Goosehead Insurance, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Goosehead distributes personal and commercial property and casualty insurance through company-owned agencies and independently owned franchises.
Financial results and operating metrics
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Total revenue | $38.2 million | $29.9 million | $69.4 million | $50.3 million |
| Net income | $3.1 million | $7.4 million | $2.0 million | $7.1 million |
| Net income attributable to Goosehead Insurance, Inc. | $1.5 million | $3.4 million | $1.1 million | $3.2 million |
| Basic / diluted EPS | $0.08 / $0.07 | $0.21 / $0.19 | $0.06 / $0.05 | $0.20 / $0.18 |
| Adjusted EBITDA (non-GAAP) | $6.8 million | $9.8 million | $8.9 million | $11.0 million |
| Adjusted EBITDA margin (non-GAAP) | 18% | 33% | 13% | 22% |
| Operating cash flow | — | $20.0 million | $6.5 million |
- Q2 revenue rose 28%; Core Revenue, a company-defined non-GAAP measure, increased 40% to $34.7 million. H1 revenue grew 38% and Core Revenue grew 43% to $61.4 million.
- Q2 operating income was $3.8 million versus $7.6 million; H1 was $3.0 million versus $7.8 million. Higher employee compensation, general and administrative costs, and lower contingent commissions weighed on profitability.
- Q2 total written premium grew 46% to $399 million; H1 grew 47% to $718 million. Policies in force reached 872,000, up 48% year over year. Client retention was 89%, versus 88% a year earlier.
- Renewal revenue grew 41% in Q2 to $22.0 million; new business revenue increased 40% to $12.7 million. Contingent commissions fell to $1.7 million from $4.0 million in Q2 2020.
- H1 investing cash outflow was $9.3 million, primarily for property, equipment and software; financing cash outflow was $0.4 million. Cash and restricted cash totaled $36.5 million at June 30.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $35.0 million; restricted cash was $1.6 million. Current assets were $52.7 million and current liabilities $24.0 million.
- Debt included a $77.0 million term note and $5.0 million drawn on the revolver; $19.7 million remained available under the $25 million revolving facility after a letter of credit. The debt was variable-rate, secured by substantially all company assets, and bore interest at LIBOR plus 200 basis points at quarter-end. The company reported covenant compliance.
- Total liabilities were $265.5 million, exceeding total assets of $238.0 million; total equity was negative $27.5 million, including negative $30.9 million of non-controlling interests.
- The tax receivable agreement liability was $82.2 million, including $2.0 million current. The agreement generally requires payment to pre-IPO members of 85% of realized tax savings associated with specified tax-basis increases.
Changes, outlook and risks
- Growth reflected a larger distribution network: 452 corporate sales agents, up 43%; 1,072 operating franchises, up 47%; and 1,801 total franchises, up 59% year over year. The company onboarded 108 franchise locations in Q2.
- Operating expenses rose faster than revenue: Q2 employee compensation increased 41% and general and administrative expense increased 89%. Management attributed higher costs to staffing and franchise growth, new corporate offices, and technology investment.
- Management gave no specific financial guidance in the supplied filing. It said available cash, operating cash flows, working capital and its revolving facility were expected to cover foreseeable needs, including growth, operating costs, debt service, taxes and tax receivable agreement payments.
- After quarter-end, the company refinanced its facilities on July 21, 2021, increasing the term note to $100 million and revolver to $50 million; as of July 28, the revolver was undrawn and $49.7 million was available. The new term note matures with a balloon payment in 2026.
- After quarter-end, GF approved a $60 million extraordinary dividend. The board declared a rounded $1.63 per share dividend on Class A shares, with a stated record date of August 9 and payment on or before August 23, 2021; $28.4 million was allocated to Class B holders through their LLC units.
- Risks include seasonal revenue fluctuations, unpredictable contingent commissions affected by carrier underwriting and loss experience, exposure to variable interest rates, and uncertain future effects of COVID-19 on housing activity and consumer spending. Management said COVID-19 had not, to date, impaired operations, receivable collection or financing access. Outstanding litigation losses were not considered probable or reasonably estimable, and management did not expect a material adverse effect.
Important facts for investors to verify
- Whether rapid hiring, franchise expansion and technology spending can translate into improved operating income and Adjusted EBITDA margins.
- Whether written-premium growth and retention sustain renewal revenue growth, and how contingent commission income responds to carrier loss ratios.
- The cash-flow effect and terms of the post-quarter $60 million dividend, alongside the enlarged and extended credit facilities.
- The timing and amount of debt repayment, variable-rate interest exposure, and future tax receivable agreement payments.
- The company’s reported operating metrics and non-GAAP measures against their definitions and reconciliations in the filing.