TWFG, Inc. Common Stock (TWFG) Q4 2025 Earnings Report, Transcript and Summary

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.