Goosehead Insurance, Inc. — Q2 2022 Form 10-Q
Business context and period: Unaudited results for the three and six months ended June 30, 2022, compared with the same 2021 periods. Goosehead provides personal and commercial property and casualty insurance through corporate-owned agencies and franchises. It reported one operating segment.
Financial and operating performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $53.0m | $38.2m | $94.3m | $69.4m |
| Core Revenue (non-GAAP) | $48.1m | $34.7m | $84.6m | $61.4m |
| Operating income (loss) | $5.7m | $3.8m | $(0.4)m | $3.0m |
| Net income (loss), consolidated | $2.4m | $3.1m | $(3.0)m | $2.0m |
| Net income (loss) attributable to Goosehead | $0.3m | $1.5m | $(1.9)m | $1.1m |
| Adjusted EBITDA (non-GAAP) | $12.5m | $6.8m | $13.8m | $8.9m |
| Adjusted EBITDA margin (non-GAAP) | 24% | 18% | 15% | 13% |
Q2 GAAP diluted EPS was $0.02, versus $0.07; adjusted EPS was $0.16 versus $0.13. Six-month GAAP diluted EPS was $(0.10), versus $0.05; adjusted EPS was $0.20 versus $0.16. Adjusted measures are non-GAAP and should be considered alongside GAAP results.
- Growth: Q2 total written premium rose 42% to $566.0m; first-half premium rose 42% to $1.017bn. Policies in force reached 1.181m, up 35% year over year. Client retention was 89%; premium retention was 95% for the trailing twelve months.
- Revenue mix: Q2 renewal commissions increased 41% to $14.5m and renewal royalties increased 62% to $18.9m. First-half contingent commissions declined to $3.7m from $4.4m. Renewal revenue is described as more predictable and higher-margin; contingent commissions are less predictable.
- Costs and margins: Q2 operating expenses rose 38% to $47.4m, including employee compensation and benefits of $31.7m, up 41%, and bad debts of $1.7m, up 157%. First-half operating expenses exceeded revenue, resulting in an operating loss. Equity-based compensation was $11.0m for the first half, versus $3.8m.
- Cash flow: First-half operating cash flow was $10.1m, down from $20.0m. Investing cash outflow was $6.8m, versus $9.3m; financing cash outflow was $0.2m. Cash and restricted cash ended at $33.5m, versus $36.5m a year earlier.
- Balance sheet and debt: June 30 cash and cash equivalents were $31.1m; current assets were $51.1m against current liabilities of $26.2m. Note payable totaled approximately $121.0m on the balance sheet. The company had $25.0m drawn on its $50.0m revolving facility and $24.8m available after a letter of credit. Debt bears variable LIBOR-based interest; the company reported covenant compliance. Total liabilities were $350.0m and total equity was negative $58.7m.
- Other obligations: The tax receivable agreement liability was $105.3m. The agreement generally requires payment to pre-IPO LLC members of 85% of realized qualifying tax savings.
Material changes and management commentary
Management attributed revenue growth to increased agent and franchise counts, growth in renewal policies, and steady retention. Operating costs rose with staffing, franchise growth, additional offices, technology investment, and the annual company meeting. Franchise locations totaled 1,344 operating units, up 25% year over year; total franchises were 2,341, up 30%. Management said its cash, working capital, operating cash flow, and revolving facility should fund foreseeable needs.
Outlook, risks, and unusual items
- The filing provides no specific numerical revenue, earnings, or other forward guidance.
- Management identifies seasonality from contingent-commission timing and housing activity. Contingent commissions may be affected by carrier underwriting, claims, and weather; management anticipates lower commissions if loss ratios rise as driving patterns normalize.
- COVID-related uncertainty, inflation, supply-chain disruption, labor-cost increases, and potential effects on carrier losses, demand, operating costs, liquidity, and access to credit remain risks.
- Higher bad-debt expense and franchise turnover warrant attention; management noted that turnover accelerated recognition of initial franchise fees for terminated franchises.
- Debt is variable-rate and secured by substantially all company assets, including future commissions and royalties. A substantial term-loan balloon is due in 2026. The company reported no material changes to previously disclosed risk factors.
- Management said outstanding litigation losses were not probable or reasonably estimable and did not expect resolution to materially adversely affect financial position or results.
Important facts for investors to verify
- Whether premium and policy growth converts into recurring renewal revenue while retention remains stable.
- Whether operating cash flow recovers and bad-debt expense and franchise receivables remain manageable.
- How compensation, equity-based awards, and other growth investments affect GAAP profitability versus adjusted results.
- The impact of variable interest rates, debt maturities, covenant requirements, and available revolver capacity.
- The timing and amount of tax receivable agreement payments, and the assumptions supporting the related liability and deferred tax assets.