TWFG, Inc. Common Stock (TWFG) Q3 2026 Earnings Report, Transcript and Summary

Good afternoon. My name is Howard, and I will be your conference operator today. At this time, I would like to welcome everyone to the TWFG Third 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 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 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 @www.twfg.com. It is now my pleasure to introduce Mr. Gordy, Founder, Chairman, and CEO of TWFG. Sir, the floor is yours.

Thank you, and good afternoon, everyone. We appreciate you joining us today to discuss TWFG's third 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 performance in more detail, and then we'll open the call for questions. I am pleased to report that TWFG delivered another quarter of strong, profitable growth, underscoring the resilience of our diversified platform in a softening market. Total revenue grew 24.6% to $79.9 million. Organic revenue growth was 16.6%. Total written premiums grew 18.5% to $554.2 million. Adjusted EBITDA grew 15% to $19.5 million with an adjusted EBITDA margin of 24.4%. On profitability, our 24.4% adjusted EBITDA margin was within our full-year guidance range. As we discussed last quarter, we expect the temporary benefit from MGA Florida takeout books to normalize as those policies renew at the full-term premiums with standard commission expenses. And that is what we are seeing. The year-over-year comparison also reflects lower interest income as we deployed cash into share repurchases and acquisitions, as well as planned investments in growth initiatives. Janice will cover the margin bridge in more detail shortly. The market environment continued to soften in the third quarter, with most carriers turning their focus toward growth initiatives. Carrier demand for new business flow remains strong, and carriers continue to roll out incentives and broaden their underwriting appetite to win new business. This environment rewards distribution platforms with scale, and our results demonstrate the value we bring to our agents, policyholders, and carrier partners across market cycles. Every part of our platform contributed this quarter. In Insurance Services, written premium grew 12.5% to $444.7 million, led by our corporate branches, where written premiums grew 19.9%, and our commission income grew 20.4%. Our agency in-a-box channel grew written premiums 10.1%. Our MGA channel continued to scale, with written premiums up 50.9% to $109.5 million and MGA new business more than doubling. MGA revenue increased 78.1% to $24.8 million and now represents 31% of total revenue, up from 22% just a year ago. We also continue to diversify our mix, with Commercial Lines written premiums growing 32.2% to $107.1 million or 19% of total written premium. Our strategy remains consistent. We are executing our 4 core priorities, delivering strong double-digit organic growth, executing accretive M&A, investing in technology and platform enhancements to drive agent productivity, and deploying capital with discipline. This quarter, we again made meaningful progress on all 4. On the acquisition front, TWFG Insurance Services completed the branch conversion acquisition of Select Insurance Solutions during the third quarter. Select joins a 2026 roster of corporate store and MGA acquisitions that include APIA, Lofton Wells, and Fortress Insurance Services. Branch conversions are accretive; margin-expanding opportunities may move established TWFG agency-in-a-box branches onto our corporate store platform, where commission expense is replaced by a lower salary cost, creating a higher-margin corporate store. These branches are led by seasoned agency owners with established books requiring minimal integration. Integration of our first-half acquisitions remains on track, and these teams are positioned to contribute to TWFG's long-term growth strategy. On capital allocation, our balance sheet continues to give us flexibility. Our Class A share count stood at approximately 12.9 million shares at quarter end, down from approximately 15 million at the end of 2025, reflecting the share repurchase program we executed earlier this year. We also expanded our revolving credit facility to $125 million, which remains fully undrawn. Combined with our cash positions, this gives us approximately $203 million to invest in growth, pursue accretive M&A, and return capital to shareholders. On technology, we continue to invest in AI-enabled capabilities that help make our agents more productive and available to the clients they serve. TWFG is positioned to benefit from AI's continued evolution because we own our technology stacks, have proprietary policy and client data, and are deploying AI to amplify what our people do best. We look forward to sharing more at our Investor Day on Thursday, November 12, at our home office in the Woodlands, where we will provide more detailed overviews of agencyinabox, corporate stores, M&A opportunities, the MGA platform strategy, geographic expansion plans, and technology roadmap. Our goal for attendees is to leave with a deeper understanding of our diversified distribution platform and to meet the leaders driving our business. Before turning it over to Janice, I want to acknowledge the outstanding execution of our team this quarter. Our results are the product of thousands of individuals contributing every day from our agents, our carrier partners, and our corporate team. I could not be more proud of the entire TWFG family. With that, I will turn the call over to Janice for a closer look at our financial results.

Thank you, Gordy. I am pleased to report the following third-quarter results, beginning with our top KPI, written premium. Total written premium grew $86.5 million or 18.5% to $554.2 million, driven by strong renewal and new business performance. Renewal premium grew $48.5 million or 13.4% to $410.7 million, and new business grew $37.9 million or 35.9% to $143.5 million. For the third quarter, consolidated written premium retention was 88% compared to 91% in the prior-year period. Insurance services retention was 90% compared to 92%, and TWFG NTA retention was 78% compared to 80%. On a year-to-date basis, consolidated retention was 91%, up from 89% in the prior-year period. Looking at the components of our written premium. Insurance services grew $49.5 million or 12.5% to $444.7 million, driven primarily by renewal growth of $40.6 million or 13% and new business growth of $8.9 million or 10.8%, supported by organic and inorganic growth across both agency in the box and corporate stores. Our MGA channel grew $37 million or 50.9% to $109.5 million with new business growth of $29.1 million or 122%, driven by the ramp of our voluntary Florida homeowners program, the continued renewal cycle of our Citizens takeout book, and contributions from APIA, which we acquired in the first quarter of 2026. Total revenues increased $15.8 million or 24.6% to $79.9 million. Commission income grew $15.1 million or 25.9% to $73.4 million, which was driven by strong MGA performance, with growth of $10.7 million or 92.6% as a result of contributions from the acquisitions of MGA Florida and the APIA programs, which generate higher commission rates. Insurance services grew $4.4 million or 9.4% due to organic growth as well as contributions from acquisitions. Commission income growth outpaced written premium growth by 740 basis points as the MGA programs contribute higher commission rates than the insurance services business. Contingent income was $2.6 million compared to $2.1 million in the prior-year period, and fee income was comparable to the prior-year quarter at $3.6 million. Organic revenues reached $68.7 million, representing a $9.8 million increase over the $58.9 million reported in the prior-year quarter. This yielded an organic revenue growth rate of 16.6% and was at the top of our full-year guidance range and above industry averages. Importantly, our growth this quarter was volume-led rather than rate-driven. With rates moderating, we grew by adding policies and clients as well as retaining our client base, as indicated in our renewal growth across both offerings. Our Insurance Services business continues to generate sustainable and consistent organic growth independent of acquisition contributions. Turning to operating expenses. Commission expense increased $7.3 million, or 20.9%, to $41.9 million, growing 500 basis points slower than commission income. This operating leverage was primarily driven by higher commission income rates on MGA program business as well as an increased concentration of corporate store acquisitions carrying minimal commission expense. Salaries and employee benefits increased $1.9 million or 19.3% to $11.8 million due mainly to added headcount from our recent acquisitions. Other administrative expenses increased $4.5 million or 85.8% to $9.7 million, primarily due to professional and legal fees associated with capital markets activity and the expansion of our credit facility, as well as continued investments to support our growth initiatives. Approximately $1.8 million of the costs in the quarter were nonrecurring, primarily those legal and professional fees, as previously mentioned, are excluded from our adjusted results. Depreciation and amortization increased $2.2 million, or 40.7%, to $7.5 million, primarily from amortization related to our recent acquisitions. Now moving to profitability. Net income for the quarter was $9 million compared to $9.6 million in the prior-year quarter, and net income margin was 11.3% compared to 15%. Diluted earnings per share were $0.09 compared to $0.11. The quarter-over-quarter comparison reflects higher administrative and personnel expenses, lower interest income, and higher noncash amortization related to acquisitions. Adjusted net income increased 16.3% to $15.1 million with an adjusted net income margin of 18.9% compared to 20.2% in the prior year quarter. Adjusted EBITDA grew 15% to $19.5 million with an adjusted EBITDA margin of 24.4% compared to 26.5% in the prior-year quarter. The 210 basis points decrease was primarily due to interest income, which we include in adjusted EBITDA, declining to $0.5 million from $1.6 million in the prior-year period as we deployed cash into share repurchases and acquisitions. This accounts for roughly 180 basis points of the decline. The remaining 30 basis point decline was primarily due to corporate overhead costs for business growth, including technology initiatives. Year-to-date, adjusted EBITDA margin was 28%, up 310 basis points from 24.9%, and adjusted diluted earnings per share increased to $0.28, up 21.7% from $0.23 in the prior quarter. From a cash and capital perspective, cash flow from operating activities for the quarter was $10.6 million compared to $15 million in the prior year period, and adjusted free cash flow was $7.5 million compared to $12.3 million, primarily reflecting working capital impacts, including higher commission receivables and lower commission payables and other liabilities. These impacts were partially offset by amortization. On a year-to-date basis, operating cash flow was $43.1 million, up 7.2% from $40.2 million, and adjusted free cash flow was $31.2 million, up 8.2% from $28.8 million. Our balance sheet remains strong. As of September 30, we had $77.8 million in unrestricted cash and cash equivalents plus $17.8 million in restricted cash. We have full unused capacity on our expanded $125 million revolving credit facility and only $2.5 million of term notes outstanding, giving us approximately $202.8 million of available liquidity from unrestricted cash and revolver capacity. And with that, I will now turn it back to Gordy for closing remarks.

Thank you, Janice. Turning to our outlook. We are updating our 2026 guidance from the second quarter based on our strong year-to-date performance and our line of sight to the balance of the year. We expect total revenues of $300 million to $320 million, organic revenue growth of 15% to 17% and an adjusted EBITDA margin of 24% to 27%. Through the first 9 months, organic growth of 21.5% and an adjusted EBITDA margin of 28% are tracking above the high end of those ranges. And our outlook reflects a prudent view of the fourth quarter, including the continued normalization of the MGA outlook and the softening market conditions. In closing, I want to thank our employees, agents, carriers, executive team, and shareholders for their continued trust in TWFG. We see significant opportunities ahead, and we look forward to hosting many of you at our Investor Day on Thursday, November 12, at our home office here in the Woodlands, Texas. With that, operator, please open the line for questions.

[Operator Instructions] Our first question or comment comes from the line of Michael Zaremski from BMO Capital Markets.

A question on the guidance. I recall last quarter, the sticking points in the guidance were contingents, which could be choppy, and M&A-related revenues. Organic growth beat and raised, but total revs guide staying the same. So I guess does that imply -- is it contingents or M&A-related revenues that are falling a bit shy of the upside scenarios into the year-end? It's just a bit of a wide range. So hoping to get some color.

Yes, sure. Great question, Mike. So we chose not to up the contingent line coming out of the third quarter. We have locked in most of our major profit-sharing contingencies at the 9-month lock-in. And when you do that, you take a little bit of a haircut on the ultimate payable. So there's still potential upside to the contingent line, but that would be coming from more variable contingencies of which we won't know the outcome until after the calendar year. So we chose not to increase the contingent revenue line at this time. As far as M&A, there's always potential for additional M&A at any time. We didn't have any significant transactions that altered that potential upside in the quarter. We did announce an internal branch conversion, which also helps support margin expansion going into the fourth quarter.

You mentioned the pricing environment and just the backdrop a number of times. Can you just further elaborate on specifically, maybe quantitatively, what you're seeing with pricing and how it's impacting revenues, maybe MGA versus non-MGA or personal lines versus commercial or whatever you feel would be the best way you guys think about it?

Sure. So on personal lines, it's really geographically different, and the more cat-exposed geography, you're seeing high single digits to low teens property decreases in pricing in the personal lines auto; more countrywide, you're seeing less rate coming down than perhaps we saw earlier in the year. So I'd call that more rate moderation. And on commercial lines, we're primarily in small business, lower end of middle market, less volatile areas of commercial lines where we don't have wild swings up or down. On the commercial property side, I think you have the read through all the other brokers out there; there's still a little pressure on the property side, but not as acute as it was in the prior years. So overall, we see a moderating rate environment, geographical, more significant in cat-prone geography, less so in less cat-exposed, less cat reinsurance-oriented lines.

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

This is Molly on for Tommy. My first question is on written premium retention. I saw it fell 5 points from last quarter and 3 points year-over-year to 88%. Does this primarily reflect normalization given Florida takeout renewals in prior periods? Or are you seeing any underlying changes in retention? And is 88% a reasonable starting point as we think about 2027?

Yes. I think when you're looking at quarter-over-quarter, the renewals are being taken into account. However, what I noticed in Q3 compared to Q3 of '26 compared to Q3 of '25, in the denominator where you take new business and renewals from the prior year, the new business uptick was due to Florida. So it wasn't always just based on renewals, but it was the new business and renewals, '25 to '26. And then renewals in '26, the numerator did increase.

We've previously put out that our long-term average retention is in the 88th- 89th percentile range. Yes. On a consolidated basis, we've been in the 90%, 91% range the last several quarters. If you isolate out, and we're not allowed to tell you specifically, but we would be in that same range without some of the impacts regarding the Florida book.

And then shifting gears here a little, does the expanded credit facility of $125 million signal a more actionable acquisition pipeline? And how would you weigh M&A against authorizing additional share repurchases?

Yes. I think we have had the credit facility in place for multiple years; given our size and growth initiatives and our constructive pipeline, it made sense for us to upsize the facility in advance of all the opportunities that we have that we're looking at. I think in our prepared comments, between the base credit facility and cash on hand, that implies $203 million of capital available for us to invest across M&A, across internal investment for infrastructure improvements, and initial growth initiatives. That's without using equity in transactions. So if we use equity in combination with cash, that significantly raises the size of transactions we can entertain. Last year, we mentioned we had quite a few larger transactions in the pipe. Most of those cooled off as the spring market volatility took hold. Some of those are coming back out and giving us visibility to additional opportunities. We've been very disciplined in our M&A. We've got a very healthy pipeline going into '27, and we thought it was prudent for us to be in a position to execute without having to go through credit and other workflows in order to get a deal done. I should supplement with the fact that the facility also has a $75 million built-in accordion. So that takes the facility up to $200 million. So that broadens even further the size of deals we can retain.

Our next question or comment comes from the line of Brian Meredith from UBS.

Gordy, I guess the first question is, obviously, a lot of people have been asking this: these personal agents, AI-enabled. Maybe some thoughts and comments on that one as far as what the potential impact on your business is. And then, as an add-on to that, I'm just curious: has that helped at all with respect to your pipeline for potential acquisitions and lowering valuations? Are you seeing more agencies looking to maybe potentially sell?

Good question, Brian. I think on just the whole AI narrative, I think there's going to be really multiple camps on how they interpret the future. So I would say there are probably opportunities for agencies that are a little bit longer in the tooth, closer to retirement that possibly don't want to go through the next inflection point of technology innovation and change for our industry. Those become buying opportunities as they're not going to want to reinvest and/or learn the new way forward. So we are seeing a few tenured agencies raise their hands and start to look for the exit. So that's a buying opportunity. Those are going to be lower-sized agencies, and that becomes part of our M&A pipeline going forward. I think for the most part, the long-term forward-looking agencies are all adopting AI initiatives within their agencies. It's going to be the haves and havenots. We will be in the camp with ads. If they're not already doing it, they probably should be updating their search results. A year ago today, everybody would be talking about SEO. Today, everybody is talking about GEO. And that's the distinction between how your business is found online. SEO is Google; GEO is your ChatGPTs, your AI-initiated search. And we're seeing flow coming through from both. I think most agencies are adopting and changing their technology platforms to be where they need to be in the new world going forward. As far as the districtinediation concerns, we've seen what's been rolled out so far. I think even Progressive announced in their call that they're seeing very little traffic coming from that side, but they'll be in a position to be responsive should that ever change. And I think for us, we're going to be similarly forward-thinking and being in a position to attract that traffic should that increase.

Makes sense. And then one other just quick numbers question, and I may have missed this, but it looks like that the commission rate on agency and Fox is declining. Is there anything going on there?

It should be relatively flat. And I think that's because when we get incentive comp, most of that ends up in our contingency line. Then there is a little differential between new business and renewal commission. And as your portfolio grows, renewal commission becomes a larger portion of your portfolio than new business. So that could be slight shifts, but nothing material that I see.

Our next question or comment comes from the line of Cameron Bianchi from Piper Sandler.

This is Cameron on for Paul. I was wondering if you could just talk about a little bit what you're seeing in the M&A pipeline. And if you continue to believe the pipeline will be accretive to margins, like the M&A operations that you're seeing from recent acquisitions?

Yes. So we did a reflective look back on all the prior acquisitions from the last several years, and we are seeing a consistent margin expansion theme from those operations. We believe that everything we're looking at in our pipeline needs to be accretive in order for it to be considered. And so we're monitoring what's working best in our prior acquisitions so we can make sure we incorporate those structures as we go forward for future acquisitions. But it's our belief, and in our real results, that the things we are acquiring are accretive to margin, accretive to revenue growth, and provide us with talent that's going to be beneficial to us to sustain long-term growth.

And then could you talk a little bit about what you're seeing from a competitive standpoint in Texas and maybe a little on the Florida MGA business as well?

Texas is its own country, as most people know. You have multiple geographies with different risk exposures. The areas towards the coastline have rate moderation at a higher level than those that are only hail exposed in Central Texas. So similarly with North Texas, it's more of a hail tornado exposure and their rates are moderating, but not as significant as you would see along the hurricane exposed more cat price around hurricane than inland. When you get to Florida, the whole state is a CAT zone. You had a lot of successful takeout companies started in the last 5 years. You had a lot of combined ratios come down with tort reform. So when they got rid of the assignment of benefits, that made a significant improvement in average loss costs and frequency of litigation. That market is softening, and everybody is positioning for retention and growth of their programs. Our programs are no different. We have to remain competitive in order to retain the initial takeout portfolios as well as position the new business voluntary programs to be competitive in today's marketplace. The good news for us is we didn't have those voluntary programs in place prior. So we're not going to have massive decreases in premium over multiple years, given that most of the business we're writing is new business at more current rates, which would have been lower than they would have been 2 or 3 years ago.

[Operator Instructions] Our next question or comment comes from the line of Rowland Mayor from RBC Capital Markets.

I think in the prepared remarks, you mentioned PIF growth as a revenue driver, but I don't know if you gave an actual number. Could you maybe help me understand how the policies in force are growing? And does organic normalize towards that as pricing softens?

Yes. So 2 things there. We've never provided discounts. We introduced that in our prepared remarks to explain the difference in our growth going into this softer market. During a hard market, you're getting growth both from PIF count, but more pressure or more growth coming from rate. As the market is softening. Now we're shifting the narrative to say that more of our organic growth is coming from PIF count rather than rate. The rate environment is something that will make it incumbent upon us to add new customers, cross-sell existing customers, and grow our total policies in order to sustain organic growth at the levels that we want to achieve.

Then I guess, during the year, the margin guide has moved up. Part of that, I think, is contingent. And I think if my memory serves, the first half was impacted by some hiring. Could you help me understand what normalized margins might look like and how your business mix towards corporate and MGA impacts that?

Yes. We've talked about our margin. So where our margin has been for '26 is elevated. Most of that elevation was due to the MGA takeout business that had income without corresponding commission expense. As that's normalizing, policies are renewing with full-term economics where we're actually paying the commission expenses, that's going to come down. When we went public several years ago, our target long-term margin was in the low 20s, so between 22% and 23%. We've given and reaffirmed our full-year guidance for this calendar year at a higher range. And that's because we've had the benefit of the first 3 quarters with that takeout business and the favorable economics there.

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

For organic growth this quarter, I was wondering what it was, excluding the impact of the Florida takeout business?

Janice has been waiting for you to ask that question, Pablo. Excluding the takeout business. No, it's 15.6%. But excluding the takeout. We can give that. Well, we're not supposed to give you the excluding stuff because it's smoothing over the results. So what we can say is organic was in the double digits regardless of activities in the state of Florida.

And then I guess just a follow-up to the last question on margins. It's a similar attack here, right? So, to your point, Gordy, the margins benefited from Florida. Is your outlook for margins still in the low 20s ex Florida? Or are we moving closer to the mid-20s here?

So for '26 is the only guidance we put out, we put margin. We've given you the range. And if we look at long term, we think that our margins, as we continue to do accretive M&A, as we continue to expand the mix shift to commercial lines and MGA programs that's going to be the lower end of the mid-20s probably is a better range as we normalize the economics. And so right now, our reaffirmed was 24% to 27%, and that's for calendar year '26. And we haven't given guidance for '27. But that's how I would frame it.

Our next question or comment is a follow-up from Mr. Michael Zaremski from BMO Capital Markets.

Just a quick follow-up. And if you think it's just splitting hairs, feel free to say we could follow up offline. But back to the contingent question earlier. So I think your answer was that you're taking a haircut by locking in certain elements of commission now. And then you also said there could be upside in January, so in 4Q based on -- I'm not sure what, maybe how the loss ratio trends for home and auto. But I know, is it worth teasing out what you mean by potential upside?

So we had a higher total contingency revenue in '25. And that was an outstanding combined ratio year across multiple geographies and all lines of business. We have a lower current accrual for contingent income. That's a very solid number based on everything we've already locked in. Many of the contingencies we get from smaller regional or super regional carriers do not provide us with line of sight midyear or at 9 months on where we're at on the performance of those plans. So we still have some accruals left for those, but there's room for them to come in at higher levels, similar to what happened in '25, which they don't communicate to us, so we don't know what's coming.

So if you look at quarter-over-quarter, though, our contingent is relatively flat. So Q4 is when we'll get the increase, just like we did in Q4 of '25. We do expect that number to go up in Q4 for sure.

I'm showing no additional questions in the queue at this time. I would like to turn the conference back over to Mr. Bunch for any closing remarks.

Thank you, operator, and thank you all for attending today's call. I do want to reiterate, we've had excellent 3 quarters so far through '26. We've given out tightened guidance for the remainder of calendar year '26. We have, throughout the calendar year, mentioned the economic changes of the takeout business normalizing, and that view is included in our updated guidance as well as the current softening market. We see great opportunities for our company going forward, and we look forward to hosting many of you here in our office next week for our very first Investor Day and look forward to seeing those who are able to attend in person on November 12 and those who can participate online. Without any other questions, I just thank you again for attending today's call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.