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Good morning. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the TWFG First Quarter 2026 Conference Call. [Operator Instructions] This call is being recorded and will be available for replay on the company's website.

Before we begin, let me remind you that today's discussion may contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements, please refer to the company's press releases and SEC filings. Also on call today, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. The company has posted the reconciliations of the non-GAAP financial measures discussed during this call in the tables accompanying the company's earnings press release located on the Investors section of the company's website at www.twfg.com.

It is now my pleasure to introduce Mr. Gordy Bunch, Founder, Chairman and CEO of TWFG. Sir, the floor is yours.

Thank you, and good afternoon, everyone. Thank you for joining us today to discuss TWFG's First Quarter 2026 Results. Joining me on today's call is Janice Zwinggi, our Chief Financial Officer. After my remarks, Janice will walk through our financial performances in more detail, and then we'll open the call for questions. I am pleased to report that TWFG delivered a strong first quarter that demonstrates the underlying strength and scalability of our platform. Our results reflect a softening market environment, continued disciplined execution across our businesses and the benefits of our strategic investments in technology, our new MGA programs and our talent acquisition.

For the first quarter of 2026, we delivered a solid 35.3% revenue growth, driven by a combination of double-digit organic growth and contributions from our prior and current year acquisitions. This growth reflects momentum across both our insurance services and MGA platforms. Written premiums grew 23.5% with strong performances in renewal retention and new business growth. From a profitability perspective, we delivered 650 basis points margin expansion. This expansion reflects our operating leverage, higher margin profile of our MGA platform and disciplined execution on integration of our recent acquisitions.

There are near-term margin benefits with TWFG MGA Florida takeout program during the runoff period where policies assumed have a commission without a corresponding commission expense. This margin benefit will decline as more takeout policies renew with new full-term premiums and a normal commission expense. The market has improved meaningfully compared to a year ago. Carriers have reentered key personal and commercial lines markets where capacity had been constrained. Pricing trends are moderating and underwriting discipline remains strong across the industry. This creates an ideal environment for a diversified platform like ours to expand.

Our business model spanning retail agencies, corporate branches and proprietary MGA programs is uniquely positioned to capitalize on these dynamics. Whether in a hard or soft market cycle, our independent agent network provides stable recurring revenue and deep carrier and client relationships, creating a competitive advantage difficult to replicate. Our strategy remains consistent and disciplined. We're executing across 4 core priorities to deliver double-digit organic growth, execute accretive M&A, investing in technology and platform improvements for our agents' productivity, deploying capital with discipline across all these investments.

On the acquisition front, we completed 2 strategically important transactions in the first quarter. In March, we acquired Lofton Wells Insurance, which became a corporate location in Memphis, Tennessee. This addition provides scale to our Tennessee operations and positions us in a region with significant long-term growth opportunities. We also completed the acquisition of Asset Protection Insurance Associates, a Texas-based MGA specializing in insurance solutions for property owners and real estate investors across the United States. APIA brings deep underwriting expertise and expanded distribution network and access to additional program opportunities. This enhances our MGA's capabilities and supports continued margin expansion. And last week, we closed on the acquisition of Fortress Insurance Services out of Iowa, establishing another foothold agency in the Midwest.

From a technology standpoint, we continue to prioritize investments that make our platforms more efficient and our clients better served. Our proprietary technology remains a competitive advantage, allowing us to rapidly develop and implement new capabilities, whether built internally or integrated with best-in-class third-party solutions. Our capital position remains solid, providing significant flexibility to invest in growth and pursue strategic opportunities.

Before turning to Janice, I want to address the topic of AI, becoming a central conversation in our industry's future. AI, if you look at the SEC filings across insurance brokers over the past 5 years, is an increasing reference in everybody's earnings releases and conversations. Machine learning mentions have increased tenfold in that time span. Not by accident, the industry is embracing the change and many people have questions on how AI matters. It does matter and it will have an impact on the industry. It's whether your company is positioned to harness it strategically and implement it in a way that is beneficial across your distribution and your platforms. Last quarter, we shared our perspective that AI will improve the independent distribution channel for those that can embrace and implement the technology.

Today, I want to update you on our progress on why we believe TWFG is best positioned as a net beneficiary of this evolution. We've made significant investments in AI leadership and capabilities. Over the past year, we appointed a Chief Technology Officer focused specifically on AI strategy, cloud architecture and platform modernization. We've grown our technology team to 44 dedicated professionals, software engineers, infrastructure specialists, and product developers, representing 1/3 of our non-sales corporate employee base. Critically, we are investing in proprietary AI solutions that embedded with our 25 years of underwriting knowledge and data assets. We are deploying AI tools like Claude to make each engineer more productive, and we are being intentional about how we deploy engineering talent towards revenue generation and competitive advantage, creating efficiencies, not just a cost reduction.

We do have competitive advantages in the AI space. First, proprietary data. Our MGA and agency platforms have accumulated millions of underwriting data points and decisions over the past 25 years. In an AI-driven environment, that data becomes more valuable, not less. It creates a structural competitive moat difficult for competitors to repeat. Second, we own our technology. We build and control our core platforms. This means we're not dependent on third-party vendors or constrained by standardized solutions. When new AI capabilities emerge, we can integrate them quickly or build them ourselves. That flexibility is a genuine competitive advantage. Third, balanced deployment. Unlike others pursuing pure automation, we are deploying AI to amplify what our people do best. For our agents, AI accelerates quote turnaround time, automates routine account management and identifies coverage gaps, bringing them to build relationships and provide trusted advice.

For our underwriting teams, AI improves risk assessment, velocity of decision-making and precision. For our operations, it drives efficiencies that we expect will translate directly into margin expansion over time. The enduring competitive advantage remains human expertise, community presence and professional judgment. Our agents are embedded in their communities. They show up when clients face their most vulnerable moments, whether it's a catastrophic loss, a complex coverage question or a claim dispute.

We are at an inflection point. The companies that will dominate insurance distribution aren't those choosing between AI or human advisory. They're the ones integrating both strategically. TWFG owns our technology. We have deep insurance expertise, we have the financial resources to invest, and we have a cultural commitment to innovation that's been part of our DNA for 25 years. We are positioned to be a net beneficiary of AI's continued evolution, and we're excited to demonstrate that to you at an upcoming Investor Day that we will host early in the fourth quarter.

With that, I will now turn the call over to Janice to walk through the financial details.

Thank you, Gordy, and good afternoon, everyone. I am pleased to report the following first quarter results, beginning with our top KPI, written premium. Total written premium grew $87 million or 23.5%, to $458.2 million, with strong performances in renewal retention and new business growth. We saw growth in renewals of $59 million or 21% and new business of $28 million or 31% growth with a consolidated retention of 92%. This growth was driven by our acquisition strategy, notably the acquisition of TWFG MGA Florida and several corporate store locations, combined with strong underlying organic growth.

Looking at our primary offering components, insurance services grew $46 million or 14.5% and the MGA had exceptional growth of $41 million or 77.3% over the prior year period, primarily driven by the MGA Florida acquisition in the second quarter of last year. Retention remained solid at 92%, a testament to the strength of our client relationships. Excluding the impact of recent acquisitions and certain book of business sales, our underlying retention would have been approximately 88%, which is in line with our historical retention rate.

Total revenues increased $19 million or 35.3%, to $72.8 million, driven by a combination of organic revenue growth and strong contributions from our acquisitions. Commission income, which is our largest revenue component, grew $18.3 million or 37.4%, to $67.1 million, reflecting expansion across both our insurance services and MGA platforms, supported by strong renewal and new business activity. Organic revenues reached $54.3 million, up $5 million from the prior year, representing an organic growth rate of 10.1%. This organic growth reflects solid momentum across both of our platforms, underpinned by accelerating new business production, improved carrier capacity and a moderating rate environment. This growth demonstrates the underlying momentum of our core platforms independent of acquisition contributions.

Moving to operating expenses. Commission expense grew $5.2 million or 16.4%, to $37 million, reflecting strong production growth while maintaining consistent commission ratios. Commission expense grew at a lesser degree as compared to commission income growth due mainly to programs and corporate branches with 0 or minimal commission expense. Salaries and employee benefits increased $1.7 million or 20.8%, to $9.9 million, driven by headcount increases from acquisitions and corporate office investments to support long-term growth. Other administrative expenses increased $2.7 million or 56.4%, to $7.4 million, primarily driven by our completed acquisitions and ongoing investments in our technology initiatives.

Depreciation and amortization expense increased to $6.2 million, reflecting purchase accounting from our acquisitions. From a profitability and cash flow perspective, net income was up $6.2 million or 90.8%, to $13.1 million, reflecting profitability on our core business growth and contributions from our acquisitions. Our net income margin improved to 18%, up from 12.7% in the first quarter of 2025. Adjusted net income increased 75.2% to $16.2 million with an adjusted net income margin of 22.2%, up from 17.1% in the first quarter of '25. Adjusted EBITDA grew 73.9%, to $21.2 million, reflecting strong operating leverage across our platforms and the higher margin profile of our MGA operations. The adjusted EBITDA margin expanded significantly by 650 basis points, to 29.1% compared to 22.6% in the prior year quarter. This quarter-over-quarter improvement was driven by the favorable revenue mix shift towards higher-margin MGA business, continued cost discipline as we scale and the accretive impact of our acquisitions.

From a cash perspective, cash flow from operating activities was $22.7 million compared to $15.6 million in the prior year quarter. Adjusted free cash flow was $15.2 million, up from $13.6 million in the first quarter of 2025, driven by increased net income and strong working capital management. From a liquidity and capital resource perspective, our balance sheet remains strong. As of March 31, we had $124.8 million in unrestricted cash and cash equivalents. We have full unused capacity on our $50 million revolving credit facility and only $3.5 million of term debt outstanding. On capital allocation, we remained disciplined. Our $50 million share repurchase program announced in February has progressed significantly. We repurchased $16.7 million through March 31 and have continued to be active in the market, bringing total repurchases to approximately $40 million as of today. We have $10 million remaining capacity under the program.

And with that, I will now turn it back to Gordy for closing remarks.

Thank you, Janice. As we look back at the first quarter 2026, I am very pleased with our execution. Our team has delivered strong organic growth, meaningful margin expansion and disciplined capital deployment, all hallmarks of our business model. What's particularly encouraging is that our success is not dependent on any single factor. Rather, it reflects the strength and resilience of our diversified platform. Our independent agent network continues to win market share. Our MGA platform is scaling efficiently while expanding margins. Our corporate branch model continues to demonstrate operational leverage, and our technology investments are making our agents more productive and our clients better served. We believe TWFG is uniquely positioned for sustained growth in the current environment.

The insurance industry is more complex and fragmented than ever. Our agents provide trusted advice, deep carrier relationships and local market expertise, attributes that become even more valuable as complexity increases. Our proprietary technology and data assets built over 25 years creates a competitive advantage that are difficult to replicate. And our cultural advantage, what we call the TWFG family continues to drive employee engagement, agent loyalty and client retention.

Looking ahead, we are reaffirming our full year 2026 guidance. We expect total revenues to grow 15% to 20%, reaching $285 million to $300 million. We anticipate organic revenue in the range of 10% to 15%, and we expect adjusted EBITDA margins to be in the range of 22% to 25%. Our first quarter results were consistent with these expectations. We believe the strength of our organic growth engine, continued momentum across both our agency and MGA platforms and a favorable carrier environment support these targets. In closing, I want to thank our employees, agents, carrier partners, and shareholders for their continued trust and commitment to TWFG. The years ahead will bring tremendous opportunities for all.

With that, operator, please open the line for questions.

[Operator Instructions] And our first question comes from the line of Paul Newsome with Piper Sandler.

I was wondering if you had any thoughts about what could happen with your organic growth sort of over the course of the year. It came in at the low end of your guidance for this quarter. It doesn't mean it's going to do that for the rest of the year. But is there anything that would suggest that this is not the right run rate for the rest of the year?

Good question, Paul. So we know we have some structural tailwinds coming into the second quarter that is informing our guidance on organic growth being that 10% to 15%. We should have outsized or double-digit -- high double-digit organic in the second quarter, given what we know that structural advantage has coming into the second quarter. So 10.1% is a good result for the first quarter, given the softening market and pricing and expanding beyond auto and property. We feel very confident in the full guidance that we provided, which is why we're reaffirming that 10% to 15%, knowing we've got good structural tailwinds for organic in the second quarter and looking towards the back half, looking for that to continue.

This is a little bit more of a modeling question, but it's related to the organic growth. The piece that reconciles -- the biggest piece that reconciles your revenue growth with the organic growth is this acquisition adjustment number. And it's been, last couple of quarters, 10- or 14-ish. But at least my math suggests that, that needs to drop off to reconcile what you -- for the rest of the year to have sort of organic in your range, but also revenue in the range. Maybe I'm getting my math wrong, but should that piece be dropping off given the acquisitions you've announced?

Acquisitions drop off after they've been in our operations for 12 months. So there is that -- that's my point, organic adjustment where we're moving -- removing things that were not part of the prior 12-month organic calc and then adding back in plus their base from the prior year to reset how we do the organic calc. So for those who are unfamiliar, anything we acquire, the first 12 months of operations of the acquired portfolio remains in an inorganic calculation. So it's excluded from our 10.1% organic for the first quarter. And then we buy things throughout the calendar year. So there's going to be differences in adjustments quarter-to-quarter depending on the date we closed the acquisition. On organic, it's not -- it's a component of our retention of prior year business plus new business, which we had strong retention and good new business growth that supported the 10% as a whole in the first quarter.

Our next question comes from the line of Tommy McJoynt with KBW.

A question on the margin, and we can look at it on either adjusted EBITDA or a net income margin basis. We've seen a nice uplift the past couple of quarters and especially into the first quarter here. Could you spend some time helping us think about how much that tailwind from the MGA and the Florida side has been? And as we think about modeling margin the rest of the year, when does that start to fall off? Is it kind of a gradual decrease through the rest of the year to get to the target range? Or is it a sharper step off?

So we know that we have the favorable economics of the takeout impacts, which gives us the commission income without the commission expense. We had takeouts from June of last year, October of last year, November of last year, a small one in December and then an even smaller one in February. The larger of the takeouts were June and October, so they were paid as we get through the calendar year 2026. We'll have small remittances of benefit in the back half of the year from the latter smaller takeouts. And then we do have other factors that come into play.

At this point, through the first quarter, we're looking at reaffirming the guidance of that 22%, 25%. We know that we have investments in technology, we have growth in other business units coming in. And then as those policies start to renew, we will have full-term commission expenses against those policies that we didn't have in the prior period. So we're being very disciplined in how we are viewing the long term. We think that we're being exactly where we want to be at this point. And if we see another quarter like the first quarter, then we would potentially look at making some guidance coming into our next release.

Got it. And then switching over, when we think about your acquisition appetite, you held true to your expectations for starting M&A a bit on the earlier in this year as compared to last year. Is there anything preventing you from getting even more aggressive? Surely, there's no shortage of targets out there in terms of potential agencies and acquisition targets that could be accretive and you guys are sitting on plenty of capital. So anything stopping you guys from getting even more aggressive than the start of the ramp that we saw in the first part of this year?

I would say that we have a very healthy pipeline, having made the acquisitions we've had year-to-date, which we announced in the earnings release. We're going to be very selective in acquisitions for the balance of the calendar year. The Fortress acquisition that we just announced today is a very sizable operation in Iowa. We want to make sure we get integration and orientation into TWFG family before we turn our eyes to the next deal. So there's nothing preventing us other than our own desire to make sure we do well with integration and making sure that we have solid post-acquisition traction, and we don't end up doing too many deals that ends up turning that into a less than beneficial outcome. So really want to focus on the assets we've acquired, APIA and commercial MGA, getting it through its integration and orientation, and also looking at additional products that we can introduce into that business unit.

So you're right, we have the capital, we have the credit revolver, we have the pipeline. So structurally, there's nothing preventing us from doing more on the back half of the year. It's really just us being opportunistic and selective knowing that we've achieved our objective for M&A for the calendar year '26 guidance. And anything we do beyond here would move the guidance up. So there could be potential upside from M&A activity, but we'd rather get through the things that we've already acquired before telling you we're going to do more and changing our guidance for the full year.

Next question comes from the line of Rowland Mayor with RBC Capital Markets.

I wanted to just ask on the other side of Tommy's question. Are there any volume limitations or structural limitations on your ability to buy back stock? If I'm doing the math right, I think you bought back almost 15% of the Class A shares since the authorization was announced.

There are 10b-18-1 volume restrictions that the SEC has, and we have to adhere to those. We authorized a $50 million repurchase plan at our last release. And so structurally, you have those boundaries of the amount authorized by the Board for repurchase plus the SEC 10b-18-1 limits.

Okay. That's perfect. And then I did want to ask just on the M&A. Was the Fortress deal included in the revenue guide? I don't know what timeline was for closing or getting through that process, but I was just curious if the $285 million to $300 million included an assumption for Fortress.

Yes. When we gave you our guidance at the beginning of the year, we assumed that we would deploy a certain amount of capital acquiring a certain amount of revenue with a certain amount of EBITDA, and that's what goes into our total guidance for the year. And so Fortress has gotten us to that full amount that we had in our full calendar year guidance.

Next question comes from the line of Mike Zaremski with BMO.

First question is a follow-up on the excellent profit margin question and answer. And we could take it offline, too, if you'd like. But my -- it sounded like there was more profits that -- coming from the Florida takeouts that are going to, I guess -- but you're not raising the profit margin guidance because you're going to kind of spend that expected extra profits on increased expenses in the back part or later in the year? Is that the right way to think about it?

I would look at it this way, Mike. When we gave you our guidance at the beginning of the year, we had an assumed retention rate of the portfolio. As you are aware, Florida is a softening marketplace. And so we overachieved our retention of the renewal takeouts in the first quarter. We know pricing is going to be pressured in the state. So we're remaining disciplined in how we're looking at the balance of the calendar year. As I mentioned a little bit ago, if we get through the second quarter with similar success, that's going to require us to then update the guidance up as we would have overachieved now 2 quarters. So we're being disciplined in how we're looking at that portfolio given its outsized economic benefit. And we know that Florida market is dealing with its own property pricing downward. And so we're doing well, better than expected and being disciplined and not looking to update at this release. If we get through the second quarter with similar outcome, then yes, there's upside to the margin on guidance.

Okay. That's understood. Moving to organic growth. Gordy, you've talked about the impact from improving availability, how it's having an impact on organic. You talked about the soft market. Maybe you can kind of help tease out if that impact is becoming less -- having less of an impact on organic or the same or more. And so we can kind of figure out directionally whether we think should continue to kind of build in a bit of a very near-term headwind.

We have a lot of geography that TWFG operates in and not every geography has the same rate change cadence or significance. And so if we look at the balance of the calendar year, we're looking at rate -- property rates, we all know the cat market is softening and that eventually goes through property repricing. Our soft market cycle really started last year, second quarter on the private passenger auto side. I would say that the property portion started softening more towards the end of the fourth quarter or early part of the first quarter. So they're kind of disconnected in the timing. But we've assumed the softening market and our full year guidance and are not expecting anything dramatic from a pricing standpoint to change that 10% to 15% guidance.

As we talked maybe 2 years ago when we were first coming out public and the market was hard, what happens is because carriers now offer us capacity and they all have new business incentives, the mix shift of the total portfolio growth becomes less dependent on retention and more driven by exposure growth. So new business overtakes policy premium retention. And we're kind of seeing that shift occurring in real time where we might be renewing at a lower average premium, but we're also writing new business and having PIP growth that's offsetting that pricing headwind. So for us, we're looking at that guidance as being very solid through the first quarter and what we can see through today, which is why we're maintaining that range.

That's helpful. And maybe just lastly on the competitive environment. Just curious, I know you're probably more of a bundled writer. But is the GEICO initiative having an impact on the organic or it's just -- it's too small to really move the needle?

GEICO has become more relevant in our portfolio, not less. And again, it is price advantage. So last year, even though it was allowing us to write more business, it was also moving policies from a higher average premium to a lower average premium. We still have significant growth with GEICO. And we look at their technology platforms and the product lines that they're still not fully release in every state as going to be a net beneficiary to us as they continue to expand into new geography and open up more lines of business. So GEICO has been a positive other than, like I said, the great differential from incumbents allows us to retain the customer, allows us to write new business, but it has a lower average premium than the incumbent carriers.

Next question comes from the line of Brian Meredith with UBS.

So Gordy, a couple of questions here. First, I'm just curious, what is the organic growth of your MGA business this quarter? And are you seeing a slowdown in business moving into the non-admitted market?

As a first recap, the vast majority of our MGA is admitted. So we're more of an admitted operation than an E&S one. And our admitted portfolios are growing as we've been able to introduce new products in new states, as we've expanded our own product in our core state, we are able to grow PIP and premium in both the admitted programs. On the E&S side, I would say for states like California, we're seeing less dependency on the E&S homeowners market as more of the traditional carriers are starting to open up capacity in California. That could change with some of the more recent actions from the DOI, but we've had a number of new admitted markets open up for new business in that state, which was not present last quarter.

We don't really break out the organic by business unit. And Florida has got a combination of new business, new program, voluntary writings that aren't part of the calculations for inorganic versus organic. Our full year guidance includes basically a blend of all the different businesses coming together on a consolidated basis. So we don't really have a breakout of that in between. We do know that coming into the second quarter, we're going to have a good benefit of policies renewing in the quarter that were not present in the prior period. That acquisition is now past the 12 month. So it's going to give us an upsized organic quarter for the second quarter.

Terrific. Second question, contingents, any views on what contingents could look like for the year?

Great question. We're probably an outlier here. We're being very disciplined in how we're viewing contingents. We entered the year knowing that the market was softening and expecting combined ratios and loss ratios to eventually be impacted by the lower rate environment. So if you track our contingent line, we're currently projecting a little bit lower on a premium to contingency basis, anticipating that there should be some loss ratio degradation by the lower rate environment. So far, that hasn't manifested, but we're not looking to adjust our current contingent in our forecast.

We get more substantial confidence on that line after the third quarter. We get lock-in provisions and carriers then give us more substantial updates on where we're at in those profit-sharing agreements. So there could be upside in the fourth quarter as we live further into the calendar year and then those loss ratio sensitive contingencies become a lot clearer. So we're taking a very disciplined approach in how we're approaching contingency in our guidance and in our forecast. And yes, there's some upside there should the combined ratios and loss ratios stay historically good.

Got you. And then one last one, Gordy. I just want to go back to the good discussion you had on AI and I completely agree with you. But one of the debates that I'm having with some people is, with AI and what's going on, not only the benefits you're seeing from an AI productivity perspective, will that over time force, call it, commission rates to decline? Do you think, just given the efficiencies, that you all and agencies are generating and maybe competition from AI-generated aggregators and stuff?

I think it's too early to predict that that's an outcome. I did read the Chubb article that you're probably referencing. Nobody yet knows the long-term cost of the AI tools. So I think it's presumptuous to believe that all the AI tools are going to inherently create a cost savings. The amount of energy it takes to operate these server farms and in many cases, the number of different micro service AI bots or AI agents you may have and the token cost if you're using third-party AI, I don't know that anybody could accurately predict where the cost savings is going to be this early in the AI deployment. I think certainly, over time, we believe there will be efficiencies and there will be some margin expansion opportunities, but way too early to predict that.

And how does the agency economics shift the carrier commission schedules. I think that we've proven that independent agency distribution provides underwriters with a superior portfolio, better retention, better loss ratios. And I don't see them immediately directing commission expenses downward in a very competitive marketplace. The industry is so fragmented. I don't know that, that would be a wise move for a carrier to be looking at agency comp as an outcome of AI because AI is improving their infrastructure and their cost, too. So they certainly might get some relief on how they can lower rate based on their expense ratios coming down. But I don't think that needs to come at the expense of distribution.

And our last question comes from the line of Pablo Singzon with JPMorgan.

First question, I just wanted to confirm, the reason that organic will be strong in 2Q, I think the takeout books renewing into organic, right? That's sort of the first part. And then I guess you also took out some books in the latter half of '25. Do they renew in the latter half of '26? Or does everything renew at the same time, which is why Q2 is so strong?

There's a couple of points there, and I'll let Janice clean up what I don't cover. Yes, we have policies renewing in the second quarter that are going to help drive organic up to high double digits. We also have a voluntary program, which is an entirely new form and distribution that we stood out from scratch. And everything that it generates is also organic separate from the takeout. So there's takeout, takeout going into renewal and then there's voluntary writings, which is new business production from scratch, not a renewing of a takeout policy. The takeouts are also accelerating their new business traction coming into this quarter. So that's part of my structural tailwind I'm talking about, which gives us significant confidence in the guidance we've given for the full year organic. There are policies from all the various takeouts that go into various extended periods of the calendar and Janice is much closer to how that plays out.

Yes. I mean -- so another thing, too, is we're being disciplined on the retention rate that we're using. So on renewals and the new direct business, like Gordy mentioned, we're being disciplined on how much we're going to see because we haven't really seen the cancellations coming through as of yet. So I feel like -- and with what we've got with the takeouts dropping off starting in July, the June takeout and then October, November -- June and October were the largest ones. And then you'll start seeing the replacements on the renewals after that point in time. And again, we have a pretty -- I mean, we're using a good -- we feel like a comfortable retention rate on those.

So the number of policies going into the third and fourth quarter are relatively de minimis.

Yes.

Ladies and gentlemen, that concludes the question-and-answer session. I would now like to turn the call back over to Gordy Bunch for closing remarks.

Thank you for attending this afternoon's call. We appreciate all your thoughtful questions. Really 5 things we want you guys to walk away with. Our business is firing on all cylinders. Total revenue up 35.3% adjusted EBITDA. This isn't just a quarter of luck. It's the compounding of strategic investments in technology, M&A and the people that have helped made this company great for the last 25 years. Our organic growth is strong, really 2x the industry, and we feel very compelled by the strategic tailwinds we have coming into the second quarter and throughout the remaining part of the year.

Our MGA platform is scaling. We're getting new programs and new distribution points in all the different business units, reaffirming our full guidance for revenue growth, organic growth and adjusted EBITDA. And our capital allocation strategy is working. $40 million of the $50 million buyback executed, 3 acquisitions completed. We have cash on hand, an undrawn credit facility, a Fortress balance sheet to continue to carry our trajectory forward. We appreciate everybody for attending today, and look forward to our next call. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good morning. My name is Fran, and I'll be your conference operator today. At this time, I would like to welcome everyone to the TWFG Fourth Quarter 2025 Conference Call. [Operator Instructions] This call is being recorded and will be available for replay on the company's website. Before we begin, let me remind you that today's discussion may contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements, please refer to the company's press releases and SEC filings.

Also on today's call, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. The company has posted reconciliations for the non-GAAP financial measures discussed during this call in the tables accompanying the company's earnings press release located on the Investors section of the company's website at www.twfg.com. It is now my pleasure to introduce Mr. Gordy Bunch, Founder, Chairman and CEO of TWFG. Sir, the floor is yours.

Thank you, operator, and good morning, everyone. Thank you for joining us today to discuss TWFG's fourth quarter and full year 2025 results. Joining me on the call is Janice Zwinggi, our Chief Financial Officer. After my remarks, Janice will walk through our financial performance in more detail, and then we'll open up the call for questions.

For full year 2025 results, I'd like to start by thanking our employees, agents, carrier partners, Board, shareholders and clients. 2025 was a transformational year for TWFG as we successfully embarked on year 2 as a public company, and none of it would have been possible without the dedication and execution of our teams across the country. For full year 2025, total revenue increased 21.3% to $247.1 million, driven by a combination of double-digit organic growth, strong performances across both our retail and MGA platforms and a disciplined execution on accretive acquisitions.

Organic revenue for the year was 11.6%, reflecting sustained momentum in new business production, a healthy retention and the continued expansion of our distribution footprint that enhance our platform and carrier relationships. conditions within personal lines remain constructive, supporting continued new business growth and stable retention across our core markets. Throughout 2025, we continue to expand our national footprint through a mix of recruiting, tuck-in transactions and accretive acquisitions. Importantly, we remain disciplined in our approach.

Early in 2026, TWFG has entered into a definitive agreement to acquire the Lofton Wells Insurance Agency. That will become a corporate location in Memphis, Tennessee on March 1. This new corporate location will add additional scale to our existing Tennessee operations and provides us with strength in a region we intend to continue growing into. TWFG General Agency has also entered into a definitive agreement to acquire Asset Protection Insurance Associates, a Texas-based MGA specializing in providing comprehensive insurance solutions for property owners and real estate investors throughout the United States.

The commercial lines national MGA specialty program provides TWFG General Agency with access to additional distribution partners for our existing proprietary programs as well as adds a high-quality management team in which we can create additional proprietary programs with. As we evaluate additional M&A opportunities, our focus remains on acquiring high-quality culturally aligned targets that enhance our platform and carrier relationships.

As always, organic growth remains our foundation with M&A serving as a complementary growth lever. Before turning the call over to Janice, I would like to share our perspective on artificial intelligence's impact on our industry and TWFG in particular. as AI has been an area we've been investing in for some time as a tool to accelerate agent productivity and their efforts to best serve our clients and their complex insurance needs.

The market reacted to a February 2026 launch of AI-powered insurance comparison tools within consumer-facing chatbot platforms, tools designed primarily to quote standardized personal lines products such as monoline auto. This product by nature has been viewed as commoditized, a low-advice transaction that has been subject to direct channel competition for over 20 years. We believe there is an important distinction between monoline, lower limit auto clientele and those needing advice for higher limits, bundling with homeowners and needing umbrella coverages.

In contrast to the direct channel, TWFG's independent agent network specializes in providing tailored multiline coverage solutions across personal, commercial and specialty lines. Precisely the categories where human expertise, relationship with clients, carrier relationships and professional judgment are most consequential and most difficult to replicate. TWFG agents have relationships with the clients they serve and the communities they live in.

Our agents sponsor Little League, Coke soccer, attend PTO meetings, are part of faith-based communities, volunteer with numerous charities, serve as elected officials and are physically present for their customers. That physical connection is important when our clients endure significant losses from hurricanes, floods, tornadoes, wildfires, water damage, accidents, litigation, cyberattacks, theft, business interruption and loss of life.

Many of these larger catastrophes become a shared experience as being in the community impacted by a hurricane or wildfire means our agents have suffered similar losses and are feeling and dealing with the same issues their customers are experiencing. That shared life experience is not easily disintermediated for those with complex insurance and relationship needs. Our clients own homes, small businesses, large businesses, operate nonprofits and have layers of insurance needs where a trusted adviser is required to navigate the nuances of coverages and their unique exposures.

TWFG's exclusive and independent agent models are purpose-built for complexity. The company's agents serve as trusted advisers who navigate multi-carrier markets, customize coverage programs and advocate for clients at the point of sale and during a claim, functions that demand contextual knowledge, professional accountability and carrier relationships developed over decades. Rather than representing a displacement threat, AI tooling is increasingly being deployed by independent agents as a productivity accelerator, enabling faster quoting, enhanced communication and more efficient account management, consistent with TWFG's own technology strategy.

TWFG's technology strategy has been one of our competitive advantages. Owning our proprietary technology platforms has positioned TWFG to be in a position to pivot, create and implement innovative technologies internally as they appear or to quickly integrate with third-party vendors as needed. We recently made a series of senior leadership appointments, specifically to accelerate our technology and underwriting platforms.

Our new Chief Technology Officer focuses on AI strategy, cloud architecture and core platform modernization. Our new Chief Underwriting Officer has decades of experience in insurance technology and product development. TWFG employs 44 technology-related positions from software engineers, developers, quality assurance, business analysts, database engineers and infrastructure. This workforce is receiving help from AI coding assistant Claude, that makes each software engineer increasingly more productive. AI is a force multiplier for our initiatives. Excluding our corporate sales office employees, our technology teams represent 32% of our corporate employee base.

TWFG is much more of a technology company than many may appreciate. We are positioned to be a net beneficiary of AI's continued evolution in insurance distribution, leveraging AI to make our agents more productive, our platforms more capable and our clients better served. While the human expertise, community presence, client relationships and professional judgment that define the TWFG models remains precisely but no algorithm can replicate. TWFG's competitive moat starts with our proprietary software and deepens with our organization's diversification and business mix, omnichannel distribution models, proprietary programs and 25 years of proprietary data.

Our retail distribution is highly preferred, focusing on clients that own homes and businesses as our core clientele. The recent commentary is not the first time when the market has questioned the ongoing role of the independent agent. In 2013, McKinsey sparked a similar distribution debate when they published agents of the future, the evolution of property and casualty insurance distribution and more specifically, the chapter titled the end of an era for the local insurance agent.

The prediction was the demise of the independent agents with most expected to be out of business within 5 to 10 years if they failed to adopt new technology. Instead, the independent agent channel grew in total numbers of agencies, increased their total P&C market share from 57% to 61.5% since 2013, controlled 87.2% of all U.S. commercial lines premiums in '25, grew their homeowners market share from 30% to 39% between 2013 and 2025 and also increased their auto market share from 30% to 34% since 2013. Today, all major insurance carriers operate directly to consumers and through independent agent models. AI entering the direct channel is not new, given comparative shopping without the need for human interaction has existed for the past 20 years.

Property and Casualty is a $1 trillion addressable market, evenly split between personal and commercial lines, and we see significant runway to grow our share. I want to close with a few final thoughts on the AI opportunity ahead. We are embracing deploying AI across our platform and underwriting, agent tools and back-office workflows, and we will continue to partner with best-in-class third parties while building our own proprietary AI capabilities. With that, I'll turn it over to Janice to walk through the financials in more detail.

Thank you, Gordy, and good morning, everyone. I am pleased to report the following fourth quarter results, beginning with our top KPI written premium. Total written premium increased $82 million or 22.7% to $443.4 million. We saw strong double-digit growth across both of our primary offerings. Insurance services grew $53.6 million or 17.4% to $361.3 million, and TWFG MGA had a spike in growth of $28.5 million or 53.2% to $82.1 million. This was mainly due to the acquisition of TWFG MGA Florida with written premiums of approximately $27.1 million, consisting of renewals of $9.7 million and new business growth of $17.4 million.

We saw consolidated growth in both renewals of $58.2 million or 21.3% and new business of $23.8 million or 27.2% over the prior year period while maintaining a 92% retention rate. Overall premium growth was driven by continued expansion of our corporate branch footprint, strong MGA momentum following the acquisition of MGA Florida and improving carrier access across multiple geographies. While a softening rate environment typically translates to increased customer shopping, our retention performance underscores the stability and engagement of our client base.

Total revenues increased $17.1 million or 33% to $68.8 million. This was driven by accelerating new business activity, moderating rate increases, expanding MGA contributions and solid economic activity in our core markets. Commission income increased $15.6 million or 35.8% to $59.4 million, reflecting expansion across both insurance services and MGA platforms and supported by strong renewal and new business activity.

Organic revenues increased $5.2 million, reaching approximately $50 million, representing an organic growth rate of 11.7%. We continue to demonstrate solid momentum across both our agency and MGA platform. Turning to expenses. Commission expense increased $4 million or 13.8% to $32.9 million, reflecting our production growth. This tracks with commission income growth, taking into account the impact of the 2025 acquisitions, programs with no related commission expense and commission rate changes period-over-period. Salaries and employee benefits increased $2.4 million or 30.7% to $10 million, driven by headcount growth associated with acquisitions, corporate functional hires and public company infrastructure.

Other administrative expenses increased $1.7 million or approximately 35% to $6.7 million, primarily due to increase in technology costs, the result of acquisitions and compliance initiatives. Depreciation and amortization increased to $5.8 million, driven by the recent acquisitions. From a profitability perspective, net income was up 76.2% to $14.4 million with a net income margin of 21%. Adjusted net income rose 58.9% to $16.7 million, equating to a margin of 24.3%. Adjusted EBITDA increased 56.9% to $21.7 million for a margin of 31.6% compared to 26.8% in the prior year period.

This expansion reflects operating leverage, expense discipline and an increasing mix of higher margins in our corporate branch locations and in the MGA operations. From a liquidity perspective, we ended the year with a very strong balance sheet with unrestricted cash of $155.9 million. We had no borrowings on our $50 million revolving credit facility and had only $4 million of term debt outstanding. This provides us with significant flexibility to invest in growth and continue to pursue strategic opportunities. With that, I will turn it back to Gordy.

Thank you, Janice. Looking ahead, as we enter 2026, we do so with a strong momentum. The investments we've made in people, technology and infrastructure position us to expect to continue delivering double-digit organic growth, expanding margins and generating strong free cash flow. Our conviction in this business is reflected in our recent announced share repurchase program of up to $50 million. We believe current valuations represent a compelling opportunity to create shareholder value, and we are prepared to be aggressive buyers of our own stock at these levels.

For 2026 guidance, total revenues are expected to grow 15% to 20%, coming in between $285 million and $300 million. Adjusted EBITDA margin expected to be in the range of 22% to 25%. Organic revenue growth rate expected to be in the range of 10% to 15%. The guidance reflects continued platform growth, a competitive soft market environment, investments in new AI tools and executing on our accretive M&A plans.

TWFG continues to have a fortress balance sheet, high free cash flows and momentum for continued success in 2026 and beyond. As we continue to execute against our long-term strategy, we are confident in our ability to continue delivering sustainable, profitable growth and long-term value for our shareholders. With that, operator, please open the line for questions.

[Operator Instructions] And your first question comes from Mike Zaremski from BMO.

First question on the organic growth guidance. Maybe you could help parse out the Florida MGA growth kind of versus the underlying book, I guess, versus agency in the box or any kind of parsing out you thought was worth mentioning?

Yes. We don't really do segment reporting at this point. We certainly will benefit briefly from MGA Florida in the second quarter where we pick up renewals that will be coming into the 13th, 14th and 15th month since acquisition. But beyond that, their organic contribution is really going to be coming from the new program, new homeowners program launch that started really in earnest the fourth quarter. We don't have a high projection of new business policies driving organic coming from that voluntary writing. As you know, the Florida marketplace is having a repricing and a softening.

So I think we're looking at their contribution is going to be more present in the second quarter, less meaningful in the latter half of the year because we have all the written premiums that were inorganic in '25 that they have to grow above in '26. So it's the projection we're giving you is a conservative view of the voluntary writings ramping up. alongside our core business pre-2025 of agency a box and corporate store growth.

That's helpful color for modeling. Maybe switching gears to written premium retention in the MGA, extremely strong. It looks like jumped from low 80s to low 90s. Any color there?

On the MGA, I think it's relatively the market opening up allows our agents in that channel to be in a better position to defend customers shopping from the hard market price increases to now a softening market. So as those markets reopened, repositioned their own rates that allowed better retention or rewriting of those customers to another market within our platform that offered the customer a better renewal rate. So there was periods of time where carriers were constraining new business production, taking a lot of rate and then we went through really second quarter of '25, we started that accelerated softening market cycle.

Not every carrier was on the same time line for when they started filing rate reductions. So as we got to the end of the year, a lot of that has started to catch up. So think about market leaders that file rates more frequently being ahead of the curve, taking market from our GA agents earlier in '25 and towards the latter part of '25, the markets we represent inside the MGA model had their pricing adjusted to be more competitive in that current softening market environment, allowing better retention and also opening up for new business growth, allowing those agents to rewrite accounts and add new business as well.

Okay. Got it. That's helpful. So I'll think through kind of whether that dynamic will persist. I guess just lastly, thanks for your thoughtful comments on technology and how you guys are accelerating your technology initiatives by hiring folks, et cetera. I guess, Gordy, as a founder and a builder of products, right, including technology products, I was curious if you felt there was any rationale -- rational behavior behind the stock market kind of really negatively impacting a lot of stocks due to kind of these new exciting technologies that allow folks to build things in a more efficient way than in the past.

I appreciate that you probably don't think that TWFG stock should have been impacted nearly as much as it was. But curious if you do think there is some truth to what the -- at least directionally what the market is implying based on these kind of the last few months of technology and innovation.

Sure. Great question, Mike. And I think that the reaction wasn't just isolated to the insurance sector. There were other sectors that had sell-offs that related to AI innovations. And I think, hopefully, in my prepared comments, I hit on all the high notes of insurance is a highly complex transaction for most. And for those that have growing assets, growing liability exposures, they may use AI just like they use Google today to do research. But when making a final buying decision, many transition back over to the adviser to go through what they've discovered on their own through their own research. But then when it comes down to purchasing, they want to run that past somebody who actually can consult them, understand nuances between all their different exposures.

And I do think that AI is going to create more efficiencies within our channel, allowing our agents to sell more product, our servicing side to service more product. So I think what you'll have over time is it will take less full-time employees to support a growing base of customers because the AI agentic tools that we already know that are in place and that are coming are going to replace some of the manual tasks that are existing today in our industry.

And I know that's been more prominently discussed with claims and underwriting. We do have claims and underwriting within our business model, and we'll be benefiting from that as well. But all the way through the cycle of just making sure you have consistent connection with your customers, the automation of those communications, the consistency of those communications, the elimination of repetitive keystroking across just about every workflow metric within our business is going to create a net beneficiary to us of productivity and eventually, we don't want to say margin expanding yet because I don't think anybody has a good handle on what are the long-term costs of AI.

They -- we don't really know the long-term pricing models. So for sure, efficiency is going to be coming through. As far as I don't think I will be the first person or the second person or the last person to say the market is not always rational. I think a significant price drop across all of insurance kind of ignores a fundamental that isn't present in every industry. Insurance is required by law. Insurance is regulated in 50 different states. The complexity of insurance across different lines does require context and a cognitive communication to evaluate how different insurance policies relate to each other in someone's overall portfolio management.

And it's going to be a little bit more difficult for multiline customers to get all of that out of an algorithm. And so I do think we'll benefit from the efficiencies it creates. But long term, I don't think we're going anywhere. And I do think every single person on this call has insurance. And I believe every person on this call has more than one insurance policy.

So I think when you think about the broad scope of product mix that we offer at TWFG, personal lines, commercial lines, specialty lines, life, annuities, we have a lot of different places to pivot, insulate and cross-sell and provide that advisory role for insureds with complex insurance decision-making. So I think we're here for the long haul.

And your next question comes from Paul Newsome from Piper Sandler.

I was hoping just in a very broad brush way, you could focus in on the organic -- the components of your organic growth guidance. Just kind of what's getting better and what's getting worse? Because it looks like you're looking for a little bit of an improvement in organic growth prospectively, but you also have other things like the soft market, I would imagine pushing against that. But maybe as you just step back, what are the pieces when you thought about the potential for improving organic growth that moved you in that direction?

Sure. That's a good question, Paul. I'll give you kind of a basic overview, and this also will probably be a little more responsive to Mike's question on the same subject. When we're looking at our 10% to 15% guidance, if you're looking at our agency in a box corporate store contribution to that, it is still a double-digit projection for our core business. When you look to the top of the range towards the 15%, that's probably being more coming from new product development and deployment through our MGA products.

And so let's say, excluding the MGA, we would still have a double-digit organic guide. The MGA creates upside as we deploy new product development or expand capacity, that net new production is all going to be organically contributing. And so I don't know if that's helpful to you. We do know that we have business that's going to be rolling in that was inorganic in '25 that will become organic in '26.

That's present in our corporate stores, that's present in our MGA. And as we model the assumed retention rate and new business growth rate of those previously acquired businesses that were part of inorganic in the past, there'll be net contributors to organic in '26 as they roll through their 12-month ownership horizon.

That's great. And maybe as a follow-up or second question, could you give us your view on the outlook for M&A prospectively? Is it getting easier or harder to find transactions that would fit with your firm?

So our M&A pipeline is still very robust. I think on the, what I would call, transformational sized transactions that are out there, we've had three in our pipeline. All of those will be much longer discussions that will take time to work through. I don't think those larger transactions were helped by the recent market reaction. I think that puts everybody in a position of saying, let's make sure we understand how agencies are going to be valued long term.

But on the regular day M&A, we have a lot of opportunity there. We're being highly selective. We are looking at the quality of the portfolio that would be coming into the company. We're looking at the cultural fit of the target being acquired. Qualitative is one measure, but there's also strategic. So is there a geographical expansion and strength that we gained through the acquisition is part of the picture.

And then what are the things we can do post close that enhance the business we're acquiring and the businesses we already own. And with that framing, we have quite a bit of opportunity in front of us. In our guide, we've maintained a similar cadence of acquired revenue and acquired EBITDA. And I know I saw some comments that might have expected a higher top line revenue pick. That certainly can occur if we acquire more than we have in our baseline assumed M&A.

And your next question comes from Bob Huang from Morgan Stanley.

I just have one question really. So first of all, thank you for providing some grounded thoughts and context on technology and impact on the broker business. But if we want to maybe unpack that a little bit, is there a scenario where if AI and technology will make broking more efficient that you could potentially see more competitors coming into your space?

So for example, maybe a broker that's in the ultra-high net worth space that is not really in your market today, but as AI makes things more efficient, they could potentially come into your space. Can you maybe help us think about how you're thinking about the competitive dynamics? Is that changing? And how should we think about the impact to Woodland Financials?

Sure. Good question, Bob. I would say we ended 2025 with $1.7 billion of premium between the two channels. There's a $1 trillion addressable market. I think even if competitors expand into other areas of the business, there is still a wide market share for us to gain. I went back and looked, I didn't put it in my prepared remarks, but in 2013, TWFG was substantially smaller when the McKinsey report came out. And back then, private equity really wasn't in personal lines or agency brokering space. And since then, they've been coming in, acquiring, consolidating distribution for the last decade plus. still the net number of agencies grew in spite of the acquisition and consolidation.

I think if others start to get into personal lines, we have $498 billion of personal lines that currently don't -- doesn't reside with TWFG. I think as our technology improves, as our platform becomes better known as an option for agents to join, launch with, I think we'll be the net beneficiary of a lot of these changes. So when you think about the 40-plus thousand independent agencies across the U.S., 38,000 of them are subscale. So I do think if you take what's happening and coming out with technology, the independent agents that are small don't have scale, don't have the resources to adopt and adapt to the changes that are coming.

They're going to either get acquired by those with those capabilities or they're going to look to affiliate. And we have that business model to help them bridge what they can't do naturally on their own, we become a home for those and then we help scale them up, bring them to today's technology and tomorrow's technology going forward and provide them an opportunity to remain relevant long term. So I do think as it pivots, we're going to be a net beneficiary from our existing operations, from a recruiting and development standpoint and again, large market share out there for us to grow into.

Got it. Really appreciate that. So not just a net beneficiary of change, but also not your first rodeo in change. Is that a fair statement?

100%. If I would have read the headlines from McKinsey in '13, I should have backed up my [ tag ] and closed.

And your next question comes from Tommy McJoynt from KBW.

This is Molly Knoell on behalf of Tommy McJoynt. I first wanted to just ask if you could provide some color on the softening rate environment and the increased carrier capacity you're seeing and the tailwinds you're seeing from that. And I know you mentioned last quarter that California is an exception because of its hard market, and I was wondering if that's still the case.

Yes. Good question. Appreciate that. The market is broadly softening on auto insurance. We see that across the country, including California, is moderating on auto rates. Where you still have some persistency on pricing is going to be in more of your cat exposed geography and more specifically wildfire exposed as compared to historically, that's usually been a hurricane component. So California with its wildfire exposures, Colorado with wildfire exposures, those two areas still seem to have pricing in property and capacity constraints that we expect to be persistent throughout the year. You still see the fragmented market going between admitted and non-admitted and a blending in of the California fare plan.

So long as you have that blending, that is indicative of a continuously harder market. California may have some easing in the back half of the year if the auto writing companies choose to decide to open back up property in order to help them sell bundled package policies, but that hasn't really become prominent as of yet. When you look at pricing in our core state of Texas, you have had some price deceleration on the property side. Hurricane cat reinsurance pricing is coming down, not just in Florida, but across all the Gulf Coast states.

Auto rates have moderated. You've seen some price deceleration. And most of the carriers -- and I'm not going to go broader than that. All of the carriers we work with today are in growth mode. And so with that comes a little more relaxed underwriting guidelines, enhanced new business incentive commissions to drive volume, opening up of some property capacity to get to the bundling that most of the carriers that write multiline prefer to have bundled clientele. And I see that playing out throughout the calendar year.

Great. That's really helpful. And then if I could just ask another question. I know you touched on this briefly earlier, but I just wanted to ask a follow-up about your M&A pipeline. Given the decline in multiples in the public brokers, if that is also leading to a decline in the price of the private brokers that you're looking at in your pipeline, how significant do you think that decline will be?

So I don't think the private markets have caught up to how quickly the public market can turn. When you look at the sell-off in February, that was very acute. Most LOIs and purchase agreements that are being negotiated and deals that are going through a process, that extends over a period of months. So you probably have people that were in LOIs or leading into closing that when the public market price correction hits, if it's a small correction, probably not much of a reaction to pricing on the private side. When you have this large of a correction or this large of an overcorrection, depending on how you want to categorize it, I think it does cause some to pause.

I think some sellers that were in processes also paused to see where the market is going to normalize. It could have an impact on the larger-sized transactions multiples. When you bifurcate out the valuations of private transactions, organizations that are selling with less than $1 million of revenue really don't price correlate to public markets. And that's the vast majority of small -- of our smaller size of our pipeline. They've always been at a lower metric. When you get into the over $20 million, over $50 million of revenue organizations, those are the ones that try to peg pricing to public markets.

And depending on what business mix is present within those organizations, you might see some softening of the pricing valuations on the private transactions. But the smaller vanilla normal course acquisitions, probably not going to see much of a shift downward as they already are significantly lower valued than the larger, more scaled operations.

Your next question comes from Rowland Mayor from RBC Capital Markets.

I appreciate the AI comments. I wanted to ask just one more on it. It's everybody's favorite two letters. Do you think it accelerates the migration out of captive agents? And is that a growth tailwind to agency or M&A? Or how are you thinking about that?

I think it can, especially when a captive agent is looking to make that career transition to independent agencies as they think about how complex that is going to be to land on a solid footing in an industry that has some shifting ground. And so if someone leaves a captive carrier, they're currently dependent on that carrier for all their technology, training and support. And if you are going into a new environment where the technology is evolving in real time, and they need to start making those decisions on how do they reestablish themselves.

I think an organization like ours is best positioned to capture that migration and that we have the infrastructure, the technology, the future technology, the training and support the markets they're going to need to be competitive in their marketplace. I do think we will be a net beneficiary of additional migration. And that's not just isolated to captive agents. As I mentioned earlier on the call, 38,000 independent agencies are subscale. Meaning they have less than $1 million of revenue. And I think the vast majority of them have less than $0.5 million of revenue.

Those smaller, less scaled independent agencies have probably 70% less market access than our agents have. And as they are out there on their island, many of those are going to start having to consider how do they get to the next inflection point of insurance distribution, and that's where we are. And I think we'll find more converting into our business model that already exists in the independent channel going into that agency in a box model where they can gain immediate scale and improvement in technology and the support they don't get when they're operating as a truly independent agency.

That's super helpful. I wanted to ask on the margin projection. It's down year-over-year. How much of that is the growth investments? And then how much is just difficult contingent comps? And do the growth investments kind of continue through '27?

I'm going to say it's a blend. Part of it is we're in our full second year as a public company. We have 5 years to get to full SOC compliance. We're onboarding and creating those internal audit infrastructure teams that are not required today but will be tomorrow. So some of that's just public company expense flowing through as we continue to get towards that compliance time line. Some of it is investment in technology and infrastructure.

And then -- the third point, to your point, is where the contingencies go in '26. So I do think we are hedging on contingencies in our projections to make sure that we had a great outcome in '25. That was at the tail of an increased rate environment, historically profitable outcome for the majority of our partners, a nonsignificant cat event ex California wildfires early in '25.

I think it would be foolish for us to project same and similar outcomes in '26. So we are hedging a little bit on the contingency side, understanding that in a rate declining environment, everybody signaling growth, there should probably be some loss ratio degradation in '26 that could lower the metrics of the payouts related to that profit sharing.

I appreciate that. And if I could sneak in just one more. I know that the agency box margin is kind of capped around 20% just based on the revenue recognition. But what is the margin profile of the corporate and MGA business? And is that an opportunity as we mix towards those to expand long term?

That is correct. Our corporate stores run between 30% and 40% margins. So probably averages out with contingency around -- just asking specifically about the different buckets. So when you get down to the corporate locations are going to run 30% to 40% margins, that will blend into around 35%. That's including contingent. MGA, it depends on the program. Programs that are in early stages don't produce any margin because they're getting through the development costs and expenses. But as they mature, they'll run anywhere between 35% to 50% margins.

So yes, as we continue to grow corporate locations, as we continue to grow MGA, we will get benefit on consolidated margin expansion. Agency in the box itself, as it grows, that volume does contribute to the contingent side of the equation, so they can help push up margin as well as they continue to grow. We did announce two transactions that are closing and essentially coming on board next week. One of those is an MGA. And as that specialty MGA comes into the fold, that will be beneficial to us as we continue to expand new product, new distribution in that platform as well as our existing MGA programs are also continuously expanding.

So yes, there's margin expansion upside based on the mix coming through MGA coming through corporate stores. And so I think when you look at it, the guide we gave is our view. There is some conservatism in it around contingencies. And I think that's prudent just given we can all see the price or the filings going in with rate reductions and that invariably is going to hit combined ratios and loss ratios that are, in some cases, factors in our payouts.

And your next question comes from Pablo Singzon from JPMorgan.

So I guess there are many angles to the AI question for personal lines, right? So if you put aside the debate on first, consumer adoption and I guess, second, the replaceability of advice provided by agents, which I take from your comments, you think will swing in favor of agents ultimately. I'd be interested to hear your views on why insurers may or may not want to participate in something like a price comparison platform, right, that AI can scrape and optimize.

It seems to me that's sort of what people have in mind when they think about the AI threat. And I think there have been instances in the past where insurers might, at least in the U.S., have shown a lack of willingness to join such platforms. So anyway, your thoughts there, Gordy, I'd be interested in hearing.

Yes. Great question, Pablo. And let me -- I'm going to kind of go a little deeper into the subject. Pre-February's announcement, everybody knew direct-to-consumer channels existed. A lot of that was derived through SEO, SEO being the historical Google searches, and that's how people would find comparative rating sites. That comparative rating experience had various feelings or outcomes.

Many of the SEO generative comparer insurance rates were really just lead gen companies that then turned around and sold all your proprietary data off to every Tom, Dick and Harry carrier and insurance agent that was willing to buy the information, you voluntarily entered into a search engine and/or comparative rating site.

So people have been bombarded with marketing post those experiences. they didn't necessarily get great results from that experience. Those that end up on a direct-to-consumer carrier site probably are getting a better experience because they're getting actual bindable rates from the capacity provider, but they're limited in what they're going to present as far as coverage options and alternative carrier options that are price optimized.

Going forward, you have a period where you're going to have SEO and SEO search is very expensive. So we have looked at acquiring a number of digitally derived agencies over the last several years. Their acquisition cost for a customer as a retailer exceeded the commission received. The retention rate of the customer derived digitally through that SEO process retained 50% less than the customer that was organically produced through relationships and centers of influence and the loss ratios of those digitally produced customers were 20% higher and not accretive to the core portfolios.

So there's a qualitative reason why we're not chasing the digital customer and/or why we didn't acquire any of the digital agencies that existed that we could have. As we talk about forward, GEO is the new search. And that's what is inside of ChatGPT and other AI search or AI engines. And so the AI search tool is looking for different components than what SEO searches were doing.

So we're working on our digital footprint and making sure that we're optimizing our connection points, our collateral, our material all the way down to each of our retail stores to make sure that we are present in the SEO search and that we're present in the GEO search.

That being said, we do not derive a significant amount of business from those activities, but you have to be there and you have to be present because as I mentioned earlier, people will do a lot of online shopping and do a lot of online research, but then they want to select or a subset of them want to select a local adviser to finish out that transaction, provide advice before they bind, get recommendations for things they didn't think about to ask questions on to make sure that they have better protection than they would have if they place it themselves. Another thing I would say, Pablo, you asked about the hesitancy of the American culture to participate in online sales.

It was more of the insurance companies, right? Because the adoption, I guess it's an open question, but I mean insurance companies like think of brand names like Progressive or [ Esur, ] right? Because I suppose in theory, they could have sort of like started selling directly in these price comparison platforms and all the links established and the ability to buy, right? And obviously, it's not there, right?

So I guess the question is, do you think that changes even if the platform is, I guess, more intelligent now it's AI or not, right? I'd just be interested to hear because clearly here, it seems like there's a hesitancy for major insurers to be on some platform where they can be price compared and optimized against each other and so on. So just your thoughts there.

Yes. So think about the fact that if the loss ratios derived from digitally derived customers today are higher and significantly higher than the business that is fielded underwritten by an independent insurance agent, their acquisition cost of that digital customer has to be so much better that, that makes sense for them to continue to put their capacity at risk for a lower combined rate or for a higher combined ratio. If you think about Progressive, GEICO, the top two direct-to-consumer customer platforms, they both have a significant investment in independent agency distribution.

Progressive has long had a dual channel approach. GEICO up until the tail end of 2024 never had independent agents. This is Berkshire Hathaway. They have all the capital and resources and some of the smartest people in the insurance sector. They're leaning in on independent agencies. It would be a good question for them is they saw this AI technology probably before anybody else. And they're still leaning in on expanding independent agencies across the United States because they understand after operating direct-to-consumer for 2 decades that customers at different life inflection points change their buying behavior.

If you're a low liability auto customer who rents an apartment, your insurance needs aren't that complex. As you get married, buy a house and now you have a significant investment and 30 years of debt, you want to make sure you have what you need on the property side. You now are going to start being talked to about life insurance to protect the mortgage expense. You're eventually going to have kids, and that's going to raise new concerns about liabilities and exposures someone buys a boat, gets a trailer, gets a jet ski, gets a 4-wheeler, starts buying investment properties, has to have extended liability. I mean there's all these things that expand a person's layers of insurance needs that happen over a course of a lifetime.

So I think even GEICO would tell you that they see that their customers end up with preferences at some point to exit the direct channel, and they want to have local advice and counsel, which is why I believe they leaned in on coming into the independent space. Maybe you didn't ask the question, but I thought I heard it, and I'll say the hesitancy of the American culture to participate. And I know you said that was really more carrier related.

And I just ask anybody on this call, who's going to go into ChatGPT right now and put in their social security number. because most of our insurance products today are credit scored or insurance scored oriented. And in order to get an accurate comparative quote, you have to do that extra step. If the rate filings for the auto product, the homeowners product have a credit insurance score factor, that's the only way to get to ultimate accuracy.

Even within an agency-derived comparative environment, we can do comparative quotes with soft hits, but it won't be bindable actual final pricing until you get that last score hit. And I don't think a lot of people are there yet to put in that much of the information. We did have one of our agents go to one of the sites that was being announced. The experience it wasn't awesome and the amount of questions they were being asked drew fatigue. And this is from an insurance professional just trying to see what does the competition look like?

And we know it's going to evolve. We know it's going to improve. But like I mentioned earlier, we're going to be embracing all these changes, interpreting and integrating where it makes sense for us. And on the property side, Pablo, there isn't one carrier that could take all the customers that came through an online funnel and provide them all with property insurance. The mere -- post Hurricane Andrew, 1993, everybody changed their underwriting criteria, started looking at PML, probable maximum loss and exposure of aggregated property within specific geography of the balance sheet.

And that enterprise risk management component of the property side is going to keep property highly fragmented. So even the carriers that do write auto direct and do it well, they're going to have to have others supplement the property offerings in order to be able to do bundling with customers. And there's just not a lot of property carriers that are going to provide their capacity in that environment. At least I haven't seen there to be a plethora of them doing it today.

There are no further questions at this time. And now I would like to turn the call back over to Gordy Bunch for the closing remarks. Please go ahead.

Thank you, operator, and thank you to everyone who attended today's call. I appreciate all your thoughtful questions. I want to reiterate that we are a -- we have a balance of -- a fortress balance sheet in our possession. We are not levered. We have cash on hand, undrawn credit facilities, a great M&A pipeline, a disciplined M&A pipeline, looking to transact on accretive quality sub acquisitions.

Our core business outside of recent acquisitions, still projecting that low double-digit organic growth we see decades into our future to get into the $497 billion of personal lines market share that we don't currently possess, the $0.5 trillion in commercial lines that we can continue to expand into. We see tailwinds coming out of '25 going into '26. We appreciate all your thoughtful questions, and we look forward to delivering for our shareholders throughout the year. Thank you.

Good morning, and welcome to TWFG's Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

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

And now I like to turn the call over to Gordy Bunch, Chief Executive Officer. Please go ahead.

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.

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, expanding margins by 430 basis points to 26.5%. That margin expansion underscores the earnings power of our distribution platform and execution on accretive M&A as we leverage scale and financial discipline.

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.

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 8 new retail locations, one new corporate location, and 370 independent agents to our MGA platform. Following the quarter, we completed the 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 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.

I'll now turn the call over to Janice Zwinggi, our CFO, to discuss some of the financial highlights.

Good morning, and thank you, Gordy.

Starting with our top KPI, written premium increased by $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%. This increase was a result of healthy growth in both renewals of $51 million or 16.4% and new business of $16.6 million or 18.7%. Our consolidated written premium retention remains strong at 91%.

While a 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. This increase was driven primarily by commission income growth of $10 million or 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. 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 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.

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. 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.

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.

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 15%. Adjusted net income rose 55% to $13 million, equating to an 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.

For the full year 2025, we've tightened the ranges on our guidance to reflect our year-to-date performance, recent expansion activity and current market conditions. We expect total revenues between $240 million and $245 million, and organic revenue growth rate in the range of 11% to 13% and adjusted EBITDA margins between 24% and 25%.

As the personal lines 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 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.

I'll now hand the call back to Gordy for closing remarks.

Thank you, Janice. As we close out the third quarter, I'm proud of how our teams continue to execute. We've proven that investing for growth and focusing on margin expansion can coexist and that our TWFG family culture remains one of our greatest advantages. TWFG is squarely aligned with that playbook, focused on profitable growth, accretive M&A, deepening carrier and agency relationships, and expanding our retail and MGA footprint to sustain our long-term growth objectives.

We enter the 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. I want to thank our employees, agents, carriers, and shareholders for their continued trust and commitment to TWFG.

With that, operator, let's open the line for questions.

[Operator Instructions] Our first question comes from the line of Tommy McJoynt of KBW.

The first one, I think, is going to be related to the M&A front, but I just want to check on that. If I look at the statement of cash flows, there is a $10 million line that's attributed to other investments. Could you clarify what that is? Is that related to M&A?

Sure. So we've long had our own premium finance operations, and we have been outsourcing operations for years and also using credit facilities to fund those premium finance notes. 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.

So is that an accretive transaction? I guess, is that needle moving?

I'd say it's highly accretive, yes, highly accretive for us. You're getting 4% plus interest in most interest-bearing instruments and the yield of swapping out our capital for the credit facility that was funding the premium finance notes put us well above 7% on the same deposits.

And then staying on the M&A front, you obviously are constantly looking at a pipeline of potential acquisitions. As we think about the 2026 pipeline, would your expectations right now that you guys put more capital to work on the M&A front, do more deals or how do you think about it relative to the pace that we're seeing this year?

I think we'll be 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.

Our next question comes from the line of Paul Newsome of Piper Sandler.

Maybe a little bit of additional color on the market environment would be helpful. And I was wondering if you could kind of walk through maybe in addition to some of the pieces of rate plus -- true organic growth plus 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 organic growth? And what are the things that we should be sensitive to if things change? Like one of the things I struggle with is hard market turned out to be kind of bad for organic growth because of the availability issues, but now we have more availability, but soft market. So maybe some thoughts there would be helpful, at least for me.

Yes. 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 rewriting the account into an even lower rate than what the renewing expiring carrier offered.

That cycle plays through the full calendar year. So we should see the impact of that abating once we get into the second quarter of '26. That would give us a full 12-month run of the softening of the market, which really began early in the second quarter of '25. The availability of additional capacity allows for more clients to be onboarded. The trade-off is lower average premium for the same accounts.

We are seeing growth in exposure that 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, existing program expansion, which then allows for more exposures to be brought in through those channels that are creating additional commission income above the base year.

So it's really not one area. It's a multitude, all of the different parts of our platform executing against their growth initiatives.

And maybe a kind of sort of similar question. You've made a lot of additions of new agents over the last year or so. I think you've said in the past, most of them won't have an impact anytime super soon. How is that sort of waterfall of impact from those newly acquainted agents coming? And is there a point where we see some sort of inflection point where that -- those new agents you've accumulated over the last year or so start to have a measurable impact on the growth rate?

Yes, their impact is baked into our forecasting. And I think as we've talked about over time, the immediate year they come in, there's not much of an immediate contribution as they grow their agency over a multiyear process, they start becoming more meaningfully contributed.

Now as, like I say, we added a lot of stores in '24. So in '24 and early '25, they're not contributing a lot to the organic story. As they start getting their portfolios larger, they do become organic contributors, but at a percentage of the larger base now. So they're all part of the organic base. And so they're going to be part of the organic forecast based on our trend lines.

So when we look at Agency-in-a-Box, all those recruited locations are in the AIB bucket. And so 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. Anyways, they're going to start being contributors, they're part of the base assumption going into the double-digit 2026 projection.

Our next question comes from the line of Pablo Singzon of JPMorgan.

First, on the MGA channel. So good premium growth this quarter. I think you said 19%, but commission income actually grew much faster. I think it was about 56% and then commission expense only grew 27%. As a result, the MGA was highly margin accretive this quarter. I think net commissions over gross commissions are about 52% against, I think, mid-30s historically.

Anyway, can you just talk about what happened there, business trends wise, and what drove the strong results this quarter?

Yes, sure. So we launched a program in Florida at the end of the second quarter. Part of that program -- there's 2 components to it. We are an exclusive TPA, MGA for Florida Property Program. They had a takeout that materialized in June. That creates a TPA revenue stream for underwriting claims, marketing, and on the earn-out of the 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.

And then separate and aside from that, there is a voluntary organic program that's writing new business, albeit in the reported quarter, not really a large contributor, should become a contributor at the end of fourth quarter and more going into 2026.

And then second question, I guess, this one is a bit bigger picture, right? So many of the public brokers have recently announced significant cost reduction or investment programs, which may be good longer term for them, but good near-term cash flow. So I guess the question is, do you anticipate something similar for your company? And if not, how would you respond to the objection that you might be underinvesting in the business compared to everyone else?

Yes, 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, looking at those investments. Some of the investments we make, as you recall, our technology operation, our evolution management systems company is outside the public company. Those capital investments are made within that tech environment, which then doesn't 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. 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. So that's just totally different.

We will have expansion of management team. You'll see an announcement later on this afternoon some roles and title changes that we put out. And then as we finish up our '26 planning, we'll be putting out the full year estimates alongside our K.

[Operator Instructions] Our next question comes from the line of Brian Meredith of UBS.

Gordy, first question, back on the MGA. So as capacity becomes more available, particularly in the Texas market, and I'm assuming business kind of goes back to the admitted market from the, call it, wholesale ENS market. Will that create some pressures maybe on growth in the MGA?

Well, fortunately, for us, our MGA programs are currently all admitted. So if anything, the capacity that's shifting back from ENS into the admitted space inures to our benefit. So both Texas and Florida are admitted products.

And then second question, I'm just curious, when we think about EBITDA margins for your corporate versus Agency-in-a-Box business, what's the difference there? And is there a difference in kind of where your Agency-in-a-Box kind of EBITDA margins can go versus the corporate margins, you think?

So we've talked about Agency-in-a-Box and the passing through of 80% of the revenue and renewal kind of puts a cap on what that margin can produce. Because we are at scale as business operations, we do have a healthy net revenue margin on that business unit.

On the corporate locations, our margin is going to be greater than 2x of what we achieve in Agency-in-a-Box, because we're retaining 100% of the renewal and have more control and constructive receipt of the profitability of the operations.

Makes sense, thank you.

And I want to circle back, Brian, while I got you, so I partially misspoke. Our programs that we originate and operate are all admitted. The Dover Bay program is indeed an ENS program. And I just wanted to clear that up.

Our next question comes from the line of Charlie Lederer of BMO.

Sorry, I joined late, so I apologize if I'm repeating someone else's question or if you touched on in prepared remarks.

You made the comment in the press release about the product environment improving significantly. Just curious if you could break that out geographically a little bit and if you're seeing that in both the new business and renewal side? And I guess, how to think about what's flowing in the P&L near term?

Sure. So we did touch on it earlier, but I don't mind repeating the hard market for personal lines started moving soft in really the beginning of the second quarter of '25, that changes carrier fostering. So think about the hard market '23, '24 and the early parts of '25, carriers are taking significant rate, carriers are restricting capacity. By restricting capacity, that means they're not writing the right new business. They're not wanting to add new production appointments, and that becomes a challenge.

So as the market started to soften, carriers start reducing rates, they start opening up geographically for new business growth, they start putting out incentives 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. California remains to be a hard market. You're still seeing property shifting between California FAIR Plan, surplus lines. There is fewer carriers right now operating in the California marketplace. You had 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. We are in both of those carriers' distribution.

And so California is still hard on the personal lines side, it's relatively soft on the commercial lines. And then you have spotty geographical hardness where you have significant wildfire exposure regardless of state. And then I'd say largely the cat-exposed, hurricane-driven, PML geographies are relatively soft given the reduction in cat pricing and the significant availability of cat out in the market today.

Maybe on the M&A pipeline that you talked about, can you give us a sense of, if it's a commercial or personal tilt toward that in terms of how your business mix might evolve in the next year or so?

So when we're looking at M&A, the first thing we're looking at is the cultural fit of the organization. Secondarily, the quality of the portfolio, is it accretive, meaning, does the portfolio have similar loss ratio qualitative characteristics as our core portfolio? Is there some geographical expansion benefit of the acquisition? So does it possess unique carrier contracts and programs that benefit the large organization, so there's an immediate accretion, the EBITDA margin of the operating business and is there some internal scale lift of that post closing.

We don't really focus on, is it personal, is it commercial, is it retail, is it MGA, is it network? we really look at the qualitative accretiveness of the totality of everything. And so we have in our pipe, and we have in our near term a little flavor of everything.

So if I look in the rear, the last 2 acquisitions that we closed were, I would say, majority commercial lines, retail organizations. And part of that was geography. We picked up some scale in New York with the Angers & Litz acquisition that we announced in August. And then we had a larger operation in Louisiana that was also more commercially focused in the [ McGuinness ] operation we acquired in June.

As I look at the first quarter '26 pipeline, I would say it's a little bit of everything. So we have one entirely commercial organization that's in the pipe, we have several that are a mix, so more of a multiline agency flavor where you have probably 40% to 50% personal, 60% to 50% commercial. And then we have some that are entirely personal lines.

So I think that's a good question to ask, and I'll probably use your question as an opportunity to talk about premium projections. 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 we're going to be buying retail-oriented businesses that generate a lower, average commission but would project a higher premium.

Our internal view is 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. 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. So when we hear or we see that there is a miss on premium, we're not a carrier. We just use premium as a barometer of how you can project future revenues and maybe we got to be a little bit more strategic about how we communicate that, because to the extent that we expand programs, and we will, because they present a higher-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.

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 or maybe overachieving on the EBITDA margin. And then where we see various questions is what the premium number didn't come in.

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

Very fair. Thank you. Just one last one on the contingent line of [indiscernible] and what contingents might look like in 4Q?

So we do. One of the reasons we were very confident in our full year guidance as we made it through the 9-month treadmill and obstacle course known as insurance. We've got those third quarter lock-in opportunities so we can lock in some of those contingencies that are in our base level projections. So we have a high confidence in achieving what we've got in our current pro forma through the full calendar year.

I would now like to turn the conference back to Gordy Bunch for closing remarks.

Well, we again appreciate all of our shareholders, our staff, even the analysts, investors that are working with us. We think we have a great opportunity going into 2026 with our strong balance sheet, our very healthy M&A pipeline, our organic strategies for existing operations, 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 organization.

I look forward to further feedback and appreciate everybody again. And thank you for attending our call.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good morning. My name is Didi, and I will be your conference operator today. At this time, I would like to welcome everyone to the TWFG Second Quarter 2025 Conference Call. [Operator Instructions] This call is being recorded and will be available for replay on the company's website.

Before we begin, let me remind you that today's discussion may contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements, please refer to the company's press releases and SEC filings. Also on today's call, our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors. The company has posted reconciliation of the non-GAAP financial measures discussed during this call in the tables accompanying the company's earnings press release located on the Investors section of the company's website at www.twfg.com.

It is now my pleasure to introduce Mr. Gordy Bunch, Founder, Chairman and CEO of TWFG. Sir, the floor is yours.

Good morning, and thank you for joining us today. Joining me is Janice Zweeney, our Chief Financial Officer. After our remarks, we'll open up the call for your questions. I'd like to start off by expressing my appreciation for our agents, employees, carrier partners, clients and shareholders. The dedication of our team and trust are the foundation of our continued success.

Our second quarter results reflect a strong execution and growing momentum. We delivered total revenue growth of 13.8% to $60.3 million and organic revenue growth of 10.6%. Adjusted EBITDA rose 40.7% to $15.1 million, with margins expanding to 25.1%. Total written premiums increased 14.4% to $450.3 million. This performance highlights the scalability of our platform and our ability to drive profitable growth even as we invest in expansion.

During the quarter, we added 9 new branch locations, expanded into Kentucky and completed 4 acquisitions, including a new MGA property program in Florida. As always, it's important to note that newly onboarded agents typically take two to three years to reach full productivity. We are confident that today's investments will continue to fuel our future growth trajectory.

We continue to see softening in the personal lines market. Carrier capacity is expanding, rate increases are moderating, and certain regions have even seen rate reductions. As the market stabilizes, we're gaining more options for both new and renewal business. This contributed to a retention rate of 89% in Q2, consistent with our long-term averages.

Looking ahead to the second half of 2025, we expect moderate rate increases and are monitoring how potential tariffs may impact loss costs. Our diversified network of agents is well positioned to capture share as conditions continue to improve. Our strategic focus is focused on four pillars: expanding our national footprint, investing in agent productivity, enhancing our technology infrastructure and deepening our carrier relationships.

We've begun piloting AI-driven tools within our services teams to reduce manual processes and improve responsiveness. We believe these tools will help us scale our platform efficiently while continuing to deliver exceptional service to clients and agents alike.

I will now turn it over to our CFO, Janice Zwinggi.

Thank you, Gordy, and good morning, everyone. Before diving into the quarter results, as a reminder, interest income was moved from the revenue line down to other income, so will be comparable to prior and future periods. Starting with our top KPI written premium increased by $56.7 million or 14.4% over the prior year period to $450.3 million.

Within our primary offerings, insurance services grew $55 million or 16.5% and TWFG MGA grew $1.6 million or 2.7%. This increase was a result of growth in both renewals and new business. During the second quarter of 2025, within both of our product offerings, we saw healthy renewal business growth of $45.4 million or 14.9% as well as new business growth of $11.3 million or 12.6% over the prior year period.

Within our insurance services offering, renewal business grew $41.8 million or 16.1% and new business grew $13.2 million or 17.8% over the prior year period. This growth is reflective of our corporate store acquisitions and expansion into new geographical areas. Within our MGA offering, we saw a shift in renewal and new business growth as compared to the same period in the prior year.

In the second quarter of 2024, we saw both property programs open up capacity in an increased rate environment, providing exceptional new business growth during that period. In the second quarter of 2025, these programs faced a slowing rate and more competitive market where we saw a decline in new business growth, resulting from an exceptional to a more normalized growth period. Growth shifted towards renewal business, which grew $3.5 million or 8.1% compared to minimal growth in the same period of the prior year.

Our consolidated written premium retention was 89% as compared to 93% in the prior year period, with current retention being in line with our long-term projected retention rate of 88%. The decrease quarter-over-quarter is correlated to the shift in renewal business growth as previously discussed and as a result of carriers moderating rate increases and opening up for new business after a period of restricted capacity and aggressive rate increases.

Our total revenues increased $7.3 million or 13.8% over the prior year period to $60.3 million. This increase was mainly due to commission income representing 11.1% of the total growth. The remaining 2.7% total growth included contingent income of 1.5% and fee and other income of 1.2%. Commission income increased $5.9 million or 12.1% over the prior year period to $54.6 million, driven by new business growth and solid retention levels.

Insurance services was the main contributor at 14.2% growth or 12.1% of the total growth, while the MGA remained relatively flat over the prior year period. Contingent income increased $0.8 million or 61.6% over the prior year period to $2 million, tracking closely with our written premium growth. Fee income was up $0.6 million or 23.8% to $3.3 million, driven by increases in branch fees, PPA fees, policy fees and licensing fees.

Organic revenues increased $5.7 million, reaching $54.1 million compared to $48.4 million in the same period prior year for an organic growth rate of 10.6%, driven by new business production, normalized retention levels and moderating rate increases.

Turning to expenses. Commission expense increased $2.2 million or 6.8% over the prior year period to $34.2 million, tracking with commission income, taking into account the impact of corporate store additions and programs with no related commission expense.

Our total salary and employee benefits increased by $2.7 million or 39.3% over the prior year period to $9.5 million, reflecting our scale and the IPO transition, driven by $1.5 million increase from the RSUs issued in connection with the IPO $0.7 million due to corporate store acquisitions and $0.5 million due to growth of the business.

Other admin expenses increased $1.7 million or 44.2% over the prior year period to $5.4 million with approximately $0.4 million in IT costs, $0.3 million related to professional and consulting fees and the remaining $1 million increase was tied to ongoing growth and acquisition integration. Depreciation and amortization increased $0.9 million or 31.4% to $3.9 million, primarily from our recent asset acquisitions.

Net income for the quarter was $9 million, up 30.1% over the prior year period. Adjusted net income increased 17.3% to $11.5 million, driven by earnings growth and partially offset by higher public company costs and a $3.4 million increase in tax expense. EBITDA was $11.8 million and adjusted EBITDA was $15.1 million, up 40.7% over the prior year period. Adjusted EBITDA margin expanded to 25.1% compared to 20.3% in Q2 2024, reflecting both top line growth and scale.

With that, I will turn it back to Gordy.

Thank you, Janice. With half the year behind us, we are tightening our 2025 guidance as follows: organic revenue growth between 11% to 14% adjusted EBITDA margin between 21% and 23% and reaffirming total revenues between $240 million and $255 million. We remain well capitalized with $160 million in cash and a fully available credit revolver.

This gives us flexibility to continue investing in our strategic growth priorities and expanding our M&A initiatives. In closing, I want to thank the entire TWFG team for their continued dedication and our shareholders for their support. We are energized by the opportunities ahead and confident in our ability to deliver long-term value.

With that, Janice and I would be happy to answer any questions. Operator, please open the lines.

And our first question comes from Mike Zaremski of BMO.

My first question is about the profit margins this quarter. The commission expense ratio was much better than expected and appears to be driving much of the upside on earnings in the guide. Maybe you can help unpack how to think about what's taking place there. I'm assuming the MGA is impacting it the most, but maybe there was -- I think you talked about incentives you're optimistic about last quarter, maybe those didn't come to fruition as much. That's my first question.

At a high level, Mike, commission expense is lower due to commission revenues also being lower there's a ratio implied in those projections that we will pay out x percentage of commission income. So that does drive part of it. I'll let Janice give you a little more detail on other components that help drive expansion of profitability.

Sure. So, a big portion of that was the corporate store acquisitions that we're adding that had 0% commission expense. So that makes the ratio look lower compared to the commission income growth. And that was really driven by the later acquisitions that we did in '23 and also the acquisitions that we did in '25. So those really made a big difference in the drop to 6%, I think, of commission expense growth.

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Yes. And then on top of that, the margin we're achieving on acquired corporate locations is exceeding the modeled margin, which is giving us some margin expansion off of those business units. So yes, the commission expense stands out a little bit, but that's more a reflection of lower commission income, but the profitability is coming from operating margins are improving on the corporate locations.

Got it. So, I guess from your answer, I'll out maybe offline. It sounds like a good amount of this is run ratable. Some of it's not. It's going to be driven by growth, but maybe growth being below expectations, but it does sound like some of this could be a trend. Okay. Got it. Maybe [indiscernible]

We will frame it as this, we're not guiding to the quarter's 25.1% margin. We're still giving you guys an EBITDA margin on the full calendar year. That's between what '21 and '23. So, we did have some was a gain on sale gave us a little bit of a lift in the quarter. That's not a repeatable portion of that EBITDA margin. So, we don't want you just to gross up the margin to say, run rate it out of the Q2.

Got it. That's helpful. Maybe pivoting, I'm sure there'll be more questions on organic growth, but maybe starting with -- maybe you can talk about what's changed in the last few months versus prior expectations and that will help us give us a flavor of how to -- we can see your implied growth in the back half of the year, but maybe you can talk about what's changed in the dynamics there and help us kind of think through what's going on.

Sure. So, I think at the highest level, you look at the overall market conditions. So, if you look at prior year 2024, market was very hard for personal lines, a lot of capacity was constrained. Rate was flowing through. Our agents and customers had fewer choices. in the market. As we roll into '25, market starting to soften by the time we hit Q2 '25, you're starting to see additional capacity providers enter the marketplace at lower average premiums, not just for property, but also for private passenger auto.

I think when we look at some of the other companies that have already reported, you can see that there is more competition in the overall market. And so our customers, as they renew in Q2 of '25 have more options. So even if there's still a little rate flowing through, we may have two or three options that might be at pricing that's equivalent to prior year expiration or even below prior year written.

And that's where we saw a mix shift of the business from renewal retention going and a higher lift in our overall new business as a percentage of the mix. So, we kind of expected this all to start coming through. I think what's driving the overall lower on organic is probably going to be just the extent of the rate differential between expiring terms and what's available at renewal and what's also available at new business. That's much harder to predict and gauge in a forward-looking estimate.

Okay. Got it. And as a follow-up to that, maybe you can kind of -- we know your geographic footprint. Can you maybe at a high level, just paint a picture of is there -- are there certain footprints where rates went from like double digits immediately to low singles?

Or is it just happening in certain pockets of -- I just want to understand if there's like a regional -- very regional bias to this that we should be thinking through that's potentially temporary if rates are now negative, but long term, they probably are going to go back to positive? Or any other color would be helpful.

Yes. Let me kind of bifurcate between auto and home. Auto on a national basis is relatively softening and stabilizing. We still expect mid-single-digit rate to flow through with the markets on private passenger auto being more open for new business growth. We are starting to see some of those incentives that we mentioned in Q1 starting to come into the distribution. The offset to that is auto is a 6-month cycle. Policies are written on 6-month terms.

So Q2 will have more of an impact on auto. Q3 will be kind of the balance. And then once you get past that 2-quarter cycle, the impact of private passenger auto gets more stable. We are being able to add exposure in private passenger auto in a way that we weren't last year. So, we are seeing growth with new business.

On the homeowner side, you are going to see differential by region. We don't have a large footprint in Florida, but there is some price deceleration in Florida given the results that, that state has had. We are also seeing some price deceleration in Louisiana, more stable in, say, Texas, our core state.

But there are pockets that do have more rate downward trajectory in the current period that we don't anticipate being a long-term trend. But structurally, the entire country is not in a moderated mode on property. There still some states that are taking rate. So, it's really going to come down to a blend of where we're getting our growth, where we have our current footprint, but that does have an impact on organic.

If you have a policy that was $6,000 last year and it can be written with two or three different markets at $50 this year, those do have impacts on it. But we don't see like not like commercial lines where you have a wildly dramatic drop-in rate that then continues for a longer period of time.

The cat costs are still kind of that base underlying force that will keep rate at a more elevated over the long-term historical. So, we do -- we just got to get through these renewal cycles. And it's more acute, like I said, in Louisiana, Florida, but more stable in, say, our core state like Texas and other states are more normalized mid-single digit to double-digit rates are still flowing through those lagging states.

And our next question comes from Pablo Singzon of JPMorgan.

Gord, thanks for your detailed explanation on organic growth. I was just hoping to get sort of a longer-term perspective here, right? So, I think if you look historically, Woodlands has sort of been a mid-teens organic grower. And maybe you saw some benefit from the hard market cycle in '22, '23, but it was actually much less than the price that was going through the system, right?

But now with prices moderating more broadly, how would you frame, I guess, more quantitatively, the benefit you're getting from pricing today? And where do you see that benefit moving in a more mutual environment? Just sort of trying to get a sense of what the growth curve might look like in this environment, right? Because going up, you didn't get much of a benefit. But as things are moderating, curious to see how you -- your view on what the growth curve looks like.

Right. So, we still see double-digit organic growth in the near term and in the projected period forward. A lot of that, as we've discussed in prior quarters, it's just a shift between renewal retention and new business growth. We are seeing that new business growth that kind of offsets the retention ratio that shrank from 93% to 89% in this quarter.

I think if you go back and look at our notes from spring of '24, we had kind of predicted this mix shift between renewal premium retention and new business growth normalizing to 88%. So we've seen that kind of manifesting in the last two quarters. We have additional market capacity that wasn't present in the prior periods. So, we'll have the ability to add more customers, retain more customers, albeit at maybe a lower average premium than in a rate increasing environment.

But the offset is we'll have more total customers because of the ability to grow new business now that carriers are in growth mode. So, we're still looking at double-digit organic in the forward periods. We reaffirmed organic for full year 2025 between, I want to say, 11% and 13%. Is that right?

Yes. 11% to 14%, sorry.

Yes, yes, 14%, yes. I guess to summarize what you said, right? It seems like I recognize the dynamics of what you said that's all correct, but it seems like the magnitude of price moderation, price decreases, whatever you want to call it, is not enough to offset all of that, right?

Because in another world, if prices were going down by 30 points, it sort of doesn't matter what happens in new business and renewal, right? At a certain level, the price increase will just be too large. But from what you were saying, it seems like, yes, prices are slowing down, but sort of the normal dynamics that you described should ultimately result in whatever growth you're guiding to, right? Is that the message?

That's right. And we've lived through July, so we have a little bit of line of sight to seeing that where we're guiding to makes sense. If we saw something different, we would have adjusted further. And again, Q2 of '24 was an exceptional growth period. Q2 '25, in our opinion, was still an excellent quarter. Top line revenue growth, all things being considered, you're comparing an exceptional organic growth quarter to still an excellent growth quarter when you're doing the prior period analysis.

So having the ability to still have the growth in the face of moderating rate environment and increasing capacity, we're feeling good about the trajectory of where we're headed. Still more than 2x, I think, the industry average organic, and we still are guiding to that double-digit forward-looking projection.

Okay. Understood. And then my second main question, I realize I sneak one in there, but this one is more about the broad revenue outlook and maybe more about M&A, right? So, I think you affirmed your revenue outlook for the year, and I think the base for '24, taking out interest income is $204 million, right?

So with $240 million to $255 million this year, there's something like 18% to 25% growth. And if you're saying that organic is 11% to 14%, then that would imply the balance is M&A, right? So, let's call it 7 to 11 points. So, the question then is, in the first half, at least by the math I'm doing, it seems like the M&A contribution has been lower than 7% to 11%, right?

But if you compare organic versus the revenue growth, maybe you're getting 2 to 3 points from M&A or something like that, right? So, can you sort of unpack what's -- assuming my math is correct, like what's behind the numbers there, right? If you're saying you do 7% to 11% for the year, it seems like first half was a bit light. What are you expecting for the second half?

When you're looking at the M&A contribution, it's always about timing of when you onboard that asset. So, we closed a few transactions beginning of Q1. We closed a few beginning of Q2 and throughout Q2 and subsequent to Q2, we announced yesterday an acquisition in New York that occurred post Q2.

So, we have the revenue seasonality of those acquisitions in our forward forecasts. So it's about the timing of when we took those in. So, something we acquired in May wasn't that accretive to the first half of the calendar year but will be more accretive to the back half of the calendar.

And so, we had closings April 1. We had closings May 1. We had closings June 1 in the quarter from the announced M&A. And so those ones will compound into more meaningful contributions in the back half of the year for the M&A contributed revenue. And that's one of the reasons we reaffirmed our revenue guidance for the full year '25 is we have line of sight to those impacts of those now acquired, onboarded and integrating assets joining the TWFG family.

[Operator Instructions] And our next question comes from Tommy McJoynt of KBW.

First question here. Looking ahead, should we assume continued year-over-year EBITDA margin expansion just as the corporate branch growth, either organic or via acquisitions outpaces agency in-a-box production? And maybe more simply, is it feasible that margins get to 25% for a full year in the next couple of years?

It's feasible depending upon what additional acquisitions we have of scale that are operating at plus 30% margins. We're not currently projecting that in the forward '26 or '27. But it is plausible given that we are achieving greater than 30% margin on the corporate assets.

But it's going to be a combination of what do we actually acquire, how do we realize that higher-margin business into the overall total, how much growth do we have in the lower-margin business that runs alongside that. And then there's a number of margin expansion initiatives via technology and our virtual assistance programs out in the Philippines.

So we are working on AI initiatives that could lead to better efficiencies within all of our operations as well, which might lead to some cost savings and improved scalability. And then our Philippines operation is expanding facilities right now. We anticipate those coming online towards the end of the calendar year. That should give us an opportunity to leverage that labor arbitrage further.

So, it's plausible. We're not currently projecting it. I think as we get through the remainder of '25, and we take a refreshed look at the '26, '27 projections, we'll provide you an updated margin guidance at that point.

That's helpful. And then actually, just going back to your response to one of the earlier questions on here. I think you referenced a gain on sale that gave us a bit of a margin uplift. What was that referring to? And any way to quantify how much margin accretion that drove?

Yes, I'll let Janice answer that one.

So, there were two -- yes, the gain on the book of business sale was roughly $600,000. In addition to that, we had an increase of over $1 million in interest income on the IPO proceeds that we didn't have last year in Q2.

Is that was the gain on sale, just the $600,000.

Yes, just $600,000 is the gain on the sale, right?

So just the $600,000 is a one timer.

Yes, that's correct.

And we have a follow-up from Pablo Singzon of JPMorgan.

So Gordy, just another question on M&A. I was hoping you could provide a broad sense of -- and it can be a very loose range, right, of the properties you're considering in M&A. And would it be fair to assume that the deals you've closed thus far, what you paid for them are a decent size below where you're trading in the public market?

Yes. So, M&A, we're acquiring assets of various sizes. So, the range in what we're paying depends on the growth of the asset, the profitability margin and the overall size of the business. So, it's not a static number. But we are on a blended basis through the quarters that we've had, still coming out pretty close to what we modeled.

So not wanting to get too specific on exactly multiples that we paid. It's a very robust pipeline we have going forward. And so, we're in active conversations with sellers trying to project what we ultimately paid for previously closed deals, probably not in our best interest. But for your purposes, relatively in line with the M&A model that we used last year.

And as we're looking at our forecast for the remainder of '25, achieving that midyear convention of what we projected. And now things that we possibly acquire in Q3, Q4 will be accretive against that model.

And we have a follow-up from Mike Zaremski of BMO.

My question is on the MGA side of the business. One of your public peers discussed on their earnings call approximately a week ago about a meaningful increased competition into the E&S home insurance marketplace.

Obviously, you talked about a lot of softening in home. But curious, the competitor also talked about that causing underwriting standards that might not cause them to be comfortable about underwriting as much E&S home business. Just curious if you have any comments. Is the softening you're seeing also taking place in the E&S marketplace? And how is it impacting your MGA's trajectory?

Yes. Good question, Mike. And I want to clarify the property programs we have, our core program, FICO is admitted. It's a Texas-based program. It did take rate in this calendar year. That did impact retention slightly.

The biggest differential trying to compare Q2 of '24 versus Q2 of '25 for that program is last calendar year, a lot of the market for property in Texas went relatively catatonic, progressive and shut down new business April 1, 2024, which gave us an outsized growth in that program in Q2 of '24.

If we're looking at how that compared to Q2 '25, we're retaining that portfolio, adding new PIF, but the growth differential between the two calendar years does have that relative mix to it of we had outsized growth last year when the market was closed. We also constrained our own growth going into the second quarter. The reinsurance for that program renews June 1, wanting to make sure you have longevity in that program and growth forward.

You really have to see what your costs of that program are going to be, and reinsurance is a huge component. So, at that renewal, we look to include growth in the cat program that was purchased. And that growth was restrained. So really, we self-inflicted our own growth trajectory by staying closed in geography that we could have added additional risks in to later into the hurricane season that gives us a better overall economic use of that cat program.

And so that program should have growth potential for us in Q3 and Q4 as we've loosened up some of those guidelines to open-up geography that we were actually closed in for Q2. So that's kind of the answer on that particular program. The Dover Bay program that is E&S, that is an exclusive program to its own distribution channel. and it's still having growth. We have some opportunities for expansion into additional geography that we're working through.

So, we do think that -- that has legs. That program doesn't operate on a premium to commission ratio. If you recall, last year, we transitioned that contract to a more level cost that adjust on an annual basis. So that also does skew premium to commission ratios in total. And -- but we're not having the same necessarily correlated E&S impact. Where that's going to flow through to us, Mike, is we do access other E&S markets. And so, if they are lowering their rates, that might flow through into that renewal premium differential that I mentioned earlier.

Got it. Got it. Okay. I'm going to -- one more follow-up that's helpful. If we we're transitioning, I guess, maybe knock on wood for consumers to an environment where pricing is stable, let's just say mid-single digits overall. How do you think about -- how do you all think about kind of new branch locations? Do you think about them in terms of like numbers and what you're -- is there like a cadence that you think is -- that we should be thinking about as normal? Or is it going to -- is it always going to be inherently kind of a bit volatile?

Yes. I would say that recruiting is an ongoing effort. The pipeline is solid. The emphasis of how many in any given month or any given quarter is probably not that relative. It's always about the quality of the talent, aligning that talent to our platform.

And depending on the type of prospect, the sales cycle to bring on a new location can be either relatively quick, meaning that the individual is not encumbered by existing agreements or portfolios, or it could be relatively long if they're having to dispose of a captive portfolio that they are not allowed to bring with them. And we are having success at smaller independent agencies that are looking to convert to our model via an 80/20 relationship where they can scale up and pick up our infrastructure.

So, I think we're hyper-focused on qualitative onboardings and looking now for those that can bring some portfolio with us. So, they have more of an immediate benefit to the organization than, say, just all the ones we've done from scratch. But they all have different timelines on how they onboard. I think that we will spend more effort into increasing the pipeline, so we have a better culling of opportunities.

Geographically, the carriers opening up for more capacity provide a better outcome as we're looking to recruit people in, one of their biggest questions are, can I actually write business? One of the attractions to our model is many of them are living in captive singular carrier environments. So having access to a broader market makes it more attractive. So, carriers now willing to appoint, willing to grow does give us a good trajectory there.

And I should say that not all geography is softening. California is still a state that has persistent rate and has good opportunities for us, but it is still a hard market in California for personal lines.

Thank you, I'm showing no further questions at this time. I'd like to turn it back to Gordy Bunch for closing remarks.

Thank you, Didi, and thank you all for attending today's call. I just want to reiterate that TWFG remains a highly capitalized, nearly debt-free organization with good tailwinds at our back. Our organic and inorganic strategies are playing out. We will continue to update guidance as we see changes within our performance.

We appreciate everybody who's attended this call and look forward to our Q3 call here in the near future. So, thank you for attending and until next time.

And this concludes today's conference call. Thank you for participating, and you may now disconnect.

[Audio Gap]

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Now with that said, we're very privileged to have Gordy here from The Woodlands Financial.

It's been an incredible year, right? Maybe before we get started, just maybe a little bit of introduction in terms of post the IPO up until this point. How do you feel about the market today? How do you feel about the overall business? Maybe just start from there and also maybe just a little bit of introduction about the business.

Yes. Thanks, Bob. And thank you for being here at the last of the agenda for the conference. So I know you had better places to be, and I appreciate you spending your time with us. Post IPO, it's really hard to complain. The markets reacted relatively positive to TWFG. Conditions have been good. And other than that week in April, I'm sure most people would like to forget. It's been pretty good so far.

Sure. Yes. Maybe if we think about the market opportunity, also the growth opportunity you have, right, personal line, premium has been fairly strong for you for quite some time now. This is also driven by -- partly driven by an inflationary environment, uncertain weather patterns and other factors. Can you maybe talk about, going forward, where do you see the broader opportunity set is for you? This feels like a $0.5 trillion market, but just curious as to how you think your best position there?

Yes. Personal lines remains a consolidation opportunity on the M&A front. There's also a talent migration out of the captive distribution channel into the IA space. You can see now that direct-to-consumer has kind of had its plateau moment, and we're starting to see some of the DTC markets opening up into the IA channel, giving us good tailwinds going forward.

Sure. And as we think about your guidance, 2025 guidance of 12% to 16% organic revenue growth and then 20% to 22% adjusted EBITDA margin, what are some of the main drivers you feel would support your optimism? I mean obviously, it does feel like the market is opening up quite a bit for you.

Yes. So not touching on guidance. I'll just talk about the positive aspects of what's going on for us in the business. Last 2 years, personal lines have been a relatively hard market. Capacity was relatively constrained. Carriers weren't literally interested in growth. They were interested in getting back to profitability. As we got through the end of '24, we've all seen positive improvements to combined ratios. Carriers are at all-time profitability. Now that's having them come out and say, we want growth. So you're seeing a lot more new business incentives to help drive growth into the market.

Carriers are open again for new appointments. Most geography, especially for private passenger auto, is broadly open. Property remains a little more fragmented, a little different story, more geographical narrative required. California remains persistently hard post California wildfires, post rate inadequacy. We're addressing that by attracting in the secondary market.

So we do have admitted carriers that are writing California homeowners, but we also have the non-admitted E&S platforms that we brought to bear. And then, of course, if all else fails, you have the California FAIR Plan. So with all the previous 2 years, hard market slowed growth. What you're getting now is an inflection of new business growth and rate stability, which is positive for us to add new agents plus add new customers.

No, yes, that certainly should be a decent amount of runway from here. So if we think about the competitive environment, right, you've been in business for several decades now. And you have seen a shift for a personal line distribution from a captive agency, heavy distribution model to now much more of an independent agency model with a direct channel kind of there and getting bigger. So curious to your view on this growth for direct channel distribution. And do you feel that poses a threat to your business model and then to maybe other independent agents?

Yes. So I mentioned a little while ago, direct-to-consumer on private passenger auto seem to have hit a plateau. The 2 largest DTC markets are GEICO and Progressive. Progressive is our largest trading partner. We added GEICO to our platform last year. So really, the 2 dominant DTC threats or frenemies, are actually in our platform. And so I don't think that there is a threat to the independent agency distribution model. I think there's a collaboration and a realization that both distribution channels are going to exist. So I think Progressive and GEICO alongside independent agents will continue to grow together.

I think we will both capture market share from the captive distribution channel. And that's what you've seen over the past decade. Homeowners insurance used to be majority captive distributed. It's now less than 35%, similarly with private passenger auto. So I think we're going to be capturing more of that $0.5 trillion addressable market for personal lines. And I don't think DTC is going to impact the IA channel as dramatically as originally thought.

I do think one of the things that makes that long-term true, none of the direct-to-consumer offerings can actually take care of the homeowners insurance marketplace as a whole. We are in an industry where nobody wants a monopoly of property exposure.

So that fragmented distribution of homeowners insurance makes it less likely for us to be displaced. Think about the California example and it lives true in Gulf Coast states and other cat-prone geography. You have to write admitted, non-admitted and use state-backed programs in those complicated states. That's where the majority of the population resides between California, Texas, Florida and New York. Those very complicated sales processes don't lend themselves to a DTC platform.

No, that's very helpful. So you mentioned that you now are onboarding additional carriers. Obviously, the market today is very different from what it was several years ago. Not naming names. Maybe if we can just think about from a scale of 1 to 10, 1 being the least competitive from a carrier perspective, 10 being just all-out pricing war, where are we today in terms of the carrier competition and their willingness to open up business to you and others?

Private passenger auto is probably sitting at a 7.5...

7.5, okay.

Where you've gotten rate stability, you might even have some rate deceleration in markets where their combined ratios are greatly improved. Private property, homeowners insurance is probably sitting around at 2.5 to 3. So lots of room for improvement on the property side, but private passenger auto is getting ready to get into a very competitive environment.

So that's an interesting point, right? One side is much more competitive than the other. But a lot of folks bundle. Does the lack of willingness to do homeowner business make bundling harder? Is that an observable trend or is that not a thing?

If you think about independent agencies, one of the things that we have an advantage in is that we can still bundle a customer with us. So if the consumer is looking at their insurance packages, who -- what insurance advisory firm did they buy their insurance from rather than the carrier that makes up the underlying coverages, we're still bundling and packaging up our customers' needs.

In our programs business, The Woodlands Insurance Company, we actually have a companion policy discount built into that property program. So we actually have incentives for our consumers to actually bundle their insurance within the agency. We get the discount regardless of which preferred private passenger auto carrier the customer has, so long as it's with the agency. So we are bundling disparate coverages.

That sounds like it's an advantage to you but a limitation to the direct channel in that case.

It's a benefit to us for sure because we have that built-in packaging discount. And we built the product actually to be bundled, understanding that our auto capacity providers that do have property don't want it all. So it's a way for us to continue to grow with those capacity providers. In geography, they still want to grow private passenger auto, but they don't want to add any more property exposures. So we're able to actually partner with them and bring that additional capacity alongside.

Got it. No, that's very helpful. So in that case, right now, independent agent channel is about half of the homeowner distribution, give or take. And it's about 1/3 of the personal auto kind of like what we said before. But is there an ultimate steady state where you feel independent agency channel will eventually achieve?

It really depends that we saw what happened with Nationwide a few years ago where they converted their captive distribution into independent agents. If more captive distribution organizations do that, then we'll have a larger market share from those captives converting into independents. As individual agents choose to exit the captive model and come into the IA channel, that also could actually impact how much of the market share we grow.

I do think that what we talked about with the difficulty of personal property, having that fragmented marketplace, I think that tends to drive more market share to us long term as customers want their insurance with the same insurance adviser. And so I do think that there's tailwinds for the IA channel.

Got it. And then in that case, do you -- as the independent agency channel continue to have seemingly a competitive advantage, how do you view other competitors of yours in this case? Maybe if you can talk about your competitive moat, and then we'll certainly get to some of the operations side of things.

Yes. So in our world, we have 2 different offerings. We have our agency-in-a-box, TWFG-branded locations. We think that we have the best and brightest agents coming into that model. Average experience is 17 years in the industry. That gives us a high-quality retail partnership to continue to grow the branded distribution.

And then our competition, other independent agencies in the marketplace, many of them access product from our MGA. So we have our own wholesale brokerage and programs division, where we have product, that same product that I mentioned earlier that has that bundling advantage is available to our retail distribution and our MGA distribution. So in many cases, we actually get growth actually from our competition.

Got it. No, that's helpful. Yes. So on the agency-in-a-box solution, right, it's relatively simple to set up and it provides comprehensive solutions. Is there -- are there ways for other competitors to copy this platform and product offerings? Can you maybe talk about your ability to use that product to attract more agents onto your platform?

There's really only one other company that I can think of that has the full suite of support where if you have training and technology and everything integrated and everything is on the same brand, then that's going to be Goosehead, right? And so there is a -- could anybody go out and copy any business model? Sure.

But one of the strategic advantages we have is we own the agency management system. So that technology cost per user, that training and ease of integration from disparate systems to consolidate and integrate, we have that advantage having that technology into ourselves. It's much different than just a wholesale aggregation where you have a pool of agencies that are owned separately and they only aggregate for higher bonus, higher commission. The infrastructure for commission payables, the infrastructure for agency bill reconciliation, management of email for hundreds of locations, most of the other types of businesses don't do any of those things.

So they would have to then create an infrastructure and integration strategy to really try to replicate that retail model. There's a couple of other franchises out there worth mentioning, Brightway out in the Southeast. But it's really only a few companies that are actually doing the single brand, single system, handling the reconciliation of all the accounting infrastructure for the insurance agencies. Most everything else out there is a wholesale aggregator-type model.

And this certainly helps retention, it feels.

Yes, because the business that comes into our retail division is wholesale California, it stays with us. The agencies that are building these portfolios, they have exit value. But when they exit, the portfolio actually stays with TWFG and we just perpetuate to the next principal operator.

I think one thing I remember clearly, and this is throughout your earnings thus far, right, you talked about retention being one of the key -- agency retention being one of the key. Can you maybe help us think about the philosophy behind it? We obviously talked about the solutions that help them to remain on your platform, but maybe the philosophy behind retention, but also how you think about just driving retention going forward as well as we enter into a relatively competitive environment, I would say.

Retention for our agents?

Yes.

They keep 100% of the profit they generate out of their local location. So there's a huge advantage for them to continue to grow their operations. And with us doing the commission processing, not just for the agency but also for all the producers within the agency, it's -- there's no barrier for them to hire more producers because we're going to handle the back-office support that helps: one, make sure they're licensed, getting appointed to the various carriers; and then two, doing the compensation calculations for them.

So I think the platform itself, the efficiency of it, the advantage of them being able to retain the profitability at their own local level, there's not really an incentive for them to exit and leave the portfolio behind and go do something else.

Right. And then that essentially should theoretically also help to maintain a level of productivity and then that drives future growth of revenue.

Yes. The fact that they get to keep the profitability off of their efforts certainly is an unlimited upside into the profitability that they have in partnering with TWFG.

Right. So maybe shifting a little bit into the broader expansion, right? You are expanding into Ohio, New Hampshire. What are some of your priorities as you think about expansion into outside of your core states? And can you maybe talk about the progress so far as well?

Yes. So last year, we added 15 new states. When we're looking at going into new geography, it's really where does the talent line up to our platform, whether that's our agency-in-a-box platform or the MGA wholesale brokerage platform. We had an opportunity last year with a market exiting captive property insurance, which gave us access to distribution to acquire or recruit into our business model.

So really, as we look at other states, we're going to go into the other states by recruiting talent that's already in that geography or through an acquisition where we can acquire a portfolio at scale. We entered Ohio a few years ago, to your point. We acquired a decent-sized location. We had 2 or 3 sub acquisitions on top of that, and then we were able to expand in Ohio from a position of strength.

North Carolina is another market that we've acquired ourselves into and have had good growth coming out of those acquisitions and then subsequent acquisitions since the initial launch into North Carolina. We also look at our MGA, and one of the areas we have that we think is a good lever is programs. We've had a lot of success with that program I mentioned earlier, where we have unique homeowners capacity in a difficult state. What other states can we expand programs into? So we are looking at going into other states that would be benefited by having additional homeowners programs.

Got it. So when you think about expanding into other states, do you first say, "Okay, this is an interesting state to get into, so we'll look for talent." Or do you say, "Oh, this is an interesting group of talent, and then we'll get into that state." Is there like a formula or not really?

It's opportunistic. So it can come -- we have a pretty healthy M&A pipeline. I know that will come up a little bit later. But as you have -- you're recruiting out there, you have existing agents that are referring agents to us. We've got our own direct recruiting efforts.

When that talent comes into the pipe, you evaluate the talent, you evaluate the markets and platforms that we have to offer in that geography. And if we have something that has a high probability of success, you go ahead and enter into that marketplace. Same thing with our acquisition. If we get in acquisition pipeline agencies in new geography, we look at the composition of their portfolio, their staff, what's the leadership retention, what's the producer retention? Is there an organic growth tailwinds from that acquisition and then you look at what is it going to cost us to acquire? And then you make your decisions on which ones you're going to go after based on composition of all those things.

That's very helpful. So as we think about growth opportunities, as we think about expansion, one thing from our perspective we tend to look at is a personal line pricing, right? Pricing, homeowner obviously a little bit complicated, but it looks like auto pricing is slowing down or decelerating at least.

How do you see that impact your business from a pricing perspective? Should we think the growth will naturally offset that pricing deceleration? Like when you talk to your folks, how do you guys think about that?

Yes. So we look at it and we've looked at it historically. We've been through multiple pricing cycles giving us -- we've been in business now 25 years. So if I go back and I look at COVID, COVID had pricing deceleration forced upon it by regulators, right? And this state says you must reduce your rates because no one's driving and frequency has dropped and you're -- now you're making too much money.

And then on the backside of those forced reductions came inflationary loss costs, supply chain issues, and then we hit that hard market. So as you look at our growth during COVID, even in a price deceleration time period, we still have the same double-digit growth. The difference is more of it came from new business than from retention.

So premium retention suffered because you had price deceleration, but it was offset by new business growth opportunities, by new rate sets. And so as we look at where we're at today, coming out of the higher pricing models and into rate stability, we've already seen a decrease in retention but an increase in new business as a mix of the total growth.

Got it. So it's really an all-weather portfolio that allows you to be successful going forward.

It's a product that's required by law, contract or common sense. So it's recession-proof, and we do get lift by rate organically, but we also get lift by adding new customers. And then in periods of these hard, soft market cycles, the growth just shifts between renewal and new business. And so we're going to see higher new business as a mix of total growth in the current periods. And in hardening periods, we'll see the shift in the retention as a higher percentage.

Got it. That very much makes sense, so thank you for that. So one thing that's been interesting is the growth in the MGA program. And then you are also expanding your MGA programs. Are there specific niche that they occupy that really make you find them attractive? Are there any areas of growth within MGA that you're excited about it?

Yes. I really like the program side. It's an area that we can lean into. We've been doing programs for over 20 years. Cat-exposed property is our core. So homeowners insurance and geography that's difficult for the admitted markets and non-admitted markets. And so the ability to have some capacity within our control allows us to throttle our growth up or down, depending on what the climate is.

And so take last year where market was hard in our core state of Texas, we had capacity that we were able to allocate to our branded locations in those hardest market areas. And we also were able to open up in other geographies through our independent agents and actually got growth from them as well. And so just that ability to have some internal solution for one of your core products is beneficial. And then creating the companion policy discounts and incentives that help sell other products just has a magnifier and how that impacts growth as a total.

Okay. No -- yes. So if we think about the M&A market, right, so obviously, commercial insurance broking, we see a lot of this happening. And in fact, we saw that a few days ago. But when we look at your business, do you see a one, harder or -- and harder to find appropriate targets? Or do you see that it is -- might be -- M&A is required to operate your business because scale? Can you maybe talk about how you think about M&A in the personal line broking space? Yes, just curious your thoughts there.

Yes. So I'll answer the last question first. M&A is not required to operate our business, right? We've had good double-digit organic growth historically for multiple decades. It is an enhancement to our business model. It allows us to stack on additional growth that then becomes part of the total business. And it's also a unique separator for us.

So we talk about other businesses that have similarities to us. I don't know of anybody that works within our retail agency-in-a-box-type business model that also participates in M&A activity with those subagencies. So we will partner with our agency-in-a-box branded locations to do an acquisition with them. We will co-fund that acquisition for our portion of the revenue share agreement and allow them to scale up alongside us. That's a unique separator for us.

The ability for us to be flexible in acquiring retail, MGA, specialty niche underwriting, wholesale and brokerage also is a unique thing for us. Part of the purpose of us going public was to build more awareness of our organization. It was a primary offering, so we retained the capital at the company level. That gives us a lot of dry powder.

We have now a lot more deal flow coming from investment banks, traditional M&A brokers focused in the insurance space, and so giving us the ability to be highly selective in what we want to transact. So M&A will be part of our longer-term story with the high free cash flow that our business generates, being able to reinvest that into accretive M&A, this is an extra tailwind for the business on top of the already exceptional organic growth.

Right. So -- but in that case, there is no M&A target every year. It's just nice to have, it sounds like.

Right. We have a base case in the model, but it's really muted because we want to be able to be opportunistic, not obligated. And so by not putting too much into our model, it allows us to be selective and not try to force M&A for the sake of forcing M&A.

Right. So in today's environment, if we look out into 2026 or maybe even 2027, what areas in your business, where do you feel are the opportunities from an M&A perspective? Is it just a normal kind of roll-up M&A? Or are there capabilities that you want to acquire? Anything that kind of you're targeting, so to speak?

Yes. So it's a good question. We want to continue to do the easy to accrete into the small books of business into existing stores. The ones that are scaled into corporate locations, those are kind of down the fairway. But where you're looking at where do we pick up some new skill sets? So maybe it's an underwriting team and an MGA that has a niche business that would be highly accretive, and we already have some within our existing sales book.

That would be we acquire a portfolio, but then we're immediately able to get synergy lift off of our existing production. Expansion into new geography, underwriting teams that might be available there, those would be unique things. If you're looking at like an MGA wholesale broker, if we -- anything we acquire where we can bring our existing suite of products and add it to what we just acquired that has an extra synergistic value would also be of interest.

Right. And generally, these M&As, I think, kind of like you said earlier, the synergies as well as the revenue contribution is fairly immediate, just given your entire setup. So maybe moving away into technology a little bit. You made significant investments in technology as well as technology infrastructure, right?

Maybe if you can talk about the ability that you have today to scale of your business based on the technology investment you had and as well as the ability to support that agency growth kind of what we talked about before, revenue growth as well as margin efficiency.

Yes. So I think technology is going to be part of every company's dialogue for the foreseeable future. I think in the near term, we're all going to hear AI in every conference we go to and what are the user cases for AI within any of our businesses.

We haven't put a marker down on how much margin expansion AI can create. We do look at -- there is a user case in almost every corner of our business for an AI solution. We already have automated robotics and workflows. But then how does the new low language models, large language models, maybe minimum size, how do each of those different applications either improve already existing automation or supplement workflows for existing workforce?

I do think you'll get more scale with the new technologies that are out there once fully deployed and implemented. And the conversational AI has a lot of promise. I know that one of our agents has already deployed that in his agency and the new receptionist was so polite that his mother called him and asked him where he found her and where she's from and how did they hire her. She's fantastic. And his mother had zero clue that she was talking to an AI conversational agent. So there's going to be some areas in the business that we're going to be able to deploy it and it should give us lift across the organization.

And when you deploy technology too, that's usually centralized. But in this case, it was something that the agent decided to do on their own.

Yes. In many cases, we'll get agents that will test out different functions. And then if we like how that functions, we'll look at it at an enterprise level. So when we're working on things, we're working on a solution that is integrated with our tech stacks and all of our workflows and it becomes beneficial across our platform. So we might take what he's using for a receptionist and then make it available to all 500-plus locations or he may continue to use something different than the solution we end up implementing. But whatever we do create, it does become available to the whole organization.

Got it. So one thing when we think about technology is that today's technology will be outdated tomorrow, which is an unfortunate truth. If you think about your investments into technology, how should we think about the size of that investments going forward like? And then how do you think about the dedication into expenses as you manage that technology expense going forward?

Yes. I mean I'd frame it as ongoing. You're going to probably have a constant tech spend. And for us, it's -- I look at it as if I can improve a workflow process for our one agency, and then I get to take that investment that I just made to make it work for one, it immediately becomes beneficial to 500. And so we look at it as a significantly wise use of capital because it has a multiplying impact across the entire organization.

And if we make any of our 500 locations more productive, that inures to our organic growth, that inures to our margin. It's just a compounding impact. So different than a single agency out there trying to figure it out on their own. Us doing that for the benefit of the whole organization is just it's a huge benefit for all.

So it's really a focus on scalable technology. And as M&A comes in, there's additional compounding effect essentially.

M&A or new agents or even existing locations because we fully integrate everything we acquire. So anything we're building will benefit all operations once fully integrated.

Okay. Got it. No, that's very helpful. We're almost at time. I don't know if anybody have questions on the floor. We're going to give a couple of minutes. If not, well, I'm going to -- well, we can end it here. So Gordy, I really appreciate your time. So thank you very much.

All right. Thank you, Bob. And again, thank you guys for making it to the end of the day with us.