What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-27 compared with 2022-02-28 · 73 added, 243 removed, 717 unchanged (31% of the section changed)

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Annual consolidated financial statements

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

Report of Independent Registered Public Accounting Firm ( Deloitte & Touche LLP , Dallas, Texas , PCAOB ID No.

Consolidated statements of operations for each of the three years in the period ended December 31, 2022.

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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 developed an independent expectation of current year constrained commissions and royalty fees revenue and compared to management’s recorded amount.

• 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:

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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 )

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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 —

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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 )

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Balance January 1, 2022 20,198 16,909 200 170 46,281 ( 60,671 ) ( 14,020 ) ( 55,168 ) ( 69,188 )

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

Net income — — — — — 565 565 2,065 2,630

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Premiums payable ( 309 ) 629 400

Unearned revenue — — ( 51 )

Payments pursuant to the tax receivable agreement — ( 1,921 ) ( 9 )

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Debt issuance cost — ( 666 ) ( 677 )

Repayment of note payable ( 4,369 ) ( 27,821 ) ( 2,500 )

Proceeds from notes payable 44,619 64,821 —

Repayment of revolving credit facility ( 50,000 ) — —

Repayment of term note payable ( 4,375 ) ( 4,369 ) ( 27,821 )

Proceeds from revolving credit facility 25,000 20,000 5,000

Proceeds from term note payable — 24,619 59,821

Proceeds from the issuance of Class A common stock 6,130 4,590 5,040

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TWIS is a wholly owned subsidiary of GF.

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

The Company had 12 corporate-owned locations in operation at December 31, 2022, 15 at December 31, 2021, and 9 at December 31, 2020.

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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All intercompany accounts and transactions have been eliminated in consolidation.

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

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.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.

Reclassification

Certain amounts previously reported in the 2021 financial statements have been reclassified for comparative purposes to conform to the current period's presentation.

We reclassified amounts between "Employee compensation and benefits" and "General and administrative expenses" in the Consolidated Statement of Operations.

We reclassified amounts between "Receivables from franchisees, net" and "Accounts payable and accrued expenses" in the Consolidated Balance Sheet that also impacted balances in the Consolidated Statement of Cash Flows.

We disaggregated the proceeds and payments of the term notes payable and revolving credit facility on the Consolidated Statements of Cash Flows.

Significant accounting policies

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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, 2022, 2021, and 2020 ( in thousands ):

December 31, 2021

2022 2021 2020

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The insurance carriers collect the remaining premiums directly from the insureds and remit the applicable commissions to the Company.

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

Accordingly, as reported in the accompanying consolidated balance sheets, 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.

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.

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 2022, the Company wrote with approximately 150 insurance carriers, of which 58 provided national coverage.

In 2022, two carriers represented more than 10% of total revenue at 14 % and 12 %.

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 select states, agents have the option to charge an agency fee for the placement of the insurance policy.

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Revenue recognition

The adoption of ASC 606 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.

Goosehead provides personal and commercial property and casualty insurance brokerage services for its clients through a network of corporate-owned and franchise units.

Goosehead is compensated for the insurance brokerage services that it provides for clients in the form of commission revenue, royalty fees, and contingent commissions.

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.

Certain costs to obtain or fulfill a contract are capitalized.

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

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The Company carries fixed assets at cost, less accumulated depreciation, as stated in the accompanying consolidated balance sheets.

Depreciation of property and equipment is calculated using the straight-line method over the estimated useful life of five years for furniture, fixtures and equipment and three years for computer equipment.

Depreciation of property and equipment is calculated using the straight-line method over the estimated useful life of five years for furniture, fixtures and equipment and three years for computer

Leasehold improvements are also amortized using the straight-line method and are amortized over the shorter of the remaining term of the lease or the useful life of the improvement.

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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.

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.

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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.

(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.

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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.

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

In December 2022, ASU 2022-06 extended the effective period through December 31, 2024.

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

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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) :

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 .

Commissions and agency fees

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Subsequent adjustments to estimated policy changes and cancellations are possible as facts and circumstances change over time.

These commission revenues are now generally recognized earlier than they had been previously.

For Agency Fees, the Company enters into a contract with the insured, in which the Company's performance obligation is to place an insurance policy.

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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, net of constraint, as the underlying policies are placed.

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, net of a constraint.

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

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In connection with Topic 606, contingent commissions are estimated with a constraint applied and accrued relative to the recognition of the corresponding core commissions for the period over which the contract applies.

The resulting effect on the timing of recognizing contingent commissions will now more closely follow a similar pattern as our commissions and fees with any adjustments recognized when payments are received or as additional information that affects the estimate becomes available.

The resulting effect on the timing of recognizing contingent commissions closely follows a similar pattern as our commissions and fees with any adjustments recognized when payments are received or as additional information that affects the estimate becomes available.

Franchise revenues

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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.

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

Revenue from Royalty Fees is 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.

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Additionally, the Company has evaluated ASC Topic 340 - Other Assets and Deferred Cost (“ASC 340”) which requires companies to defer certain incremental cost to obtain customer contracts, and certain costs to fulfill customer contracts.

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.

Incremental cost to obtain - The Company defers certain costs to obtain customer contracts primarily as they relate to commission-based compensation plans for Franchisees, 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 contract.

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Disaggregation of Revenue

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

Year Ended December 31, 2021 Franchise Channel Corporate Channel Total

Type of revenue stream:

Commissions and agency fees

Renewal Commissions $ — $ 39,111 $ 39,111

New Business Commissions — 22,108 22,108

Agency Fees — 11,506 11,506

Contingent Commissions 7,378 2,548 9,926

Franchise revenues

Renewal Royalty Fees 46,079 — 46,079

New Business Royalty Fees 14,616 — 14,616

Initial Franchise Fees 6,516 — 6,516

Other Franchise Revenues 297 — 297

Interest Income 1,153 — 1,153

Total Revenues $ 76,039 $ 75,273 $ 151,312

Timing of revenue recognition:

Transferred at a point in time $ — $ 72,725 $ 72,725

Transferred over time 76,039 2,548 78,587

Total Revenues $ 76,039 $ 75,273 $ 151,312

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

Year Ended December 31,

Franchise Channel Corporate Channel Total

2022 2021 2020

Type of revenue stream:

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New deferrals (1)

20,923 15,642

Contract liability at end of period $ 46,553 $ 48,608

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

Allowance for Uncollectible Franchise Fees:

Balance at December 31, 2020 $ 149

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

Allowance for Uncollectible Agency Fees:

Balance at December 31, 2020 $ 468

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Amortization expense was $ 0.8 million, $ 0.4 million, and $ 0.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Expected amortization over the next five years is as follows:

Year Ending December 31,

Expected amortization for the next five calendar years as of December 31, 2022 are as follows (in thousands) :

2027 and thereafter —

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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.

At December 31, 2021, the Company had $ 25.0 million drawn against the revolver.

At December 31, 2021, the Company had a letter of credit of $ 167 thousand applied against the maximum borrowing availability, thus amounts available to draw totaled $ 24.8 million.

At December 31, 2022, the Company had not drawn against the revolver.

At December 31, 2022, the Company had a letter of credit of $ 0.2 million applied against the maximum borrowing availability, thus amounts available to draw totaled $ 49.8 million.

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 $ 0.4 million, $ 0.1 million, and $ 0.5 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Interest payments on the revolving credit facility totaled $ 0.7 million, $ 0.4 million, and $ 0.1 million for the years ended December 31, 2022, 2021, and 2020, respectively.

The $ 100.0 million term note accrues interest at an initial interest rate of LIBOR plus 2.25 %, then at an interest rate determined by the Company's leverage ratio for the preceding period.

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Total $ 94,375

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

There is nothing drawn against the revolver which is coterminous with the term loan and is due in full on June 21, 2026.

Loan origination fees of $ 0.8 million at December 31, 2022 are reflected as a reduction to the note balance and are amortized through interest expense.

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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:

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Non-deductible stock compensation costs ( 1,478 ) ( 4,530 ) ( 3,004 )

Non-deductible excess compensation 15 — —

Non-deductible employee moving expenses — 6 1

Meals & entertainment 101 25 47

Permanent Provision to Return 43 — —

State income tax, net of federal benefit 2,268 1,553 524

Other reconciling items:

Section 162(m) DTA Write-off 935 — —

Other 22 10 ( 59 )

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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.

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.

GSHD entered into a tax receivable agreement ("TRA") 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.

During the years ended December 31, 2022, 2021 and 2020, an aggregate of 2.4 million, 1.5 million and 2.6 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 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.

In connection with these redemptions, we received 2.4 million, 1.5 million and 2.6 million LLC Units, which resulted in an increase in the tax basis of our investment in GF subject to the provisions of the TRA.

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, 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.

As of December 31, 2022 and 2021, the total amount of TRA Payments due to the Pre-IPO LLC Members under the TRA was $ 125.7 million and $ 101.0 million, respectively, of which $ 0.0 million and $ 0.0 million , respectively, was current and included in Accounts payables and accrued expenses on the Consolidated balance sheets.

Stockholder's equity

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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 (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,

2022 2021 2020

Income (loss) before taxes $ 6,004 $ 17,720 $ 11,686

income (loss) before taxes attributable to non-controlling interests 2,893 9,468 6,956

Income (loss) before taxes attributable to GSHD 3,111 8,252 4,730

income tax expense attributable to GSHD ( 2,292 ) ( 1,035 ) 1,163

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

Income before taxes

$ 5,129 $ 6,004 $ 17,720

income before taxes attributable to non-controlling interests

2,065 2,893 9,468

Income before taxes attributable to GSHD

3,064 3,111 8,252

income tax expense (benefit) attributable to GSHD

2,499 ( 2,292 ) ( 1,035 )

Net income attributable to GSHD

$ 565 $ 5,403 $ 9,287

Weighted average shares of Class A common stock outstanding - basic 20,995 19,181 16,785

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GSHD reports a non-controlling interest representing the economic interest in GF held by the other members of GF.

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

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.

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

For the years ended December 31, 2022 and 2021, GF made no distributions.

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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Stock options:

In connection with the IPO, GSHD granted 1,650 thousand options to directors and certain employees.

The stock options were granted with a strike price of $ 10.00 per share (the initial public offering price).

The 365 thousand director stock options vest quarterly over a three-year period, and the 1,285 thousand employee stock options vest annually from 2020 to 2022.

The grant date fair value was determined using the Black-Scholes valuation model using the following assumptions:

Expected volatility 25 %

Expected dividend yield —

Expected term (in years) 5.95

Risk-free interest rate 2.59 %

GSHD will recognize the total compensation expense of $ 5.2 million related to such option grants on a straight-line basis over the requisite service period of the award recipient ( three years for directors and four years for certain employees).

In April 2018, GSHD adopted the Omnibus Incentive Plan, which reserved 1.5 million shares of Class A Common Stock for delivery to directors, officers, and managing directors in connection with future awards granted under the plan.

GSHD also adopted an Employee Stock Purchase Plan ("ESPP"), which reserved 20 thousand shares of Class A Common Stock for delivery to employees.

On March 7, 2019, GSHD’s Board of Directors amended the Omnibus Incentive Plan, increasing the number of shares available under the plan to 3.0 million shares.

On the same date, GSHD’s Board of Directors approved an increase in the total number of shares available under the ESPP to 30 thousand shares.

There were 21 thousand and 13 thousand shares outstanding related to the Employee Stock Purchase Plan at December 31, 2021 and 2020.

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 %

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:

The Company granted additional stock options of 1,482,000 , 153,500 , and 900,000 to its Board of Directors and Managing Directors in 2022, 2021, and 2020, respectively.

The weighted average grant date fair value was determined using the Black-Scholes valuation model using the following weighted average assumptions:

2022 2021 2020

Expected volatility 55 % - 65 %

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Risk-free interest rate 1.19 %- 4.26 %

0.29 % 0.47 %

A summary of stock option activity for the years ended December 31, 2022, 2021 and 2020 is as follows ( in thousands except per share amounts ):

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The total fair value of stock options vested during the years ended December 31, 2022, 2021 and 2020 was $ 8.9 million, $ 2.6 million and $ 1.7 million, respectively.

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

The board of directors of the Company then declared an extraordinary dividend of $ 0.41 (rounded) to all holders of Class A common stock of GSHD with a record date of March 18, 2019, paid on or before April 1, 2019.

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

LLC Units held as of March 18, 2019 Dividends declared

Class A common stockholders 14,421 $ 5,962

Class B common stockholders via LLC Units held 21,864 9,038

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.

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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 Company did not approve or pay any dividends during the year ended December 31, 2022.

At December 31, 2022, Goosehead was obligated under a number of operating leases, exclusively leases for premises and equipment used for business purposes.

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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.

Operating lease liabilities and ROU assets 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.

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The following is a schedule of future maturity of lease liability as of December 31, 2022 (in thousands):

December 31, 2021

Total lease payments 83,076

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Future maturity of lease liability

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.

As of December 31, 2022, the Company did not have any additional future operating lease commitments that were signed but had not yet commenced.

Segment information

The Company has two reportable segments:

Corporate Channel and Franchise Channel.

The Corporate Channel consists of company-owned and financed operations with employees who are hired, trained, and managed by Goosehead.

The Franchise Channel network consists of franchisee operations that are owned and managed by individual business owners.

These business owners have a contractual relationship with Goosehead to use the Company's processes, systems, and back-office support team to sell insurance and manage their business.

In exchange, Goosehead is entitled to an initial franchise fee and ongoing royalty fees.

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.

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.

Channel Corporate

Channel Other Total

Year Ended December 31, 2021

Commissions and agency fees

Renewal Commissions $ — $ 39,111 $ — $ 39,111

Agency Fees — 11,506 — 11,506

New Business Commissions — 22,108 — 22,108

Contingent Commissions 7,378 2,548 — 9,926

Total Commissions and Agency Fees 7,378 75,273 — 82,651

Franchise revenue —

Renewal Royalty Fees 46,079 — — 46,079

New Business Royalty Fees 14,616 — — 14,616

Initial Franchise Fees 6,516 — — 6,516

Other Franchise Revenues 297 — — 297

Total Franchise Revenue 67,508 — — 67,508

Interest income —

Interest Income 1,153 — — 1,153

Total Interest Income 1,153 — — 1,153

Total 76,039 75,273 — 151,312

Operating expenses:

Employee compensation and benefits, excluding equity-based compensation 32,975 52,771 — 85,746

General and administrative expenses 18,439 20,504 2,786 41,729

Bad debts 1,173 1,826 — 2,999

Total 52,587 75,101 2,786 130,474

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

Other income 77 108 — 185

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

Interest expense — — ( 2,854 ) ( 2,854 )

Depreciation and amortization ( 2,965 ) ( 1,908 ) — ( 4,873 )

Taxes — — 2,292 2,292

Net income $ 20,564 $ ( 1,628 ) $ ( 10,640 ) $ 8,296

At December 31, 2021:

Total Assets $ 57,164 $ 43,819 $ 166,815 $ 267,798

Channel Corporate

Channel Other Total

Year Ended December 31, 2020

Commissions and agency fees

Renewal Commissions $ — $ 28,891 $ — $ 28,891

Agency Fees — 8,921 — 8,921

New Business Commissions — 17,324 — 17,324

Contingent Commissions 10,754 5,921 — 16,675

Total Commissions and Agency Fees 10,754 61,057 — 71,811

Franchise revenue

Renewal Royalty Fees 29,309 — — 29,309

New Business Royalty Fees 10,623 — — 10,623

Initial Franchise Fees 4,236 — — 4,236

Other Franchise Revenues 222 — — 222

Total Franchise Revenue 44,390 — — 44,390

Interest income

Interest Income 813 — — 813

Total Interest Income 813 — — 813

Total 55,957 61,057 — 117,014

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

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

Bad debts 387 1,189 — 1,576

Total 36,236 49,090 3,856 89,182

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

Other income (expense) 90 — — 90

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

Interest expense — — ( 2,310 ) ( 2,310 )

Depreciation and amortization ( 1,775 ) ( 1,372 ) — ( 3,147 )

Taxes — — 1,035 1,035

Net income $ 18,036 $ 10,595 $ ( 9,876 ) $ 18,755

At December 31, 2020:

Total Assets $ 82,804 $ 25,609 $ 77,424 $ 185,837

Channel Corporate

Channel Other Total

Year ended December 31, 2019

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, excluding state franchise tax (1)

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

Other income (expense) — — — —

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

The Company’s Chief Operating Decision Maker, its Chief Executive Officer (“CEO”), reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance.

Management views the Company’s operations and manages its business as one operating segment.

the Company determined that it operates in a single reportable segment.

All of the Company’s long-lived assets are located in the United States.

As a result, beginning with the first quarter of 2022, GSHD has modified the presentation of its segment financial information with retrospective application to all prior periods presented.

Since the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial statements.

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

3 unchanged sentences

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What changed 10-K

Item 8. Financial Statements and Supplementary Data