TWFG, Inc. Common Stock (TWFG) Q2 2026 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the TWFG, Inc. Announces Second Quarter 2026 Results Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Gordy Bunch, CEO. Please go ahead, sir.

Thank you, and good afternoon, everyone. Thank you for joining us today to discuss TWFG's Second 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 up the call for questions. I am pleased to report TWFG's delivered an outstanding second quarter, reinforcing the strength and scalability of our diversified platform. Total revenues grew 45.1% to $87.5 million. Organic revenue growth rate was 37%. Adjusted EBITDA grew 75.8% to $26.6 million, with margin expansion of 530 basis points to 30.4%. Total written premium grew 26.6% to $569.9 million. These results reflect the compounding benefits of our investments in the MGA platform, carrier partnerships, technology capabilities and talent. On the organic front, we delivered the outsized high double-digit growth we anticipated last quarter. Reported organic revenue growth rate of 37% reflected the Citizens takeout and renewal dynamics, while underlying core organic growth continued to track in line with our expectations. New business generation and improving retention drove the results. Consolidated written premium retention reached 93%, up from 89% in the prior year quarter. And Insurance Services retention remained solid at 90%, reflecting strong client relationships and improving carrier availability. From a profitability perspective, our 30.4% adjusted EBITDA margin benefited from strong growth in the MGA channel, where commission income increased 290% quarter-over-quarter, and now represents 35% of total revenues, up from 15% in the prior year quarter. The MGA platform carries a structurally higher margin profile than Insurance Services, and the current runoff period for the MGA Florida takeout program also provides a near-term margin benefit because assumed policies generate commission income without corresponding commission expense. We expect that benefit to normalize as more takeout policies renew with full term premiums and standard commission expenses, which is reflected in our updated guidance. The market environment continues to evolve broadly as expected. Personal auto rates have continued to moderate with mid-single-digit declines in certain subsegments. Homeowners rates are broadly flat with some regional pressure in catastrophe-exposed geographies. Carrier appetite for quality independent agent flow remains strong, and growth-focused carriers continue to offer competitive new business incentives. This environment supports share gain for a diversified platform like ours across both soft and hard markets. Our strategy remains consistent and disciplined. We are executing across our 4 core priorities: delivering strong double-digit organic growth, executing accretive M&A, investing in technology and platform improvements for our agents and deploying capital with discipline across all these opportunities. This quarter, we made meaningful progress across all 4. On the acquisition front, we completed the acquisition of Fortress Insurance Services on May 1. Fortress is a well-established Iowa-based agency, which complements our earlier Midwest additions and supports our expansion into attractive long-term growth markets. Integration is on track, and the team is culturally aligned with TWFG. Fortress rounded out our M&A objectives for 2026 guidance year. So our near-term focus is integration and orientation of first half acquisitions. Any second half transactions will be incremental to the guidance we are providing today. We do have an active M&A pipeline, and there is upside potential. On capital allocation, our $50 million share repurchase program authorized in February is now essentially complete. Through today, we have repurchased approximately $42.9 million at an average price of $19 per share, retiring approximately 15% of our pre-program Class A share count. We view this as highly accretive capital deployment. The Board will evaluate any reauthorization in the context of our M&A pipeline, cash generation, valuation and alternative uses of capital. Our balance sheet remains strong and gives us flexibility to invest in growth, pursue accretive M&A and return capital to shareholders. On technology, we continue to invest in AI-enabled capabilities that make our agents more productive. TWFG is positioned to benefit from AI's continued evolution because we own our technology stack, have 25 years of proprietary underwriting data and are deploying AI to amplify what our people do best. We remain on track to host our Investor Day, November 12, and we are looking forward to sharing all of our details on our medium-term financial framework, MGA platform strategy, our geographic expansion plans and our technology road map. 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 individual decisions made every day by our agents, our operators, our carrier partners and our corporate team. I could not be prouder of the entire TWFG family. With that, I will now turn the call over to Janice to walk through the financials in detail.

Thank you, Gordy. I am pleased to report the following second quarter results, beginning with our top KPI written premium. Total written premium grew $119.6 million or 26.6% to $569.9 million, driven by strong renewal and new business performance. Renewal premium grew $67.5 million or 19.3% and new business grew $52.1 million or 51.6%. Consolidated written premium retention was 93%, up from 89% in the prior year period and our highest retention rate to date. Excluding TWFG MGA Florida Citizens takeout renewals, retention would have been approximately 88%, consistent with our historical range. Looking at our primary offering components, Insurance Services written premium grew $49.7 million or 12.8%, driven primarily by renewal growth of $48.1 million or 15.9%, reflecting improved retention and the continued benefit of our corporate branch acquisitions. Our MGA channel written premium grew $69.9 million or 114.8%, driven by the ramp of our voluntary Florida homeowners program, contributions from APIA, which we acquired in the first quarter, and the continued renewal cycle of our Citizens takeout book. Total revenues increased $27.2 million or 45.1% to $87.5 million. Commission income grew $26.1 million or 47.8% to $80.6 million, driven by strong MGA performance with growth of 290% to $27.3 million. This performance reflects the higher commission rate business in our MGA platform, including MGA Florida new and renewal takeout business, APIA and TWICO programs, as well as commission derived from our corporate store acquisitions. Contingent income was $2.2 million, remaining essentially flat quarter-over-quarter. This stability aligns with our conservative posture given carrier loss ratio uncertainty in the softening rate environment. Fee income expanded from $3.3 million to $4.2 million, fueled by solid momentum across branch policy and program-related fees. Organic revenues reached $75.5 million, representing a $20.4 million increase over the $55.1 million reported in the prior year quarter. This yielded an organic revenue growth rate of 37%, which was positively impacted by the transition of MGA Florida takeout policies passed through 12-month organic threshold. Our core business continues to generate sustainable and consistent organic growth independent of acquisition contributions. Now turning to expenses. Commission expense grew $8.3 million or 24.4% to $42.5 million. Notably, this expanded at a substantially slower rate than commission income. This operating leverage was primarily driven by higher commission income rates on MGA program business and a takeout dynamic where policies were assumed without corresponding sub-producer commission expense during the runoff period, as well as an increased concentration of corporate store acquisitions carrying minimal commission expense. Salaries and employee benefits increased $2.3 million or 24.1% to $11.8 million. This expansion was predominantly driven by added headcount from our recent acquisitions alongside ongoing corporate office investments designed to support the expanding scale of our platform. Other administrative expenses increased $3.2 million or 59% to $8.6 million. This increase reflects our ongoing investments in scalable technology initiatives, the inclusion of acquired corporate store footprint expenses and public company operating infrastructure. Depreciation and amortization increased $3.2 million or 81.1% to $7.1 million, primarily from purchase accounting related to our recent acquisitions. Moving to profitability. Net income for the quarter rose to $17.3 million compared to $9 million in the prior year quarter. Adjusted net income expanded 76.1% to $20.3 million, delivering an adjusted net income margin of 23.2%, up from 19.1% in the prior year quarter. Adjusted EBITDA grew 75.8% to $26.6 million and adjusted EBITDA margin expanded 530 basis points to 30.4% compared to 25.1% in the prior year quarter. This expansion reflects strong operating leverage across our platforms, including the higher margin profile of our MGA operations, the accretive impact of our acquisitions and the continued cost discipline as we scale. Finally, adjusted diluted earnings per share increased to $0.38 compared to $0.20 in the prior year quarter, which was primarily attributable to higher adjusted net income during the period. From a cash and capital perspective, our balance sheet remains strong. Operating cash flow for the first half of 2026 was $32.5 million, up 29% from $25.2 million in the first half of 2025. As of June 30, we had $73.7 million in unrestricted cash and cash equivalents plus $19 million in restricted cash. We have full unused capacity on our $50 million revolving credit facility and only $3 million of term debt outstanding, giving us total liquidity of approximately $142.7 million. And with that, I will now turn it back to Gordy for closing remarks.

Thank you, Janice. Turning to our outlook. We are raising our 2026 guidance based on the strong first half performance and our line of sight to the balance of the year. We now expect total revenues of $300 million to $320 million, up from $285 million to $300 million. Organic revenue growth of 13% to 17%, up from 10% to 15%. And adjusted EBITDA margins of 23% to 27%, up from 22% to 25%. As we look ahead, our strategy is unchanged and the drivers of our performance are compounding. We believe our diversified platform spanning independent agencies, corporate branches and proprietary MGA programs is positioned to capitalize on the current market dynamics. The MGA platform is scaling through 3 durable growth drivers: APIA's proprietary commercial MGA, MGA's Florida's voluntary homeowners program, TWICO's Texas homeowner program and the renewal tail of our Citizens takeout portfolio. Our corporate branch model continues to deliver operating leverage, while our technology and AI investments are making agents more productive and improving client services. The insurance industry remains complex and fragmented, which increases the value of trusted advice. Deep carrier relationships and local market expertise will win the day. Our proprietary technology and 25 years of data create a competitive moat, while the TWFG family culture continues to support employee engagement, agent loyalty and client retention. In closing, I want to thank our employees, our agents, our carrier partners and our shareholders for their continued trust and commitment to TWFG. The years ahead will bring tremendous opportunities for all of us, and we look forward to sharing more of our medium-term financial framework and strategic road map at our Investor Day on November 12, 2026. With that, operator, please open the line for questions.

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

The first one here, when we look at the strong cash flows that the business generates and seeing plenty of dry powder on the credit facilities, is it reasonable to not model either additional acquisitions or continued pace of buybacks in the back half of the year?

Good question, Tommy. Hopefully, I articulated that we do have an active M&A pipeline. We -- when we do our modeling for guidance, we do our assumed amount of M&A in our base guidance. We don't generally adjust that upward unless we end up in a definitive agreement. There is potential upside in the back half of the year for M&A activity, but it's not built into our base guide. So that would be potential upside that's not captured in our updated guidance.

Okay. Got it. And then switching over as we start thinking about organic growth and some of the comps that you've seen in the first half of the year. So has the Florida MGA tailwinds to the organic growth in the first half of the year, have those been significant enough that we might expect to see organic face some really tough comps in the first half of '27? Are they significant enough where organic could turn negative or be close to 0? Can you help us just sensitize to how much of a tailwind it has been and how much of a difficult comp it could be in '27?

Sure. So if I'm looking at the impact of Florida, really, the first impact to organic was in the second quarter. And the offset to that is going to be in the fourth quarter of '26. So the takeout policies when they were in runoff were being paid on an earned basis through the expiration of the policy. And then when it renewed into its natural expiration date, it renewed into a different period. So we do have premium that was present in the fourth quarter and a little in the third quarter of 2025 that has already renewed in the first quarter or second quarter of 2026 that won't be there to lap in the third and fourth quarter of '26. We do have that factored in. So if I'm looking at third quarter, third quarter for us, we're still going to be in the double-digit teens for organic even with that dynamic. The fourth quarter is where we have the bigger headwind, where we had compounding runoff policies in that period that have already renewed into a different period. And that's why when you look at the full guidance for full calendar year 2026, we're giving you that 13% to 17%. So I would look at fourth quarter right now as a flattish organic, and that would really be just taking out the noise from prior year takeout policies that were present in that period that now showed up in first quarter, second quarter of this year. And a little bit into the third quarter of this year. And then if you take out the impacts of takeout business in the second quarter, our core organic still would have been in the high teens. So it kind of gets you to where we think there's noise with Citizens takeout depending on the period that the earned premium was present and then what period did the policy actually renew into for a long-term basis. As far as the impact rolling into '27, Janice, you'd have to answer that. I don't think we have a tremendous amount of takeout business that ends up skewing '27 data.

Yes, Gordy, that's correct. And we're still fine-tuning '27. We'll have a better idea as we get closer to the end of this year to see on the new business for Florida and even the renewals, how we're going to play out. But you hit it on the head there.

And our next question comes from the line of Mike Zaremski from BMO Capital Markets.

The first is regarding the organic growth trajectory for Agency-in-a-Box and Corporate Branches, so ex the MGAs. It appears there's increasing momentum. Gordy, in your prepared remarks, I think you talked about this environment being more conducive for share gains. And you obviously talked about pricing still being a bit of an absolute headwind. I'm not sure if it's increased sequentially or not. But can you kind of talk to bigger picture or maybe smaller picture too, what -- why you think this environment is more conducive for share gains and whether pricing is still impacting the organic rate of growth? Or is it kind of still -- is it more steady pricing, kind of, at the same negative level as previous quarters?

Yes. Good question, Mike. So we do still see pricing as you follow all the carriers, every carrier out there is still having excellent combined ratios, and there's a significant amount of competition for growth. So we are seeing the nationals, the regionals and the super regionals still working on their pricing algorithms. We are seeing PIF count growth, albeit at a lower average premium. And so we do end up with new business velocity that supports the long-term organic. We're just not going to have any of the gains that you're going to have in a more rate-taking environment where that would support pushing it up even further. So Agency-in-a-Box and corporate stores, they're still getting good organic growth, but a lot of that is being supported by now retention and new business growth versus in the hard market, you had more from retention and rate. So being able to add more policies and policyholders into the portfolio as rates normalize and go back to mid-single-digit increases, that should support a rebound to the organic in the out periods. So we're still holding good. If we look at isolating the organic for retail, it's still going to be a double-digit organic year for 2026. And we think that's very strong given where we've seen the peers reporting.

Got it. That's helpful, Gordy. Just maybe nitpicking here, knowing cash flows can be volatile from quarter-to-quarter. Any -- just came in, I guess, meaningfully lower than consensus had expected. Anything we should be cognizant of there or just normal volatility?

You're talking about the cash flow from adjusted net income?

Correct. I think the $4 million-ish figure.

Yes. I think that's netting out this tax distributions to LLC unitholders and distributions to that shareholder class. Janice, you can correct me if I'm wrong, but exclusive of those distributions, you may be able to shed a little more light on Mike's question.

No, I think that was the majority of it, Gordy, was the distributions. But I don't have it -- I'm sorry, I don't have it in front of me, the cash...

Okay. Got it. We were just looking at the $9.8 million versus $9.6 million in the prior year. So I think consensus was more -- had a bigger increase. So we can take it offline, too.

Right. Well, we did use some cash for our acquisitions this year. So more so than the prior year. But you're right, the tax distribution of members was similar to what it was in Q2 '25.

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

Gordy, I wanted to quickly ask, you had talked about potential transformative acquisitions prior to all the volatility in the stock. With the share somewhat recovering that, are those deals potentially back on the table later this year?

I would say we have an active M&A pipeline and with recovery, those opportunities will be resurfaced and revisited. And we did not incorporate any of that potential in our updated guidance, which does imply there could be upside at the back half of '26. So we are back in a position where we can start to entertain those transactions again.

And then for my follow-up, the contingents are up a bit, but I don't think they drove the margin upside you had reported. Could you maybe walk through the moving pieces on the margin this year and maybe unit contribution?

Let me try to answer the contingent question first. I think as we noted in the first quarter call, our contingency for our guidance for '26 is below the actualized ratios we had in 2025. We entered the calendar year knowing we were going into a softening market where pricing was coming down, anticipating that the loss ratio metrics of those profit-sharing agreements would degradate over time. So far, we have not seen that play out. The carriers are still showing excellent profitability year-to-date. I did mention last call that we will update the contingency after the third quarter. The third quarter is when we get our lock-in agreements and we have great line of sight to where we think those will ultimately come in. So there is still upside in the margin and upside on total revenue relative to contingent income as we get into that third quarter update. And I know this year, we're doing updates more frequently to guidance just based on some of the lumpiness with Florida and then also this contingency dynamic.

And our next question is a follow-up from the line of Mike Zaremski from BMO Capital Markets.

Great. Gordy, going back to your comments on '27, if I interpreted correctly or heard correctly, not having significant headwinds. I thought the Florida MGA takeouts would post a headwind just because it's unlikely they renew 100% of policies. Is that not the case? Maybe you can help us understand, are you now expecting a better renewal rate on those policies? Or is there new growth dynamic to the Florida MGA or et cetera, that we're not appreciating?

Certainly. So I'll frame it like this. The first quarter, second quarter, both had better renewal retention dynamics than our base model. And so we have, in the back half of '26, increased our retention assumptions based now on having a longer data set to work from. In the MGA Florida, I think what's less appreciated is that we have a voluntary program that is separate and aside from the Citizens takeout business. That's true organic new customers coming through the 700-plus appointed agencies that write voluntary new clients through the MGA Florida program. And so part of what drove the second quarter organic into the 37% range, a large contribution of that was voluntary new business not tied to Citizens takeout. So net new customers through a newly appointed distribution channel via that MGA Florida expansion. And so that voluntary program will continue to exist going into the back half of '26 and into '27. It has actually been present since May of 2025. It didn't start getting significant production traction until the later half of the first quarter of '26 and then really had significant growth in the second quarter of '26. So there is that offsetting renewal retention pressure from the ability to rewrite new accounts in that voluntary market.

Got it. Okay. That's super helpful. And maybe since there's still plenty of time, one more follow-up. Maybe you can give us any update on a year plus ago when you did the, I guess, deal with, I believe it was American National. That was kind of somewhat of a unique, kind of, not an acquisition, but right, agent acquisition. Maybe you can kind of give us any update on how that's been playing out and whether that's -- any quantification to -- we'd love numbers and kind of how the rest of the book is rolling over on the auto side, which I know didn't come with it, et cetera.

Sure. So we don't have cohort analytics to share with you, but I can say that one positive shift in that portfolio on that group of agents, when we added them into our distribution, they were personal lines only and still restricted for commercial lines. As of the end of June, they no longer are commercial lines restricted. So we are in the process now of onboarding those agencies to add commercial lines portfolio into their TWFG relationship. So we do see that as a conduit for additional growth. The vast, vast majority of them have done very well in our business model and moved the expiring nonrenewing property into our platform. The auto now that we're in a softer market. So when they came in midway through 2024, we were still in the midst of a hard market. And our auto rates at that point through our platform were not constructive for their clients to move. Now that we've expanded with additional carriers, as well as the incumbent carriers moving price down and becoming more competitive, that's starting to migrate over as well. So they're part of that supporting the Agency-in-a-Box growth story and can impact it even more now that we're able to add commercial lines into their portfolios.

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

I joined the call late, so apologies if this is covered already. But Gordy, the first question I had was some of your competitors are talking about comp and commission rates being renegotiated by carriers in the sort of, I guess, more open environment where they want to grow. Have you seen the same on your end? And what -- yes, I guess, sort of perspective on what's going on with you and your carriers? And how do you think that affects your growth trajectory from here?

So I think we are getting what I would call new business incentives, quarterly incentives. They're coming out with what we would call a spiff, which is incenting downstream to our service employees. And so you are seeing carriers trying to compete not just on price, but on comp in order to get portfolio and retain either their market share or grow their market share. I don't look at some of those near-term compensation agreements as long-term factors because they tend to be short in nature. And next time a hard market presents itself, they disappear pretty quick. But we are getting that. We are getting new business incentives. We are getting quarterly incentives. And then some of the markets are coming out more favorably on the profit sharing and contingency side as well, as they're all fighting for growth. And that's just a component of a soft market. Some carriers are offering book roll incentives, which we tend not to participate in. We like to be loyal to the carriers that have provided their capacity to us in good times and bad times. And so we try to just work with our markets and say, if we have a carrier that's out of market on comp and the rest of our portfolio is moving upward, we do share that feedback with the market, letting them know that they're no longer in a competitive environment. Even if their product and pricing is competitive, if they're not competitive on compensation, that's something that we do raise and try to address with them. But I will say in a soft market environment, it is very much an incentive-driven environment now for the carriers to try to get everybody's attention to turn their way. And they can do that with comp or they can do that with rate, or even underwriting guidelines that are also loosening up substantially from where they were just 2 years ago.

And then my follow-up, I was wondering if you strip out the effect of the Florida book, what did you say is sort of your new business growth rate for, sort of, the core agency franchise?

I don't know that I gave that metric. I know, Pablo, you said you came on late, so I will say that I did already state that excluding Florida takeout business and the renewals thereof, our organic still would have been in the high teens. So hopefully, that's helpful to answer your question. I don't know, Janice, if you have a new business percentage for just retail. I do think we had a shift in growth where our new business ratio was higher than the contributing renewal portfolio from the prior period. But I don't have that in front of me, Pablo, maybe Janice does.

I have -- well, what we did disclose was that consolidated retention, excluding MGA Florida, was 88% compared to the 93% that we have. And if I can disclose this, the MGA piece was 110%, but excluding Florida, it would be 71%. So the consolidated retention of 88% is more in line with our norm.

I think he was more -- to know about the new business mix of Insurance Services. So how much of it...

Yes, the renewal is what spiked up so much on Insurance Services, not so much the new business.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Gordy Bunch for any further remarks.

Well, thank you, everybody, for taking time to hear what I consider to be our best TWFG quarter to date. We appreciate all your thoughtful questions. I do want to reiterate that our updated guidance is consistent with our business model, our projections and what's in our line of sight. We did note there are at least 2 potential upsides to revenue and margin that we will update during our third quarter call, that being contingencies, which we get our more fulsome update from our carrier partners in the third quarter. And as well as M&A where we have already achieved our guided M&A activity. We still do have an active M&A pipeline, and there is potential upside for us if we transact any additional acquisitions in the remaining 2 quarters of '26. So we do appreciate our shareholders, our agents, our staff and everyone who attended today's call, and appreciate and look forward to hosting everybody, November 12. If you can mark your calendars, we will be hosting our Investor Day at the home office of TWFG and look forward to hosting many here in person on November 12. Thank you for your time today, and thank you for your trust. Appreciate you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.