months Ended June 30,
  20202019
Cash flows from operating activities:
Net income$7,090  $10,135  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization1,540  982  
Bad debt expense628  883  
Equity-based compensation1,914  736  
Impacts of Tax Receivable Agreement22,472  9,126  
Deferred income taxes(21,869) (8,945) 
Changes in operating assets and liabilities:
Receivable from franchisees(3,682) (1,438) 
Commissions and agency fees receivable(1,235) (892) 
Prepaid expenses(2,994) (111) 
Other assets(1,410) (69) 
Accounts payable and accrued expenses(1,546) (935) 
Deferred rent1,087  1,042  
Contract liabilities3,965  —  
Premiums payable565  203  
Unearned revenue—  (35) 
Payments pursuant to the tax receivable agreement(9) —  
Net cash provided by operating activities6,516  10,682  
Cash flows from investing activities:
Proceeds from notes receivable18  11  
Purchase of software(142) (251) 
Purchase of property and equipment(3,969) (1,636) 
Net cash used for investing activities(4,093) (1,876) 
Cash flows from financing activities:
Debt issuance costs(677) —  
Repayment of note payable(26,821) (1,000) 
Proceeds from notes payable64,821  
Proceeds from the issuance of Class A common stock2,662  142  
Member distributions and dividends(1,862) (17,953) 
Net cash provided by (used for) financing activities38,123  (18,811) 
Net increase (decrease) in cash and restricted cash40,546  (10,005) 
Cash and cash equivalents, and restricted cash, beginning of period15,260  19,011  
Cash and cash equivalents, and restricted cash, end of period$55,806  $9,006  
Supplemental disclosures of cash flow data:
Cash paid during the year for interest795  1,252  
Cash paid for income taxes250  875  
  Six Months Ended June 30,
  20212020
Cash flows from operating activities:
Net income$2,047 $7,090 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization2,264 1,540 
Bad debt expense1,093 628 
Equity-based compensation3,793 1,914 
Impacts of Tax Receivable Agreement20,628 22,472 
Deferred income taxes(20,772)(21,869)
Noncash lease activity5,080 
Changes in operating assets and liabilities:
Receivable from franchisees(6,112)(3,682)
Commissions and agency fees receivable11,745 (1,235)
Prepaid expenses(3,689)(2,994)
Other assets(1,303)(1,410)
Accounts payable and accrued expenses(1,649)(1,546)
Deferred rent1,087 
Contract liabilities7,188 3,965 
Premiums payable228 565 
Payments pursuant to the tax receivable agreement(549)(9)
Net cash provided by operating activities19,992 6,516 
Cash flows from investing activities:
Proceeds from notes receivable17 18 
Purchase of software(1,369)(142)
Purchase of property and equipment(7,934)(3,969)
Net cash used for investing activities(9,286)(4,093)
Cash flows from financing activities:
Debt issuance costs(677)
Repayment of note payable(1,500)(26,821)
Proceeds from notes payable64,821 
Proceeds from the issuance of Class A common stock1,084 2,662 
Member distributions and dividends(1,862)
Net cash provided by (used for) financing activities(416)38,123 
Net increase in cash and restricted cash10,290 40,546 
Cash and cash equivalents, and restricted cash, beginning of period26,236 15,260 
Cash and cash equivalents, and restricted cash, end of period$36,526 $55,806 
Supplemental disclosures of cash flow data:
Cash paid during the year for interest1,015 795 
Cash paid for income taxes262 250 
See Notes to the Condensed Consolidated Financial Statements
10

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

1. Organization
On May 1, 2018
Goosehead Insurance, Inc. ("GSHD"(“GSHD”) completed an initial public offering (the “Offering”) of 9,810 thousand shares of Class A common stock at a price of $10.00 per share, which included 1,280 thousand shares issued pursuant tois the underwriter's over-allotment option. Following completion of the Offering, GSHD owned 37.3%sole managing member of Goosehead Financial, LLC (“GF”) and the Pre-IPO LLC Members owned the remaining 62.7%. GSHD is the sole managing member of GF and, although GSHD holds a minority economic interest in GF, GSHD has the sole voting power and control of management of GF. Accordingly, GSHD consolidates the financial results of GF and reports non-controlling interest in GSHD'sGSHD’s condensed consolidated financial statements.
GF was organized on January 1, 2016 as a Delaware Limited Liability Company and is headquartered in Westlake, TX.
GSHD (collectively with its consolidated subsidiaries, the “Company”) provides personal and commercial property and casualty insurance brokerage services for its clients through a network of corporate-owned agencies and franchise units across the nation.
The Company had 911 and 79 corporate-owned locations in operation at June 30, 20202021 and 2019,2020, respectively. Franchisees are provided access to insurance Carrier Appointments, product training, technology infrastructure, client service centers and back office services. During the three months ended June 30, 20202021 and 2019,2020, the Company onboarded 60108 and 5760 franchise locations, respectively, and had 7301,072 and 535730 operating franchise locations as of June 30, 20202021 and 2019,2020, respectively. NaN franchises were purchased by the Company during the three and six months ended June 30, 20202021 or 2019.2020.
All intercompany accounts and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all of the annual disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). However, in the opinion of management, these statements include all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of the condensed consolidated financial positions at June 30, 2020,2021, the condensed consolidated results of operations, stockholders' equity and statements of cash flows for the three and six months ended June 30, 20202021 and 2019.2020. The interim period condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements that are included in the Annual Report on Form 10-K.
The results of operations for the three and six months ended June 30, 20202021 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 coronavirusCoronavirus (“COVID-19”) pandemicPandemic
The extent to which the COVID-19 pandemic and the related economic impact may affect our financial condition or results of operations is uncertain. The extent of the impact on our operational and financial performance will depend on various factors, including the duration and spread of the outbreak and its impact on home sales and consumer spending. To date, the pandemic has not increased our costs of or access to capital under our term note and revolving credit facility, and we do not believe it is reasonably likely to do so in the future. In addition, we do not believe that the pandemic will affect our ongoing ability to meet the covenants in our debt instruments, including under our term note and revolving credit facility. To date, the pandemic has not impacted the collectability of receivables or adversely affected our revenue.ability to generate new business, add new franchises, or retain existing franchises or policies. Due to the nature of our business, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods. Changes in consumer behavior linked to the COVID-19 pandemic may have contributed to reduced loss ratios through the six months ended June 30, 2020, increasing the amount of revenue from Contingent Commissions the Company expects to receive.
11

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date
11

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
of the financial statements, and the reported amounts of revenues and expenses during the reported period.
We are not presently aware of any events or circumstances arising from the COVID-19 pandemic, outside of those described above, that would require us to update our estimates, judgments or revise the carrying value of our assets or liabilities. Our estimates may change, however, as new events occur and additional information is obtained, any such changes will be recognized in the condensed consolidated financial statements. Accordingly, actual results could differ from those estimates as more information becomes known.
Income Taxes
The Company accounts for income taxes pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying amounts and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Any effects of changes in income tax rates or laws are included in income tax expense in the period of enactment.
Restricted Cash
The Company holds premiums received from the insured, but not yet remitted to the insurance Carrier in a fiduciary capacity. Premiums received but not yet remitted included in restricted cash were $1.5$1.6 million and $579 thousand$1.5 million as of June 30, 20202021 and 2019,2020, respectively.
The following is a reconciliation of our cash and restricted cash balances as presented in the condensed consolidated statementstatements of cash flows for the six months ended June 30, 20202021 and 20192020 (in thousands):
June 30,June 30,
2020201920212020
Cash and cash equivalentsCash and cash equivalents$54,318  $8,427  Cash and cash equivalents$34,975 $54,318 
Restricted cashRestricted cash1,488  579  Restricted cash1,551 1,488 
Cash and cash equivalents, and restricted cashCash and cash equivalents, and restricted cash$55,806  $9,006  Cash and cash equivalents, and restricted cash$36,526 $55,806 

Recently Issued Accounting Pronouncements
LeasesReference Rate Reform (ASU 2016-02)2020-04): This standard establishes a new lease accounting model,In March 2020, the Financial Accounting Standards Board issued ASU 2020-04. Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which introduces the recognition of lease assetsprovides optional expedients and liabilitiesexceptions for those leases classified as operating leases under previous GAAP. It shouldapplying U.S. GAAP if certain criteria are met to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued. ASU 2020-04 became effective on March 12, 2020 and may be applied using a modified retrospective approach, with the option to elect various practical expedients. Early adoption is permitted. The standard became effective for the Company January 1, 2020, but the Company is not required to present the impacts of the standard until it files its Annual Report on Form 10-K for the fiscal year endedprospectively through December 31, 2020,2022. A substantial portion of our indebtedness bears interest at which point the company will become a large accelerated filer.variable interest rates, primarily based on USD-LIBOR. The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements. However, the Company expects the impact of this guidance on its consolidated financial statements could be significant, as its future minimum operating lease commitments totaled $26.0 million as of June 30, 2020.
Credit Losses (ASU 2016-13): Measurement of Credit Losses on Financial Instruments. Under the new guidance an entity is required to measure all credit losses on certain financial instruments, including trade receivables and various off-balance sheet credit exposures, using an expected credit loss model. This model incorporates past experience, current conditions and reasonable and supportable forecasts affecting collectability of these instruments. This standard became effective for the Company beginning January 1, 2020, but the Company is not required to present the impacts of the standard until it files its Annual Report on Form 10-K for the fiscal year ended December 31, 2020, at which point the company will become a large accelerated filer. The Company does not expect the adoption of this amendment willASU 2020-04 did not have a material impact on the Company'sour condensed consolidated financial statements. The standard will ease, if warranted, the administrative requirements for accounting for the future effects of the rate reform. We continue to monitor the impact the discontinuance of LIBOR will have on our contracts and other transactions.

12

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Recently adopted accounting pronouncements
Revenue from Contracts with CustomersSimplifying the Accounting for Income Taxes (ASU 2014-09) (“Topic 606”)2019-12): This standard supersedesIn 2019, the existing revenue recognitionFinancial Accounting Standards Board issued ASU 2019-12 to simplify the accounting for income taxes. The guidance and providesprimarily addresses how to (1) recognize a new framework for recognizing revenue. The core principledeferred 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 standard is that an entity should recognize revenueeffects 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 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. Additionally,hybrid tax regimes. We adopted the guidance requires improved disclosure to help usersin the first quarter of 2021. The adoption did not have a material impact on our condensed consolidated financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized. 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. According to the superseding standard ASU 2015-14 that deferred the effective dates of the preceding, and because the Company is filing as an emerging growth company, the standard became effective for the Company January 1, 2019, but the Company was not required to present the impacts of the standard until the Annual Report on Form 10-K for the fiscal year ended December 31, 2019.or related disclosures.

The Company adopted this standard by recognizing the cumulative effect as an adjustment to opening accumulated deficit and non-controlling interests at January 1, 2019, under the modified retrospective method for contracts not completed as of the day of adoption. Under the modified retrospective method, the Company was not required to restate comparative financial information prior to the adoption of these standards and, therefore, such information presented prior to the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 will continue to be reported under the Company’s previous accounting policies.

13

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Impact on Financial Statements

The following tables summarize the impacts of adopting the revenue recognition standard on the Company’s condensed consolidated statement of income:


(in thousands)Legacy GAAPAdjustments due to Topic 606As Reported
Consolidated Statement of Income
Three Months Ended June 30, 2020
Revenues:
Commissions and agency fees15,252  2,996  18,248  
Franchise revenues12,111  (627) 11,484  
Expenses:
Employee compensation and benefits15,982  (78) 15,904  
Bad debts312   319  
Tax expense (benefit)(553) 313  (240) 
Net income5,259  2,127  7,386  
Earnings per share:
Basic0.16  0.05  0.21  
Diluted0.15  0.04  0.19  

(in thousands)Legacy GAAPAdjustments due to Topic 606As Reported
Consolidated Statement of Income
Six Months Ended June 30, 2020
Revenues:
Commissions and agency fees29,753  306  30,059  
Franchise revenues22,336  (2,407) 19,929  
Expenses:
Employee compensation and benefits29,557  (150) 29,407  
Bad Debts925  (297) 628  
Tax expense (benefit)(94) (187) (281) 
Net income8,556  (1,466) 7,090  
Earnings per share:
Basic0.23  (0.03) 0.20  
Diluted0.22  (0.04) 0.18  
14

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

(in thousands)Legacy GAAPAdjustments due to Topic 606As Reported
Consolidated Balance Sheet
June 30, 2020
Assets:
Commissions and agency fees receivable, net(1)
2,707  4,921  7,628  
Receivable from franchisees, net(1)
4,832  12,311  17,143  
Deferred income taxes, net41,104  320  41,424  
Other assets1,568  1,199  2,767  
Liabilities:
Accounts payable and accrued expenses3,843  309  4,152  
Unearned revenue25  (25) —  
Contract liabilities(1)
—  26,760  26,760  
Liabilities under tax receivable agreement35,128  23  35,151  
Stockholders' Equity:
Accumulated Deficit(17,155) (3,370) (20,525) 
Non-controlling interests(13,961) (4,413) (18,374) 
Total equity(9,403) (7,783) (17,186) 
(1) - Includes both the current and long term portion of this balance.


(in thousands)Legacy GAAPAdjustments due to Topic 606As Reported
Consolidated Statement of Cash Flows
Six Months Ended June 30, 2020
Operating Cash Flows:
Net Income8,556  (1,466) 7,090  
Bad debt expense925  (297) 628  
Receivable from franchisees(1,031) (2,651) (3,682) 
Commissions and agency fees receivables(1,132) (103) (1,235) 
Other assets(1,737) 327  (1,410) 
Accounts payable and accrued expenses(1,281) (265) (1,546) 
Contract liabilities—  3,965  3,965  
Unearned revenue(490) 490  —  
Net cash provided by operating activities6,516  —  6,516  

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 for policy changes and cancellations. These commissions and fees are earnedconstraint.
1512

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
These commissions and fees are earned at a point in time upon the effective date of bound insurance coverage, as no performance obligation exists after coverage is bound.
For Agency Fees, the Company enters into a contract with the insured, in which the Company's performance obligation is to place an insurance policy. The transaction price of the agency fee is set at the time the sale is agreed upon, and is included in the contract. Agency Fee revenue is recognized at a point in time, which is the effective date of the policy.

Contingent Commissioncommission revenue is generated from contracts between the Company and insurance Carriers,carriers, for which the Company is compensated for certain growth, profitability, andor other performance-based metrics. The performance obligations for Contingent Commissionscontingent commissions will vary by contract, but generally include the Company increasing profitable written premium with the insurance Carrier.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.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.franchise agreement. The transaction price is set by the Franchise Agreementfranchise 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.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 Costscosts
Additionally, the Company has evaluated ASC Topic 340 - Other Assets and Deferred Cost (“ASC 340”) which requires companies to defer certain incremental cost to obtain customer contracts, and certain costs to fulfill customer contracts.
Incremental cost to obtain - The adoption of ASC 340 resulted in the Company deferring certain costs to obtain customer contracts primarily as they relate to commission-based compensation plans in the Franchise Channel, in which the Company pays an incremental amount of compensation on new Franchise Agreements. These incremental costs are deferred and amortized over a 10-year period, which is consistent with the term of the contract.
Costs to fulfill - The Company has evaluated the need to capitalize costs to fulfill customer contracts and has determined that there are no costs that meet the definition for capitalization under ASC 340.

Disaggregation of Revenue
The following table disaggregates revenue by Segment and source (in thousands):
16
13

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Disaggregation of Revenue
Three Months Ended June 30, 2021:Franchise ChannelCorporate ChannelTotal
Type of revenue stream:
Commissions and agency fees
Renewal Commissions$$10,310 $10,310 
New Business Commissions5,944 5,944 
Agency Fees3,105 3,105 
Contingent Commissions1,136 558 1,694 
Franchise revenues
Renewal Royalty Fees11,670 11,670 
New Business Royalty Fees3,680 3,680 
Initial Franchise Fees1,458 1,458 
Other Franchise Revenues33 33 
Interest Income279 279 
Total Revenues$18,256 $19,917 $38,173 
Timing of revenue recognition:
Transferred at a point in time$$19,359 $19,359 
Transferred over time18,256 558 18,814 
Total Revenues$18,256 $19,917 $38,173 
The following table disaggregates revenue by Segment and source (in thousands):

Three Months Ended June 30, 2020:Franchise ChannelCorporate ChannelTotal
Six Months Ended June 30, 2021:Six Months Ended June 30, 2021:Franchise ChannelCorporate ChannelTotal
Type of revenue stream:Type of revenue stream:Type of revenue stream:
Commissions and agency feesCommissions and agency feesCommissions and agency fees
Renewal CommissionsRenewal Commissions$—  $7,718  $7,718  Renewal Commissions$$18,067 $18,067 
New Business CommissionsNew Business Commissions—  4,329  4,329  New Business Commissions10,560 10,560 
Agency FeesAgency Fees—  2,185  2,185  Agency Fees5,529 5,529 
Contingent CommissionsContingent Commissions2,774  1,242  4,016  Contingent Commissions3,252 1,179 4,431 
Franchise revenuesFranchise revenuesFranchise revenues— 
Renewal Royalty FeesRenewal Royalty Fees7,903  —  7,903  Renewal Royalty Fees20,416 20,416 
New Business Royalty FeesNew Business Royalty Fees2,599  —  2,599  New Business Royalty Fees6,837 6,837 
Initial Franchise FeesInitial Franchise Fees901  —  901  Initial Franchise Fees2,890 2,890 
Other Franchise RevenuesOther Franchise Revenues81  —  81  Other Franchise Revenues131 131 
Interest IncomeInterest Income192  —  192  Interest Income540 540 
Total RevenuesTotal Revenues$14,450  $15,474  $29,924  Total Revenues$34,066 $35,335 $69,401 
Timing of revenue recognition:Timing of revenue recognition:Timing of revenue recognition:
Transferred at a point in timeTransferred at a point in time$—  $14,232  $14,232  Transferred at a point in time$$34,156 $34,156 
Transferred over timeTransferred over time14,450  1,242  15,692  Transferred over time34,066 1,179 35,245 
Total RevenuesTotal Revenues$14,450  $15,474  $29,924  Total Revenues$34,066 $35,335 $69,401 
1714

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

Six Months Ended June 30, 2020:Franchise ChannelCorporate ChannelTotal
Three Months Ended June 30, 2020:Three Months Ended June 30, 2020:Franchise ChannelCorporate ChannelTotal
Type of revenue stream:Type of revenue stream:Type of revenue stream:
Commissions and agency feesCommissions and agency feesCommissions and agency fees
Renewal CommissionsRenewal Commissions$—  $13,451  $13,451  Renewal Commissions$$7,718 $7,718 
New Business CommissionsNew Business Commissions—  7,662  7,662  New Business Commissions4,329 4,329 
Agency FeesAgency Fees—  3,871  3,871  Agency Fees2,185 2,185 
Contingent CommissionsContingent Commissions3,468  1,607  5,075  Contingent Commissions2,774 1,242 4,016 
Franchise revenuesFranchise revenuesFranchise revenues
Renewal Royalty FeesRenewal Royalty Fees13,289  —  13,289  Renewal Royalty Fees7,903 7,903 
New Business Royalty FeesNew Business Royalty Fees4,647  —  4,647  New Business Royalty Fees2,599 2,599 
Initial Franchise FeesInitial Franchise Fees1,879  —  1,879  Initial Franchise Fees901 901 
Other Franchise RevenuesOther Franchise Revenues114  —  114  Other Franchise Revenues81 81 
Interest IncomeInterest Income361  —  361  Interest Income192 192 
Total RevenuesTotal Revenues$23,758  $26,591  $50,349  Total Revenues$14,450 $15,474 $29,924 
Timing of revenue recognition:Timing of revenue recognition:Timing of revenue recognition:
Transferred at a point in timeTransferred at a point in time$—  $24,984  $24,984  Transferred at a point in time$$14,232 $14,232 
Transferred over timeTransferred over time23,758  1,607  25,365  Transferred over time14,450 1,242 15,692 
Total RevenuesTotal Revenues$23,758  $26,591  $50,349  Total Revenues$14,450 $15,474 $29,924 

Contract Balances
Six Months Ended June 30, 2020:Franchise ChannelCorporate ChannelTotal
Type of revenue stream:
Commissions and agency fees
Renewal Commissions$$13,451 $13,451 
New Business Commissions7,662 7,662 
Agency Fees3,871 3,871 
Contingent Commissions3,468 1,607 5,075 
Franchise revenues
Renewal Royalty Fees13,289 13,289 
New Business Royalty Fees4,647 4,647 
Initial Franchise Fees1,879 1,879 
Other Franchise Revenues114 114 
Interest Income361 361 
Total Revenues$23,758 $26,591 $50,349 
Timing of revenue recognition:
Transferred at a point in time$$24,984 $24,984 
Transferred over time23,758 1,607 25,365 
Total Revenues$23,758 $26,591 $50,349 

15

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Contract Balances
The following table provides information about receivables, cost to obtain, and contract liabilities from contracts with customers (in thousands):

June 30, 2020December 31, 2019Increase/(decrease)June 30, 2021December 31, 2020Increase/(decrease)
Cost to obtain franchise contracts(1)
Cost to obtain franchise contracts(1)
1,153  $1,004  $149  
Cost to obtain franchise contracts(1)
1,724 $1,412 $312 
Commissions and agency fees receivable, net(2)
Commissions and agency fees receivable, net(2)
7,628  6,884  744  
Commissions and agency fees receivable, net(2)
6,063 18,604 (12,541)
Receivable from franchisees(2)
Receivable from franchisees(2)
17,143  13,616  3,527  
Receivable from franchisees(2)
26,078 20,279 5,799 
Contract liability(3)
Contract liability(3)
26,760  22,795  3,965  
Contract liability(3)
41,389 34,201 7,188 
(1) Cost to obtain franchise contracts is included in Other assets on the condensed consolidated balance sheets.
(2) Includes both the current and long term portion of this balance.
(3) Initial Franchise Fees to be recognized over the life of the contract


Franchise fees received by the Company are recorded as contract liabilities on the Condensed Consolidated Balance Sheets. Contract liabilities are reduced as fees are recognized in revenue over the term of the franchise license. As the term of the franchise license is typically ten years, substantially all of the franchise fee revenue recognized in the period ended June 30, 2021 was included in the contract liabilities balance as of December 31, 2020.

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

Significant changes in contract liabilities are as follows (in thousands):
Contract liability at December 31, 20192020$22,79534,201 
Revenue recognized during the period(1,879)(2,890)
New deferrals(1)
5,84410,078 
Contract liability at June 30, 2020202126,76041,389 
(1) Initial Franchise Fees where the consideration is received from the customer for services which are to be transferred to the Franchisee over the term of the Franchise Agreement
18

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

4. Franchise Fees Receivable
The balance of Franchise fees receivable included in Receivable from franchisees consisted of the following (in thousands):
June 30, 2020December 31, 2019
June 30, 2021December 31, 2020
Franchise fees receivable(1)
Franchise fees receivable(1)
$18,855  $15,314  
Franchise fees receivable(1)
$32,358 $25,757 
Less: Unamortized discount(1)
Less: Unamortized discount(1)
(4,858) (3,771) 
Less: Unamortized discount(1)
(8,008)(6,553)
Less: Allowance for uncollectible franchise fees(1)
Less: Allowance for uncollectible franchise fees(1)
(92) (52) 
Less: Allowance for uncollectible franchise fees(1)
(140)(149)
Net franchise fees receivable(1)
Net franchise fees receivable(1)
$13,905  $11,491  
Net franchise fees receivable(1)
$24,210 $19,055 
(1) Includes both the current and long term portion of this balance
16

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Activity in the allowance for uncollectible franchise fees was as follows (in thousands):
Balance at December 31, 2020$149 
Charges to bad debts296 
Write offs(305)
Balance at June 30, 2021$140 
Balance at December 31, 2019$52 
Charges to bad debts137 
Write offs(97)
Balance at June 30, 2020$92 
Balance at December 31, 2018$455 
Charges to bad debts367 
Write offs(289)
Balance at June 30, 2019$533 

5. Allowance for Uncollectible Agency Fees
Activity in the allowance for uncollectible Agency Fees was as follows (in thousands):
Balance at December 31, 2020$468 
Charges to bad debts797 
Write offs(708)
Balance at June 30, 2021$557 
Balance at December 31, 2019$178 
Charges to bad debts491 
Write offs(359)
Balance at June 30, 2020$310 
Balance at December 31, 2018$242 
Charges to bad debts516 
Write offs(472)
Balance at June 30, 2019$286 

19

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
6. Property and equipment
Property and equipment consisted of the following (in thousands):
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
Furniture & fixturesFurniture & fixtures$4,010  $3,012  Furniture & fixtures$5,897 $4,404 
Computer equipmentComputer equipment2,242  1,480  Computer equipment3,164 2,453 
Network equipmentNetwork equipment324  268  Network equipment389 352 
Phone systemPhone system940  885  Phone system937 937 
Leasehold improvementsLeasehold improvements11,165  9,073  Leasehold improvements22,059 16,534 
TotalTotal18,681  14,718  Total32,446 24,680 
Less accumulated depreciationLess accumulated depreciation(6,332) (5,176) Less accumulated depreciation(9,828)(8,030)
Property and equipment, netProperty and equipment, net$12,349  $9,542  Property and equipment, net$22,618 $16,650 

7. Debt
On March 6, 2020, the Company refinanced its $13.0 million revolving credit facility and $40.0 million term note payable to a $25.0 million revolving credit facility and $80.0 million term note payable to finance general corporate purposes. The Company also has the right, subject to approval by the administrative agent and each issuing bank,
17

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
to increase the commitments under the credit facilities an additional $50.0 million. As part of the refinancing, $172 thousand$0.2 million of debt issuance costs from previous debt were immediately recognized as interest expense.
The $25.0 million revolving credit facility accrues interest on amounts drawn at an initial interest rate of LIBOR plus 2.50%, then at an interest rate determined by the Company's leverage ratio for the preceding period. At June 30, 20202021 the Company was accruing interest at LIBOR plus 200 basis points. At June 30, 2020,2021, the Company had $5.0 million drawn against the revolver and had a letter of credit of $333 thousand$0.3 million applied against the maximum borrowing availability, payable on March 6, 2023. Thus, amounts available to draw totaled $19.7 million. The revolving credit facility is collateralized by substantially all the Company’s assets, which includes rights to future commissions.
The term note is payable in quarterly installments of $500 thousand$0.5 million the first twelve months, $1.0 million the next twelve months and $2.0 million the last twelve months, with a balloon payment on March 6, 2023. The note is collateralized by substantially all of the Company’s assets, which includes rights to future commissions. Interest is calculated initially at LIBOR plus 2.50%, then at an interest rate based on the Company's leverage ratio for the preceding period. At June 30, 20202021 the Company was accruing interest at LIBOR plus 200 basis points. On June 24, 2020 the Company drew down the remaining $37.9 million of the term loan. As of June 30, 2020,2021, the Company had $79.5$77.0 million of the term note drawn.
The interest rate for each leverage ratio tier are as follows:

Leverage RatioInterest Rate
< 1.50xLIBOR + 175 bps
> 1.50xLIBOR + 200 bps
> 2.50xLIBOR + 225 bps
> 3.50xLIBOR + 250 bps

20

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Maturities of the term note payable for the next four years are as follows (in thousands):

AmountAmount
2020$1,000  
202120213,500  20212,000 
202220227,000  20227,000 
2023202368,000  202368,000 
TotalTotal$79,500  Total$77,000 

The Company’s note payable agreement contains certain restrictions and covenants. Under these restrictions, the Company is limited in the amount of debt incurred and distributions payable. In addition, the credit agreement contains certain change of control provisions that, if broken, would trigger a default. Finally, the Company must maintain certain financial ratios. As of June 30, 2020,2021, the Company was in compliance with these covenants.
Because of both instruments’ variable interest rate, the note payable balance at June 30, 20202021 and December 31, 2019,2020, approximates fair value using Level 2 inputs, described below.
The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows:
 
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets.
Level 2—Significant other observable inputs other than Level 1 prices such as quoted prices in markets that are not active, quoted prices for similar assets or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset.
18

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Level 3—Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

8. Commitments and Contingencies
The Company leases its facilities under non-cancelable operating leases, expiring in various years through 2029. 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 $0.6 million and $1.1 million for the three and six months ended June 30, 2020 and $0.4 million and $0.9 million for three and six months ended June 30, 2019.
21

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following is a schedule of future minimum lease payments as of June 30, 2020 (in thousands):

Amount
2020$1,661  
20213,507  
20223,491  
20233,324  
20243,156  
Thereafter10,814  
Total$25,953  

9. Income Taxes
As a result of the Reorganization Transactions and the Offering, GSHD became the sole managing member of GF, which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, GF is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by GF is passed through to and included in the taxable income or loss of its members, including GSHD, on a pro rata basis. GSHD is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to GSHD's allocable share of income of GF.
Income tax expense (benefit)
Provision for/(benefit from) income taxes for the three and six months ended June 30, 20202021 was $223 thousand and $(71) thousand compared to $(240) thousand and $(281) thousand compared to $430 thousand and $1.2 million for the three and six months ended June 30, 2019.2020. The effective tax rate was 7% and (4)% for the three and six months ended June 30, 2021 and (3)% and (4)% for the three and six months ended June 30, 2020 and 13% and 10% for the three and six months ended June 30, 2019. These effective tax rates are calculated using extended values from our condensed consolidated statements of income, and are therefore more precise tax rates than can be calculated from rounded values.2020. The decreaseincrease in the effective tax rate for the periodthree months ended June 30, 2021 compared to the three months ended June 30, 2020 compared to the period ended June 30, 2019 was primarily due to a decrease in exercises of employee stock options resultingand decrease in excesspre-tax book income. The effective tax deductible expenses.rate remained flat for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Deferred taxes
Deferred tax assets at June 30, 20202021 were $41.4$98.1 million compared to $15.5$73.4 million at December 31, 2019.2020. The primary contributing factor to the increase in deferred tax assets is additional redemptions of LLC Units of GF for shares of Class A common stock of GSHD during the three and six months ended June 30, 2020.2021.
Tax Receivable Agreement
GF intends to make an election under Section 754 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”) effective for each taxable year in which a redemption or exchange of LLC Units and corresponding Class B common stock for shares of Class A common stock occurs. Future taxable redemptions or exchanges are expected to result in tax basis adjustments to the assets of GF that will be allocated to the Company and thus produce favorable tax attributes. These tax attributes would not be available to GSHD in the absence of those transactions. The anticipated tax basis adjustments are expected to reduce the amount of tax that GSHD would otherwise be required to pay in the future.
GSHD entered into a tax receivable agreement with the Pre-IPO LLC Members on May 1, 2018 that provides for the payment by GSHD to the Pre-IPO LLC Members of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that GSHD actually realizes as a result of (i) any increase in tax basis in GSHD's assets and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement.
During the three and six months ended June 30, 2020,2021, an aggregate of 809 thousand728,000 and 1,600 thousand861,300 LLC Units, respectively, were redeemed by the Pre-IPO LLC Members for newly issued shares of Class A common stock. In connection with these redemptions, GSHD received 809 thousand728,000 and 1,600 thousand861,300 LLC Units, which
22

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
resulted in an increase in the tax basis of its investment in GF subject to the provisions of the tax receivable agreement. The Company recognized a liability for the TRA Payments due to the Pre-IPO LLC Members, representing 85% of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the redemptions of LLC Units, after concluding it was probable that such TRA Payments would be paid based on its estimates of future taxable income. As of June 30, 2020,2021, the total amount of TRA Payments due to the Pre-IPO LLC Members under the tax receivable agreement was $35.8$82.2 million, of which $681 thousand$2.0 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.
19

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Uncertain tax positions
GSHD has determined there are 0 material uncertain tax positions as of June 30, 2020.2021.
10.9. Stockholders' Equity
Class A Common Stock
GSHD has a total of 17,08419,209 thousand shares of its Class A common stock outstanding at June 30, 2020.2021. 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 19,45517,586 thousand shares of its Class B common stock outstanding at June 30, 2020.2021. 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 and six months ended June 30, 20202021 and 2019,2020, divided by the basic weighted average number of Class A common stock as of June 30, 20202021 and June 30, 20192020 (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 (in thousands, except per share amounts). The Company has not included the effects of conversion of Class B shares to Class A shares in the diluted EPS calculation using the "if-converted" method, because doing so has no impact on diluted EPS.
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Numerator:
Income before taxes$3,359 $7,146 $1,976 $6,809 
Less: income before taxes attributable to non-controlling interests1,649 4,007 956 3,867 
Income before taxes attributable to GSHD1,710 3,139 1,020 2,942 
Less: income tax expense (benefit) attributable to GSHD223 (240)(71)(281)
Net income attributable to GSHD$1,487 $3,379 $1,091 $3,223 
Denominator:
Weighted average shares of Class A common stock outstanding - basic18,774 16,458 18,574 16,011 
Effect of dilutive securities:
Stock options(1)
1,593 1,489 1,677 1,421 
Weighted average shares of Class A common stock outstanding - diluted20,367 17,947 20,251 17,432 
Earnings per share of Class A common stock - basic$0.08 $0.21 $0.06 $0.20 
Earnings per share of Class A common stock - diluted$0.07 $0.19 $0.05 $0.18 
(1) 109 thousand and 78 thousand stock options were excluded from the computation of diluted earnings per share of Class A common stock for the three and six months ended June 30, 2021, respectively, because the effect would have been anti-dilutive.
2320

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Numerator:
Income before taxes$7,146  $3,247  $6,809  $11,309  
Less: income before taxes attributable to non-controlling interests4,007  1,952  3,867  6,861  
Income before taxes attributable to GSHD3,139  1,295  2,942  4,448  
Less: income tax expense (benefit) attributable to GSHD(240) 392  (281) 1,073  
Net income attributable to GSHD$3,379  $903  $3,223  $3,375  
Denominator:
Weighted average shares of Class A common stock outstanding - basic16,458  14,876  16,011  14,545  
Effect of dilutive securities:
Stock options1,489  1,189  1,421  1,140  
Weighted average shares of Class A common stock outstanding - diluted17,947  16,065  17,432  15,685  
Earnings per share of Class A common stock - basic$0.21  $0.06  $0.20  $0.23  
Earnings per share of Class A common stock - diluted$0.19  $0.06  $0.18  $0.22  


11.10. Non-controlling interest
Following the Offering, GSHD became the sole managing member of GF and, as a result, it consolidates the financial results of GF. GSHD reports a non-controlling interest representing the economic interest in GF held by the other members of GF.
On a quarterly basis, GF makes distributions to the LLC Unit holders on a pro rata basis to facilitate the LLC Unit holder's quarterly tax payments. For the three and six months ended June 30, 2021, GF made 0 distributions to LLC Unit holders. For the three and six months ended June 30, 2020, GF made distributions of $1.5 million and $3.3 million, of which $0.9 million and $1.9 million wherewere made to Pre-IPO LLC Members. The remaining $0.7 million and $1.4 million were made to GSHD and were eliminated in consolidation. For the three and six months ended June 30, 2019, GF made distributions of $4.5 million and $5.0 million, of which $2.7 million and $3.0 million were made to Pre-IPO LLC Members. The remaining $1.8 million and $2.0 million were made to GSHD and were eliminated in consolidation.
Under the amended and restated Goosehead Financial, LLC Agreement, the Pre-IPO LLC Members have the right, from and after the completion of the Offering (subject to the terms of the amended and restated Goosehead Financial, LLC Agreement), to require GSHD to redeem all or a portion of their LLC Units for, at GSHD's election, newly-issued shares of Class A common stock on a 1-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 1-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.
24

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
During the three and six months ended June 30, 2020,2021, an aggregate of 809728 thousand and 1,600861 thousand LLC Units were redeemed by the non-controlling interest holders. Pursuant to the GF LLC Agreement, GSHD issued 809728 thousand and 1,600861 thousand shares of Class A common stock in connection with these redemptions and received 809728 thousand and 1,600861 thousand LLC Interests, increasing GSHD's ownership interest in GF. Simultaneously, and in connection with these redemptions, 809728 thousand and 1,600861 thousand shares of Class B common stock were surrendered and cancelled.
The following table summarizes the ownership interest in GF as of June 30, 20202021 (in thousands):
June 30, 2020June 30, 2021
LLC UnitsOwnership %LLC UnitsOwnership %
Number of LLC Units held by GSHDNumber of LLC Units held by GSHD17,08446.8%Number of LLC Units held by GSHD19,20952.2%
Number of LLC Units held by non-controlling interest holdersNumber of LLC Units held by non-controlling interest holders19,45553.2%Number of LLC Units held by non-controlling interest holders17,58647.8%
Number of LLC Units outstandingNumber of LLC Units outstanding36,539100.0%Number of LLC Units outstanding36,795100.0%

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income to GSHD and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentage for the three and six months ended June 30, 20202021 was 54.8%48.9% and 56.0%49.5%, respectively.
21

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the effects of changes in ownership in GF on the equity of GSHD for the three and six months ended June 30, 20202021 and 20192020 as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019202020192021202020212020
Net Income attributable to Goosehead Insurance Inc.$3,379  $903  $3,223  $3,375  
Net income attributable to Goosehead Insurance Inc.Net income attributable to Goosehead Insurance Inc.$1,487 $3,379 $1,091 $3,223 
Transfers (to) from non-controlling interests:Transfers (to) from non-controlling interests:Transfers (to) from non-controlling interests:
Decrease in additional paid-in capital as a result of the redemption of LLC interestsDecrease in additional paid-in capital as a result of the redemption of LLC interests(762) (477) (1,631) (1,156) Decrease in additional paid-in capital as a result of the redemption of LLC interests(1,280)(762)(1,529)(1,631)
Increase in additional paid-in capital as a result of activity under employee stock purchase planIncrease in additional paid-in capital as a result of activity under employee stock purchase plan138  142  254  142  Increase in additional paid-in capital as a result of activity under employee stock purchase plan214 138 418 254 
Total effect of changes in ownership interest on equity attributable to Goosehead Insurance Inc.Total effect of changes in ownership interest on equity attributable to Goosehead Insurance Inc.$2,755  $568  $1,846  $2,361  Total effect of changes in ownership interest on equity attributable to Goosehead Insurance Inc.$421 $2,755 $(20)$1,846 

12.11. Equity-Based Compensation
Stock option expense was $1,416 thousand$1.9 million and $1,914 thousand three and six months ended June 30, 2020, respectively. Stock option expense was $368 thousand and $735 thousand$3.8 million for the three and six months ended June 30, 2019, respectively.2021. Stock option expense was $1.4 million and $1.9 million for the three and six months ended June 30, 2020.
On April 1, 2020,January 4, 2021, the Company granted an additional 900,000153,500 stock options to its Board of Directors and Managing Directors at an exercise price equal to $40.88$131.87 per share. The weighted average grant date fair value of $16.31$47.43 per option was determined using the Black-Scholes valuation model using the following weighted average assumptions:

Expected volatility4045 %
Expected dividend yield0 %
Expected term (in years)6.54.25
Risk-free interest rate0.470.29 %

25

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
13. Dividends
On March 7, 2019, GF approved a $15.0 million extraordinary dividend to all holders of LLC Units, including GSHD. The board of directors of the Company then declared an extraordinary dividend of $0.41 (rounded) to all holders of Class A common stock of GSHD with a record date of March 18, 2019, paid on or before April 1, 2019. A summary of the total amounts declared by GF is as follows (in thousands):
LLC Units held as of March 18, 2019Dividends declared
Class A common stockholders14,421  $5,962  
Class B common stockholders via LLC Units held21,864  9,038  
Total36,285  $15,000  

Any future extraordinary dividends will be declared at the sole discretion of GF's managing members with respect to GF and the Company's board of directors with respect to GSHD.  In determining whether a future extraordinary dividend will be declared by the Company, the board of directors may, at its sole discretion, consider the following: the Company's financial condition and operating results, the Company's available cash and current and anticipated cash needs, the Company's capital requirements, any contractual, legal, tax and regulatory restrictions, general economic and business conditions, and such other factors or conditions as the board of directors deems relevant.
14.12. Segment Information
The Company has 2 reportable Segments: Corporate Channel and Franchise Channel. The Corporate Channel consists of company-owned and financed operations with employees who are hired, trained, and managed by Goosehead. The Franchise Channel network consists of Franchisee operations that are owned and managed by individual business owners. These business owners have a contractual relationship with Goosehead to use the Company's processes, systems, and back-office support team to sell insurance and manage their business. In exchange, Goosehead is entitled to an Initial Franchise Fee and ongoing royalty fees. Allocations of contingent commissions and certain operating expenses are based on reasonable assumptions and estimates primarily using revenue, headcount and other information. The Company’s chief operating decision maker uses net income before interest, income taxes, depreciation and amortization, adjusted to exclude equity-based compensation and other non-operating items, including, among other things, certain non-cash charges and certain non-recurring or non-operating gains or losses (“Adjusted EBITDA”) as a performance measure to manage resources and make decisions about the business. Summarized financial information concerning the Company’s reportable Segments is shown in the following tables (in thousands). There are no intersegment sales, only interest income and interest expense related to an intersegment line of credit, all of which eliminate in consolidation. The “Other” column includes any income and expenses not allocated to reportable Segments and corporate-related items, including equity-based compensation, certain legal expenses and interest related to the note payable.


2622

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Franchise ChannelCorporate ChannelOtherTotal
Three months ended June 30, 2020
Revenues:
Commissions and agency fees
Renewal Commissions$—  $7,718  $—  $7,718  
Agency Fees—  2,185  —  2,185  
New Business Commissions—  4,329  —  4,329  
Contingent Commissions2,774  1,242  —  4,016  
Total Commissions and Agency Fees2,774  15,474  —  18,248  
Franchise revenue
Renewal Royalty Fees7,903  —  —  7,903  
New Business Royalty Fees2,599  —  —  2,599  
Initial Franchise Fees901  —  —  901  
Other Income81  —  —  81  
Total Franchise Revenues11,484  —  —  11,484  
Interest income
Interest Income192  —  —  192  
Total Interest Income192  —  —  192  
Total Revenues14,450  15,474  —  29,924  
Operating expenses:
Employee compensation and benefits, excluding equity based compensation5,965  8,523  —  14,488  
General and administrative expenses1,934  2,621  809  5,364  
Bad debts56  263  —  319  
Total Operating Expenses7,955  11,407  809  20,171  
Adjusted EBITDA6,495  4,067  (809) 9,753  
Other income (expense)—  —  —  —  
Equity based compensation—  —  (1,416) (1,416) 
Interest expense—  —  (479) (479) 
Depreciation and amortization(396) (316) —  (712) 
Income tax benefit—  —  240  240  
Net income$6,099  $3,751  $(2,464) $7,386  
June 30, 2020:
Total Assets$31,904  $21,818  $88,867  $142,589  


Franchise ChannelCorporate ChannelOtherTotal
Three months ended June 30, 2021
Revenues:
Commissions and agency fees
Renewal Commissions$$10,310 $$10,310 
Agency Fees3,105 3,105 
New Business Commissions5,944 5,944 
Contingent Commissions1,136 558 1,694 
Total Commissions and Agency Fees1,136 19,917 21,053 
Franchise revenue
Renewal Royalty Fees11,670 11,670 
New Business Royalty Fees3,680 3,680 
Initial Franchise Fees1,458 1,458 
Other Income33 33 
Total Franchise Revenues16,841 16,841 
Interest income
Interest Income279 279 
Total Interest Income279 279 
Total Revenues18,256 19,917 38,173 
Operating expenses:
Employee compensation and benefits, excluding equity based compensation8,020 12,603 20,623 
General and administrative expenses4,927 4,402 805 10,134 
Bad debts135 511 646 
Total Operating Expenses13,082 17,516 805 31,403 
Adjusted EBITDA5,174 2,401 (805)6,770 
Other income (expense)11 108 119 
Equity based compensation(1,852)(1,852)
Interest expense(546)(546)
Depreciation and amortization(728)(404)(1,132)
Taxes(223)(223)
Net income (loss)$4,457 $2,105 $(3,426)$3,136 
June 30, 2021
Total Assets$94,489 $44,332 $99,182 $238,003 
2723

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Franchise
Channel
Corporate
Channel
OtherTotalFranchise
Channel
Corporate
Channel
OtherTotal
Three months ended June 30, 2019:
Three months ended June 30, 2020Three months ended June 30, 2020
Revenues:Revenues:Revenues:
Commissions and agency feesCommissions and agency feesCommissions and agency fees
Renewal CommissionsRenewal Commissions$—  $5,899  $—  $5,899  Renewal Commissions$$7,718 $$7,718 
Agency FeesAgency Fees—  1,740  —  1,740  Agency Fees2,185 2,185 
New Business CommissionsNew Business Commissions—  3,013  —  3,013  New Business Commissions4,329 4,329 
Contingent CommissionsContingent Commissions91  20  —  111  Contingent Commissions2,774 1,242 4,016 
Total Commissions and Agency FeesTotal Commissions and Agency Fees91  10,672  —  10,763  Total Commissions and Agency Fees2,774 15,474 18,248 
Franchise revenueFranchise revenueFranchise revenue
Renewal Royalty FeesRenewal Royalty Fees5,062  —  —  5,062  Renewal Royalty Fees7,903 7,903 
New Business Royalty FeesNew Business Royalty Fees1,864  —  —  1,864  New Business Royalty Fees2,599 2,599 
Initial Franchise FeesInitial Franchise Fees1,515  —  —  1,515  Initial Franchise Fees901 901 
Other IncomeOther Income34  —  —  34  Other Income81 81 
Total Franchise RevenuesTotal Franchise Revenues8,475  —  —  8,475  Total Franchise Revenues11,484 11,484 
Interest incomeInterest incomeInterest income
Interest IncomeInterest Income148  —  —  148  Interest Income192 192 
Total Interest IncomeTotal Interest Income148  —  —  148  Total Interest Income192 192 
Total RevenuesTotal Revenues8,714  10,672  —  19,386  Total Revenues14,450 15,474 29,924 
Operating expenses:Operating expenses:Operating expenses:
Employee compensation and benefits, excluding equity based compensationEmployee compensation and benefits, excluding equity based compensation4,038  5,972  —  10,010  Employee compensation and benefits, excluding equity based compensation5,965 8,523 14,488 
General and administrative expensesGeneral and administrative expenses1,531  2,078  592  4,201  General and administrative expenses1,934 2,621 809 5,364 
Bad debtsBad debts207  275  —  482  Bad debts56 263 319 
Total Operating ExpensesTotal Operating Expenses5,776  8,325  592  14,693  Total Operating Expenses7,955 11,407 809 20,171 
Adjusted EBITDAAdjusted EBITDA2,938  2,347  (592) 4,693  Adjusted EBITDA6,495 4,067 (809)9,753 
Equity based compensationEquity based compensation—  —  (368) (368) Equity based compensation(1,416)(1,416)
Interest expenseInterest expense—  —  (626) (626) Interest expense(479)(479)
Depreciation and amortizationDepreciation and amortization(218) (234) —  (452) Depreciation and amortization(396)(316)(712)
TaxesTaxes—  —  (430) (430) Taxes240 240 
Net income$2,720  $2,113  $(2,016) $2,817  
June 30, 2019:
Net income (loss)Net income (loss)$6,099 $3,751 $(2,464)$7,386 
June 30, 2020June 30, 2020
Total AssetsTotal Assets$13,165  $7,018  $17,909  $38,092  Total Assets$31,904 $21,818 $88,867 $142,589 

2824

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Franchise
Channel
Corporate
Channel
OtherTotalFranchise
Channel
Corporate
Channel
OtherTotal
Six months ended June 30, 2020
Six months ended June 30, 2021Six months ended June 30, 2021
Revenues:Revenues:Revenues:
Commissions and agency feesCommissions and agency feesCommissions and agency fees
Renewal CommissionsRenewal Commissions$—  $13,451  $—  $13,451  Renewal Commissions$$18,067 $$18,067 
Agency FeesAgency Fees—  3,871  —  3,871  Agency Fees5,529 5,529 
New Business CommissionsNew Business Commissions—  7,662  —  7,662  New Business Commissions10,560 10,560 
Contingent CommissionsContingent Commissions3,468  1,607  —  5,075  Contingent Commissions3,252 1,179 4,431 
Total Commissions and Agency FeesTotal Commissions and Agency Fees3,468  26,591  —  30,059  Total Commissions and Agency Fees3,252 35,335 38,587 
Franchise revenueFranchise revenueFranchise revenue
Renewal Royalty FeesRenewal Royalty Fees13,289  —  —  13,289  Renewal Royalty Fees20,416 20,416 
New Business Royalty FeesNew Business Royalty Fees4,647  —  —  4,647  New Business Royalty Fees6,837 6,837 
Initial Franchise FeesInitial Franchise Fees1,879  —  —  1,879  Initial Franchise Fees2,890 2,890 
Other IncomeOther Income114  —  —  114  Other Income131 131 
Total Franchise Revenues19,929  —  —  19,929  
Total Franchise RevenueTotal Franchise Revenue30,274 30,274 
Interest incomeInterest incomeInterest income
Interest IncomeInterest Income361  —  —  361  Interest Income540 540 
Total Interest IncomeTotal Interest Income361  —  —  361  Total Interest Income540 540 
Total Revenues23,758  26,591  —  50,349  
TotalTotal34,066 35,335 69,401 
Operating expenses:Operating expenses:Operating expenses:
Employee compensation and benefits, excluding equity based compensation11,861  15,632  —  27,493  
Employee compensation and benefits, excluding equity-based compensationEmployee compensation and benefits, excluding equity-based compensation15,589 24,402 39,991 
General and administrative expensesGeneral and administrative expenses4,159  5,330  1,747  11,236  General and administrative expenses9,140 8,908 1,360 19,408 
Bad debtsBad debts137  491  —  628  Bad debts296 797 1,093 
Total Operating Expenses16,157  21,453  1,747  39,357  
TotalTotal25,025 34,107 1,360 60,492 
Adjusted EBITDAAdjusted EBITDA7,601  5,138  (1,747) 10,992  Adjusted EBITDA9,041 1,228 (1,360)8,909 
Other income (expense)Other income (expense)66  —  —  66  Other income (expense)31 108 139 
Equity based compensationEquity based compensation—  —  (1,914) (1,914) Equity based compensation(3,793)(3,793)
Interest expenseInterest expense—  —  (1,083) (1,083) Interest expense(1,147)(1,147)
Depreciation and amortizationDepreciation and amortization(709) (543) —  (1,252) Depreciation and amortization(1,375)(757)(2,132)
Income tax benefit—  —  281  281  
Net income$6,958  $4,595  $(4,463) $7,090  
June 30, 2020:
TaxesTaxes71 71 
Net income (loss)Net income (loss)$7,697 $579 $(6,229)$2,047 
At June 30, 2021:At June 30, 2021:
Total AssetsTotal Assets$31,904  $21,818  $88,867  $142,589  Total Assets$94,489 $44,332 $99,182 $238,003 

2925

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Franchise ChannelCorporate ChannelOtherTotalFranchise
Channel
Corporate
Channel
OtherTotal
Six months ended June 30, 2019:
Six months ended June 30, 2020Six months ended June 30, 2020
Revenues:Revenues:Revenues:
Commissions and agency feesCommissions and agency feesCommissions and agency fees
Renewal CommissionsRenewal Commissions$—  $10,688  $—  $10,688  Renewal Commissions$$13,451 $$13,451 
Agency FeesAgency Fees—  3,177  —  3,177  Agency Fees3,871 3,871 
New Business CommissionsNew Business Commissions—  5,472  —  5,472  New Business Commissions7,662 7,662 
Contingent CommissionsContingent Commissions4,306  3,290  —  7,596  Contingent Commissions3,468 1,607 5,075 
Total Commissions and Agency FeesTotal Commissions and Agency Fees4,306  22,627  —  26,933  Total Commissions and Agency Fees3,468 26,591 30,059 
Franchise revenueFranchise revenueFranchise revenue
Renewal Royalty FeesRenewal Royalty Fees8,825  —  —  8,825  Renewal Royalty Fees13,289 13,289 
New Business Royalty FeesNew Business Royalty Fees3,219  —  —  3,219  New Business Royalty Fees4,647 4,647 
Initial Franchise FeesInitial Franchise Fees3,225  —  —  3,225  Initial Franchise Fees1,879 1,879 
Other IncomeOther Income34  —  —  34  Other Income114 114 
Total Franchise RevenuesTotal Franchise Revenues15,303  —  —  15,303  Total Franchise Revenues19,929 19,929 
Interest incomeInterest incomeInterest income
Interest IncomeInterest Income283  —  —  283  Interest Income361 361 
Total Interest IncomeTotal Interest Income283  —  —  283  Total Interest Income361 361 
Total RevenuesTotal Revenues19,892  22,627  —  42,519  Total Revenues23,758 26,591 50,349 
Operating expenses:Operating expenses:Operating expenses:
Employee compensation and benefits, excluding equity based compensationEmployee compensation and benefits, excluding equity based compensation7,795  11,039  —  18,834  Employee compensation and benefits, excluding equity based compensation11,861 15,632 27,493 
General and administrative expensesGeneral and administrative expenses3,162  3,980  1,489  8,631  General and administrative expenses4,159 5,330 1,747 11,236 
Bad debtsBad debts367  516  —  883  Bad debts137 491 628 
Total Operating ExpensesTotal Operating Expenses11,324  15,535  1,489  28,348  Total Operating Expenses16,157 21,453 1,747 39,357 
Adjusted EBITDAAdjusted EBITDA8,568  7,092  (1,489) 14,171  Adjusted EBITDA7,601 5,138 (1,747)10,992 
Other income (expense)Other income (expense)66 66 
Equity based compensationEquity based compensation—  —  (735) (735) Equity based compensation(1,914)(1,914)
Interest expenseInterest expense—  —  (1,252) (1,252) Interest expense(1,083)(1,083)
Depreciation and amortizationDepreciation and amortization(402) (473) —  (875) Depreciation and amortization(709)(543)(1,252)
Income tax benefit—  —  (1,174) (1,174) 
Net income$8,166  $6,619  $(4,650) $10,135  
June 30, 2019:
TaxesTaxes281 281 
Net income (loss)Net income (loss)$6,958 $4,595 $(4,463)$7,090 
June 30, 2020June 30, 2020
Total AssetsTotal Assets$13,165  $7,018  $17,909  $38,092  Total Assets$31,904 $21,818 $88,867 $142,589 

15.13. 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 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.
3026


14. Subsequent Events
Credit agreement
On July 21, 2021, the Company refinanced its $25.0 million revolving credit facility and $80.0 million term note payable to a $50.0 million revolving credit facility and $100.0 million term note payable for general corporate purposes. The Company also has the right, subject to approval by the administrative agent and each issuing bank, to increase the commitments under the credit facilities an additional $50.0 million.
The $50.0 million revolving credit facility accrues interest on amounts drawn at an initial interest rate of LIBOR plus 2.50%, then at an interest rate determined by the Company's leverage ratio for the preceding period. At July 28, 2021 the Company was accruing interest at LIBOR plus 250 basis points. At July 28, 2021, the Company had not drawn against the revolver and had a letter of credit of $0.3 million applied against the maximum borrowing availability, payable on July 21, 2026. Thus, amounts available to draw totaled $49.7 million. The revolving credit facility is collateralized by substantially all the Company’s assets, which includes rights to future commissions.
The term note is payable in quarterly installments of $0.6 million the first six months, $1.3 million the next twelve months, $1.9 million the next twelve months, and $2.5 million for the last 24 months with a balloon payment on July 21, 2026. The note is collateralized by substantially all of the Company’s assets, which includes rights to future commissions. 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 July 28, 2021 the Company was accruing interest at LIBOR plus 250 basis points.
The interest rate for each leverage ratio tier are as follows:
Leverage RatioInterest Rate
< 1.50xLIBOR + 175 bps
> 1.50xLIBOR + 200 bps
> 2.50xLIBOR + 225 bps
> 3.50xLIBOR + 250 bps
Maturities of the term note payable for the next five years are as follows (in thousands):
Amount
20211,250 
20224,375 
20236,875 
20249,375 
202510,000 
202668,125 
Total$100,000 

Special Dividend

On July 28, 2021, GF approved an extraordinary dividend in the aggregate amount of $60.0 million payable to holders of LLC Units, including GSHD. The board of directors of the Company subsequently declared an extraordinary dividend of 1.63 (rounded) to all holders of Class A common stock of GSHD with a record date of August 9, 2021, to be paid on or before August 23, 2021. A summary of the total amounts declared by GF is as follows (in thousands):

27

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
16. Subsequent events
LLC Units held as of July 28, 2021Estimated dividend to be paid
Class A common stockholders19,391,860 $31,622 
Class B common stockholders via LLC Units held17,402,589 28,378 
Total36,794,449 $60,000 
On July 30, 2020, GF approved an extraordinary dividend in the aggregate amount of $42.0 million payable to holders of LLC Units, including GSHD. The board of directors of the Company subsequently declared an extraordinary dividend of $1.15 (rounded) to all holders of Class A common stock of GSHD with a record date of August 10, 2020, paid on or before August 24, 2020. A summary of the total amounts declared by GF is as follows
(in thousands):
LLC Units held as of July 30, 2020Estimated dividend to be paid
Class A common stockholders17,263  $19,843  
Class B common stockholders via LLC Units held19,276  22,157  
Total36,539  $42,000  
Any future extraordinary dividends will be declared at the sole discretion of the Company as GF's managing member with respect to GF and the Company's board of directors with respect to the Company. In determining whether a future extraordinary dividend will be declared by the Company, the board of directors may, at its sole discretion, consider the following: the Company's financial condition and operating results, the Company's available cash and current and anticipated cash needs, the Company's capital requirements, any contractual, legal, tax and regulatory restrictions, general economic and business conditions, and such other factors or conditions as the board of directors deems relevant.


31
28


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

OVERVIEW
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk factors” and elsewhere in this report and in the Annual Report on Form 10-K.
We are a rapidly growing personal lines independent insurance agency, reinventing the traditional approach to distributing personal lines products and services throughout the United States. We were founded with one vision in mind—to provide consumers with superior insurance coverage at the best available price and in a timely manner. By leveraging our differentiated business model and innovative technology platform, we are able to deliver to consumers a superior insurance experience. Our management team continues to own approximately 58%52% of the company, representing our commitment to the long-term success of the Company.
Financial Highlights for the Second Quarter of 2020:2021:
Total revenue increased 54%28% from the second quarter of 20192020 to $29.9 million; on a comparable ASC 605 accounting basis, revenue increased $8.2$38.2 million or 42%
Core Revenue* increased by 41%40% from second quarter of 20192020 to $24.7 million; on a comparable ASC 605 accounting basis, Core Revenue increased $7.2$34.7 million or 41%
Total Written Premiums placed increased 41%46% from the prior-year period to $274$399 million
Net income increaseddecreased by $4.6$4.3 million from the second quarter of 20192020 to $7.4 million; on a comparable ASC 605 accounting basis, net income increased by $2.4$3.1 million, or 8% of total revenues
Adjusted EBITDA* increased 108%decreased 31% from the second quarter of 20192020 to $9.8$6.8 million, or 33%18% of total revenues. On a comparable ASC 605 accounting basis, Adjusted EBITDA increased by $2.6 million.
Franchise Channel Adjusted EBITDA increased 121% from the second quarter of 2019 to $6.5 million, or 45% of Franchise Channel revenues. On a comparable ASC 605 accounting basis, Franchise Channel Adjusted EBITDA increased by $2.0 million or 70%.
Corporate Channel Adjusted EBITDA decreased 73% from the second quarter of 2019 to $4.1 million, or 26% of Corporate Channel revenues. On a comparable ASC 605 accounting basis, Corporate Channel Adjusted EBITDA increased by $0.8 million or 34%.
Basic and diluted earnings per share were $0.21$0.08 and $0.19,$0.07, respectively, and Adjusted EPS*, a non-GAAP measure, was $0.25$0.13 for the three months ended June 30, 20202021
Policies in Force increased 45%48% from June 30, 20192020 to 590,000872,000 at June 30, 20202021
Corporate sales headcount increased 49%43% from June 30, 20192020 to 317452 at June 30, 20202021
As of June 30, 2020, 1822021, 266 of these Corporate sales agents had less than one year of tenure and 135186 had greater than one year of tenure
Total franchises increased 48%59% compared to the prior year period to 1,132;1,801; total operating franchises increased 36%47% from June 30, 20192020 to 7301,072 at June 30, 20202021
In Texas as of June 30, 2020, 262021, 53 operating Franchisees had less than one year of tenure and 182196 operating Franchisees had greater than one year of tenure.
Outside of Texas as of June 30, 2020, 2352021, 353 operating Franchisees had less than one year of tenure and 287470 had greater than one year of tenure.
*Core Revenue, Adjusted EBITDA and Adjusted EPS are non-GAAP measures. Reconciliation of Core Revenue to total revenue, Adjusted EBITDA to net income and Adjusted EPS to EPS, the most directly comparable financial measures presented in accordance with GAAP, are set forth under "Key performance indicators".
32



Novel coronavirus ("COVID-19")
An outbreak of a novel strain of the coronavirus, COVID-19, was identified in China and has subsequently been recognized as a pandemic by the World Health Organization.Organization on March 11,2020. This COVID-19 outbreak has severely restricted the level of economic activity around the world. In response to this outbreak, the governments of many countries, states, cities and other geographic regions, including in the United States, have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time
29


outside of their homes. In the United States, temporary closures of businesses have been ordered and numerous other businesses have temporarily closed voluntarily.
During the first quarter of 2020, the Company reduced workforce density at all corporate offices by requiring employees to work from home. Additionally, the Company indefinitely suspended all corporate travel, field support visits, in-person marketing efforts and in-person team meetings. Leveraging the Company's cloud based technology, video conferencing technology and importantly the Company's mortgage activity database to continue marketing efforts allowed operations to be largely uninterrupted. Changes in consumer behavior linkedDuring the third quarter of 2020, the Company began bringing employees back to the COVID-19 pandemic, may have resultedoffice on a reduced and rotational basis. The Company will continue to consider all local government and CDC guidelines in reduced loss ratios through the six months ended June 30, 2020, increasing the amount of revenue from Contingent Commissions the Company expects to receive.
During the first quarter, we took steps to strengthen our liquidity, including amending our credit agreement on March 6, 2020 to increase the term loan available borrowing to $80.0 million and to increase the amount available under our revolving credit facility to $25.0 million. Because of the continued strength and resiliency of our business and our outlook for the remainder of 2020, we declared a special dividend to be distributed during the third quarter. See "Liquidity and capital resources”.reopening corporate offices.
Given the uncertainty regarding the spread and severity of COVID-19 and the adverse effects on the national and global economy, the related financial impact 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 Part II, Item 1A. “Risk Factors—The global outbreak of the coronavirus disease (COVID-19) may negatively impact the global economy in a significant manner for an extended period of time, and could also materially adversely affect our business and operating results.”
Certain income statement line items
Revenues
Effective with the filing of the Annual Report on Form 10-K, the Company adopted new accounting guidance, ASU 2014-09 - Revenue from Contracts with Customers ("Topic 606"), related to revenue from contracts with customers. The Company adopted Topic 606 using the modified retrospective method, which applies the new guidance prospectively, beginning as of 2019, the year of adoption. Accordingly, the adoption of Topic 606 using the modified retrospective method does not impact prior years' financial statements.
For the three months ended June 30, 2020,2021, revenue increased by 54%28% to $29.9$38.2 million from $19.4$29.9 million for the three months ended June 30, 2019.2020. For the six months ended June 30, 2020,2021, revenue increased by 18%38% to $50.3$69.4 million from $42.5$50.3 million for the six months ended June 30, 2019. For the three and six months ended June 30, 2020 if results were reported under ASC 605, total revenue would have grown 42% to $27.6 million and 23% to $52.4 million, respectively.2020. Total Written Premium growth, which is the best leading indicator of future revenue growth, was 41%46% to $399 million for the three months ended June 30, 2021 from $274 million for the three months ended June 30, 2020 from $194and 47% to $718 million for the threesix months ended June 30, 2019 and 43% to2021 from $488 million for the six months ended June 30, 2020 from $341 million for the six months ended June 30, 2019.2020. 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".
33


Core Revenue:
Renewal Commissions - highly predictable, higher-margin revenue stream, which is managed by our service team.
Renewal Royalty Fees - highly predictable, higher-margin revenue stream, which is managed by our service team. For policies in their first renewal term, we see an increase in our share of royalties from 20% to 50% on the commission paid by the Carriers.
New Business Commissions - predictable based on agent headcount and consistent ramp-up of agents, but lower margin than Renewal Commissions because of higher commissions paid to agents and higher back-office costs associated with policies in their first term. This revenue stream has predictably converted into higher-margin Renewal Commissions historically, and we expect this to continue moving forward.
New Business Royalty Fees - predictable based on franchise count and consistent ramp-up of franchises, but lower margin than Renewal Royalty Fees because the Company only receives a royalty fee of 20% on the commissions paid by the Carrier in the first term of every policy and higher back-office costs associated with policies in their first term. This revenue stream has predictably converted into higher-margin Renewal Royalty Fees historically, and we expect this to continue moving forward.
Agency Fees - although predictable based on agent count, Agency Fees do not renew like New Business Commissions and Renewal Commissions.

30


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:

34


Three Months Ended June 30,
(in thousands)2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Core Revenue:
Renewal Commissions(1)
$7,71826 %$7,71228 %$5,89930 %
Renewal Royalty Fees(2)
7,90326 %7,81528 %5,06226 %
New Business Commissions(1)
4,32914 %4,33316 %3,01316 %
New Business Royalty Fees(2)
2,599%2,610%1,86410 %
Agency Fees(1)
2,185%2,344%1,740%
Total Core Revenue24,73483 %24,81490 %17,57891 %
Cost Recovery Revenue:
Initial Franchise Fees(2)
901%1,605%1,515%
Interest Income192%192%148%
Total Cost Recovery Revenue1,093%1,797%1,663%
Ancillary Revenue:
Contingent Commissions(1)
4,01613 %863%111%
Other Income(2)
81— %81— %34— %
Total Ancillary Revenue4,09714 %944%145%
Total Revenues$29,924100 %$27,555100 %$19,386100 %

(1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are in.
(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 income.

Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
(in thousands)(in thousands)2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)(in thousands)2021202020212020
Core Revenue:Core Revenue:Core Revenue:
Renewal Commissions(1)
Renewal Commissions(1)
$13,45127 %$13,85626 %$10,68825 %
Renewal Commissions(1)
$10,31027 %$7,71826 %$18,06726 %$13,45127 %
Renewal Royalty Fees(2)
Renewal Royalty Fees(2)
13,28926 %13,56926 %8,82521 %
Renewal Royalty Fees(2)
11,67031 %7,90326 %20,41629 %13,28926 %
New Business Commissions(1)
New Business Commissions(1)
7,66215 %7,73415 %5,47213 %
New Business Commissions(1)
5,94415 %4,32914 %10,56015 %7,66215 %
New Business Royalty Fees(2)
New Business Royalty Fees(2)
4,647%4,738%3,219%
New Business Royalty Fees(2)
3,68010 %2,599%6,83710 %4,647%
Agency Fees(1)
Agency Fees(1)
3,871%4,339%3,177%
Agency Fees(1)
3,105%2,185%5,529%3,871%
Total Core RevenueTotal Core Revenue42,92085 %44,23684 %31,38174 %Total Core Revenue34,70991 %24,73483 %61,40988 %42,92085 %
Cost Recovery Revenue:Cost Recovery Revenue:Cost Recovery Revenue:
Initial Franchise Fees(2)
Initial Franchise Fees(2)
1,879%3,915%3,225%
Initial Franchise Fees(2)
1,458%901%2,890%1,879%
Interest IncomeInterest Income361%361%283%Interest Income279%192%540%361%
Total Cost Recovery RevenueTotal Cost Recovery Revenue2,240%4,276%3,508%Total Cost Recovery Revenue1,737%1,093%3,430%2,240%
Ancillary Revenue:Ancillary Revenue:Ancillary Revenue:
Contingent Commissions(1)
Contingent Commissions(1)
5,07510 %3,824%7,59618 %
Contingent Commissions(1)
1,694%4,01613 %4,431%5,07510 %
Other Income(2)
Other Income(2)
114— %114— %34— %
Other Income(2)
33— %81— %131— %114— %
Total Ancillary RevenueTotal Ancillary Revenue5,18910 %3,938%7,63018 %Total Ancillary Revenue1,727%4,09714 %4,562%5,18910 %
Total RevenuesTotal Revenues$50,349100 %$52,450100 %$42,519100 %Total Revenues$38,173100 %$29,924100 %$69,401100 %$50,349100 %

(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 income.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 income.
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Effects of Topic 606
The below illustrates the impact of Topic 606 on the Company's income statement line items for the three and six months ended June 30, 2020
Three Months Ended June 30, 2020
(in thousands)ASC 605Impact of AdoptionASC 606
Core Revenue:
Renewal Commissions(1)
7,712   $7,718  
Renewal Royalty Fees(2)
7,815  88  7,903  
New Business Commissions(1)
4,333  (4) 4,329  
New Business Royalty Fees(2)
2,610  (11) 2,599  
Agency Fees(1)
2,344  (159) 2,185  
Total Core Revenue24,814  (80) 24,734  
Cost Recovery Revenue:
Initial Franchise Fees(2)
1,605  (704) 901  
Interest Income192  —  192  
Total Cost Recovery Revenue1,797  (704) 1,093  
Ancillary Revenue:
Contingent Commissions(1)
863  3,153  4,016  
Other Income(2)
81  —  81  
Total Ancillary Revenue944  3,153  4,097  
Total Revenues27,555  2,369  29,924  
Operating Expenses:
Employee compensation and benefits, excluding equity-based compensation14,566  (78) 14,488  
General and administrative expenses5,364  —  5,364  
Bad debts312   319  
Total20,242  (71) 20,171  
Adjusted EBITDA7,313  2,440  9,753  
Adjusted EBITDA Margin27 %%33 %
Other income (expense)—  —  —  
Equity-based compensation(1,416) —  (1,416) 
Interest expense(479) —  (479) 
Depreciation and amortization(712) —  (712) 
Tax benefit (expense)553  793  240  
Net Income5,259  3,233  7,386  
Less: net income attributable to non-controlling interests2,585  1,422  4007  
Net Income attributable to Goosehead Insurance Inc.$2,674  $1,811  $3,379  
Earnings per share:
Basic$0.16  0.05$0.21  
Diluted$0.15  0.04$0.19  
(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 income.
(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 income.
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operations.

Six Months Ended June 30, 2020
(in thousands)ASC 605Impact of AdoptionASC 606
Core Revenue:
Renewal Commissions(1)
13,856  (405) $13,451  
Renewal Royalty Fees(2)
13,569  (280) 13,289  
New Business Commissions(1)
7,734  (72) 7,662  
New Business Royalty Fees(2)
4,738  (91) 4,647  
Agency Fees(1)
4,339  (468) 3,871  
Total Core Revenue44,236  (1,316) 42,920  
Cost Recovery Revenue:
Initial Franchise Fees(2)
3,915  (2,036) 1,879  
Interest Income361  —  361  
Total Cost Recovery Revenue4,276  (2,036) 2,240  
Ancillary Revenue:
Contingent Commissions(1)
3,824  1,251  5,075  
Other Income(2)
114  —  114  
Total Ancillary Revenue3,938  1,251  5,189  
Total Revenues52,450  (2,101) 50,349  
Operating Expenses:
Employee compensation and benefits, excluding equity-based compensation27,643  (150) 27,493  
General and administrative expenses11,236  —  11,236  
Bad debts925  (297) 628  
Total39,804  (447) 39,357  
Adjusted EBITDA12,646  (1,654) 10,992  
Adjusted EBITDA Margin24 %(2)%22 %
Other income (expense)66  —  66  
Equity-based compensation(1,914) —  (1,914) 
Interest expense(1,083) —  (1,083) 
Depreciation and amortization(1,252) —  (1,252) 
Tax benefit (expense)94  187  281  
Net Income8,557  (1,467) 7,090  
Less: net income attributable to non-controlling interests4,782  (914) 3,867  
Net Income attributable to Goosehead Insurance Inc.$3,775  $(553) $3,223  
Earnings per share:
Basic$0.23  $(0.03) $0.20  
Diluted$0.22  $(0.04) $0.18  
(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 income.
(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 income.
3731


Consolidated results of operations
The following is a discussion of our consolidated results of operations for each of the three and six months ended June 30, 20202021 and June 30, 2019.2020. This information is derived from our accompanying condensed consolidated financial statements prepared in accordance with GAAP.
The following table summarizes our results of operations for the three and six months ended June 30, 20202021 and 20192020 (in thousands):
Three Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Revenues:
Commissions and agency fees$18,248  61 %$15,252  55 %$10,763  56 %
Franchise revenues11,484  38 %12,111  44 %8,475  44 %
Interest income192  %192  %148  %
Total revenues29,924  100 %27,555  100 %19,386  100 %
Operating Expenses:
Employee compensation and benefits15,904  71 %15,982  71 %10,378  67 %
General and administrative expenses5,364  24 %5,364  24 %4,201  27 %
Bad debts319  %312  %482  %
Depreciation and amortization712  %712  %452  %
Total operating expenses22,299  100 %22,370  100 %15,513  100 %
Income from operations7,625  5,185  3,873  
Other Income (Expense):
Other income—  —  —  
Interest expense(479) (479) (626) 
Income before taxes7,146  4,706  3,247  
Tax expense (benefit)(240) (553) 430  
Net income7,386  5,259  2,817  
Less: net income attributable to non-controlling interests4,007  2,585  1,914  
Net income attributable to Goosehead Insurance Inc.$3,379  $2,674  $903  
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The following table summarizes our results of operations for the six months ended June 30, 2020 and 2019 (in thousands):
Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)2021202020212020
Revenues:Revenues:Revenues:
Commissions and agency feesCommissions and agency fees$30,059  60 %$29,753  57 %$26,933  63 %Commissions and agency fees$21,053 55 %$18,248 61 %$38,587 55 %$30,059 60 %
Franchise revenuesFranchise revenues19,929  40 %22,336  43 %15,303  36 %Franchise revenues16,841 44 %11,484 38 %30,274 44 %19,929 40 %
Interest incomeInterest income361  %361  %283  %Interest income279 %192 %540 %361 %
Total revenuesTotal revenues50,349  100 %52,450  100 %42,519  100 %Total revenues38,173 100 %29,924 100 %69,401 100 %50,349 100 %
Operating Expenses:Operating Expenses:Operating Expenses:
Employee compensation and benefitsEmployee compensation and benefits29,407  69 %29,557  69 %19,569  65 %Employee compensation and benefits22,475 65 %15,904 71 %43,784 66 %29,407 69 %
General and administrative expensesGeneral and administrative expenses11,236  26 %11,236  26 %8,631  29 %General and administrative expenses10,134 30 %5,364 24 %19,408 29 %11,236 27 %
Bad debtsBad debts628  %925  %883  %Bad debts646 %319 %1,093 %628 %
Depreciation and amortizationDepreciation and amortization1,252  %1,252  %875  %Depreciation and amortization1,132 %712 %2,132 %1,252 %
Total operating expensesTotal operating expenses42,523  100 %42,970  100 %29,958  100 %Total operating expenses34,387 100 %22,299 100 %66,417 100 %42,523 100 %
Income from operationsIncome from operations7,826  9,480  12,561  Income from operations3,786 7,625 2,984 7,826 
Other Income (Expense):Other Income (Expense):Other Income (Expense):
Other incomeOther income66  66  —  Other income119 — 139 66 
Interest expenseInterest expense(1,083) (1,083) (1,252) Interest expense(546)(479)(1,147)(1,083)
Income before taxesIncome before taxes6,809  8,463  11,309  Income before taxes3,359 7,146 1,976 6,809 
Tax expense (benefit)Tax expense (benefit)(281) (94) 1,174  Tax expense (benefit)223 (240)(71)(281)
Net income7,090  8,557  10,135  
Net IncomeNet Income3,136 7,386 2,047 7,090 
Less: net income attributable to non-controlling interestsLess: net income attributable to non-controlling interests3,867  4,782  6,760  Less: net income attributable to non-controlling interests1,649 4,007 956 3,867 
Net income attributable to Goosehead Insurance Inc.Net income attributable to Goosehead Insurance Inc.$3,223  $3,775  $3,375  Net income attributable to Goosehead Insurance Inc.$1,487 $3,379 $1,091 $3,223 

Revenues
For the three months ended June 30, 2020,2021, revenue increased by 54%28% to $29.9$38.2 million from $19.4$29.9 million for the three months ended June 30, 2019.2020. For the six months ended June 30, 2020,2021 revenue increased by 18%38% to $50.3$69.4 million from $42.5$50.3 million six months ended June 30, 2019. On a comparable ASC 605 accounting basis, revenue increased $8.2 million or 42% for the three months ended June 30, 2020 and increased $9.9 million or 23% for the six months ended June 30, 2020.
3932


Commissions and agency fees
Commissions and agency fees consist of new business commissions, renewal commissions, agency fees, and contingent commissions.
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 June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Core Revenue:
Renewal Commissions7,718  42 %7,712  52 %5,899  55 %
New Business Commissions4,329  24 %4,333  28 %3,013  28 %
Agency Fees2,185  12 %2,344  15 %1,740  16 %
Total Core Revenue:14,232  78 %14,389  94 %10,652  99 %
Ancillary Revenue:
Contingent Commissions4,016  22 %863  %111  %
Commissions and agency fees$18,248  100 %$15,252  100 %$10,763  100 %

Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)2021202020212020
Core Revenue:Core Revenue:Core Revenue:
Renewal CommissionsRenewal Commissions13,451  45 %13,856  47 %10,688  40 %Renewal Commissions10,310 49 %7,718 42 %18,067 47 %13,451 45 %
New Business CommissionsNew Business Commissions7,662  25 %7,734  26 %5,472  20 %New Business Commissions5,944 28 %4,329 24 %10,560 28 %7,662 25 %
Agency FeesAgency Fees3,871  13 %4,339  15 %3,177  12 %Agency Fees3,105 15 %2,185 12 %5,529 14 %3,871 13 %
Total Core Revenue:Total Core Revenue:24,984  83 %25,929  87 %19,337  72 %Total Core Revenue:19,359 92 %14,232 78 %34,156 89 %24,984 83 %
Ancillary Revenue:Ancillary Revenue:Ancillary Revenue:
Contingent CommissionsContingent Commissions5,075  17 %3,824  13 %7,596  28 %Contingent Commissions1,694 %4,016 22 %4,431 11 %5,075 17 %
Commissions and agency feesCommissions and agency fees$30,059  100 %$29,753  100 %$26,933  100 %Commissions and agency fees$21,053 100 %$18,248 100 %$38,587 100 %$30,059 100 %

Renewal Commissions increased by $1.8$2.6 million or 31%34%, to $10.3 million for the three months ended June 30, 2021 from $7.7 million for the three months ended June 30, 2020 from $5.92020. Renewal Commissions increased by $4.6 million or 34%, to $18.1 million for the threesix months ended June 30, 2019. Renewal Commissions increased by $2.8 million or 26%, to2021 from $13.5 million for the six months ended June 30, 2020 from $10.7 million for the six months ended June 30, 2019.2020. These increases were primarily attributable to an increase in the number of policies in the renewal term from June 30, 20192020 to June 30, 2021 plus an increase in client retention to 89% as of June 30, 2021 from 88% as of June 30, 2020.
New Business Commissions increased by $1.3$1.6 million, or 44%37%, to $5.9 million for the three months ended June 30, 2021 from $4.3 million for the three months ended June 30, 20202020. Revenue from $3.0Agency Fees increased by $920 thousand, or 42%, to $3.1 million for the three months ended June 30, 2019. Revenue2021 from Agency Fees increased by $445 thousand, or 26%, to $2.2 million for the three months ended June 30, 20202020. New Business Commission increased by $2.9 million or 38%, to $10.6 million for the six months ended June 30, 2021 from $7.7 million for the six months ended June 30, 2020. Revenue from Agency Fees increased by $1.7 million or 43%, to $5.5 million for the six months ended June 30, 2021 from $3.9 million for the six months ended June 30, 2020.These increases were primarily attributable to a 43% increase in total sales agent head count to 452 at June 30, 2021, from 317 at June 30, 2020.
Revenue from Contingent Commissions decreased by $2.3 million, to $1.7 million for the three months ended June 30, 2019. New Business Commissions increased by $2.2 million or 40% for the six months ended June 30, 20202021 from $5.5 million for the six months ended June 30, 2019. Revenue from Agency Fees increased by $694 thousand, or 22%, to $3.9 million for the six months ended June 30, 2020 from $3.2 million for the six months ended June 30, 2019. These increases were primarily attributable to a 49% increase in total sales agent head count to 317 at June 30, 2020, from 213 at June 30, 2019.
Revenue from Contingent Commissions increased by $3.9 million, to $4.0 million for the three months ended June 30, 2020 from $0.1 million for the three months ended June 30, 2019.2020. Revenue from Contingent Commissions decreased by $2.5$0.6 million, or 33%, to $4.4 million for the six months ended June 30, 2021 from $5.1 million for the six months ended June 30, 2020 from $7.6 million for the six months ended June 30, 2019.The primary reason for the2020. This change in both the three and six month periods is the adoption of ASC 606. If the three months ended June 30, 2020 were reported under ASC 605, revenue from
40


Contingent Commissions would have increased $0.8 million or 678% due to the timing of receipt of contingent commission in the 2020 compared to 2019. If the six months ended June 30, 2020 were reported under ASC 605 revenueRevenue from Contingent Commissions would have decreased $3.8 million, or 50%, duewas primarily attributable to higherincreases in loss ratios with our Carriers during 2019.ratio related to specific contingent commission programs coming off a historically low loss ratio year in 2020.
Franchise revenues
Franchise Revenues consist of Royalty Fees, Initial Franchise Fees, and Other Franchise Revenues.
33


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 June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Core Revenues:
Renewal Royalty Fees7,903  69 %7,815  65 %5,062  60 %
New Business Royalty Fees2,599  23 %2,610  22 %1,864  22 %
Total Core Revenues:10,502  91 %10,425  86 %6,926  82 %
Cost Recovery Revenues:
Initial Franchise Fees901  %1,605  13 %1,515  18 %
Ancillary Revenues:
Other Franchise Revenues81  %81  %34  — %
Franchise revenues$11,484  100 %$12,111  100 %$8,475  100 %

Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)2021202020212020
Core Revenues:Core Revenues:Core Revenues:
Renewal Royalty FeesRenewal Royalty Fees13,289  67 %13,569  61 %8,825  104 %Renewal Royalty Fees11,670 69 %7,903 69 %20,416 67 %13,289 67 %
New Business Royalty FeesNew Business Royalty Fees4,647  23 %4,738  21 %3,219  38 %New Business Royalty Fees3,680 22 %2,599 23 %6,837 23 %4,647 23 %
Total Core Revenues:Total Core Revenues:17,936  90 %18,307  82 %12,044  142 %Total Core Revenues:15,350 91 %10,502 91 %27,253 90 %17,936 90 %
Cost Recovery Revenues:Cost Recovery Revenues:Cost Recovery Revenues:
Initial Franchise FeesInitial Franchise Fees1,879  %3,915  18 %3,225  38 %Initial Franchise Fees1,458 %901 %2,890 10 %1,879 %
Ancillary Revenues:Ancillary Revenues:Ancillary Revenues:
Other Franchise RevenuesOther Franchise Revenues114  %114  %34  — %Other Franchise Revenues33 — %81 %131 — %114 %
Franchise revenuesFranchise revenues$19,929  100 %$22,336  100 %$15,303  181 %Franchise revenues$16,841 100 %$11,484 100 %$30,274 100 %$19,929 100 %

Revenue from Renewal Royalty Fees increased by $2.8$3.8 million, or 56%48%, to $11.7 million, for the three months ended June 30, 2021 from $7.9 million for the three months ended June 30, 2020 from $5.1 million for the three months ended June 30, 2019.2020. Revenue from Renewal Royalty Fees increased by $4.5$7.1 million, or 51%54%, to $20.4 million for the six months ended June 30, 2021 from $13.3 million for the six months ended June 30, 2020 from $8.8 million for the six months ended June 30, 2019.2020. The increase in revenue from Renewal Royalty Fees was primarily attributable to an increase in the number of policies in the renewal term.term and an increase in client retention to 89% as of June 30, 2021 from 88% as of June 30, 2020.
Revenue from New Business Royalty Fees increased by $0.7$1.1 million, or 39%42%, to $3.7 million for the three months ended June 30, 2021 from $2.6 million for the three months ended June 30, 2020 from $1.9 million for the three months ended June 30, 2019.2020. Revenue from New Business Royalty Fees increased by $1.4$2.2 million, or 44%47%, to $6.8 million for the six months ended June 30, 2021 from $4.6 million for the six months ended June 30, 2020 from $3.2 million for the six months ended June 30, 2019.2020. The increase in revenue from New Business Royalty Fees was primarily attributable to ana 47% increase in the total number of operating franchises fromto 1,072 at June 30, 2019 to2021, from 730 at June 30, 2020.
41


Revenues from Initial Franchise Fees decreasedincreased by $0.6 million or 41%62% to $901 thousand$1.5 million for the three months ended June 30, 20202021 from $1.5$0.9 million during the three months ended June 30, 2019. Revenues2020. Revenue from Initial Franchise Fees decreasedincreased by $1.3$1.0 million, or 42%54%, to $2.9 million for the six months ended June 30, 2021 from $1.9 million for the six months ended June 30, 2020 from $3.2 million for the six months ended June 30, 2019.2020. The primary reason for this decreaseincrease is the changean increase of 59% in accounting principle from the three and six months endedtotal franchises to 1,801 at June 30, 2019 to the three and six months ended2021, from 1,132 at June 30, 2020. If the three and six months ended June 30, 2020 were reported under ASC 605, revenue from Initial Franchise Fees would have increased $90 thousand and $0.7 million, respectively.
Interest income
Interest income increased by $44$87 thousand, or 30%45%, to $279 thousand for the three months ended June 30, 2021 from $192 thousand for the three months ended June 30, 2020 from $1482020. Interest income increased by $179 thousand, or 50%, to $540 thousand for the threesix months ended June 30, 2019. Interest income increased $78 thousand, or 28%, to2021 from $361 thousand for the six months ended June 30, 2020 from $283 thousand for the six months ended June 30, 2019.2020. This increase was primarily attributable to additional Franchise Agreements signed under the payment plan option.
Expenses
Employee compensation and benefits
Employee compensation and benefits expenses increased by $5.5$6.6 million, or 53%41%, to $22.5 million for the three months ended June 30, 2021 from $15.9 million for the three months ended June 30, 2020 from $10.4 million for the three months ended June 30, 2019.2020. Employee compensation and benefits expenses increased by $9.8$14.4 million, or 50%49%, to $43.8 million for the six months ended June 30, 2021 from $29.4 million for the six months ended June 30, 2020 from $19.6 million for the six months ended June 30, 2019.The2020. The increase is caused by a 35%40% increase in total headcount from 20192020 to 2020 and an increase in stock based compensation resulting from the issuance of stock options during 2020.2021.
General and administrative expenses
General and administrative expenses increased by $1.2$4.8 million, or 28%89%, to $10.1 million for the three months ended June 30, 2021 from $5.4 million for the three months ended June 30, 2020 from $4.2 million for the three months ended June 30, 2019.2020. General and administrative expenses increased by $2.6$8.2 million, or 30%73%, to $11.2$19.4 million for the six months ended June 30, 20202021 from $8.6$11.2 million for the
34


six months ended June 30, 2019.2020. This increase was primarily attributable to higher costs associated with an increase in operating franchises, total employees, opening of three new corporate office locations, and employees, investments made in technology, and the opening of two additional corporate sales offices during the period.technology.
Bad debts
Bad debts decreasedincreased by $163$327 thousand for the three months ended June 30, 20202021 to $319$646 thousand from $482$319 thousand for the three months ended June 30, 2019.2020. Bad debts decreasedincreased by $255$465 thousand, or 29%74%, to $1,093 thousand for the six months ended June 30, 2021 from $628 thousand for the six months ended June 30, 20202020. The increase in bad debts is attributable to an increase in total franchises and an increase in revenue from $883 thousand forAgency fees during the three and six months ended June 30, 2019. The change in both2021 from the three and six month periods is driven by the adoption of ASC 606, partially offset by an increase in write offs associated to higher revenues from Agency Fees.months ended June 30, 2020.
Depreciation and amortization
Depreciation and amortization increased by $260 thousand,$0.4 million, or 58%59%, to $712 thousand$1.1 million for the three months ended June 30, 20202021 from $452 thousand$0.7 million for the three months ended June 30, 2019.2020. Depreciation and amortization increased by $377 thousand,$0.9 million, or 43%70%, to $2.1 million for the six months ended June 30, 2021 from $1.3 million for the six months ended June 30, 2020 from $0.9 million for the six months ended June 30, 2019.2020. This increase was primarily attributable to the increase in fixed assets during the same period,since June 30, 2020, including the opening of twothree additional corporate sales offices, expansion of existing corporate offices and hardware for additional employees hired.
Interest expense
Interest expenses decreased by $147 thousand, or 23%, to $479 thousandremained flat at $0.5 million for the three months ended June 30, 2020 from $626 thousand for the three months ended June 30, 2019.2021 and 2020. Interest expense decreased by $169 thousand, or 13%, toexpenses remained flat at $1.1 million for the six months ended June 30, 2020 from $1.3 million for the six months ended June 30, 2019. This decrease was primarily attributable to the Company refinancing the existing term loan,2021 and lower average amount outstanding.
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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 $1.7 million, or 73%, to $4.1 million for the three months ended June 30, 2020 from $2.3 million for the three months ended June 30, 2019. The primary reason for this increase is the change in accounting principle from the three months ended June 30, 2019 to the three months ended June 30, 2020. If the three months ended June 30, 2020 were reported under ASC 605, Corporate Channel Adjusted EBITDA would have increased $0.8 million or 34%, driven by an increase in Renewal and New Business Commissions. Corporate Channel Adjusted EBITDA decreased by $2.0 million, or 28%, to $5.1 million for the six months ended June 30, 2020 from $7.1 million for the six months ended June 30, 2019. The primary reason for this decrease is the change in accounting principle from the six months ended June 30, 2019 to the six months ended June 30, 2020. If the six months ended June 30, 2020 were reported under ASC 605, Corporate Channel adjusted EBITDA would have decreased by $1.5 million, driven by the a decrease in Contingent Commissions received.
Franchise Channel Adjusted EBITDA is Segment earnings before interest, income taxes, depreciation and amortization, adjusted to exclude other non-operating items.
Franchise Channel Adjusted EBITDA increased by $3.6 million, or 121%, to $6.5 million for the three months ended June 30, 2020 from $2.9 million for the three months ended June 30, 2019.The primary reason for this increase is the change in accounting principle from the three months ended June 30, 2019 to the three months ended June 30, 2020. If the three months ended June 30, 2020 were reported under ASC 605, Franchise Channel Adjusted EBITDA would have increased $2.0 million or 70%, driven by an increase in Renewal and New Business Royalty Fees received. Franchise Channel Adjusted EBITDA decreased by $1.0 million, or 11%, to $7.6 million for the six months ended June 30, 2020 from $8.6 million for the six months ended June 30, 2019.The primary reason for this decrease is the change in accounting principle from the six months ended June 30, 2019 to the six months ended June 30, 2020. If the six months ended June 30, 2020 were reported under ASC 605, Franchise Channel Adjusted EBITDA would have decreased $1.5 million or 21%, driven by the decrease in Contingent Commissions received.
Neither of Franchise Channel Adjusted EBITDA or Corporate Channel Adjusted EBITDA includes equity-based compensation, which is recorded at the consolidated level and excluded from the EBITDA calculation.

Key performance indicators
Our key operating metrics are discussed below:
Total Written Premium
Total Written Premium represents for any reported period, the total amount of current (non-cancelled) gross premium that is placed with Goosehead’s portfolio of Carriers. Total Written Premium placed is an appropriate measure of operating performance because it reflects growth of our business relative to other insurance agencies.
The following tables show Total Written Premium placed by channel for the three and six months ended and 20202021 and 20192020 (in thousands).
  Three Months Ended June 30,% Change
  20212020
Corporate Channel Total Written Premium$112,457 $82,675 36 %
Franchise Channel Total Written Premium286,464 191,018 50 %
Total Written Premium$398,921 $273,693 46 %
Three Months Ended June 30,% Change Six Months Ended June 30,% Change
20202019 20212020
Corporate Channel Total Written PremiumCorporate Channel Total Written Premium$82,675  $64,160  29 %Corporate Channel Total Written Premium$201,403 $148,800 35 %
Franchise Channel Total Written PremiumFranchise Channel Total Written Premium191,018  129,868  47 %Franchise Channel Total Written Premium516,412 339,030 52 %
Total Written PremiumTotal Written Premium$273,693  $194,028  41 %Total Written Premium$717,815 $487,830 47 %

  Six Months Ended June 30,% Change
  20202019
Corporate Channel Total Written Premium$148,800  $114,835  30 %
Franchise Channel Total Written Premium339,030  226,068  50 %
Total Written Premium$487,830  $340,903  43 %

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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 June 30, 2020,2021, we had 590,000872,000 in Policies in Force compared to 482,000713,000 as of December 31, 20192020 and 408,000590,000 as of June 30, 2019,2020, representing a 22% and 45%48% increase, respectively.
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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 90remained steady at 92 as of June 30, 2020 from 89 as of December 31, 20192021 due to the service team’s continued focus on delivering highly differentiated service levels.
Client retention
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.
Client Retention has remained steady at 88%increased to 89% at June 30, 20202021 from 88% as of December 31, 2019,2020, again driven by the service team’s continued focus on delivering highly differentiated service levels. For the trailing twelve months ended June 30, 2020,2021, we retained 89%90% of the premiums we distributed in the trailing twelve months ended June 30, 2019,2020, which decreasedincreased modestly from the 91%89% premium retention at December 31, 2019.2020. 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 teams.
New Business Revenue
New Business Revenue is 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 June 30, 2020,2021, New Business Revenue grew 38%40% to $9.1$12.7 million, from $6.6$9.1 million for the three months ended June 30, 2019.2020. For the six months ended June 30, 2020,2021, New Business Revenue grew 36%42% to $16.2$22.9 million, from $11.9$16.2 million for the six months ended June 30, 2019.2020. Growth in New Business Revenue is driven by an increase in Corporate Channel sales agent headcount of 49%43% and growth in operating franchises in the Franchise Channel of 36%47%.
Renewal Revenue
Renewal Revenue is commissions received from the Carrier and Renewal Royalty Fees received after the first term of a policy.
For the three months ended June 30, 2020,2021, Renewal Revenue grew 43%41% to $15.6$22.0 million, from $11.0$15.6 million for the three months ended June 30, 2019.2020. For the six months ended June 30, 2020,2021, Renewal Revenue grew 37%44% to $26.7$38.5 million, from $19.5$26.7 million for the six months ended June 30, 2019.2020. Growth in Renewal Revenue was driven by Client Retention of 88%89% at June 30, 2020.2021. 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
Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EPS are not measures of financial performance under GAAP and should not be considered substitutes for net income or earnings per share, 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
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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. Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EPS have limitations as analytical tools, and when assessing our operating performance, you should not consider Adjusted EBITDA, Adjusted EBITDA Margin, or Adjusted EPS in isolation or as substitutes for net income, earnings per share or other consolidated income statement data prepared in accordance with GAAP. Other companies may calculate Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EPS differently than we do, limiting their usefulness as comparative measures.
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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 $7.2$10.0 million, or 41%40%, to $34.7 million for the three months ended June 30, 2021 from $24.7 million for the three months ended June 30, 2020 from $17.6 million for the three months ended June 30, 2019.2020. Core Revenue increased by $11.5$18.5 million, or 37%43%, for the six months ended June 30, 2020 to $42.9 million from $31.4$61.4 million for the six months ended June 30, 2019.2021 from $42.9 million for the six months ended June 30, 2020. The primary driverdrivers of the increase isare increases in operating franchises, corporate agent sales headcount, andthe number of policies in the renewal term from June 30, 20192020 to June 30, 2020. If the three and six months ended2021, plus an increase in client retention to 89% as of June 30, 2020 were reported under ASC 605, Core Revenue would have increased $7.2 million and $12.9 million, respectively.2021 from 88% as of June 30, 2020.
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 decreasedincreased by $0.6 million, or 34%59%, to $1.7 million for the three months ended June 30, 2021 from $1.1 million for the three months ended June 30, 2020 from $1.72020. Cost Recovery Revenue increased by $1.2 million, or 53%, to $3.4 million for the threesix months ended June 30, 2019. Cost Recovery Revenue decreased by $1.3 million, or 36%, to2021 from $2.2 million for the six months ended June 30, 2020 from $3.5 million for the six months ended June 30, 2019.2020. The primary driver of the decreaseincrease is the adoption of ASC 606. If the three and six months endedan increase in total franchises from June 30, 2020 were reported under ASC 605, Cost Recovery Revenue would have increased $0.1 million and $0.8 million, respectively.to June 30, 2021.
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 increaseddecreased by $4.0$2.4 million to $1.7 million for the three months ended June 30, 2021 from $4.1 million for the three months ended June 30, 2020 from $0.12020. Ancillary Revenue decreased by $0.6 million to $4.6 million for the threesix months ended June 30, 2019 primarily due to the adoption of ASC 606 resulting in acceleration of when we record Contingent Commissions. Ancillary Revenue decreased by $2.4 million, or 32%, to2021 from $5.2 million for the six months ended June 30, 2020 from $7.6 million for the six months ended June 30, 2019.2020. The primary driver of the decrease is the adoption of ASC 606 changing the timing of when Contingent Commissions are recorded. If the three and six months ended June 30, 2020 were reported under ASC 605,in Ancillary Revenue would have increased $0.8 million and decreased by $3.7 million, respectively.is primarily due to increases in loss ratio related to specific contingent commission programs coming off historically low loss ratios in 2020.
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 equity-based compensation and other non-operating items, including, among other things, certain non-cash charges and certain non-recurring or non-operating gains or losses.

Adjusted EBITDA increaseddecreased by $5.1$3.0 million, or 108%31%, to $6.8 million for the three months ended June 30, 2021 from $9.8 million for the three months ended June 30, 2020 from $4.72020. Adjusted EBITDA decreased by $2.1 million, or 19%, to $8.9 million for the threesix months ended June 30, 2019. The primary driver of the decrease is the adoption of ASC 606. If the three months ended June 30, 2020 were reported under ASC 605, Adjusted EBITDA would have
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increased by $2.6 million, driven by increased Core Revenues, offset by additional employee compensation and benefits2021 from additional hiring. Adjusted EBITDA decreased by $3.2 million, or 22%, to $11.0 million for the six months ended June 30, 2020 from $14.2 million for the six months ended June 30, 2019.2020. The primary driver of the decrease is higherincreases in General and Administrative expenses driven by increases in corporate agent headcount, operating franchises, investments in technology, as well as decreases in revenue from Contingent Commissions received during the six months ended June 30, 2019. If the six months ended June 30, 2020 were reported under ASC 605, Adjusted EBITDA would have decreased by $1.5 million.Commissions.
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 level.
For the three months ended June 30, 2020,2021, Adjusted EBITDA Margin was 33%18% compared to 24%33% for the three months ended June 30, 2019. The primary driver of2020. For the expansion is the adoption of ASC 606, resulting in acceleration of the recognition of Contingent Commission revenue. If the threesix months ended June 30, 2020 were reported under ASC 605,2021, Adjusted EBITDA Margin would have been 27%. Adjusted EBITDA Marginwas 13% compared to 22% for the six months ended June 30, 2020 was 22% compared to 33% for the six months ended June 30, 2019.2020. The primary driver of the compressiondecrease is the adoption of ASC 606. If the six months ended June 30, 2020 had been reported under ASC 605, Adjusted EBITDA Margin would have been 24%increases in
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General and Administrative expenses driven by a decreaseincreases in contingent commissions received.corporate agent headcount, operating franchises, investments in technology, as well as decreases in revenue from Contingent Commissions.
Adjusted EPS
Adjusted EPS is a supplemental 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 June 30,Three Months Ended June 30,Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)2021202020212020
Total RevenuesTotal Revenues$29,924  $27,555  $19,386  Total Revenues$38,173 $29,924 $69,401 $50,349 
Core Revenue:Core Revenue:Core Revenue:
Renewal Commissions(1)
Renewal Commissions(1)
$7,718  $7,712  $5,899  
Renewal Commissions(1)
$10,310 $7,718 $18,067 $13,451 
Renewal Royalty Fees(2)
Renewal Royalty Fees(2)
7,903  7,815  5,062  
Renewal Royalty Fees(2)
11,670 7,903 20,416 13,289 
New Business Commissions(1)
New Business Commissions(1)
4,329  4,333  3,013  
New Business Commissions(1)
5,944 4,329 10,560 7,662 
New Business Royalty Fees(2)
New Business Royalty Fees(2)
2,599  2,610  1,864  
New Business Royalty Fees(2)
3,680 2,599 6,837 4,647 
Agency Fees(1)
Agency Fees(1)
2,185  2,344  1,740  
Agency Fees(1)
3,105 2,185 5,529 3,871 
Total Core RevenueTotal Core Revenue24,734  24,814  17,578  Total Core Revenue34,709 24,734 61,409 42,920 
Cost Recovery Revenue:Cost Recovery Revenue:Cost Recovery Revenue:
Initial Franchise Fees(2)
Initial Franchise Fees(2)
901  1,605  1,515  
Initial Franchise Fees(2)
1,458 901 2,890 1,879 
Interest IncomeInterest Income192  192  148  Interest Income279 192 540 361 
Total Cost Recovery RevenueTotal Cost Recovery Revenue1,093  1,797  1,663  Total Cost Recovery Revenue1,737 1,093 3,430 2,240 
Ancillary Revenue:Ancillary Revenue:Ancillary Revenue:
Contingent Commissions(1)
Contingent Commissions(1)
4,016  863  111  
Contingent Commissions(1)
1,694 4,016 4,431 5,075 
Other Income(2)
Other Income(2)
81  81  34  
Other Income(2)
33 81 131 114 
Total Ancillary RevenueTotal Ancillary Revenue4,097  944  145  Total Ancillary Revenue1,727 4,097 4,562 5,189 
Total RevenuesTotal Revenues$29,924  $27,555  $19,386  Total Revenues$38,173 $29,924 $69,401 $50,349 
(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 income.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 income.operations.

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Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Total Revenues$50,349  $52,449  $42,519  
Core Revenue:
Renewal Commissions(1)
$13,451  $13,856  $10,688  
Renewal Royalty Fees(2)
13,289  13,569  8,825  
New Business Commissions(1)
7,662  7,734  5,472  
New Business Royalty Fees(2)
4,647  4,738  3,219  
Agency Fees(1)
3,871  4,339  3,177  
Total Core Revenue42,920  44,236  31,381  
Cost Recovery Revenue:
Initial Franchise Fees(2)
1,879  3,915  3,225  
Interest Income361  361  283  
Total Cost Recovery Revenue2,240  4,276  3,508  
Ancillary Revenue:
Contingent Commissions(1)
5,075  3,824  7,596  
Other Income(2)
114  114  34  
Total Ancillary Revenue5,189  3,938  7,630  
Total Revenues$50,349  $52,450  $42,519  

(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 income.
(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 income.
The following tables show a reconciliation from net income to Adjusted EBITDA and Adjusted EBITDA margin for the three and six months ended June 30, 20202021 and 20192020 (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Net Income$3,136 $7,386 $2,047 $7,090 
Interest expense546 479 1,147 1,083 
Depreciation and amortization1,132 712 2,132 1,252 
Tax (benefit) expense223 (240)(71)(281)
Equity-based compensation1,852 1,416 3,793 1,914 
Other (income) expense(119)— (139)(66)
Adjusted EBITDA$6,770 $9,753 $8,909 $10,992 
Adjusted EBITDA Margin(1)
18 %33 %13 %22 %
Three Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Net income$7,386  $5,259  $2,817  
Interest expense479  479  626  
Depreciation and amortization712  712  452  
Tax (benefit) expense(240) (553) 430  
Equity-based compensation1,416  1,416  368  
Other (income) expense—  —  —  
Adjusted EBITDA$9,753  $7,313  $4,693  
Adjusted EBITDA Margin(1)
33 %27 %24 %
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(1) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Total Revenue ($6,770/$38,173), and ($9,753/$29,924), ($7,313/$27,555) and ($4,693/$19,386) for the three months ended June 30, 2021 and 2020, (ASC 606 and 605, respectively) and 2019.

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Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Net income$7,090  $8,556  $10,135  
Interest expense1,083  1,083 ��1,252  
Depreciation and amortization1,252  1,252  875  
Tax (benefit) expense(281) (94) 1,174  
Equity-based compensation1,914  1,914  735  
Other (income) expense(66) (66) —  
Adjusted EBITDA$10,992  $12,645  $14,171  
Adjusted EBITDA Margin(1)
22 %24 %33 %
(1)respectively. Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Total Revenue ($8,909/$69,401), and ($10,992/$50,349), ($12,645/$52,449) and ($14,171/$42,519) for the six months ended June 30, 2021 and 2020, (ASC 606 and 605, respectively) and 2019.respectively.

The following tables show a reconciliation from basic earnings per share to Adjusted EPS (non-GAAP basis) for the three and six months ended June 30, 20202021 (in thousands, except per share amounts). Note that totals may not sum due to rounding:
Three Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Earnings per share - basic (GAAP)$0.21  $0.16  $0.06  
Add: equity-based compensation(1)
0.04  0.04  0.01  
Adjusted EPS (non-GAAP)$0.25  $0.20  $0.07  
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
Earnings per share - basic (GAAP)$0.08 $0.21 $0.06 $0.20 
Add: equity-based compensation(1)
0.05 0.04 0.10 0.05 
Adjusted EPS (non-GAAP)$0.13 $0.25 $0.16 $0.25 
(1) Calculated as equity-based compensation divided by sum of weighted average Class A and Class B shares [ $1.4$1.9 million / ( 18.8 million + 18.0 million )] for the three months ended June 30, 2021 and [ $1,416 thousand / ( 16.5 million + 20.0 million )] for the three months ended June 30, 2020 and [ $368 thousand / ( 14.9 million + 21.4 million )] for the three months ended June 30, 2019.2020.
Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Earnings per share - basic (GAAP)$0.20  $0.23  $0.23  
Add: equity-based compensation(1)
0.05  0.05  0.02  
Adjusted EPS (non-GAAP)$0.25  $0.28  $0.25  
(1) Calculated as equity-based compensation divided by sum of Class A and Class B shares [ $1.9 million / ( 16.0 million + 20.4 million )] for the six months ended June 30, 2020 and [ $735 thousand / ( $14.5 million + $21.7 million )] for the three months ended June 30, 2019.
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. Our primary cash flow activities involve: (1) generating cash flow from Corporate Channel operations, which largely includes New Business Revenue (Corporate) and Renewal Revenue (Corporate); (2) generating cash flow from Franchise Channel operations, which largely includes Initial Franchise Fees and Royalty Fees; (3) borrowings, interest payments and repayments under our credit agreement; and (4) issuing shares of Class A common stock. As of June 30, 2020,2021, our cash and cash equivalents balance was $54.3$35.0 million. We have used cash flow from operations primarily to pay compensation and related expenses, general, administrative and other expenses, debt service and distributions to our owners.
Credit agreement
See "Note 7. Debt" in the condensed consolidated financial statements included herein for a discussion of the Company's credit facilities.

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Comparative cash flows
The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated (in thousands):

Six Months Ended June 30,Six Months Ended June 30,
20202019Change20212020Change
Net cash provided by operating activitiesNet cash provided by operating activities$6,516  $10,682  $(4,166) Net cash provided by operating activities$19,992 $6,516 $13,476 
Net cash used for investing activitiesNet cash used for investing activities(4,093) (1,876) (2,217) Net cash used for investing activities(9,286)(4,093)(5,193)
Net cash provided by (used for) financing activitiesNet cash provided by (used for) financing activities38,123  (18,811) 56,934  Net cash provided by (used for) financing activities(416)38,123 (38,539)
Net increase (decrease) in cash and cash equivalents40,546  (10,005) 50,551  
Net increase in cash and cash equivalentsNet increase in cash and cash equivalents10,290 40,546 (30,256)
Cash and cash equivalents, and restricted cash, beginning of periodCash and cash equivalents, and restricted cash, beginning of period15,260  19,011  (3,751) Cash and cash equivalents, and restricted cash, beginning of period26,236 15,260 10,976 
Cash and cash equivalents, and restricted cash, end of periodCash and cash equivalents, and restricted cash, end of period$55,806  $9,006  $46,800  Cash and cash equivalents, and restricted cash, end of period$36,526 $55,806 $(19,280)
Operating activities
Net cash provided by operating activities was $6.5$20.0 million for the six months ended June 30, 20202021 as compared to net cash provided by operating activities of $10.7$6.5 million for the six months ended June 30, 2019.2020. This decreaseincrease in net cash provided by operating activities was attributable to a decrease in net income of $3.0 million, and an increase in cash used for prepaid expenses of $2.9 million, which was offset by $0.3 million increase in cash provided by commissions and agency fees receivable and a $1.2 million increase in non-cash equity based compensation.receivables of $13.0 million.
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Investing activities
Net cash used for investing activities was $9.3 million for the six months ended June 30, 2021, compared to net cash used in investing activities of $4.1 million for the six months ended June 30, 2020, compared to net cash used in investing activities of $1.9 million for the six months ended June 30, 2019.2020. This increase was driven by continued expansion of corporate offices to support increased hiring and $0.8 millionhiring.
Financing activities
Net cash used for computer equipmentfinancing activities was $0.4 million for the six months ended June 30, 2021 as compared to accommodate remote working.
Financing activities
Netnet cash provided by financing activities wasof $38.1 million for the six months ended June 30, 2020 as compared to2020. This decrease in net cash used for financing activities of $18.8 million for the six months ended June 30, 2019. This increase in net cash provided by financing activities was attributable to the Company's draw down of $37.9 millionrefinance of the remainingCompany's term loan amplified by $18.0 million of distributions madeand revolving credit facility in the six months ended June 30, 2019.2020.
Future sources and uses of liquidity
Our sources of liquidity are (1) cash on hand, (2) net working capital, (3) cash flows from operations and (4) our 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 (5) pay income taxes, and (6) when deemed advisable by our board of directors, pay dividends.
Dividend policy
On March 7, 2019, GF approved a $15.0 million extraordinary dividend to all holders of LLC Units, including GSHD. The board of directors of the Company then declared an extraordinary dividend of $0.41 (rounded) to all holders of Class A common stock of GSHD with a record date of March 18, 2019, to be paid on or before April 1, 2019. See "Note 11. Dividends" in the condensed consolidated financial statements included herein.
On July 30, 2020, GF approved an extraordinary dividend in the aggregate amount of $42.0 million payable to holders of LLC Units, including GSHD. The board of directors of the Company subsequently declared an extraordinary dividend of $1.15 (rounded) to all holders of Class A common stock of GSHD with a record date of August 10, 2020, paid on or before August 24, 2020. See "Note 16: Subsequent events" in the condensed consolidated financial statements included herein.
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There have been no material changes to our dividend policy as described in the Annual Report on Form 10-K.
Tax receivable agreement
We entered into a tax receivable agreement with the Pre-IPO LLC Members on May 1, 2018 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 and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement. See "Item 13. Certain relationships and related 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 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
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time of the redemption or exchange, the extent to which such redemptions or exchanges are taxable and the amount and timing of our income. See "Item 13. Certain relationships and related transactions, and director independence" of the Annual 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 exchanges 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 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.

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Contractual obligations, commitments and contingencies
The following table represents our contractual obligations as of June 30, 2020,2021, aggregated by 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)
$25,954  $3,439  $6,913  $6,331  $9,271  
Debt obligations payable(2)
84,500  2,500  82,000  —  —  
Interest expense(3)
3,141  3,141  5,128  —  —  
Liabilities under the tax receivable agreement(4)
35,832  681  4,385  4,779  25,987  
Total$149,427  $9,761  $98,426  $11,110  $35,258  
  
Contractual obligations, commitments and contingencies
(in thousands)TotalLess than
1 year
1-3 years3-5 yearsMore than
5 years
Operating leases(1)
$63,337 $5,689 $14,925 $15,036 $27,687 
Debt obligations payable(2)
82,000 5,000 77,000 — — 
Interest expense(3)
9,350 6,524 2,826 — — 
Liabilities under the tax receivable agreement(4)
82,200 1,958 8,669 9,263 62,310 
Total$236,887 $19,171 $103,420 $24,299 $89,997 

(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 $612$1,116 thousand and $447$744 thousand for the three months ended June 30, 20202021 and 2019. Rent expense was $1.1 million and $0.9 million for the six months ended June 30, 2020 and 2019.2020.
(2)The Company refinanced its credit facilities on March 6, 2020 in the form of a $80 million term loan, and $25 million revolving credit facility, of which $5.0 million was drawn as of June 30, 2020.2021.
(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 June 30, 2020.2021.
(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 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 financial statements and notes thereto, which have been prepared in accordance with GAAP. The preparation of the condensed consolidated 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
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under the facts and circumstances. There have been no significant changes to our critical accounting policies as disclosed in the Annual Report on Form 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.
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We also intend to 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.
The Company expects to lose its emerging growth company status as of the filing of the Annual Report on Form 10-K for the year ended December 31, 2020. As such, the Company will be required to comply with the requirements of Section 404(b) of Sarbanes-Oxley Act, have full disclosure obligations requiring executive compensation, and lose exemptions from the requirements of holding non-binding advisory votes on executive compensation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our exposure to market risks as described in "Item 7A. Quantitative and qualitative disclosure of market risks" in the 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 our disclosure controls and procedures were effective as of June 30, 2020.2021. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There were no changes to our internal control over financial reporting that occurred during the quarter ended June 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation as it relates to our internal controls to minimize the impact on their design and operating effectiveness.


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PART II

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

Item 1A. Risk factorsFactors
For a discussion of our potential risks and uncertainties, seeThere have been no material changes to the information set forth under Part I, Item 1A “Risk Factors”risk factors disclosed in the Company's Annual Report on Form 10-K.
The global outbreak of10-K for the coronavirus disease ("COVID-19") has negatively impacted the global economy in a 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

Infiscal year ended December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout the world. On January 30, 2020, the WHO declared the outbreak of COVID-19 a ‘‘Public Health Emergency of International Concern.’’ On March 11, 2020 the WHO characterized the outbreak as a ‘‘pandemic’’. This outbreak of COVID-19 has resulted in a widespread health crisis that has and may continue to adversely affect the economies and financial markets worldwide.

The COVID-19 pandemic could materially adversely impact our business, results of operations and financial results, depending on numerous evolving factors that we may not be able to accurately predict, including: the duration and severity of the pandemic; business and individuals’ actions that have been and continue to be taken in response to the pandemic; and the impact of COVID-19 on economic activity and governmental actions taken in response. As the COVID-19 outbreak and any associated protective or preventative measures continue to spread in the United States, we may experience disruptions to our business, including but not limited to: (a) our clients choosing to limit purchases of insurance due to declining business conditions, which would inhibit our ability to generate commission revenue and other revenue based on premiums placed; (b) decrease in home closing transactions which would imply a decrease in the purchase of new home insurance policies; (c) our clients defaulting on mortgages, which would affect the client’s ability to pay their home insurance premiums and affect the renewal of policies; (d) travel restrictions and quarantines leading to a lack of in-person meetings, which could hinder our ability to manage our sales successfully and to establish relationships or originate new business and; (e) alternative working arrangements, including employees and Franchisees working and being trained remotely, which could negatively impact our business should such arrangements remain for an extended period of time.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance, will depend on future developments. To the extent that the COVID-19 pandemic adversely impacts our business, results of operations, liquidity or financial condition, it may also have the effect of increasing many of the other risks and uncertainties enumerated in the Annual Report on Form 10-K.31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.

Item 4. Mine Safety Disclosures
Not applicable.

Item 5. Other Information
None.
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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:July 31, 202028, 2021By: /s/ Mark E. Jones
   Mark E. Jones
   Chairman and Chief Executive Officer
   (Principal Executive Officer)
 
Date:July 31, 202028, 2021By: /s/ Mark S. Colby
   Mark S. Colby
   Chief Financial Officer
   (Principal Financial Officer and Principal Accounting Officer)

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