The Baldwin Insurance Group, Inc. (BWIN) Earnings Call Transcript & Summary

Very pleased to welcome our next presenters, Baldwin Risk Partners. We have Trevor Baldwin, who is CEO, the first-time presenter here. It's a newly public company. Company went public in October of this year, is a fast-growing insurance broker focusing on a number of different segments of the property, casualty and Medicare business. Trevor joined the company in 2009, after spending time in the private equity world, and he was appointed CEO in May of last year and was BRP's President before that. One of the fun parts of this job is learning about new companies. And so our deep dive into BRP last year revealed a company with a really unique culture, some serious growth aspirations. Kris Wiebeck is joining us here as well. He is the CFO and has been with the company since 2015. Trevor, I think because it's a relatively new company and a lot of folks haven't seen you before, it might be helpful to start just discussing the history of the company and the history of the management team.

Absolutely. Yes. Thanks, Jay. Well, first, thanks for having us and really excited to be here this morning. So Baldwin Risk Partners was really officially founded in 2011, out of our predecessor organization, BKS-Partners, which was formed by my father in 2006. And I joined the firm, as Jay mentioned, in late 2009 and spent the next 12 months really focused on restructuring the organization to position ourselves to execute on a larger scale growth strategy. So we launched in January 1 of 2011, with $5.5 million of commission revenue. And since then, we've been super focused on building really a unique organization in our industry that enables us to execute on our vision of delivering double-digit organic growth long into the future.

So the question really is -- that's helpful. Talk about just the management team, where they came from. Because a lot of these guys didn't grow up in the insurance business.

Yes. That's right. So the first strategic hire we made was bringing on Kris Wiebeck, our CFO, in 2015, and he joined us with really terrific capital markets and investing experience. He had recently listed his prior firm MMA Capital, not to be confused with Marsh & McLennan, on NASDAQ, and was Head of U.S. Investments for them before leaving at the end of the first quarter in 2015. And we were fortunate to be able to recruit him onto the team a few months later. I'd known Kris for quite a while, both growing up in Tampa. And we knew to execute on the growth strategy and aspirations that we had as an organization, we were going to need someone with a high degree of sophistication around capital markets and investing. And so Kris really brought that to the team. And when he joined, we, at that point, launched our initial capital raise, bringing in capital from a family office. And that's what propelled our initial launch of our partnership strategy, which is the nomenclature we use for M&A and really, launching that in 2016, which has propelled us to where we are today. We've been successful in building out our broader executive leadership team with some really terrific talent. John Valentine is our Chief Partnership Officer. So he's responsible for M&A as well as gets involved in strategy and execution. And he joined us after a 17-year career in investment banking. Now I got to know John during a stint he had at a boutique investment bank based in Tampa, while I was still in the private equity industry. And so we have looked at a couple of opportunities together, and John went on to have a really successful career at Wells Fargo Securities, ultimately leading the Mid-Atlantic region for them before we were able to convince him to come join our nascent insurance brokerage platform. And then Dan Galbraith, who joined us last year as our Chief Operating Officer, brought a terrific combination of both sales and operational leadership skill sets. And most recently, he was the Head of Sales nationally for a company called Stericycle. But the really unique background on Dan is that he got to Stericycle through acquisition. So he started his career with Cintas in a combination of both operational and sales roles and then was running sales for their document shredding business, which was spun out into a joint venture. When it was spun out and merged with another company, he ultimately received the head sales role in that business. And then when that business was acquired into Stericycle, within a year, he was running sales for the entire Stericycle organization. So he's been on the acquired side multiple times, and every time ended up in the top sales role. So his ability to bring a real sales orientation to our operations is something we were super focused on, particularly with our bent towards organic growth. And then our Chief Accounting Officer, Brad Hale. He was Head of SEC practice for CBIZ before joining us to really lead our accounting function and has been a terrific addition to the team. And Chris Stephens, who joined us as General Counsel, had a great background, both as General Counsel with a large real estate brokerage business that has a lot of similar attributes and aspects to our organization as well as a great career as a partner and corporate and M&A law prior to that.

So instead of getting a bunch of insurance people, you got really good salespeople, really good M&A, great financial person, given that when you think about the company.

That's exactly right. We wanted to bring people that had unique vantage points, terrific expertise and weren't going to be burdened with the past kind of views of what was possible in the industry. And so far, that's really panned out well for us.

This is a tough question to answer in a short period of time. It's probably not so fear -- fair, and maybe if you can just do a quick summary. But when it comes right down to it, what makes BRP different than competitors?

Yes. So I'd say there's really 2 things. And from an investor perspective, it's we are relatively nascent in our development, in our overall trajectory. We're a young organization. We're still a relatively small organization, but there's a massive market opportunity in insurance brokerage, an industry that's consolidating at a relatively rapid rate. And I'm sure as you'll continue to hear from me and Kris and others, we have what we believe to be a fairly differentiated approach to M&A, what we call partnership, and ultimately, driving organic growth. So when we're out there continuing to grow our organization, having conversations with potential firms that are going to join our platform, it's a very different dialogue in that they have the opportunity to really leave their imprint on what we're building and what we're scaling versus many of our peers who are built out and fully at scale. So a potential partner firm joining BRP has the ability to be a platform and a region, to be a part of that leadership team versus being somewhat dismantled and absorbed into an existing infrastructure and potentially reporting into somebody that maybe they've been competing with in that market for the past 10, 15, 20 years. And so what we're finding is that the folks that are interested in our story, in our strategy and that we're having a lot of dialogue around becoming a part of our organization, it's not the folks that are looking to sell out and hit the beach in a couple of years, but it's the folks that are really looking to sell in and become part of a larger insurance platform story and have the ability to be a part of building the next great national brokerage platform.

So talk about where your revenues are now and what your long-term aspiration is for the company.

Yes. So I'll -- why don't I start with our long-term aspiration, and I'll let Kris talk a little bit about where our revenues are today. But we have a stated goal as an organization that we refer to as Top 10 In 10, which is we plan to build a top 10 brokerage firm in the U.S. over the next 10 years. And if you look at the stats today, the #10 firm is about $1.1 billion in revenue. And if you look at where we are today on a pro forma LTM basis as of Q3, it's something slightly less than $150 million of revenue. And that Top 10 In 10 strategy is something that we announced at our Internal Leadership Summit in 2019, and it's something that our entire leadership team and organization has really -- is focused on and is built around. And so there's a lot of momentum around building towards that long-term goal. Kris?

Sure. So as Trevor said, when he joined, there were about $5 million in revenue. I joined in 2015, we were I think just over $20 million in revenue. If you looked at our Q3, we were about $101 million of actual through Q3. But on a pro forma basis, if you would bring in partners that had joined us not -- were in our actuals for the full year, be about $116 million. As you mentioned, most of the analysts have us for year-end right around $150 million. So we've seen pretty substantial growth on a percentage basis and feel we definitely have a long way to go to hit the goals.

So roughly $150 million to over $1 billion in 10 years is the goal?

Absolutely.

You're the only company here that has said that. So that's -- that kind of growth, which is what I would expect. One thing that does make you unique, certainly relative to some of your local competitors, is your centralized service model. So can you talk about that? And do you need to still invest very heavily in that service capability?

So maybe the easiest way to frame this is how a lot of our local competitors are set up, which is traditionally an insurance sales professional or what the industry refers to as a producer at scale, they tend to spend only about 20% to 40% of their time focused on cultivating new client relationships or generating new sales because they have a mature book that they're spending so much of their time servicing and managing. And so we've been incredibly intentional as we've organized our structure and separating the sales and service function, so that our sales professionals, who we refer to as risk advisers, they tend to spend 60% to 80% of their time focused on cultivating new client relationships. And as a result, the productivity of our sales professionals is multiples of the industry average sales professional because we have enabled them to spend a lot more of their time focused on cultivating those new client relationships. And then our clients ultimately get a more seamless and consistent client experience because we have dedicated teams of service professionals who we deploy around that client relationship and are tasked with delivering on our client stewardship commitments. And so it's really been an effective model. Now, as we look at that infrastructure and where it sits today and where it needs to be as we continue to scale the organization, the core infrastructure is established in there. So what we're doing at this point is really just scaling that infrastructure as the organization scales and then continuing to identify and adopt technology and capabilities to enhance what we're doing and how we're doing it. So thinking about tools that can lead to business process efficiencies or using technology to drive automation into our business processes. So I can give you an example of something we recently rolled out, which is a tool called BKS Compass. And what that is, is in our Middle Market business, our clients, during the renewal stage, have to fill out physical PDF applications for the underwriting companies. And we've partnered with a firm, an insurtech firm called Indio, that has helped to digitize the insurance application process, and it turns into an ongoing repository for that information that's seamlessly transmitted back and forth between agency management systems when fully integrated. And so that, as an example, has brought a tremendous amount of efficiency into how we're able to interact with our clients during the renewal phase and also has meaningfully improved the experience of our clients during that data gathering process.

Trevor, one thing that has distinguished your numbers relative to at least the public competitors is your organic growth. It's multiples of what we see from others. And I know what drives it is somewhat different depending on the segment of your business we're talking about. So let's do a quick walk through your main segments and what the drive -- why you are growing faster in those businesses than the overall market.

Yes. So we have 4 core reporting segments. And in each of those operating groups, as we refer to them, we have a unique way of going to market. And so as an example, in our Middle Market operating group, which is your traditional multi-line insurance brokerage operation focused on midsize to larger businesses and high net worth individuals and families, we have a trademark to client engagement process called our risk mapping process. And that's a 5-step sales process through which we engage with a prospective client to do a diagnostic assessment and review of their existing insurance program architecture. We're doing everything from benchmarking limits and pricing and deductibles. We're assessing the business risks and exposures emanating from their business operations and putting all of that into a report that we then come back and present to that organization. And that provides them perspective on what they're doing inside their existing insurance and risk management strategy, but then also it's where we provide advice on how we think we could help them optimize what they're doing. When we take a prospective client through that process, we win them 90% of the time. And that compares really favorably to the industry's average quote-to-bind ratio of roughly 10%. And so what we've done is we've turned the typical insurance sales process upside down, where, in general, the typical industry approach is a sales professional or producer would come to a business owner or executive team and convince them that they should be allowed to quote the insurance. And then they go back and they secure quotes from a number of different insurance company partners, come back present these quotes to the business owner, who's then also going to compare those quotes to maybe what they receive from their incumbent agent. And ultimately then, if that business executive is not an insurance professional or expert, they're going to boil the decision down to the lowest common denominator, which at the end of the day, oftentimes becomes price. And so we've taken price out of the equation. We are hired by the client before we've even gone into the marketplace to receive quotes. And so what that also means is our insurance company trading partners, by the time we're out to market, they know it's a controlled opportunity. So rather than them getting a submission from us and 2 other agents, and they don't really know the relationship dynamics, who controls the opportunity, when our underwriters receive a submission from our team, they know it's an opportunity we control. And if they're delivering on the terms, conditions and pricing that we're signaling are going to win the opportunity, they know that they have a really good chance of winning the business. So it ensures more efficient trading relationships with the insurance companies. It ensures better outcomes for our clients. And overall, more strategic approach to how we're managing risk and insurance on behalf of our clients. It's a true win, win, win.

That's a great example. And if we talk about, let's say, the MainStreet business, what's your advantage there? Why are you growing faster than others?