BRP Group Inc - Ordinary Shares - Class A Aktie

Greetings, and welcome to the Baldwin Group First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Bonnie Bishop, Executive Director, Investor Relations. Thank you. Ms. Bishop, you may begin.

Thank you. Welcome to the Baldwin Group's First Quarter 2026 Earnings Call. Today's call is being recorded. First 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 first quarter results reported earlier today. I'm joined by Brad Hale, Chief Financial Officer; and Bonnie Bishop, Executive Director of Investor Relations.

We had a solid start to the year on the heels of closing our partnerships with CAC, Obie and Capstone in the beginning of January. We delivered total revenue of $532 million, adjusted EBITDA of $137 million, adjusted EBITDA margin of 26% and adjusted diluted earnings per share of $0.63.

Overall, commission and fee organic revenue growth was 3% and total organic revenue growth was 2%. Adjusting for the impact of the QBE builder book transition, which we lapped on May 1, continued softness in our Medicare business due to the disruption in the Medicare marketplace and the procedural change impacting the timing of revenue recognition in IAS, overall organic revenue growth would have been 5%.

Layering in the impact of the 3 January partnerships as if they had been owned by Baldwin in both comparable periods, overall organic revenue growth would have been 9%. Collectively, those 3 partnerships grew 27% over Q1 of 2025, a truly remarkable start to the year.

In Insurance Advisory Solutions, overall organic revenue growth was 4%, driven by sales velocity of 13% before layering in the results from CAC and Capstone, which compares to 14% in the prior year period. As a reminder, sales velocity is seasonally lowest in the first quarter as a result of a bulk of our employee benefits renewals booking on 1/1.

The impact of rate and exposure in the quarter was a 70 basis point headwind. Including both CAC and Capstone as if those businesses had been owned in the prior year period, organic growth would have been 10%. Combined sales velocity, including the acquired businesses, was 24%.

We are incredibly enthused by the early contributions from CAC and Capstone, which delivered the strongest quarterly results in each of their respective histories. CAC generated new business of $38 million in the first quarter, up 39% compared to the same period in the prior year, and total revenue was $92 million, representing growth of 27% in relation to Q1 of 2025. CAC sales velocity in the quarter was 61% across all product lines and 15% for recurring lines of business.

Net growth of transaction-related product lines, which consists primarily of our transaction liability and certain project-specific construction lines of business was 22%. Going forward, we will report sales velocity on an aggregate basis as well as broken out for recurring lines of business. Separately, we will call out net growth in transaction-related product lines.

These transaction-related product lines have some variability quarter-to-quarter due to the variable nature and timing of transactions and project starts. CAC's strong growth in the quarter was driven by strong new business across key specialty industry groups, strength in the private equity and transaction liability practices, which supported several marquee transactions at the nexus of the AI infrastructure build-out across the U.S. and globally as well as strong momentum from cross-sell opportunities between the legacy Baldwin and CAC teams.

Our integration work is running ahead of schedule. To date, over $34 million in cost synergies have been actioned, representing nearly 80% of the 3-year $43 million target we laid out on our last call. We expect these to materialize in the P&L throughout the balance of this year in 2027.

On the revenue side, in the quarter, we realized $1 million of revenue synergies. And as of today, that number has grown to nearly $3 million with over $10 million in client cross-sell opportunities being actively worked. 4 months in, we are tracking ahead of plan on every dimension of this powerful business combination and the industrial logic we saw is proving to pull through both more quickly and more significantly than we had anticipated.

Moving to our underwriting, Capacity and Technology Solutions segment. Organic revenue growth was 3% in the quarter, with core commissions and fees growing by approximately 6%.

Importantly, we recognized a large onetime contingent payment in our real estate investor program in the first quarter of 2025, normalizing for which UCTS organic growth would have been 9% for the quarter. The underlying momentum across the segment remains strong.

Our multifamily business grew revenue 10% in the quarter and Juniper Re grew over 90% reflecting the durable scale advantages of our proprietary capacity strategy. We did continue to see pressure in our E&S homeowners book, but revenue was down roughly 30% in the quarter as we deliberately maintain underwriting discipline in a soft property environment.

The transition of our builder book from QBE to BRIE, our inaugural reciprocal insurance exchange remains on track. BRIE is now licensed in 7 states and position to begin migration of business outside Texas in the back half of the year.

Our second proprietary builder program with Hippo and Spinnaker remains on track to launch later this year. Over time, we expect this to materially increase our capture rate of Westwood's builder business in new proprietary MIS programs from approximately 30% today. Meaningful multiyear growth opportunity for our MGA and a meaningful expansion of vital insurance capacity for our builder partners and their homebuyer customers.

Our Mainstreet Insurance Solutions segment, organic revenue growth was down 5% in the quarter, driven primarily by continued year-over-year headwinds from the QBE commission rate reduction at Westwood and softness in our Medicare business.

Normalizing for impacts of those 2 headwinds, overall organic revenue growth was 7%. We fully lapped the QBE impact on May 1 and expect organic growth in our MIS segment to begin ramping again from here. We're also seeing growing momentum in our embedded mortgage businesses, which went live in April with Fairway Independent Mortgage, a top 10 independent mortgage originator in the country.

While Fairway has only been live on the platform for 1 month, the early signs are very encouraging. The 3B/30 Catalyst program is now fully operational. In the first quarter, we executed the first phase of role transformation within IAS and remain on track to deliver $3 million to $5 million in year savings.

You can find additional information in the 3B/30 Catalyst slide in our earnings supplement. Now let me address the question of AI directly because it is increasingly central to how we are running this business and how I expect us to outperform over time. We are leaning into AI with conviction.

Over the past several quarters, we have been building our own proprietary AI orchestration layer, enables delivery of fully automated workflows. The early productivity gains from the tools we are deploying internally are running upwards of 80% -- we are embedding AI directly into our operating platforms, including VIP, our proprietary operating system supporting the MGA. And we are using AI to elevate and enhance the work our colleagues do every day.

Catalyst is the operational expression of this strategy, AI-enabled process redesign, role transformation and an accelerated path to operating leverage. Said simply, AI is a meaningful tailwind for our business, and we are investing aggressively to capture it.

On the question of disintermediation, our thesis is unchanged and the underlying structural advantages have only strengthened. First, the clients we serve, middle market, upper middle market and large organizations have complex, multi-location, multifaceted risks that require deep and specialty advisory solutions, human judgment and a multitude of risk transfer counterparties and vehicles in order to thoughtfully and effectively manage and finance risk. The CAC combination further shifts our center of gravity upmarket away from the account segments most exposed to AI commoditization.

Second, our embedded distribution strategy places insurance at the point of major life in business transactions and workflows consumers are unlikely to bypass for a stand-alone insurance buying experience.

Third, our UCTS business vertically integrates our platform across the entire value chain, owning the client relationship, advising on complex risk issues, building proprietary insurance products and arranging the third-party risk capital that stands behind them.

We are the disruptor in this marketplace. The combination of human expertise and judgment, embedded distribution, proprietary product and risk capital formation and AI-driven productivity is the right architecture in the AI era.

As we enter 2026, we are pleased with our first quarter results and confident in our positioning to accelerate performance ratably through the year and beyond. The underlying momentum across our segments is strong.

Idiosyncratic headwinds we have discussed commission change we have now lapped, the Medicare market disruption and the IAS revenue recognition procedural change will all be substantially behind us by the end of the second quarter. CAC is exceeding our expectations on both revenue and expense synergy execution.

The Catalyst program is delivering, and we are deploying AI across our platform with real and measurable productivity gains. Quite simply, our business was built for this era, and we are leaning in to accelerate our impact and our results.

That, I want to extend our gratitude to our clients for their continued trust in us to provide strategic guidance, expert insights and innovative solutions. And I want to thank our nearly 5,000 colleagues for their dedication to helping our clients protect what is possible.

Now 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 2% and total revenue of $532.2 million. Looking at the segment level, organic revenue growth was up 4% in IAS, up 3% in UCTS and down 5% in MIS. Adjusted for the 3 transitory items Trevor walked through, underlying organic revenue growth would have been 5%.

We recorded GAAP net loss for the first quarter of $1.9 million or GAAP diluted earnings per share of $0.02. Adjusted net income for the first quarter, which excludes share-based compensation, amortization and other onetime expenses, was $89.3 million or $0.63 per fully diluted share. A table reconciling GAAP net income 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 first quarter was up 21% at $137.2 million compared to $113.8 million in the prior year period. Adjusted EBITDA margin declined approximately 170 basis points year-over-year to 25.8% for the quarter compared to 27.5% in the prior year period.

The approximately 170 basis point margin decline is fully explained by 2 items: First, the consolidation of CAC, which has different margin seasonality due to timing and mix of revenues; and second, the UCTS profit sharing contract Trevor mentioned.

Adjusted free cash flow for the first quarter was roughly flat compared to $26 million in Q1 2025. The decrease was driven by working capital timing, which resulted in a $60 million use of cash. More than half of the working capital headwind was from CAC given a material payout of approximately $40 million in previously accrued cash bonuses and commissions, which Baldwin assumed in the opening balance sheet.

As mentioned on the year-end call, we would expect CAC's free cash flow conversion in the year to be better than legacy Baldwin's rate. As such, we expect the timing headwind to reverse in quarters 2 through 4.

It is important to remember that Q1 is expected to be our lowest quarter of free cash flow conversion given the payout of bonuses as well as the substantial receivables that are built in our employee benefits business, the majority of which renew in January with payment monthly throughout the balance of the year. This was somewhat exacerbated in Q1 2026 because of approximately $15 million of CAC transaction costs, representing a material increase in onetime cash outlay.

Our full year cash flow trajectory remains on track for double-digit growth in 2026. We ended the quarter with net leverage at approximately 4.3x as we deployed approximately $50 million of our $250 million buyback authorization to repurchase 2.2 million shares.

We will remain prudent in our share repurchase program as we assess overall market conditions and act on market dislocation opportunities relative to other capital allocation alternatives to drive shareholder returns.

The January 2026 partnerships with CAC and Obie generated a significant net deferred tax liability, which resulted in a benefit to income tax expense in Q1 of approximately $145 million from the reversal of the majority of our valuation allowance.

As an offset to this benefit, we recorded an above-the-line operating expense to establish a liability associated with our tax receivable agreement of approximately $130 million.

Note that the impact of each of these onetime transactions has been removed from adjusted EBITDA and adjusted EPS.

We would expect income tax expense/benefit for the balance of 2026 to be minimal and changes to the TRA liability will largely flow through the balance sheet going forward with minimal further expected impact on the P&L. There will be no change to the manner in which we calculate the tax impact to adjusted net income in 2026.

Looking ahead, our full year consolidated guidance remains unchanged. Despite the challenging market backdrop, we remain confident in our ability to accelerate our total organic growth throughout the year. For the second quarter, we expect revenue of $485 million to $495 million and organic revenue growth in the mid-single digits. We anticipate adjusted EBITDA between $113 million and $118 million and adjusted diluted EPS of $0.44 to $0.48 per share.

In summary, we are pleased with the quarter, encouraged by the strong contribution from our recent partnerships across both cost savings and revenue synergies and by the early operational impact of our 3B/30 Catalyst program.

Organic growth momentum is building, and we continue to expect a clear inflection in our financial results in the back half of 2026 as we fully lap the idiosyncratic headwinds of the past year. We remain focused on accelerating execution across our platform, fully integrating our recent partnerships into Baldwin and leveraging new and innovative technology and AI solutions to enhance our client impact and long-term shareholder value creation.

We will now take questions. Operator?

[Operator Instructions] The first question comes from the line of Gregory Peters with Raymond James.

For my first question, I'd like to focus on the organic revenue results and then briefly the comments you made about the revenue growth at CAC. But I guess one area that caught me by surprise was the result in the UCTS line, which I think you called out there's a onetime item in there.

Even on a pro forma basis, it seems like it's tracking lower than I might have envisioned for the year. So maybe you could provide some color there. And then just related to your comments around growth, if you could go back and more slowly go through what seems to be some pretty positive indications of growth coming out of CAC, that would be helpful.

Yes. Greg, this is Trevor. I appreciate the question. So let's start with UCTS. I did mention there was a large onetime contingent item in the prior year period. Normalizing for that, you're looking at 9% organic in the quarter for UCTS.

And kind of broadly, what I would say is we continue to have very strong underlying momentum in the UCTS segment. Our multifamily portfolio grew double digits in the quarter. Juniper Re continues to have very strong momentum with growth of over 90%.

And as kind of broader evidence for that underlying momentum that we're seeing, we do expect organic growth to recover to high single digits for UCTS in Q2 and back into the teens in the back half of the year.

In particular, we're seeing continued headwinds in our E&S home portfolio as a result of the soft market dynamics. And as we push through Q1, the impacts of that in the prior year were already fairly material and so should have less of an impact.

Specifically, our E&S home portfolio was down 30% in Q1. However, we expect it to be down, call it, high single digits for the full year, which should give you a sense of some of the recovery that we expect there over the balance of the year.

So the very high level is the underlying momentum at UCTS continues to be quite strong. It's a double-digit growth business, a combination of a onetime item and kind of an acute prior year period impact from the soft dynamics in E&S Home, which normalized through the balance of the year.

Now moving on to CAC. When we announced that partnership, we did it with a ton of conviction at a time when we realized that it was going to be a large and unexpected partnership.

But we had the conviction to do that because of the wisdom that we saw in the industrial logic of the combination, the quality of the people, the scarcity value of the capability set and how that enables us to continue to grow and strengthen the impact that we can deliver for our clients.

I think specifically, I made mention of the CAC team is a Ferrari, and we're going to put them on the track and let them run, and they have come out of the gate quite fast. We expected the results to be strong, to be clear.

But the strength of the results, I think, even have pleasantly surprised us both in the speed at which they have pulled through and the scale and the size of the momentum and the opportunities that we're seeing work.

So -- and that goes across every dimension of the partnership, whether it's the expense synergies that we had identified of approximately $43 million. We've already actioned over $34 million of that, well ahead of plan on the revenue synergy side and what is typically a fairly long sales cycle already million of revenue realized in the first quarter.

And as of today, nearly $3 million with more than $10 million of active cross-sell opportunities being worked by the combined teams and real strength, not in any one pocket of the CAC business, but just broadly, whether it's the industry practice groups, their legacy middle market business or their transaction liability group, which has not only had really growing momentum as they take share in the market.

But I think that has strengthened as you've combined them with the legacy Baldwin teams who've been able to leverage those capabilities to drive even more significant impact for our existing clients. So it's all incredibly positive.

Great. I think I have to pivot for my follow-up question to the Catalyst program slide you put in your slide deck. And you talk about this initiative in the context of the 3B/30, I assume getting to the 30% margin target.

Can you walk us through these run rate annualized savings and the positive payback. Is that -- does that get us to that 30% run rate that you're thinking about? Or is there some more levers you have to pull that are going to help you get you to your objective?

Yes. I think this on a stand-alone basis, Greg, doesn't fully get there, but just regular way operating leverage that's in the business in combination with the Catalyst program does. And as I mentioned in my prepared remarks, the program is live. It's on track and the early results are quite positive.

You may have seen earlier this morning a press release around our expanded partnership with Anthropic's Claude on an enterprise basis as well as I mentioned in the prepared remarks around the work we've been doing over the past several quarters to build out our own proprietary orchestration layer, driving real kind of productivity and efficiency into the operations of our business. So the early signs are quite positive. I can give you a more recent example.

In fact, our product team at DMGA recently came together in an effort to build and launch an admitted insurance product, a new product for us. And I'd say, historically, creating an admitted product requires a series of competitive analyses, rate and product feature determination and filing creation tasks.

So it's a process that's historically taken months, 3 on average and historically requires quite a bit of manual manipulation of documents and data. But the product management team leveraged Quad on top of our proprietary data across each phase of the process and significantly compressed the time line from what would have been months to 3 days.

And so as you think about how that translates into the velocity of new products that we can bring to market, whether that's the new builder products we expect to come later this year, a mortgage product we're working on or a manufactured home program we're working on for a number of our property management software clients, the impact will be real and significant. So we're quite excited for what we're seeing there.

Yes, Greg, I would just add, it's the combination of the Catalyst program. And then as you're aware, we've made some meaningful investments in the business such as mortgage embedded in addition to the products that Trevor just highlighted. So the maturity of those businesses is also a meaningful driver of that margin expansion towards the 3B/30 goal.

Next question comes from the line of Tommy McJoynt with KBW.

You sounded pretty optimistic about the early signs of success around cross-sell with CAC Group. Could you give some examples of where you guys are actually seeing success there? Is it finding new solutions? Is it taking market share from other brokers? Just maybe elaborate on that point.

Yes. I'd say it's all of those things, Tommy, and it's going both ways. So I can give you a couple of quick examples off the top of my head. The CAC team has deep industry capabilities across natural resources, across private equity, real estate. And we've historically had very deep capabilities across construction.

And so one of the CAC colleagues brought forth early in the year an opportunity for a large general contractor prospect that historically, they probably wouldn't have pursued because they didn't feel like they had all the right capabilities to really serve them at the level that CAC looks to serve their clients.

But because of the combination with our platform, they were able to bring in some of our construction professionals, and through an RFP process, we won that client. The incumbent was a top 5 global broker.

Our competition was both the global broker community as well as the large nationals, and it was a standout win and something that brought a ton of energy and momentum to the team as they saw some of the kind of reverse opportunities that could exist. Similarly, we have at legacy Baldwin, some professionals with deep expertise and strong relationships across private equity and in the M&A universe.

And CAC has an incredibly deep bench of talent here, not only on the product side around transaction solutions, but also broadly across portfolio solutions.

And so the legacy Baldwin team had a client that was entered into a complex cross-border international M&A transaction. And I can't get into a ton of detail because of NDAs, but I can just tell you, this was a highly complex transaction.

The CAC team was able to step in, deliver a set of solutions that help facilitate a seamless signing of that transaction. And it's a significant 6-figure revenue opportunity for an existing client of Baldwin that otherwise likely would have gone to one of our global broker competitors.

So a couple of really exciting opportunities. The pipeline is quite robust, both across construction, energy, data center and power generation as well as kind of broad-based large upmarket complex opportunities and the momentum continues to build.

And then just switching gears quickly to one of the headwind one-timers that you've been calling out, the Medicare side. Can you remind us, is the cadence or the seasonality there such that the fourth quarter of '26 that headwind should abate, or is that more of a '27 when it eases?

We expect that headwind to largely resolve itself beginning next quarter. While we're not expecting kind of a miraculous turnaround in results, we don't anticipate a meaningful headwind going forward there.

Next question comes from the line of Charlie Lederer with BMO Capital Markets.

I just want to go back to UCTS for a second. I know you called out the headwind, but you also had a fairly nice tailwind in the earned premium line there.

And if -- I guess if I exclude that, you were down a little bit more in UCTS. So was that all E&S Home and the real estate product? And I guess, what's going to drive the improvement over the course of the rest of the year?

Yes. Charlie, that's right. We did benefit from continued growth in the multifamily earned premium in the captive, which we really just view as kind of incremental economics on a high-performing overall program.

With that being said, the headwind was almost entirely the onetime contingent as well as the headwinds in the E&S business. We do expect momentum to pick up across kind of most, if not all, of our product sets over the balance of the year as evidenced by our confidence in high single-digit OG in Q2 and returning to teens OG in the back half of the year.

Momentum there is strong, and you've got the nuances of a lapped quarter, both from kind of where the E&S book stood in the prior year as well as that onetime contingent.

Got it. Then maybe just on the buybacks. Can you talk about how motivated you feel now to buy back shares? Or now that the stock is closer to peers, maybe it's less of a priority.

Yes, it's Brad. I would say our capital allocation priorities remain intact, right? We've repeated them in the past. But number one, organic investments to M&A, followed by buybacks and then dividends or debt paydown.

As I spoke with you guys sort of mid-quarter, we remain -- we're not an indiscriminate buyer. We are thoughtful about the price as we're deploying that capital, but continue to target the best risk-weighted return alternative. And to the extent we see dislocation in the price, we'll continue to be active.

Charlie, I mean, put differently, we can continue even at these prices to buy in our own shares at a meaningful discount to what smaller, lower quality private agencies trade for today. And so we continue to find our stock price attractive.

Next question comes from the line of Elyse Greenspan with Wells Fargo.

I guess my first question will continue there on the buybacks. You guys didn't raise the EPS guide for the year, but you obviously bought back in the Q1, and it sounds like, Trevor, right, based on what you just said, you're open to continuing to buy back your shares. So how come you're not raising the EPS guide? Or is it just the guidance is assuming no additional buyback over the remaining 3 quarters?

Yes, Elyse, we're not going to assume how stock price performance is going forward. And so to the extent we have the opportunity to buy back shares at an attractive price, that could create some upside. And to the extent we don't, that's because we've seen some recovery and kind of trading dynamics.

And then my second question, you guys provided, right, some figures on CAC, where you were insinuating highlighting good pretty strong new business growth and revenue growth in the first quarter.

On the 3 deals, right, the revenue and EBITDA contributions that you expect for '26 haven't changed, but it sounds like things are running ahead of expectations. So you're just waiting to update that? Or is it that some are running ahead and some are running below plan relative to the guidance you reaffirmed this quarter?

Yes, Elyse, I'd say broadly, the 3 partnership businesses are running ahead of plan, but we're 1 quarter in. So it's probably a little early for us to fully extrapolate that. And as I mentioned in my prepared remarks, -- the momentum at CAC is incredibly strong.

Some of that momentum is in kind of the transaction liability solutions, where there can be some variability quarter-to-quarter, year-to-year. The pipeline in that part of the business is, frankly, at an all-time high, and we continue to take share. So we feel good about the momentum, but feel like it's a little early in the year to fully extrapolate that forward into full year expectations.

And then my last one, just on market impact. I guess, what are you seeing just from an overall pricing perspective in like the property market? We've heard about some pretty aggressive price declines in that business. And how -- what are you embedding in there, I guess, when we think about your business over the next 3 quarters?

Yes. The property market is deeply soft, Elyse. I'd say we're seeing pricing levels that have returned to, call it, circa 2017. And for large shared and layered coastal placements, we're seeing rate decreases at times at 30% to 40%.

So frankly, at times, things that probably don't make a whole lot of long-term sense, but we're happy to go secure those types of results for our clients who certainly enjoy them.

Specific to how we've incorporated that into our expectations, I'd say we do expect to see a more significant rate and exposure headwind in the second quarter, which is the heaviest quarter for property renewals in the year, whereas we saw, call it, 70 basis points of headwind in Q1. I expect that to be 400 to 500 basis points of rate and exposure headwind in Q2.

And as a result, we do expect our legacy IAS segment to be, call it, roughly flat from an organic standpoint in the second quarter before returning to mid- to high single-digit OG in the back half of the year as we fully lap the procedural accounting change headwinds. I do think that we'll see, based on what we're staring at today, rate and exposure headwinds in the back half of the year pretty close to flat.

Maybe it's a slight headwind in Q3 and a slight headwind or a tailwind in Q4 -- and overall, with the expectation of kind of heightened headwinds in Q2, we would expect rate and exposure broadly for the year to be probably 100 to 200 basis points of headwind. And all that's fully incorporated into the expectations that we've shared already.

Next question comes from the line of Andrew Kligerman with TD Cowen.

I want to follow up on the IAS organic growth. So you had 4 points in the quarter of organic and then CAC, if it were normalized, contributed 4% to the overall book. So you're looking at -- if it were just IAS and CAC had been there for over a year, you're looking at, I think, well into the double digits, which is fabulous.

And then your follow-up point was the transaction liability is huge and that can be a little bit volatile. But I think -- and I'm not asking for explicit guidance. But typically, when you do an acquisition, you get a good year 1 and you get a similar organic in year 2 -- so maybe extracting out the volatility of transaction liability, all else equal, you'd probably be looking at high single into double digits potentially next year once you kind of get a full year on board. Am I thinking about it right with regard to IAS?

Andrew, at a high level, yes, it's a double-digit organic growth business, inclusive of CAC and Capstone results, which we think is really, frankly, a standout outcome in today's market backdrop.

Specific to 2027, I think it's definitely a bit early for us to begin opining on how we think about organic growth. into next year. However, what I would say is everything we're seeing from an underlying trends and data set standpoint is very positive.

Pipelines are building. cross-sell opportunities are growing. We do expect in the back half of the year, legacy IAS organic to re-rate back up into the mid- to high single digits. And as we think -- look at the momentum for CAC and their historical seasonality and what their pipelines look like, it's incredibly strong.

So again, early for us to opine on '27, but as we sit here with our crystal ball looking into kind of later this year and frankly, even reflecting on the quarter that we're discussing right now, incredibly proud of the results.

They are relative to our peers, a complete standout in the quarter, inclusive of CAC and Capstone and reflect not only the wisdom of this business combination, but the combined strength of the organization and how the breadth and depth of capabilities across industry, across product segments enable us to broadly solve our clients' challenges and deliver the most positively meaningful impact for them to help solve their risk issues and protect what's possible and ultimately grow their enterprises. So feeling really good about the momentum.

That's excellent. And -- following up on kind of capital management. And again, correct me if I'm wrong, but it sounds like -- and I think you answered that. I just want to make sure I heard it right. The intrinsic value of the stock is still attractive here.

So I just want to make sure I'm right on that. And then with respect to your leverage, which kind of inched up to 4.3x. And I think part of that is the buyback, which is great in my view, but it inched up. So I'd like to know where you kind of see leverage playing out toward the end of the year? Do you get to that 3 to 4x? Or do you think the stock is so attractive that you're willing to kind of let it hover around where it is?

Yes. So we continue to expect it to sort of hover in this 4 to 4.5x range over the intermediate term, particularly as we continue to execute on the buyback program. Of course, as I said before, we're not price indiscriminate. So that story can change, but that would be our current view.

And look, we continue to believe that just mechanically deleveraging 6 months earlier, while our equity trades at this material discount is quite frankly, a destruction of shareholder value and not a creation of it. So we're comfortable at this spot, particularly if we can take advantage of market dislocation.

And then just one last quick one. So that would kind of -- and I think you alluded to this before. It doesn't seem like there's any M&As of major size anytime on the kind of near intermediate-term horizon and hence, that leverage ratio can hold in the 4, 4.5 zone. Is that the right way to think about it?

Yes. I think it is, Andrew. But the reason for that is it's really difficult for us to find a financially prudent way to structure a deal that makes good financial sense based on where our equity trades today. So that, plus where leverage sits creates a bit of a hurdle.

I think what you've seen certainly as we disclosed the results of kind of all 3 former classes of partnerships from the 2020, 2021 and 2022 cohorts at the end of last year is frankly, I think we've been able to allocate capital to M&A in a way that's created a lot of value for shareholders intrinsically.

And while we're very early days, we appear to be off to what feels like a great start with the 2026 class of partnerships. And so in the confines of kind of our financial leverage policy and objectives to delever over time and subject to us having a currency that ultimately supports M&A in an accretive fashion, we think it's a very good use of capital over time. But the circumstances of the here and now dictate, I'd say, a more narrow set of priorities.

Next question comes from the line of Pablo Singzon, JPMorgan.

First, can you unpack what's going on with the E&S homeowners business? I guess I'm just a little bit surprised there. I know it sounds you mentioned it, but it just seems like given what other companies are reporting, pricing in homeowners is not experiencing the same pressure as in personal auto. So I'm just wondering, are you dealing with a different set of competitors in that business and that's why you're a little more cautious?

No. I'd say maybe that's homeowners broadly across kind of admitted and E&S products. But E&S home specifically, we've seen rate come in 40%, 50-plus percent. I'd say we went from 18 months ago writing $13 million, $14 million of new premium a month to over the past 12 months, averaging $2 million to $3 million.

Now what I will say is as we've continued to tweak our product, we're also in the process of rolling out multiple new E&S home product variants to better compete in certain pockets of the market that we continue to find attractive. We do expect our new business flow or success to go up. And that we actually saw reflected in March, which had over $4 million of new E&S home premium booked, which is the highest new business month we've seen in the past 12 months.

Now that's 1 month. It's not a trend. But we feel like we hit the bottom in Q1 and that you will see us continue to march that back up both through tweaks to product design and pricing in a prudent manner as well as the rollout of incremental E&S home product variants to compete in corners of the market that we continue to find attractive to resume growth.

And then for my second question, I was wondering if you could talk about the Construction Risk Partners business you had acquired some time ago. I think it's a decent sized portion of IAS and other brokers have spoken about activity related to data center construction and the like. So I'm curious if you're getting some benefit from that economic activity today.

Yes. The CRP team, the Baldwin Construction practice, which reflects the historical Construction Risk Partners business, is the largest and strongest pipeline in the history of our construction business. That's both a combination of an influx of new cross-sell opportunities from our new colleagues and partners at CAC as well as just a breadth of opportunities at the nexus of the data center and AI infrastructure build-out.

So what I will say, though, is if you look at the construction market, it's kind of a tale of 2 cities. So overall expectations for construction spend this year are roughly flat year-over-year, if not modestly down. However, that's being buoyed by significant spending in the data center arena, offset by slowdowns in non-data center AI infrastructure areas of historical construction activity.

And what that means is that ultimately, we expect those results to be lumpier because the data center opportunities are fewer but larger in scale. And we both have some of those wins under our belt as well as multiple kind of very large multibillion-dollar opportunities in the near to intermediate-term pipeline and feel good about how we're positioned to take, frankly, more than our fair share of those wins.

Next question comes from the line of Josh Shanker, Bank of America.

I want to point out that 90% growth in Juniper Re and 27% growth in the new partnerships staggering numbers. but it also implies a great deal of contraction about the legacy businesses that are older in the portfolio.

If someone wanted to make the argument that Baldwin has bought growth but not long-term runners and is once again buying growth, what's the pushback on that thesis to the stuff you bought before CAC and Juniper Re is now growing more slowly?

Yes. I mean the pushback is in the numbers and the expectations that we've already shared, Josh. So I think the headwinds have been well discussed, the idiosyncratic drivers from Medicare to the IAS procedural accounting change to the QBE book rule transition to our reciprocal exchange and normalizing for all 3 of those.

You've got a mid-single-digit growth business in the quarter, and you've got a business that we expect to grow organically at double-digit rates exiting this year before the impact of the 3 partnerships this year that grew at 27% in the quarter.

So while all businesses have ebbs and flows and the market impacts here are real as they have been, I'd say, broadly discussed not only with us, but the industry at large, I think we're relatively uniquely positioned against our peers to be sitting here talking about a business that's going to accelerate to high single digit and then ultimately double-digit growth by the fourth quarter despite no expectation for market headwinds to kind of meaningfully abate.

So you still believe if the insurance distribution industry at year-end is growing at mid- to low single digits, Baldwin will still be growing at high single digits, edging towards double digits?

That's correct.

Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to hand the floor over to Trevor Baldwin, CEO, for closing comments.

Thank you all for joining us this evening. As I noted at the open, we are pleased with our first quarter and confident in our trajectory through the balance of the year. The momentum here is real. Our embedded distribution, our advisory businesses across our MGA platform and as evidenced in the integration of our partnerships.

And it's the direct result of the work our colleagues are putting in every day. I want to thank our colleagues for how they show up in support of our clients, one another and for the firm we are building together. To our clients and insurance company partners, thank you for your continued trust.

And to our shareholders, thank you for your engagement and support as we continue to deliver against our Catalyst 3B/30 goals and objectives. We look forward to speaking with you again next quarter.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Greetings, and welcome to the Baldwin Group's Fourth Quarter 2021 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Bonnie Bishop, Executive Director, Investor Relations. Please go ahead.

Thank you. Welcome to the Baldwin Group's Fourth Quarter 2025 Earnings Call. Today's call is being recorded. Fourth quarter and full year financial results, supplemental information and Form 10-K were issued earlier this afternoon and are available on the company's website at ar.baldwin.com. 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-K, 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 fourth quarter and full year 2025 results. I'm joined by Brad Hale, Chief Financial Officer; and Bonnie Bishop, Executive Director of Investor Relations.

Earlier this month, our industry experienced one of the most dramatic sell-offs in nearly 2 decades after the launch of AI-powered insurance applications and ChatGPT triggered fears of widespread broker disintermediation, eviscerating nearly $40 billion of market capitalization across our public broker peers in a matter of days. I wanted to start with a few direct thoughts on this as moments like these are exactly the kind of moments that reveal the difference between businesses that are built to the future and those that are not.

The critical question being debated today is whether AI will be a true competitor to brokers or an enabler for them. I believe the answer is both. AI will almost certainly drive a divergence of fortunes and success for talent and firms alike. Firms operating as transactional middleman and commoditized insurance product lines should be concerned. At the Baldwin Group, based on our end markets, intentional go-to-market strategies and the overall complexion of our business, AI is a step function multiplier, enabling significant gains in productivity and enhancing our organizational speed and agility.

I'll spend a few minutes addressing how we think about this and why at Baldwin group, we have been purpose-built for this era. In Personal Lines, which comprises approximately 38% of our total pro forma revenue, roughly 80% of that revenue emanates from embedded insurance distribution platforms. which we believe represent one of the ultimate moats in this environment. While the market is worrying about consumers asking a chatbot for insurance and our embedded businesses, we are focused on being the insurance solution of convenience sold through a trusted partner alongside a primary transaction such as buying a home, securing a mortgage or renting an apartment.

We don't wait for our clients to search. We are already there. Our Westwood platform, which inclusive of the HIPO business we acquired, generated $190 million in pro forma revenue in 2025. And seamlessly embed directly into the home buying experience for 20 of the top 25 homebuilders in the United States who, in aggregate, sold 57% of all new homes sold in the U.S. in 2024. When a consumer buys a new home through 1 of our builder partners, Westwood binds a policy roughly 55% of the time and over 85% of those down policies are escrowed in the consumers' mortgage payment. That is a deeply embedded, highly persistent revenue stream. Our national mortgage and real estate platform serves as an extension of our mortgage and real estate partners' client experiences.

Bringing protection directly into the consumers' moment of home purchase and financing through our proprietary technology platform, coverage navigator. In 2025, we onboarded 12 new partners, including new American funding, a top 20 mortgage originator in the U.S. to move to our platform from a competitor and has seen dramatic increases in conversion rates. I'm thrilled to announce that yesterday, we signed a 10-year exclusive agreement with Fairway Independent Mortgage Corporation, the sixth largest independent mortgage lender in the U.S. with over 67,000 loans originated in 2024.

We currently expect to go live with Fairway on our coverage Navigator platform in the second quarter. The growing momentum here is palpable and will drive deeper moats around our embedded business. Our Renters Insurance platform, which wrote over $280 million of premium in 2025 and embeds directly into property management software, allowing a renter to purchase an insurance policy at point of lease in under 60 seconds. 100% of the premium flowing through this channel is into our own proprietary products built and managed by our MGA platform, MSI.

Overall, these embedded solutions are easier, more intuitive and more seamless than initiating a separate process with a stand-alone AI agent. We've been investing heavily in embedded solutions as a direct strategy to transform how personal insurance is bought and sold because we foresaw the risk of disintermediation through technology. We are the disruptor in this marketplace. And importantly, since early 2024, we've been building AI into these platforms and are seeing real productivity gains, including digital agents taking phone calls and binding policies when coverage discussions are not required.

Now shifting gears to small commercial. This is an area where we do believe AI can positively transform the insurance buying experience given the traditional brokerage economics for these small accounts are broken. High labor costs and low retention often result in low to negative margins. Fortunately, we've been proactively disrupting ourselves here via our Founder Shield digital platform, migrating small business clients to a digitally guided experience. The results have been significant.

On average, for clients who have migrated to this platform, retention increased from 82% to 92%. Margins swung positively by approximately 40 percentage points and growth accelerated to 25% annually as the digitally guided buying experience led to cross-sell and upsell. We ended 2025 with $17 million of retail brokerage revenue on this digital platform. and are in the process of migrating the remaining roughly $30 million of small business revenue onto this platform. While small relative to our overall business, we believe this platform will be a growth driver for us over time.

Importantly, we are not waiting for an AI agent to disintermediate this business, but rather are leveraging our digital-first platform to serve it better and more profitably than any human intensive model could. Turning to our IS segment. We've intentionally constructed a business that skews toward clients with both scale and complexity where deep product and sector experience, are critical factors in the choice of an insurance adviser. The addition of CAC amplifies that strategy, bringing substantial expertise in complex industry sectors and risk products. Of our roughly $1 billion of pro forma IS revenues, inclusive of CAC, approximately 70% is commercial insurance for midsized to large clients. 20% is employee benefits brokerage and consulting and 10% is personal insurance for high net worth families.

Approximately 80% of IS revenue comes from clients generating at least $50,000 of revenue for Baldwin, meaning they are generally spending more than $500,000 in insurance premiums across complex and sophisticated insurance program structures. We have organized the business around industry and product specialties. And one example I'm particularly excited about is our cross-functional team of experts from construction, natural resources, real estate and complex property that is serving clients involved in data center development across all phases of the life cycle.

From project sponsors to developers of solar, wind, geothermal, natural gas nuclear and energy storage projects to power producers and energy offtakers. This convergence of traditionally siloed practices allows us to move at speed with rapidly changing markets and is exactly the kind of advisory work that augments rather than replace is. Lastly, our UCTS segment wraps a strategic moat around the broader Baldwin platform.

In this business, we build and manage proprietary insurance products. We price and analyze risk, adjudicate claims and facilitate the formation and management of third-party risk capital. AI will only enhance and accelerate our capabilities and productivity across all these domains. We have long held the view that the broker of the future, the broker for an AI world integrates across the value chain end to end, owning the client relationship, building and managing risk transfer products and arranging for the formation and management of risk capital. The proprietary product flowing to our embedded channels further insulates us from perceived risks of disintermediation as they are only available through us. It is our product and access runs through our platform exclusively.

We are incredibly excited for this moment. we are structurally set up to quickly take advantage of the operational gains afforded by AI. Quite simply, the Baldwin Group was built to this era. With that, I will now turn to our results. Fourth quarter organic revenue growth of 3% was below our historical performance and reflects several headwinds we've previously discussed, including a 22% decline in profit sharing revenue that is largely timing related. Core commissions and fees organic growth was 5%. On a full year basis, we delivered core commission and fee organic revenue growth of 8%.

Total organic revenue growth of 7%, adjusted EBITDA growth of 9%, 20 basis points of margin expansion and adjusted diluted earnings per share growth of 11%. These full year results place us at the top end of organic growth across our peer set. Normalizing for the onetime impacts from transitioning our 2BE builder both to our reciprocal and the procedural change impacting the timing of revenue recognition in IES, commission and fee organic growth would have been 8% in the fourth quarter and 10% for the full year 2025. Overall, organic growth would have normalized to 5% in the fourth quarter and 9% for the full year.

Additionally, the disruption in the Medicare marketplace impacting our Medicare business was a 100 basis point headwind to organic growth in the fourth quarter and a 70 basis point headwind for the full year 2025. Despite the revenue headwinds in the fourth quarter, profitability pulled through. Adjusted EBITDA margin expanded 100 basis points in the quarter to 20.1% and adjusted diluted earnings per share grew 15% to $0.31 per share.

This was driven by the structural margin opportunity inherent across our platform as well as core operating leverage and was in the face of the $7 million decline in contingent commissions, which have a 100% flow-through to EBITDA. At the segment level, UCT once again delivered outstanding results in the quarter with 16% organic growth and adjusted EBITDA margin expansion of approximately 330 basis points. Strong performance was powered by continued growth in multifamily, better-than-expected results in our commercial umbrella portfolio and builder product and contributions from Juniper Re.

In Main Street, our core commission and fees organic revenue growth was 2%, while total organic growth was negative 4%, reflecting some pressure and timing of contingents. The quarter was negatively impacted by the continued QBE transition headwind at Westwood and Medicare retention challenges. As a reminder, the year-over-year QBE commission headwind should subside in May of this year, and we expect tailwinds over time related to the economics associated with managing the reciprocal. Normalizing for the impact of the QBE transition total organic revenue growth would have been 2% for the quarter and 6% for the year, further isolating out the impact of the disruption in the Medicare industry organic revenue growth would have been 6% in the quarter and 8% for the year.

Despite the top line headwinds, adjusted EBITDA margin expanded 460 basis points to 31.8% and an exceptional profitability result, showcasing the immense operating leverage we have as our investments in building our embedded mortgage business, RNN. In IS, Fourth quarter core commission and fee organic revenue growth was flat, while total organic revenue growth was negative 2%, reflecting timing pressure on contingents and rate and exposure headwinds of nearly 10%, inclusive of the procedural accounting change we have previously discussed. Removing the impact of the procedural accounting change, total organic revenue growth would have been negative 1% for the quarter and 4% for the year. Underlying business momentum remains strong. sales velocity was 19%, top decile for our industry and client retention improved by nearly 300 basis points in the fourth quarter.

We increased our investment in frontline revenue-generating talent by 44% in the year, taking our net unvalidated producer pay from 1.6% to 2.3% of commission and fee revenue. Our client franchise, new business pipeline and overall business momentum is incredibly strong. We enter 2026 with optimism and excitement for our building momentum. On January 1, we closed our partnerships with CAC Group, OBI and Capstone. On a combined basis, these 3 partnerships delivered approximately $350 million of 2025 pro forma revenue and we expect them to deliver roughly $400 million of revenue and approximately $110 million of adjusted EBITDA post synergies in 2026.

Given the markets, understandable skepticism around synergy achievement, the Baldwin and CAC teams worked diligently to action all headcount-related changes last week. Which represent the largest quantum of expected expense synergies. Today, our integration efforts are ahead of schedule. New business momentum and collaboration across our collective teams is incredibly strong, and the strategic rationale for the wisdom of this business combination is playing out faster and stronger than anticipated. As of yesterday, the CAC team has $32 million of closed on new business in 2026 as compared to $20 million in the prior year period and is already actively working on $11 million of combined cross-sell opportunities with their new Baldwin colleagues, highlighting the momentum we have started the year with.

Our theme for 2026 is accelerate. The Goldilocks era for insurance intermediaries is behind us. The conditions that once lifted all boats have given way to a market that rewards only those with true capability, discipline and cohesion. At Baldwin, that shift plays directly into the strategy we have been executing for years. We have been thoughtfully assembling piece by piece a diversified, vertically integrated platform designed to thrive in any market cycle, not just the easy ones.

Central is our 330 Catalyst program, which we launched in the third quarter of 2025. In 2026, Catalyst becomes operational in earnest. We are executing the first phase of role transformation within IES, consolidating core technology platforms to improve connectivity and data clarity across the firm. and infusing AI and automation into workflows to elevate colleagues impact and enhance the client experience. We expect $3 million to $5 million of catalyst-related savings this year, ramping meaningfully in 2027 and beyond. This is how we translate AI into a tangible competitive advantage.

We remain anchored to our aspirational North Star $3 billion in revenue and a 30% adjusted EBITDA margin over the intermediate term. And with that, I'll turn it over to Brad to detail our financial results.

Thanks, Trevor, and good afternoon, everyone. For the fourth quarter, we generated core commission and fee organic revenue growth of 5% and total organic revenue growth of 3% and total revenue of $347.3 million. Looking at the segment level on a core commissions and fees basis, organic revenue growth was flat in IES in MIS and 17% in UCT. Total organic revenue growth was negative 2% in IES, negative 4% in MIS and 16% in CTS. For the full year, total revenue was $1.5 billion. Core commission and fee organic revenue growth was 8%, while total organic revenue growth was 7%.

You heard Trevor speak to several idiosyncratic and market-related headwinds that impacted our 2025 financial results. To support digestion of those comments, I would point everyone to 2 new slides in our investor supplement, specifically Slides 6 and 7 that describe and quantify these impacts, and bridge to a view of what normalized organic growth would have been for the consolidated business, absent idiosyncratic headwinds we've discussed. We recorded a GAAP net loss for the fourth quarter of $43.7 million or GAAP diluted loss per share of $0.37 and GAAP net loss for the full year was $54.2 million or $0.50 per fully diluted share. Adjusted net income for the fourth quarter, which excludes share-based compensation, amortization and other onetime expenses, was $36.3 million or $0.31 per fully diluted share, reflecting 15% growth.

For the full year, adjusted net income was $198.9 million, or $1.67 per fully diluted share growth of 11%. A table reconciling GAAP net income to adjusted net income can be found in our earnings release and our 10-K filed with the SEC. Adjusted EBITDA for the fourth quarter rose 10% to $69.6 million compared to $63.2 million in the prior year period. Adjusted EBITDA margin expanded approximately 100 basis points year-over-year to 20.1% for the quarter compared to 19.1% in the prior year period. Adjusted EBITDA for the full year grew 9% over the prior year to $341.5 million. Adjusted EBITDA margin for the full year was 22.7%, an expansion of 20 basis points year-over-year. Adjusted free cash flow for the fourth quarter was $11 million, an 85% increase year-over-year.

Adjusted free cash flow for the full year was $87.2 million, a decrease of 5% from the prior year driven by onetime partnership-related costs of approximately $15 million in Q4 that were largely tied to the CAC Group merger and were unplanned at the time of our last call, based on the timing and execution uncertainty that still existed around the CAC merger. Net leverage remained flat in the quarter at 4.1x as a result of those onetime partnership-related cash uses. We took advantage of favorable market conditions in December, increasing our term loan facility by $600 million to fund the closings of CAC, OBI and Capstone while maintaining our pricing of SOFR plus 250 basis points.

Turning to capital allocation. I would first direct investors to the updated partnership scorecards in our earnings supplement, which highlights the meaningful value we've created through capital deployed to partnership activity. As we sit here today, the all-in blended multiple paid for all partnerships completed from 2020 to 2022, inclusive of earn-outs is 8.7x adjusted EBITDA. We Specifically, I would call out Westwood, the Sol partnership in the 2022 cohort and prior to CAC, the largest partnership in the firm's history.

In addition to giving us an incredibly strategic foothold in the new homebuilder channel, the financial aspects of the transaction speak for themselves. With the purchase price, including earn-outs, now representing an adjusted EBITDA multiple of 5.6x. All of this highlights and validates our ability to attract high-quality businesses, integrate them effectively and deliver compelling post earn-out returns for shareholders despite the overhang that earnout payments have had on our free cash flow and deleveraging trajectory. Wrapping up on capital allocation, as previewed on our last earnings call and now given the dislocation that we believe exists in our share price today, the Board of Directors has accelerated and expanded its authorization of a $250 million share repurchase plan.

We believe it is in the long-term best interest of our shareholders to take advantage of this opportunity by acquiring shares of the business we know best, our own. Funded through excess free cash flow and a deemed prudent periodic use of our revolver. Moving to guidance, which we are updating to reflect the CAC Group merger. For the full year, we expect total revenue between $2.01 billion and $2.05 billion and organic growth of mid-single digits or higher. As we've discussed, we expect organic revenue growth to ramp throughout the year, reaching by the fourth quarter as we lapse both the QBE commission headwind in MIS and the procedural accounting change in IES.

We expect adjusted EBITDA between $460 million and $480 million, representing adjusted EBITDA margin expansion of 20 to 70 basis points. We expect double-digit growth in adjusted free cash flow before onetime transformation and integration costs and adjusted diluted earnings per share between $2 and $2.10. One housekeeping note. I would point everyone to Slide 24 of our investor supplement, which lays out historical timing of CAC Group revenue and should help inform model updates. For the first quarter of 2026, we expect revenue between $520 million and $530 million and organic revenue growth in the low single digits.

We anticipate adjusted EBITDA between $130 million and $140 million and adjusted diluted EPS between $0.61 and $0.65 per share. '25 was a year of meaningful progress for the Baldwin Group. We delivered our sixth consecutive year of top of industry organic growth, expanded margins and grew adjusted EPS by double digits. The actions we are taking to execute on CAC synergies, advance our catalyst transformation program scale our embedded an MGA platforms and grow investments in front-line revenue-generating talent reflect our conviction in the durability and value of this platform. We sincerely thank our clients for placing their trust in us, our colleagues for their tireless dedication and our shareholders for their continued support and patience. I will now hand it back to Trevor.

Thank you, Brad. In closing, against the backdrop of relatively strong consolidated results in the wake of many idiosyncratic and market-driven headwinds and I want to acknowledge to our shareholders what has been a year of uneven financial performance, one that does not ultimately measure up to our own high expectations.

Despite this, our business is entering 2026 well positioned to accelerate performance with strong underlying momentum across all 3 of our segments, incredibly encouraging early wins and synergy realization at CAC innovation taking place across the value chain as we continue to bring clients and risk capital closer together and investments we have been making in automation and AI that we expect to drive meaningful gains in productivity and accelerated client value and impact. In many ways, our growth story is entering its most consequential chapter. Our business was purpose-built for this era, and we're excited about our ability to demonstrate that to all of our stakeholders.

To wrap up with our prepared remarks, I want to share how proud I am of the way our colleagues navigated a complex environment in 2025. I want to thank our clients and insurance company partners for their trust, our colleagues for their resilience and commitment and our shareholders for their support in what has been a bruising year. With significant colleague ownership our alignment is deep and enduring as we build long-term value together. We'll now take questions. Operator?

[Operator Instructions]. Your first question is from Thomas McJoynt with KBW. Please go ahead.

The first one here is, I appreciate all your comments there at the beginning about what's happening with AI and the threat of disruption there. and your competitive positioning. Maybe I just want to ask you to expand a little bit on that. If I think about, for instance, like an embedded solution like renters to the extent that it does become easier for somebody to build some software or some program in an automated fashion. Like how do you think about your defensive positioning to maintain your structure with clients that would prevent you from being disrupted in a product like that.

Yes. Tommy, this is Trevor. Great question. I think, look, the narrative that AI replaces brokers is just far too simple. I think what AI actually does is it accelerates the divergence that was frankly already underway between platforms that own distribution that manufacture risk products that source and manage risk capital and that ultimately embed themselves in the customers' workflows and ecosystems from those intermediaries that are simply in the middle and take a toll. The toll collectors are clearly in trouble. The platforms are not.

And in fact, I believe the platforms are about to enter a true golden age. At Baldwin, we have been laser focused not on building a brokerage, but on building an insurance platform. And we think about our platform through 3 lenses that I think directly mapped to the framework of why we believe there's a lack of agility around this overall business model, an ecosystem that we've created. The first is embedded distribution. Specific to renters, we are at point of lease through our property management software partners embedded and built natively into the workflow in their system.

And then 100% of the premium throughput through the various renters products that is purchased via that channel is our own proprietary product. You can't get it anywhere else. And so if you want our product, you have to come through our platform. In addition to that, we're arranging and managing the risk capital that sits behind that product. So we control the entire value chain associated with how those renters insurance solutions are ultimately brought to bear priced, adjudicated and how those renters customers are taking care of. So that's one example. It's a similar dynamic across our builder and mortgage channels with proprietary product, proprietary technology.

And I would tell you, none of these areas are the core business functions of our channel ecosystem partners. What they're looking for is a high-quality partner that gives them certainty around execution and confidence that we're going to be able to hold and deliver an ultimate client experience that's consistent with their overall experiential goals. So when you think about our broader platform, it's embedded distribution. It's advisory complexity.

I talked earlier in my prepared remarks around both the scale and complexity of the type of clients that we serve and the end markets that we're serving them in and then it's vertical integration. We don't just distribute products. We do. We own the customers. We are the retailer, but we also build and manufacture the proprietary product, and then we source a range and manage the risk capital that sits behind them. And I think that's a central theme to why the platforms will not only survive but thrive in the world of AI and all of its impacts on knowledge work.

Great. And then I appreciate on Slide 7, your quantification of the idiosyncratic end market headwinds I just want to ask you to unpack your expectations in terms of what's embedded in your guidance for the Forte market headwinds. Are you contemplating any deceleration in casualty rates, is it a matter of property rates stabilizing at midyear? What's embedded in that?

Yes. I mean we're expecting continued headwinds through most of 2026 from a overall market impact standpoint with that fading through the year to more of a neutral impact by the time the year wraps up. And that's less a function of the absolute rate, which we believe will continue to decrease and be competitive in property. We do believe rates will continue to ebb and casualty and it's more a function of rate of change. And so what you saw in the fourth quarter is a rate of change of 1,500 basis points of total market impact because we swung from positive 500 basis point tailwind in the fourth quarter of '24 to a 10% headwind in the fourth quarter of '25.

There's some nuances to that headwind. Predominantly around our benefits business, which drove most of that where we saw another quarter of pretty meaningful exposure compression. So that's not a rate dynamic. That's an exposure dynamic in our benefits business but I would also tell you, we now have visibility into January 1/1 renewals, where we renew about 40% of our overall employee benefits revenue for the year, and we saw combined rate and exposure increase in January.

So I think the back 2 quarters of '25, we saw pretty meaningful exposure compression across our benefits clients, which I believe is reflective of some of the structural workforce transformation that's occurring as a result of across white collar knowledge based businesses, technology companies is a big cohort of which exists across our client base. So I think while I called a floor in the third quarter of '25, I clearly got that wrong.

I feel really good about the fact that the headwinds will slowly subside through the year. We've got finite part end dates around the QBE filter transition and the IS revenue. recognition procedural change. We've got pretty good visibility into the Medicare disruption that occurred in 2025. largely stabilizing, not expecting that business to go back to meaningful growth anytime soon. But I think the headwinds we face should largely subside there. And that's all what informs that mid-single-digit or higher organic guide that ultimately culminates into double-digit organic growth on a run rate basis by the fourth quarter.

Next question is from Charlie Lederer with BMO Capital Markets.

Great. You mentioned the growth in unvalidated producers. Can you provide color about how much your hiring strategy in IAS has been adding to sales velocity and how we should think about how that strategy plays in a softer market environment.

Yes. So we increased our investment in frontline revenue-generating talent by about 70 basis points in the IS business, Charlie. And I wouldn't think about that as having a material impact in year on sales velocity just because of the typical ramp time period associated with a lot of that talent. So the sales velocity for the year of around 19%, which, by the way, compares to an industry median of about 11 and a 75th percentile of about 15.5%.

So continuing to perform at top decile results from a new business generation standpoint is largely from risk advisers that have been on the platform for more than 12 months. the folks in that. The investment ramp that occurred through 2025 should begin building into new business and sales velocity results in the '26 and fully into '27.

And then maybe on the MIS side, I guess, how should we think about the cadence there? Obviously, you lapped the impacts, I think, in May. On the homebuilder side, I guess, how is the underlying momentum there? And are you still ramping new partners there? And on the -- maybe you can talk about same thing on the mortgage side. I know you announced a new partnership.

Yes. So look, normalizing for the impact of QBE transition, Westwood's organic growth for the year was 9.5%. So that business continues to perform quite well despite what has become a little bit of a softer overall builder market, we feel really good about our position with 20 of the top 25 homebuilders in the country who accounted for more than 57% of all homes built in the U.S. is our partners, and we continue to take share win new builders.

And I'd say that the integration with IPO and the builder partners that came over from that transaction has gone incredibly well. We're already through the TSA. They're fully on our proprietary tech advantages and a business is humming along. So I think there's an expectation for builder volumes to be down somewhat in 2026. But I'd remind everyone that 90-plus percent of the revenue in the Westwood platform comes from renewals. And so the impact of builder volumes does not have a straight pull-through impact to the overall momentum in the Westwood business. That business continues to perform exceptionally well.

Our mortgage business is doing fantastic. You saw most likely yesterday, the announcement around our new partnership with Fairway Mortgage Corporation, the sixth largest independent mortgage lender in the country. just a huge validation of the value of our technology platform and how that can enhance and accelerate the insurance buying experience at point of mortgage origination. In fact, Fairway already had its own subagency they were operating, and they ultimately came to the conclusion that they would be better off partnering with us because of the power of our technology rather than continuing to go it alone with their own insurance agencies.

So in conjunction with that partnership, we will be acquiring their small agency. It's about $1 million of revenues, so not substantial and continuing and plugging them into our congregator type platform to accelerate momentum. The moment the pipeline we have in the mortgage and real estate sector is quite large, over 45 providers that in theory, would generate over $90 million of first year new business revenue. So we're actively working that pipeline, showcasing the value of our tech and how it truly enhances and elevates the overall mortgage origination process and experience.

Gregory Peters with Raymond James.

Well, good afternoon team Baldwin. Trevor, you mentioned in your comments a couple of times about the precipitous decline of your stock price, you highlighted the fact that so many of the employees at the company are also shareholders. So I guess I have two questions for you considering what's happened First, can you talk about retention? I think your highest level the producers or the bank are producers. I think that's what you called them anyways. But can you talk about retention?

And then the second part of the stock price question is, I'm sure this goes all the way to the board. Is there any perspective of what you can do differently going forward other than just simple execution that will help restore confidence to stock price? Or is there a shift in strategy that you're contemplating? Obviously, the share repurchase a significant step. But I'm just curious about what's going on in the mindset in the company there right now.

Yes, Greg, great question. So let's hit retention first. Look, none of our colleagues are happy or excited about share price performance over the past 12 months. And there's definitely frustration around that, but it's not impacting retention. Vanguard Cali retention was 94%. So it continues to be exceptionally high. We have not had any regrettable production talent losses over the past 12 months.

I know there's been a lot of headlines around some pretty kind of broad-based talent detections across various industries. I would just say, one, we don't think very highly of some of the tactics that are being employed by many of these newer entrants who seem to be somewhat disregarding the type of approach that I think good self-prospecting and competitive businesses take to winning talent. We're full believers in portability of talent. And I think the power of our platform the strength of our culture and ultimately, the realization for our industry's very best professionals that they can build the most rewarding impactful careers here at Baldwin speaks through in the strength of our retention.

But ultimately, we need our results to translate into share price performance over time. I think we can point to a number of examples of incredibly successful public companies who have gone through periods of dislocation and misunderstanding that's impacted their share price performance. But it feels like we've been there longer than most now over the past few years. To speak directly to some of what's ultimately driven some of that share price performance. We've got to manage expectations better. We came out and we've had to reset expectations for a variety of reasons, some specific to us, some market-driven, that obviously does not create confidence.

And so what you're seeing and the expectations that we've laid out are a set of financial targets that we believe are quite achievable. I think when you look at the overall performance of our business through most any financial lens over the past 6 years since we went public, it's pretty remarkable. We've taken a business from $135 million of revenue to what is today on a pro forma run rate basis over $2 billion, we've grown earnings on a per share basis nearly at a 40% CAGR and free cash flow at a 45% CAGR.

And -- but we know there's things we've got to do to improve the overall financial profile of the business. We've got to continue to stay focused and disciplined around delevering. We've got to drive a realization of better free cash flow conversion. And ultimately, we've got to continue to deliver the outsized organic growth that has been a hallmark of our success over the years. today as confident as I've ever been, Greg, about the unique competitive position we're in and how purpose-built we are for this era and the impact of AI. As I mentioned earlier, we haven't been focused on building a brokerage. We've been focused on building an insurance platform that enables us to play across the ecosystem in a way that uniquely positions us to solve challenges and to ultimately build enduring moats around our competitive advantages. So our business is well positioned coming into 2026.

The quality and the strength of our talent has never been better. The addition of CAC just continues to add to that. As you think about the level of expertise we have and complex upmarket risk and insurance opportunities. And the momentum is palpable. I mean, you heard some of the remarks I shared around the new business success that CAC has come into the year with closed on new business, up over 50% $1 million of active cross-sell business being worked on collaboratively between the Baldwin and CAC teams. It's incredibly exciting. But we're not close eye to the reality that there's some things around our financial profile that we've got to make real progress on, and we're committed to doing that.

So I appreciate your comments there. And I want to focus on two pieces of your answer at the end that I think are important and it's the deleveraging and the free cash flow component. And I guess what I'm struggling with is how you're going to deliver those -- on those two metrics, while at the same time, aspiring to grow to $3 billion of revenue because I feel like if -- based on your original vision that was going to require some more acquisitions. So maybe speak to just sort of how you're thinking about the deleveraging free cash flow components of that answer.

Yes, Greg, we've got to drive meaningful margin accretion in the business through, and we're actively doing that. If you look at the CAC integration we outlined $43 million of cost synergies to be achieved over 3 years, and we've already actioned $25 million of that. We're 2 months in 60% of expected cost synergies are actioned. And of the $17 million of revenue synergies that we had identified, we're already working on $11 million worth, 60 days in.

So, it's about continuing to transform our business, which is what 330 catalyst is all about, which is repositioning the way in which work gets done across our business to leverage the advantages of artificial intelligence. And we're doing that. We, over the past 90 days, built our own proprietary orchestration layer Gator that enables us to have synchronous and asynchronous coordination of workflows that are fully automated to be able to truly elevate and enhance the type of work that our professionals are doing while driving more seamless more effective and more real-time interactions for our colleagues through the advantages of AI.

What we're seeing in the early kind of days of some of these tools that we're rolling out is productivity gains upwards of 80%. Like to say that AI is going to have an impact or even transform businesses in our industry is probably the understatement of the day. The opportunity we have ahead of us here is immense, and we're going to unlock meaningful margin opportunity while accelerating organic growth. And that will put us in a position to be able to both delever the business through scale while also have it being in the position over time to be thoughtful around M&A.

Greg, I just want to add, look, in the last 2 quarters, we've actually had quite a strong trend in the growth in adjusted free cash flow. In Q3, adjusted free cash flow from operations was up 26%. In Q4, it was up 85%. And Q4 was in the face of approximately $15 million of partnership related expenses for the January 2026 deals, which was unplanned. As we delever the business, as Trevor articulated, we would expect our free cash flow conversion to migrate to the peer levels.

With respect to leverage, I want to be clear in how we think about the balance sheet, our long-term target leverage remains 3 to 4x, nothing about today's announcement around buybacks, changes that destination. What we're saying is that the path to that destination should be optimized for total shareholder value, not optimized for arriving at the lowest leverage ratio in the shortest possible time. We have no near-term maturities of consequence. In this context, mechanically deleveraging from 4.1x to 3.5x, 6 months faster while our equity trades at a material discount to where we believe intrinsic value sits would be, in our view, a destruction of shareholder value and not a creation of it. So we're looking at this the same way we've always looked at it on a long-term basis and are committed to that path.

Elyse Greenspan with Wells Fargo.

My first question on organic growth. I guess, with the mid-single-digit guidance for '26, I was just hoping that you can give some color on the -- what the outlook is business? And then a second part, given with organic growth. Obviously, you guys did highlight it right, some specific headwinds, and I know they've called out on the slides, but within your organic growth guidance for 2016, are you assuming any of the businesses start off the year in negative territory, right, just because obviously, the cadence is organic improving during the year.

Yes. Elyse, we're not going to get into segment specific outlook here. What I would tell you is the headwinds, which all have finite end dates over the course of 26 are incorporated into that mid-single-digit or higher guidance, wasn't just mid-single, I would point that out. We expect OG to return to double digits by the fourth quarter. And we would not expect negative OG in any of the segments going forward.

That's helpful. And then for the share repurchase program, the $250 million in that -- in the slides, right, it is opportunistic share repurchases. So within the EPS guidance that you've outlined, what is that assuming of the $250 million that is bought back during the year?

We're not assuming share repurchases right now, at least, we are -- our appetite is going to be opportunistic based on where the shares trade as share price goes up, our capital allocation priorities will shift. I think if you assume we deployed $125 million of capital into a share repurchase program over the year that would result in about a 3% accretion.

And then from a -- we're almost 2 months into the Q1. So what have you seen from a market impact, so rating exposure impact, I guess, quarter-to-date? And has there been any change in what you observed quarter-to-date relative to the fourth quarter?

Yes. As I mentioned earlier, we've got pretty good visibility into 1/1 employee benefit renewals now, and we did not see the same exposure weakness in those 1/1 renewals that we had seen in the third and fourth quarters.

Elyse, just to clarify one comment. We wouldn't expect negative organic across any of the segments for the full year. We do expect MIS to continue to be pressured in Q1 before the transition date on QBE at 4:30. So just wanted to note that.

Next question, Pablo Singzon with JPMorgan.

Trevor, I think it's clear from your comments that you're sounding very personalized at more open market rerembedded. So is your view here what the market seems to be assuming something like digital AI agents will be able to quote and buy on their own, insurers are willing to provide them at viral coats. I appreciate the sort of what's happening in some ways, embedded right, but in the more controlled environment, pretty on the platform. But I guess, do you think that tells you what happens in the open market as well?

I don't know that I would go so far as to say that. I'd say there's already about 35% of the Personal Lines insurance market that proactively probably shops today and goes direct. And so do those proactive price shoppers end up on an AI-driven comparison platform rather than going direct into a GEICO or Progressive website like maybe. At the same time, I'm not sure insurance companies are going to be super excited to open up their quoting algorithms and APIs to a bunch of AI-driven chat bots, like there's real risk and concern around the channels to which business comes and the impact it has on loss ratios there's real cost to quoting business, you have to run credit, there's data feeds and data pools.

And so these insurance companies are very sensitive to quote to bind ratios. And if you hooked up an AI engine, to one of these companies and just started redlining on quotes, they shut you down in less than 24 hours. So I think undoubtedly, the way in which Personal Insurance is going to be bought and sold, it's going to evolve and AI is going to have a huge impact on that. I believe quite strongly, and we've got some real proof points as recently as yesterday with Fairway Mortgage that embedded distribution is a big part of the future. It's not going to be the entire future, but it's going to be a big part of it.

And different people have different buying habits and proclivities. Some people prefer a buying experience that's fully embedded inside the trusted partners ecosystem and the natural workflow that they're going through. And so long as they're presented with choice, they're done so quickly and they're provided with a buying or shopping experience and gives them confidence that the market's been adequately shopped to give them the right coverage at the most competitive price, then they're not going to feel compelled to go out to a third-party chatbot driven insurance platform or Google or whatever, pick your direct-to-consumer platform is. So we believe embedded is one of the biggest net winners here, and that's why we've been so focused on building out that channel for the last 4 to 5 years.

next question is Josh Shanker with Bank of America.

Thank you for taking my question late in the hour. A couple of years ago, the stock was soft. You did a lot of M&A. You argue it was the right M&A to do and it's paid dividends. but the market didn't like it. And you said, look, we are going to show you how much cash flow this company generates and we're going to forestall future M&A to show that to you and along came the CAC deal, and you could not resist such a deal. It was a great deal for you.

And the stock did the same thing. That may not be the only reason why the stock is the same thing, but I understand in your view that you couldn't pass up the opportunity. Right now, your stock is at $18 a share. You've announced a share repurchase program, but you're not making any real commitments about how you're going to actively execute that program. If buying CAC with such an emergency that couldn't be helped even though it sort of push on what you had told investors you wanted to do. How does that apply to the stock today and how you think about share repurchase? Is there not an emergency right now that you need to act?

Josh, at 8x EBITDA, there is not a better use of capital than buying our own shares, and that's why the share repurchase program has been authorized. And at 8x EBITDA, we will be actively buying our stock.

And when you say this for the next 12 months, should we expect that the stock is not going in that direction, you will fully exhaust that buyback this year?

I'm not going to opine on exactly how much or how quickly we're going to deploy. But from a capital allocation standpoint, Josh, there's no better use of capital than acquiring in our own shares of the business we know best of all at a significant discount to what I can buy a far smaller far lower quality insurance brokerage business for in the open market, not even a question.

Next question, Andrew Kligerman with TD Securities.

Thanks for that clarification around Josh's question, it sounds like you have a real interest in repurchase. I just -- I personally as well wasn't sure because you said that you've not modeled any buyback into your leverage going forward. So thanks for that clarification.

Trevor, you mentioned at the beginning of the call that it's important to set expectations and I believe, execute on those expectations. And I kind of look at this quarter and you did the CAC deal, you had a call in December, and your organic growth objective was mid-single digits for the quarter. It came in at 3%. The organic growth for this year now was mid to high. Now it's mid or higher -- or no is high. Now it's mid- to higher. So part of that -- and I think the quarter was super high quality. It's just -- this is sort of like missing a pot. But at the same time, I'd like to know how confident are you in this new organic guidance of mid- to high end. And by the way, you hit all the numbers on EBITDA and overall revenue. So again, I don't think it was a big deal, but -- but I'd like to know that what's your degree of confidence now that you've set the guidance for the -- at the beginning of the year?

Yes, Andrew, I mean if we look at fourth quarter specifically, the driver of the gap in organic was the severity of rate and exposure headwinds we faced in IS. That was more than we were anticipating, and that was predominantly driven by weakness in exposure in our employee benefits business. we believe where we have set expectations for 2026 is imminently achievable, and that's what we're focused on executing on.

Got it. And then -- as I look at the IAS and the fourth quarter rate, that 1,530 basis point swing, as you kind of model out in IAS for the year. What -- I mean kind of starting at a very high drop off, what are your overall modeling in terms of a number for year over rate change or decrease?

Yes, we still expect rate and exposures to be a net headwind for the year. But we expect that headwind to dissipate as the year goes on, particularly as we get into what will be some relatively friendly comps, particularly in the fourth quarter. So I would expect it to be a headwind in the first couple of quarters before becoming more neutral. And overall, I would characterize it as a slight headwind for the year.

And I see, so a slight headwind being like single for the year but maybe double digits in the first half. Does that seem.

I wouldn't expect rating exposure to be double-digit headwind Remember, like the rate of change is severe in '25 because it was going from positive to negative. But when you're going from negative to negative, you're not going to see the same rate of change.

I would like to turn the floor over to Trevor Baldwin for closing remarks.

Thank you all for joining us on the call this evening. We are excited for the growing momentum we have across our business in 2026. 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 with you again next quarter.

This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.

Greetings, and welcome to the Baldwin Group and CAC Group Partnership Announcement Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Bonnie Bishop, Executive Director, Investor Relations. Thank you. You may begin.

Thank you, operator, and good morning. By now, everyone should have access to our partnership announcement and slide presentation, which were released prior to this call and can also be found on the Investor Relations portion of our website at ir.baldwin.com.

Before we begin our formal remarks, a reminder that part of our discussion today may include forward-looking statements, which are based on the expectations, estimates and projections of management as of today. The forward-looking statements in our discussion are subject to various assumptions, risks, uncertainties and other factors that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

These statements are not guarantees of future performance, and therefore, undue reliance should not be placed upon them. We refer all of you to our recent filings with the SEC, including our current report on Form 8-K that was filed with the SEC on December 2, 2025, and our annual report on Form 10-K for the year ended December 31, 2024, for a more detailed discussion of the assumptions, risks, uncertainties and other factors that could impact the future operating results and financial condition of the Baldwin Group.

The partnership discussed on this call are both, including those relevant to our completion and integration of this partnership and matters assessed in our due diligence of the partnership. We disclaim any intentions or obligations to update or revise any forward-looking statements, except to the extent required by applicable law.

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 investor presentation, which has been posted on the company's website at ir.baldwin.com.

In addition, this call is being webcast, and an archived version will be available after the call on the Investor Relations portion of our website. I will now turn the call over to Trevor Baldwin, Chief Executive Officer of the Baldwin Group.

Thanks, Bonnie, and good morning, everyone. I'm thrilled to join you this morning to announce our signing of a definitive merger agreement with CAC Group, one of the industry's preeminent specialty and middle market insurance brokerage and advisory platforms.

This is a transformational combination that will create the largest majority colleague-owned publicly traded insurance broker with north of $2 billion of combined expected 2026 revenue, nearly 5,000 colleagues and over $14 billion of client premiums being placed into the market. This combination will position Baldwin as 12th on Business Insurance's ranking of the largest insurance brokers.

I'd like to extend a warm welcome to our future CAC colleagues and clients. Our relationship with the CAC leadership team spans over a decade. What they have been able to accomplish is nothing short of remarkable, and we could not be more excited to be joining forces.

Our combined scale and complementary expertise will enable us to deliver more holistic and comprehensive solutions to drive exceptional client outcomes while further bolstering our collective reputations and cementing our combined platform as the destination of choice for the industry's very best talent.

This is truly a one-f-one combination that should serve as a catalyst for our growth and margin expansion potential for many years to come. I cannot stress enough the uniqueness of CAC in our industry, truly a one of one business. CAC represents one of less than a handful of brokerage firms in excess of $250 million of revenue that was built brick by brick, not through pervasive tuck-in M&A.

They have been the standard bearer for attracting the industry's top specialty talent under one roof with a common culture built around client execution and colleague success. The CAC business brings to Baldwin upmarket specialty talent that fits seamlessly into our broader middle market platform and is well suited to take advantage of our MGA, reinsurance broking and proprietary technology capabilities, positioning the combined business to accelerate our collective momentum.

Now for some additional background on CAC. Today, CAC provides high-impact solutions to over 5,000 clients across industries such as natural resources, private equity, real estate, senior living, education and construction. CAC's deep expertise is broad-based across property and casualty, financial and professional lines, transaction liability, employee benefits and surety.

Since 2020, CAC has grown organic revenue at a compound annual growth rate of nearly 30%, underpinned by a highly productive population of over 115 risk advisers, driving outsized new business generation. It is quite rare we encounter a firm at scale that rivals our industry-leading organic growth track record.

However, CAC certainly does that. CAC is the quintessential case study on the tower of specialization. I point folks to Slide 18 of the investor deck posted yesterday evening, which details the meaningful growth inflection experienced by Cobbs Allen, CAC's middle market retail brokerage arm as it was integrated with CAC's specialty platform.

During the 5-year period following the launch of CAC Specialty, Cobbs Allen saw revenue double as risk advisers were able to seamlessly tap into specialty capabilities, move upmarket and retain clients as they grew and expand wallet share.

This outcome, we expect, is a microcosm of what can be achieved by merging CAC's specialty platform with our nearly $750 million revenue IAS platform. As we have discussed before, we are firm believers that true specialization is a massive differentiator in our business.

I can say with confidence that this merger accelerates our specialization plans by at least 5 years and materially elevates our ability to compete at the highest levels. The way our 2 businesses fit together, the complementary nature of our capabilities and expertise is remarkable. As if our 2 businesses were purpose-built to come together.

From a financial perspective, this transaction is uniquely compelling. It will be meaningfully accretive to earnings day 1, accelerates the trajectory for continued reductions in our debt to adjusted EBITDA leverage ratio is expected to be highly margin accretive over the next few years and will significantly enhance the scale of our business.

And the insurance brokerage industry, like many other financial services businesses, scale built thoughtfully is a meaningful competitive advantage and value enhancer. This combination delivers that in spades. In summary, we are honored to be joining forces with the CAC team and are incredibly excited about the client, colleague and shareholder outcomes this combination will catalyze and accelerate.

In particular, we are excited to welcome the CAC leadership team into Baldwin and look forward to their contributions to our future growth and success. With that, I will turn it over to Brad to cover in more detail the economic and financial components of this transaction.

Thanks, Trevor. To start, we anticipate this transaction to be approximately net leverage neutral at close and to accelerate our path to deleveraging over the next few years. In addition, we estimate that the transaction would be more than 20% accretive to 2025 adjusted EPS based on targeted full run rate synergies and the exclusion of onetime integration costs and transaction expenses.

Upfront consideration will consist of $438 million in cash and $23.2 million in Class A shares worth approximately $589 million based on our 30-day VWAP as of December 1, bringing total upfront consideration to slightly over $1 billion or 7.9x 2025 pro forma adjusted EBITDA, inclusive of expected synergies and 7x net of the estimated deferred tax asset of approximately $114 million.

We expect to fund the upfront cash component through a combination of cash on hand, our revolving credit facility and proceeds from a potential future debt financing transaction. Importantly, 98% of CAC's risk advisers are shareholders in the business and 100% of CAC colleagues will become shareholders in Baldwin as a part of this transaction, creating substantial equity alignment on a go-forward basis.

The vast majority of the rollover equity will be subject to a 4-year pro rata lockup. In addition, CAC is eligible to receive up to a $250 million earn out across 2 payments based on their achievement of certain performance thresholds. The maximum potential earn-out liability in year 1 is $125 million, and the earliest the first payment could be made is Q1 2027. The earliest the second payment could be made is Q1 2028.

Lastly, there is a $70 million cash deferred payment that will be made on the fourth anniversary of the closing. So the maximum total enterprise value is approximately $1.34 billion or 10.4x 2025 pro forma adjusted EBITDA, inclusive of expected synergies and 9.5x net of the estimated deferred tax asset.

From a financial performance perspective, in 2026, we anticipate CAC to deliver $345 million of gross revenue and $90 million of adjusted EBITDA, inclusive of $10 million of synergies realized in year. We expect the majority of the $10 million of synergies to show up in the back half of the year.

Slide 21 of our investor deck lays out our current synergy expectation of approximately $60 million over the first 3 years post closing which should drive meaningful margin expansion in the business.

Importantly, these synergies expectations are fully bottoms up. There is no swag in these assumptions. We have thoroughly and thoughtfully identified areas of overlap, vendor redundancy and revenue uplift on a line-by-line, item-by-item basis, giving us confidence in our ability to achieve the expected synergies.

Both CAC and Baldwin have invested deeply into the infrastructure to operate at a scale significantly larger than where we are today, uniquely positioning our combined business to capture meaningful revenue and cost synergies given the complementary natures of our businesses. Lastly, we anticipate approximately $50 million of integration-related costs to be incurred during the first 3 years post closing and approximately $17 million of transaction-related costs to be incurred across the end of 2025 and beginning of 2026.

In closing, we could not be more excited about the financial impact of this transaction. This partnership expands the growth profile of the IAS operating group, aligns with our 3 B-30 initiative on both the revenue and margin fronts, accelerates our path to deleveraging, increases our financial flexibility over the next few years and is meaningfully accretive to adjusted EPS on day 1.

In short, we believe that this is set to be a home run outcome for our collective colleagues, clients and shareholders. With that, operator, let's open up the line for questions.

[Operator Instructions] Our first question comes from the line of Charlie Lederer with BMO Capital Markets.

Congrats on the deal. Maybe just going back to Slide 18, I guess, can you help us maybe provide a little more color on what's really enabled that growth in revenues per employee and per client?

Yes. Charlie, Slide 18 is really, I think, sums up the power and possibility of this combination. And so as you think about CAC as an organization, they are today, call it, roughly 3/4 specialty, 1/4 middle market and have built out a platform with truly elite talent from across the industry that brings expertise and capabilities that are truly unmatched.

That upmarket expertise enables them to achieve revenue per colleague metrics and outcomes that are, frankly, industry-leading when you look at their revenue per colleague. And their new business results are similarly strong with sales velocity well in excess of even what we achieve as an industry top decile leader.

When you look at the growth that has been accomplished in their middle market platform, the Cobbs Allen business, more than doubling over the past 5 years, it's really a microcosm of what we expect to occur as we integrate the CAC specialty platform into our broader middle market business.

And it is accomplished by plugging in those truly distinct and upmarket capabilities and making them broadly available to those middle market risk advisers, enabling them to move upmarket to capture more share and to hold on to their clients as they scale well in excess of a traditional middle market business.

And this is not dissimilar to what we've seen in prior partnerships when we have brought middle market platforms into our broader business and given them access to our breadth and depth of capabilities. You see that as new business generation from our historically partnered firms averaged 150,000 pre-partnership and more than doubled to over 300,000 on average during the first year as a part of Baldwin. We think we're going to see that in spades here and is one of the many reasons we're so incredibly excited about the power of this combination.

And then on the cash flow conversion profile, is there any color you can share? How does that differ from how you're thinking about the legacy Baldwin business?

Charlie, it's Brad. So they were not reporting on a fiduciary basis like us. So I don't have an apples-to-apples conversion percentage for you. What I can tell you is through diligence, we noted that they turn AR about twice as fast as we do. So they are very efficient from a working capital perspective.

And so I have a lot of confidence that it will be accretive to us overall in terms of that conversion ratio, but I don't have a specific number for you today.

Our next question comes from the line of Pablo Singzon with JPMorgan.

First for Brad, the expected synergies you disclosed for CAC are much higher on a percentage basis compared to what some of your public peers have disclosed for their own recent deals. And I do appreciate your comments on how you set up the synergies to be achievable.

Maybe there's something about the combination that makes it highly synergistic as opposed to a more typical deal. If you could sort of like go through that and why you think you can achieve the synergies you laid out.

Yes. Thanks, Pablo. Again, expressing strong confidence in the synergies we've identified. It's about 75% on the expense side and about really only 25% on the revenue side. And the expense side, as I said, as well as the revenue outlook was fully a bottoms-up analysis, very detailed that we spent a lot of time on.

So it was by no means a swag on our part. From the revenue side, we looked at sort of broader contracts with insurance company partners. But importantly, we haven't layered any cross-sell or upsell into that revenue estimate. So if anything, we think there's additional opportunity here if you look at what we've achieved in prior partnerships.

In addition, on the expense side, each of us had built an infrastructure really to operate as a much larger public company. CAC was on a path to that over the next several years.

So there's a lot of opportunity in the back office that we see, again, that we've identified from a bottoms-up perspective. And I think that makes it unique from other deals you may have seen.

Yes. Pablo, this is Trevor. I would also just reiterate, one, if you look at our track record from an M&A perspective, we think it's incredibly strong relative to the value creation we've delivered going back to the MSI transaction at the year of our IPO, which has been a complete nutter home run, the Westwood transaction in 2022, which similarly has been just a really terrific outcome for shareholders. and all of the large platforms in between, which have performed incredibly well.

We've got an immense amount of confidence around the success and the financial outcomes we're going to see here. And I would also reiterate, when we were kind of doing the prolific M&A in the 2020 through 2022 time period, we didn't have the opportunity for expense synergies.

I mean we were building the platform. And if anything, the expense synergies -- the synergies at the time were negative as we were layering in cost to operate at scale. And so today, for the very first time, in addition to kind of all the revenue catalyzing opportunities that come with these types of highly strategic business combinations, we have the ability to capture real kind of cost efficiencies and we've taken a super thoughtful and conservative approach to how we've outlined that.

And when you look at the combined margin of the CAC and Baldwin IAS business on a fully synergized basis, we're not expecting anything heroic here. So I think this is something we have an immense amount of confidence around.

And if anything, as Brad articulated, we've left all of the client revenue cross-sell synergy opportunities completely out of this assessment. But if we can't capture meaningful momentum there, then I would be very, very disappointed.

That's helpful. And then the second question for you. So you show in the materials, right, CAC has a strong track record of organic growth over the past 4 to 5 years, but like most other brokers, that growth has slowed in '25. And I guess for CAC, specifically, the slowdown has been quite drastic, right? If I'm reading your materials correctly, 29% to about 5% in '25.

So the question is, what do you attribute that to? And I think CAC has some decent-sized pockets such as natural resources and transaction liability. And I was wondering if any of those practices have had anything to do with the growth pattern we were observing for CAC.

And I guess more, where do you think growth goes from here, but there's a bunch of anything you can on the growth.

Yes, really appreciate the question, Pablo. So one, we actually expect 2025 growth for CAC to be around 10%, so call it, high single, low double digits. Some of the numbers that are out there, there's some historical parts of the business that are going to kind of be outside of the perimeter of the transaction. So it's not -- you're not exactly looking at apples-to-apples numbers there as we kind of project forward what the impact inside of BWIN will be.

And yes, they do have really strong capabilities across a number of industries and product groups, including natural resources, financial lines and transaction liability, all of which continue to perform exceptionally well and their natural resources practice is, call it, nearly $80 million of revenue across traditional oil and gas, hydrocarbons, renewables, power generation and it will be complemented nicely with our emerging natural resources capabilities.

And the power of those teams who have known each other from being around the industry. As an example, they have very strong capabilities in the tax side, which is something we have not had. And as we plug those capabilities into our team, both in natural resources and in the private equity and M&A groups, expect to create meaningful upside opportunity for our colleagues and be able to bring a fuller suite of solutions for our clients.

So the other thing I would point out is CAC is a terrific track record of attracting truly elite industry talent. Their reputation, their culture, the platform that they have crafted to enable those professionals to build immensely successful careers is unmatched.

And when you combine that with our platform at Baldwin and some of the incremental capabilities that come from that such as our reinsurance platform, our Bermuda and London D&F capabilities, the MGA platform and the opportunity to develop new proprietary products, which, again, I would point out is also not in our revenue synergy assumptions.

That creates an unparalleled platform and opportunity for industry talent to come join and work alongside really A players. So we think this is a hugely catalyzing moment for our combined business, not only in the way in which we can serve and execute for clients, but also in the way in which we can welcome the industry's top professionals to a place where they can build the most successful, most rewarding and most impactful careers.

Our next question comes from the line of Elyse Greenspan with Wells Fargo.

I guess my first question is a follow-up on, I guess, on that organic growth question. Within the EPS accretion that you guys have laid out for '26 and '27, what are you assuming is the organic growth of CAC?

I understand it will be right in M&A for 12 months, but I'm just trying to understand the revenue growth that you're expecting from the asset over the next couple of years within the accretion that you guys outlined?

Elyse, it's Brad. So as we outlined in the prepared remarks, we expect $345 million of revenue in 2026. As Trevor mentioned, parts of the business are not coming over, so you can't look at it on a perfect apples-to-apples basis.

But our assumption is aligned with where we are from an overall business, high single digits, low double digits over the next several years as we outline the financial plans.

And then you guys outlined, I guess, the payments, like the time for the payments associated with the earn-outs. But what are the earnouts? Can you just share some of the financial targets that achieving the $250 million of earn-outs are based on?

Elyse, it's based on strong financial performance, and we expect to pay those earn-outs because we expect the business to perform really well and be highly accretive.

Is it like revenue margin, a combination of both?

It's a combination of metrics.

Okay. And then in the slides, you guys outlined like JuniperRe, I think, is contributing here relative to, I think, like the synergies. I'm just trying to understand, can you just expand on that piece and how using the JuniperRe is helpful relative to the revenue synergies here and how impactful you're expecting that angle to be?

Yes. I think Juniper brings both kind of unique expertise for their very large and sophisticated clients as well as more direct access to certain global insurance markets such as Bermuda and London, where a lot of their premium today is placed on behalf of many of those larger discerning insurance buyers.

And so what I would tell you is we have a very modest amount of actual Juniper revenue in these synergies. So $0.5 million in the first year, scaling up to about $3 million in the third year.

So again, not a heroic outcome, something we would certainly expect to outperform.

Our next question comes from the line of Andrew Andersen with Jefferies.

You mentioned there hasn't been a ton of M&A here, but could you talk a bit about what their track record is there and perhaps how integrated the platform is?

Yes. Great question. One of the reasons we're so excited about this business is it was built brick by brick. While they're -- they have completed, I'd say, less than a handful of small transactions, this business was almost entirely built organically.

It operates today as a fully integrated business on a single agency management platform. And from an integration perspective with us is going to serve as our specialty platform. And so when you think about the integration lift, it's not nearly what you would expect from, say, similarly sized M&A that's kind of firms that have been built through M&A, where instead of kind of integration, more like 50 integrations.

We're simply planning to kind of lift and shift the CAC platform into the IAS organization and then plug our teams into it and let the racecar run. This is a Ferrari, and we are incredibly excited about how it's going to accelerate momentum for our colleagues and clients.

And I'm not sure if you shared anything on kind of the mix of MGA or programs business and perhaps what the revenue mix from contingents and supplementals is, if you could share that?

Yes. So from an MGA perspective, they don't have any in-house MGAs or programs today. We see that as a very large opportunity. Their supplemental and contingent revenues are about half on a relative basis of what ours are.

Again, this also informs our confidence around some of the revenue uplift opportunities, which we have haircut in what we've outlined here from an expectation standpoint. And I just want to reiterate what Brad mentioned earlier, which is this isn't -- the synergy expectations are not a swag in any way.

This is line by line, contract by contract, vendor by vendor. We have a lot of confidence around the achievability here.

Our next question comes from the line of Josh Shanker with Bank of America.

Trevor, you said we fully intend to pay those contingent considerations for the revenue production because we think it will be a success. Just to understand, so between the $250 million and the $70 million, those are payments you're expecting to make. Will there be a -- if they do hit their targets, will there be a change in contingent consideration for the payment?

Or are these basically $320 million of liabilities on your balance sheet that you're registering today at the time of the transaction?

Yes. We would expect a slight change over time because we do fair value those back to day 1. But I would anticipate the fair value to much more closely represent what we're ultimately going to pay versus maybe what you would have seen in the past in terms of the discount factor at play.

Right. Because you're postmortem on the path you're very happy with what you've done. But if you could do it all over again, the debt leverage got higher a lot as it relates to contingent considerations. I'm just wondering, when you say this is not going to add any leverage to our balance sheet, a $320 million of payments out in the future, it's not debt technically, but it feels a bit like debt.

Yes. I certainly get that perspective, Josh. I'm sorry, I didn't mean to cut you off there. We were very thoughtful about leverage in this transaction and the messaging we've provided around staying between 3x and 4x net leverage.

And I'd point out a couple of things. One, the leverage calc we're referencing in terms of staying net neutral is only capturing a portion of the full synergies we would anticipate to receive. I think if you bake full synergies into that, we have almost a quarter turn of deleveraging associated with this transaction.

And two, this really does, if you run the math, overall, accelerate our path to deleveraging even incorporating those payments through 2028. And from an earn-out perspective, relative to the size and scale of our business, you have to realize the earn-out overhang we had over the last couple of years was when we literally bought twice the size of the business 2 years in a row and paid earn-outs roughly 1x equal to adjusted EBITDA over a 12- to 18-month period.

We just can't replicate that type of M&A. And here, the relative payment of those earn-outs in relation to the EBITDA we'll be generating in that 24-month period over which time these will be paid is just a much different relative value. So that's how we've thought about it from a responsible leverage perspective.

Josh, this is Trevor. I would just reiterate, we've taken an incredibly thoughtful approach with the CAC ownership group of structuring a transaction here that makes just an immense amount of financial sense.

Like we're very sensitive to managing leverage and continuing to have that come down. And as Brad mentioned, like this accelerates our path to deleveraging. And frankly, like the way this business comes together, the structure of the transaction, it's incredibly accretive. This is a home run for shareholders.

And can you talk a little bit about the process on the transaction? Was this brought to you by an investment bank? Were there multiple bidders? Has the change in the valuation of publicly traded insurance brokers influenced the consideration being paid for this transaction?

Josh, great question. So I'd start by just pointing out we've had a really strong relationship with the CAC leadership team for over a decade now and have long respectively, kind of admired what each other was building from afar while occasionally talking and dreaming about what could be possible and bring our businesses together.

And so I'd say similar to many of the other really high-impact transactions we've completed in the past, one of the things I would point out is our team's ability to build and nurture relationships in the industry that give us unique access to get things done is really a standout here.

The CAC team, the leadership team, I think, led and ran a really thoughtful M&A process that was led by Ardea as their investment banking representative. And initially, I think, was primarily oriented around exploring a third-party capital raise to support their goal of growing to $1 billion over the next 5 years.

And that ties back to what you heard from Brad earlier around kind of the infrastructure that they had built to support that growth trajectory and part of what really gives us confidence around the cost synergies here.

After that process launched through my relationship with the CAC leadership team, we began having some kind of one-on-one conversations around what something could look like. And as we continue to work through that and dig in, I think it quickly became very apparent both to our team and their team how powerful this combination would be.

And that ultimately led to an acceleration of the work our teams did to come to a business combination here. So my sense and my expectation is we were -- we had unique and somewhat proprietary access as a strategic to getting something done here, and that's reflective in the thoughtful way in which this transaction was structured and is similar to kind of how you've seen us do similar transactions in the past like with MSI, with Westwood, most recently with Hippo.

So we're super excited about this. It is -- it's going to be an absolute home run for our colleagues, for our clients and importantly, for our shareholders, we just couldn't be more excited.

And if you'll indulge me one more, I appreciate it. You said 7.9x adjusted EBITDA as the transaction valuation after your -- all the things are baked in. Prior to this moment, CAC didn't have access to a public stock to remunerate their shareholders.

You deduct share-based compensation when you quote adjusted, some others don't. Is that a significant part of the valuation? These are very successful producers who you're acquiring into your business with a very material difference between adjusted EBITDA valuation defined as including versus excluding share-based compensation?

No, there is not.

Our next question comes from the line of Greg Peters with Raymond James.

This is Mitch on behalf of Greg. What will operating cash flow look like on a pro forma basis?

So we have not yet fully adjusted their cash flow presentation to the fiduciary model that we adopted. So we're still going through that work. We'll be able to update you on the year-end call with respect to that expectation, but I don't have that number now.

But just to reiterate Brad's earlier remarks, as we dug in through diligence, they turn their AR twice as fast as we are. So we are confident around this being accretive to cash flow conversion.

Got it. And as a follow-up, how is CAC going to be showing up in your reporting segments?

It will be fully embedded in the IAS segment.

Our next question is a follow-up from the line of Charlie Lederer with BMO Capital Markets.

Just curious if there's any difference in their definition of organic growth versus Baldwin's?

No, there's no difference.

Okay. And then on the cash being distributed or being paid by Baldwin, can you give us a sense of -- since CAC is employee-owned, I guess, how widely that's being distributed to their employees? Is it concentrated? Or is it -- I guess, how to think about that?

Yes. Charlie, I think that's one of the other reasons we're so excited here. Their ownership was widely distributed. More than 50% of their colleagues are shareholders in the business.

And so not only like this is a great day for their colleagues and their shareholders, but it's also an even better day is now 100% of their colleagues become shareholders in our combined business on closing. And they're not selling out, they're selling in.

This is a merger, and they are kind of investing the majority of the value in their business into our combined organization. They're all in. And that's one of the reasons we're so excited.

Our next question comes from the line of Tommy McJoynt with KBW.

I had a clarifying question on Slide 21. You laid out the 5% to 10% EPS accretion in '27. Is that referring to the entirety of the transaction, including CAC's earnings, the incremental financing costs, the new shares issued and the $30 million of synergies?

Or is that just referring to the $30 million of synergies?

No, that's looking at the transaction as a whole.

Okay. Got it.

Tommy, yes, I'd also point out, I know we've seen a couple of notes from folks where they kind of suggested that on an unsynergized basis, this would be slightly dilutive. I think we would just disabuse everyone of that notion. Our math is this is before any synergies, actually slightly accretive to EPS.

Our next question comes from the line of Elyse Greenspan with Wells Fargo.

I just wanted to come back to the revenue discussion. Are you guys assuming any dissynergies? I know we were talking through the '26 guide earlier, but are there any revenue dissynergies assumed in any of these figures?

Elyse, not outside of kind of normal course attrition that we would expect to the operation of the business. Again, like there's so many reasons for us to collectively be excited here. But the way -- how complementary these businesses are, there's not really kind of overlap or conflict that we're expecting. And so we haven't included any abnormal revenue dissynergies, but we also have not included any of the cross-sell, upsell revenue synergies that we've talked about, MGA product launches, things like that.

And I would tell you that the opportunity very much skews heavily in that direction.

And then from an accounting perspective, I believe you guys, right, always put deals in the M&A line. There's sometimes some companies that have gone a different route with larger deals. I'm assuming this deal will be in the M&A line for 12 months and not inorganic growth? Or can you just confirm that from a financial reporting perspective?

Yes, that's confirmed. It will not hit organic until we lap the first year of ownership.

And then I guess one more on the accretion laid out, right? So with the $438 million, right, the cash at close, right, it sounds like that's going to come from a revolver or potentially other debt and maybe some cash. Is the expectation that the leverage that you take on that you pay some of that down with cash that's generated.

I guess my question is, does the EPS accretion in '26 and '27 assume that you pay down some of that cash -- the leverage that you take on, sorry?

It does. We're calculating on a net basis, Elyse. So it does contemplate free cash flow generation in 2026.

Our final question comes from the line of Pablo Singzon with JPMorgan.

So this is maybe for Brad. Is there an expiry date to the DTAs coming over as part of the transaction? So Baldwin does not pay federal tax today because of amortization related to past M&A. And I was curious about the pace at which you expect to use CAC DTAs.

Yes. Obviously, as you mentioned, we're not a taxpayer today. But we do certainly see potential future value in the deferred tax asset. So we gave the gross value, which is the $114 million. And we're not going to lay out a time period over which we expect to achieve that, but we do attribute some value to it.

Thanks, Pablo. And in closing, I just want to say a few things. One, Viavid, our conference call partner here, had a technical application outage this morning. So I know many folks had trouble getting on via the webcast. The replay link will be up later today.

So for those that weren't able to get in for the entire call, we apologize and the replay will be up shortly. And with that, I just want to thank you all for joining us on the call this morning. We are so excited for the power of this transformational combination with CAC Group and the growing momentum we have across our business heading into 2026.

And in closing, I want to extend a warm welcome to our future colleagues at CAC and thank our collective 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.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Ladies and gentlemen, greetings, and welcome to the Baldwin Group Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Bonnie Bishop, Executive Director, Investor Relations. Please go ahead.

Thank you. Welcome to the Baldwin Group's Third Quarter 2025 Earnings Call. Today's call is being recorded.

Third 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. 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 third quarter results reported earlier today. I'm joined by Brad Hale, Chief Financial Officer; and Bonnie Bishop, Executive Director of Investor Relations.

We generated strong overall results in the third quarter despite a dynamic operating environment and the expected persistence of certain idiosyncrasies we highlighted last quarter. Organic revenue growth in the quarter was 5%, bringing our year-to-date organic revenue growth to 9%. Adjusted EBITDA was flat year-over-year, bringing our year-to-date adjusted EBITDA growth to 9%. Adjusted EBITDA margin and adjusted diluted earnings per share contracted slightly in the quarter. On a year-to-date basis, adjusted EBITDA margin is roughly flat year-over-year and adjusted diluted earnings per share has grown 11% year-over-year.

We previously discussed two temporary items that we expected to have a finite impact on our results over the near term. First, a procedural accounting change in our Insurance Advisory Solutions segment impacting timing of when we recognize commission revenues. And second, the reduced commission from QBE that went effective on May 1 on the builder-sourced homeowners’ book of business we are rolling into our recently formed reciprocal exchange BRIE. As a reminder, these are temporary headwinds persisting through the first half of 2026, which then reverse into tailwinds as these are not revenues that are lost, just deferred relative to when they will be recognized in our P&L. Adjusting for these items, total commissions and fees organic revenue growth in Q3 would have been 10% and total overall organic revenue growth would have been 9%, bringing the year-to-date totals for both metrics to 11%.

In Insurance Advisory Solutions, overall organic revenue growth was flat compared to the third quarter of 2024. Removing the impact of the procedural accounting change, overall organic revenue growth was 4% and organic growth on core commissions and fees was 6%. Sales velocity remained top decile at 20% in the third quarter, bringing year-to-date sales velocity to 19%, highlighting our consistent ability to take share and win new business. In fact, as we sit here today, our backlog of won but not yet booked new business that should bind in the first half of 2026 is sitting at a historic high for our firm, including several 7-figure commission and fee client wins from large global competitors, highlighting the demand for our innovative advice and solutions in the marketplace and the growing power and impact of our integrated operating platform.

We are consistently performing in the top decile for new business generation in our industry based on recent industry data showing the median at 12.2% and the top quartile at 15.9%, reinforcing the effectiveness of our go-to-market strategy and the positive regard clients and prospects have for our teams and the solutions we are delivering. The impact of rate and exposure or renewal premium change was a meaningful headwind at minus 5.7%, reflective of the continued client caution tied to macro uncertainty and reduction in large cat-exposed coastal property pricing, partially offset by ongoing rate action in certain litigation-exposed casualty lines of business.

From where we sit today, we expect the third quarter renewal premium change headwind reflects a floor going forward from which we will see incremental improvement over the coming quarters. However, we don't anticipate this fully reverses into a tailwind in the near term, highlighting the importance of our industry-leading new business generation capabilities to drive sustainable growth over time.

In our Underwriting Capacity & Technology Solutions segment, organic revenue growth came in at 16%, driven by continued strength in our multifamily portfolio, which grew commissions and fees at 16% and our commercial umbrella portfolio, which grew organic revenue 15%. As discussed last quarter, we continue to maintain underwriting discipline in our E&S homeowners’ book in a rapidly softening property environment, which was a 400 basis point drag on UCTS organic growth in the quarter. In July, we began migrating renewals of the builder book away from QBE into the reciprocal insurance exchange we launched earlier this year, which thus far is performing in line to slightly better than expectations.

Additionally, following the transaction we announced with Hippo, we have begun work with the Hippo and Spinnaker teams on a second builder homeowners insurance program, which we expect to launch next year. Over time, we expect it will materially increase our capture rate of Westwood's builder business into proprietary MSI programs, which sits at around a 30% capture rate today. This should unlock a meaningful growth opportunity for MGA and expand vital insurance capacity for our builder partners and their homebuyer customers.

In our Mainstreet Insurance Solutions segment, organic revenue growth was slightly negative, driven by the onetime commission reset on the QBE Builder book and continued elevated attrition in our Medicare business due to the broader managed care marketplace disruption. Removing the impact of the onetime commission reset on the QBE Builder book, overall organic revenue growth was 8%. As a reminder, this impact will persist until April of 2026, after which it turns into a multiyear tailwind as the commission reduction we are absorbing today reverses back into fee revenues for our attorney-in-fact vehicle, which manages the reciprocal exchange.

I want to take a minute to talk about the exciting momentum we are seeing across our embedded home insurance businesses. As I mentioned last quarter, in December, we launched our new technology platform and digital experience to support the seamless sale of home insurance at point of mortgage origination and home sale. This quarter, our embedded mortgage and real estate business went live with 3 new mortgage and real estate channel partners, bringing the total channel partners live on our platform to 10. Included in the partners who went live on our platform in Q3 was a top 20 mortgage originator who went live in mid-August and has shown very promising proof points of success. In our second week post go-live, we sold over 150% of the volume achieved by their previous insurance partner in their best day ever over a two year period, and we have maintained those elevated volumes. These results are enabled by our proprietary technology platform that powers our digital insurance buying experience and the seamless nature of this process in the mortgage and real estate transaction flows.

In fact, when a potential homeowner engages through our digital experience, we bind a home insurance policy for them at a rate that is 3.5x what is achieved through nondigital channels. The power of our technology platform and digital agent experience includes AI-powered real-time agent advice, which is driving tremendous momentum in conversion rates and presents opportunity for margin expansion in the medium to long term. We remain bullish on the growth prospects for this business as we continue to make progress towards simplifying the homeownership journey through our embedded technology. Our pipeline of new embedded partners in this channel is as strong as we have seen yet with our implementation backlog well into 2026.

As we mentioned last quarter, we completed the acquisition of Hippo's Homebuilder Distribution network in July. We are now live and facilitating the home insurance process for 20 of the top 25 homebuilders across the country. Our builder partners account for 57% of all new homes built in the U.S. and 93% of the homes built by the top 25 builders in the U.S. In aggregate, the partners in our combined embedded home insurance strategies drove over 500,000 home and mortgage closings in 2024, which accounts for roughly 12% of homes sold in the U.S. annually, positioning us as the leading embedded personal lines distribution platform in the $500 billion premium U.S. personal lines market.

Before I turn it over to Brad to provide additional details on our Q3 financial performance, I want to share a strategic update that marks a pivotal moment in our evolution. Today, we're announcing our 3B30 Catalyst program, a 3-year transformation program launched during the third quarter of 2025. Catalyst is designed to accelerate the infusion of automation, business process optimization and artificial intelligence to transform and elevate our workforce, building on our 2 foundational pillars of talent and technology for building the broker of the future and meeting our aspirational goal of 3B30. This initiative is designed not only to elevate the work and impact our colleagues are delivering on a daily basis, but to unlock new avenues for growth. By aligning our workforce and technology investments with the demands of a rapidly changing market, we are positioning ourselves to accelerate innovation across our client engagement model and insurance product offerings, enhance client and colleague experience through smarter, more agile client service delivery, empower our teams to elevate their focus on high-impact growth-driving activities and enable enhanced real-time decision-making by streamlining processes, data and systems.

We anticipate a cumulative transformation charge of approximately $40 million by the end of 2028 with cumulative savings over the same period of approximately $50 million and projected run rate annualized savings of $40 million by the end of 2028. We expect savings to ramp over time with no material savings in 2025, $3 million to $5 million in savings in 2026 and $10 million to $15 million in 2027. We expect charges of $15 million in each of 2026 and 2027. The 3B30 catalyst program is designed to accelerate our ability to capture operating leverage across our business while simultaneously enhancing growth, both organically and through M&A.

Cash restructuring charges of approximately $40 million reflect the savings to cost ratio of roughly 1.25x and are largely related to workforce transformation and technology implementation. The charges represent less than 10% of expected free cash flow over the next 3 years and do not impact our expectation to deliver double-digit free cash flow growth driven by strong growth in revenue, operating income and working capital improvements. This is an important step forward for our firm, one that reflects our commitment to positioning ourselves for the rapidly evolving technology landscape, further bolstering our status as a leading destination for our industry's top talent and accelerating our pace to fulfill our vision for the broker of the future. As we move forward, we remain focused on delivering long-term value for our clients, colleagues and shareholders, driving growth and innovation and expanding margins and free cash flow.

In summary, we're pleased with our third quarter results in such a dynamic insurance market and macro-operating environment. While we expect we will continue to face an insurance marketplace in transition, we are increasingly confident in our ability to deliver in 2026 and beyond as evidenced by the strength of the underlying momentum in the business. We sincerely thank our clients for placing their trust in us to provide strategic guidance, expert insights and innovative solutions in an ever-changing risk landscape. We also extend our deep appreciation to our colleagues for their steadfast dedication and tireless efforts in delivering meaningful results for our clients and valued insurance partners.

With that, I will turn it over to Brad, who will detail our financial results.

Thanks, Trevor, and good afternoon, everyone.

For the third quarter, we generated organic revenue growth of 5% and total revenue of $365.4 million. Looking at the segment level, organic revenue growth was flat in IAS, up 16% in UCTS and down 2% in MIS. We reported GAAP net loss for the third quarter of $30.2 million or GAAP diluted loss per share of $0.27. Adjusted net income for the third quarter, which excludes share-based compensation, amortization and other onetime expenses, was $36.5 million or $0.31 per fully diluted share. 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 third quarter was roughly flat at $72.5 million compared to $72.8 million in the prior year period. Adjusted EBITDA margin declined approximately 170 basis points year-over-year to 19.8% for the quarter compared to 21.5% in the prior year period. Adjusted free cash flow for the third quarter was up 26% to $42 million compared to $33 million in Q3 2024. The increase in adjusted free cash flow was driven by improved working capital, which we communicated would normalize in the back half of 2025.

We ended the quarter with net leverage at approximately 4.1x, down from Q2 2025 and remain on track to hit or exceed our goal of 4x by the end of the year. On that topic, with the business entering this period of a positive inflection on our financial profile through improved free cash flow, reduced leverage and line of sight to achieve our goal of bringing leverage under 4x and maintaining it there going forward, I want to take a minute to talk about capital allocation priorities.

First, our highest and best use of capital is organic reinvestment in our business, whether it is the technology platforms we have built to support our leading embedded insurance franchise, continued investment in specialized insurance talent or ongoing investments in scaling our sales force, these investments drive our highest returns measured on both an internal rate of return and return on invested capital basis. We have ample opportunity to continue these investments at elevated returns with the governor on those investments being the margin accretion objectives we have outlined and remain committed to.

Second is M&A, where we have proven over the past 5 years, we can be disciplined allocators of capital to drive enhanced business results and strong financial returns. We are enthused by the quality of opportunities in our pipeline, and we plan to remain thoughtful relative to our capital allocation strategy, resulting in an M&A cadence that is more episodic in nature.

Third, and a new leg of the stool for capital allocation at Baldwin behind internal reinvestment and M&A, we are adding share repurchases. We believe this can be an important tool used opportunistically to deploy capital when we see market dislocations to create compelling return opportunities for our shareholders. Consistent with the foregoing, based on discussions held with our Board of Directors, once our net leverage is comfortably under 4x, our Board intends to authorize a share buyback plan of up to $200 million, subject to maintaining our long-term leverage goals.

On the capital management front, in September, we announced the successful repricing of our Term Loan B to SOFR plus 250 basis points, a 50 basis points improvement on the spread or approximately $5 million of annual interest expense savings. We also had entered into a floating to fixed interest rate swap agreement with a notional amount of $500 million, which exchanges 1-month SOFR for a fixed rate of 3.244%.

Moving to expectations. For the fourth quarter, we expect revenue of $345 million to $355 million and organic revenue growth in the mid-single digits. We anticipate adjusted EBITDA between $68 million and $73 million and adjusted diluted EPS of $0.28 to $0.32 per share. Consistent with prior years, we are also sharing a broad initial view of 2026 financial expectations. We preliminarily expect 2026 revenue in the $1.66 billion to $1.7 billion range, organic growth in the high single digits, adjusted EBITDA in the $380 million to $400 million range and adjusted diluted earnings per share between $1.95 and $2.10. This would result in a 5-year CAGR for all of those metrics in the high teens to low 20s percent. In addition, we expect double-digit growth in operating free cash flow. As we've previously indicated, we expect an acceleration of organic revenue growth in the back half of 2026 once we lap the idiosyncratic headwinds discussed.

In summary, we are pleased with the overall performance of the business year-to-date as we continue to navigate a dynamic operating environment. We continue to see incredibly strong internal fundamentals across all 3 of our segments and feel confident in our ability to generate durable outsized results for shareholders. We will now take questions. Operator?

[Operator Instructions] Our first question comes from Gregory Peters with Raymond James.

So I think I'd like to start with the results in the IAS segment. You called out a couple of things in your commentary, the flat organic. I think you said excluding the revenue recognition change, I think you said organic was up 4%. And then you talked about the sales velocity being up really strong. And I guess what I'm trying to get at is I'm trying to reconcile what we hear from you quarter after quarter, which is really strong sales velocity and success in the sales velocity and trying to reconcile that with what we're seeing with the IAS organic numbers. And maybe that's -- maybe that the revenue recognition change is going to what is the deciding factor here and what changes next year. I'm not sure, but I thought I'd just give you an opportunity to talk more about that.

Yes. Greg, it's Trevor. So let's -- I think, unpack a few points there. One, again, sales velocity of 20% in the quarter, 19% year-to-date, strong results, something we're, I think, super pleased with top decile relative to what we see across the industry. And I think strong confirmation around the value that clients and prospects are seeing from our teams and how they go to market. And a lot of confidence around that momentum. You heard me talk about the largest backlog of clients won but not yet booked, including some very large clients from large global brokers. So the momentum there continues.

The second is the accounting procedural change we mentioned, which is about a $7 million headwind to revenue and $5 million headwind to EBITDA in the quarter. Of note, that's not revenue that's gone. That's simply timing. As a reminder, we move from truing up to cash receipt trends on a monthly basis to waiting until policy expiration. And so that's simply revenue and EBITDA that will be booked next year upon policy expirations.

The third is rate and exposure. Renewal premium change was a 5.7% headwind in the quarter, representing kind of a low point in our historical data as well as what we expect to be a floor going forward. I anticipate that we will see that incrementally improve over the coming quarters before normalizing into a neutral, if not slight tailwind in the back half of next year.

And as we unpack that data, I think it's helpful to parse it a little bit as we look at our Property and Casualty business in IAS, rate and exposure was about a 2.8% headwind. And you can think about that being probably about 1/3 rate, 2/3 just sluggish exposure pull-through as we continue to see client caution.

On the employee benefit side, it was about an 800 basis point headwind. And you can think about that largely being exposure driven as a result of a softer employment environment. What I would tell you is based on what we're seeing in health care cost trend, renewal dynamics, et cetera, we expect that to normalize back up certainly by the beginning of 2026 based on expected rate pull-through as a result of elevated medical loss ratios that have been seen across the industry.

As you just step back broadly, we're in a period of, call it, 12 to 18 months of renewal premium change headwinds. We called that out on our last call, where we expected this year to be a 2% to 3% headwind. We're sitting at 2.5% headwind year-to-date. And I would expect that that's still a good number for the full year. As we think about the impact of that next year, I think that headwind ebbs and likely flattens out or reverses into a slight tailwind as you get into the back half of next year as we begin lapping some of these periods of elevated rate pullback, particularly in large cat-exposed property.

So we feel really good about the underlying fundamentals in the IAS business. We feel good about client retention. We feel good about -- really good about new business wins and momentum that continues to build there. And we expect we've got 6 to 9 months of continued, what I'd call, insurance and macro market headwinds that are going to show up in the form of ebbing renewal premium change headwinds.

But ultimately, as you think about the broader dynamics of kind of where the dynamics of risk are headed, both from a natural catastrophe standpoint in terms of frequency and severity of events, in terms of social inflation or legal system abuse on casualty, it's hard to imagine a world where renewal premium change isn't at least low to mid-single digits over time. And if you normalize to that, just taking the 5.7% RPC to flat plus normalizing for the accounting change, IAS is a double-digit growth business in the quarter.

Just a clarification on the procedural change. Is that -- so it's a headwind, a couple of quarters of headwind. Is there going to be -- once we anniversary it, is there going to be like 4 quarters of an unusual benefit and then we go back to some normalized rate?

Yes, that's the right way to think about it, Greg.

Yes. Great. The second question -- I guess it's technically the third, but the second question I had was on the organic revenue results in the Underwriting Capacity & Technology Solutions business because that's been really very consistent and strong -- recorded strong results. And I'm just curious about what kind of competition you're seeing in that marketplace. And I guess the genesis behind that would be earlier today, Progressive had its quarterly call, and they talked about renters insurance as being an area of focus for them. And so it just triggered, hey, how are you -- it doesn't show up in your numbers, but how are you seeing competitive pressures in your [UCTS] business?

Yes. So Greg, I'd say broadly, we have a diversified portfolio of products, including both commercial and personal lines, including property, short tail, casualty, mid and long tail. And so there's not a broad brush, I'd say, commentary to answer that question. Competitive dynamics, market pressures vary product by product, line by line. At a very high level, what I would tell you is we're very thoughtful about the products that we go to market with and ensuring that we've been able to identify a way in which we can carve out a real right to win, both around how the product is built and underwritten and highly segmented from a pricing standpoint as well as from a distribution standpoint and how we have unique access and competitive advantage relative to the way in which our product is being sold into the marketplace.

Specific to your question around renters, I think there's multiple ways in which people go to market for that business. We happen to go to market exclusively as an embedded insurance provider, meaning we're partnering with the ERP technology platforms, the property management firms, used to operate their buildings and manage their leases and books. And so we become that kind of embedded solution of convenience.

As a result, we're not -- our renters product is not sold in traditional manners. I think as Progressive thinks about their product, I suspect it's more like a GEICO renters product or a Lemonade renters product, and that's a more traditional go-to-market strategy. And that's just one -- we're just not competing for that type of business. Our renters customer is one that is opting into our product because they can find it in less than 30 seconds natively in the leasing workflow. It's the solution of convenience. We, in fact, are going to be launching next year a new innovative renters product that is embedded into the rent ledger and so kind of naturally embedded into the rent payment, which we're really excited about some of the momentum that could drive and the continued building penetration.

So we feel good about our competitive positioning there. It's not that we don't have competitors. We do. But this is a space we've been in for a while. We have leading market share, and we feel really good about our right to win and the competitive moats we have as a result of our technology platform and how that enables our go-to-market.

Our next question comes from Charlie Lederer with BMO Capital Markets.

Quick one on your preliminary outlook for 2026 organic of high single digits. What are you, if anything, embedding for the attorney-in-fact fees and BRIE and also the embedded mortgage channel revenue?

Yes. Charlie, this is Trevor. I would tell you that we have nominal assumptions built in for the attorney-in-fact, and while I wouldn't quite call it nominal on embedded, it's not -- it's certainly not heroic. That's a business we expect to build over time. We're super excited about the momentum we have there. You heard me share some of those statistics around the early proof points of success with some of our mortgage partners that have gone live on the platform.

So we're quite enthused. We've got a terrific backlog. Our digital agent workflow and kind of how it's embedded into the mortgage process, how it enables a seamless insurance buying and binding experience is driving really, really compelling conversion statistics. When a potential homeowner opts into our digital experience, we find a home policy for them 3.5x the rate at which we do through traditional channels.

And as a result, we're already ahead of our early kind of pro formas and expectations around conversion rates in the mortgage channel, and we're super excited. So lots of momentum there. But we don't -- we anticipate that has a growing impact on our financial results, but not a material impact on 2026.

That's helpful. And then maybe just another one on -- if I take out the pull forward that you guys called out last quarter and then take out some of the headwinds this quarter from the accounting change and then presumably, the pull forward was taken out of this quarter. I mean the acceleration is like pretty pronounced. I guess -- I mean, is that just sales velocity? Because sales velocity was a little slower. So I'm trying to kind of connect the dots. Maybe it's just business mix. I don't know if there's any color you can add.

I mean, I guess I'm not fully following the question, Charlie. Like sales velocity was 20%, so quite strong. When you say pull forward, you mean the impact of the procedural accounting change and how that pushes out the timing of recognizing revenue?

I was more talking about like the -- I think you guys talked about two energy clients last quarter that bumped up the IAS organic. Maybe I'm...

Yes. Those were pulled forward into the second quarter, correct?

I From the third quarter, right? Or was it...

That's correct.

Yes. So I guess if you kind of factor that in, it's a pretty pronounced acceleration. So I don't know if that's just business mix or -- yes, I guess I was just trying to understand.

Yes. I'm following you, Charlie. So yes, I think I would point you to rate and exposure and the headwinds that created as an offset. But yes, as you heard, we're feeling really good about the underlying momentum in the IAS business. It's somewhat masked by the market renewal premium change dynamics and this accounting change that's just simply pushing revenue into next year. But at 20% sales velocity, that's as good as it gets. And we're super pleased with the momentum and the backlog of new business and how that positions us into 2026.

The next question comes from Elyse Greenspan with Wells Fargo.

I guess I have a follow-up trying to parse together some of just the commentary on IAS and specific to the guide, right? I think you guys said organic mid-single digits, right, I think, in the fourth quarter. What are you assuming for IAS? And then within the guidance next year for high single-digit organic, I think you said that's back half heavy. So do you expect to start like in the low single digits and pick up? And then also, what does that imply, I guess, for IAS embedded within the guide next year as well?

Yes. Elyse, this is Trevor. So consistent with past practice, we're not going to get into segment level OG guide. What I would say is we feel good about mid-single digits for Q4 across the business. As we look towards 2026, we feel good about high single digits and we would expect organic growth to accelerate through the year, particularly in the back half as we lap the 2 idiosyncratic headwinds that we called out that come to an end then.

As you've overheard in some of the earlier Q&A, we have strong new business momentum in the IAS business. We have had pretty meaningful renewal premium change headwinds, some driven by rate, some driven by exposure. We expect that we've seen the floor there and that, that begins to ebb. But I would still expect RPC headwinds in the first half of next year before that begins to normalize.

And then within the guidance for next year, what -- within the revenue guide, what are you assuming for M&A? And I know, obviously, it depends upon when they are -- when the deals close, but what's embedded within next year's guidance for any level of M&A?

Yes. I would say we have a nominal amount of M&A embedded into next year's guidance. We continue to maintain a strong pipeline. with a lot of really interesting opportunities, but it's nominal to the guide we provided for '26.

And then the savings that you guys outlined like $3 million to $5 million next year, right, I think $10 million to $15 million in '27. Is the expectation that those will all fall to the bottom line and help margin? Or is there some level of reinvestment being contemplated as well?

Those savings articulated are net of reinvestment.

Our next question comes from Pablo Singzon with JPMorgan.

So maybe first one for Trevor. I know you spoke about employee benefits early on this year. I was a bit surprised by your uptick. I think you had mentioned something like an 800 bps headwind there versus about 300 bps in P&C. Is there anything unique about the employers you place insurance for? Maybe they work in industries that are more economic sensitive? And just given the weakness in the labor market that's being widely reported on today, what gives you confidence that you'll see a recovery in IAS OG next year?

Yes. Pablo, no, I don't think there's a particular uniqueness in our employee benefits client base. I mean, as I think about where it skews heavy, our largest concentration of benefits clients would be in -- on the West Coast with a pretty heavy bent towards technology. So maybe we skew a little bit heavier there, which would make sense just based on some of the headcount trends we've seen relative to kind of early adopters on AI and things of that nature.

As we -- as you mentioned, our confidence around the OG and the acceleration heading into next year, that's less about -- that doesn't contemplate a stronger labor market. That contemplates kind of real-time visibility that we have now into the cost of health care and the cost of health insurance and how that ultimately will inflate premiums. There's been a pretty significant increase in health care cost trend this year, well documented in the managed care space, but I'd say that, that also exists in the traditional pre-65 marketplace as well. And while I'd say that is good in multiple ways for our business. One, as costs go up, demand for our advice and our innovative solutions goes up. Our scale and the breadth of kind of tools and capabilities enable us to bring value in ways that many of our smaller competitors are just unable to do. And it also drives ultimately up costs for a business that's largely commission-oriented. When premiums are up, as you know, our revenues tend to trend in a similar direction.

Okay. That's helpful. And then Second question is just on the PBE and the ramp-up in attorney-in-fact fees, right? So I guess the question there is holding premium volumes constant, and this goes to basically the gap between the commission you lost and how much you still earn in fees, right? How many years will it take you to sort of get back to your previous state, assuming premium volumes are the same, right?

Yes, we expect it to take 2 to 2.5 years from 05/01/2026. Importantly, Pablo, for the time being, we account for that AIF on the equity method. And so it will not come into revenue. It will come into EBITDA.

Our next question comes from Andrew Anderson with Jefferies.

Sorry, maybe some more questions on the reciprocal. I think in response to an earlier question, you said you were anticipating a nominal benefit from the reciprocal in organic. I guess, is there -- is any part of this going into organic? If you could just maybe parse that out a bit?

Yes, Andrew, thanks. It's Brad. No, there's no benefit to organic on the reciprocal. I think that was in reference to the other part of that question. The only benefit of the AIF is the direct earnings benefit where we get 75% of the earnings under the equity method.

Okay. And then when we're talking about this turning into a tailwind, and you kind of just mentioned a moment ago, it sounds like it could take 2 years to fully flip over. And I think the fee income would be on kind of the policies binding and on a look back. So I guess I'm struggling with how it turns into a tailwind in the second half of '26? It feels like maybe you're past the peak of the headwind, but there still is a headwind persisting until we get to the end of 2 years. Is that the right way of thinking about it?

No. no, it's not. So on 04/30/2026, the headwinds from the commission step down going from 31 to 26 on the QBE program ceased to be a headwind because the entire portfolio will have annualized on to that 26% commission rate. At the same time, the attorney-in-fact, which we own, will be accruing revenue in at 5% of premium as earned into the reciprocal. And that's an important distinction because commissions are booked upfront upon policy binding, whereas AIF fees are booked over life of the policy ratably.

And so there is a difference in the earn-in rate from a timing perspective, which drives some of this. And then there's also the time line that it takes to roll all of the premium off of QBE in all of the states we're doing business into the reciprocal. And so while the first 12 months, you fully absorb the commission reduction, it takes us a couple of years to fully roll all of that premium off of QBE in all of the states we're doing business in fully into the reciprocal. The AIF does not begin earning AIF fees until those premiums renew into that reciprocal vehicle.

Now importantly, we started with Texas on July 1, which is the largest state in the QBE portfolio and we will likely be following thereafter with California, which is the second largest state. And so we intend to get through the states with the largest volumes of premium next year and have the vast majority of that premium rolling in. As a result, the AIF fees, they're already beginning to earn they're just not meaningful at this point in time, but they will build month by month. And after that 2- to 2.5-year time period should be fully run rated in.

Our next question comes from Brian Meredith with UBS.

Two questions. Just first one, Trevor, just curious your assumptions as far as how much you're going to be able to renew in the reciprocal in your guidance? And what is it looking like so far?

Yes. So we are currently renewing at a rate that is slightly better than our assumption coming in. We are constraining that with a higher cancellation reserve out of -- I'd say, an appropriate degree of caution. But thus far, we've seen cancellation rates level out at a level that is below what our initial assumptions were.

Great. That's helpful. And the second question, just big picture back on the capital management, and I appreciate the color, Brad, you gave on getting below -- comfortably below 4x before you buy back stock. But just given where your stock is trading right now and it feels like it's obviously below its intrinsic value. Why wouldn't you use some of the free cash flow you're generating right now and buy back some stock a little bit right now? It seems like a pretty good return on investment.

Yes. Thanks, Brian. So look, we do, as we mentioned in the prepared remarks, intend to authorize a buyback program once our leverage is comfortably below 4x. We've been incredibly vocal publicly about reaching that guide and the critical importance of financial flexibility that comes post reaching that sort of less than 4x.

Importantly, we don't intend to use buybacks programmatically. Really, this adds a tool to the toolkit for us when we're seeing periods of dislocation in our stock price. It is very clearly a third option for us for capital deployment after, as we talked about organic investments and M&A. But certainly, there are times where it makes financial sense, as you indicated. That decision point will really be whether we feel like we can generate significantly better risk-adjusted returns at that point in time through a buyback versus deploying capital through M&A. And we leverage various valuation techniques and metrics as well as our line of sight to the M&A pipeline and making that decision. So 4x remains a priority, and that's why we're not stepping in now.

But Brian, we agree with your general sentiment, which is it is a very attractive investment opportunity right now. And we just feel like we've made very strong commitments to our shareholders around prioritizing getting leverage under 4x before all else. And so we'll be there shortly, and then we'll see where things stand.

Our next question comes from Tommy McJoynt with KBW.

When you give us that $40 million annualized run rate savings from the expense program, what expense line denominator should we reference to get to a result of thinking about Baldwin's automation efforts are going to take out x percent of expenses out of the business?

Yes, you should largely think about that as being related to workforce transformation.

Okay. And then you did mention the 3B30. I don't know if I just didn't hear it, but when you first introduced it a year ago, it was 3B30 in 5. Is there a time line for that program still? And is it still the same?

Haven't changed. Same time line.

Our next question comes from Pablo Singzon with JPMorgan.

So on the UCTS business, I think about $15 million of the organic revenues generated this year are arising from basically this -- a rental program that has converted to captive format. And I guess the question there is, do you expect that business to grow next year? And do you expect further conversions, right? Because effectively, what's happening is that instead of booking a commission, you're booking a premium and that helps organic. So I was just wondering sort of your plans for at least that piece of UCTS.

Yes, Pablo, we would expect it to continue to grow, but not at the rate on a relative basis that it is now. We think about that captive as really being an opportunity to optimize the economics on a very well-run, low volatility program. And so you should really think about that as our way of accessing the appropriate level of supplemental and contingent revenues on a high-performing program.

And with that, I think we're going to wrap up for the evening. So I want to just thank you all for joining us on the call. We're really excited for the growing momentum we have across our business. as we head into 2026. In closing, I want to thank our colleagues for their hard work and dedication in delivering innovative solutions and exceptional results for our clients. And 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.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Ladies and gentlemen, greetings, and welcome to The Baldwin Group Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Bonnie Bishop, Executive Director, Investor Relations. Please go ahead.

Thank you. Welcome to The Baldwin Group's Second Quarter 2025 Earnings Call. Today's call is being recorded. Second 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.

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.

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 reconciliations 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 generated strong overall results in the second quarter with organic revenue growth of 11%, adjusted EBITDA growth of 14%, adjusted EBITDA margin expansion of 60 basis points and adjusted diluted earnings per share growth of 24%. We paid $57 million of earnouts in cash and have now fully extinguished all earnout liabilities associated with the partnerships completed during our first 5 years as a public company.

In Insurance Advisory Solutions, overall organic revenue growth accelerated from the first quarter to 10%, driven by strong new business generation. Sales velocity increased from 14% in the first quarter to 22% in the second quarter, bringing year-to-date sales velocity to 18%. This represents top decile new business performance in our industry, with the latest data showing industry median sales velocity of 11.7% and top quartile at 15.7%. The impact of rate and exposure or renewal premium change was muted at 1.3%, reflective of the dramatic reduction in large cat-exposed coastal property pricing and continued macro uncertainty, partially offset by ongoing rate action and certain litigation-exposed casualty lines of business. From where we sit today, we don't anticipate this backdrop to change in the near term, highlighting the importance of our industry-leading new business generation capabilities to drive sustainable growth over time.

In our Underwriting, Capacity & Technology Solutions segment, organic revenue growth came in at 21% on top of a very strong 37% in the second quarter of 2024. Driven by continued strength in our multifamily portfolio, which grew commissions and fees at 14%, strong results in certain segments of our homeowners portfolio, our builder and real estate investor products grew commissions and fees by 25% and 35%, respectively, in the quarter and Juniper RE, which achieved year-over-year revenue growth of over 100% in the quarter. These more than offset growing headwinds in our E&S homeowners book as we have maintained underwriting discipline amidst increased pricing pressure and competition, a dynamic we do expect to persist over the remainder of the year.

In April, we announced the finalization of the third-party-led capitalization of our Builder Reciprocal Insurance Exchange, named BRIE for short. And in July, we began the migration of the builder book away from QBE. Additionally, following the transaction we announced with Hippo, we have begun work with the Hippo and Spinnaker teams on a second builder program. Over time, we expect it will materially increase our capture of Westwood's builder business into proprietary MSI programs, which sits at around 30% today. This should unlock a meaningful growth opportunity for our MGA and expand vital insurance capacity for our builder partners and their homebuyer customers.

Also in April, within the UCTS segment, we completed a strategically important partnership with MultiStrat, a Bermuda-based reinsurance MGA platform focused on managing alternative reinsurance capacity. This partnership adds an important capability to source alternative reinsurance capital for our ceded clients and MGA business on a commissions and fees basis while delivering a track record of attractive, uncorrelated returns to our capital partners. We are incredibly excited to welcome the MultiStrat team and look forward to the strategic contributions they will make towards fulfilling our broker of the future strategy.

In our Mainstreet Insurance Solutions segment, organic revenue growth was flat versus the prior year driven by 2 factors. As we've discussed on prior calls, May 1 marked the inception of the reduced commission rates on our builder business with QBE, which flows directly to Westwood and through our MIS P&L. While this will be a headwind for the balance of 2025 and the first half of 2026 to both MIS revenue and margin, the year-over-year impact will normalize starting after the second quarter of 2026. So what is a onetime headwind for the next 12 months will then become a revenue and margin tailwind for the following 24 months.

Second, after a strong start to the year with record new business in the first quarter from the 2024 annual enrollment period, our Medicare business experienced headwinds in the second quarter as disruption across the managed care landscape, particularly amongst a number of large Medicare Advantage plan providers, resulted in elevated turnover in our renewal book of business. We expect this pressure on our renewal book to persist for the balance of 2025, after which we expect the market to stabilize heading into next year based on announced increased government funding levels. While our Medicare business is a relatively small part of our overall enterprise at $60 million of annual revenue, it remains well positioned to continue driving profitable growth in 2026 and beyond as we continue to grow our agent base, expand our offerings and further bolster our technology resources to support agents' success.

We remain very bullish on the growth prospects of our MIS business and are particularly excited about the increasing momentum we are seeing across our strategic growth initiatives. Through the second quarter, our mortgage and real estate embedded business has successfully implemented 7 new embedded partners, 6 of which were launched in the second quarter. Additionally, we're excited to announce that in the third quarter, we will officially go live as the exclusive embedded insurance provider with a top 20 national mortgage originator. This marks a major milestone for the business and should become a tailwind for MIS organic growth in 2026 and beyond.

Our pipeline of new embedded partners in the mortgage and real estate channel is as strong as we have seen yet with our implementation backlog already into 2026. Our growing momentum in the mortgage and real estate channels, market-leading position in the builder channel and access to purpose-built and proprietary insurance products through our MGA increases our confidence in our ability over time to build the leading personal lines distribution platform in the $500 billion premium U.S. personal lines market, a truly massive opportunity.

On July 1, we completed the acquisition of Hippo's homebuilder distribution network. I'd highlight 3 benefits from this acquisition. First, Westwood acquired 8 new homebuilder partners, and as a result, now powers the home insurance experience for 20 of the top 25 homebuilders across the country. Second, as I mentioned earlier, MSI entered into both a program administrator agreement and claims administration agreement with Hippo and its affiliates and is now actively collaborating with those teams to develop a new homebuilder program that will complement our existing BRIE offering and provide additional proprietary capacity for Westwood's builder partners.

Lastly, Hippo and its affiliates, including Spinnaker, will provide incremental fronting and reinsurance capacity in support of MSI's existing and future programs. We look forward to a continued and growing relationship with the entire Hippo team.

In summary, we're pleased with our second quarter results despite the macro uncertainty and insurance market dynamics at play. While we expect we will continue to face a challenging insurance marketplace throughout the balance of the year, we remain focused on prudently managing the business to ensure we deliver on our margin expansion goals for the year and continue to position the business for profitable double-digit organic growth over time. We extend our gratitude to our clients for entrusting us to deliver guidance, expert advice and innovative solutions to navigate ever-evolving risks. Our appreciation also goes to our colleagues for their unwavering dedication and commitment to achieving impactful results for both our clients and our insurance company partners.

With that, I will 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 11% and total revenue of $378.8 million. Looking at the segment level, we generated organic revenue growth of 10% at IAS and 21% at UCTS. Organic revenue growth for our MIS segment was flat for the quarter.

We recorded GAAP net loss for the second quarter of $5.1 million or GAAP diluted loss per share of $0.05. Adjusted net income for the second quarter, which excludes share-based compensation, amortization and other onetime expenses, was $49.5 million or $0.42 per fully diluted share. 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 second quarter rose 14% to $85.5 million compared to $74.9 million in the prior year period. Adjusted EBITDA margin expanded approximately 60 basis points year-over-year to 22.6% for the quarter compared to 22% in the prior year period.

Adjusted free cash flow for the second quarter was $9 million, down from $29 million in Q2 2024. The quarter was impacted by incremental cash interest payments on the senior secured notes for which payment is made semiannually and no corresponding payment was made in Q2 2024. The decrease in free cash flow year-to-date is driven entirely by the timing of collection of accounts receivable, the largest of which is the timing of contingent receipts, which we expect will normalize in subsequent quarters.

Net leverage increased slightly to 4.17x in the quarter as we paid $57 million in earnouts in cash, inclusive of amounts reclassified to colleague earnout incentives, extinguishing the earnout liabilities associated with our 2021 and 2022 partnerships. In addition to funding $15 million of surplus notes investment in our reciprocal insurance exchange, our goal remains to get net leverage at or below 4x by the end of the year.

As Trevor previewed in his opening remarks, in the face of the current headwinds impacting the insurance marketplace, we are updating our full year guidance. We now forecast full year revenue of $1.5 billion to $1.52 billion while maintaining the bottom end of our adjusted EBITDA range of $345 million, supported by strong efficiency gains across our platform from the immense operating leverage that exists in our business. For the year, we expect double-digit growth in free cash flow from operations, which was $90 million in 2024 after adjusting for our revised presentation. Overall free cash flow should accelerate over time as growth in certain cash items such as interest expense and capital expenditures slowed dramatically relative to expected growth in adjusted EBITDA.

We are now expecting organic growth in the high single digits for the full year, which reflects 4 unique drivers that I'll expand upon: one, an expectation for negative rate and exposure or renewal premium change in the retail business, resulting in a $15 million to $20 million headwind to organic revenue growth in IAS from our prior assumptions of flat to a modest tailwind from RPC; two, continued growth pressure on our E&S home book and MSI from our steadfast commitment to underwriting discipline, resulting in an approximately $5 million reduction to expected commission and fee revenue at UCTS; three, the renewal headwinds we cited in our Medicare book, reducing our revenue expectations by $7 million in that business; and four, a procedural change to the timing of revenue recognition in IAS, which is aligning us with best practices and will add efficiency to our teams, but will cause approximately $10 million of revenue in the second half of '25 to shift into '26. It is important to note that this procedural shift is a headwind to revenue and margin over the next 12 months and a tailwind beginning in Q3 of '26 for the following 12 months.

We expect adjusted diluted EPS to be between $1.62 and $1.67 for the full year.

For the third quarter of 2025, we expect revenue of $355 million to $365 million and organic revenue growth in the mid-single digits. We anticipate adjusted EBITDA between $70 million and $75 million and adjusted diluted EPS of $0.28 to $0.31 per share.

As evidenced by our performance in the quarter, we have a business that is uniquely durable and well positioned to perform throughout the various economic and insurance market environments. This is on full display today with our confidence in delivering top of our industry organic growth and double-digit growth in adjusted earnings this year despite the shift in the insurance rate environment and the idiosyncratic headwinds we've highlighted.

The underlying KPIs of our business performance that we watch closely continue to showcase internally controllable outperformance evidenced by our industry-leading sales velocity, premium growth and new product launches in the MGA, growing momentum in launching new embedded partners in our mortgage, real estate and builder channels and overall increasing efficiency of our expense base.

Our strengthening balance sheet and anticipated growth in free cash flow provides opportunities to capitalize on investments that are going to deliver long-term shareholder value, like the recent Hippo builder network partnership. We are thoughtfully managing our investments to adjust to this environment and remain committed to building a differentiated business that outgrows the peer set in a profitable way. Importantly, we have growing confidence and remain focused on executing on our internal aspirational goals of $3 billion of revenue and 30% adjusted EBITDA margin by 2029, what we refer to as our 3B30 plan.

We will now take questions. Operator?

[Operator Instructions] Our first question comes from the line of Tommy McJoynt with KBW.

I wanted to double-check on the Insurance Advisory Solutions segment in terms of the drivers of what happened in the second quarter around organic growth, seemed to have come in stronger than we were expecting and I thought perhaps you guys were expecting as well. So could you walk through the drivers to get to that 10% organic growth in that segment?

Yes. Tommy, this is Trevor. And so we're super pleased with the results in IAS in Q2. And I'd say there's really 2 drivers that ultimately caused those results. One was really strong new business. You heard me mention the sales velocity at 22% in the quarter, bringing year-to-date sales velocity up to 18%, top decile performance for our industry. And the second, I would say, is we saw rate and exposure come in slightly higher than we anticipated as a result of some pull-through in accelerated renewal exposures for certain large energy clients that skewed that higher than we were originally anticipating.

If you look at our overall property book, which was pretty heavy from a renewal perspective in the quarter, renewal premium change was minus 5% for the quarter, but that doesn't really tell the whole story. If you dig really a layer deeper, there's a real bifurcation in pricing where what I'd call kind of admitted non-cat exposed properties still seeing low mid-single-digit rate trend and then large complex property placements, generally more cat-exposed, seeing pretty dramatic rate reductions, 20% to upwards of 40% on a rate perspective.

If we look at our real estate book specifically, which was about 20% of revenue in the quarter, overall renewal premium change was minus 11%, and that's a cohort that's more exposed to that more large, complex side. So I'd say if you normalize for kind of what we saw as a pull-through in some pretty meaningful increase in exposures on some large energy clients, rate and exposure would have been negative for the quarter, which informs our view on that persisting through the balance of the year and then just continued really strong new business performance, which speaks to the value delivery our colleagues are bringing to the market, the share we're taking and our confidence in continuing to be able to deliver outsized growth through the cycle because of the controllable nature of the new business engine we have.

Great. I appreciate the details there. And Brad, when we walk through the first driver of the shift to the high single-digit organic growth, talking about expectations for negative rate and exposure amounting to about $15 million to $20 million, can you talk maybe just about what gives you guys conviction that -- that's a pretty quick change just to happen over 3 months. What gives you guys conviction that it might not change again for the worse in the next 3 months?

Tommy, this is Trevor. Let me take that first, and then Brad can come in over the top. So I'd say that is primarily informed by 2 factors. One is the rate of deceleration in property rate that we saw through the quarter. So June, in particular, saw a pretty meaningful deceleration in rate, and this assumes that persists through the balance of the year.

The second dynamic is just -- we continue to see sluggishness in capital expenditures and construction starts and things of that nature tied to uncertainty in the broader macro environment. So if that improves, that could be -- certainly be upside to that.

Let me just give you an example in the quarter of what we're talking about. So if you look at our construction business, which construction is -- it was the second largest industry practice from a revenue perspective in Q2, but it's actually the largest when you look across all 4 quarters. It's about 18% of our commercial revenue in IAS. We saw rate and exposure in our construction practice compressed by 24% in the second quarter. Now the read-through on that is that's entirely exposure because it's not rate-driven in that industry class. And that is a result of slowing project starts showing up in the form of lower project-based revenues.

Now with that being said, we grew our construction practice 11% in the quarter, but that was driven entirely by new business generation, which was really, really strong from the team. And so what I would tell you is based on experience of when we've seen these cycles in the past, the jobs don't go away. They tend to slow down and defer as people are looking for clarity around input costs, around macro environment, around financing costs and things of that nature, and they become spring-loaded. And then you layer in kind of that on top of that queue of deferred jobs, all the new business that we've been writing and a similar dynamic there, and you've got the potential for real, spring-loading as we come out of some of the broader macro uncertainty that's been slowing down decision-making across our client base.

Yes. I would just add to that, Tommy. As you know, in the past, insurance rate and exposure has never been a primary driver of our organic growth story. So it gives us confidence in what the downside here may be that we're predicting with respect to rate coming out of our book, if you will, because, again, it just hasn't been a material significant driver in the past of our story.

Our next question comes from the line of Greg Peters with Raymond James.

I guess I'd like to pivot and have you talk a little bit about the disclosure, the adjusted free cash flow disclosure in your press release where you take out the contingent and payments of earnouts. And it was down on a year-over-year basis through the first 6 months. So I thought maybe you could spend a minute and talk to us about some of the moving pieces inside those numbers for the first half of this year.

Yes. As you know, Greg, we revised that presentation this year. So now we are fully sort of absorbing any changes in working capital that occur quarter-to-quarter. And timing of free cash flow, particularly around AR and AP, can fluctuate quarter-to-quarter. So it's not an area of concern for us. For example, we've already collected a number of the contingents that were responsible for the elevated AR since the quarter end and, for example, anticipate paying down $20 million on our revolver by the end of this week. So we continue to believe our growth in free cash flow will be in line or better than our expected double-digit earnings growth for the foreseeable future.

Yes. Okay. Thanks for the clarification there. In your investor presentation, I noted one of the footnotes on the debt structure that some interest rate caps expire in November of this year. Is there any financial consequence to that as we think about next year?

There is no financial consequence to that. Those caps were at a 7% base rate. So I would consider them to have been more sort of jump insurance in a worst-case scenario. But we outlaid the premium for that years ago, and they've never been in the money. So there's no direct financial consequence to that.

Perfect. And then the last question, I'll just go back to the Mainstreet organic revenue growth. I think you had previewed that the next couple of quarters are going to be challenging because of the reciprocal start-up, but it feels like it's even coming in a little bit below expectations there. So I know you spoke about it in your opening comments, but maybe we can go back and sort of unpack that because you're talking optimistically about some of the opportunities you have in that business. At the same time, we're seeing the numbers go in the opposite direction.

Yes. Greg, this is Trevor. So there's 2 drivers to the MIS OG print. One is, as we've talked about in the past, the commission reduction on the QBE builder portfolio that went into effect on May 1. And that we've known about, that's a 1-year onetime impact over the next 12 months that then fully reverses back and becomes a tailwind over the following 24 months. And that is the largest driver. And the second is the impact we saw from elevated churn in our Medicare business tied to the broader dynamics in the managed care and Medicare Advantage space. And I'd say that was less anticipated.

If you normalize for those 2 dynamics, we would have seen organic growth in Mainstreet consistent with what you saw from us in the first quarter. While we expect that elevated churn in the Medicare business to continue to impact results for the next 2 quarters, we feel good about how we're positioned for this upcoming AEP. We feel good about the increased funding rates into the Medicare Advantage plans that has already been announced from the government and CMS and the stability that should bring to the market next year. This is a business we've consistently grown 10% to 20% a year every single year we've owned it. This year, we now expect overall revenues to be flat as a result of this elevated churn. And I would expect us to return back to that double-digit organic growth next year based on what we're seeing.

I would also just point out the momentum we have, both in our builder and our mortgage businesses. If you look at Westwood as an example, if you normalize for the impact of the QBE commission reduction, organic growth for them in the quarter would have been 10%. In addition to that, there's a number of factors that are driving increasing lead flow for that business. We added 6 top 50 new builder partners to Westwood last year. We've already added 3 new builder partners this year in addition to the 8 new builders who joined the Westwood family as a part of the Hippo transaction. And so we feel really, really good about the strength of our position in that channel.

And then if you look at the mortgage and the real estate space, I'd say we're very encouraged by the success and the momentum we're seeing. It's been several years of building the tech and the platform to be able to effectively serve the mortgage and real estate channels. And the momentum we're seeing with new channel partners is real. I mean, as I mentioned earlier, we're now live with 7 embedded partners. Six of those were implemented just in the second quarter. We plan to implement another 6 to 7 in the back half of this year, including 1 which is a top 20 mortgage originator in the country. And from a lead volume standpoint, these, call it, 13 to 14 embedded partners would have generated over 150,000 mortgage and real estate leads based on their 2024 volumes.

So I'd say just to level set, important to know, these don't just turn on and start converting at high rates day one. It's a crawl, walk, run approach. We generally go state by state, turning lead volume on sequentially to ensure really strong execution and our ability to appropriately resource those things. Our early data is showing right now a win rate of approximately 25% for those leads who are opting in to receiving a quote through our platform, which is very encouraging. But I'd emphasize again, it's still early. We're still working off relatively small data sets. And embedded distribution, it builds slowly at first as it turns on but then really begins to snowball after maturing on the platform and in our overall processes.

So we're as excited as we've ever been about the momentum we have here. We have like the dominant position in the builder space. I think we're positioned, if we continue to execute, to really break out here in the mortgage and real estate space. And our pipeline is as strong as it's ever been there.

Our next question comes from Andrew Andersen with Jefferies LLC.

On one of the slide decks from earlier in the year, you were talking about a strong cohort of new advisers within IAS. Could you just maybe just talk about the hiring through first half of this year and maybe what level of productivity those producers are operating at?

Yes, happy to, Andrew. So we continue to focus on thoughtfully growing kind of the revenue-generating side of our colleague base. If you look year-to-date, headcount is up roughly 2% while revenue is up, call it, 10% to 11%. And I think you've got to dig a layer deeper to really see where on a revenue-generating side, IAS sales headcount is up about 9% year-to-date, and it's up double digits year-over-year. And based on planned continued investment through the back half of the year, we would expect overall adviser headcount to be up mid-teens in the IAS business through the full year.

We continue to track productivity by cohort across all of our advisers. And we're continuing to see success rates in the high 50s and low 60s, which is consistent with our past experience. The first 12 months, we don't expect a whole lot of revenue generation out of most of these new hires. We expect that to begin ramping really starting around month 9 through month 18. And then by the second and third year, those folks tend to be generating new business results well in excess of industry benchmarks and by year 3.5, typically 2.5 to 3x what the industry average new business generation is. So we continue to see really strong results there. And frankly, that's why you're seeing the really strong sales velocity results continue to pull through in the IAS business.

And then on the Medicare impact that you mentioned in the quarter, I would have thought it's more impactful for 4Q, but I think you guys also do a slightly different revenue recognition compared to some of the Medicare brokers. So would you expect the quarterly impact to be more pronounced in 4Q? Or is it going to be kind of similar to what you experienced in 2Q?

No, we would expect it to be ratable Q2 through Q3 and 4. Our rev rec tends to be heavier in Q1 when we book the full year expected revenue for the new members that have been enrolled during the prior year annual enrollment period. But our renewal revenue is largely recognized either monthly or quarterly based on the pattern of payment streams from the Medicare Advantage plans.

Our next question comes from the line of Hristian Getsov with Wells Fargo.

Can you discuss what you're seeing in the M&A space? I feel like maybe multiples are starting to at least level and maybe come down a little bit. And I understand the focus for this year is to continue to delever. But can you talk about what you're seeing in terms of multiples? And any areas that are of particular focus once you get to your leverage target that you'll potentially look to expand in, in terms of inorganic opportunity?

Yes. Hristian, this is Trevor. I would say, one, we continue to see really healthy deal flow activity, which is encouraging. Two, I would say we are seeing really a divergence in M&A pricing, whereas if you look back a few years ago, and there was a lot more active acquirers when -- frankly, you had more private equity-backed consolidators that were active than you have today. I'd say there was maybe less discernment around pricing for M&A. And so the difference between what we would view to be a really high-quality business that has consistently delivered double-digit organic growth, had strong margins, recognizable in client industry sector expertise or product capabilities in the MGA side and then that of a business that maybe is mid-single organic growth, no real specialization, an aged workforce, there wouldn't be a whole lot of pricing differential a few years ago. And today, I think you will definitely see that.

I think the very, very good high-quality businesses, which is, frankly, all we really have an interest in trading in, continue to command top-tier pricing because those continue to be sought-after assets, whereas I think some of those more average or even dare I say, lower-quality businesses are struggling, I think, to command the type of pricing that they would have gotten a couple of years ago.

Got you. And then for the full year organic, the high single digits, and I appreciate you gave like the commission headwinds you expect for each segment. But is it safe to say like you kind of expect IAS to be kind of in the mid- to high single digits, UCTS kind of in the 20% range and then Mainstreet around flat? Is that kind of like how you guys are thinking about it?

So we shy away from providing segment-level guidance around organic but did try to provide some of the building blocks with the specific disclosures around kind of what headwinds that we're seeing. I'd say we're expecting mid-single-digit organic growth overall for the platform over the back half of the year as a result of those headwinds, of which they're more pronounced in our Mainstreet business as we talked about. And then in IAS, as a result of the rate and exposure trend, we're now anticipating in then the one-time shift in revenues out of the back half of '25 into '26.

Our next question comes from Josh Shanker with Bank of America.

Just to clarify, you said that with this quarter, the last of the payments for contingent earnout consideration are finished. Does that include consideration that was earmarked for payment to partner employees who will be paid internally?

Yes, Josh. It is 99% of it, I'd say. We have one looming deal that has, call it, less than $5 million potential earnout incentive for colleagues that remains on the balance sheet, but that's the only one left.

All right. And can you just give us some guidance going forward? It seems like now that's all passed. If I think about tax rate, I mean, I realize we know a little bit this year, but going forward, if you think about '26, '27, the out-year, should you be a normal taxpayer at the federal level?

I do not anticipate we would be a cash taxpayer for a number of years yet. We still sit with some NOLs at the corporate level. The -- one of the recent additions to the Big Beautiful Bill was restoring some interest deductibility limitations that were previously quite harsh on us. So our ability to deduct more interest expense over the coming years is sort of going back to where it was in the '22 and previous periods, which is only going to defer the period of time until which we're a cash taxpayer. So I think we'll remain with a valuation allowance in our financials. We'll continue to utilize what is the best representation of an effective rate at that roughly 10% in our adjusted earnings. But I think we have a couple of years yet until we're sort of in a normalized tax position and a cash taxpayer.

Our next question comes from Pablo Singzon with JPMorgan.

So first one for Trevor. In the first quarter, you had called out softness in the employee benefits business, which at that time is a bit different from what other insurers or brokers are talking about. So I was wondering if there's been any change in conditions since then and, I guess, prospectively, where you see the market evolving from here.

Yes. I'd say on the employee benefit side, we continue to see modest rate and exposure dynamics consistent with what you heard from us in the first quarter. With that being said, we continue to drive meaningful growth in that part of our business, winning new clients, taking share. And I'd say elevated medical loss ratio trends as of lately are certainly creating opportunity for our advisers and consultants to come in and help clients explore unique and innovative solutions to really bend that cost curve.

Got you. And then just on your outlook for the IAS business, right? So I understand the -- I guess, sort of the buffer or the haircut you're putting in for rate and exposure. I was wondering, is that very different from what you saw in the second quarter, right? And therefore, if it's the same, are you sort of assuming that maybe some of the new business gains you saw in 2Q might not persist in the second half? Or maybe it's a mix of those 2 factors, right? But any sort of help you can provide in thinking about that component of growth versus new business, especially comparing 2Q, which is, I think, better than what most were expecting and the slowdown you're implying for the second half?

Yes. Yes, it's a great question, Pablo. So if you look at Q2 specifically, the impact from rate and exposure was a 1.3% tailwind, which is frankly better than we were expecting. But you got to pull that apart. As I mentioned earlier, we did benefit from a significant increase in exposures and limit buys from certain of our larger energy clients, which really pushed that number up higher than we were expecting. That was somewhat unanticipated on our part. And so if you think about what are we extrapolating forward into our assumptions on Q3 and Q4, it's normalizing that benefit out of the Q2 numbers.

And so like you heard me mention, renewal premium change for property broadly in the quarter was minus 5%. If you look at our real estate clients, it was minus 11%. If you look at our construction book, exposures were down, although revenues were up as a result of new business success. And so we're expecting negative rate and exposure in both Q3 and Q4 as a result of those dynamics largely market-driven. But I would also then back up and just kind of remind everyone, this is kind of, I'd say, what I would consider to be a somewhat onetime change in direction of travel relative to the overall rate dynamics, but I wouldn't expect that to persist over time.

If you think about the broader secular trends in our industry, well, risk and exposure is going up, if you think about physical values at risk are up dramatically, not only because of building and construction, but also because of the increased cost of construction. The aggregation of those values at risk continues to be most heavily concentrated in those geographies in our country that are most exposed to natural catastrophe losses. If you look at both the frequency and severity of nat cat risk, it's up dramatically over the past decade. And if you turn to the casualty side, and loss cost trend continues in the mid- to high single digits for a number of reasons, but just to call out a couple, social inflation, litigation finance and tort dynamics at the state level.

And so if you put all that into a blender, the relative rate of increase and risk is going to continue at a mid-single-digit level or higher. And so while our industry certainly has and will continue to have pricing cycles, and we're seeing one right now, I would point out that property pricing cycles, in particular, tend to be very short in nature before they flatten out one way or the other. And over time, we would expect trend to be mid-single digits or higher relative to the cost of risk. And then you overlay on top of that our ability to go out and take share in the market when you look at sales velocity, premium growth and new product launches in the MGA, what we're doing on the embedded side. And you've got a secular story here that is really outsized growth over a very long-term period of time.

Yes. That was helpful, Trevor. And just a quick follow-up just to sort of tie up everything you've said so far. Understand the rate exposure. On the sales velocity side, I think you said 22% for the second quarter. I'm assuming you're expecting something similar-ish for the second half of the year, right? Or are you assuming some major change in that trajectory?

We're not expecting a major change there. I'd say I'm never going to plan for really outsized sales velocity. I'm going to expect it from our teams but not incorporate it into how we set expectations with folks such as you. So I would -- we're incorporating an expectation for continued top of industry sales velocity, consistent with what you've seen from us in the past. And I'd say if I look back across the past 5 years, we have consistently been high teens and low 20s sales velocity in our business. That's just -- that's what we know how to do.

Our next question comes from Charlie Lederer with BMO Capital Markets.

Maybe just following up on those last comments. Do you have a view on how rate and exposure might look for '26 for property and how dependent that is on the second half cat season?

It's certainly somewhat dependent upon the second half cat season. What I'd say, though, is I would not anticipate a reversal in rate activity. I also wouldn't expect or anticipate rates to continue to decelerate at the pace that they are now. Property pricing cycles tend to be pretty short, a year or 2 at most. And most of that action tends to come very quickly and very fast, frankly, as we're seeing in real time right now. So I would expect some degree of stabilization next year in the property market.

And on the E&S home pressure, can you unpack that a little bit? I guess how much of that related to the reinsurance renewal? And is that just commission changes? Or is it also less capacity?

No. We've got plenty of capacity. I'd say the reinsurance renewals were as expected. That headwind was already incorporated into our prior expectations. And so this is entirely market competition driven. We have seen new entrants, significant new capacity deployed by large multiline and broad-based carriers. We've seen increased capacity in binders from London. And frankly, we're seeing pricing as well as terms and conditions being deployed at a place where we don't feel it's prudent to chase the market to.

In our UCTS business, we're underwriters first, and we're charged with safeguarding the returns of the capital that our risk capital providers put behind our products. And so while we are remaining very disciplined from an underwriting standpoint, and that should protect the integrity of the loss cost and loss experience of our portfolio, it is having an impact in the new business that we're able to generate compared to last year and compared to our expectations coming into the year this year.

But if you step back and you look at our MGA broadly, we're not overly exposed to the E&S marketplace, less than 25% of our premium across the MGA portfolios, E&S. You heard from me earlier in all the various areas we're driving growth. And this is just part of having a multiproduct, multiline MGA business is you've got to manage underwriting profitability closely. And sometimes that means pulling in the reins on any particular line of business to protect the underwriting integrity, and we're going to do that. But then separately, we're going to capitalize on the growth opportunities that we see in other areas. And so the balanced portfolio approach will lead to consistent growth over time as you've seen. I'd just say that the impact on E&S is certainly more pronounced than we expected even 90 days ago.

That's helpful. And is that concentrated anywhere like geographically? Or...

In all the places where E&S business is written. It's on the coast. It's in places like Florida, Texas, California, as an example, as well as up the Eastern seaboard and throughout the Gulf of America.

Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Trevor Baldwin, CEO, for closing comments.

Thank you all for joining us on the call this evening. We remain 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 from the settling of all our earnout payments from the partnerships completed in our first 5 years as a public company.

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.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.