Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed below and in the sections entitled Item 1A. “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements”.
The following discussion provides commentary on the financial results derived from our audited financial statements for the years ended December 31, 2024, 2023 and 2022 prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In addition, we regularly review the following non-GAAP measures when assessing performance: Organic Revenue, Organic Revenue Growth, Adjusted Net Income, Adjusted Net Income Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Diluted Earnings Per Share and Adjusted Free Cash Flow. See “Non-GAAP Financial Measures” for further information.
Overview
We are a leading, high-growth, independent distribution platform for personal and commercial insurance in the United States. We are pioneers in the insurance industry, developing an agency model built on innovation and experience with what we believe is a more flexible approach than traditional distribution models. Our offerings are fulsome and flexible in that we offer all lines of insurance, multiple distribution contract options, M&A services, proprietary virtual assistants, proprietary technology, proprietary premium financing, unlimited continuing education, recognition programs, co-op funding, marketing support and overall lower costs to operate. Since our founding in 2001 by our Chief Executive Officer, Richard F. (“Gordy”) Bunch III, we have established a track record of creating solutions for independent agents, insurance carriers and our Clients, with sustainable growth regardless of economic and P&C pricing cycles.
We embrace a simple philosophy: “Our Policy is Caring” which is more than a motto. This philosophy informs the way we interact with all of our stakeholders and the communities in which they live and work. We seek to attract partners who come in every day with the commitment to making a difference in the lives of the people and communities we interact with. We treat our Clients, employees and stakeholders like family.
Factors affecting our results of operations
We believe that the most significant factors affecting our results of operations include:
Attracting and retaining experienced agents. Our long-term growth and success depend, in large part, on our continued ability to attract new agents. Our growth strategy focuses on attracting experienced end of career and retiring agents that come to us with an existing Book of Business and become Branch principals within our system. Our value proposition resonates with agents as they have succession planning options built into their contracts. To facilitate succession planning, we offer independent agents the ability to sell their Books of Business to TWFG, enabling a smooth handover and transition of Client relationships and operational responsibilities. Branch principals also have a high degree of autonomy in which to operate their business and expand their footprint. Branches use our comprehensive technology and agency management system, benefiting from enterprise group rates that we believe are typically lower than agents would receive on their own or from leading agency management system vendors.
Insurance carrier relationships. Our growth and success are dependent on, in large part, our relationship with insurance carriers. We specialize in creating innovative insurance products that address the specific needs of Clients, a strategy that ultimately benefits our insurance carriers. Our deep understanding of market trends and consumer demands enables us to develop tailored and forward-thinking solutions that turn into high-growth and profitable lines of business for insurance carriers. Insurance carriers reward our performance with additional access to business over time. Additionally, we provide insurance carriers with cost-effective and rapid access to new markets, leveraging our expansive network and market insights. This approach not only extends the insurance carriers’ reach into diverse Client segments, but also enhances their market presence. Our role as an intermediary ensures a broad
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and varied range of insurance products are available to our Clients, meeting their diverse needs. This symbiotic relationship with insurance carriers not only broadens their Books of Business, but also ensures our Clients have access to comprehensive, customized insurance options, increasing retention of the business we place for insurance carriers and cementing our role as a pivotal facilitator in the insurance industry.
Reliance on insurance intermediaries. Our growth and success are dependent, in part, on the financial strength of the insurance carriers we work with and our ability to distribute differentiated insurance products in the market. If insurance intermediaries or insurance carriers experience liquidity problems, insolvency or other financial difficulties, or do not timely provide required information or payments to us, we could encounter delays in payments owed to us, the loss of insurance carrier appointments, E&O claims and difficulty collecting receivables owed to us by insurance carriers. The capacity of our insurance products may be subject to restrictions placed by parties outside our control, such as reinsurers, insurance intermediaries, insurance carriers and state regulators. These conditions may adversely affect our revenue and make it difficult for us to accurately predict our future results, which could harm our business, financial condition and results of our operations.
Investment in technology. Our continued growth and success depend, in part, on our ability to invest in technology to drive scalability and efficiency. Agents use our comprehensive technology package that includes an agency management system that is customizable. Our technology facilitates the sales process, and includes integrated technology features like electronic signatures, personal lines rating and commonly used insurance forms. It also provides dynamic reporting on retention, renewal and marketing. We leverage technology to help our agents acquire new Clients with social media, email marketing and text message integration within our agency management system. We also leverage technology to enhance the Client experience with our proprietary mobile application that allows Clients to access their ID cards and easily communicate with their agents. Our carrier administration system is equipped for underwriting and policy administration for both admitted and non-admitted programs in multiple states.
Strategic asset acquisitions. We supplement our organic growth (including the addition of independent branches into our network) and add capabilities through strategic asset acquisitions. Through strategic asset acquisitions, we have acquired agencies, Books of Business, MGAs, insurance networks and renewal rights across a range of specialties and geographies. Our acquisition strategy entails crafting a compelling value proposition for acquisition targets including a robust operational backbone, a wide array of insurance products and markets, a collaborative culture and the opportunity for long-term growth. We also prioritize a transparent and equitable transaction process to help ensure a good relationship and alignment from the beginning, and have implemented a systematic and disciplined integration playbook.
In 2022, we completed two asset acquisitions in excess of $0.5 million in annual revenue for a total purchase price of $7.9 million. In 2023, we completed five asset acquisitions with annual revenue in excess of $0.5 million for a total purchase price of $19.4 million and acquisition-related expenses of $0.2 million.
In January 2024, we acquired the assets of nine of our independent branches and converted them to Corporate Branches for a total purchase price of $40.8 million. In addition, in January 2024, we acquired the remaining interests in the assets of our partially owned Corporate Branches for a total purchase price of $5.2 million, converting them to wholly owned Corporate Branches. In the remainder of 2024, we completed multiple acquisitions with annualized revenue less than $0.5 million, for an aggregate purchase price of $1.6 million.
The valuations of these asset acquisitions were based substantially on the size, growth, loss ratios and pro forma EBITDA of their Books of Business. See Note 4, “Intangible Assets” to our consolidated financial statements included elsewhere in this Annual Report for information regarding the accounting for these acquired assets and their impact on our consolidated financial condition. See “—Consolidated Results of Operations” for the impact of these acquisitions on our results of operations.
Insurance industry pricing trends and the effect of natural and man-made disasters. We generate most of our revenues through commissions, which are calculated as a percentage of the total insurance premium. A softening of the insurance market or the lines of business we serve, characterized by a period of declining premium rates, could negatively impact our profitability. Additionally, insurance carrier losses from natural or man-made disasters could impact our contingent income, which is primarily driven by insurance carrier underwriting results and, to a lesser extent, the volume of business we place with them.
Macroeconomic trends. Macroeconomic factors, including the recent resurgence of inflation and interest rate increases, and the risk that the U.S. economy will decelerate into a recession, affect the financial services industry and may reduce demand for our services or depress pricing for those services, which could have a material adverse
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effect on our costs and results of operations. During higher inflationary periods, our rent expenses may also increase significantly, which may adversely affect our business, financial condition, results of operations and cash flows. Furthermore, during inflationary periods, interest rates have historically increased, which would have a direct effect on interest expense if we decide to refinance our existing long-term borrowings or incur any additional indebtedness. These macroeconomic trends are partially offset by increased commissions due to increased premiums and increases in interest income from interest rate increases and, as a result, we have grown our business and profitability through multiple economic cycles.
Cost of being a public company. To operate as a public company, we are required to continue to implement changes in certain aspects of our business and develop, manage, and train management level and other employees to comply with ongoing public company requirements. We will also incur new expenses as a public company, including public reporting obligations, proxy statements, stockholder meetings, stock exchange fees, transfer agent fees, SEC and FINRA filing fees, and offering expenses.
Our corporate structure
TWFG was incorporated on January 8, 2024 for the purpose of completing the Reorganization Transactions that were completed on July 19, 2024. Following a reorganization into a holding company structure as part of the Reorganization Transactions, TWFG is a holding company and its sole material asset is a controlling ownership interest in TWFG Holding. All of our business is conducted through TWFG Holding and its consolidated subsidiaries, and the financial results of TWFG Holding and its consolidated subsidiaries are included in the consolidated financial statements of TWFG.
Pre-IPO, TWFG Holding was treated as a pass-through entity for U.S. federal and state income tax purposes and accordingly has not been subject to U.S. federal or state income tax. After the IPO, TWFG Holding continues to be treated as a partnership for U.S. federal and state income tax purposes. Accordingly, because of our ownership of the LLC Units, we are subject to U.S. federal, state and local income taxes with respect to our allocable share of any net taxable income of TWFG Holding and are taxed at the U.S. federal income tax rates applicable to corporations.
In addition to tax expenses, we also incur expenses related to our operations and we are required to make payments under the Tax Receivable Agreement. We intend to cause TWFG Holding to make distributions in an amount sufficient to allow us to pay our tax obligations and operating expenses, including distributions to fund any ordinary course payments due under the Tax Receivable Agreement.
Certain income statement line items
Commission income. We derive commission income from the placement of insurance contracts between insurance carriers and Clients. Our commissions are established by the agency agreement between the Company and the insurance carrier and are calculated as a percentage of premiums for the underlying insurance contract. Commission rates vary across insurance carriers, states and lines of business and typically range from 7% to 22%. Our average commission rate for 2024 was approximately 12%.
Our main obligation under our agency agreements with the insurance carriers is selling insurance contracts to our Clients. Each underlying insurance contract is a separate and distinct contract between the Client and the insurance carrier. Our Clients are not obligated to keep the insurance contract for the full term or renew it with the insurance carrier beyond its initial term. We are required to try to resell the insurance contract to our Client at the expiration of each policy term or shop for alternatives if our Client decides to terminate its existing insurance contract. We recognize commission income when the performance obligation of placing the insurance contract between our Client and the insurance carrier has been met and the insurance contract is in effect, based on its effective date.
Our agency agreements with the insurance carriers are non-exclusive and can typically be terminated unilaterally by either party. Additionally, either party can agree to amend the provisions of the agency agreements, which may affect our future commission income.
Contingent income. We may earn contingent income from insurance carriers. Contingent income is highly variable and based primarily on underwriting results and, to a lesser extent, volume.
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Fee income. Fee income is comprised primarily of policy fees, branch fees, license fees and third-party administrator (“TPA”) fees. The Company receives policy fees as compensation for administrative services performed in connection with the placement and issuance of certain policies that are in addition to and separate from commissions paid by the insurance carriers. Branch fees include the monthly recurring fees assessed for the ongoing Client service and back-office support provided to independent branches operating exclusively through the Company pursuant to an exclusive Branch agreement and a one-time branch onboarding fee. License fees are usage-based fees assessed by the Company for the use of its proprietary applications. TPA fees are related to services performed based on service agreements with the insurance carriers.
Other income. Other income is comprised primarily of interest income on fiduciary funds, income earned for facilitating premium financing arrangements, fees assessed for agent conventions and other miscellaneous income.
The following table sets forth our revenues by amount and as a percentage of our revenues for the periods indicated (dollar amounts in thousands):
Years Ended December 31,
Amount % of Total Amount % of Total Amount % of Total
Commission expense. Commission expense is our largest expense, representing the consideration paid to our agents for producing and retaining business. We expect our commission expense to continue to increase corresponding with our expected business growth.
Salaries and employee benefits. Salaries and employee benefits consist of base compensation and any bonuses, equity compensation and benefits paid and payable to employees. We operate in competitive markets and expect to continue to experience a general rise in compensation and benefits expense commensurate with expected growth in headcount, geographic expansion and the creation of new products and services.
Other administrative expenses. Other administrative expenses include technology costs, legal and professional fees, office expenses, marketing expense, survey expenses and other costs associated with our operations. Fluctuations in other administrative expenses are relative to the overall scale of our business operations.
Depreciation and amortization. Depreciation and amortization are primarily comprised of the amortization of intangible assets recognized from our strategic asset acquisitions. As we continue to pursue strategic asset acquisitions, we expect our amortization expenses to increase.
Interest Expense.Interest expense consists of interest payable on indebtedness, commitment fees and imputed interest on Deferred acquisition payables.
Interest Income. Interest income consists of interest earned on the Company’s Cash and cash equivalents which are not held in a fiduciary capacity.
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Consolidated results of operations
The following is a discussion of our consolidated results of operations for the periods presented. This information is derived from our accompanying audited consolidated financial statements prepared in accordance with GAAP.
The following table summarizes our results of operations for the periods presented (in thousands):
Years Ended December 31,
Amount % of Total Amount % of Total Amount % of Total
Revenues:
Operating expenses:
Other non-operating income (expense)
Other non-operating income (expense), net 9 (17) (18)
Income tax expense 1,495 — —
Net income (loss) from discontinued operation, net of tax — 834 (2,733)
Comparison of the Years Ended December 31, 2024 and 2023
Total revenues
The following table presents the disaggregation of our revenues by offerings (in thousands):
Years Ended December 31,
Amount % of Total Amount % of Total
Insurance Services
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Total revenues for the year ended December 31,2024 increased by $31.7 million, or 18.4%, compared to the same period in the prior year. The increase of 18.4% was primarily due to commission income, representing 77.2% of the total growth, contingent income, representing 14.6% of the total growth, fee income, representing 7.1% of the total growth and other income, representing 1.1% of the total growth. See discussions below for additional information about the changes in our revenues.
Commission income
The following table presents the disaggregation of our commission income by offerings (in thousands):
Years Ended December 31,
Amount % of Total Amount % of Total
Insurance Services
Commission income for the year ended December 31, 2024 increased by $24.5 million, or 15.4%, compared to the same period in the prior year. The increase was primarily due to higher premium rates, new business growth and continued rollout of commission income from our Book of Business acquisitions completed in 2023 into the current period. See “—Key Performance Indicators—Total Written Premium” for additional information related to our written premiums.
Commission income for Insurance Services grew by $23.0 million, or 17.3%, for the year ended December 31, 2024 compared to the same period in the prior year. However, during the current period the components shifted between Agency-in-a-Box and Corporate Branches. Agency-in-a-Box commission income for the year ended December 31, 2024 decreased by $3.8 million, or 3.0%, compared to the same period in the prior year. The decrease was primarily attributable to the acquisition of the assets of nine of our independent branches (which were previously operated as Agencies-in-a-Box) and their conversion to Corporate Branches in January 2024. The branch conversions resulted in a $18.3 million decrease in the Agency-in-a-Box commission income for the year ended December 31, 2024.
Insurance Services Corporate Branches commission income for the year ended December 31, 2024 increased by $26.8 million, or 402.7%, compared to the same period in the prior year. The increase was primarily driven by the branch conversions as previously described. In addition, Corporate Branches commission income for year ended December 31, 2024 included the full period increases from the Book of Business acquisitions in 2023, while the same period in the prior year reflected partial period increases.
TWFG MGA commission income for the year ended December 31, 2024 increased by $1.5 million, or 5.8%, compared to the same period in the prior year. An increase of $3.9 million, or 18.4%, was due to higher new business written premiums in our TWFG MGA offering driven by market activities, which created opportunities for us to gain new business. The increase was offset by a decrease of $2.4 million, or 54.7%, due to the amendment to the MGA agreement with one of our insurance carriers which shifted our volume-based commission to a flat monthly fee, effective January 1, 2024. This amendment capped the income we earned at a maximum monthly amount.
Contingent income
Contingent income for the year ended December 31, 2024 increased by $4.6 million, or 113.5%, to $8.7 million from $4.1 million in the same period in the prior year. The increase in contingent income was driven by underlying carrier profitability and growth in our business. Changes in contingent income are unpredictable and dependent upon the target financial and performance metrics established by the insurance carriers.
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Fee income
The following table presents the disaggregation of our fee income by major sources (in thousands):
Years Ended December 31,
Amount % of Total Amount % of Total
Fee income for the year ended December 31, 2024 increased $2.3 million, or 27.1%, compared to the same period in the prior year. Changes to individual components of fee income are discussed in detail below:
•Policy fees for the year ended December 31, 2024 increased by $1.4 million, or 68.4%, compared to the same period in the prior year. The increase in policy fees was primarily due to higher policy count in our TWFG MGA offering and new business growth through our marketing activities.
•Branch fees for the year ended December 31, 2024 increased by $1.8 million, or 58.8%, compared to the same period in the prior year. The increase in branch fees was primarily due to increased branch fee rates and the impact to our owners of the distribution of our equity interest in Evolution Agency Management LLC (“EVO”) in May 2023. Branch fees earned for the year ended December 31, 2023 included the elimination of fees paid to EVO for the first four months of 2023, while the current period did not have an impact.
•License fees for the year ended December 31, 2024 decreased by $0.8 million, or 29.7%, compared to the same period in the prior year. The decrease in license fees was primarily due to the previously discussed distribution of EVO equity interests and the amendment to the licensing agreement. License fees earned for the current period excluded revenues from EVO’s operation, while license fees earned for the prior period included four months of EVO’s revenues. In addition, the amendment to the licensing agreement with one of our customers changed from usage-based fees to fixed monthly fees, which capped the fees we earned at a maximum monthly amount.
•TPA fees for the year ended December 31, 2024 decreased by $0.1 million, or 26.4%, compared to the same period in the prior year. The decrease in TPA fees was primarily due to a lower level of TPA services provided by the Company for the year ended December 31, 2024 compared to the same period in the prior year.
Other income
Other income for the year ended December 31, 2024 was $1.3 million, compared to $1.0 million in the same period in the prior year, reflecting an increase of $0.3 million, or 36.2%.
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Expenses
Commission expense
The following table presents the disaggregation of our commission expense by offerings (in thousands):
Years Ended December 31,
Amount % of Total Amount % of Total
Insurance Services
Commission expense for the year ended December 31, 2024 increased by $1.2 million, or 1.1%, compared to the same period in the prior year. The increase was primarily due to an increase in our TWFG MGA offering of $1.5 million, or 1.3%, of the total increase, offset by the lower commission expenses in Insurance Services of $0.3 million, or 0.3%, driven by the previously discussed branch conversions. See commission income discussion above for additional information regarding the driver of change.
Insurance Services Agency-in-a-Box commission expense for the year ended December 31, 2024 decreased by $4.0 million, or 4.0%, compared to the same period in the prior year. The decrease was primarily due to the branch conversions resulting in a decrease of $14.7 million, and the one-time favorable accrual adjustment related to the converted branches of $1.5 million, offset by an increase in commission expense related to the growth of the business of $12.2 million. In January 2024, nine of our Agency-in-a-Box Branches converted to Corporate Branches. Upon conversion, agents of the newly converted Corporate Branches became employees and received salaries, employee benefits, and bonuses for services rendered instead of commissions. As result, we released a portion of the unpaid commissions related to the converted branches that we no longer are required to settle, which resulted in the aforementioned one-time favorable accrual adjustment.
Insurance Services Corporate Branches commission expense for the year ended December 31, 2024 increased by $3.7 million, or 481.4%, compared to the same period in the prior year. The increase was primarily due to the branch conversions, as previously discussed, and the full year impact of the Book of Business acquisitions in 2023.
TWFG MGA commission expense for the year ended December 31, 2024 increased by $1.5 million, or 9.4%, compared to the same period in the prior year. The increase was primarily due to higher new business written premiums as previously discussed. The higher percentage increase in TWFG MGA commission expense compared to the percentage decrease in related commission income was primarily driven by the shift in the business mix. As discussed above, TWFG MGA commission income was impacted by the renegotiation of the MGA agreement with one of our insurance carriers. This renegotiation reduced commission income in the current period, but did not result in a corresponding reduction in commission expense.
Salaries and employee benefits
Salaries and employee benefits for the year ended December 31, 2024 was $29.1 million, compared to $14.0 million in the same period in the prior year, reflecting an increase of $15.1 million, or 108.0%. This increase was primarily attributable to the branch conversions contributing an increase of approximately $8.6 million, a $3.7 million increase from the asset acquisitions in 2023, a $2.2 million increase in stock-based compensation from the granting of restricted stock units in July 2024 and a $1.1 million increase due to our continued growth and new roles created in conjunction with our IPO. Partially offsetting these increases was a decrease driven by the distribution of our equity interest in EVO in May 2023 to our owners. Salaries and employee benefits for the year ended December 2023 included approximately $0.5 million compensation attributable to EVO’s operations, while in the same period in 2024 we did not incur this compensation.
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Other administrative expenses
Other administrative expenses for the year ended December 31, 2024 was $16.7 million, compared to $11.0 million in the same period in the prior year, reflecting an increase of $5.7 million, or 51.9%. This increase was primarily attributable to a $1.5 million increase in IT costs, a $2.0 million increase in consultant and professional fees, a $1.0 million increase in inspection fees, and a $1.2 million increase in other expenses. The increase in our IT costs was primarily due to additional cloud computing costs, and 2024 included fees paid to EVO, while in 2023, fees paid to EVO were eliminated upon consolidation. The increase in our inspection fees was driven primarily by the increased business in our MGA offering. The increase in consultant and professional fees was primarily attributable to the increased ongoing costs of becoming and being a public company. The increase in other expenses was due primarily to higher rent and office expenses driven by our Book of Business acquisitions in 2023 and branch conversions in 2024, partially offset by a reduction in administrative expenses related to the previously discussed distribution of our equity interest in EVO.
Depreciation and amortization
Depreciation and amortization for the year ended December 31, 2024 was $12.0 million compared to $4.9 million in the same period in the prior year, reflecting an increase of $7.2 million, or 147.2%. This increase was primarily attributable to the amortization of intangible assets from our recent intangible asset acquisitions and branch conversions.
Interest expense
Interest expense for the year ended December 31, 2024 was $2.2 million, compared to $1.0 million in the same period in the prior year, reflecting an increase of $1.2 million, or 121.6%. The increase in interest expense was driven by the increase in our total borrowings under our debt agreements. In 2023, we increased our borrowings to fund our asset acquisitions in 2023 and branch conversions in 2024. The increase was also partially offset by the repayment of the outstanding balances under the Term Loan B as defined in the section - “Liquidity and capital resources” and the Revolving Facility in July 2024 and August 2024, respectively.
Interest income
Interest income for the year ended December 31, 2024 was $4.4 million, compared to $0.9 million in the same period in the prior year, reflecting an increase of $3.5 million, or 391.4%. The increase was primarily attributable to interest earned on the IPO funds and operating cash funds of $195.8 million.
Income tax expense
Income tax expense for the year ended December 31, 2024 was $1.5 million compared to zero in the same period in the prior year as after consummation of the Reorganization Transactions and IPO, the Company became subject to U.S. federal, state, and local income taxes with respect to its allocable share of taxable income of TWFG Holding assessed at the prevailing corporate tax rates.
Comparison of the Years Ended December 31, 2023 and 2022
Total revenues
The following table presents the disaggregation of our revenues by offerings (in thousands):
Years Ended December 31,
Amount % of Total Amount % of Total
Insurance Services
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Total revenues for the year ended December 31, 2023 increased by $18.2 million, or 11.8%, compared to the same period in the prior year. The increase was primarily due to a $19.2 million, or 13.8%, increase in commission income driven primarily by organic growth and Book of Business acquisitions. These increases were partially offset by the unearned commission chargebacks in 2023 from insurance carrier insolvencies in 2022, and a $0.5 million, or 11.6%, decrease in contingent income. The decrease in contingent income was driven primarily by the insurance carriers’ higher loss ratio trends in 2023. Contingent income is unpredictable and may increase or decrease from one period to the next depending on target financial and performance metrics established by the insurance carriers. See discussions below for additional information about the changes in our Revenues.
Commission income
The following table presents the disaggregation of our commission income by offerings (in thousands):
Years Ended December 31,
Amount % of Total Amount % of Total
Insurance Services
Commission income in 2023 increased by $19.2 million, or 13.8%, compared to 2022, primarily due to continued growth across our offerings. Higher premium rates combined with a growing Book of Business drove the increase in our Insurance Services offering. The Book of Business’s growth was primarily due to the organic growth across Insurance Services and the recent Book of Business acquisitions as reflected under Corporate Branches. These increases in Insurance Services were partially offset by decreases driven primarily by the reduction in commission rates with certain insurance carriers and the unearned commission chargebacks in 2023 from insurance carrier insolvencies in 2022. The increase in our TWFG MGA offering was driven primarily by higher premium rates, partially offset by a 1% reduction in policy retention, non-renewal of 715 wind policies and 118 coastal policies for a total $1.8 million loss in Total Written Premium where policies were deemed ineligible for renewal business in catastrophe locations, and certain insurance carriers not accepting new business in locations that have experienced catastrophes. Some of these markets that had experienced catastrophes and in which insurance carriers were not accepting new business in 2023 have since reopened as some existing carriers are now accepting new business in these areas and new carriers have also entered some of these markets. See “Key Performance Indicators” below for additional information related to our premium retention.
The rising trend in premium rates over the recent years had a favorable impact on commission income across our offerings, partially offset by the reduction in commission rates with certain insurance carriers.
Contingent income
Contingent income for the year ended December 31, 2023 decreased by $0.5 million, or 11.6%, to $4.1 million in 2023 from $4.6 million in the same period in the prior year. The decrease in contingent income was driven primarily by the insurance carriers’ higher loss ratio trends in 2023. Changes in contingent income are unpredictable and dependent upon the target financial and performance metrics established by the insurance carriers.
Fee income
The following table presents the disaggregation of our fee income by major sources (in thousands):
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Years Ended December 31,
Amount % of Total Amount % of Total
Fee income for the year ended December 31, 2023 was comparable to the same period in the prior year. Changes to individual components of fee income are discussed in detail below:
Policy fees for the year ended December 31, 2023 decreased by $0.5 million, or 19.2%, in 2023 compared to the same period in the prior year, primarily due to lower policy counts in our TWFG MGA offering in 2023 compared to 2022. Policy counts declined due to lower retention rates and certain insurance carriers not accepting new business in locations that have experienced catastrophes.
Branch fees increased for the year ended December 31, 2023 by $1.3 million, or 79.5%, in 2023 compared to the same period in the prior year, primarily due to the additional Branches in 2023, coupled with increased services provided to our existing Branches to support their continued growth.
License fees decreased for the year ended December 31, 2023 by $0.8 million, or 22.7%, in 2023 compared to the same period in the prior year, primarily due to the impact of the reorganization of our corporate structure. In May 2023, we distributed all of our equity interests in EVO to our owners. As a result, license fees earned in 2023 included only four months of revenues from EVO’s operation compared to a full year's revenues in 2022.
TPA fees for the year ended December 31, 2023 were comparable to the same period in the prior year.
Other income
Other income for the year ended December 31, 2023 was $1.0 million, compared to $1.5 million in the same period in the prior year, reflecting a decrease of $0.5 million, or 34.2%. This decrease was primarily due to lower gains on the sale of Books of Business. For the year ended December 31, 2023, Other income included $0.1 million of gains on the sale of Books of Business compared to $0.9 million of gains realized in the same period in the prior year. The decrease was offset by other immaterial increases of $0.3 million for the year ended December 31, 2023.
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Expenses
Commission expense
The following table presents the disaggregation of our commission expense by offerings (in thousands):
Years Ended December 31,
Amount % of Total Amount % of Total
Insurance Services
Commission expense for the year ended December 31, 2023 increased by $11.9 million, or 11.4%, compared to the same period in the prior year. This increase was primarily attributable to the continued growth across our offerings, coupled with increases from our recent Book of Business acquisitions as reflected under our Corporate Branches offering. The increase in commission expense is in line with the increase in our commission income. See commission income discussion above for additional information regarding the driver of increases.
Salaries and employee benefits
Salaries and employee benefits for the year ended December 31, 2023 was $14.0 million, compared to $12.2 million in the same period in the prior year, reflecting an increase of $1.7 million, or 14.1%. This increase was primarily attributable to higher headcount to support the continued growth in business, acquisitions and new hires in preparation of becoming a public company.
Other administrative expenses
Other administrative expenses for the year ended December 31, 2023 was $11.0 million, compared to $9.7 million in the same period in the prior year, reflecting an increase of $1.3 million, or 13.1%. This increase was primarily attributable to increases in marketing expenses of $0.3 million and office overhead of $0.2 million driven primarily by continued growth in our business. Our insurance premium also increased by $0.3 million primarily due to the increased E&O coverage driven by our continued growth.
Depreciation and amortization
Depreciation and amortization for the year ended December 31, 2023 was $4.9 million, compared to $3.3 million in the same period in the prior year, reflecting an increase of $1.6 million, or 47.2%. This increase was primarily attributable to the amortization of intangible assets from our recent intangible asset acquisitions.
Interest expense
Interest expense for the year ended December 31, 2023 was $1.0 million, compared to $0.4 million in the same period in the prior year, reflecting an increase of $0.6 million, or 152.0%. The increase in interest expense was driven by the increase in our total borrowings under our debt agreements. In 2023, we increased our borrowings to fund our asset acquisitions in 2023.
Interest income
Interest income for the year ended December 31, 2023 was $0.9 million, compared to $0.05 million in the same period in the prior year, reflecting an increase of $0.8 million, or 1,835.9%. The increase was primarily attributable to an increase in interest rates.
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Key Performance Indicators
Total Written Premium
Total Written Premium represents, for any reported period, the total amount of current premium (net of cancellations) placed with insurance carriers. We utilize Total Written Premium as a key performance indicator when planning, monitoring and evaluating our performance. We believe Total Written Premium is a useful metric because it is the underlying driver of the majority of our revenue.
The following table presents the disaggregation of Total Written Premium by offerings, business mix and line of business (in thousands):
Years Ended December 31,
Amount % of Total Amount % of Total Amount % of Total
Offerings:
Insurance Services
Business Mix:
Insurance Services
TWFG MGA
Written Premium Retention:
Insurance Services 93 % 95 % 87 %
Line of Business:
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Comparison of the Years Ended December 31, 2024 and 2023
Total Written Premium for the year ended December 31, 2024 increased by $228.3 million, or 18.3%, compared to the same period in the prior year. Drivers of the increase in our Insurance Services offering are attributable to higher premium rates, written premiums from our 2023 acquisitions rolling into the current period, and new business growth. This increase was offset by a decline in retention as some carriers opened up for new business after a period of restricting capacity, which had the effect in the prior year of increasing retention and slowing new business growth. As previously discussed, in January 2024, the branch conversions shifted approximately $172.4 million of written premiums for the year ended December 31, 2024 from Agency-in-a-Box to Corporate Branches. The increase in our TWFG MGA offering was primarily attributable to new business growth and higher premium rates, partially offset by lower premium retention as carriers have opened up for new business which allows consumers and agents to find favorable pricing for our Clients.
For the years ended December 31, 2024 and 2023, our consolidated written premium retention was 91% and 94%, respectively. For the year ended December 31, 2024, the composition of our renewal and new business mix shifted under our two product offerings as follows: Insurance Services renewal business, as a percentage of the total written premium, was 66% which was consistent with the prior year and premium retention decreased to 93% from 95%, resulting in renewal premium growth of 18.0%, or $148.5 million, compared to 2023. Insurance Services new business, as a percentage of total written premium, increased to 19.0% from 18.0%, resulting in a new business growth of 25.1%, or $56.7 million, compared to 2023. The shift in Insurance Services new and renewal business reflects more carriers seeking new business growth after a period of retrenchment designed to restore carrier profitability. As carriers seek to grow after a period of reducing capacity by raising rates and slowing new business growth, consumers and their agents have more choices in terms of carriers and coverage.
TWFG MGA renewal business, as a percentage of the total written premium, decreased to 11% compared to 13% in 2023. As a result, premium retention decreased to 84% from 89%, resulting in a decrease in renewal business of 1.4%, or $2.2 million, compared to 2023. TWFG MGA new business, as a percentage of total written premium, increased to 4% from 3%, resulting in a new business growth of 84.6%, or $25.3 million, compared to 2023. The shift in TWFG MGA new and renewal business reflects more carriers seeking new business growth after a period of retrenchment designed to restore carrier profitability.
Comparison of the Years Ended December 31, 2023 and 2022
For the year ended December 31, 2023, we had $1,248.1 million in Total Written Premium compared to $1,054.5 million for the year ended December 31, 2022, reflecting an 18.4% growth compared to the prior year. Higher premium rates combined with a growing Book of Business drove the increase in our Insurance Services offering. The Book of Business's growth was primarily due to the organic growth across Insurance Services and the recent Book of Business acquisitions as reflected under Corporate Branches. The increase in our TWFG MGA offering was driven primarily by higher premium rates, partially offset by reduced policy retention, non-renewal of business in catastrophe locations, and certain insurance carriers not accepting new business in locations that have experienced catastrophes. Written premiums across our offerings benefited from the rising trend in premium rates over the recent years.
For the year ended December 31, 2023, our consolidated written premium retention was 94% compared to 88% for the year ended December 31, 2022. The increase was primarily due to higher premium rates and growing Books of Business, partially offset by non-renewal of catastrophe exposed programs.
Non-GAAP Financial Measures
Organic Revenue.Organic Revenue is total revenues (the most directly comparable GAAP measure) for the relevant period, excluding contingent income, fee income, other income and those revenues generated from acquired books of business with over $0.5 million in annualized revenue that have not reached the twelve-month owned milestone.
Organic Revenue Growth. Organic Revenue Growth is the change in Organic Revenue period-to-period, with prior period results adjusted to include revenues that were excluded in the prior period because the relevant acquired businesses had not reached the twelve-month-owned milestone, but have reached the twelve-month owned milestone in the current period. We believe Organic Revenue Growth is an appropriate measure of operating performance because it eliminates the impact of acquisitions, which affects the comparability of results from period-to-period.
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A reconciliation of Organic Revenue and Organic Revenue Growth Rate to Total Revenue and Total Revenue Growth Rate, the most directly comparable GAAP measures, for each of the periods indicated is as follows (in thousands):
Years EndedDecember 31,
(1)Represents revenues generated from the acquired businesses during the first 12 months following an acquisition.
(2)Organic Revenue for the year ended December 31, 2023 and 2022, used to calculate Organic Revenue Growth for the year ended December 31, 2024 and 2023, was $156.7 million and $139.1 million, respectively, which is adjusted to reflect revenues from acquired businesses with over $0.5 million in annualized revenue that reached the twelve-month owned mark during the year ended December 31, 2024 and 2023, respectively. Organic Revenue Growth Rate represents the period-to-period change in Organic Revenue divided by the total adjusted Organic Revenue in the prior period.
(3)Represents the period-to-period change in total revenues divided by the total revenues in the prior period.
Comparison of the Years Ended December 31, 2024 and 2023
Revenue growth rate, representing the year-over-year change in total revenues, was 18.4% for the year ended December 31, 2024 compared to the same period in 2023 and 11.8% for the year ended December 31, 2023 compared to the same period in 2022. Revenue growth for both periods reflected the impact of higher premium rates, growing Books of Business and the mix of the new and renewal businesses. Revenue growth for the year ended December 31, 2024 compared to the same period in 2023 included the impact of the continued rollout of commission income from our Book of Business acquisitions in 2023 into the current period, higher fee income and higher interest income on fiduciary funds.
Organic Revenue Growth Rate was 14.5% for the year ended December 31, 2024 compared to the same period in 2023 and 11.2% for the year ended December 31, 2023 compared to the same period in 2022. Organic Revenue Growth for both periods reflects ongoing, but normalizing, rate increases being implemented by carriers, the underlying growth of our business, and healthy economic growth. Effective January 1, 2024, the MGA agreement with one of our insurance carriers was renegotiated and amended, which shifted our volume-based commission to a flat monthly fee. The amended agreement capped the income we earned at a maximum monthly amount.
In addition, revenue growth and Organic Revenue Growth for the year ended December 31, 2023 compared to the same period in 2022 reflected the impact of enhanced data collected from external sources, which improved our assumptions for estimating revenue starting in 2022.
Applying the use of enhanced data consistently throughout the prior periods, revenue growth rate for the year ended December 31, 2023 compared to the same period in 2022 would have been 14.9%, and Organic Revenue Growth Rate for the year ended December 31, 2023 compared to the same period in 2022 would have been 14.5%.
Comparison of the Years Ended December 31, 2023 and 2022
Revenue growth, representing the year-over-year change in total revenues, was 11.8% in 2023 compared to the same period in the prior year and 23.2% in 2022 compared to 2021.
During 2023, several insurance carriers lowered their growth initiatives countrywide to address historically high loss ratios in prior years while aggressively filing rate increases. This had a negative impact on our new business revenue growth due to carriers limiting new business and restricting capacity. Further, we revised downward our anticipated
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contingent income related to prior years in 2023 based on insurance carriers’ higher loss ratio trends in 2023. In addition, in California, certain carriers did not renew their property portfolios and/or closed their portfolios to new business, which required policies to be written or re-written through the California Fair Plan, the state-run insurance carrier, which pays a lower commission than traditional carriers. Finally, insurance carrier insolvencies in 2022 resulted in unearned commission chargebacks in 2023 that negatively impacted our 2023 revenue growth. Such amounts were partially offset by increased commissions for renewal policies with higher rates.
In addition, revenue growth in 2022 was higher than revenue growth in 2023 due to enhanced data collected from external sources, which improved our assumptions for estimating revenues starting in 2022. Applying the use of enhanced data consistently throughout the periods presented, revenue growth in 2023 would have been 14.9% compared to 2022, and revenue growth in 2022 would have been 17.4% compared to 2021.
Organic Revenue Growth was 11.2% in 2023 compared to the same period in 2022 and 23.2% in 2022 compared to the same period in 2021. The decrease in Organic Revenue Growth was primarily due to the above-mentioned factors and excludes the impact of our Books of Business acquisitions and changes to contingent income, fee income, and other income. Applying the use of enhanced data consistently throughout the periods presented, Organic Revenue Growth in 2023 would have been 14.5% compared to 2022 and Organic Revenue Growth in 2022 would have been 16.9% compared to 2021.
Adjusted Net Income. Since the second quarter of 2024, we have utilized the revised calculation methodology for Adjusted Net Income, which includes amortization expenses among the add-back adjustments to our net income when calculating our Adjusted Net Income. Our legacy calculation methodology reflected the impact of intangible asset amortization as a reduction to our Adjusted Net Income. The revised calculation methodology excludes the effect of the intangible asset amortization when calculating our Adjusted Net Income by reflecting it among the add-back adjustments to our net income. We believe that the revised calculation of Adjusted Net Income is more consistent with the method and presentation used by most of our peers and will allow management to better evaluate our performance relative to our peer companies. We believe that the revised calculation more effectively represents what our stakeholders consider useful in assessing our performance.
Adjusted Net Income is a supplemental measure of our performance and is defined as net income (the most directly comparable GAAP measure) before amortization, non-recurring or non-operating income and expenses, including equity-based compensation, adjusted to assume a single class of stock (Class A) and assuming noncontrolling interests do not exist. We believe Adjusted Net Income is a useful measure because it adjusts for the after-tax impact of significant one-time, non-recurring items and eliminates the impact of any transactions that do not directly affect what management considers to be our ongoing operating performance in the period. These adjustments generally eliminate the effects of certain items that may vary from company-to-company for reasons unrelated to overall operating performance.
We are subject to U.S. federal income taxes, in addition to state, and local taxes, with respect to our allocable share of any net taxable income of TWFG Holding. Adjusted Net Income pre-IPO did not reflect adjustments for income taxes since TWFG Holding is a limited liability company and is classified as a partnership for U.S. federal income tax purposes. Post-IPO, the calculation will incorporate the impact of federal and state statutory tax rates on 100% of our adjusted pre-tax income as if the Company owned 100% of TWFG Holding.
Adjusted Net Income Margin. Adjusted Net Income Margin is Adjusted Net Income divided by total revenues. We believe that Adjusted Net Income Margin is a useful measurement of operating profitability for the same reasons we find Adjusted Net Income useful and in addition, it also provides a period-to-period comparison of our after-tax operating performance.
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A reconciliation of Adjusted Net Income and Adjusted Net Income Margin to Net income and Net income margin, the most directly comparable GAAP measures, for each of the periods indicated is as follows (in thousands):
Revised Calculation Methodology Applied to Current Period
Years EndedDecember 31,
Income tax expense 1,495 — —
Acquisition-related expenses 20 204 —
Restructuring and related expenses — 17 —
Discontinued operation income — (834) 2,733
Equity-based compensation 2,219 — —
Other non-recurring items(1) (1,220) — —
Adjusted income tax expense(2) (9,802) —
Adjusted Net Income Margin 16.2 % 17.5 % 17.1 %
Legacy Calculation Methodology Applied to Current Period
Years EndedDecember 31,
Income tax expense 1,495 — —
Acquisition-related expenses 20 — 204 —
Restructuring and related expenses — — 17 —
Discontinued operation income — — (834) 2,733
Equity-based compensation 2,219 — — —
Other non-recurring items(1) (1,220) — — —
Adjusted income tax expense(2) (7,119) — —
Adjusted Net Income Margin 11.8 % 14.8 % 15.2 %
(1)Represents a one-time adjustment reducing commission expense, which resulted from the branch conversions. In January 2024, nine of our Branches converted to Corporate Branches. Upon conversion, agents of the newly converted Corporate Branches became employees and received salaries, employee benefits, and bonuses for services rendered instead of commissions. As a result, we released a portion of the unpaid commissions related to the converted branches that we no longer are required to settle.
(2)Post-IPO, we are subject to United States federal income taxes, in addition to state, local, and foreign taxes, with respect to our allocable share of any net taxable income of TWFG Holding. For the year ended December 31, 2024, the calculation of adjusted income tax expense is based on a federal statutory rate of 21% and a blended state income tax rate of 1.88% on 100% of our adjusted income before income taxes as if we owned 100% of the TWFG Holding.
Adjusted Diluted Earnings Per Share. Adjusted Diluted Earnings Per Share is Adjusted Net Income divided by diluted shares outstanding after adjusting for the effect of (i) the exchange of 100% of the outstanding Class B Common Stock and Class C Common Stock (together with the related LLC Units) into shares of Class A Common
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Stock and (ii) the vesting of 100% of the unvested equity awards and exchange into shares of Class A Common Stock. This measure does not deduct earnings related to the noncontrolling interests in TWFG Holding for the period of time prior to July 19, 2024 when we did not own 100% of the business. The most directly comparable GAAP financial metric is diluted earnings per share. We believe Adjusted Diluted Earnings Per Share may be useful to an investor in evaluating our operating performance and efficiency because this measure is widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such measure, which can vary substantially from company-to-company depending upon acquisition activity and capital structure. This measure also eliminates the impact of expenses that do not relate to core business performance, among other factors.
A reconciliation of Adjusted Diluted Earnings Per Share to diluted earnings per share, the most directly comparable GAAP measure, for the year ended December 31, 2024 indicated is as follows:
Earnings per share of common stock – diluted $ 0.19
Plus: Impact of all LLC Units exchanged for Class A Common Stock(1) 0.32
Plus: Adjustments to Adjusted net income(2) 0.08
Adjusted Diluted Earnings Per Share 0.59
Weighted average common stock outstanding – diluted 14,982,409
Plus: Impact of all LLC Units exchanged for Class A Common Stock(1) 41,171,461
Adjusted Diluted Earnings Per Share diluted share count 56,153,870
(1) For comparability purposes, this calculation incorporates the net income that would be distributable if all shares of Class B Common Stock and Class C Common Stock, together with the related LLC Units, were exchanged for shares of Class A Common Stock. For the yearended December 31, 2024, this includes $25.8 million of net income on 14,982,409 weighted-average shares of common stock outstanding - diluted, for the year ended December 31, 2024. For the year ended December 31, 2024, 41,171,461 weighted average outstanding Class B Common Stock and Class C Common Stock were considered dilutive and included in the 56,153,870 weighted-average shares of common stock outstanding - diluted within diluted earnings per share calculation. See Note 14, “Earnings Per Share” to our consolidated financial statements included elsewhere in this Annual Report for more information about the earnings per share.
(2) Adjustments to Adjusted Net Income are described in the footnotes of the reconciliation of Adjusted Net Income to Net Income in “Adjusted Net Income and Adjusted Net Income Margin”, which represent the difference between Net Income of $28.6 million and Adjusted Net Income of $33.0 million for the year ended December 31, 2024. For the year ended December 31, 2024, Adjusted Diluted Earnings Per Share include adjustments of $4.4 million to Adjusted Net Income on 14,982,409 weighted-average shares of common stock outstanding - diluted.
Adjusted EBITDA.Adjusted EBITDA is a supplemental measure of our performance and is defined as EBITDA adjusted to reflect items such as equity-based compensation, interest income, other non-operating and certain nonrecurring items. EBITDA is defined as net income (the most directly comparable GAAP measure) before interest, income taxes, depreciation and amortization. We believe that Adjusted EBITDA is an appropriate measure of operating performance because it adjusts for significant one-time, non-recurring items and eliminates the ongoing accounting effects of certain capital spending and acquisitions, such as depreciation and amortization, that do not directly affect what management considers to be our ongoing operating performance in the period. These adjustments eliminate the effects of certain items that may vary from company to company for reasons unrelated to overall operating performance. Our measure of Adjusted EBITDA is not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation.
Adjusted EBITDA Margin. Adjusted EBITDA Margin is Adjusted EBITDA divided by total revenues. We believe that Adjusted EBITDA Margin is a useful measurement of operating profitability for the same reasons we find Adjusted EBITDA useful and also because it provides a period-to-period comparison of our operating performance.
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A reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin to Net income and Net income margin, the most directly comparable GAAP measures, for each of the periods indicated is as follows (in thousands):
Years EndedDecember 31,
Income tax expense 1,495 — —
Acquisition-related expenses 20 204 —
Restructuring and related expenses — 17 —
Equity-based compensation 2,219 — —
Discontinued operation income — (834) 2,733
Other non-recurring items(1) (1,220) — —
(1)Represents one-time adjustments of office relocation cost and the branch conversions impacts. The branch conversions adjustment is reducing commission expense. In January 2024, nine of our Branches converted to Corporate Branches. Upon conversion, agents of the newly converted Corporate Branches became employees and received salaries, employee benefits, and bonuses for services rendered instead of commissions. As a result, we released a portion of the unpaid commissions related to the converted branches that we no longer are required to settle.
(2)Interest income reflects interest and other earnings on cash balances held by the Company. This income is included in Adjusted EBITDA as we view our total interest and investment income as an integral part of our business model and earnings stream until deployed.
Adjusted Free Cash Flow. Adjusted Free Cash Flow is a supplemental measure of our performance. We define Adjusted Free Cash Flow as cash flow from operating activities (the most directly comparable GAAP measure) less cash payments for tax distributions, purchases of property, plant, and equipment and acquisition-related costs. We believe Adjusted Free Cash Flow is a useful measure of operating performance because it represents the cash flow from the business that is within our discretion to direct to activities including investments, debt repayment, and returning capital to stockholders.
A reconciliation of Adjusted Free Cash Flows to Cash flow from Operating Activities, the most directly comparable GAAP measures, for each of the periods indicated is as follows (in thousands):
Years EndedDecember 31,
Purchase of property and equipment (3,201) (260) (115)
Acquisition-related expenses 20 204 —
(1)Tax distributions to members represents the amount distributed to the members of TWFG Holding in respect of their income tax liability related to the net income of TWFG Holding allocated to its members.
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Organic Revenue, Organic Revenue Growth, Adjusted Net Income, Adjusted Net Income Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Free Cash Flow and Adjusted Diluted Earnings Per Share are not measures of financial performance under GAAP and should not be considered substitutes for GAAP measures, including revenues (for Organic Revenue and Organic Revenue Growth), net income (for Adjusted Net Income, Adjusted Net Income Margin, Adjusted EBITDA and Adjusted EBITDA Margin), cash flow from operating activities (for Adjusted Free Cash Flow) and diluted earnings per share (for Adjusted Diluted Earnings Per Share), which we consider to be the most directly comparable GAAP measures. These non-GAAP financial measures have limitations as analytical tools, and when assessing our operating performance, you should not consider these non-GAAP financial measures in isolation or as substitutes for revenues, net income, operating cash flow or other consolidated financial statement data prepared in accordance with GAAP. Other companies may calculate any or all of these non-GAAP financial measures differently than we do, limiting their usefulness as comparative measures.
Liquidity and capital resources
Historical liquidity and capital resources
We have managed our historical liquidity and capital requirements primarily through cash generated from our operations. Prior to the IPO, our primary cash flow activities involved: (1) generating cash flow from our operations; (2) making strategic acquisitions; (3) making distributions to the Pre-IPO LLC Members; and (4) making borrowings, interest payments and repayments under our Credit Agreements. On July 19, 2024, we completed the IPO of 11,000,000 shares of Class A Common Stock at an IPO price of $17.00 per share. On July 23, 2024, the underwriters purchased an additional 1,650,000 shares of Class A Common Stock in connection with the underwriters’ full exercise of their option to purchase additional shares. We received approximately $192.9 million of net proceeds from the IPO, including from the full exercise of the underwriters’ option, after deducting underwriting discounts and commissions and related offering expenses. As of December 31, 2024, and December 31, 2023, our cash and cash equivalents were $195.8 million, and $39.3 million, respectively. We have used cash flow from operations primarily to pay compensation and related expenses, general, administrative and other expenses, debt service and distributions to our owners.
Credit agreements
On June 5, 2017, TWFG Holding, as borrower, entered into a credit agreement (as subsequently amended, the “Term Loan Credit Agreement”) with PNC Bank, National Association, as lender. On July 30, 2019, TWFG Holding entered into a third amendment to the Term Loan Credit Agreement pursuant to which it borrowed $4.0 million pursuant to a Term Loan B and used these proceeds for permitted acquisitions. On December 4, 2020, TWFG Holding entered into a fifth amendment to the Term Loan Credit Agreement pursuant to which it borrowed an additional $13.0 million pursuant to a Term Loan C and used these proceeds for permitted acquisitions (such amount, together with the amount borrowed on July 30, 2019, the “Term Loans”). On May 23, 2023, TWFG Holding entered into a ninth amendment to the Term Loan Credit Agreement to, among other provisions, provide additional flexibility under the covenants contained therein. The Term Loan B was fully repaid by its maturity on July 30, 2024. The aggregate principal amounts of the Term Loan C as of December 31, 2024 is $5.9 million as follows (in thousands):
On May 23, 2023, TWFG Holding, the guarantors party thereto, the lenders party thereto, PNC Bank, National Association (the “Agent”) and PNC Capital Markets LLC entered into a credit agreement that provides a revolving credit facility to TWFG Holding, with commitments in an aggregate principal amount not to exceed $50.0 million which was amended on June 20, 2024 (as so amended, the “Revolving Facility,” and together with the Term Loan Credit Agreement, the “Credit Agreements”). The June 20, 2024 amendment provided for, among other things, certain amendments relating to the IPO.
The Revolving Facility provides for a revolving credit facility to TWFG Holding in an aggregate principal amount not to exceed $50.0 million that matures on May 23, 2028. The proceeds from borrowings under the Revolving Facility have been used for permitted acquisitions, and may in the future be used for acquisitions, working capital and general corporate purposes. On August 5, 2024, we repaid the outstanding balance of the Revolving Facility
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amounting to $41.0 million using a portion of the net proceeds from the IPO. On August 6, 2024, in accordance with the Revolving Facility, we became a guarantor of, and granted a security interest to secure, the Revolving Facility. TWFG Holding and the guarantors to the Revolving Credit Facility entered into a letter agreement, dated October 3, 2024, with the Agent and the lenders party thereto to make changes relating to the debt covenant calculation. As of December 31, 2024, there was no outstanding balance under the Revolving Facility.
The Credit Agreements contain covenants that, among other provisions and subject to certain exceptions, restrict our ability to make restricted payments, incur additional debt, engage in asset sales, mergers, acquisitions or similar transactions, create liens on assets, engage in transactions with affiliates, change our business or make investments. We may voluntarily prepay in whole or in part the outstanding principal under our Term Loans at any time prior to the maturity date. In addition, the Credit Agreements contain financial covenants that require us, subject to certain exceptions, to maintain a Consolidated Debt Service Coverage Ratio (as defined in the Credit Agreement) of at least 1.50 to 1.00 and a Consolidated Leverage Ratio (as defined in the Credit Agreement) of not more than 2.00 to 1.00, in each case, calculated as of the end of each fiscal quarter for the four fiscal quarters then ended, and as of December 31, 2024, we are in compliance with each such covenant.
Pursuant to the Credit Agreements, a change of control default will be triggered if: (i) any person or group (other than the Continuing Pre-IPO LLC Members or Richard F. (“Gordy”) Bunch III and his affiliates) acquires beneficial ownership (within the meaning of Rule 13d-3 and 13d-5 under the Exchange Act) of more than 35% of the total voting power represented by our outstanding voting stock, (ii) we cease to be the managing member of TWFG Holding, (iii) any person (other than us, the Continuing Pre-IPO LLC Members or Richard F. (“Gordy”) Bunch III and his affiliates) owns more than 35% of the membership interests of TWFG Holding or (iv) TWFG Holding shall cease to own, free and clear of all liens or other encumbrances (other than certain Permitted Liens as defined in our Credit Agreements), 100% of the outstanding voting equity interests of each guarantor (other than us) on a fully diluted basis, except as a result of a merger, consolidation or disposition permitted under the Credit Agreement. Such a default could result in the acceleration of repayment of our and our subsidiaries’ indebtedness, including borrowings under our Term Loan Credit Agreement (as defined below) and any amounts then outstanding under the Revolving Facility if not waived by the lenders under our Credit Agreements.
Interest on Term Loan B and Term Loan C accrue at Daily Simple Secured Overnight Financing Rate (“SOFR”) plus the Benchmark Replacement Adjustment of 0.11448%, 0.26161%, or 0.42826% for the one-month, three-month, or six-month borrowing periods, respectively. At our option, the revolving credit facility under the Revolving Facility accrues interest on amounts drawn at the Term SOFR Rate or Daily SOFR plus the SOFR Adjustment of 0.10% and Applicable Margin of 2.00% to 2.75%, each as defined in the Revolving Facility. The Term Loans and the Revolving Facility are collateralized by substantially all the Company’s assets, which includes rights to future commissions.
Comparative cash flows
The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated (in thousands):
Years EndedDecember 31,
Cash paid during the period for interest $ 2,298 $ 832
Comparison of the Years Ended December 31, 2024 and 2023
Operating activities
Operating activities from continuing operations provided $40.5 million and $29.3 million of cash for the years ended December 31, 2024 and 2023, respectively. The increase in net cash provided by operating activities from continuing operations was primarily attributable to the $31.7 million increase in total revenues offset by the
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increase in commission expense, salaries and employee benefits, other administrative expenses and interest expense amounting to $1.2 million, $15.1 million, $5.7 million, $1.2 million, respectively, and approximately $2.0 million in net outflows from the changes in our net working capital between periods and other individually immaterial increases of $1.3 million of cash inflows. See “—Consolidated Results of Operations” for additional information regarding the results of our operations.
Investing activities
Investing activities from continuing operations used $25.1 million and $14.7 million of cash for the years ended December 31, 2024 and 2023, respectively. Our net investing outflows increased primarily due to the higher level of intangible asset acquisitions in 2024 of $21.9 million compared to $15.4 million in 2023. In January 2024, we acquired the assets of nine of our independent branches for a total purchase price of $40.8 million, of which approximately $20.4 million was paid in cash, with the remainder settled through the issuance of Class A common units. In addition, the Company purchased customer lists intangible assets totaling $1.6 million, of which approximately $0.4 million was paid in cash, for the year ended December 31, 2024 representing purchases of assets with annualized revenues less than $0.5 million. The prior year included three customer list acquisition transactions representing purchases of assets with annualized revenues greater than $0.5 million. See Note 4, “Intangible Assets” to our consolidated financial statements included elsewhere in this Annual Report for additional information regarding our asset acquisitions.
Financing activities
Financing activities from continuing operations provided $143.4 million and $1.6 million of cash for the years ended December 31, 2024 and 2023, respectively. Our net financing inflows increased primarily due to $193.6 million in proceeds from the IPO, net of underwriting costs, the $26.3 million lower cash distributions in 2024 compared to the same period in the prior year, and $4.0 million in higher net inflows from the change in carrier liabilities in the 2024 compared to the same period in the prior year. These changes were partially offset by the decrease of $41.0 million in proceeds from the drawdown of the Revolving Facility in the prior year while the current year has none, repayment of the outstanding balance of the Revolving Facility amounting to $41.0 million using a portion of the net proceeds from the IPO and repayment of the term loans amounting to $2.4 million in 2024 while the prior year had repayment of $2.6 million and $1.0 million in payments of deferred offering costs and deferred acquisition payable, respectively, in 2024 while the prior year had $0.8 million and $0.01 million, respectively.
Future sources and uses of liquidity
Our sources of liquidity include (1) cash on hand, (2) net working capital, (3) cash flows from operations and (4) borrowings on our Credit Agreements. We expect that our primary liquidity needs will comprise of cash needed to (1) provide capital to facilitate the organic growth of our business, (2) pay operating expenses, including cash compensation to our independent agents and our employees, (3) make payments under the Tax Receivable Agreement, (4) fund acquisitions, (5) pay interest and principal due on borrowings under our Credit Agreements and (6) pay income taxes. We expect to have sufficient financial resources to meet our business requirements over the next 12 months and for the long-term, including the ability to service our debt and contractual obligations, finance capital expenditures and make distributions, including tax distributions, to our stockholders. Although cash from operations is expected to be sufficient to service these activities, we have the ability to borrow under our Credit Agreements to accommodate any timing differences in cash flows. Additionally, we may in the future access the capital markets to obtain equity or debt financing, if needed, including to pursue acquisition opportunities.
We have certain obligations related to debt maturities and operating leases. As of December 31, 2024, we had $1.0 million of non-cancelable operating lease obligations for the next 12 months. For the periods following the next 12 months, we have an additional $3.4 million of non-cancellable operating lease obligations. See Note 5, “Operating Leases,” to our consolidated financial statements included elsewhere in this Annual Report for additional information. In addition, as of December 31, 2024, we had $2.5 million of debt maturities for the next 12 months comprised of $1.9 million of the remaining balance under the Term Loan C, and $0.6 million in acquisition-related notes. For the periods following the next 12 months, we have an additional $5.1 million of debt maturities representing $4.0 million under the Term Loan C, and $1.1 million in acquisition-related notes. As of December 31, 2024, there was no outstanding balances under our Revolving Facility. In the future, any outstanding balances under our Revolving Facility, if any, will become due and payable during 2028. Annual interest rates on the acquisition-related notes are 3.75%, 4.69% and 5.00%, and our effective interest rates on the Term Loan C for the year ended December 31, 2024 was 3.06%. As of December 31, 2024, we have an interest rate swap agreement associated with the Term Loan C, which converted the floating interest rates on these loans to fixed
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interest rates. See Note 6 “Derivatives” and Note 8, “Debt” to our consolidated financial statements included elsewhere in this Annual Report for additional information.
Tax receivable agreement
As a result of our ownership of LLC Units in TWFG Holding, we are subject to U.S. federal, state and local income taxes with respect to our attributable share of any taxable income of TWFG Holding and are taxed at the prevailing U.S. federal income tax rates applicable to corporations. In addition to tax expenses, we also incur expenses related to our operations and we are required to make payments under the Tax Receivable Agreement. Due to the uncertainty of various factors, we cannot precisely quantify the likely tax benefits we will realize as a result of LLC Unit exchanges and the resulting amounts we are likely to pay out to holders of LLC Units pursuant to the Tax Receivable Agreement; however, we estimate that such tax benefits and the related Tax Receivable Agreement payments may be substantial.
We expect that, as a result of the increases in the tax basis of the tangible and intangible assets of TWFG Holding attributable to taxable redemptions, exchanges or purchases of LLC Units from the other holders of LLC Units, the payments that we may make to the other holders of LLC Units could be substantial. The actual increases in tax basis with respect to future taxable redemptions, exchanges or purchases of LLC Units, as well as the amount and timing of any payments we are required to make under the Tax Receivable Agreement in respect of future taxable redemptions, exchanges or purchases of LLC Units, will vary depending on a number of factors, including the market value of our Class A Common Stock at the time of purchase, redemption or exchange, the prevailing U.S. federal income tax rates applicable to us over the life of the Tax Receivable Agreement (as well as the assumed combined state and local tax rate), the amount and timing of the taxable income that we generate in the future and the extent to which future redemptions, exchanges or purchases of LLC Units are taxable transactions.
Payments under the Tax Receivable Agreement are not conditioned on continued ownership of us by the other holders of LLC Units. There may be a material negative effect on our liquidity if, as described below, the payments under the Tax Receivable Agreement exceed the actual benefits we receive in respect of the tax attributes subject to the Tax Receivable Agreement and/or distributions to us by TWFG Holding are not sufficient to permit us to make payments under the Tax Receivable Agreement.
The Tax Receivable Agreement Acceleration Event provisions in the Tax Receivable Agreement may result in situations where the other holders of LLC Units have interests that differ from or are in addition to those of our other stockholders. Our obligations under the Tax Receivable Agreement will also apply with respect to any person who becomes a party to the Tax Receivable Agreement.
Finally, because we are a holding company with no operations of our own, our ability to make payments under the Tax Receivable Agreement depends on the ability of TWFG Holding to make distributions to us. To the extent that we are unable to make payments under the Tax Receivable Agreement for any reason, such payments will be deferred and will accrue interest until paid, which could negatively impact our results of operations and could also affect our liquidity in periods in which such payments are made.
Off-balance sheet arrangements
We do not invest in any off-balance sheet vehicles that provide liquidity, capital resources, market or credit risk support, or engage in any activities that expose us to any liability that is not reflected in our consolidated financial statements.
Critical accounting estimates
We prepare our consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments; however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe our significant accounting policies could potentially produce materially different results if we were to change underlying assumptions, estimates or judgments. The accounting policies that we believe reflect our more significant estimates, judgments and assumptions that are most critical to understanding and evaluating our reported financial results are: revenue recognition, intangible assets impairment, and income taxes. See Note 2,
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“Summary of Significant Accounting Policies,” to our consolidated financial statements included elsewhere in this Annual Report for a summary of our significant accounting policies.
The critical accounting estimates relating to our significant accounting policies are as follows:
Revenue recognition
Commission income
The determination of transaction price for commission income is impacted by policy cancellation at the discretion of the Client, and such a cancellation would result in our commission being limited to the period that the policy was in force. We estimate any expected variable consideration, endorsements, or cancellations, based on historical information, at the time commission income is earned and recognized. We evaluate the assumptions used and adjust those accordingly as experience changes.
Contingent income
The timing of revenue recognition and constraints applied to contingent commissions are based on estimates and assumptions. Contingent income is paid when we meet or exceed certain premium volumes and/or falls below specific loss ratio quotas predetermined by its insurance carriers. Because of the uncertainty regarding estimated loss ratio and premium volume, we estimate the contingent income based on specific factors such as historical trends, written premium estimates, and loss ratios, which are used to accrue the contingent income during the year. The uncertainty regarding the estimated contingent income is primarily in the profitability of the insurance policies placed, as determined by the loss ratios maintained by the insurance carriers. The uncertainty is resolved upon receiving notification from the insurance carrier regarding actual profitability results. We evaluate the assumptions used to estimate contingent income and adjust those assumptions accordingly as experience changes.
Intangible assets impairment
Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable. If indicators of impairment exist, we assess the recoverability of our intangible assets by reviewing the estimated future undiscounted cash flows generated by the corresponding asset or asset group. If based on the assessment, we determined that the intangible assets are impaired, such assets are written down to their fair values with the related impairment losses recognized in the result of operations.
We are required to apply judgment when determining if indicators of impairment exist. Any of the following factors, if present, may trigger an impairment review: (i) a significant underperformance relative to historical or projected future operations, (ii) significant negative or economic trends, and (iii) a significant decline in the market capitalization of the Company. If it is determined that the recoverable of the intangible asset is unlikely due to the existence of one of the triggering events noted above, an impairment analysis is performed. We must make assumptions regarding the estimated cash flows and other factors to determine the fair value of the identified asset. If these estimates or related assumptions change in the future, we may be required to record an impairment charge.
Income Taxes
Deferred tax assets are recognized to the extent that it is determined that these assets are more likely than not to be realized. In making this determination, the Company considers all available favorable and unfavorable evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations.
The Company recognizes a valuation allowance if it is determined that it is more likely than not that the deferred tax asset will not be realized. Estimating future taxable income is inherently uncertain and requires significant judgement. In projecting future taxable income, we consider our historical results, growth strategies, future market trends and incorporate certain other assumptions. If we determine in the future that we will not be able to fully utilize all or part of these deferred tax assets, the Company would record a valuation allowance through earnings in the period the determination was made, which would have an adverse effect on our results of operations and earnings in future periods.
Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future. Other than those potential impacts, we do not believe there is a reasonable likelihood there will be a material change in the tax related balances or valuation allowances. However, due to the complexity of some of these uncertainties, the ultimate resolution may significantly differ from our estimate.
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Recent accounting pronouncements
For a description of our recently adopted accounting pronouncements and recently issued accounting standards not yet adopted, see Note 2, “Summary of Significant Accounting Policies,” to our consolidated financial statements included elsewhere in this Annual Report.
Emerging growth company
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and we may remain an emerging growth company for up to five years following the IPO. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved.
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued after the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public and private companies.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market rates and prices, such as premium amounts, interest rates, and equity prices. We are exposed to market risk through our Book of Business, investments and borrowings under our Credit Agreements. We use derivative instruments to mitigate our risk related to the effect of rising interest rates on our cash flows. However, we do not use derivative instruments for trading or speculative purposes.
Insurance premium pricing within the P&C insurance industry has historically been cyclical, based on the underwriting capacity of the insurance industry and economic conditions. External events, such as terrorist attacks, man-made and natural disasters, can also have significant impacts on the insurance market. We use the terms “soft market” and “hard market” to describe the business cycles experienced by the industry. A soft market is an insurance market characterized by a period of declining premium rates, which can negatively affect commissions earned by insurance agents. A hard market is an insurance market characterized by a period of rising premium rates, which, absent other changes, can positively affect commissions earned by insurance agents.
Our investments are held primarily as cash and cash equivalents. These investments are subject to interest rate risk. The fair values of cash and cash equivalents as of December 31, 2024 and 2023 approximated their respective carrying values due to their short-term duration and therefore, such market risk is not considered to be material. We do not actively invest or trade in equity securities.
As of December 31, 2024, we had $195.8 million in cash and cash equivalents which earned interest income of $4.8 million for the year ended December 31, 2024. The impact of a hypothetical 100 basis point change in interest rates would have reduced/increased interest income by $0.5 million in the Consolidated Statements of Income.
As of December 31, 2024, we had approximately $5.9 million under our Term Loan Credit Agreement. We repaid the outstanding balances of our Term Loan B and Revolving Facility in full as of December 31, 2024. As of December 31, 2023, we had approximately $8.4 million and $41.0 million of borrowings outstanding under our Term Loan Credit Agreement and Revolving Facility, respectively. These borrowings accrue interest tied to SOFR and therefore interest expense under these borrowings is subject to change. The effect of an immediate hypothetical 10% change in interest rates would not have a material effect on our consolidated financial statements.
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Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm 80
Consolidated Balance Sheets as of December 31, 2024 and 2023 83
Notes to the Consolidated Financial Statements 88
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Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of TWFG, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetsof TWFG, Inc. and subsidiaries (the "Company") as of December 31, 2024, and 2023, the related consolidated statements of income, comprehensive income (loss), stockholders’/members’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Houston, Texas
March 27, 2025
We have served as the Company's auditor since 2018.
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TWFG, Inc.
Consolidated Statements of Income
(Amounts in thousands, except share and per share data)
Years EndedDecember 31,
Revenues
Expenses
Other non-operating income (expense), net 9 (17) (18)
Income tax expense 1,495 — —
Net income (loss) from discontinued operation, net of tax — 834 (2,733)
Less: net income attributable to noncontrolling interests 25,847 26,096 20,614
Net income attributable to TWFG, Inc. $ 2,745 $ — $ —
Weighted average shares of common stock outstanding (see Note 14):
Earnings per share (see Note 14):
See Notes to the Consolidated Financial Statements
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TWFG, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Amounts in thousands)
Years EndedDecember 31,
Other comprehensive income (loss), net of tax:
Unrealized (loss) gain on derivative instruments during the period 214 109 803
Total other comprehensive income (loss), net of tax (107) (135) (355)
Comprehensive income attributable to TWFG, Inc. $ 2,795 $ — $ —
See Notes to the Consolidated Financial Statements
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TWFG, Inc.
Consolidated Balance Sheets
(Amounts in thousands, except share/unit data)
December 31,
Assets
Current assets
Deferred offering costs — 2,025
Non-current assets
Property and equipment, net 3,499 597
Lease right-of-use assets, net 4,493 2,459
Other non-current assets 610 837
Liabilities and Equity
Current liabilities
Operating lease liabilities, current 1,013 882
Deferred acquisition payable, current 601 5,369
Non-current liabilities
Operating lease liabilities, net of current portion 3,372 1,518
Deferred acquisition payable, non-current 1,122 1,037
Other non-current liabilities 24 —
Commitment and contingencies (see Note 16)
Stockholders'/Members' Equity
Accumulated other comprehensive income 83 500
Noncontrolling interests 201,402 —
See Notes to the Consolidated Financial Statements
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TWFG, Inc.
Consolidated Statements of Stockholders’/Members’ Equity
(Amounts in thousands, except share/unit data)
Members’ Equity Class A Common Stock Class B Voting Stock Class C Voting Stock
Cash distributions to members – — – — – — – — — (2,420) — (2,420) — (2,420)
Other comprehensive income – — – — – — – — — — 23 23 — 23
Cash distributions to members – — – — – — – — — (4,679) — (4,679) — (4,679)
Other comprehensive loss – — – — – — – — — — (56) (56) — (56)
Capitalized offering costs – — – — – — – — (7,800) — — (7,800) — (7,800)
Cash distributions to members – – – – – – – – — — — — (2,208) (2,208)
Other comprehensive income – – – – – – – – — — 1 1 1 2
Stock-based compensation – – – – – – – – 1,206 — — 1,206 — 1,206
See Notes to the Consolidated Financial Statements
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TWFG, Inc.
Consolidated Statements of Stockholders’/Members’ Equity (Continued)
(Amounts in thousands, except share/unit data)
Members’ Equity Class A Common Stock Class B Voting Stock Class C Voting Stock
Other comprehensive loss – — – — – — – — — — (355) (355) — (355)
Cash distributions to members – — – — – — – — — (5,378) — (5,378) — (5,378)
Other distributions to members – — – — – — – — — (16,599) — (16,599) — (16,599)
Other comprehensive income – — – — – — – — — — 39 39 — 39
Cash distributions to members – — – — – — – — — (5,186) — (5,186) — (5,186)
Other distributions to members – — – — – — – — — (3,195) — (3,195) — (3,195)
Other comprehensive income – — – — – — – — — — 48 48 — 48
Cash distributions to members – — – — – — – — — (2,599) — (2,599) — (2,599)
Other comprehensive loss – — – — – — – — — — (35) (35) — (35)
Cash distributions to members – — – — – — – — — (20,243) — (20,243) — (20,243)
Other comprehensive loss – — – — – — – — — — (187) (187) — (187)
See Notes to the Consolidated Financial Statements
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TWFG, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands)
Years EndedDecember 31,
Cash Flows from Operating Activities
Less: Net income (loss) from discontinued operation, net of tax — 834 (2,733)
Adjustments to reconcile net income to cash flows from operating activities:
Stock-based compensation expense 2,219 — —
Other non-cash items 9 12 15
Change in:
Other current and non-current assets 12 (362) 40
Accounts payable — 127 (67)
Cash Flows from Investing Activities
Proceeds from disposition of intangible assets — 928 2,401
Proceeds from disposition of property and equipment — — 40
Purchase of property and equipment (3,201) (260) (115)
Other investing activities — — (88)
Net cash provided by investing activities from discontinued operation — 64 422
Cash Flows from Financing Activities
Proceeds from borrowings — 41,000 —
Cash derecognized upon distribution of EVO to members — (2,229) —
Net proceeds from IPO, net of underwriting costs 193,552 — —
Payment of deferred offering costs — (796) —
Payment of equity issuance costs (38) — —
Decrease in carrier liabilities (1,093) (511) (40)
Payment of deferred acquisition payable (1,000) (14) —
Net cash provided by (used in) financing activities 143,431 (9,695) (15,264)
See Notes to the Consolidated Financial Statements
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TWFG, Inc.
Consolidated Statement of Cash Flows (continued)
(Amounts in thousands)
Years EndedDecember 31,
Net change in cash, cash equivalents and restricted cash 158,855 5,804 (4,013)
Reconciliation of cash, cash equivalents and restricted cash, end of period:
Supplemental disclosures of cash flow information:
Non-cash investing and financing activities:
Distribution to members — 6,260 —
Unpaid deferred offering costs — 1,228 —
See Notes to the Consolidated Financial Statements
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TWFG, Inc.
Notes to the Consolidated Financial Statements
1.ORGANIZATION AND BASIS OF PRESENTATION
Organization
TWFG, Inc. was incorporated as a Delaware corporation on January 8, 2024 for the purpose of facilitating an initial public offering (“IPO”) of its Class A common stock (“Class A Common Stock”) and other related reorganization transactions (the “Reorganization Transactions,” which are further described below) in order to carry on the business of TWFG Holding Company, LLC (“TWFG Holding”) and its consolidated subsidiaries. On July 19, 2024, TWFG completed an IPO of 11,000,000 shares of its Class A Common Stock at an initial public offering price of $17.00 per share. On July 23, 2024, the underwriters purchased an additional 1,650,000 shares of Class A Common Stock at $17.00 per share in connection with the underwriters’ full exercise of their option to purchase additional shares. In these notes to the consolidated financial statements, references to the “Company” refer to: (i) TWFG, Inc. and, unless otherwise stated or the context otherwise requires, all of its subsidiaries, including TWFG Holding, for all periods following the consummation of the Reorganization Transactions, including the IPO, and (ii) TWFG Holding and, unless otherwise stated or the context otherwise requires, all of its subsidiaries for periods prior to the completion of the Reorganization Transactions, including the IPO.
Following the Reorganization Transactions, the Company is a holding company with its principal asset being a controlling ownership interest in TWFG Holding and its consolidated subsidiaries. Information for any period prior to July 19, 2024 relates to TWFG Holding.
TWFG Holding is an independent distribution platform for personal and commercial insurance in the United States. The Company’s corporate headquarters is in The Woodlands, Texas. TWFG Holding is the parent company of the following wholly-owned subsidiaries:
TWFG Insurance Services LLC (“TWFG-IS”) is a national retail insurance agency that distributes personal lines, commercial lines, life, annuities, health, and supplemental benefits insurance products.
TWFG General Agency LLC (“TWFG-GA”) is a Managing General Agency that distributes personal and commercial lines insurance products to independent agents, in addition to TWFG-IS agents.
TWFG Premium Finance LLC (“TWFG-PF”) is an intermediary insurance premium financing company that offers premium financing for commercial insurance policies for Clients of TWFG-GA and TWFG-IS.
TWFG CA Premium Finance Company (“TWFG-CA PF”) is an intermediary insurance premium financing company that offers premium financing for personal and commercial insurance Clients that purchase insurance from licensed California insurance agents.
PSN Business Processing Inc. (“PSN”) is a Philippine corporation with its principal office located in the Philippines. PSN is engaged in the business of providing back-office support to TWFG agents and the TWFG corporate office, specifically insurance-related and various administrative services.
Evolution Agency Management LLC (“EVO”) is a software services company that offers agents complete agency management systems solutions. In May 2023, the Company distributed its equity interest in EVO to the owners of the Company. The distribution of EVO did not meet the criteria for discontinued operation reporting. The Company has a software licensing agreement with EVO, which allows TWFG-IS and TWFG-GA to use EVO’s proprietary agency management system on a fixed annual fee.
The Woodlands Insurance Company (“TWICO”) is a Texas domiciled insurance company, formed in 2014, which currently writes homeowner’s policies. TWICO is licensed in Texas and Louisiana. In 2023, the Company distributed its equity interest in TWICO to the owners of the Company. TWICO became a related party to the Company post-distribution. The Company has presented TWICO as a discontinued operation in the consolidated financial statements. See Note 13 for additional information about the related party transactions between the Company and TWICO and Note 15 for the discontinued operation.
Prior to the consummation of the Reorganization Transactions and the IPO, substantially all of TWFG Holding’s outstanding ownership interests in the form of limited liability company units (the “LLC Units”), including its Class A
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common unit interests, Class B common unit interests and Class C common unit interests, were owned beneficially by Bunch Family Holdings, LLC (“Bunch Holdings”), which is owned by Richard F. (“Gordy”) Bunch III, the Chief Executive Officer, Chairman and Director of the Company, RenaissanceRe Ventures U.S. LLC (“RenRe”), and GHC Woodlands Holdings LLC (“GHC” and collectively with Bunch Holdings and RenRe, together with each of their permitted transferees, the “Pre-IPO LLC Members”). Bunch Holdings was the ultimate controlling owner of TWFG Holding prior to the consummation of the Reorganization Transactions and the IPO.
On January 1, 2024, TWFG Holding issued a total of 27,689 new Class A common units to separate individuals and entities (collectively, the “New Members”) in connection with separate asset purchase agreements. See Note 4 for more information about the asset purchases.
Reorganization Transactions
In connection with the IPO, TWFG Holding completed the following series of transactions to implement an internal reorganization on July 19, 2024, which are collectively referred to as the Reorganization Transactions. The Pre-IPO LLC Members who retained their equity ownership in the LLC Units, following the consummation of the Reorganization Transactions are referred to as “Continuing Pre-IPO LLC Members”.
•The Company, TWFG Holding and each of the Pre-IPO LLC Members entered into the third amended and restated TWFG Holding LLC agreement (the “TWFG LLC Agreement”), which, among other things, appointed the Company as the sole managing member of TWFG Holding and modified the TWFG Holding capital structure by reclassifying the interests held by the Pre-IPO LLC Members and the New Members into a single new class of non-voting common interest units;
•TWFG’s certificate of incorporation authorizes the issuance of three classes of common stock: Class A Common Stock, non-economic Class B common stock (“Class B Common Stock” or “Class B Voting Stock”) and non-economic Class C common stock (“Class C Common Stock” or “Class C Voting Stock”). Each share of Class A Common Stock entitles its holder to one vote per share on all matters submitted to a vote of the stockholders, each share of Class B Voting Stock entitles its holder to one vote per share on all matters submitted to a vote of the stockholders and each share of Class C Common Stock initially entitles its holder to ten votes per share on all matters submitted to a vote of the stockholders. Each share of non-economic Class C Common Stock is entitled to one vote per share automatically (i) 12 months following the death or disability of Richard F. (“Gordy”) Bunch III or (ii) upon the first trading day on or after such date that the outstanding shares of non-economic Class C Common Stock represent less than 10% of the then-outstanding Class A Common Stock, non-economic Class B Common Stock and non-economic Class C Common Stock, which, in either instance, may be extended to 18 months upon affirmative approval of a majority of the independent directors;
•342,362 LLC Units held by Bunch Holdings were exchanged into 342,362 shares of Class A Common Stock of the Company;
•Bunch Holdings was issued 33,893,810 shares of non-economic Class C Common Stock, RenRe was issued 5,457,417 shares of non-economic Class B Common Stock; GHC was issued 1,820,234 shares of non-economic Class B Common Stock; and the New Members were issued 1,819,512 shares of Class A Common Stock, each in an amount equal to the number of LLC Units previously held by each such Pre-IPO LLC Member and New Members;
•Under the TWFG LLC Agreement, the Pre-IPO LLC Members have the right, from and after the completion of the IPO, to require TWFG Holding to redeem all or a portion of their LLC Units for, at the Company’s election, newly-issued shares of Class A Common Stock on a one-for-one basis or a cash payment equal to the volume weighted average market price of one share of Class A Common Stock for each LLC Unit redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the TWFG LLC Agreement. Additionally, in the event of a redemption request by a holder of LLC Units, the Company may, at its option, effect a direct exchange of cash or Class A Common Stock for LLC Units in lieu of such a redemption. Shares of non-economic Class B Common Stock or non-economic Class C Common Stock, as applicable, will be cancelled on a one-for-one basis if the Company, following a redemption request of a holder of LLC Units, redeems or exchanges LLC Units of such holder of LLC Units pursuant to the terms of the TWFG LLC Agreement. Except for transfers to the Company pursuant to the TWFG LLC Agreement or to certain permitted transferees, the holders of LLC Units are not permitted to sell, transfer or otherwise dispose of any LLC Units or shares of non-economic Class B Common Stock or non-economic Class C Common Stock;
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•The Company used the net proceeds from the IPO (including the net proceeds received from the underwriters exercising their option to purchase additional shares of Class A Common Stock) to acquire a number of newly-issued LLC Units equal to the number of shares of Class A Common Stock issued in the IPO from TWFG Holding, at a purchase price per LLC Unit equal to the initial public offering price of Class A Common Stock after underwriting discounts and commissions; and
•The Company caused TWFG Holding to use the proceeds it received from the sale of LLC Units to the Company to pay fees and expenses of approximately $7.8 million in connection with the IPO and the Reorganization Transactions and to repay in full outstanding debt under the Revolving Credit Agreement in the amount of $41.0 million.
As part of the Reorganization Transactions, the Company entered into a Tax Receivable Agreement that obligates the Company to make payments to the other holders of LLC Units generally equal to 85% of the applicable cash savings that the Company actually realizes as a result of certain tax basis adjustments resulting from the purchase of LLC Units from any of the other holders of LLC Units using the net proceeds from any future offering, future taxable redemptions or exchanges of LLC Units by the holders of LLC Units and from payments made under the Tax Receivable Agreement, as well as tax benefits related to imputed interest resulting from payments made under the Tax Receivable Agreement.
The Company retains the benefit of the remaining 15% of these tax savings. The corporate structure following the completion of the IPO and Reorganization Transactions, as described above, is commonly referred to as an “Up-C” structure, which is used by partnerships and limited liability companies when they undertake an IPO of their business. The Up-C structure will allow the other holders of LLC Units to continue to realize tax benefits associated with owning interests in an entity that is treated as a partnership, or “pass-through” entity, for income tax purposes following the IPO.
On July 19, 2024, in connection with the Reorganization Transactions, immediately prior to the IPO, the Company issued (i) 2,161,874 shares of Class A Common Stock in exchange for 342,362 LLC Units held by Bunch Holdings and 1,819,512 LLC Units held by the New Members, (ii) 7,277,651 shares of Class B Common Stock to RenRe and GHC for consideration of $0.00001 per share and (iii) 33,893,810 shares of Class C Common Stock for consideration of $0.00001 per share to Bunch Holdings.
Immediately following the closing of the IPO, TWFG Holding is the predecessor of the Company for financial reporting purposes. As sole managing member of TWFG Holding, the Company has sole authority to determine the amount and timing of distributions from TWFG Holding. Because the Company manages and operates the business and controls the strategic decisions and day-to-day operations of TWFG Holding and also has a substantial financial interest in TWFG Holding, the Company consolidates the financial results of TWFG Holding, and a portion of the Company’s net income is allocated to the noncontrolling interests to reflect the entitlement of the Continuing Pre-IPO LLC Members to a portion of TWFG Holding’s net income. In addition, because TWFG Holding is under the control of Bunch Holdings before and after the Reorganization Transactions, the Company accounts for the Reorganization Transactions as a reorganization of entities under common control and initially measured the assets and liabilities of TWFG Holding at their carrying amounts as of the date of the completion of these Reorganization Transactions.
Basis of Presentation
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its subsidiaries. TWFG Holding was determined to be a variable interest entity and the Company is considered the primary beneficiary and sole managing member of TWFG Holding and has decision making authority that significantly affects the performance of the entity. The Company consolidates TWFG Holding in its consolidated financial statements and records noncontrolling interests representing the portion of earnings attributable to the economic interest in TWFG Holding held by the Continuing Pre-IPO LLC Members. All intercompany transactions and balances have been eliminated in consolidation. The consolidated financial statements include all normal recurring adjustments necessary to present fairly the Company’s consolidated balance sheets, results of operations, and cash flows for all periods presented.
Reclassification
Certain amounts previously reported in the 2023 financial statements have been reclassified for comparative purposes to conform to the current period’s presentation. We reclassified amounts between “Other income” and
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“Interest income” in the Consolidated Statements of Income. We disaggregated the interest earned on funds held in a fiduciary capacity and those not held in a fiduciary capacity.
Use of Estimates
The preparation of the consolidated financial statements and notes thereto requires management to make estimates, judgements, and assumptions that affect the amounts reported in the consolidated financial statements and in the notes thereto. Such estimates and assumptions could change in the future as circumstances change or more information becomes available, which could affect the amounts reported and disclosed herein.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company applies the following five-step model in order to determine revenue recognition: (i) identification of the contract with a customer; (ii) identification of the performance obligations in the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when the Company satisfies each performance obligation.
The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the services it transfers to the customer.
Commission Income
The Company derives its revenues primarily from the placement of insurance contracts between insurance carriers and insureds. Revenues are recognized when the performance obligation of placing the policy has been met and the policy is in effect, based on the effective date of the policy. Commission income is an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The Company does not have any significant financing components. The Company incurs costs to fulfill contracts primarily through sales commissions paid to agents. In circumstances in which the contract is one year or less the costs incurred to place the contract is expensed as a practical expedient. The Company incurs costs to place the contracts, primarily through commissions paid to agents.
The Company’s customers are insurance carriers, as the Company acts as an agent to the insureds to identify a policy and carrier that best meets the needs of the insured. The Company contracts with various insurance carriers and earns commissions for the initial term of the policy on policies placed with insurance carriers. Contracts with the insurance carriers are non-exclusive and can typically be terminated unilaterally by either party. Additionally, the Company and the insurance carrier can agree to amend provisions in the contracts relating to the prospective commission rates paid to the Company for new policies sold.
Revenue from performance obligations is satisfied at the point in time in which the current term of the policy is placed and effective. These contracts are executed by the Company on behalf of the insurance carriers to the policyholder. For performance obligations related to the placement of insurance contracts, control transfers to the policyholder at a point in time at which all performance obligations have been fulfilled as evidenced by the binding of a policy. Commissions are established by contract between the Company and the insurance carrier and are calculated as a percentage of the premium for the underlying insurance policy. The Company records revenue when the underlying insurance contracts are bound for the commission expected to be received for the current term of the policy, net of any estimated refunds due to policy cancellations. Commissions related to renewed policies are recognized at the time the policy renews and the new policy becomes effective. The only material promise to be performed by the Company is to sell the policy. While agreements may indicate certain administrative support such as to provide the underlying insured with policy information, such promises are immaterial in the context of the contract and are not identified as performance obligations. Additionally, the Company has concluded that they are required to “re-sell” the policy on an annual basis. As a result, a performance obligation exists for each policy term. This coincides with the efforts of placing renewed policies with the insurance carrier.
The transaction price is the total commission the Company expects to receive from the insurance carrier for the current term of the policy. The transaction date is determined by the effective date of the insurance policy. Policies are subject to cancellation at the discretion of the insured, and such a cancellation would result in the Company’s commission being limited to the period that the policy was in force. The Company estimates any expected variable consideration, endorsements, or cancellations, based on historical information and data collected from external sources, at the time revenue is recorded.
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Contingent Income
Contingent income is earned from the insurance carriers to drive incremental policy sales when the Company meets or exceeds certain premium volumes and/or falls below specific loss ratio quotas predetermined by its insurance carriers. The Company utilizes the expected value approach to estimate contingent income that incorporates a combination of historical payment data by insurance carriers and the current-year production forecast data used to estimate the amount of contingent income expected to be received from the insurance carriers. Because of the uncertainty regarding the amount estimated to be received, the Company limits the recognition of contingent income until information from the insurance carrier regarding the amount owed by the insurance carriers to the Company is received and is probable to avoid reversal of contingent income in the future period. The uncertainty regarding the estimated contingent income is primarily in the profitability of the insurance policies placed, as determined by the loss ratios maintained by the insurance carriers. The uncertainty is resolved upon receiving notification from the insurance carrier regarding actual profitability results. Contingent income is not refundable.
Fee Income
Fee income is comprised primarily of policy fees, branch fees, license fees and third-party administrator (“TPA”) fees.
The Company receives policy fees as compensation for administrative services performed in connection with the placement and issuance of certain policies that are in addition to and separate from commissions paid by the insurance carriers. Policy fees are recognized at the point in time in which an insurance policy is bound and issued on the effective date of certain policies. Policy fees are not refundable.
Branch fees include the monthly recurring fees assessed for the ongoing customer service and back-office support provided to independent branches operating exclusively through the Company pursuant to an exclusive branch agreement and a one-time branch onboarding fee. The Company’s performance obligation related to branch fees is largely satisfied, and the related revenue is recognized ratably over the term when the services are rendered, typically monthly.
License fees include fixed and usage-based arrangements, which are typically priced as a monthly fixed fee or specified fee per user, assessed by the Company for the use of its proprietary applications. The Company’s performance obligation related to license fees is largely satisfied, and the related revenue is recognized at a point in time, when the services are rendered, typically monthly.
TPA fees are related to services performed based on service agreements with a few insurance carriers. Revenues associated with TPA fees are recognized at a point in time, when the services are performed, which is typically monthly.
Other Income
Other income is comprised primarily of income earned for facilitating premium financing arrangements, fees assessed for agent conventions, interest income on fiduciary funds, and other miscellaneous income.
Cash and Cash Equivalents
Cash and cash equivalents primarily include demand deposits with financial institutions and highly liquid investments with original maturities of three months or less that are not managed by external or internal investment advisors. Interest earned on non-fiduciary funds is recognized in Interest income on the Consolidated Statements of Income while interest earned on fiduciary funds is recognized in Other income on the Consolidated Statements of Income.
Restricted Cash
In certain cases, the Company collects premiums from insureds and, after deducting our commissions and fees, remits the premiums to insurance carriers. The Company also collects surplus line taxes for remittance to state taxing authorities. Additionally, the Company has an agreement with certain insurance carriers whereby it remits claim payments and/or premium refunds to the insured on behalf of the insurance carriers. While the Company is in possession of the premiums, claims payments and surplus line taxes, the Company may invest those funds in interest-bearing demand deposit accounts with banks, in which interest income on these unremitted amounts is included in Other income in the Consolidated Statements of Income. These unremitted amounts are reported as Restricted cash in the Consolidated Balance Sheets. Restricted cash amounting to $9.6 million and $7.2 million as of December 31, 2024 and 2023, respectively, is comprised of interest-bearing bank deposits.
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In its role as an insurance intermediary, the Company collects and remits amounts between the insureds and insurance carriers. Because these amounts are collected on behalf of third parties, they are excluded from the measurement of the transaction price when applying the revenue recognition guidance. Similarly, the Company excludes surplus lines taxes from the measurement of the transaction price, as these are assessed by and remitted to governmental authorities. The Company recognizes the amounts to be collected on behalf of others, including insureds and insurance carriers, as Accounts receivable and the associated Carrier liabilities on the Consolidated Balance Sheets. The Company does not have any rights or obligations in connection with these amounts with the exception of segregating these amounts from the Company's operating funds and paying them when they are due.
As of December 31, 2024 and 2023, the Company reported Carrier liabilities amounting to $12.4 million and $8.7 million, respectively. Carrier liabilities are recognized based on premiums written, while Restricted cash is recorded based on premiums collected. This basis difference, coupled with the timing of settling the commissions and fees on collected premiums, resulted in differences between the amount reported in Restricted cash and Carrier liabilities.
Receivables
Commissions receivable represents commissions earned but outstanding along with the estimated contingent commissions.
Accounts receivable represents premiums billed by TWFG-GA on behalf of certain insurance carriers. These amounts, less commissions, fees and taxes, are remitted to the insurance carriers upon collection.
Commissions receivable from agents are recorded in Other current assets.
Allowance for Credit Losses
On January 1, 2023, the Company adopted the current expected credit losses methodology (“CECL”) for estimating allowances for credit losses for most financial assets. The Company adopted the CECL methodology using a modified retrospective method, which requires a cumulative effect adjustment to its opening retained earnings. Upon adoption of the CECL methodology, the Company recorded a total allowance for credit losses of $0.3 million, which was primarily related to Receivables from agents and Commissions receivable.
The Company’s receivables are shown net of an allowance for credit losses, which are based on a combination of credit quality indicators, including, but not limited to, payment status, historical charge-offs, and financial strength of the insurance carriers for Commissions receivable, and production performance and age of balances for Receivables from agents.See Note 3 for additional information about the Company’s Allowance for Credit Losses.
Intangible Assets, net and Acquisitions
Intangible assets are stated at cost, less accumulated amortization, and consist of computer software development costs, non-compete agreements, and purchased customer lists. Computer software development costs are amortized on the straight-line method over three or five years. Non-compete agreements are amortized on the straight-line method over the term of the non-compete agreements. Customer lists represent amounts paid by insurance agencies to buy a list of active policies or insureds. As these policies renew, the Company realizes an income stream from commissions. Customer lists are amortized on the straight-line method over eight to ten years.
The Company acquires intangible assets in connection with acquisition transactions. In each acquisition transaction, the Company assesses whether the transaction should follow accounting guidance applicable to an asset acquisition or a business combination. This assessment requires an evaluation of whether the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, resulting in an asset acquisition or, if not, resulting in a business combination. An asset acquisition is an acquisition of an asset, or a group of assets, that does not meet the definition of a business.
The Company accounts for asset acquisitions using the cost accumulation and allocation model, whereby the costs of acquisition are allocated to the assets acquired on a relative fair value basis in accordance with the Company’s accounting policies. The asset is recorded in accordance with the cost accumulation method based on the determined purchase price, it is then amortized over the established useful life.
Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value may no longer be recoverable. If indicators of impairment exist, the Company assesses the recoverability of its intangible assets by reviewing the estimated future undiscounted cash flows generated by the
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corresponding asset or asset group. If based on the assessment, the Company determines that the intangible assets are impaired, such assets are written down to their fair values with the related impairment losses recognized in the Consolidated Statements of Income. There were no impairments recorded for the years ended December 31, 2024 and 2023.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Maintenance, minor repairs, and replacements are charged directly to expense as incurred, while major renewals and betterments are capitalized. When property and equipment are sold or otherwise disposed of, the asset accounts and related accumulated depreciation accounts are relieved, and any gain or loss is included in the results of operations.
Property and equipment are depreciated using the straight-line method over the estimated useful lives of the assets as follows:
Useful Life
Automobiles 5 years