- Organic Revenue Growth: 19% for the second quarter.
- Total Revenue: $339.8 million for the second quarter.
- Core Commissions and Fees Growth: 23% for the second quarter.
- Adjusted EBITDA: $74.9 million, up 22% year-over-year.
- Adjusted EBITDA Margin: Expanded 130 basis points to 22%.
- Free Cash Flow: $18.1 million, up 10% year-over-year; 93% growth excluding one-time costs.
- GAAP Net Loss: $30.9 million for the second quarter.
- Adjusted Net Income: $40.3 million, or $0.34 per fully diluted share.
- IAS Segment Organic Revenue Growth: 8% for the second quarter.
- UCTS Segment Organic Revenue Growth: 37% for the second quarter.
- UCTS Segment Commissions and Fees Growth: 46% for the second quarter.
- MIS Segment Organic Revenue Growth: 25% for the second quarter.
- Net Leverage: Reduced to 4.4 times by the end of the second quarter.
- Debt Refinancing: New $840 million term loan facility at term SOFR plus 3.25%.
- Full Year 2024 Revenue Guidance: $1.375 billion to $1.4 billion.
- Full Year 2024 Adjusted EBITDA Guidance: $315 million to $325 million.
- Full Year 2024 Free Cash Flow Guidance: $165 million to $195 million.
- Third Quarter 2024 Revenue Guidance: $340 million to $350 million.
- Third Quarter 2024 Adjusted EBITDA Guidance: $71 million to $76 million.
- Third Quarter 2024 Adjusted Diluted EPS Guidance: $0.32 to $0.36 per share.
Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Baldwin Insurance Group Inc (BWIN, Financial) achieved organic revenue growth of 19% in Q2 2024, up from 16% in Q1.
- Adjusted EBITDA grew 22% year-over-year, with a margin expansion of 130 basis points to 22%.
- Free cash flow increased by 10% to $18.1 million, and would have expanded 93% excluding one-time refinancing costs.
- The UCTS segment delivered robust organic revenue growth of 37% and commissions and fees growth of 46%.
- The MIS segment showed strong momentum with organic revenue growth of 25%, signing up two new leading builders in the quarter.
Negative Points
- The company recorded a GAAP net loss of $30.9 million for Q2 2024.
- IAS segment saw some timing-related contingent softness and negative rate and exposure, particularly from real estate portfolio clients.
- Net leverage stood at 4.4 times, which is still above the long-term target range of 3 to 4 times.
- The company incurred $13.6 million in one-time third-party refinancing costs during the quarter.
- Adjusted EBITDA margin, while improved, still reflects a need for further operational efficiency to match industry peers.
Q & A Highlights
Q: Can you explain the increase in sales velocity and how it relates to the organic growth in the insurance advisory business?
A: Trevor Baldwin, CEO: Sales velocity increased to 24% in the second quarter, up from 20% in the prior year, indicating strong net new client wins. Despite a 4% negative rate and exposure headwind due to rate reductions for real estate clients, we expect double-digit organic growth for the full year driven by strong underlying trends and new business generation.
Q: What are the future levers for margin expansion beyond this year?
A: Trevor Baldwin, CEO: We expect continued margin accretion driven by organic growth and operating leverage. Brad Hale, CFO, added that the core operations improved margins by 130 basis points despite timing-related profit-sharing headwinds, indicating significant operating leverage in the business.
Q: What are your expectations for contingents in the third and fourth quarters, and will IAS organic growth return to double digits?
A: Brad Hale, CFO: We anticipate IAS organic growth to return to double digits in both the third and fourth quarters. Contingents are expected to normalize and be slightly up for the full year, despite a timing shift of profit-sharing revenue to the fourth quarter.
Q: Can you provide an update on the reinsurance build-out and its revenue contribution?
A: Trevor Baldwin, CEO: Juniper Re contributed significantly to organic growth in the UCTS segment, adding roughly five points in the second quarter. The business is tracking ahead of expectations and is expected to be profitable by 2025.
Q: How do you view the potential for M&A given recent rate volatility?
A: Trevor Baldwin, CEO: We are focused on delevering the business and executing in the core business. M&A will be more episodic going forward, with meaningful opportunities expected to be more readily available in the second half of 2025.
Q: What is the mix of property versus casualty in your portfolio, and how do you view the current rate environment?
A: Trevor Baldwin, CEO: Our mix is similar to peers, with no outsized property component. While property rates are decelerating, casualty rates are accelerating. We expect the complexity and frequency of risks to continue growing, driving demand for our solutions.
Q: How do you reconcile the higher revenue guidance with the tightened adjusted EBITDA outlook?
A: Brad Hale, CFO: The higher revenue guidance is driven by strong new business results, which come with a slightly higher expense load in year one. This leads to mechanical margin lift in the following year as policies renew at a lower expense base.
Q: What are your ongoing expense initiatives and investment plans for next year?
A: Trevor Baldwin, CEO: We continue to invest in frontline talent and technology infrastructure to drive efficiencies and enhance client experiences. This will yield better outcomes for clients, colleagues, and shareholders, leading to continued margin accretion.
Q: Will being out of the M&A market for a while put you at a disadvantage when you return?
A: Trevor Baldwin, CEO: No, we do not believe it will put us at a disadvantage. We can reengage in M&A quickly when the time is right.
Q: How does the refinancing impact your free cash flow outlook for the remainder of the year?
A: Brad Hale, CFO: The refinancing costs were largely excluded from our guidance. We expect free cash flow to perform in line with our previous guidance, given our EBITDA and revenue performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
