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

Good day, and thank you for standing by. Welcome to the Baldwin Group Second Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Bonnie Bishop, Executive Director of Investor Relations. Please go ahead.

Thank you. Welcome to the Baldwin Group's Second Quarter 2026 Earnings Call. Today's call is being recorded. Second quarter financial results, supplemental information and the company's Form 10-Q were issued earlier this afternoon and are available on the company's website at ir.baldwin.com. Please note that remarks made today may include forward-looking statements subject to various assumptions, risks and uncertainties including, for example, our strategy with respect to our capital allocation in the future. 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. During the call today, the company may also discuss certain non-GAAP financial measures. For a more detailed discussion of these non-GAAP financial measures and historical reconciliation to the most closely comparable GAAP measures, please refer to the company's earnings release and supplemental information, both of which have been posted on the company's website at ir.baldwin.com. I will now turn the call over to Trevor Baldwin, Chief Executive Officer of The Baldwin Group.

Good afternoon, and thank you for joining us to discuss our second quarter results reported earlier today. I'm joined by Brad Hale, Chief Financial Officer; and Bonnie Bishop, Executive Director of Investor Relations. We saw continued momentum into the second quarter from the strong start to the year. We delivered total revenue of $493 million, adjusted EBITDA of $117 million, adjusted EBITDA margin of 24%, and adjusted diluted earnings per share of $0.48. Total organic revenue growth was 2%, layering in the impact of the 3 January partnerships as if they had been owned by The Baldwin Group in the prior comparable period and normalizing for the idiosyncratic headwinds, which we are largely past as of the end of the quarter, Total organic revenue growth would have been 8%. Collectively, the 3 partnerships grew 25% in the second quarter and 34% through the first 6 months of the year, a truly remarkable performance. Adjusted free cash flow of $46 million was up 437% year-over-year. In Insurance Advisory Solutions overall organic revenue growth was down 2%. Deconstructing that figure, sales velocity in the legacy IAS business accelerated in the quarter to 19% bringing year-to-date sales velocity to 16%. Combined sales velocity, including CAC and Capstone was 30% for the quarter and 27% year-to-date. Rate and exposure was a headwind of 240 basis points, in line with our expectations. As we've shared previously, we expect Q2 to be at or near the trough for rate and exposure headwinds. The procedural accounting change, which we fully lapped on 6/30 was a 150 basis point headwind. With respect to client retention, we experienced a 240 basis point headwind in the quarter, as a result of structural changes we have executed in the legacy IAS business as a part of our CAC integration work to align compensation plans, go-to-market capabilities and eliminate redundancies across our platform. These changes have resulted in approximately $8 million of annualized revenue attrition tied to a small group of individuals who are impacted and are no longer with the firm. We anticipate that these changes will impact revenue and organic growth for the legacy IAS business in the back half of the year by approximately $4 million to $5 million. This is more than offset by the realized outperformance across CAC as a result of the go-to-market structural alignment. In Q2, CAC generated total revenue of $94 million, continuing the strong momentum from the first quarter, with growth of 23% in relation to the second quarter of 2025. Year-to-date, CAC has delivered over $80 million of booked new business, up 43% compared to the same period in the prior year. Closed won new business, including future effective dates, is over $100 million. Sales velocity in the quarter was 59% across all product lines and 19% for recurring lines of business, while retention was north of 92%. Net growth of transaction-related product lines, which consists primarily of our transaction liability and certain project specific lines of business was 44%. Our integration work and synergy captures continues to track ahead of schedule, and we remain confident in our ability to deliver the synergy targets laid out on Slide 14 of our earnings supplement. Taking a step back to look at the underlying momentum in the IAS business, including the contribution from our new partnerships, and excluding the idiosyncratic noise associated with the revenue recognition accounting change and integration-related revenue impacts, organic revenue growth would have been 8% in the second quarter. We believe this is far more indicative of the organic growth momentum of our IAS franchise. We continue to see impressive trends in new business in IAS and the thesis supporting the CAC merger is playing out in a faster and more meaningful way than we anticipated. IAS is poised for a step function increase in organic growth in the back half of the year, and we expect continued strength from our newest partners as we leverage our capabilities across the enterprise. Moving to our Underwriting, Capacity and Technology Solutions segment, organic revenue growth was 6% in the quarter, including Obie, as if that business had been owned in the prior year period, organic revenue growth was 7%. We saw strong performance across our multifamily, admitted home and real estate investor products. partially offset by continued softness in our E&S home book and lower reinsurance brokerage revenue at Juniper Re tied to a softer 6/1 renewal pricing environment which also drove improved commission rates for MSI's E&S homeowners programs that will benefit organic revenue in the back half of the year. Our inaugural reciprocal insurance exchange, BRIE, is now licensed in 13 states, and we have begun migrating business in several states outside of Texas. We're making great progress on our second proprietary builder program with Hippo and Spinnaker and currently expect that to launch in select states by the end of the year, serving as an exciting growth vector for the business heading into 2027. In our Mainstreet Insurance Solutions segment, organic revenue growth was 4% in the quarter, improving from a decline of roughly 5% in the first quarter as we lap the QBE commission rate reduction headwind on May 1. Normalizing to the impacts of QBE and Medicare underperformance, overall organic revenue growth was approximately 10%. Our embedded mortgage business continues to ramp with Fairway Independent Mortgage, our most recent top 10 independent mortgage originator embedded partner tracking ahead of plan in its first 3 months on the platform. Execution of our 3B/30 Catalyst program remains on track, and we are beginning to see the flow-through impact associated with the Phase 1 actions taken in the first quarter. You can find additional information on Slide 13 of our earnings supplement. We believe the timing of this program aligns nicely with the evolution of AI tools and expect AI to be a meaningful driver of reaching our 3B/30 aspirational goal. In May, we announced our expanded enterprise relationship with Anthropic and our firm-wide rollout of Claude to enhance colleague productivity, streamline complex workflows and ultimately drive considerable client impact. While we are still in early innings here, we are already beginning to see measurable results and firmly believe the use of these tools will have profound impacts on our business over the long term. In summary, we are pleased with our second quarter results and the growing momentum that is building in the business as we move past the idiosyncratic headwinds that have persisted over the past 12 months. We are confident that the underlying fundamentals of the business when combined with what are now tailwinds will accelerate our performance in the second half of 2026 and beyond. As the insurance market evolves at a rapid pace, we want to thank our nearly 5,000 colleagues for adapting and embracing new technologies as we build a dynamic workplace designed to maximize outcomes for our colleagues, clients and stakeholders. Before I turn it over to Brad, I want to acknowledge the rumors in the marketplace around our potential exploration of capital structure alternatives, consistent with how we've operated in the past, we do not comment on market rumors or speculation and will not be addressing related questions today. With that, I will now turn it over to Brad, who will detail our financial results.

Thanks, Trevor, and good afternoon, everyone. For the second quarter, we generated organic revenue growth of 2% and total revenue of $493 million. Looking at the segment level. Organic revenue growth was down 2% in IAS, up 6% in UCTS and up 4% in MIS. Adjusting for the transitory items Trevor walked through, along with layering in the impact of the 1/1 partnerships on an as-if basis, underlying organic revenue growth would have been 8%. We recorded GAAP net loss attributable to Baldwin for the second quarter of $39 million or GAAP diluted loss per share of $0.42. Adjusted net income for the second quarter, which excludes share-based compensation, amortization and other onetime expenses, was $68 million or $0.48 per fully diluted share. A table reconciling GAAP net loss attributable to Baldwin to adjusted net income can be found in our earnings release and our 10-Q filed with the SEC. Adjusted EBITDA for the second quarter grew 37% to $117 million compared to $86 million in the prior year period. Adjusted EBITDA margin increased approximately 110 basis points year-over-year to 23.7% for the quarter compared to 22.6% in the prior year period. The approximately 110 basis point margin increase can be attributed to the accretive contribution from CAC inclusive of the cost synergies realized to date and strong margin expansion at MIS as we lapped the QBE commission reset and benefited from the Hippo homebuilder distribution network partnership. Adjusted free cash flow for the second quarter was $46 million compared to $9 million in Q2 2025, driven by growth in adjusted EBITDA and favorable working capital dynamics. In relation to our guidance of double-digit growth for the full year, adjusted free cash flow is up 34% year-to-date. CAC benefited from an $11 million working capital tailwind in the quarter, a reversal of the roughly $30 million headwind in the first quarter that resulted from assumed bonus and commission liabilities in the merger. Our full year cash flow trajectory remains on track for double-digit growth in 2026. We ended the quarter with net leverage at approximately 4.5x as we deployed an additional $80 million to repurchase approximately 4 million shares. Therefore, as of the end of Q2, approximately half of our authorized $250 million buyback program has been deployed. Moving on to our third quarter guide. We expect revenue of $485 million to $495 million and organic revenue growth in the mid-single digits. We anticipate adjusted EBITDA between $105 million and $110 million and adjusted diluted EPS of $0.42 to $0.46 per share. Looking ahead, our full year consolidated guidance remains largely unchanged. We now anticipate organic revenue growth in the mid-single digits for the full year and exiting the year with Q4 at high single digits or greater. This update to organic growth expectations is tied to the revenue impacts from the structural changes at legacy IAS as part of our CAC integration work. To conclude, we are encouraged by the growing momentum we see across the business and the meaningful contribution from our recent partner firms. As we have lapped the idiosyncratic headwinds that persisted over the last 12 months, we anticipate a natural inflection in the second half of 2026. Our focus remains on accelerating execution across the platform. integrating our recent partnerships and leveraging innovative technology and AI-driven solutions to enhance client outcomes and drive long-term shareholder value. We will now take questions. Operator?

[Operator Instructions] And our first question comes from Tommy McJoynt of KBW.

The first one here is on the CAC Group performance there. The growth rate has been incredibly strong in the first half of the year. First off, can you just remind us what industries CAC Group is most focused on? And then help us think about the sustainability of the strength in the first half of the year and using that to help us frame, should we expect a potential headwind from that business normalizing next year just against tough comps?

Tommy, this is Trevor. Yes, I mean, CAC has had an extraordinary start to the year. And there's a number of things that are ultimately driving that. First, I would just point to the industrial logic that we and the leaders across CAC saw when we brought these businesses together in the merger, combining the depth and breadth of expertise in large and complex end client markets, including industries like natural resources, large and complex public companies, transaction liability, solutions, private equity and large risk management-oriented accounts. And then plugging that into the broader distribution network and sales organization that we have here at Baldwin and it's an incredible combination. We've done a tremendous amount of work very quickly to bring these businesses together in a thoughtful manner where we've aligned around go-to-market. We've organized around client capability and risk product solution, and the results have been profound. So as we look at what's driving the growth across CAC, it's broad-based. In the quarter, the private equity team won over 130 new client accounts, our financial lines team successfully won multiple large new IPO mandates and including a couple of the largest IPOs of the year. And we successfully won a number of all lines, large complex public company accounts through combined Baldwin and CAC team engagement. So -- it's -- the core CAC business is performing incredibly well. It's a group of colleagues and professionals that are just incredibly talented. And then you combine that with the broader kind of sales organization and resources here at Baldwin and how that enables us to project the broader organization into the market and we're out successfully taking share at a really meaningful clip. Relative to overall kind of trajectory, it's -- there's undoubtedly going to be kind of some variability quarter-to-quarter in the business because of the nature of some of the transactional product lines that they play in around private equity, M&A solutions, tax solutions. But more broadly, as we look at the pipeline, as we look at kind of close won future effective date business, we're feeling really confident about the continued momentum heading into the back half of the year. As we look to 2027, I'd say it's early for us to begin commenting on how we think about overall performance and there's lots of factors that come into that. But I'd say, broadly, the success at CAC is not driven because of some kind of outside idiosyncratic factors, it's a result of underlying pipeline and new business momentum, and that is repeatable.

And then just one more. You called out a new performance headwind, that $8 million of annualized eliminated redundancies. Do you guys have confidence that, that's the extent of the, what I'll call, dyssynergies?from the CAC Group transaction? And will that lap at the end of the year? Or will that extend into the first quarter of next year?

Yes, Tom, we feel like that is the extent of what the, call it, dyssynergies?would be. And it's a function of we've moved very quickly to align around practice leaders, product group leaders, combined business structures, we're not going to have multiple practice groups in the same industry. We're not going to have multiple product groups in the same product line. And so we aligned around our best out front. We've built the team. We've aligned compensation models. And when you do that, certain people aren't going to necessarily get the same opportunity that they want, and that's normal. I wouldn't though -- I'd say I wouldn't characterize it as a dyssynergy per se, it's just -- it's revenue that is not showing up in the legacy IAS P&L, but that is more than kind of showing up inside the CAC P&L. And so if you look at aggregate revenue across IAS inclusive of CAC, it's exactly where we would have expected it to be. It's just what's showing up in what part of the P&L.

And our next question comes from Hristian Getsov of Wells Fargo.

My first question is on the rate and exposure. And I'm just trying to gauge your confidence that the rate and exposure headwind is trough because it seems like across the industry, it seems like the rate and exposure piece could actually get softer from here, but everybody's portfolio is a bit different, but maybe you could kind of just walk me through what you're expecting in the second half that gives you that confidence?

Yes. Hristian, this is Trevor. So I'd say broadly, the market is softening. And while casualty rates on an absolute basis are positive. They are ebbing property is very deeply soft. And our confidence around Q2 being the trough is less about the rate of travel of underlying insurance rate and more a reflection of the composition of our portfolio on a quarter-to-quarter basis. So the second quarter is when we renewed the preponderance of our cat-exposed property, our largest cat property reinsurance renewals. And so that aspect, the cat property part of the market is very clearly deeply soft, far more so than any other part of the insurance market today. And so as we look at mix of business going forward, that gives us a strong degree of confidence around those headwinds abating.

Got it. And then for my second question, I totally understand you can't comment on the rumors, but given the move in shares in the last 1.5 months, how should we kind of think about buybacks from here, just given versus the more elevated $80 million in the Q2?

Yes. Thanks, Hristian. It's Brad. Yes, so we took the opportunity, given what we saw a dislocation in the price to repurchase about 4 million shares for about $80 million in Q2. As we've said previously, we're not just an indiscriminate buyer, but we do continue to see dislocation in our stock price. That being said, we're not able to be in the market buying currently, and we will balance that future buyback decision against the leverage profile and the leverage range of 4 to 4.5x that we've communicated.

And our next question comes from Charlie Lederer of BMO.

On the UCTS business, it sounds like even though the second quarter organic came in a little below where you had guided that you have -- do you think you have a bounce back in the back half of the year because of lower reinsurance costs for the E&S home book, did I understand that correctly? And I guess, how should we think about the renters book in the back half of the year? I think 3Q is a seasonally strong quarter there.

Charlie. Yes, overall, pleased with the momentum and the trajectory we're seeing out at UCTS. Second quarter was impacted by about $4 million of year-over-year reduction in revenue at Juniper, tied to risk-adjusted rate decreases in excess of 20% on some of our largest property placements and as well as a stub cover that we had placed on behalf of BRIE in the second quarter of last year that will be a calendar year renewal going forward. So that both impacted organic as well as absolute EBITDA dollars to the tune of about $4 million. Just to be clear, the momentum at Juniper is incredibly strong. We expect organic growth from Juniper for the year in excess of 20%. And so this is really more of a timing dynamic. And as I mentioned earlier in my prepared remarks, we do meaningfully benefit from the reduction in risk-adjusted reinsurance pricing as it enables us to increase the ceding commission on those programs where we were able to realize the reinsurance savings. Specific to renters, the renters portfolio continues to perform quite well, double-digit organic growth in the quarter, strong momentum, a new large property management software provider recently went live with us on the platform and is driving pretty meaningful growth trajectory and our largest software partner, we have recently rolled out a new co-developed group renters product that we're incredibly excited about. So I'd say, our strategic and competitive position and renters and the underlying momentum in that portfolio continues to be quite strong.

And then maybe moving over to the MIS business. The QBE impact rolled off in the middle of the quarter. I guess as we think about organic accelerating from here in the back half, can you kind of break that down between the homebuilder business, the mortgage servicer business and what kind of impacts you're seeing from the Medicare business in the back half of the year?