[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q) This section provides basic identification details for Goosehead Insurance, Inc. and its filing status [Registrant Information](index=1&type=section&id=Registrant%20Information) This section details Goosehead Insurance, Inc.'s identification, filing status, and outstanding common stock as of July 24, 2023 - **Goosehead Insurance, Inc. is incorporated in Delaware and headquartered in Westlake, TX**[2](index=2&type=chunk) - **The company's Class A Common Stock (GSHD) is registered on NASDAQ**[3](index=3&type=chunk) Outstanding Common Stock as of July 24, 2023 | Class | Shares Outstanding | | :---- | :----------------- | | Class A | 23,898,757 | | Class B | 13,795,166 | [Table of Contents](index=2&type=section&id=Table%20of%20contents) This section provides an organized listing of all chapters and sub-sections within the Form 10-Q document [Commonly Used Defined Terms](index=3&type=section&id=Commonly%20used%20defined%20terms) This section defines key financial and operational terms used throughout the Form 10-Q for clarity [Key Definitions](index=3&type=section&id=Key%20Definitions) This section defines key revenue streams (Core, Cost Recovery, Ancillary) and operational metrics (Client Retention, NPS) - **Core Revenue includes Renewal Commissions, Renewal Royalty Fees, New Business Commissions, New Business Royalty Fees, and Agency Fees, representing the most predictable revenue streams**[9](index=9&type=chunk) - **Cost Recovery Revenue consists of Initial Franchise Fees and Interest Income, associated with selling and financing franchises**[9](index=9&type=chunk) - **Ancillary Revenue, such as Contingent Commissions and other income, is supplemental and often unpredictable**[9](index=9&type=chunk) - **Client Retention is calculated by comparing clients with at least one policy in force twelve months prior and at the measurement date**[9](index=9&type=chunk) - **NPS (Net Promoter Score) measures client loyalty based on referral likelihood**[9](index=9&type=chunk) [Special Note Regarding Forward-Looking Statements](index=4&type=section&id=Special%20note%20regarding%20forward-looking%20statements) This section provides a cautionary disclaimer about forward-looking statements, highlighting inherent risks and uncertainties [Forward-Looking Statements Disclaimer](index=4&type=section&id=Forward-Looking%20Statements%20Disclaimer) This disclaimer warns that forward-looking statements are predictions subject to risks, and actual results may differ materially - **Forward-looking statements are identified by words like 'may,' 'might,' 'will,' 'expects,' 'plans,' 'anticipates,' 'believes,' 'estimates,' 'predicts,' 'potential' or 'continue'**[10](index=10&type=chunk) - **Actual results, level of activity, performance, or achievements may differ materially from forward-looking statements due to various factors, including those discussed under 'Item 1A. Risk factors' in the Annual Report on Form 10-K**[10](index=10&type=chunk) - **The company is under no duty to update these statements after the Form 10-Q's date**[11](index=11&type=chunk) [PART I](index=5&type=section&id=PART%20I) This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents unaudited condensed consolidated financial statements, including operations, balance sheets, equity, cash flows, and detailed notes [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The statements show significant increases in total revenues, net income, and operating income for the periods ended June 30, 2023 Key Financial Highlights (Three Months Ended June 30) | Metric (in thousands) | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :------ | :------ | :--------- | :--------- | | Total Revenues | $69,277 | $53,022 | $16,255 | 30.7% | | Income from operations| $11,190 | $5,667 | $5,523 | 97.5% | | Net income | $7,180 | $2,389 | $4,791 | 200.5% | | Basic EPS | $0.15 | $0.02 | $0.13 | 650.0% | Key Financial Highlights (Six Months Ended June 30) | Metric (in thousands) | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :------- | :------- | :--------- | :--------- | | Total Revenues | $127,232 | $94,300 | $32,932 | 34.9% | | Income from operations| $12,659 | $(435) | $13,094 | >1000% | | Net income | $6,999 | $(2,994) | $9,993 | >1000% | | Basic EPS | $0.15 | $(0.10) | $0.25 | >100% | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance sheets show increased total assets and stockholders' equity, with decreased liabilities and non-controlling interests Balance Sheet Summary (in thousands) | Category | June 30, 2023 | December 31, 2022 | Change ($) | | :-------------------- | :------------ | :---------------- | :--------- | | Total Assets | $323,179 | $321,353 | $1,826 | | Total Liabilities | $336,627 | $354,977 | $(18,350) | | Total Stockholders' Equity | $29,670 | $10,670 | $19,000 | | Non-controlling interests | $(43,118) | $(44,294) | $1,176 | | Total Equity | $(13,448) | $(33,624) | $20,176 | - **Cash and cash equivalents decreased from $28.7 million at December 31, 2022, to $19.1 million at June 30, 2023**[16](index=16&type=chunk) - **Deferred income taxes, net, increased from $155.3 million to $164.5 million**[16](index=16&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This statement details changes in equity components from net income, stock options, equity compensation, and LLC Unit redemptions - **For the six months ended June 30, 2023, net income attributable to Goosehead Insurance, Inc. was $3,585 thousand, a significant improvement from a net loss of $(1,944) thousand in the prior year**[17](index=17&type=chunk)[18](index=18&type=chunk) - **Equity-based compensation contributed $12,492 thousand to additional paid-in capital for the six months ended June 30, 2023, up from $10,961 thousand in the prior year**[17](index=17&type=chunk)[18](index=18&type=chunk) - **Redemption of LLC Units resulted in a decrease in additional paid-in capital of $(2,102) thousand for the six months ended June 30, 2023, while increasing non-controlling interest by $2,102 thousand**[17](index=17&type=chunk)[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flows show increased operating cash, but higher investing and financing outflows led to a net decrease in cash Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2023 | 2022 | Change ($) | | :---------------------------- | :------- | :------- | :--------- | | Net cash from operating activities | $16,114 | $10,092 | $6,022 | | Net cash used for investing activities | $(11,286) | $(6,802) | $(4,484) | | Net cash used for financing activities | $(14,294) | $(221) | $(14,073) | | Net increase (decrease) in cash and restricted cash | $(9,466) | $3,069 | $(12,535) | - **Cash paid for interest increased to $3,282 thousand in 2023 from $2,143 thousand in 2022**[20](index=20&type=chunk) - **Cash consideration paid for asset acquisitions was $5,270 thousand in 2023, with no comparable amount in 2022**[20](index=20&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) These notes provide essential context for financial statements, detailing accounting policies, debt, taxes, equity, and impairment [Note 1 Organization](index=11&type=section&id=Note%201%20Organization) This note describes GSHD's role as GF's managing member, its insurance services, and changes in corporate and franchise locations - **GSHD consolidates GF's financial results and reports non-controlling interest**[21](index=21&type=chunk) - **Corporate-owned locations decreased from 15 in 2022 to 12 in 2023**[23](index=23&type=chunk) - **Operating franchise locations remained stable at 1,344 as of June 30, 2023 and 2022**[23](index=23&type=chunk) [Note 2 Summary of Significant Accounting Policies](index=11&type=section&id=Note%202%20Summary%20of%20significant%20accounting%20policies) This note details accounting policies, including asset impairment, income taxes, restricted cash, and the LIBOR to SOFR transition - **The Company recorded an impairment expense of $1.1 million for internally-developed software that would not be completed during Q2 2023**[31](index=31&type=chunk) - **An additional impairment expense of $1.4 million for property and equipment and $1.1 million for right-of-use assets was recorded due to plans to sublease two office locations in Q2 2023**[32](index=32&type=chunk) - **The Company transitioned its variable interest rate debt from LIBOR to SOFR on April 26, 2023, under ASU 2020-04**[35](index=35&type=chunk) Cash and Restricted Cash Balances (in thousands) | Category | June 30, 2023 | June 30, 2022 | | :------------------------ | :------------ | :------------ | | Cash and cash equivalents | $19,131 | $31,121 | | Restricted cash | $1,790 | $2,427 | | Total | $20,921 | $33,548 | [Note 3 Revenues](index=14&type=section&id=Note%203%20Revenues) This note details revenue recognition policies and disaggregates revenue, showing strong growth in renewal and contingent commissions - **Renewal Commissions increased by 27% to $18,541 thousand for the three months ended June 30, 2023, and by 39% to $34,359 thousand for the six months ended June 30, 2023**[46](index=46&type=chunk) - **Renewal Royalty Fees increased by 46% to $27,552 thousand for the three months ended June 30, 2023, and by 53% to $50,304 thousand for the six months ended June 30, 2023**[46](index=46&type=chunk) - **Contingent Commissions increased by 111% to $3,971 thousand for the three months ended June 30, 2023, and by 60% to $5,890 thousand for the six months ended June 30, 2023**[46](index=46&type=chunk) Disaggregation of Revenue by Type (in thousands) | Revenue Stream | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :---------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Renewal Commissions | $18,541 | $14,541 | $34,359 | $24,748 | | New Business Commissions| $6,257 | $6,730 | $11,774 | $12,097 | | Agency Fees | $2,404 | $3,114 | $4,634 | $5,751 | | Contingent Commissions | $3,971 | $1,880 | $5,890 | $3,678 | | Renewal Royalty Fees | $27,552 | $18,870 | $50,304 | $32,872 | | New Business Royalty Fees| $6,267 | $4,821 | $11,909 | $9,113 | | Initial Franchise Fees | $3,287 | $2,591 | $6,350 | $4,887 | | Other Franchise Revenues| $581 | $145 | $1,198 | $505 | | Interest Income | $417 | $330 | $814 | $649 | | **Total Revenues** | **$69,277** | **$53,022** | **$127,232** | **$94,300** | [Note 4 Franchise Fees Receivable](index=16&type=section&id=Note%204%20Franchise%20fees%20receivable) Net franchise fees receivable decreased to $16.8 million, reflecting changes in the allowance for uncollectible fees Net Franchise Fees Receivable (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :---------------------------- | :------------ | :---------------- | | Franchise fees receivable | $24,324 | $35,606 | | Less: Unamortized discount | $(7,067) | $(9,896) | | Less: Allowance for uncollectible franchise fees | $(421) | $(487) | | **Net franchise fees receivable** | **$16,836** | **$25,223** | Allowance for Uncollectible Franchise Fees Activity (in thousands) | Activity | Six Months Ended June 30, 2023 | | :------------------------ | :----------------------------- | | Balance at Dec 31, 2022 | $487 | | Charges to bad debts | $823 | | Write offs | $(889) | | Balance at June 30, 2023 | $421 | [Note 5 Allowance for Uncollectible Agency Fees](index=16&type=section&id=Note%205%20Allowance%20for%20uncollectible%20agency%20fees) The allowance for uncollectible agency fees increased to $653 thousand, driven by charges to bad debts and write-offs Allowance for Uncollectible Agency Fees Activity (in thousands) | Activity | Six Months Ended June 30, 2023 | | :------------------------ | :----------------------------- | | Balance at Dec 31, 2022 | $450 | | Charges to bad debts | $876 | | Write offs | $(673) | | Balance at June 30, 2023 | $653 | [Note 6 Property and Equipment](index=17&type=section&id=Note%206%20Property%20and%20equipment) Net property and equipment decreased to $33.2 million, with depreciation expense increasing to $3.8 million Property and Equipment, Net (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------------ | :------------ | :---------------- | | Total | $52,208 | $50,571 | | Less accumulated depreciation | $(19,032) | $(15,224) | | **Property and equipment, net** | **$33,176** | **$35,347** | - **Depreciation expense increased by $0.9 million (31%) to $3.8 million for the six months ended June 30, 2023, compared to $2.9 million in the prior year**[56](index=56&type=chunk) [Note 7 Debt](index=17&type=section&id=Note%207%20Debt) This note details debt facilities, the LIBOR to SOFR transition, term note balance, and debt covenant compliance - **The Company's credit agreement was amended on April 26, 2023, to replace LIBOR with SOFR as the interest rate benchmark**[58](index=58&type=chunk) - **As of June 30, 2023, the Company had $49.8 million available to draw on its revolving credit facility**[59](index=59&type=chunk) - **An additional $10.0 million payment was made towards the term note on May 31, 2023, reducing the final balloon payment to $55.6 million**[60](index=60&type=chunk) Term Note Payable Maturities (in thousands) | Year | Amount | | :--- | :----- | | 2023 | $3,750 | | 2024 | $9,375 | | 2025 | $10,000| | 2026 | $58,125| | Total| $81,250| [Note 8 Income Taxes](index=18&type=section&id=Note%208%20Income%20taxes) This note details income tax expense, deferred tax assets, and the $134.2 million Tax Receivable Agreement liability Income Tax Expense and Effective Tax Rate | Period | Income Tax Expense (in thousands) | Effective Tax Rate | | :------------------------ | :-------------------------------- | :----------------- | | 3 Months Ended June 30, 2023 | $2,301 | 24% | | 3 Months Ended June 30, 2022 | $2,164 | 48% | | 6 Months Ended June 30, 2023 | $2,220 | 24% | | 6 Months Ended June 30, 2022 | $562 | (23)% | - **Deferred tax assets increased to $164.5 million at June 30, 2023, from $155.3 million at December 31, 2022, mainly due to LLC Unit redemptions**[68](index=68&type=chunk) - **The liability under the Tax Receivable Agreement (TRA) was $134.2 million as of June 30, 2023, representing 85% of expected tax benefits from basis increases due to LLC Unit redemptions**[71](index=71&type=chunk) [Note 9 Stockholders' Equity](index=19&type=section&id=Note%209%20Stockholder's%20equity) This note details Class A and Class B common stock structure and presents basic and diluted EPS calculations - **Class A common stock has economic rights and one vote per share, with 23,900 thousand shares outstanding at June 30, 2023**[73](index=73&type=chunk) - **Class B common stock has no economic rights but one vote per share, with 13,795 thousand shares outstanding at June 30, 2023**[74](index=74&type=chunk) Earnings Per Share (EPS) Summary | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :----- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic EPS | $0.15 | $0.02 | $0.15 | $(0.10) | | Diluted EPS | $0.15 | $0.02 | $0.15 | $(0.10) | [Note 10 Non-Controlling Interest](index=20&type=section&id=Note%2010%20Non-controlling%20interest) This note details non-controlling interest, LLC Unit redemptions, and $12.6 million in distributions to unit holders - **GSHD's ownership interest in GF increased to 63.4% as of June 30, 2023**[84](index=84&type=chunk) - **Non-controlling interest holders redeemed 675 thousand LLC Units for Class A common stock during the six months ended June 30, 2023**[83](index=83&type=chunk) - **GF made distributions of $12.6 million to LLC Unit holders for the six months ended June 30, 2023, with $5.2 million going to Pre-IPO LLC Members**[80](index=80&type=chunk) [Note 11 Equity-Based Compensation](index=21&type=section&id=Note%2011%20Equity-based%20compensation) Equity-based compensation expense, mainly from stock options, increased for both three and six months ended June 30, 2023 Stock Option Expense (in thousands) | Period | 2023 | 2022 | | :------------------------ | :------ | :------ | | 3 Months Ended June 30 | $5,900 | $5,200 | | 6 Months Ended June 30 | $12,500 | $11,000 | [Note 12 Litigation](index=21&type=section&id=Note%2012%20Litigation) Management believes current legal proceedings will not materially adversely affect the Company's financial position or operations - **Management believes current litigation will not materially adversely affect the Company's financial position or results of operations**[87](index=87&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's analysis of financial condition, operational results, KPIs, and non-GAAP measures [Overview](index=22&type=section&id=OVERVIEW) This overview highlights substantial Q2 2023 financial growth in revenue, net income, written premiums, and Adjusted EBITDA - **Total revenue increased 31% to $69.3 million in Q2 2023**[92](index=92&type=chunk) - **Net income increased by $4.8 million to $7.2 million in Q2 2023**[92](index=92&type=chunk) - **Total Written Premiums placed increased 36% to $767.3 million**[92](index=92&type=chunk) - **Adjusted EBITDA increased 85% to $23.1 million, representing 33% of total revenues**[92](index=92&type=chunk) - **Policies in Force increased 21% to 1,427,000 at June 30, 2023**[92](index=92&type=chunk) - **Corporate sales headcount decreased 44% to 280 at June 30, 2023**[92](index=92&type=chunk) [Certain Income Statement Line Items](index=23&type=section&id=Certain%20income%20statement%20line%20items) This section analyzes revenue streams and operating expenses, noting growth in renewal commissions and increased compensation [Revenues](index=23&type=section&id=Revenues) Total revenues increased significantly, driven by a 36% rise in Total Written Premium and strong growth in renewal commissions - **Total Written Premium, a leading indicator of future revenue, increased 36% to $767 million for the three months ended June 30, 2023**[93](index=93&type=chunk) - **Renewal Commissions increased by 28% to $18.5 million for the three months ended June 30, 2023, driven by more policies in renewal term and premium rate increases**[104](index=104&type=chunk) - **New Business Commissions decreased by 7% to $6.3 million for the three months ended June 30, 2023, primarily due to a decrease in Corporate Sales agents**[105](index=105&type=chunk) - **Revenue from Contingent Commissions increased by $2.1 million to $4.0 million for the three months ended June 30, 2023, attributable to an increase in Total Written Premium**[106](index=106&type=chunk) - **Renewal Royalty Fees increased by 46% to $27.6 million for the three months ended June 30, 2023, due to an increase in renewal policies and rising premium rates**[108](index=108&type=chunk) - **Initial Franchise Fees increased by 27% to $3.3 million for the three months ended June 30, 2023, mainly due to higher franchise turnover accelerating revenue recognition**[110](index=110&type=chunk) [Expenses](index=27&type=section&id=Expenses) Operating expenses increased due to higher employee compensation, asset impairment charges, and rising interest expenses - **Employee compensation and benefits increased by 18% to $37.5 million for the three months ended June 30, 2023, primarily due to a 14% increase in equity-based compensation**[112](index=112&type=chunk) - **General and administrative expenses increased by 40% to $17.3 million for the three months ended June 30, 2023, mainly due to $3.6 million in asset impairment charges**[113](index=113&type=chunk) - **Bad debts decreased by 46% to $0.9 million for the three months ended June 30, 2023, but increased by 4% to $2.6 million for the six months ended June 30, 2023, due to higher franchise turnover**[114](index=114&type=chunk) - **Interest expenses increased by $0.6 million to $1.7 million for the three months ended June 30, 2023, driven by rising interest rates**[116](index=116&type=chunk) [Key Performance Indicators](index=28&type=section&id=Key%20performance%20indicators) Key performance indicators show strong growth in Total Written Premium, Policies in Force, NPS, and Renewal Revenue Total Written Premium (in thousands) | Category | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | % Change | | :------------------------ | :--------------------------- | :--------------------------- | :------- | | Corporate sales | $179,638 | $146,844 | 22% | | Franchise sales | $587,614 | $419,117 | 40% | | **Total Written Premium** | **$767,252** | **$565,961** | **36%** | - **Policies in Force increased 21% year-over-year to 1.4 million as of June 30, 2023**[121](index=121&type=chunk) - **Net Promoter Score (NPS) increased to 91 as of June 30, 2023, from 90 in the prior year**[123](index=123&type=chunk) - **Client Retention remained constant at 88% at June 30, 2023, while premium retention was 103%**[125](index=125&type=chunk) - **Renewal Revenue grew 38% to $46.1 million for the three months ended June 30, 2023, driven by client retention and rising premium rates**[129](index=129&type=chunk) [Non-GAAP Measures](index=29&type=section&id=Non-GAAP%20Measures) This section defines and reconciles non-GAAP measures, highlighting significant increases in Core Revenue, Adjusted EBITDA, and Adjusted EPS - **Core Revenue increased by 27% to $61.0 million for the three months ended June 30, 2023, driven by higher renewal policies and 103% premium retention**[133](index=133&type=chunk) - **Adjusted EBITDA increased by 85% to $23.1 million for the three months ended June 30, 2023, primarily due to growing higher-margin Renewal Revenue, decreases in Corporate agent headcount, and slower growth in General and Administrative expenses**[139](index=139&type=chunk) - **Adjusted EBITDA Margin was 33% for the three months ended June 30, 2023, up from 24% in the prior year**[141](index=141&type=chunk) Adjusted EPS Reconciliation | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | | :-------------------------- | :--------------------------- | :--------------------------- | | Earnings per share - basic (GAAP) | $0.15 | $0.02 | | Add: equity-based compensation | $0.16 | $0.14 | | Add: impairment expense | $0.10 | — | | **Adjusted EPS (non-GAAP)** | **$0.41** | **$0.16** | [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20capital%20resources) Liquidity is managed through revenues and credit, with increased operating cash offset by higher investing and financing outflows - **Net cash provided by operating activities increased by $6.0 million to $16.1 million for the six months ended June 30, 2023**[151](index=151&type=chunk) - **Net cash used for investing activities increased by $4.5 million to $11.3 million, primarily due to $5.3 million in cash paid for asset acquisitions (books of business)**[152](index=152&type=chunk) - **Net cash used for financing activities increased significantly by $14.1 million to $14.3 million, driven by an additional $10.0 million debt repayment and $5.2 million in member distributions**[153](index=153&type=chunk) - **The Tax Receivable Agreement (TRA) obligates the Company to pay Pre-IPO LLC Members 85% of realized cash tax savings from increases in tax basis due to LLC Unit redemptions**[157](index=157&type=chunk)[158](index=158&type=chunk) [Contractual Obligations, Commitments and Contingencies](index=35&type=section&id=Contractual%20obligations,%20commitments%20and%20contingencies) Total contractual obligations reached $310.9 million, primarily from operating leases, debt, and TRA liabilities Contractual Obligations as of June 30, 2023 (in thousands) | Type of Obligation | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :------------------------------ | :------- | :--------------- | :-------- | :-------- | :---------------- | | Operating leases | $80,528 | $10,843 | $23,054 | $22,846 | $23,785 | | Debt obligations payable | $81,250 | $8,125 | $17,500 | $55,625 | — | | Interest expense | $14,923 | $5,649 | $8,272 | $1,002 | — | | Liabilities under the tax receivable agreement | $134,159 | $463 | $32,806 | $16,076 | $84,814 | | **Total** | **$310,860** | **$25,080** | **$81,632** | **$95,549** | **$108,599** | - **The Company has a $50 million revolving credit facility, with nothing drawn as of June 30, 2023**[161](index=161&type=chunk) [Critical Accounting Policies](index=35&type=section&id=Critical%20accounting%20policies) No significant changes to critical accounting policies have occurred, with minor adjustments to revenue estimation - **The Company adjusted techniques for estimating revenues during the period, with an insignificant effect on reported financial results**[163](index=163&type=chunk) - **No significant changes to critical accounting policies have occurred since the December 31, 2022, Annual Report on Form 10-K**[163](index=163&type=chunk) [Recent Accounting Pronouncements](index=35&type=section&id=Recent%20accounting%20pronouncements) This section refers to Note 2 for details on recent accounting pronouncements, including the LIBOR to SOFR transition - **Refer to Note 2 for details on recently adopted accounting pronouncements, including ASU 2020-04 (Reference Rate Reform)**[164](index=164&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes to market risk exposure have occurred since the previous Annual Report on Form 10-K - **No material changes to market risk exposure have occurred since the previous Annual Report on Form 10-K**[165](index=165&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective, with no material changes to internal control during the quarter - **Disclosure controls and procedures were effective as of June 30, 2023**[166](index=166&type=chunk) - **No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2023**[167](index=167&type=chunk) [PART II](index=37&type=section&id=PART%20II) This part addresses legal proceedings, risk factors, equity sales, defaults, and other required disclosures [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) Information on legal proceedings is incorporated by reference from Note 12, with no material adverse effect expected - **Information on legal proceedings is incorporated by reference from Note 12. Litigation**[168](index=168&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors have occurred since the Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - **No material changes to risk factors have occurred since the Annual Report on Form 10-K for the fiscal year ended December 31, 2022**[169](index=169&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred, but LLC Units are redeemable for Class A common stock - **No unregistered sales of equity securities occurred**[170](index=170&type=chunk) - **LLC Units are redeemable for Class A common stock on a one-for-one basis, with corresponding Class B common stock cancellation**[170](index=170&type=chunk) [Item 3. Defaults Upon Senior Securities](index=37&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported by the Company - **No defaults upon senior securities were reported**[171](index=171&type=chunk) [Item 4. Mine Safety Disclosures](index=37&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company's operations - **This item is not applicable**[172](index=172&type=chunk) [Item 5. Other Information](index=37&type=section&id=Item%205.%20Other%20Information) No other information was reported under this item - **No other information was reported**[173](index=173&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including agreements, CEO/CFO certifications, and XBRL data files - **Exhibit 10.1 is an Agreement dated April 26, 2023, between Goosehead Insurance and P. Ryan Langston**[175](index=175&type=chunk) - **Certifications of the Chief Executive Officer and Chief Financial Officer are included pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002**[175](index=175&type=chunk) - **XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents are filed**[175](index=175&type=chunk) [Signatures](index=38&type=section&id=SIGNATURES) The report is duly signed by the Chairman, CEO, and CFO of Goosehead Insurance, Inc. on July 26, 2023 - **The report was signed by Mark E. Jones, Chairman and Chief Executive Officer, and Mark E. Jones, Jr., Chief Financial Officer, on July 26, 2023**[178](index=178&type=chunk)

Financial Performance - Revenue for Q1 2023 increased by 40% to $58.0 million from $41.3 million in Q1 2022[80] - Total Written Premium growth was 41%, reaching $637.7 million in Q1 2023 compared to $450.9 million in Q1 2022[80] - Adjusted EBITDA surged 707% to $10.2 million, representing 18% of total revenues[80] - Core Revenue increased by 42% to $52.0 million in Q1 2023 from $36.5 million in Q1 2022[80] - Renewal Revenue surged by 59% to $38.6 million for the three months ended March 31, 2023, from $24.2 million for the same period in 2022, supported by an 88% client retention rate[115] - Basic earnings per share (GAAP) for Q1 2023 was $0.00, compared to a loss of $0.11 in Q1 2022; Adjusted EPS (non-GAAP) increased to $0.17 from $0.04[130] Policy and Franchise Metrics - Policies in Force rose by 23% to 1,354,000 as of March 31, 2023, compared to the previous year[80] - Total franchises decreased by 19% to 1,865, while operating franchises increased by 9% to 1,387[80] - Revenue from New Business Royalty Fees increased by $1.4 million, or 32%, to $5.7 million for the three months ended March 31, 2023, from $4.3 million for the same period in 2022, driven by a 9% increase in operating franchises to 1,387[96] - Revenue from Initial Franchise Fees rose by $0.8 million, or 33%, to $3.1 million for the three months ended March 31, 2023, attributed to higher franchise turnover during the quarter[97] Cost and Cash Flow - Net cash used for operating activities improved to $0.6 million in Q1 2023 from $5.2 million in Q1 2022, reflecting a decrease in net loss[134] - Net cash used for investing activities was $2.7 million in Q1 2023, slightly higher than $2.5 million in Q1 2022, driven by increased asset purchases[135] - Net cash used for financing activities rose to $0.9 million in Q1 2023 from $0.2 million in Q1 2022, primarily for repayment of notes payable[136] - Cash and cash equivalents as of March 31, 2023, were $24.6 million, with a net decrease in cash and cash equivalents of $4.2 million for the quarter[131][133] Obligations and Liquidity - Total contractual obligations as of March 31, 2023, amounted to $322.6 million, including $81.7 million in operating leases and $93.1 million in debt obligations[144] - The company anticipates sufficient liquidity from cash on hand, net working capital, and cash flows from operations to meet future commitments[137] - The company has a tax receivable agreement that requires payment of 85% of cash savings realized from tax benefits, with liabilities under this agreement totaling $129.2 million[144] Operational Changes - Corporate sales headcount decreased by 44% to 276 as of March 31, 2023[80] - Cost Recovery Revenue increased by $0.8 million, or 32%, to $3.5 million for the three months ended March 31, 2023, from $2.6 million for the same period in 2022, driven by an increase in franchise terminations[120] - The company recorded a rent expense of $2.0 million for Q1 2023, compared to $1.4 million for Q1 2022[144] - The company refinanced its credit facilities in July 2021, with a $100 million term loan and a $25 million revolving credit facility, of which nothing was drawn as of March 31, 2023[145]

Financial Performance - Total Written Premium grew 42% to $2.2 billion from $1.6 billion in 2021, indicating strong organic growth [30]. - The company achieved a revenue growth of 38% and Total Written Premium growth of 42% in 2022, with a 10-year Total Written Premium CAGR of 43% [55]. - Premiums in franchise sales grew by 46% during 2022, with a total of 2,125 franchises as of December 31, 2022, including 1,413 operating franchises [50]. - New Business Royalty Fees are set at 20% of commissions during the first term of the policy and 50% for renewals, creating strong revenue and margin expansion opportunities [48]. Client Retention and Satisfaction - Client retention rate reached 88% in 2022, which is nearly 2.6 times the 2021 P&C industry average [23]. - The company maintained a Net Promoter Score (NPS) of 90 in 2022, which is 2.6 times the industry average, and an 88% Client Retention rate [54]. - The company achieved a 2022 Net Promoter Score (NPS) of 90, leading to an 88% Client Retention rate and a 100% premium retention rate [68]. Sales Performance - Average commission rate on new business premium was 15% and on renewal business premium was 13% in 2022 [29]. - Corporate sales agents with more than three years of tenure averaged 4.1 times the New Business Production per Agent compared to industry best practices [41]. - Franchise sales agents with more than three years of tenure averaged 2.5 times the New Business Production per Agent compared to industry best practices [27]. - New Business Production per Agent in corporate sales was $110,000 for agents with more than one year of tenure in 2022 [39]. Growth and Expansion - The company has expanded to 1,413 operating franchise locations, reflecting rapid growth in its franchise model [28]. - The company expects to continue its expansion in 2023 within existing markets [42]. - Franchise locations increased by 18% to 1,413 in 2022 from 1,198 in 2021, while total franchises decreased by 1% to 2,125 in 2022 from 2,151 in 2021 [76]. - As of December 31, 2022, the company has signed Franchise Agreements in 47 states, covering over 99% of the total US population, with a potential franchise candidate pipeline of approximately 171,000 [65]. Operational Efficiency - Goosehead's Digital Agent allows clients to receive accurate home and auto quotes in less than two minutes [34]. - Service expenses as a percentage of gross commissions were 2.9 times lower than the industry best practice, allowing for best-in-class NPS scores and retention [63]. - The company’s service centers drive both new and renewal business, enabling agents to focus on cultivating new relationships and winning new business [63]. - The company made over 2,400 platform improvements in 2022 to enhance service and business processes for its agent network [93]. Technology and Innovation - The company invests in technology to drive efficiencies and maintain a competitive edge in the market [69]. - Goosehead offers a competitive health benefits package, including medical, dental, and vision insurance, along with a 401(k) retirement savings plan with matching contributions that vest over four years [96]. Diversity and Inclusion - More than half of Goosehead's employees are women, and over one-third identify as racially diverse, reflecting the company's commitment to diversity, equity, and inclusion [97]. - Goosehead has established a Women's Professional Development Program (WPDP) to support female employees' personal and professional growth since 2015 [99]. - The company maintains strong Equal Opportunity and Anti-Harassment policies, ensuring a respectful and inclusive workplace [98]. Corporate Governance - Goosehead's code of business conduct and ethics applies to all employees and is designed to promote honest and ethical conduct [101]. - The company emphasizes a meritocratic culture, where performance is rewarded, and employees are encouraged to create value [100]. - Goosehead's operating principles focus on integrity, exceptional service, and teamwork, which are central to its business model [100]. - The company files its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q with the SEC, ensuring transparency and compliance with federal securities laws [103].

Financial Data and Key Metrics Changes - In Q4 2022, Goosehead Insurance reported a premium growth of 44% and revenue growth of 43% compared to Q4 2021, with core revenue growth for 2022 at 41% and EBITDA growth at 76% [9][50] - Total written premium for Q4 2022 increased to $585 million, reflecting a strong performance [37] - Adjusted EBITDA for the quarter grew 123% to $11.9 million, with an EBITDA margin of 21% compared to 13% in the previous year [50] - Total revenues for 2023 are expected to be between $258 million and $267 million, representing organic growth of 23% to 28% [52] Business Line Data and Key Metrics Changes - Corporate agent productivity increased by 24% year-over-year in Q4, with January 2023 showing a 44% increase and first-year agent productivity up 77% year-over-year [26][11] - The company expects to add 150 to 200 producers to the franchise system in 2023, which could equate to approximately 250 to 350 new franchisees [14][15] - The top half of franchises accounted for around 90% of new business production in 2022, indicating a disparity in performance among franchises [28][72] Market Data and Key Metrics Changes - The company faced macro headwinds, including historically low contingent commission levels and declines in housing activity, but maintained a focus on client needs to adapt and deliver strong results [19][20] - The renewal book performed exceptionally well, with a client retention rate of 88% and premium retention of 100% [70] Company Strategy and Development Direction - Goosehead Insurance aims to become the number one distributor of personal lines P&C insurance in the U.S. and is focused on investing in and expanding its core business [21][20] - The company is rationalizing its franchise system by removing underperforming franchises and reallocating resources to high-performing ones [13][32] - Strategic partnerships with mortgage brokers and real estate organizations are being pursued to enhance distribution channels [17][66] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's unique business model, which provides a competitive advantage that is difficult to replicate [20] - The company anticipates material corporate producer growth beginning in Q3 2023 as new college graduates join the team [27] - Management acknowledged the challenges posed by the housing market but emphasized the strong productivity of agents and the potential for growth in various environments [85][84] Other Important Information - The company culled over 280 underperforming franchises in 2022, which had minimal impact on growth as they accounted for only 2% of new business production [32][38] - Total operating expenses for Q4 2022 were $45.5 million, up 30% from the previous year, driven by increased headcount and investments in technology and marketing [49][76] Q&A Session Summary Question: Is the variance in productivity seen only in newer recruits or also among longer-tenured agents? - Management indicated that the productivity variance is predominantly in agents with less than two years of experience, but some longer-tenured agents also face challenges [55] Question: How does the company plan to address productivity challenges among longer-tenured agents? - Management confirmed they can identify productivity issues at the agent level and are implementing training programs to support agents throughout their careers [57] Question: What is the outlook for contingent commissions in 2023? - Management remains cautious about contingent commissions despite positive trends in written premium productivity, indicating a potential for upside but not counting on it [58] Question: How does the company view the impact of housing market headwinds versus pricing tailwinds? - Management believes that the pricing tailwinds from auto and home insurance will outweigh the housing market headwinds, positioning the company well for productivity growth [85] Question: What is the expected retention ratio for franchises moving forward? - Management anticipates that the culling of underperforming agencies will be largely complete by the end of Q2 2023, which should help stabilize retention ratios [94] Question: What went wrong with the underperforming franchises, and what solutions are being implemented? - Management noted that many franchises signed during the pandemic did not commit fully, leading to a high turnover rate. They are now focusing on quality recruitment and converting successful corporate agents into franchisees [120][122]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 For the transition period from _______ to ______ Commission file number: 001-38466 GOOSEHEAD INSURANCE, INC. 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 September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Delaware 82-3886022 (IRS Employer Identification No.) Not applicable (Former ...

Goosehead Insurance, Inc (NASDAQ:GSHD) Q2 2022 Earnings Conference Call July 27, 2022 4:30 PM ET Company Participants Dan Farrell – Vice President, Capital Markets Mark Jones – Chairman and Chief Executive Officer Mark Miller – President and Chief Operating Officer Mark Colby – Chief Financial Officer Conference Call Participants Ryan Tunis – Autonomous Research Matt Carletti – JMP Paul Newsome – Piper Sandler Meyer Shields – KBW Mark Hughes – Truist Pablo Singzon – J.P. Morgan Operator Thank you for standi ...

Part I [Condensed Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The unaudited condensed consolidated financial statements for Goosehead Insurance, Inc. show a net loss of $3.0 million for the six months ended June 30, 2022, primarily due to increased operating expenses [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Total revenues increased 39% to $53.0 million in Q2 2022, but a 38% rise in operating expenses led to a net income decrease to $2.4 million, resulting in a $3.0 million net loss for the six-month period Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended June 30, | | Six Months Ended June 30, | | | :--- | :--- | :--- | :--- | :--- | | | **2022** | **2021** | **2022** | **2021** | | **Total revenues** | $53,022 | $38,173 | $94,300 | $69,401 | | **Total operating expenses** | $47,355 | $34,387 | $94,735 | $66,417 | | **Income (loss) from operations** | $5,667 | $3,786 | $(435) | $2,984 | | **Net income (loss)** | $2,389 | $3,136 | $(2,994) | $2,047 | | **Net income (loss) attributable to Goosehead Insurance, Inc.** | $342 | $1,487 | $(1,944) | $1,091 | | **Diluted EPS** | $0.02 | $0.07 | $(0.10) | $0.05 | [Condensed Consolidated Balance Sheets](index=7&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2022, total assets increased to $291.3 million and total liabilities to $350.0 million, resulting in a total equity deficit of $58.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | | **June 30, 2022** | **December 31, 2021** | | :--- | :--- | :--- | | **Total current assets** | $51,110 | $47,813 | | **Total assets** | $291,286 | $267,798 | | **Total current liabilities** | $26,194 | $27,777 | | **Total liabilities** | $350,033 | $336,986 | | **Total equity** | $(58,747) | $(69,188) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities decreased to $10.1 million for the six months ended June 30, 2022, with a period-end cash balance of $33.5 million Six Months Ended June 30, Cash Flow Summary (in thousands) | | **2022** | **2021** | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $10,092 | $19,992 | | **Net cash used for investing activities** | $(6,802) | $(9,286) | | **Net cash used for financing activities** | $(221) | $(416) | | **Net increase in cash and restricted cash** | $3,069 | $10,290 | | **Cash and cash equivalents, and restricted cash, end of period** | $33,548 | $36,526 | [Note 1: Organization](index=11&type=section&id=Note%201%20Organization) Goosehead Insurance, Inc. operates as an insurance brokerage through corporate and expanding franchise networks, onboarding 141 new locations in Q2 2022 - The company operates through corporate-owned locations and a growing network of franchises[22](index=22&type=chunk) Operational Growth as of June 30 | Metric | **2022** | **2021** | | :--- | :--- | :--- | | Corporate-owned locations | 15 | 11 | | Operating franchise locations | 1,344 | 1,072 | | New franchises onboarded (Q2) | 141 | 108 | [Note 3: Revenues](index=13&type=section&id=Note%203%20Revenues) Total revenues reached $94.3 million for the six months ended June 30, 2022, primarily from recurring renewal-based commissions and royalty fees, reflecting the company's predictable business model Disaggregation of Revenue (in thousands) | Revenue Source | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | **Commissions and agency fees** | | | | Renewal Commissions | $14,541 | $24,748 | | New Business Commissions | $6,730 | $12,097 | | Agency Fees | $3,114 | $5,751 | | Contingent Commissions | $1,880 | $3,678 | | **Franchise revenues** | | | | Renewal Royalty Fees | $18,870 | $32,872 | | New Business Royalty Fees | $4,821 | $9,113 | | Initial Franchise Fees | $2,591 | $4,887 | | **Total Revenues** | **$53,022** | **$94,300** | [Note 7: Debt](index=16&type=section&id=Note%207%20Debt) The company refinanced its debt in July 2021 to a $50.0 million revolving credit facility and a $100.0 million term note, with $25.0 million drawn on the revolver and $96.9 million on the term note as of June 30, 2022, while remaining in compliance with all covenants - The company refinanced its debt in July 2021, increasing its credit facilities to a **$50.0 million** revolver and a **$100.0 million** term note[54](index=54&type=chunk) - As of June 30, 2022, **$25.0 million** was drawn on the revolving credit facility, with **$24.8 million** available[55](index=55&type=chunk) - The term note requires quarterly principal payments with a balloon payment on July 21, 2026, and the company was in compliance with all covenants[56](index=56&type=chunk)[59](index=59&type=chunk) [Note 8: Income Taxes](index=17&type=section&id=Note%208%20Income%20taxes) The effective tax rate for Q2 2022 was 48%, significantly higher due to fewer stock option exercises, with a total liability of $105.3 million under the Tax Receivable Agreement as of June 30, 2022 - The effective tax rate for Q2 2022 was **48%**, up from 7% in Q2 2021, mainly due to fewer employee stock option exercises[63](index=63&type=chunk) - The total liability for payments due under the Tax Receivable Agreement (TRA) was **$105.3 million** as of June 30, 2022[68](index=68&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong Q2 2022 performance with a 39% revenue increase and 42% growth in total written premiums, driven by investments in headcount and technology, while maintaining sufficient liquidity for future needs [Financial Highlights](index=22&type=section&id=Financial%20Highlights) Goosehead demonstrated strong Q2 2022 growth, with total revenue up 39% to $53.0 million, total written premiums up 42% to $566.0 million, and Adjusted EBITDA increasing 85% to $12.5 million Q2 2022 Financial Highlights vs. Q2 2021 | Metric | Q2 2022 | % Change YoY | | :--- | :--- | :--- | | Total Revenue | $53.0 million | +39% | | Core Revenue* | $48.1 million | +39% | | Total Written Premiums | $566.0 million | +42% | | Adjusted EBITDA* | $12.5 million | +85% | | Policies in Force | 1,181,000 | +35% | | Total Franchises | 2,341 | +30% | | Corporate Sales Headcount | 503 | +11% | - *Core Revenue and Adjusted EBITDA are non-GAAP measures[88](index=88&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Total revenues increased 39% to $53.0 million in Q2 2022, driven by strong growth in both commissions and franchise revenues, while operating expenses rose 41% due to increased headcount and equity-based compensation - Renewal Commissions grew **41%** in Q2 2022, driven by an increase in policies in their renewal term and steady client retention of **89%**[101](index=101&type=chunk) - Renewal Royalty Fees increased **62%** in Q2 2022, also due to more policies entering the renewal term where the company's royalty share increases from 20% to 50%[106](index=106&type=chunk) - Employee compensation and benefits expense rose **41%** in Q2 2022, caused by a **25%** increase in total headcount and a **189%** increase in equity-based compensation[110](index=110&type=chunk) [Key Performance Indicators](index=28&type=section&id=Key%20performance%20indicators) Key performance indicators show strong growth, with Total Written Premium increasing 42% to $1.02 billion, Policies in Force growing 35% to 1,181,000, and client retention remaining high at 89% with an NPS of 90 Total Written Premium (in thousands) | | **Six Months Ended June 30, 2022** | **Six Months Ended June 30, 2021** | **% Change** | | :--- | :--- | :--- | :--- | | Corporate sales | $257,239 | $201,403 | 28% | | Franchise sales | $759,634 | $516,412 | 47% | | **Total** | **$1,016,873** | **$717,815** | **42%** | - Policies in Force increased **35%** to **1,181,000** as of June 30, 2022, from 872,000 a year prior[120](index=120&type=chunk) - Client retention remained constant at **89%** as of June 30, 2022, and the Net Promoter Score (NPS) was **90**[122](index=122&type=chunk)[124](index=124&type=chunk) [Non-GAAP Measures](index=29&type=section&id=Non-GAAP%20Measures) Non-GAAP measures show Core Revenue grew 39% to $48.1 million and Adjusted EBITDA increased 85% to $12.5 million in Q2 2022, with the margin expanding to 24% Reconciliation of Net Income to Adjusted EBITDA (in thousands) | | **Three Months Ended June 30, 2022** | **Three Months Ended June 30, 2021** | | :--- | :--- | :--- | | **Net Income** | **$2,389** | **$3,136** | | Interest expense | 1,114 | 546 | | Depreciation and amortization | 1,658 | 1,132 | | Tax (benefit) expense | 2,164 | 223 | | Equity-based compensation | 5,173 | 1,852 | | Other (income) expense | — | (119) | | **Adjusted EBITDA** | **$12,498** | **$6,770** | | **Adjusted EBITDA Margin** | **24%** | **18%** | Reconciliation of Basic EPS to Adjusted EPS | | **Three Months Ended June 30, 2022** | **Three Months Ended June 30, 2021** | | :--- | :--- | :--- | | **Earnings per share - basic (GAAP)** | **$0.02** | **$0.08** | | Add: equity-based compensation | $0.14 | $0.05 | | **Adjusted EPS (non-GAAP)** | **$0.16** | **$0.13** | [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity, including $31.1 million cash on hand and $10.1 million from operations, is deemed sufficient to meet its $306.7 million contractual obligations, including $105.3 million in tax receivable liabilities and $96.9 million in debt - As of June 30, 2022, cash and cash equivalents were **$31.1 million**[147](index=147&type=chunk) Contractual Obligations as of June 30, 2022 (in thousands) | Obligation | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $78,219 | $3,742 | $19,500 | $20,588 | $34,389 | | Debt obligations payable | $96,875 | $5,625 | $18,125 | $73,125 | — | | Liabilities under the tax receivable agreement | $105,311 | — | $16,553 | $12,087 | $76,671 | | **Total** | **$306,655** | **$13,286** | **$57,358** | **$124,951** | **$111,060** | [Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no material changes to the company's market risk exposure since the disclosures in its 2021 Annual Report on Form 10-K - There have been no material changes to the company's market risk exposure as described in the Annual Report on Form 10-K[165](index=165&type=chunk) [Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation, the CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2022[166](index=166&type=chunk) - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[167](index=167&type=chunk) Part II [Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, but management does not expect their resolution to materially affect its financial position or results of operations - The company may be involved in various legal proceedings, but management does not expect the outcomes to have a material adverse effect on its financials[83](index=83&type=chunk)[168](index=168&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - No material changes have been made to the risk factors disclosed in the 2021 Form 10-K[169](index=169&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The report indicates no unregistered sales of equity securities, noting that LLC Units are redeemable for Class A common stock on a one-for-one basis - The report indicates no unregistered sales of equity securities during the period[170](index=170&type=chunk) [Exhibits](index=37&type=section&id=Item%206.%20Exhibits) Exhibits filed with the Form 10-Q include a separation agreement, CEO and CFO certifications, and XBRL data files - Exhibits filed include a separation agreement with Michael C. Colby, Sarbanes-Oxley certifications, and XBRL documents[175](index=175&type=chunk)

Revenue Growth - Total revenue increased by 32% from Q1 2021 to $41.3 million in Q1 2022[20] - Core Revenue increased by 37% from Q1 2021 to $36.5 million in Q1 2022[20] - Total Written Premiums placed increased by 41% from the prior-year period to $450.9 million[20] - Total Written Premium grew by 41% to $450.9 million for the three months ended March 31, 2022, compared to $318.9 million for the same period in 2021[12] - Core Revenue increased by $9.8 million, or 37%, to $36.5 million for the three months ended March 31, 2022, driven by increases in operating franchises and client retention[124] - Total core revenue reached $36,505 million, up 36.7% from $26,700 million year-over-year[135] Policy and Franchise Growth - Policies in Force increased by 39% from March 31, 2021, to 1,097,000 at March 31, 2022[20] - Total franchises increased by 41% compared to the prior year period to 2,298[20] - Policies in Force increased by 39% to 1,097,000 as of March 31, 2022, compared to 788,000 as of March 31, 2021[14] - Initial Franchise Fees increased by $0.9 million, or 60%, to $2.3 million for the three months ended March 31, 2022, due to a 41% increase in total franchises to 2,298[3] - New Business Royalty Fees rose by $1.1 million, or 36%, to $4.3 million for the three months ended March 31, 2022, attributed to a 28% increase in the total number of operating franchises to 1,268[2] Commission and Revenue Streams - Renewal Commissions increased by 32% to $10.2 million in Q1 2022 from $7.8 million in Q1 2021[96] - New Business Commissions increased by 16% to $5.4 million in Q1 2022 from $4.6 million in Q1 2021[97] - Renewal Royalty Fees increased by $5.3 million, or 60%, to $14.0 million for the three months ended March 31, 2022, driven by an increase in client retention to 89%[1] Financial Performance - Adjusted EBITDA decreased by 41% to $1.3 million, or 3% of total revenues in Q1 2022[20] - Adjusted EBITDA decreased by $0.9 million, or 41%, to $1.3 million for the three months ended March 31, 2022, primarily due to increased General and Administrative expenses[130] - Adjusted EBITDA Margin was 3% for the three months ended March 31, 2022, down from 7% for the same period in 2021, influenced by rising expenses and decreased revenue from Contingent Commissions[132] - The company reported a net loss of $5,383 million for Q1 2022, compared to a net loss of $1,089 million in Q1 2021[137] - Net cash used for operating activities was $5,154 million in Q1 2022, a decrease of $13,042 million compared to a net cash provided of $7,888 million in Q1 2021[141] - Cash and cash equivalents at the end of Q1 2022 were $22,679 million, down from $31,955 million at the end of Q1 2021[141] Client Retention and Service - Client Retention remained constant at 89% as of March 31, 2022, reflecting the service team's focus on delivering high service levels[118] Tax and Accounting - The company will record an increase in deferred tax assets based on enacted federal and state tax rates at the date of redemption or exchange[155] - The company estimates that it will not realize the full benefit of the deferred tax asset, leading to a potential reduction with a valuation allowance[155] - The company will record 85% of the estimated realizable tax benefit as an increase to the liability due under the tax receivable agreement[155] - There have been no significant changes to the company's critical accounting policies as disclosed in the Annual Report on Form 10-K[156] - There have been no material changes to the company's exposure to market risks as described in the Annual Report on Form 10-K[158] Liquidity and Obligations - The company’s liquidity sources include cash on hand of $21.2 million as of March 31, 2022, and cash flows from operations[139] - Total contractual obligations as of March 31, 2022, amounted to $284,994 million, with operating leases accounting for $66,090 million[152] - The company expects to fund its working capital requirements and commitments through cash on hand, net working capital, and cash flows from operations[145] - The company’s adjusted EPS for Q1 2022 was $0.04, compared to $0.03 in Q1 2021[138]

Call Start: 16:30 January 1, 0000 5:21 PM ET Goosehead Insurance, Inc. (NASDAQ:GSHD) Q1 2022 Earnings Conference Call April 26, 2022, 4:30 PM ET Company Participants Mark Jones – Chairman and Chief Executive Officer Brian Pattillo – Vice President Mark Colby – Chief Financial Officer Daniel Farrell – Vice President, Capital Markets Conference Call Participants Paul Newsome – Piper Sandler & Co. Mark Dwelle – RBC Capital Markets Meyer Shields – Keefe, Bruyette & Woods, Inc. Ryan Tunis – Autonomous Research J ...

PART I [Business](index=7&type=section&id=Item%201.%20Business) Goosehead operates as a rapidly growing independent insurance agency in the U.S. personal lines market, utilizing a differentiated model with two main channels: a Corporate Channel with employed agents and a Franchise Channel with independent franchisees - Goosehead is a rapidly growing independent insurance agency focused on personal lines, using a differentiated business model and proprietary technology to deliver a superior customer experience[18](index=18&type=chunk) - 2021 Performance Highlights | Metric | 2021 Value | 2020 Value | % Change | | :--- | :--- | :--- | :--- | | Total Written Premium | $1.6 billion | $1.1 billion | 45% | | Total Revenue | $151.3 million | $117.0 million | 29% | | Net Income | $8.3 million | $18.8 million | -55.8% | | Policies in Force | 1,011,000 | 713,000 | 42% | | Total Franchises | 2,151 | 1,468 | 47% | - The company's model is viewed from three perspectives: the insurance buyer (choice, knowledgeable agents, technology), the agent (access to carriers, proven marketing, centralized service), and the carrier (scale distribution, quality control, profitable growth)[18](index=18&type=chunk)[19](index=19&type=chunk)[28](index=28&type=chunk) [Company Overview](index=7&type=section&id=Company%20Overview) Goosehead is a fast-growing independent insurance agency that differentiates itself through a superior client experience, a compelling value proposition for agents, and efficient distribution for carriers - The company's model separates sales and service functions, enabling agents to focus on selling and service personnel to deliver superior client service, achieving a Net Promoter Score of **91**, **2.3x** the industry average[18](index=18&type=chunk)[21](index=21&type=chunk) - Goosehead provides agents with access to a wide array of carriers, a proven go-to-market strategy focusing on referral partners, and a centralized service team, leading to agent productivity **1.7 times** higher than the industry best practice[26](index=26&type=chunk) - For carriers, Goosehead offers scale distribution with a single point of contact, standardized training, and quality control, resulting in higher retention rates and underwriting profitability[28](index=28&type=chunk) [Our Segments](index=11&type=section&id=Our%20Segments) The company operates through two distinct segments which each contributed **50%** of total revenue in 2021: the Corporate Channel and the Franchise Channel - The Corporate Channel, with **506** sales agents across **15** offices, focuses on recruiting and training new talent, serving as an R&D hub for the company It generated **50%** of 2021 revenue[48](index=48&type=chunk)[50](index=50&type=chunk) - The Franchise Channel, with **2,151** total franchises (**1,198** operating), targets experienced agents by offering access to multiple carriers, centralized servicing, and a lean startup model It also accounted for **50%** of 2021 revenue[51](index=51&type=chunk)[55](index=55&type=chunk) - Franchise Royalty Fee Structure | Policy Term | Royalty Fee Rate | | :--- | :--- | | New Business (First Term) | 20% of commissions & agency fees | | Renewal Business | 50% of commissions | - Total franchises grew **47%** to **2,151** in 2021, with operating franchises increasing by **34%** to **1,198**[55](index=55&type=chunk)[70](index=70&type=chunk) [Our Competitive Strengths and Growth Strategy](index=15&type=section&id=Our%20Competitive%20Strengths%20and%20Growth%20Strategy) Goosehead's competitive strengths are rooted in its highly motivated and young corporate agent workforce, a franchise model that addresses the flaws of traditional agencies, a unified proprietary technology platform, and efficient service centers that drive high client retention - A key strength is the young, tech-adept Corporate Channel workforce, with agents generating **2.9x** more new business than top industry performers after three years[58](index=58&type=chunk) - The Franchise Channel solves traditional agency flaws by offering choice, removing the service burden, and providing an economic interest in the business, attracting high-performing agents[58](index=58&type=chunk) - A single, proprietary cloud-based technology platform drives efficiencies, with service expenses being **3.4x** lower than the industry best practice[59](index=59&type=chunk) - Growth strategy includes national penetration of the Franchise Channel, with agreements signed in **47** states and a pipeline of approximately **137,000** potential candidates[60](index=60&type=chunk) - Maximizing renewal business is critical, as renewal royalty fees from franchisees are significantly higher (**50%**) than new business fees (**20%**) This is supported by an **89%** client retention rate[62](index=62&type=chunk)[69](index=69&type=chunk) [Regulatory Matters and Human Capital](index=20&type=section&id=Regulatory%20Matters%20and%20Human%20Capital) The company is subject to extensive regulation, including FTC and state franchise laws, state-specific insurance licensing, and evolving data privacy laws like the CCPA - The company's franchise operations are regulated by the FTC's "Franchise Rule" and various state laws, requiring specific disclosures (FDD) and registrations[75](index=75&type=chunk) - Goosehead and its employees must maintain insurance licenses in the states where they operate, and are subject to regulations on agent compensation and data privacy[76](index=76&type=chunk)[78](index=78&type=chunk)[82](index=82&type=chunk) - As of December 31, 2021, the company had approximately **1,238** full-time and **52** part-time employees The workforce grew by over **500** individuals in 2021[83](index=83&type=chunk)[84](index=84&type=chunk) - The company promotes diversity and inclusion, with more than half of its employees being women and over one-third identifying as racially diverse It established a Women's Professional Development Program in 2015[92](index=92&type=chunk)[94](index=94&type=chunk) [Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20factors) The company faces a range of risks that could materially affect its business, including economic downturns, premium volatility, carrier dependence, operational challenges, and structural financial obligations [Risks Relating to Our Business](index=25&type=section&id=Risks%20Relating%20to%20Our%20Business) Business-related risks include the potential negative impact of the COVID-19 pandemic and general economic downturns on insurance demand and premium payments - The COVID-19 pandemic and economic downturns could reduce demand for insurance, affect clients' ability to pay premiums, and decrease contingent commissions[107](index=107&type=chunk)[114](index=114&type=chunk) - Revenue is subject to volatility as it depends on premiums and commission rates set by carriers, which are cyclical and can be affected by intense price competition[117](index=117&type=chunk)[120](index=120&type=chunk)[121](index=121&type=chunk) - A significant portion of commission revenue is derived from a limited number of carriers In 2021, two carriers represented **17%** and **11%** of total revenue[184](index=184&type=chunk)[66](index=66&type=chunk) - The business is highly concentrated in Texas, California, Florida, and Illinois, making it vulnerable to adverse economic, natural disaster, or regulatory events in these states[180](index=180&type=chunk) [Risks Relating to Our Franchise Business](index=38&type=section&id=Risks%20Relating%20to%20Our%20Franchise%20Business) The franchise model's success depends on attracting and retaining high-quality franchisees, whose operational success directly affects the company's financial results - The company's success depends on its ability to attract and retain high-quality franchisees, as its financial results are directly tied to their operational performance[189](index=189&type=chunk)[191](index=191&type=chunk) - Franchisees are independent businesses, and their actions (e.g., poor service, misconduct, legal violations) could harm the company's brand, reputation, and lead to vicarious liability claims[193](index=193&type=chunk)[194](index=194&type=chunk) - Franchising activities are subject to extensive state and federal regulations (e.g., FTC Franchise Rule), and non-compliance could result in adverse business impacts[199](index=199&type=chunk) [Risks Relating to Intellectual Property, Data Privacy and Cybersecurity](index=40&type=section&id=Risks%20Relating%20to%20Intellectual%20Property%2C%20Data%20Privacy%20and%20Cybersecurity) The company's success is tied to its strong brand and intellectual property, which could be harmed by infringement or failure to protect these assets - Failure to maintain, protect, and enhance the "Goosehead Insurance" brand could hurt business growth, especially in new markets[204](index=204&type=chunk) - Improper disclosure of confidential or personal information, whether from human error or cyberattacks, could result in regulatory scrutiny, legal liability, and reputational harm[211](index=211&type=chunk)[213](index=213&type=chunk) - The company is subject to complex and evolving data privacy and cybersecurity laws (e.g., GLBA, CCPA, CPRA), which can increase compliance costs and potential liability[217](index=217&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) [Risks Relating to Our Organizational Structure](index=44&type=section&id=Risks%20Relating%20to%20Our%20Organizational%20Structure) Goosehead Insurance, Inc. is a holding company dependent on distributions from its subsidiary, Goosehead Financial, LLC, with significant voting power concentrated in Pre-IPO LLC Members - As a holding company, Goosehead Insurance, Inc. is dependent on distributions from Goosehead Financial, LLC to pay dividends, taxes, and expenses, including payments under the Tax Receivable Agreement[223](index=223&type=chunk) - Pre-IPO LLC Members control approximately **46%** of the combined voting power, allowing them to approve or disapprove most major corporate actions[227](index=227&type=chunk) - The company is required to pay Pre-IPO LLC Members **85%** of the cash tax savings realized from increases in tax basis resulting from redemptions or exchanges of LLC units These payments could be substantial[234](index=234&type=chunk)[235](index=235&type=chunk) - Upon a change of control, the company could be required to make accelerated payments under the tax receivable agreement that are greater than actual cash tax savings, which could negatively impact liquidity[238](index=238&type=chunk) [Properties](index=49&type=section&id=Item%202.%20Properties) The company's headquarters is in a leased **177,000** square foot office in Westlake, Texas, with a lease expiring in January 2031 - The company's headquarters is located in a leased office of approximately **177,000** square feet in Westlake, Texas, with the lease expiring in January 2031[252](index=252&type=chunk) - As of year-end 2021, the company-owned insurance brokerage leases a total of approximately **393,000** square feet of office space under **15** leases across Texas, Nevada, Illinois, North Carolina, and Ohio[252](index=252&type=chunk) [Legal Proceedings](index=49&type=section&id=Item%203.%20Legal%20proceedings) The company may be involved in various legal proceedings incidental to its business from time to time, but as of the report date, Goosehead is not a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[253](index=253&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=50&type=section&id=Item%205.%20Market%20for%20registrant%27s%20common%20equity%2C%20related%20stockholder%20matters%20and%20issuer%20purchases%20of%20equity%20securities) Goosehead's Class A Common Stock trades on NASDAQ under the symbol "GSHD," while its Class B stock is not traded - Class A Common Stock is traded on NASDAQ under the symbol "GSHD" Class B Common Stock is not traded[255](index=255&type=chunk) - As a holding company, Goosehead Insurance, Inc.'s ability to pay dividends is subject to the ability of its subsidiary, Goosehead Financial, LLC, to provide distributions[258](index=258&type=chunk) - Stock Performance Since IPO (May 1, 2018) | Index | 5/1/2018 | 12/31/2021 | | :--- | :--- | :--- | | GSHD | $100 | $914 | | S&P 500 | $100 | $192 | | Russell 2000 | $100 | $153 | - Equity Compensation Plan Information (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | Securities to be issued upon exercise of outstanding options | 2,069,000 | | Weighted-average exercise price of outstanding options | $34.68 | | Securities remaining available for future issuance | 2,126,000 | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=53&type=section&id=Item%207.%20Management%27s%20discussion%20and%20analysis%20of%20financial%20condition%20and%20results%20of%20operations) In 2021, Goosehead's total revenue grew **29%** to **$151.3 million**, driven by a **40%** increase in Core Revenues to **$133.4 million** [Financial Highlights and Key Performance Indicators](index=53&type=section&id=Financial%20Highlights%20and%20Key%20Performance%20Indicators) For fiscal year 2021, Goosehead reported a **29%** increase in total revenue to **$151.3 million** and a **45%** increase in Total Written Premiums to **$1.6 billion** - Key Financial Metrics (FY 2021 vs. FY 2020) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $151.3M | $117.0M | +29% | | Core Revenues* | $133.4M | $95.1M | +40% | | Total Written Premiums | $1.6B | $1.1B | +45% | | Net Income | $8.3M | $18.8M | -56% | | Adjusted EBITDA* | $20.8M | $27.8M | -25% | | Adjusted EPS* | $0.48 | $0.68 | -29% | - Key Operational Metrics (as of Dec 31, 2021) | Metric | 2021 | 2020 | % Change | | :--- | :--- | :--- | :--- | | Policies in Force | 1,011,000 | 713,000 | +42% | | Corporate Sales Headcount | 506 | 364 | +39% | | Operating Franchises | 1,198 | 891 | +34% | | Client Retention | 89% | 88% | +1 ppt | | Net Promoter Score (NPS) | 91 | 92 | -1 pt | - The decrease in profitability (Net Income, Adjusted EBITDA) was primarily driven by a significant **$6.7 million** (**39%**) decrease in high-margin but unpredictable Ancillary Revenue (mainly Contingent Commissions) and continued investments in growth[309](index=309&type=chunk)[311](index=311&type=chunk)[312](index=312&type=chunk) [Consolidated Results of Operations](index=62&type=section&id=Consolidated%20Results%20of%20Operations) For the year ended December 31, 2021, total revenues increased **29%** to **$151.3 million**, driven by growth in both commissions and franchise revenues - Consolidated Statement of Operations Summary (in millions) | Line Item | 2021 (in millions) | 2020 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $151.3M | $117.0M | 29.3% | | Employee compensation and benefits | $93.0M | $66.8M | 39.2% | | General and administrative expenses | $41.7M | $25.5M | 63.4% | | Total operating expenses | $142.6M | $97.1M | 47.0% | | Income from operations | $8.7M | $19.9M | -56.5% | | Net Income | $8.3M | $18.8M | -55.8% | - Revenue from Renewal Royalty Fees in the Franchise channel grew **57%** to **$46.1 million**, driven by an increasing number of policies in their renewal term where the company earns a higher royalty rate (**50%** vs **20%** on new business)[325](index=325&type=chunk) - Contingent commission revenue decreased **40%** to **$9.9 million**, primarily due to increased loss ratios experienced by carrier partners[324](index=324&type=chunk) - The **39%** increase in employee compensation and benefits was due to higher headcount and additional stock option grants The **63%** increase in G&A was driven by eased travel restrictions and continued investment in technology[329](index=329&type=chunk)[330](index=330&type=chunk) [Liquidity and Capital Resources](index=65&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2021, the company held **$30.5 million** in cash, with net cash from operations increasing to **$35.4 million** - Comparative Cash Flows (in millions) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $35.4M | $24.6M | | Net cash used for investing activities | ($15.4M) | ($10.3M) | | Net cash used for financing activities | ($15.8M) | ($3.3M) | | **Net increase in cash** | **$4.2M** | **$11.0M** | - On July 21, 2021, the company refinanced its credit facilities, resulting in a **$100 million** term loan and a **$50 million** revolving credit facility As of year-end, **$98.8 million** was outstanding on the term loan and **$25.0 million** was drawn on the revolver[337](index=337&type=chunk)[444](index=444&type=chunk)[445](index=445&type=chunk)[446](index=446&type=chunk) - The liability under the Tax Receivable Agreement increased to **$101.0 million** as of December 31, 2021, up from **$62.1 million** in 2020, due to redemptions of LLC units by Pre-IPO members[357](index=357&type=chunk)[462](index=462&type=chunk) - In July 2021, the company declared and paid an extraordinary dividend of **$60 million** to all holders of LLC Units and Class A common stock[484](index=484&type=chunk) [Quantitative and Qualitative Disclosure of Market Risks](index=70&type=section&id=Item%207A.%20Quantitative%20and%20qualitative%20disclosure%20of%20market%20risks) The company is exposed to market risk primarily through insurance premium pricing cyclicality and interest rate changes - The company is exposed to insurance market cyclicality, where a "soft market" (declining premium rates) can negatively affect commissions[359](index=359&type=chunk) - There is carrier concentration risk, as two carriers represented **17%** and **11%** of total revenue in 2021[360](index=360&type=chunk) - As of December 31, 2021, the company had **$123.8 million** of floating-rate debt tied to LIBOR, creating exposure to interest rate risk[361](index=361&type=chunk) [Financial Statements and Supplementary Data](index=71&type=section&id=Item%208.%20Financial%20statements%20and%20supplementary%20data) This section contains the audited consolidated financial statements for Goosehead Insurance, Inc. for the fiscal year ended December 31, 2021, including the independent auditor's unqualified opinion - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of the company's internal control over financial reporting as of December 31, 2021[366](index=366&type=chunk)[367](index=367&type=chunk) - A critical audit matter was identified related to the estimation of commissions and royalty fees revenue, specifically the judgments required for estimating policy changes, cancellations, and constraints for renewal business[371](index=371&type=chunk)[372](index=372&type=chunk) - Consolidated Balance Sheet Summary (in millions) | Account | Dec 31, 2021 (in millions) | Dec 31, 2020 (in millions) | | :--- | :--- | :--- | | Total Assets | $267.8M | $185.8M | | Total Liabilities | $337.0M | $224.2M | | Total Equity | ($69.2M) | ($38.4M) | [Controls and Procedures](index=103&type=section&id=Item%209A.%20Controls%20and%20procedures) Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal control over financial reporting during the year - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[497](index=497&type=chunk) - Management assessed internal control over financial reporting based on the COSO 2013 framework and concluded it was effective as of December 31, 2021[500](index=500&type=chunk) - The independent registered public accounting firm, Deloitte & Touche LLP, audited and issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2021[501](index=501&type=chunk)[505](index=505&type=chunk) PART III [Directors, Executive Officers, and Corporate Governance](index=106&type=section&id=Item%2010.%20Directors%2C%20executive%20officers%2C%20and%20corporate%20governance) Information regarding the company's directors, executive officers, and corporate governance is incorporated by reference from the company's definitive Proxy Statement for its 2022 Annual Meeting of Stockholders - The information required for this item is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement[514](index=514&type=chunk) [Executive Compensation](index=106&type=section&id=Item%2011.%20Executive%20compensation) Details concerning executive compensation are incorporated by reference from the company's Proxy Statement for its 2022 Annual Meeting of Stockholders - The information required for this item is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement[515](index=515&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=106&type=section&id=Item%2012.%20Security%20ownership%20of%20certain%20beneficial%20owners%20and%20management%20and%20related%20stockholder%20matters) Information regarding security ownership by certain beneficial owners and management, as well as related stockholder matters, is incorporated by reference from the company's 2022 Proxy Statement - The information required for this item is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement[516](index=516&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=106&type=section&id=Item%2013.%20Certain%20relationships%20and%20related%20transactions%2C%20and%20director%20independence) Information regarding certain relationships, related-party transactions, and the independence of the company's directors is incorporated by reference from the company's Proxy Statement for its 2022 Annual Meeting of Stockholders - The information required for this item is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement[517](index=517&type=chunk) [Principal Accountant Fees and Services](index=106&type=section&id=Item%2014.%20Principal%20accountant%20fees%20and%20services) Details regarding the fees paid to and services provided by the principal independent accountant are incorporated by reference from the company's Proxy Statement for its 2022 Annual Meeting of Stockholders - The information required for this item is incorporated by reference from the company's 2022 Annual Meeting Proxy Statement[518](index=518&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=107&type=section&id=Item%2015.%20Exhibits%20and%20financial%20statement%20schedules) This section lists the documents filed as part of the Annual Report on Form 10-K, including consolidated financial statements and an index of all exhibits - This section provides an index of all exhibits filed with or incorporated by reference into the Form 10-K[520](index=520&type=chunk)[522](index=522&type=chunk) - All financial statement schedules are omitted because the required information is included in the consolidated financial statements or the notes thereto[520](index=520&type=chunk)