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Goosehead Insurance, Inc. - Quarter Report: 2020 June (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number: 001-38466

GOOSEHEAD INSURANCE, INC.
(Exact name of registrant as specified in its charter)

Delaware82-3886022
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)
1500 Solana Blvd, Building 4, Suite 4500
Westlake
Texas76262
(Address of principal executive offices)(Zip Code)

(469) 480-3669
(Registrant's telephone number, including area code)

Not applicable
(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Class A Common Stock, par value $.01 per shareGSHDNASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   þ Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated filer
Non-accelerated filer  Smaller reporting company
   Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

As of July 31, 2020, there were 17,268,171 shares of Class A common stock outstanding and 19,270,133 shares of Class B common stock outstanding.



Table of contents
 Page
Part I
Item 1.Condensed Consolidated Financial Statements (Unaudited)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
Part II
Item 1.Legal Matters
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.Defaults Upon Senior Securities
Item 4.Mine Safety
Item 5.Other Information
Item 6.Exhibits
 

2


Commonly used defined terms
As used in this Quarterly Report on Form 10-Q ("Form 10-Q"), unless the context indicates or otherwise requires, the following terms have the following meanings:
 
Ancillary Revenue: Revenue that is supplemental to our Core Revenue and Cost Recovery Revenue, Ancillary Revenue is unpredictable and often outside of the Company's control. Included in Ancillary Revenue are Contingent Commissions and other income.
Agency Fees: Fees separate from commissions charged directly to clients for efforts performed in the issuance of new insurance policies.
Annual Report on Form 10-K: The Company's annual report on Form 10-K for the year ended December 31, 2019.
ASC 605: Legacy revenue recognition standard ASC 605, Revenue Recognition. This legacy revenue recognition was used for periods prior to the fourth quarter of 2019.
ASC 606 ("Topic 606"): ASU 2014-09 - Revenue from Contracts with Customers.
Carrier: An insurance company.
Carrier Appointment: A contractual relationship with a Carrier.
Client Retention: 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.
Contingent Commission: Revenue in the form of contractual payments from Carriers contingent upon several factors, including growth and profitability of the business placed with the Carrier.
Core Revenue: The most predictable revenue stream for the Company, these revenues consist of New Business Revenue and Renewal Revenue. New Business Revenue is lower-margin, but fairly predictable. Renewal Revenue is higher-margin and very predictable.
Corporate Channel: The Corporate Channel distributes insurance through a network of company-owned and financed operations with employees that are hired, trained and managed by Goosehead.
Corporate Channel Adjusted EBITDA: Segment earnings before interest, income taxes, depreciation and amortization allocable to the Corporate Channel.
Cost Recovery Revenue: Revenue received by the Company associated with cost recovery efforts associated with selling and financing franchises. Included in Cost Recovery Revenue are Initial Franchise Fees and Interest Income.
Franchise Agreement: Agreements governing our relationships with Franchisees.
Franchise Channel: The Franchise Channel network consists of Franchisee operations that are owned and managed by Franchisees. These business owners have a contractual relationship with Goosehead to use our processes, training, implementation, systems and back-office support team to place insurance. In exchange, Goosehead is entitled to an Initial Franchise Fee and Royalty Fees.
Franchise Channel Adjusted EBITDA: Segment earnings before interest, income taxes, depreciation and amortization, adjusted to exclude other non-operating items allocable to the Franchise Channel.
Franchisee: An individual or entity who has entered into a Franchise Agreement with us.
GF: Goosehead Financial, LLC.
Initial Franchise Fee: Contracted fees paid by Franchisees to compensate Goosehead for the training, onboarding and ongoing support of new franchise locations.
LLC Unit: a limited liability company unit of Goosehead Financial, LLC.
New Business Commission: Commissions received from Carriers relating to policies in their first term.
New Business Revenue: New Business Commissions, Agency Fees, and New Business Royalty Fees.
New Business Royalty Fees: Royalty Fees received from Franchisees relating to policies in their first term
3


NPS: Net Promoter Score 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 is calculated by subtracting the percentage of Detractors from the percentage of Promoters.
Policies in Force: As of any reported date, the total count of current (non-cancelled) policies placed by us with our Carriers.
Pre-IPO LLC Members: owners of LLC Units of GF prior to the Offering.
Renewal Revenue: Renewal Commissions and Renewal Royalty Fees.
Royalty Fees: Fees paid by Franchisees to the Company that are tied to the gross commissions paid by the Carriers related to policies sold or renewed in the Franchise Channel.
Segment: One of the two Goosehead sales distribution channels, the Corporate Channel or the Franchise Channel.
Segment Adjusted EBITDA: Either Corporate Channel Adjusted EBITDA or Franchise Channel Adjusted EBITDA.
The Offering: The initial public offering completed by Goosehead Insurance, Inc. on May 1, 2018.
Total Written Premium: As of any reported date, the total amount of current (non-cancelled) gross premium that is placed with Goosehead’s portfolio of Carriers.

Special note regarding forward-looking statements
We have made statements in this Form 10-Q that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include the potential impact of COVID-19 on the Company's business, projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Item 1A. Risk factors” in the Annual Report on Form 10-K.
The forward-looking statements included in this Form 10-Q are made only as of the date hereof. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised expectations.
4


PART I

Item 1. Condensed Consolidated Financial Statements (Unaudited)
Page
Condensed Consolidated Statements of Income
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Stockholders' Equity
Condensed Consolidated Statements of Cash Flows
Notes to the Condensed Consolidated Financial Statements
Note 1Organization
Note 2Summary of significant accounting policies
Note 3Revenues
Note 4Franchise fees receivable
Note 5Allowance for uncollectible agency fees
Note 6Property and equipment
Note 7Debt
Note 8Commitments and contingencies
Note 9Income taxes
Note 10Stockholder's equity
Note 11Non-controlling interest
Note 12Equity-based compensation
Note 13Dividends
Note 14Segment information
Note 15Litigation
Note 16Subsequent events



5


Goosehead Insurance, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
  Three Months Ended June 30,Six Months Ended June 30,
  
2020 1
2019 2
2020 1
2019 2
Revenues:
Commissions and agency fees$18,248  $10,763  $30,059  $26,933  
Franchise revenues11,484  8,475  19,929  15,303  
Interest income192  148  361  283  
Total revenues29,924  19,386  50,349  42,519  
Operating Expenses:
Employee compensation and benefits15,904  10,378  29,407  19,569  
General and administrative expenses5,364  4,201  11,236  8,631  
Bad debts319  482  628  883  
Depreciation and amortization712  452  1,252  875  
Total operating expenses22,299  15,513  42,523  29,958  
Income from operations7,625  3,873  7,826  12,561  
Other Income (Expense):
Other income—  —  66  —  
Interest expense(479) (626) (1,083) (1,252) 
Income before taxes7,146  3,247  6,809  11,309  
Tax expense (benefit)(240) 430  (281) 1,174  
Net income7,386  2,817  7,090  10,135  
Less: net income attributable to non-controlling interests4,007  1,914  3,867  6,760  
Net income attributable to Goosehead Insurance, Inc.$3,379  $903  $3,223  $3,375  
Earnings per share:
Basic$0.21  $0.06  $0.20  $0.23  
Diluted$0.19  $0.06  $0.18  $0.22  
Weighted average shares of Class A common stock outstanding
Basic16,458  14,876  16,011  14,545  
Diluted17,947  16,065  17,432  15,685  
Dividends declared per share$—  $—  $—  $0.41  

(1) - The three and six months ended June 30, 2020 are reported under ASC 606
(2) - The three and six months ended June 30, 2019 are reported under ASC 605

See Notes to the Condensed Consolidated Financial Statements
6



Goosehead Insurance, Inc.
Condensed Consolidated Balance Sheets
(Unaudited) 
(In thousands, except per share amounts)
  June 30,December 31,
  20202019
Assets
Current Assets:
Cash and cash equivalents$54,318  $14,337  
Restricted cash1,488  923  
Commissions and agency fees receivable, net7,628  6,884  
Receivable from franchisees, net3,944  2,602  
Prepaid expenses4,981  1,987  
Total current assets72,359  26,733  
Receivable from franchisees, net of current portion13,199  11,014  
Property and equipment, net of accumulated depreciation12,349  9,542  
Intangible assets, net of accumulated amortization491  445  
Deferred income taxes, net41,424  15,537  
Other assets2,767  1,357  
Total assets$142,589  $64,628  
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses$4,152  $5,033  
Premiums payable1,488  923  
Deferred rent881  683  
Contract liabilities3,365  2,771  
Note payable2,500  4,000  
Total current liabilities12,386  13,410  
Deferred rent, net of current portion7,571  6,681  
Note payable, net of current portion81,272  42,161  
Contract liabilities, net of current portion23,395  20,024  
Liabilities under tax receivable agreement, net of current portion35,151  13,359  
Total liabilities159,775  95,635  
Commitments and contingencies (see note 8)
Class A common stock, $0.01 par value per share - 300,000 shares authorized, 17,084 shares issued and outstanding as of June 30, 2020, 15,238 shares issued and outstanding as of December 31, 2019
171  152  
Class B common stock, $0.01 par value per share - 50,000 shares authorized, 19,455 issued and outstanding as of June 30, 2020, 21,055 shares issued and outstanding as of December 31, 2019
194  210  
Additional paid in capital21,348  14,442  
Accumulated deficit(20,525) (23,811) 
Total stockholders' equity1,188  (9,007) 
Non-controlling interests(18,374) (22,000) 
Total equity(17,186) (31,007) 
Total liabilities and equity$142,589  $64,628  

See Notes to the Condensed Consolidated Financial Statements
7


Goosehead Insurance, Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(In thousands)


Issued shares of Class A common stockIssued shares of Class B common stockClass A Common stockClass B Common StockAdditional paid in capitalAccumulated deficitTotal stockholders' equityNon-controlling interestTotal equity
Balance, January 1, 202015,238  21,055  152  210  14,442  (23,811) (9,007) (22,000) (31,007) 
Distributions—  —  —  —  —  —  —  (1,003) (1,003) 
Net loss—  —  —  —  —  (156) (156) (140) (296) 
Equity-based compensation—  —  —  —  498  —  498  —  498  
Activity under employee stock purchase plan —  —  —  116  —  116  —  116  
Redemption of LLC Units791  (791)  (8) (869) —  (869) 869  —  
Deferred tax adjustments related to Tax Receivable Agreement—  —  —  —  1,704  —  1,704  —  1,704  
Balance March 31, 202016,032  20,264  160  202  15,891  (23,967) (7,714) (22,274) (29,988) 
Distributions—  —  —  —  —  —  —  (859) (859) 
Net income—  —  —  —  —  3,379  3,379  4,007  7,386  
Exercise of stock options241  —   —  2,404  —  2,407  —  2,407  
Equity-based compensation—  —  —  —  1,416  —  1,416  —  1,416  
Activity under employee stock purchase plan —  —  —  138  —  138  —  138  
Redemption of LLC Units809  (809)  (8) (762) —  (762) 762  —  
Deferred tax adjustments related to Tax Receivable Agreement—  —  —  —  2,261  —  2,261  53  2,314  
Reallocation of Non-controlling interest—  —  —  —  63  63  (63) —  
Balance June 30, 202017,084  19,455  171  194  21,348  (20,525) 1,188  (18,374) (17,186) 
8


Issued shares of Class A common stockIssued shares of Class B common stockClass A Common stockClass B Common StockAdditional paid in capitalAccumulated deficitTotal stockholders' equityNon-controlling interestTotal equity
Balance, January 1, 201913,799  22,486  138  224  11,899  (20,761) (8,500) (16,703) (25,203) 
Distributions—  —  —  —  —  —  —  (245) (245) 
Dividends declared—  —  —  —  —  (5,962) (5,962) (9,038) (15,000) 
Net income—  —  —  —  —  2,472  2,472  4,846  7,318  
Equity-based compensation—  —  —  —  368  —  368  —  368  
Redemption of LLC Units723  (723)  (7) (679) —  (679) 679  —  
Deferred tax adjustments related to Tax Receivable Agreement—  —  —  —  911  —  911  —  911  
Balance March 31, 201914,522  21,763  145  217  12,499  (24,251) (11,390) (20,461) (31,851) 
Distributions—  —  —  —  —  —  —  (2,708) (2,708) 
Net income—  —  —  —  —  903  903  1,914  2,817  
Equity-based compensation—  —  —  —  368  —  368  —  368  
Activity under employee stock purchase plan —  —  —  142  —  142  —  142  
Redemption of LLC Units488  (488)  (5) (477) —  (477) 477  —  
Deferred tax adjustments related to Tax Receivable Agreement—  —  —  —  684  —  684  —  684  
Balance June 30, 201915,013  21,275  150  212  13,216  (23,348) (9,770) (20,778) (30,548) 


See Notes to the Condensed Consolidated Financial Statements
9


Goosehead Insurance, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
  Six Months Ended June 30,
  20202019
Cash flows from operating activities:
Net income$7,090  $10,135  
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization1,540  982  
Bad debt expense628  883  
Equity-based compensation1,914  736  
Impacts of Tax Receivable Agreement22,472  9,126  
Deferred income taxes(21,869) (8,945) 
Changes in operating assets and liabilities:
Receivable from franchisees(3,682) (1,438) 
Commissions and agency fees receivable(1,235) (892) 
Prepaid expenses(2,994) (111) 
Other assets(1,410) (69) 
Accounts payable and accrued expenses(1,546) (935) 
Deferred rent1,087  1,042  
Contract liabilities3,965  —  
Premiums payable565  203  
Unearned revenue—  (35) 
Payments pursuant to the tax receivable agreement(9) —  
Net cash provided by operating activities6,516  10,682  
Cash flows from investing activities:
Proceeds from notes receivable18  11  
Purchase of software(142) (251) 
Purchase of property and equipment(3,969) (1,636) 
Net cash used for investing activities(4,093) (1,876) 
Cash flows from financing activities:
Debt issuance costs(677) —  
Repayment of note payable(26,821) (1,000) 
Proceeds from notes payable64,821  
Proceeds from the issuance of Class A common stock2,662  142  
Member distributions and dividends(1,862) (17,953) 
Net cash provided by (used for) financing activities38,123  (18,811) 
Net increase (decrease) in cash and restricted cash40,546  (10,005) 
Cash and cash equivalents, and restricted cash, beginning of period15,260  19,011  
Cash and cash equivalents, and restricted cash, end of period$55,806  $9,006  
Supplemental disclosures of cash flow data:
Cash paid during the year for interest795  1,252  
Cash paid for income taxes250  875  
See Notes to the Condensed Consolidated Financial Statements
10

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

1. Organization
On May 1, 2018 Goosehead Insurance, Inc. ("GSHD") completed an initial public offering (the “Offering”) of 9,810 thousand shares of Class A common stock at a price of $10.00 per share, which included 1,280 thousand shares issued pursuant to the underwriter's over-allotment option. Following completion of the Offering, GSHD owned 37.3% of Goosehead Financial, LLC (“GF”) and the Pre-IPO LLC Members owned the remaining 62.7%. GSHD is the sole managing member of GF and, although GSHD holds a minority economic interest in GF, GSHD has the sole voting power and control of management of GF. Accordingly, GSHD consolidates the financial results of GF and reports non-controlling interest in GSHD's condensed consolidated financial statements.
GF was organized on January 1, 2016 as a Delaware Limited Liability Company and is headquartered in Westlake, TX.
GSHD (collectively with its consolidated subsidiaries, the “Company”) provides personal and commercial property and casualty insurance brokerage services for its clients through a network of corporate-owned agencies and franchise units across the nation.
The Company had nine and seven corporate-owned locations in operation at June 30, 2020 and 2019, respectively. Franchisees are provided access to insurance Carrier Appointments, product training, technology infrastructure, client service centers and back office services. During the three months ended June 30, 2020 and 2019, the Company onboarded 60 and 57 franchise locations, respectively and had 730 and 535 operating franchise locations as of June 30, 2020 and 2019, respectively. No franchises were purchased by the Company during the three and six months ended June 30, 2020 or 2019.
All intercompany accounts and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all of the annual disclosures required by accounting principles generally accepted in the United States of America ("GAAP"). However, in the opinion of management, these statements include all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of the condensed consolidated financial positions at June 30, 2020, the condensed consolidated results of operations, stockholders' equity and statements of cash flows for the three and six months ended June 30, 2020 and 2019. The interim period condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements that are included in the Annual Report on Form 10-K.
The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results that can be expected for the entire year. The Company experiences seasonal fluctuations of its revenue due to the timing of contingent commission revenue recognition and trends in housing market activity.
Impact of the coronavirus (“COVID-19”) pandemic
The extent to which the COVID-19 pandemic and the related economic impact may affect our financial condition or results of operations is uncertain. The extent of the impact on our operational and financial performance will depend on various factors, including the duration and spread of the outbreak and its impact on home sales and consumer spending. To date, the pandemic has not increased our costs of or access to capital under our term note and revolving credit facility and we do not believe it is reasonably likely to in the future. In addition, we do not believe that the pandemic will affect our ongoing ability to meet the covenants in our debt instruments, including under our term note and revolving credit facility. To date, the pandemic has not impacted the collectability of receivables or adversely affected our revenue. Due to the nature of our business, the effect of the COVID-19 pandemic may not be fully reflected in our results of operations until future periods. Changes in consumer behavior linked to the COVID-19 pandemic may have contributed to reduced loss ratios through the six months ended June 30, 2020, increasing the amount of revenue from Contingent Commissions the Company expects to receive.
11

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period.
We are not presently aware of any events or circumstances arising from the COVID-19 pandemic, outside of those described above, that would require us to update our estimates, judgments or revise the carrying value of our assets or liabilities. Our estimates may change, however, as new events occur and additional information is obtained, any such changes will be recognized in the condensed consolidated financial statements. Accordingly, actual results could differ from those estimates as more information becomes known.
Income Taxes
The Company accounts for income taxes pursuant to the asset and liability method which requires the recognition of deferred income tax assets and liabilities related to the expected future tax consequences arising from temporary differences between the carrying amounts and tax bases of assets and liabilities based on enacted statutory tax rates applicable to the periods in which the temporary differences are expected to reverse. Any effects of changes in income tax rates or laws are included in income tax expense in the period of enactment.
Restricted Cash
The Company holds premiums received from the insured, but not yet remitted to the insurance Carrier in a fiduciary capacity. Premiums received but not yet remitted included in restricted cash were $1.5 million and $579 thousand as of June 30, 2020 and 2019, respectively.
The following is a reconciliation of our cash and restricted cash balances as presented in the condensed consolidated statement of cash flows for the six months ended June 30, 2020 and 2019 (in thousands):
June 30,
20202019
Cash and cash equivalents$54,318  $8,427  
Restricted cash1,488  579  
Cash and cash equivalents, and restricted cash$55,806  $9,006  

Recently Issued Accounting Pronouncements
Leases (ASU 2016-02): This standard establishes a new lease accounting model, which introduces the recognition of lease assets and liabilities for those leases classified as operating leases under previous GAAP. It should be applied using a modified retrospective approach, with the option to elect various practical expedients. Early adoption is permitted. The standard became effective for the Company January 1, 2020, but the Company is not required to present the impacts of the standard until it files its Annual Report on Form 10-K for the fiscal year ended December 31, 2020, at which point the company will become a large accelerated filer. The Company is currently evaluating the impact this standard will have on the Company's consolidated financial statements. However, the Company expects the impact of this guidance on its consolidated financial statements could be significant, as its future minimum operating lease commitments totaled $26.0 million as of June 30, 2020.
Credit Losses (ASU 2016-13): Measurement of Credit Losses on Financial Instruments. Under the new guidance an entity is required to measure all credit losses on certain financial instruments, including trade receivables and various off-balance sheet credit exposures, using an expected credit loss model. This model incorporates past experience, current conditions and reasonable and supportable forecasts affecting collectability of these instruments. This standard became effective for the Company beginning January 1, 2020, but the Company is not required to present the impacts of the standard until it files its Annual Report on Form 10-K for the fiscal year ended December 31, 2020, at which point the company will become a large accelerated filer. The Company does not expect the adoption of this amendment will have a material impact on the Company's consolidated financial statements.

12

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Recently adopted accounting pronouncements
Revenue from Contracts with Customers (ASU 2014-09) (“Topic 606”): This standard supersedes the existing revenue recognition guidance and provides a new framework for recognizing revenue. The core principle of the standard is that an entity should recognize revenue for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Additionally, the guidance requires improved disclosure to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized. Guidance subsequent to ASU 2014-09 has been issued to clarify various provisions in the standard, including principal versus agent considerations, identifying performance obligations, licensing transactions, as well as various technical corrections and improvements. According to the superseding standard ASU 2015-14 that deferred the effective dates of the preceding, and because the Company is filing as an emerging growth company, the standard became effective for the Company January 1, 2019, but the Company was not required to present the impacts of the standard until the Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The Company adopted this standard by recognizing the cumulative effect as an adjustment to opening accumulated deficit and non-controlling interests at January 1, 2019, under the modified retrospective method for contracts not completed as of the day of adoption. Under the modified retrospective method, the Company was not required to restate comparative financial information prior to the adoption of these standards and, therefore, such information presented prior to the filing of the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 will continue to be reported under the Company’s previous accounting policies.

13

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Impact on Financial Statements

The following tables summarize the impacts of adopting the revenue recognition standard on the Company’s condensed consolidated statement of income:


(in thousands)Legacy GAAPAdjustments due to Topic 606As Reported
Consolidated Statement of Income
Three Months Ended June 30, 2020
Revenues:
Commissions and agency fees15,252  2,996  18,248  
Franchise revenues12,111  (627) 11,484  
Expenses:
Employee compensation and benefits15,982  (78) 15,904  
Bad debts312   319  
Tax expense (benefit)(553) 313  (240) 
Net income5,259  2,127  7,386  
Earnings per share:
Basic0.16  0.05  0.21  
Diluted0.15  0.04  0.19  

(in thousands)Legacy GAAPAdjustments due to Topic 606As Reported
Consolidated Statement of Income
Six Months Ended June 30, 2020
Revenues:
Commissions and agency fees29,753  306  30,059  
Franchise revenues22,336  (2,407) 19,929  
Expenses:
Employee compensation and benefits29,557  (150) 29,407  
Bad Debts925  (297) 628  
Tax expense (benefit)(94) (187) (281) 
Net income8,556  (1,466) 7,090  
Earnings per share:
Basic0.23  (0.03) 0.20  
Diluted0.22  (0.04) 0.18  
14

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

(in thousands)Legacy GAAPAdjustments due to Topic 606As Reported
Consolidated Balance Sheet
June 30, 2020
Assets:
Commissions and agency fees receivable, net(1)
2,707  4,921  7,628  
Receivable from franchisees, net(1)
4,832  12,311  17,143  
Deferred income taxes, net41,104  320  41,424  
Other assets1,568  1,199  2,767  
Liabilities:
Accounts payable and accrued expenses3,843  309  4,152  
Unearned revenue25  (25) —  
Contract liabilities(1)
—  26,760  26,760  
Liabilities under tax receivable agreement35,128  23  35,151  
Stockholders' Equity:
Accumulated Deficit(17,155) (3,370) (20,525) 
Non-controlling interests(13,961) (4,413) (18,374) 
Total equity(9,403) (7,783) (17,186) 
(1) - Includes both the current and long term portion of this balance.


(in thousands)Legacy GAAPAdjustments due to Topic 606As Reported
Consolidated Statement of Cash Flows
Six Months Ended June 30, 2020
Operating Cash Flows:
Net Income8,556  (1,466) 7,090  
Bad debt expense925  (297) 628  
Receivable from franchisees(1,031) (2,651) (3,682) 
Commissions and agency fees receivables(1,132) (103) (1,235) 
Other assets(1,737) 327  (1,410) 
Accounts payable and accrued expenses(1,281) (265) (1,546) 
Contract liabilities—  3,965  3,965  
Unearned revenue(490) 490  —  
Net cash provided by operating activities6,516  —  6,516  

3. Revenue

Commissions and fees
The Company earns new and renewal commissions paid by insurance Carriers and fees paid by its clients for the binding of insurance coverage. The transactions price is set as the estimated commissions to be received over the term of the policy, net of a constraint for policy changes and cancellations. These commissions and fees are earned
15

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
at a point in time upon the effective date of bound insurance coverage, as no performance obligation exists after coverage is bound.
For Agency Fees, the Company enters into a contract with the insured, in which the Company's performance obligation is to place an insurance policy. The transaction price of the agency fee is set at the time the sale is agreed upon, and is included in the contract. Agency Fee revenue is recognized at a point in time, which is the effective date of the policy.

Contingent Commission revenue is generated from contracts between the Company and insurance Carriers, for which the Company is compensated for certain growth, profitability, and other performance-based metrics. The performance obligations for Contingent Commissions will vary by contract, but generally include the Company increasing profitable written premium with the insurance Carrier. The transaction price for Contingent Commissions is estimated based on all available information and is recognized over time as the Company completes its performance obligations, as the underlying policies are placed, net of a constraint.
Franchise revenues
Franchise revenues include initial franchise fees and ongoing new and renewal royalty fees from franchisees.

Revenue from Initial Franchise Fees is generated from a contract between the Company and a Franchisee. The Company's performance obligation is to provide initial training, onboarding, ongoing support and use of the Company's business operations over the period of the Franchise Agreement. The transaction price is set by the Franchise Agreement and revenue is recognized over time as the Company completes its performance obligations.
Revenue from New and Renewal Royalty Fees is recorded by applying the sales- and usage-based royalties exception. Under the sales- and usage-based exception, the Company estimates the anticipated amount of the royalties to be received over the term of the policy. Revenue from Royalty Fees is recognized over time as the placement of the underlying policies occur.
Contract Costs
Additionally, the Company has evaluated ASC Topic 340 - Other Assets and Deferred Cost (“ASC 340”) which requires companies to defer certain incremental cost to obtain customer contracts, and certain costs to fulfill customer contracts.
Incremental cost to obtain - The adoption of ASC 340 resulted in the Company deferring certain costs to obtain customer contracts primarily as they relate to commission-based compensation plans in the Franchise Channel, in which the Company pays an incremental amount of compensation on new Franchise Agreements. These incremental costs are deferred and amortized over a 10-year period, which is consistent with the term of the contract.
Costs to fulfill - The Company has evaluated the need to capitalize costs to fulfill customer contracts and has determined that there are no costs that meet the definition for capitalization under ASC 340.

16

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Disaggregation of Revenue
The following table disaggregates revenue by Segment and source (in thousands):

Three Months Ended June 30, 2020:Franchise ChannelCorporate ChannelTotal
Type of revenue stream:
Commissions and agency fees
Renewal Commissions$—  $7,718  $7,718  
New Business Commissions—  4,329  4,329  
Agency Fees—  2,185  2,185  
Contingent Commissions2,774  1,242  4,016  
Franchise revenues
Renewal Royalty Fees7,903  —  7,903  
New Business Royalty Fees2,599  —  2,599  
Initial Franchise Fees901  —  901  
Other Franchise Revenues81  —  81  
Interest Income192  —  192  
Total Revenues$14,450  $15,474  $29,924  
Timing of revenue recognition:
Transferred at a point in time$—  $14,232  $14,232  
Transferred over time14,450  1,242  15,692  
Total Revenues$14,450  $15,474  $29,924  
17

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

Six Months Ended June 30, 2020:Franchise ChannelCorporate ChannelTotal
Type of revenue stream:
Commissions and agency fees
Renewal Commissions$—  $13,451  $13,451  
New Business Commissions—  7,662  7,662  
Agency Fees—  3,871  3,871  
Contingent Commissions3,468  1,607  5,075  
Franchise revenues
Renewal Royalty Fees13,289  —  13,289  
New Business Royalty Fees4,647  —  4,647  
Initial Franchise Fees1,879  —  1,879  
Other Franchise Revenues114  —  114  
Interest Income361  —  361  
Total Revenues$23,758  $26,591  $50,349  
Timing of revenue recognition:
Transferred at a point in time$—  $24,984  $24,984  
Transferred over time23,758  1,607  25,365  
Total Revenues$23,758  $26,591  $50,349  

Contract Balances

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

June 30, 2020December 31, 2019Increase/(decrease)
Cost to obtain franchise contracts(1)
1,153  $1,004  $149  
Commissions and agency fees receivable, net(2)
7,628  6,884  744  
Receivable from franchisees(2)
17,143  13,616  3,527  
Contract liability(3)
26,760  22,795  3,965  
(1) Cost to obtain franchise contracts is included in Other assets on the condensed consolidated balance sheets.
(2) Includes both the current and long term portion of this balance.
(3) Initial Franchise Fees to be recognized over the life of the contract

Significant changes in contract liabilities are as follows (in thousands):
Contract liability at December 31, 2019
$22,795  
Revenue recognized during the period(1,879) 
New deferrals(1)
5,844  
Contract liability at June 30, 2020
26,760  
(1) Initial Franchise Fees where the consideration is received from the customer for services which are to be transferred to the Franchisee over the term of the Franchise Agreement
18

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)

4. Franchise Fees Receivable
The balance of Franchise fees receivable included in Receivable from franchisees consisted of the following (in thousands):
  
June 30, 2020December 31, 2019
Franchise fees receivable(1)
$18,855  $15,314  
Less: Unamortized discount(1)
(4,858) (3,771) 
Less: Allowance for uncollectible franchise fees(1)
(92) (52) 
Net franchise fees receivable(1)
$13,905  $11,491  
(1) Includes both the current and long term portion of this balance
Activity in the allowance for uncollectible franchise fees was as follows (in thousands):
Balance at December 31, 2019$52  
Charges to bad debts137  
Write offs(97) 
Balance at June 30, 2020$92  
Balance at December 31, 2018$455  
Charges to bad debts367  
Write offs(289) 
Balance at June 30, 2019$533  

5. Allowance for Uncollectible Agency Fees
Activity in the allowance for uncollectible Agency Fees was as follows (in thousands):
Balance at December 31, 2019$178  
Charges to bad debts491  
Write offs(359) 
Balance at June 30, 2020$310  
Balance at December 31, 2018$242  
Charges to bad debts516  
Write offs(472) 
Balance at June 30, 2019$286  

19

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
6. Property and equipment
Property and equipment consisted of the following (in thousands):
June 30, 2020December 31, 2019
Furniture & fixtures$4,010  $3,012  
Computer equipment2,242  1,480  
Network equipment324  268  
Phone system940  885  
Leasehold improvements11,165  9,073  
Total18,681  14,718  
Less accumulated depreciation(6,332) (5,176) 
Property and equipment, net$12,349  $9,542  

7. Debt
On March 6, 2020, the Company refinanced its $13.0 million revolving credit facility and $40.0 million term note payable to a $25.0 million revolving credit facility and $80.0 million term note payable to finance general corporate purposes. The Company also has the right, subject to approval by the administrative agent and each issuing bank, to increase the commitments under the credit facilities an additional $50.0 million. As part of the refinancing, $172 thousand of debt issuance costs from previous debt were immediately recognized as interest expense.
The $25.0 million revolving credit facility accrues interest on amounts drawn at an initial interest rate of LIBOR plus 2.50%, then at an interest rate determined by the Company's leverage ratio for the preceding period. At June 30, 2020 the Company was accruing interest at LIBOR plus 200 basis points. At June 30, 2020, the Company had $5.0 million drawn against the revolver and had a letter of credit of $333 thousand applied against the maximum borrowing availability, payable on March 6, 2023. Thus, amounts available to draw totaled $19.7 million. The revolving credit facility is collateralized by substantially all the Company’s assets, which includes rights to future commissions.
The term note is payable in quarterly installments of $500 thousand the first twelve months, $1.0 million the next twelve months and $2.0 million the last twelve months, with a balloon payment on March 6, 2023. The note is collateralized by substantially all of the Company’s assets, which includes rights to future commissions. Interest is calculated initially at LIBOR plus 2.50%, then at an interest rate based on the Company's leverage ratio for the preceding period. At June 30, 2020 the Company was accruing interest at LIBOR plus 200 basis points. On June 24, 2020 the Company drew down the remaining $37.9 million of the term loan. As of June 30, 2020, the Company had $79.5 million of the term note drawn.
The interest rate for each leverage ratio tier are as follows:

Leverage RatioInterest Rate
< 1.50x
LIBOR + 175 bps
> 1.50x
LIBOR + 200 bps
> 2.50x
LIBOR + 225 bps
> 3.50x
LIBOR + 250 bps

20

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Maturities of the term note payable for the next four years are as follows (in thousands):

Amount
2020$1,000  
20213,500  
20227,000  
202368,000  
Total$79,500  

The Company’s note payable agreement contains certain restrictions and covenants. Under these restrictions, the Company is limited in the amount of debt incurred and distributions payable. In addition, the credit agreement contains certain change of control provisions that, if broken, would trigger a default. Finally, the Company must maintain certain financial ratios. As of June 30, 2020, the Company was in compliance with these covenants.
Because of both instruments’ variable interest rate, the note payable balance at June 30, 2020 and December 31, 2019, approximates fair value using Level 2 inputs, described below.
The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described as follows:
 
Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets.
Level 2—Significant other observable inputs other than Level 1 prices such as quoted prices in markets that are not active, quoted prices for similar assets or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset.
Level 3—Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

8. Commitments and Contingencies
The Company leases its facilities under non-cancelable operating leases, expiring in various years through 2029. 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 $0.6 million and $1.1 million for the three and six months ended June 30, 2020 and $0.4 million and $0.9 million for three and six months ended June 30, 2019.
21

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
The following is a schedule of future minimum lease payments as of June 30, 2020 (in thousands):

Amount
2020$1,661  
20213,507  
20223,491  
20233,324  
20243,156  
Thereafter10,814  
Total$25,953  

9. Income Taxes
As a result of the Reorganization Transactions and the Offering, GSHD became the sole managing member of GF, which is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, GF is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by GF is passed through to and included in the taxable income or loss of its members, including GSHD, on a pro rata basis. GSHD is subject to U.S. federal income taxes, in addition to state and local income taxes, with respect to GSHD's allocable share of income of GF.
Income tax expense (benefit)
Provision for/(benefit from) income taxes for the three and six months ended June 30, 2020 was $(240) thousand and $(281) thousand compared to $430 thousand and $1.2 million for the three and six months ended June 30, 2019. The effective tax rate was (3)% and (4)% for the three and six months ended June 30, 2020 and 13% and 10% for the three and six months ended June 30, 2019. These effective tax rates are calculated using extended values from our condensed consolidated statements of income, and are therefore more precise tax rates than can be calculated from rounded values. The decrease in the effective tax rate for the period ended June 30, 2020 compared to the period ended June 30, 2019 was primarily due to exercises of employee stock options resulting in excess tax deductible expenses.
Deferred taxes
Deferred tax assets at June 30, 2020 were $41.4 million compared to $15.5 million at December 31, 2019. The primary contributing factor to the increase in deferred tax assets is additional redemptions of LLC Units of GF for shares of Class A common stock of GSHD during the three and six months ended June 30, 2020.
Tax Receivable Agreement
GF intends to make an election under Section 754 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”) effective for each taxable year in which a redemption or exchange of LLC Units and corresponding Class B common stock for shares of Class A common stock occurs. Future taxable redemptions or exchanges are expected to result in tax basis adjustments to the assets of GF that will be allocated to the Company and thus produce favorable tax attributes. These tax attributes would not be available to GSHD in the absence of those transactions. The anticipated tax basis adjustments are expected to reduce the amount of tax that GSHD would otherwise be required to pay in the future.
GSHD entered into a tax receivable agreement with the Pre-IPO LLC Members on May 1, 2018 that provides for the payment by GSHD to the Pre-IPO LLC Members of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that GSHD actually realizes as a result of (i) any increase in tax basis in GSHD's assets and (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreement.
During the three and six months ended June 30, 2020, an aggregate of 809 thousand and 1,600 thousand LLC Units, respectively, were redeemed by the Pre-IPO LLC Members for newly issued shares of Class A common stock. In connection with these redemptions, GSHD received 809 thousand and 1,600 thousand LLC Units, which
22

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
resulted in an increase in the tax basis of its investment in GF subject to the provisions of the tax receivable agreement. The Company recognized a liability for the TRA Payments due to the Pre-IPO LLC Members, representing 85% of the aggregate tax benefits the Company expects to realize from the tax basis increases related to the redemptions of LLC Units, after concluding it was probable that such TRA Payments would be paid based on its estimates of future taxable income. As of June 30, 2020, the total amount of TRA Payments due to the Pre-IPO LLC Members under the tax receivable agreement was $35.8 million, of which $681 thousand was current and included in Accounts payables and accrued expenses on the Consolidated Balance Sheet.
Uncertain tax positions
GSHD has determined there are no material uncertain tax positions as of June 30, 2020.
10. Stockholders' Equity
Class A Common Stock
GSHD has a total of 17,084 thousand shares of its Class A common stock outstanding at June 30, 2020. Each share of Class A common stock holds economic rights and entitles its holder to one vote per share on all matters submitted to a vote of the stockholders of GSHD.
Class B Common Stock
GSHD has a total of 19,455 thousand shares of its Class B common stock outstanding at June 30, 2020. Each share of Class B common stock has no economic rights but entitles its holder to one vote per share on all matters submitted to a vote of the stockholders of GSHD.
Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to GSHD's shareholders for their vote or approval, except as otherwise required by applicable law, by agreement, or by GSHD's certificate of incorporation.

Earnings Per Share
The following table sets forth the calculation of basic earnings per share ("EPS") based on net income attributable to GSHD for the three and six months ended June 30, 2020 and 2019, divided by the basic weighted average number of Class A common stock as of June 30, 2020 and June 30, 2019 (in thousands, except per share amounts). Diluted earnings per share of Class A common stock is computed by dividing net income attributable to GSHD by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities (in thousands, except per share amounts). The Company has not included the effects of conversion of Class B shares to Class A shares in the diluted EPS calculation using the "if-converted" method, because doing so has no impact on diluted EPS.
23

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Numerator:
Income before taxes$7,146  $3,247  $6,809  $11,309  
Less: income before taxes attributable to non-controlling interests4,007  1,952  3,867  6,861  
Income before taxes attributable to GSHD3,139  1,295  2,942  4,448  
Less: income tax expense (benefit) attributable to GSHD(240) 392  (281) 1,073  
Net income attributable to GSHD$3,379  $903  $3,223  $3,375  
Denominator:
Weighted average shares of Class A common stock outstanding - basic16,458  14,876  16,011  14,545  
Effect of dilutive securities:
Stock options1,489  1,189  1,421  1,140  
Weighted average shares of Class A common stock outstanding - diluted17,947  16,065  17,432  15,685  
Earnings per share of Class A common stock - basic$0.21  $0.06  $0.20  $0.23  
Earnings per share of Class A common stock - diluted$0.19  $0.06  $0.18  $0.22  


11. Non-controlling interest
Following the Offering, GSHD became the sole managing member of GF and, as a result, it consolidates the financial results of GF. GSHD reports a non-controlling interest representing the economic interest in GF held by the other members of GF.
On a quarterly basis, GF makes distributions to the LLC Unit holders on a pro rata basis to facilitate the LLC Unit holder's quarterly tax payments. For the three and six months ended June 30, 2020, GF made distributions of $1.5 million and $3.3 million, of which $0.9 million and $1.9 million where made to Pre-IPO LLC Members. The remaining $0.7 million and $1.4 million were made to GSHD and were eliminated in consolidation. For the three and six months ended June 30, 2019, GF made distributions of $4.5 million and $5.0 million, of which $2.7 million and $3.0 million were made to Pre-IPO LLC Members. The remaining $1.8 million and $2.0 million were made to GSHD and were eliminated in consolidation.
Under the amended and restated Goosehead Financial, LLC Agreement, the Pre-IPO LLC Members have the right, from and after the completion of the Offering (subject to the terms of the amended and restated Goosehead Financial, LLC Agreement), to require GSHD to redeem all or a portion of their LLC Units for, at GSHD's election, newly-issued shares of Class A common stock on a one-for-one basis or a cash payment equal to the volume weighted average market price of one share of GSHD's Class A common stock for each LLC Unit redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the amended and restated Goosehead Financial, LLC Agreement. Additionally, in the event of a redemption request by a Pre-IPO LLC Member, GSHD may, at its option, effect a direct exchange of cash or Class A common stock for LLC Units in lieu of such a redemption. Shares of Class B common stock will be cancelled on a one-for-one basis if GSHD, at the election of a Pre-IPO LLC Member, redeems or exchanges LLC Units of such Pre-IPO LLC Member pursuant to the terms of the amended and restated Goosehead Financial, LLC Agreement. Except for transfers to GSHD pursuant to the amended and restated Goosehead Financial, LLC Agreement or to certain permitted transferees, the Pre-IPO LLC Members are not permitted to sell, transfer or otherwise dispose of any LLC Units or shares of Class B common stock.
24

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
During the three and six months ended June 30, 2020, an aggregate of 809 thousand and 1,600 thousand LLC Units were redeemed by the non-controlling interest holders. Pursuant to the GF LLC Agreement, GSHD issued 809 thousand and 1,600 thousand shares of Class A common stock in connection with these redemptions and received 809 thousand and 1,600 thousand LLC Interests, increasing GSHD's ownership interest in GF. Simultaneously, and in connection with these redemptions, 809 thousand and 1,600 thousand shares of Class B common stock were surrendered and cancelled.
The following table summarizes the ownership interest in GF as of June 30, 2020 (in thousands):
June 30, 2020
LLC UnitsOwnership %
Number of LLC Units held by GSHD17,08446.8%
Number of LLC Units held by non-controlling interest holders19,45553.2%
Number of LLC Units outstanding36,539100.0%

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income to GSHD and the non-controlling interest holders. The non-controlling interest holders' weighted average ownership percentage for the three and six months ended June 30, 2020 was 54.8% and 56.0%, respectively.
The following table summarizes the effects of changes in ownership in GF on the equity of GSHD for the three and six months ended June 30, 2020 and 2019 as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Net Income attributable to Goosehead Insurance Inc.$3,379  $903  $3,223  $3,375  
Transfers (to) from non-controlling interests:
Decrease in additional paid-in capital as a result of the redemption of LLC interests(762) (477) (1,631) (1,156) 
Increase in additional paid-in capital as a result of activity under employee stock purchase plan138  142  254  142  
Total effect of changes in ownership interest on equity attributable to Goosehead Insurance Inc.$2,755  $568  $1,846  $2,361  

12. Equity-Based Compensation
Stock option expense was $1,416 thousand and $1,914 thousand three and six months ended June 30, 2020, respectively. Stock option expense was $368 thousand and $735 thousand for the three and six months ended June 30, 2019, respectively.
On April 1, 2020, the Company granted an additional 900,000 stock options to its Managing Directors at an exercise price equal to $40.88 per share. The grant date fair value of $16.31 per option was determined using the Black-Scholes valuation model using the following assumptions:

Expected volatility40 %
Expected dividend yield— %
Expected term (in years)6.5
Risk-free interest rate0.47 %

25

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
13. Dividends
On March 7, 2019, GF approved a $15.0 million extraordinary dividend to all holders of LLC Units, including GSHD. The board of directors of the Company then declared an extraordinary dividend of $0.41 (rounded) to all holders of Class A common stock of GSHD with a record date of March 18, 2019, paid on or before April 1, 2019. A summary of the total amounts declared by GF is as follows (in thousands):
LLC Units held as of March 18, 2019Dividends declared
Class A common stockholders14,421  $5,962  
Class B common stockholders via LLC Units held21,864  9,038  
Total36,285  $15,000  

Any future extraordinary dividends will be declared at the sole discretion of GF's managing members with respect to GF and the Company's board of directors with respect to GSHD.  In determining whether a future extraordinary dividend will be declared by the Company, the board of directors may, at its sole discretion, consider the following: the Company's financial condition and operating results, the Company's available cash and current and anticipated cash needs, the Company's capital requirements, any contractual, legal, tax and regulatory restrictions, general economic and business conditions, and such other factors or conditions as the board of directors deems relevant.
14. Segment Information
The Company has two reportable Segments: Corporate Channel and Franchise Channel. The Corporate Channel consists of company-owned and financed operations with employees who are hired, trained, and managed by Goosehead. The Franchise Channel network consists of Franchisee operations that are owned and managed by individual business owners. These business owners have a contractual relationship with Goosehead to use the Company's processes, systems, and back-office support team to sell insurance and manage their business. In exchange, Goosehead is entitled to an Initial Franchise Fee and ongoing royalty fees. Allocations of contingent commissions and certain operating expenses are based on reasonable assumptions and estimates primarily using revenue, headcount and other information. The Company’s chief operating decision maker uses net income before interest, income taxes, depreciation and amortization, adjusted to exclude equity-based compensation and other non-operating items, including, among other things, certain non-cash charges and certain non-recurring or non-operating gains or losses (“Adjusted EBITDA”) as a performance measure to manage resources and make decisions about the business. Summarized financial information concerning the Company’s reportable Segments is shown in the following tables (in thousands). There are no intersegment sales, only interest income and interest expense related to an intersegment line of credit, all of which eliminate in consolidation. The “Other” column includes any income and expenses not allocated to reportable Segments and corporate-related items, including equity-based compensation, certain legal expenses and interest related to the note payable.


26

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Franchise ChannelCorporate ChannelOtherTotal
Three months ended June 30, 2020
Revenues:
Commissions and agency fees
Renewal Commissions$—  $7,718  $—  $7,718  
Agency Fees—  2,185  —  2,185  
New Business Commissions—  4,329  —  4,329  
Contingent Commissions2,774  1,242  —  4,016  
Total Commissions and Agency Fees2,774  15,474  —  18,248  
Franchise revenue
Renewal Royalty Fees7,903  —  —  7,903  
New Business Royalty Fees2,599  —  —  2,599  
Initial Franchise Fees901  —  —  901  
Other Income81  —  —  81  
Total Franchise Revenues11,484  —  —  11,484  
Interest income
Interest Income192  —  —  192  
Total Interest Income192  —  —  192  
Total Revenues14,450  15,474  —  29,924  
Operating expenses:
Employee compensation and benefits, excluding equity based compensation5,965  8,523  —  14,488  
General and administrative expenses1,934  2,621  809  5,364  
Bad debts56  263  —  319  
Total Operating Expenses7,955  11,407  809  20,171  
Adjusted EBITDA6,495  4,067  (809) 9,753  
Other income (expense)—  —  —  —  
Equity based compensation—  —  (1,416) (1,416) 
Interest expense—  —  (479) (479) 
Depreciation and amortization(396) (316) —  (712) 
Income tax benefit—  —  240  240  
Net income$6,099  $3,751  $(2,464) $7,386  
June 30, 2020:
Total Assets$31,904  $21,818  $88,867  $142,589  


27

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Franchise
Channel
Corporate
Channel
OtherTotal
Three months ended June 30, 2019:
Revenues:
Commissions and agency fees
Renewal Commissions$—  $5,899  $—  $5,899  
Agency Fees—  1,740  —  1,740  
New Business Commissions—  3,013  —  3,013  
Contingent Commissions91  20  —  111  
Total Commissions and Agency Fees91  10,672  —  10,763  
Franchise revenue
Renewal Royalty Fees5,062  —  —  5,062  
New Business Royalty Fees1,864  —  —  1,864  
Initial Franchise Fees1,515  —  —  1,515  
Other Income34  —  —  34  
Total Franchise Revenues8,475  —  —  8,475  
Interest income
Interest Income148  —  —  148  
Total Interest Income148  —  —  148  
Total Revenues8,714  10,672  —  19,386  
Operating expenses:
Employee compensation and benefits, excluding equity based compensation4,038  5,972  —  10,010  
General and administrative expenses1,531  2,078  592  4,201  
Bad debts207  275  —  482  
Total Operating Expenses5,776  8,325  592  14,693  
Adjusted EBITDA2,938  2,347  (592) 4,693  
Equity based compensation—  —  (368) (368) 
Interest expense—  —  (626) (626) 
Depreciation and amortization(218) (234) —  (452) 
Taxes—  —  (430) (430) 
Net income$2,720  $2,113  $(2,016) $2,817  
June 30, 2019:
Total Assets$13,165  $7,018  $17,909  $38,092  

28

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Franchise
Channel
Corporate
Channel
OtherTotal
Six months ended June 30, 2020
Revenues:
Commissions and agency fees
Renewal Commissions$—  $13,451  $—  $13,451  
Agency Fees—  3,871  —  3,871  
New Business Commissions—  7,662  —  7,662  
Contingent Commissions3,468  1,607  —  5,075  
Total Commissions and Agency Fees3,468  26,591  —  30,059  
Franchise revenue
Renewal Royalty Fees13,289  —  —  13,289  
New Business Royalty Fees4,647  —  —  4,647  
Initial Franchise Fees1,879  —  —  1,879  
Other Income114  —  —  114  
Total Franchise Revenues19,929  —  —  19,929  
Interest income
Interest Income361  —  —  361  
Total Interest Income361  —  —  361  
Total Revenues23,758  26,591  —  50,349  
Operating expenses:
Employee compensation and benefits, excluding equity based compensation11,861  15,632  —  27,493  
General and administrative expenses4,159  5,330  1,747  11,236  
Bad debts137  491  —  628  
Total Operating Expenses16,157  21,453  1,747  39,357  
Adjusted EBITDA7,601  5,138  (1,747) 10,992  
Other income (expense)66  —  —  66  
Equity based compensation—  —  (1,914) (1,914) 
Interest expense—  —  (1,083) (1,083) 
Depreciation and amortization(709) (543) —  (1,252) 
Income tax benefit—  —  281  281  
Net income$6,958  $4,595  $(4,463) $7,090  
June 30, 2020:
Total Assets$31,904  $21,818  $88,867  $142,589  

29

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
Franchise ChannelCorporate ChannelOtherTotal
Six months ended June 30, 2019:
Revenues:
Commissions and agency fees
Renewal Commissions$—  $10,688  $—  $10,688  
Agency Fees—  3,177  —  3,177  
New Business Commissions—  5,472  —  5,472  
Contingent Commissions4,306  3,290  —  7,596  
Total Commissions and Agency Fees4,306  22,627  —  26,933  
Franchise revenue
Renewal Royalty Fees8,825  —  —  8,825  
New Business Royalty Fees3,219  —  —  3,219  
Initial Franchise Fees3,225  —  —  3,225  
Other Income34  —  —  34  
Total Franchise Revenues15,303  —  —  15,303  
Interest income
Interest Income283  —  —  283  
Total Interest Income283  —  —  283  
Total Revenues19,892  22,627  —  42,519  
Operating expenses:
Employee compensation and benefits, excluding equity based compensation7,795  11,039  —  18,834  
General and administrative expenses3,162  3,980  1,489  8,631  
Bad debts367  516  —  883  
Total Operating Expenses11,324  15,535  1,489  28,348  
Adjusted EBITDA8,568  7,092  (1,489) 14,171  
Equity based compensation—  —  (735) (735) 
Interest expense—  —  (1,252) (1,252) 
Depreciation and amortization(402) (473) —  (875) 
Income tax benefit—  —  (1,174) (1,174) 
Net income$8,166  $6,619  $(4,650) $10,135  
June 30, 2019:
Total Assets$13,165  $7,018  $17,909  $38,092  

15. Litigation
From time to time, GSHD may be involved in various legal proceedings, lawsuits and claims incidental to the conduct of the Company's business. The amount of any loss from the ultimate outcomes is not probable or reasonably estimable. It is the opinion of management that the resolution of outstanding claims will not have a material adverse effect on the financial position or results of operations of the Company.
30

Goosehead Insurance, Inc.
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
16. Subsequent events
On July 30, 2020, GF approved an extraordinary dividend in the aggregate amount of $42.0 million payable to holders of LLC Units, including GSHD. The board of directors of the Company subsequently declared an extraordinary dividend of $1.15 (rounded) to all holders of Class A common stock of GSHD with a record date of August 10, 2020, paid on or before August 24, 2020. A summary of the total amounts declared by GF is as follows (in thousands):
LLC Units held as of July 30, 2020Estimated dividend to be paid
Class A common stockholders17,263  $19,843  
Class B common stockholders via LLC Units held19,276  22,157  
Total36,539  $42,000  
Any future extraordinary dividends will be declared at the sole discretion of the Company as GF's managing member with respect to GF and the Company's board of directors with respect to the Company.  In determining whether a future extraordinary dividend will be declared by the Company, the board of directors may, at its sole discretion, consider the following: the Company's financial condition and operating results, the Company's available cash and current and anticipated cash needs, the Company's capital requirements, any contractual, legal, tax and regulatory restrictions, general economic and business conditions, and such other factors or conditions as the board of directors deems relevant.
31


Item 2: Management’s discussion and analysis of financial condition and results of operations

OVERVIEW
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk factors” and elsewhere in this report and in the Annual Report on Form 10-K.
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. We were founded with one vision in mind—to provide consumers with superior insurance coverage at the best available price and in a timely manner. By leveraging our differentiated business model and innovative technology platform, we are able to deliver to consumers a superior insurance experience. Our management team continues to own approximately 58% of the company, representing our commitment to the long-term success of the Company.
Financial Highlights for the Second Quarter of 2020:
Total revenue increased 54% from the second quarter of 2019 to $29.9 million; on a comparable ASC 605 accounting basis, revenue increased $8.2 million or 42%
Core Revenue* increased by 41% from second quarter of 2019 to $24.7 million; on a comparable ASC 605 accounting basis, Core Revenue increased $7.2 million or 41%
Total Written Premiums placed increased 41% from the prior-year period to $274 million
Net income increased by $4.6 million from the second quarter of 2019 to $7.4 million; on a comparable ASC 605 accounting basis, net income increased by $2.4 million
Adjusted EBITDA* increased 108% from the second quarter of 2019 to $9.8 million, or 33% of total revenues. On a comparable ASC 605 accounting basis, Adjusted EBITDA increased by $2.6 million.
Franchise Channel Adjusted EBITDA increased 121% from the second quarter of 2019 to $6.5 million, or 45% of Franchise Channel revenues. On a comparable ASC 605 accounting basis, Franchise Channel Adjusted EBITDA increased by $2.0 million or 70%.
Corporate Channel Adjusted EBITDA decreased 73% from the second quarter of 2019 to $4.1 million, or 26% of Corporate Channel revenues. On a comparable ASC 605 accounting basis, Corporate Channel Adjusted EBITDA increased by $0.8 million or 34%.
Basic and diluted earnings per share were $0.21 and $0.19, respectively, and Adjusted EPS*, a non-GAAP measure, was $0.25 for the three months ended June 30, 2020
Policies in Force increased 45% from June 30, 2019 to 590,000 at June 30, 2020
Corporate sales headcount increased 49% from June 30, 2019 to 317 at June 30, 2020
As of June 30, 2020, 182 of these Corporate sales agents had less than one year of tenure and 135 had greater than one year of tenure
Total franchises increased 48% compared to the prior year period to 1,132; total operating franchises increased 36% from June 30, 2019 to 730 at June 30, 2020
In Texas as of June 30, 2020, 26 operating Franchisees had less than one year of tenure and 182 operating Franchisees had greater than one year of tenure.
Outside of Texas as of June 30, 2020, 235 operating Franchisees had less than one year of tenure and 287 had greater than one year of tenure.
*Core Revenue, Adjusted EBITDA and Adjusted EPS are non-GAAP measures. Reconciliation of 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 under "Key performance indicators".
32



Novel coronavirus ("COVID-19")
An outbreak of a novel strain of the coronavirus, COVID-19, was identified in China and has subsequently been recognized as a pandemic by the World Health Organization. This COVID-19 outbreak has severely restricted the level of economic activity around the world. In response to this outbreak, the governments of many countries, states, cities and other geographic regions, including in the United States, have taken preventative or protective actions, such as imposing restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes. In the United States, temporary closures of businesses have been ordered and numerous other businesses have temporarily closed voluntarily.
During the first quarter, the Company reduced workforce density at all corporate offices by requiring employees to work from home. Additionally, the Company indefinitely suspended all corporate travel, field support visits, in-person marketing efforts and in-person team meetings. Leveraging the Company's cloud based technology, video conferencing technology and importantly the Company's mortgage activity database to continue marketing efforts allowed operations to be largely uninterrupted. Changes in consumer behavior linked to the COVID-19 pandemic, may have resulted in reduced loss ratios through the six months ended June 30, 2020, increasing the amount of revenue from Contingent Commissions the Company expects to receive.
During the first quarter, we took steps to strengthen our liquidity, including amending our credit agreement on March 6, 2020 to increase the term loan available borrowing to $80.0 million and to increase the amount available under our revolving credit facility to $25.0 million. Because of the continued strength and resiliency of our business and our outlook for the remainder of 2020, we declared a special dividend to be distributed during the third quarter. See "Liquidity and capital resources”.
Given the uncertainty regarding the spread and severity of COVID-19 and the adverse effects on the national and global economy, the related financial impact on our business cannot be accurately predicted at this time. We continue to monitor the rapidly evolving situation and guidance from the authorities, including federal, state and local public health officials and as a result may take additional actions. While we intend to continue to execute on our strategic plans and operational initiatives during the outbreak, in these circumstances, there may be developments outside our control requiring us to adjust our operating plan. See Part II, Item 1A. “Risk Factors—The global outbreak of the coronavirus disease (COVID-19) may negatively impact the global economy in a significant manner for an extended period of time, and could also materially adversely affect our business and operating results.”
Certain income statement line items
Revenues
Effective with the filing of the Annual Report on Form 10-K, the Company adopted new accounting guidance, ASU 2014-09 - Revenue from Contracts with Customers ("Topic 606"), related to revenue from contracts with customers. The Company adopted Topic 606 using the modified retrospective method, which applies the new guidance prospectively, beginning as of 2019, the year of adoption. Accordingly, the adoption of Topic 606 using the modified retrospective method does not impact prior years' financial statements.
For the three months ended June 30, 2020, revenue increased by 54% to $29.9 million from $19.4 million for the three months ended June 30, 2019. For the six months ended June 30, 2020, revenue increased by 18% to $50.3 million from $42.5 million for the six months ended June 30, 2019. For the three and six months ended June 30, 2020 if results were reported under ASC 605, total revenue would have grown 42% to $27.6 million and 23% to $52.4 million, respectively. Total Written Premium growth, which is the best leading indicator of future revenue growth, was 41% to $274 million for the three months ended June 30, 2020 from $194 million for the three months ended June 30, 2019 and 43% to $488 million for the six months ended June 30, 2020 from $341 million for the six months ended June 30, 2019. Total Written Premiums drive our current and future Core Revenue and gives us potential opportunities to earn Ancillary Revenue in the form of Contingent Commissions.
Our various revenue streams do not equally contribute to the long-term value of Goosehead. For instance, Renewal Revenue and Renewal Royalty Fees are more predictable and have higher margin profiles, thus are higher quality revenue streams for the Company. Alternatively, Contingent Commissions, while high margin, are unpredictable and dependent on insurance company underwriting and forces of nature and thus are lower quality revenue for the Company. Our revenue streams can be viewed in three distinct categories: Core Revenue, Cost Recovery Revenue, and Ancillary Revenue, which are non-GAAP measures. A reconciliation of Core Revenue, Cost Recovery Revenue, and Ancillary Revenue to total revenue, the most directly comparable financial measures presented in accordance with GAAP, are set forth under "Key performance indicators".
33


Core Revenue:
Renewal Commissions - highly predictable, higher-margin revenue stream, which is managed by our service team.
Renewal Royalty Fees - highly predictable, higher-margin revenue stream, which is managed by our service team. 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. This revenue stream has predictably converted into higher-margin Renewal Commissions historically, and we expect this to continue moving forward.
New Business Royalty Fees - predictable based on franchise count and consistent ramp-up of franchises, but lower margin than Renewal Royalty Fees because the Company only receives a royalty fee of 20% on the commissions paid by the Carrier in the first term of every policy and higher back-office costs associated with policies in their first term. This revenue stream has predictably converted into higher-margin Renewal Royalty Fees historically, and we expect this to continue moving forward.
Agency Fees - although predictable based on agent count, Agency Fees do not renew like New Business Commissions and Renewal Commissions.

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. 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.

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.

We discuss below the breakdown of our revenue by stream:

34


Three Months Ended June 30,
(in thousands)2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Core Revenue:
Renewal Commissions(1)
$7,71826 %$7,71228 %$5,89930 %
Renewal Royalty Fees(2)
7,90326 %7,81528 %5,06226 %
New Business Commissions(1)
4,32914 %4,33316 %3,01316 %
New Business Royalty Fees(2)
2,599%2,610%1,86410 %
Agency Fees(1)
2,185%2,344%1,740%
Total Core Revenue24,73483 %24,81490 %17,57891 %
Cost Recovery Revenue:
Initial Franchise Fees(2)
901%1,605%1,515%
Interest Income192%192%148%
Total Cost Recovery Revenue1,093%1,797%1,663%
Ancillary Revenue:
Contingent Commissions(1)
4,01613 %863%111%
Other Income(2)
81— %81— %34— %
Total Ancillary Revenue4,09714 %944%145%
Total Revenues$29,924100 %$27,555100 %$19,386100 %

(1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are in.
(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Income are included in "Franchise revenues" as shown on the Consolidated statements of income.

Six Months Ended June 30,
(in thousands)2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Core Revenue:
Renewal Commissions(1)
$13,45127 %$13,85626 %$10,68825 %
Renewal Royalty Fees(2)
13,28926 %13,56926 %8,82521 %
New Business Commissions(1)
7,66215 %7,73415 %5,47213 %
New Business Royalty Fees(2)
4,647%4,738%3,219%
Agency Fees(1)
3,871%4,339%3,177%
Total Core Revenue42,92085 %44,23684 %31,38174 %
Cost Recovery Revenue:
Initial Franchise Fees(2)
1,879%3,915%3,225%
Interest Income361%361%283%
Total Cost Recovery Revenue2,240%4,276%3,508%
Ancillary Revenue:
Contingent Commissions(1)
5,07510 %3,824%7,59618 %
Other Income(2)
114— %114— %34— %
Total Ancillary Revenue5,18910 %3,938%7,63018 %
Total Revenues$50,349100 %$52,450100 %$42,519100 %

(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 income.
(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Income are included in "Franchise revenues" as shown on the Consolidated statements of income.
35


Effects of Topic 606
The below illustrates the impact of Topic 606 on the Company's income statement line items for the three and six months ended June 30, 2020
Three Months Ended June 30, 2020
(in thousands)ASC 605Impact of AdoptionASC 606
Core Revenue:
Renewal Commissions(1)
7,712   $7,718  
Renewal Royalty Fees(2)
7,815  88  7,903  
New Business Commissions(1)
4,333  (4) 4,329  
New Business Royalty Fees(2)
2,610  (11) 2,599  
Agency Fees(1)
2,344  (159) 2,185  
Total Core Revenue24,814  (80) 24,734  
Cost Recovery Revenue:
Initial Franchise Fees(2)
1,605  (704) 901  
Interest Income192  —  192  
Total Cost Recovery Revenue1,797  (704) 1,093  
Ancillary Revenue:
Contingent Commissions(1)
863  3,153  4,016  
Other Income(2)
81  —  81  
Total Ancillary Revenue944  3,153  4,097  
Total Revenues27,555  2,369  29,924  
Operating Expenses:
Employee compensation and benefits, excluding equity-based compensation14,566  (78) 14,488  
General and administrative expenses5,364  —  5,364  
Bad debts312   319  
Total20,242  (71) 20,171  
Adjusted EBITDA7,313  2,440  9,753  
Adjusted EBITDA Margin27 %%33 %
Other income (expense)—  —  —  
Equity-based compensation(1,416) —  (1,416) 
Interest expense(479) —  (479) 
Depreciation and amortization(712) —  (712) 
Tax benefit (expense)553  793  240  
Net Income5,259  3,233  7,386  
Less: net income attributable to non-controlling interests2,585  1,422  4007  
Net Income attributable to Goosehead Insurance Inc.$2,674  $1,811  $3,379  
Earnings per share:
Basic$0.16  0.05$0.21  
Diluted$0.15  0.04$0.19  
(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 income.
(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Income are included in "Franchise revenues" as shown on the Consolidated statements of income.
36



Six Months Ended June 30, 2020
(in thousands)ASC 605Impact of AdoptionASC 606
Core Revenue:
Renewal Commissions(1)
13,856  (405) $13,451  
Renewal Royalty Fees(2)
13,569  (280) 13,289  
New Business Commissions(1)
7,734  (72) 7,662  
New Business Royalty Fees(2)
4,738  (91) 4,647  
Agency Fees(1)
4,339  (468) 3,871  
Total Core Revenue44,236  (1,316) 42,920  
Cost Recovery Revenue:
Initial Franchise Fees(2)
3,915  (2,036) 1,879  
Interest Income361  —  361  
Total Cost Recovery Revenue4,276  (2,036) 2,240  
Ancillary Revenue:
Contingent Commissions(1)
3,824  1,251  5,075  
Other Income(2)
114  —  114  
Total Ancillary Revenue3,938  1,251  5,189  
Total Revenues52,450  (2,101) 50,349  
Operating Expenses:
Employee compensation and benefits, excluding equity-based compensation27,643  (150) 27,493  
General and administrative expenses11,236  —  11,236  
Bad debts925  (297) 628  
Total39,804  (447) 39,357  
Adjusted EBITDA12,646  (1,654) 10,992  
Adjusted EBITDA Margin24 %(2)%22 %
Other income (expense)66  —  66  
Equity-based compensation(1,914) —  (1,914) 
Interest expense(1,083) —  (1,083) 
Depreciation and amortization(1,252) —  (1,252) 
Tax benefit (expense)94  187  281  
Net Income8,557  (1,467) 7,090  
Less: net income attributable to non-controlling interests4,782  (914) 3,867  
Net Income attributable to Goosehead Insurance Inc.$3,775  $(553) $3,223  
Earnings per share:
Basic$0.23  $(0.03) $0.20  
Diluted$0.22  $(0.04) $0.18  
(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 income.
(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Income are included in "Franchise revenues" as shown on the Consolidated statements of income.
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Consolidated results of operations
The following is a discussion of our consolidated results of operations for each of the three and six months ended June 30, 2020 and June 30, 2019. This information is derived from our accompanying condensed consolidated financial statements prepared in accordance with GAAP.
The following table summarizes our results of operations for the three months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Revenues:
Commissions and agency fees$18,248  61 %$15,252  55 %$10,763  56 %
Franchise revenues11,484  38 %12,111  44 %8,475  44 %
Interest income192  %192  %148  %
Total revenues29,924  100 %27,555  100 %19,386  100 %
Operating Expenses:
Employee compensation and benefits15,904  71 %15,982  71 %10,378  67 %
General and administrative expenses5,364  24 %5,364  24 %4,201  27 %
Bad debts319  %312  %482  %
Depreciation and amortization712  %712  %452  %
Total operating expenses22,299  100 %22,370  100 %15,513  100 %
Income from operations7,625  5,185  3,873  
Other Income (Expense):
Other income—  —  —  
Interest expense(479) (479) (626) 
Income before taxes7,146  4,706  3,247  
Tax expense (benefit)(240) (553) 430  
Net income7,386  5,259  2,817  
Less: net income attributable to non-controlling interests4,007  2,585  1,914  
Net income attributable to Goosehead Insurance Inc.$3,379  $2,674  $903  
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The following table summarizes our results of operations for the six months ended June 30, 2020 and 2019 (in thousands):
Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Revenues:
Commissions and agency fees$30,059  60 %$29,753  57 %$26,933  63 %
Franchise revenues19,929  40 %22,336  43 %15,303  36 %
Interest income361  %361  %283  %
Total revenues50,349  100 %52,450  100 %42,519  100 %
Operating Expenses:
Employee compensation and benefits29,407  69 %29,557  69 %19,569  65 %
General and administrative expenses11,236  26 %11,236  26 %8,631  29 %
Bad debts628  %925  %883  %
Depreciation and amortization1,252  %1,252  %875  %
Total operating expenses42,523  100 %42,970  100 %29,958  100 %
Income from operations7,826  9,480  12,561  
Other Income (Expense):
Other income66  66  —  
Interest expense(1,083) (1,083) (1,252) 
Income before taxes6,809  8,463  11,309  
Tax expense (benefit)(281) (94) 1,174  
Net income7,090  8,557  10,135  
Less: net income attributable to non-controlling interests3,867  4,782  6,760  
Net income attributable to Goosehead Insurance Inc.$3,223  $3,775  $3,375  

Revenues
For the three months ended June 30, 2020, revenue increased by 54% to $29.9 million from $19.4 million for the three months ended June 30, 2019. For the six months ended June 30, 2020, revenue increased by 18% to $50.3 million from $42.5 million six months ended June 30, 2019. On a comparable ASC 605 accounting basis, revenue increased $8.2 million or 42% for the three months ended June 30, 2020 and increased $9.9 million or 23% for the six months ended June 30, 2020.
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Commissions and agency fees
Commissions and agency fees consist of new business commissions, renewal commissions, agency fees, and contingent commissions.
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):
Three Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Core Revenue:
Renewal Commissions7,718  42 %7,712  52 %5,899  55 %
New Business Commissions4,329  24 %4,333  28 %3,013  28 %
Agency Fees2,185  12 %2,344  15 %1,740  16 %
Total Core Revenue:14,232  78 %14,389  94 %10,652  99 %
Ancillary Revenue:
Contingent Commissions4,016  22 %863  %111  %
Commissions and agency fees$18,248  100 %$15,252  100 %$10,763  100 %

Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Core Revenue:
Renewal Commissions13,451  45 %13,856  47 %10,688  40 %
New Business Commissions7,662  25 %7,734  26 %5,472  20 %
Agency Fees3,871  13 %4,339  15 %3,177  12 %
Total Core Revenue:24,984  83 %25,929  87 %19,337  72 %
Ancillary Revenue:
Contingent Commissions5,075  17 %3,824  13 %7,596  28 %
Commissions and agency fees$30,059  100 %$29,753  100 %$26,933  100 %

Renewal Commissions increased by $1.8 million or 31%, to $7.7 million for the three months ended June 30, 2020 from $5.9 million for the three months ended June 30, 2019. Renewal Commissions increased by $2.8 million or 26%, to $13.5 million for the six months ended June 30, 2020 from $10.7 million for the six months ended June 30, 2019. These increases were primarily attributable to an increase in the number of policies in the renewal term from June 30, 2019 to June 30, 2020.
New Business Commissions increased by $1.3 million, or 44%, to $4.3 million for the three months ended June 30, 2020 from $3.0 million for the three months ended June 30, 2019. Revenue from Agency Fees increased by $445 thousand, or 26%, to $2.2 million for the three months ended June 30, 2020 from $1.7 million for the three months ended June 30, 2019. New Business Commissions increased by $2.2 million or 40% for the six months ended June 30, 2020 from $5.5 million for the six months ended June 30, 2019. Revenue from Agency Fees increased by $694 thousand, or 22%, to $3.9 million for the six months ended June 30, 2020 from $3.2 million for the six months ended June 30, 2019. These increases were primarily attributable to a 49% increase in total sales agent head count to 317 at June 30, 2020, from 213 at June 30, 2019.
Revenue from Contingent Commissions increased by $3.9 million, to $4.0 million for the three months ended June 30, 2020 from $0.1 million for the three months ended June 30, 2019. Revenue from Contingent Commissions decreased by $2.5 million, or 33%, to $5.1 million for the six months ended June 30, 2020 from $7.6 million for the six months ended June 30, 2019.The primary reason for the change in both the three and six month periods is the adoption of ASC 606. If the three months ended June 30, 2020 were reported under ASC 605, revenue from
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Contingent Commissions would have increased $0.8 million or 678% due to the timing of receipt of contingent commission in the 2020 compared to 2019. If the six months ended June 30, 2020 were reported under ASC 605 revenue from Contingent Commissions would have decreased $3.8 million, or 50%, due to higher loss ratios with our Carriers during 2019.
Franchise revenues
Franchise Revenues consist of Royalty Fees, Initial Franchise Fees, and Other Franchise Revenues.
The following table sets forth our franchise revenues by amount and as a percentage of our revenues for the periods indicated (in thousands):
Three Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Core Revenues:
Renewal Royalty Fees7,903  69 %7,815  65 %5,062  60 %
New Business Royalty Fees2,599  23 %2,610  22 %1,864  22 %
Total Core Revenues:10,502  91 %10,425  86 %6,926  82 %
Cost Recovery Revenues:
Initial Franchise Fees901  %1,605  13 %1,515  18 %
Ancillary Revenues:
Other Franchise Revenues81  %81  %34  — %
Franchise revenues$11,484  100 %$12,111  100 %$8,475  100 %

Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Core Revenues:
Renewal Royalty Fees13,289  67 %13,569  61 %8,825  104 %
New Business Royalty Fees4,647  23 %4,738  21 %3,219  38 %
Total Core Revenues:17,936  90 %18,307  82 %12,044  142 %
Cost Recovery Revenues:
Initial Franchise Fees1,879  %3,915  18 %3,225  38 %
Ancillary Revenues:
Other Franchise Revenues114  %114  %34  — %
Franchise revenues$19,929  100 %$22,336  100 %$15,303  181 %

Revenue from Renewal Royalty Fees increased by $2.8 million, or 56%, to $7.9 million, for the three months ended June 30, 2020 from $5.1 million for the three months ended June 30, 2019. Revenue from Renewal Royalty Fees increased by $4.5 million, or 51%, to $13.3 million for the six months ended June 30, 2020 from $8.8 million for the six months ended June 30, 2019. The increase in revenue from Renewal Royalty Fees was primarily attributable to an increase in the number of policies in the renewal term.
Revenue from New Business Royalty Fees increased by $0.7 million, or 39%, to $2.6 million for the three months ended June 30, 2020 from $1.9 million for the three months ended June 30, 2019. Revenue from New Business Royalty Fees increased by $1.4 million, or 44%, to $4.6 million for the six months ended June 30, 2020 from $3.2 million for the six months ended June 30, 2019. The increase in revenue from New Business Royalty Fees was primarily attributable to an increase in the total number of operating franchises from June 30, 2019 to 2020.
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Revenues from Initial Franchise Fees decreased by $0.6 million or 41% to $901 thousand for the three months ended June 30, 2020 from $1.5 million during the three months ended June 30, 2019. Revenues from Initial Franchise Fees decreased by $1.3 million, or 42%, to $1.9 million for the six months ended June 30, 2020 from $3.2 million for the six months ended June 30, 2019. The primary reason for this decrease is the change in accounting principle from the three and six months ended June 30, 2019 to the three and six months ended June 30, 2020. If the three and six months ended June 30, 2020 were reported under ASC 605, revenue from Initial Franchise Fees would have increased $90 thousand and $0.7 million, respectively.
Interest income
Interest income increased by $44 thousand, or 30%, to $192 thousand for the three months ended June 30, 2020 from $148 thousand for the three months ended June 30, 2019. Interest income increased $78 thousand, or 28%, to $361 thousand for the six months ended June 30, 2020 from $283 thousand for the six months ended June 30, 2019. This increase was primarily attributable to additional Franchise Agreements signed under the payment plan option.
Expenses
Employee compensation and benefits
Employee compensation and benefits expenses increased by $5.5 million, or 53%, to $15.9 million for the three months ended June 30, 2020 from $10.4 million for the three months ended June 30, 2019. Employee compensation and benefits expenses increased by $9.8 million, or 50%, to $29.4 million for the six months ended June 30, 2020 from $19.6 million for the six months ended June 30, 2019.The increase is caused by a 35% increase in total headcount from 2019 to 2020 and an increase in stock based compensation resulting from the issuance of stock options during 2020.
General and administrative expenses
General and administrative expenses increased by $1.2 million, or 28%, to $5.4 million for the three months ended June 30, 2020 from $4.2 million for the three months ended June 30, 2019. General and administrative expenses increased by $2.6 million, or 30%, to $11.2 million for the six months ended June 30, 2020 from $8.6 million for the six months ended June 30, 2019. This increase was primarily attributable to higher costs associated with an increase in operating franchises and employees, investments made in technology, and the opening of two additional corporate sales offices during the period.
Bad debts
Bad debts decreased by $163 thousand for the three months ended June 30, 2020 to $319 thousand from $482 thousand for the three months ended June 30, 2019. Bad debts decreased by $255 thousand, or 29%, to $628 thousand for the six months ended June 30, 2020 from $883 thousand for the six months ended June 30, 2019. The change in both the three and six month periods is driven by the adoption of ASC 606, partially offset by an increase in write offs associated to higher revenues from Agency Fees.
Depreciation and amortization
Depreciation and amortization increased by $260 thousand, or 58%, to $712 thousand for the three months ended June 30, 2020 from $452 thousand for the three months ended June 30, 2019. Depreciation and amortization increased by $377 thousand, or 43%, to $1.3 million for the six months ended June 30, 2020 from $0.9 million for the six months ended June 30, 2019. This increase was primarily attributable to the increase in fixed assets during the same period, including the opening of two additional corporate sales offices, expansion of existing corporate offices and hardware for additional employees hired.
Interest expense
Interest expenses decreased by $147 thousand, or 23%, to $479 thousand for the three months ended June 30, 2020 from $626 thousand for the three months ended June 30, 2019. Interest expense decreased by $169 thousand, or 13%, to $1.1 million for the six months ended June 30, 2020 from $1.3 million for the six months ended June 30, 2019. This decrease was primarily attributable to the Company refinancing the existing term loan, and lower average amount outstanding.
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Segment Adjusted EBITDA
Corporate Channel Adjusted EBITDA is Segment earnings before interest, income taxes, depreciation and amortization allocable to the Corporate Channel.
Corporate Channel Adjusted EBITDA increased by $1.7 million, or 73%, to $4.1 million for the three months ended June 30, 2020 from $2.3 million for the three months ended June 30, 2019. The primary reason for this increase is the change in accounting principle from the three months ended June 30, 2019 to the three months ended June 30, 2020. If the three months ended June 30, 2020 were reported under ASC 605, Corporate Channel Adjusted EBITDA would have increased $0.8 million or 34%, driven by an increase in Renewal and New Business Commissions. Corporate Channel Adjusted EBITDA decreased by $2.0 million, or 28%, to $5.1 million for the six months ended June 30, 2020 from $7.1 million for the six months ended June 30, 2019. The primary reason for this decrease is the change in accounting principle from the six months ended June 30, 2019 to the six months ended June 30, 2020. If the six months ended June 30, 2020 were reported under ASC 605, Corporate Channel adjusted EBITDA would have decreased by $1.5 million, driven by the a decrease in Contingent Commissions received.
Franchise Channel Adjusted EBITDA is Segment earnings before interest, income taxes, depreciation and amortization, adjusted to exclude other non-operating items.
Franchise Channel Adjusted EBITDA increased by $3.6 million, or 121%, to $6.5 million for the three months ended June 30, 2020 from $2.9 million for the three months ended June 30, 2019.The primary reason for this increase is the change in accounting principle from the three months ended June 30, 2019 to the three months ended June 30, 2020. If the three months ended June 30, 2020 were reported under ASC 605, Franchise Channel Adjusted EBITDA would have increased $2.0 million or 70%, driven by an increase in Renewal and New Business Royalty Fees received. Franchise Channel Adjusted EBITDA decreased by $1.0 million, or 11%, to $7.6 million for the six months ended June 30, 2020 from $8.6 million for the six months ended June 30, 2019.The primary reason for this decrease is the change in accounting principle from the six months ended June 30, 2019 to the six months ended June 30, 2020. If the six months ended June 30, 2020 were reported under ASC 605, Franchise Channel Adjusted EBITDA would have decreased $1.5 million or 21%, driven by the decrease in Contingent Commissions received.
Neither of Franchise Channel Adjusted EBITDA or Corporate Channel Adjusted EBITDA includes equity-based compensation, which is recorded at the consolidated level and excluded from the EBITDA calculation.

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. Total Written Premium placed is an appropriate measure of operating performance because it reflects growth of our business relative to other insurance agencies.
The following tables show Total Written Premium placed by channel for the three and six months ended and 2020 and 2019 (in thousands).
  Three Months Ended June 30,% Change
  20202019
Corporate Channel Total Written Premium$82,675  $64,160  29 %
Franchise Channel Total Written Premium191,018  129,868  47 %
Total Written Premium$273,693  $194,028  41 %

  Six Months Ended June 30,% Change
  20202019
Corporate Channel Total Written Premium$148,800  $114,835  30 %
Franchise Channel Total Written Premium339,030  226,068  50 %
Total Written Premium$487,830  $340,903  43 %

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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. 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 June 30, 2020, we had 590,000 in Policies in Force compared to 482,000 as of December 31, 2019 and 408,000 as of June 30, 2019, representing a 22% and 45% increase, respectively.
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 is calculated by subtracting the percentage of Detractors from the percentage of Promoters. For example, if 50% of respondents were Promoters and 10% were Detractors, NPS is a 40. NPS is a useful gauge of the loyalty of client relationships and can be compared across companies and industries.
NPS has increased to 90 as of June 30, 2020 from 89 as of December 31, 2019 due to the service team’s continued focus on delivering highly differentiated service levels.
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. We believe Client Retention is useful as a measure of how well Goosehead retains clients year-over-year and minimizes defections.
Client Retention has remained steady at 88% at June 30, 2020 from December 31, 2019, again driven by the service team’s continued focus on delivering highly differentiated service levels. For the trailing twelve months ended June 30, 2020, we retained 89% of the premiums we distributed in the trailing twelve months ended June 30, 2019, which decreased modestly from the 91% premium retention at December 31, 2019. Our premium retention rate is higher than our Client Retention rate as a result of both premiums increasing year over year and additional coverages sold by our sales and service teams.
New Business Revenue
New Business Revenue is commissions received from the Carrier, Agency Fees received from clients, and New Business Royalty Fees relating to policies in their first term.
For the three months ended June 30, 2020, New Business Revenue grew 38% to $9.1 million, from $6.6 million for the three months ended June 30, 2019. For the six months ended June 30, 2020, New Business Revenue grew 36% to $16.2 million, from $11.9 million for the six months ended June 30, 2019. Growth in New Business Revenue is driven by an increase in Corporate Channel sales agent headcount of 49% and growth in operating franchises in the Franchise Channel of 36%.
Renewal Revenue
Renewal Revenue is commissions received from the Carrier and Renewal Royalty Fees received after the first term of a policy.
For the three months ended June 30, 2020, Renewal Revenue grew 43% to $15.6 million, from $11.0 million for the three months ended June 30, 2019. For the six months ended June 30, 2020, Renewal Revenue grew 37% to $26.7 million, from $19.5 million for the six months ended June 30, 2019. Growth in Renewal Revenue was driven by Client Retention of 88% at June 30, 2020. As our agent force matures on both the Corporate Channel and the Franchise Channel, the policies they wrote in prior years begins to convert from New Business Revenue to more profitable Renewal Revenue.
Non-GAAP Measures
Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EPS are not measures of financial performance under GAAP and should not be considered substitutes for net income or earnings per share, which we consider to be the most directly comparable GAAP measures. We refer to these measures as "non-GAAP financial measures." We consider these non-GAAP financial measures to be useful metrics for management and investors to facilitate
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operating performance comparisons from period to period by excluding potential differences caused by variations in capital structures, tax position, depreciation, amortization and certain other items that we believe are not representative of our core business. Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EPS have limitations as analytical tools, and when assessing our operating performance, you should not consider Adjusted EBITDA, Adjusted EBITDA Margin, or Adjusted EPS in isolation or as substitutes for net income, earnings per share or other consolidated income statement data prepared in accordance with GAAP. Other companies may calculate Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted EPS differently than we do, limiting their usefulness as comparative measures.
Core Revenue
Core Revenue is a supplemental measure of our performance and includes Renewal Commissions, Renewal Royalty Fees, New Business Commissions, New Business Royalty Fees, and Agency Fees. 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 $7.2 million, or 41%, to $24.7 million for the three months ended June 30, 2020 from $17.6 million for the three months ended June 30, 2019. Core Revenue increased by $11.5 million, or 37%, for the six months ended June 30, 2020 to $42.9 million from $31.4 million for the six months ended June 30, 2019. The primary driver of the increase is increases in operating franchises, corporate agent sales headcount, and number of policies in the renewal term from June 30, 2019 to June 30, 2020. If the three and six months ended June 30, 2020 were reported under ASC 605, Core Revenue would have increased $7.2 million and $12.9 million, respectively.
Cost Recovery Revenue
Cost Recovery Revenue is a supplemental measure of our performance and includes Initial Franchise Fees and Interest Income. 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 decreased by $0.6 million, or 34%, to $1.1 million for the three months ended June 30, 2020 from $1.7 million for the three months ended June 30, 2019. Cost Recovery Revenue decreased by $1.3 million, or 36%, to $2.2 million for the six months ended June 30, 2020 from $3.5 million for the six months ended June 30, 2019. The primary driver of the decrease is the adoption of ASC 606. If the three and six months ended June 30, 2020 were reported under ASC 605, Cost Recovery Revenue would have increased $0.1 million and $0.8 million, respectively.
Ancillary Revenue
Ancillary Revenue is a supplemental measure of our performance and includes Contingent Commissions and Other Income. We believe that Ancillary Revenue is an appropriate measure of operating performance because it summarizes revenues that are ancillary to our core business.
Ancillary Revenue increased by $4.0 million to $4.1 million for the three months ended June 30, 2020 from $0.1 million for the three months ended June 30, 2019 primarily due to the adoption of ASC 606 resulting in acceleration of when we record Contingent Commissions. Ancillary Revenue decreased by $2.4 million, or 32%, to $5.2 million for the six months ended June 30, 2020 from $7.6 million for the six months ended June 30, 2019. The primary driver of the decrease is the adoption of ASC 606 changing the timing of when Contingent Commissions are recorded. If the three and six months ended June 30, 2020 were reported under ASC 605, Ancillary Revenue would have increased $0.8 million and decreased by $3.7 million, respectively.
Adjusted EBITDA
Adjusted EBITDA is a supplemental measure of our performance. We believe that Adjusted EBITDA is an appropriate measure of operating performance because it eliminates the impact of items that do not relate to business performance. 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 increased by $5.1 million, or 108%, to $9.8 million for the three months ended June 30, 2020 from $4.7 million for the three months ended June 30, 2019. The primary driver of the decrease is the adoption of ASC 606. If the three months ended June 30, 2020 were reported under ASC 605, Adjusted EBITDA would have
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increased by $2.6 million, driven by increased Core Revenues, offset by additional employee compensation and benefits from additional hiring. Adjusted EBITDA decreased by $3.2 million, or 22%, to $11.0 million for the six months ended June 30, 2020 from $14.2 million for the six months ended June 30, 2019. The primary driver of the decrease is higher Contingent Commissions received during the six months ended June 30, 2019. If the six months ended June 30, 2020 were reported under ASC 605, Adjusted EBITDA would have decreased by $1.5 million.
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 three months ended June 30, 2020, Adjusted EBITDA Margin was 33% compared to 24% for the three months ended June 30, 2019. The primary driver of the expansion is the adoption of ASC 606, resulting in acceleration of the recognition of Contingent Commission revenue. If the three months ended June 30, 2020 were reported under ASC 605, Adjusted EBITDA Margin would have been 27%. Adjusted EBITDA Margin for the six months ended June 30, 2020 was 22% compared to 33% for the six months ended June 30, 2019. The primary driver of the compression is the adoption of ASC 606. If the six months ended June 30, 2020 had been reported under ASC 605, Adjusted EBITDA Margin would have been 24% driven by a decrease in contingent commissions received.
Adjusted EPS
Adjusted EPS is a supplemental measure of our performance, defined as earnings per share (the most directly comparable GAAP measure) before non-recurring or non-operating income and expenses. Adjusted EPS is a useful measure to management because it eliminates the impact of items that do not relate to business performance.
GAAP to Non-GAAP Reconciliations

Three Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Total Revenues$29,924  $27,555  $19,386  
Core Revenue:
Renewal Commissions(1)
$7,718  $7,712  $5,899  
Renewal Royalty Fees(2)
7,903  7,815  5,062  
New Business Commissions(1)
4,329  4,333  3,013  
New Business Royalty Fees(2)
2,599  2,610  1,864  
Agency Fees(1)
2,185  2,344  1,740  
Total Core Revenue24,734  24,814  17,578  
Cost Recovery Revenue:
Initial Franchise Fees(2)
901  1,605  1,515  
Interest Income192  192  148  
Total Cost Recovery Revenue1,093  1,797  1,663  
Ancillary Revenue:
Contingent Commissions(1)
4,016  863  111  
Other Income(2)
81  81  34  
Total Ancillary Revenue4,097  944  145  
Total Revenues$29,924  $27,555  $19,386  
(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 income.
(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Income are included in "Franchise revenues" as shown on the Consolidated statements of income.

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Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Total Revenues$50,349  $52,449  $42,519  
Core Revenue:
Renewal Commissions(1)
$13,451  $13,856  $10,688  
Renewal Royalty Fees(2)
13,289  13,569  8,825  
New Business Commissions(1)
7,662  7,734  5,472  
New Business Royalty Fees(2)
4,647  4,738  3,219  
Agency Fees(1)
3,871  4,339  3,177  
Total Core Revenue42,920  44,236  31,381  
Cost Recovery Revenue:
Initial Franchise Fees(2)
1,879  3,915  3,225  
Interest Income361  361  283  
Total Cost Recovery Revenue2,240  4,276  3,508  
Ancillary Revenue:
Contingent Commissions(1)
5,075  3,824  7,596  
Other Income(2)
114  114  34  
Total Ancillary Revenue5,189  3,938  7,630  
Total Revenues$50,349  $52,450  $42,519  

(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 income.
(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Income are included in "Franchise revenues" as shown on the Consolidated statements of income.
The following tables show a reconciliation from net income to Adjusted EBITDA and Adjusted EBITDA margin for the three and six months ended June 30, 2020 and 2019 (in thousands):
Three Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Net income$7,386  $5,259  $2,817  
Interest expense479  479  626  
Depreciation and amortization712  712  452  
Tax (benefit) expense(240) (553) 430  
Equity-based compensation1,416  1,416  368  
Other (income) expense—  —  —  
Adjusted EBITDA$9,753  $7,313  $4,693  
Adjusted EBITDA Margin(1)
33 %27 %24 %
(1) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Total Revenue ($9,753/$29,924), ($7,313/$27,555) and ($4,693/$19,386) for the three months ended June 30, 2020 (ASC 606 and 605, respectively) and 2019.

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Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Net income$7,090  $8,556  $10,135  
Interest expense1,083  1,083  1,252  
Depreciation and amortization1,252  1,252  875  
Tax (benefit) expense(281) (94) 1,174  
Equity-based compensation1,914  1,914  735  
Other (income) expense(66) (66) —  
Adjusted EBITDA$10,992  $12,645  $14,171  
Adjusted EBITDA Margin(1)
22 %24 %33 %
(1) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Total Revenue ($10,992/$50,349), ($12,645/$52,449) and ($14,171/$42,519) for the six months ended June 30, 2020 (ASC 606 and 605, respectively) and 2019.

The following tables show a reconciliation from basic earnings per share to Adjusted EPS (non-GAAP basis) for the three and six months ended June 30, 2020 (in thousands, except per share amounts). Note that totals may not sum due to rounding:
Three Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Earnings per share - basic (GAAP)$0.21  $0.16  $0.06  
Add: equity-based compensation(1)
0.04  0.04  0.01  
Adjusted EPS (non-GAAP)$0.25  $0.20  $0.07  
(1) Calculated as equity-based compensation divided by sum of weighted average Class A and Class B shares [ $1.4 million / ( 16.5 million + 20.0 million )] for the three months ended June 30, 2020 and [ $368 thousand / ( 14.9 million + 21.4 million )] for the three months ended June 30, 2019.
Six Months Ended June 30,
2020 (ASC 606)2020 (ASC 605)2019 (ASC 605)
Earnings per share - basic (GAAP)$0.20  $0.23  $0.23  
Add: equity-based compensation(1)
0.05  0.05  0.02  
Adjusted EPS (non-GAAP)$0.25  $0.28  $0.25  
(1) Calculated as equity-based compensation divided by sum of Class A and Class B shares [ $1.9 million / ( 16.0 million + 20.4 million )] for the six months ended June 30, 2020 and [ $735 thousand / ( $14.5 million + $21.7 million )] for the three months ended June 30, 2019.
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 Channel and our Franchise Channel. Our primary cash flow activities involve: (1) generating cash flow from Corporate Channel operations, which largely includes New Business Revenue (Corporate) and Renewal Revenue (Corporate); (2) generating cash flow from Franchise Channel operations, which largely includes Initial Franchise Fees and Royalty Fees; (3) borrowings, interest payments and repayments under our credit agreement; and (4) issuing shares of Class A common stock. As of June 30, 2020, our cash and cash equivalents balance was $54.3 million. We have used cash flow from operations primarily to pay compensation and related expenses, general, administrative and other expenses, debt service and distributions to our owners.
Credit agreement
See "Note 7. Debt" in the condensed consolidated financial statements included herein for a discussion of the Company's credit facilities.

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Comparative cash flows
The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated (in thousands):

Six Months Ended June 30,
20202019Change
Net cash provided by operating activities$6,516  $10,682  $(4,166) 
Net cash used for investing activities(4,093) (1,876) (2,217) 
Net cash provided by (used for) financing activities38,123  (18,811) 56,934  
Net increase (decrease) in cash and cash equivalents40,546  (10,005) 50,551  
Cash and cash equivalents, and restricted cash, beginning of period15,260  19,011  (3,751) 
Cash and cash equivalents, and restricted cash, end of period$55,806  $9,006  $46,800  
Operating activities
Net cash provided by operating activities was $6.5 million for the six months ended June 30, 2020 as compared to net cash provided by operating activities of $10.7 million for the six months ended June 30, 2019. This decrease in net cash provided by operating activities was attributable to a decrease in net income of $3.0 million, and an increase in cash used for prepaid expenses of $2.9 million, which was offset by $0.3 million increase in cash provided by commissions and agency fees receivable and a $1.2 million increase in non-cash equity based compensation.
Investing activities
Net cash used for investing activities was $4.1 million for the six months ended June 30, 2020, compared to net cash used in investing activities of $1.9 million for the six months ended June 30, 2019. This increase was driven by continued expansion of corporate offices to support increased hiring and $0.8 million used for computer equipment to accommodate remote working.
Financing activities
Net cash provided by financing activities was $38.1 million for the six months ended June 30, 2020 as compared to net cash used for financing activities of $18.8 million for the six months ended June 30, 2019. This increase in net cash provided by financing activities was attributable to the Company's draw down of $37.9 million of the remaining term loan, amplified by $18.0 million of distributions made in the six months ended June 30, 2019.
Future sources and uses of liquidity
Our sources of liquidity are (1) cash on hand, (2) net working capital, (3) cash flows from operations and (4) our revolving credit facility. Based on our current expectations, we believe that these sources of liquidity will be sufficient to fund our working capital requirements and to meet our commitments in the foreseeable future.
We expect that our primary liquidity needs will 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 (5) pay income taxes, and (6) when deemed advisable by our board of directors, pay dividends.
Dividend policy
On March 7, 2019, GF approved a $15.0 million extraordinary dividend to all holders of LLC Units, including GSHD. The board of directors of the Company then declared an extraordinary dividend of $0.41 (rounded) to all holders of Class A common stock of GSHD with a record date of March 18, 2019, to be paid on or before April 1, 2019. See "Note 11. Dividends" in the condensed consolidated financial statements included herein.
On July 30, 2020, GF approved an extraordinary dividend in the aggregate amount of $42.0 million payable to holders of LLC Units, including GSHD. The board of directors of the Company subsequently declared an extraordinary dividend of $1.15 (rounded) to all holders of Class A common stock of GSHD with a record date of August 10, 2020, paid on or before August 24, 2020. See "Note 16: Subsequent events" in the condensed consolidated financial statements included herein.
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There have been no material changes to our dividend policy as described in the Annual Report on Form 10-K.
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. See "Item 13. Certain relationships and related transactions, and director independence" of the Annual Report on Form 10-K.
Holders of Goosehead Financial, LLC Units (other than Goosehead Insurance, Inc.) may, subject to certain conditions and transfer restrictions described above, redeem or exchange their LLC Units for shares of Class A common stock of Goosehead Insurance, Inc. on a one-for-one basis. Goosehead Financial, LLC intends to make an election under Section 754 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”) effective for each taxable year in which a redemption or exchange of LLC Units for shares of Class A common stock occurs, which is expected to result in increases to the tax basis of the assets of Goosehead Financial, LLC at the time of a redemption or exchange of LLC Units. The redemptions or exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Goosehead Financial, LLC. These increases in tax basis may reduce the amount of tax that Goosehead Insurance, Inc. would otherwise be required to pay in the future. We have 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 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. This payment obligation is an obligation of Goosehead Insurance, Inc. and not of Goosehead Financial, LLC. For purposes of the tax receivable agreement, the cash tax savings in income tax will be computed by comparing the actual income tax liability of Goosehead Insurance, Inc. (calculated with certain assumptions) to the amount of such taxes that Goosehead Insurance, Inc. would have been required to pay had there been no increase to the tax basis of the assets of Goosehead Financial, LLC as a result of the redemptions or exchanges and had Goosehead Insurance, Inc. not entered into the tax receivable agreement. Estimating the amount of payments that may be made under the tax receivable agreement is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors. While the actual increase in tax basis, as well as the amount and timing of any payments under the tax receivable agreement, will vary depending upon a number of factors, including the timing of redemptions or exchanges, the price of shares of our Class A common stock at the time of the redemption or exchange, the extent to which such redemptions or exchanges are taxable and the amount and timing of our income. See "Item 13. Certain relationships and related transactions, and director independence" of the Annual Report on Form 10-K. We anticipate that we will account for the effects of these increases in tax basis and associated payments under the tax receivable agreement arising from future 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.
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.

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Contractual obligations, commitments and contingencies
The following table represents our contractual obligations as of June 30, 2020, aggregated by type (in thousands).
 
  
Contractual obligations, commitments and contingencies
(in thousands)TotalLess than
1 year
1-3 years3-5 yearsMore than
5 years
Operating leases(1)
$25,954  $3,439  $6,913  $6,331  $9,271  
Debt obligations payable(2)
84,500  2,500  82,000  —  —  
Interest expense(3)
3,141  3,141  5,128  —  —  
Liabilities under the tax receivable agreement(4)
35,832  681  4,385  4,779  25,987  
Total$149,427  $9,761  $98,426  $11,110  $35,258  

(1)The Company leases its facilities under non-cancelable operating leases. In addition to monthly lease payments, the lease agreements require the Company to reimburse the lessors for its portion of operating costs each year. Rent expense was $612 thousand and $447 thousand for the three months ended June 30, 2020 and 2019. Rent expense was $1.1 million and $0.9 million for the six months ended June 30, 2020 and 2019.
(2)The Company refinanced its credit facilities on March 6, 2020 in the form of a $80 million term loan, and $25 million revolving credit facility, of which $5.0 million was drawn as of June 30, 2020.
(3)Interest expense includes interest payments on our outstanding debt obligations under our credit agreement. Our debt obligations have variable interest rates. We have calculated future interest obligations based on the interest rate for our debt obligations as of June 30, 2020.
(4)See "Item 2. Management's discussion and analysis of financial condition and results of operation - Tax receivable agreement."

Off-balance sheet arrangements
We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any activities that expose us to any liability that is not reflected in our condensed consolidated financial statements except for those described under “Contractual obligations, commitments and contingencies” above.

Critical accounting policies
Our discussion and analysis of our consolidated financial condition and results of operations is based upon the accompanying condensed consolidated financial statements and notes thereto, which have been prepared in accordance with GAAP. The preparation of the condensed consolidated financial statements requires us to make estimates, judgments and assumptions, which we believe to be reasonable, based on the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Variances in the estimates or assumptions used to actual experience could yield materially different accounting results. On an ongoing basis, we evaluate the continued appropriateness of our accounting policies and resulting estimates to make adjustments we consider appropriate under the facts and circumstances. There have been no significant changes to our critical accounting policies as disclosed in the Annual Report on Form 10-K.

Recent accounting pronouncements
See "Note 2: Summary of Significant Accounting Policies—Recently Issued Accounting Pronouncements” under Part I, Item 1 of this Form 10-Q.

Emerging growth company
Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by FASB or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We intend to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies.
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We also intend to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as we qualify as an emerging growth company, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
The Company expects to lose its emerging growth company status as of the filing of the Annual Report on Form 10-K for the year ended December 31, 2020. As such, the Company will be required to comply with the requirements of Section 404(b) of Sarbanes-Oxley Act, have full disclosure obligations requiring executive compensation, and lose exemptions from the requirements of holding non-binding advisory votes on executive compensation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes to our exposure to market risks as described in "Item 7A. Quantitative and qualitative disclosure of market risks" in the Annual Report on Form 10-K.

Item 4. Controls and Procedures
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2020. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
There were no changes to our internal control over financial reporting that occurred during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation as it relates to our internal controls to minimize the impact on their design and operating effectiveness.


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PART II

Item 1. Legal matters
The information required by this Item is incorporated by reference to "Part I, Item I, Note 13. Litigation" in the condensed consolidated financial statements included herein.

Item 1A. Risk factors
For a discussion of our potential risks and uncertainties, see the information set forth under Part I, Item 1A “Risk Factors” in the Annual Report on Form 10-K.
The global outbreak of the coronavirus disease ("COVID-19") has negatively impacted the global economy in a significant manner and may continue to do so for an extended period of time, and could also materially adversely affect our business and operating results

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout the world. On January 30, 2020, the WHO declared the outbreak of COVID-19 a ‘‘Public Health Emergency of International Concern.’’ On March 11, 2020 the WHO characterized the outbreak as a ‘‘pandemic’’. This outbreak of COVID-19 has resulted in a widespread health crisis that has and may continue to adversely affect the economies and financial markets worldwide.

The COVID-19 pandemic could materially adversely impact our business, results of operations and financial results, depending on numerous evolving factors that we may not be able to accurately predict, including: the duration and severity of the pandemic; business and individuals’ actions that have been and continue to be taken in response to the pandemic; and the impact of COVID-19 on economic activity and governmental actions taken in response. As the COVID-19 outbreak and any associated protective or preventative measures continue to spread in the United States, we may experience disruptions to our business, including but not limited to: (a) our clients choosing to limit purchases of insurance due to declining business conditions, which would inhibit our ability to generate commission revenue and other revenue based on premiums placed; (b) decrease in home closing transactions which would imply a decrease in the purchase of new home insurance policies; (c) our clients defaulting on mortgages, which would affect the client’s ability to pay their home insurance premiums and affect the renewal of policies; (d) travel restrictions and quarantines leading to a lack of in-person meetings, which could hinder our ability to manage our sales successfully and to establish relationships or originate new business and; (e) alternative working arrangements, including employees and Franchisees working and being trained remotely, which could negatively impact our business should such arrangements remain for an extended period of time.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance, will depend on future developments. To the extent that the COVID-19 pandemic adversely impacts our business, results of operations, liquidity or financial condition, it may also have the effect of increasing many of the other risks and uncertainties enumerated in the Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.

Item 4. Mine Safety
Not applicable.

Item 5. Other Information
None.
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Item 6. Exhibits

101.INSXBRL Instance Document
101.SCHXBRL Schema Document
101.CALXBRL Calculation Linkbase Document
101.DEFXBRL Definition Linkbase Document
101.LABXBRL Label Linkbase Document
101.PREXBRL Presentation Linkbase

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned thereunto duly authorized.

 GOOSEHEAD INSURANCE, INC.
 
Date:July 31, 2020By: /s/ Mark E. Jones
   Mark E. Jones
   Chairman and Chief Executive Officer
   (Principal Executive Officer)
 
Date:July 31, 2020By: /s/ Mark S. Colby
   Mark S. Colby
   Chief Financial Officer
   (Principal Financial Officer and Principal Accounting Officer)

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