Goosehead Insurance, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. Goosehead provides personal and commercial property and casualty insurance brokerage services through corporate-owned agencies and franchises.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $69.3M (+31%) | $53.0M | $127.2M (+35%) | $94.3M |
| Core Revenue (non-GAAP) | $61.0M (+27%) | $48.1M | $113.0M (+34%) | $84.6M |
| Operating income (loss) | $11.2M | $5.7M | $12.7M | $(0.4)M |
| Net income (loss) | $7.2M | $2.4M | $7.0M | $(3.0)M |
| Net income attributable to Goosehead, Inc. | $3.7M | $0.3M | $3.6M | $(1.9)M |
| GAAP diluted EPS | $0.15 | $0.02 | $0.15 | $(0.10) |
| Adjusted EBITDA (non-GAAP) | $23.1M; 33% margin | $12.5M; 24% margin | $33.2M; 26% margin | $13.8M; 15% margin |
Q2 revenue growth reflected a 38% increase in Renewal Revenue to $46.1M and higher contingent commissions; New Business Revenue rose 2% to $14.9M. Renewal Royalty Fees increased 46% to $27.6M. Total Written Premium grew 36% to $767.3M in Q2 and 38% to $1.405B in the first half. Policies in Force increased 21% year over year to 1.427M. Client retention was 88%; premium retention was 103% for the trailing twelve months.
For the first half, operating cash flow was $16.1M, versus $10.1M a year earlier. Investing cash outflow was $11.3M, including $5.3M for asset acquisitions; financing cash outflow was $14.3M, including $13.1M of debt repayment and $5.2M of member distributions. Cash and restricted cash declined $9.5M to $20.9M; cash and cash equivalents alone were $19.1M at June 30.
Financial position and material changes
- Debt was approximately $80.6M at June 30, down from $93.6M at year-end 2022. The company made an additional $10.0M term-loan payment in May. The term loan is variable-rate, at SOFR plus 200 basis points at quarter-end; the $50M revolver had no borrowings, with $49.8M available after a letter of credit.
- Current assets were $52.9M and current liabilities $37.8M. Total liabilities were $336.6M; total equity was negative $13.4M, including $29.7M of stockholders’ equity and $(43.1)M of non-controlling interests.
- General and administrative expense rose 40% in Q2, partly due to $3.6M of impairment charges: $1.1M for software not to be completed and $2.5M for property and lease assets at two offices the company plans to sublease. Equity-based compensation was $5.9M in Q2 and $12.5M for the first half.
- Corporate sales headcount fell 44% year over year to 280. Operating franchise locations remained at 1,344, while total franchises declined 26% to 1,728; the company onboarded 72 franchise locations in Q2 versus 141 a year earlier. Client retention was slightly lower than the 89% reported a year earlier in the revenue discussion; the KPI disclosure reports 88% at both June 2023 and December 2022.
- The tax receivable agreement liability was $133.7M on the balance sheet; contractual-obligation disclosure reports $134.2M. Under the agreement, the company generally pays former LLC members 85% of specified realized tax savings. Further LLC-unit redemptions may increase this obligation.
Outlook, risks and other disclosures
No quantified financial guidance is provided. Management said available liquidity—including cash, operating cash flow, working capital and the revolver—is expected to cover working-capital needs and commitments for the foreseeable future. It identified growth investment, operating costs, tax receivable agreement payments, debt service, taxes and potential dividends as expected liquidity needs.
Management describes renewal commissions and royalties as relatively predictable, higher-margin revenue. Contingent commissions are high-margin but unpredictable and affected by carrier underwriting and weather; the company does not rely on them for operating cash flow or budgeting. Other considerations include 88% client retention, variable-rate debt and franchise turnover. The company reported compliance with debt covenants and no material changes to previously disclosed risk factors. Management said pending litigation outcomes were not probable or reasonably estimable and did not expect a material adverse effect. Disclosure controls were judged effective at June 30, 2023.
Investor facts to verify
- Whether premium and policy growth translate into sustained renewal revenue and whether client retention stabilizes or improves.
- Franchise trends, including turnover, terminations, new onboarding, and the impact on initial-fee revenue, receivables and bad debts.
- Cash generation and liquidity after debt service, asset purchases, distributions and potential tax receivable agreement payments.
- Variable-rate interest costs, the term-loan maturity and balloon payment, and continued covenant compliance.
- The composition and recurrence of adjusted EBITDA adjustments, particularly equity-based compensation and impairment charges; these are non-GAAP measures.
- The timing and estimates underlying the tax receivable agreement liability and the difference between its balance-sheet and contractual-obligation disclosures.