Goosehead Insurance, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with the three months ended March 31, 2021 unless otherwise noted. Goosehead provides personal and commercial property and casualty insurance brokerage services through corporate agencies and franchises.
Financial performance and key metrics
- Revenue: $41.3 million, up 32% from $31.2 million. Core Revenue, a company-defined non-GAAP measure, was $36.5 million, up 37%. Renewal Revenue rose 47% to $24.2 million; New Business Revenue rose 21% to $12.3 million.
- Revenue mix: Commissions and agency fees were $20.0 million, up 14%; franchise revenues were $21.0 million, up 56%; interest income was $0.3 million. Contingent commissions fell to $1.8 million from $2.7 million, while renewal royalty fees rose to $14.0 million from $8.7 million.
- Profitability: Operating loss was $6.1 million versus $0.8 million; net loss was $5.4 million versus $1.1 million. Net loss attributable to Goosehead Insurance, Inc. was $2.3 million, or $0.11 per diluted share, versus $0.4 million, or $0.02 per share. Adjusted EBITDA, a non-GAAP measure, declined 41% to $1.3 million; its margin fell to 3% from 7%. Adjusted EPS was $0.04 versus $0.03.
- Costs and margins: Employee compensation and benefits increased 48% to $31.5 million, including higher headcount and equity-based compensation. General and administrative expenses increased 46% to $13.5 million, reflecting franchise and employee growth, technology investment, additional offices, and the annual Ascend meeting. Equity-based compensation was $5.8 million versus $1.9 million.
- Growth indicators: Total Written Premium increased 41% to $450.9 million. Policies in Force grew 39% year over year to 1.097 million. Operating franchises increased 28% to 1,268, and total franchises increased 41% to 2,298. Client retention was 89%, up from 88%; NPS was 91.
- Cash flow: Operating activities used $5.2 million, compared with $7.9 million provided a year earlier. Investing activities used $2.5 million, mainly for software and property and equipment; financing activities used $0.2 million. Cash and restricted cash decreased $7.8 million to $22.7 million during the quarter. Management attributed the operating cash flow decline mainly to working-capital movements, including lower cash benefit from commissions and agency fee receivables and increased prepaid expenses.
- Liquidity and debt: Cash and cash equivalents were $21.2 million; restricted cash was $1.5 million. Balance-sheet note payable totaled $122.2 million. The company reported $25.0 million drawn on its revolving facility, $0.2 million in letters of credit, and $24.8 million of remaining availability. Debt bears variable interest; the stated rate was LIBOR plus 250 basis points at quarter-end. The company reported compliance with debt covenants.
- Balance sheet: Total assets were $275.3 million and total liabilities were $343.2 million. Total equity was negative $67.9 million. The tax receivable agreement liability was $103.2 million; deferred tax assets were $129.0 million.
Material changes and management commentary
Revenue growth was led by expanding franchise royalties and a larger renewal book, supported by higher policy counts and retention. Management describes renewal commissions and royalties as more predictable and higher-margin than new business revenue. New business is expected to convert over time into renewal revenue. The decline in contingent commissions primarily reflected a lower first-quarter reconciliation of actual commissions to year-end receivables; these commissions are described as unpredictable and are not relied upon for operating cash flow or budgeting.
Expenses grew faster than revenue, contributing to the larger GAAP loss and lower Adjusted EBITDA margin. Management cited investments in sales capacity, franchise support, technology, and offices, as well as the 2022 company meeting. The company reported one operating segment, reflecting how its CEO reviews performance and allocates resources.
Outlook, risks, and contingencies
- The filing provides no specific revenue, earnings, or cash-flow guidance. Management believes cash on hand, working capital, operating cash flows, and revolving-facility availability will fund foreseeable requirements, including growth investment, operating costs, debt service, taxes, and potential dividends.
- Results are seasonal, including because of contingent commission recognition and housing-market activity; first-quarter results are not necessarily indicative of full-year performance.
- Variable-rate borrowings expose the company to interest-rate changes. Debt is secured by substantially all company assets, including rights to future commissions; a substantial portion of debt references LIBOR, with a contractual provision to move to SOFR if LIBOR is phased out.
- The tax receivable agreement requires payment to pre-IPO LLC members of 85% of realized tax savings covered by the agreement. Future LLC-unit exchanges may increase this obligation.
- Management said COVID-19’s future financial effects could not be predicted and may require operating-plan changes. The filing reported no material change to previously disclosed risk factors.
- Various legal claims arise in the ordinary course. Management said the loss amount was not probable or reasonably estimable and did not expect resolution to materially adversely affect financial position or results.
Important facts for investors to verify
- Track whether premium and policy growth converts into recurring renewal revenue and improved GAAP profitability and cash generation.
- Assess whether expense growth, including compensation, equity awards, franchise support, and technology investment, moderates relative to revenue growth.
- Monitor contingent commission volatility and its effect on quarterly revenue and margins.
- Review debt balances, variable interest costs, covenant headroom, and the maturity profile, including the 2026 balloon payment.
- Evaluate the size and timing of tax receivable agreement payments and the company’s ability to realize the related tax benefits.
- Note that Adjusted EBITDA, Adjusted EPS, and Core Revenue are non-GAAP measures; compare them with the reported GAAP losses and cash flows.