What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-02-26 · 119 added, 187 removed, 841 unchanged (27% of the section changed)

3 unchanged sentences

Annual consolidated financial statements

Report of Independent Registered Public Accounting Firm 65

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

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated statements of operations for each of the three years in the period ended December 31, 2021.

Consolidated balance sheets as of December 31, 2021 and December 31, 2020

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

Consolidated statements of stockholders' equity for each of the three years in the period ended December 31, 2021.

Consolidated statements of cash flows for each of the three years in the period ended December 31, 2021.

Notes to the consolidated financial statements 75

12 unchanged sentences

Litigation 98

Selected quarterly financial data (unaudited) 96

Report of Independent Registered Public Accounting Firm

5 unchanged sentences

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, 2021, 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 25, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, effective January 1, 2019, the Company adopted Revenue from Contracts with Customers (ASU 2014-09) (“Topic 606”), as amended, using the modified retrospective method.

Basis for Opinion

16 unchanged sentences

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.

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.

2 unchanged sentences

For the year ended December 31, 2021, commissions and agency fees was $82.7 million, of which $61.2 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.

For the year ended

December 31, 2021, franchise revenue was $67.5 million, of which $61.0 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.

22 unchanged sentences

Operating Expenses:

Employee compensation and benefits (including Class B unit compensation of $ 26,134 for the year ended December 31, 2018)

66,819 41,715 58,256

Employee compensation and benefits 93,038 66,819 41,715

General and administrative expenses 41,729 25,532 19,042

2 unchanged sentences

Total operating expenses 142,639 97,074 63,413

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

Other Income (Expense):

Other income (expense) 90 — ( 22 )

Income from operations 8,673 19,940 14,073

Other Income:

Other income 185 90 —

Interest expense ( 2,854 ) ( 2,310 ) ( 2,387 )

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

Income before taxes 6,004 17,720 11,686

Tax expense (benefit) ( 2,292 ) ( 1,035 ) 1,304

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

net income (loss) attributable to non-controlling interests 9,468 6,815 ( 9,764 )

Net Income (loss) attributable to Goosehead Insurance Inc.

Net Income 8,296 18,755 10,382

net income attributable to non-controlling interests 2,893 9,468 6,815

Net Income attributable to Goosehead Insurance Inc.

$ 5,403 $ 9,287 $ 3,567

28 unchanged sentences

Lease liability 4,893 3,203

Deferred rent — 683

Contract liabilities 6,054 4,233

2 unchanged sentences

Lease liability, net of current portion 47,335 32,933

Deferred rent, net of current portion — 6,681

Note payable, net of current portion 118,361 79,408

15 unchanged sentences

(In thousands)

Members' deficit 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

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, 2019 13,799 22,486 138 224 11,899 ( 20,761 ) ( 8,500 ) ( 16,703 ) ( 25,203 )

Cumulative effect of adoption of the revenue recognition standard — — — — ( 517 ) ( 517 ) ( 841 ) ( 1,358 )

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

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

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

Capital withdrawn — — — — — — — — — —

Balance March 31, 2018 ( 37,365 ) — — — — — — — — ( 37,365 )

Net income prior to the Reorganization Transactions 621 — — — — — — — — 621

Distributions prior to the Reorganization Transactions ( 1,278 ) — — — — — — — — ( 1,278 )

Balance prior to the Reorganization Transactions ( 38,022 ) — — — — — — — — ( 38,022 )

Effects of the Reorganization Transactions 38,022 — 22,747 — 227 ( 94,180 ) ( 21,562 ) ( 115,515 ) ( 36,241 ) ( 113,734 )

Initial non-controlling interest allocation — — — — — ( 18,920 ) — ( 18,920 ) 18,920 —

Issuance of Class A common stock sold in initial public offering, net of offering costs — 13,533 — 135 — 123,875 — 124,010 — 124,010

Distributions subsequent to initial public offering — — — — — — — — ( 1,735 ) ( 1,735 )

Net income subsequent to initial public offering — — — — — — 801 801 2,159 2,960

Equity-based compensation subsequent to initial public offering — — — — — 949 — 949 — 949

Activity under employee stock purchase plan — 5 — — — 143 — 143 — 143

Equity-based compensation — — — — 1,526 — 1,526 — 1,526

Redemption of LLC Units 1,431 ( 1,431 ) 14 ( 14 ) ( 1,368 ) — ( 1,368 ) 1,368 —

Deferred tax adjustments related to Tax Receivable Agreement — — — — 2,060 — 2,060 — 2,060

Deferred tax adjustments — — — — — ( 89 ) — ( 89 ) — ( 89 )

Activity under employee stock purchase plan 8 — — — 325 — 325 — 325

Reallocation of Non-controlling interest — — — — — ( 138 ) ( 138 ) 138 —

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

1 unchanged sentence

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

Cumulative effect of adoption of the revenue recognition standard — — — — ( 517 ) ( 517 ) ( 841 ) ( 1,358 )

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

1 unchanged sentence

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

Activity under employee stock purchase plan 8 — — — 325 — 325 — 325

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

2 unchanged sentences

Balance January 1, 2021 18,304 18,447 183 184 29,371 ( 34,614 ) ( 4,876 ) ( 33,528 ) ( 38,404 )

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

Dividends declared — — — — — ( 31,657 ) ( 31,657 ) ( 28,343 ) ( 60,000 )

14 unchanged sentences

Cash flows from operating activities:

Net income (loss) $ 18,755 $ 10,382 $ ( 18,667 )

Net income $ 8,296 $ 18,755 $ 10,382

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 5,117 3,570 2,145

Loss on disposal of fixed assets — — 22

Bad debt expense 2,999 1,576 725

26 unchanged sentences

Member distributions and dividends to stockholders ( 60,000 ) ( 44,697 ) ( 18,739 )

Net cash (used for) provided by financing activities ( 3,334 ) ( 20,914 ) 5,592

Net cash used for financing activities ( 15,826 ) ( 3,334 ) ( 20,914 )

Net increase (decrease) in cash and cash equivalents, and restricted cash 4,243 10,976 ( 3,751 )

2 unchanged sentences

Supplemental disclosure of cash flow data:

Non-cash management fee note repayment — — 135

Cash paid during the year for interest $ 2,351 $ 1,887 $ 2,173

13 unchanged sentences

TWIS is a wholly owned subsidiary of GF.

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

The Company had fifteen corporate-owned locations in operation at December 31, 2021, nine at December 31 2020, and seven at 2019.

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.

5 unchanged sentences

Both GM and TWIHG are non-operating holding companies created to receive management fees from the operating entities TWIS and GIA.

All intercompany accounts and transactions have been eliminated in consolidation.

Reorganization Transactions

14 unchanged sentences

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

Summary of significant accounting policies

Basis of presentation and significant accounting policies

Basis of Presentation

The accompanying audited consolidated financial statements of GSHD and our subsidiaries are presented in accordance with the rules and regulations of the SEC for annual reports on Form 10-K and are prepared in accordance with U.S.

All intercompany accounts and transactions have been eliminated in consolidation.

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.

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.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 received.

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.

Significant accounting policies

Use of Estimates

8 unchanged sentences

The Company holds premiums received from the insured, but not yet remitted to the insurance carrier in a fiduciary capacity.

Premiums received but not yet remitted included in restricted cash were $ 1,323 thousand and $ 923 thousand as of December 31, 2020 and 2019, respectively.

Premiums received but not yet remitted included in restricted cash were $ 2.0 million and $ 1.3 million as of December 31, 2021 and 2020, respectively.

The following is a reconciliation of our cash and restricted cash balances as presented in the consolidated statement of cash flows for the years ended December 31, 2021, 2020, and 2019 (in thousands):

8 unchanged sentences

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 2021, the Company wrote with over 145 insurance carriers, of which 53 provided national coverage.

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

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

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 %.

12 unchanged sentences

As such, the payment plan option is treated as a zero-interest rate note, which creates an imputation of interest.

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 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.

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

The amount of interest recorded in 2021, 2020, and 2019 related to franchise fees on a payment plan was $ 1.1 million, $ 0.8 million, and $ 0.6 million, respectively, and is included in Interest income.

Allowance for uncollectible franchise fees receivable

8 unchanged sentences

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 adoption of ASC 606 on January 1, 2019 has increased the significance of judgments and estimates management must make to apply the guidance.

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

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

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, 2021.

34 unchanged sentences

The Company expenses advertising costs as they are incurred.

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

Recently issued accounting pronouncements

Advertising expense for the years ended December 31, 2021, 2020, and 2019 was $ 1.3 million, $ 0.9 million, and $ 0.8 million.

Recently adopted accounting pronouncements

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

In 2019, the Financial Accounting Standards Board issued ASU 2019-12 to simplify the accounting for income taxes.

The guidance primarily addresses how to (1) recognize a deferred tax liability after we transition to or from the equity method of accounting, (2) evaluate if a step-up in the tax basis of goodwill is related to a business combination or is a separate transaction, (3) recognize all of the effects of a change in tax law in the period of enactment, including adjusting the estimated annual tax rate, and (4) include the amount of tax based on income in the income tax provision and any incremental amount as a tax not based on income for hybrid tax regimes.

We adopted the guidance in the first quarter of 2021.

The adoption did not have a material impact on our consolidated financial statements or related disclosures.

Reference Rate Reform (ASU 2020-04) :

6 unchanged sentences

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

Our debt agreement contains a provision to move to the Secured Overnight Financing Rate ("SOFR") if or when LIBOR is phased out.

Leases (ASU 2016-02) :

9 unchanged sentences

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 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 based on an estimate of premiums placed, policy changes and cancellations, net of a constraint.

The transaction 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.

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.

Subsequent commission adjustments, such as policy changes, were recognized when the adjustments become known.

As a result of the adoption of Topic 606, commissions from insurance carriers, net of estimated policy changes and cancellations, are recognized as revenue at the effective date of the policy.

C ommissions from insurance carriers, net of estimated policy changes and cancellations, are recognized as revenue at the effective date of the policy.

Significant factors in determining our estimates of policy changes and cancellations include forecasted commissions revenue, which is estimated based on historical experience and assumptions concerning future customer behavior and market conditions.

4 unchanged sentences

Agency Fee revenue is recognized at a point in time, which is the effective date of the policy.

Prior to the adoption of Topic 606, Agency Fees were recognized as revenue on the date coverage was agreed upon with the client and placed with the Carrier.

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, or 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.

The transaction price for Contingent Commissions is estimated based on all available information and is recognized over time as the Company completes its performance obligations, as the underlying policies are placed.

Prior to the adoption of Topic 606, revenue from contingent commissions was recognized when the amounts were fixed and determinable, typically when we received the payment from the insurance carrier.

As a result of the adoption of Topic 606, the Company must estimate the amount of consideration that will be received such that a significant reversal of revenue is not probable.

The Company must estimate the amount of consideration that will be received such that a significant reversal of revenue is not probable.

Contingent commissions represent a form of variable consideration associated with the placement and profitability of coverage, for which we earn commissions.

6 unchanged sentences

The transaction price is set by the franchise agreement and revenue is recognized over time as the Company completes its performance obligations.

Prior to the adoption of Topic 606, initial franchise fees were recognized as revenue in the month the agency owner or initial agency representative attends training.

As a result of the adoption of Topic 606, initial franchise fees are recognized as revenue over the 10-year life of the franchise contract, beginning on the start date of the contract.

Initial franchise fees are recognized as revenue over the 10 -year life of the franchise contract, beginning on the start date of the contract.

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

1 unchanged sentence

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

Prior to the adoption of Topic 606, royalty fees were recognized as revenue when the data necessary to reasonably determine such amounts was made available to the Company.

As a result of the adoption of Topic 606, royalty fees are recognized over time as the underlying policies are placed, which is on the effective date of the policies.

Royalty fees are recognized over time as the underlying policies are placed, which is on the effective date of the policies.

Recognition of royalty fees generally takes place earlier under Topic 606.

3 unchanged sentences

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

The balance of cost to obtain is included with Other assets on the Consolidated Balance Sheets.

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.

45 unchanged sentences

12,056 18,604 ( 6,548 )

Receivable from franchisees (2)

Receivable from franchisees, net (2)

29,673 20,279 9,394

Contract liability (3)

Contract liabilities (2)(3)

48,608 34,201 14,407

23 unchanged sentences

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

8 unchanged sentences

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

21 unchanged sentences

Intangible assets, net $ 2,798 $ 549

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

Amortization expense was $ 0.4 million, $ 0.3 million, and $ 0.2 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Expected amortization over the next five years is as follows:

1 unchanged sentence

2026 and thereafter 1

Total $ 2,798

Employee benefit obligation

4 unchanged sentences

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

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.

Company contributions totaled $ 1.0 million, $ 0.8 million, and $ 0.6 million for the years ended December 31, 2021, 2020, and 2019.

On July 21, 2021, the Company refinanced its $ 25.0 million revolving credit facility and $ 80.0 million term note payable to a $ 50.0 million revolving credit facility and $ 100.0 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 $ 25.0 million.

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

The $ 50.0 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.

2 unchanged sentences

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 $ 85 thousand, $ 450 thousand, and $ 198 thousand for the years ended December 31, 2020, 2019, and 2018, respectively.

Interest payment on the revolving credit facility totaled $ 0.4 million, $ 0.1 million, and $ 0.5 million for the years ended December 31, 2021, 2020, and 2019, respectively.

The $ 100.0 million term note accrues interest 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, 2021, the Company was in the greater than 3.50 x leverage ratio tranche, accruing interest of LIBOR plus 2.50 %.

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 aggregate principal amount of the term note as of December 31, 2021 is $ 98.8 million, payable in quarterly installments of $ 0.6 million for the first twelve months, $ 1.3 million for the next twelve months, $ 1.9 million for the next twelve months, and $ 2.5 million for the last twelve months, with a balloon payment on June 21, 2026.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:

4 unchanged sentences

LIBOR + 250 bps

Maturities of the term note payable for the next two calendar years as of December 31, 2020 are as follows (in thousands) :

Maturities of the term note payable for the next five calendar years as of December 31, 2021 are as follows (in thousands) :

Total $ 98,750

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

The $ 25.0 million drawn against the revolver is coterminous with the term loan and is due in full on June 21, 2026.

Loan origination fees of $ 1.0 million at December 31, 2021 are reflected as a reduction to the note balance and are amortized through interest expense.

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

5 unchanged sentences

The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

The hierarchy gives the highest priority to unadjusted quoted prices in active

markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).

The three levels of the fair value hierarchy are described as follows:

28 unchanged sentences

2021 2020 2019

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

(income) prior to the Reorganization Transactions — — ( 4,389 )

Income (loss) before taxes $ 17,720 $ 11,686 $ ( 22,607 )

Income before taxes $ 6,004 $ 17,720 $ 11,686

Income taxes at U.S.

2 unchanged sentences

Permanent Differences:

Non-controlling interest — — 3,536

Non-deductible stock compensation costs ( 4,530 ) ( 3,004 ) —

Non-deductible excess compensation — — 27

Non-deductible employee moving expenses 6 1 —

10 unchanged sentences

Net deferred tax asset $ 125,676 $ 73,363

GSHD has income tax net operating loss carryforwards for federal and state purposes of $ 40.2 million and $ 5.5 million (post apportionment pre-tax), respectively.

The federal net operating loss carryforwards are carried forward indefinitely and the state net operating loss carryforwards begin to expire in 2041.

Uncertain tax positions

1 unchanged sentence

Tax Receivable Agreement

GF intends to make an election under Section 754 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”) effective for each taxable year in which a redemption or exchange of LLC Units and corresponding Class B common stock for shares of Class A common stock occurs.

Future taxable redemptions or exchanges are expected to result in tax basis adjustments to the assets of GF that will be allocated to the Company and thus produce favorable tax attributes.

GF has made an election under Section 754 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”) effective for each taxable year in which a redemption or exchange of LLC Units and corresponding Class B common stock for shares of Class A common stock occurs.

Prior redemptions and exchanges have resulted, and future redemptions or exchanges are expected to result in tax basis adjustments to the assets of GF that will be allocated to the Company and thus produce favorable tax attributes.

These tax attributes would not be available to us in the absence of those transactions.

The anticipated tax basis adjustments are expected to reduce the amount of tax that GSHD would otherwise be required to pay in the future.

These tax basis adjustments have reduced the amount of tax we are required to pay, and are expected to reduce the amount of tax that GSHD would otherwise be required to pay in the future.

GSHD entered into a tax receivable agreement with the Pre-IPO LLC Members on May 1, 2018 that provides for the payment by GSHD to the Pre-IPO LLC Members of 85 % of the amount of cash savings, if any, in U.S.

1 unchanged sentence

During the years ended December 31, 2021, 2020 and 2019, an aggregate of 1.5 million, 2.6 million and 1.4 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.

In connection with these redemptions, we received 1.5 million, 2.6 million and 1.4 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.

As of December 31, 2020 and 2019, the total amount of TRA Payments due to the Pre-IPO LLC Members under the Tax Receivable Agreement was $ 62.1 million and $ 13.4 million, respectively, of which $ 549 thousand and $ 9 thousand, respectively, was current and included in Accounts payables and accrued expenses on the Consolidated Balance Sheet.

As of December 31, 2021 and 2020, the total amount of TRA Payments due to the Pre-IPO LLC Members under the Tax Receivable Agreement was $ 101.0 million and $ 62.1 million, respectively, of which $ 0.0 million and $ 0.5 million, respectively, was current and included in Accounts payables and accrued expenses on the Consolidated Balance Sheet.

Stockholder's equity

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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, 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) .

The following table sets forth the calculation of basic earnings per share ("EPS") based on net income attributable to GSHD for the year ended December 31, 2021, 2020, and 2019, divided by the basic weighted average number of Class A common stock as of December 31, 2021 and 2020 (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.

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) :

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 (in thousands) :

Year Ended December 31,

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Net income (loss) attributable to GSHD $ 5,403 $ 9,287 $ 3,567

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

Weighted average shares of Class A common stock outstanding - basic 19,181 16,785 14,864

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Stock options 1,632 1,598 1,236

1,598 1,236 —

Weighted average shares of Class A common stock outstanding - diluted 20,813 18,383 16,100

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Earnings per share of Class A common stock - diluted $ 0.26 $ 0.51 $ 0.22

(1) Net income attributable to GSHD for the year ended December 31, 2018 excludes all net income prior to the Offering.

(2) 1,650 thousand stock options were excluded from the computation of diluted earnings per share of Class A common stock for the year ended December 31, 2018 because the effect would have been anti-dilutive, as GSHD recorded a net loss for the period.

Non-controlling interest

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On a quarterly basis, GF makes distributions to the LLC Unit holders on a pro rata basis.

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

For the year ended December 31, 2021, GF made no distributions.

For the year ended December 31, 2020, GF made distributions of $ 4.8 million, of which $ 2.7 million were made to Pre-IPO LLC Members.

The remaining $ 2.2 million 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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During 2021 and 2020, an aggregate of 1.5 million and 2.6 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.

Pursuant to the GF LLC Agreement, we issued 1.5 million and 2.6 million shares of Class A common stock in connection with these redemptions and received 1.5 million and 2.6 million LLC Interests, increasing our ownership interest in GF LLC.

Simultaneously, and in connection with these redemptions, 1.5 million and 2.6 million shares of Class B common stock were surrendered and canceled.

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2021 2020 2019

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

Stock options $ 7,292 $ 4,745 $ 1,526

Equity-based compensation expense $ 7,292 $ 4,745 $ 1,526

Class B unit compensation:

Prior to the Offering, certain Pre-IPO LLC Members held non-vesting and non-voting Class B units.

In accordance with accounting guidance, any dividends paid to Class B unit holders are recognized as compensation expense when declared, as the Class B non-vesting units are considered to be a non-substantive class of equity.

Dividends paid to Class B unit holders prior to the Offering, included in employee compensation and benefits, totaled $ 122 thousand for the year ended December 31, 2018.

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 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.

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 initial public offering price of $ 10.00 per share, the Company issued a total of 2.0 million LLC Units and shares of Class B common stock and incurred total compensation expense of $ 19.8 million as part of the conversion, recognized in the second quarter of 2018.

Stock options:

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Risk-free interest rate 0.47 %

On January 4, 2021, the Company granted an additional 153,500 stock options to its Board of Directors and Managing Directors at an exercise price equal to $ 131.87 per share.

The weighted average grant date fair value of $ 47.43 per option was determined using the Black-Scholes valuation model using the following weighted average assumptions:

Expected volatility 45 %

Expected dividend yield — %

Expected term (in years) 4.25

Risk-free interest rate 0.29 %

A summary of stock option activity for the years ended December 31, 2021, 2020 and 2019 is as follows ( in thousands except per share amounts ):

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Outstanding as January 1, 2019

1,650 $ 10.00 $ 5,153

Granted 80 34.50 816

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Total 36,539 $ 42,000

On July 28, 2021 GF approved an extraordinary dividend in the aggregate amount of $ 60 million payable to holders of LLC Units, including GSHD.

The board of directors of the Company subsequently declared an extraordinary dividend of $ 1.63 (rounded) to all holders of Class A common stock of GSHD with a record date of August 9, 2021, which was paid on August 23, 2021.

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

LLC Units held as of August 9, 2021 Dividend Paid

Class A common stockholders 19,429 $ 31,657

Class B common stockholders via LLC Units held 17,401 28,343

Total 36,830 $ 60,000

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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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.

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.

At December 31, 2021, Goosehead was obligated under a number of operating leases, exclusively leases for premises and equipment used for business purposes.

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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

The following table provides information related to the Company’s leases as of December 31, 2021 and 2020 (in thousands) :

December 31, 2021 December 31, 2020

Right-of-use assets

$ 32,656 $ 22,513

Short term lease liabilities

Long term lease liabilities

47,335 32,933

Total lease liabilities

52,228 36,136

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

The following is a schedule showing the components of lease cost for the year ended December 31, 2021 and 2020 (in thousands):

December 31, 2021 December 31, 2020

Gross operating lease cost

$ 4,798 $ 3,111

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

$ 4,791 $ 3,086

The following is a schedule of supplemental cash flow information related to leases for the year ended December 31, 2021 and 2020 (in thousands):

December 31, 2021 December 31, 2020

Cash paid for amounts included in the measurement of lease liabilities

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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.

As of December 31, 2021, the Company had additional future operating lease commitments of $ 12.6 million that were signed but had not yet commenced.

These operating leases will commence between 2022 and 2023 with lease terms up to 7 years.

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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).

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Initial Franchise Fees 6,516 — — 6,516

Other Income 222 — — 222

Other Franchise Revenues 297 — — 297

Total Franchise Revenue 67,508 — — 67,508

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Adjusted EBITDA 23,452 172 ( 2,786 ) 20,838

Other income (expense) 90 — — 90

Other income 77 108 — 185

Equity based compensation — — ( 7,292 ) ( 7,292 )

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Initial Franchise Fees 4,236 — — 4,236

Other Income 108 — — 108

Other Franchise Revenues 222 — — 222

Total Franchise Revenue 44,390 — — 44,390

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

Other income (expense) 90 — — 90

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

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

(1) Excluded from general and administrative expenses is $ 135 thousand of state franchise tax that is not calculated based on income.

From time to time, the Company may be involved in various legal proceedings, lawsuits and claims incidental to the conduct of our business.

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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.

Selected quarterly financial data (unaudited)

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

Total revenue $ 20,425 $ 29,924 $ 32,015 $ 34,650

Income from operations $ 201 $ 7,625 $ 6,966 $ 5,656

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)

Basic $ ( 0.01 ) $ 0.21 $ 0.19 $ 0.16

Diluted $ ( 0.01 ) $ 0.19 $ 0.17 $ 0.15

First Quarter Second Quarter Third Quarter Fourth Quarter

Total revenue $ 23,133 $ 19,386 $ 21,169 $ 20,408

Income from operations $ 8,688 $ 3,873 $ 3,673 $ 3,236

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)

Basic $ 0.17 $ 0.06 $ 0.07 $ 0.06

Diluted $ 0.16 $ 0.06 $ 0.06 $ 0.05

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) 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