Goosehead Insurance, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports annual results; it does not provide standalone fourth-quarter financial results.
Business context
Goosehead distributes primarily personal property and casualty insurance through a company-operated Corporate Channel and a Franchise Channel. It earns commissions, agency fees, franchise royalties, initial franchise fees, and contingent commissions. The company reported that its growth was organic, with no acquisitions in 2021. Its Class A shares trade on Nasdaq under GSHD.
Key financial and operating metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Total revenue | $151.3 million | $117.0 million | Up 29% |
| Core Revenue (non-GAAP) | $133.4 million | $95.1 million | Up 40% |
| Net income | $8.3 million | $18.8 million | Down $10.5 million |
| Net income attributable to Goosehead Insurance, Inc. | $5.4 million | $9.3 million | Down |
| Basic / diluted GAAP EPS | $0.28 / $0.26 | $0.55 / $0.51 | Down |
| Adjusted EBITDA (non-GAAP) | $20.8 million | $27.8 million | Down 25% |
| Adjusted EBITDA margin (non-GAAP) | 14% | 24% | Down 10 percentage points |
| Net cash provided by operating activities | $35.4 million | $24.6 million | Up |
| Cash, cash equivalents and restricted cash at year-end | $30.5 million | $26.2 million | Up |
| Debt outstanding at year-end | $123.8 million | — | See debt and refinancing details below |
- Total Written Premium rose 45% to $1.56 billion; Policies in Force increased 42% to 1.011 million.
- Corporate sales agents increased 39% to 506. Operating franchises grew 34% to 1,198; the 2,151 total franchises also includes 953 signed but not yet opened.
- Client retention was 89%, versus 88% in 2020; premium retention was 93%, versus 89%. NPS was 91, compared with 92.
- Revenue was nearly evenly split between channels: Corporate Channel $75.3 million and Franchise Channel $76.0 million.
- Homeowner policies accounted for 56% of written premium and auto for 40%. Two carriers each represented more than 10% of revenue: 17% and 11%.
Changes and drivers versus FY2020
- Growth in commissions, royalties, and renewal business drove revenue higher. Renewal Revenue rose 46% to $85.2 million; New Business Revenue rose 31% to $48.2 million.
- Contingent commissions fell 40% to $9.9 million, which management attributed primarily to higher loss ratios at carriers. This high-margin, variable revenue had been $16.7 million in 2020.
- Employee compensation and benefits increased 39% to $93.0 million, while general and administrative expenses increased 63% to $41.7 million. The company cited workforce growth, stock-based compensation, technology development, travel, and operating scale.
- Lower contingent commissions, growth investments, and technology spending contributed to lower Adjusted EBITDA and margin. GAAP net income also declined despite higher revenue.
- Investing cash outflow was $15.4 million, mainly for software, property, equipment, hiring, and office buildout. Financing cash outflow was $15.8 million and included $60.0 million of member distributions and dividends.
Liquidity, debt, and capital
- At December 31, 2021, cash and cash equivalents were $28.5 million and restricted cash was $2.0 million. Operating cash flow was $35.4 million.
- Debt consisted of a $98.8 million term loan and $25.0 million drawn on a $50.0 million revolving facility. Approximately $24.8 million remained available under the revolver, after a letter of credit. Debt is secured by substantially all company assets, including rights to future commissions, and bears variable-rate interest.
- The credit facilities were refinanced in July 2021. The term loan and revolver are due in full in June 2026, with scheduled term-loan amortization and a balloon payment. The company reported compliance with debt covenants at year-end.
- The balance sheet reported $100.959 million in liabilities under the tax receivable agreement (TRA). The company generally owes former LLC members 85% of realized tax savings covered by the agreement.
- The company paid a $60 million extraordinary dividend in 2021. Future dividends are discretionary and depend on board decisions, available distributions, contractual limits, and other factors.
Outlook, commentary, and risks
- Management described plans to expand Corporate Channel recruiting, grow and launch franchises, improve productivity and retention, and continue investing in technology and service capacity. It expected further expansion in existing Corporate markets in 2022, but the filing provides no quantified revenue, earnings, or margin guidance.
- Management views Total Written Premium as a leading indicator of future revenue. Franchise renewals generate a higher royalty rate than new policies (50% versus 20%), creating potential revenue and margin growth as policies renew; realization depends on retention and franchise production.
- Management said a tighter 2021 labor market affected recruiting, franchise launch timing, and training. It also reported higher absenteeism and higher carrier loss ratios, which reduced contingent commissions. The company said it had not experienced a material overall COVID-19 impact to date, while warning that effects could continue.
- Principal risks include premium and commission-rate cyclicality, unpredictable contingent commissions, dependence on carrier relationships, competition, hiring and retention, franchisee performance and support, and compliance with insurance and franchise regulation. Cybersecurity, privacy, business continuity, litigation, and climate-related risks are also disclosed.
- Two carriers generated 28% of revenue in total. Carrier agreements may be terminable or amendable on short notice, making concentration and access to products important risks.
- The filing reports no material legal proceedings at the filing date. Deloitte issued unqualified opinions on the financial statements and internal control; revenue estimation for commissions and royalties was identified as a critical audit matter.
Important facts for investors to verify
- Whether written-premium and policy growth convert into durable revenue and profit, particularly as the large cohort of new agents and franchises matures.
- Whether retention remains strong and renewal growth offsets the lower royalty economics of new business and the costs of servicing expansion.
- How contingent commissions, carrier loss ratios, and the concentration of revenue among leading carriers evolve.
- Whether hiring, franchise launches, technology investment, and operating costs support growth without further compressing margins.
- Debt repayment capacity and variable interest exposure, available revolver capacity, and the timing and cash impact of the $101.0 million TRA liability.
- The sustainability of extraordinary dividends given growth investment needs, debt covenants, and the holding-company structure.