gshd-20240331

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 March 31, 2024


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

For the transition period from _______ to ______

Commission file number: 001-38466

GOOSEHEAD INSURANCE, INC.

(Exact name of registrant as specified in its charter)


Delaware			82-3886022
(State or other jurisdiction of incorporation or organization)			(IRS Employer Identification No.)
1500 Solana Blvd, Building 4, Suite 4500
Westlake
Texas			76262
(Address of principal executive offices)			(Zip Code)

(469) 480-3669

(Registrant's telephone number, including area code)

Not applicable

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Class A Common Stock, par value $.01 per share	GSHD	NASDAQ

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☑ No

As of April 22, 2024, there were 25,238,152 shares of Class A common stock outstanding and 12,752,530 shares of Class B common stock outstanding.

Table of contents



		Page
Part I
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36

Part II
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Mine Safety Disclosures	37
Item 5.	Other Information	37
Item 6.	Exhibits	38

SIGNATURES		38

Commonly used defined terms

As used in this Quarterly Report on Form 10-Q ("Form 10-Q"), unless the context indicates or otherwise requires, the following terms have the following meanings:

•Ancillary Revenue: Revenue that is supplemental to our Core Revenue and Cost Recovery Revenue, Ancillary Revenue is unpredictable and often outside of the Company's control. Included in Ancillary Revenue are Contingent Commissions and other income.

•Agency Fees: Fees separate from commissions charged directly to clients for efforts performed in the issuance of new insurance policies.

•Annual Report on Form 10-K: The Company's annual report on Form 10-K for the fiscal year ended December 31, 2023.

•Carrier: An insurance company.

•Carrier Appointment: A contractual relationship with a Carrier.

•Client Retention: Calculated by comparing the number of all clients that had at least one policy in force twelve months prior to the date of measurement and still have at least one policy in force at the date of measurement.

•Contingent Commission: Revenue in the form of contractual payments from Carriers contingent upon several factors, including growth and profitability of the business placed with the Carrier.

•Core Revenue: The most predictable revenue stream for the Company, these revenues consist of New Business Revenue and Renewal Revenue. New Business Revenue is lower-margin, but fairly predictable. Renewal Revenue is higher-margin and very predictable.

•Cost Recovery Revenue: Revenue received by the Company associated with cost recovery efforts associated with selling and financing franchises. Included in Cost Recovery Revenue are Initial Franchise Fees and Interest Income.

•Franchise Agreement: Agreements governing our relationships with Franchisees.

•Franchisee: An individual or entity who has entered into a Franchise Agreement with us.

•GF: Goosehead Financial, LLC.

•Initial Franchise Fee: Contracted fees paid by Franchisees to compensate Goosehead for the training, onboarding and ongoing support of new franchise locations.

•LLC Unit: a limited liability company unit of Goosehead Financial, LLC.

•New Business Commission: Commissions received from Carriers relating to policies in their first term.

•New Business Revenue: New Business Commissions, Agency Fees, and New Business Royalty Fees.

•New Business Royalty Fees: Royalty Fees received from Franchisees relating to policies in their first term

•NPS: Net Promoter Score is calculated based on a single question: “How likely are you to refer Goosehead Insurance to a friend, family member or colleague?” Clients that respond with a 6 or below are Detractors, a score of 7 or 8 are called Passives, and a 9 or 10 are Promoters. NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters.

•Policies in Force: As of any reported date, the total count of current (non-cancelled) policies placed by us with our Carriers.

•Policy Term: The contractual period the policy provides insurance coverage to the insured.

•Pre-IPO LLC Members: owners of LLC Units of GF prior to the Offering.

•Renewal Commission: Commissions received from Carriers relating to a policy in a renewal term.

•Renewal Revenue: Renewal Commissions and Renewal Royalty Fees.

•Renewal Royalty Fees: Royalty Fees received from Franchisees relating to a policy in a renewal term.

•Royalty Fees: Fees paid by Franchisees to the Company that are tied to the gross commissions paid by the Carriers related to policies sold or renewed by a franchisee.

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

•Total Written Premium: As of any reported date, the total amount of current (non-cancelled) gross premium that is placed with Goosehead’s portfolio of Carriers.

Special note regarding forward-looking statements

We have made statements in this Form 10-Q that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Item 1A. Risk factors” in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

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.

PART I

Item 1. Condensed Consolidated Financial Statements (Unaudited)


		Page
Condensed Consolidated Statements of Operations		6
Condensed Consolidated Balance Sheets		7
Condensed Consolidated Statements of Stockholders' Equity		8
Condensed Consolidated Statements of Cash Flows		9
Notes to the Condensed Consolidated Financial Statements		10
Note 1	Organization	10
Note 2	Summary of significant accounting policies	10
Note 3	Revenues	12
Note 4	Franchise fees receivable	14
Note 5	Allowance for uncollectible agency fees	15
Note 6	Property and equipment	15
Note 7	Intangible assets	16
Note 8	Debt	16
Note 9	Income taxes	17
Note 10	Stockholder's equity	18
Note 11	Non-controlling interest	20
Note 12	Equity-based compensation	21


Note 13	Litigation	21

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended March 31,
		2024		2023
Revenues:
Commissions and agency fees		$	26,221	$	25,484
Franchise revenues		37,989		32,074
Interest income		250		397
Total revenues		64,460		57,955
Operating Expenses:
Employee compensation and benefits		42,130		36,882
General and administrative expenses		17,180		15,856
Bad debts		1,127		1,655
Depreciation and amortization		2,568		2,093
Total operating expenses		63,005		56,486
Income from operations		1,455		1,469
Other Income (Expense):

Interest expense		(1,487)		(1,731)
Loss before taxes		(32)		(262)
Tax benefit		(1,841)		(81)
Net income (loss)		1,809		(181)
Less: net loss attributable to non-controlling interests		(5)		(100)
Net income (loss) attributable to Goosehead Insurance, Inc.		$	1,814	$	(81)
Earnings per share:
Basic		$	0.07	$	—
Diluted		$	0.05	$	—
Weighted average shares of Class A common stock outstanding
Basic		25,087		23,206
Diluted		38,839		23,206

See Notes to the Condensed Consolidated Financial Statements

Goosehead Insurance, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except per share amounts)


	March 31,		December 31,
	2024		2023
Assets
Current Assets:
Cash and cash equivalents	$	51,089	$	41,956
Restricted cash	2,028		2,091

Commissions and agency fees receivable, net	7,487		12,903
Receivable from franchisees, net	10,034		9,720
Prepaid expenses	6,296		7,889

Total current assets	76,934		74,559
Receivable from franchisees, net of current portion	6,586		9,269
Property and equipment, net of accumulated depreciation	28,686		30,316
Right-of-use asset	37,121		38,406
Intangible assets, net of accumulated amortization	18,783		17,266
Deferred income taxes, net	193,518		181,209
Other assets	4,581		3,867
Total assets	$	366,209	$	354,892
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses	$	14,652	$	16,398
Premiums payable	2,028		2,091

Lease liability	9,194		8,897

Contract liabilities	3,611		4,129
Note payable	10,000		9,375
Liabilities under tax receivable agreement	4,952		—
Total current liabilities	44,437		40,890
Lease liability, net of current portion	55,233		57,382

Note payable, net of current portion	65,118		67,562
Contract liabilities, net of current portion	18,121		22,970
Liabilities under tax receivable agreement, net of current portion	155,060		149,302
Total liabilities	337,969		338,106

Class A common stock, $0.01 par value per share - 300,000 shares authorized, 25,230 shares issued and outstanding as of March 31, 2024, 24,966 shares issued and outstanding as of December 31, 2023	252		250
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 12,758 issued and outstanding as of March 31, 2024, 12,954 shares issued and outstanding as of December 31, 2023	128		130
Additional paid in capital	112,428		103,228
Accumulated deficit	(45,459)		(47,056)
Total stockholders' equity	67,349		56,552
Non-controlling interests	(39,109)		(39,766)
Total equity	28,240		16,786
Total liabilities and equity	$	366,209	$	354,892

See Notes to the Condensed Consolidated Financial Statements

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

(In thousands)


	Issued shares of Class A common stock	Issued shares of Class B common stock	Class A Common stock		Class B Common Stock		Additional paid in capital		Accumulated deficit		Total stockholders' equity		Non-controlling interest		Total equity
Balance January 1, 2024	24,966	12,954	$	250	$	130	$	103,228	$	(47,056)	$	56,552	$	(39,766)	$	16,786
Distributions	—	—	—		—		—		—		—		(42)		(42)
Net income (loss)	—	—	—		—		—		1,814		1,814		(5)		1,809
Exercise of stock options	65	—	1		—		1,862		—		1,863		—		1,863
Equity-based compensation	—	—	—		—		7,357		—		7,357		—		7,357
Activity under employee stock purchase plan	2	—	—		—		146		—		146		—		146
Redemption of LLC Units	196	(196)	2		(2)		(605)		—		(605)		605		—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—		—		439		—		439		(117)		322
Reallocation of Non-controlling interest	—	—	—		—		—		(217)		(217)		217		—
Balance March 31, 2024	25,230	12,758	$	252	$	128	$	112,428	$	(45,459)	$	67,349	$	(39,109)	$	28,240


	Issued shares of Class A common stock	Issued shares of Class B common stock	Class A Common stock		Class B Common Stock		Additional paid in capital		Accumulated deficit		Total stockholders' equity		Non-controlling interest		Total equity
Balance January 1, 2023	23,034	14,471	$	228	$	146	$	70,866	$	(60,570)	$	10,670	$	(44,294)	$	(33,624)

Net loss	—	—	—		—		—		(81)		(81)		(100)		(181)
Exercise of stock options	17	—	—		—		173		—		173		—		173
Equity-based compensation	—	—	—		—		6,620		—		6,620		—		6,620
Activity under employee stock purchase plan	4	—	—		—		201		—		201		—		201
Redemption of LLC Units	323	(323)	3		(3)		(990)		—		(990)		990		—
Deferred tax adjustments related to Tax Receivable Agreement	—	—	—		—		699		—		699		129		828
Reallocation of Non-controlling interest	—	—	—		—		—		(103)		(103)		103		—
Balance March 31, 2023	23,379	14,147	$	231	$	143	$	77,569	$	(60,754)	$	17,189	$	(43,173)	$	(25,984)

See Notes to the Condensed Consolidated Financial Statements

Goosehead Insurance, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net income (loss)	$	1,809	$	(181)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization	2,632		2,150

Impairment expense	347		—
Bad debt expense	1,127		1,655
Equity-based compensation	7,357		6,620
Impacts of tax receivable agreement	10,711		3,574
Deferred income taxes	(11,987)		(3,322)
Noncash lease activity	(821)		245
Cloud computing arrangement implementation costs	(191)		—
Changes in operating assets and liabilities:

Receivable from franchisees	1,919		1,332
Commissions and agency fees receivable	4,982		6,930
Prepaid expenses	1,593		(8,945)
Other assets	(606)		(424)
Accounts payable and accrued expenses	(1,437)		(3,477)
Contract liabilities	(5,367)		(6,444)
Premiums payable	(207)		(352)

Net cash provided by (used for) operating activities	11,860		(639)
Cash flows from investing activities:
Issuance of notes receivable to franchisees	(100)		—
Proceeds from notes receivable to franchisees	1		8
Capitalized software development costs	(2,560)		(784)
Cash consideration paid for asset acquisitions	—		(161)
Purchase of property and equipment	(222)		(1,756)
Net cash used for investing activities	(2,882)		(2,693)
Cash flows from financing activities:

Repayment of note payable	(1,875)		(1,250)

Proceeds from the issuance of Class A common stock	2,009		373
Member distributions and dividends	(42)		—
Net cash provided by (used for) financing activities	91		(877)
Net increase (decrease) in cash and restricted cash	9,070		(4,209)
Cash and cash equivalents, and restricted cash, beginning of period	44,047		30,387
Cash and cash equivalents, and restricted cash, end of period	$	53,117	$	26,178

Supplemental disclosures of cash flow data:
Cash paid during the period for interest	$	1,425	$	1,675
Cash paid for income taxes	46		2

See Notes to the Condensed Consolidated Financial Statements


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

1. Organization

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

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

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

The Company had 14 and 12 corporate-owned locations in operation at March 31, 2024 and 2023, respectively. Franchisees are provided access to Carrier Appointments, product training, technology infrastructure, client service centers and back office services. During the three months ended March 31, 2024 and 2023, the Company onboarded 25 and 83 franchise locations, respectively, and had 1,155 and 1,387 operating franchise locations as of March 31, 2024 and 2023, respectively. No franchises were purchased during the three months ended March 31, 2024 and 2023.

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 March 31, 2024 and December 31, 2023, and the condensed consolidated statements of operations, stockholders' equity and statements of cash flows for the three months ended March 31, 2024 and 2023. The interim period condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements that are included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results that can be expected for the entire year. The Company experiences seasonal fluctuations of its revenue due to the timing of contingent commission revenue recognition and trends in housing market activity.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation of the current period financial statements.

Use of Estimates

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

Intangible Assets

Intangible assets are stated at cost less accumulated amortization and reflect amounts paid for the Company’s web domain, computer software costs, and purchased books of business (customer accounts). The web domain is amortized over a useful life of fifteen years, computer software costs are amortized over a useful life of three to ten years, and books of business (customer accounts) are amortized over a useful life of eight years.


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

Asset Impairment

The Company reviews all of its identifiable assets for impairment periodically and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. In reviewing identifiable assets, if the undiscounted future cash flows were less than the carrying amount of the respective assets, an indicator of impairment would exist, and further analysis would be required to determine whether or not a loss would need to be charged against current period earnings as a component of general and administrative expenses.

Based on a review of tangible assets during the three months ended March 31, 2024, the Company identified one office lease that will be subleased and completed a recoverability assessment for assets at that location. Based on the results of the recoverability assessment, the Company determined that the undiscounted cash flows of the assets were below their carrying values. As a result, the Company compared the fair values of the assets to their carrying values and recorded an impairment expense of $0.1 million of property and equipment and $0.2 million of right-of-use asset for the amount the carrying values exceeded the fair values. The Company determined the fair values by estimating sublease cash flows based on market rates for similar properties and discounted them using the Company's internal borrowing rate.

Income Taxes

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

Restricted Cash

The Company holds premiums received from the insured, but not yet remitted to the Carrier, in a fiduciary capacity. Premiums received but not yet remitted included in restricted cash were $2.0 million and $1.6 million as of March 31, 2024 and 2023, respectively.

The following is a reconciliation of our cash and restricted cash balances as presented in the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023 (in thousands):


	March 31,
	2024		2023
Cash and cash equivalents	$	51,089	$	24,588
Restricted cash	2,028		1,590
Cash and cash equivalents, and restricted cash	$	53,117	$	26,178

Accounting pronouncements not yet adopted

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures (Topic 740). This standard requires the Company to provide further disaggregated income tax disclosures for specific categories on the effective tax rate reconciliation, as well as additional information about federal, state/local and foreign income taxes. The standard also requires the Company to annually disclose its income taxes paid (net of refunds received), disaggregated by jurisdiction. This guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The standard is to be applied on a prospective basis, although optional retrospective application is permitted. The Company is currently evaluating the impact this guidance will have on its financial statement disclosures.


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

3. Revenue

Commissions and fees

The Company earns commissions, which are paid as a percentage of the policy premiums placed by the Company, by performing its obligation to identify, place, and make effective insurance coverage on behalf of its customer, the insured. The Company defines the term of the policy as the contractual period the policy provides insurance coverage to the insured, which is typically 1 year or less. Commissions earned for the placement of the initial policy term for a given insurance product are recorded as New Business Commissions. New Business Commissions are earned at a point in time on the effective date of the policy, which is when the customer’s unilateral right to cancel the policy without consideration expires, as the Company has no further performance obligations for the initial term once the policy is placed and made effective.

After the initial policy term for a given insurance product, the Company earns Renewal Commissions by assisting the customer to make effective a renewal policy that satisfies the customer’s current insurance coverage needs. The Company performs this obligation by monitoring the customer’s policy to ensure a renewal is offered by the carrier and that the client promptly pays the premium. Alternatively, based on the needs of the customer, the Company may assist the customer to adjust coverage terms to satisfy its current insurance coverage needs or the Company may assist the customer to re-shop the insurance coverage to identify, place, and make effective a policy that better meets those needs. Renewal Commissions are earned at a point in time upon the effective date of the renewal policy term or upon the effective date of the replacement policy identified, placed, and made effective for the customer, which is when the customer’s unilateral right to non-renew the policy expires, as the Company has no further performance obligations for that renewal policy term.

The transaction price for commissions revenue is set as an estimate of the variable consideration to be received for the current policy term. This estimate includes the fixed consideration due based on the contractual terms of the current policy and adjustments for estimates of modifications of the contractual terms of the current policy and/or termination of the policy before the end of the current term. This variable consideration is constrained to the extent that it is probable there will not be a significant reversal of revenue.

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

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

The Company must estimate the amount of consideration that will be received such that a significant reversal of revenue is not probable. Contingent commissions represent a form of variable consideration associated with the placement and profitability of coverage, for which we earn commissions. Contingent commissions are estimated with a constraint applied and accrued in relation to the satisfaction of the performance obligations for the period over which the contract applies. The resulting effect on the timing of recognizing contingent commissions closely follows a similar pattern as our commissions and fees with any adjustments recognized when payments are received or as additional information that affects the estimate becomes available.

Franchise revenues

Franchise revenues include initial franchise fees and ongoing new and renewal royalty fees from franchisees.

Revenue from Initial Franchise Fees is generated from a contract between the Company and a franchisee. The Company's performance obligation is to provide initial training, onboarding, ongoing support and use of the Company's business operations over the period of the franchise agreement. The transaction price is set by the franchise agreement and revenue is recognized over time as the Company completes its performance obligations.


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

Initial franchise fees are recognized as revenue over the 10-year life of the franchise contract, beginning on the start date of the contract.

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 recognizes revenue over time as a franchise places and makes effective a policy for an insured. The transaction price for the royalty fee for each policy made effective is set as the contractual royalty rate multiplied by an estimate of the commissions to be received by the franchise for the current term of the policy. This estimate includes the fixed consideration due based on the contractual terms of the current policy and adjustments for estimates of modifications of the contractual terms of the current policy and/or termination of the policy before the end of the current term. This variable consideration is constrained to the extent that it is probable there will not be a significant reversal of revenue.

Contract costs

Additionally, the Company has evaluated ASC Topic 340 - Other Assets and Deferred Cost (“ASC 340”) which requires companies to defer certain incremental cost to obtain customer contracts, and certain costs to fulfill customer contracts.

Incremental cost to obtain - The Company defers certain costs to obtain customer contracts primarily as they relate to commission-based compensation plans for selling new franchise agreements. These incremental costs are deferred and amortized over a 10-year period, which is consistent with the term of the contract. The balance of cost to obtain is included with Other assets on the Condensed Consolidated Balance Sheets.

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 source (in thousands):


	Three Months Ended March 31,
		2024		2023
Type of revenue stream:
Commissions and agency fees
Renewal Commissions		$	15,961	$	15,818
New Business Commissions		5,681		5,517
Agency Fees		1,911		2,230
Contingent Commissions		2,668		1,920
Franchise revenues
Renewal Royalty Fees		29,053		22,752
New Business Royalty Fees		6,234		5,671
Initial Franchise Fees		2,245		3,063
Other Franchise Revenues		458		587
Interest Income		250		397
Total Revenues		$	64,460	$	57,955

Timing of revenue recognition:
Transferred at a point in time		$	23,552	$	23,565
Transferred over time		40,908		34,390
Total Revenues		$	64,460	$	57,955


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):


	March 31, 2024		December 31, 2023		Increase/(decrease)
Cost to obtain franchise contracts(1)	$	2,048	$	2,309	$	(261)
Commissions and agency fees receivable, net(2)	7,487		12,903		(5,416)
Receivable from franchisees(2)	16,620		18,989		(2,369)
Contract liabilities(2)(3)	21,732		27,099		(5,367)

(1) Cost to obtain franchise contracts is included in Other assets on the condensed consolidated balance sheets.

(2) Includes both the current and long term portion of this balance.

(3) Initial Franchise Fees to be recognized over the life of the contract.

The Company records Franchise Fees as contract liabilities on the Condensed Consolidated Balance Sheets when the agreement is executed. Contract liabilities are reduced as fees are recognized in revenue over the expected life of the franchise license. As the term of the franchise license is typically ten years, substantially all of the franchise fee revenue recognized in the period ended March 31, 2024 was included in the contract liabilities balance as of December 31, 2023.

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



Contract liabilities at December 31, 2023	$	27,099
Revenue recognized during the period	(2,245)
New deferrals(1)	855
Write offs(2)	(3,977)
Contract liabilities at March 31, 2024	$	21,732

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

(2) Franchise Fees, net of recognized revenue, no longer deferred due to the termination of the Franchise Agreement.

4. Franchise Fees Receivable

The balance of Franchise fees receivable included in Receivable from franchisees consisted of the following (in thousands):


	March 31, 2024		December 31, 2023
Franchise fees receivable(1)	$	8,622	$	15,096
Less: Unamortized discount(1)	(2,561)		(4,388)
Less: Allowance for uncollectible franchise fees(1)	(49)		(223)
Net franchise fees receivable(1)	$	6,012	$	10,485

(1) Includes both the current and long term portion of this balance.


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, 2023	$	223
Charges to bad debts	322
Write offs	(496)
Balance at March 31, 2024	$	49

Balance at December 31, 2022	$	487
Charges to bad debts	762
Write offs	(902)
Balance at March 31, 2023	$	347

5. Allowance for Uncollectible Agency Fees

Activity in the allowance for uncollectible agency fees was as follows (in thousands):


Balance at December 31, 2023	$	508
Charges to bad debts	435
Write offs	(533)
Balance at March 31, 2024	$	410

Balance at December 31, 2022	$	450
Charges to bad debts	318
Write offs	(286)
Balance at March 31, 2023	$	482

6. Property and equipment

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


	March 31, 2024		December 31, 2023
Furniture & fixtures	$	11,413	$	11,306
Computer equipment	4,499		4,482
Network equipment	478		436
Phone system	326		326
Leasehold improvements	36,318		36,285
Total	53,034		52,834
Less accumulated depreciation	(24,348)		(22,518)
Property and equipment, net	$	28,686	$	30,316

Depreciation expense was $1.8 million and $1.8 million for three months ended March 31, 2024 and 2023, respectively.


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

7. Intangible assets

Intangible assets consisted of the following (in thousands):


	March 31, 2024		December 31, 2023
Computer software & web domain	$	15,765	$	13,509
Books of business	6,895		6,895
Total	22,660		20,404
Less: accumulated amortization	(3,877)		(3,138)
Intangible assets, net	$	18,783	$	17,266

Amortization expense was $0.7 million and $0.3 million for three months ended March 31, 2024 and 2023, respectively.

8. Debt

On July 21, 2021, the Company refinanced its $25 million revolving credit facility and $80 million term note payable to a $50 million revolving credit facility and $100 million term note payable in order to obtain a more favorable interest rate on the outstanding debt. The Company also has the right, subject to approval by the administrative agent and each issuing bank, to increase the commitments under the credit facilities by an additional $25 million.

On April 26, 2023, the Company entered into Amendment No.1 of the Second Amended and Restated Credit Agreement, which provided that LIBOR should be replaced with SOFR.

On April 24, 2024, the Company entered into Amendment No. 2 of the Second Amended and Restated Credit Agreement, increasing the term note payable by $25 million and increasing the capacity of the revolving credit facility by $25 million to a total capacity of $75 million.

As of March 31, 2024, the Company had nothing drawn against the revolving credit facility and had a letter of credit of $0.2 million applied against the maximum borrowing availability, payable on July 21, 2026. Thus, amounts available to draw totaled $49.8 million. At March 31, 2024, the Company was accruing interest at SOFR plus 175 basis points. The revolving credit facility is collateralized by substantially all the Company’s assets, which includes rights to future commissions and royalties.

The term note is payable in quarterly installments of $0.6 million the first twelve months, $1.3 million the next twelve months, $1.9 million the next twelve months, and $2.5 million the last twenty-four months, with a balloon payment of $65.6 million on July 21, 2026. On May 31, 2023, the Company paid an additional $10.0 million toward the term note, reducing the final balloon payment to $55.6 million. The note is collateralized by substantially all of the Company’s assets, which includes rights to future commissions and royalties. Interest is calculated initially at LIBOR plus 225 basis points, then at an interest rate based on the Company's leverage ratio for the preceding period. As of March 31, 2024, the Company was accruing interest at SOFR plus 175 basis points.

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

SEC Form 10-Q filed by Goosehead Insurance Inc.