What changed in this filing

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Item 1. Business

2022-02-28 compared with 2021-02-26 · 98 added, 64 removed, 389 unchanged (29% of the section changed)

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Independent agents typically are working on outdated technology platforms, leading to delays in insurance quotes and very limited ability to interact with their agent.

We have leveraged our scale to empower our agents with technology that allows them to run quotes and place business in one simple phone-call.

After signing their documents electronically through our online portal, clients can engage with Goosehead’s industry leading service team via self-service, phone, text, online chat, or email.

We have leveraged our scale to empower our agents and now our clients with technology that allows them to run quotes and place business quickly and accurately.

After signing their documents electronically, clients can engage with Goosehead’s industry leading service team via self-service, phone, text, online chat, or email.

Our choice model, superior sales and service agents, and proprietary technology has led to 89% client retention during 2021, which we believe is among the best in our industry.

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Our proprietary technology platform allows our agents to identify Referral Partners, run quotes in less than five minutes, and gives them all the analytics they need to make smart decisions around building a successful agency.

Our nine corporate-owned offices and 364 corporate sales agents serve as the blueprint for what is possible in the Goosehead model, and our corporate agents provide critical training and support to help the franchise agents reach their full potential.

We have proven that this system delivers superior results as demonstrated by agents, who with a few years tenure, are 2.3x more productive than industry best practice according to Reagan Consulting's 2020 Best Practices Study .

Our 15 corporate-owned offices and 506 corporate sales agents serve as the blueprint for what is possible in the Goosehead model, and our corporate agents provide critical training and support to help the franchise agents reach their full potential.

We have proven that this system delivers superior results as demonstrated by agents, who with a few years tenure, are 1.7 more productive than industry best practice according to Reagan Consulting's 2020 Best Practices Study .

In addition to recruiting current insurance agents with a superior value proposition, we are also bringing in sales and marketing savvy professionals who are attracted to the recession-resistant and residual economics offered by a career in insurance.

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By delivering a better client experience, offering a more compelling business opportunity to agents, and driving more value to carrier partners, we have seen growth as reflected in our financial performance.

Beginning as of 2019, the Company adopted the new accounting guidance, ASC Topic 606, related to revenue from contracts with customers.

Under this new accounting standard, revenue grew period over period by 51% for the year ended December 31, 2020.

Total Written Premium, which we believe is the best leading indicator of future revenue growth because it drives our future Core Revenue and gives us potential opportunities to earn Ancillary Revenue in the form of Contingent Commissions, grew 45% to $1.07 billion from $739 million in 2019.

This growth has been driven by several factors including (1) our team’s ability to recruit talented agents to our platform;

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Furthermore, we are profitable.

For the year ended December 31, 2020 the Company had $18.8 million of net income, a $8.4 million increase over 2019.

For the year ended December 31, 2021 the Company had $8.3 million of net income, compared to $18.8 million in 2020.

Management's discussions and analysis of financial condition and results of operations - Key performance indicators" for additional information and a reconciliation to the most directly comparable GAAP financial measure.

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Our business model allows our sales agents in both Segments to concentrate on sales and marketing activities related to acquiring new clients and issuing new policies, thus growing New Business Revenue and Renewal Revenue more rapidly than in other systems.

Their primary marketing efforts are focused on establishing referral relationships with other financial services providers in their communities using our proprietary marketing strategy.

Their primary marketing efforts are focused on establishing referral

relationships with other financial services providers in their communities using our proprietary marketing strategy.

We do not compensate Referral Partners for leads, but rather rely on our servicing capabilities to generate repeat business.

Goosehead’s Digital Agent provides a best-in-class way to shop for and buy personal insurance — allowing consumers to find the right coverage at the best price.

The platform provides a simple, transparent, and efficient way to get insurance quotes.

With as little as three data points – name, address, and date of birth – the proprietary tool arms consumers with accurate home and auto quotes from a variety of A-rated insurance companies in less than two minutes and connects them with a knowledgeable agent to complete the purchase process.

The Digital Agent, available across the U.S., is powered by key data integrations and agent-driven machine learning.

It automatically populates information about consumers’ homes and vehicles during the quoting process and combines that information with millions of data points from two decades worth of Goosehead expert agents’ quoting decisions and accumulated experiences.”

Our model, which allows agents to focus on New Business Revenue, is highly differentiated from the traditional insurance agency model.

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Our agents are freed from the burden of ongoing service, and as a result, agents in both Segments are substantially more productive than top performers in our industry as it relates to new sales.

Compared to the 2020 Best Practices Study, which uses 2019 industry data, Corporate Channel agents with more than three years of tenure averaged 3.8x as much New Business Production per Agent as the industry best practice during 2019.

Franchise Channel agents with more than three years of tenure averaged 2.3x as much New Business Production per Agent (Franchise) as the industry best practice during 2019.

Compared to the 2020 Best Practices Study, which uses 2019 industry data, Corporate Channel agents with more than three years of tenure averaged 2.9 as much New Business Production per Agent as the industry best practice during 2020.

Franchise Channel agents with more than three years of tenure averaged 1.7 as much New Business Production per Agent (Franchise) as the industry best practice during 2020.

New Business Revenue per agent by tenure ($000s)

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We manage our service centers with the goal to maximize NPS, which we believe maximizes retention.

This differentiated level of service has enabled us to earn an NPS of 92 in 2020, up from 89 in 2019, greater than highly regarded brands like Ritz Carlton and Nordstrom and 2.3x the 2019 industry average, according to Satmetrix.

This differentiated level of service has enabled us to earn an NPS of 91 in 2021, a modest decrease from 92 in 2020, greater than highly regarded brands like Ritz Carlton and Nordstrom and 2.3x the 2020 industry average, according to Satmetrix.

Our high degree of client satisfaction drove our 89% Client Retention rate during 2021, which we believe to be among the highest in the industry.

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Personal lines products typically include home, auto, umbrella, motorcycle, flood and recreational insurance.

We compete for business on the basis of reputation, client service, product offerings and the ability to tailor our products to the specific needs of a client.

We compete for business on

the basis of reputation, client service, product offerings and the ability to tailor our products to the specific needs of a client.

There are principally three types of businesses that sell personal lines products:

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In addition to managing our two Segments, our headquarters is responsible for overseeing our client service centers, our network of Referral Partners, our recruiting team and our technology functions which integrate all aspects of our business.

Our headquarters also provides various risk management, quality control, accounting, legal and finance functions in support of both the Corporate Channel and the Franchise Channel.

Our headquarters also provides various risk

management, quality control, accounting, legal and finance functions in support of both the Corporate Channel and the Franchise Channel.

Our Segments are geared to leverage the strengths of two different talent pools to maximize productivity.

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The Corporate Channel recruits driven agents who are typically new to insurance distribution;

the Franchise Channel recruits agents with business or

industry experience.

the Franchise Channel recruits agents with business or industry experience.

The combination of our two Segments enables us to prudently expand our business model while providing differentiated service to our clients.

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The combination of hiring highly motivated and talented individuals, giving them proper tools and training and removing the burden of ongoing client service allows our Corporate Channel agents to become significantly more productive than average personal lines agents.

Compared to the 2020 Best Practices Study, Corporate Channel agents with more than three years of tenure averaged 3.8x as much New Business Production per Agent (Corporate) as the industry best practice.

Compared to the 2020 Best Practices Study, Corporate Channel agents with more than three years of tenure averaged 2.9 as much New Business Production per Agent (Corporate) as the industry best practice.

In the Corporate Channel, we generate Core Revenue in the form of Renewal Commissions, New Business Commissions and non-refundable Agency Fees charged directly to clients for efforts performed in the issuance of new insurance policies.

We also generate Ancillary Revenue in the form of Contingent Commissions from Carriers related to the overall growth and loss performance of the Book of Business we have placed with them.

The Corporate Channel is comprised of employed sales agents located in nine sales offices across Texas, Illinois, and North Carolina.

The Corporate Channel is comprised of employed sales agents located in 15 sales offices across Texas, Illinois, Colorado, Ohio, Nevada, and North Carolina.

We have experienced rapid growth in sales agents and revenue in this Segment.

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The Woodlands, Texas;

Austin, Texas;

Rosemont, Illinois;

and Charlotte, North Carolina.

We expect to continue our expansion in 2021 with the addition of corporate sales offices in Denver, Colorado, San Antonio, Texas, Henderson, Nevada, and another office in the Midwest region.

Austin, Texas (2 locations);

San Antonio, Texas;

Rosemont, Illinois (2 locations);

Charlotte, North Carolina;

Englewood, Colorado;

Henderson, Nevada;

and Columbus, Ohio.

We expect to continue our expansion in 2022 within our existing markets.

Franchise Channel (50% of 2021 total revenue)

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Our recruiting efforts have helped us create a franchise pool which is significantly more productive than most personal lines agents.

Compared to the 2020 Best Practices Study, Franchise Channel agents with more than three years of tenure averaged 2.3x as much New Business Production per Agent (Franchise) as the industry best practice.

Compared to the 2020 Best Practices Study, Franchise Channel agents with more than three years of tenure averaged 1.7 as much New Business Production per Agent (Franchise) as the industry best practice.

Franchise Channel agents with less than two years of tenure produced as much New Business Production per Agent (Franchise) as the industry best practice.

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State December 31, 2021

California 198

Pennsylvania 88

North Carolina 61

New Jersey 54

(1) Number of franchise locations include 953 franchises which are under contract but yet to be opened as of December 31, 2021.

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In the short-term, our agents have proven to be especially adept at learning new techniques and mastering new technologies.

This has enabled our agents to generate approximately 3.8x as much new business as top performing personal lines agents after three years, according to the 2020 Best Practices Study.

This has enabled our agents to generate approximately 2.9 as much new business as top performing personal lines agents after three years, according to the 2021 Best Practices Study.

Over the long-term, we believe our youth will enable us to avoid the shrinking workforce challenges that many of our competitors face and win an even larger market share from other agencies.

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We believe that our agents are already among the most efficient personal lines agents in the industry.

Franchise Channel agents with more than three years of tenure averaged 2.3x as much New Business Production per Agent (Franchise) as the industry best practice.

Franchise Channel agents with more than three years of tenure averaged 1.7 as much New Business Production per Agent (Franchise) as the industry best practice.

We believe there is an opportunity to further expand productivity, particularly in the Franchise Channel.

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The Company represents over 145 Carriers, of which 53 provide national coverage.

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

During 2021, two carriers represented more than 10% of total revenue at 17% and 11%.

Franchise agreements

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Intellectual property

We have registered “Goosehead,” “Goosehead Insurance,” and our logo as trademarks in the U.S., Mexico, the United Kingdom, the European Union, and is currently pending in Canada.

We have registered “Goosehead,” “Goosehead Insurance,” and our logo as trademarks in the U.S., Mexico, the United Kingdom, the European Union, and Canada.

We also have filed other trademark applications in the U.S.

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Franchise regulation .

Offers and sales of franchises (so-called “pre-sale” franchise activities) are regulated in the United States by the FTC as well as certain states.

Offers and sales of franchises (so-called “pre-sale” franchise activities) are regulated in the United States by the Federal Trade Commission ("FTC") as well as certain states.

The FTC (through its “Franchise Rule”) requires franchisors to provide certain disclosures, in the form of a franchise disclosure document (an “FDD”) to prospective Franchisees.

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While we are not an insurer, and thus not required to comply with state laws and regulations regarding insurance rates, our commissions are derived from a percentage of the premium rates set by insurers in conjunction with state law.

Privacy regulation.

Federal law and the laws of many states require financial institutions to protect the security and confidentiality of customer information and to notify customers about their policies and practices relating to collection and disclosure of customer information and their policies relating to protecting the security and confidentiality of that information.

Federal law and the laws of many states also regulate disclosures and disposal of customer information.

Congress, state legislatures, and regulatory authorities are expected to consider additional regulation relating to privacy and other aspects of customer information.

Data Privacy regulation.

We are subject to a variety of increasingly stringent federal, state and local laws, rules and regulations relating to data privacy and cybersecurity, and the regulatory framework for data privacy and cybersecurity is in considerable flux and evolving rapidly.

In the United States, numerous federal and state laws, rules and regulations require insurers to protect the security and confidentiality of customer information, to regulate disclosures and disposal of customer information, and to notify customers about their policies and practices relating to the collection, use, retention, security, transfer, disclosure and other processing of customer information and other personal information.

For example, the NAIC Insurance Data Security Model Law, which has been adopted in some form by several states, and the New York State Department of Financial Services cybersecurity regulation, establish standards for data security and for the investigation of and notification to insurance commissioners of cybersecurity events.

In addition, the California Consumer Privacy Act imposes significant compliance requirements for businesses that collect personal information on California residents.

The United States Congress, state legislatures, and regulatory authorities have considered and are expected to consider additional laws, rules and regulations relating to privacy and other aspects of customer information, which will likely require us to devote additional significant operational resources and incur additional significant expenses for compliance and may also increase our exposure to risk of claims that we have not complied with all applicable data privacy and cybersecurity laws, rules and regulations.

Human Capital

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None of our employees are represented by a union.

Building our Team

Since 2018, we have grown our workforce at a compound annual growth rate (CAGR) of 47% annually and in 2021 increased our workforce by more than 500 individuals bringing our total employee count at year-end to 1,290 employees.

Our corporate sales agent count grew to 506 (from 364 at the beginning of 2021) and our operating franchise count grew to 1,198.

With this level of growth, we invest heavily in initial and ongoing training and professional development, utilizing both virtual and in-person components.

Employee Retention

We develop and promote from within.

The average tenure of our director level employees is 10 years prior to their promotions.

Our corporate sales agents have a turnover rate of roughly 25% while our franchises turnover at roughly 10% annually.

This turnover is concentrated more in the early tenure of agents and franchisees and importantly, only account for less than 1-2% of new business production in any given year.

We believe these churn rates represent healthy levels of turnover to maintain a motivated, high-octane sales force and productive energized corporate culture.

Learning and Development

Goosehead utilizes a training curriculum for all incoming recruits and supports ongoing professional development of our employees.

Twice a year Goosehead invites all employees to apply for an internal Leadership Development Program, where emerging leaders are selected based on their performance and demonstrated propensity for servant leadership.

Participants engage with important leadership principles, participate in leadership lessons from our executive team and complete an interdepartmental group project over a 6-month period.

We also conduct weekly webinars for both our corporate and franchise agents to provide ongoing training and mentoring.

Each week we highlight a key skill around our products, sales processes, or professional development.

We also regularly reach out to our employees and franchise partners by conducting in-person town halls across various geographic locations in the United States.

This feedback loop is extremely valuable and often results in near real-time updates to our operating platform to deliver better service and business processes to our agent network - we made over 3,000 platform improvement sin 2021 alone.

Employee Benefits and Compensation

We believe in a holistic and competitive compensation package that includes opportunities for bonuses and equity compensation, as well as access to our stock ownership program.

Goosehead employees are also eligible to be awarded incentive stock options under our Omnibus Incentive Plan, which is designed to motivate and reward key employees to perform at the highest level and contribute significantly to our long term success, thereby aligning our employee incentives with the best interests of our shareholders.

Goosehead offers its employees a competitive health benefits package, including medical, dental, and vision insurance, as well as flex and health savings accounts, life insurance, short-term disability insurance, long-term disability insurance, accident insurance, critical illness insurance, and the opportunity to participate in our 401(k) retirement savings plan.

Under the 401(k), we match participants' contributions, which become vested over four years.

Diversity, Equity, and Inclusion

More than half of Goosehead's employees are women and over one-third of our workforce identify as racially diverse.

We are committed to a meritocratic and inclusive culture of growth and advancement that is informed by our Operating Principles.

Goosehead maintains strong Equal Opportunity and Anti-Harassment policies, and we are committed to the principles of openness, empathy, and respect in our workplace.

We contracted with a third-party solutions team to encourage and facilitate independent and timely reporting and investigation of alleged policy violations.

Goosehead does not tolerate any form of discipline, reprisal, threats, intimidation, or other retaliatory conduct against an employee for making a good faith complaint of a perceived incident of discrimination or harassment or for cooperating in an investigation by the company or any federal, state, or local agency of such a complaint.

Our co-founder, Robyn Jones, established a Women's Professional Development Program ("WPDP") in 2015 to provide a place of connection and support for the women leaders of Goosehead to grow personally and professionally.

Goosehead's WPDP is open to all female employees and franchise agents and hosts small group and plenary sessions designed to promote engagement with salient topic unique to women professionals.

It also offers Goosehead women an opportunity to interact with Goosehead's rising and longer-tenured female leaders and organically establish and enhance our mentorship culture.

Operating principles

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• Highest quality and service in the industry

COVID-19 response

In March 2020, we transitioned our entire workforce to work remotely.

Due to our prior investments in talented employees and proprietary technology, this transition was virtually seamless.

We remained focused on growth despite the change, and we saw no negative impact on our financial results or our key performance indicators.

To help limit any long-term negative culture impacts due to a remote-work environment, we began to bring back employees on a reduced and rotational basis during the third quarter of 2020.

By the end of the third quarter, almost all employees were back in the office for at least 50% of the work week.

We took these steps carefully and deliberately and have implemented a number of COVID-19 mitigation practices at our facilities including a screening process upon entering the office, requiring face coverings and social distancing.

Code of Business Conduct and Ethics

We have adopted a code of business conduct and ethics policy that applies to all of our employees, officers and directors, including those officers responsible for financial reporting.

These standards are designed to deter wrongdoing and to promote honest and ethical conduct.

The full text of our code of business conduct and ethics

policy is available on our website at https://ir.gooseheadinsurance.com/governance/documents-and-charters.

Any waiver of the code for directors or executive officers may be made only by our Board of Directors or a board committee to which the board has delegated that authority and will be promptly disclosed to our shareholders as required by applicable U.S.

federal securities laws and the corporate governance rules of the Nasdaq Global Select Market.

Amendments to the code must be approved by our Board of Directors and will be promptly disclosed (other than technical, administrative or non-substantive changes).

Any amendments to the code, or any waivers of its requirements for which disclosure is required, will be disclosed on our website.

Impact of COVID-19

Ahead of the SARS-CoV-2 (Covid-19) pandemic in 2020, we have invested consistently and significantly in technology and built an entirely cloud based environment to keep our people and teams connected and able to work effectively anywhere.

Additionally, at the onset of the pandemic, we accelerated our purchases of computers and other workforce technology to avoid any supply chain disruptions and support our significant growth rates.

Despite our ability to avoid major supply chain issues, Covid-19 did present some unique challenges in 2020 and again in 2021 as the Delta and Omicron variants spread across the United States.

While the labor market was strong in 2020, it tightened up in 2021, which not only impacted recruiting, but also the timing of franchise launches and how we train our agents.

We also experienced higher than expected agent and referral partner absenteeism.

Further, our carrier partners faced higher loss ratios in 2021 versus 2020 as driving activity increased, which resulted in higher loss ratios and lower Contingent Commissions.

We have incorporated lessons learned from the pandemic into our work environment:

our company and culture values the benefits provided by an in-person workplace, but also promotes flexibility with a premium placed on health and well-being of our team members.

We will continue to strive to follow all local government and CDC guidelines in our approach to reopening fully while continuing to prioritize the health and safety of our team .

Initial Public Offering and Organizational Transactions

On May 1, 2018 Goosehead Insurance, Inc.

completed an initial public offering (the “Offering”) of 9.8 million shares of Class A common stock at a price of $10.00 per share, which included 1.3 million shares issued pursuant to the underwriter's over-allotment option.

Goosehead Insurance, Inc.

("GSHD") became the sole managing member of Goosehead Financial, LLC ("GF").

GF was organized on January 1, 2016 as a Delaware Limited Liability Company and is headquartered in Westlake, Texas.

The operations of GF represent the predecessor to GSHD prior to the Offering, and the consolidated and combined entities of GF are described in more detail below.

Information for any periods prior to May 1, 2018 relates to GF and its subsidiaries and affiliates.

In connection with the Offering, the company completed the following transactions (the "Reorganization Transactions"):

• The GF limited liability company agreement was amended to, among other things, i) appoint GSHD as the sole managing member of GF and ii) modify the capital structure of GF by reclassifying the interests previously held by Pre-IPO LLC Members into a single new class of non-voting LLC Units.

• GSHD was authorized to issue two classes of common stock.

10 million shares of Class A common stock were issued pursuant to the Offering, including the underwriters' over-allotment option.

23 million shares of Class B common stock were issued to the Pre-IPO LLC Members in an amount equal to the number of LLC Units held by each such Pre-IPO LLC Member in exchange for certain management rights of GF.

Each share of Class A common stock and Class B common stock entitles its holder to one vote per share on all matters submitted to a vote of GSHD's stockholders.

Each share of Class B common stock can be exchanged for one share of Class A common stock or, at GSHD's discretion, a cash payment equal to the volume weighted average market price of one share of Class A common stock, thus canceling the share of Class B common stock on a one-for-one basis.

• The Goosehead Management Holders and Texas Wasatch Holders indirectly transferred their ownership interests in GM and TWIHG, respectively, to GSHD in exchange for the Goosehead Management Note and Texas Wasatch Note.

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, 3.7 million 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.

Following completion of the Reorganization Transactions and the Offering, GSHD owned 37.3% of GF and the Pre-IPO LLC Members owned the remaining 62.7%.

GSHD is the sole managing member of GF and, although GSHD holds a minority economic interest in GF, GSHD has the sole voting power and control of management of GF.

Accordingly, GSHD consolidates the financial results of GF and reports non-controlling interest in GSHD's consolidated financial statements.

As of December 31, 2020, Goosehead Insurance, Inc.

owned 49.8% of Goosehead Financial, LLC and the non-controlling interest holders owned the remaining 50.2% of Goosehead Financial, LLC.

Available Information

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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 1. Business