Q1 2020 Earnings Call
Greetings and welcome to the ERP Group Inc. first quarter 2020 earnings call.
At this time, all participants are in listen only mode.
A question answer session will follow the formal presentation.
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Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It's my pleasure to introduce your host right Health Chief Accounting Officer like do you may begin.
Thank you operator, and good afternoon by now everyone should have access to our earnings announcement.
Station, which was released prior to this call, which May also be found on the Investor relations portion of our website at <unk> partners Dot com.
Again, our formal remarks, I need to remind everyone that part of our discussion today may include forward looking statements, which are based on the expectations estimates and projections of management as of today.
The forward looking statements and our discussion are subject to various assumptions risks uncertainties and other factors that are difficult to predict which could cause actual results could differ materially from those expressed or implied forward. Looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon that we were.
For all your to our recent filings with the FCC, including our form 10-Q filed today for more detailed discussion of the assumptions risks uncertainties and other factors that could impact the future operating results in financial condition I've been working group, including those related to the potential effects of the covert 19 pandemic on our business financial condition results.
Ratio.
This call we refer to the effects of Koeppen 19 and related government shutdowns stay at home orders did this closures travel restrictions social distancing another preventative measures and disruptions economic contraction in coal 19 related development, but generally we're referencing covert 19 or the pent up.
We disclaim any intention to obligations to update or revise any forward looking statements except to the extent required by applicable law.
Also our discussion today will include references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found within our earnings announcement and earning supplement slide presentation.
Posted on our website at <unk> IR Dot baldness partners Dot com or in RCC filings. In addition, this call is being webcast an archived version will be available after the call on the Investor relations portion of our website.
I would now like to introduce trouble when Chief Executive Officer PRP group.
Thank you Brad and good afternoon, everyone.
Welcome to our first quarter 2020 earnings call. We appreciate Youre, taking the time to join US and your interest MPRP group.
During today's call I'll provide some brief highlights our first quarter performance.
As well as provide an update on the current macro environment and our recent investment and growth strategy.
Our Chief Financial Officer, Chris, We back and Chief Accounting Officer, Brad Hail, well, then present, our first quarter financial result, and finally, well open the line for questions.
Before we go further.
Our thoughts and good wishes continue to be with you our colleagues our clients our partners our investors and all of your families. During these unprecedented times.
Thank you to these stakeholders and our analyst who are once again, taking the time to join US. This afternoon. It is very much appreciated.
The first quarter was quite strong purpose.
Particularly with respect to revenue and adjusted earnings as the impact of the Cobot 19 pandemic only began to men manifest in March.
We continued our strong progress in executing on our pipeline of high quality partnership opportunities VR piece, not quite sure first strategic acquisitions.
Accessibly acquiring for new partners in the quarter and reported industry leading growth.
As we move ahead, while we expect to see additional impact from Kobin 19 through the third quarter and possibly longer thus far the resiliency of our business model and growth strategy has shown through in our results.
The continued success of our growth strategy has been propelled by the technology infrastructure, we have invested in building as well as our unique go to market approach and breadth of sales enablement tools, allowing for a continued execution of clients stewardship commitment and ongoing new business generation, which has the added benefit.
Highlighting for potential new M&A partners, the value of becoming part of our platform.
Having significantly strengthened our balance sheet through the IPO and subsequent expansion of our credit facility over the past year, we're well positioned to continue executing on our growth strategy and 2020.
For the first quarter, we generated revenue growth of 82% to 54.2 million. The revenue growth was driven once again by our hybrid growth model, namely organic growth combined with contributions from new partner acquisitions.
It's Chris will explain in detail later on core organic revenue growth to the quarter inclusive of our MGM the future business was 17% highlighting the momentum we're carrying into the second quarter.
And in particular are empty at a future platform continued to outperform in the quarter growing 41% organically.
And what the one year anniversary of that acquisition now past, we're looking forward to including it in our organic revenue growth totals moving ahead and will no longer need to report organic plus EMG <unk>.
We expect it will significantly contribute toward our goal of generating sustainable double digit organic revenue growth well into the future.
To give you a further sense of how effective our proprietary technology stack and MGM. The future platform has been thus far in the second quarter. We've seen policies enforced increased by 18000 from where they stood on March 31 to nearly 420000 policies enforced despite the ICANN.
On a being being broadly shut down nationwide.
On the last April we sold over 2000, new policies up from over 1300 on the last day of March and we grew the new policies issued by 37% during the month of April as compared to the prior year.
As we've noted before we're eager to apply and leverage the extremely efficient and highly scalable MGH technology and other capabilities toward developing other products that can be distributed throughout the entire PRP organization.
As it relates to covert 19, we experienced the lowest period of new business. During the last few days of March and the first week of April.
For the business responded nicely in the back half of April for example, on an organic basis, our two largest segments middle market and specialty sold more new business in April 2020 than April 2019, further showing the resiliency of our model as we further south the cobot 19 impact on.
In our business, we're continuing to closely monitor our middle market operating group as we believe that will feel the most significant impacts of the pandemic should the economic contraction persist and businesses Act to further reduce their workforces.
During the first quarter, we completed four partnerships that generated annualized revenue of over 30 million. Thus far in the second quarter. We have closed in an additional three partnerships and have bolstered our middle market operating group at two of those acquisitions insurance risk partners and southern productive group.
That generated annualized revenues of approximately nine and a half million importantly, we believe all three of these partners operate businesses and end markets that are relatively well positioned the Mets Cove and insurance risk partners expands our capabilities and attractive segments of the mission critical energy you tell.
I'd and infrastructure industry sectors, while southern productive group bolsters, our already meaningful risk and insurance capabilities to the health care industry.
With particularly strong comp and I'd say an area of liability for medical malpractice.
We also acquired a specialty partnership pendulum one of the leading providers of risk management and risk reduction consultant services and solutions to the health care and agent services industry.
As of today.
I have already closed seven partnerships in the first four and a half months of 2020 that generated annualized revenue of approximately 42 million.
We also still maintain a strong partnership pipeline, which we continue to prudently monitor and evaluate in light of the current economic and health environment.
In addition to enabling us to move seamlessly into a virtual first environment across our business the investments in our technology infrastructure and capabilities have allowed us to continue executing on our partnership strategy and delivering for our clients in our core business.
We were able to close on partnerships over the last 60 days because of all the hard work, we did significantly strengthen our balance sheet over the past year.
With a 300 million dollar revolving credit facility and a strong cash position up 52 million as of March 31, We believe we are well positioned to weather the economic pressures and as prudent close on additional partnership opportunities.
We will continue to remain thoughtful regarding our balance sheet, but given our borrowing capacity and relatively low leverage we believe we remain well capitalized to navigate the current challenging environment.
Our strategic focus remains firmly on our growth and long term success.
Which will be realized through our ability to deliver on our clients stewardship commitment when new business at a rate that meaningfully exceeds our industry peers.
And thoughtfully expand our footprint and capabilities with the ongoing addition of new high quality partner firms. Despite the current economic and operational challenges.
To that end, while we continue to closely monitor the economic and helps situation. We are prudently moving forward with our plans for targeted investment across that the ERP platform to support our anticipated long term growth.
This includes incremental investments in talent at or Mg of the future platform to further augment its capabilities and continue to make progress on the development of our Florida homeowners solution.
This also includes accelerating the expansion of our offices in Tampa and investing further in our partnership recruitment and integration teams throughout the next several months as well as ongoing investments in growing our sales force across our operating groups as they highlight the durability of our go to market approach and the current economic.
And virtual first environment.
Additionally, we believe there could be incremental near to intermediate term opportunities to add top tier sales talent as our approach to managing through the current prices highlights our power by people philosophy further solidifying our status as a trusted and destination employer for industries topped out.
While some of these thoughtful but incremental investments would impact near term margins, particularly when combined with the expected impact from the current cobot 19 operating environment.
We believe our long term oriented shareholders recognize that unique and meaningful opportunity for value creation that exist as we continue investing to build on our momentum and position ourselves for growth during this unprecedented.
We are fortunate to have a very resilient business with recurring revenue streams, which allows us to be defensively positioned in times of economic downturns.
We're not however, relying exclusively on the resilient characteristics of our business to carry a successfully Ford instead, we are proactively accelerating many important initiatives across our platform to realize enhanced efficiencies from our technology investments and business process automation tools and initiatives.
To be well prepared for when the economy rebounds.
Our recurring revenue business is coupled with a solid balance sheet and access to capital, which enables us to continue to source new partnership opportunities as well as move forward with investments for the long term growth and success of our business.
We remain excited for future and believe we are well positioned to weather the storm to accomplish our long term goals.
Most importantly.
I want to express how proud I am proud I am of our colleagues and their unwavering commitment and ability to serve our clients in these times.
Some of our clients have phase tremendous economic pressures and heart wrenching realities as a result of the pandemic and our colleagues are working incredibly hard to develop and deliver innovative solutions and strategies for mitigating cost and risk and their time of need.
If you were at client listening to this call. Thank you for your ongoing trust and confidence in our teams if you're still a prospective client. Please do not hesitate to reach out to our teams to see how we can provide you with leading insights ideas and strategies for mitigating your cost of risk and optimizing your.
Insurance programs.
That I'll now turn the call over to Chris Some Brad will walk through some additional first quarter financial highlights.
Thanks, Trevor and good afternoon, better on the call for first quarter of 2020, we grew revenue, which is comprised of total commissions and fees by 82% to 54.2 million compared to 29.8 million in the prior year period. This increase was driven by new partnerships inorganic growth.
Organic growth for the quarter, a 5%, 12% with the EMS yet was inclusive of a negative 500 basis point impact from a decreasing contingent payments in main street as we noted would occur on our protocol and other income and Medicare core organic revenue growth when adjusted for these items was 10%, 17% with the EMS yet.
Organic revenue growth is also inclusive of a negative 100 basis point Cove in 19 reserve.
As we previously noted we believe this decrease in contingent payments is due to higher loss ratios and our personal insurance book largely related to Hurricane lost creep in 2019, there will be behind us after the second quarter. This year, we expect this reduction or profit sharing income to be partially offset starting in Q4 20 inch warning and across all quarters in 2021.
As insurance companies take rate across their Florida homeowners book, what should increase our core commissions essentially all this was a headwind to contingent income today. It should become a strong tailwinds decline commission and fee revenue in the future.
While we don't plan to provide this type of breakout of contingent income going forward in light of cover 19, we thought the incremental air detail will be particularly helpful and portraying the underlying health and momentum of our core business during the first quarter.
As evidenced by our growth an underlying client commissions or fee revenue also as a reminder, we acquired Mg of the future on April 1st 2019, and thus moving forward MJ. The future revenue will be included in organic revenue growth figures.
Given that partnerships are an important portion of our ongoing growth strategy and our regulatory filings. We also provide revenue metrics on an unaudited pro forma basis. This provides investors with a more apples to apples comparison as if our 2020 partnerships had been acquired on January one 2020 per first quarter 2020, unaudited pro forma revenue was 56.6 million.
Up 34% from prior year as a reminder, this 56.6 million does not include any partners closed after Q1 and only includes the Q1 partnerships unaudited pro forma information should not be relied upon as being indicative of the historical results that would it have been obtained partnerships had occurred on that date.
Nor the results that may be obtained in the future.
Commissions colleague compensation and benefits expense for the first quarter 2020, or 34, and a half million an increase of 18.3 million compared to the first quarter 2019, primarily due to the onboarding of new partners, which accounted for $14.5 million or the increase the remainder of the increase was aligned with our year over year organic revenue growth and incremental costs.
Some operating a public company.
Operating expenses for the first quarter were 8.9 billion, an increase of $4.9 million from the first quarter 2019, due primarily to expenses associated with operating its public company and rent professional and operating costs related to new partnerships amortization expense for the first quarter 2020 was what 3.6 million an increase of $2.7 million from the prior year period.
Generally due to intangible assets capitalize on purchase customer accounts capitalize in accordance with new partnerships first quarter 2020 interest expense was point 6 million, a 1 million reduction compared to the first quarter 2019, as we repaid the full outstanding debt and accrued interest on our subordinated debt in the fourth quarter 2019.
GAAP net income for the first quarter 2020 was 4.7 million or seven cents per fully diluted share adjusted net income for the first quarter 2020, which excludes share based compensation amortization and other onetime expenses was 12 million or 19 cents per fully diluted share.
Table reconciling GAAP net income to adjusted net income can be found in our earnings release, and our 10-Q filed with the FCC adjusted EBITDA for the first quarter 2020 rose, 39%, our 3.9 millions of 14 million compared to the first quarter 2019, adjusted EBITDA margin was 26% for the first quarter 2020 compared to 34%.
And the first quarter 2019, Brad will now provide a breakdown of revenue by grip.
Thanks, Chris and good afternoon, everyone on the call for the first quarter, our middle market segment reported revenue of 22 million, an increase of 5.5 million or 33% compared to the first quarter of 2019.
Our specialty group generated revenue for the first quarter of 2020, a 17.4 million more than Quinn toppling its revenue compared to the first quarter of 2019.
So these revenue growth was driven by our 2019 am I set aside partnership completed in April 2019, which accounted for 11 million in revenue and our highly in risk solutions partnership completed in January 2020, which accounted for 2.9 million in revenue.
Policies in force on the Mgo the future platform as of March 31st 2020 were approximately 401500, an increase of nearly 27000 from the prior quarter end and over 107000 policies from March 30, Onest 2019.
Last year and OSI saw an approximate 19000 sequential increase in policies in force in the same quarter. So this quarter once again represented meaningful acceleration and growth.
Moving to our main Street group first quarter 2020 revenue was 8.3 million, an increase of 1.8 million or 27% compared to the first quarter of 2019.
Finally, our Medicare segment generated first quarter 2020 revenue of 6.4 million.
Up 2.5 million from the first quarter of 2019.
I'll now turn the call back over to Chris Thanks, Brad.
As we've noted previously we manage our business based on our long term growth objectives and focused on full year performance rather than quarter to quarter, particularly given the timing of completed partnerships can shift as such we believe our full year on pro forma results are better barometer to how we are executing.
Thus far in the second quarter 2020, we closed three partnerships for total cash consideration of 36 million.
These partnerships generated total annualized revenue of over 11 million, bringing the amount of annualized revenue acquired thus far in 2020 to over 42 million in the current environment. We continue to generate interest from and maintained a healthy pipeline for potential partners.
Turning to our balance sheet as of March 30, Onest, we had cash cash equivalents of 52.1 million and long term debt of 60.4 million as a reminder, in March being prudent with regard to the current environment and our Ela why pipeline, we converted the accordion feature the facility into a full commitment and now have committed line of 300 million that has no debt maturing until September.
For 2024.
The main trough cash and cash equivalents stood at 54 million and we had long term debt of 84.9 million as a result of on more positive outlook for operating capital. We converted 10 million of cash we had drawn in March to fund partnership that closed on May Onest. Thus, we have over 255 million of available unrestricted cash and revolver capacity to execute on our plans.
We believe our balance sheet cash low net leverage and access to liquidity continues to stand out any current environment. We've always talked to manage the business for the long term into look forward and plan ahead, allowing us to be where the world is moving to and not moving from.
And that's why we want to reiterate that due to the pandemic, we expect that our seasonality with respect to adjusted EBITDA margins will be skew due to the impact of winning reduced amount to new business. During this time in some reductions in revenue from existing clients, especially in middle market, coupled with our main street business being slightly lower contingent payments until the end of June.
We expect our second quarter adjusted EBITDA margin to be more akin to what we would normally recording the fourth quarter, which is normally our seasonally weakest quarter as Trevor mentioned earlier. We're also moving ahead with investing in our business with an eye toward our long term growth, while continuing to closely monitor the macro environment should there be continuing delays and the economy's reopening we are fortunate.
No we have a strong presence in states, where the Kobin 19 outbreak has today has been relatively less severe our exposure to the southeast which appears right now we'll open back up sooner than other states that have been more significantly impacted by the pandemic should provide a better near term business environment for our clients and us while we do have risk exposure.
Some of the more significantly impacted geographies with our national client base is not nearly as large as our exposure to the southeast. We're also fortunate to have a large amount of clients who are considered essential businesses as evidenced by our specialty wholesale business being almost entirely healthcare related.
We have ample capacity to be nimble with respect to operations and acquiring new partnerships and as we continue to take the temperature. The economy. We can either continues to move forward and allocate capital as a new high quality partnerships are keep our powder dry should the economy not show signs of recovery. This is a fluid situation, but as we sit here today, we find ourselves center.
Preferred position compared to many businesses and we are more optimistic than we were in late March when there were many more unknowns with that I. Thank you for your time and we'll now open up the call for can you an operator.
Thank you we will now be conducting a question and answer session.
If you like to ask a question you May press star one on your telephone keypad.
A confirmation to indicate your line is in the question Q.
You may priced or too if you would like to remove your question from the Q.
For participants using speaker equipment.
Maybe just started pick up your handset before pressing the star Kate.
Well first question comes from the line of Greg Peters with Raymond James. Please proceed with your question.
Good afternoon, three quick questions for you.
Clearly you're being very successful what's the growth Sophie.
On the side business can you talk about where that growth is coming from is it just.
Done on a geography basis, new customers just give us some color flavor why it's growing so rapidly.
Yeah, Hey, Greg This Trevor and.
Hope your.
Staying safe and healthy and appreciate you joining us this evening specific to the M. Jay the future were continuing to see that growth across our national footprint. As you May know were licensed in doing business in all 50 states.
I think this.
The results were saying, they're really highlight the resiliency.
And power of the technology, we have their enabling us to be a true 24, seven business and insurance solution.
To give you some anecdotal evidence.
While I mentioned in my earlier prepared remarks that we saw the lowest new business results across our business in late March and the first week of April we saw new business for the Ngs platform increase and April as compared to March with new policies issued.
Growing 37% on a year over year basis, and then as we sit here in May new policies issued have accelerated even further from there.
In addition to that as we look at how our new business is occurring across our geographic footprint.
And highlight that new business or new policies issued between April 1st and May 11th and some of the harder hit States of New York, New Jersey, and Illinois in Massachusetts were up 39% on a year over year basis, and specifically to the four counties that make up New York City.
They are new policies issued during that same time period were up roughly 44%.
Okay.
Thanks for the color.
The second question is just on.
The deals.
The pipeline.
We've heard from others.
Yes, there has been a pause in the marketplace, but.
In in there also is the.
Very real Prospected deal multiples have come down can you talk about.
How the cost to the multiples that you paid for the deals year to date and is there an expectation going forward because of this.
Economic crisis that you might be able to get these high quality products properties at a lower price.
So what we're seeing Greg is that our pipeline continues to be really strong both and partnership opportunities that we've been cultivating for quite some time as well as new opportunities that we continue to see and that come and even as recently as this week.
So from an activity standpoint, while we may not be saying as many represented deals as we did pretty cove. It the overall deal flow or state seeing is still at a really healthy level.
It is as respects pricing, it's really deal specific so if you have potential opportunity that may be more acutely exposed to industry sectors or geographies.
That are being heavily impacted by the current prices. Then there is certainly going to be some meaningful structural and pricing changes to how those deals are done.
So for the partnerships. We've closed have been businesses that we believe are incredibly resilient and defensively positioned to the current environment.
And while the overall.
Valuations are shifting somewhat I'd still come in incredibly fluid environment and so we continue to evaluate that in real time.
Okay. The final question is around free cash flow.
First quarter looked like it was about flat compared with last year.
And I'm just curious what the drivers of that embedded in the balance sheet I noticed there was a big jump in premiums receivable, maybe you could also our comment on what's going on there.
Yes, Brad do you want to provide some color there.
Yes, I would say.
We noted Greg that.
Profit sharing was.
Substantially.
Down from the prior year and our personal lines of businesses. So that certainly hurt free cash flow in Q1 on a comparative basis.
And if you look to the rise in premiums receivable.
That's not flagging in issue on Uncollectibles, that's more timing of.
[music].
Significant portion of for instance, our employee benefits.
Business in the Middle market is goes effective in the first quarter, which brings you know the seasonality we referenced before so you do get a a rise in premiums receivable as a result of that as well given that a lot of those policies.
Have monthly payment terms.
Got it thanks for the answers.
Thanks, Greg.
Our next question comes from the line of you lease Greenspan with Wells Fargo. Please proceed with your question.
Hi, Thanks.
My first question.
Yes, you know go too.
Well some meat.
The outlook.
Well I think Q2, but then also for the other quarters of this year.
I seem to be more optimistic.
Sounds good at the end of March obviously, pointing to what seems like some better new business levels.
While people May do you think about.
All your businesses combined.
It does it feel like how does the Q2 feel from an organic perspective, and then even as we think about some business is recorded as some of the lab walk orders for the year.
Well, how cold it on the economy.
Yes.
For the Basel 2020.
Yeah. So.
This is we kind of break down the organic growth algorithm then our business. The drivers of that are no different than our peers. So you've got new business client retention and then they the impact of exposure units and rader or insurance pricing and as that.
Highlighted earlier in the call from a new business standpoint.
What we're saying today is our new overall new business results.
Continuing to grow and improve over what we saw the trough in late March and in early April I can give you. Some anecdotal examples of that and our middle market business in the month of April our risk advisor headcount was up 52%.
Every year.
And our total new business revenue generated was up 62% approximately year over year, so roughly 7% increase and productivity per risk advisor on a year over year basis. Similarly, and main street total new business in the month of April was up roughly 38.
Percent driving roughly a 5% increase and productivity of our sales advisors on a year over year basis, I think and this really highlights the durability of our client engagement model as well as the effectiveness of our technology and tools 10.
Level, our risk advisors to be successful in the current virtual environment.
When we look at client retention you know since the outbreak Cove. It we're seeing improving trends there on a year over year basis.
And really from a rate standpoint, similar to what you're probably hearing from our peers that continues to be a positive tailwind. The the really kind of unknown factor is the impact on exposure units, which really most meaningfully impact to our middle market.
Business.
And we feel like we have really good real time visibility and to what what we're seeing there in our business. So I can kind of share with you as an example.
The combined impact of rate and exposure and our middle market business was roughly negative 1% in the month of April but we've seen some improvement in that with last week seeing of roughly a net impact of rate and exposure on our renewal book.
<unk>, 5.4%, but it I just want to point out that remains really fluids businesses begin to go back to work if the economy reopens.
It's still fluid what impact those businesses are going to not gonna have what the new normal looks like and what what further action. They may or may not have to take around headcount and overall revenues and other exposure units so that that really become.
The biggest unknown that we continue to spend a lot of time focused on on looking at our business and real time.
That's helpful. I guess, we put that altogether I mean, you seem pretty positive on the components of organic so I guess if.
To sum it up it sounds like.
We might see a little bit of a slowdown in the Q2, but it seems that you would still be.
You know with in positive territory.
Yes, I think that that's safe to sale is but you know I just want to highlight its you know, it's a really fluid environment and in light of of the current pandemic and.
And so we're hesitant to get too prescriptive with that.
Okay. That's helpful and then in terms of the margin commentary.
I like last quarter, you guys kind of insinuated weighed if there had been on what could be a pullback that maybe on some investments might be put on hold a little bit so.
He did comment on what you saw and why you guys kind of our deciding that ramp up some investment right now.
You know maybe.
Is there like Emmis iPhone stronger than expected just walk us through the thought process on.
The investment than kind of the drag that that's going to have on your margin.
Yeah, Chris you want to share some of our thoughts around that sure as you alluded to.
There was a lot more on knows when we last talked in late March and for our business for our footprint heavily in the southeast.
It's been better than our worst case scenarios, thus far right charter so it's still fluid.
But we are more optimistic.
We also just find ourselves in a good capital position a good leverage position.
And really inability to make investments at a time when others are pulling back which.
Should allow us to grab more talent. It told you really serve our clients.
And build a long term durable business. So some of the margin is certainly our plans to be opportunistic in Q2, when others are but it's fluid we're monitoring it.
We don't Wanna get too far out ahead of ourselves, but we do think theres unique opportunity here to make good investments that will will pay off in the long run.
I would just highlight there at least you know it's not necessarily the same investments we would have been planning on pre co that these are are very informed investment decisions.
Really bolster our efforts where we're seeing outside success in the current environment. So as we shared with the results were seeing in the Mg of the future platform and and how that's really highlighted the resiliency of that business model and their tech enabled.
Go to market strategy.
Which is informing you know further investments there or in other parts of our business, where we've highlighted continued improvement in our overall sales productivity.
We're continuing to make investments there as we were seeing those pay off.
Okay. Thank you. Thank you for the color.
Thanks Louise.
Our next question comes on line of Meyer Shields KBW. Please proceed with your question.
Great. Thanks, and good evening, everyone or afternoon whatever.
Thank you mentioned, there was 100 basis point headwind.
To organic growth in the quarter and you could clarify that a bad debt provision is that auditors return premiums.
I'll, let Brad answer or follow on but but effectively what we did as we looked at the revenue that we had booked I mean generally has kind of a bad debt uncollectible revenue.
For an annual basis and what we did at the into Q1 is we actually doubled our annual reserve in the quarter for coated right just trying to look at what's going on with some of our clients.
An estimate kind of what a cobot exposure would be role obviously keep looking at that but that's what generated 100 basis point hit there.
Yeah, I would say, it's sort of incremental cancellation or is there from our historical practices given the current environment and a and evaluation of our client base with respect to recognized revenue that could be subject to cancellation in the future.
Obviously highly subjective and we'll continue to monitor that in accordance with the accounting standards, but that's what that number represent.
Okay, No that's very helpful.
I think there's a question for Trevor mentioned.
Potential recruitment and obviously did a lot of that could be going on among some of the larger brokerages, hoping you could flesh that out a little more.
Yeah Mayor so what I would share is I think our response and how we then really focused on remaining colleague and client centric amid the current challenging operating environment has really continued to build on and bolster that trial.
Just we have with our colleagues and highlighted our status as a true destination employer for the Industrys top talent. So as you see.
Some of our peers, taking a more broad brush action on that that you know maybe needed or are warranted and their businesses. We think that's going to create opportunities for high performers that may have gotten swept up and and cost saving operator action.
Is that aren't necessarily surgical as they could have been.
Okay. That's very helpful. Thank you so much.
Thanks Mary.
As a reminder, it is star one to ask a question.
Our next question comes along and Pablo Singzon with JP Morgan. Please proceed with your question.
Hi, guys. So I just wanted to follow up and emphasize which held up much better than I expected I think if you look good industry data shows that you just had a meaningful to find the apparel, which matures looks like us even more surprising so as I wanted to dig deeper and its story is really more Boston concentration or maybe.
Over expressed some concern market segments, where you just did not decline as much and you know I was pretty be surprised by are coming to our New York missed given how things are frozen of here, but.
Any additional that'd be helpful.
Yes. Good question Pablo So it's a number of things it's one.
We continue to get better at more effective and how we're driving.
Policy uptake and the communities that were embedded two we continue to turn on more and more communities.
Through our channel partners, making our.
Tech enabled solution available.
That really becomes that solution of convenience at that point a lease.
And and three it's continuing to bring on new channel partners. So it's it's really you know it's a combination of expanding the potential doors, we have access to it's becoming more effective at how we market our solutions to those doors.
And three you know gaining further wallet share inside our existing channel partners.
Got it and just department as he put aside new partnerships me if he could sort to speak to how penetrated you are in you know your current relationships right. Because you reached a point that maybe you're not turned on and those buildings are communities, but I guess some sense of you know how much more.
Run me there is to go there.
Yeah, I mean with with our existing channel partners Theres over 15 million units.
You know as we shared on the call now were roughly 420000 policies in force today. So there's pretty massive runway ahead of us.
Got it and then.
Next question I had was on your the acquisitions that you had disclosed for the second quarter.
I noted that there was a nice pick up there and I guess the acquired EBITDA margin.
From 17% and restore went up 35.
And I think it was in the middle market deals and when can happen risk deal.
If you could just surf provide some color and I know each deal could be different but was that driven more by the the connected risk deal or did you see that we're seeing that those kinds of margins even in the middle market deals.
Yeah, I'd say that was there was really more driven on the middle market side Pablo.
As we've shared before.
At the onset of the year I think we talked about kind of an average expected.
EBITDA margin per aggregate partnership revenue of around 29%, we still feel like that's probably a good number to be using and thinking about for a full year basis and.
Just.
Any given quarter any given partnership it's going to be lower or higher than that it's really very much.
Deal dependent.
Yes, and just.
Deals forever and this will be my last question. So I guess I guess, if you think about revenues and certainly year you get to you know.
Assuming no material change that business right. He gets the acquired revenue that you had modeled with when you did the deal but for upward EBIT or what kind of level should be thinking about a wouldn't try to incorporate that into our models right is it I assume it's more than one year when revenue runs through but if you can speak to how to think of EBITDA flow through the model.
Yes, so if you know what I'd share Pablo It is it's definitely you know, it's not going to all fully show up and say that first 12 months. Following the partnership because you've got some incremental integration expense associated with bringing those partner firms onboard so I.
So it really probably the way to think about that is on an LTM basis month 18 post a partnership is when that could could be really fully realized on an actual basis.
Alright, thank you for yet.
Yeah. Thanks problem.
There are no further questions I'd like to and call it back to driver for closing comments.
Thank you we sincerely appreciate all of the interest in everyone's who joined US. This evening for our first quarter 2020 conference call. We hope all of you continue to remain say healthy and relatively same during these unprecedented times and look forward to being with you hopefully soon.
Take care.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.