10-Q: Goosehead Insurance Reports Strong Revenue Growth Amid Strategic Investments and Debt Refinancing

Goosehead Insurance, Inc. reported a 20% increase in total revenue for the second quarter of 2025, reaching $94.0 million, driven by robust core revenue growth and higher contingent commissions, despite a decrease in net income due to increased interest expense and asset impairment charges.

Summary

• Total revenue increased 20% to $94.0 million for the three months ended June 30, 2025, compared to $78.1 million for the same period in 2024.
• Core Revenue grew 18% to $86.8 million for the three months ended June 30, 2025, and 18% to $155.9 million for the six months ended June 30, 2025.
• Net income decreased by $2.6 million to $8.3 million for the three months ended June 30, 2025, and to $10.9 million for the six months ended June 30, 2025, from $12.7 million in the prior year.
• Adjusted EBITDA increased 18% to $29.2 million for the three months ended June 30, 2025, and 23% to $44.7 million for the six months ended June 30, 2025.
• Basic earnings per share was $0.20 and diluted earnings per share was $0.18 for the three months ended June 30, 2025; Adjusted EPS was $0.49.
• Total Written Premiums placed increased 18% to $1.2 billion for the three months ended June 30, 2025, and 20% to $2.2 billion for the six months ended June 30, 2025.
• Policies in Force increased 13% year-over-year to 1,793,000 at June 30, 2025.
• Corporate sales headcount increased 53% year-over-year to 479 at June 30, 2025.
• Total operating franchises decreased 4% year-over-year to 1,075 at June 30, 2025.
• Client Retention remained steady at 84% at June 30, 2025.
• Net Promoter Score (NPS) decreased to 84 as of June 30, 2025, from 91 as of June 30, 2024.
• Interest expense significantly increased to $6.3 million for the three months ended June 30, 2025, and $12.1 million for the six months ended June 30, 2025, due to increased total borrowings.
• General and administrative expenses increased by $7.8 million for the three months ended June 30, 2025, primarily due to $4.7 million in asset impairment charges and increased spending on technologies.
• The company refinanced its debt with a new $300 million term loan and $75 million revolving credit facility on January 8, 2025, and further reduced the interest rate on the term loan by 0.50% on July 9, 2025.
• A special cash dividend of $5.91 per share, totaling $146 million, was declared on January 9, 2025, and paid on January 31, 2025.
• A new $100 million share repurchase program was approved on April 23, 2025, authorized through May 1, 2026.

Sentiment

Score: 7

Explanation: While net income declined due to specific charges (increased interest expense from higher borrowings and asset impairment), the underlying business performance, as indicated by strong revenue growth, Core Revenue expansion, Total Written Premium increases, and Adjusted EBITDA growth, remains robust. The company is actively managing its capital structure through debt refinancing and share repurchases. The decrease in NPS and operating franchises are minor concerns but are offset by significant corporate sales headcount growth and stable client retention, suggesting a positive outlook despite short-term profitability impacts.

Positives

• Total revenue increased 20% for the three months ended June 30, 2025, and 19% for the six months ended June 30, 2025, demonstrating strong top-line growth.
• Core Revenue, the most predictable revenue stream, grew 18% for both the three and six months ended June 30, 2025.
• Total Written Premiums placed increased 18% to $1.2 billion for the three months ended June 30, 2025, and 20% to $2.2 billion for the six months ended June 30, 2025, serving as a strong leading indicator for future revenue.
• Policies in Force increased 13% year-over-year to 1,793,000 at June 30, 2025.
• Client Retention remained steady at 84% at June 30, 2025, despite rising premium rates, indicating effective client service.
• Corporate sales headcount increased 53% year-over-year to 479 at June 30, 2025, reflecting strategic investment in direct sales.
• Adjusted EBITDA increased 18% to $29.2 million for the three months ended June 30, 2025, and 23% to $44.7 million for the six months ended June 30, 2025, indicating healthy operational profitability.
• Successfully refinanced debt with a new $300 million term loan and $75 million revolving credit facility, and subsequently reduced the interest rate on the term loan by 0.50% on July 9, 2025.
• Recognized $4 million in revenue due to the release of a constraint on certain variable consideration related to policies placed and made effective in previous periods.

Negatives

• Net income decreased by $2.6 million to $8.3 million for the three months ended June 30, 2025, and to $10.9 million for the six months ended June 30, 2025, primarily due to increased interest expense and asset impairment charges.
• Interest expense increased significantly by $4.3 million for the three months ended June 30, 2025, and $8.7 million for the six months ended June 30, 2025, due to higher total borrowings outstanding.
• Incurred $4.7 million in asset impairment charges during the three months ended June 30, 2025, related to exiting or subleasing three office leases.
• Net Promoter Score (NPS) decreased to 84 as of June 30, 2025, from 91 as of June 30, 2024, suggesting a potential decline in client satisfaction.
• Total operating franchises decreased 4% year-over-year to 1,075 at June 30, 2025.
• Revenue from Initial Franchise Fees decreased by 24% for the three months ended June 30, 2025, and 33% for the six months ended June 30, 2025, attributed to lower turnover of franchises.
• Interest income decreased by 27% for the three months ended June 30, 2025, and 26% for the six months ended June 30, 2025, due to fewer franchises operating under the payment plan option.
• Premium retention rate decreased from 98% to 95% for the trailing twelve months ended June 30, 2025, attributed to moderating premium rate increases combined with stable client retention.

Risks

• Diminished capacity of Carriers to place new business, potentially due to natural disasters (e.g., wildfires, hurricanes, floods), could slow the growth of New Business Revenue.
• Declines in client retention caused by increases in premium rates could slow the growth of Renewal Revenue in the future.
• Contingent Commissions are inherently volatile and unpredictable, as they are based on carrier underwriting profitability and may be impacted by catastrophic losses from natural or man-made disasters.
• The 2025 Credit Agreement contains covenants that limit the amount of additional debt incurred and distributions payable, including a maximum allowable trailing twelve months debt-to-EBITDA ratio of 5x.
• Changes in state apportionment and related state filing requirements can impact effective tax rates and the Tax Receivable Agreement (TRA) liability.
• The recently passed 'One Big Beautiful Bill Act of 2025' (OBBBA) could introduce changes to U.S. corporate tax provisions, with the financial impact currently being evaluated.
• Ongoing litigation, specifically the Dollens Action regarding corporate governance documents, poses a legal risk, although the company believes a potential loss would not be material.

Future Outlook

The company expects continued growth in Core Revenue, driven by policies in renewal terms, client retention, new policies written by corporate agents and franchises, and rising premium rates. New Business Revenue is anticipated to continue converting into higher-margin Renewal Commissions and Royalty Fees. The company is currently evaluating the financial impact of the 'One Big Beautiful Bill Act of 2025' (OBBBA). Future liquidity needs include funding organic growth, operating expenses, Tax Receivable Agreement payments, debt service, income taxes, and potential share repurchases and dividends.

Management Comments

• 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 clients 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 a superior insurance experience to our clients.
• The increase in employee compensation was primarily related to investments in corporate producers and our service and technology functions.
• The increase in Agency Fees was primarily attributable to an increase in the average fee charged, as well as an increase in the number of policies written where an agency fee was charged.
• The increase in revenue from Renewal Royalty Fees was primarily attributable to an increase in the number of policies in the renewal term, assisted by client retention of 84%; rising premium rates; and $1.0 million from the release of the constraint on certain variable consideration related to policies placed and made effective in previous periods.
• The increase in revenue from New Business Royalty Fees was primarily attributable to an increase in franchise productivity and rising premium rates.
• The decrease in Revenue from Initial Franchise Fees was primarily attributable to lower turnover of franchises during the period, which avoids accelerated recognition of Initial Franchise Fees for terminated franchises.
• The decrease in interest income was primarily attributable to fewer franchises operating under the payment plan option during the period.
• The increase in Adjusted EBITDA was driven by growth in total revenue, including the recognition of $4 million of revenue due to the release of a constraint on certain variable consideration related to policies placed and made effective in previous periods.
• Client Retention of 84% at June 30, 2025, remained steady despite premium rate increases, supported by our service teams' continued focus on delivering highly differentiated service levels.

Industry Context

The company operates in the personal lines independent insurance agency sector, which is influenced by factors such as rising premium rates and product challenges in specific regions like Texas, likely due to weather events or regulatory changes. The volatility of Contingent Commissions, being susceptible to weather events and carrier underwriting results, highlights the broader industry's exposure to natural disasters. The observed moderation in premium rate increases, combined with stable client retention, suggests a shifting dynamic in the insurance market.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results for direct industry-wide benchmarking.

Corporate Governance

Legal Proceedings

• A verified stockholder class action complaint, Mickey Dollens v. Goosehead Insurance, Inc., was filed on November 10, 2022, alleging certain corporate governance documents adopted by the company were invalid under Delaware law.
• On August 8, 2023, a proposed settlement was entered into for the Dollens Action, providing for non-monetary benefits to the class, specifically revisions to the Company's Stockholder Agreement.
• The plaintiffs have petitioned the Court for attorneys fees and litigation expenses, but the company believes a potential loss, if any, would not be material.

Related Party Transactions

• The company entered into a Tax Receivable Agreement (TRA) with Pre-IPO LLC Members on May 1, 2018, which provides for payment of 85% of cash savings in U.S. federal, state, and local income tax realized from increases in tax basis in the company's assets due to redemptions or exchanges of LLC Units.
• During the three and six months ended June 30, 2025, an aggregate of 268,000 and 412,833 LLC Units, respectively, were redeemed by Pre-IPO LLC Members for newly issued Class A common stock, resulting in an increase in the tax basis subject to the TRA.
• As of June 30, 2025, the total TRA liability was $171.8 million, with $7.0 million classified as current.
• Goosehead Financial, LLC (GF) makes distributions to LLC Unit holders on a pro rata basis to facilitate quarterly tax payments; for the three and six months ended June 30, 2025, $1.9 million was distributed to Pre-IPO LLC Members.

Stakeholder Impact

• Shareholders: Impacted by the special cash dividend of $5.91 per share, the new $100 million share repurchase program, and the decrease in net income (though explained by specific charges). The restatement of prior period balances for stockholders' equity also impacts their reported historical figures.
• Employees: Employee compensation and benefits increased, indicating continued investment in the workforce and technology functions.
• Customers: Client Retention remained steady at 84%, but NPS decreased from 91 to 84, suggesting a potential decline in customer satisfaction.
• Franchisees: Total operating franchises decreased by 4%, and Initial Franchise Fees decreased due to lower turnover. Fewer franchises are operating under the payment plan option.
• Creditors: The company refinanced its debt with a new $300 million term loan and $75 million revolving credit facility, and subsequently reduced the interest rate on the term loan, impacting the company's debt obligations and interest payments. The company was in compliance with debt covenants as of June 30, 2025.

Next Steps

• Evaluate the financial impact of the 'One Big Beautiful Bill Act of 2025' (OBBBA).
• Continue to fund organic business growth.
• Pay operating expenses, including cash compensation to employees.
• Make payments under the tax receivable agreement.
• Pay interest and principal due on borrowings under the Credit Agreement.
• Pay income taxes.
• Repurchase shares under the new $100 million Share Repurchase Program through May 1, 2026.
• Consider future special cash dividends at the sole discretion of the board of directors.

Key Dates

Recommendation

While the company demonstrates strong top-line growth in total revenue and Total Written Premium, indicating a healthy underlying business model, the decline in net income due to increased interest expense from higher borrowings and significant asset impairment charges warrants caution. The decrease in NPS is also a concern. The debt refinancing and new share repurchase program are positive capital management actions. The mixed financial performance suggests a 'Hold' recommendation, as the growth story is intact but profitability is currently impacted by strategic investments and one-off charges, requiring further monitoring.

Keywords

Insurance brokerage, Property and casualty insurance, Financial results, Revenue growth, Adjusted EBITDA, SEC filing, 10-Q, Franchise model, Client retention, Total Written Premium, Debt refinancing, Share repurchase, Corporate governance, Risk management