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What changed in Goosehead Insurance, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Goosehead Insurance, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+323 added−349 removedSource: 10-K (2024-02-22) vs 10-K (2023-02-27)

Top changes in Goosehead Insurance, Inc.'s 2023 10-K

323 paragraphs added · 349 removed · 280 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

101 edited+10 added−13 removed86 unchanged
Biggest changeWe have franchise locations either operating or signed in the following states, which cover over 99% of the US population: 9 Geographic footprint Operating or signed agencies State December 31, 2022 Texas 380 California 153 Florida 120 New York 108 Illinois 94 Michigan 93 Pennsylvania 84 North Carolina 81 Colorado 71 Indiana 71 Virginia 62 Georgia 60 South Carolina 56 Missouri 54 Other 638 Total (1) 2,125 (1) Number of franchise locations include 712 franchises which are under contract but yet to be opened as of December 31, 2022.
Biggest changeWe have franchise locations either operating or signed in the following states, which cover over 99% of the US population: Geographic footprint Operating agencies State December 31, 2023 Texas 297 Florida 85 California 79 Illinois 52 Michigan 50 Pennsylvania 49 North Carolina 46 Georgia 42 Louisiana 39 Colorado 35 Virginia 35 New York 34 Maryland 34 Missouri 34 Other 315 Total (1) 1,226 Profitability of Corporate and Franchise Sales Both corporate sales and franchise sales generate New Business Commissions and Agency Fees for efforts in identifying, placing, and making effective insurance coverage on behalf of our customers.
While it is difficult to quantify the impact on our business from individuals purchasing insurance over the Internet, we believe this risk is generally isolated to personal lines customers with single-line auto insurance coverage, which represent a small portion of our overall business. 17 Seasonality The majority of our new accounts are sourced by referral sources tied to home closing transactions.
While it is difficult to quantify the impact on our business from individuals purchasing insurance over the Internet, we believe this risk is generally isolated to personal lines customers with single-line auto insurance coverage, which represent a small portion of our overall business. Seasonality The majority of our new accounts are sourced by referral sources tied to home closing transactions.
Cost Recovery Revenue consists of non-refundable Initial Franchise Fees, which compensate us for the training and onboarding efforts to launch a new franchise location, and Interest Income related to Franchisees which elect the payment plan option for their Initial Franchise Fee. Ancillary Revenue consists of Contingent Commissions and Other Income. We started franchising in 2012 and have since expanded rapidly.
Cost Recovery Revenue consists of non-refundable Initial Franchise Fees, which compensate us for the training and onboarding efforts to launch a new franchise location, and Interest Income related to Franchisees that elect the payment plan option for their Initial Franchise Fee. Ancillary Revenue consists of Contingent Commissions and Other Income. We started franchising in 2012 and have since expanded rapidly.
Our operating principals and values are articulated below. • Uncompromising integrity in all we do • Deliver the WOW! • Support the team • Respect Company confidentiality – clients, third parties, staff • Be at cause • Pull more than your own weight • Honest, open and direct communications • Presume trust • Work hard – we are building a great company; it will take great effort • Meritocracy and pay for performance • Our clients and our people are our assets – treat them as such • Exceptional service always • Respect and fairness • Look for opportunities to create value for our company – your ideas are important • Highest quality and service in the industry • THINK BIG Code of Business Conduct and Ethics We have adopted a code of business conduct and ethics policy that applies to all of our employees, officers and directors, including those officers responsible for financial reporting.
Our operating principles and values are articulated below. • Uncompromising integrity in all we do • Deliver the WOW! • Support the team • Respect Company confidentiality – clients, third parties, staff • Be at cause • Pull more than your own weight • Honest, open and direct communications • Presume trust • Work hard – we are building a great company; it will take great effort • Meritocracy and pay for performance • Our clients and our people are our assets – treat them as such • Exceptional service always • Respect and fairness • Look for opportunities to create value for our company – your ideas are important • Highest quality and service in the industry • THINK BIG Code of Business Conduct and Ethics We have adopted a code of business conduct and ethics policy that applies to all of our employees, officers and directors, including those officers responsible for financial reporting.
Any waiver of the code for directors or executive officers may be made only by our Board of Directors or a board committee to which the board has delegated that authority and will be promptly disclosed to our shareholders as 20 required by applicable U.S. federal securities laws and the corporate governance rules of the Nasdaq Global Select Market.
Any waiver of the code for directors or executive officers may be made only by our Board of Directors or a board committee to which the board has delegated that authority and will be promptly disclosed to our shareholders as required by applicable U.S. federal securities laws and the corporate governance rules of the Nasdaq Global Select Market.
The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.
The SEC maintains an Internet site that contains reports, proxy and information statements and other information 19 regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.
As a result, the Goosehead model has proven to be attractive to high-performing agents who wish to achieve greater professional and financial success. 13 • Single technology platform with end-to-end business process management . Our operations utilize an innovative proprietary cloud-based technology solution customized to suit our needs.
As a result, the Goosehead model has proven to be attractive to high-performing agents who wish to achieve greater professional and financial success. • Single technology platform with end-to-end business process management . Our operations utilize an innovative proprietary cloud-based technology solution customized to suit our needs.
Our franchise sales function has a unique value proposition to experienced agents who understand the limits and pain points of the traditional agency model: • Franchise sales agents gain access to products from multiple Carriers in their markets, allowing the agents to better serve their clients and Referral Partners by providing choice.
Our franchise sales function has a unique value proposition to experienced agents who understand the limits and pain points of the traditional agency model: • Franchise owners and their sales agents gain access to products from multiple Carriers in their markets, allowing the agents to better serve their clients and Referral Partners by providing choice.
Goosehead employees are also eligible to be awarded incentive stock options under our Omnibus Incentive Plan, which is designed to motivate and reward key 19 employees to perform at the highest level and contribute significantly to our long term success, thereby aligning our employee incentives with the best interests of our shareholders.
Goosehead employees are also eligible to be awarded incentive stock options under our Omnibus Incentive Plan, which is designed to motivate and reward key employees to perform at the highest level and contribute significantly to our long term success, thereby aligning our employee incentives with the best interests of our shareholders.
A number of firms and banks with substantially greater resources and market presence compete with us. Our brokerage operations compete with firms, which operate globally or nationally or are strong in a particular region or locality and may have, in that region or locality, an office with revenues as large as or larger than those of our corresponding local office.
A number of firms and banks with substantially greater resources and market presence compete with us. Our brokerage operations compete with firms that operate globally or nationally or are strong in a particular region or locality, and may have in that region or locality an office with revenues as large as or larger than those of our corresponding local office.
Captive Agents typically can only sell products from one Carrier. • Franchise sales agents can leverage our service centers to handle service requests and process renewals. Most traditional agencies require their agents to handle client service and renewals which diminishes the time they can devote to winning additional new business and growing their agencies.
Captive Agents typically can only sell products from one Carrier. • Franchise owners and their sales agents can leverage our service centers to handle service requests and process renewals. Most traditional agencies require their agents to handle client service and renewals which diminishes the time they can devote to winning additional new business and growing their agencies.
Goosehead maintains strong Equal Opportunity and Anti-Harassment policies, and we are committed to the principles of openness, empathy, and respect in our workplace. We contracted with a third-party solutions team to encourage and facilitate independent and timely reporting and investigation of alleged policy violations.
Goosehead maintains strong Equal Opportunity and Anti-Harassment policies, and we are committed to the principles of openness, empathy, and respect in our workplace. We contracted with a third-party solutions team to 18 encourage and facilitate independent and timely reporting and investigation of alleged policy violations.
He also served as the Chief Financial Officer of Sabre, and L.H.P. Hospital Group. At Sabre, he held multiple operating and finance positions and was instrumental in the company’s initial public offering and its subsequent $5 billion privatization transaction. ◦ Mark E.
He also served as the Chief Financial Officer of Sabre, and L.H.P. Hospital Group. At Sabre, he held multiple operating and finance positions and was instrumental in the company’s initial public offering and its subsequent $5 billion privatization transaction. 13 ◦ Mark E.
Our Go-to-Market Strategy Our business model allows both our corporate and franchise sales agents to concentrate on sales and marketing activities related to acquiring new clients and issuing new policies, thus growing New Business Revenue and Renewal Revenue more rapidly than in other systems.
Our Go-to-Market Strategy Our business model allows both our corporate and franchise sales agents to concentrate on sales and marketing activities related to acquiring new clients and issuing new policies, thus growing New Business Revenue and 6 Renewal Revenue more rapidly than in other systems.
We will continue to innovate going forward in an effort to both better serve our clients and expand our platform. • Maximize our effectiveness in managing renewal business . We earn significantly larger Royalty Fees from our Franchisees for renewal business than on new business.
We will continue to innovate going forward in an effort to both better serve our clients and expand our platform. • Maximize our effectiveness in managing renewal business . We earn significantly larger Royalty Fees from our Franchisees for renewal business than for new business.
Major slowdowns in the various housing markets Goosehead serves could impact our ability to generate new business. Additionally, an increase in interest rates may decrease the number of home closing transactions, which could negatively impact our ability to generate new business.
Major slowdowns in the various housing markets Goosehead serves could impact our ability to generate new business. Additionally, an increase in interest rates may decrease the number of home closing transactions, which could 16 negatively impact our ability to generate new business.
Having such a skilled and fully licensed service team provides three tangible benefits to our business: (1) allowing our agents to focus virtually all of their time on cultivating new Referral Partner relationships and winning new business (instead of preserving existing business), (2) generating strong Client Retention which provides a stable source of highly visible and recurring revenue and (3) providing opportunities to earn additional revenue as our service agents are highly trained in cross-selling and generating referral business.
Having such a skilled and fully licensed service team provides three tangible benefits to our business: (1) allowing our agents to focus virtually all of their time on cultivating new Referral Partner relationships and winning new business (instead of preserving existing business), (2) generating strong Client Retention that provides a stable source of highly visible and recurring revenue and (3) providing opportunities to earn additional revenue as our service agents are highly trained in cross-selling and generating referral business.
The support structure that our corporate sales agents provide to our franchise sales agents creates unique career paths in sales management, territory management, and franchise ownership. • Franchise sales solves the inherent flaws in the traditional agency model .
The support structure that our corporate sales agents provide to our franchise sales agents creates unique career paths in sales management, territory management, and franchise ownership. 12 • Franchise sales solves the inherent flaws in the traditional agency model .
First, only having one carrier to sell leads to lower close rates and client retention as these companies lack options to move the business to another Carrier.
First, only having 5 one carrier to sell leads to lower close rates and client retention as these companies lack options to move the business to another Carrier.
This strategy allows them to spend much less on marketing and can yield dozens of high-quality clients referred directly to them, driving higher levels of productivity. All policy fulfillment and servicing is handled by our centralized service team, which retains our clients at 88%, unlocking the agent’s time to focus on new sales.
This strategy allows them to spend much less on marketing and can yield dozens of high-quality clients referred directly to them, driving higher levels of productivity. All policy fulfillment and servicing is handled by our centralized service team, which retains our clients at 86%, unlocking the agent’s time to focus on new sales.
Further, most fixed costs in a traditional agency (e.g., administrative costs, technology fees, training expenses and service costs) are diminished or eliminated in our franchise sales due to Goosehead’s scale, and we expect that fixed costs will continue to decrease as franchise sales grows. • Franchise sales agents own an economic interest in their Books of Business.
Further, most fixed costs in a traditional agency (e.g., administrative costs, technology fees, training expenses and service costs) are diminished or eliminated in our franchise sales due to Goosehead’s scale, and we expect that fixed costs will continue to decrease as franchise sales grows. • Franchise owners own an economic interest in their Books of Business.
The Royalty Fee is derived from a percentage of gross revenues on insurance policies in their initial (20%) and renewal terms (50%). Franchise owners are not entitled to an exclusive territory and may solicit sales from any location within the state in which they operate, subject to certain internal restrictions.
The Royalty Fee is derived from a percentage of gross commissions on insurance policies in their initial (20%) and renewal terms (50%). Franchise owners are not entitled to an exclusive territory and may solicit sales from any location within the state in which they operate, subject to certain internal restrictions.
The FTC (through its “Franchise Rule”) requires franchisors to provide certain disclosures, in the form of a franchise disclosure document (an “FDD”) to prospective Franchisees.
The FTC (through its “Franchise Rule”) requires franchisors to provide certain disclosures, in the form of a franchise disclosure document (“FDD”) to prospective Franchisees.
The Digital Agent, available across the U.S., is powered by key data integrations and a proprietary database. It automatically populates information about consumers’ homes and vehicles during the quoting process and combines that information with millions of data points from two decades worth of Goosehead expert agents’ quoting decisions and accumulated experiences.
The Digital Agent, available across the U.S., is powered by key data integrations and a proprietary database. It automatically populates information about consumers’ homes and vehicles during the quoting process and combines that information with millions of data points from two decades worth of Goosehead's expert agents’ quoting decisions and accumulated experiences.
In addition to recruiting current insurance agents with a superior value proposition, we are also bringing in sales and marketing savvy professionals who are attracted to the recession-resistant and residual economics offered by a career in insurance. The value and opportunity we provide to agents has led to our rapid growth to 1,413 operating franchise locations.
In addition to recruiting current insurance agents with a superior value proposition, we are also bringing in sales and marketing savvy professionals who are attracted to the recession-resistant and residual economics offered by a career in insurance. The value and opportunity we provide to agents has led to our rapid growth to 1,226 operating franchise locations.
Approximately twenty states also have pre-sale franchise or “business opportunity” laws and regulations that require franchisors to register with the state in some manner before that franchisor may offer or sell a franchise in that state, and in some cases to also provide prospective Franchisees with certain additional disclosures as part of the FDD.
Certain states also have pre-sale franchise or “business opportunity” laws and regulations that require franchisors to register with the state in some manner before that franchisor may offer or sell a franchise in that state, and in some cases to also provide prospective Franchisees with certain additional disclosures as part of the FDD.
We have taken the position that we do not negotiate the terms of our Franchise Agreements in order to maintain uniformity within the system. Each Franchise Agreement contains one ten-year term with two optional five-year renewal terms.
We have taken the position that we do not negotiate the terms of our Franchise Agreements in order to maintain uniformity within the system. Each Franchise Agreement contains one ten-year term with either two optional five-year renewal terms or two optional ten-year renewal terms.
Traditional agencies can 8 become the victims of their own success as their increasing service burden crowds out time to sell new business. • Franchise sales agents use our well-established and proprietary sales processes to win new business.
Traditional agencies can become the victims of their own success as their increasing service burden crowds out time to sell new business. • Franchise owners and their sales agents use our well-established and proprietary sales processes to win new business.
We believe that we are one of the largest independent insurance agencies focused primarily on personal lines. • Captive Agencies (35% personal lines market share in 2021 according to the Independent Insurance Agents & Brokers of America, Inc.). Captive Agencies sell products for only one Carrier.
We believe that we are one of the largest independent insurance agencies focused primarily on personal lines. • Captive Agencies (35% personal lines market share in 2022 according to the Independent Insurance Agents & Brokers of America, Inc.). Captive Agencies sell products for only one Carrier.
Over the long-term, we believe our youth will enable us to avoid the shrinking workforce challenges that many of our competitors face and win an even larger market share from other agencies. According to Independent Insurance Agents & Brokers of America, Inc., 25% of independent agencies anticipate a change of control within the next five years.
Over the long-term, we believe these factors will enable us to avoid the shrinking workforce challenges that many of our competitors face and win an even larger market share from other agencies. According to Independent Insurance Agents & Brokers of America, Inc., 25% of independent agencies anticipate a change of control within the next five years.
We are able to solve that by partnering with approximately 150 carriers and using technology to shop for our clients and quickly identify the Carrier who is targeting their segment of the market.
We are able to solve that by partnering with over 150 carriers and using technology to shop for our clients and quickly identify the Carrier who is targeting their segment of the market.
We also generate Ancillary Revenue in the form of Contingent Commissions from Carriers related to the overall growth and loss performance of the Book of Business we have placed with them. Corporate sales is comprised of employed sales agents located in 12 sales offices across Texas, Illinois, Colorado, Ohio, Nevada, and North Carolina.
We also generate Ancillary Revenue in the form of Contingent Commissions from Carriers related to the overall growth and loss performance of the Book of Business we have placed with them. Corporate sales is comprised of employed sales agents located in 11 sales offices across Texas, Illinois, Colorado, Ohio, Nevada, Florida, and North Carolina.
We've made investments in technology to outrun our competitors, and we will continue to find opportunities to utilize technology to widen the gap between us and any nascent competition. Markets & marketing We primarily compete in the approximately $380 billion (according S&P Global Market Intelligence) U.S. personal lines P&C industry.
We've made investments in technology to outrun our competitors, and we will continue to find opportunities to utilize technology to widen the gap between us and any nascent competition. 15 Markets & marketing We primarily compete in the approximately $411 billion (according to S&P Global Market Intelligence) U.S. personal lines P&C industry.
Agents are encouraged to procure new clients through both relationships with Referral Partners and traditional channels (friends, family, client referrals, inbound inquiries and outbound inquiries), and we give them proprietary tools and technology to leverage our years of experience in successfully executing this go-to-market strategy. The Company represents approximately 150 Carriers, of which 58 provide national coverage.
Agents are encouraged to procure new clients through both relationships with Referral Partners and traditional channels (friends, family, client referrals, inbound inquiries and outbound inquiries), and we give them proprietary tools and technology to leverage our years of experience in successfully executing this go-to-market strategy. The Company represents over 150 Carriers, of which 60 provide national coverage.
Diversity, Equity, and Inclusion More than half of Goosehead's employees are women and over one-third of our workforce identify as racially diverse. We are committed to a meritocratic and inclusive culture of growth and advancement that is informed by our Operating Principles.
Workforce Diversity and Engagement More than half of Goosehead's employees are women and over one-third of our workforce identify as racially diverse. We are committed to a meritocratic and inclusive culture of growth and advancement that is informed by our Operating Principles.
Additionally, in contrast to the traditional insurance agency model, we separate the sales function from the service function, thus enabling agents to focus on selling, and service personnel to focus on delivering superior client service. This model has helped drive best-in-class net promoter scores for client service, nearly 2.6x the 2021 P&C industry average according to Satmetrix.
Additionally, in contrast to the traditional insurance agency model, we separate the sales function from the service function, thus enabling agents to focus on selling, and service personnel to focus on delivering superior client service. This model has helped drive best-in-class net promoter scores for client service, nearly 2.6x the 2022 P&C industry average according to Statista.
Premiums in the personal lines insurance market have grown consistently with underlying insured values and the overall economy. 12 Personal lines products Personal lines premium trends ($ billions) Auto premiums Homeowners premiums Source: S&P Global Market Intelligence and National Association of Insurance Commissioners Premium pricing within the P&C insurance industry has historically been cyclical, based on the underwriting capacity of the insurance industry and economic conditions.
Premiums in the personal lines insurance market have grown consistently with underlying insured values and the overall economy. 11 Personal lines products Personal lines premium trends ($billions) Source: S&P Global Market Intelligence and National Association of Insurance Commissioners Premium pricing within the P&C insurance industry has historically been cyclical, based on the underwriting capacity of the insurance industry and economic conditions.
Our 2022 average commission rate on new business premium was 15% and on renewal business premium was 13%. Commission rates can vary across Carriers, states and lines of business, and typically range from 10% to 20%. Many “insuretech” carriers saw the complexity of working with traditional agents and have sought to build models that eliminate the role of the agent.
Our 2023 average commission rate on new business premium was 14% and on renewal business premium was 13%. Commission rates can vary across Carriers, states and lines of business, and typically range from 10% to 20%. Many “insuretech” carriers saw the complexity of working with traditional agents and have sought to build models that eliminate the role of the agent.
The largest Captive Agencies in the United States include Allstate Corporation, State Farm Mutual Automobile Insurance Company and Farmers Group, Inc. • Direct distribution (27% personal lines market share in 2021 according to the Independent Insurance Agents & Brokers of America, Inc.) . Certain Carriers market their products directly to clients.
The largest Captive Agencies in the United States include Allstate Corporation, State Farm Mutual Automobile Insurance Company and Farmers Group, Inc. • Direct distribution (26% personal lines market share in 2022 according to the Independent Insurance Agents & Brokers of America, Inc.) . Certain Carriers market their products directly to clients.
We also are the registered holder of a variety of domain names that include “Goosehead” and similar variations. Regulatory matters Franchise regulation . Offers and sales of franchises (so-called “pre-sale” franchise activities) are regulated in the United States by the Federal Trade Commission ("FTC") as well as certain states.
We also are the registered holder of a variety of domain names that include “Goosehead” and similar variations. Regulatory matters Franchise regulation . Offers and sales of franchises (so-called “pre-sale” franchise activities) are regulated in the United States by the Federal Trade Commission ("FTC") and by certain state laws.
There are principally three types of businesses that sell personal lines products: • Independent agencies (38% personal lines market share in 2021 according to the Independent Insurance Agents & Brokers of America, Inc.) . Independent agencies are “independent” of any one Carrier and can offer insurance products from multiple Carriers to their clients.
There are principally three types of businesses that sell personal lines products: • Independent agencies (39% personal lines market share in 2022 according to the Independent Insurance Agents & Brokers of America, Inc.) . Independent agencies are “independent” of any one Carrier and can offer insurance products from multiple Carriers to their clients.
It has resulted in a work force that is highly energized and motivated and a work environment that is meritorious, respectful, diverse and inclusive.
It has resulted in a workforce that is highly energized and motivated and a work environment that is meritorious, respectful, diverse and inclusive.
We have proven that this system delivers superior results as demonstrated by agents, who with a few years tenure, are 2.5x more productive than industry best practice according to Reagan Consulting's 2022 Best Practices Study .
We have proven that this system delivers superior results as demonstrated by agents, who with a few years tenure, are 2.8x more productive than industry best practice according to Reagan Consulting's 2023 Best Practices Study .
This growth has been driven by several factors including (1) our team’s ability to recruit talented agents to our platform; (2) our agents’ leveraging of Goosehead's sales blueprint and proprietary technology leading to higher levels of productivity in winning new business; and (3) our service 6 centers’ ability to retain renewal business.
This growth has been driven by several factors including (1) our team’s ability to recruit talented agents to our platform; (2) our agents’ leveraging of Goosehead's sales blueprint and proprietary technology leading to higher levels of productivity in winning new business; and (3) our service centers’ ability to retain renewal business. Furthermore, we are profitable.
Approximately twenty-four states also have “franchise relationship laws” that address post-sale aspects of the franchisor-franchisee relationship, such as prohibiting enforcement of certain franchise agreement provisions, requiring a certain notice or cure period before termination of a franchise agreement, and also defining what constitutes “good cause” for terminating the franchise agreement or denying a transfer or renewal of the agreement.
Some states also have “franchise relationship laws” that address post-sale aspects of the franchisor-franchisee relationship, such as prohibiting enforcement of certain franchise agreement provisions, requiring a certain notice or cure period before terminating a franchise agreement, and defining what constitutes “good cause” for terminating the franchise agreement or denying a transfer or renewal of the agreement.
Our consistency in service personnel is due to a combination of the opportunities for professional advancement within the Company and the competitive wages we offer; average compensation for service team employees was over $48,000 in 2022. 16 • Continue to invest in technology to drive efficiencies in all areas of our business.
Our consistency in service personnel is due to a combination of the opportunities for professional advancement within the Company and the competitive wages we offer; average compensation for service team employees was over $49,000 in 2023. • Continue to invest in technology to drive efficiencies in all areas of our business.
Our 12 corporate-owned offices and 320 corporate sales agents serve as the blueprint for what is possible in the Goosehead model, and our corporate agents provide critical training and support to help the franchise agents reach their full potential.
Our 14 corporate-owned offices and 300 corporate sales agents serve as the blueprint for what is possible in the Goosehead model, and our corporate agents provide critical training and support to help the franchise agents reach their full potential.
We will continue to strive for a one-of-a-kind company culture and offer a competitive compensation and benefits package, which includes health insurance, a 401(k) plan, an Employee Stock Purchase Program, and the potential for option awards. As of December 31, 2022, we had approximately 1,426 full-time and 1 part-time employee.
We will continue to strive for a one-of-a-kind company culture and offer a competitive compensation and benefits package, which includes health insurance, a 401(k) plan, an Employee Stock Purchase Program, and the potential for option awards. As of December 31, 2023, we had approximately 1,415 full-time and no part-time employees.
One of the disclosure requirements is to include in the FDD audited financial statements of the franchisor (Goosehead Insurance Agency, LLC) or, if not the franchisor, an affiliate or parent of the franchisor who guarantees the franchisor’s obligations to its Franchisees.
One of the required disclosures is to include in the FDD audited financial statements of the franchisor (Goosehead Insurance Agency, LLC) or, if not the franchisor, an affiliate or parent of the franchisor who guarantees the franchisor’s obligations to its Franchisees.
Our technology platform has been a key enabler of our rapid growth while also driving efficiencies. One of these efficiencies is service expenses. Our 2021 service expenses as a percentage of gross commissions were 2.9x lower than the industry best practice according to the 2022 Best Practices Study, which uses 2021 data.
Our technology platform has been a key enabler of our rapid growth while also driving efficiencies. One of these efficiencies is service expenses. Our 2023 and 2022 service expenses as a percentage of gross commissions were 2.5x and 2.7x lower than the industry best practice according to the 2023 Best Practices Study, which uses 2022 data.
In the short-term, our agents have proven to be especially adept at learning new techniques and mastering new technologies. This has enabled our agents to generate approximately 4.1x as much new business as top performing personal lines agents after three years, according to the 2022 Best Practices Study.
In the short-term, our agents have proven to be especially adept at learning new techniques and mastering new technologies. This has enabled our agents to generate approximately 2.8x as much new business as top performing personal lines agents after three years, according to the 2023 Best Practices Study.
After signing their documents electronically, clients can engage with Goosehead’s industry leading service team via self-service, phone, text, online chat, or email. Our choice model, superior sales and service agents, and proprietary technology has led to 88% client retention during 2022, which we believe is among the best in our industry.
After signing their documents electronically, clients can engage with Goosehead’s industry leading service team via phone, text, online chat, or email. Our choice model, superior sales and service agents, and proprietary technology have led to 86% client retention during 2023, which we believe is among the best in our industry.
Franchisees who sign a Franchise Agreement after January 1, 2018, are required to pay a minimum monthly Royalty Fee if the Royalty Fee derived from the gross revenues on insurance policies does not exceed a specific amount. Total Franchises decreased by 1% to 2,125 in 2022 from 2,151 in 2021.
Franchisees who sign a Franchise Agreement after January 1, 2018, are required to pay a minimum monthly Royalty Fee if the Royalty Fee derived from the gross commissions on insurance policies does not exceed a specific amount. Total Franchises decreased by 33% to 1,415 in 2023 from 2,125 in 2022.
Our high degree of client satisfaction drove our 88% Client Retention rate during 2022, which we believe to be among the highest in the industry. Our retention rate is even stronger on a premium basis. In 2022, we retained 100% of the premiums we distributed in 2021.
Our high degree of client satisfaction drove our 86% Client Retention rate during 2023, which we believe to be among the highest in the industry. Our retention rate is even stronger on a premium basis. In 2023, we retained 101% of the premiums we distributed in 2022.
Total Franchises operating increased by 18% to 1,413 in 2022 from 1,198 in 2021. Competition The insurance brokerage business is highly competitive, and numerous firms actively compete with us for customers and insurance markets. Competition in the insurance business is largely based upon innovation, knowledge, terms and condition of coverage, quality of service and price.
Total Franchises operating decreased by 13% to 1,226 in 2023 from 1,413 in 2022. Competition The insurance brokerage business is highly competitive, and numerous firms actively compete with us for customers and insurance markets. Competition in the insurance business is largely based upon innovation, knowledge, terms and condition of coverage, quality of service and price.
Total Written Premium, which we believe is the best leading indicator of future revenue growth because it drives our future Core Revenue and gives us potential opportunities to earn Ancillary Revenue in the form of Contingent Commissions, grew 42% to $2.2 billion from $1.6 billion in 2021.
Total Written Premium, which we believe is the best leading indicator of future revenue growth because it drives our future Core Revenue and gives us potential opportunities to earn Ancillary Revenue in the form of Contingent Commissions, grew 34% to $3.0 billion from $2.2 billion in 2022.
Compared to the 2022 Best Practices Study, corporate sales agents with more than three years of tenure averaged 4.1x as much New Business Production per Agent (Corporate) as the industry best practice.
Compared to the 2023 Best Practices Study, corporate sales agents with more than three years of tenure averaged 2.8x as much New Business Production per Agent (Corporate) as the industry best practice.
Compared to the 2022 Best Practices Study, corporate sales agents with more than three years of tenure averaged 4.1x as much New Business Production per Agent (Corporate) as the industry best practice; franchise sales agents with more than three years of tenure averaged 2.5x as much New Business Production per Agent (Franchise) as the industry best practice.
Compared to the 2023 Best Practices Study, corporate sales agents with more than three years of tenure averaged 2.8x as much New Business Production per Agent (Corporate) as the industry best practice; franchise sales agents with more than three years of tenure averaged 1.8x as much New Business Production per Agent (Franchise) as the industry best practice.
Our Client Retention effort is led by our service centers which had a 2022 NPS score of 90, leading to an 88% Client Retention rate and 100% premium retention rate in 2022. Key to maintaining these NPS scores and Client Retention rates is the consistency of personnel in our service centers.
Our Client Retention effort is led by our service centers, which had a 2023 NPS score of 92, leading to an 86% Client Retention rate and 101% premium retention rate in 2023. Key to maintaining these NPS scores and Client Retention rates is the consistency of personnel in our service centers.
The combination of expanding total producer count, leveraging technology and maintaining our commitment to service led to revenue growth of 38% and Total Written Premium growth of 42% in 2022.
The combination of expanding total producer count, leveraging technology and maintaining our commitment to service led to revenue growth of 25% and Total Written Premium growth of 34% in 2023.
Clients can then bind these quotes through a short call with one of our local licensed agents with expertise in the client's specific market. All client data is treated confidentiality with the client's privacy and security top of mind.
Clients can then bind these quotes through a short call with one of our local licensed agents with expertise in the client's specific market. All client data is treated confidentially with the client's privacy and security top of mind. Goosehead does not sell or share the client's data without the client's permission.
The number of potential franchise candidates is updated daily to reflect new franchise candidates on our customized recruiting platform. Of our total current pipeline, we estimate approximately 10% of the candidates would qualify over time as Franchisees under our exacting standards.
This growth will be further enhanced by the approximately 180,000 potential franchise candidates in our current pipeline. The number of potential franchise candidates is updated daily to reflect new franchise candidates on our customized recruiting platform. Of our total current pipeline, we estimate approximately 10% of the candidates would qualify over time as Franchisees under our exacting standards.
During 2022, two carriers represented more than 10% of total revenue at 14% and 12%. Franchise agreements Franchise sales operate under a franchising model and each franchise is governed by a Franchise Agreement. The Franchise Agreements for all existing franchises are nearly identical.
During 2023, two carriers represented more than 10% of total revenue at 16% and 12%. Franchise agreements Franchise sales operates under a franchising model and each franchise is governed by a Franchise Agreement. The Franchise Agreements for all existing franchises are substantially similar.
As they have grown, many have realized that 80% of the market still prefers to work with an agent (according to the Independent Insurance Agents & Brokers of America, Inc.), and that Goosehead allows them to reach that segment of the market without all the traditional complexity.
As they have grown, many have realized that the market still prefers to work with an agent (according to the Independent Insurance Agents & Brokers of America, Inc.), and that Goosehead allows them to reach that segment of the market without all the traditional complexity. We now distribute for many of the insuretechs, increasing the breadth of our product portfolio.
Compared to the 2022 Best Practices Study, which uses 2021 industry data, corporate sales agents with more than three years of tenure averaged 4.1x as much New Business Production per Agent as the industry best practice during 2021.
Compared to the 2023 Best Practices Study, which uses 2022 industry data, in 2023 and 2022, corporate sales agents with more than three years of tenure averaged 2.8x and 2.9x as much New Business Production per Agent, respectively, as the industry best practice.
Nearly all states have insurance laws requiring personal property and casualty insurers to file rating plans, policy or coverage forms, and other information with the state’s regulatory authority.
Nearly all states have insurance laws requiring personal property and casualty insurers to file rating plans, policy or coverage forms, and other information with the state’s regulatory authority. In many cases, such rating plans and/or policy or coverage forms must be approved by the regulatory authority prior to use.
New Business Revenue per agent by tenure ($000s) Source: Internal data for 2021; Carrier provided information; Reagan Consulting 2022 Best Practices Study (using 2021 data) (1) Represents industry best practice per Reagan Consulting; does not include Unvalidated Producers; most industry agents have tenures significantly longer than 2 to 3 years.
Franchise sales agents with more than three years of tenure averaged 1.8x in 2023 and 1.8x in 2022 as much New Business Production per Agent (Franchise) as the industry best practice. 2023 New Business Revenue per agent by tenure ($000s) Source: Internal data for 2023; Carrier provided information; Reagan Consulting 2023 Best Practices Study (using 2022 data) (1) Represents industry best practice per Reagan Consulting; does not include Unvalidated Producers; most industry agents have tenures significantly longer than 2 to 3 years.
We believe our agent productivity compares even more favorably to the industry than the Best Practices Study would imply because the Best Practices Study excludes Unvalidated Producers.
We believe our agent productivity compares even more favorably to the industry than the Best Practices Study would imply because the Best Practices Study excludes Unvalidated Producers. If the Best Practices Study included Unvalidated Producers, our New Business Production per Agent outperformance would be even larger.
In 2022, Goosehead began transitioning top corporate sales agents into franchise ownership. These highly successful corporate agents have performed well as agency owners. Owning a Goosehead franchise has become a viable and lucrative career path for top agents, which we believe helps Goosehead recruit top talent in the industry.
These highly successful corporate agents have performed well as agency owners. Owning a Goosehead franchise has become a viable and lucrative career path for top agents, which we believe helps Goosehead recruit top talent in the industry. Franchise sales Franchise sales consists of operations that are owned and managed by Franchisees.
Personal lines products typically include home, auto, umbrella, motorcycle, flood and recreational insurance. We compete for business on the basis of reputation, client service, product offerings and the ability to tailor our products to the specific needs of a client.
We compete for business on the basis of reputation, client service, product offerings and the ability to tailor our products to the specific needs of a client.
Outside of Texas during 2022, New Business Production per Agency was $40 thousand for agencies with less than 1 year of tenure and $77 thousand for agencies with more than one year of tenure. Corporate sales Corporate sales consists of company-owned and financed operations with employees who are hired, trained and managed by us.
Including all producers in franchise sales 7 in 2023, New Business Production per Agency was $38 thousand for franchises with less than 1 year of tenure and $88 thousand for franchises with more than one year of tenure. Corporate sales Corporate sales consists of company-owned and financed operations with employees who are hired, trained and managed by us.
We have a highly developed process for recruiting new agents which we have continually refined over the last decade and has resulted in higher success rates for our corporate sales agents. We plan to continue to expand our recruiting to additional college campuses and engage in highly targeted internet recruiting campaigns as we grow.
In order to grow both corporate sales and franchise sales, we must expand our agent count in corporate sales. We have a highly developed process for recruiting new agents which we have continually refined over the last decade and has resulted in higher success rates for our corporate sales agents.
Our corporate sales function continues its investment in the success of our franchise sales well past initial training in the form of ongoing sales coaching and mentoring, as well as serving as fertile recruiting ground for future regional territory managers within our franchise support team. • Franchise sales agents benefit from lean startup costs as they do not require additional employees or a retail location to launch their agencies.
The corporate sales function also serves as fertile recruiting ground for future regional territory managers within our franchise support team. • Franchise owners benefit from lean startup costs as they do not require additional employees or a retail location to launch their agencies.
This differentiated level of service has enabled us to earn an NPS of 90 in 2022, a modest decrease from 91 in 2021, greater than highly regarded brands like Ritz Carlton and Nordstrom and 2.6x the 2021 industry average, according to Satmetrix.
We manage our service centers with the goal to maximize NPS, which we believe maximizes retention. This differentiated level of service has enabled us to earn an NPS of 92 in 2023, a modest increase from 90 in 2022, greater than highly regarded brands like Ritz Carlton and Nordstrom and 2.6x the 2022 industry average, according to Statista.
In states having prior approval laws, the regulator must approve a rate before the insurer may use it. In states having file-and-use laws, the insurer does not have to wait for the regulator’s approval to use a rate, but the rate must be filed with the regulatory authority prior to being used.
In states with file-and-use laws, the insurer does not have to wait for the regulator’s approval to use a rate, but the rate must be filed with the regulatory authority prior to being used. In states with use-and-file laws, the insurer must file rates within a certain 17 period of time after the insurer begins to use them.
As of December 31, 2022, our 10-year Total Written Premium CAGR was 43% and our 5-year premium CAGR was 45%. 10 11 Total Written Premium Total Written Premium by Term Source: Carrier provided information Industry trends We primarily compete in the United States personal lines insurance distribution industry.
As of December 31, 2023, our 10-year Total Written Premium CAGR was 44% and our 5-year premium CAGR was 42%. 10 Source: Carrier provided information Industry trends We primarily compete in the United States personal lines insurance distribution industry. Personal lines products typically include home, auto, umbrella, motorcycle, flood and recreational insurance.
In many cases, such rating plans, policy or coverage forms, or both must be approved prior to use. 18 The speed with which an insurer can change rates in response to competition or in response to increasing costs depends, in part, on whether the rating laws are (i) prior approval, (ii) file-and-use, or (iii) use-and-file laws.
The speed with which an insurer can change rates in response to competition or in response to increasing costs depends, in part, on whether the rating laws are (i) prior approval, (ii) file-and-use, or (iii) use-and-file laws. In states with prior approval laws, the regulator must approve a rate before the insurer may use it.
Premiums in franchise sales grew 46% during 2022. As of December 31, 2022, we have 2,125 total franchises, including 1,413 franchises operating and 712 in implementation, a 1% decrease in total franchises and a 18% increase in operating agencies in 2022 compared to 2021.
Premiums in franchise sales grew 37% during 2023. As of December 31, 2023, we have 1,415 total franchises, including 1,226 franchises operating and 189 in implementation, a 33% decrease in total franchises and a 13% decrease in operating agencies in 2023 compared to 2022.
This value enables Goosehead to have a very competitive carrier portfolio, ensuring that clients find the best solution, and increasing agents’ close rates. By delivering a better client experience, offering a more compelling business opportunity to agents, and driving more value to carrier partners, we have seen growth as reflected in our financial performance.
By delivering a better client experience, offering a more compelling business opportunity to agents, and driving more value to carrier partners, we have seen growth as reflected in our financial performance.
Our Franchise Agreement has a ten-year term and governs the terms under which we operate together, among other things, defining the Initial Franchise Fee, Royalty Fees and other costs a Franchisee pays.
This distribution is composed of Franchisees and sales agents that they hire as employees in their franchised businesses. Our Franchise Agreement has a ten-year term and governs the terms under which we operate together, defining, among other things, the Initial Franchise Fee, Royalty Fees and other costs a Franchisee pays.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeChanges in prevailing interest rates or U.S. monetary policies that affect interest rates could adversely affect our ability to generate new business. The demand for property and casualty insurance generally rises as the overall level of household income increases, and generally falls as household income decreases, affecting both the commissions and fees generated by our business.
Biggest changeAdditionally, this may impact the market for new homes, which could adversely impact our leadflow of new home purchase clients. Changes in prevailing interest rates or U.S. monetary policies that affect interest rates could adversely affect our ability to generate new business.
Our certificate of incorporation and Stockholders Agreement will provide that, to the fullest extent permitted by law, the doctrine of “corporate opportunity” under Delaware law will only apply against our directors and officers and their respective affiliates for competing activities related to insurance brokerage activities. This doctrine will not apply to any business activity other than insurance brokerage activities.
Our certificate of incorporation and Stockholders Agreement provide that, to the fullest extent permitted by law, the doctrine of “corporate opportunity” under Delaware law will only apply against our directors and officers and their respective affiliates for competing activities related to insurance brokerage activities. This doctrine will not apply to any business activity other than insurance brokerage activities.
These developments include: • Increased capital-raising by Carriers, which could result in new capital in the industry, which in turn may lead to lower insurance premiums and commissions; • Carriers selling insurance directly to insureds without the involvement of a broker or other intermediary; • Changes in our business compensation model as a result of regulatory developments; • Federal and state governments establishing programs to provide property insurance in catastrophe-prone areas or other alternative market types of coverage, that compete with, or completely replace, insurance products offered by Carriers; • Climate-change regulation in the U.S. and around the world moving us toward a low-carbon economy, which could create new competitive pressures around innovative insurance solutions; and 26 • Increased competition from new market participants such as banks, accounting firms, consulting firms and Internet or other technology firms offering risk management or insurance brokerage services, or new distribution channels for insurance such as payroll firms.
These developments include: • Increased capital-raising by Carriers, which could result in new capital in the industry, which in turn may lead to lower insurance premiums and commissions; • Carriers selling insurance directly to insureds without the involvement of a broker or other intermediary; • Changes in our business compensation model as a result of regulatory developments; • Federal and state governments establishing programs to provide property insurance in catastrophe-prone areas or other alternative market types of coverage, that compete with, or completely replace, insurance products offered by Carriers; • Climate-change regulation in the U.S. and around the world moving us toward a low-carbon economy, which could create new competitive pressures around innovative insurance solutions; and • Increased competition from new market participants such as banks, accounting firms, consulting firms and Internet or other technology firms offering risk management or insurance brokerage services, or new distribution channels for insurance such as payroll firms.
Our certificate of incorporation and by-laws provide for, among other things: • Until the Substantial Ownership Requirement is no longer met, the Pre-IPO LLC Members may designate a majority of the nominees for election to our board of directors, including the nominee for election to serve as Chairman of our board of directors; • at any time after the Substantial Ownership Requirement is no longer met, there will be: 44 ◦ restrictions on the ability of our stockholders to call a special meeting and the business that can be conducted at such meeting or to act by written consent; ◦ supermajority approval requirements for amending or repealing provisions in the certificate of incorporation and by-laws; ◦ a division of the board of directors into three classes of directors, with each class as equal in number as possible, serving staggered three-year terms, and such directors may only be removed for cause and by the affirmative vote of holders of 75% of the total voting power of our outstanding shares of common stock, voting together as a single class; • our ability to issue additional shares of Class A common stock and to issue preferred stock with terms that the board of directors may determine, in each case without stockholder approval (other than as specified in our certificate of incorporation); • the absence of cumulative voting in the election of directors; and • advance notice requirements for stockholder proposals and nominations.
Our certificate of incorporation and by-laws provide for, among other things: • Until the Substantial Ownership Requirement is no longer met, the Pre-IPO LLC Members may designate a majority of the nominees for election to our board of directors, including the nominee for election to serve as Chairman of our board of directors; 41 • at any time after the Substantial Ownership Requirement is no longer met, there will be: ◦ restrictions on the ability of our stockholders to call a special meeting and the business that can be conducted at such meeting or to act by written consent; ◦ supermajority approval requirements for amending or repealing provisions in the certificate of incorporation and by-laws; ◦ a division of the board of directors into three classes of directors, with each class as equal in number as possible, serving staggered three-year terms, and such directors may only be removed for cause and by the affirmative vote of holders of 75% of the total voting power of our outstanding shares of common stock, voting together as a single class; • our ability to issue additional shares of Class A common stock and to issue preferred stock with terms that the board of directors may determine, in each case without stockholder approval (other than as specified in our certificate of incorporation); • the absence of cumulative voting in the election of directors; and • advance notice requirements for stockholder proposals and nominations.
However, there can be no assurance that we will be successful in enforcing these contracts. In addition, on January 5, 2023, the FTC voted to publish a proposed rule that, if finalized, would impose a near-complete ban on employers offering, entering, and maintaining non-compete agreements with their workers, by defining such arrangements as per se methods of unfair competition.
However, there can be no assurance that we will be successful in enforcing these contracts. In addition, on January 5, 2023, the FTC voted to publish a proposed rule that, if finalized, would impose a near-complete ban on employers offering, entering, and maintaining non-compete 27 agreements with their workers, by defining such arrangements as per se methods of unfair competition.
The continued threat of terrorism and ongoing military actions may cause significant volatility in 30 global financial markets, and a natural or man-made disaster could trigger an economic downturn in the areas directly or indirectly affected by the disaster. These consequences could, among other things, result in a decline in business and increased claims from those areas.
The continued threat of terrorism and ongoing military actions may cause significant volatility in global financial markets, and a natural or man-made disaster could trigger an economic downturn in the areas directly or indirectly affected by the disaster. These consequences could, among other things, result in a decline in business and increased claims from those areas.
Such assumptions, estimates or judgments, however, are both subjective and could change in the future as more 33 information becomes known, which could impact the amounts reported and disclosed in our consolidated financial statements. Additionally, changes in accounting standards could increase costs to the organization and could have an adverse impact on our future financial position and results of operations.
Such assumptions, estimates or judgments, however, are both subjective and could change in the future as more information becomes known, which could impact the amounts reported and disclosed in our consolidated financial statements. Additionally, changes in accounting standards could increase costs to the organization and could have an adverse impact on our future financial position and results of operations.
New competition as a result of these or other competitive or industry developments could cause the demand for our products and services to decrease, which could in turn adversely affect our business, financial condition and results of operations. Our business, financial condition and results of operations may be negatively affected by E&O claims.
New competition as a result of these or other competitive or industry developments could cause the demand for our products and services to decrease, which could in turn adversely affect our business, financial condition and results of operations. 23 Our business, financial condition and results of operations may be negatively affected by E&O claims.
Consequently, the risk of a cybersecurity incident has increased, and as cybersecurity threats evolve, we may be 39 required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate or remediate any information security vulnerabilities, security breaches, cyberattacks or other similar incidents.
Consequently, the risk of a cybersecurity incident has increased, and as cybersecurity threats evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate or remediate any information security vulnerabilities, security breaches, cyberattacks or other similar incidents.
These events may, in turn, materially and adversely affect our business, financial condition and results of operations. 35 Our financial results are affected directly by the operating results of Franchisees and agents, over whom we do not have direct control. Our franchises generate revenue in the form of Agency Fees and commissions.
These events may, in turn, materially and adversely affect our business, financial condition and results of operations. Our financial results are affected directly by the operating results of Franchisees and agents, over whom we do not have direct control. Our franchises generate revenue in the form of Agency Fees and commissions.
If a Franchisee is unable or unwilling to satisfy any of the foregoing conditions, the expiring Franchise Agreement will terminate upon 36 expiration of the term of the Franchise Agreement. If Franchisees choose not to renew their Franchise Agreements, then this could have a material impact on our financial condition.
If a Franchisee is unable or unwilling to satisfy any of the foregoing conditions, the expiring Franchise Agreement will terminate upon expiration of the term of the Franchise Agreement. If Franchisees choose not to renew their Franchise Agreements, then this could have a material impact on our financial condition.
As the sole managing member of Goosehead Financial, LLC, we intend to cause Goosehead Financial, LLC to make distributions to the Pre-IPO LLC Members and us, in amounts sufficient to cover all applicable taxes payable by us and the Pre-IPO LLC members and any payments we are obligated to make under the tax receivable agreement we intend to enter into as part of the reorganization transactions and to fund dividends to our stockholders in accordance with our dividend policy, to the extent our board of directors declares such dividends. 41 Deterioration in the financial conditions, earnings or cash flow of Goosehead Financial, LLC and its subsidiaries for any reason could limit or impair their ability to pay such distributions.
As the sole managing member of Goosehead Financial, LLC, we intend to cause Goosehead Financial, LLC to make distributions to the Pre-IPO LLC Members and us, in amounts sufficient to cover all applicable taxes payable by us and the Pre-IPO LLC members and any payments we are obligated to make under the tax receivable agreement we intend to enter into as part of the reorganization transactions and to fund dividends to our stockholders in accordance with our dividend policy, to the extent our board of directors declares such dividends. 38 Deterioration in the financial conditions, earnings or cash flow of Goosehead Financial, LLC and its subsidiaries for any reason could limit or impair their ability to pay such distributions.
A substantial unsatisfied judgment against us or one of our subsidiaries could result in bankruptcy, which would materially and adversely affect our business, financial condition and results of operations. We may not be able to manage growth successfully.
A substantial unsatisfied judgment against us or one of our subsidiaries could result in bankruptcy, which would materially and adversely affect our business, financial condition and results of operations. 34 We may not be able to manage growth successfully.
We may be required to expend significant additional resources to modify protective measures, to investigate and remediate vulnerabilities or other exposures or to make required notifications. 27 We rely on the availability and performance of information technology services provided by third parties.
We may be required to expend significant additional resources to modify protective measures, to investigate and remediate vulnerabilities or other exposures or to make required notifications. We rely on the availability and performance of information technology services provided by third parties.
Moreover, any loss incurred could exceed policy limits or the Franchisee could lack the required insurance at the time the claim arises, in breach of the insurance requirement, and policy payments made to Franchisees may not be made on a timely basis.
Moreover, any loss incurred could exceed policy limits or the Franchisee could lack the required insurance at the time the claim arises, in breach of the 33 insurance requirement, and policy payments made to Franchisees may not be made on a timely basis.
Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies, the loss of or damage to intellectual property through a security breach, the loss of confidential proprietary or personal data (including sensitive personal data) through a security breach, or otherwise.
Depending on the function involved, such errors may also lead to business disruption, processing 24 inefficiencies, the loss of or damage to intellectual property through a security breach, the loss of confidential proprietary or personal data (including sensitive personal data) through a security breach, or otherwise.
Carriers may be unwilling to allow us to sell their existing or new insurance products or may amend our agreements with them, for a variety of reasons, including for competitive or regulatory reasons or because of a reluctance to distribute their products through our platform.
Carriers may be unwilling to allow us to sell their existing or new insurance products or may amend our agreements with them, for a 31 variety of reasons, including for competitive or regulatory reasons or because of a reluctance to distribute their products through our platform.
In the future, it may become necessary for us to offer insurance products from a reduced number of Carriers or to derive a greater portion of our revenues from a more concentrated number of Carriers as our business and the 34 insurance industry evolve.
In the future, it may become necessary for us to offer insurance products from a reduced number of Carriers or to derive a greater portion of our revenues from a more concentrated number of Carriers as our business and the insurance industry evolve.
We may not be successful in managing or expanding our operations or in maintaining adequate 37 financial and operating systems and controls. If we do not successfully manage these processes, our brand and results of operations could be adversely affected.
We may not be successful in managing or expanding our operations or in maintaining adequate financial and operating systems and controls. If we do not successfully manage these processes, our brand and results of operations could be adversely affected.
If, due to the current economic environment or for any other reason, we are unable to meet Carriers’ profitability, volume or growth thresholds, or Carriers increase their estimate of loss reserves (over which we have no control), actual Contingent Commissions we receive could be less than anticipated, which could adversely affect our business, financial condition and results of operations. 24 Our business is subject to risks related to legal proceedings and governmental inquiries.
If, due to the current economic environment or for any other reason, we are unable to meet Carriers’ profitability, volume or growth thresholds, or Carriers increase their estimate of loss reserves (over which we have no control), actual Contingent Commissions we receive could be less than anticipated, which could adversely affect our business, financial condition and results of operations. 21 Our business is subject to risks related to legal proceedings and governmental inquiries.
If we fail to attract and retain franchise agents, our Franchisees may fail to generate the revenue necessary to pay the contractual fees owed to us. The nature of franchise relationships can give rise to conflict.
If we fail to attract and retain franchise agents, our Franchisees may fail to generate the revenue necessary to pay the contractual fees owed to us. 32 The nature of franchise relationships can give rise to conflict.
We are also 40 subject to the rules and regulations promulgated under the authority of the FTC, which regulates unfair or deceptive acts or practices, including with respect to data privacy and cybersecurity.
We are also subject to the rules and regulations promulgated under the authority of the FTC, which regulates unfair or deceptive acts or practices, including with respect to data privacy and cybersecurity.
In addition, many of the businesses that we acquire and develop will likely have significantly smaller scales of operations prior to the implementation of our growth strategy.
In addition, many of the businesses that we acquire and develop will likely have significantly smaller scales of operations prior 29 to the implementation of our growth strategy.
The GLBA also requires financial institutions to implement an information security program that includes administrative, technical and physical safeguards to ensure the security and confidentiality of customer records and information.
The GLBA also requires financial institutions to implement an information security program that includes administrative, technical and 37 physical safeguards to ensure the security and confidentiality of customer records and information.
Major slowdowns in the various housing markets Goosehead serves, including as a result of changes in prevailing interest rates or U.S. monetary policies that affect interest rates, could adversely impact our ability to generate new business. 23 Volatility or declines in premiums or other adverse trends in the insurance industry may seriously undermine our profitability.
Major slowdowns in the various housing markets Goosehead serves, including as a result of changes in prevailing interest rates or U.S. monetary policies that affect interest rates, could adversely impact our ability to generate new business. 20 Volatility or declines in premiums or other adverse trends in the insurance industry may seriously undermine our profitability.
In extreme cases, revocation of a subsidiary’s authority to do business in one or more jurisdictions could result from failure to comply with regulatory requirements. In extreme cases, revocation of a subsidiary’s authority to do business in one or more jurisdictions could result from failure to comply with regulatory requirements.
In extreme cases, revocation of a subsidiary’s authority to do business in one or more jurisdictions could result from failure to comply with 28 regulatory requirements. In extreme cases, revocation of a subsidiary’s authority to do business in one or more jurisdictions could result from failure to comply with regulatory requirements.
As a public company, we are required to maintain effective internal control over financial reporting. While management has certified that our internal control over financial reporting was effective as of December 31, 2022, because internal control over financial reporting is complex, there can be no assurance that our internal control over financial reporting will be effective in the future.
As a public company, we are required to maintain effective internal control over financial reporting. While management has certified that our internal control over financial reporting was effective as of December 31, 2023, because internal control over financial reporting is complex, there can be no assurance that our internal control over financial reporting will be effective in the future.
Furthermore, we compete with various other companies that provide risk-related services or alternatives to traditional insurance services, including Insurtech start-up companies, which are focused on using technology and innovation, including artificial intelligence (AI), digital platforms, data analytics, robotics and blockchain, to simplify and improve the client experience, increase efficiencies, alter business models and effect other potentially disruptive changes in the industries in which we operate.
Furthermore, we compete with various other companies that provide risk-related services or alternatives to traditional insurance services, including Insurtech start-up companies, which are focused on using technology and innovation, including artificial intelligence, machine learning, digital platforms, data analytics, robotics and blockchain, to simplify and improve the client experience, increase efficiencies, alter business models and effect other potentially disruptive changes in the industries in which we operate.
Policing unauthorized use of our intellectual property is difficult, expensive and time-consuming, and we may be required to spend significant resources to monitor and protect our intellectual property rights. 38 Failure to protect our intellectual property adequately could harm our reputation and affect our ability to compete effectively.
Policing unauthorized use of our intellectual property is difficult, expensive and time-consuming, and we may be required to spend significant resources to monitor and protect our intellectual property rights. 35 Failure to protect our intellectual property adequately could harm our reputation and affect our ability to compete effectively.
The Pre-IPO LLC Members may not be inclined to permit us to issue 42 additional shares of Class A common stock, including for the facilitation of acquisitions, if it would dilute their holdings below the 10% threshold.
The Pre-IPO LLC Members may not be inclined to permit us to issue additional shares of 39 Class A common stock, including for the facilitation of acquisitions, if it would dilute their holdings below the 10% threshold.
We entered into a tax receivable agreement with the Pre-IPO LLC Members that will provide for the payment by us 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 we actually realize as a result of (i) any increase in tax basis in Goosehead Insurance, Inc.’s assets resulting from (a) the purchase of LLC Units from any of the Pre-IPO LLC Members using the net proceeds 43 from any future offering, (b) redemptions or exchanges by the Pre-IPO LLC Members of LLC Units for shares of our Class A common stock or (c) payments under the tax receivable agreement and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement.
We entered into a tax receivable agreement with the Pre-IPO LLC Members that provides for the payment by us 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 we actually realize as a result of (i) any increase in tax basis in Goosehead Insurance, Inc.’s assets resulting from (a) the purchase of LLC Units from any of the Pre-IPO LLC Members using the net proceeds from any future offering, (b) redemptions or exchanges by the Pre-IPO LLC Members of LLC Units for shares of our 40 Class A common stock or (c) payments under the tax receivable agreement and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement.
Our future success depends, in part, on our ability to anticipate and respond effectively to the threat of, and the opportunity presented by, digital disruption and other technology change. These may include new applications or insurance-related services based on artificial intelligence, machine learning, robotics, blockchain or new approaches to data mining.
Our future success depends, in part, on our ability to anticipate and respond effectively to the threat of, and the opportunity presented by, digital disruption and other technology change. These may include new applications or insurance-related services based on AI, machine learning, robotics, blockchain or new approaches to data mining.
Risks relating to our organizational structure We are a holding company and our principal asset is our 61% ownership interest in Goosehead Financial, LLC, and we are accordingly dependent upon distributions from Goosehead Financial, LLC to pay dividends, if any, taxes, make payments under the tax receivable agreement and pay other expenses.
Risks relating to our organizational structure We are a holding company and our principal asset is our 65.8% ownership interest in Goosehead Financial, LLC, and we are accordingly dependent upon distributions from Goosehead Financial, LLC to pay dividends, if any, taxes, make payments under the tax receivable agreement and pay other expenses.
Any new personnel we hire may not be or become as productive as we expect, as we may face challenges in adequately or appropriately integrating them into our workforce and culture. Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability.
Any new personnel we hire may not be or become as productive as we expect, as we may face challenges adapting them to our Operating Principles or adequately or appropriately integrating them into our workforce culture. Our effort to retain and develop personnel may also result in significant additional expenses, which could adversely affect our profitability.
Furthermore, the Stockholders Agreement will provide that, until the Substantial Ownership Requirement is no longer met, the Pre-IPO LLC Members may designate a majority of the nominees for election to our board of directors, including the nominee for election to serve as Chairman of our board of directors.
Furthermore, the Stockholders Agreement provides that, until the Substantial Ownership Requirement is no longer met, the Pre-IPO LLC Members may designate a majority of the nominees for election to our board of directors, including the nominee for election to serve as Chairman of our board of directors.
Although we operate with a decentralized management system, the loss of our senior managers or other key personnel in any circumstance, including, any limitation on the performance of their duties or short- or long-term absence as a result of COVID-19, or our inability to continue to identify, recruit and retain such personnel, could materially and adversely affect our business, financial condition and results of operation.
Although we operate with a decentralized management system, the loss of our senior managers or other key personnel in any circumstance, including, any limitation on the performance of their duties or short- or long-term absence as a result of an acute illness, or our inability to continue to identify, recruit and retain such personnel, could materially and adversely affect our business, financial condition and results of operation.
We are a holding company and our principal asset is our direct or indirect ownership of 61% of the outstanding LLC Units. We have no independent means of generating revenue.
We are a holding company and our principal asset is our direct or indirect ownership of 65.8% of the outstanding LLC Units. We have no independent means of generating revenue.
Our ability to generate cash from operations is, to a certain extent, 32 subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control, such as an environment of rising interest rates.
Our ability to generate cash from operations is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control, such as an environment of rising or continuously high interest rates.
Approximately 17.6 million shares of our Class A common stock and LLC Units (which may be redeemed or exchanged for a corresponding number of shares of Class A common stock) are held by the Pre-IPO LLC Members, the Goosehead Management Holders and Texas Wasatch Holders.
Approximately 14.5 million shares of our Class A common stock and LLC Units (which may be redeemed or exchanged for a corresponding number of shares of Class A common stock) are held by the Pre-IPO LLC Members, the Goosehead Management Holders and Texas Wasatch Holders.
We have debt outstanding that could adversely affect our financial flexibility and subjects us to restrictions and limitations that could significantly impact our ability to operate our business. As of December 31, 2022, we had total consolidated debt outstanding of approximately $94.4 million, collateralized by substantially all of the Company’s assets, including rights to future commissions.
We have debt outstanding that could adversely affect our financial flexibility and subjects us to restrictions and limitations that could significantly impact our ability to operate our business. As of December 31, 2023, we had total consolidated debt outstanding of approximately $77.5 million, collateralized by substantially all of the Company’s assets, including rights to future commissions.
We derive a significant portion of our commission revenues from a limited number of Carriers, the loss of which would result in additional expense and loss of market share. In 2022, two Carriers represented more than 10% of total revenue at 14% and 12%. In 2021, two Carriers represented more than 10% of total revenue at 17% and 11%.
We derive a significant portion of our commission revenues from a limited number of Carriers, the loss of which would result in additional expense and loss of market share. In 2023, two Carriers represented more than 10% of total revenue at 16% and 12%. In 2022, two Carriers represented more than 10% of total revenue at 14% and 12%.
Investments in funds that specialize in companies that perform well in such assessments are increasingly popular, and major institutional investors have publicly emphasized the importance of such ESG measures to their investment decisions.
Investments in funds that specialize in companies that perform well in such assessments remain popular, and major institutional investors have publicly emphasized the importance of such measures to their investment decisions.
Our homeowner and dwelling property lines of business comprised 57% of our premiums in 2022 and a majority of our new accounts are sourced by referral sources tied to home closing transactions.
Our homeowner and dwelling property lines of business comprised 58% of our premiums in 2023 and a majority of our new accounts are sourced by referral sources tied to home closing transactions.
Unfavorable ratings of our company or our industry, as well as omission of inclusion of our stock into ESG-oriented investment funds may lead to negative investor sentiment and the diversion of investment to other companies or industries, which could have a negative impact on our stock price.
Unfavorable ratings of our company or our industry, as well as omission of inclusion of our stock into investment funds oriented toward various corporate responsibility and stakeholder interests may lead to negative investor sentiment and the diversion of investment to other companies or industries, which could have a negative impact on our stock price.
The Pre-IPO LLC Members control approximately 39% of the combined voting power of our common stock.
The Pre-IPO LLC Members control approximately 34.2% of the combined voting power of our common stock.
We could also incur additional costs and require additional resources to monitor, report, and comply with various ESG practices. In addition, a variety of organizations have developed ratings to measure the performance of companies on ESG topics, and the results of these assessments are widely publicized.
We 26 could also incur additional costs and require additional resources to monitor, report, and comply with various corporate responsibility and stakeholder interest practices. In addition, a variety of organizations have developed ratings to measure the performance of companies on topics of corporate responsibility or stakeholder interests, and the results of these assessments are widely publicized.
In 2020, three Carriers represented more than 10% of total revenue at 20%, 13%, and 12%. Should any of these Carriers seek to terminate its arrangements with us, we could be forced to move our business to another Carrier and some additional expense and loss of market share could possibly result.
In 2021, two Carriers represented more than 10% of total revenue at 17% and 11%. Should any of these Carriers seek to terminate its arrangements with us, we could be forced to move our business to another Carrier and some additional expense and loss of market share could possibly result.
We could potentially lose key executives, personnel, client data or experience material adverse interruptions to our operations or delivery of services to clients in a disaster recovery scenario. We may experience additional disruption due to system upgrades, outages, an increase in remote work or other impacts as a result of the ongoing COVID-19 pandemic.
We could potentially lose key executives, personnel, client data or experience material adverse interruptions to our operations or delivery of services to clients in a disaster recovery scenario. We may experience additional disruption due to system upgrades, outages or an increase in remote work.
The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could cause our obligations with respect to our debt to be accelerated and have a material adverse effect on our business, financial condition and results of operations.
The occurrence of a default that remains uncured or the inability to secure a necessary consent or waiver could cause our obligations with respect to our debt to be accelerated and have a material adverse effect on our business, financial condition and results of operations. 30 Changes in our accounting estimates and assumptions could negatively affect our financial position and operating results.
Additionally, we cannot guarantee that future trademark registrations for pending or future applications will issue, or that any registered trademarks will be enforceable or provide adequate protection of our intellectual property and other proprietary rights.
Effective intellectual property protection may not be available in every market in which we operate. Additionally, we cannot guarantee that future trademark registrations for pending or future applications will issue, or that any registered trademarks will be enforceable or provide adequate protection of our intellectual property and other proprietary rights.
We have developed a strong brand that we believe has contributed significantly to the success of our business. Maintaining, protecting and enhancing the “Goosehead Insurance” brand is critical to growing our business, particularly in new markets where we have limited brand recognition. If we do not successfully build and maintain a strong brand, our business could be materially harmed.
We have developed a strong brand that we believe has contributed significantly to the success of our business. Maintaining, protecting and enhancing the “Goosehead Insurance” brand is critical to growing our business, particularly in new markets where we have limited brand recognition.
Factors, such as business revenue, economic conditions, including adverse conditions resulting from uncertainty concerning government shutdowns, debt ceilings or funding, the volatility and strength of the capital markets, the recent resurgence of inflation, expected interest rate increases and public health emergencies such as the COVID-19 pandemic can affect the business and economic environment.
Factors, such as business revenue, economic conditions, including adverse conditions resulting from uncertainty concerning government shutdowns, debt ceilings or funding, the volatility and strength of the capital markets, increased rates of inflation, high interest rates and public health emergencies can affect the business and economic environment.
Increasing scrutiny and changing expectations from investors, clients and our employees with respect to our environmental, social and governance (“ESG”) practices may impose additional costs on us or expose us to new or additional risks.
Increasing scrutiny and changing expectations from investors, clients and our employees with respect to our corporate responsibility and stakeholder interest practices may impose additional costs on us or expose us to new or additional risks.
To respond to increased competition and pricing pressure, we may have to lower the cost of our services or decrease the level of service provided to clients, which could have an adverse effect on our business, financial condition and results of operations.
To respond to increased competition and pricing pressure, we may have to lower the cost of our services or decrease the level of service provided to clients, which could have an adverse effect on our business, financial condition and results of operations. Similarly, any increase in competition due to new legislative or industry developments could adversely affect us.
Additionally, failure to maintain effective internal control over financial reporting may also negatively impact our operating results and financial condition, impair our ability to timely file our periodic and other reports with the Securities and Exchange Commission (the “SEC”), subject us to additional litigation and regulatory actions and cause us to incur substantial additional costs in future periods relating to the implementation of remedial measures.
Additionally, failure to maintain effective internal control over financial reporting may also negatively impact our operating results and financial condition, impair our ability to timely file our periodic and other reports with the Securities and Exchange Commission (the “SEC”), subject us to additional litigation and regulatory actions and cause us to incur substantial additional costs in future periods relating to the implementation of remedial measures. 42 We expect that our stock price will be volatile, which could cause the value of your investment to decline, and you may not be able to resell your shares at or above your investment price.
The demand for property and casualty insurance generally rises as the overall level of household income increases and generally falls as household income decreases, affecting both the commissions and fees generated by our business.
The demand for property and casualty insurance generally rises as the overall level of household income increases, and generally falls as household income decreases, affecting both the commissions and fees generated by our business. The majority of our new accounts are sourced by referral sources tied to home closing transactions.
To the extent that interest rate risk materializes and is not fully mitigated, the resulting increase in interest expense could have a material adverse effect on our results of operations.
If interest rates were to increase, our debt service obligations on our variable rate indebtedness would increase even if the amount borrowed remained the same. To the extent that interest rate risk materializes and is not fully mitigated, the resulting increase in interest expense could have a material adverse effect on our results of operations.
Although the potential scope of the FTC’s proposed rule is uncertain, such rule, if adopted, could have a material adverse effect on our ability to retain key personnel and existing business, and on our ability to generate new business In addition, we could be adversely affected if we fail to adequately plan for the succession of our senior leaders, including our founders, executives and key personnel.
Although the potential scope of the FTC’s proposed rule is uncertain, such rule, if adopted, could have a material adverse effect on our ability to retain key personnel and existing business, and on our ability to generate new business.
Other states where we do business, or may in the future do business, or from which we otherwise collect, or may in the future otherwise collect, personal information of residents have enacted or are considering enacting comprehensive data privacy laws that share similarities with the CCPA, with at least four such laws (in Virginia, Colorado, Connecticut and Utah) having taken effect, or scheduled to take effect, in 2023.
Numerous other states where we do business, or may in the future do business, or from which we otherwise collect, or may in the future otherwise collect, personal information of residents also have enacted or are considering enacting comprehensive data privacy and cybersecurity laws that share similarities with the CCPA.
In addition, an increase in consumer preference for car- and ride-sharing services, as opposed to automobile ownership, may result in a long-term reduction in the number of vehicles per capita, and consequently the automobile insurance industry.
The economic activity that impacts property and casualty insurance is most closely correlated with employment levels, corporate revenue and asset values. In addition, an increase in consumer preference for car- and ride-sharing services, as opposed to automobile ownership, may result in a long-term reduction in the number of vehicles per capita, and consequently the automobile insurance industry.
In the year ended December 31, 2021, we had debt servicing costs of $5.4 million, $1.9 million of which was attributable to scheduled principal payments, $0.7 million was attributable to principal payments related to refinancing of existing indebtedness (see "Note 9. Debt" in the consolidated financial statements included herein) and $2.9 million of which was attributable to interest.
In the year ended December 31, 2023, we had debt servicing costs of $23.4 million, $6.9 million of which was attributable to scheduled principal payments, $10.0 million of which was an additional voluntary principal payment (see "Note 9. Debt" in the consolidated financial statements included herein), and $6.6 million of which was attributable to interest.
Over time, we expect to expand our public disclosure in these areas. It is possible that stakeholders may not be satisfied with our ESG practices or the speed of their adoption. Actual or perceived shortcomings with respect to our ESG initiatives and reporting could negatively impact our business.
It is possible that stakeholders may not be satisfied with our corporate responsibility and stakeholder interest practices or the speed of their adoption. Actual or perceived shortcomings with respect to such initiatives and reporting could negatively impact our business.
Moreover, in response to perceived excessive cost or inadequacy of available insurance, states have from time to time created state insurance funds and assigned risk pools, which compete directly, on a subsidized basis, with private insurance providers. 31 Federal, state and other regulatory authorities have focused on, and continue to devote substantial attention to, the insurance industry as well as to the sale of products or services to seniors.
Moreover, in response to perceived excessive cost or inadequacy of available insurance, states have from time to time created state insurance funds and assigned risk pools, which compete directly, on a subsidized basis, with private insurance providers.
Infringement, misappropriation, dilution or other violation of our intellectual property by third parties could harm our business. We believe that our "Goosehead Insurance" trademark has significant value and that this and other intellectual property are valuable assets that are critical to our success.
We believe that our "Goosehead Insurance" trademark has significant value and that this and other intellectual property are valuable assets that are critical to our success. Unauthorized uses or other infringement, misappropriation or violation of our trademarks, service marks or other intellectual property could diminish the value of our brand and may adversely affect our business.
Moreover, during inflationary periods, interest rates have historically increased, which would have a direct effect on the interest expense in case we decide to refinance our existing long-term borrowings, in particular the Credit Agreement, or incur in any additional indebtedness. Additionally, this may impact the market for new homes, which could adversely impact our leadflow of new home purchase clients.
Consequently, inflation is expected to increase our operating expenses over time and may adversely impact our results of operating cash flow. Moreover, during inflationary periods, interest rates have historically increased, which would have a direct effect on the interest expense in case we decide to refinance our existing long-term borrowings, in particular the Credit Agreement, or incur any additional indebtedness.
If we are unable to apply technology effectively in driving value for our clients through technology-based solutions or gain internal efficiencies and effective internal controls through the application of technology and related tools, our operating results, client relationships, growth and compliance programs could be adversely affected.
Furthermore, because AI technology itself is highly complex and rapidly developing, it is not possible to predict all of the legal, operational or technological risks that may arise relating to the use of AI. 25 If we are unable to apply technology effectively in driving value for our clients through technology-based solutions or gain internal efficiencies and effective internal controls through the application of technology and related tools, our operating results, client relationships, growth and compliance programs could be adversely affected.
This market volatility, as well as general economic, market or political conditions, could reduce the market price of our Class A common stock regardless of our results of operations.
Securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could reduce the market price of our Class A common stock regardless of our results of operations.
The occurrence of natural or man-made disasters could result in declines in business and increases in claims that could adversely affect our financial condition, results of operations and cash flows.
Future pandemics or other outbreaks of contagious diseases, including a resurgence of COVID-19, may result in similar or worse economic implications and disruptions. The occurrence of natural or man-made disasters could result in declines in business and increases in claims that could adversely affect our financial condition, results of operations and cash flows.
There is increased focus, including from governmental organizations, investors, employees and clients, on ESG issues such as environmental stewardship, climate change, diversity and inclusion, pay equity, racial justice, workplace conduct and cybersecurity and data privacy. There can be no certainty that we will manage such issues successfully, or that we will successfully meet society’s expectations as to our proper role.
There is increased focus, including from governmental organizations, investors, employees and clients, on corporate responsibility and stakeholder interest issues such as environmental stewardship, climate change, diversity and workplace inclusion, pay equity, racial justice, workplace conduct and cybersecurity and data privacy.
If this occurred, not only would we be negatively impacted by the general economic decline, but a drop in the stock market affecting our stock price could negatively impact our ability to grow through mergers and acquisitions financed using our common stock. 29 Moreover, if our Carriers fail or withdraw from offering certain lines of coverage because of large payouts related to climate change, overall risk-taking capital capacity could be negatively affected, which could reduce our ability to place certain lines of coverage and, as a result, reduce our revenues and profitability.
Moreover, if our Carriers fail or withdraw from offering certain lines of coverage because of large payouts related to climate change, overall risk-taking capital capacity could be negatively affected, which could reduce our ability to place certain lines of coverage and, as a result, reduce our revenues and profitability.
In some cases, we depend on key vendors and partners to provide technology and other support for our strategic initiatives, such as the Salesforce.com platform.
In some cases, we depend on key vendors and partners to provide technology and other support for our strategic initiatives, such as the Salesforce.com platform. If these third parties fail to perform their obligations or cease to work with us, our ability to execute on our strategic initiatives could be adversely affected.
Such coverage may not be adequate, or may not continue to be available at commercially reasonable rates and terms.
Such coverage may not be adequate, or may not continue to be available at commercially reasonable rates and terms. We utilize artificial intelligence, which could expose us to liability or adversely affect our business.
For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indexes.
For example, certain index providers have announced restrictions on including companies with multiple-class share structures in certain of their indexes. FTSE Russell requires new constituents of its indexes to have greater than 5% of the company’s voting rights in the hands of public stockholders.
Moreover, cybersecurity threats are constantly evolving, which makes it more difficult to detect cybersecurity incidents, assess their severity or impact in a timely manner, and successfully defend against them. The ongoing COVID-19 pandemic has increased the attack surface available to criminals, with more companies and individuals working remotely and otherwise working online.
Moreover, cybersecurity threats are constantly evolving, which makes it more difficult to detect cybersecurity incidents, assess their severity or impact in a timely manner, and successfully defend against them. The Cybersecurity threats also may see their frequency increased, and effectiveness enhanced, by the use of AI.
Such failures or insurance withdrawals on the part of our Carriers could occur for any number of reasons, including large unexpected payouts related to climate change or other emerging risk areas. Regulations affecting Carriers with which we place business affect how we conduct our operations.
Such failures or insurance withdrawals on the part of our Carriers could occur for any number of reasons, including large unexpected payouts related to climate change or other emerging risk areas. 22 Competition in our industry is intense and, if we are unable to compete effectively, we may lose clients and our financial results may be negatively affected.
Any harm to our reputation could impact employees engagement and retention and the willingness of clients and Carriers to do business with us. In 2022, we released a report on our ESG activities that incorporates the guidelines of the Sustainability Accounting Standards Board (SASB) and our own ESG assessments and priorities.
Any harm to our reputation could impact employees engagement and retention and the willingness of clients and Carriers to do business with us.
The extent of the impact on our operational and financial performance will depend on several other factors such as the duration and spread of the outbreak. Non-compliance with or changes in laws, regulations or licensing requirements applicable to us could restrict our ability to conduct our business. The industry in which we operate is subject to extensive regulation.
Finally, a natural or man-made disaster could increase the incidence or severity of E&O claims against us. Non-compliance with or changes in laws, regulations or licensing requirements applicable to us could restrict our ability to conduct our business. The industry in which we operate is subject to extensive regulation.
If these third parties fail to perform their obligations or cease to work with us, our ability to execute on our strategic initiatives could be adversely affected. 28 Damage to our reputation could have a material adverse effect on our business. Our reputation is one of our key assets.
Damage to our reputation could have a material adverse effect on our business. Our reputation is one of our key assets.
For example, in 2022, the global economic environment was characterized by persistent inflation, rising interest rates, volatility in global financial markets (leading to, among other things, a decline in equity prices), supply chain complications, recessionary fears, and geopolitical uncertainty regarding the war between Russia and Ukraine and its impact on global security and markets, including the energy markets.
For example, in 2023, the global economic environment was characterized by continued market uncertainty, inflationary pressures, high interest rates, weak housing markets, recessionary fears, and geopolitical uncertainty regarding the ongoing conflict in Ukraine, tensions across the Taiwan Strait, the Israel-Hamas conflict and other hostilities in the Middle East and their impact on global security and markets.
Removed
Summary of principal risk factors Risks relating to our business • An overall decline in economic activity could have a material adverse effect on the financial condition and results of operations of our business. • Volatility or declines in premiums or other adverse trends in the insurance industry may seriously undermine our profitability. • Because the revenue we earn on the sale of certain insurance products is based on premiums and commission rates set by Carriers, any decreases in these premiums or commission rates, or actions by Carriers seeking repayment of commissions, could result in revenue decreases or expenses to us. • Contingent Commissions we receive from Carriers are less predictable than standard commissions, and any decrease in the amount of the commissions we receive could adversely affect our results of operations. • Regulations affecting Carriers with which we place business affect how we conduct our operations. • Competition in our industry is intense and, if we are unable to compete effectively, we may lose clients and our financial results may be negatively affected. • Our business is dependent upon information processing systems.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our headquarters is located in leased offices in Westlake, Texas. The lease consists of approximately 230,000 square feet and expires in June 2031. As of December 31, 2022, our company-owned insurance brokerage business leases approximately 488,000 square feet of office space in Texas, Nevada, Illinois, North Carolina and Ohio under 12 leases.
Biggest changeItem 2. Properties Our headquarters is located in leased offices in Westlake, Texas. The lease consists of approximately 230,000 square feet and expires in June 2031. As of December 31, 2023, our company-owned insurance brokerage business leases approximately 502,000 square feet of office space in Texas, Nevada, Colorado, Illinois, North Carolina, Florida, and Ohio under 14 leases.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMine safety disclosures Not applicable. 47 PART II
Biggest changeMine safety disclosures Not applicable. 45 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSales of Unregistered Securities None. 48 Subject to the terms of the amended and restated Goosehead Financial LLC Agreement, each LLC Unit is redeemable (along with the cancellation of the corresponding share of Class B common stock) for one share of Class A common stock Stock Performance Graph The following graph and table illustrate the total return from May 1, 2018 through December 31, 2022 for (i) our Class A common stock, (ii) the Standard and Poor's 500 Index, and (iii) the Russell 2000 Index, assuming an investment of $100 on May 1, 2018 including the reinvestment of dividends. 5/1/2018 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 GSHD $ 100 $ 178 $ 291 $ 865 $ 914 $ 241 S&P 500 100 96 126 149 192 157 Russell 2000 100 88 111 133 153 121 Securities Authorized for Issuance Under Equity Incentive Plans The following table provides information about our compensation plans under which our Class A Common Stock is authorized for issuance, as of December 31, 2022: Number of securities to be issued upon exercise of outstanding options (in thousands) 2,689 Weighted-average exercise price of outstanding options 63.84 Number of securities remaining available for future issuances under equity compensation plans (in thousands) 2,628 Number of securities issued in connection with the Employee Stock Purchase Plan 43 Number of securities remaining available for future issuance in connection with the Employee Stock Purchase Plan 17 Issuer Purchases of Equity Securities None. 49 Use of Proceeds Not applicable.
Biggest changeSales of Unregistered Securities None. 46 Subject to the terms of the amended and restated Goosehead Financial LLC Agreement, each LLC Unit is redeemable (along with the cancellation of the corresponding share of Class B common stock) for one share of Class A common stock Stock Performance Graph The following graph and table illustrate the total return from May 1, 2018 through December 31, 2023 for (i) our Class A common stock, (ii) the Standard and Poor's 500 Index, and (iii) the Russell 2000 Index, assuming an investment of $100 on May 1, 2018 including the reinvestment of dividends. 5/1/2018 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 GSHD $ 100 $ 178 $ 291 $ 865 $ 914 $ 241 $ 533 S&P 500 100 96 126 149 192 157 199 Russell 2000 100 88 111 133 153 121 142 Securities Authorized for Issuance Under Equity Incentive Plans The following table provides information about our compensation plans under which our Class A Common Stock is authorized for issuance, as of December 31, 2023: Number of securities to be issued upon exercise of outstanding options (in thousands) 2,946 Weighted-average exercise price of outstanding options 61.87 Number of securities remaining available for future issuances under equity compensation plans (in thousands) 3,462 Number of securities issued in connection with the Employee Stock Purchase Plan 53 Number of securities remaining available for future issuance in connection with the Employee Stock Purchase Plan 17 Issuer Purchases of Equity Securities None. 47 Use of Proceeds Not applicable.
Holders of Record As of February 24, 2023, there were 11 shareholders of record of our Class A common stock. The number of record holders does not include persons who held shares of our Class A common stock in nominee or "street name" accounts through brokers.
Holders of Record As of January 31, 2024, there were 11 shareholders of record of our Class A common stock. The number of record holders does not include persons who held shares of our Class A common stock in nominee or "street name" accounts through brokers.
As of February 24, 2023, there were 45 shareholders of record of our Class B common stock.
As of January 31, 2024, there were 45 shareholders of record of our Class B common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAdjusted EPS is a useful measure to management because it eliminates the impact of items that do not relate to business performance and helps compare companies that may not have a dual-share class structure. 58 GAAP to Non-GAAP Reconciliations Year ended December 31, 2022 2021 2020 Total Revenues $ 209,390 $ 151,312 $ 117,014 Core Revenue: Renewal Commissions (1) $ 57,543 $ 39,111 $ 28,891 Renewal Royalty Fees (2) 77,346 46,079 29,309 New Business Commissions (1) 24,126 22,108 17,324 New Business Royalty Fees (2) 18,244 14,616 10,623 Agency Fees (1) 10,912 11,506 8,921 Total Core Revenue 188,171 133,420 95,068 Cost Recovery Revenue: Initial Franchise Fees (2) 10,853 6,516 4,236 Interest Income 1,403 1,153 813 Total Cost Recovery Revenue 12,256 7,669 5,049 Ancillary Revenue: Contingent Commissions (1) 7,684 9,926 16,675 Other Income (2) 1,279 297 222 Total Ancillary Revenue 8,963 10,223 16,897 Total Revenues $ 209,390 $ 151,312 $ 117,014 (1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in "Commissions and agency fees" as shown on the Consolidated statements of operations.
Biggest changeAdjusted EPS increased by $0.78 to $1.33 for the year ended December 31, 2023, from $0.55 for the year ended December 31, 2022, driven by a significant increase in Core Revenue and slower growth in both employee compensation and benefits and general and administrative expenses. 56 GAAP to Non-GAAP Reconciliations The following table shows a reconciliation of total revenues to other non-GAAP measures of revenue for the years ended December 31, 2023, 2022, and 2021 (in thousands) : Year ended December 31, 2023 2022 2021 Total Revenues $ 261,276 $ 209,390 $ 151,312 Core Revenue: Renewal Commissions (1) $ 70,730 $ 57,543 $ 39,111 Renewal Royalty Fees (2) 107,524 77,346 46,079 New Business Commissions (1) 23,411 24,126 22,108 New Business Royalty Fees (2) 23,168 18,244 14,616 Agency Fees (1) 8,174 10,912 11,506 Total Core Revenue 233,007 188,171 133,420 Cost Recovery Revenue: Initial Franchise Fees (2) 11,238 10,853 6,516 Interest Income 1,443 1,403 1,153 Total Cost Recovery Revenue 12,681 12,256 7,669 Ancillary Revenue: Contingent Commissions (1) 13,746 7,684 9,926 Other Income (2) 1,843 1,279 297 Total Ancillary Revenue 15,588 8,963 10,223 Total Revenues $ 261,276 $ 209,390 $ 151,312 (1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in "Commissions and agency fees" as shown on the Consolidated statements of operations.
The Adjusted EBITDA margin increase came from a significant increase in core revenue and slower growth in both general and administrative and employee compensation and benefits expenses.
The Adjusted EBITDA margin increase came from a significant increase in Core Revenue and slower growth in both employee compensation and benefits and general and administrative expenses.
For policies in their first renewal term, we see an increase in our share of royalties from 20% to 50% on the commission paid by the Carriers. 53 • New Business Commissions - predictable based on agent headcount and consistent ramp-up of agents, but lower margin than Renewal Commissions because of higher commissions paid to agents and higher back-office costs associated with policies in their first term.
For policies in their first renewal term, we see an increase in our share of royalties from 20% to 50% on the commission paid by the Carriers. • New Business Commissions - predictable based on agent headcount and consistent ramp-up of agents, but lower margin than Renewal Commissions because of higher commissions paid to agents and higher back-office costs associated with policies in their first term.
Our primary cash flow activities involve: (1) generating cash flow from corporate sales, which largely includes Renewal Revenue (Corporate) and New Business Revenue (Corporate); (2) generating cash flow from franchise sales, which largely includes Royalty Fees and Initial Franchise Fees; (3) making distributions to the Goosehead Management Holders and Texas Wasatch Holders; and (4) borrowings, interest payments and repayments under our Credit Agreement.
Our primary cash flow activities involve: (1) generating cash flow from corporate sales, which largely includes Renewal Revenue (Corporate) and New Business Revenue (Corporate); (2) generating cash flow from franchise sales, which largely includes Royalty Fees and Initial Franchise Fees; 60 (3) making distributions to the Goosehead Management Holders and Texas Wasatch Holders; and (4) borrowings, interest payments and repayments under our Credit Agreement.
For the year ended December 31, 2021, $9.9 million of Contingent Commissions were earned (significantly above our historical average as a percentage of premium), of which $7.4 million was still receivable at December 31, 2021.
For the year ended December 31, 2021, $9.9 million of Contingent Commissions were earned (above our historical average as a percentage of premium), of which $7.4 million was still receivable at December 31, 2021.
For the year ended December 31, 2022, $7.7 million of Contingent Commissions were earned (significantly below our historical average as a percentage of premium), of which $7.4 million was still receivable at December 31, 2022.
For the year ended December 31, 2022, $7.7 million of Contingent Commissions were earned (below our historical average as a percentage of premium), of which $7.4 million was still receivable at December 31, 2022.
Cost Recovery Revenue: • Initial Franchise Fees - one-time Cost Recovery Revenue stream per franchise unit that covers the Company's costs to recruit, train, onboard, and support the franchise for the first year.
Cost Recovery Revenue: • Initial Franchise Fees - Cost Recovery Revenue stream charged one time per franchise unit that covers the Company's costs to recruit, train, onboard, and support the franchise for the first year.
We also incur expenses as a public company, including public reporting obligations, proxy statements, stockholder meetings, stock exchange fees and transfer agent fees. 52 Effects of the reorganization on our corporate structure Goosehead Insurance, Inc. was formed for the purpose of the Offering and has engaged to date only in activities related to Goosehead Financial, LLC.
We also incur expenses as a public company, including public reporting obligations, proxy statements, stockholder meetings, stock exchange fees and transfer agent fees. 50 Effects of the reorganization on our corporate structure Goosehead Insurance, Inc. was formed for the purpose of the Offering and has engaged to date only in activities related to Goosehead Financial, LLC.
GAAP, and these provide a measure against which our businesses may be assessed in the future. Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited. These financial measures should be viewed in addition to, not in lieu of, the consolidated financial statements for the year ended December 31, 2022.
GAAP, and these provide a measure against which our businesses may be assessed in the future. Our methods of calculating these measures may differ from those used by other companies and therefore comparability may be limited. These financial measures should be viewed in addition to, not in lieu of, the consolidated financial statements for the year ended December 31, 2023.
We have calculated future interest obligations based on the interest rate for our debt obligations as of December 31, 2022. (4) See "Item 7. Management's discussion and analysis of financial condition and results of operation - Tax receivable agreement." Critical accounting policies and estimates We prepare our consolidated financial statements in accordance with GAAP.
We have calculated future interest obligations based on the interest rate for our debt obligations as of December 31, 2023. (4) See "Item 7. Management's discussion and analysis of financial condition and results of operation - Tax receivable agreement." Critical accounting policies and estimates We prepare our consolidated financial statements in accordance with GAAP.
(2) The Company refinanced its credit facilities on July 21, 2021 in the form of a $100 million term loan and $50 million revolving credit facility, of which nothing was drawn on the revolving credit facility as of December 31, 2022. (3) Interest payments on our outstanding debt obligations under our Credit Agreement. Our debt obligations have variable interest rates.
(2) The Company refinanced its credit facilities on July 21, 2021 in the form of a $100 million term loan and $50 million revolving credit facility, of which nothing was drawn on the revolving credit facility as of December 31, 2023. (3) Interest payments on our outstanding debt obligations under our Credit Agreement. Our debt obligations have variable interest rates.
Liabilities under Tax Receivable Agreement In connection with the Offering we entered into a tax receivable agreement with the Pre-IPO LLC Members that will provide for the payment by us 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 we actually realize as a result of (i) any increase in tax basis in Goosehead Financial, LLC’s assets resulting from (a) the acquisition of LLC Units using the net proceeds from any future offering, (b) redemptions or exchanges by the Pre-IPO LLC Members of LLC Units and the 65 corresponding number of shares of Class B common stock for shares of our Class A common stock or (c) payments under the tax receivable agreement, and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement.
Liabilities under Tax Receivable Agreement In connection with the Offering we entered into a tax receivable agreement with the Pre-IPO LLC Members that provides for the payment by us 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 we actually realize as a result of (i) any increase in tax basis in Goosehead Financial, LLC’s assets resulting from (a) the acquisition of LLC Units using the net proceeds from any future offering, (b) redemptions or exchanges by the Pre-IPO LLC Members of LLC Units and the corresponding number of shares of Class B common stock for shares of our Class A common stock or (c) payments under the tax receivable agreement, and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement.
See ‘Non-GAAP Financial Measures’ below for further discussion of our Core Revenue, Adjusted EBITDA and Adjusted EP S non-GAAP financial measures We are a rapidly growing personal lines independent insurance agency, reinventing the traditional approach to distributing personal lines products and services throughout the United States.
See "Non-GAAP Financial Measures" below for further discussion of our Core Revenue, Adjusted EBITDA and Adjusted EP S non-GAAP financial measures We are a rapidly growing personal lines independent insurance agency, reinventing the traditional approach to distributing personal lines products and services throughout the United States.
Adjusted EBITDA is defined as net income (the most directly comparable GAAP measure) 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 is defined as net income (the most directly comparable GAAP measure) before interest, income taxes, depreciation and amortization, adjusted to exclude equity-based compensation, impairment expense, and other non-operating items, including, among other things, certain non-cash charges and certain non-recurring or non-operating gains or losses.
Revenue recognition 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.
Revenue recognition Goosehead provides personal and commercial property and casualty insurance brokerage services for its clients through a network of corporate-owned offices and franchise units. Goosehead is compensated for the insurance brokerage services that it provides for clients in the form of commission revenue, agency fees, royalty fees, and contingent commissions.
The following discussion contains references to the years ended December 31, 2022, December 31, 2021, and December 31, 2020. See Goosehead’s Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of the changes from year ended December 31, 2020 to the year ended December 31, 2021.
The following discussion contains references to the years ended December 31, 2023, December 31, 2022, and December 31, 2021. See Goosehead’s Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of the changes from year ended December 31, 2021 to the year ended December 31, 2022.
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, 2022.
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, 2023.
We believe Client Retention is useful as a measure of how well Goosehead retains clients year-over-year and minimizes defections. Client Retention decreased modestly to 88% at December 31, 2022 when compared to 89% at December 31, 2021, again driven by the service team’s continued focus on delivering highly differentiated service levels.
We believe Client Retention is useful as a measure of how well Goosehead retains clients year-over-year and minimizes defections. Client Retention decreased modestly to 86% at December 31, 2023 when compared to 88% at December 31, 2022, again driven by the service team’s continued focus on delivering highly differentiated service levels.
We historically accounted, and anticipate that we will continue to account for the effects of these increases in tax basis and associated payments under the tax receivable agreement arising from redemptions or exchanges as follows: • we will record an increase in deferred tax assets for the estimated income tax effects of the increases in tax basis based on enacted federal and state tax rates at the date of the redemption or exchange; • to the extent we estimate that we will not realize the full benefit represented by the deferred tax asset, based on an analysis that will consider, among other things, our expectation of future earnings, we will reduce the deferred tax asset with a valuation allowance; and • we will record 85% of the estimated realizable tax benefit (which is the recorded deferred tax asset less any recorded valuation allowance) as an increase to the liability due under the tax receivable agreement and the remaining 15% of the estimated realizable tax benefit as an increase to additional paid-in capital.
We historically accounted, and anticipate that we will continue to account for the effects of these increases in tax basis and associated payments under the tax receivable agreement arising from redemptions or exchanges as follows: • we will record an increase in deferred tax assets for the estimated income tax effects of the increases in tax basis based on enacted federal and state tax rates at the date of the redemption or exchange; • to the extent we estimate that we will not realize the full benefit represented by the deferred tax asset, based on an analysis that will consider, among other things, our expectation of future earnings, we will reduce the deferred tax asset with a valuation allowance; and • we will record 85% of the estimated realizable tax benefit (which is the recorded deferred tax asset less any recorded valuation allowance) as an increase to the liability due under the tax receivable agreement and the remaining 15% of the estimated realizable tax benefit as an increase to additional paid-in capital. 62 All of the effects of changes in any of our estimates after the date of the redemption or exchange will be included in net income.
Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income. 64 Contractual obligations, commitments and contingencies The following table represents our contractual obligations as of December 31, 2022, aggregated by type.
Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income. Contractual obligations, commitments and contingencies The following table represents our contractual obligations as of December 31, 2023, aggregated by type.
This discussion includes references to non-GAAP financial measures as defined in the rules of the Securities and Exchange Commission (‘SEC’).
This discussion includes references to non-GAAP financial measures as defined in the rules of the Securities and Exchange Commission ("the SEC").
In addition to monthly lease payments, the lease agreements require the Company to reimburse the lessors for its portion of operating costs each year. Rent expense was $7.0 million, $4.8 million, and $1.9 million for year ending December 31, 2022, 2021, and 2020.
In addition to monthly lease payments, the lease agreements require the Company to reimburse the lessors for its portion of operating costs each year. Rent expense was $7.8 million, $7.0 million, and $4.8 million for year ending December 31, 2023, 2022, and 2021.
The following table shows Total Written Premium by channel for the years ended 2022 and 2021 (in thousands) .
The following table shows Total Written Premium by channel for the years ended 2023 and 2022 (in thousands) .
We believe that Cost Recovery Revenue is an appropriate measure of operating performance because it summarizes revenues that are viewed by management as cost recovery mechanisms. Cost Recovery Revenue increased by $4.6 million, or 60%, to $12.3 million for the year ended December 31, 2022 from $7.7 million for the year ended December 31, 2021.
We believe that Cost Recovery Revenue is an appropriate measure of operating performance because it summarizes revenues that are viewed by management as cost recovery mechanisms. Cost Recovery Revenue increased by $0.4 million, or 3%, to $12.7 million for the year ended December 31, 2023 from $12.3 million for the year ended December 31, 2022.
Key performance indicators Our key operating metrics are discussed below: Total Written Premium Total Written Premium represents for any reported period, the total amount of current (non-cancelled) gross premium that is placed with Goosehead’s portfolio of Carriers.
Key performance indicators Our key operating metrics are discussed below: Total Written Premium Total Written Premium represents the total amount of current (non-cancelled) gross premium that is placed with Goosehead’s portfolio of Carriers for a reporting period.
Since 2020, revenue from Contingent Commissions have historically represented approximately 0.85% of Total Written Premium at year-end. Most of our Contingent Commissions are earned in the year prior to when they are received.
Since 2021, revenue from Contingent Commissions have historically represented approximately 0.48% of Total Written Premium at year-end. Most of our Contingent Commissions are earned in the year prior to when they are received.
Ancillary Revenue: With certain Carriers, the Company has the opportunity to earn additional revenue in the form of Contingent Commissions, typically based on the growth and loss ratio of the business placed with the select Carriers. The Contingent Commissions are extremely difficult to predict in any given period.
Ancillary Revenue: With certain Carriers, the Company has the opportunity to earn additional revenue in the form of Contingent Commissions, typically based on the volume, growth, and loss ratio of the business placed with the select Carriers. The Contingent Commissions are extremely difficult to predict in any given period and can vary greatly from year to year.
For all policies that renew related to franchise sales, we receive 50% of the commissions received from the Carrier as Renewal Royalty Fees, creating a mechanical increase in revenue of 120% if we renew at historical rates, and higher margin due to lower servicing costs on higher revenue.
For all policies that renew related to franchise sales, we receive as Renewal Royalty Fees 50% of the commissions received from the Carrier, creating a mechanical increase in revenue of 129% if we renew at historical rates. Renewal Royalty Fees are higher margin compared to New Business Royalty Fees due to lower servicing costs on higher revenue.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividend policy". 63 Tax receivable agreement We entered into a tax receivable agreement with the Pre-IPO LLC Members on May 1, 2018 that provides for the payment by us 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 we actually realize as a result of (i) any increase in tax basis in Goosehead Insurance, Inc.’s assets and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement.
Tax receivable agreement We entered into a tax receivable agreement with the Pre-IPO LLC Members on May 1, 2018 that provides for the payment by us 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 we actually realize as a result of (i) any increase in tax basis in Goosehead Insurance, Inc.’s assets and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement.
We believe that Total Written Premium is an appropriate measure of operating performance because it reflects growth of our business relative to other insurance agencies. For the year ended December 31, 2022, we had $2.2 billion in Total Written Premium, representing a 42% increase, compared to $1.6 billion for the year ended December 31, 2021.
We believe that Total Written Premium is an appropriate measure of operating performance because it reflects growth of our business relative to other insurance agencies. For the year ended December 31, 2023, we had $3.0 billion in Total Written Premium, representing a 34% increase, compared to $2.2 billion for the year ended December 31, 2022.
These fees are fully earned and non-refundable when a franchise attends our initial training. • Interest Income - like Initial Franchise Fees, interest income is a Cost Recovery Revenue stream that reimburses the Company for those franchises on a payment plan.
These fees are fully 51 earned and non-refundable when a franchise attends our initial training and are recognized in revenue over the life of the franchise agreement. • Interest Income - like Initial Franchise Fees, interest income is a Cost Recovery Revenue stream that reimburses the Company for those franchises on a payment plan.
Total Written Premium growth, which is the best indicator of future revenue growth, increased 42% to $2.2 billion in 2022 from $1.6 billion in 2021. Total Written Premiums Placed drive our current and future Core Revenue and gives us potential opportunities to earn Ancillary Revenue in the form of Contingent Commissions.
Total Written Premium growth, which is the best indicator of future revenue growth, increased 34% to $3.0 billion in 2023 from $2.2 billion in 2022. Total Written Premiums Placed drive our current and future Core Revenue and gives us potential opportunities to earn Ancillary Revenue in the form of Contingent Commissions.
The Company recognizes revenue over the 10-year life of the contract. If the franchise elects the payment plan, the difference between the pay-in-full and the payment plan amounts is recognized as Interest Income using the interest rate method over the 5-year term of the payment plan.
If the franchise elects the payment plan, the difference between the pay-in-full and the payment plan amounts is recognized as Interest Income using the interest rate method over the 5-year term of the payment plan.
As of December 31, 2022, as a result of the prior redemptions of LLC Units, we recognized liabilities totaling $125.7 million relating to our obligations under the Tax Receivable Agreement.
As of December 31, 2023, as a result of the prior redemptions of LLC Units, we recognized liabilities totaling $149.3 million relating to our obligations under the Tax Receivable Agreement.
(2) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Total Revenue excluding other non-operating items ($36,654 / $209,390) for the year ended December 31, 2022, ($20,838 / $151,312) for the year ended December 31, 2021, and ($27,832 /$117,014) for the year ended December 31, 2020. 59 The following tables show a reconciliation from basic earnings per share to Adjusted EPS for the years ended December 31, 2022, 2021, and 2020.
(2) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Total Revenue excluding other non-operating items ($69,818 / $261,276) for the year ended December 31, 2023, ($36,654 / $209,390) for the year ended December 31, 2022, and ($20,838 /$151,312) for the year ended December 31, 2021. 57 The following tables show a reconciliation from basic earnings per share to Adjusted EPS for the years ended December 31, 2023, 2022, and 2021.
Our retention rate is even stronger on a premium basis. In 2022, we retained 100% of the premiums we distributed in 2021, an increase from premium retention in 2021 of 93% primarily due to high levels of client retention and premium increases from our Carriers during the year.
Our retention rate is even stronger on a premium basis. In 2023, we retained 101% of the premiums we distributed in 2022, an increase from premium retention in 2022 of 100% primarily due to premium increases from our Carriers during the year.
We believe that Core 57 Revenue is an appropriate measure of operating performance because it summarizes all of our revenues from sales of individual insurance policies. Core Revenue increased by $54.8 million, or 41%, to $188.2 million for the year ended December 31, 2022 from $133.4 million for the year ended December 31, 2021.
We believe that Core Revenue is an appropriate measure of operating performance because it summarizes all of our revenues from sales of individual insurance policies. Core Revenue increased by $44.8 million, or 24%, to $233.0 million for the year ended December 31, 2023 from $188.2 million for the year ended December 31, 2022.
For the year ended December 31, 2020, $16.7 million of Contingent Commissions were earned (below our historical average as a percentage of premium), of which $15.1 million was still receivable at December 31, 2020.
For the year ended December 31, 2023, $13.7 million of Contingent Commissions were earned (below our historical average as a percentage of premium), of which $6.9 million was still receivable at December 31, 2023.
Ancillary Revenue: • Contingent Commissions - although high margin, Contingent Commissions are unpredictable and susceptible to weather events and Carrier underwriting results. Management does not rely on Contingent Commissions for operating cash flow or budget planning. • Other Income - book transfer fees, marketing investments from Carriers and other items that are unpredictable and supplemental to other revenue streams.
Management does not rely on Contingent Commissions for operating cash flow or budget planning. • Other Income - book transfer fees, marketing investments from Carriers and other items that are unpredictable and supplemental to other revenue streams.
The primary driver of the increase is growth in operating franchises, high levels of client and premium retention, and number of policies in the renewal term from December 31, 2021 to December 31, 2022. Cost Recovery Revenue Cost Recovery Revenue is a supplemental measure of our performance and includes Initial Franchise Fees and Interest Income.
The primary drivers of the increase are increased agent productivity, growth in premiums, high levels of client and premium retention, and the number of policies in the renewal term from December 31, 2022 to December 31, 2023. 55 Cost Recovery Revenue Cost Recovery Revenue is a supplemental measure of our performance and includes Initial Franchise Fees and Interest Income.
The following table sets forth our Total Written Premium placed by line of business by amount and as a percentage of our Total 55 Written Premium for the periods indicated ( in thousands ): Year Ended December 31, 2022 2021 2020 Line of business Homeowner $ 1,268,217 57 % $ 885,130 56 % $ 585,515 55 % Automotive 874,505 40 % 618,483 40 % 456,320 42 % Commercial 49,582 2 % 39,254 3 % 20,730 2 % Other 24,719 1 % 16,991 1 % 11,511 1 % Total Written Premium $ 2,217,023 100 % $ 1,559,858 100 % $ 1,074,076 100 % Expenses Due to our purely organic-focused growth strategy, virtually all of our investments in future growth are in people and certain technologies.
The following table sets forth our Total Written Premium placed by line of business by amount and as a percentage of our Total Written Premium for the periods indicated ( in thousands ): Year Ended December 31, 2023 2022 2021 Line of business Homeowner $ 1,729,138 58 % $ 1,268,217 57 % $ 885,130 56 % Automotive 1,149,737 39 % 874,505 40 % 618,483 40 % Commercial 57,207 2 % 49,582 2 % 39,254 3 % Other 27,903 1 % 24,719 1 % 16,991 1 % Total Written Premium $ 2,963,985 100 % $ 2,217,023 100 % $ 1,559,858 100 % 53 Expenses Due to our organic-focused growth strategy, virtually all of our investments in future growth are in people and certain technologies.
Comparative cash flows The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated: Year Ended December 31 2022 2021 2020 Net cash provided by operating activities $ 35,724 $ 35,444 $ 24,643 Net cash used for investing activities (12,571) (15,375) (10,333) Net cash used for financing activities (23,245) (15,826) (3,334) Net increase (decrease) in cash and cash equivalents (92) 4,243 10,976 Cash and cash equivalents, and restricted cash, beginning of period 30,479 26,236 15,260 Cash and cash equivalents, and restricted cash, end of period $ 30,387 $ 30,479 $ 26,236 Operating activities Net cash provided by operating activities was $35.7 million for 2022 as compared to net cash provided by operating activities of $35.4 million for 2021.
Comparative cash flows The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated: Year Ended December 31 2023 2022 2021 Net cash provided by operating activities $ 50,758 $ 35,724 $ 35,444 Net cash used for investing activities (19,182) (12,571) (15,375) Net cash used for financing activities (17,916) (23,245) (15,826) Net increase (decrease) in cash and cash equivalents 13,660 (92) 4,243 Cash and cash equivalents, and restricted cash, beginning of period 30,387 30,479 26,236 Cash and cash equivalents, and restricted cash, end of period $ 44,047 $ 30,387 $ 30,479 Operating activities Net cash provided by operating activities was $50.8 million for 2023 as compared to net cash provided by operating activities of $35.7 million for 2022.
Total Written Premium Contingent Commission Revenue % of Premium 2020 $ 1,074,076 $ 16,675 1.55 % 2021 1,559,858 9,926 0.64 % 2022 2,217,023 7,684 0.35 % 3-year average 0.85 % Contingent Commissions can vary significantly from year-to-year and should be viewed over several years.
Total Written Premium Contingent Commission Revenue % of Premium 2021 $ 1,559,858 $ 9,926 0.64 % 2022 2,217,023 7,684 0.35 % 2023 2,963,984 13,746 0.46 % 3-year average 0.48 % Contingent Commissions can vary significantly from year-to-year and should be viewed over several years.
Although the Company can control the amount of business placed with the Carriers, loss ratios depend on many factors that are outside of our control, such as weather events and Carrier underwriting accuracy.
Although the Company can control the amount of business placed with the Carriers, loss ratios depend on many factors that are outside of our control, such as weather events and Carrier underwriting accuracy. The Company estimates the amount to be received during the period over which the Contingent Commissions are earned.
The following table sets forth our commissions and agency fees by amount and as a percentage of our revenues for the periods indicated ( in thousands ): Year Ended December 31 2022 2021 2020 Core Revenue: Renewal Commissions $ 57,543 57 % $ 39,111 47 % $ 28,891 40 % New Business Commissions 24,126 24 % 22,108 27 % 17,324 24 % Agency Fees 10,912 11 % 11,506 14 % 8,921 13 % Total 92,581 92 % 72,725 88 % 55,136 77 % Ancillary Revenue: Contingent Commissions 7,684 8 % 9,926 12 % 16,675 23 % Commissions and agency fees $ 100,265 100 % $ 82,651 100 % $ 71,811 100 % Renewal Commissions increased by $18.4 million, or 47%, to $57.5 million for the year ended December 31, 2022 from $39.1 million for the year ended December 31, 2021.
The following table sets forth our commissions and agency fees by amount and as a percentage of our revenues for the periods indicated ( in thousands ): Year Ended December 31, 2023 2022 2021 Core Revenue: Renewal Commissions $ 70,730 61 % $ 57,543 57 % $ 39,111 47 % New Business Commissions 23,411 20 % 24,126 24 % 22,108 27 % Agency Fees 8,174 7 % 10,912 11 % 11,506 14 % Total 102,315 88 % 92,581 92 % 72,725 88 % Ancillary Revenue: Contingent Commissions 13,746 12 % 7,684 8 % 9,926 12 % Commissions and agency fees $ 116,061 100 % $ 100,265 100 % $ 82,651 100 % Renewal Commissions increased by $13.2 million, or 23%, to $70.7 million for the year ended December 31, 2023 from $57.5 million for the year ended December 31, 2022.
Investing activities Net cash used in business investment activities was $12.6 million for 2022 as compared to net cash used in business investment activities of $15.4 million for 2021.
Investing activities Net cash used for business investment activities was $19.2 million for 2023 as compared to net cash used for business investment activities of $12.6 million for 2022.
Note that totals may not sum due to rounding: Year ended December 31, 2022 2021 2020 Earnings (loss) per share - basic (GAAP) $ 0.03 $ 0.28 $ 0.55 Add: equity-based compensation (1) 0.52 0.20 0.13 Adjusted EPS (non-GAAP) $ 0.55 $ 0.48 $ 0.68 (1) Calculated as equity-based compensation divided by the weighted average of Class A and Class B shares outstanding during the period 2022 - [$19.6 million / ( 21.0 million + 16.2 million )] 2021 - [ $7.3 million / ( 19.2 million + 17.7 million )] 2020 - [ $4.7 million / ( 16.8 million + 19.7 million )] Consolidated results of operations The following is a discussion of our consolidated results of operations for each of the years ended December 31, 2022, December 31, 2021, and December 31, 2020.
Note that totals may not sum due to rounding: Year ended December 31, 2023 2022 2021 Earnings per share - basic (GAAP) $ 0.59 $ 0.03 $ 0.28 Add: equity-based compensation (1) 0.64 0.52 0.20 Add: impairment expense (2) 0.10 — — Adjusted EPS (non-GAAP) $ 1.33 $ 0.55 $ 0.48 (1) Calculated as equity-based compensation divided by the sum of the weighted average number of shares of Class A common stock and Class B common stock outstanding during the period 2023 - [$24.0 million / ( 23.9 million + 13.8 million )] 2022 - [ $19.6 million / ( 21.0 million + 16.2 million )] 2021 - [ $7.3 million / ( 19.2 million + 17.7 million )] (2) Calculated as impairment expense divided by the sum of the weighted average number of shares of Class A common stock and Class B common stock [ $3.6 million / (23.9 million + 13.8 million )] for the year ended December 31, 2023.
The following table shows a reconciliation from net income to Adjusted EBITDA for the year ended December 31, 2022, 2021, and 2020 (in thousands) : Year ended December 31, 2022 2021 2020 Net income (loss) $ 2,630 $ 8,296 $ 18,755 Interest expense 4,999 2,854 2,310 Depreciation and amortization 6,884 4,873 3,147 Tax expense (benefit) 2,499 (2,292) (1,035) Equity-based compensation 19,642 7,292 4,745 Other income (expense, including state franchise tax) — (185) (90) Adjusted EBITDA $ 36,654 $ 20,838 $ 27,832 Net Income Margin (1) 1 % 5 % 16 % Adjusted EBITDA Margin (2) 18 % 14 % 24 % (1) Net Income Margin is calculated as Net Income divided by Total Revenue ($2,630 / $209,390), ($8,296 / $151,312), and ($18,755 / $117,014) for the years ended December 31, 2022, 2021, and 2020.
The following table shows a reconciliation from net income to Adjusted EBITDA for the years ended December 31, 2023, 2022, and 2021 (in thousands) : Year ended December 31, 2023 2022 2021 Net income $ 23,696 $ 2,630 $ 8,296 Interest expense 6,568 4,999 2,854 Depreciation and amortization 9,244 6,884 4,873 Tax expense (benefit) 2,692 2,499 (2,292) Equity-based compensation 23,989 19,642 7,292 Impairment expense 3,628 — — Other (income) expense — — (185) Adjusted EBITDA $ 69,817 $ 36,654 $ 20,838 Net Income Margin (1) 9 % 1 % 5 % Adjusted EBITDA Margin (2) 27 % 18 % 14 % (1) Net Income Margin is calculated as Net Income divided by Total Revenue ($23,696 / $261,276), ($2,630 / $209,390), and ($8,296 / $151,312) for the years ended December 31, 2023, 2022, and 2021.
Reconciliation of Total Core Revenue to Total Revenue, Adjusted EBITDA to net income (loss) and Adjusted EPS to EPS, the most directly comparable financial measures presented in accordance with GAAP, are set forth in "Key performance indicators" below.
Reconciliation of Total Core Revenue to Total Revenue, Adjusted EBITDA to net income and Adjusted EPS to EPS, the most directly comparable financial measures presented in accordance with GAAP, are set forth in "Key performance indicators" below. Factors affecting our results of operations We believe that the most significant factors affecting our results of operations include: • Investment in growth.
The following table sets forth our franchise revenues by amount and as a percentage of our revenues for the periods indicated ( in thousands ): Year Ended December 31, 2022 2021 2020 Core Revenues: Renewal Royalty Fees $ 77,346 72 % $ 46,079 68 % $ 29,309 65 % New Business Royalty Fees 18,244 17 % 14,616 22 % 10,623 24 % Total 95,590 89 % 60,695 90 % 39,932 89 % Cost Recovery Revenues: Initial Franchise Fees 10,853 10 % 6,516 10 % 4,236 10 % Ancillary Revenues: Other Franchise Revenues 1,279 1 % 297 — % 222 1 % Franchise revenues $ 107,722 100 % $ 67,508 100 % $ 44,390 100 % 61 Revenue from Renewal Royalty Fees increase by $31.3 million, or 68%, to $77.3 million, for the year ended December 31, 2022 from $46.1 million for the year ended December 31, 2021.
The following table sets forth our franchise revenues by amount and as a percentage of our revenues for the periods indicated ( in thousands ): Year Ended December 31, 2023 2022 2021 Core Revenues: Renewal Royalty Fees $ 107,524 75 % $ 77,346 72 % $ 46,079 68 % New Business Royalty Fees 23,168 16 % 18,244 17 % 14,616 22 % Total 130,692 91 % 95,590 89 % 60,695 90 % Cost Recovery Revenues: Initial Franchise Fees 11,238 8 % 10,853 10 % 6,516 10 % Ancillary Revenues: Other Franchise Revenues 1,843 1 % 1,279 1 % 297 — % Franchise revenues $ 143,772 100 % $ 107,722 100 % $ 67,508 100 % 59 Revenue from Renewal Royalty Fees increased by $30.2 million, or 39%, to $107.5 million, for the year ended December 31, 2023 from $77.3 million for the year ended December 31, 2022.
We discuss below the breakdown of our revenue by stream: Years ended December 31, 2022 (in thousands) 2022 2021 2020 % Growth Core Revenue: Renewal Commissions (1) $ 57,543 27 % $ 39,111 26 % $ 28,891 25 % 47 % Renewal Royalty Fees (2) 77,346 37 % 46,079 30 % 29,309 25 % 68 % New Business Commissions (1) 24,126 12 % 22,108 15 % 17,324 15 % 9 % New Business Royalty Fees (2) 18,244 9 % 14,616 10 % 10,623 9 % 25 % Agency Fees (1) 10,912 4 % 11,506 7 % 8,921 7 % (5) % Total Core Revenue 188,171 89 % 133,420 88 % 95,068 81 % 41 % Cost Recovery Revenue: Initial Franchise Fees (2) 10,853 5 % 6,516 4 % 4,236 4 % 67 % Interest Income 1,403 1 % 1,153 1 % 813 1 % 22 % Total Cost Recovery Revenue 12,256 6 % 7,669 5 % 5,049 5 % 60 % Ancillary Revenue: Contingent Commissions (1) 7,684 4 % 9,926 7 % 16,675 14 % (23) % Other Income (2) 1,279 1 % 297 — % 222 — % 331 % Total Ancillary Revenue 8,963 5 % 10,223 7 % 16,897 14 % (12) % Total Revenues $ 209,390 100 % $ 151,312 100 % $ 117,014 100 % 38 % (1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in "Commissions and agency fees" as shown on the Consolidated statements of operations.
We discuss below the breakdown of our revenue by stream: Years ended December 31, 2023 (in thousands) 2023 2022 2021 % Growth Core Revenue: Renewal Commissions (1) $ 70,730 27 % $ 57,543 27 % $ 39,111 26 % 23 % Renewal Royalty Fees (2) 107,524 41 % 77,346 37 % 46,079 30 % 39 % New Business Commissions (1) 23,411 9 % 24,126 12 % 22,108 15 % (3) % New Business Royalty Fees (2) 23,168 9 % 18,244 9 % 14,616 10 % 27 % Agency Fees (1) 8,174 3 % 10,912 4 % 11,506 7 % (25) % Total Core Revenue 233,007 89 % 188,171 89 % 133,420 88 % 24 % Cost Recovery Revenue: Initial Franchise Fees (2) 11,238 4 % 10,853 5 % 6,516 4 % 4 % Interest Income 1,443 1 % 1,403 1 % 1,153 1 % 3 % Total Cost Recovery Revenue 12,681 5 % 12,256 6 % 7,669 6 % 3 % Ancillary Revenue: Contingent Commissions (1) 13,746 5 % 7,684 4 % 9,926 7 % 79 % Other Income (2) 1,843 1 % 1,279 1 % 297 — % 44 % Total Ancillary Revenue 15,588 6 % 8,963 5 % 10,223 7 % 74 % Total Revenues $ 261,276 100 % $ 209,390 100 % $ 151,312 100 % 25 % (1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in "Commissions and agency fees" as shown on the Consolidated statements of operations.
The following table summarizes our results of operations for the years ended December 31, 2022, 2021, and 2020 (in thousands) : Year Ended December 31, 2022 2021 2020 Revenues: Commissions and agency fees $ 100,265 48 % $ 82,651 54 % $ 71,811 61 % Franchise revenues 107,722 51 % 67,508 45 % 44,390 38 % Interest income 1,403 1 % 1,153 1 % 813 1 % Total revenues 209,390 100 % 151,312 100 % 117,014 100 % Operating Expenses: Employee compensation and benefits 133,293 67 % 94,978 67 % 67,366 69 % General and administrative expenses 52,887 27 % 39,789 28 % 24,985 26 % Bad debts 6,198 3 % 2,999 2 % 1,576 2 % Depreciation and amortization 6,884 3 % 4,873 3 % 3,147 3 % Total operating expenses 199,262 100 % 142,639 100 % 97,074 100 % Income from operations 10,128 8,673 19,940 Other Income: Other income — 185 90 Interest expense (4,999) (2,854) (2,310) Income before taxes 5,129 6,004 17,720 Tax expense (benefit) 2,499 (2,292) (1,035) Net Income 2,630 8,296 18,755 Less: net income attributable to non-controlling interests 2,065 2,893 9,468 Net Income attributable to Goosehead Insurance Inc. $ 565 $ 5,403 $ 9,287 60 Revenues In 2022, revenue increased by 38% to $209.4 million from $151.3 million in 2021.
The following table summarizes our results of operations for the years ended December 31, 2023, 2022, and 2021 (in thousands) : Year Ended December 31, 2023 2022 2021 Revenues: Commissions and agency fees $ 116,061 44 % $ 100,265 48 % $ 82,651 54 % Franchise revenues 143,772 55 % 107,722 51 % 67,508 45 % Interest income 1,443 1 % 1,403 1 % 1,153 1 % Total revenues 261,276 100 % 209,390 100 % 151,312 100 % Operating Expenses: Employee compensation and benefits 152,604 67 % 133,293 67 % 94,978 67 % General and administrative expenses 62,111 27 % 52,887 27 % 39,789 28 % Bad debts 4,361 2 % 6,198 3 % 2,999 2 % Depreciation and amortization 9,244 4 % 6,884 3 % 4,873 3 % Total operating expenses 228,320 100 % 199,262 100 % 142,639 100 % Income from operations 32,956 10,128 8,673 Other Income: Other income — — 185 Interest expense (6,568) (4,999) (2,854) Income before taxes 26,388 5,129 6,004 Tax expense (benefit) 2,692 2,499 (2,292) Net Income 23,696 2,630 8,296 Less: net income attributable to non-controlling interests 9,556 2,065 2,893 Net Income attributable to Goosehead Insurance Inc. $ 14,140 $ 565 $ 5,403 58 Revenues In 2023, revenue increased by 25% to $261.3 million from $209.4 million in 2022.
Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
For further discussion regarding our consolidated results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021, refer to "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
While this can impact month-to-month or quarter-to-quarter results, we expect productivity to normalize year-over-year. • Increases in interest rates. Our variable rate debt, including our Credit Agreement, exposes us to interest rate risk. If interest rates were to increase, our debt service obligations on our variable rate indebtedness would increase even if the amount borrowed remained the same.
While this can impact month-to-month or quarter-to-quarter results, we expect productivity to normalize year-over-year. • Increases in interest rates. Our variable rate debt, including our Credit Agreement, exposes us to interest rate risk.
We are paid a percentage of the premium from the Carriers in the form of New Business Commissions and, in states which allow it, we charge Agency Fees for the placement of the policy.
We are paid a percentage of the premium from the Carriers in the form of New Business Commissions and, in states which allow it, we charge Agency Fees for the placement of the policy. For policies placed through franchise sales, we receive 20% of the commissions and fees received as New Business Royalties during the first term of the policy.
Initial Franchise Fee revenue increased approximately $4.3 million, or 67%, to $10.9 million for the year ended December 31, 2022 from $6.5 million for the year ended December 31, 2021. The primary driver of the increase in Initial Franchise Fees was the increase in total franchises, as well as the acceleration of Franchise Fee revenue from termination of existing agencies.
Initial Franchise Fee revenue increased approximately $0.4 million, or 4%, to $11.2 million for the year ended December 31, 2023 from $10.9 million for the year ended December 31, 2022. The primary driver of the increase in Initial Franchise Fees was the acceleration of Initial Franchise Fee revenue from terminations of existing agencies.
Financing activities Net cash used in financing activities was $23.2 million for 2022 as compared to net cash used by financing activities of $15.8 million for 2021.
Financing activities Net cash used for financing activities was $17.9 million for 2023 as compared to net cash used for financing activities of $23.2 million for 2022.
As of December 31, 2022, we had 1,284,000 Policies in Force compared to 1,011,000 as of December 31, 2021, representing a 27% increase. 56 NPS Net Promoter Score (NPS) is calculated based on a single question: “How likely are you to refer Goosehead Insurance to a friend, family member or colleague?” Clients that respond with a 6 or below are Detractors, a score of 7 or 8 are called Passives, and a 9 or 10 are Promoters.
NPS Net Promoter Score (NPS) is calculated based on a single question: “How likely are you to refer Goosehead Insurance to a friend, family member or colleague?” Clients that respond with a 6 or below are Detractors, with a 7 or 8 are Passives, and with a 9 or 10 are Promoters.
As of December 31, 2022, our unrestricted cash and cash equivalents, and restricted cash was $30.4 million. We have used cash flow from operations primarily to pay compensation and related expenses, general, administrative and other expenses, and debt service. 62 Credit agreement See "Note 9.
As of December 31, 2023, our unrestricted cash and cash equivalents, and restricted cash was $44.0 million. We have used cash flow from operations primarily to pay compensation and related expenses, general, administrative and other expenses, and debt service. Credit agreement See "Note 9. Debt" in the consolidated financial statements included herein for a discussion of the Company's credit facilities.
Interest expense Interest expenses increased by $2.2 million, or 75%, to $5.0 million for 2022 from $2.9 million for 2021. This increase is attributable to a rising interest rate environment during the year.
This increase is attributable to a rising interest rate environment during the year, partially offset by a decrease in total borrowings outstanding. Tax expense Tax expenses increased by $0.2 million, or 8%, to $2.7 million for 2023 from $2.5 million for 2022.
We are now licensed with the necessary state departments of commerce and insurance and registered as a franchisor in all 50 states in the U.S. • Continued retention of existing Book of Business.
We will continue to market actively for new franchises in our established markets, which represent over 99% of the U.S. population. We are now licensed with the necessary state departments of commerce and insurance and registered as a franchisor in all 50 states in the U.S. • Continued retention of existing Book of Business.
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. Certain costs to obtain or fulfill a contract are capitalized. The Company capitalizes the incremental costs to obtain contracts primarily related to initial franchise fees.
Contingent commissions revenue is recognized over time as the Company completes its performance obligations as the underlying policies are placed and other contractual obligations are met. 63 Certain costs to obtain or fulfill a contract are capitalized. The Company capitalizes the incremental costs to obtain franchise contracts.
This increase in net cash provided by operating activities was primarily attributable to a $5.7 million decrease in net income offset by a $12.4 million increase in stock compensation expense and a $16.5 million decrease in cash provided by contract liabilities offset by a $10.9 million increase in cash provided by receivables from franchisees.
This increase in net cash provided by operating activities was primarily attributable to a $21.1 million increase in net income, an $8.4 million increase in cash provided by receivables from franchisees, a $4.5 million increase in cash provided by commissions and agency fees, and a $4.3 million increase in stock compensation expense offset by a $17.4 million decrease in cash provided by contract liabilities and a $4.0 million increase in prepaid expenses.
Our ability to attract and retain top corporate sales agents and franchise owners, ramp up new agent productivity, and retain existing and future Policies in Force are key to continued profitable growth. • Investment in technology. We continue to develop and invest in our technology platform to drive scalability, adaptability, and efficiency.
We continue to invest in expanding our national footprint, increasing our revenue-producing headcount, and increasing the level of support provided to our salespeople. Our ability to attract and retain top corporate sales agents and franchise owners, ramp up new agent productivity, and retain existing and future Policies in Force are key to continued profitable growth. • Investment in technology.
Dividend policy Assuming Goosehead Financial, LLC makes distributions to its members in any given year, the determination to pay dividends, if any, to our Class A common stockholders out of the portion, if any, of such distributions remaining after our payment of taxes, tax receivable agreement payments and expenses (any such portion, an “excess distribution”) will be made at the sole discretion of our board of directors.
Our primary liquidity needs comprise cash to (1) provide capital to facilitate the organic growth of our business, (2) pay operating expenses, including cash compensation to our employees, (3) make payments under the tax receivable agreement, (4) pay interest and principal due on borrowings under our Credit Agreement and (5) pay income taxes. 61 Dividend policy Assuming Goosehead Financial, LLC makes distributions to its members in any given year, the determination to pay dividends, if any, to our Class A common stockholders out of the portion, if any, of such distributions remaining after our payment of taxes, tax receivable agreement payments and expenses (any such portion, an “excess distribution”) will be made at the sole discretion of our board of directors.
We believe that Policies in Force is an appropriate measure of operating performance because it reflects growth of our business relative to other insurance agencies.
We believe that Policies in Force is an appropriate measure of operating performance because it reflects growth of our business relative to other insurance agencies. As of December 31, 2023, we had 1,486,000 Policies in Force compared to 1,284,000 as of December 31, 2022, representing a 16% increase.
Adjusted EBITDA Margin is helpful in measuring profitability of operations on a consolidated level. For the year ended December 31, 2022, Adjusted EBITDA Margin was 18% compared to 14% for the year ended December 31, 2021.
Adjusted EBITDA Margin Adjusted EBITDA Margin is Adjusted EBITDA as defined above, divided by total revenue excluding other non-operating items. Adjusted EBITDA Margin is helpful in measuring profitability of operations on a consolidated level. For the year ended December 31, 2023, Adjusted EBITDA Margin was 27% compared to 18% for the year ended December 31, 2022.
This increase in New Business Commissions is primarily driven by increases in premium per policy, while the decrease in Agency Fees was primarily attributable to a decrease in total sales agent head count to 320 at December 31, 2022, from 506 at December 31, 2021, a 37% decrease.
This decrease in New Business Commissions and Agency Fees was primarily attributable to a decrease in total sales agent head count to 300 at December 31, 2023, from 320 at December 31, 2022, a 6% decrease.
Year Ended December 31 % Change 2022 2021 Corporate Sales Total Written Premium $ 554,764 $ 421,792 32 % Franchise Sales Total Written Premium 1,662,259 1,138,067 46 % Total Written Premium $ 2,217,023 $ 1,559,859 42 % Policies in Force Policies in Force means as of any reported date, the total count of current (non-cancelled) policies placed with Goosehead’s portfolio of Carriers.
Year Ended December 31 % Change 2023 2022 Corporate Sales Total Written Premium $ 681,025 $ 554,764 23 % Franchise Sales Total Written Premium 2,282,959 1,662,260 37 % Total Written Premium $ 2,963,984 $ 2,217,024 34 % Policies in Force Policies in Force means the total count of current (non-cancelled) policies placed with Goosehead’s portfolio of Carriers as of a reported date.
Financial Highlights for 2022: • Total revenue increased 38% from 2021 to $209.4 million; Core Revenues* of $188.2 million increased 41% over 2021 • Total Written Premiums Placed increased 42% from 2021 to $2.2 billion • Net income decreased by $5.7 million from 2021 to $2.6 million, or 1% of total revenues • Adjusted EBITDA*, a non-GAAP measure, increased by 76% from 2021 to $36.7 million, or 18% of total revenues • Basic earnings per share was $0.03 and Adjusted EPS*, a non-GAAP measure, was $0.55 for the year ended December 31, 2022. • Policies in Force increased 27% from December 31, 2021 to 1,284,000 at December 31, 2022. • Corporate sales headcount decreased 37% from December 31, 2021 to 320 at December 31, 2022. ◦ As of December 31, 2022, 165 of these corporate sales agents had less than one year of tenure and 155 had greater than one year of tenure. • Operating franchises increased 18% from December 31, 2021 to 1,413 at December 31, 2022. ◦ In Texas as of December 31, 2022, 71 operating franchises had less than one year of tenure and 236 operating franchisees had greater than one year of tenure. 51 ◦ Outside of Texas as of December 31, 2022, 401 operating franchises had less than one year of tenure and 705 had greater than one year of tenure. *Core Revenue, Adjusted EBITDA and Adjusted EPS are non-GAAP measures.
Financial Highlights for 2023: • Total revenue increased 25% from 2022 to $261.3 million; Core Revenues*, a non-GAAP measure, of $233.0 million increased 24% over 2022 • Total Written Premiums Placed increased 34% from 2022 to $3.0 billion • Net income increased by $21.1 million from 2022 to $23.7 million, or 9% of total revenues • Adjusted EBITDA*, a non-GAAP measure, increased by 90% from 2022 to $69.8 million, or 27% of total revenues • Basic earnings per share was $0.59 and Adjusted EPS*, a non-GAAP measure, was $1.33 for the year ended December 31, 2023. • Policies in Force increased 16% from December 31, 2022 to 1,486,000 at December 31, 2023. • Corporate sales headcount decreased 6% from December 31, 2022 to 300 at December 31, 2023. ◦ As of December 31, 2023, 135 of these corporate sales agents had less than one year of tenure and 165 had greater than one year of tenure. • Operating franchises decreased 13% from December 31, 2022 to 1,226 at December 31, 2023. ◦ As of December 31, 2023, 183 operating franchises had less than one year of tenure and 1,043 operating franchisees had greater than one year of tenure. 49 *Core Revenue, Adjusted EBITDA and Adjusted EPS are non-GAAP measures.
For the year ended December 31, 2022, New Business Revenue grew 10% to $53.3 million, from $48.2 million for the year ended December 31, 2021. Growth in New Business Revenue is driven primarily by growth in operating franchises of 18%. Renewal Revenue Renewal Revenue is commissions received from the Carrier and Royalty Fees after the first term of a policy.
Renewal Revenue Renewal Revenue is commissions received from the Carrier and Royalty Fees after the first term of a policy. For the year ended December 31, 2023, Renewal Revenue grew 32% to $178.3 million, from $134.9 million for the year ended December 31, 2022.
Furthermore, payments under the tax receivable agreement give rise to additional tax benefits and therefore additional payments under the tax receivable agreement itself. See "Item 13. Certain relationships and related transactions, and director independence".
Furthermore, payments under the tax receivable agreement give rise to additional tax benefits and therefore additional payments under the tax receivable agreement itself. See "Item 13. Certain relationships and related transactions, and director independence". Certain income statement line items Revenues In 2023, revenue increased by 25% to $261.3 million from $209.4 million in 2022.
We believe our significant investment in proprietary technology is a key competitive advantage that supports, and will continue to support our growth and operating margins. • Continued penetration of Franchisees into existing markets. We will continue to market actively for new franchises in our established markets, including Texas, which represent over 99% of the U.S. population.
We continue to develop and invest in our technology platform to drive scalability, adaptability, and efficiency. We believe our significant investment in proprietary technology is a key competitive advantage that supports, and will continue to support our growth and operating margins. • Continued penetration of Franchisees into existing markets.
All commissions received in corporate sales after the first term of the policy are recognized as Renewal Commissions, which are higher margin due to lower servicing costs.
All clients are serviced by our world-class service centers, allowing for predictable retention of our Book of Business, which has historically been 86%. All commissions received in corporate sales after the first term of the policy are recognized as Renewal Commissions, which are higher margin due to lower commissions and servicing costs.
Liquidity and capital resources Historical liquidity and capital resources We have managed our historical liquidity and capital requirements primarily through the receipt of revenues from our corporate and franchise sales.
This increase is attributable to an increase in income before taxes offset by a decrease in state and local deferred taxes. Liquidity and capital resources Historical liquidity and capital resources We have managed our historical liquidity and capital requirements primarily through the receipt of revenues from our corporate and franchise sales.
Client Retention Client Retention is calculated by comparing the number of all clients that had at least one policy in force twelve months prior to the date of measurement and still have at least one policy in force at the date of measurement.
NPS has increased modestly to 92 as of December 31, 2023 from 90 at December 31, 2022, primarily driven by the service team’s continued focus on delivering highly differentiated service levels. 54 Client Retention Client Retention is calculated by comparing the number of all clients that had at least one policy in force twelve months prior to the date of measurement and still have at least one policy in force at the date of measurement.
Our board of directors may change our dividend policy at any time. See “Item 5.
Our board of directors may change our dividend policy at any time. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Dividend policy".
Revenue from Agency Fees decreased by $0.6 million, or 5%, to $10.9 million for the year ended December 31, 2022 from $11.5 million for the year ended December 31, 2021.
New Business Commissions decreased by $0.7 million, or 3%, to $23.4 million for the year ended December 31, 2023 from $24.1 million for the year ended December 31, 2022. Revenue from Agency Fees decreased by $2.7 million, or 25%, to $8.2 million for the year ended December 31, 2023 from $10.9 million for the year ended December 31, 2022.
This information is derived from our accompanying consolidated financial statements prepared in accordance with GAAP. For further discussion regarding our consolidated results of operations for the year ended December 31, 2021 as compared to the year ended December 31, 2020, refer to "Part II, Item 7.
No impairment was recorded for the years ended December 31, 2022 and December 31, 2021. Consolidated results of operations The following is a discussion of our consolidated results of operations for each of the years ended December 31, 2023, 2022, and 2021. This information is derived from our accompanying consolidated financial statements prepared in accordance with GAAP.
As our agent force matures the policies they wrote in prior years begins to convert from New Business Revenue to more profitable Renewal Revenue.
Growth in Renewal Revenue was driven primarily by Client Retention of 86% at December 31, 2023, and premium rate increases over the prior year. As our agent force matures, the policies they wrote in prior years begin to convert from New Business Revenue to more profitable Renewal Revenue.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−1 removed3 unchanged
Biggest changeAs of December 31, 2022, we had $94.4 million of borrowings outstanding under our Credit Agreement, which bears interest on a floating basis tied to the London Interbank Offered Rate (LIBOR) and therefore is subject to changes in the associated interest expense.
Biggest changeAs of December 31, 2023, we had $77.5 million of borrowings outstanding under our Credit Agreement, which bears interest on a floating basis tied to SOFR and therefore is subject to changes in the associated interest expense. The effect of an immediate hypothetical 10% change in interest rates would not have a material effect on our consolidated financial statements. 64
A hard market is an insurance market characterized by a period of rising premium rates, which, absent other changes, can positively affect commissions earned by insurance agents. The Company represents approximately 150 Carriers, of which 58 provide national coverage. During 2022, two carriers represented more than 10% of total revenue at 14% and 12%.
A hard market is an insurance market characterized by a period of rising premium rates, which, absent other changes, can positively affect commissions earned by insurance agents. The Company represents over 150 insurance carriers, of which 60 provide national coverage. During 2023, two carriers represented more than 10% of total revenue at 16% and 12%.
Removed
The effect of an immediate hypothetical 10% change in interest rates would not have a material effect on our consolidated financial statements. 66

Other GSHD 10-K year-over-year comparisons