Q3 2025 TWFG Inc Earnings Call

Speaker #1: As a reminder, today's call may include forward-looking statements that are subject to risk and uncertainties. Actual results could differ materially. For more information, please review our filings with the SEC.

Speaker #1: And now, I'd like to turn the call over to Gordie Bunch, Chief Executive Officer, please go ahead.

Speaker #2: Thank you, Operator. And good morning, everyone. TWFG delivered another strong quarter of performance, reflecting both the resilience of our distribution platform and continued scalability of our operating model.

Speaker #2: Total revenues increased 21% quarter over quarter. To $64.1 million. Supported by $10.2% organic revenue growth and M&A revenues, while adjusted EBITDA grew 45% to $17 million.

Speaker #2: Margins expanded by $430, underscoring the 26.5% earnings power of our distribution platform and the execution on accretive M&A as we leverage scale and financial discipline.

Speaker #2: We continue to see encouraging signs of personal lines normalization. Carrier appetite has returned, rate increases have moderated, and underwriting discipline remains strong. All of which are helping to normalize retention and new business growth across our platform.

Speaker #2: Our diversified model spanning retail, MGA, and affiliated agencies positions us to capitalize on both hard and soft market cycles. Our third quarter recruiting and M&A activities were productive, with the addition of eight new retail locations, one new corporate location, and 370 independent agents to our MGA platform.

Speaker #2: the quarter, we completed the Following acquisition of Alabama Insurance Agency. Adding 23 additional retail locations and marking Alabama as our newest state expansion. These additions strengthen our foundation heading into the fourth quarter.

Speaker #2: And enhance our ability to serve clients across a broader national footprint. Strategically, our priorities remain unchanged. Investing in our technology initiatives, executing our accretive M&A goals, expanding our retail and MGA distribution channels, and executing disciplined capital deployment to support these priorities.

Speaker #2: I'll now turn the call over to Janice Zwinggi, our CFO, to discuss some of the financial

Speaker #3: Gordie. Starting with our top KPI written Good morning and thank you,

Speaker #3: premium, increased by highlights. 67.6 million or 16.9% over the prior year period to $467.7 million. We saw strong double-digit growth within both of our primary offerings, insurance services grew 56 million or 16.5%, and the MGA had a spike in growth of 11.7 million or 19.2%.

Speaker #3: This increase was a result of healthy growth in both renewals at 51 million, or 16.4%, and new business at 16.6 million, or 18.7%. Our consolidated written premium retention remains strong at 91%.

Speaker #3: While I softening rate environment typically translates to increased customer shopping, our retention performance underscores the stability and engagement of our client base. Our total revenues increased 11 million or 21.3% over the prior year period to $64.1 million.

Speaker #3: driven primarily by commission income growth of 10 million or This increase was 20.8% to 58.3 million as a result of continued expansion in both of our product offerings and supported by strong renewal and new business activity.

Speaker #3: Higher contingent income and increased fee-based revenues from one of our MGA programs also contributed to the revenue growth. Organic revenues increased $5 million, reaching $54.2 million compared to $49.2 million in the prior year period.

Speaker #3: For an organic growth rate of 10.2%, demonstrating solid momentum across both our agency and MGA platforms and positioning us well to meet our full year growth targets.

Speaker #3: From a profitability standpoint, adjusted EBITDA of $17 million grew 44.7%, translating to a margin of 26.5%, which was up more than 400 basis points from the prior year quarter.

Speaker #3: This expansion reflects operating leverage, expense discipline, and an increasing mix of higher margin, corporate branch locations. On the expense side, commission expense increased 3.9 million or 13% over the prior year period to $34.6 million, tracking with commission income growth, taking into account the impact of corporate store acquisitions and programs with no related commission expense.

Speaker #3: Salaries and benefits increased 1.6 million or 19.2% over the prior year period to 9.9 million driven by investments in new corporate branch acquisitions headcount growth and public company infrastructure.

Speaker #3: Other administrative expenses increased 8% to 5.2 million reflecting technology upgrades and compliance initiatives. Net income was 9.6 million up 40% over the prior year period with a net margin of

Speaker #1: To an equating adjusted net income margin of 20%. We also delivered operating cash flow of $15 million and ended the quarter with $151 million in cash and no draws on our revolver, leaving us well positioned to fund both organic initiatives and potential tuck-in M&A.

Speaker #1: For the full year 2025 , we've ranges tightened the on our guidance to reflect our year to date performance . expansion Recent activity and current market conditions .

Speaker #1: We expect total revenues between 240 and 245 million , and organic growth rate range of in the 11 to 13% and adjusted EBITDA margins between 24 and 25% .

Speaker #1: As the personalized market continues to soften and carrier availability expands , our current recruiting and acquisition initiatives , including the addition of new retail locations , independent agents , and the Alabama Insurance Agency , provide further momentum and earnings visibility .

Speaker #1: Heading into year end . Together with our balanced capital allocation and disciplined execution , these factors reinforce our confidence in achieving our full year 2025 targets .

Speaker #1: I'll now hand the call back to Gordie for closing remarks .

Speaker #2: Thank you . Janice . As we close out the third quarter , I'm how our proud of teams continue to execute . We've proven that investing for growth and focusing on margin expansion can coexist , and that our TWFG, Inc. family culture remains one of our greatest advantages .

Speaker #2: TWFG, Inc. is squarely aligned with that playbook , focused on profitable growth , accretive M&A , deepening carrier and agency relationships , and expanding our retail and footprint to sustain our long term growth objectives .

Speaker #2: enter the We final quarter of the year with momentum , a fortress balance sheet , and a clear view toward our long term objective to build one of the best high growth , independent , agent centric , data driven distribution platforms in the country .

Speaker #2: to thank our I want employees , agents , carriers and shareholders for their continued trust and commitment to TWFG, Inc. . With that , operator , let's open the line for questions .

Speaker #3: Thank you . As a reminder to ask a question , you will need to press star one one on your telephone . To remove yourself from the queue , you may press star one .

Speaker #3: One again . Please stand by while we compile the Q&A roster . Our first question comes from the line of Tommy McGeorge of CCB .

Speaker #3: Please go ahead, Tommy.

Speaker #4: morning guys . Hey , good Thanks for taking our questions . The first one , I think is going to be related to the M&A front , just want but I to check if I look at the statement of cash flows .

Speaker #4: There is a $10 million . Up line . attributed to other investment . Could you clarify what that is ? Is that related to M&A

Speaker #5: Sure, we've long had our own premium finance operations, and we've been outsourcing operations for years. We're also using credit facilities to fund those premium finance notes.

Speaker #5: So

Speaker #5: With so much capital in our coffers , we deployed our own capital into the premium finance operations , giving us a higher yield on that operating business .

Speaker #4: Okay , got it . So is that in accretive transaction ? I guess is that needle moving ?

Speaker #5: I think it's highly , highly accretive . Yeah . Highly accretive for us . You know , you're getting 4% plus interest in interest most bearing instruments .

Speaker #5: And the yield of swapping out our capital for the credit facility . funding That was the finance premium notes put us well above 7% on the same , same deposits .

Speaker #4: Okay, got it. And then, staying on the M&A front, you are obviously constantly looking at a pipeline of potential acquisitions.

Speaker #4: As we think about the 2026 pipeline , would your expectations right now that you guys put more capital to work on M&A front ?

Speaker #4: Do more deals , or how do you think it relative to the pace that we're seeing this year ?

Speaker #5: think we'll be I executing a little bit earlier in the cycle in 26 than we did in 25 . And depending on how we view M&A throughout the calendar year , we should exceed 26 .

Speaker #5: Let may exceed 20 . Five . Sorry .

Speaker #4: Yeah . Thank you Understood . .

Speaker #3: you Thank . Our next question comes from the line of Paul Newsome . Piper Sandler . Your line is Paul . Paul .

Speaker #6: Good morning . Thanks for the call . Appreciate the maybe a little bit of additional color on the market environment would be helpful .

Speaker #6: I was wondering if you could kind of walk through maybe in addition to some of the pieces of rate plus true organic growth , M&A , just to kind of give us a better sense of as we go into 26 , what are the moving pieces that will get you to that double digit ?

Speaker #6: Organic growth ? And what are the things that we should be sensitive to if things change , like one of the things I've struggled with is , you know , hard market turned out to be kind of bad for organic growth because of the availability issues .

Speaker #6: But now we have more availability . But we've got stock market . So maybe some thoughts there would be helpful , at me .

Speaker #6: But now we have more availability . But we've got stock market . So maybe some thoughts there would be helpful , at least for Thanks .

Speaker #5: Yeah . First on the market transitioning from hard to soft . That has an impact on renewal rate . And premium retention as those policies that were enforced last year come in at lower rates as the market also then opens up , customers have more access to different carrier options than they had in prior periods , which could lead to even , you know , rewriting the account into an even lower rate than what the renewing expiring carrier offered that cycle plays through a full calendar year .

Speaker #5: So we should see the impact of that . You know , abating once we get into the second quarter of 26 . That would give us a full run of 12 month the softening of the which really market , began early the in quarter second of 25 .

Speaker #5: The availability of additional capacity allows for more clients to be onboarded . The trade off is , you know , higher , lower average premium for the same accounts .

Speaker #5: We seeing in growth exposure that , you know , is offsetting some of that reduced premiums . When we look at our organic going into 26 , it's a combination of our same store sales , growth velocity , sales velocity , as well as new program initiatives that we've launched from the MGA are exposures , existing that more additional , which then program channels through those expansion creating brought in allows for year .

Speaker #5: So it's really not one area . It's a multitude . All of the different parts of our platform executing against their growth initiatives .

Speaker #6: may be It a kind of sort of similar question . You've made a lot of additions of new Agents . over the last year or so think you've said in the past , most of them .

Speaker #6: won't have an I impact anytime soon . How has that sort of waterfall of impact from those newly equated ? Agents coming and , you know , is there a point where we see some sort of inflection point where that those those new agents you've accumulated over the last year or so start to have a measurable impact on growth ?

Speaker #5: Yeah , they're there . Impact is baked into our forecasting . And I think as we talked about it , you know , over time , you know , the immediate year they come in , there's not much of an immediate contribution as they , you know , grow their agency over a multiyear process .

Speaker #5: They start becoming more meaningfully contributive now as like , say , we added a lot of stores in 24 . So in 24 and early 25 , you know , they're not contributing a lot to the organic story as they start getting there .

Speaker #5: Portfolios larger , they do become organic contributors . But at a at a percentage of the larger base . Now . So they're all part of the the , you know , organic base .

Speaker #5: And so they're going to be part of the organic forecast based on our trend lines. So when we look at it in a box, all those recruited are in the locations A bucket.

Speaker #5: And so they they get baked into there . We don't do cohort analysis around those because of the vast diversity of locations . Average premiums and some of them doing their own tuck in producer acquisitions that then skew the data points .

Speaker #5: So but anyways , they are they're going to start being contributors . They're part of the base assumption going into the double digit 2026 projection .

Speaker #6: Thanks . Appreciate the help .

Speaker #3: Thank you . Our next question the line of comes from Pablo Singson of JP . Please go ahead . Pablo .

Speaker #7: Hi . Thanks . First on the MX channel . So good premium growth this quarter . I think you said 19% , but commission income actually grew much faster , right ?

Speaker #7: I think it was about 56 . And then commission expense only grew 27 . As a result . The MGA was highly margin accretive this quarter .

Speaker #7: I think Net commissions growth conditions are about 52% against . I think , you know , mid 30s historically . Anyway , can you just talk about what happened there ?

Speaker #7: You know, this is trend-wise, and what drove the strong results this quarter.

Speaker #5: sure . Yeah , launched So we a program in Florida at the end of the second quarter . Part of that program , we there's two components to it .

Speaker #5: We are a exclusive TPA , mga for Florida property program . They had a takeout that materialized in June . That a TPA creates revenue stream for underwriting claims , marketing the .

Speaker #5: earnout of the And on takeout . There's not a commission expense . So we get a commission revenue without the corresponding commission expense , as those policies renew , they do end up having a commission expense , and you'll see a normalization of that ratio between commission income and commission expense .

Speaker #5: And then separate and aside from that , there's a voluntary organic that's program new , that's writing new business . All albeit in the reported quarter , not a large really contributor should become a contributor at the end of the fourth quarter .

Speaker #5: And more going into 2026 .

Speaker #7: Gotcha . Thanks , Lordy . And then second question , I guess this one's a bit bigger picture , right ? So many of the public brokers have recently announced , you know , significant cost reduction or investment programs , which may be a good for them .

Speaker #7: But longer term either their cash flow . So I guess the question is , do you anticipate something similar for company ? And if your not , how would you respond to the objection that you might be underinvesting in the business compared to everyone else ?

Speaker #5: Yeah , we haven't announced our full year 2026 estimates . We plan to do so as we come out of the K . We're in the midst of our 2026 planning process .

Speaker #5: Looking at those investments, some of the investments we make, as you recall, are technology operation, or our Evolution Management Systems company, which is outside the public company.

Speaker #5: Those capital are made investments within that tech environment , which doesn't then burden the public entity with that capital spend . We will have investments similar to our peers , probably not at the scale of what they're spending .

Speaker #5: And part of that is just how we're organized , given the ability we can invest in technology outside of the public company operations and benefits of those tech investments then inure to the public company operating business units .

Speaker #5: So it's just subtly different . We will have expansion of management team . You'll see an announcement later on this afternoon of some roles titles changes that we put and out , and then as we finish up our 26 planning will be putting out the year estimates alongside our K .

Speaker #7: Okay. Thanks, Gordon.

Speaker #3: Thank you once again to ask a question , please star one press one on your telephone . Our next question comes from the line of Brian Meredith of UBS .

Speaker #3: Please go ahead . Brian .

Speaker #8: Yeah . Thanks , Gordy . First question back on the MGA . So as capacity becomes more available , particularly in the Texas market I'm , and assuming business kind of goes back to the admitted market from the wholesale will that market , create some some pressures maybe on growth in the MGA ?

Speaker #5: Well , fortunately for us , our MGA programs are currently all admitted . So if anything , the okay capacity that's back from shifting INS into the admitted space and nerves to our benefit .

Speaker #8: Gotcha . So that .

Speaker #5: Texas and Makes Florida are admitted products terrific .

Speaker #8: That's helpful . Thanks . And then I'm just second question , when we curious think about EBITDA for your corporate margins versus agency in a box business , what's the difference there ?

Speaker #8: And and is there a difference in kind of where your agency in a box , EBITDA margins can go versus the corporate margins ?

Speaker #8: Do you think ?

Speaker #5: you know , we've So , talked about agency in a box in the through of passing 80% of the revenue , new and renewal kind of puts a a cap on what that margin can can produce , because we are at scale as a business operations .

Speaker #5: We do have a healthy net revenue margin on that business unit , on the corporate locations . Our margins going to be greater than two x of what we achieve in agency in a box , because we're retaining 100% of the renewal and more have control and constructive receipt of the profitability of those operations .

Speaker #8: Makes sense . Thank you .

Speaker #5: want to And I Brian , while I got circle back , you . So I partially misspoke . Our programs that we originate and operate are all admitted .

Speaker #5: The Dover Bay program is indeed a ENS program . want . I And didn't just wanted to clear that up .

Speaker #8: Okay , thanks .

Speaker #3: Thank you . Our next question comes from the line of Charlie Lederer of BMO . Your line is open . Charlie .

Speaker #9: Hey . Sorry I joined late , so I apologize if I'm repeating else's question or if someone on in your remarks , but , you know , you made the comment in the press release about the product environment .

Speaker #9: You know , improving significantly . Just curious if you could break that out geographically a little bit . And , you seeing know , if you're that in both the new business and renewal side .

Speaker #9: guess how And I how to think about , you know , it's flowing into the PNL here term .

Speaker #5: Sure . So we did touch on it earlier , but I don't mind repeating the hard market for personal lines started moving soft .

Speaker #5: And really the beginning of the second quarter of 25 that changes carrier posturing . So think about the hard market . 2324 and the early parts of 25 carriers are taking significant rate .

Speaker #5: Carriers restricting are capacity by restricting capacity . That means they're not writing the right new business . They're not wanting to add new production appointments .

Speaker #5: That and becomes a challenge. Can you guys still hear me?

Speaker #9: Yeah .

Speaker #5: Okay . Sorry . The computer screen went I thought I was talking into the abyss . So as the market started to soften , carriers start reducing rates , they start opening up geographically for new business growth .

Speaker #5: They start putting out incentives to to get agents to reengage in the sales process . And it becomes a highly competitive environment . Geographically , I would say that's present everywhere except California .

Speaker #5: California remains to be a hard market . You're still seeing property , you know , shifting between California fair plans , surplus lines , there's fewer carriers right now operating the marketplace .

Speaker #5: You California Safeco make the decision to essentially exit the state by transferring its portfolio to Liberty Mutual . And so capacity is shifting from left pocket to right pocket .

Speaker #5: We are in both of those carriers . Distribution . And so California is still still hard on the personal line side . It's relatively soft on the commercial lines .

Speaker #5: And then you have spotty geographical hardness where you have significant wildfire exposure regardless of state . And then , you know , I'd say largely the cat exposed , hurricane driven PML geographies or relatively soft giving given the reduction in cat pricing in the , you know , significant availability of Cat out in the market today .

Speaker #9: Thanks . Maybe the M&A pipeline that you talked about . Can you can you give us a sense of , you know , if there's a commercial or personal tilt toward that in terms of how your business mix might evolve in the next year or so ?

Speaker #5: So when when we're looking at M&A , you know , the first thing we're looking at is the cultural fit of the organization .

Speaker #5: Secondarily , the quality of the portfolio is accretive does the . Meaning portfolio have similar loss ratio , qualitative characteristics as our core portfolio some , is there geographical expansion benefit of the acquisition ?

Speaker #5: So does it possess unique carrier contracts and programs that benefit the large there's an organizations ? So immediate accretion . The EBITDA margin of the operating business .

Speaker #5: And is there some internal scale lift of that Post-closing . You know , we don't really focus on is it personal ? Is commercial ?

Speaker #5: it Is it retail ? Is it mga is it network ? We really look at the . Qualitative creativeness of the of the totality of everything .

Speaker #5: And so we have in our pipe and we have in our near-term a little flavor of everything . So you know , if I look in the rear , the last two acquisitions , we closed were I would say majority commercial lines , retail organizations and part of that was , you know , geography .

Speaker #5: We picked up some scale in New York with the anger . And acquisition that we announced in August then , you . And know , we had a larger operation in Louisiana that was also more commercially focused .

Speaker #5: And the McGinnis operation we acquired in June . As I look at the first quarter 26 pipeline , I would say it's a little bit of everything .

Speaker #5: So we have , you know , one entirely commercial organization that's in the pipe . We have several that are a mix . So more of a multi-line agency flavor where you have probably , you 40 , know , 50% personal , you know , 60 to , you know , 50% commercial .

Speaker #5: And then we have some that are entirely personal lines . So I think that that's a good question to And ask . I'll probably use your question as an opportunity to talk about premium projections .

Speaker #5: When we look at our acquisitions and we put together our base analyst model , I think we use the assumption that the majority of our acquisitions and deployed capital were oriented going to , generate a average lower businesses commission , but would project a higher premium .

Speaker #5: Internally, we're less sensitive to premium because we're not a carrier. We're more focused on the acquired revenue and the EBITDA output of the acquiring business.

Speaker #5: So when we acquire program oriented type businesses , it's going to bring in less premium than you may have projected , but it's going to bring in a higher average commission than you projected .

Speaker #5: So when we hear or we see there's a miss that on premium , we're not a carrier . We just use premium as a barometer of how you can project future revenues .

Speaker #5: And maybe we got to be a little bit more strategic about how we communicate that , because extent that we to the expand programs and we will because present a higher they margin for us , it's going to be a lower premium , but a higher revenue and a higher EBITDA margin off of what we put in our base M&A assumptions .

Speaker #5: So I think when we come around and provide 26 guidance , you're going to see us trying to update those assumptions , because I think when you look at our actual results from an M&A basis , we're achieving on the acquired revenue , we're achieving on maybe overachieving on the EBITDA margin and then where we see there's questions is what the number premium didn't come in .

Speaker #5: I think for me as an investor and owner of the business , I'm more focused on the revenue and the net income and the earnings and the ability to reinvest those earnings into the growth of the business long term .

Speaker #5: Then the top line premium that I don't get to because we're retain not a carrier balance sheet organization . Is that fair ?

Speaker #9: Very fair . Thank you . It's helpful . Just one last one on the contingent . And the contingent . You into what contingents might look like for you .

Speaker #5: we So do . One of the reasons we were very confident in our full year guidance we made is it through the nine month treadmill and , you know , obstacle course known as insurance .

Speaker #5: We got those third quarter in lock opportunities so we can some of those lock in contingencies that are at our base level projections .

Speaker #5: So we have a high confidence in achieving what we've got in our current Performa through the full year calendar .

Speaker #9: Thank you .

Speaker #3: Thank you. I would now like to turn the conference back to Gordy Bunch for closing remarks. Sir.

Speaker #5: Well , we again appreciate all of our shareholders , our staff , you know , even the analysts and investors and our , you know , that are working with us .

Speaker #5: You know, we think we have a great opportunity going into 2026 with our strong balance sheet, our very healthy M&A pipeline, and organic strategies for existing operations.

Speaker #5: The expansion of our programs , we look to execute on all the different levers that we have to ensure consistent growth and profitability across the Look forward organization .

Speaker #5: to further feedback and appreciate everybody again , and thank you for attending our call .