TWFG, Inc.(TWFG) - 2025 Q2 - Quarterly Report

Part I - Financial Information This section presents the company's unaudited condensed consolidated financial statements, management's analysis of operations, market risk disclosures, and internal controls Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements present the company's financial performance for the three and six months ended June 30, 2025, and 2024. Key statements include the income statement, balance sheet, and cash flow statement, which show revenue growth, an increase in total assets driven by intangible assets from acquisitions, and significant cash usage in investing activities Condensed Consolidated Statements of Income This statement details the company's revenue and net income performance for the three and six months ended June 30, 2025 and 2024 - For the six months ended June 30, 2025, total revenues increased to $114.1 million from $99.2 million year-over-year, driven by higher commission income, with net income rising to $15.9 million from $13.5 million in the prior year period[16] Condensed Consolidated Statements of Income (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $60,308 | $53,011 | $114,131 | $99,155 | | Commission income | $54,562 | $48,662 | $103,347 | $91,207 | | Operating income | $7,363 | $7,521 | $13,093 | $14,825 | | Net income | $9,000 | $6,918 | $15,853 | $13,547 | | Net income attributable to TWFG, Inc. | $1,957 | $— | $3,295 | $— | | Basic EPS | $0.13 | N/A | $0.22 | N/A | | Diluted EPS | $0.13 | N/A | $0.22 | N/A | Condensed Consolidated Balance Sheets This statement outlines the company's financial position, including assets, liabilities, and equity, as of June 30, 2025, and December 31, 2024 - Total assets increased to $342.8 million as of June 30, 2025, from $323.4 million at December 31, 2024, primarily due to a significant increase in intangible assets from $73.0 million to $125.9 million, reflecting recent acquisition activity, while cash and cash equivalents decreased from $195.8 million to $159.8 million[20] Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $159,827 | $195,772 | | Intangible assets, net | $125,901 | $72,978 | | Total assets | $342,849 | $323,428 | | Total liabilities | $53,878 | $48,142 | | Total stockholders' equity | $279,210 | $275,286 | | Total liabilities, redeemable noncontrolling interest and equity | $342,849 | $323,428 | Condensed Consolidated Statements of Cash Flows This statement summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 - For the six months ended June 30, 2025, net cash provided by operating activities was $25.3 million, while net cash used in investing activities was significant at $46.7 million, primarily for the purchase of intangible assets, and net cash used in financing activities was $12.9 million, largely due to distributions to members[26] Condensed Consolidated Cash Flows (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $25,260 | $17,154 | | Net cash used in investing activities | ($46,706) | ($21,223) | | Purchase of intangible assets | ($47,226) | ($21,241) | | Net cash used in financing activities | ($12,876) | ($5,886) | | Distributions to members | ($13,263) | ($7,099) | | Net change in cash, cash equivalents and restricted cash | ($34,322) | ($9,955) | Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures regarding the condensed consolidated financial statements, including significant acquisitions and revenue breakdown - During the six months ended June 30, 2025, the company completed asset acquisitions totaling $36.8 million for intangible assets, and acquired a 50.1% equity interest in TWFG MGA FL, LLC for $9.7 million, recognizing a customer relationship asset of $19.4 million[43][44] - The Progressive Corporation was a major customer, accounting for 11% and 13% of total revenues for the three and six months ended June 30, 2025, respectively[42] Disaggregation of Revenues by Offerings (in thousands) | Offering | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Insurance Services | | | | Agency-in-a-box | $39,316 | $75,312 | | Corporate Branches | $11,393 | $19,615 | | TWFG MGA | $9,233 | $18,428 | | Other | $366 | $776 | | Total revenues | $60,308 | $114,131 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the financial results, highlighting a 13.8% increase in total revenues for Q2 2025 and a 15.1% increase for H1 2025, primarily driven by higher commission income from increased premium rates and business growth. The discussion covers performance by business segment, key performance indicators like Total Written Premium (which grew 14.4% in Q2), an analysis of non-GAAP measures such as Organic Revenue Growth (10.6% in Q2), and the company's liquidity position, which remains strong following the IPO despite significant cash use for acquisitions Results of Operations This section analyzes the company's revenue and expense trends, highlighting key factors influencing financial performance for the reported periods - For Q2 2025, total revenues increased by 13.8% YoY to $60.3 million, driven by a 12.1% increase in commission income and a 61.6% increase in contingent income, while for H1 2025, total revenues grew 15.1% YoY to $114.1 million, with commission income up 13.3%[119][139] - Salaries and employee benefits expense increased 39.3% in Q2 2025, which included $1.5 million in stock-based compensation and costs from recent Corporate Branch acquisitions, and other administrative expenses rose 44.2% due to business growth and increased costs as a public company[131][133] Total Revenues by Offering - Q2 Comparison (in thousands) | Offering | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Total Insurance Services | $50,709 | $43,773 | 15.8% | | TWFG MGA | $9,233 | $8,830 | 4.6% | | Total revenues | $60,308 | $53,011 | 13.8% | Key Performance Indicators This section reviews key operational metrics such as Total Written Premium and retention rates, providing insights into business growth and performance - Total Written Premium increased by 14.4% to $450.3 million in Q2 2025 and by 14.9% to $821.3 million in H1 2025 compared to the prior year periods, driven by increases in both new and renewal business[162][165] - Consolidated written premium retention decreased to 89% for Q2 2025 from 93% in Q2 2024, attributed to carriers moderating rate increases and opening up for new business after a period of restricted capacity[163][164] Total Written Premium by Offering (in thousands) | Offering | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Total Insurance Services | $389,397 | $706,971 | | TWFG MGA | $60,891 | $114,280 | | Total written premium | $450,288 | $821,251 | Non-GAAP Financial Measures This section presents and reconciles non-GAAP financial measures, including Organic Revenue Growth, Adjusted Net Income, and Adjusted EBITDA, for performance assessment - The company uses several non-GAAP measures, including Organic Revenue, Adjusted Net Income, and Adjusted EBITDA, to evaluate performance, with Organic Revenue Growth at 10.6% for Q2 2025 and 12.4% for H1 2025, reflecting underlying business growth excluding recent large acquisitions[175][178] Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $9,000 | $6,918 | $15,853 | $13,547 | | EBITDA | $11,838 | $10,503 | $20,926 | $20,818 | | Adjusted EBITDA | $15,133 | $10,758 | $27,321 | $19,765 | | Adjusted EBITDA Margin | 25.1% | 20.3% | 23.9% | 19.9% | Reconciliation of Net Income to Adjusted Net Income (Revised Methodology, in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $9,000 | $6,918 | $15,853 | $13,547 | | Adjusted Net Income | $11,519 | $9,822 | $20,746 | $17,921 | | Adjusted Net Income Margin | 19.1% | 18.5% | 18.2% | 18.1% | Liquidity and Capital Resources This section evaluates the company's cash position, credit facilities, and capital structure, detailing the impact of IPO proceeds on liquidity - As of June 30, 2025, the company had cash and cash equivalents of $159.8 million, having received approximately $192.9 million in net proceeds from its July 2024 IPO, which was used to repay debt and for general corporate purposes[197] - The company has a $50.0 million revolving credit facility which was fully unutilized as of June 30, 2025, and the outstanding balance on its Term Loan C was $5.0 million[198] Comparative Cash Flows (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $25,260 | $17,154 | | Net cash used in investing activities | ($46,706) | ($21,223) | | Net cash used in financing activities | ($12,876) | ($5,886) | | Net change in cash, cash equivalents and restricted cash | ($34,322) | ($9,955) | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risk from insurance premium pricing cycles and interest rate fluctuations. A soft insurance market could negatively affect commissions, while a hard market could be beneficial. Interest rate risk affects both investment income on cash balances and interest expense on variable-rate debt. The company uses derivative instruments to mitigate interest rate risk on its term loans - The company's primary market risks are related to the cyclical nature of P&C insurance premium pricing and interest rate risk on its cash holdings and variable-rate debt[215][216] - As of June 30, 2025, the company had $171.0 million in cash and cash equivalents, where a hypothetical 100 basis point change in interest rates would impact interest income by approximately $0.4 million[218] - The company had approximately $5.0 million of variable-rate debt outstanding under its Term Loan Credit Agreement as of June 30, 2025, with the impact of a hypothetical 10% change in interest rates on this debt not considered material[219] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of June 30, 2025. They concluded that these controls were effective at a reasonable assurance level. There were no material changes to the internal control over financial reporting during the quarter - Based on an evaluation as of June 30, 2025, the Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[222] - No material changes in the company's internal control over financial reporting occurred during the six months ended June 30, 2025[223] Part II - Other Information This section provides disclosures on legal proceedings, updated risk factors, equity sales, and other material information not covered in Part I Item 1. Legal Proceedings The company is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or results of operations - The company is not presently a party to any litigation that it believes would have a material adverse effect on its business, operating results, cash flows, or financial condition[224] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's Annual Report[225] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities. It details the use of the approximately $192.9 million in net proceeds from its IPO, which included acquiring LLC Units from its holding company, which in turn used the funds to pay IPO expenses and repay $41.0 million of outstanding debt under its Revolving Facility - The company received approximately $192.9 million in net proceeds from its IPO, a portion of which was used by its subsidiary, TWFG Holding, to repay in full the outstanding debt of $41.0 million under the Revolving Facility[227] Item 5. Other Information The company reported no other material information during the period. Additionally, no directors or officers adopted or terminated a Rule 10b5-1 trading arrangement - No other significant information was reported for the period, and no directors or officers adopted or terminated a Rule 10b5-1 trading arrangement[229] Item 6. Exhibits This section lists the exhibits filed as part of the quarterly report, including the Certificate of Incorporation, By-Laws, and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act - The exhibits filed with the report include the Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws, CEO and CFO Certifications (Sections 302 and 906 of Sarbanes-Oxley Act), and XBRL Interactive Data Files[230]