TWFG Inc's Q3 2025: Contradictions Emerge on M&A Contributions, Organic Growth, Market Strategy, and Agent Impact

Date of Call: None provided

Financials Results

• Revenue: $64.1M, up 21% sequentially and up 21.3% year-over-year
• Operating Margin: 26.5% adjusted EBITDA margin (adjusted EBITDA $17.0M, +44.7%), up ~430 bps year-over-year

Guidance:

• Total revenues expected to be $240M–$245M for full-year 2025
• Organic revenue growth expected to be 11%–13% for full-year 2025
• Adjusted EBITDA margin expected to be 24%–25% for full-year 2025

Business Commentary:

• Revenue and EBITDA Growth:
• TWFG delivered a strong quarter with total revenues increasing 21% quarter-over-quarter to $64.1 million, supported by 10.2% organic revenue growth and M&A revenues.
• Adjusted EBITDA grew 45% to $17 million, expanding margins by 430 basis points to 26.5%.

• The growth was driven by execution on accretive M&A, leveraging scale and financial discipline, and the normalization of personal lines.

• MGA Program and Commission Income:

• MGA program saw a 19.2% growth in written premium, contributing to a 56% increase in commission income.
• Commission expense grew by 27%, resulting in a higher net commission margin of 52%.

• The significant commission margin expansion is attributed to the launch of a new Florida program with favorable revenue streams and lower corresponding commission expenses.

• Carrier Availability and Market Softening:

• The personal lines market softened, leading to a return of carrier appetite, rate increases moderation, and strong underwriting discipline.
• This environment is expected to normalize retention and new business growth across the TWFG platform.

• The market softening allows for more client onboarding, with reduced average premiums being offset by increased exposure growth.

• M&A and Recruiting Activity:

• TWFG added 8 new retail locations, 1 corporate location, and 370 independent agents in the MGA platform during Q3 2025.
• Post-quarter, the acquisition of Alabama Insurance Agency expanded the footprint to include Alabama.

• The company anticipates exceeding the 2025 M&A pace in 2026, focusing on accretive acquisitions and strategic expansion opportunities.

• Profitability and Expense Management:

• Adjusted net income rose 55% to $13 million, with an adjusted net income margin of 20%.
• Expenses increased with commission expenses up 13% and salaries and benefits up 19.2% year-over-year.
• The company maintains a disciplined capital deployment strategy, ensuring financial health and positioning for further growth.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management described 'another strong quarter,' reported adjusted EBITDA up 44.7% to $17M with margin expansion of ~430 bps, highlighted tightened guidance ranges and a 'fortress balance sheet,' and emphasized confidence in achieving full-year targets based on recent lock-ins and M&A momentum.

Q&A:

• Question from Tommy McJoint (KBW): The statement of cash flows shows a $10M line attributed to 'other investments' — is that related to M&A?
  Response: It was deployment of company capital into premium finance operations (replacing external credit funding), generating materially higher yields and is highly accretive.

• Question from Tommy McJoint (KBW): For 2026, do you expect to put more capital to work on M&A and do more deals relative to 2025?
  Response: Yes — we expect to execute earlier in the cycle in 2026 and anticipate M&A activity that should exceed 2025.

• Question from Paul Newsom (Piper Sandler): With the market moving from hard to soft, what are the moving pieces that will get you to double-digit organic growth into 2026 and what risks should we watch?
  Response: Organic growth will be driven by same-store sales velocity plus MGA/program expansion and new initiatives, while market softening impacts renewals but should largely abate by Q2 2026.

• Question from Paul Newsom (Piper Sandler): You added many agents recently — when will those agents produce a measurable inflection in growth?
  Response: Newly recruited locations contribute little in year one but are included in our organic base and will incrementally contribute over multiple years as their portfolios scale.

• Question from Pablo Singzón (JPMorgan): MGA premiums grew 19% but commission income grew much faster — what drove the margin-accretive result this quarter?
  Response: A Florida program launch produced TPA/earnout revenue (takeout in June) that generated commission-style revenue without immediate commission expense, temporarily boosting margins; ratios should normalize on renewals.

• Question from Pablo Singzón (JPMorgan): Many peers are cutting costs or hiking investments — will you follow suit or risk underinvesting?
  Response: We will make targeted investments but likely not at peer scale because substantial tech investment occurs outside the public company; full 2026 plans and estimates will be disclosed with the 10-K.

• Question from Brian Meredith (UBS): As capacity returns from E&S to admitted (e.g., Texas), will that pressure MGA growth?
  Response: No — our MGA programs are admitted products, so capacity shifting back to admitted markets benefits our MGA growth.

• Question from Brian Meredith (UBS): How do EBITDA margins compare between corporate locations and Agency in a Box?
  Response: Corporate locations retain 100% of renewals and have materially higher margins (roughly >2x) versus Agency in a Box, which passes through ~80% of revenue and is margin-capped.

• Question from Charlie Letterer (BMO): You said the product environment improved significantly — can you break that out geographically and between new business and renewals?
  Response: Market softening began in early Q2 2025 and is widespread, leading to lower renewal premiums but more carrier capacity and new-business opportunities; California and wildfire-exposed pockets remain relatively hard.

• Question from Charlie Letterer (BMO): Does your M&A pipeline tilt commercial or personal, and how might mix evolve?
  Response: Pipeline is mixed (commercial, multi-line, personal); acquisitions are evaluated on cultural fit, portfolio quality and accretion rather than line tilt, and we expect more program-oriented deals that produce higher revenue/margin with lower reported premium.

• Question from Charlie Letterer (BMO): On contingent financing and contingencies for the quarter, what actions have you taken?
  Response: We captured third-quarter lock-ins for contingencies, giving high confidence in our current performance and achieving full-year guidance.

Contradiction Point 1

M&A Contributions and Growth Expectations

It involves expectations regarding the contributions of M&A to the company's growth and financial performance, which are crucial for investors to assess the company's strategic direction and future prospects.

Regarding the 2026 pipeline, what are your current expectations for M&A activity - are you planning increased capital allocation, more deals, or a different pace compared to this year? - Tommy McJoint (KBW)

2025Q3: We should exceed 2025. Depending on how we view M&A throughout the calendar year, we should exceed 2026. I mean, exceed 2025. - Gordy Bunch(CEO)

Can you share a long-term outlook on organic growth as rates moderate? - Pablo Singzon (JPMorgan)

2025Q2: We currently anticipate that we will exceed 2025. I think right now, that's where we stand. - Richard Bunch(CEO)

Contradiction Point 2

Organic Growth Outlook

It involves differing expectations and explanations for achieving organic growth, which is a critical metric for assessing the company's underlying business performance.

What are the key drivers for achieving double-digit organic growth in 2026, and what are the key risks or uncertainties to monitor if circumstances change? - Paul Newsom (Piper Sandler)

2025Q3: The combination of our same store sales growth velocity, sales velocity, new program initiatives, existing program expansion allows for more exposures to be brought in through those channels that are creating additional commission income above the base year. It is really not one area. It is a multitude of all the different parts of our platform executing against their growth initiatives. - Gordy Bunch(CEO)

What confirms that retention has stabilized here, and why is this level a sustainable benchmark for the future? - Pablo Singzon (JPMorgan)

2025Q1: We expect 2025 to be an investment year in both agents and programs, and we'll use the same store sales growth velocity to help us exceed our 2025 guidance. - Richard Bunch(CEO)

Contradiction Point 3

Market Conditions and Growth Strategy

It involves assessments of market conditions and the company's strategic response, which are critical for investors to understand the company's growth trajectory and competitive positioning.

Could you break down the improvement in the product environment geographically, clarify if it applies to both new and renewal business, and explain how this improvement will impact P&L in the near term? - Charlie Letterer (BMO)

2025Q3: The hard market for personal lines started moving soft in really the beginning of the second quarter of 2025. That changes carrier posturing. Think about the hard market in 2023, 2024, and the early parts of 2025. Carriers are taking significant rate. Carriers are restricting capacity. - Gordy Bunch(CEO)

What's the long-term outlook for organic growth with moderating rates? - Pablo Singzon (JPMorgan)

2025Q2: The market is softening, with increased capacity, especially in auto and home, leading to more renewal and new business opportunities. The shift from renewal retention to new business growth is impacting organic growth. - Richard Bunch(CEO)

Contradiction Point 4

Impact of Newly Onboarded Agents

It pertains to the expected timeframe and impact of newly onboarded agents on the company's growth, which affects strategic planning and investor expectations.

You've added many new agents in the past year. You mentioned previously most won't have an impact immediately. When will the waterfall of impact from these new agents take effect? - Paul Newsom (Piper Sandler)

2025Q3: Their impact is baked into our forecasting. I think, as we talked about it over time, the immediate year they come in, there’s not much of an immediate contribution. As they grow their agency over a multi-year process, they start becoming more meaningfully contributive. - Gordy Bunch(CEO)

Did you onboard many new branches in the second half of last year? How has the new business performed compared to expectations? And has there been any churn in that business? - Dean Criscitiello (KBW)

2024Q4: So I think we've mentioned on previous calls, it takes several years for newly onboarded scratch agencies to really hit any meaningful production. So they're not really driving any of the results in 2024. They'll have a modest contribution in '25 and more so in '26. - Richard Bunch(CEO)