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, 2025 and 2024 prepared in accordance with 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. Discussions of fiscal year 2023 items and year-to-year comparisons between fiscal 2024 and fiscal 2023 that are not included in this Form 10-K can be found in “Part II Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, which was filed with the SEC on March 27, 2025 and is available on the SEC’s website at www.sec.gov.
Overview
We are a leading, high-growth, independent distribution platform for personal and commercial insurance in the U.S. 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 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.
Key Operational and Market Factors Impacting 2025 Results
Our results of operations for the year ended December 31, 2025 were influenced by a combination of operational execution, industry conditions, and strategic actions taken during the year. The most significant factors impacting our 2025 results, as compared to 2024, are discussed below.
Organic Revenue Growth Driven by Agent Productivity and Retention. A primary driver of our 2025 results was continued Organic Revenue Growth, which increased by 11.6% year-over-year. This growth was principally attributable to increases in Total Written Premium generated by existing TWFG Agencies, reflecting higher policy renewal rates, incremental cross-selling of additional lines of coverage, and overall growth in insured values across our personal and commercial lines portfolios.
Our ability to attract and retain experienced agents continued to support this growth. Many agents joining our platform during prior periods reached higher productivity levels in 2025 as their Books of Business started to mature. In addition, retention of existing agents remained strong, which contributed to stability in renewal business and predictable commission revenue streams. These factors collectively contributed to increased commission income without a commensurate increase in fixed operating costs.
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Insurance Market Pricing Environment and Commission Dynamics. The insurance pricing environment during 2025 continued to support revenue growth, although conditions varied by line of business and over the course of the year. In homeowners insurance, premium rates remained firm throughout the year, reflecting continued pressure from catastrophe losses, reinsurance costs, social inflation and higher insured values, which contributed to increased commission revenue on both new and renewal policies.
In personal auto insurance, the pricing environment began to moderate during the second half of 2025 following several years of significant rate increases. While premium growth slowed as carriers reduced the pace of rate actions and competitive dynamics began to normalize, commission revenue continued to benefit from the elevated premium base established in prior periods, particularly on renewal business.
Commission rates set by carriers remained generally stable during 2025. As a result, changes in commission revenue were driven primarily by movements in premiums rather than changes in commission percentages. Overall, pricing dynamics in 2025 contributed positively to average revenue per policy as compared to 2024, although management observed early signs of stabilization in certain personal lines toward the end of the year. Management continues to monitor carrier pricing actions and competitive conditions, as further shifts in market dynamics could influence future revenue growth rates.
Acquisitions and Expansion of Corporate Branches. During 2025, we completed seven acquisitions for total consideration of $51.0 million, which were added as Corporate Branches. In the second quarter of 2025, we also acquired a 50.1% equity interest in TWFG MGA FL for a total cash consideration of $9.7 million at closing. These acquisitions contributed incremental revenue during the year, reflecting the full economic benefit of retaining 100% of commission income generated by these operations, offset by the assumption of their operating expenses.
The acquired branches were generally profitable at the time of acquisition and were accretive to both net income and Adjusted EBITDA in 2025. As a result, acquisition-related growth contributed to total revenue growth in excess of organic growth alone. Comparability between periods is impacted by the timing of these acquisitions, as results for 2025 include partial-year contributions that were not present in 2024.
Expense Growth and Operating Leverage. Operating expenses increased in 2025 primarily due to higher compensation costs, technology costs, and incremental public company costs. Compensation-related expenses increased as we continued to invest in personnel to support agent growth, corporate branch integration, technology initiatives, and compliance requirements associated with being a public company.
Despite these increases, we achieved operating leverage in 2025, as revenue growth outpaced expense growth, resulting in improvements in Adjusted EBITDA and Adjusted EBITDA Margin. Management continues to focus on balancing investment in growth initiatives with disciplined expense management to support sustainable margin expansion over time.
Technology Investments and Platform Scalability. Ongoing investment in technology and operational infrastructure supported scalability across our platform in 2025. Enhancements to our agency management systems, data analytics capabilities, and back-office processes improved operational efficiency and supported higher transaction volumes without proportional increases in headcount.
These investments contributed to improved service levels for agents and clients, supporting organic growth, while also moderating the rate of growth in general and administrative expenses relative to revenue. Although technology investments increased operating expenses in the near term, management believes they enhance long-term scalability and margin performance.
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 our reorganization into a holding company structure as part of the Reorganization Transactions, TWFG, Inc. 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.
TWFG Holding is treated as a pass-through entity for U.S. federal and certain state income tax purposes and accordingly has not been subject to U.S. federal or applicable state income tax. 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
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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 connection with our organizational structure, we entered into the Tax Receivable Agreement with certain pre-IPO owners. The Tax Receivable Agreement provides for the payment by the Company of a portion of the tax benefits realized as a result of increases in tax basis and other tax attributes resulting from exchanges of LLC units for shares of Class A Common Stock. No amounts are payable under the TRA, and no related liability is recorded, unless and until such exchanges occur. As of December 31, 2025, no exchanges had occurred, and accordingly, the Tax Receivable Agreement had no impact on our consolidated financial statements.
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 30%. Our average commission rate for 2025 was approximately 12.8%.
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 placed with the carrier.
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 income earned for facilitating premium financing arrangements, fees assessed for agent conventions, interest income on fiduciary funds, 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
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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 expenses, 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 finite-lived intangible assets recognized from our strategic asset acquisitions. As we continue to pursue strategic asset acquisitions, we expect our amortization expense 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.
Other non-operating income (expense), net. Other non-operating income (expense), net consists of gains and losses on the sale of assets.
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
Revenues:
Operating expenses:
Other non-operating income (expense)
Other non-operating income (expense), net 1,140 9
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Comparison of the Years Ended December 31, 2025 and 2024
Total revenues
Subsequent to issuing the Company’s earnings release on February 25, 2026, the Company received additional information from certain insurance carrier partners related to contingent commission programs associated with 2025 underwriting performance. Based on this information, the Company recorded an adjustment of approximately $1.4 million to increase commission revenue for the year ended December 31, 2025. The financial results included in this Annual Report reflect this adjustment. The Company’s previously issued earnings release for the year ended December 31, 2025 did not reflect this adjustment.
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
Total revenues for the year ended December 31, 2025 increased by $44.8 million, or 22%, compared to the same period in the prior year. The increase was primarily due to a $37.8 million, or 21% increase in commission income driven primarily by continued organic business growth and the impact of acquisitions in 2025. Also contributing to the increase in total revenues were $4.4 million, or 50%, increase in contingent income, $2.4 million, or 23%, increase in fee income, and $0.1 million, or 9%, increase in other income, compared to the same period in the prior year. 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, 2025increased by $37.8 million, or 21%, compared to the same period in the prior year due to the continued organic business growth and the impact of acquisitions made in 2025.
Commission income for Insurance Services grew by $23.4 million, or 15%, for the year ended December 31, 2025 compared to the same period in the prior year. Insurance Service Agency-in-a-Box commission income for the year ended December 31, 2025 increased by $15.3 million, or 12%, compared to the same period in the prior year. The increase was driven by written premium volume, mix in line of business, and acquisitions during the year.
Insurance Services Corporate Branches commission income for the year ended December 31, 2025 increased by $8.1 million, or 24%, compared to the same period in the prior year. The increase was primarily driven by
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$5.7 million of Corporate Branch acquisitions and $2.4 million of Organic Revenue Growth during the year ended December 31, 2025.
TWFG MGA commission income for the year ended December 31, 2025 increased by $14.4 million, or 53%, compared to the same period in the prior year. The increase in commission income was primarily driven by $12.0 million generated from the acquisition of TWFG MGA FL while the remaining $2.4 million increase was due to increases in written premium and commission rate increases of The Woodlands Insurance Company compared to the same period in the prior year.
Contingent income
Contingent income for the year ended December 31, 2025 increased by $4.4 million, or 50%, to $13.1 million from $8.7 million in the same period in the prior year. The increase in contingent income was driven by underlying carrier profitability, new carriers to our portfolio and growth in our business. Contingent income is 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):
Years Ended December 31,
Amount % of Total Amount % of Total
Fee income for the year ended December 31, 2025increased $2.4 million, or 23%, 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, 2025increased by $0.9 million, or 24%, compared to the same period in the prior year. The increase in policy fees was primarily due to higher policy count and new business growth.
•Branch fees for the year ended December 31, 2025 increased by $0.5 million, or 11%, compared to the same period in the prior year. The increase in branch fees was primarily driven by increased agent count of the business.
•License fees for the year ended December 31, 2025 increased by $0.8 million, or 43%, compared to the same period in the prior year. The increase was primarily driven by a one-time technology infrastructure project completed during the current year to support an affiliated entity’s expansion into a new market. This item is non-recurring and not expected to have a continuing impact on future operating results.
•TPA fees for the year ended December 31, 2025 increased by $0.2 million, or 54%, compared to the same period in the prior year. The increase in TPA fees resulted from the increased volume in claims processed.
Other income
Other income for the year ended December 31, 2025 was $1.4 million, compared to $1.3 million in the same period in the prior year. The increase was primarily comprised of interest earned on fiduciary funds and premium financing income.
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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
Total commission expense for the year ended December 31, 2025 increased by $15.4 million, or 13%, compared to the same period in the prior year. The increase was primarily due to business growth and overall shift in business mix. See commission income discussion above for additional information regarding the driver of change.
Commission expense for total Insurance Services grew by $12.8 million, or 13%, for the year ended December 31, 2025 compared to the same period in the prior year. Insurance Services Agency-in-a-Box commission expense for the year ended December 31, 2025 increased by $12.0 million, or 13%, compared to the same period in the prior year. The increase was primarily due to the growth in business, consistent with commission income and the absence of a one-time favorable adjustment of $1.5 million in 2024. The expenses of our Branches are primarily commission expense, which is determined as a percentage of commission income.
Insurance Services Corporate Branches commission expense for the year ended December 31, 2025 increased by $0.8 million, or 19%, compared to the same period in the prior year. The increase in commission expense was driven by both organic business growth and acquisitions of Corporate Branches in the current period. The expenses of our Corporate Branches are primarily salaries and benefits, and are primarily fixed expenses, which are not directly correlated to commission income or written premium.
TWFG MGA commission expense for the year ended December 31, 2025 increased by $2.6 million, or 15%, compared to the same period in the prior year. The increase was primarily driven by the acquisition of TWFG MGA FL and geographical expansion of The Woodlands Insurance Company.
Salaries and employee benefits
Salaries and employee benefits for the year ended December 31, 2025 was $37.6 million, compared to $29.1 million in the same period in the prior year, reflecting an increase of $8.6 million, or 29%. This increase was primarily attributable to stock-based compensation of $2.4 million, Corporate Branch acquisitions of $3.5 million, and $2.7 million due to personnel increases to support agent growth, corporate branch integration, technology initiatives, and compliance requirements associated with being a public company.
Other administrative expenses
Other administrative expenses for the year ended December 31, 2025 was $22.0 million, compared to $16.7 million in the same period in the prior year, reflecting an increase of $5.4 million, or 32%. The increase was primarily due to $1.7 million of information technology expenses, $0.6 million of rent, $0.6 million of professional fees, $0.5 million of insurance expense, and $1.9 million of other administrative expenses, all due primarily to business growth and increased costs as a public company.
Depreciation and amortization
Depreciation and amortization for the year ended December 31, 2025 was $18.3 million compared to $12.0 million in the same period in the prior year, reflecting an increase of $6.3 million, or 53%. This increase was primarily attributable to the amortization of intangible assets from our recent intangible asset acquisitions.
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Interest expense
Interest expense for the year ended December 31, 2025 decreased to $0.3 million compared to $2.2 million in the same period in the prior year, due to the repayment of the Revolving Facility (as defined in the section “Liquidity and capital resources”) during August 2024.
Interest income
Interest income for the year ended December 31, 2025 increased to $6.6 million, compared to $4.4 million in the same period in the prior year, due to the increase in cash on hand for the full fiscal year 2025 related to IPO proceeds received on July 19, 2024.
Income tax expense
Income tax expense for the year ended December 31, 2025 was $3.3 million compared to $1.5 million 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.
Other non-operating income (expense), net
Other non-operating income (expense), net for the year ended December 31, 2025 increased by $1.1 million compared to the same period in the prior year due to selling of Books of Business.
Key Performance Indicators
Total Written Premium
Total Written Premium represents the total value of insurance policies placed through our platform and is an operating metric used by management to evaluate growth in our distribution activity. Total Written Premium does not represent revenue recognized by the Company. Revenue is primarily derived from commissions and fees earned from insurance carriers, which represent a percentage of premium and vary by carrier, product type and services provided. Accordingly, changes in Total Written Premium may not correspond directly to changes in reported revenue or commission rates from period to period.
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.
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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
Offerings:
Insurance Services
Business Mix:
Insurance Services
TWFG MGA
Written Premium Retention:
Insurance Services 91 % 93 %
Consolidated 90 % 91 %
Line of Business:
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The following table presents the dollar and percent change compared to the prior year for Total Written Premium by offerings and business mix (in thousands):
Years Ended December 31,
$ Change % Change $ Change % Change
Offerings:
Insurance Services
Business Mix:
Insurance Services
TWFG MGA
Consolidated Business Mix:
Comparison of the Years Ended December 31, 2025 and 2024
Total Written Premium for the year ended December 31, 2025 increased by $256.1 million, or 17%, compared to $228.3 million, or 18%, growth in the same period in the prior year. Within our Insurance Services offering, renewal business grew $166.8 million, or 17%, as compared to $148.5 million, or 18%, growth in the prior year period. As a large independent carrier entered the market in late 2024, we saw an influx of $53.1 million moving from other carriers which resulted in a lower premium base, however provided the ability to renew and retain customer premium. New business grew $38.5 million, or 14%, as compared to $56.7 million, or 25%, growth in the same period of the prior year due to the softening of the market in 2024. Within our MGA offering, we saw an uptick in renewal business growth of $19.1 million, or 12%, as well as new business growth of $31.7 million, or 57%, over the prior year period due mainly to the MGA FL acquisition.
For the years ended December 31, 2025 and 2024, our consolidated written premium retention was 90% and 91%, respectively. For the year ended December 31, 2025, the composition of our renewal and new business under our two product offerings are 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 91% from 93%, resulting in renewal premium growth of 17%, or $166.8 million, compared to 2024. Insurance Services new business, as a percentage of total written premium, was 19%, consistent with prior year, resulting in new business growth of 14%, or $38.5 million. TWFG MGA renewal and new business as a percentage of written premium was 11% and 4% for the years ended December 31, 2025 and 2024.
Non-GAAP Financial Measures
Organic Revenue.Since the first quarter of 2025, we have utilized the revised calculation methodology for Organic Revenue to include policy fee income as it is directly correlated to MGA commission income. Our legacy calculation methodology removed policy fee income from Organic Revenue. Organic Revenue is total revenue (the most directly comparable GAAP measure) for the relevant period, excluding contingent income, non-policy fee
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income, other income and those revenues generated from acquired businesses with over $0.5 million in annualized revenue that have not reached the twelve-month owned mark.
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.
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):
Revised Calculation Methodology Applied to Current Period
Years Ended December 31,
Commission income at 12-month post acquisitions 3,687 2,098
Other adjustments(2) (904) —
Total Revenue Growth Rate(3) 22.0 % 18.4 %
Organic Revenue Growth Rate(4) 11.6 % 15.2 %
(1)Represents revenues generated from the acquired businesses during the first 12 months following an acquisition.
(2)Other adjustments reflect immaterial prior-period and comparability items consistent with management’s non-GAAP presentation policy.
(3)Represents the period-to-period change in total revenues divided by the total revenues in the prior period.
(4)Represents Organic Revenue Growth divided by the Organic Revenue denominator.
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Legacy Calculation Methodology Applied to Current Period
Years Ended December 31,
Commission income at 12-month post acquisitions 3,687 2,098
Other adjustments(2) (904) —
Total Revenue Growth Rate(3) 22.0 % 18.4 %
Organic Revenue Growth Rate(4) 11.4 % 14.5 %
(1)Represents revenues generated from the acquired businesses during the first 12 months following an acquisition.
(2)Other adjustments reflect immaterial prior-period and comparability items consistent with management’s non-GAAP presentation policy.
(3)Represents the period-to-period change in total revenues divided by the total revenues in the prior period.
(4)Represents Organic Revenue Growth divided by the Organic Revenue denominator.
Comparison of the Years Ended December 31, 2025 and 2024
Revenue growth rate, representing the year-over-year change in total revenues, was 22.0% for the year ended December 31, 2025 compared to the 18.4% Revenue growth rate for the year ended December 31, 2024. Revenue growth for the periods reflected the growth in our Books of Business and the mix of the new and renewal businesses. Revenue growth for the year ended December 31, 2025 compared to the same period in 2024 included the continued growth of commission and fee income during the period.
Organic Revenue Growth Rate was 11.6% for the year ended December 31, 2025 compared to 15.2% Organic Revenue Growth Rate for the year ended December 31, 2024. Organic Revenue Growth for both periods reflects ongoing, but normalizing, rate increases being implemented by carriers, the underlying growth of our business, healthy economic growth and an increase in commission income in our MGA offering. See “Consolidated Results of Operations—Commission Income” for additional discussions regarding the changes in our commission income.
Adjusted Net Income.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 while excluding the impact of the sale of non-current assets. 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.
Beginning in the year ended December 31, 2025, we updated our definition of Adjusted Net Income to exclude the impact of the sale of non-current assets. The impact of this change on our Adjusted Net Income for the year ended December 31, 2025, as well as on previously reported periods, was not material. As a result, prior‐period amounts have not been recast. We believe this minor refinement to our definition provides improved alignment with how management evaluates operating performance and enhances the measure’s usefulness for investors while maintaining comparability with prior periods.
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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 incorporates 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.
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):
Years Ended December 31,
Acquisition-related expenses 292 20
Other non-recurring items (1) 10 (1,220)
Gain on sale of non-current assets, net(2) (1,119) —
Net Income Margin 16.6 % 14.0 %
Adjusted Net Income Margin 20.5 % 16.2 %
(1)For the year ended December 31, 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)During the second quarter of 2025, a gain related to the sale of non-current assets was not excluded from Adjusted Net Income consistent with the Company’s stated definition. The presentation has been corrected in the fourth quarter and full-year 2025 results to conform to the Company’s definition of Adjusted Net Income. This correction impacts only non-GAAP measures and had no effect on previously reported GAAP results.
(3)Post-IPO, we are subject to U.S. 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, 2025, the calculation of adjusted income tax expense is based on a federal statutory rate of 21% and a blended state income tax rate of 1.89% on 100% of our adjusted income before income taxes as if we owned 100% of 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 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.
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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, 2025 indicated is as follows:
Years Ended December 31,
Earnings per share of common stock – diluted $ 0.53 $ 0.19
Plus: Impact of all LLC Units exchanged for Class A Common Stock(1) 0.20 0.32
Plus: Adjustments to Adjusted net income(2) 0.17 0.08
Adjusted Diluted Earnings Per Share $ 0.90 $ 0.59
(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, 2025, this includes $33.2 million of net income on 56,271,651 weighted-average shares of common stock outstanding - diluted, for the year ended December 31, 2025. For the year ended December 31, 2025, 41,171,461 weighted average outstanding Class B Common Stock and Class C Common Stock were considered anti-dilutive and included in the 56,271,651 weighted-average shares of common stock outstanding - diluted within diluted earnings per share calculation. See Note 15, “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 $41.2 million and Adjusted Net Income of $50.9 million for the year ended December 31, 2025. For the year ended December 31, 2025, Adjusted Diluted Earnings Per Share include adjustments of $9.7 million to Adjusted Net Income on 56,271,651 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, while excluding the impact of the sale of non-current assets. 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.
Beginning in the year ended December 31, 2025, we updated our definition of Adjusted EBITDA to exclude the impact of the sale of non-current assets. The impact of this change on our Adjusted EBITDA for the year ended December 31, 2025, as well as on previously reported periods, was not material. As a result, prior‐period amounts have not been recast. We believe this minor refinement to our definition provides improved alignment with how management evaluates operating performance and enhances the measure’s usefulness for investors while maintaining comparability with prior periods.
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 Ended December 31,
Acquisition-related expenses 292 20
Gain on sale of non-current assets, net(2) (1,119) —
Other non-recurring items(3) 10 (1,220)
Net Income Margin 16.6 % 14.0 %
Adjusted EBITDA Margin 26.9 % 22.3 %
(1)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.
(2)During the second quarter of 2025, a gain related to the sale of non-current assets was not excluded from Adjusted EBITDA consistent with the Company’s stated definition. The presentation has been corrected in the fourth quarter and full-year 2025 results to conform to the Company’s definition of Adjusted EBITDA. This correction impacts only non-GAAP measures and had no effect on previously reported GAAP results.
(3)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.
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 Flow to Cash flow from Operating Activities, the most directly comparable GAAP measures, for each of the periods indicated is as follows (in thousands):
Years Ended December 31,
Cash Flow from Operating Activities $ 53,501 $ 40,479
Purchase of property and equipment (356) (3,201)
Acquisition-related expenses 292 20
(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 context
Our liquidity position and capital resources have evolved over time primarily as a result of organic growth, acquisitions, and financing activities, including the completion of IPO and related reorganization transactions in 2024. Historical cash flows and financing activities provide context for period-to-period changes in our liquidity; however, management’s assessment of liquidity and capital resources is focused on our current financial position, expected cash flows from operations, and anticipated capital requirements. Accordingly, the discussion below emphasizes our liquidity and capital resources as of December 31, 2025 and our ability to meet our obligations and fund our operations for the foreseeable future.
As of December 31, 2025, the Company had $155.9 million in cash and cash equivalents and $12.0 million in restricted cash, compared to $195.8 million and $9.6 million, respectively, as of December 31, 2024. The decrease in cash and cash equivalents for the year ended December 31, 2025 was primarily attributable to $61.9 million of cash paid for acquisitions, $15.9 million in member distributions, $10.0 million in other investments, and $3.1 million in tax withholding on equity vesting, partially offset by positive cash flows from operations of $53.5 million.
The Company maintains access to the $50.0 million Revolving Facility, of which zero was outstanding at December 31, 2025, all of which remained available for future borrowings as of December 31, 2025. We were in compliance with all financial covenants under our debt agreements as of the end of the reporting period. Management believes existing liquidity sources, together with cash generated from operations, will be sufficient to meet working capital, capital expenditure, and acquisition-related needs for at least the next 12 months.
On February 23, 2026, our Board approved a share repurchase program that authorizes the Company to repurchase up to $50 million of its outstanding Class A common stock. Share repurchases may be made from time to time on the open market, in privately negotiated transactions, using Rule 10b5-1 trading plans, or in any other manner that complies with the applicable securities law. The timing of purchases and number of shares repurchased under the program will depend upon a variety of factors including the Company’s stock price, trading volume, working capital or other liquidity requirements, and market conditions. The Company is not obligated to purchase any shares under the program and the program may be suspended or discontinued at any time without notice.
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, 2025 is $4.0 million as follows (in thousands):
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The Revolving Credit Agreement (the “Revolving Credit Agreement”) with PNC Bank National Association, dated as of May 23, 2023 and as amended on June 20, 2024, provides a revolving credit facility to the Company, with commitments in an aggregate principal amount not to exceed $50.0 million (as so amended, the “Revolving Facility,” and together with the Term Loan Credit Agreement, the “Credit Agreements”). Borrowings constituting revolving loans under the Revolving Credit Agreement incur interest at the Term SOFR Rate (as defined therein) for the applicable interest period plus a margin based on the consolidated leverage ratio of the Company between 2% and 2.75%, and a 0.10% adjustment. The borrowings under the Revolving Facility may be used by the Company for permitted acquisitions, working capital and general corporate purposes. The Company pays a commitment fee on unutilized amounts under the Revolving Facility of 0.20% up to 0.35% based on the consolidated leverage ratio. As of December 31, 2025 and December 31, 2024, the Revolving Facility had an unutilized capacity of $50.0 million and $50.0 million, respectively.
Each of the Revolving Facility and the term loans requires the Company to maintain a consolidated leverage ratio of no greater than 2.00 to 1.00 (or, after the occurrence of certain acquisitions, 2.50 to 1.00). The Credit Agreements also contain covenants that, among other provisions and subject to certain exceptions, restrict our ability to pay dividends or other distributions, 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. As of December 31, 2025 and December 31, 2024, the Company was in compliance with these covenants. The carrying amount of the Company’s variable rate debt as of December 31, 2025 and December 31, 2024 approximates fair value due to the short-term reset of the interest rate based on SOFR and the absence of a credit spread.
Interest on the Term Loan C accrues 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 $ 194 $ 2,298 $ (2,104)
Cash paid during the period for taxes $ 3,268 $ — $ 3,268
Comparison of the Years Ended December 31, 2025 and 2024
Operating activities
Operating activities from continuing operations provided $53.5 million and $40.5 million of cash for the years ended December 31, 2025 and 2024, respectively. The increase in net cash provided by operating activities was driven by a $12.6 million increase in net income, $7.4 million outflow from the change in working capital between
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periods, which was primarily attributable to timing of receivables and payables, and $7.9 million in net change of non-cash adjustments in the period which include amortization, stock-based compensation, gain on sale of intangibles and non-cash lease expense. See “—Consolidated Results of Operations” for additional information regarding the results of our operations.
Investing activities
Investing activities from continuing operations used $70.4 million and $25.1 million of cash for the years ended December 31, 2025 and 2024, respectively. Our net investing outflows increased primarily due to the higher level of intangible asset acquisitions in 2025 of $61.9 million compared to $21.9 million in 2024, partially offset by $1.8 million inflow from proceeds on the sale of intangible assets and other net decrease in investing outflows of $2.9 million. In addition, the Company made a $10.0 million other investment held by a third-party to facilitate premium financing arrangements during the period ended December 31, 2025.See Note 4, “Intangible Assets and Acquisitions” 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 used $20.5 million and provided $143.4 million of cash for the years ended December 31, 2025 and 2024, respectively. The change in our net financing outflows was primarily due to the absence of the $193.6 million net IPO proceeds received in the prior year, $41.5 million decrease in repayment of borrowings, $6.6 million increase in distributions to members, $3.1 million payment related to tax withholding on vesting of equity awards, and $2.1 million net decrease in carrier liabilities during the year ended December 31, 2025.
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) potential future payments under the Tax Receivable Agreement, if exchanges of LLC Units occur (no such payments were required during 2025), (4) fund acquisitions, (5) pay interest and principal due on borrowings under our Credit Agreements, (6) pay income taxes and (7) make potential future payments of dividends, if and when declared by our board of directors. 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. 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, 2025, we had $1.3 million of non-cancelable operating lease obligations for the next 12 months. For the periods following the next 12 months, we have an additional $2.9 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, 2025, we had $3.5 million of debt maturities for the next 12 months comprised of $2.0 million of the remaining balance under the Term Loan C, and $0.6 million in acquisition-related notes, and $0.9 million of acquisition-related payables. For the periods following the next 12 months, we have an additional $8.7 million of debt maturities representing $2.0 million under the Term Loan C, $0.5 million in acquisition-related notes, and $6.1 million of acquisition-related payables. As of December 31, 2025, 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, 2025 was 4.185%. As of December 31, 2025, we have an interest rate swap agreement associated with the Term Loan C, which converted the floating interest rates on these loans to fixed interest rates. See Note 6
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“Derivatives” and Note 8, “Debt and Deferred Acquisition Payables” 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 may be required to make payments under the Tax Receivable Agreement in the future, if and when exchanges of LLC Units occur. As of December 31, 2025, no exchanges had occurred, and no amounts were payable 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
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reported financial results are: revenue recognition, intangible assets impairment, income taxes and contingent consideration. See Note 2, “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
Commission income represents the largest component of the Company’s revenue and is generated from commissions earned on the placement and servicing of insurance policies between insurance carriers and policyholders. The accounting for commission income requires management to make estimates and assumptions that involve judgment and uncertainty and that could materially affect the timing and amount of revenue recognized.
We consider commission income to be a critical accounting policy because determining the amount and timing of revenue recognition requires management to apply judgment in estimating amounts expected to be realized and in assessing the nature and timing of performance obligations. While management believes the estimates and assumptions used are reasonable, actual results may differ from those estimates.
For the majority of the Company’s commission arrangements, revenue is recognized at a point in time, generally at the binding or effective date of the insurance policy, when the Company has substantially completed its placement services. In certain arrangements, including policies assumed through take-out programs where the Company did not originate the policy, revenue is recognized over time as ongoing servicing obligations are performed over the remaining policy term.
The critical estimates and assumptions involved in recognizing commission income include:
•Estimated policy cancellations and endorsements, which impact the amount of commission ultimately earned and may result in adjustments to previously recognized revenue;
•Expected collectability, which is based on historical experience with insurance carrier partners and current market conditions;
•Estimation of variable consideration, including contingent commissions, as described below, which depend on future retention, loss experience, or premium volume and are recognized only to the extent that a significant reversal of revenue is not probable; and
•Determination of the servicing period for certain assumed policies, up to 12 months, which affects the timing of revenue recognition for commissions recognized over time.
Management develops these estimates using historical data by product type and tenure, adjusted for known trends or events that may affect future outcomes. Changes in these assumptions, particularly changes in cancellation patterns or servicing assumptions for assumed policies, could materially impact revenue recognized in future periods.
Because these estimates affect both the timing and amount of revenue recognized, changes in assumptions or differences between estimated and actual outcomes may affect comparability between reporting periods. In particular, changes in cancellation experience or the mix of commission arrangements recognized at a point in time versus over time may cause fluctuations in reported revenue that are not necessarily indicative of changes in underlying business activity or operating performance.
The recognition of commission income requires management to exercise judgment in determining whether the Company’s performance obligations are satisfied at a point in time or over time. For most policies placed by the Company, the performance obligation is satisfied at the time the policy is bound, as the Company’s primary obligation is the placement of coverage between the insurance carrier and the insured. For certain policies, including assumed or take-out policies where the Company did not originate the policy, the Company performs ongoing servicing activities that represent a performance obligation satisfied over time, and the related commission income is recognized over the remaining policy term.
Contingent income
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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 fall below specific loss ratio quotas predetermined by 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 recoverability 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.
Based on our evaluation of this evidence, we have recorded a valuation allowance against our deferred tax assets. Estimating future taxable income is inherently uncertain and requires significant judgment. In projecting future taxable income, we consider our historical results, growth strategies, future market trends and incorporate certain other assumptions.
Changes in our estimates of future taxable income, changes in tax laws or rates, or other relevant factors could result in adjustments to our valuation allowance in future periods. Any such adjustments could have a material impact on our results of operations. 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.
Contingent Consideration
Certain acquisitions of select Books of Business that do or do not constitute a complete business enterprise include contingent consideration arrangements, which are based on the acquired Book of Business achieving thresholds related to future revenues or earnings before interest, tax, depreciation, and amortization. Contingent consideration arrangements can reduce the risk of overpaying for acquisitions if certain results are not achieved.
The Company accounts for contingent consideration relating to acquisitions as a Deferred Acquisition Payable and a corresponding asset adjustment at the date of acquisition. Once recognized, the contingent consideration is not derecognized until the contingency is resolved and the consideration is issued or becomes issuable. The Deferred Acquisition Payable is continually remeasured at each balance sheet date by recording changes in the fair value as an offsetting adjustment to the acquired asset in the Consolidated Balance Sheets. The ultimate settlement of the contingent consideration may be for amounts that are materially different from the amounts initially recorded and may cause volatility in the Company’s results of operations. The fair value of contingent consideration becomes more certain as the acquired Books of Business approach their respective settlement date.
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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, 2025 and 2024 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, 2025, we had $155.9 million in cash and cash equivalents which earned interest income of $7.4 million. The impact of a hypothetical 100 basis point change in interest rates would have reduced/increased interest income by $0.7 million in the Consolidated Statements of Income.
As of December 31, 2025, we had approximately $4.0 million of borrowings outstanding 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, 2025. As of December 31, 2024, we had approximately $5.9 million of borrowings outstanding under our Term Loan Credit Agreement. 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 TWFG, Inc. Consolidated Financial Statements
Page
Report of Independent Registered Public Accounting Firm 72
Consolidated Statements of Income 73
Consolidated Statements of Comprehensive Income (Loss) 74
Consolidated Balance Sheets 75
Consolidated Statements of Cash Flows 78
Notes to the Consolidated Financial Statements 80
Note 1. Organization and Basis of Presentation 80
Note 2. Summary of Significant Accounting Policies 81
Note 3. Revenues 89
Note 4. Intangible Assets and Acquisitions 90
Note 5. Operating Leases 92
Note 6. Derivatives 93
Note 7. Other Current Liabilities 93
Note 8. Debt and Deferred Acquisition Payables 94
Note 9. Fair Value Measurements 95
Note 10. Stockholders’ Equity 97
Note 11. Stock-Based Compensation 99
Note 13. Defined Contribution Plan 103
Note 14. Related Party Transactions 103
Note 15. Earnings Per Share 104
Note 16. Discontinued Operation 105
Note 17. Litigation and Contingencies 106
Note 19. Subsequent Events 107
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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 Sheets of TWFG, Inc. and subsidiaries (the "Company") as of December 31, 2025, and 2024, the related Consolidated Statements of Income, Consolidated Statements of Comprehensive Income (Loss), Consolidated Statements of Changes in Redeemable Noncontrolling Interest and Stockholders’/Members’ Equity and Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2025, 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, 2025, and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, 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 9, 2026
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 Ended December 31,
Revenues
Expenses
Other non-operating income (expense), net 1,140 9 (17)
Net income from discontinued operation, net of tax — — 834
Less: net income attributable to noncontrolling interests 33,203 25,847 26,096
Net income attributable to TWFG, Inc. $ 7,963 $ 2,745 $ —
Weighted average shares of common stock outstanding (see Note 15):
Earnings per share (see Note 15):
See Notes to the Consolidated Financial Statements
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TWFG, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Amounts in thousands)
Years Ended December 31,
Other comprehensive loss, net of tax:
Unrealized (loss) gain on derivative instruments (15) 214 109
Total other comprehensive income, net of tax (196) (107) (135)
Comprehensive income attributable to TWFG, Inc. $ 7,910 $ 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
Non-current assets
Lease right-of-use assets, net 4,189 4,493
Other non-current assets 689 610
Liabilities, Redeemable Noncontrolling Interest and Equity
Current liabilities
Deferred acquisition payables 1,505 601
Non-current liabilities
Deferred acquisition payables 6,669 1,122
Other non-current liabilities — 24
Commitment and contingencies (see Note 17)
Redeemable noncontrolling interest 17,901 —
Stockholders' Equity
Accumulated other comprehensive income 30 83
Total stockholders' equity attributable to TWFG, Inc. 83,382 73,884
See Notes to the Consolidated Financial Statements
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TWFG, Inc.
Consolidated Statements of Changes in Redeemable
Noncontrolling Interest and Stockholders’/Members’ Equity
(Amounts in thousands, except share/unit data)
Class A Common Stock Class B Voting Stock Class C Voting Stock
Cash distributions to members — — — — — — — — — — (2,024) (2,024) —
Other comprehensive loss — — — — — — — — (18) (18) (50) (68) —
Stock-based compensation — — — — — — 1,204 — — 1,204 — 1,204 —
Vesting of restricted stock units 134,018 1 — — — — — — — 1 — 1 —
Cash distributions to members — — — — — — — — — — (11,239) (11,239) —
Other comprehensive loss — — — — — — — — (13) (13) (37) (50) —
Acquisition of TWFG MGA FL, LLC — — — — — — — — — — — — 9,688
Stock-based compensation — — — — — — 1,515 — — 1,515 — 1,515 —
Vesting of restricted stock units — — — — — — — — — — — — —
Cash distributions to members – — — — — — — — — — (2,587) (2,587) —
Other comprehensive loss – — – — – — — — (12) (12) (29) (41) —
Acquisition of TWFG MGA FL, LLC – — – — – — — — — — — — 801
Stock-based compensation – — – — – — 987 — — 987 — 987 —
Vesting of restricted stock units 151,174 1 – — – — — — — 1 — 1 —
Shelf registration costs – — – — – — (445) — — (445) — (445) —
Cash distributions to members – – – – – – — — — — (12) (12) —
Other comprehensive loss – – – – – – — — (10) (10) (27) (37) —
Acquisition of TWFG MGA FL, LLC – — – — – — — — — — — — 4,179
Stock-based compensation – — – — – — 872 — — 872 — 872 —
Vesting of restricted stock units – — – — – — — — — — — — —
See Notes to the Consolidated Financial Statements
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TWFG, Inc.
Consolidated Statements of Changes in Redeemable
Noncontrolling Interest and 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)
Stock-based compensation — — — — — — — — 1,012 — — 1,012 — 1,012
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 Cash Flows
(Amounts in thousands)
Years Ended December 31,
Cash Flows from Operating Activities
Less: Net income from discontinued operation, net of tax — — 834
Adjustments to reconcile net income to cash flows from operating activities:
Net gain on sales of intangible assets and property and equipment (1,119) — (84)
Stock-based compensation expense 4,578 2,219 —
Other non-cash items (14) 9 12
Change in:
Other current and non-current assets (1,480) 12 (362)
Net cash provided by operating activities from discontinued operation — — 839
Cash Flows from Investing Activities
Proceeds from sale of books of business 1,841 — 928
Proceeds from sale of property and equipment 49 — —
Purchase of property and equipment (356) (3,201) (260)
Other investment (10,000) — —
Net cash provided by investing activities from discontinued operation — — 64
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 shelf registration costs (445) — —
Payment of deferred offering costs — — (796)
Payment of equity issuance costs — (38) —
Tax withholding on vesting of equity awards (3,146) — —
Payment of deferred acquisition payable (600) (1,000) (14)
Net cash (used in) financing activities from discontinued operation — — (11,305)
Net cash (used in) provided by financing activities (20,546) 143,431 (9,695)
See Notes to the Consolidated Financial Statements
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TWFG, Inc.
Consolidated Statements of Cash Flows (continued)
(Amounts in thousands)
Years Ended December 31,
Net change in cash, cash equivalents and restricted cash (37,423) 158,855 5,804
Reconciliation of cash, cash equivalents and restricted cash, end of period:
Supplemental disclosures of cash flow information:
Cash paid for taxes $ 3,268 $ — $ —
Non-cash investing activities:
Non-cash 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.
TWFG MGA FL, LLC (“TWFG-MGA FL”) is a Managing General Agency that distributes personal lines insurance products to independent agents in the State of Florida.
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.
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 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.
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In 2025, 23,255 shares of Class A Commons Stock were issued as part of acquisitions. In addition, 193,552 shares of Class A Common Stock were issued upon vesting of restricted stock units (“RSUs”) in accordance with the Company's 2024 Omnibus Incentive Plan (the “2024 Incentive Plan”) as of December 31, 2025. See Note 11 Stock-Based Compensation.
Reorganization Transactions
In connection with the Company’s IPO in July 2024, the Company completed a series of Reorganization Transactions that resulted in the establishment of an Up-C organizational structure. As a result of these transactions, TWFG Holding became the predecessor for financial reporting purposes.
The Reorganization Transactions were accounted for as a reorganization of entities under common control. Accordingly, the consolidated financial statements reflect the historical carrying amounts of the assets and liabilities of TWFG Holding and its subsidiaries, with no step-up in basis, no recognition of goodwill, and no gain or loss recorded as a result of the transactions.
Following the completion of the Reorganization Transactions, TWFG, Inc. became the sole managing member of TWFG Holding and consolidates TWFG Holding for financial reporting purposes. The ownership interests in TWFG Holding not held by the Company are reflected as noncontrolling interests in the consolidated financial statements. Net income is allocated between the Company and the noncontrolling interest holders based on their respective ownership interests.
The Reorganization Transactions did not result in any changes to the underlying operations of the business and had no impact on the Company’s consolidated results of operations other than the allocation of net income between controlling and noncontrolling interests. The effects of the Reorganization Transactions are reflected in the consolidated financial statements beginning on the date of completion.
Additional details regarding the legal structure and mechanics of the Reorganization Transactions are described in the Company’s Registration Statement on Form S-1 and related filings with the Securities and Exchange Commission.
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.
Use of Estimates
The preparation of the consolidated financial statements and notes thereto requires management to make estimates, judgments, 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.
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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 are expensed as a practical expedient.
The Company’s customers are insurance carriers, as the Company acts as an agent to assist 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 single performance obligation exists for each policy term. This coincides with the efforts of placing renewed policies with the insurance carrier.
Costs to obtain insurance contracts, including producer commissions and other incremental acquisition costs, are expensed as incurred as the amortization period of the related asset would be one year or less.
Commission Income - Assumed
Commission income related to insurance policies assumed through takeout programs represents consideration earned for providing ongoing servicing and administrative support for in-force policies. Because the Company did not place the original insurance contract between the carrier and the insured, the Company’s performance obligation relates to the ongoing servicing over the life of the policies. The Company satisfies this performance obligation over time as policyholders simultaneously receive and consume the benefits of servicing. Accordingly, commission income associated with assumed policies is recognized ratably over the remaining policy coverage period, which represents the Company’s measure of progress in transferring services.
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.
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
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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 $12.0 million and $9.6 million as of December 31, 2025 and 2024, respectively, is comprised of interest-bearing bank deposits.
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.
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As of December 31, 2025 and 2024, the Company reported Carrier liabilities amounting to $13.8 million and $12.4 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
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 Revenues 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, purchased customer lists, and customer relationships. 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. Customer relationships represent the amount paid by the Company to acquire TWFG MGA FL. The Company realizes an income stream from commissions related to the acquired interest. The customer relationship asset is amortized on the straight-line method over six 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 initially recorded in accordance with the cost accumulation method based on the determined purchase price and, is then amortized over its estimated 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 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, 2025 and 2024.
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.
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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
Computer equipment 5 years
Furniture and fixtures 7 years
Office equipment 5 - 7 years
Property and equipment 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 its recoverability by reviewing the estimated future undiscounted cash flows generated by the corresponding asset or asset group. If based on the assessment, the Company determines that the property and equipment are impaired, such assets are written down to their fair values with the related impairment losses recognized in the result of operations. There were no impairments recorded for the years ended December 31, 2025 and 2024.
Assets held for sale are reported at the lower of the carrying value or fair value, less costs to sell.
Deferred Offering Costs
Deferred offering costs, which consisted of direct incremental legal, accounting, consulting, and other fees and expenses related to the IPO were capitalized in Deferred offering costs on the Consolidated Balance Sheets. The deferred offering costs were offset against IPO proceeds upon the consummation of the IPO. Upon closing of the IPO on July 19, 2024, total deferred offering costs of $7.8 million were recorded to additional paid-in capital to offset the IPO proceeds. The Company had no deferred offering costs as of December 31, 2025 and 2024.
Commissions Payable
Commissions payable represents commissions due to agents for services provided for the placement of insurance contracts. The Company records the commission expense and the related commissions payable on the effective date of the policy based on the estimated total premium for the term of the policy adjusted for any expected variable consideration, endorsements or cancellations based on historical information at the time the expense is recorded.
Leases