Q1 2025 The Baldwin Insurance Group Inc Earnings Call
Greetings and welcome to the Baldwin Group first quarter 2025 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: Greetings and welcome to the Baldwin Group first quarter 2025. At this time, all participants are on. This is a question and answer session, and we'll follow up.
Operator: If anyone should require operator assistance, please press star zero on your telephone. It is now my pleasure. Thank you.
If anyone should require operator assistance. Please press star zero on your telephone keypad it.
Speaker Change: It is now my pleasure to introduce your host Bonnie Bishop Executive Director of Investor Relations. Thank you you may begin.
Speaker Change: Thank you welcome to the Baldwin group's first quarter 2025 earnings call today's call is being recorded.
Operator: Welcome to the Baldwin Group's first quarter 2025 earnings call. Today's call is being recorded. First quarter financial results, supplemental information, and Form 10-Q were issued earlier this afternoon and are available on the company's website at ir.baldwin.com.
Speaker Change: First quarter financial results supplemental information and Form 10-Q were issued earlier. This afternoon and are available on the company's web site at IR Dot Baldwin Dot Com. Please note that remarks made today may include forward looking statements subject to various assumptions risks and uncertainties the company's actual.
Operator: Please note that remarks made today may include forward-looking statements subject to various assumptions, risks, and uncertainties. The company's actual results may differ materially from those contemplated by such statements. 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.
Speaker Change: Results may differ materially from those contemplated by such statements.
Speaker Change: A more detailed discussion please refer to the note regarding forward looking statements in the company's earnings release, and our recent Form 10-Q, both of which are available on the ballroom website. During the call today. The company May also discuss certain non-GAAP financial measures.
Operator: 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.
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 dotcom.
Trevor Baldwin: I will now turn the call over to Trevor Baldwin, Chief Executive Officer of the Baldwin Group. Good afternoon, and thank you for joining us to discuss our first quarter results reported earlier today. I'm joined by Brad Hale, Chief Financial Officer, and Bonnie Bishop, Executive Director of Investor Relations. We were extremely pleased with the first quarter overall as we continued our track record of industry-leading organic growth, ongoing margin expansion, and double-digit growth in earnings. In the first quarter, we generated organic revenue growth and adjusted EBITDA growth of 10% and 12% respectively, while delivering 80 basis points of adjusted EBITDA margin improvement and 16% growth in adjusted diluted earnings per share.
Speaker Change: I'll now turn the call over to Trevor Baldwin Chief Executive Officer of the Baldwin Group.
Speaker Change: Good afternoon, and thank you for joining us to discuss our first quarter results reported earlier today.
Speaker Change: I'm joined by Brad Hale, Chief Financial Officer, and Bonnie Bishop Executive Director of Investor Relations.
Speaker Change: We were extremely pleased with the first quarter overall as we continued our track record of industry, leading organic growth ongoing margin expansion and double digit growth in earnings in the first quarter, we generated organic revenue growth and adjusted EBIT growth of 10% and 12 person.
Speaker Change: <unk>, respectively, while delivering 80 basis points of adjusted EBITDA margin improvement and 16% growth in adjusted diluted earnings per share.
Trevor Baldwin: Normalizing to the sale of our wholesale business, Connected Risk Solutions, adjusted EBITDA grew 14%, resulting in an adjusted EBITDA margin of 28%. Adjusted free cash flow was $26 million, up 6% from the prior year period. We paid $123 million of earnouts in cash in the first quarter and an additional $37 million in April. We expect to pay another $22 million in the second quarter, which will extinguish the vast majority of our remaining earnout obligations and result in the steady improvement in net leverage and adjusted free cash flow that we've expected.
Speaker Change: Normalizing for the sale of our wholesale business connected risk solutions adjusted EBITDA grew 14%, resulting in an adjusted EBITDA margin of 28% adjusted free cash flow was $26 million up 6% from the prior year period, we paid 120.
Speaker Change: 3 million of earn outs in cash in the first quarter and an additional 37 million in April we expect to pay another 22 million in the second quarter.
Which will extinguish the vast majority of our remaining earn out obligations and result in a steady improvement and net leverage and adjusted free cash flow that we've expected.
Speaker Change: Turning to our segment results and insurance Advisory solutions overall organic revenue growth for the quarter was 3% as we mentioned on our fourth quarter earnings call. We anticipated single digit organic revenue growth and I guess in the first quarter due to the timing of net new business.
Trevor Baldwin: Turning to our segment results in Insurance Advisory Solutions, overall organic revenue growth for the quarter was 3%. As we mentioned on our fourth quarter earnings call, we anticipated single-digit organic revenue growth in IS in the first quarter due to the timing of net new business. sales velocity remained strong at 14% compared to 17% in the prior year period, and client retention improved year over year to approximately 92%. The impact of rate and exposure or premium change on renewals for the quarter was negative 3.5%, largely driven by a more competitive insurance rate environment for our clients across many lines, particularly in large coastal property, as well as muted project-based revenue.
Speaker Change: Sales velocity remains strong at 14% compared to 17% in the prior year period and client retention improved year over year to approximately 92%.
Speaker Change: The impact of rate and exposure or premium change on renewals for the quarter was negative 3.5%.
Speaker Change: Largely driven by a more competitive insurance rate environment for our clients across many lines, particularly in large coastal property as well as muted project based revenue.
Trevor Baldwin: When compared to the 4.5% benefit provided by rate and exposure in the first quarter of 2024, the aggregate headwind to this quarter was approximately 800 basis points.
Speaker Change: When compared to the four and a half per cent benefit provided by rate and exposure in the first quarter of 'twenty 'twenty four the aggregate headwind this quarter was approximately 800 basis points.
Trevor Baldwin: Our underwriting capacity and technology solution segment had an outstanding quarter, with organic revenue growth accelerating to 32% versus 21% in the first quarter of 2024, driven by continued outperformance across our multifamily and home portfolios, which saw 17% and 29% organic commissions and fees growth, respectively. Continued momentum at Juniper Re and the introduction of our multi-family captive also supported the strong organic growth print in UCTS for the quarter.
Our underwriting capacity and technology solutions segment had an outstanding quarter with organic revenue growth accelerating to 32% versus 21% in the first quarter of 'twenty 'twenty four driven by continued outperformance across our multifamily and home portfolio.
Speaker Change: Those which saw 17% and 29% organic commissions and fees growth respectively.
Speaker Change: Continued momentum at Juniper Reed and the introduction of our multifamily captive also supported the strong organic growth print and use etfs for the quarter.
Trevor Baldwin: In April, we announced the finalization of our third-party-led capitalization of our inaugural reciprocal insurance exchange named Builder Reciprocal Insurance Exchange, or Continued Growth in our Builder channel. As of today, we have closed on the $110 million capitalization of the reciprocal and will imminently begin migrating the Builder book. This marks a meaningful milestone in our continued journey to vertically integrate across the value chain and bring innovative third-party risk capital solutions to market in support of more efficient risk transfer outcomes for our clients.
Speaker Change: In April we announced the Finalization of our third party lead capitalization of our inaugural reciprocal insurance exchange named builder reciprocal insurance exchange or breathe for short to support continued growth in our builder channel as of today, we have.
Speaker Change: On the $110 million capitalization of the reciprocal and will imminently begin migrating the builder book. This marks a meaningful milestone in our continued journey to vertically integrate across the value chain and bring innovative third party risk capital solutions to market and support.
Speaker Change: At a more efficient risk transfer outcomes for our clients.
Trevor Baldwin: As a reminder, we do not intend to consolidate Brie's financial results and will account to the attorney-in-fact as an equity method investment. As such, the surplus notes used to capitalize the reciprocal do not represent additional debt of Baldwin or its affiliates.
Speaker Change: As a reminder, we do not intend to consolidate breeze financial results and will account for the attorney in fact, as an equity method investment as such the surplus notes used to capitalize the reciprocal did not represent additional debt of Baldwin or its affiliates.
Speaker Change: Our main street insurance solutions segment delivered total organic revenue growth of 10% driven by strong new business generation across our builder and national mortgage and real estate franchises, along with our Medicare Division, which outperformed during the annual enrollment period.
Trevor Baldwin: Our Main Street Insurance Solutions segment delivered total organic revenue growth of 10 percent, driven by strong new business generation across our builder and national mortgage and real estate franchises, along with our Medicare division, which outperformed during the annual enrollment period. New business momentum helped offset a deceleration in rate and exposure, as well as capacity challenges in certain markets, such as California.
Speaker Change: New business momentum helped to offset a deceleration in rate and exposure as well as capacity challenges in certain markets such as California.
Trevor Baldwin: In summary, we're pleased with our first quarter results despite the macro uncertainty of play and remain confident in the resilience and durability of our business model as well as the overall position and trajectory of our business. Our strengthening financial profile, immense operating leverage, diverse and durable drivers of outsized new business, and leading talent franchise position our business well to execute at a high level and thrive through the current and any insurance market and economic environment.
Speaker Change: In summary, we're pleased with our first quarter results. Despite the macro uncertainty of play and remain confident in the resilience and durability of our business model as well as the overall position and trajectory of our business.
Speaker Change: Our strengthening financial profile immense operating leverage diverse and durable drivers of outsized new business and leading talent franchise positioned our business well to execute at a high level and thrive through the current and any insurance market and X.
Speaker Change: <unk> environment.
Trevor Baldwin: Thank you to our clients for their continued trust in our ability to provide guidance, advice, and creative solutions to mitigate increasingly complex risks, and to our colleagues for their dedication and commitment to deliver meaningful outcomes for both our clients and insurance company partners.
Speaker Change: Thank you to our clients for their continued trust in our ability to provide guidance advice and creative solutions to mitigate increasingly complex risks and tour our colleagues for their dedication and commitment to deliver meaningful outcomes for both our clients and insurance company partners.
Speaker Change: With that I will turn it over to Brad who will detail our financial results.
Brad Hale: With that, I will turn it over to Brad who will detail our financial results. Thanks, Trevor. And good afternoon, everyone. For the first quarter, we generated organic revenue growth of 10% and total revenue of $413.4 million. Looking at the segment level, we generated organic revenue growth of 3% at IAS, 32% at UCTS, and 10% at MIS. We recorded GAAP net income for the first quarter of $24.9 million or GAAP diluted earnings per share of $0.20. Adjusted net income for the first quarter, which excludes share-based compensation, amortization, and other one-time expenses, was $76.6 million, or $0.65 per fully diluted share.
Brad Hale: Thanks, Trevor and good afternoon, everyone for the first quarter, we generated organic revenue growth of 10% and total revenue of $413 4 million looking at the segment level, we generated organic revenue growth of 3% at Ias, 32% at use Etfs and 10 per se.
Speaker Change: M I S.
Speaker Change: We recorded GAAP net income for the first quarter of $24 9 million or GAAP diluted earnings per share of <unk> 20.
Speaker Change: Adjusted net income for the first quarter, which excludes share based compensation amortization and other one time expenses was $76 6 million or <unk> 65 per fully diluted share.
Brad Hale: 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. Adjusted EBITDA for the first quarter rose 12% to $113.8 million, compared to $101.7 million in the prior year period. Adjusted EBITDA margin expanded approximately 80 basis points year-over-year to 27.5% for the quarter, compared to 26.7% in the prior year period.
Speaker Change: Table reconciling GAAP net income to adjusted net income can be found in our earnings release, and our 10-Q filed with the SEC.
Speaker Change: Adjusted EBITDA for the first quarter rose, 12% to $113 8 million compared to $101 7 million in the prior year period.
Speaker Change: Adjusted EBITDA margin expanded approximately 80 basis points year over year to 27, 5% for the quarter compared to 26, 7% in the prior year period.
Brad Hale: As we mentioned on the last earnings call, we transitioned to a fiduciary reporting model for cash, accounts receivable, and payables held or owed in a fiduciary capacity. This change is to reflect the nature of the accounts more appropriately on our balance sheet and reduce volatility in the cash flow from operation. On the balance sheet we now label them Fiduciary Cash, Fiduciary Receivables, and Fiduciary Liability. in the cash flow statement, changes in fiduciary cash are presented within financing activities. We now present the prior periods on the same basis and included a recasting of 2024 quarterly and full year adjusted free cash flow on pages 20 and 21 of our earnings supplement.
Speaker Change: As we mentioned on the last earnings call, we transitioned to a fiduciary reporting model for cash accounts receivable and payables held or owed in a fiduciary capacity. This change is to reflect the nature of the accounts more appropriately on our balance sheet and reduce volatility in the cash flow from operations on the balance.
Speaker Change: <unk>, we now able them fiduciary cash fiduciary receivables and fiduciary liabilities.
Speaker Change: And the cash flow statement changes in fiduciary cash are presented within financing activities. We now present the prior periods on the same basis and included a recasting of 'twenty 'twenty four quarterly and full year adjusted free cash flow on pages 20, and 21 of our earnings supplement.
Brad Hale: As discussed on our year-end call, this change introduced significant seasonality to our presentation of adjusted free cash flow from operations. Adjusted free cash flow for the first quarter was $25.8 million, up 6% year-over-year, as a result of the increase in adjusted EBITDA, offset primarily by timing of contingent receipts, which we expect will normalize in subsequent quarters. In the first quarter, we paid $123 million of earnouts in cash, inclusive of amounts reclassified to colleague earnout incentives. Thus far in the second quarter, we've paid $37 million, leaving our remaining estimated undiscounted earnout obligations at approximately $30 million, $22 million of which we expect to pay in the next couple of months.
Speaker Change: As discussed on our year end call. This change introduced significant seasonality to our presentation of adjusted free cash flow from operations adjusted free cash flow for the first quarter was $25 8 million up 6% year over year as a result of the increase in adjusted EBITDA offset primarily by timing of can.
Speaker Change: Receipts, which we expect will normalize in subsequent quarters.
Speaker Change: In the first quarter, we paid $123 million of earn outs and cash inclusive of amounts reclassified to colleague earn out incentives. Thus far in the second quarter, we've paid 37 million, leaving our remaining estimated undisc counted earn out obligations at approximately 30 million 22 million of which we expect to pay in the next cut.
Speaker Change: A months.
Brad Hale: As expected, net leverage increased slightly to 4.2 times in the quarter given the significant earn out payments incurred. That said, we remain on track to bring net leverage below four times by the third quarter within our stated long-term range of three to four times. Of note, we were recently upgraded by S&P to be stable, and our rating of B2 was affirmed by Moody's with a change in outlook from negative to stable. This outcome is a direct result of the significant improvement in our financial profile over the last couple of years and may provide us with additional opportunities to optimize our debt stack in the future.
Speaker Change: As expected net leverage increased slightly to four two times in the quarter given the significant earn out payments incurred.
Speaker Change: That said, we remain on track to bring net leverage below four times by the third quarter within our stated long term range of three to four times of note. We were recently upgraded by S&P to be stable and our rating of B. Two was affirmed by Moody's with a change in outlet outlook from negative.
Speaker Change: Stable.
Speaker Change: This outcome is a direct result of the significant improvement in our financial profile over the last couple of years and May provide us with additional opportunities to optimize our debt stack in the future.
Brad Hale: Looking ahead, our full-year consolidated guidance remains unchanged. In the face of continued economic uncertainty, we could see organic revenue growth in our IAS business in the mid to high single-digit range for the year, with organic growth building through the year as a result of timing and expected net new business. That said, we continue to expect a double-digit organic growth outcome for the overall business for the year. For the second quarter, we expect revenue of $370 million to $380 million, and organic revenue growth toward the low end of our 10-15% long-term range. We anticipate adjusted EBITDA between $83 million and $88 million, and adjusted diluted EPS of $0.41 to $0.44 per share.
Speaker Change: Looking ahead, our full year consolidated guidance remains unchanged in the face of continued economic uncertainty, we could see organic revenue growth in our <unk> business in the mid to high single digit range for the year with organic growth building through the year as a result of timing and expected net new business.
Speaker Change: That said, we continue to expect a double digit organic growth outcome for the overall business for the year.
Speaker Change: For the second quarter of 2025, we expect revenue of 370 million to $380 million and organic revenue growth toward the low end of our 10% to 15% long term range.
Speaker Change: We anticipate adjusted EBITDA between 83 million and $88 million and adjusted diluted EPS of <unk> 41 to 44 cents per share.
Speaker Change: In summary, we remain confident in our ability to continue executing on our goals of reducing net leverage expanding margins and free cash flow and maintaining double digit organic revenue growth for the year with almost all of our earn out obligations now satisfied we are excited about our forthcoming improved flexibility.
Brad Hale: In summary, we remain confident in our ability to continue executing on our goals of reducing net leverage, expanding margins and free cash flow, and maintaining double digit organic revenue growth for the year. With almost all of our earn out obligations now satisfied, we are excited about our forthcoming improved flexibility to allocate capital to opportunities that will continue to generate durable, outsized results for shareholders.
Speaker Change: To allocate capital to opportunities that will continue to generate durable outsized results for shareholders. We will now take questions operator.
Operator: We will now take questions. Operator?
Operator: For more information visit www.FEMA.gov Thank you.
Speaker Change: Thank you we will now be conducting a question and answer session.
Operator: We will now be conducting a question. If you would like to ask... Please press star 1 on your tone. Confirmation toll will indicate your line is... Mayfair starts that may be necessary to pick up the handset before pressing the star keys. One moment, please, while we pull for questions.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.
Speaker Change: One moment, please while we poll for questions.
Operator: Our first question comes from the line of Greg Peters with Raymond James.
Operator: Our first question comes from the line of. All right.
Speaker Change: Please proceed with your question.
Greg Peters: Oh, Hey, good afternoon, everyone.
Greg: Hey, good afternoon, everyone. Let's jump right into the comments. provided organic revenue outlook for the second quarter in the low end of the range. And part of that, the IAS business seems to be running a little bit below where I thought it would be running. I think you called out some project-based headwinds. Maybe give us some more detail on what's going on inside there and when it might recover to something more, to a higher level, which I would have normally expected.
Speaker Change: Let's jump right into the comments.
Speaker Change: Provided organic revenue outlook for the second quarter and the low end of the range.
Speaker Change: And part of that.
Speaker Change: The Ias business is seems to be running a little bit below where I thought it would be brought in and I think you called out some project based headwinds maybe give us some more detail on what's going on inside there and when it might recover to something more.
Speaker Change: Just a higher level, which I would have normally expected.
Trevor Baldwin: Yeah, hey, Greg, this is Trevor. Good evening. So while the headline organic print for the quarter was below our historic results, this was not unexpected, as we called out the expectation for single digit organic growth this quarter on our year-end call. And let's be clear, I'd say I remain incredibly confident in the underlying fundamentals and relative positioning of our I.S. business. With respect to the result, while we saw some timing related impacts to net new business as we had previewed on our last call, we experienced a roughly 800 basis point headwind in the quarter from impact of rate and exposure or renewal premium change for which we'd call out I'd say two items specifically.
Speaker Change: Yeah, Hey, Greg This is Trevor good evening, so while the headline organic print for the quarter was below our historic results. This was not unexpected as we called out the expectation for single digit organic growth this quarter on our year end call.
Speaker Change: And let's be clear I'd say I remain incredibly confident in the underlying fundamentals and relative positioning of our EIS business with respect to the result, while we saw some timing related impacts to net new business as we had previewed on our last call we experienced a roughly 800 basis point.
Speaker Change: And in the quarter from impact of rate and exposure or renewal premium change for which we'd call out, let's say to two items specifically.
Trevor Baldwin: First, if you look at our property book renewals in the quarter, renewal premium change was negative 5%, which compares to positive 21% in the prior year period. While certainly this impacts our revenue, it also means we're delivering fantastic outcomes for our clients, which contributes to the improved client retention that I cited in the prepared remarks earlier. Second, I'd say there's obviously been a lot of headlines related to macro uncertainty. And while our business has been and will continue to be incredibly resilient in times like this, we can typically see signs of economic uncertainty in our employee benefits business, which we saw in the first quarter, which is also our seasonally largest quarter for the benefits business.
Speaker Change: First if you look at our property book renewals in the quarter renewal premium change was negative, 5%, which compares to positive 21% in the prior year period.
Speaker Change: While certainly this impacts our revenue. It also means we're delivering fantastic outcomes for our clients, which contributes to the improved client retention that I cited in the prepared remarks earlier.
Speaker Change: Second I'd say, there's obviously been a lot of headlines related to macro uncertainty and while our business has been and will continue to be incredibly resilient in times like this we can typically see signs of economic uncertainty and our employee benefits business, which we saw in the first quarter, which is also our seasonally.
Speaker Change: Large this quarter for the benefits business, specifically renewal premium change was roughly flat for the quarter compared to historical trend in the 3% to 7% range, which we attribute to relatively more muted hiring trends and are somewhat more cautious business outlook from our clients related to the current.
Trevor Baldwin: Specifically, renewal premium change was roughly flat for the quarter compared to historical trend in the three to seven percent range, which we'd attribute to relatively more muted hiring trends and a somewhat more cautious business outlook from our clients related to the current macroeconomic uncertainty. All that being said, underlying trends in the business continue to be very strong. Our sales velocity of 14 percent in the quarter remains top quartile for the industry. Our new business pipelines are quite robust, and we see growing momentum in project-based work across our construction practice and are seeing continued improvement in client retention.
Speaker Change: Macro echo macroeconomic uncertainty all of that being said underlying trends in the business continue to be very strong our sales velocity of 14% in the quarter remains top quartile for the industry, our new business pipelines are quite robust and we see growing momentum in <unk>.
Speaker Change: Project based work across our construction practice and are seeing continued improvement in client retention.
Trevor Baldwin: I continue to expect industry-leading sales velocity, strong client retention, and stabilizing impacts from rate and exposure as the year goes on, which should lead to growing momentum in our IS organic growth throughout the year. This continues to be a franchise that will deliver industry-leading new business results, strong client retention, and over time that will continue to generate industry-leading organic growth overall.
Speaker Change: I continue to expect industry, leading sales velocity strong client retention and stabilizing impacts from rate and exposure as the year goes on which should lead to growing momentum in our I S organic growth throughout the year.
Speaker Change: This continues to be a franchise that will deliver industry, leading new business results strong client retention and overtime that will continue to generate industry, leading organic growth overall.
Speaker Change: Okay.
Greg: Okay, thanks for tying the sales philosophy because that was, you know, you called that out in your comments, so I took note of that.
Speaker Change: Thanks for tying the sales velocity because that was.
Speaker Change: You called that all of them are in their comments. So I took note of that.
Speaker Change:
Brad Hale: Brad can we go to the B.
Greg: Brad, can we go to the new cash flow presentation and can you talk about, you know, the, what you're, what you're targeting, what you, how you think about free cash flow conversion rate on an adjusted basis because, you know, these payments, the, that you're going to be paying out in the balance of the second quarter, maybe a little bit in the third quarter, just trying to figure out what the underlying, on a new basis, sort of the target is for the free cash flow conversion rate. Yeah, so I'd say, Greg, our target remains what we called out on the year-end call.
Brad Hale: The new cash flow presentation.
Brad Hale: And can you just talk about you know the what you're what you're targeting what you. How you think about free cash flow conversion rates on adjusted basis, because these payments are due.
Youre going to be paying out.
Brad Hale: The balance of the second quarter, and maybe a little bit in the third quarter, just trying to figure out what the underlying on the new basis sort of the target is for the free cash flow conversion rate.
Brad Hale: Yes, so I'd say, Greg our target remains what we called out on the year end call.
Brad Hale: I believe we gave a guide of between $150 million and $175 million of free cash flow for the year, which would be, call it roughly a 50% conversion rate against adjusted EBITDA. We continue to believe that as interest expense as a percentage of overall EBITDA goes down, one-time items continue to go down, that we can progress towards closer to a 65% to 70% conversion rate of adjusted EBITDA over time.
Brad Hale: I believe we gave a guide of between $150 million and $175 million of free cash flow for the year, which would be call. It roughly a 50% conversion rate against adjusted EBITDA.
Brad Hale: We continue to believe that as interest expense as a percentage of overall EBITDA goes down.
Brad Hale: One time items continue to go down that we can progress towards closer to a 65% to 70% conversion rate of adjusted EBITDA over time, and just to call out a little more specifics on the free cash flow from operations for the quarter.
Brad Hale: And just to call out a little more specifics on the free cash flow from operations for the obviously $26 million, up 6% year-over-year under the revised presentation. It's slightly lower than the adjusted EBITDA growth, and that's really a result of working capital timing. It was about a $10 million headwind, $15 million drag from AR offset largely by about a $9 million benefit in the change in accrued expenses. If I look at those two line items, the largest driver of the AR drag was timing of contingent receipts, which we, of course, expect to reverse in the subsequent quarters.
Brad Hale: Obviously $26 million up 6% year over year under the revised presentation, it's slightly lower than the adjusted EBITDA growth and that's really a result of working capital timing.
Brad Hale: It was about a 10 million dollar headwind $15 million drag from a R offset largely by about a $9 million benefit.
Brad Hale: The change in accrued expenses.
Brad Hale: If I look at those two line items the largest driver of the E. R. Drag was timing of contingent receipts, which we of course expect to reverse in the subsequent quarters. In addition, we have a concentration of both Medicare and benefits revenue in Q1.
Brad Hale: In addition, we have a concentration of both Medicare and benefits revenue in Q1, which is collected over the subsequent 12 months. On the accrual side, the benefit we saw there was the shifting in timing of cash interest as we launched our inaugural senior secured notes last May, and we only pay interest on those twice a year, both in May and October. So we had a slight benefit from that in Q1, which offset that headwind we saw in AR.
Brad Hale: Which is collected over the subsequent 12 months on.
Brad Hale: On the accrual side the benefit we saw there was the shifting in timing of cash interest as we launched our inaugural senior secured notes last may and we only pay interest on those twice a year. Both in May and October So we had a slight benefit from that.
Brad Hale: In Q1, which offset that headwind we saw in a R.
Brad Hale: Thanks for that detail. Can you just, one of the things you called out in the comments was the debt leverage of 4.2 times, I believe, is it still your expectation that when we get to by year end, you're going to be back down into the three range based on what you're seeing going on inside the business? Yes, it is. Perfect.
Speaker Change: Thanks for that detail can you just.
Speaker Change: One of the things you called out in the comments was the debt leverage of four two times I believe is it still your expectation that when we get to by year end, you're going to be back down into the three range based on what youre seeing going on inside the business.
Greg Peters: Yes, it is Greg.
Greg Peters: Perfect. Thanks for the answers.
Greg: Thanks for the answers.
Greg Peters: Thanks, Craig.
Greg Peters: Thank you.
Tommy McJoynt: Our next question comes from the line of Tommy Mcjoynt with KBW. Hey, good. Good evening, guys. It sounds like the the project based headwinds were pretty pronounced in the first quarter. And when I think of the timing of some of the the tariff announcements that that may have induced some of that uncertainty, a lot of that came through, you know, into the second quarter. So can you talk about what you've seen so far, particularly around the project based work as we started the second quarter? Yeah, Tommy, I'd say, you know, certainly, uncertainty causes a lot of business leaders to kind of slow down or pause decision making, particularly around kind of capital intensive project based work.
Greg Peters: Next question comes from the line of Tommy Joint with K B W. Please proceed with your question.
Tommy Joint: Hey, good evening guys.
Speaker Change: It sounds like the project based headwinds, where we're pretty pronounced in the first quarter.
Speaker Change: And when I think of the timing of some of the tariff announcements that that may have been due some of that uncertainty a lot of that came through and into the second quarter. So can you talk about what you've seen so far particularly around project based work as we've started the second quarter.
Tommy Joint: Yeah, Hey, Tommy I'd say, certainly uncertainty causes a lot of business leaders to kind of slowdown or pause decision, making particularly around capital intensive project based work.
Tommy Joint: Historically, what we've seen is that doesn't go away. It just kind of builds up in spring loads.
Trevor Baldwin: Historically, what we've seen is that doesn't go away, it just kind of builds up and spring loads. Not a perfect proxy. But as an example, you know, at the onset of COVID, we saw organic kind of drop to low to mid single digits for a couple of quarters before rebounding up to mid to high teens, as kind of that spring loaded pipeline began to hit. Specifically, what we're seeing right now in the second quarter, I tell you, you know, May one in particular, we had a number of new project starts. And as we look out the balance of this month in June, we have a strong pipeline of projects that we anticipate will go live.
Tommy Joint: Not a perfect proxy, but as an example, you know at the onset of Covid, we saw organic kind of dropped to low to mid single digits for a couple of quarters before rebounding up to mid to high teens.
Tommy Joint: As kind of that spring loaded pipeline began to head specifically, what we're seeing right now in the second quarter I'd tell you you know.
Tommy Joint: May one in particular, we had a number of new project starts.
Tommy Joint: And as we look out the balance of this month in June.
Tommy Joint: We have a strong pipeline.
Tommy Joint: Of of projects that we anticipate will will go live.
Trevor Baldwin: But, you know, you can't count that until the shovels actually hit the dirt overall. But broadly, I would tell you, we're feeling incrementally more positive on the near term as the days go by, and incremental certainty around the environment will only accelerate that. Got it.
Tommy Joint: Yeah.
Tommy Joint: Can't count that until the shovels actually hit the <unk>.
Tommy Joint: Our overall, but broadly I would tell you we're feeling incrementally more positive on the near term as the days go by.
Tommy Joint: And incremental certainty around the environment will only accelerate that.
Tommy Joint: Got it.
Tommy McJoynt: And then switching over to the UCTS segment, generated really strong organic revenue growth in the first quarter.
Tommy Joint: And then switching over to the U C. T. S segment generated really strong organic revenue growth in the first quarter can you unpack that a little bit in terms of what drove that meaningful acceleration from 21% in the first quarter of last year up to a 32 this year.
Trevor Baldwin: Can you unpack that a little bit in terms of what drove, you know, that meaningful acceleration from 21% in the first quarter of last year up to 32% this year? Yeah, so Tommy, two primary drivers. One continued really strong growth and kind of our homeowners programs broadly at high 20s, commissions and fees growth. Similar, really strong growth in our multifamily renters product portfolio. We also introduced multifamily captive, which you should think of as kind of incremental contingent revenue opportunity on a very profitable book of business, which contributed about 500 basis points to the segment's overall organic growth.
Tommy Joint: Yeah. So Tom has two primary drivers.
Tommy Joint: One continued really strong growth and kind of our homeowners programs broadly at high twenties commissions and fees growth similar really strong growth in our our multifamily renters product portfolio.
Tommy Joint: We also introduced a multifamily captive.
Tommy Joint: Which you should think of as kind of incremental contingent revenue opportunity on a very profitable book of business, which contributed about a.
Tommy Joint: 500 basis points to the segment's overall organic growth.
Tommy Joint: Got it thank you.
Tommy McJoynt: Got it.
Joshua Shanker: Thank you.
Tommy Joint: Thanks Tommy.
Speaker Change: Thank you. Our next question comes from the line of Josh Shanker with Bank of America. Please proceed with your question.
Joshua Shanker: Our next question comes from the line of Joshua Shanker with Bank of America, please proceed. Yeah, thank you. Can we put a number just Trevor on the one time headwind from the renewal timing? That was the headwind for the one queue organic. And anyway, it snaps back in two queues. We don't have that anymore. There is a number you want to put on that? You know, it's probably about a couple hundred basis points, Josh, if you just isolate to kind of timing of project-based work. And then kind of you add to that, you know, this quarter kind of likely being the most pronounced change in property insurance pricing.
Josh Shanker: Yeah. Thank you can we put a number just traveling on the one time headwinds from the renewal timing.
Speaker Change: That would be a headwind for the <unk> organic.
Speaker Change: It's not fracking two he was he won't have that anymore. Because there is a number you want to put on that.
Yeah.
Speaker Change: It's it's.
Speaker Change: Probably about a couple of hundred basis points, Josh if you just isolate to kind of timing.
Speaker Change: Timing of project based work.
Speaker Change: And then kind of view you add to that.
Speaker Change: This quarter likely being the most pronounced change.
Speaker Change: And property insurance pricing, we'll see some of that in Q2, but you know.
Trevor Baldwin: We'll see some of that in Q2, but, you know, where we had kind of a 21% increase in property rate in Q1 of 24, that was down to like high single digits in Q2. And so less of a, I'd say, a headwind as we go through the year. And by the time you get Q3, kind of that reverses out. And then the benefits, you know, business. About 60-65% of our benefits revenue hits in the first quarter. You heard I called out rate and exposure, premium change on renewal there was roughly flat, a result we believe largely of just a more cautious business outlook and posture amongst our clients.
Speaker Change: <unk>, where we had kind of a 21% increase in property rate in Q1 of 24 that was down to like high single digits in Q2.
Speaker Change: And so less less of.
Speaker Change: I'd say a headwind as we go through the year end and by the time you at Q3 kind of that reverses out and then the benefits you know business about 60%, 65% of our benefits revenue hits in the first quarter.
Speaker Change: You heard I called out kind of rate and exposure premium change.
On renewal there was roughly flat.
Speaker Change: A result, we believe largely of kind of just a more cautious.
Speaker Change: Business outlook imposture amongst our clients.
Speaker Change: But we would not expect the same degree of headwinds our benefits business through the balance of the year as you see seasonally more new business began rolling in in Qs two through four.
Joshua Shanker: But we would not expect the same degree of headwinds in our benefits business through the balance of the year as you see seasonably more new business begin rolling in in Q2-Q4 and don't have the same kind of magnitude of renewal book that you're lapping. So it's not wrong to say that we should expect perceptible acceleration in organic as the year rolls through. All right. Yeah, okay.
Speaker Change: Don't have the same kind of magnitude of renewal book that you're lapping.
Speaker Change: So it's not wrong to say that we should expect perceptible acceleration inorganic as the year rolls through.
Speaker Change: Correct.
Speaker Change: Yeah, Okay, and then one question I asked this on another call, but I am interested in the Florida market. It does seem like the house Bill 837, and some other changes have been really beneficial to the insurance industry.
Joshua Shanker: And then one question, I asked this on another call, but I am interested in the Florida market. It does seem like the House Bill 837 and some other changes have been really beneficial to the insurance industry, particularly the underwriters. My feeling is the cost of risk has gone down in the state of Florida. Does that, and pricing should follow maybe.
Speaker Change: Particularly the underwriters my feeling is the cost of risk has gone down in the state of Florida.
Speaker Change: Does that.
Speaker Change: And pricing should follow maybe do you have any any any thoughts on market conditions in a less risky, Florida or maybe I'm just wrong about that.
Trevor Baldwin: Do you have any thoughts on market conditions in a less risky Florida? Or maybe I'm just wrong about that.
Trevor Baldwin: Yeah, Josh, so I would, I would use slightly different language.
Josh Shanker: Yeah, Josh So I would I would use slightly different language.
Trevor Baldwin: But maybe to start at a macro level, the Florida insurance marketplace is in the healthiest place it's been in over a decade. largely as a result of the torque reforms that you mentioned. What I would say is I don't think the price of risk or the cost of risk has changed them. If anything, the cost of risk from a pure NATCAP perspective is going up. We've got more aggregation of values, building costs have gone up, and in general, the frequency and severity of climate events is going up, not down. What has changed in a very favorable manner is the cost of legal system abuse in Florida, and that has come down dramatically, and was, candidly, a huge tax on Florida citizens that was showing up in the form of increases in insurance costs.
Speaker Change: But maybe just start at a macro level, the Florida insurance marketplaces in the healthiest place it's been in over a decade.
Speaker Change: Largely as a result of the tort reforms that you mentioned.
Speaker Change: What I would say is I don't think the price of risk or the cost of risk has changed in Florida.
Speaker Change: Anything the cost of risk from a pure Nat cat perspective is going up.
We've got more aggregation of values building costs have gone up.
And in general the frequency and severity of climate events is going up not down what has changed in a very favorable manner as the cost of legal system abuse in Florida.
Speaker Change: And that has come down dramatically.
Speaker Change: Candidly a huge tax on Florida citizens that were showing up in the form of increases in.
Speaker Change: And insurance costs.
Trevor Baldwin: As that's been muted, I would say that the insurance environment here is stabilized. However, over time, as we continue to see building values, construction costs go up, climate event volatility, the overall cost of risk, I would expect to continue to grow over time, but just in a more manageable place. Okay.
Speaker Change: That's been muted I would say that the insurance environment here is stabilized.
Speaker Change: However over time as we continue to see building values construction costs go up.
Speaker Change: Climate event ball and volatility the overall cost of risk I would expect to continue to grow over time, but just in a more manageable.
Speaker Change: Place.
Speaker Change: Okay. Thank.
Joshua Shanker: Thank you for the answer. Thanks, Josh.
Speaker Change: Thank you for the answers.
Speaker Change: Thanks, Josh.
Speaker Change: Thank you.
Elyse Greenspan: Our next question... Hi, thanks.
Speaker Change: Our next question comes from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question.
Elyse Greenspan: Hi, Thanks, I guess I wanted to come back to.
Elyse Greenspan: Um, I guess I want to come back to the IIS discussion as well. Um, I thought last quarter you guys were talking about double digit commission and fee growth and I asked for the year, which I know. Elyse Greenspan, Joshua Shanker, Pablo Singzon, Thomas Mcjoynt, Grace Carter, Bradford Hale, said high single-digit mid to high single digits and so what is Seeing as the offsets to that, because I know you guys did reaffirm, you know, the organic.
Speaker Change: This question as well.
Speaker Change: I thought last quarter, you guys were talking about double digit commission and fee growth and I ask for the year, which I know is close to <unk>.
Speaker Change: Panic, so it sounds like that's going to be a little bit weaker you guys Youre talking with Mike I think you said high single digit mid to high single digits and so what is.
Speaker Change: I guess, what are you seeing as the offsets to that because I know you guys did reaffirm.
Speaker Change: The organic guidance for the full year.
Elyse Greenspan: Yeah, Hey, Elyse, so a few things there one on I, yes, I would say, what you're hearing from us and that kind of revised perspective around.
Elyse Greenspan: Yeah, hey, Elyse. So a few things there. One, on IES, I'd say what you're hearing from us in that revised perspective around full year organic results is largely just a result of a wider kind of range of outcomes as a result of greater macroeconomic uncertainty and what that may mean relative to client business activity. There's no change in outlook and underlying sales velocity, momentum, and improving client retention. And as I shared earlier, we feel really, really good about the positioning of that business and how we'll continue to take share and outgrow the industry broadly. As I think about what are the counterbalancing factors, well, we had a very strong start to the year in our underwriting and capacity segment.
Elyse Greenspan: Full year organic results is largely just a result of a wider range of outcomes as a result of greater macro economic uncertainty and what that may mean relative to client business activity.
Elyse Greenspan: There's no change in outlook and underlying kind of sales velocity momentum and improving client retention and as I shared earlier, we feel really really good about the positioning of that business and how we will continue to take share and outgrow the industry broadly.
Elyse Greenspan: As we think about kind of what are the.
Elyse Greenspan: What are the counterbalancing factors well, we had a very strong start to the year and our underwriting and capacity segment and while we expect to see some deceleration there as a result.
Trevor Baldwin: And while we expect to see some deceleration there as a result of some of the headwinds we'd already pointed out relative to the transition of the QBE Builder Book to our newly formed reciprocal and some of the one-time impacts related to that, we do expect continued strong momentum in that business broadly. We also continue to see very strong results across our Main Street segment. Growth in both our Builder and Mortgage channels has been holding up nicely through the macro uncertainty, which also gives us continued confidence around the overall results we'll expect there. And then you were talking about timing earlier, right?
Elyse Greenspan: The some of the headwinds we had already pointed out relative to the transition of the <unk> E builder book to our newly formed reciprocal on some of the onetime impacts related to that.
Elyse Greenspan: We do expect continued strong momentum in that business broadly. We also continue to see very strong results across our main street segment.
Elyse Greenspan: Growth in both our builder and mortgage channels has been holding up nicely through the macro uncertainty, which also gives us continued confidence around the overall results will expect there.
Elyse Greenspan: And then.
Elyse Greenspan: We're talking about timing earlier right I could make it a timing on the Q1 does the guidance.
Elyse Greenspan: Like a negative timing on the Q1. Does the guide imply? timing becomes like benefits. or other.
Elyse Greenspan: This timing becomes like.
Elyse Greenspan: And if it's like the Q T R. R.
Elyse Greenspan: Other quarters of the year.
Elyse Greenspan: Yeah, we would expect Oh Gee organic in the ice business to build through the year as a result of some of that timing in particular around project based revenues.
Trevor Baldwin: Yeah, we would expect OG, or Organic, in the IS business to build through the year as a result of some of that timing, in particular around project-based revenue. And then I know last quarter when you. And I just wanted to know, you guys were talking about there was some you know, uncertainty built into the EBITDA guidance around the June 1 re-insurance renewals on your MGA to the California fires. Now that we're closer to the renewal, is there any, like, are things transpiring? Otherwise, it had expected when you set the 25. Yeah, so a few data points there at least.
Elyse Greenspan: And then I know last quarter. When you gave the full year Guide you guys. You were talking about there was some.
Elyse Greenspan: Uncertainty built into the EBITDA guidance around Q1.
<unk> renewables on your MTA to the California fire now that we're closer to.
Elyse Greenspan: The renewal is.
Elyse Greenspan: Are there any like how things are things transpiring.
Elyse Greenspan: You guys had expected when you set the.
Elyse Greenspan: 25 guidance.
Elyse Greenspan: Yeah. So a few data points there at least one loss costs have come in slightly better than our original loss picks for the California, wildfires, which is a positive.
Trevor Baldwin: One, loss costs have come in slightly better than our original loss picks for the California wildfires, which is of a positive fact pattern. We have initial conversations underway around those June 1 renewals, which I would characterize as constructive. And I'm sure you're reading, you know, all the headlines around a somewhat favorable, you know, CAT, XOL, reinsurance environment. And so those have us feeling incrementally more constructive and positive. With that being said, you know, the largest driver of potential economic headwinds on the 6-1 renewals for us are around the quota share reinsurance capacity, which is still somewhat supply constrained in the market.
Elyse Greenspan: Positive fact pattern.
Elyse Greenspan: We have initial conversations underway around those June one renewals, which I would characterize as constructive.
Elyse Greenspan: And I'm sure you're reading all the headlines around somewhat favorable.
Elyse Greenspan: Cat ex ol reinsurance environment.
Elyse Greenspan: And so those have us feeling incrementally more constructive and positive with that being said the largest driver of potential economic headwinds on the six one renewals for us are around the quota share reinsurance capacity, which is still somewhat supply constrained in the market.
Trevor Baldwin: And so, you know, I'd say we feel incrementally better, but not yet ready to say exactly, you know, what that means, if anything, relative to differences from the original conservatism that was built into the expectation.
Elyse Greenspan: And so I'd say, we feel incrementally better, but not yet ready to say exactly you know.
Elyse Greenspan: What that means if anything relative to differences from the original conservatism that was built into the expectation.
Elyse Greenspan: And then one last quick one are you I assume you guys disclose how large juniper.
Trevor Baldwin: And then one last quick one, are you guys, have you guys disclosed how large. um They may be trailing 12 months or contribution to the quarter revenue. Yeah, Juniper continues to perform quite well. We're pleased with the results. I'd say on an LTM basis, you're talking high single digit millions from a revenue perspective.
Elyse Greenspan:
Speaker Change: Fans today, maybe trailing 12 months of contribution to the quarter.
Elyse Greenspan: Revenue.
Elyse Greenspan: Yeah Juniper continues to perform quite well, we're pleased with the results.
Elyse Greenspan: I'd say on an LTM basis, Youre talking high single digit millions from a revenue perspective.
Elyse Greenspan: But I would also add the relative impact and contribution they're having across the business is more significant than that, as a result of their ability to help us more strategically access capacity to support the continued high growth momentum we have across our MGA businesses. Thanks Elyse.
Elyse Greenspan: But I would also add the relative impact and contribution they are having across the business is more significant than that as a result of their ability to help us more strategically access capacity to support the continued.
Elyse Greenspan: Our high growth momentum, we have across our MGA businesses.
Elyse Greenspan: Thank you.
Elyse Greenspan: Thanks Elyse.
Elyse Greenspan: Thank you.
Elyse Greenspan: Our next question comes from the line of.
Speaker Change: Those things on with Jpmorgan. Please proceed with your question.
Elyse Greenspan: Hi, good afternoon.
Speaker Change: A couple of questions on Ias, maybe for Trevor I, just wanted to get a better handle on the headwinds you called out so first.
Speaker Change: I get your point about the pricing Devlin property being the widest if you compare <unk> year over year, but.
Speaker Change: Was it true and I'm not sure if it seemed for your book right, but for most insurers I think.
Speaker Change: It tends to be a heavier property quarter anyway. If you look at mix is it the same for you or is there something different about your book.
Pablo Singzon: Yeah, I'd say Pablo Q2 would be our heaviest. volume quarter for cap property renewals, which is partly what's informing our view that organic will build kind of through the year. And so we would expect kind of incremental improvement in Q2 over Q1, but then sequentially more improvement in Q3 and Q4.
Speaker Change: Yes, I'd say, probably Q2 would be our heaviest volume quarter for cat property renewals, which is partly what's informing our view that organic will build kind of through the year and so we would expect kind of incremental improvement in Q2 over Q1, but then.
Speaker Change: Sequentially more improvement in Q3 and Q4.
Speaker Change: Not sure that's clear and then just on employee benefits I was wondering if you could provide more commentary on your clients there whether in terms of.
Pablo Singzon: And then just on employee benefits, I was wondering if you could provide more commentary on your clients there, whether in terms of, you know, end markets or geographies, and the context is that it doesn't seem like a lot of other insurers or brokers have called out any weakness in employee benefits so far. So I was just wondering if, you know, what you're seeing could be more unique to you and your broker. Yeah, you know, I don't, I would not, I would be surprised if there's material differences in the relative industry and geographic mix of our employee benefits books of business.
Speaker Change: End markets or geographies and the context is that it doesn't seem like a lot of other insurers or brokers have called out any weakness in employee benefits so far.
Speaker Change: So I was just wondering if what you are seeing could be more unique to you and thank you.
Speaker Change: Yeah.
Speaker Change: I would not I would be surprised if there's material differences and the relative industry.
Speaker Change: And geographic mix of our employee benefits books of business.
Trevor Baldwin: You know, we're pretty intentional around kind of how we estimate the renewals and the revenues of those renewals. And I'd say I've developed a pretty good process for how we triangulate that at the renewal time, obviously 1-1 being the heaviest date. And so what you see right now is kind of our teams and client experience teams best estimates of the relative impact of renewals. But the benefits business is they are estimates.
Speaker Change: You know were pretty intentional around kind of how we estimate the renewals.
Speaker Change: And the revenues of those renewals and I'd say a developed a pretty good process for how we triangulate that at the renewal time, obviously, one one being the heaviest state.
Speaker Change: And so what you see right now is kind of our teams and client experience teams best estimates.
Speaker Change: Of the relative impact of renewals, but the nature of the benefits business as they are estimates and as the year goes on we will have.
Pablo Singzon: And as the year goes on, we will have better and more clear visibility and information as Okay, and then maybe jumping to another topic, I'll squeeze in this last question. So clearly strong growth in UTS and MIS. I'm going to focus on the homeowner's portfolio there. Could you talk about the benefit, if any, you're getting from pricing slash exposure, right? So it's clearly been a tailwind. I'm not sure if it's sort of stable for you or petering out or accelerating. Just comment on what's going on.
Speaker Change: Better and more clear visibility and information to that.
Speaker Change: Okay, and then maybe jumping to another topic I'll squeeze in this last question, so clearly strong growth in Etfs and MFS.
Speaker Change: Going to focus on the homeowners' portfolio there.
Speaker Change: Could you talk about the benefit of and Youre getting a firm pricing slash exposure right. There's clearly been a tailwind I'm not sure. If it's stable for you or petering out are accelerating.
Speaker Change: Yes.
Speaker Change: On there thanks.
Trevor Baldwin: Happy to, Pablo. So we certainly had a decelerating kind of tailwind from rate and exposure in the Main Street business. It was roughly a 2% tailwind for the quarter, which is down fairly substantially on a year-over-year basis, which is expected just based on kind of how that market has continued to stabilize, and I'd say showcases the kind of strength and durability of our embedded business model and how that drives consistent flows of new business to drive healthy double-digit growth through the cycle. I would also point out, as we mentioned on our year-end call, as a result of the transition of the Builder Book from QBE to our newly formed Reciprocal Exchange, we do expect a one-time impact revenue in Main Street, which is why we guided to single-digit growth for the Main Street segment overall this year.
Speaker Change: Happy to Pablo So we are we certainly at a decelerating kind of a tailwind from rate and exposure and the main street business. It was roughly a 2% tailwind for the.
Speaker Change: The quarter, which is down fairly substantially on a year over year basis.
Speaker Change: Which is expected just based on kind of how that market has continued to stabilize.
Speaker Change: And I'd say showcases the strength and durability of our embedded business model and how that drives consistent flows of new business to drive healthy.
Speaker Change: Healthy double digit growth through the cycle I would also point out as we mentioned on our year end call as a result of the transition of the builder book from <unk> E <unk>.
Speaker Change: To our new lead formed reciprocal exchange, we do expect a one time impact to revenue and main street, which is why we guided to single digit growth for the main Street segment overall this year.
Speaker Change: But that is entirely driven by.
Trevor Baldwin: But that is entirely driven by the one-time step down in economics from that transition that will then normalize thereafter.
Speaker Change: The one time step down in economics from that transition that will then normalize thereafter.
Speaker Change: Alright, thank you.
Pablo Singzon: All right, thank you. Thanks, Pablo.
Pablo: Thanks Pablo.
Speaker Change: Thank you.
Charlie Peters: Our next. and BMO Capital.
Speaker Change: Our next question comes from the line of Charlie.
Speaker Change: BMO capital markets. Please proceed with your question.
Charlie Peters: Hey, thanks. Good evening. I'm the captive in UCTS, I guess.
Charlie: Hey, Thanks, good evening.
Speaker Change: I'm a captive.
Speaker Change: And you see Etfs I guess can you talk about your decision to participate in the underwriting how should we think about your loss exposure.
Charlie Peters: Can you talk about your decision to participate in the underwriting? How should we think about your loss exposure? Is that business cat exposed? And would you consider participating in other programs in that segment?
Speaker Change: Is that business cat exposed and would you consider participating in other programs.
Speaker Change: In that segment.
Trevor Baldwin: Yeah, hey, Charlie, you should think about the captive as kind of a proactive move from a position of strength on our perspective. And you should really think about kind of the revenue and resulting earnings as supplemental contingent income. You know, this is our longest dated, most stable and most consistent performing book of business. It is not cat exposed. And, you know, we view there to be a incredibly remote chance of any actual underwriting law. I'd also point out just as a result of kind of timing and how premiums and expected losses are booked, the captive did not contribute to margin at all in the quarter.
Speaker Change: Yeah, Hey, Charlie you should think about the captive is kind of a proactive move from a position of strength on our perspective, and you should really think about kind of the revenue and resulting earnings.
Speaker Change: As supplemental contingent income.
Speaker Change: Yeah. This is our <unk>.
Speaker Change: Longer dated most stable and most consistent performing book of business. It is not cat exposed.
Speaker Change: And we view there to be a incredibly remote chance of any actual underwriting loss.
I'd also point out just as a result of kind of timing and how premiums and expected losses are booked.
Speaker Change: The captive did not contribute to margin at all in the quarter.
Trevor Baldwin: However, we would expect it to contribute to margin over the course of the year. So this is a low volatility, high certainty, incremental earnings opportunity as a result of our ability to curate and manage a very high performing book of business with no cat exposure and very low volatility. This is not a strategy to support capacity. It's not a strategy to kind of bolster a program.
Speaker Change: However, we will would expect it to contribute to margin over the course of the year.
Speaker Change: This is a low volatility high certainty incremental earnings opportunity as a result of our ability to curate and manage.
A.
Speaker Change: Very high performing book of business with no cat exposure and very low volatility.
Speaker Change: We this is not a strategy to support capacity, it's not a strategy to kind of bolster our program, it's simply an opportunity to bolster the overall economics.
Charlie Peters: It's simply an opportunity to bolster the overall economy. Thanks, that's helpful.
Speaker Change: Okay.
Speaker Change: Thanks, that's helpful and just looking at the 10-Q can you talk about the <unk> platform.
Trevor Baldwin: And just looking at the 10Q, can you talk about the the ILS platform you guys acquired here last month and how that works? Yeah, so we're incredibly excited to welcome Bob and the whole Multistrat team to Baldwin. What I would say is this was a very small transaction, one that I would kind of really more characterize as an aqua hire. It's leveraged neutral and is kind of contemplated in the original guide for our overall results. And to be clear, there's no actual balance sheet risk in this business. You should think about this as a platform to raise direct capital from investors to be deployed into underwritten reinsurance contracts.
Speaker Change: You guys acquired here in the.
Speaker Change: Last month.
Speaker Change: Yes.
Speaker Change: So we're incredibly excited.
Speaker Change: Welcome Bob in the whole multi strat team to Baldwin.
What I would say is this was a very small transaction one that I would kind of really more characterize as an aqua hire.
Speaker Change: Its leverage neutral.
Speaker Change: And as kind of contemplated in the original guide for our overall results.
Speaker Change: And to be clear there is no actual balance sheet risk in this business you should think about this as a platform to raise direct capital from investors to be deployed into underwritten reinsurance contracts, so effectively a reinsurance MGA.
Trevor Baldwin: So effectively, a reinsurance MGA, which is a key part of our broader strategy to continue vertically integrating ourselves into the broader insurance value chain and best position ourselves to access capacity on behalf of ourselves and our clients, bringing them ultimately closer to the end risk capital providers to deliver better, more thoughtful, and innovative risk transfer solutions.
Speaker Change: As a key part of our broader strategy to continue vertically integrating ourselves into the broader insurance value chain and best position ourselves to access capacity on behalf of ourselves and our clients, bringing them ultimately closer to the end risk capital providers to deliver better.
Speaker Change: More thoughtful and innovative risk transfer solutions, so while small and material kind of transaction. One that we believe will hold immense strategic value for our business over time and has the potential to contribute meaningfully to <unk>.
Trevor Baldwin: So while a small and immaterial kind of transaction, one that we believe will hold immense strategic value for our business over time and has the potential to contribute meaningfully to our financial results over time.
Speaker Change: Our financial results over time.
Speaker Change: Thanks, and then just my last one I guess.
Trevor Baldwin: Thanks, and just my last one, I guess, I don't know if you guys call this out in your scripts, but was there a meaningful negative contingent commission impact from the wildfires? there was not. Our contingent income contract on those MGA programs is tied to non-CAT losses. Thank you. Thanks, Charlie.
Speaker Change: If you guys called this out in your script that was.
Speaker Change: Is there a.
Speaker Change: Meaningful negative contingent commission impact from the wildfires.
Speaker Change: There was not our contingent.
Speaker Change: Income contract on those MGA programs is tied to non cat losses.
Speaker Change: Thank you.
Charlie: Thanks, Charlie.
Speaker Change: Thank you.
Operator: And I think I've reached the end of the question.
Speaker Change: We have reached the end of the question and answer session I would like to turn the floor back to Chief Executive Officer, Trevor Baldwin for closing remarks.
Speaker Change: Thank you all for joining us on the call. This evening, we are incredibly excited for the underlying momentum we have in our business as evidenced by continued outsized growth in new client wins margin accretion and the onset of a significant inflection in our financial profile with the vast majority of our earn out payments.
Trevor Baldwin: Thank you all for joining us in the call this evening. We are incredibly excited for the underlying momentum we have in our business, as evidenced by continued outsized growth and new client wins, margin accretion, and the onset of a significant inflection in our financial profile, with the vast majority of our earn-out payments now behind us.
Speaker Change: Now behind Us 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 teams. Thank you all very much and we look forward to speaking to you again next quarter.
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.
Trevor Baldwin: Thank you all very much and we look forward to speaking to you again next quarter.
Speaker Change: Thank you and ladies and gentlemen. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.