What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-26 compared with 2020-03-16 · 355 added, 206 removed, 673 unchanged (45% of the section changed)

4 unchanged sentences

Report of Independent Registered Public Accounting Firm 65

Consolidated statements of income for the years ended December 31, 2019 and December 31, 2018 66

Consolidated statements of operations for the years ended December 31, 2020, December 31, 2019 and December 31, 2018

Consolidated balance sheets as of December 31, 2020 and December 31, 2019

Consolidated statements of stockholders' equity for the years ended December 31, 2019 and December 31, 2018 68

Consolidated statements of cash flows for the years ended December 31, 2019 and December 31, 2018 70

Consolidated statements of stockholders' equity for the years ended December 31, 2020, December 31, 2019 and December 31, 2018

Consolidated statements of cash flows for the years ended December 31, 2020, December 31, 2019 and December 31, 2018

Notes to the consolidated financial statements 72

6 unchanged sentences

Employee benefit obligation 82

Commitments and contingencies 83

Income taxes 83

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Litigation 95

Subsequent events 92

Selected quarterly financial data (unaudited) 96

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We have audited the accompanying consolidated balance sheets of Goosehead Insurance, Inc.

and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related consolidated statements of income, stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders ' equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

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Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

1 unchanged sentence

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

2 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Commissions and Agency Fees and Franchise Revenues – New and Renewal Commissions and New and Renewal Royalty Fees — Refer to Note 3 to the financial statements

Critical Audit Matter Description

Commissions revenue consists of commissions earned from insurance carriers for services performed on behalf of the insured in the placement of insurance policies both for the initial placement of the policies and the subsequent renewals of those policies.

Commissions revenue is recorded at a point in time on the effective date of the policy.

Franchise revenues consist of royalty fees earned by the Company for providing initial training, onboarding, ongoing

support and use of the Company’s business operations over the period of the franchise agreement based on a percentage of commissions earned by franchisees from insurance carriers.

Royalty fees revenue is recognized over time under the sales- and usage-based exception on the effective date of policies placed by franchisees.

The Company estimates the amount of commissions and royalty fees revenue to recognize on the effective date a policy is placed into service based on estimates of premiums placed, policy changes, and cancellations, net of a constraint.

Management adjusts its estimates of revenue recognized for commissions and royalty fees based on cash collections during the terms of the policies.

For the year ended December 31, 2020, commissions and agency fees was $71.8 million, of which $46.2 million relates to new and renewal commissions.

For the year ended December 31, 2020, franchise revenue was $44.4 million, of which $39.9 million relates to new and renewal royalty fees.

We identified commissions and royalty fees revenue as a critical audit matter because of the judgments necessary for management to estimate policy changes and cancellations and for management to estimate constraints for renewal commissions and renewal royalty fees.

This required extensive audit effort due to the volume of commissions contracts and required a high degree of auditor judgment when performing audit procedures to audit management’s estimates of policy changes, policy cancellations, and constraints and evaluating the results of those procedures.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimates of premiums placed, policy changes, policy cancellations, and constraints and adjustments to its estimates based on cash collections used to recognize revenue for commissions and royalty fees revenue included the following, among others:

• We tested the operating effectiveness of controls over commissions and royalty fees revenue, including management’s controls over the adjustments to its estimates of policy changes, policy cancellations, and constraints based on cash collections.

• We evaluated management's revenue estimates for commissions and royalty fees revenue made at year end based on cash collections during the terms of the policies by performing the following:

◦ Compared the adjustments of revenue based on cash collections used by management to historical cash collection rates for portfolios of policies with the same remaining policy term.

◦ Tested the accuracy and completeness of historical cash collection data used in the calculation of historical cash collection rates.

• We evaluated management’s estimate of the constraints applied to renewal commissions and renewal royalty fees revenue by comparing the constraints to historical adjustments of commissions and royalty fees revenue.

• We evaluated whether publicly available information contradicted management’s assumptions.

/s/ Deloitte & Touche LLP

Dallas, Texas

March 13, 2020

February 26, 2021

We have served as the Company's auditor since 2017.

Goosehead Insurance, Inc.

Consolidated statements of income

Consolidated statements of operations

(In thousands, except per share amounts)

Year Ended December 31,

2020 2019 2018

Commissions and agency fees $ 71,811 $ 46,366 $ 36,704

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Income (loss) from operations 19,940 14,073 ( 13,930 )

Other Expense:

Other expense — ( 22 )

Other Income (Expense):

Other income (expense) 90 — ( 22 )

Interest expense ( 2,310 ) ( 2,387 ) ( 4,266 )

Income (loss) before taxes 17,720 11,686 ( 18,218 )

Tax expense 1,304 449

Tax expense (benefit) ( 1,035 ) 1,304 449

Net Income (loss) 18,755 10,382 ( 18,667 )

21 unchanged sentences

Property and equipment, net of accumulated depreciation 16,650 9,542

Right-of use asset 22,513 —

Intangible assets, net of accumulated amortization 549 445

6 unchanged sentences

Premiums payable 1,323 923

Unearned revenue — 530

Lease liability 3,203 —

Deferred rent — 683

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Total current liabilities 20,360 13,410

Lease liability, net of current portion 32,933 —

Deferred rent, net of current portion — 6,681

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Total liabilities 224,241 95,635

Commitments and contingencies (see note 10)

Commitments and contingencies (see notes 9, 15, and 17)

Class A common stock, $ 0.01 par value per share 300,000,000 shares authorized, 18,303,649 shares issued and outstanding as of December 31, 2020, 15,238,079 issued and outstanding as of December 31, 2019

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Distributions — — — — — — — ( 3,739 ) ( 3,739 )

Dividends declared of $0.41 per share — — — — — ( 5,962 ) ( 5,962 ) ( 9,038 ) ( 15,000 )

Dividends declared — — — — — ( 5,962 ) ( 5,962 ) ( 9,038 ) ( 15,000 )

Net income — — — — — 3,567 3,567 6,815 10,382

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Balance December 31, 2019 15,238 21,055 152 210 14,442 ( 23,811 ) ( 9,007 ) ( 22,000 ) ( 31,007 )

Issued shares of Class A common stock Issued shares of Class B common stock Class A Common stock Class B Common Stock Additional paid in capital Accumulated deficit Total stockholders' equity Non-controlling interest Total equity

Balance January 1, 2020 15,238 21,055 152 210 14,442 ( 23,811 ) ( 9,007 ) ( 22,000 ) ( 31,007 )

Distributions — — — — — — — ( 2,697 ) ( 2,697 )

Dividends declared — — — — — ( 19,895 ) ( 19,895 ) ( 22,105 ) ( 42,000 )

Net income — — — — — 9,287 9,287 9,468 18,755

Exercise of stock options 450 — 5 — 4,493 — 4,498 — 4,498

Equity-based compensation — — — — 4,745 — 4,745 — 4,745

Activity under employee stock purchase plan 8 — — — 542 — 542 — 542

Redemption of LLC Units 2,608 ( 2,608 ) 26 ( 26 ) ( 3,525 ) — ( 3,525 ) 3,525 —

Deferred tax adjustments related to Tax Receivable Agreement — — — — 8,674 — 8,674 86 8,760

Reallocation of Non-controlling interest — — — — — ( 195 ) ( 195 ) 195 —

Balance December 31, 2020 18,304 18,447 183 184 29,371 ( 34,614 ) ( 4,876 ) ( 33,528 ) ( 38,404 )

See Notes to the Consolidated Financial Statements

3 unchanged sentences

Year Ended December 31,

2020 2019 2018

Cash flows from operating activities:

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Equity based compensation 4,745 1,526 26,960

Tax receivable agreement liability 11,676 1,702

Impact of tax receivable agreement 48,760 11,676 1,702

Deferred income taxes ( 49,066 ) ( 11,382 ) ( 1,732 )

Noncash lease expense 13,623 — —

Changes in operating assets and liabilities:

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Unearned revenue — ( 51 ) ( 532 )

Payments pursuant to the tax receivable agreement ( 9 ) — —

Net cash provided by operating activities 24,643 21,241 10,275

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Cash flows from financing activities:

Loan origination fees — ( 639 )

Debt issuance cost ( 677 ) — ( 639 )

Repayment of note payable ( 27,821 ) ( 2,500 ) ( 50,625 )

23 unchanged sentences

TWIS is a wholly owned subsidiary of GF.

The Company had seven corporate-owned locations in operation at December 31, 2019 and 2018.

The Company had nine corporate-owned locations in operation at December 31, 2020 and seven at December 31 2019 and 2018.

The operations of the franchise units are recorded in Goosehead Insurance Agency, LLC (“GIA”)—a Delaware limited liability company headquartered in Westlake, TX and operating since 2011.

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The aggregate principal amount of the Goosehead Management Note and the Texas Wasatch Note was approximately $ 114 million.

Because the net proceeds from the Offering were insufficient to repay the aggregate principal amount of the notes, 3,724 thousand shares of Class A common stock were issued to the Goosehead Management Holders and the Texas Wasatch Holders for the difference.

Because the net proceeds from the Offering were insufficient to repay the aggregate principal amount of the notes, 3,724 thousand shares of Class A common stock

were issued to the Goosehead Management Holders and the Texas Wasatch Holders for the difference.

GSHD contributed direct and indirect ownership interests in each of TWIHG and GM to GF.

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Summary of significant accounting policies

Impact of the coronavirus (“COVID-19”) pandemic

The extent to which the COVID-19 pandemic and the related economic impact may affect our financial condition or results of operations is uncertain.

The extent of the impact on our operational and financial performance will depend on various factors, including the duration and spread of the outbreak and its impact on home sales and consumer spending.

To date, the pandemic has not increased our costs of or access to capital under our term note and revolving credit facility, and we do not believe it is reasonably likely to do so in the future.

In addition, we do not believe that the pandemic will affect our ongoing ability to meet the covenants in our debt instruments, including under our term note and revolving credit facility.

To date, the pandemic has not impacted the collectability of receivables or adversely affected our ability to generate new business, add new franchises, or retain existing franchises or policies.

Due to the nature of our business, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods.

Changes in consumer behavior linked to the COVID-19 pandemic may have contributed to reduced loss ratios through the twelve months ended December 31, 2020, increasing the amount of revenue from Contingent Commissions the Company expects to receive.

Use of Estimates

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December 31, 2020

2020 2019 2018

Cash and cash equivalents $ 24,913 $ 14,337 $ 18,635

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Accordingly, as reported in the accompanying consolidated balance sheet, commissions are receivables from the insurance carriers.

These direct-bill arrangements consist of a high volume of transactions with small premium amounts, with the billing controlled by the insurance carriers.

These direct-

bill arrangements consist of a high volume of transactions with small premium amounts, with the billing controlled by the insurance carriers.

The income statement and balance sheet effects of the commissions are recorded at the contract effective date and generally are based on a percentage of premiums for insurance coverage.

During 2020, the Company wrote with over 140 insurance carriers, of which 45 provided national coverage.

In 2020, three carriers represented more than 10% of total revenue at 20 %, 13 % and 12 %.

In 2019, two carriers represented more than 10% of total revenue at 16 % and 10 %.

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The imputed interest is recorded as a discount on the franchise fee receivable and amortized using the interest rate method over the life of the payment plan.

The amount of interest recorded in 2019 and 2018 related to franchise fees on a payment plan was $ 606 thousand and $ 418 thousand, respectively, and is included in Interest income.

The amount of interest recorded in 2020, 2019, and 2018 related to franchise fees on a payment plan was $ 803 thousand, $ 606 thousand, and $ 418 thousand, respectively, and is included in Interest income.

Allowance for uncollectible franchise fees receivable

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As such, there is no allowance for doubtful accounts relating to royalty fees.

Revenue recognition

The adoption of the new revenue standard on January 1, 2019 has increased the significance of judgments and estimates management must make to apply the guidance.

In particular, judgments related to the amount of variable revenue consideration to ultimately be received on commission revenue, royalty fees, and contingent commissions, which were previously recognized when the Company received notification from the insurance carrier, now require significant judgments and estimates.

The Company adjusts its estimates of revenue recognized for commissions and royalty fees based on cash collections during the terms of the policies.

Under the new standard, certain costs to obtain or fulfill a contract that were previously expensed as incurred have been capitalized.

The Company capitalizes the incremental costs to obtain contracts primarily related to commission

These deferred costs are amortized over the expected life of the underlying franchise fee, and are included in Other assets in the Company's consolidated balance sheet as of December 31, 2020

Property & equipment

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Premiums payable represent premium payments that have been received from insureds, but not yet remitted to the insurance carriers.

Unearned revenue

When the Company collects Initial Franchise Fees prior to the franchisee start date, the amount collected is recognized as unearned revenue until the Company fulfills its performance obligation and is able to recognize the revenue.

Prior to the adoption of Revenue from Contracts with Customers (ASU 2014-09) (“Topic 606”), unearned revenue was recorded as Initial Franchise Fees received prior to the date the franchisee attended training.

included in unearned revenue related to initial franchise fees were $ 0 and $ 530 thousand at December 31, 2019 and 2018, respectively.

Deferred financing costs

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Deferred financing costs are included as a reduction in notes payable on the accompanying consolidated balance sheets.

Lease Accounting

The primary leased asset class of the Company is real estate.

For leases with an original term longer than one year, lease liabilities are initially recognized on the lease commencement date based on the present value of the future minimum lease payments over the lease term, including non-lease components such as fixed common area maintenance costs and other fixed costs for generally all leases.

A corresponding right of use ("ROU") asset is initially recognized equal to the lease liability adjusted for any lease prepayments, initial direct costs and lease incentives and amortized into rent expense, which is mapped to general and administrative expenses in the consolidated statements of operations.

The discount rates used in determining the present value of leases represent our collateralized borrowing rate considering each lease's term.

The lease term includes options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

Certain leases have renewal options that can be exercised at the discretion of the Company.

Rent expense is generally recognized on a straight-line basis over the lease term and included in General and administrative expenses in the Consolidated Statement of Operations.

See Note 15 for further information.

Deferred rent

Deferred rent consists of rent abatement affecting the timing of cash rent payments related to the Company’s corporate office leases, as well as lease incentives such as construction allowances.

Deferred rent is record as a liability and is amortized over the lease term as a reduction to rent expense.

In 2019, deferred rent was record as a liability and amortized over the lease term as a reduction to rent expense.

In 2020, upon the adoption of ASC 842, the entire cumulative deferred rent balance under ASC 840 was treated as an adjustment to the ROU balance.

Prior to the Offering, GF was treated as a partnership for U.S.

6 unchanged sentences

The Company expenses advertising costs as they are incurred.

Advertising expense for the years ended December 31, 2019 and 2018 was $ 812 thousand and $ 521 thousand.

Advertising expense for the years ended December 31, 2020, 2019, and 2018 was $ 879 thousand, $ 812 thousand, and $ 521 thousand.

Recently issued accounting pronouncements

Leases (ASU 2016-02) :

This standard establishes a new lease accounting model, which introduces the recognition of lease assets and liabilities for those leases classified as operating leases under previous GAAP.

It should be applied using a modified retrospective approach, with the option to elect various practical expedients.

Early adoption is permitted.

The standard will become effective for the Company January 1, 2021, but the Company is not required to present the impacts of the standard until it files its annual report on Form 10-K for the fiscal year ended December 31, 2021.

The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements.

However we expect the impact of this guidance on our consolidated financial statements could be significant, as our future minimum operating lease commitments totaled $ 22.3 million as of December 31, 2019.

Reference Rate Reform (ASU 2020-04) :

In March 2020, the Financial Accounting Standards Board issued ASU 2020-04.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S.

GAAP if certain criteria are met to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued.

ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022.

A substantial portion of our indebtedness bears interest at variable interest rates, primarily based on USD-LIBOR.

The adoption of ASU 2020-04 did not have a material impact on our consolidated financial statements.

The standard will ease, if warranted, the administrative requirements for accounting for the future effects of the rate reform.

We continue to monitor the impact the discontinuance of LIBOR will have on our contracts and other transactions.

Simplifying the Accounting for Income Taxes (ASU 2019-12) :

This standard removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes

in interim periods.

It also adds guidance in certain areas, including the recognition of franchise taxes, recognition of deferred taxes for tax goodwill, allocation of taxes to members of a consolidated group, computation of

annual effective tax rates related to enacted changes in tax laws, and minor improvements related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method.

This standard is effective for annual reporting periods beginning after December 15, 2020, including interim periods therein.

We do not expect the adoption of ASU 2019-12 to have a material impact to our consolidated financial statements.

Recently adopted accounting pronouncements

Revenue from Contracts with Customers (ASU 2014-09) (“Topic 606”) :

This standard supersedes the existing revenue recognition guidance and provides a new framework for recognizing revenue.

The core principle of the standard is that an entity should recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services.

Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized.

Guidance subsequent to ASU 2014-09 has been issued to clarify various provisions in the standard, including principal versus agent considerations, identifying performance obligations, licensing transactions, as well as various technical corrections and improvements.

According to the superseding standard ASU 2015-14 that deferred the effective dates of the preceding, and because the Company is filing as an emerging growth company, the standard became effective for the Company January 1, 2019, but the Company was not required to present the impacts of the standard until this annual report on Form 10-K for the fiscal year ended December 31, 2019.

This standard may be adopted using either a retrospective or modified retrospective method.

The Company adopted this standard by recognizing the cumulative effect as an adjustment to opening accumulated deficit and non-controlling interests at January 1, 2019, under the modified retrospective method for contracts not completed as of the day of adoption.

Under the modified retrospective method, the Company was not required to restate comparative financial information prior to the adoption of these standards and, therefore, such information presented prior to January 1, 2019 continue to be reported under the Company’s previous accounting policies.

The details of the significant changes and quantitative impact of the changes are discussed below and in "Note 3.

Impact on Financial Statements

The following tables summarize the impacts of adopting the revenue recognition standard on the Company’s consolidated financial statements:

(in thousands) Legacy GAAP Adjustments due to Topic 606 As Reported

Consolidated Statement of Income

Year Ended December 31, 2019

Commissions and agency fees 50,164 ( 3,798 ) 46,366

Franchise revenues 33,309 ( 2,806 ) 30,503

Employee compensation and benefits 41,838 ( 123 ) 41,715

Bad debts 1,817 ( 1,092 ) 725

Income taxes 1,758 ( 454 ) 1,304

Net income 15,326 ( 4,944 ) 10,382

Earnings per share:

Basic 0.36 ( 0.12 ) 0.24

Diluted 0.33 ( 0.11 ) 0.22

(in thousands) Legacy GAAP Adjustments due to Topic 606 As Reported

Consolidated Balance Sheet

December 31, 2019

Commissions and agency fees receivable, net 2,241 4,643 6,884

Receivable from franchisees, net 3,880 9,736 13,616

Deferred income taxes, net 15,217 320 15,537

Other assets 156 1,201 1,357

Accounts payable and accrued expenses 5,138 ( 105 ) 5,033

Unearned revenue 515 ( 515 ) —

Contract liabilities — 22,795 22,795

Liabilities under tax receivable agreement 13,336 23 13,359

Stockholders' Equity (1) :

Accumulated Deficit ( 21,427 ) ( 2,384 ) ( 23,811 )

Non-controlling interests ( 18,152 ) ( 3,848 ) ( 22,000 )

Total equity ( 24,768 ) ( 6,239 ) ( 31,007 )

(1) Changes in the equity balances are a resulted of the cumulative effect of the adoption ASC 606 on beginning balances, and the impact to the current period net income.

(in thousands) Legacy GAAP Adjustments due to Topic 606 As Reported

Consolidated Statement of Cash Flows

December 31, 2019

Operating Cash Flows:

Net Income 15,326 ( 4,944 ) 10,382

Bad Debt Expense 1,817 ( 1,092 ) 725

Tax receivable agreement liability 11,653 23 11,676

Deferred income taxes ( 11,204 ) ( 178 ) ( 11,382 )

Receivable from franchisees ( 1,739 ) ( 3,422 ) ( 5,161 )

Commissions and agency fees receivables ( 1,316 ) 3,791 2,474

Other assets ( 27 ) ( 319 ) ( 346 )

Accounts payable and accrued expenses 1,016 ( 103 ) 913

Contract liabilities — 6,281 6,281

Unearned revenue ( 13 ) ( 38 ) ( 51 )

Net cash provided by operating activities 21,241 — 21,241

Leases (ASU 2016-02) :

ASU 2016-02 amended the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting.

The new guidance also required additional disclosures about leases.

The Company adopted the requirements of the new standard as of the first day of 2020 using the modified retrospective approach, without restating comparative periods.

As part of our adoption, we elected the package of practical expedients, as well as the hindsight practical expedient, permitted under the new guidance, which, among other things, allowed the Company to continue utilizing historical classification of leases.

For those leases that fall under the definition of a short-term lease, the Company elected the short-term lease recognition exemption.

The adoption of the new standard resulted in the recording of a right-of-use asset of $ 11.2 million and lease liabilities of $ 18.5 million, and had no impact on retained earnings as of the beginning of 2020.

The standard did not materially impact our Consolidated Statements of Operations and had no impact on cash flows.

Credit Losses (ASU 2016-13) :Under the new guidance an entity is required to measure all credit losses on certain financial instruments, including trade receivables and various off-balance sheet credit exposures, using an expected credit loss model.

This model incorporates past experience, current conditions and reasonable and supportable forecasts affecting collectability of these instruments.

The Company adopted the requirements of the new standard as of the first day of 2020, however, the adoption of the amendment did not have a material effect on our consolidated financial statements or on our disclosures.

The primary impacts of the new standard to the Company's revenues and expenses are as follows:

Commissions and fees

Commissions and agency fees

The Company earns new and renewal commissions paid by insurance Carriers and fees paid by its clients for the binding of insurance coverage.

The transactions price is set as the estimated commissions to be received over the term of the policy, net of a constraint for policy changes and cancellations.

The transactions price is set as the estimated commissions to be received over the term of the policy based on an estimate of premiums placed, policy changes and cancellations, net of a constraint.

These commissions and fees are earned at a point in time upon the effective date of bound insurance coverage, as no performance obligation exists after coverage is bound.

The company also earns contingent commissions from the insurance carriers based on the growth and the profitability of the premiums being placed with the insurance carrier.

Prior to the adoption of Topic 606, Commis sions from insurance carriers, net of estimated cancellations, were recognized as revenue when the data necessary to reasonably determine such amounts was made available to the Company.

9 unchanged sentences

As a result of the adoption of Topic 606, Agency Fees are recognized as revenue on the effective date of the policy, generally later than they had been previously.

Contingent commission revenue is generated from contracts between the Company and insurance carriers, for which the Company is compensated for certain growth, profitability, other performance-based metrics.

The performance obligations for contingent commissions will vary by contract, but generally include the Company increasing profitable written premium with the insurance carrier.

13 unchanged sentences

Revenue from New and Renewal Royalty Fees is recorded by applying the sales- and usage-based royalties exception.

Under the sales- and usage-based exception, the Company estimates the anticipated amount of the royalties to be received over the term of the policy.

Under the sales- and usage-based exception,the Company estimates the anticipated amount of the royalties to be received over the term of the policy based on an estimate of premiums placed by the franchisee, policy changes, and cancellations, net of a constraint.

Revenue from Royalty Fees is recognized over time as the placement of the underlying policies occur.

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Incremental cost to obtain - The adoption of ASC 340 resulted in the Company deferring certain costs to obtain customer contracts primarily as they relate to commission-based compensation plans in the Franchise Channel, in which the Company pays an incremental amount of compensation on new franchise agreements.

These incremental costs are deferred and amortized over a 10-year period, which is consistent with the term of the contact.

These incremental costs are deferred and amortized over a 10 -year period, which is consistent with the term of the contract.

Costs to fulfill - The Company has evaluated the need to capitalize costs to fulfill customer contracts and has determined that there are no costs that meet the definition for capitalization under ASC 340.

Disaggregation of Revenue

The following table disaggregates revenue by segment and source for 2019:

The following tables disaggregates revenue by segment and source (in thousands) :

Year Ended December 31, 2020 Franchise Channel Corporate Channel Total

16 unchanged sentences

Total Revenues $ 55,957 $ 61,057 $ 117,014

Year Ended December 31, 2019:

Franchise Channel Corporate Channel Total

Type of revenue stream:

Commissions and agency fees

Renewal Commissions $ — $ 22,924 $ 22,924

New Business Commissions — 11,961 11,961

Agency Fees — 6,058 6,058

Contingent Commissions 3,530 1,893 5,423

Franchise revenues —

Renewal Royalty Fees 19,462 — 19,462

New Business Royalty Fees 7,149 — 7,149

Initial Franchise Fees 3,784 — 3,784

Other Franchise Revenues 108 — 108

Interest Income 617 — 617

Total Revenues $ 34,650 $ 42,836 $ 77,486

Timing of revenue recognition:

Transferred at a point in time $ — $ 40,943 $ 40,943

Transferred over time 34,650 1,893 36,543

Total Revenues $ 34,650 $ 42,836 $ 77,486

Contract Balances

The following table provides information about receivables, cost to obtain, and contract liabilities from contracts with customers:

December 31, 2019 January 1, 2019 Increase/(decrease)

The following table provides information about receivables, cost to obtain, and contract liabilities from contracts with customers (in thousands) :

December 31, 2020 December 31, 2019 Increase/(decrease)

Cost to obtain franchise contracts (1)

1 unchanged sentence

Commissions and agency fees receivable, net (2)

18,604 6,884 11,720

Receivable from franchisees (2)

20,279 13,616 6,663

Contract liability (3)

34,201 22,795 11,406

(1) Cost to obtain franchise contracts is included in Other assets on the consolidated balance sheets.

(2) Includes both the current and long term portion of this balance.

(3) Initial Franchise Fees to be recognized over the life of the contract

Significant changes in contract liabilities are as follows:

December 31, 2019

Significant changes in contract liabilities are as follows (in thousands) :

December 31, 2020 December 31, 2019

Contract liability at beginning of period $ 22,795 $ 16,514

1 unchanged sentence

New deferrals (1)

15,642 10,065

Contract liability at end of period $ 34,201 $ 22,795

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Estimate for the year ended December 31:

2024 and thereafter 11,837

Thereafter 13,701

Franchise fees receivable

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Balance at December 31, 2018 $ 455

Adjustments related to adoption of ASC 606 ( 440 )

Adjusted balance at January 1, 2019 15

Charges to bad debts 121

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Balance at December 31, 2019 52

Adjustments related to adoption of ASC 606 ( 440 )

Adjusted balance at January 1, 2019 15

Charges to bad debts 387

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Allowance for uncollectible agency fees

Activity in the allowance for uncollectible agency fees was as follows:

Activity in the allowance for uncollectible agency fees was as follows (in thousands) :

Allowance for Uncollectible Agency Fees:

Balance at December 31, 2018 $ 242

Adjustments related to adoption of ASC 606 ( 134 )

Adjusted balance at January 1, 2019 108

Charges to bad debts 604

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Balance at December 31, 2019 178

Adjustments related to adoption of ASC 606 ( 134 )

Adjusted balance at January 1, 2019 108

Charges to bad debts 1,189

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Property and equipment

Property and equipment consisted of the following at:

Property and equipment consisted of the following at (in thousands) :

Furniture & fixtures $ 4,404 $ 3,012

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Property and equipment, net $ 16,650 $ 9,542

Depreciation expense was $ 1.7 million and $ 1.3 million for the years ended December 31, 2019 and 2018, respectively.

Depreciation expense was $ 2.9 million, $ 1.7 million, and $ 1.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.

Intangible assets

Intangible assets consisted of the following:

Intangible assets consisted of the following (in thousands) :

December 31, Weighted average amortization period (years)

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Intangible assets, net $ 549 $ 445

Amortization expense was $ 204 thousand and $ 117 thousand for the years ended December 31, 2019 and 2018, respectively.

Amortization expense was $ 288 thousand, $ 204 thousand, and $ 117 thousand for the years ended December 31, 2020, 2019, and 2018, respectively.

Expected amortization over the next five years is as follows:

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Matching contributions may be changed at the discretion of the Company.

Company contributions totaled $ 592 thousand and $ 529 thousand for the years ended years ended December 31, 2019 and 2018.

On August 3, 2018, the Company refinanced its $ 3.0 million revolving credit facility and $ 50.0 million term note payable to a $ 13.0 million revolving credit facility and $ 40 million term note payable in order to obtain a more favorable interest rate on the outstanding debt.

Company contributions totaled $ 845 thousand, $ 592 thousand, and $ 529 thousand for the years ended December 31, 2020, 2019, and 2018.

On March 6, 2020, the Company refinanced its $ 13.0 million revolving credit facility and $ 40.0 million term note payable to a $ 25.0 million revolving credit facility and $ 80 million term note payable in order to obtain a more favorable interest rate on the outstanding debt.

The Company has the right, subject to approval by the administrative agent and each issuing bank, to increase the commitments under the credit facilities an additional $ 50.0 million.

The Company treated the refinancing as an extinguishment of the existing debt.

As part of the refinancing, $ 0.2 million of debt issuance costs from previous debt were immediately recognized as interest expense

The $ 25.0 million revolving credit facility accrues interest on amounts drawn at an initial interest rate of LIBOR plus 2.50 %, then at an interest rate determined by the Company's leverage ratio for the preceding period.

As of December 31, 2019, the Company was in the greater than 1.50 x leverage ratio tranche, accruing interest of LIBOR plus 2.00 %.

At December 31, 2020, the Company had $ 5.0 million drawn against the revolver.

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The revolving credit facility is collateralized by substantially all the Company’s assets, which includes rights to future commissions.

Interest payment on the revolving credit facility totaled $ 450 thousand and $ 198 thousand for the years ended December 31, 2019 and 2018, respectively.

Interest payment on the revolving credit facility totaled $ 85 thousand, $ 450 thousand, and $ 198 thousand for the years ended December 31, 2020, 2019, and 2018, respectively.

The $ 80.0 million term note accrues interest at an initial interest rate of LIBOR plus 2.00 %, then at an interest rate determined by the Company's leverage ratio for the preceding period.

As of December 31, 2020, the Company was in the greater than 1.50 x leverage ratio tranche, accruing interest of LIBOR plus 2.00 %.

The aggregate principal amount of the term note as of December 31, 2019 is $ 36.5 million, payable in quarterly installments of (x) $ 750 thousand from the fiscal quarter ending 3/31/2020 through the fiscal quarter ending 6/30/2020 and (y) $ 1.25 million

from the fiscal quarter ending 9/30/2020 through the fiscal quarter ending 6/30/2021, with a balloon payment of the entire unpaid principal amount of the term note on 8/3/2021.The term note is collateralized by substantially all the Company’s assets, which includes rights to future commissions.

The aggregate principal amount of the term note as of December 31, 2020 is $ 78.5 million, payable in quarterly installments of $ 0.5 million for the first twelve months, $ 1.0 million for the next twelve months, and $ 2.0 million for the last twelve months, with a balloon payment on March 6, 2023.The term note is collateralized by substantially all the Company’s assets, which includes rights to future commissions.

The interest rate for each leverage ratio tier are as follows:

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Total $ 78,500

The $ 10.0 million drawn against the revolver is coterminous with the term loan and is due in full on August 3, 2021.

The $ 5.0 million drawn against the revolver is coterminous with the term loan and is due in full on March 6, 2023.

Loan origination fees of $ 423 thousand at December 31, 2020 are reflected as a reduction to the note balance and are amortized through interest expense.

As part of the August 3, 2018 refinancing, $ 871 thousand of origination fees from previous debt were immediately recognized as interest expense.

As part of the March 6, 2020 refinancing, $ 0.2 million of origination fees from previous debt were immediately recognized as interest expense.

The Company’s note payable agreement contains certain restrictions and covenants.

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As of December 31, 2020, the Company was in compliance with these covenants.

The Company refinanced its credit facilities on March 6, 2020.

See "Note 16:

Subsequent Events."

Because of both instruments’ origination date and variable interest rate, the note payable balance at December 31, 2020 and December 31, 2019, approximates fair value using Level 2 inputs, described below.

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The valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

Commitments and contingencies

The Company leases its facilities under non-cancelable operating leases.

In addition to monthly lease payments, the lease agreements require the Company to reimburse the lessors for its portion of operating costs each year.

Rent expense was $ 1.9 million and $ 1.6 million for the years ended December 31, 2019 and 2018.

The following is a schedule of future minimum lease payments as of December 31, 2019 ( in thousands ):

Year ending December 31:

Therafer 9,231

As a result of the Reorganization Transactions and the Offering, GSHD became the sole managing member of GF, which is treated as a partnership for U.S.

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Year Ended December 31

2020 2019 2018

Current income taxes

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Total deferred income taxes 311 286 ( 30 )

Income tax expense $ 1,304 $ 449

Income tax expense (benefit) $ ( 1,035 ) $ 1,304 $ 449

A reconciliation of income tax expense computed at the U.S.

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Year Ended December 31

Income (loss) before taxes $ 11,686

Income taxes at U.S.

federal statutory rate $ 2,454

Tax on income not subject to entity level federal income tax ( 1,453 )

Permanent Differences:

Meals & Entertainment 61

State income tax, net of federal benefit 236

Other Reconciling items:

Income tax expense $ 1,304

Year Ended December 31,

2020 2019 2018

Income (loss) before taxes $ 17,720 $ 11,686 $ ( 18,218 )

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Non-deductible excess compensation — — 27

Non-deductible employee moving expenses 1 — —

Meals & Entertainment 47 61 38

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Other Reconciling items:

Income tax expense $ 449

Other ( 59 ) 6 2

Income tax expense (benefit) $ ( 1,035 ) $ 1,304 $ 449

Deferred tax assets and liabilities

1 unchanged sentence

December 31, 2020 December 31, 2019

Net operating loss carryforwards $ 703 $ —

Investment in flow-through entity 72,660 15,537

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federal, state and local income tax or franchise tax that GSHD actually realizes as a result of (i) any increase in tax basis in GSHD's assets and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement.

During the years ended December 31, 2019 and 2018, an aggregate of 1.4 million and 261 thousand LLC Units, respectively, were redeemed by the Pre-IPO LLC Members for newly-issued shares of Class A common stock.

In connection with these redemptions, we received 1.4 million and 261 thousand LLC Units, which resulted in an increase in the tax basis of our investment in GF subject to the provisions of the Tax Receivable Agreement.

During the years ended December 31, 2020, 2019 and 2018, an aggregate of 2.6 million, 1.4 million and 0.3 million LLC Units, respectively, were redeemed by the Pre-IPO LLC Members for newly-issued shares of Class A common stock.

In connection with these redemptions, we received 2.6 million, 1.4 million and 0.3 million LLC Units, which resulted in an increase in the tax basis of our investment in GF subject to the provisions of the Tax Receivable Agreement.

We recognized a liability for the TRA Payments due to the Pre-IPO LLC Members, representing 85 % of the aggregate tax benefits we expect to realize from the tax basis increases related to the redemptions of LLC Units, after concluding it was probable that such TRA Payments would be paid based on our estimates of future taxable income.

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Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to GSHD's stockholders for their vote or approval, except as otherwise required by applicable law, by agreement, or by GSHD's certificate of incorporation.

Correction of Prior Period Balances:

Subsequent to the issuance of the Company’s Annual report on Form 10-K for the year ended December 31, 2018, the Company determined that there was an error in the initial allocation of the effects of the Reorganization Transactions and of the non-controlling interest as presented in the consolidated statement of stockholders’ equity for the year ended December 31, 2018.

This resulted in misstatements of activity in and balances of additional paid in capital, accumulated deficit, total stockholders' equity and non-controlling interest within the consolidated statement of stockholders' equity and consolidated balance sheet as of and for the year ended December 31, 2018.

The Company evaluated the materiality of these misstatements from quantitative and qualitative perspectives and concluded the misstatements are not material to the prior period.

The previously reported amounts within the Company’s consolidated statement of stockholders’ equity for the year ended December 31, 2018 and the corresponding amounts in the consolidated balance sheet as of December 31, 2018 have been revised to reflect the corrected balances as presented below (in thousands):

Consolidated statement of stockholders’ equity for the year ended December 31, 2018

Additional paid in capital Accumulated deficit Total stockholders' equity Non-controlling interest

As previously reported Adjustment As corrected As previously reported Adjustment As corrected As previously reported Adjustment As corrected As previously reported Adjustment As corrected

Effects of the Reorganization Transactions $ ( 132,202 ) $ 38,022 $ ( 94,180 ) $ ( 7,379 ) $ ( 14,183 ) $ ( 21,562 ) $ ( 139,354 ) $ 23,839 $ ( 115,515 ) $ ( 12,402 ) $ ( 23,839 ) $ ( 36,241 )

Initial non-controlling interest allocation $ 97,071 $ ( 115,991 ) $ ( 18,920 ) $ — $ — $ — $ 97,071 $ ( 115,991 ) $ ( 18,920 ) $ ( 97,071 ) $ 115,991 $ 18,920

Redemption of LLC Units $ ( 1,251 ) $ 1,057 $ ( 194 ) $ — $ — $ — $ ( 1,251 ) $ 1,057 $ ( 194 ) $ 1,251 $ ( 1,057 ) $ 194

Balance December 31, 2018 $ 88,811 $ ( 76,912 ) $ 11,899 $ ( 6,578 ) $ ( 14,183 ) $ ( 20,761 ) $ 82,595 $ ( 91,095 ) $ ( 8,500 ) $ ( 107,798 ) $ 91,095 $ ( 16,703 )

Earnings Per Share

The following table sets forth the calculation of basic earnings per share ("EPS") based on net income attributable to GSHD for the years ended December 31, 2019 and 2018, divided by the basic weighted average number of Class A common stock as of December 31, 2019 and 2018 (in thousands, except per

share amounts) .

The following table sets forth the calculation of basic earnings per share ("EPS") based on net income attributable to GSHD for the years ended December 31, 2020 and 2019, divided by the basic weighted average number of Class A common stock as of December 31, 2020 and 2019 (in thousands, except per share amounts) .

Diluted earnings per share of Class A common stock is computed by dividing net income attributable to GSHD by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

The Company has not included the effects of conversion of Class B shares to Class A shares in the diluted EPS calculation using the "if-converted" method, because doing so has no impact on diluted EPS.

Year Ended December 31, 2019 Year Ended December 31, 2018

Company has not included the effects of conversion of Class B shares to Class A shares in the diluted EPS calculation using the "if-converted" method, because doing so has no impact on diluted EPS (in thousands) :

Year Ended December 31,

2020 2019 2018

Income (loss) before taxes $ 17,720 $ 11,686 $ ( 18,218 )

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Stock options (2)

1,598 1,236 —

Weighted average shares of Class A common stock outstanding - diluted $ 18,383 $ 16,100 $ 13,554

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For the years ended December 31, 2020 and 2019, GF made distributions of $ 4.8 million and $ 6.3 million, respectively, of which $ 2.7 million and $ 3.7 million, respectively, were made to Pre-IPO LLC Members.

The remaining $ 2.6 million and $ 0.9 million, respectively, were made to GSHD and was eliminated in consolidation.

The remaining $ 2.2 million and $ 2.6 million, respectively, were made to GSHD and were eliminated in consolidation.

Under the amended and restated Goosehead Financial, LLC Agreement, the Pre-IPO LLC Members have the right, from and after the completion of the Offering (subject to the terms of the amended and restated Goosehead Financial, LLC Agreement), to require GSHD to redeem all or a portion of their LLC Units for, at GSHD's election, newly-issued shares of Class A common stock on a one -for-one basis or a cash payment equal to the volume weighted average market price of one share of GSHD's Class A common stock for each LLC Unit redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the amended and restated Goosehead Financial, LLC Agreement.

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Except for transfers to GSHD pursuant to the amended and restated Goosehead Financial, LLC Agreement or to certain permitted transferees, the Pre-IPO LLC Members are not permitted to sell, transfer or otherwise dispose of any LLC Units or shares of Class B common stock.

During 2019 and 2018, an aggregate of 1.4 million and 261 thousand LLC Units, respectively, were redeemed by the non-controlling interest holders.

Pursuant to the GF LLC Agreement, we issued 1.4 million and 261 thousand shares of Class A common stock in connection with these redemptions and received 1.4 million and 261 thousand LLC Interests, increasing our ownership interest in GF LLC.

Simultaneously, and in connection with these redemptions, 1.4 million and 261 thousand shares of Class B common stock were surrendered and canceled.

The following table summarizes the ownership interest in GF as of December 31, 2019 (in thousands).

During 2020 and 2019, an aggregate of 2.6 million and 1.4 million LLC Units, respectively, were redeemed by the non-controlling interest holders.

Pursuant to the GF LLC Agreement, we issued 2.6 million and 1.4 million shares of

Class A common stock in connection with these redemptions and received 2.6 million and 1.4 million LLC Interests, increasing our ownership interest in GF LLC.

Simultaneously, and in connection with these redemptions, 2.6 million and 1.4 million shares of Class B common stock were surrendered and canceled.

The following table summarizes the ownership interest in GF as of December 31, 2020 and 2019 (in thousands).

December 31, 2020 December 31, 2019

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Year Ended December 31,

Net Income (loss) attributable to Goosehead Insurance Inc.

2020 2019 2018

Net Income attributable to Goosehead Insurance Inc.

$ 9,287 $ 3,567 $ ( 8,903 )

Transfers (to) from non-controlling interests:

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Year Ended December 31,

2020 2019 2018

Class B unit compensation $ — $ — $ 26,134

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In connection with the Reorganization Transactions, immediately prior to the Offering, historical Class B interests in TWIHG and GM vested by converting to the Texas Wasatch Note and Goosehead Management Note, respectively, paid with a combination of proceeds from the Offering and shares of Class A common stock.

This conversion changed the nature of the Class B interests from a profit sharing arrangement to a substantive class of equity and were expensed under the guidance of ASC 718.

At the Offering price of $ 10.00 per share, GSHD incurred total compensation expense of $ 6.2 million in connection with the conversion, recognized in the second quarter of 2018.

This conversion changed the nature of the Class B interests from a profit sharing arrangement to a substantive class of equity and were expensed under the guidance of Topic ASC 718, Compensation – Stock Compensation .

At the Offering price

of $ 10.00 per share, GSHD incurred total compensation expense of $ 6.2 million in connection with the conversion, recognized in the second quarter of 2018.

Class B interests in GF were also deemed vested by converting, along with all pre-offering Class A equity, on a one -to-one basis with the number of LLC units previously owned, to both LLC Units and shares of Class B common stock.

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There were 21 thousand and 13 thousand shares outstanding related to the Employee Stock Purchase Plan at December 31, 2020 and 2019.

On April 1, 2020, the Company granted an additional 900,000 stock options to its Managing Directors at an exercise price equal to $ 40.88 per share.

The grant date fair value of $ 16.31 per option was determined using the Black-Scholes valuation model using the following assumptions:

Expected volatility 40 %

Expected dividend yield — %

Expected term (in years) 6.5

Risk-free interest rate 0.47 %

A summary of stock option activity for the years ended December 31, 2020, 2019 and 2018 is as follows ( in thousands except per share amounts ):

Stock Options Weighted Average Exercise Price Aggregate Intrinsic Value Weighted Average Remaining Contractual Life (Years)

Outstanding as January 1, 2018

Granted 1,650 10.00 5,153

Exercised — — —

Forfeited — — —

Expired — — —

Outstanding as of December 31, 2018

1,650 $ 10.00 $ 5,153

Granted 80 34.50 815

Exercised — — —

Forfeited — — —

Expired — — —

Outstanding as of December 31, 2019

1,730 $ 11.13 $ 5,969

Granted 1,010 41.24 16,322

Exercised ( 450 ) 10.00 1,390

Forfeited — — —

Expired — — —

Outstanding as of December 31, 2020

2,290 $ 24.63 $ 20,901 8.15

Options vested and exercisable as of December 31, 2020

313 $ 10.00 $ 958 7.25

Options expected to vest as of December 31, 2020

1,977 $ 26.95 $ 19,943 8.28

As of December 31, 2020, total unrecognized compensation expense related to unvested stock options was $ 15.1 million, which is expected to be recognized over a weighted average period of 2.59 years.

Cash received from stock option exercises during the year ended December 31, 2020 was $ 4.5 million.

A summary of unvested stock option activity for the years ended December 31, 2020, 2019 and 2018 is as follows ( in thousands except per share amounts ):

Stock Options Weighted Average Grant Date Fair Value

Unvested as January 1, 2018 — $ —

Vested ( 91 ) 2.96

Granted 1,650 3.12

Forfeited — —

Unvested as of December 31, 2018 1,559 $ 3.13

Vested ( 122 ) 2.96

Granted 80 10.19

Forfeited — —

Unvested as of December 31, 2019 1,517 $ 3.15

Vested ( 550 ) 3.12

Granted 1,010 16.16

Forfeited — —

Unvested as of December 31, 2020 1,977 $ 10.09

The total fair value of stock options vested during the years ended December 31, 2020, 2019 and 2018 was $ 1.7 million, $ 0.4 million and $ 0.3 million, respectively.

On March 7, 2019, GF approved a $ 15 million extraordinary dividend to all holders of LLC Units, including GSHD.

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A summary of the total amounts declared by GF is as follows (in thousands) :

LLC Units held as of March 18, 2019:

Dividends declared

LLC Units held as of March 18, 2019 Dividends declared

Class A common stockholders 14,421 $ 5,962

1 unchanged sentence

Total 36,285 $ 15,000

On July 30, 2020, GF approved an extraordinary dividend in the aggregate amount of $ 42 million payable to holders of LLC Units, including GSHD.

The board of directors of the Company subsequently declared an extraordinary dividend of $ 1.15 (rounded) to all holders of Class A common stock of GSHD with a record date of August 10, 2020, which was paid on August 24, 2020.

A summary of the total amounts declared by GF is as follows (in thousands) :

LLC Units held as of August 10, 2020 Dividends declared

Class A common stockholders 17,263 $ 19,843

Class B common stockholders via LLC Units held 19,276 22,157

Total 36,539 $ 42,000

Any future extraordinary dividends will be declared at the sole discretion of GF's managing members with respect to GF and the Company's board of directors with respect to GSHD.

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the Company's financial condition and operating results, the Company's available cash and current and anticipated cash needs, the Company's capital requirements, any contractual, legal, tax and regulatory restrictions, general economic and business conditions, and such other factors or conditions as the board of directors deems relevant.

Effective January 1, 2020, the Company adopted new guidance that requires lessees to recognize on the Consolidated balance sheets all leases with lease terms greater than twelve months as a lease liability with a corresponding right-of-use (“ROU”) asset.

Accordingly, the Company recognized operating lease liabilities and ROU asset of $ 18.5 million and $ 11.2 million, respectively, on January 1, 2020.

For those leases that fall under the definition of a short-term lease, the Company elected the short-term lease recognition exemption.The adoption of the new lease guidance did not have a material impact on the Company’s Consolidated statements of operations.

The change in accounting due to the adoption of the new lease guidance did not result in a material change to the net rent expense when compared to December 31, 2019.

At December 31, 2020, Goosehead was obligated under a number of operating leases, exclusively leases for premises and equipment used for business purposes.

These leases generally have terms of 7 years or less, determined based on the contractual maturity of the lease, and include periods covered by options to extend or terminate the lease when the Company is reasonably certain that it will exercise those options.

None of these lease agreements impose restrictions on the Company’s ability to pay dividends, engage in debt or equity financing transactions or enter into further lease agreements.

Certain of these leases contain escalation clauses that will increase rent payments based on maintenance, utility and tax increases, which are non-lease components and variable in nature.

The Company elected not to separate lease and non-lease components of a contract for its real estate and equipment leases.

As such, real estate lease payments represent payments on both lease and non-lease components.

Operating lease liabilities and ROU asset are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term.

The future lease payments are discounted at a rate that represents the Company’s collateralized borrowing rate for financing instruments of a similar term.

We estimate this for our portfolio of leases using information obtained from our bankers.

The ROU asset also includes any lease prepayments made, plus initial direct costs incurred, less any lease incentives received.

Rent expense associated with operating leases is recognized on a straight-line basis over the lease term, and generally included in occupancy expense within General and administrative expenses in the Consolidated statements of operations.

The following table provides information related to the Company’s leases as of December 31, 2020 (in thousands) :

December 31, 2020

Right-of-use assets

Short term lease liabilities

Long term lease liabilities

Total lease liabilities

Weighted average remaining lease term (in years)

Weighted average incremental borrowing rate

The following is a schedule showing the components of lease cost for the year ended December 31, 2020 (in thousands):

December 31, 2020

Gross operating lease cost

Sublease income

Net lease cost

Rent expense was $ 1.9 million and $ 1.6 million for the years ended December 31, 2019 and 2018.

The following is a schedule of supplemental cash flow information related to leases for the year ended December 31, 2020 (in thousands):

December 31, 2020

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases $ ( 36,136 )

Right of use assets obtained in exchange for lease obligation

Operating leases $ 22,513

The following is a schedule of future maturity of lease liability as of December 31, 2020 (in thousands):

December 31, 2020

Total lease payments 41,873

imputed interest ( 5,737 )

Future maturity of lease liability

As previously disclosed in the Company's 2019 Annual Report and under previous lease accounting, the minimum lease payments required under operating leases were as follows (in thousands):

Non-cancelable Operating Leases

Total minimum lease payments

In addition to the table above, as of December 31, 2020, the Company had additional future operating lease commitments of $ 3.2 million that were signed but had not yet commenced.

These operating leases will commence between 2021 and 2022 with lease terms up to 7 years.

Segment information

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Allocations of contingent commissions and certain operating expenses are based on reasonable assumptions and estimates primarily using revenue, headcount and other information.

The Company’s chief operating decision maker uses net income before interest, income taxes, depreciation and amortization, adjusted to exclude equity-based compensation and other non-operating items, including, among other things, certain non-cash charges and certain non-recurring or non-operating gains or losses (“Adjusted EBITDA”) as a performance measure to manage resources and make decisions about the business.

The Company’s chief operating decision maker uses net income before

interest, income taxes, depreciation and amortization, adjusted to exclude equity-based compensation and other non-operating items, including, among other things, certain non-cash charges and certain non-recurring or non-operating gains or losses (“Adjusted EBITDA”) as a performance measure to manage resources and make decisions about the business.

Summarized financial information concerning the Company’s reportable segments is shown in the following tables (in thousands).

There are no intersegment sales, only interest income and interest expense related to an intersegment line of credit, all of which eliminate in consolidation.

The “Other” column

includes any income and expenses not allocated to reportable segments and corporate-related items, including equity-based compensation, certain legal expenses and interest related to the note payable.

The “Other” column includes any income and expenses not allocated to reportable segments and corporate-related items, including equity-based compensation, certain legal expenses and interest related to the note payable.

Channel Corporate

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Employee compensation and benefits, excluding equity-based compensation 26,231 35,843 — 62,074

General and administrative expenses, excluding state franchise tax 7,392 8,769 2,881 19,042

General and administrative expenses 9,618 12,058 3,856 25,532

Bad debts 387 1,189 — 1,576

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Adjusted EBITDA 19,721 11,967 0 ( 3,856 ) 27,832

Other income (expense) 90 — — 90

Equity based compensation — — ( 4,745 ) ( 4,745 )

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Commissions and agency fees

Renewal Commissions $ — $ 22,924 $ — $ 22,924

Agency Fees — 6,058 — 6,058

New Business Commissions — 11,961 — 11,961

Contingent Commissions 3,530 1,893 — 5,423

Total Commissions and Agency Fees 3,530 42,836 — 46,366

Franchise revenue

Renewal Royalty Fees 19,462 — — 19,462

New Business Royalty Fees 7,149 — — 7,149

Initial Franchise Fees 3,784 — — 3,784

Other Income 108 — — 108

Total Franchise Revenue 30,503 — — 30,503

Interest income

Interest Income 617 — — 617

Total Interest Income 617 — — 617

Total 34,650 42,836 — 77,486

Employee compensation and benefits, excluding equity-based compensation 16,673 23,516 — 40,189

General and administrative expenses 7,392 8,769 2,881 19,042

Bad debts 121 604 — 725

Total 24,186 32,889 2,881 59,956

Adjusted EBITDA 10,464 9,947 ( 2,881 ) 17,530

Equity based compensation — — ( 1,526 ) ( 1,526 )

Interest expense — — ( 2,387 ) ( 2,387 )

Depreciation and amortization ( 960 ) ( 971 ) — ( 1,931 )

Taxes — — ( 1,304 ) ( 1,304 )

Net income $ 9,504 $ 8,976 $ ( 8,098 ) $ 10,382

At December 31, 2019:

Total Assets $ 22,676 $ 15,127 $ 26,825 $ 64,628

Channel Corporate

Channel Other Total

Year ended December 31, 2018

Commissions and agency fees

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Adjusted EBITDA 8,615 7,536 ( 1,399 ) 14,752

Other income (expense, including state franchise tax) — ( 22 ) ( 135 ) ( 157 )

Other income (expense) — ( 22 ) ( 135 ) ( 157 )

Equity based compensation — — ( 27,083 ) ( 27,083 )

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It is the opinion of management that the resolution of outstanding claims will not have a material adverse effect on the financial position or results of operations of the Company.

Subsequent events

On March 6, 2020, the Company refinanced its $ 13.0 million revolving credit facility and $ 40.0 million term note payable to a $ 25.0 million revolving credit facility and $ 80.0 million term note payable to finance general corporate

The Company has the right, subject to approval by the administrative agent and each issuing bank, to increase the commitments under the credit facilities an additional $ 50 million.

At March 6, 2020, the Company had $ 5.0 million drawn against the revolver and had a letter of credit of $ 333 thousand applied against the maximum borrowing availability.

Thus, amounts available to draw totaled $ 19.7 million.

The revolving credit facility is collateralized by substantially all the Company’s assets, which includes rights to future commissions.

The $ 80.0 million term note is payable in quarterly installments of $ 500 thousand the first twelve months, $ 1 million the next twelve months and $ 2 million the last twelve months, with a balloon payment on March 6, 2023.

The note is collateralized by substantially all of the Company’s assets, which includes rights to future commissions.

Interest is calculated initially at LIBOR plus 2.50 %, then at an interest rate based on the Company's leverage ratio for the preceding period.

The interest rate for each leverage ratio tier are as follows:

Leverage Ratio Interest Rate

LIBOR + 175 bps

LIBOR + 200 bps

LIBOR + 225 bps

LIBOR + 250 bps

Maturities of note payable for the next four years are as follows ( in thousands ):

As of March 5, 2020:

Total $ 80,000

The Company’s note payable agreement contains certain restrictions and covenants.

Under these restrictions, the Company is limited in the amount of debt incurred and distributions payable.

In addition, the credit agreement contains certain change of control provisions that, if broken, would trigger a default.

Finally, the Company must maintain certain financial ratios.

As of March 6, 2020, the Company was in compliance with these covenants.

Selected quarterly financial data (unaudited)

The following tables set forth certain unaudited quarterly results of operations for the years ended December 31, 2019 and 2018 (in thousands, except per share data) under ASC 605.

The sum of the four quarters may differ from the annual amount due to rounding:

The following tables set forth certain unaudited quarterly results of operations for the years ended December 31, 2020, 2019, and 2018 (in thousands, except per share data).

The sum of the four quarters may differ from the annual amount due to rounding (in thousands) :

First Quarter Second Quarter Third Quarter Fourth Quarter

2 unchanged sentences

Net income $ ( 296 ) $ 7,386 $ 6,725 $ 5,486

Net Income (loss) attributable to Goosehead Insurance Inc.

$ ( 156 ) $ 3,379 $ 3,267 $ 2,892

Earnings per share (2)

5 unchanged sentences

Net income $ 7,318 $ 2,817 $ 2,763 $ 2,427

Net Income attributable to Goosehead Insurance Inc.

$ 2,472 $ 903 $ 998 $ 946

Earnings per share (2)

1 unchanged sentence

Diluted $ 0.16 $ 0.06 $ 0.06 $ 0.05

(1) The quarterly results are shown under ASC 605, as the Company was required to show the impact of the changes in revenue recognition on a full-year basis for 2019.

First Quarter Second Quarter Third Quarter Fourth Quarter

Total revenue $ 14,589 $ 14,788 $ 16,054 $ 14,717

Income from operations $ 4,763 $ ( 22,749 ) $ 2,653 $ 1,403

Net income $ 3,768 $ ( 23,875 ) $ 836 $ 605

Net Income (loss) attributable to Goosehead Insurance Inc.

$ — $ ( 9,234 ) $ 241 $ 90

Earnings per share (2)(4)

Basic $ 0.08 $ ( 0.68 ) $ 0.02 $ 0.01

Diluted $ 0.08 $ ( 0.68 ) $ 0.02 $ 0.01

(1) The quarterly results are shown under Topic 840, as the Company was required to show the impact of the changes in leases on a full-year basis for 2020.

(2) Basic and diluted earnings per share are computed independently for each of the quarters presented.

Therefore, the sum of quarterly basic and diluted earnings per share amounts may not equal annual basic and diluted earnings per share amounts.

(3) Basic and diluted earnings per share for the first quarter of 2018 are shown on a pro-forma basis, as there was no Class A or Class B common stock outstanding as of March 31, 2018.

(3) The quarterly results are shown under ASC 605, as the Company was required to show the impact of the changes in revenue recognition on a full-year basis for 2019.

(4) Basic and diluted earnings per share for the first quarter of 2018 are shown on a pro-forma basis, as there was no Class A or Class B common stock outstanding as of

March 31, 2018.

Changes in and disagreements with accountants on accounting and financial statement disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data