Business context and reporting period
Goosehead Insurance, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2024. The company distributes personal and commercial property and casualty insurance through corporate-owned agencies and franchisees. It reported 14 corporate-owned locations and 1,155 operating franchise locations at quarter-end.
Financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenue | $64.5 million | $58.0 million |
| Operating income | $1.5 million | $1.5 million |
| Net income (loss) | $1.8 million | $(0.2) million |
| Net income (loss) attributable to Goosehead Insurance, Inc. | $1.8 million | $(0.1) million |
| Basic / diluted EPS | $0.07 / $0.05 | — / — |
| Net cash from (used in) operating activities | $11.9 million | $(0.6) million |
Revenue grew 11%; Core Revenue, a non-GAAP measure, rose 13% to $58.8 million. Total Written Premium increased 28% to $818.8 million. Renewal Revenue grew 17% to $45.0 million, while New Business Revenue rose 3% to $13.8 million. Adjusted EBITDA, a non-GAAP measure, increased 15% to $11.7 million; Adjusted EBITDA margin was 18%, unchanged year over year. GAAP operating margin was approximately 2.3% of revenue.
Employee compensation and benefits rose 14% to $42.1 million, and general and administrative expenses rose 8% to $17.2 million. Equity-based compensation was $7.4 million. The company recorded $0.3 million of impairment expense related to an office lease it plans to sublease.
Balance sheet, cash flow and capital
Cash and cash equivalents were $51.1 million at March 31, 2024; cash plus restricted cash totaled $53.1 million. Operating cash flow was $11.9 million, investing outflow was $2.9 million, and financing cash flow was $0.1 million. Capitalized software development costs were $2.6 million.
Note payable totaled approximately $75.1 million. The company had no revolver borrowings and $49.8 million available under the existing $50 million facility after a $0.2 million letter of credit. Debt bears variable interest; the company reported a rate of SOFR plus 175 basis points and was in compliance with its covenants at quarter-end. The term note includes a $55.6 million balloon payment due July 2026, as described in the filing. Operating lease obligations were $72.8 million. Tax receivable agreement liabilities totaled approximately $160.0 million, including $5.0 million current. Total assets were $366.2 million and total liabilities were $338.0 million.
Material changes and management commentary
- Growth was led by franchise renewal royalties, up 28% to $29.1 million, driven by more policies renewing and higher premium rates. Renewal commissions increased 1% to $16.0 million.
- Contingent commissions increased to $2.7 million from $1.9 million. Management describes this revenue as unpredictable and dependent on carrier performance and other factors, and does not rely on it for operating cash flow or budget planning.
- Initial franchise fees declined 27% to $2.2 million, which management attributed to fewer franchise terminations and less accelerated fee recognition. The company onboarded 25 franchise locations in the quarter versus 83 a year earlier; operating franchises declined 17% year over year to 1,155.
- Policies in Force increased 13% year over year to approximately 1.53 million. Client retention declined to 85% from 88% a year earlier; premium retention was 100%. NPS remained 91.
- The income tax benefit was $1.8 million, primarily related to deferred tax effects of additional state tax filing requirements. The reported effective tax rate was 5,753%; the filing attributes the unusually high rate to the tax benefit against a near-zero pretax loss.
Outlook, risks and unusual items
The filing provides no specific earnings or revenue guidance. Management said it expects cash on hand, working capital, operating cash flow and the revolver to be sufficient for foreseeable working capital needs and commitments. It identifies growth investment, employee costs, tax receivable agreement payments, debt service, income taxes and possible dividends as expected liquidity needs. Management cautions that first-quarter results may not indicate full-year results, citing seasonality in contingent commission recognition and housing market activity.
On April 24, 2024, after quarter-end, the company amended its credit agreement to increase the term note by $25 million and raise revolving facility capacity by $25 million to $75 million. Also on April 24, the board authorized repurchases of up to $100 million of Class A shares through March 31, 2025; the program is discretionary and does not require purchases. The filing reports no material change to previously disclosed risk factors. Management said ongoing legal matters are not expected to have a material adverse effect; a stockholder case settlement provides non-monetary benefits, while a petition for plaintiffs’ attorneys’ fees remains unresolved and any potential loss is believed not material.
Important facts for investors to verify
- Whether strong premium and policy growth can translate into sustained GAAP operating profit, given the narrow operating margin and rising compensation costs.
- How client retention, franchise location closures and onboarding trends affect future renewal and new-business growth.
- The variability of contingent commissions and their contribution to quarterly results.
- Debt repayment and refinancing capacity, variable-rate exposure, the July 2026 balloon payment, and the effect of the post-quarter credit amendment.
- The timing and cash impact of the approximately $160 million tax receivable agreement liability, alongside the new discretionary repurchase authorization.
- The sustainability and accounting effects of the deferred tax benefit and elevated deferred tax assets.