Goosehead Insurance(GSHD) - 2022 Q2 - Quarterly Report

Part I Condensed Consolidated Financial Statements (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 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 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 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 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] 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 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 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] - As of June 30, 2022, $25.0 million was drawn on the revolving credit facility, with $24.8 million available[55] - 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][59] Note 8: Income Taxes 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] - The total liability for payments due under the Tax Receivable Agreement (TRA) was $105.3 million as of June 30, 2022[68] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] Results of Operations 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] - 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] - 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] Key Performance Indicators 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] - Client retention remained constant at 89% as of June 30, 2022, and the Net Promoter Score (NPS) was 90[122][124] Non-GAAP Measures 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 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] 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 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] Controls and Procedures 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] - 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] Part II Legal Proceedings 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][168] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] Exhibits 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]