Goosehead Insurance, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with the three months ended March 31, 2020 unless otherwise stated. Goosehead is a property and casualty insurance brokerage operating through Corporate and Franchise channels. Financial amounts below are in millions unless noted.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $31.2 | $20.4 |
| Core Revenue, a non-GAAP measure | $26.7 | $18.2 |
| Operating income (loss) | $(0.8) | $0.2 |
| Consolidated net loss | $(1.1) | $(0.3) |
| Net loss attributable to Goosehead Insurance, Inc. | $(0.4) | $(0.2) |
| Basic and diluted EPS | $(0.02) | $(0.01) |
| Adjusted EBITDA, non-GAAP | $2.1 | $1.2 |
| Adjusted EBITDA margin, non-GAAP | 7% | 6% |
| Cash provided by (used in) operating activities | $7.9 | $(1.5) |
Revenue grew 53%; Core Revenue increased 47%. Renewal Revenue rose 48% to $16.5 million and New Business Revenue rose 44% to $10.2 million. Contingent commissions, which management describes as unpredictable, increased to $2.7 million from $1.1 million. Total Written Premium rose 49% to $318.9 million. Policies in Force increased 49% year over year to 788,000; operating franchises increased 45% to 987, and corporate sales headcount increased 51% to 363.
Revenue growth reflected more policies and a larger sales and franchise base. Expenses also expanded: employee compensation and benefits rose 58% to $21.3 million, and general and administrative expenses rose 58% to $9.3 million. Higher hiring, stock-based compensation, franchise support, office expansion, technology investment and compliance costs contributed. Adjusted EBITDA improved, but the company reported a GAAP operating loss and a larger consolidated net loss.
Liquidity, debt and balance sheet
- At March 31, 2021, cash and cash equivalents were $30.8 million and restricted cash was $1.2 million, for combined cash of $32.0 million. Operating cash flow improved by $9.4 million year over year; the filing attributes much of the change to collection of commissions and agency fee receivables, alongside higher contract liabilities.
- Investing activities used $2.1 million, mainly for property, equipment and software. Financing activities used $0.1 million.
- Principal debt outstanding was $83.0 million: $78.0 million under the term note and $5.0 million drawn on the revolving facility. The $25.0 million revolver had $19.7 million available after a $0.3 million letter of credit. Debt carries a variable LIBOR-based rate; the reported rate was LIBOR plus 200 basis points. The term note has a $68.0 million maturity in 2023. The company reported compliance with debt covenants.
- Total assets were $192.6 million and total liabilities were $228.9 million; total equity was negative $36.3 million. Deferred tax assets were $77.8 million. The Tax Receivable Agreement liability was $66.1 million, including $2.4 million current; the agreement provides eligible pre-IPO members 85% of specified realized tax savings.
Outlook, risks and other matters
The filing provides no quantitative full-year revenue, earnings or cash flow guidance. Management said available cash, working capital, operating cash flows and the revolver are expected to fund working-capital needs and commitments in the foreseeable future. Management emphasized continued organic growth and a growing mix of renewal revenue, which it characterizes as more predictable and higher margin than new business revenue.
Management said the ultimate effects of COVID-19 remain uncertain and may emerge in future periods, though it had not observed material adverse effects on receivable collectability, new business, franchise additions or retention to date. Contingent commissions are subject to carrier underwriting results and events such as weather. Other considerations include variable-rate debt and its 2023 maturity, future Tax Receivable Agreement payments, and estimates related to receivables and revenue recognition. The company reported no material change to previously disclosed risk factors; it stated that outstanding litigation was not expected to have a material adverse effect and that disclosure controls were effective.
Important facts for investors to verify
- Whether premium and policy growth translates into sustained GAAP profitability, given the Q1 operating loss and rising compensation and overhead.
- The quality and durability of revenue growth, including the contribution of unpredictable contingent commissions versus renewal revenue.
- Cash flow sustainability: Q1 operating cash flow benefited from receivable collections and contract-liability changes.
- Debt repayment and refinancing capacity ahead of the 2023 term-note maturity, including exposure to variable interest rates and covenant requirements.
- The timing and amount of future Tax Receivable Agreement payments, and the assumptions supporting deferred tax assets and franchisee receivables.
- The effects of COVID-19, housing activity, carrier underwriting and other conditions on premium growth, retention and franchise expansion.