Q2 2024 The Baldwin Insurance Group Inc Earnings Call

Operator: For a more detailed discussion, please refer to the note regarding forward-looking statements in the company's earnings release and our most recent Form 10-Q, both of which are available on the Baldwin website. During the call today, the company may also discuss certain non-GAAP financial measures. For a more detailed discussion of these non-GAAP financial measures and historical reconciliation to the most closely comparable GAAP measures, please refer to the company's earnings release and supplemental information, both of which have been posted on the company's website at ir.baldwin.com. I will now turn the call over to Trevor Baldwin, Chief Executive Officer of the Baldwin Group.

Note regarding forward looking statements in the company's earning release and our most recent Form 10-Q, both of which are available on the Baldwin website <unk> <unk>.

During the call today the company May also discuss certain non-GAAP financial measures.

Speaker Change: For a more detailed discussion of these non-GAAP financial measures and historical reconciliation to the most closely comparable GAAP measures. Please refer to the company's earnings release and supplemental information both of which have been posted on the company's website at IR Dot Baldwin Dot Com I will now turn the call over to Trevor Baldwin Chi.

Trevor Baldwin: <unk> Executive officer of the vault and group.

Trevor Baldwin: Good afternoon, and thank you for joining us to discuss our second quarter results reported earlier. This afternoon I'm joined by Brad Hale, Chief Financial Officer, and Bonnie Bishop Executive Director of Investor Relations. The second quarter saw exceptional results across the business Mark.

Trevor Baldwin: Good afternoon, and thank you for joining us to discuss our second quarter results, which were reported earlier this afternoon. I'm joined by Brad Hale, Chief Financial Officer, and Bonnie Bishop, Executive Director of Investor Relations.

Trevor Baldwin: The second quarter saw exceptional results across the business, marked by a continuation of the broad-based revenue momentum, margin, and free cash flow expansion we generated in the first quarter. For the second quarter, we achieved organic revenue growth of 19 percent, up from 16 percent in the first quarter, driven by core commissions and fees growth of 23 percent, a testament to the strong underlying performance we are seeing in the business, led by continued outsized net new client wins.

By a continuation of the broad based revenue momentum margin and free cash flow expansion, we generated in the first quarter for the second quarter, we achieved organic revenue growth of 19% up from 16% in the first quarter driven by core commissions and fees growth of 23 <unk>.

Trevor Baldwin: Year over year, adjusted EBITDA grew 22%, adjusted EBITDA margin expanded 130 basis points to 22%, and free cash flow grew 10% to $18.1 million. Excluding $13.6 million of one-time, third-party refinancing costs incurred during the second quarter, free cash flow would have expanded 93% year over year. As a result of the work we have done to integrate our platform, we have immense operating leverage that will continue to be realized as we rapidly scale, highlighted by year-to-date adjusted EBITDA margin accretion of 210 basis points to 25% and free cash flow of $71.4 million, which is up 38% from the prior year period, or 64%, excluding the impact of one-time third-party refinancing costs.

Trevor Baldwin: Importantly, we now sit less than eight months away from satisfying almost all of our outstanding earn-out obligations and remain bullish on the substantial flexibility that materially improved free cash flow generation will afford us amidst an inflection of our financial profile. In IAS, organic commissions and fees revenue growth came in at 10%. Overall organic revenue growth for the quarter was 8%, bringing the year-to-date total to 10%.

Trevor Baldwin: Net new business momentum continued in the second quarter with sales velocity of 24% compared to 21% in the prior year quarter and client retention in excess of 90%. Year over year, through the second quarter, new business is up over 60% on the back of the investments and talent we've made over the last three years, growing momentum and impact from our industry practice groups and centers of excellence, as well as growing traction and awareness from our rebranding efforts.

Trevor Baldwin: We would note that IS saw some timing-related contingent softness during the quarter along with negative rates and exposure primarily emanating from our real estate portfolio clients, where they have absorbed years of significant rate increases, and we are starting to see early signs of a softening rate environment.

Trevor Baldwin: Our UCTS segment had another outstanding quarter, delivering robust organic revenue growth of 37% and commissions and fees growth of 46% on the back of broad-based momentum across the MGA and growing contribution from Juniper Re, the reinsurance broker we launched last year, which had a very strong quarter and is gaining traction in the marketplace. Most notably, we're excited to announce that during the second quarter, MGA surpassed $1 billion of in-force premium, marking a significant milestone as we continue to both rapidly grow our existing programs and launch new programs that offer tailored insurance solutions that meet the evolving insurance needs of our distribution partners and the more than 1.5 million insured policyholders we serve nationwide, while delivering profitable underwriting results to our insurance capacity providers.

Trevor Baldwin: Our MIS segment showed continued strong momentum in the second quarter, with organic revenue growth of 25%. Westwood continues to have success expanding its position as the preeminent provider of insurance distribution services to the new Home Builders Channel, having signed up two new leading builders in the quarter. Westwood now works with 17 of the top 25 builders in the U.S. Our national mortgage and real estate operation in Charlotte is performing well and, in July, set a new internal best for monthly new business premium.

Trevor Baldwin: We're continuing to make progress on the embedded front and look forward to the future growth tailwinds that that will generate for us. In summary, we are very pleased with our results for the second quarter and the exciting opportunities that lie ahead for the Baldwin Group. Our largely completed integration work will increasingly enable us to leverage the full value of our talent and technology to drive continued industry-leading organic revenue growth and accelerate margin and free cash flow expansion.

Speaker Change: Both tailwind that will generate for us.

Speaker Change: In summary, we are very pleased with our results for the second quarter and for the exciting opportunities that lie ahead for the Baldwin group are largely completed integration work will increasingly enable us to leverage the full value of our talent and technology to drive continued industry, leading organic revenue grew.

Speaker Change: Both and accelerating margin and free cash flow expansion as we look ahead, our focus remains on delivering exceptional execution and innovative solutions to our clients.

Trevor Baldwin: As we look ahead, our focus remains on delivering exceptional execution and innovative solutions to our clients. I want to express my gratitude to all of our colleagues across the Baldwin Group for their ongoing perseverance in an evolving insurance environment and their tireless work to protect the possible for our clients each and every day. With that, I will turn it over to Brad, who will detail our financial results.

Speaker Change: I want to express my gratitude to all of our colleagues across the ballroom group for their ongoing perseverance and an evolving insurance environment and their tireless work to protect the possible for our clients each and every day with that I will turn it over to Brad who will detail our financial results.

Brad Hale: Thanks, Trevor, and good afternoon everyone. For the second quarter, we generated organic revenue growth of 19% and total revenue of $339.8 million. Looking at the segment level, we generated organic revenue growth of 8% at IAS, 37% at UCTS, and 25% at MIS. We recorded a gap net loss for the second quarter of $30.9 million, or a gap diluted loss per share of $0.28. Adjusted net income for the second quarter, which excludes share-based compensation, amortization, and other one-time expenses, was $40.3 million, or $0.34 per fully diluted share. A table reconciling GAAP net income to adjusted net income can be found in our earnings release and our 10-Q filed with the SEC.

Thanks, Trevor and good afternoon, everyone for the second quarter, we generated organic revenue growth of 19% and total revenue of $339 8 million looking.

Brad: Looking at the segment level, we generated organic revenue growth of 8% at Ias, 37% at <unk> and 25% at Ms.

Brad: We recorded GAAP net loss for the second quarter of $30 9 million or GAAP diluted loss per share of 28.

Speaker Change: Adjusted net income for the second quarter, which exclude share based compensation and amortization and other one time expenses was $40 3 million or <unk> 34 per fully diluted share.

Brad Hale: Adjusted EBITDA for the second quarter rose 22% to $74.9 million, compared to $61.6 million in the prior year period. Adjusted EBITDA margin expanded 130 basis points year-over-year to 22% for the quarter, compared to 21% in the prior year period. Free cash flow for the second quarter was $18.1 million, a 10% increase year-over-year.

Brad Hale: Excluding the impact of one-time third-party refinancing costs incurred in the quarter, free cash flow grew 93% year-over-year, a direct reflection of our continued focus on expense discipline and operating leverage in the business. In the second quarter, we paid $37.4 million of earnouts in cash, inclusive of amounts reclassified to colleague earnout incentives. In July, we paid an additional $5 million, bringing our year-to-date total cash earn-out spend to $96.5 million. Our remaining estimated undiscounted earn-out obligations now stand at approximately $218 million.

Brad Hale: As a reminder, several of our partnership agreements contain provisions that permit former selling shareholders to allocate portions of the earn-out proceeds to colleagues who meaningfully contributed to the partnered firm's achievement of the earn-out. When this determination is made, we record compensation expense that is an offset to the change in contingent consideration and neutral to net income.

Brad Hale: As a result of this practice, we have added back $2.8 million of compensation expense in the second quarter associated with colleague earn-out pools, and based on current estimates, we expect to add back approximately $3 million in the third quarter for earn-outs that are coming due. At the end of the second quarter, net leverage stood at 4.4 times, a further reduction from the first quarter. We remain on track to bring net leverage back within our stated long-term range of three to four times by year end.

Brad Hale: In May, we took advantage of favorable market conditions and opportunistically refinanced our debt facility. We tightened pricing on a new $840 million term loan facility to term SOFR plus 3.25% at close, a 36 basis point improvement. Pricing will improve by an additional 25 basis points to term SOFR plus 3% once net leverage drops below 4 times. In addition, we introduced a fixed rate component to our debt stack via a $600 million offering of senior secured notes priced at $7.125 per share. We maintained $600 million of capacity under our revolving credit facility, which is undrawn today.

Brad Hale: We are thrilled with the execution we were able to achieve here and believe we now have a well-balanced mix of both fixed and floating rate debt that positions us to benefit from potential future rate cuts while also protecting us in an environment where the rate curve moves higher. Looking ahead, we made slight updates to tighten the ranges on our previously disclosed full year 2024 guide. We expect revenue of $1.375 billion to $1.4 billion, and organic revenue growth towards the upper end of our long-term range of 10 to 15 percent.

Brad Hale: Adjusted EBITDA of $315 million to $325 million, and free cash flow of $165 million to $195 million. For the third quarter of 2024, we expect revenue of $340 million to $350 million, with organic revenue growth toward the high end of our 10-15% long-term range. We anticipate adjusted EBITDA for 3Q between $71 million and $76 million and adjusted diluted EPS of $0.32 to $0.36 per share.

Trevor Baldwin: As discussed on our Q1 earnings call, we continue to anticipate that the margin accretion for the balance of the year will be more heavily weighted towards the fourth quarter, based on the expected timing of certain contingent commission revenues. In summary, we are pleased with the results for the first six months of this year and the momentum we are seeing across the business on organic growth, margin, free cash flow, and net leverage.

Trevor Baldwin: The underlying strength of our franchise has never been stronger, as evidenced by historically high net new business wins year-to-date and continued momentum we anticipate on that front as clients and prospects continue to demonstrate a top-of-mind preference for our capabilities and solutions. We are incredibly proud of our colleagues' dedication as they navigate the complexities that persist in the insurance market and create value for all of our stakeholders. We would also like to extend our gratitude to our clients for entrusting us with their needs and believing in our ability to provide distinct advice and solutions. We will now take questions. Operator.

Operator: Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star and then 2 to leave the question queue. For participants making use of speaker equipment, it may be necessary to pick up the handset before pressing the stockings. Our first question comes from Gregory Peters of Raymond, James. Please go ahead.

Gregory Peters: Hey, good evening, Greg.

Gregory Peters: Yeah, so the first question will be, you talked about sales velocity, and Trevor, you were going through some numbers. I think sales velocity mentioned was up 24% in the second quarter versus 21% before, and you talked about retention ratios of in excess of 90%. So I'm just wondering what's going on with the sales velocity that you're picking up some momentum and then trying to bridge the gap between the 24% sales velocity result and the organic. 8% number in the insurance advisory business.

Speaker Change: 1% before and you've talked about retention.

Speaker Change: <unk> ratios of in excess of 90%. So I'm just wondering what's going on with the sales velocity that youre picking up some momentum and then trying to bridge the gap.

Speaker Change: Between the 24% sales velocity result, and the organic.

Speaker Change: 8% number in insurance advisory business.

Trevor Baldwin: Yeah, yeah, happy to detail that, Greg. So, as I mentioned earlier, we saw a sales velocity of 24% in the quarter, which compares to 20% in the prior year period, which is just an exceptional result. That compares to an industry average sales velocity rate of roughly 11% and a 75th percentile sales velocity rate of 15%. So, you're talking kind of top-decile industry-leading performance from a net new client wins perspective. As I mentioned on the call, we also had client retention in excess of 90%, which continues to be very strong.

Speaker Change: Yeah, Yeah happy to detail that Greg So as I mentioned earlier, we saw sales velocity of 24% in the quarter, which compares to 20% in the prior year period, which is just an exceptional result that compares to an industry average sales velocity rate of roughly 11%.

Greg: And 70, <unk> percentile sales velocity rate of 15%, so you're talking kind of top decile industry, leading performance from a net new client wins perspective.

Greg: As I mentioned on the call. We also add you know client retention in excess of 90%, which continues to be very strong.

Trevor Baldwin: We did see rate and exposure, which trended negative in the quarter. And I'd say that was largely driven by our concentration of real estate clients who renew in May and June, which is kind of a normal trend for when our large real estate portfolio clients renew. In our real estate book, particularly for those clients who have significant exposure to coastal properties, we were able to deliver broad-based rate reductions.

Speaker Change: We did see rate and exposure, which trended negative in the quarter.

Speaker Change: And I'd say that was largely driven by our concentration of real estate clients, whom renew and May and June which is kind of a normal trend for when our large real estate portfolio clients renew.

Speaker Change: In in our real estate book, particularly for those clients, who have significant exposure to coastal properties, we were able to deliver broad based rate reductions.

Trevor Baldwin: And so you're seeing that flow through in what was a 4% negative rate and exposure headwind for the quarter, but as a result of the terrific work our client-facing colleagues executed on to deliver meaningful savings to clients who have absorbed years of pretty significant increases. In addition to that, in the prior year period when we were experiencing, frankly, the opposite, where capacity was incredibly tight and we were seeing significant increases, rate and exposure were a 10% tailwind to organic growth. And so you had a 15% swing in the impacts of rate and exposure during the quarter.

Speaker Change: And so youre seeing that flow through in what was a 4% negative rate and exposure headwind for the quarter, but as a result of terrific work our client facing colleagues executed on to deliver meaningful savings to clients, whom have absorbed years of pretty significant income.

Speaker Change: In addition to that in the prior year period, when we were experiencing frankly, the opposite where capacity was incredibly tight and we're seeing significant increases rate and exposure was at 10% tailwind to organic growth and so you had a 15% swing in the <unk>.

Speaker Change: Packs of rate and exposure in the quarter, we expect double digit organic growth from I asked for the full year and that's driven by a really strong underlying fundamental trend, which is continued industry, leading new business generation, we expect rate and exposure will likely.

Trevor Baldwin: We expect double-digit organic growth from IIS for the full year, and that's driven by a really strong underlying fundamental trend, which is continued industry-leading new business generation. We expect rate and exposure will likely trend back to positive in the back half of the year as this was somewhat anomalous to the concentration of real estate client renewals that we had in the quarter. And you tend to see a heavier concentration of casualty-driven renewals in the back half of the year, where we're, frankly, seeing the opposite trends with accelerating loss costs largely driven by social inflation and pretty meaningful high-single, low-double-digit rate increases on excess liability and heavy auto loans.

Trend back to positive in the back half of the year. As this was somewhat anomalous to the concentration of real estate client renewals that we had in the quarter and you tend to see heavier concentration of casualty driven renewals in the back half of the year, where we're frankly seeing the opposite trends with.

Speaker Change: <unk> loss cost.

Speaker Change: Largely driven by social inflation and pretty meaningful high single low double digit rate increases to excess liability and heavy auto lines.

Trevor Baldwin: So we'll just reinforce the momentum we're seeing in the IS segment is remarkable. We couldn't be more excited about the results we're seeing from how we've organized the business around deep industry specialization and risk product centers of excellence and how that's pulling through and showing up in client wins with broad-based collaborative teams across geographies and segment specialties. And in addition to that, we did see a little bit of timing-related softness in contingents in the quarter, and we expect for the full year that you'll see growth in contingents. And over time, we would continue to expect contingent revenues to grow at least at or above the rate of core commissions.

Speaker Change: So we'll just reinforce the momentum we're seeing in the ice segment is remarkable we couldnt be more excited about the results. We're seeing from how we organize the business around deep industry specialization in.

Gregory Peters: That was a full answer. Thank you.

Speaker Change: Risk product centers of excellence, and how thats pulling through and showing up in client wins with broad based collaborative teams across geographies and specialties.

Speaker Change: And then in addition to that we did see a little bit of timing related softness to contingents in the quarter.

Speaker Change: And we expect for the full year that youll see growth in contingent.

Speaker Change: And over time, we would continue to expect contingent revenues to grow at least at or above the rate of core commissions and fees.

Speaker Change: Oh that was a full answer thank you.

Gregory Peters: I guess for my follow-up question, I'll pivot to the margin results. And, you know, we're here in August, and we like to look forward to 2025 and beyond. Just trying to figure out, you know, what levers you have to pull for margin expansion beyond this year, because it looks like you're having, you know, a fair amount of success this year. But looking forward beyond this year, you know, how you're framing up the potential for margin improvement across enterprises as we look beyond.

Speaker Change: I guess for my follow up question.

Speaker Change: To the margin.

Speaker Change: Results.

Speaker Change: And.

Speaker Change: We're here in August.

Speaker Change: And.

Speaker Change: Sure.

Speaker Change: I would like to look forward to 'twenty five and beyond.

Speaker Change: Trying to figure out.

Speaker Change: What levers you have to pull for margin expansion beyond this year because it looks like you are having a fair amount of success this year, but looking forward.

Speaker Change: And this year, how you're framing up the potential for margin improvement across the enterprise as we look beyond.

Trevor Baldwin: Yeah, hey, Greg, I'll have Brad go into the details, but I would just kind of start with broadly saying, you know, when you look at the margin profile of our peers, generally, you know, there's no structural difference between our business and that of our peers. And so, you know, over time, we would expect our business to generate margins at least equivalent to, if not greater than, you know, our peers, particularly when you look at the general kind of revenue sources across our business and the degree of investment we've made in, you know, a truly modernized technology backbone. So that's a long winded way of saying, I guess, we expect to have margin accretion for years But Brad, why don't you dive in a bit deeper there?

Brad: Yeah, Hey, Greg I'll have Brad go into the details, but I would just kind of start with broadly, saying when you look at the margin profile of our peers generally.

Brad: Structurally no difference between our business and that of our beer peers and so over time, we would expect our business to generate margins at least equivalent to if not greater than <unk>.

Speaker Change: Our peers.

Speaker Change: Particularly when you look at the general kind of.

Speaker Change: Revenue sources across our business.

Speaker Change: And the degree of investment we've made in <unk>.

Speaker Change: Truly modernized technology backbone.

Speaker Change: So that's to say long winded way of saying I guess, we expect to have.

Speaker Change: Margin accretion for years into the future, but Brad why don't you dive a bit deeper there yes.

Brad Hale: Yeah, so if we look at this quarter specifically, Greg, the lift in margin came really from the core operations of the business, and we think it makes the result even more impressive than what the strong financial results are showcasing. So we improved margin by 130 basis points despite the profit-sharing sort of headwinds that were timing-related, which we flagged on the Q1 call. If you just held contingents flat year over year in the quarter, we would have expanded margin by an additional 150 basis points.

Brad: Yes, so if we look at this quarter, specifically, Greg the lift in margin came really from the core operations of the business.

Brad: And we think it makes the result, even more impressive than what the strong.

Speaker Change: Financial results are showcasing.

Brad: So we improved margin of 130 basis points. Despite the profit sharing sort of headwinds that were timing related.

Speaker Change: Which we flagged on the Q1 call. If you just held contingent is flat year over year in the quarter, we would've expanded margin and additional 150 basis points.

Brad Hale: If you look at the comp line, right, comp expense as a percentage of total revenue was 390 basis points lower than Q223 and 660 basis points lower as a percentage of commission and fees excluding contingents. OPEX was, you know, an equally impressive trend, 230 basis points lower than Q223 as a percentage of total revenue, and 300 basis points lower as a percentage of commission and fees excluding contingents. So this is consistent with the messaging we provided, where we've got significant operating leverage in the business, and we're making progress towards that margin expansion that we've been communicating.

Speaker Change: If you look at the comp line rate comp expense as a percentage of total revenue was 390 basis points lower than Q2, 'twenty, three and 660 basis points lower as a percentage of commission and fees, excluding contingents Opex was.

Brad: And equally impressive trend 230 basis points lower than Q2, 'twenty three as a percentage of total revenue 300 basis points lower as a percentage of commission and fees. Excluding contingence. So this is consistent with the messaging, we provided where we've got significant operating leverage in the business.

Speaker Change: And we're making progress towards that margin expansion that we've been communicating I think as you look to leverage in the future. It's just continued execution.

Brad Hale: I think as you look to leverage in the future, it's just continued execution. It's continuing to drive on the organic measures, the organic growth in the business that you're seeing while achieving the operating leverage in the business that we know exists across those comp and opex lines.

Speaker Change: It's continuing to drive on the organic measures the organic growth in the business that youre seeing while achieving the operating leverage in the business that we know exists across those comp and opex lines.

Gregory Peters: Got it. Thanks for the detail.

Speaker Change: Got it thanks for the detail.

Craig: Thanks, Craig.

Operator: Our next question comes from Elyse Greenspan of Wells Fargo. Please go ahead.

Brad: Our next question comes from Elyse Greenspan of Wells Fargo. Please go ahead.

Elyse Greenspan: Hi, thanks, and good evening. My first question, I guess, is building upon, you know, some of the prior discussion on organic. So, you know, within, I guess, maybe sticking to the Q3, I guess, within that guide, what are you assuming is going to happen to contingents? Because I know you said that they would be more heavily weighted to the fourth quarter. And in both the third and the fourth quarter, are you assuming that IAS organic growth gets back into the double digits?

Speaker Change: Hi, Thanks. Good evening My first question I guess is building upon.

Speaker Change: The prior discussion on organic so.

Elyse Greenspan: Within I guess, maybe sticking to the Q3 I guess within that guide what are you assuming is going to happen.

Speaker Change: Ticket opinion, because I know you said that there would be more heavily weighted to the fourth quarter.

Speaker Change: And in both the third and the fourth quarter are you assuming that I asked organic gets back into the double digits.

Brad Hale: Yes, so both the third and the fourth quarter, we are anticipating that IAS will get back into double digits as a part of our guide of the high end of 10 to 15 percent for the balance of the year. And as we outlined on the Q1 call, we had a pretty big timing shift of profit-sharing revenue that we recorded in Q2 and Q3 of the prior year that got shifted to Q4 of this year. But, as Trevor articulated, by the end of 2024, we do expect contingents to normalize and to be slightly higher across the full year.

Speaker Change: Yes, so both the third and the fourth quarter, we are anticipating that Ias gets back into double digits.

Elyse Greenspan: As a part of our guide at the high end of 10% to 15%.

Speaker Change: For the balance of the year.

Speaker Change: As we outlined on the Q1 call, we had a pretty big timing shift of profit sharing revenue.

Speaker Change: We recorded in Q2 and Q3 of the prior year, they've got shifted to Q4 of this year.

Speaker Change: But as Trevor articulated by by the end of 'twenty four we do expect contingents to normalize in.

Speaker Change: And to be slightly up across the full year.

Trevor Baldwin: And then can you provide, I guess, like an update on the reinsurance billed out, and was there, you know, any revenue contribution in the quarter?

Speaker Change: And then can you provide I guess I can update.

Speaker Change: The reinsurance spill doubted.

Speaker Change: Is there any any revenue contribution in the quarter.

Trevor Baldwin: Yeah, hey, Elyse, this is Trevor. You know, we're overall incredibly pleased with where Juniper Reads is at and how that business continues to scale. We did see, you know, pretty meaningful revenue contributions from that business in the second quarter, contributing roughly five points to organic growth in the UCTS segment. Now that should prove to be a relative high point for this year just as a result of seasonality of how those revenue streams overall hit, but I'd say the business continues to perform very well.

Speaker Change: Yeah, Hey, Elyse this is Trevor.

Speaker Change: We're overall incredibly pleased with with where juniper reads at and how that business continues to scale, we did see.

Speaker Change: Frankly pretty meaningful revenue contributions from that business in the second quarter.

Speaker Change: Contributing roughly five points of organic growth in the Cts segment now that should prove to be a relative high point for this year just as a result of seasonality of how those those revenue streams overall hit.

Speaker Change: But I'd say yeah.

Speaker Change: The business continues to perform very well, we've been able to attract really strong talent and it's clear that the platform is really beginning to resonate into the marketplace.

Trevor Baldwin: We've been able to attract really strong talent, and it's clear that the platform is really beginning to resonate in the marketplace. I'd say it also remains our base case that we see a pretty clear path to that business being profitable as soon as 2025, although, you know, we do remain opportunistic if incremental opportunities to bring on industry-leading talent present themselves. And so, you know, we're excited that business is tracking ahead of expectations and plans internally and has growing momentum and impact in the market.

Speaker Change: It also remains our base case that we see a pretty clear path to that business being profitable as soon as 2025, although we do remain opportunistic if incremental opportunities to bring an industry leading talent present themselves.

Speaker Change: And so we're excited that business is tracking ahead of expectations and plan internally and is growing momentum in and impact in the market.

Trevor Baldwin: And then one last one on the UTCS segment, pretty strong growth there, embedded within the guidance, I guess, what are the expectations for, you know, organic growth within that business over the balance of the year? Yeah, so, you know, we try to

Speaker Change: And then one last one on me.

Speaker Change: On the Tcs segment pretty strong growth there.

Speaker Change: Embedded within the guidance I guess, what are your expectations for organic growth within within that business over the balance of the year.

Trevor Baldwin: Yeah, so we try to stay away from segment-specific guidance, Elyse. But what I would tell you is, overall, we're incredibly pleased with the continued momentum at UCTS. And that strength you saw this quarter was very broad-based, and we would expect that to continue. And we saw our homeowners business continue to grow at an outsized rate; the premium for our total home business, which includes builder, non-builder, ENS plus admitted, and real estate investor portfolio, grew just over 50%. And you'll recall, we wrote our first home policy in early 2022.

Speaker Change: Yeah. So you know we tried to stay away from segment specific guidance Elyse, but what I would tell you is overall, we're incredibly pleased with the continued momentum.

Speaker Change: Cts.

Speaker Change: And that strength you saw this quarter was very broad based and we would expect that to continue.

Speaker Change: Our homeowners business continued to grow at an outsized rate premium for our total home business, which includes builder non builder E&S plus admitted and real estate investor portfolio grew.

Speaker Change: Just over 50%.

Speaker Change: And you'll recall, we wrote our first home policy in early 2022 that portfolio now is approaching $500 million of.

Trevor Baldwin: That portfolio now is approaching $500 million of enforced premium. In addition to that, really, our legacy initial product, which is the renter's business, continues to grow very nicely and scale. Commissions and fees for the renter's product line were up 28% in the quarter. And at the end of July, we continue to see record days of new business production. I mentioned earlier the contributions from Juniper, and I'd say the overall OG print of 37%, similar to the margin story Brad detailed earlier, doesn't fully represent the strength of the results, with underlying commissions and fees being up 46% in the quarter. So we're not forecasting that same level of organic growth for the balance of the year, but we do expect continued double-digit organic growth out of that segment, and frankly, out

Speaker Change: In force premium in addition to that our really our legacy initial product, which is the renters business continues to grow very nicely.

Elyse Greenspan: Thank you, Elyse. Thank you. The next question comes from Tommy McTurrent of KBW. Please go ahead.

Speaker Change: And scale commissions and fees for the renters product line was up 28% in the quarter.

Speaker Change: And end of July we continue to see record days of new business production.

Speaker Change: I mentioned earlier, the contributions from Juniper and I'd say, the overall LG print of 37% similar to the margin story, Brad detailed earlier doesn't fully rep.

Speaker Change: Represent the strength of the results with with underlying commissions and fees being up 46% in the quarter. So we're not forecasting that same level of organic growth for the balance of the year, but we do expect continued double digit organic growth out of that segment and frankly out of all of our segments.

Speaker Change: Thank you.

Speaker Change: Thank you at least the next question comes.

Speaker Change: Thank you. The next question comes from Tommy Moll of K B W. Please go ahead.

Operator: Hey, guys, thanks for taking my questions. Yeah, so, you know, we've certainly seen some signs across the industry. And it sounds like you guys are confirming it as well that we're seeing some perhaps softening on the property side and a hardening on the casualty side. Is there a way to kind of simplify or boil down, you know, what you think of as your rough mix in terms of property versus casualty?

Tommy Moll: Hey, guys. Thanks for taking my questions.

Speaker Change: Yeah. So.

Tommy Moll: Certainly seeing some signs across the industry and it sounds like you guys are confirming it as well that we're seeing some perhaps softening on the on the property side and and hardening on the casualty side.

Speaker Change: Is there a way to kind of simplify our boil down what you think of as your rough mix in terms of property versus casualty.

Tommy McTurrent: Yeah, I mean, specific to our retail broking businesses, Tommy, I wouldn't say that our mix is demonstrably different from that of our peers. You know, we tend to have a heavy concentration of, you know, cap property renewals in May and June just due to the complexity of the complexion of our book. But we would not, we wouldn't, you know; we don't have an outsized property component to our book relative to, you know, casualty or professional lines.

Speaker Change: Yes, I mean specific to our retail broking business is Tommy.

Tommy Moll: I wouldn't say that our mix is demonstrably different from that of our peers, we tend to have heavy concentration.

Speaker Change: Cat property renewals in May and June just due to the complexity of the complexion of our book.

Speaker Change: But we would not we wouldn't.

Speaker Change: We don't have an outsized property component to our book relative to casualty or professional lines.

Trevor Baldwin: You know, overall, just commenting on the rate environment, what I would say is, you know, while there's certainly puts and takes and, you know, you're seeing a deceleration on property, particularly catastrophe property, amongst larger clients, you're seeing an acceleration on the casualty side, you know, in particular on excess and auto lines, and, in general, what I would tell you is that, you know, the complexity The frequency and severity of natural catastrophes continue to rise.

Speaker Change: Overall, just commenting on the rate environment, what I would say is while there are certainly puts and takes and youre seeing a deceleration on property, particularly cat property amongst larger clients are you seeing an acceleration on the casualty side in particular on.

Speaker Change: Access and auto lines.

Speaker Change: And in general what I would tell you is that the complexity of the world and the risks emanating it from it are growing.

Speaker Change: The frequency and severity of natural catastrophes continues to rise.

Trevor Baldwin: And so risk... is becoming an increasingly complex and top of mind topic amongst the C-suite across businesses and our clients. And, in general, while there will be put and takes in any given quarter or any given year, we would expect that the rate at which both risk and the complexity of risk grow will continue accelerating into the future, leading to ultimately our advice and our solutions becoming in growing demand across our clients. And so, you know, we expect continued meaningful tailwinds well into the future as a result of those dynamics.

Speaker Change: And so risk is becoming an increasingly complex and top of mind topic amongst the sea suite across businesses and our clients.

Tommy McTurrent: Got it. Thanks for that.

Speaker Change: And in general while there will be puts and takes any given quarter or any given year, we would expect that the rate of which both risk and the complexity of risk grows we'll continue accelerating into the future.

Speaker Change: Leading the ultimately our advice and our solutions, becoming in two growing demand.

Speaker Change: Across our clients and so we expect continued meaningful tailwind well into the future as a result of those dynamics.

Tommy McTurrent: And just as a separate area, we've obviously seen some volatility in rates here over the past few days, to the extent that, you know, rates do come down or perhaps stay down to levels where they are now. Does that change your calculus for when you would look to re-engage in M&A more meaningfully, or is it still, perhaps, the second half of 2025? Yeah, so Tommy, we're focused on, you know, leverage.

Speaker Change: Got it thanks for that and just as a separate area.

Speaker Change: You've obviously seen some some volatility in rates here over the past few days to the extent that.

Speaker Change: Rates do come down or perhaps stay down to levels, where they are now does that change your calculus for when you would look to to Reengage in M&A more meaningfully or it's still a second half of 2025 stores.

Trevor Baldwin: Yeah, so Tommy, we're focused on, you know, de-levering the business and continuing to execute, you know, towards what is a meaningful, you know, inflection in our overall financial profile. You know, we continue to be thoughtful about building relationships across, you know, high priority M&A opportunities and as a result of a healthy pipeline of relationships. But what I would tell you is that, for the time being, we're heads down focused on executing in the core business.

Speaker Change: Yeah, So Tom we were focused on.

Speaker Change: Delevering, the business and continuing to execute towards what is meaningful.

Speaker Change: <unk> and our overall financial profile.

Speaker Change: We continue to be thoughtful about building relationships.

Speaker Change: Across high priority M&A opportunities and as a result of a <unk>.

Speaker Change: Healthy pipeline of relationships, but what I would tell you is that for the time being we're heads down focused on executing in the core business.

Trevor Baldwin: We do expect M&A, you know, to be a bit more episodic going forward for the reasons we've talked about in the past, but it will certainly be an important and meaningful value creation lever for us over time. You know, with that being said, I'd say, with M&A being a lever that becomes more, you know, readily available in the second half of 2025, what we would say is you shouldn't model any impacts from M&A until 2026 just because of the varying nature of timing that occurs when getting transactions over the line.

Speaker Change: We do expect for M&A and it would be a bit more episodic going forward for the reasons, we've talked about in the past.

Speaker Change: But we'll certainly be an important and meaningful value creation lever for us over time.

Speaker Change: With that being said I'd say with M&A being a lever that becomes more readily available in the second half of 2025, what we would say is you shouldn't model any impacts from M&A until 2026, just because of.

Speaker Change: The very nature of timing.

Speaker Change: That occurs when when getting transactions over the line.

Robert: Makes sense thanks Robert.

Tommy Moll: Thanks Tommy.

Operator: The next question comes from Pablo Singzon of J.P. Morgan. Please go ahead.

Speaker Change: The next question comes from popular things on J P. Morgan. Please go ahead.

Pablo Singzon: Hi, good afternoon. First question I had: So if you think about the full-year 2024 guide for organic growth, would it be fair to say that you're assuming a headwind contingent on that number? And if so, could you quantify what the headwind might look like versus a normal year?

Speaker Change: Hi, Good afternoon first question I had so.

Speaker Change: If you think about the full year 2024 and guide for growth.

Speaker Change: Would it be picky with who would be fair to say that youre, assuming ahead to do that.

Tommy Moll: Number.

Speaker Change: And if so could you quantify what the headwind might look versus a normal year.

Brad Hale: Yeah, so I wouldn't say we're forecasting a headwind year over year, Pablo. I would say we still expect, from a dollar value perspective, that contingents would be slightly up from the prior year. As a percentage of revenue, we could see a slight decline this year just based on the timing of when certain contingents have hit across the year. But look, the communication of organic growth at the high end of our 10 to 15 percent, our continued performance or outperformance against that metric just shows the underlying core strength of the business. And it's that core strength that really is the strongest growth of all that is going to drive continued margin accretion for us in the future as those policies are renewed.

Speaker Change: Yes, so I wouldn't say we're <unk>.

Tommy Moll: <unk> forecasting a headwind year over year, Pablo I would say, we still expect from a dollar value perspective that contingents would be slightly up from the prior year.

Speaker Change: As a percentage of revenue.

Tommy Moll: We could see a slight decline this year just based on the timing of when certain contingents have hit us.

Tommy Moll: Across the U S excuse me across the year.

Speaker Change: Well look the the communication of organic growth at the high end of our 10% to 15% of our continued performance or outperformance against that metric just shows the underlying.

Tommy Moll: Core strength of the business and.

Speaker Change: <unk> core strength that really is the strongest growth of all right that is it is going to drive continued margin accretion for us in the future.

Tommy Moll: As those policies renew.

Pablo Singzon: Got it. And then just switching to the margin, I guess I'll ask the question this way, right? From a business perspective, as you think about, you know, recruitment and investments you need to make, can you sort of frame, given where you are now, how you think headcount might trend next year? What sorts of investments are you putting your resources of the firm into? And I suppose against that, like, can you also discuss any ongoing expense initiatives that you're still executing? Thank you.

Speaker Change: Got it and then just switching to margins I guess I'll ask the question. This way it right from a business perspective, as you think about you know.

Speaker Change:

Speaker Change: Recruitment in investments you need to make can you sort of frame you know given where you are now how you think head count might trend next year.

Speaker Change: Investments are you.

Speaker Change: Putting you're putting the resources of the firm into.

Speaker Change: And I suppose against that can you also discuss any ongoing expense initiatives.

Speaker Change: Thank you.

Trevor Baldwin: Yeah, hey Pablo, it's Trevor. I'll tackle a few of those. So, you know, we continue to invest in frontline talent and, you know, grow our client-facing colleague base in a manner that we believe is more than adequate to sustain the double-digit organic growth expectations that we have for ourselves well into the future. We continue to meaningfully invest in the modern technology infrastructure that enables us to drive meaningful efficiencies into the way in which we interact and operate both internally and with our clients.

Speaker Change: Yeah, Hey, Pablo it's Trevor.

Speaker Change: Tackle a few of those so we continue to invest in.

Speaker Change: Frontline.

Trevor Baldwin: Talent and.

Speaker Change: Grow our client facing colleague base in a manner that.

Speaker Change: We believe is more than adequate to sustain the double digit organic growth expectations that we have for ourselves well into the future.

Speaker Change: We continue to invest meaningfully into the.

Speaker Change: The modern technology infrastructure that enables us to drive meaningful efficiencies into the way in which we interact and operate both internally and with our clients.

Trevor Baldwin: And ultimately believe that will yield, you know, significantly enhanced overall client experiences, meaningfully elevating the way in which our colleagues work, ensuring that they spend the vast preponderance of their time building relationships and providing advice and counsel and solutions, rather than what can be somewhat low-value, task-oriented work that's fairly manual in nature that still exists across the industry. And so as we think about the opportunity for continued margin accretion, I'd say it's across both the compensation and OpEx line items, not because we're not reinvesting in the business, but because of the way in which we've structured our platform, integrated the business, built our technology backbone, and how that enables us to pioneer new ways in which we're operating and executing that deliver better outcomes for our clients, better experiences for our colleagues and better results for our shareholders.

Speaker Change: And ultimately believe that will yield significantly enhanced overall.

Speaker Change: <unk> experiences while also.

Speaker Change: Meaningfully elevating the way in which our colleagues work ensuring that they spend the vast preponderance of their time building relationships and providing advice and counsel and solutions rather than kind of what can be.

Speaker Change: On what low value task oriented work, that's fairly manual in nature of that that still exists.

Speaker Change: Cross the industry and so as we think about you know.

Speaker Change: The opportunity for continued margin accretion I would say it's across both the compensation and Opex line items, not because we're not reinvesting in the business, but because of the way in which we've structured our platform integrated the business built our technology backbone and how that.

Speaker Change: It enables us to pioneer new ways in which we're operating and executing that deliver better outcomes for our clients better experiences for our colleagues and better results for our shareholders.

Pablo Singzon: Got it. And then maybe just one last question, Trevor, on M&A. You know, you're sitting out on M&A for now, right? But do you think that being out of the market for quite a while here will put you at a disadvantage when you eventually return? Thank you. No, we don't think we'll have any disadvantage. We could pick up...

Trevor Baldwin: Got it and then maybe just one last forever on M&A.

Speaker Change: Curious to hear your thoughts about so you're sitting out in that many for now right, but do you think that being out of the market.

Speaker Change: Quite a while here will put you at a disadvantage when you eventually return thank you.

Speaker Change: No. We don't think we'll have any disadvantage.

Speaker Change: We could pick up the phone Tonight.

Trevor Baldwin: No, we don't think we'll have any disadvantage. We could pick up the phone tonight and have M&A turned back on tomorrow.

Speaker Change: And have M&A turned back on tomorrow.

Speaker Change: Thank you.

Pablo: Thank you Pablo.

Operator: The next question comes from Grace Carter of Bank of America.

Speaker Change: The next question comes from Chris Carter of Bank of America.

Grace Carter: Hi everyone. I wanted to go back to the guidance that y'all gave earlier. It sounds like revenues are expected to come in at the higher end of the original range that y'all gave, but the adjusted EBITDA range, I think that the upper end tightened to $3.25 from the prior $3.30. Could you help us square, I guess, the revenues coming at the upper end of the range versus the tightening on the adjusted EBITDA outlook? Thank you.

Speaker Change: Hi, everyone.

Speaker Change: If I go back to the guidance that you gave earlier it sounds like revenues are expected to come in at.

Speaker Change: The higher end of the original range that you all gave them, but the adjusted EBITDA range I think that the upper end tightened.

Speaker Change: $3 25 from prior 330.

Speaker Change: Can you help us square I guess.

Speaker Change: Revenues coming at the upper end of the range versus the the tightening on the adjusted EBITDA outlook. Thank you.

Brad Hale: Yeah, sure, Grace. So we have increased confidence in that top end of our revenue guidance, given the exceptional performance in the underlying core business that we've shown year to date, as demonstrated by the sales velocity in the retail business that Trevor talked about and the outperformance, particularly in certain of our new products in the MGA. As I mentioned before, this is really the healthiest kind of growth, and it's driven by variables that we control.

Grace: Yes sure Grace.

Speaker Change: So we have increased confidence in that top end of our revenue guidance given the exceptional performance.

Brad Hale: And the underlying core business that we've shown year to date as demonstrated by the sales velocity in the retail business, the Trevor talked about and the outperformance.

Trevor Baldwin: Particularly in certain of our new products in the MGA.

Speaker Change: As I mentioned before this is really the healthiest kind of growth and it's driven by variables that we control.

Brad Hale: But as you think about each of those levers of growth, both of them are marginally less accretive on a relative basis than, say, you know, what would come from just rate and exposure on your renewal base. So we're yielding slightly less pull through in EBITDA than I think we could have maximized in the year, which is why you're seeing us slightly bring down the EBITDA guide while expanding the revenue guide. Nonetheless, you know, at the Titan range that we've provided, it would be 240 to 270 basis points of margin expansion for the year, accompanied by the high end of our 10 to 15 percent organic growth. So, you know, we view that as a phenomenal outlook and would be a phenomenal outcome here, with six months to go. Great. This is Trevor.

Speaker Change: But as you think about each of those.

Trevor Baldwin: Levers of growth both of them are marginally less accretive on a relative basis than say what would come from just rate and exposure on your renewal base.

Speaker Change: So we're yielding slightly less pull through in EBITDA then.

Speaker Change: I think we could have maximized in the year, which is why youre seeing us slightly.

Speaker Change: Slightly bring down the EBITDA guide, while expanding the revenue guide Nonetheless at the at the tightened range that we've provided it would be 240 to 270 basis points of margin expansion on the year.

Speaker Change: Company by the high end of our 10% to 15% organic growth. So we view that as a as a phenomenal outlook and would be a phenomenal outcome.

Speaker Change: Here with six months ago Grace is Trevor I would just reinforce a couple of things the quality of the organic growth as a result of it being almost entirely driven by new revenue drivers that are internally oriented versus benefiting from just kind of.

Trevor Baldwin: Great. This is Trevor.

Trevor Baldwin: I would just reinforce a couple of things. The quality of the organic growth is a result of it being almost entirely driven by new revenue drivers that are internally oriented versus benefiting from any kind of external rate or exposure expansion. And as Brad articulated, when you have that really healthy kind of internally driven organic growth, it does come in at a slightly higher expense load in year one due to the mechanics of new business revenues.

Trevor Baldwin: External rate or exposure expansion and so you can think about that being as far more sustainable.

Trevor Baldwin: Into the future and as Brad articulated when you have that really healthy kind of internally driven organic growth. It does come in at a slightly higher expense load in year, one due to the mechanics of new business revenues, but it comes with a mechanical margin lift that occurs in the.

Trevor Baldwin: But it comes with a mechanical margin lift that occurs in the next year as those policies renew at that lower expense base. And so, what I would tell you is it's for the best of reasons, which is we're seeing higher than expected new business results leading to better organic growth and higher top line and building in mechanical margin accretion into next year.

Speaker Change: The next year as those policies renew at that lower expense base and so what I would tell you is it's for the best of reasons, which is we're seeing higher than expected new business results, leading to better organic growth and higher top line.

Speaker Change: And building in mechanical margin accretion into next year.

Grace Carter: Thank you, that's helpful. And on the free cash flow outlook, I think you all mentioned the refinancing costs this quarter having a negative impact on free cash flow versus what it would have been otherwise. I was just wondering, since the outlook stayed the same, I guess, where do you all see the offset coming from for the remainder of the year? Yeah, I would say with our guide, we were

Speaker Change: Thank you that's helpful.

Speaker Change: The free cash flow outlook, I mean, I think you all mentioned the refinancing cost this quarter.

Speaker Change: Having a negative impact on free cash flow versus what it would've been otherwise I was just wondering since the outlook stayed the same I guess, where do you all see the offset coming.

Speaker Change: For the remainder of the year.

Brad Hale: Yeah, I would say with our guide, we were largely excluding that item, so we would expect, with our EBITDA and revenue performance, you know, largely in line with our previous guidance, that free cash flow would perform in a similar manner.

Speaker Change: Yes, I would say with our guide we were largely excluding that item. So we would expect with our EBITDA and revenue performance largely in line with our previous guidance that the free cash flow would.

Speaker Change: Would perform in a similar manner.

Speaker Change: Thank you.

Chris Carter: Thank you Chris.

Operator: Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I will now hand over to Trevor Baldwin for closing remarks.

Chris Carter: Thank you ladies and gentlemen, we have reached the end of the patient and answer session I will now hand over to Trevor Baldwin for closing remarks.

Trevor Baldwin: Thank you, Judith, and thank you all for joining us on the call this evening. We are incredibly excited about the underlying momentum we have in our business, as evidenced by the continued outsized growth in new client wins, growing margin accretion that should be a trend we continue well into the future, and meaningfully expanded cash flow, all leading to a significant near-term inflection of our financial profile. We have an industry-leading organic growth engine which we believe will prove sustainable through insurance market and economic cycles due to the quality and diversity of our revenue drivers.

Trevor Baldwin: Thank you Judith and thank you all for joining us on the call. This evening.

Trevor Baldwin: In closing, I want to thank our colleagues for their hard work and dedication to delivering innovative solutions and exceptional results for our clients. I also want to thank our clients for their continued trust and confidence in our team. Thank you all very much, and we look forward to speaking to you again next quarter.

Trevor Baldwin: We are incredibly excited for the underlying momentum we have in our business as evidenced by the continued outsized growth in new client wins growing margin accretion that should be a trend we continue well into the future and meaningfully expanded cash flow all leading to a significant near term inflection.

Speaker Change: Of our financial profile, we have an industry, leading organic growth engine, which we believe will prove sustainable through insurance market and economic cycles due to the quality and diversity of our revenue drivers in closing I want to thank our colleagues for their hard work and dedication to delivering innovative solutions.

Speaker Change: And exceptional results for our clients also want to thank our clients for their continued trust and confidence in our teams. Thank you all very much and we look forward to speaking to you again next quarter.

Operator: Ladies and gentlemen, that concludes today's event. Thank you for attending, and Emanatas, connect your line.

Speaker Change: Ladies and gentlemen that concludes today's event. Thank you for attending and you may now disconnect your lines.

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