Baldwin Insurance Group, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• 2024 saw significant events like California wildfires and hurricanes, highlighting insurance's role. Fourth quarter organic revenue grew 19%, adjusted EBITDA margin 19%. Full year organic revenue growth 17%, adjusted EBITDA margin 22.5%, adjusted free cash flow $134.9M. Earn-out obligations nearly satisfied by end of March. IAS had strong sales velocity, UCTS scaled, and MIS expanded embedded solutions.

Segment Performance

• IAS: Fourth quarter organic revenue growth 16%, bringing 2024 total to 10%. Organic core commissions and fees revenue up 16% for Q4 and 11% for the year. New business production set a record at $125 million in 2024 with sales velocity of 21.5%.
• UCTS: Fourth quarter organic revenue growth 25%. Full year organic revenue growth 27% with multifamily and home portfolios scaling. GWP finished the year over $1.1 billion.
• MIS: Fourth quarter organic revenue growth 19%, full year 20%. Impressive growth despite 820 basis point headwinds, with embedded home insurance solutions growing, Westwood franchise onboarded 6 new builders, and digital embedded initiative launched.

Guidance

• First quarter 2025: Expected revenue $410M-$420M, organic growth low end of 10%-15%, adjusted EBITDA $110M-$115M, adjusted EPS $0.62-$0.66. Net leverage expected to fall below 4 times by third quarter.
• Full year 2025: Organic revenue lower half of 10%-15%, total revenue $1.52B-$1.56B, adjusted EBITDA $345M-$360M, adjusted free cash flow $150M-$175M, adjusted EPS $1.70-$1.80. Contemplates impacts from California wildfires on reinsurance renewals.

Risks

• California wildfires and reinsurance pricing impacts on MGA's June 1 renewals. Potential reinsurance cost increases affecting gross commission rates. Uncertainty around broader impacts of California wildfires on reinsurance market.

Question and Answer

• Q: I want to talk a little about contingents and earn-out opportunities. Are there sales inducements that you plan to include going forward? A: Trevor Baldwin said colleague earn-out incentive payments were not specifically pointed at producers, not reappearing in future. Josh Shanker also asked about change in fair value of contingent consideration. Brad Hale responded it's a redirecting of payments from selling owners to non-selling owners.
• Q: On IAS, growth was strong to end the year, and lower growth in Q1 due to timing of new business. Given no M&A, is double digit commission and fee growth for IAS representative of organic outlook? A: Trevor Baldwin said momentum in IAS is strong, Q1 timing nuances, double-digit commission and fees growth is read through to organic growth, with cautiousness around growth due to California wildfires impact.
• Q: With more costs because of reinsurance potential changes, does that mean headwinds in first half of next year? Also, on free cash flow restatement and M&A. A: Trevor Baldwin said hypothetically increased reinsurance costs would pressure for full 12 months. Brad Hale talked about fiduciary reporting changes and M&A plans within leverage limits.
• Q: Bridge the gap between EBITDA outlook and cash flow number. Also, on M&A leverage. A: Brad Hale said significant portion is interest expense, with continued cash add-backs for one-time items. Trevor Baldwin said will not consider going above 4 times leverage in foreseeable future, primary focus on strengthening balance sheet.
• Q: On the middle market landscape. Have you sensed competition reinvigorated or talent available? A: Trevor Baldwin said M&A evolution in middle market, large publics more active, talent seeing disruption in legacy platforms and considering The Baldwin Group as a destination.