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GOOSEHEAD INSURANCE, INC. ANNOUNCES FOURTH QUARTER AND FULL YEAR 2019 RESULTS

- Fourth Quarter 2019 Revenues of $23.4 Million Grew 59%, or 39% if reported under ASC 605 -
- Full Year 2019 Revenue of $77.5 Million Increased 29%, or 40% if reported under ASC 605 -
- Total Written Premiums Increased 45% Over Prior-Year Period -
- Total Franchises Grew 47% Over Prior-Year Period -
- Corporate Sales head count increased 49% Over Prior-Year Period -

WESTLAKE, Texas, March 12, 2020 (GLOBE NEWSWIRE) -- Goosehead Insurance, Inc. (“Goosehead” or the “Company”) (GSHD), a rapidly growing independent personal lines insurance agency, today announced results for the fourth quarter and full year ended December 31, 2019. Beginning with the fourth quarter of 2019, the Company will be reporting results under accounting standard ASC 606. A reconciliation of ASC 605 to ASC 606 reporting are set forth in the tables at the end of the release. The Company is using the modified retrospective approach to applying ASC 606 and accordingly prior period numbers have not been restated to give effect to the application of ASC 606.

Fourth Quarter 2019 Highlights

  • Revenue organically increased 59% from the prior-year period to $23.4 million. If reported under ASC 605, revenue would have grown organically 39% in the fourth quarter to $20.4 million.

  • Net income attributable to Goosehead Insurance, Inc. of $1.8 million or $0.12 per basic share and $0.11 per diluted share.

  • Adjusted EPS* of $0.13 per share includes a $0.06 per share benefit from the application ASC 606. If reported under ASC 605 Adjusted EPS would have been $0.07.

  • Adjusted EBITDA* increased 224% from the prior year to $7.5 million, or 32% of revenues. If reported under ASC 605, Adjusted EBITDA would have risen 81% to $4.2 million, or 20% of revenues.

  • Total written premiums placed increased 45% from the prior-year period to $196 million.

  • Policies in force grew 44% from the prior-year period to 482,000.

  • Corporate sales headcount of 248 was up 49% year-over-year.

  • Total franchises increased 47% compared to the prior year period to 948; total operating franchises grew 34% compared to the prior-year period to 614.

*Adjusted EPS, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Reconciliation of Adjusted EBITDA to net income and basic earnings per share to Adjusted EPS, the most directly comparable financial measures presented in accordance with GAAP are set forth in the reconciliation table accompanying this release.

“2019 was yet another year of strong performance at Goosehead,” stated Mark E. Jones, Chairman and Chief Executive Officer of Goosehead. “We continued to invest in both people and technology to enhance our already significant competitive advantage and keep us well-positioned for sustained strong levels of future growth. Our results continue to validate that we have built a unique and powerful platform that allows our sales agents to significantly outproduce the industry and enables our service team to deliver world-class service for our clients, as evidenced in our high client retention of 88% and unmatched net promoter score of 89. In addition to our impressive top line results for the year, we also delivered strong growth in net income and Adjusted EBITDA. Additionally, we experienced expansion in Adjusted EBITDA Margin, if reported under ASC 605 accounting. The changes to our revenue under ASC 606 have no effect on the economics of our business, as evidenced by cash flow from operations of $21.2 million, an increase of 107% over the prior year."

“Our mix of business continued to proportionately shift towards the Franchise Channel, which is becoming an increasingly larger driver of premium. We believe that over time, the premium in the Franchise Channel will generate increased levels of currently-embedded growth in revenue and Adjusted EBITDA as new business converts into higher revenue and higher margin renewal business. As a reminder, the Franchise Channel experiences a lag between written premium and revenue growth, as it receives 20% of the first term policy revenues but 50% of renewal revenue. The shift towards Franchise Channel premium growth is being aided by investments and support from our Corporate Channel.”

“Looking ahead to 2020 and beyond, we intend to make continuous investments in both people and technology, which we believe will position us to sustain high levels of premium and revenue growth for years to come. While our business has mechanical operating leverage and longer-term margin improvement potential, strategically we remain focused on delivering significant revenue expansion and strong overall earnings growth over time. We will continue to operate Goosehead with a focus on maximizing earnings over the long term,” concluded Mr. Jones.

Fourth Quarter 2019 Results
For the fourth quarter of 2019, revenues were $23.4 million, a 59% increase from $14.7 million in the prior-year period. If reported under ASC 605, total revenue would have grown 39% to $20.4 million. Core Revenues, which exclude contingent commissions and initial franchise fees, were $17.7 million, a 35% increase from $13.1 million in the prior year period. If reported under ASC 605, Core Revenues would have grown 36% to $17.8 million. Core Revenues refer to the most predictable revenue stream for the Company, consisting of New Business Commissions, Agency Fees, New Business Royalty Fees, Renewal Commissions and Renewal Royalty Fees. Core Revenues were driven by growth in sales agents and productivity improvements, combined with continued high levels of retention. Total written premiums placed, which is a good indicator of future revenue growth, grew 45% in the fourth quarter to $196 million, compared to $135 million in the fourth quarter of 2018.

Total operating expenses for the fourth quarter of 2019 were $16.8 million, up 28% from $13.2 million in the prior-year period, primarily due to larger employee compensation and benefit expenses related to continued investment in corporate agents and recruiting headcount and the number of operating franchises, investments in technology, as well as higher general and administrative expenses, including public company costs.

Net income for the fourth quarter of 2019 grew 786% to $5.3 million, compared to net income of $0.6 million in the prior-year period. If reported under ASC 605 net income for the fourth quarter of 2019 would have grown 302% to $2.4 million. Net income attributable to Goosehead Insurance, Inc. for the fourth quarter of 2019 was $1.8 million, or $0.12 per basic and $0.11 per diluted share. Adjusted EPS for the fourth quarter of 2019, which excludes equity-based compensation, was $0.13 per share. If reported under ASC 605, Adjusted EPS for the fourth quarter of 2019 would have been $0.07 per share.

Total Adjusted EBITDA grew by 224% to $7.5 million for the fourth quarter of 2019, compared to $2.3 million in the prior year period. If reported under ASC 605, EBITDA would have grown 81% to $4.2 million. Total Adjusted EBITDA Margin was 32%, compared to 16% in the prior-year period. If reported under ASC 605, Adjusted EBITDA Margin in the fourth quarter of 2019 would have been 20%.

Full Year 2019 Results
For the full year ended December 31, 2019, revenues grew 29% to $77.5 million, compared to $60.1 million in the prior year. If reported under ASC 605, revenues grew 40% to $84.1 million. Core Revenues for the full year were $67.6 million, up 36% compared to a year ago, with growth driven by increases in sales agents and productivity, combined with continued high levels of retention.

Net income for the full year increased by $29.0 million from 2018 to $10.4 million. If reported under ASC 605, net income would have increased $34.0 million to $15.3 million. The net loss for the full year ended December 31, 2018 included equity-based compensation costs of $26.1 million related to one-time vesting of historical Class B LLC units as part of the Company’s Initial Public Offering ("IPO").

Total Adjusted EBITDA rose 19% for the full year ended December 31, 2019 to $17.5 million, from $14.8 million in the prior year. If reported under ASC 605 total Adjusted EBITDA would have grown 55% to $22.9 million. Total Adjusted EBITDA Margin for the full year ended December 31, 2019 was 23%. If reported under ASC 605, Adjusted EBITDA Margin for the full year 2019 would have been 27%, up 274 basis points from the prior year driven by higher margin renewal revenue and higher contingent commissions, partially offset by additional employee compensation and benefits from increased hiring, increases in the number of operating franchises, as well as significant investment in technology to benefit corporate and franchise employee productivity to facilitate future growth.

Liquidity and Capital Resources
As of December 31, 2019, the Company had cash and cash equivalents of $14.3 million, an unused line of credit of $2.7 million, and outstanding notes payable of $46.5 million on its balance sheet. In order to maintain an efficient capital structure, on March 6, 2020, the Company borrowed an additional $38.5 million, bringing the total debt as of the date of this release to $85.0 million, plus an additional $19.7 million of unused line of credit.

2020 Outlook
The Company's outlook for the full year 2020 is as follows:

  • Total written premiums placed for 2020 are expected to be between $975 million and $1.035 billion, representing organic growth of 32% on the low end of the range to 40% on the high end of the range.

  • Total revenues for 2020 under ASC 606 revenue accounting are expected to be between $100 million and $105 million, representing organic growth of 29% on the low end of the range to 36% on the high end of the range.

  • While the Company does not provide bottom line guidance, it expects ongoing investments in people and technology, as well as certain one-time investments in our accounting processes and additional public company expenses to have a moderating effect on margin improvement in 2020.

  • To date, our business has been unaffected by uncertainty surrounding the impact of the coronavirus. While the underlying demand for homeowners and auto insurance is stable, management is taking actions it considers prudent to minimize impacts on our operations should conditions change.

Conference Call Information

Goosehead will host a conference call and webcast today at 5:00 PM ET to discuss these results.

The dial-in number for the conference call is (855) 327-6837 (toll-free) or (631) 891-4304 (international). Please dial the number 10 minutes prior to the scheduled start time.

In addition, a live webcast of the conference call will also be available on Goosehead’s investor relations website at http://ir.gooseheadinsurance.com.

A webcast replay of the call will be available at http://ir.gooseheadinsurance.com for one year following the call.

About Goosehead

Goosehead (GSHD) is a rapidly growing and innovative independent personal lines insurance agency that distributes its products and services throughout the United States. Goosehead was founded on the premise that the consumer should be at the center of our universe and that everything we do should be directed at providing extraordinary value by offering broad product choice and a world-class service experience. Goosehead represents over 100 insurance companies that underwrite personal lines and small commercial lines risks, and its operations include a network of seven corporate sales offices and over 948 operating and contracted franchise locations. For more information, please visit www.gooseheadinsurance.com.

Forward-Looking Statements

This press release may contain various “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which represent Goosehead’s expectations or beliefs concerning future events. Forward-looking statements are statements other than historical facts and may include statements that address future operating, financial or business performance or Goosehead’s strategies or expectations. In some cases, you can identify these statements by forward-looking words such as “may”, “might”, “will”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “projects”, “potential”, “outlook” or “continue”, or the negative of these terms or other comparable terminology. Forward-looking statements are based on management’s current expectations and beliefs and involve significant risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by these statements.

Factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements include, but are not limited to, conditions impacting insurance carriers or other parties with which Goosehead does business, the loss of one or more key executives or an inability to attract and retain qualified personnel and the failure to attract and retain highly qualified franchisees. These risks and uncertainties also include, but are not limited to, those described under the caption “1A. Risk Factors” in Goosehead’s Annual Report on Form 10-K for the year ended December 31, 2018 and in Goosehead’s other filings with the SEC, which are available free of charge on the Securities Exchange Commission's website at: www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. All forward-looking statements and all subsequent written and oral forward-looking statements attributable to Goosehead or to persons acting on behalf of Goosehead are expressly qualified in their entirety by reference to these risks and uncertainties. You should not place undue reliance on forward-looking statements. Forward-looking statements speak only as of the date they are made, and Goosehead does not undertake any obligation to update them in light of new information, future developments or otherwise, except as may be required under applicable law.

Contacts

Investor and Media Contact:

Dan Farrell
Goosehead Insurance - VP Capital Markets
Phone: (214) 838-5290
Email: IR@goosehead.com; PR@goosehead.com

Goosehead Insurance, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)

Three Months Ended
December 31,

Full Year Ended
December 31,

2019 (ASC 606)

2018 (ASC 605)

2019 (ASC 606)

2018 (ASC 605)

Revenues:

Commissions and agency fees

$

15,173

$

8,632

$

46,366

$

36,704

Franchise revenues

8,028

5,962

30,503

23,022

Interest income

174

123

617

422

Total revenues

23,374

14,717

77,486

60,148

Operating Expenses:

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

10,800

8,609

41,715

58,256

General and administrative expenses

5,242

3,967

19,042

13,060

Bad debts

245

314

725

1,298

Depreciation and amortization

540

424

1,931

1,464

Total operating expenses

16,827

13,314

63,413

74,078

Income (loss) from operations

6,547

1,403

14,073

(13,930

)

Other Expense:

Other expense

(22

)

Interest expense

(526

)

(667

)

(2,387

)

(4,266

)

Income (loss) before taxes

6,021

736

11,686

(18,218

)

Tax expense

673

131

1,304

449

Net Income (loss)

5,348

605

10,382

(18,667

)

Less: net income (loss) attributable to non-controlling interests

3,504

515

6,815

(9,764

)

Net Income (loss) attributable to Goosehead Insurance Inc.

$

1,844

$

90

$

3,567

$

(8,903

)

Earnings per share:

Basic

$

0.12

$

0.01

$

0.24

$

(0.66

)

Diluted

$

0.11

$

0.01

$

0.22

$

(0.66

)

Weighted average shares of Class A common stock outstanding

Basic

15,213

13,589

14,864

13,554

Diluted

16,529

14,646

16,100

13,554

Goosehead Insurance, Inc.
Condensed Consolidated Supplemental Statements of Income
(Unaudited)
(In thousands, except per share amounts)

Three Months Ended
December 31,

Full Year Ended
December 31,

2019 (ASC 606)

2018 (ASC 605)

2019 (ASC 606)

2018 (ASC 605)

Revenues:

Core Revenue:

Renewal Commissions(1)

$

5,875

$

4,714

$

22,924

$

18,357

Renewal Royalty Fees(2)

5,196

3,337

19,462

12,104

New Business Commissions(1)

3,231

2,515

11,961

9,347

New Business Royalty Fees(2)

1,773

1,226

7,149

4,873

Agency Fees(1)

1,578

1,305

6,058

5,169

Total Core Revenue

17,653

13,097

67,554

49,850

Cost Recovery Revenue:

Initial Franchise Fees(2)

951

1,400

3,784

6,045

Interest Income

174

123

617

422

Total Cost Recovery Revenue

1,125

1,523

4,401

6,467

Ancillary Revenue:

Contingent Commissions(1)

4,488

98

5,423

3,831

Other Income(2)

108

108

Total Ancillary Revenue

4,596

98

5,531

3,831

Total Revenues

23,374

14,718

77,486

60,148

Operating Expenses:

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

10,800

8,610

41,715

58,256

General and administrative expenses

5,242

3,832

19,042

13,060

Bad debts

245

313

725

1,298

Depreciation and amortization

540

425

1,931

1,464

Total operating expenses

16,827

13,180

63,413

74,078

Income (loss) from operations

6,547

1,538

14,073

(13,930

)

Other Expense:

Other expense

(135

)

(22

)

Interest expense

(526

)

(668

)

(2,387

)

(4,266

)

Income (loss) before taxes

6,021

735

11,686

(18,218

)

Tax expense

673

131

1,304

449

Net Income (loss)

5,348

604

10,382

(18,667

)

Less: net income (loss) attributable to non-controlling interests

3,504

514

6,815

(9,764

)

Net Income (loss) attributable to Goosehead Insurance Inc.

$

1,844

$

90

$

3,567

$

(8,903

)

Earnings per share:

Basic

$

0.12

$

0.01

$

0.24

$

(0.66

)

Diluted

$

0.11

$

0.01

$

0.22

$

(0.66

)

Weighted average shares of Class A common stock outstanding

Basic

15,213

13,589

14,864

13,554

Diluted

16,529

14,646

16,100

13,554

(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 within Goosehead’s Annual Report on Form 10-K for the years ended December 31, 2019 and 2018.

(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 within Goosehead’s Annual Report on Form 10-K for the years ended December 31, 2019 and 2018.

Goosehead Insurance, Inc.
Segment Information
(Unaudited)

Full Year Ended December 31, 2019 (ASC 606)

Franchise
Channel

Corporate
Channel

Other

Total

Revenues:

Core Revenue:

Renewal Commissions(1)

$

$

22,924

$

$

22,924

Renewal Royalty Fees(2)

19,462

19,462

New Business Commissions(1)

11,961

11,961

New Business Royalty Fees(2)

7,149

7,149

Agency Fees(1)

6,058

6,058

Total Core Revenue

26,611

40,943

67,554

Cost Recovery Revenue:

Initial Franchise Fees(2)

3,784

3,784

Interest Income

617

617

Total Cost Recovery Revenue

4,401

4,401

Ancillary Revenue:

Contingent Commissions(1)

3,530

1,893

5,423

Other Income(2)

108

108

Total Ancillary Revenue

3,638

1,893

5,531

Total Revenues

34,650

42,836

77,486

Operating expenses:

Employee compensation and benefits, excluding equity-based compensation

16,673

23,516

40,189

General and administrative expenses, excluding state franchise tax

7,392

8,769

2,881

19,042

Bad debts

121

604

725

Total

24,186

32,889

2,881

59,956

Adjusted EBITDA

10,464

9,947

(2,881

)

17,530

Equity based compensation

(1,526

)

(1,526

)

Interest expense

(2,387

)

(2,387

)

Depreciation and amortization

(960

)

(971

)

(1,931

)

Taxes

(1,304

)

(1,304

)

Net income

$

9,504

$

8,976

$

(8,098

)

$

10,382

At December 31, 2019:

Total Assets

$

22,676

$

15,127

$

26,825

$

64,628

(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 within Goosehead’s Annual Report on Form 10-K for the years ended December 31, 2019 and 2018.

(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 within Goosehead’s Annual Report on Form 10-K for the years ended December 31, 2019 and 2018.

Goosehead Insurance, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except per share amounts)

December 31,

2019 (ASC 606)

2018 (ASC 605)

Assets

Current Assets:

Cash and cash equivalents

$

14,337

$

18,635

Restricted cash

923

376

Commissions and agency fees receivable, net

6,884

2,016

Receivable from franchisees, net

2,173

703

Prepaid expenses

1,987

1,109

Total current assets

26,304

22,839

Receivable from franchisees, net of current portion

11,443

2,048

Property and equipment, net of accumulated depreciation

9,542

7,575

Intangible assets, net of accumulated amortization

445

248

Deferred income taxes, net

15,537

1,958

Other assets

1,357

130

Total assets

$

64,628

$

34,798

Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts payable and accrued expenses

$

5,033

$

3,978

Premiums payable

923

376

Unearned revenue

530

Deferred rent

683

428

Contract liabilities

2,771

Note payable

4,000

2,500

Total current liabilities

13,410

7,812

Deferred rent, net of current portion

6,681

4,548

Contract liabilities, net of current portion

20,024

Note payable, net of current portion

42,161

45,947

Liabilities under tax receivable agreement, net of current portion

13,359

1,694

Total liabilities

95,635

60,001

Commitments and contingencies (see note 10)

Members’ deficit

Class A common stock, $.01 par value per share 300,000,000 shares authorized, 15,238,079 shares issued and outstanding as of December 31, 2019, 13,799,630 issued and outstanding as of December 31, 2018

152

138

Class B common stock, $.01 par value per share - 50,000,000 shares authorized, 21,054,935 issued and outstanding as of December 31, 2019, 22,485,747 issued and outstanding as of December 31, 2018

210

224

Additional paid in capital

14,442

11,899

Accumulated deficit

(23,811

)

(20,761

)

Total stockholders' equity and members' deficit

(9,007

)

(8,500

)

Non-controlling interests

(22,000

)

(16,703

)

Total equity

(31,007

)

(25,203

)

Total liabilities and equity

$

64,628

$

34,798

Goosehead Insurance, Inc.
Reconciliation of Core Revenue, Cost Recovery Revenue, Ancillary Revenue, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EPS to Net Income

This release includes Core Revenue, Cost Recovery Revenue, Ancillary Revenue, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EPS that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). The Company refers to these measures as “non-GAAP financial measures.” The Company uses these non-GAAP financial measures when planning, monitoring and evaluating its performance and considers these non-GAAP financial measures to be useful metrics for management and investors to facilitate 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 the Company believes are not representative of its core business. The Company uses Core Revenue, Cost Recovery Revenue, Ancillary Revenue, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EPS for business planning purposes and in measuring its performance relative to that of its competitors.

These non-GAAP financial measures are defined by the Company as follows:

  • "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.

  • "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.

  • "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.

  • "Adjusted EBITDA" is a supplemental measure of the Company's 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 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.

  • "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 and helps measure our profitability on a consolidated level.

While the Company believes that these non-GAAP financial measures are useful in evaluating its business, this information should be considered as supplemental in nature and is not meant as a substitute for revenues, net income, or earnings per share, in each case as recognized in accordance with GAAP. In addition, other companies, including companies in the Company’s industry, may calculate such measures differently, which reduces their usefulness as comparative measures.

The following tables show a reconciliation from total revenues to Core Revenue, Cost Recovery Revenue, and Ancillary Revenue (non-GAAP basis) for the full years ended December 31, 2019 and 2018 (in thousands, except per share amounts). Note that totals may not sum due to rounding:

Year ended December 31,

2019 (ASC 606)

2019 (ASC 605)

2018 (ASC 605)

Total Revenues

$

77,486

$

84,098

$

60,148

Core Revenue:

Renewal Commissions(1)

$

22,924

$

22,620

$

18,357

Renewal Royalty Fees(2)

19,462

19,240

12,104

New Business Commissions(1)

11,961

11,892

9,347

New Business Royalty Fees(2)

7,149

7,307

4,873

Agency Fees(1)

6,058

6,548

5,169

Total Core Revenue

67,554

67,607

49,850

Cost Recovery Revenue:

Initial Franchise Fees(2)

3,784

6,640

6,045

Interest Income

617

625

422

Total Cost Recovery Revenue

4,401

7,265

6,467

Ancillary Revenue:

Contingent Commissions(1)

5,423

9,118

3,831

Other Income(2)

108

108

Total Ancillary Revenue

5,531

9,226

3,831

Total Revenues

$

77,486

$

84,098

$

60,148

(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 (non-GAAP basis) for the full years and three months ended December 31, 2019 and 2018 (in thousands, except per share amounts). Note that totals may not sum due to rounding:

Full Year Ended December 31,

(in thousands)

2019 (ASC 606)

2019 (ASC 605)

2018 (ASC 605)

Net income

$

10,382

$

15,326

$

(18,667

)

Interest expense

2,387

2,387

4,266

Depreciation and amortization

1,931

1,931

1,464

Income tax expense

1,304

1,758

449

Equity-based compensation

1,526

1,526

27,083

Other (income) expense

157

Adjusted EBITDA

$

17,530

$

22,928

$

14,752

Adjusted EBITDA Margin(1)

23

%

27

%

25

%

(1) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Total Revenue ($17,530 / $77,486) for the year ended December 31, 2019 under ASC 606, ($22,928 / $84,098) for the year ended December 31, 2019 under ASC 605, and ($14,752 / $60,148) for the year ended December 31, 2018.

Three Months Ended December 31,

(in thousands)

2019 (ASC 606)

2019 (ASC 605)

2018 (ASC 605)

Net income

$

5,349

$

2,427

$

604

Interest expense

526

526

668

Depreciation and amortization

540

540

425

Income tax expense

673

283

131

Equity-based compensation

394

394

344

Other (income) expense

135

Adjusted EBITDA

$

7,482

$

4,170

$

2,307

Adjusted EBITDA Margin(1)

32

%

20

%

16

%

(1) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Total Revenue ($7,482 / $23,375) for the three months ended December 31, 2019 under ASC 606, ($4,170 / $20,408) for the three months ended December 31, 2019 under ASC 605, and ($2,307 / $14,718) for the three months ended December 31, 2018.

The following tables show a reconciliation from basic earnings per share to Adjusted EPS (non-GAAP basis) for the full year and three months ended December 31, 2019 and 2018 (in thousands, except per share amounts). Note that totals may not sum due to rounding:

Full Year Ended December 31,

2019 (ASC 606)

2019 (ASC 605)

2018 (ASC 605)

Earnings (loss) per share - basic (GAAP)

$

0.24

$

0.36

$

(0.66

)

Add: income prior to the Reorganization Transactions(1)

0.12

Less: estimated controlling interest taxes on income prior to Reorganization Transactions(2)

(0.03

)

Add: origination fees from previous debt immediately recognized upon refinance(3)

0.02

Add: equity-based compensation(4)

0.04

0.04

0.75

Adjusted EPS (non-GAAP)

$

0.28

$

0.40

$

0.20

(1) Calculated for the full year 2018 as the income prior to the Reorganization Transactions divided by the sum of Class A and Class B shares at the time of IPO [ $4.4 million / ( 13.5 million + 22.7 million )
(2) Calculated as the income prior to the Reorganization Transactions (see Goosehead’s Annual Report on Form 10-K for the year ended December 31, 2018), times the controlling interest percentage at the time of IPO, times the assumed effective tax rate of 25%, divided by the count of Class A shares at the time of the IPO [ $4.4 million * 37.3% * 25% / 13.5 million ].
(3) Calculated as the origination fees of previous debt immediately recognized upon refinance divided by sum of Class A and Class B shares at the time of the refinance [ $871 thousand / ( 13.5 million + 22.7 million )]
(4) Calculated as equity-based compensation divided by the weighted average of Class A and Class B shares outstanding during the period [ $1.5 million / ( 14.9 million + 21.4 million )] for the year ended December 31, 2019 and [ $27.1 million / ( 13.6 million + 22.7 million )] for the year ended December 31, 2018.

Three Months Ended December 31,

2019 (ASC 606)

2019 (ASC 605)

2018 (ASC 605)

Earnings (loss) per share - basic (GAAP)

$

0.12

$

0.06

$

0.01

Add: equity-based compensation(1)

0.01

0.01

0.01

Adjusted EPS (non-GAAP)

$

0.13

$

0.07

$

0.02

(1) Calculated as equity-based compensation divided by the weighted average of Class A and Class B shares outstanding during the period [ $394 thousand / ( 15.2 million + 21.1 million )] for the year ended December 31, 2019 and [ $345 thousand / ( 13.6 million + 22.7 million )] for the year ended December 31, 2018.

Goosehead Insurance, Inc.
Key Performance Indicators

December 31, 2019

September 30, 2019

December 31, 2018

Corporate sales agents < 1 year tenured

141

122

90

Corporate sales agents > 1 year tenured

107

110

77

Operating franchises < 1 year tenured (TX)

18

20

36

Operating franchises > 1 year tenured (TX)

180

177

166

Operating franchises < 1 year tenured (Non-TX)

215

209

168

Operating franchises > 1 year tenured (Non-TX)

201

177

87

Policies in Force (in thousands)

482,000

448,000

334,057

Client Retention

88

%

88

%

88

%

Premium Retention

91

%

92

%

94

%

QTD Written Premium (in thousands)

$

196,025

$

202,082

$

135,119

Net Promoter Score ("NPS")

89

90

89

Goosehead Insurance, Inc.
Supplemental Information
Consolidated Statements of Income - Impact of Revenue Standards

ASC 605 Presentation:

2019

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Full Year

Core Revenue:

Renewal Commissions(1)

$

4,789

$

5,899

$

6,058

$

5,874

$

22,620

Renewal Royalty Fees(2)

3,763

5,062

5,295

5,120

19,240

New Business Commissions(1)

2,459

3,014

3,294

3,125

11,892

New Business Royalty Fees(2)

1,355

1,864

1,994

2,094

7,307

Agency Fees(1)

1,437

1,740

1,782

1,589

6,548

Total Core Revenue

13,803

17,579

18,421

17,802

67,607

Cost Recovery Revenue:

Initial Franchise Fees(2)

1,710

1,515

1,935

1,480

6,640

Interest Income

135

148

169

173

625

Total Cost Recovery Revenue

1,845

1,663

2,104

1,653

7,265

Ancillary Revenue:

Contingent Commissions(1)

7,485

110

607

916

9,118

Other Income(2)

34

37

37

108

Total Ancillary Revenue

7,485

144

644

953

9,226

Total Revenues

23,133

19,386

21,169

20,408

84,098

Operating Expenses:

Employee compensation and benefits, excluding equity-based compensation

8,823

10,010

11,016

10,463

40,312

General and administrative expenses

4,430

4,201

5,169

5,242

19,042

Bad debts

401

482

399

535

1,817

Total

13,654

14,693

16,584

16,238

61,171

Adjusted EBITDA

9,479

4,693

4,585

4,170

22,927

Adjusted EBITDA Margin

41

%

24

%

22

%

20

%

27

%

Equity-based compensation

(368

)

(368

)

(396

)

(394

)

(1,526

)

Interest expense

(626

)

(626

)

(609

)

(526

)

(2,387

)

Depreciation and amortization

(423

)

(452

)

(516

)

(540

)

(1,931

)

Tax expense

(744

)

(430

)

(301

)

(283

)

(1,758

)

Net Income

7,318

2,817

2,763

2,427

15,325

Less: net income attributable to non-controlling interests

4,846

1,914

1,765

1,481

10,006

Net Income attributable to Goosehead Insurance Inc.

$

2,472

$

903

$

998

$

946

$

5,319

Earnings per share:

Basic

$

0.17

$

0.06

$

0.07

$

0.06

$

0.36

Diluted

$

0.16

$

0.06

$

0.06

$

0.05

$

0.33

(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 within Goosehead’s Annual Report on Form 10-K for the years ended December 31, 2019 and 2018.

(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 within Goosehead’s Annual Report on Form 10-K for the years ended December 31, 2019 and 2018.

Adjustments Related to ASC 606:

2019

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Full Year

Core Revenue:

Renewal Commissions(1)

$

107

$

181

$

15

$

1

$

304

Renewal Royalty Fees(2)

15

139

(8

)

76

222

New Business Commissions(1)

(10

)

(25

)

(3

)

107

69

New Business Royalty Fees(2)

64

57

42

(321

)

(158

)

Agency Fees(1)

(242

)

(148

)

(89

)

(11

)

(490

)

Total Core Revenue

(66

)

204

(43

)

(148

)

(53

)

Cost Recovery Revenue:

Initial Franchise Fees(2)

(876

)

(582

)

(869

)

(529

)

(2,856

)

Interest Income

(9

)

1

(8

)

Total Cost Recovery Revenue

(876

)

(582

)

(878

)

(528

)

(2,864

)

Ancillary Revenue:

Contingent Commissions(1)

(7,339

)

34

38

3,572

(3,695

)

Other Income(2)

(34

)

(37

)

71

Total Ancillary Revenue

(7,339

)

1

3,643

(3,695

)

Total Revenues

(8,281

)

(378

)

(920

)

2,967

(6,612

)

Operating Expenses:

Employee compensation and benefits, excluding equity-based compensation

38

(23

)

(80

)

(58

)

(123

)

General and administrative expenses

Bad debts

(280

)

(316

)

(206

)

(290

)

(1,092

)

Total

(242

)

(339

)

(286

)

(348

)

(1,215

)

Adjusted EBITDA

(8,039

)

(39

)

(634

)

3,315

(5,397

)

Adjusted EBITDA Margin

(31

)%

%

(2

)%

12

%

(5

)%

Equity-based compensation

Interest expense

Depreciation and amortization

Tax expense

742

72

30

(390

)

454

Net Income

(7,297

)

33

(604

)

2,925

(4,943

)

Less: net income attributable to non-controlling interests

(4,828

)

(25

)

(361

)

2,023

(3,191

)

Net Income attributable to Goosehead Insurance Inc.

$

(2,469

)

$

58

$

(243

)

$

902

$

(1,752

)

Earnings per share:

Basic

$

(0.17

)

$

$

(0.02

)

$

0.06

$

(0.12

)

Diluted

$

(0.16

)

$

$

(0.01

)

$

0.06

$

(0.11

)

(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 within Goosehead’s Annual Report on Form 10-K for the years ended December 31, 2019 and 2018.

(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 within Goosehead’s Annual Report on Form 10-K for the years ended December 31, 2019 and 2018.

ASC 606 Presentation:

2019

First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Full Year

Core Revenue:

Renewal Commissions(1)

$

4,896

$

6,080

$

6,073

$

5,875

$

22,924

Renewal Royalty Fees(2)

3,778

5,201

5,287

5,196

19,462

New Business Commissions(1)

2,449

2,989

3,291

3,232

11,961

New Business Royalty Fees(2)

1,419

1,921

2,036

1,773

7,149

Agency Fees(1)

1,195

1,592

1,693

1,578

6,058

Total Core Revenue

13,737

17,782

18,381

17,654

67,554

Cost Recovery Revenue:

Initial Franchise Fees(2)

834

933

1,066

951

3,784

Interest Income

135

148

160

174

617

Total Cost Recovery Revenue

969

1,080

1,226

1,125

4,401

Ancillary Revenue:

Contingent Commissions(1)

146

144

645

4,488

5,423

Other Income(2)

108

108

Total Ancillary Revenue

146

144

644

4,596

5,531

Total Revenues

14,853

19,006

20,251

23,375

77,486

Operating Expenses:

Employee compensation and benefits, excluding equity-based compensation

8,861

9,987

10,936

10,405

40,189

General and administrative expenses

4,430

4,201

5,169

5,242

19,042

Bad debts

121

166

193

245

725

Total

13,411

14,354

16,299

15,892

59,956

Adjusted EBITDA

1,441

4,653

3,952

7,482

17,530

Adjusted EBITDA Margin

10

%

24

%

20

%

32

%

23

%

Equity-based compensation

(368

)

(368

)

(396

)

(394

)

(1,526

)

Interest expense

(626

)

(626

)

(609

)

(526

)

(2,387

)

Depreciation and amortization

(423

)

(452

)

(516

)

(540

)

(1,931

)

Tax expense

(2

)

(358

)

(271

)

(673

)

(1,304

)

Net Income

22

2,849

2,160

5,349

10,382

Less: net income attributable to non-controlling interests

18

1,889

1,404

3,504

6,815

Net Income attributable to Goosehead Insurance Inc.

$

4

$

959

$

756

$

1,845

$

3,567

Earnings per share:

Basic

$

$

0.06

$

0.05

$

0.12

$

0.24

Diluted

$

$

0.06

$

0.05

$

0.11

$

0.22

(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 within Goosehead’s Annual Report on Form 10-K for the years ended December 31, 2019.

(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 within Goosehead’s Annual Report on Form 10-K for the years ended December 31, 2019.