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Goosehead Insurance, Inc. Announces Third Quarter 2020 Results

·28 min read

- Third Quarter Revenues Were $32.0 Million -
- Total Written Premiums Grew 49% -
- Total Franchises and Corporate Sales Headcount Grew 52% and 60%, Respectively -
- Net Income of $6.7 Million, Adjusted EBITDA of $9.3 Million -
- Raising 2020 Outlook for Total Written Premiums and Revenues -

WESTLAKE, Texas, Oct. 29, 2020 (GLOBE NEWSWIRE) -- Goosehead Insurance, Inc. (“Goosehead” or the “Company”) (NASDAQ: GSHD), a rapidly growing independent personal lines insurance agency, today announced results for the third quarter ended September 30, 2020. Beginning with the fourth quarter and full year 2019, the Company began reporting results under accounting standard ASC 606. The Company is using the modified retrospective approach to apply ASC 606 and accordingly prior period numbers have not been restated in the Form 10-Q to give effect to the application of ASC 606. A reconciliation of ASC 606 accounting to ASC 605 accounting for 2020 has been provided as a supplemental schedule in this earnings release.

Third Quarter 2020 Highlights

  • Revenues grew 51% to $32.0 million in the third quarter of 2020 as recognized under ASC 606, compared to $21.2 million in the third quarter of 2019 as recognized under ASC 605; revenues would have been $30.1 million for the third quarter of 2020 if recognized under ASC 605, representing growth of 42%

  • Core Revenues* of $26.4 million as recognized under ASC 606, an increase of 43%; if recognized under ASC 605, Core Revenues increased 45% to $26.7 million

  • Net income of $6.7 million; net income attributable to Goosehead Insurance, Inc. of $3.3 million or $0.19 per basic share and $0.17 per diluted share

  • Adjusted EPS* of $0.23 per share

  • Adjusted EBITDA* of $9.3 million, or 29% of revenues, in the third quarter of 2020 as recognized under ASC 606 or $6.9 million, or 23% of revenues, if recorded under ASC 605

  • Total written premiums placed increased 49% from the prior-year period to $301 million

  • Policies in force grew 47% from the prior-year period to 657,000

  • Corporate sales headcount of 371 was up 60% year-over-year

  • Total franchises increased 52% compared to the prior year period to 1,261; total operating franchises grew 41% compared to the prior-year period to 823

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

“Goosehead delivered another phenomenal quarter with sustained high levels of growth, profitability, and high retention driven by world-class client service. Our results continue to validate the substantial and consistent investments we have made in people and technology to improve our already unmatched platform,” stated Mark E. Jones, Chairman and Chief Executive Officer of Goosehead. “We have remained aggressively on offense and relentlessly externally focused on our clients and partners throughout the unique challenges that 2020 has presented. Independent agency distribution in US personal lines is positioned for future expansion, and our choice model, knowledgeable agents, best-in-class service, and industry leading proprietary technology are providing a superior client experience that we believe will drive continued significant share gains for Goosehead. Given the strength of our results through the first nine months of the year, we are pleased to raise our full-year outlook for total written premium and revenue. I am extremely proud of the determination and tireless focus of our people to continue to deliver for our clients and shareholders in these unprecedented times.”

Third Quarter 2020 Results
For the third quarter of 2020, revenues were $32.0 million, compared to $21.2 million in the corresponding period in 2019. If recognized under ASC 605, revenues would have been $30.1 million for the third quarter of 2020. Core Revenues, a non-GAAP measure which excludes contingent commissions and initial franchise fees, were $26.4 million, a 43% increase from $18.4 million in the prior year period. If reported under ASC 605, Core Revenues growth would have been 45%. Core Revenues are the most reliable revenue stream for the Company, consisting of New Business Commissions, Agency Fees, New Business Royalty Fees, Renewal Commissions, and Renewal Royalty Fees. Core Revenue growth was driven by growth in corporate agents and operating franchises, productivity improvements in the Franchise Channel, and continued high levels of retention. Total written premiums placed, which is a leading indicator of future revenue growth, grew 49% in the third quarter to $301 million, compared to $202 million in the third quarter of 2019.

Total operating expenses for the third quarter of 2020 were $25.0 million, up 43% from $17.5 million in the prior-year period. The increase from the prior period was primarily due to larger employee compensation and benefits expenses related to ongoing investments in our corporate agents, franchise sales team, and information systems developers. We also incurred $917 thousand of additional non-cash employee stock compensation expense for options granted in April 2020. The Company continued to invest in our technology roadmap, with enhancements to our client-facing portal and numerous additional carrier integration projects.

Net income for the third quarter of 2020 was $6.7 million. Net income attributable to Goosehead Insurance, Inc. for the third quarter of 2020 was $3.3 million, or $0.19 per basic share and $0.17 per diluted share. Adjusted EPS for the third quarter of 2020, which excludes equity-based compensation, was $0.23 per share. Total Adjusted EBITDA was $9.3 million for the third quarter of 2020, or $6.9 million if reported under ASC 605.

Nine Months 2020 Results
For the nine months ended September 30, 2020, revenues were $82.4 million, compared to $63.7 million in the corresponding period in 2019. If recognized under ASC 605, revenues would have been $82.5 million for the nine months ended September 30, 2020. Core Revenues were $69.3 million, a 39% increase from $49.8 million in the prior year period. If reported under ASC 605, Core Revenues increased 42%.

Net income for the nine months ended September 30, 2020 was $13.8 million. Net income attributable to Goosehead Insurance, Inc. was $6.5 million, or $0.39 per basic share and $0.36 per diluted share. Adjusted EPS, which excludes equity-based compensation, was $0.48 per share for the nine months ended September 30, 2020. Total Adjusted EBITDA was $20.3 million for the nine months ended September 30, 2020, or $19.5 million if reported under ASC 605.

Liquidity and Capital Resources
As of September 30, 2020, the Company had cash and cash equivalents of $20.0 million and an unused line of credit of $19.7 million. Total outstanding term note payable balance was $79.0 million as of September 30, 2020.

Special Dividend
During the quarter ended September 30, 2020, Goosehead Financial, LLC paid a $42 million dividend to holders of LLC Units of record, including Goosehead Insurance, Inc. Goosehead Insurance, Inc.’s Board of Directors also declared a special cash dividend of $1.15 per share (rounded) on the Company’s Class A common stock.

2020 Outlook
Based on our experience to date, the Company is raising its full-year 2020 outlook with respect to total written premiums and revenue:

  • Total written premiums placed for 2020 are expected to be between $1.05 billion and $1.07 billion, representing organic growth of 42% on the low end of the range to 45% on the high end of the range.

  • Total revenues for 2020 under ASC 606 revenue accounting are expected to be between $109 million and $112 million, representing organic growth of 41% on the low end of the range to 45% on the high end of the range.

Conference Call Information
Goosehead will host a conference call and webcast today at 4:30 PM ET to discuss these results.

The dial-in number for the conference call is (800) 920-2191 (toll-free) or (212) 231-2927 (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 (NASDAQ: 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 nine corporate sales offices and over 1,261 operating and contracted franchise locations. For more information, please visit 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 economic effects of the COVID-19 pandemic, 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 captions “1A. Risk Factors” in Goosehead’s Annual Report on Form 10-K for the year ended December 31, 2019, "Part II, Item 1A. Risk Factors" in Goosehead's Quarterly Report on Form 10-Q for the three months ended June 30, 2020 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: dan.farrell@goosehead.com; IR@goosehead.com; PR@goosehead.com


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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020 1

2019 2

2020 1

2019 2

Revenues:

Commissions and agency fees

$

19,385

$

11,739

$

49,444

$

38,672

Franchise revenues

12,418

9,261

32,347

24,564

Interest income

212

169

573

452

Total revenues

32,015

21,169

82,364

63,688

Operating Expenses:

Employee compensation and benefits

17,901

11,412

47,308

30,981

General and administrative expenses

5,872

5,169

17,108

13,800

Bad debts

376

399

1,004

1,282

Depreciation and amortization

900

516

2,152

1,391

Total operating expenses

25,049

17,496

67,572

47,454

Income from operations

6,966

3,673

14,792

16,234

Other Income (Expense):

Other income

10

76

Interest expense

(582

)

(609

)

(1,665

)

(1,861

)

Income before taxes

6,394

3,064

13,203

14,373

Tax expense (benefit)

(331

)

301

(612

)

1,475

Net income

6,725

2,763

13,815

12,898

Less: net income attributable to non-controlling interests

3,458

1,765

7,325

8,525

Net income attributable to Goosehead Insurance, Inc.

$

3,267

$

998

$

6,490

$

4,373

Earnings per share:

Basic

$

0.19

$

0.07

$

0.39

$

0.30

Diluted

$

0.17

$

0.06

$

0.36

$

0.27

Weighted average shares of Class A common stock outstanding

Basic

17,376

15,140

16,466

14,746

Diluted

18,915

16,451

17,926

15,936

Dividends declared per share

$

1.15

$

$

1.15

$

0.41

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

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

Three Months Ended September 30,

2020 (ASC 606)

2020 (ASC 605)

2019 (ASC 605)

Revenues:

Core Revenue:

Renewal Commissions(1)

$

7,931

$

8,044

$

6,056

Renewal Royalty Fees(2)

8,117

8,230

5,295

New Business Commissions(1)

4,790

4,849

3,294

New Business Royalty Fees(2)

3,090

3,074

1,994

Agency Fees(1)

2,491

2,535

1,782

Total Core Revenue

26,419

26,732

18,421

Cost Recovery Revenue:

Initial Franchise Fees(2)

1,152

3,045

1,935

Interest Income

212

212

169

Total Cost Recovery Revenue

1,364

3,257

2,104

Ancillary Revenue:

Contingent Commissions(1)

4,173

2

607

Other Income(2)

59

59

37

Total Ancillary Revenue

4,232

61

644

Total Revenues

32,015

30,050

21,169

Operating Expenses:

Employee compensation and benefits

17,901

18,055

11,412

General and administrative expenses

5,872

5,872

5,169

Bad debts

376

681

399

Depreciation and amortization

900

900

516

Total operating expenses

25,049

25,508

17,496

Income from operations

6,966

4,542

3,673

Other Income (Expense):

Other income

10

10

0

Interest expense

(582

)

(582

)

(609

)

Income before taxes

6,394

3,970

3,064

Tax (benefit) expense

(331

)

(689

)

301

Net Income

6,725

4,659

2,763

Less: net income attributable to non-controlling interests

3,458

2,084

1,765

Net Income attributable to Goosehead Insurance Inc.

$

3,267

$

2,575

$

998

Earnings per share:

Basic

$

0.19

$

0.15

$

0.07

Diluted

$

0.17

$

0.14

$

0.06

Weighted average shares of Class A common stock outstanding

Basic

17,376

17,376

15,140

Diluted

18,915

18,915

16,451

(1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in "Commissions and agency fees" as shown on the Condensed Consolidated statements of income within Goosehead’s Form 10-Q for the three and nine months ended September 30, 2020.
(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Income are included in "Franchise revenues" as shown on the Condensed Consolidated statements of income within Goosehead’s Form 10-Q for the three and nine months ended September 30, 2019.

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

Nine Months Ended September 30,

2020 (ASC 606)

2020 (ASC 605)

2019 (ASC 605)

Revenues:

Core Revenue:

Renewal Commissions(1)

$

21,382

$

21,900

$

16,744

Renewal Royalty Fees(2)

21,406

21,799

14,120

New Business Commissions(1)

12,452

12,583

8,766

New Business Royalty Fees(2)

7,737

7,812

5,213

Agency Fees(1)

6,362

6,874

4,959

Total Core Revenue

69,339

70,968

49,802

Cost Recovery Revenue:

Initial Franchise Fees(2)

3,031

6,960

5,160

Interest Income

573

573

452

Total Cost Recovery Revenue

3,604

7,533

5,612

Ancillary Revenue:

Contingent Commissions(1)

9,248

3,826

8,203

Other Income(2)

173

173

71

Total Ancillary Revenue

9,421

3,999

8,274

Total Revenues

82,364

82,500

63,688

Operating Expenses:

Employee compensation and benefits

47,308

47,612

30,981

General and administrative expenses

17,108

17,108

13,800

Bad debts

1,004

1,606

1,282

Depreciation and amortization

2,152

2,152

1,391

Total operating expenses

67,572

68,478

47,454

Income from operations

14,792

14,022

16,234

Other Income (Expense):

Other income

76

76

Interest expense

(1,665

)

(1,665

)

(1,861

)

Income before taxes

13,203

12,433

14,373

Tax (benefit) expense

(612

)

(784

)

1,475

Net Income

13,815

13,217

12,898

Less: net income attributable to non-controlling interests

7,325

6,866

8,525

Net Income attributable to Goosehead Insurance Inc.

$

6,490

$

6,351

$

4,373

Earnings per share:

Basic

$

0.39

$

0.38

$

0.30

Diluted

$

0.36

$

0.36

$

0.27

Weighted average shares of Class A common stock outstanding

Basic

16,466

16,466

14,746

Diluted

17,926

17,926

15,936

(1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in "Commissions and agency fees" as shown on the Condensed Consolidated statements of income within Goosehead’s Form 10-Q for the three and nine months ended September 30, 2020.
(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Income are included in "Franchise revenues" as shown on the Condensed Consolidated statements of income within Goosehead’s Form 10-Q for the three and nine months ended September 30, 2019.

Goosehead Insurance, Inc.
Segment Information
(Unaudited)
(In thousands, except per share amounts)

Three months ended September 30, 2020

Franchise
Channel

Corporate
Channel

Other

Total

Revenues:

Core Revenue:

Renewal Commissions(1)

$

$

7,931

$

$

7,931

Renewal Royalty Fees(2)

8,117

8,117

New Business Commissions(1)

4,790

4,790

New Business Royalty Fees(2)

3,090

3,090

Agency Fees(1)

2,491

2,491

Total Core Revenue

11,207

15,212

26,419

Cost Recovery Revenue:

Initial Franchise Fees(2)

1,152

1,152

Interest Income

212

212

Total Cost Recovery Revenue

1,364

1,364

Ancillary Revenue:

Contingent Commissions(1)

2,662

1,511

4,173

Other Income(2)

59

59

Total Ancillary Revenue

2,721

1,511

4,232

Total Revenues

15,292

16,723

32,015

Operating expenses:

Employee compensation and benefits, excluding equity based compensation

6,552

9,933

16,485

General and administrative expenses

2,329

2,781

762

5,872

Bad debts

45

331

376

Total Operating Expenses

8,926

13,045

762

22,733

Adjusted EBITDA

6,366

3,678

(762

)

9,282

Other income (expense)

10

10

Equity based compensation

(1,416

)

(1,416

)

Interest expense

(582

)

(582

)

Depreciation and amortization

(473

)

(427

)

(900

)

Income tax benefit

331

331

Net income

$

5,903

$

3,251

$

(2,429

)

$

6,725

September 30, 2020:

Total Assets

$

40,578

$

24,977

$

54,399

$

119,954

(1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in "Commissions and agency fees" as shown on the Condensed Consolidated statements of income within Goosehead’s Form 10-Q for the three and nine months ended September 30, 2020.
(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Income are included in "Franchise revenues" as shown on the Condensed Consolidated statements of income within Goosehead’s Form 10-Q for the three and nine months ended September 30, 2019.

Nine months ended September 30, 2020

Franchise
Channel

Corporate
Channel

Other

Total

Revenues:

Core Revenue:

Renewal Commissions(1)

$

21,382

$

$

21,382

Renewal Royalty Fees(2)

21,406

21,406

New Business Commissions(1)

12,452

12,452

New Business Royalty Fees(2)

7,737

7,737

Agency Fees(1)

6,362

6,362

Total Core Revenue

29,143

40,196

69,339

Cost Recovery Revenue:

Initial Franchise Fees(2)

3,031

3,031

Interest Income

573

573

Total Cost Recovery Revenue

3,604

3,604

Ancillary Revenue:

Contingent Commissions(1)

6,130

3,118

9,248

Other Income(2)

173

173

Total Ancillary Revenue

6,303

3,118

9,421

Total Revenues

39,050

43,314

82,364

Operating expenses:

Employee compensation and benefits, excluding equity based compensation

18,413

25,565

43,978

General and administrative expenses

6,488

8,111

2,509

17,108

Bad debts

182

822

1,004

Total Operating Expenses

25,083

34,498

2,509

62,090

Adjusted EBITDA

13,967

8,816

(2,509

)

20,274

Other income (expense)

76

76

Equity based compensation

(3,330

)

(3,330

)

Interest expense

(1,665

)

(1,665

)

Depreciation and amortization

(1,182

)

(970

)

(2,152

)

Income tax benefit

612

612

Net income

$

12,861

$

7,846

$

(6,892

)

$

13,815

September 30, 2020:

Total Assets

$

40,578

$

24,977

$

54,399

$

119,954

(1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in "Commissions and agency fees" as shown on the Condensed Consolidated statements of income within Goosehead’s Form 10-Q for the three and nine months ended September 30, 2020.
(2) Renewal Royalty Fees, New Business Royalty Fees, Initial Franchise Fees, and Other Income are included in "Franchise revenues" as shown on the Condensed Consolidated statements of income within Goosehead’s Form 10-Q for the three and nine months ended September 30, 2019.

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

September 30,

December 31,

2020

2019

Assets

Current Assets:

Cash and cash equivalents

$

19,957

$

14,337

Restricted cash

1,378

923

Commissions and agency fees receivable, net

11,793

6,884

Receivable from franchisees, net

2,414

2,602

Prepaid expenses

3,903

1,987

Total current assets

39,445

26,733

Receivable from franchisees, net of current portion

15,023

11,014

Property and equipment, net of accumulated depreciation

12,365

9,542

Intangible assets, net of accumulated amortization

554

445

Deferred income taxes, net

48,777

15,537

Other assets

3,790

1,357

Total assets

$

119,954

$

64,628

Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts payable and accrued expenses

$

5,210

$

5,033

Premiums payable

1,378

923

Deferred rent

881

683

Contract liabilities

3,729

2,771

Note payable

3,000

4,000

Total current liabilities

14,198

13,410

Deferred rent, net of current portion

7,507

6,681

Note payable, net of current portion

80,332

42,161

Contract liabilities, net of current portion

25,855

20,024

Liabilities under tax receivable agreement, net of current portion

41,494

13,359

Total liabilities

169,386

95,635

Commitments and contingencies (see note 8)

Class A common stock, $0.01 par value per share - 300,000 shares authorized, 17,499 shares issued and outstanding as of September 30, 2020, 15,238 shares issued and outstanding as of December 31, 2019

175

152

Class B common stock, $0.01 par value per share - 50,000 shares authorized, 19,158 issued and outstanding as of September 30, 2020, 21,055 shares issued and outstanding as of December 31, 2019

191

210

Additional paid in capital

24,601

14,442

Accumulated deficit

(37,102

)

(23,811

)

Total stockholders' equity

(12,135

)

(9,007

)

Non-controlling interests

(37,297

)

(22,000

)

Total equity

(49,432

)

(31,007

)

Total liabilities and equity

$

119,954

$

64,628

Goosehead Insurance, Inc.
Reconciliation Non-GAAP Measures to GAAP

This release includes Core Revenue, Cost Recovery Revenue, Ancillary Revenue, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EPS that are not required by, nor 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 three and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended September 30,

2020 (ASC 606)

2020 (ASC 605)

2019 (ASC 605)

Total Revenues

$

32,015

$

30,050

$

21,169

Core Revenue:

Renewal Commissions(1)

$

7,931

$

8,044

$

6,056

Renewal Royalty Fees(2)

8,117

8,230

5,295

New Business Commissions(1)

4,790

4,849

3,294

New Business Royalty Fees(2)

3,090

3,074

1,994

Agency Fees(1)

2,491

2,535

1,782

Total Core Revenue

26,419

26,732

18,421

Cost Recovery Revenue:

Initial Franchise Fees(2)

1,152

3,045

1,935

Interest Income

212

212

169

Total Cost Recovery Revenue

1,364

3,257

2,104

Ancillary Revenue:

Contingent Commissions(1)

4,173

2

607

Other Income(2)

59

59

37

Total Ancillary Revenue

4,232

61

644

Total Revenues

$

32,015

$

30,050

$

21,169

(1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in "Commissions and agency fees" as shown on the Condensed 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 Condensed Consolidated statements of income.

Nine Months Ended September 30,

2020 (ASC 606)

2020 (ASC 605)

2019 (ASC 605)

Total Revenues

$

82,364

$

82,500

$

63,688

Core Revenue:

Renewal Commissions(1)

$

21,382

$

21,900

$

16,744

Renewal Royalty Fees(2)

21,406

21,799

14,120

New Business Commissions(1)

12,452

12,583

8,766

New Business Royalty Fees(2)

7,737

7,812

5,213

Agency Fees(1)

6,362

6,874

4,959

Total Core Revenue

69,339

70,968

49,802

Cost Recovery Revenue:

Initial Franchise Fees(2)

3,031

6,960

5,160

Interest Income

573

573

452

Total Cost Recovery Revenue

3,604

7,533

5,612

Ancillary Revenue:

Contingent Commissions(1)

9,248

3,826

8,203

Other Income(2)

173

173

71

Total Ancillary Revenue

9,421

3,999

8,274

Total Revenues

$

82,364

$

82,500

$

63,688

(1) Renewal Commissions, New Business Commissions, Agency Fees, and Contingent Commissions are included in "Commissions and agency fees" as shown on the Condensed 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 Condensed 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 three and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended September 30,

2020 (ASC 606)

2020 (ASC 605)

2019 (ASC 605)

Net income

$

6,725

$

4,659

$

2,763

Interest expense

582

582

609

Depreciation and amortization

900

900

516

Tax expense

(331

)

(689

)

301

Equity-based compensation

1,416

1,416

396

Other (income) expense

(10

)

(10

)

Adjusted EBITDA

$

9,282

$

6,858

$

4,585

Adjusted EBITDA Margin(1)

29

%

23

%

22

%

(1) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Total Revenue ($9,282/$32,015), ($6,858/$30,050) and ($4,585/$21,169) for the three months ended September 30, 2020 (ASC 606 and 605, respectively) and 2019.

Nine Months Ended September 30,

2020 (ASC 606)

2020 (ASC 605)

2019 (ASC 605)

Net income

$

13,815

$

13,215

$

12,898

Interest expense

1,665

1,665

1,861

Depreciation and amortization

2,152

2,152

1,391

Tax expense

(612

)

(784

)

1,475

Equity-based compensation

3,330

3,330

1,131

Other (income) expense

(76

)

(76

)

Adjusted EBITDA

$

20,274

$

19,502

$

18,756

Adjusted EBITDA Margin(1)

25

%

24

%

29

%

(1) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Total Revenue ($20,274/$82,364), ($19,502/$82,500) and ($18,756/$63,688) for the nine months ended September 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 nine months ended September 30, 2020 and 2019 (in thousands, except per share amounts). Note that totals may not sum due to rounding:

Three Months Ended September 30,

2020 (ASC 606)

2020 (ASC 605)

2019 (ASC 605)

Earnings per share - basic (GAAP)

$

0.19

$

0.15

$

0.07

Add: equity-based compensation(1)

0.04

0.04

0.01

Adjusted EPS (non-GAAP)

$

0.23

$

0.19

$

0.08

(1) Calculated as equity-based compensation divided by sum of the weighted average Class A and Class B shares [ $1.4 million / ( 17.4 million + 19.2 million )] for the three months ended September 30, 2020 and [ $396 thousand / ( 15.1 million + 21.1 million )] for the three months ended September 30, 2019.

Nine Months Ended September 30,

2020 (ASC 606)

2020 (ASC 605)

2019 (ASC 605)

Earnings per share - basic (GAAP)

$

0.39

$

0.38

$

0.30

Add: equity-based compensation(1)

0.09

0.09

0.03

Adjusted EPS (non-GAAP)

$

0.48

$

0.47

$

0.33

(1) Calculated as equity-based compensation divided by sum of Class A and Class B shares [ $3.3 million / ( 16.4 million + 20.1 million )] for the nine months ended September 30, 2020 and [ $1.1 million / ( $14.7 million + $21.5 million )] for the three months ended September 30, 2019.

Goosehead Insurance, Inc.
Key Performance Indicators

September 30, 2020

December 31, 2019

September 30, 2019

Corporate sales agents < 1 year tenured

222

141

122

Corporate sales agents > 1 year tenured

149

107

110

Operating franchises < 1 year tenured (TX)

36

18

20

Operating franchises > 1 year tenured (TX)

183

180

177

Operating franchises < 1 year tenured (Non-TX)

266

215

209

Operating franchises > 1 year tenured (Non-TX)

338

201

177

Policies in Force (in thousands)

657,000

482,000

448,000

Client Retention

88

%

88

%

88

%

Premium Retention

90

%

91

%

92

%

QTD Written Premium (in thousands)

$

301,037

$

196,025

$

202,082

Net Promoter Score ("NPS")

91

89

90