TWFG, Inc. Common Stock (TWFG) 13 Nov 242024 Q3 Earnings call transcript

Good morning. My name is Josh, and I will be your conference operator today. At this time, I would like to welcome everyone to the TWFG Third Quarter 2024 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.

measures, forward-looking SEC refer our investors. filings. Also reference non-GAAP regarding press the speakers information will certain and believe releases on financial more statements, information to please company's will provide For useful we for which today's call, company release the financial to located company's Investors of during reconciliations in measures accompanying the website of the the is Mr. pleasure call the introduce in tables posted now at company's has discussed The non-GAAP this earnings my www.twfg.com. It press section Bunch, Chairman and CEO Gordy TWFG. of Founder, Sir, the floor is yours.

to thank Thank us you, everyone, third morning, discuss operator. quarter to Good you and for XXXX results. taking time today our join

then is and us to to After me remarks, carriers, our thank call Janice off the call Chief and your agents, goals. employees, clients our review every continue time to partner my achieve will would questions. I that Janice we Joining start to take like opening all Officer. Financial take with will our to on results vendors our of Zwinggi, financial

We every fastest-growing have create in platforms to working country. the day team insurance distribution the independent of one great a

This rolling our office, quarter started out as resiliency several knocking for and over power internet home Hurricane with highlighted days. our July team's Beryl we

Beryl supporting our IPO A the team raising our launching us safety time continue the and July, issuance a need. of have office needed continue offices from been Louisiana, to remotely after the landfall. Knowing our Class shares address our addressing continuity agents resiliency plans in Florida agencies same to in place XX,XXX,XXX our common locations. TWFG of Carolina Milton IPO completed $XX years road events per tremendously of our plan, a clients million we staff. TWFG share We talented proceeds of in day. bringing at allowed catastrophic numerous $XXX.X and our stock in can and Francine, to Helene work net through show and location North through XX home over Our executed further of as challenges the had our tested online across business price. Hurricanes temporary contingency the day have team their capable

is just to life most employees, answering duty our first the balance do call catastrophic couldn't TWFG comes is time does remind their events. be have and cover. that carriers a not of our during tagline. of prouder responders I Policy want these during and will agents, to Our Caring sheet visible greatest ensuing the clients' exposure everyone the is need. I to our carriers not It losses to

TWFG's contingency disruptions timing and production, expenses, commissions, floods operational business of would temporary hurricanes, amounts and overtime catastrophic New be impacts other from events.

for third Alabama, states trends Oregon, and outpace South too with Carolina, for the efforts branches early geographical new Washington offering new locations agencies perform, our believe good it provide continued new in which launching the agencies to Missouri, XX Dakota, New Connecticut, new opened South growth Wyoming, historical XX recruiting our Indiana, Idaho, XX TWFG quarter The agency-in-a-box Tennessee, our quarter. in Nevada, Our to TWFG in our locations newly how is financials. will period to agencies see for we future current contribute business. Please to growth the but the will growth it take years and several expansion. onboarded It to note, tell these will is Mexico,

to in expected a XXXX. TWFG third is opportunities agents a offer thousands as see looking captive adjusted TWFG, significant tens and is had in XX.X% improvements improvements partner value revenue loss we grow As to This ratios. to agents of income the far lead higher help to into business total growth and we beginning revenue achieved environment of appetites highlighted heading adjusted XX.X% as we by margin. At XX.X% growth, strong perpetuate believe the quarter, right industry operating are their and growth carrier the proposition new them concerned, expansion businesses. for growth, net X.X% strong independent and a organic for for EBITDA the margin

efficient Our forward. TWFG value flexibility build proposition, pipeline coupled third detail. continues with us in our intent structuring letters Janice operating and and of now the around of marketplace. I to will quarter review going in well several position model balance conservative a a we sheet, potential ask deal acquisitions results nonbinding our will greater have to

XX% the good or and premium period $XXX.X prior period. year Starting Gordy, compared over grew year normalizing line, and in or MGA on prior XX.X% $XX to our new business new had retention the levels. Carriers where with consumers previously acceleration you, XX% for and growth up million an choices $XX.X begun Thank today to was services everyone premium The have and offerings, geographies written by increase primary restricted marketplace open driven more top Under across call. periods. they million to $X.X million in to in the TWFG million. or have the over increased written insurance grew morning the business prior

over result, a XX.X% prior growth the rates, of income our over compared income levels. Commission increased or $XX.X an retention TWFG to business rollout to same $X.X policy XXXX of year million economic new income new continued third As period period from acquisitions due $XX to mainly Business moderating the million year and healthy to $XX.X core fee count prior we premium offering. the higher due rate states, in increased mainly million This and period. Fee million. $XX.X shift year XX% to $X.X income X.X% driven $X.X XX.X% prior decrease business current in MGA XX% in our higher our increase million was is our the or by to business period over a which Book increase or higher in book policy in new and revenue in growth accelerating into a increased or the million in increasing activity, investment of the to with driven premium retention saw the increases, by of $X.X prior XX% normalizing year the premiums in million 'XX. Total million, XX.X% quarter or period

mainly to In income addition, XX.X% increased XXX% branch million income year million increased to million income. investment new the $X.X prior period rate rates. Other an $X.X organic $X.X period due X.X%, by the growth. increased to for $X.X Organic business rates to million fee an fee over growth or increased increased increases revenues or of year healthy branch prior driven million $XX.X due premium and over in

XXX% costs. Amortization public year and $X conversions comparisons have expense in XXXX, branches. The decreased corporate Adjusted years the while decrease benefits $X.X and quarter the amortization million represents: associated growth $X.X branch prior conjunction the the quarter to: prior prior This million store depreciation want acquisition. Net expense $X prior agencies-in-a-box million acquisitions; growth million X.X% mainly over of tax expenses. This million or due year X.X% prior X the and year in and branch branches independent to secondly, $X.X million. $X.X due increase branch $X.X conversions; were or year X.X% due acquisition $X.X and been to amortization one, and XXXX salary with increased was for of $X expenses period and the increase company prior issuance $X.X to commission and now $X.X income respectively. branch was period shifted XXXX was salary where salary to one, thirdly, on This $XX.X over to $X.X million to related expense decrease corporate of the periods. over the to in comment a Commission expense continued the in related increased the with increase to or intangibles branch million. income and $X.X over period aforementioned increase salary operated the to of over benefits our absorption million or the of XX.X% employee with in million. to our of to mainly to one, converted offset the Now year given $X prior business, income RSUs represents: benefits turning IPO. Other prior year an QX expense related the of shifted year to prior due store by increase adjusted acquisitions million conversions, conversions that year and million expenses branch with million; the to decreased million a to to as XX.X% corporate expense commission with and period and benefits. $X.X skewed our a to administrative million. to for the periods million a XXX% $X.X increased quarter the primarily 'XX, related period to XX.X% business. Total decrease net and million compared million expense $X.X or growth $XX.X commission $XX.X for by thirdly, from are EBITDA increase decreased increase and net or make asset million. EBITDA by conversions I of $X.X the increased decreased which $X associated which in stock-based million and increase to for the a the million of $X.X the This million January in the comp conversions to adjusted period over salary growth benefits; million of offset

expect was XX% prior last which Our several over branch run acquired public by of quarter I'll year somewhat ramp company adjusted conversions, costs, back locations offset economies year in to we that, Gordy. continue driven to margin base EBITDA margin quarters. With rate to scale, the was it to third XX.X% period. The by expansion in the compared expense the corporate turn next our and into

third this In Janice. you, summary, Thank solid quarter. a was

Our our call undrawn to continue to some turn open questions. when that, M&A now and operator. capacity $XX the million build, it in revolver we'd over deploy the of we unrestricted like recruiting the million anticipate months pipeline opportunities to to $XXX quarters cash and I'll ahead. With for and

Zaremski first BMO. [Operator Michael with Instructions] Our comes from question

agencies This channel is and whether experienced by the Then ] think number hires last Can you agencies update you quarter. in captives pace I new has To growth said clarify, sustainable? from [ I reported added the XX the think Charlie on agent of Woodlands is for Mike. us XX quarter. you of recent distribution on

trying the So that and comparability the to understand of we're growth. sustainability just

throughout to this XXX And added year, with Charlie. Yes, year XXX calendar we've little we close Thanks, the XXX, new over ended offices. 'XX calendar locations. a

right prospective the results carrier would changes second of seeing giving did, still that from has quarter. in from existing office our that that action attention XXX. has the MGA We taking kind that looking on talk agency-in-a-box independent of with And more adopt and a captive So good and programs. about flow. We pipeline marketplace a expect Most our in quarter played specific as recruiting agencies exposure outsized already is us bled to quarter, total agencies partner the for be distribution the us well north through. of get IPO gave into we're their other last third count model did more now the as

the pipeline as in over a category, In activity agency-in-a-box the potential MGA, far so of still in, as about X,XXX. our for And agency-in-a-box lot we recruits. XXX-plus have it's in new coming coming that's And in locations. inquiries

and not So quarter quarter looking saw what's second probably see that we quarter. that our pipeline, do average, want But at even averages. of above be say, above but to in, will the the in extreme caution there third a were historical we continuation same that, we the yes, at our third

helpful. Got it. That's

it the as revenue right loss forward? that in insurance there quarter, is years? continue percentage home onetime the in think is ratio we anything coming should if upside contingents ratios And run to the figure? ticked at was that this look about to the a going in there up, improve Or On of rate

Yes.

quarter get So results. we'll in fourth seeing the adjustments the when have closer to some year-end we

the where ratios are results contingencies the I in ratios ratios revenue we've contingency of had years, the normalized improved coming back is you low. And But us the business, in which far, starting half more loss both peak the level. for personal to homeowners that looking lines is we're a loss still so everything and see as loss the will when you look below lines think of periods 'XX. 'XX, to on prior continue in the to towards we we see to calendar for taken across prior starting ratios This good think auto elevated at of historical had past. seen a that

Sandler. Piper with Newsome Paul from comes question next Our

there's with change business. I the was like hoping you could I think X little the if the was give behavior in differences will it the more bit for new continue you of that pull work and some relates sounds in there's a customer how new of opening business bit if that. about the us various retention And a a helping, little push offsetting sort or as retention It but is the of states to together? color wondering those

Thanks, Paul. Yes.

second insurance giving a opened across for up customers restricted look a us there's things at than their occurring third previously and premium to in That's have more and in renewing. It's new business our when alternatives first think the quarter. in markets that of the to also our new providing retention. more I couple business. geography business were larger you that's opportunities One, write present areas for the was new accept quarter agents

travelers would elsewhere. year. now could a it's be or so renewal that have It been And say, a $X,XXX lost premium being or not that that going the there's But premium customer new expiring have that might the coverage that we or X $X,XXX. opened X up, $X,XXX for, X in renewal say, at that similar offer but same X alternative markets travelers or $X,XXX, or come have markets is and may will

the where decisions are that agent areas where they less come still to the work have hard they'll are some XX%, their even options, they with their on plus on making mitigate options renewals. And that how their customers So renewal they're similarly, place may for in increase. do at coverage in want premium customers that XX%, having

are their or coverages their help affordable. so And their alter lower opting more customers many increase to rates deductibles to their make premiums to

head new I has escalated would our yes, continues. as in secure So that retention. And quarter able We to insurance portfolio. we that the starting broader then, market the say of premium what a to across agents that are that towards indicated you're signs business last saw that's seeing trend normalization. part was line

rate 'XX. There to to states We all open and through reinitiate But signaling major and normalized rate looking private become are are filings fully 'XX that auto initiatives. there's the still -- are for broadly in the of more some towards positivity side our growth expect through it part, being adequacy. passenger working markets and most

So good tailwinds that manner. in

comes question with McJoynt Tommy next Our from KBW.

Criscitiello for This is Tommy. on Dean

in the expect first quarter as commission like guys this of to the a next being fourth And that growth the well? impact? modest then Is change of the there to out MGA one any would year in some You a quantify quarter. called of structure headwind way programs fee organic you headwinds like also, or quarter

decline program Dover for and we the projected So $X we to see million Bay, -- referring quarter. MGA to well the did as of we had for a

expect next effect the we income. we -- that for see anomaly. we -- of the that won't now, flat when So quarter million but have was a that fee $X fee But was is we to -- it less year, compare the this have

your that should question Yes. see to given answer And year, Dean, about we year so next a next you agreement. X-year see we will that that have not

a a flat reset with have annually. fee We

most models the this it that going reoccurrence be that We included the was we but and quarter. that of year have analyst to as occur. lived through through this in first a We -- expected, was not exactly a 'XX, should was in our given this acute would agreement. that the of transition played So knew

up Okay. a us That income ticked line? what it then And next remind bit into of goes could I sense. know you guys one, makes that other my just year-over-year.

mentioned just you it remind And but prepared us rate forward? should your think about you how run in going a remarks, think that? I we about like then can

investment of So income have proceeds. the obviously, that cash, from and we because income, is increased IPO XX% that -- the it's interest more other

on see up. -- to be our our forward into see falls depending M&A will projections -- go yes, going when rate you'll that So But place. based that on you'll in increased we

Our next question Meredith comes from Brian UBS. with

pipeline. hoping being helped not all far a public year. till as you I I little M&A in probably at fourth at? you some might could more a you next Gordy, talk things is as has land bit company was the to getting original know look think here expectation about And you're Do see the quarter?

we signed LOIs in acquisitions provided with closing in our quarter, So X first January we so model. right not the that line have with out for in X fourth simplicity, projections in the do we now question, analyst anticipate what

are as from the we lift activity would awareness seeing that I IPO? significant qualify far as of substantial. As the Yes.

Our pipeline is programs. robust and it retail, spans MGA

are We seeing anything chasing that things we're the internationally, not outside country.

and banks, are buyer some are out seeking preferred potential honestly, a our agencies the familiarity of M&A number coming buyers. brokers investment that as out getting a space us with we from are We lot a that and organization our of us reaching to proactively, in are they knowing and have looks actually way

we a X/X. We of analyst look had And which, good year-end we anticipate the recall, So and EBITDA pipeline. provided provided transactions convention at revenue do that you. do what a you we in will have those closing if meeting model, to we

So acquiring X/X clean of calendar beginning XX/XX, to would launch gives for targets the a cut instead live employees and us year. the and those the for that of just it of be folks us with

lot Appreciate your are a for of us, bit opening you that. markets of kind Makes And of too. the that seeing a it way? as little then here? up little are Or wholesaler. you maybe about easy second it is What talk business bit thing, wholesaler? into business flow flowing still Could a

core of still Our is program The side hard side. is the states relatively activity. on seeing in market an our property influx

homeowners country. as of our programs across increased volume is the getting home well state Texas in across are programs, insurance we doing high-value the So which as

So hard more seeing property wholesale fragmented, are side. as or in engagement segment we remains that the

our A quarter. lot of business. the positive showed GA driven in that through our So programs growth was

comes with Heleniak Our next Scott Markets. from RBC Capital question

of challenging are places given difficult And what's know But you in of about in you you and state do you XXXX more you some I talk if losses. be that in Texas. Texas home, opening auto some normalization. know happened to talking particularly that kind But expect and of normalization continues homeowners capacity if talk a most could to referenced kind see conditions I in what wonder market at seeing point? about up. could out with about wondering catastrophe there? Just in that I

in starting than So the underwriters committed I to achieve be rate. adequacy different auto as the like business Auto and incentives, Many with is the will are signal we that projecting to rate which auto, national of most new story seems confidence growth. see a think home. to to institute are they're

property I'm Progressive decent the for side, selective. some That markets, pretty being restricted On marketplace. bundled get packages they're create of that the by saw going sure for on void cat-exposed in announcement filled from programs. and you That the appetite less the that's to will a start-ups, new looking geography, marketplace underwriting more guideline void regional

we're available of sure our with span And our distribution our capacity a up carriers, aligning is make across that job so including exists to programs. the own

Texas, in be a they're underwriting Progressive do and their their when and underwriting starting to have specifically, growth April carriers in for We guidelines. restricted the see property. Scott, homeowners tremendous national scheduling couple So roof first open that in more they of reductions coverage going more back confidence program seen our that for are guidelines pricing has age announced signaling that

new an that So fruition market that come expanding regional, it's side. prop shrinking and I be combination national of to programs property up superregional and going to a the a think

color. helpful definitely Okay. That's

to public. new I in next that trending quarter you thing you quarters? is there how is ask the were the over you the I went see quantify The few what and just company can any expenses mean, way want you public just, other

you So can there's of either more those? to a point come, to little on anything obviously, but

coming you are audit higher my language more do audit. Well, significantly do it the granular quarters. and legal up a number of top [ know expenses next detail. of hopefully, picked the in ] My we I in Maybe CAB several case that we don't in expenses public as anticipate our give have have fees when company. know we'll higher our than additional that company through you mind. We are I significantly private one-on-one,

some we're are our looking in actuals, have that more positions, to We experienced in SEC-related roles budgets. Those aren't open but they current our fill. forecast

that projected we are quarter, that projections. sure higher though even achieving forward, EBITDA we actual but we And we'll we're provide is include some going we're this hires the our results will our we want that conveying consciously than those. they in to will when updated bleed in make projections, So have into

you expect of next just of XX%s the expect back do the then is that in lastly, kind XX%s? -- new run know rate kind been be to it rate? stay that to normalized that XX%s, year? And do you but Okay. it -- the high the could in I to kind retention that to the go had of rate, run Or

Yes.

showed So averages back I Scott, the model, analyst And when our the were been historical the has did in we XX%s. we XX%. in actual the model XX% we in think though longer-term currently spring, even

market, expected we're down to we projectile. rate this us the of normalization where to customer this XX% back to on So get the at behavior self-advocate

comes Instructions] question with Singzon next Our Pablo [Operator JPMorgan. from

my asked, I'll So probably ask here. of so been more most just have questions follow-ups

So on expenses. first, just

was much go in higher from will there? you Given the do how think but think can quarterly the G&A quarter the public here? it million, run from how $X.X ramp-up much higher I expenses,

What, you said G&A?

Yes.

Yes. G&A. Yes.

the Oh, million, for quarter. it's $X.X yes,

back guys that up of question fees have from fees the And legal as mainly salaries. increased. fees, expecting So you in that the got we the got -- to be million, going roughly and we've $X big $X audit to the and year. $XXX,XXX that then we're the had on is professional professional are And million prior going from we've

for projections year XX% roughly say have what would increasing. we our to I So next XX% is in

Yes.

you $X.X to salaries still which in estimates to actuals. million higher. have half then we be that's That I if $X audit currently Pablo, in, is public. that, related -- come positions, open could of have know spike we the to increase but new the may another and don't not But be legal being will legal there's million heard So and which

updating, salary that So live million, but $X.X keep roles, those new we're we'll hires, into new possibly least another $X of we at and range. anticipating million as somewhere in

million Got is an the Gordy, basis? on it. $X a basis, or on quarterly And annual

$X yes. annual would $X basis. be million No, million, on million, an $X.X

then follow-up. And you. second Got

of just up But into I I think, So had platform. on follow retention guess markets rolling question on the new retention to topic their one about once already. available or up, your broader come call twice headwind from agents books the on the

So continue quarters average to growth experiencing over this as you normal there experience the above-normal the is below several risk a you're next here, XX% above just of the as falling company right, growth? retention,

is on the actual Well, year retention business. prior

joined may relationships, show in So bringing up that business agents category. the have customers are us new prior that in from those

XX% at going bringing a been we're retention rewriting And don't I We or So to agents that impact pretty think that in expect are number. from XX%. portfolio long-term accounts that has average. that good the are the outside long-term looking that's

Okay. And last me. for then

for gap? is a lower tax for the taxes cash is income net income. the that the on show you reason GAAP adjusted basis to company? benefit real than And expense What's booked So a that

just the share, PubCo their XX%, So XX%. is income, seeing the ] expense is [ tax pro you're which roughly rata on

rate. So to it's XX% XX% tax

associated with -- you side, taxes it's So and a on have so much have on just you we -- there's don't PubCo why don't no -- see a their it's the percentage interest. that. It's the lower partnership, that's LLC

BMO. Our next question Michael with from Zaremski comes

again. Charlie is This

from Can run stock please, you us, here? rate update on the for follow-up. one Just comp

There of was the amortization will the for million stock were now a RSU right granted the X.X-year over units quarter little So IPO really vest period. a comp that over $X IPO from at grants.

amortize quarters. in So those throughout those will

awards comp or for placeholder. will plan had of in comp stock analyst annual million a be $X 'XX the the stock and comp in committee the comp an Our December. We approving equity 'XX as model around for

whatever the we 'XX committee's incentives, normalize a 'XX get the placeholder. recommendations selection through and of that total now once a good was Board's year and ultimate $X But awards amount is. comp we'll right million So

turn will further call to no are over now the there time, this Bunch. back questions. I Mr. At

we provide calls to many Josh. and you, all, follow-up to We we answering look Thank prospects more look attended I of year-end in we continuing company's getting line of with plans. into forward to details you, more had we this forward to information what morning's our our know and we Thank model. And who to the your and the forward. call. questions. Again, a projections number growth great models on with forward guidance execute provided and going we current analyst you as of look the against be looking a our would analyst provided in quarter continue at third in and same have

are the We are playing seeing things had out that we way projected.

XXXX. So I look quarter on of you. first to appreciate everybody the reporting Thank up fourth our year, forward full the quarter coming in call and here information

today's you. for And Thank that concludes conference. Thank all you participating.

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