Goosehead Insurance, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 24, 2023. Goosehead is a U.S. personal-lines insurance distributor operating corporate-owned agencies and a franchise network. Its revenue is primarily commissions, franchise royalties and fees—not insurance underwriting income.
Financial results and operating metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Total revenue | $209.4 million | $151.3 million |
| Operating income | $10.1 million | $8.7 million |
| Consolidated net income | $2.6 million | $8.3 million |
| Net income attributable to Goosehead Insurance, Inc. | $0.6 million | $5.4 million |
| Basic / diluted EPS | $0.03 / $0.03 | $0.28 / $0.26 |
| Adjusted EBITDA (non-GAAP) | $36.7 million; 18% margin | $20.8 million; 14% margin |
| Operating cash flow | $35.7 million | $35.4 million |
| Cash and restricted cash, year-end | $30.4 million | $30.5 million |
Revenue increased 38%; Core Revenue, a company-defined non-GAAP measure, increased 41% to $188.2 million. Total Written Premium grew 42% to $2.2 billion, and Policies in Force rose 27% to 1.284 million. Renewal Revenue increased 58% to $134.9 million, while New Business Revenue grew 10% to $53.3 million. Renewal Royalty Fees increased 68% to $77.3 million; franchise royalties on renewals are 50% of commissions, compared with 20% on first-term policies.
Revenue growth came with a sharp decline in GAAP earnings: consolidated net income fell 68% year over year. Employee compensation and benefits rose 40% to $133.3 million, including equity-based compensation of $19.6 million versus $7.3 million in 2021; general and administrative expense rose 33% to $52.9 million. Interest expense rose 75% to $5.0 million amid higher rates. The 2022 tax provision was $2.5 million, compared with a $2.3 million tax benefit in 2021. Adjusted EBITDA is non-GAAP and should not be viewed as a substitute for GAAP earnings.
Cash used in investing was $12.6 million and cash used in financing was $23.2 million; cash and restricted cash decreased by $0.1 million overall. Year-end cash and cash equivalents were $28.7 million, plus $1.6 million of restricted cash. Current assets were $54.1 million and current liabilities $37.1 million. Debt was $94.4 million, primarily a variable-rate term loan; the $50 million revolver was undrawn, with $49.8 million available after a letter of credit. Total liabilities were $355.0 million, compared with assets of $321.4 million; reported total equity was negative $33.6 million, including non-controlling interests. The tax receivable agreement liability was $125.7 million.
Material changes versus 2021
- Revenue and written premium accelerated, with renewal revenue and franchise renewal royalties leading growth.
- Operating franchises increased 18% to 1,413, while total franchises declined 1% to 2,125, including 712 signed but not yet operating. Corporate sales headcount fell 37% to 320.
- Client retention eased to 88% from 89%; NPS declined to 90 from 91. Premium retention increased to 100% from 93%.
- Contingent commissions declined 23% to $7.7 million, attributed primarily to higher loss ratios at participating carriers; they were 0.35% of written premium versus 0.64% in 2021.
- Bad-debt expense rose 107% to $6.2 million, primarily due to terminations of signed but unlaunched franchises.
Outlook, risks and notable disclosures
- No numerical financial guidance was provided. Management said it expected to continue expanding in existing markets in 2023 and identified agent recruitment, franchise penetration, retention and technology investment as growth priorities.
- Management expects renewal business to support future margin expansion, but growth depends on converting new policies into renewals and sustaining retention. More than half of franchisees had under one year of tenure.
- Key exposures include home-sales activity and interest rates, insurance premium and commission cycles, carrier loss ratios and capacity, and dependence on referral partners tied to home closings. Homeowner and dwelling property represented 57% of 2022 written premium.
- Two carriers each represented more than 10% of revenue (14% and 12%). Carrier agreements are generally non-exclusive and may be terminable on short notice.
- Debt bears floating-rate interest and matures in 2026, with a substantial balloon payment. The company reported compliance with debt covenants at year-end; it also discussed LIBOR transition and potential rate exposure.
- Other material risks include franchisee performance and support needs, cybersecurity and third-party technology reliance, regulatory and licensing requirements, E&O claims, and natural disasters that could affect carrier capacity or contingent commissions. The company reported no material legal proceeding and said potential losses from outstanding claims were not probable or reasonably estimable.
- The independent auditor issued unqualified opinions on the financial statements and internal controls. Revenue recognition estimates for commissions and royalty fees were identified as a critical audit matter. Management reported effective disclosure controls and internal control over financial reporting.
Investor verification priorities
- Reconcile GAAP earnings and EPS with Adjusted EBITDA and Adjusted EPS, including the effects of equity compensation, taxes and non-controlling interests.
- Assess whether renewal growth and premium retention can persist, and whether the lower client-retention rate or high share of newer franchises affects future results.
- Review contingent-commission sensitivity to carrier loss ratios and the exposure to the two largest carrier relationships.
- Verify debt-service capacity, floating-rate terms, 2026 maturity and balloon payment, alongside liquidity and the $125.7 million tax receivable agreement liability.
- Track franchise launches, terminations and related bad debts, as well as corporate-agent headcount and productivity.
- Review commission and royalty revenue estimation practices, the auditor’s critical audit matter, and any updates to litigation, regulatory or cybersecurity matters.