Baldwin Insurance Group, Inc.(BWIN)Q2 2026 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Baldwin Group Second Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Bonnie Bishop, Executive Director of Investor Relations. Please go ahead.

Thank you. Welcome to the Baldwin Group Second Quarter 2026 Earnings Call. Today's call is being recorded. Second quarter financial results, supplemental information, and the company's Form 10-Q were issued earlier this afternoon and are available on the company's website at ir.baldwin.com. Please note that remarks made today may include forward-looking statements subject to various assumptions, risks, and uncertainties, including, for example, our strategy with respect to our capital allocation in the future. The company's actual results may differ materially from those contemplated by such statements. For a more detailed discussion, please refer to the note regarding forward-looking statements in the company's earnings release and our most recent Form 10-Q, both of which are available on the Baldwin website. During the call today, the company may also discuss certain non-GAAP financial measures. For a more detailed discussion of these non-GAAP financial measures, and historical reconciliation to the most closely comparable GAAP measures, please refer to the company's earnings release and supplemental information, both of which have been posted on the company's website at ir.baldwin.com. I will now turn the call over to Trevor Lowry 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 am joined by Bradford L. Hale, Chief Financial Officer, and Bonnie Bishop, Executive Director of Investor Relations. We saw continued momentum into the second quarter from the strong start to the year. We delivered total revenue of $493 million, adjusted EBITDA of $117 million, adjusted EBITDA margin of 24%, and adjusted diluted earnings per share of $0.48. Total organic revenue growth was 2%. Layering in the impact of the three partnerships as if they had been owned by The Baldwin Group in the prior comparable period and normalizing to the idiosyncratic headwinds which were largely passed as of the end of the quarter, total organic revenue growth would have been 8%. Collectively, the three partnerships grew 25% in the second quarter and 34% through the first six months of the year. A truly remarkable performance. Adjusted free cash flow of $46 million was up 437% year over year. In Insurance Advisory Solutions, overall organic revenue growth was down 2%. Deconstructing that figure, sales velocity in the legacy IS business accelerated in the quarter to 19%, bringing year-to-date sales velocity to 16%. Combined sales velocity, including CAC and Capstone, was 30% for the quarter and 27% year to date. Rate and exposure was a 240 basis-point headwind, in line with our expectations. As we have shared previously, we expect Q2 to be at or near the trough for rate and exposure headwinds. The procedural accounting change, which we fully lapped on 6/30, was a 150 basis-point headwind. With respect to client retention, we experienced a 240 basis-point headwind in the quarter as a result of structural changes we have executed in the legacy IS business as part of our CAC integration work to align compensation plans, go-to-market capabilities, and eliminate redundancies across our platform. These changes have resulted in approximately $8 million of annualized revenue attrition tied to a small group of individuals who were impacted and are no longer with the firm. We anticipate that these changes will impact revenue and organic growth for the legacy IS business in the back half of the year by approximately $4 million to $5 million. This is more than offset by the realized outperformance across CAC as a result of the go-to-market structural alignment. In Q2, CAC generated total revenue of $94 million, continuing the strong momentum from the first quarter with growth of 23% in the quarter and 25% year to date. Year to date, CAC has delivered over $80 million in booked new business, up 43% compared to the same period in the prior year. Closed new business, including future effective dates, is over $100 million. Sales velocity in the quarter was 59% across all product lines, and 19% for recurring lines of business, while retention was north of 92%. Net growth of transaction-related product lines, consisting primarily of our transaction liability and certain project-specific lines of business, was 44%. Our integration work and synergy capture continues to track ahead of schedule and we remain confident in our ability to deliver the synergy targets laid out. On Slide 14 of our earnings supplement. Taking a step back to look at the underlying momentum in the IS business, including the contribution from our new partnerships and excluding the idiosyncratic noise associated with the revenue recognition accounting change and integration-related revenue impacts, organic revenue growth would have been 8% in the second quarter. We believe this is far more indicative of the organic growth momentum of our franchise. We continue to see impressive trends in new business in IAS and the thesis supporting the CAC merger is playing out in a faster and more meaningful way than we anticipated. IS is poised for a step-function increase in organic growth. MGA/TPA organic revenue growth was 56% in the quarter. Including OVI, as if that business had been owned in the prior year period, organic revenue growth was 7%. We saw strong performance across our multifamily, admitted home, and real estate investor products, partially offset by continued softness in our Excess & Surplus home book and lower reinsurance brokerage revenue at Juniper Re tied to a softer 6/1 renewal pricing environment, which also drove improved commission rates for MSI's E&S homeowners programs that will benefit organic revenue in the back half of the year. Our inaugural reciprocal insurance exchange, Brev, is now licensed in 13 states, and we have begun migrating business in several states outside of Texas. We are making great progress on our second proprietary builder program with Hippo and Spinnaker and currently expect that to launch in select states by the end of the year, serving as an exciting growth vector for the business heading into 2027. In our Main Street Insurance Solutions segment, organic revenue growth was 4% in the quarter, improving from a decline of roughly 5% in the first quarter as we lapped the QBE commission rate reduction headwind on May 1. Normalizing to the impacts of QBE and Medicare underperformance, overall organic revenue growth was approximately 10%. Our embedded mortgage business continues to ramp with Fairway Independent Mortgage, our most recent top-ten independent mortgage originator embedded partner, tracking ahead of plan in its first three months on the platform. Execution of our 3D30 Catalyst program remains on track, and we are beginning to see the flow-through impact associated with the Phase I actions taken in the first quarter. You can find additional information on Slide 13 of our earnings supplement. We believe the timing of this program aligns nicely with the evolution of AI tools and expect AI to be a meaningful driver of reaching our 3D30 aspirational goal. In May, we announced our expanded enterprise relationship with Anthropic and our firmwide rollout of Claude to enhance colleague productivity, streamline complex workflows, and ultimately drive considerable client impact. While we are still in the early innings here, we are already beginning to see measurable results and firmly believe the use of these tools will have profound impacts on our business over the long term. In summary, we are pleased with our second quarter results and the growing momentum that is building in the business as we move past the idiosyncratic headwinds that persisted over the past 12 months. We are confident that the underlying fundamentals of the business, when combined with what are now tailwinds, will accelerate our performance in the back half of 2026 and beyond. As the insurance market evolves at a rapid pace, we want to thank our nearly 5,000 colleagues for adapting and embracing new technologies as we build a dynamic workplace designed to maximize outcomes for our colleagues, clients, and stakeholders. Before I turn it over to Bradford, I want to acknowledge the rumors in the marketplace around our potential exploration of capital structure alternatives. Consistent with how we have operated in the past, we do not comment on market rumors or speculation and will not be addressing related questions today. With that, I will now turn it over to Bradford, who will detail our financial results.

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

We will now take questions. Operator?

Thank you. Press *11 on your telephone and wait for your name to be announced. Our first question comes from Tommy McJoynt of KBW. Your line is open.

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

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

Thanks for that explanation. One more: you called out a new performance headwind, that $8 million of annualized eliminated redundancies. Do you have confidence that is the extent of what I would call dis-synergies from the CAC transaction? And will that lap at the end of the year or will that extend into the first quarter of next year? Thanks.

Yes, Tommy, we feel like that is the extent of what I would call dis-synergies. We have moved quickly to align around practice leaders and product group leaders and combined business structures. We are not going to have multiple practice groups in the same industry or multiple product groups in the same product line. We aligned around our best out front, built the team, and aligned compensation models. When you do that, certain people are not going to necessarily get the same opportunity they want, and that is normal. I would not characterize it as a dis-synergy per se; it is revenue that is not showing up in the legacy IS P&L but is showing up inside the CAC P&L. If you look at aggregate revenue across IS inclusive of CAC, it is exactly where we would have expected it to be. It is just how it shows up in each part of the P&L. Thanks.

Thank you. Our next question comes from Hristian Getsov of Wells Fargo. Your line is open.

Hi, good afternoon. Thank you for taking my question. My first question is on rate and exposure. I'm trying to gauge your confidence that the rate and exposure headwind has troughed because it seems like across the industry that piece could actually get softer from here. But everybody's portfolio is a bit different. Could you walk me through what you are expecting in the second half that gives you that confidence?

Hey, Hristian. Broadly, the market is softening. While casualty rates on an absolute basis are positive, they are ebbing. Property is very deeply soft. Our confidence around Q2 being the trough is less about the rate of change of underlying insurance rate and more a reflection of the composition of our portfolio on a quarter-to-quarter basis. The second quarter is when we renew the preponderance of our cat-exposed property and our largest cat property reinsurance renewals. The cat property part of the market is very clearly deeply soft, far more so than any other part of the insurance market today. As we look at mix of business going forward, that gives us a strong degree of confidence around those headwinds abating.

Got it. Thank you. And then for my second question, I totally understand you cannot comment on rumors, but given the move in shares in the last month and a half, how should we think about buybacks from here versus the more elevated $80 million in Q2?

Thanks, Hristian. We took the opportunity given what we saw as dislocation in the price to repurchase about 4 million shares for about $80 million in Q2. As we have said previously, we are not an indiscriminate buyer, but we do continue to see dislocation in our stock price. That being said, we are not able to be in the market buying currently. We will balance any future buyback decision against the leverage profile and the leverage range of 4 to 4.5x that we have communicated.

Thank you. Our next question comes from Charles Lederer of BMO. Your line is open.

Good evening. On the UCTS business, it sounds like even though the second quarter organic came in a little below where you had guided, you think you have a bounce back in the back half of the year because of the lower reinsurance costs for the E&S home book. Did I understand that correctly? And how should we think about the renter's book in the back half of the year? I think Q3 is a seasonally strong quarter there. Thanks.

Yes, Charles. Overall, pleased with the momentum and trajectory we are seeing out of UCTS. The second quarter was impacted by about $4 million of year-over-year decline in revenue at Juniper tied to risk-adjusted rate decreases in excess of 20% on some of our largest property placements, and by a stub cover that we had placed on behalf of Brev in the second quarter of last year that will be a calendar-year renewal going forward. So that impacted organic as well as absolute EBITDA dollars to the tune of about $4 million. To be clear, the momentum at Juniper is incredibly strong. We expect organic growth from Juniper for the year in excess of 20%, so this is really more of a timing dynamic. As I mentioned earlier, we do meaningfully benefit from the reduction in risk-adjusted reinsurance pricing as it enables us to increase the ceding commission on those programs where we realized the reinsurance savings. Specific to renters, the renters portfolio continues to perform quite well, with double-digit organic growth in the quarter and strong momentum. A new large property management software provider recently went live with us on the platform and is driving meaningful growth trajectory. Our largest software partner has a new co-developed group renters product that we are excited about. Our strategic position and momentum in renters continues to be strong.

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

We think we have the vast majority of the impacts from the Medicare slowdown behind us and anticipate the Medicare impact to be close to neutral in the back half of the year. We continue to have strong momentum in the mortgage-origination market; we called out the success we are seeing with our most recent large partner, Fairway, and the momentum they are carrying. You are seeing both momentum and operating leverage in the mortgage business as well as continued growth and success from integrating the Hippo acquisition into Westwood showing up in real margin accretion in that segment. We continue to think it is a winner-takes-most opportunity in both the mortgage and builder space, and we are well positioned. Normalized for Medicare and the QBE commission reduction headwinds, organic for the segment would have been 10% in the quarter and 10% year to date. We are not providing segment-level guidance, and there can be quarter-to-quarter timing differences, but overall we feel good about the trajectory of that business.

One piece to remember, Charles, is the Fairway relationship included the purchase of a small agency that was their agency. So it is a nuance: the Fairway relationship that started in April actually does not hit organic throughout the balance of this year until we lap that 4/1/2026 start date. So while we are seeing a lot of momentum there, it is not giving us an organic lift this year, just a total-revenue lift.

Thank you. Our next question comes from Mitch Rubin of Raymond James. Your line is open.

Hey, good afternoon. I appreciated the commentary on the licensing progress of Brev. On Slide 7 of the presentation, you mentioned expectations for an uplift from AIF economics over time. Can you give us a sense of the magnitude of that uplift and where those economics stand today?

The impact from the AIF economics is relatively de minimis year to date. The AIF fees are roughly 5% of premium and that premium is earned ratably over the policy period. As Brev continues to renew more, that will begin to grow and trickle in. As a reminder, the AIF entity we are the majority owner of, so you can think about two-thirds of that overall 5% inuring to the benefit of The Baldwin Group. Also note it is not coming in through the top line because of the equity-method accounting treatment with which it is being booked.

Got it. Thanks for the color. For my follow-up, this quarter you attributed the 110 basis points of margin expansion to CAC and MIS with no explicit mention of AI, though last quarter you talked about internal AI productivity gains running upwards of 80%. Is that benefit embedded in the numbers or is it just not showing up in the P&L yet?

It is very much embedded in the numbers. We are continuing to see exciting momentum and progress across our AI efforts and the Catalyst transformation program. Specific to Catalyst and our AI deployments, since the beginning of the year we have converted over 47,000 tasks which have been completed in the past 17 weeks at a better-than-98% quality rate, which has gone to over 99% in recent weeks. The model is running at production scale, not pilot scale. We have 27 processes optimized and standardized across our commercial and benefit service lines. This quarter alone we have been deploying AI into those capabilities to continue to enhance and optimize on a recursive basis. Another example: we have deployed AI into our direct-bill processing. Part of that change is tied to the procedural accounting change we have been talking about for the past 12 months in IS. That has enabled us to improve monthly reconciliation on direct bill from roughly 90% in month to a sustained 98%. We have reduced run-rate costs from $3 million to $1 million a year to execute on that and cut our internal labor cost on the process from $1.2 million to roughly $400,000. Those are a handful of examples; we are seeing really exciting gains from the AI solutions we have been deploying. We are still early days, but we have growing confidence in the broad-based profound impact it will have on our business and for the benefit of both our clients and colleagues.

If you have a question, please press *11. Our next question comes from Andrew Kligerman of TD Cowen. Your line is open.

Hey, good early evening. I wanted to talk about net new business. The generation was super strong this quarter with sales velocity of 30% versus IAS' previous high-teens run rate. Maybe you could—let me even throw in retention to that equation. Are there headwinds to retention given the pricing pressures out there? Regarding the new-business trends, could you talk about the drivers there that are getting you excited? This was a big number in the quarter.

Thanks, Andrew. Retention at legacy IS business has been hovering around 90%. That was impacted by the one-time integration-related revenue impacts I mentioned earlier in the call, bringing that down to mid- to high-eighties for the quarter on a one-time basis. We have seen multiple quarters in a row of year-over-year retention improvement and are feeling good about the momentum. At CAC, client retention is in excess of 92%, so we are seeing success there as well. On sales velocity, it is a function of depth of capability, unique product expertise, and real awareness across our end-client industry sectors and risk product lines. We are in the market and winning business; business is being referred. In sectors like M&A, private equity, and transaction-related solutions, we are taking meaningful share. While the M&A market is up, our M&A business is up dramatically more than the broader market. It is indicative of the market share we are taking and the wins we are putting on the board. We are competing against strong global brokers and winning. The franchise is healthy and it shows up in the new-business results.

That is pretty exciting. The elephant in the room is what we have been hearing in the media about a leveraged buyout. I know you cannot specifically address that. We had a great share repurchase in the quarter. Say whatever you can about a potential LBO, but maybe tell us a little about how you are thinking about the stock, how it is valued right now, and where you think it should be. Open-ended—would love to hear your thoughts.

We are not going to comment on market rumors and speculation, but when we think about the business and the share price, we believe intrinsic value is in excess of where shares trade today. You saw us put our money to work repurchasing roughly $80 million, or 4 million shares, in the quarter. At the current time, we are not in a position to continue that repurchase program. As Bradford has said, we are not indiscriminate buyers and we have taken leverage to roughly the top end of what we communicated at 4.5x. At a point in time where we are able to be back in the market, our activity would be informed by where leverage sits and where the shares are trading. To be clear, we view intrinsic value to be in excess of where shares trade today.

Our next question comes from Pablo Singzon of JPMorgan. Your line is open. Pablo, your line is open. Please check your mute.

Hey, sorry about that. One question: the 3D30 program—can you give us updated thoughts on your ability to reach the goals you had laid out given the current market environment? What are the key initiatives you have to execute to get there? How are you feeling about those goals and what timeline do you have in mind? Thank you.

We continue to feel really good about the path to 3D30. What we are seeing from AI is encouraging around productivity gains, throughput, cycle-time compression of complex knowledge work, and the ability to drive more to the top of the funnel from a revenue-generation standpoint. We have a lot of early, compelling proof points. From a revenue perspective, we will finish the year around $2 billion, so we are roughly two-thirds of the way there from when we announced the program. At that time we thought the path would be equal parts organic and inorganic. The partnerships we completed earlier this year are a big step forward. If you look at normalized organic growth of the business year to date, inclusive of the partnerships, it is roughly 10%, right in line with the level of organic growth we had penciled in. We are tracking in line to expectations and, if anything, the growing impacts from AI, the Catalyst program, and the building momentum around new business and market-share gains give us growing confidence.

I am showing no further questions at this time.

Thank you all for joining us this evening. As I noted at the open, we are pleased with our second quarter and confident in our trajectory through the balance of the year. The momentum we have built is real in our advisory businesses, our embedded distribution, and our recent partnerships. It is a direct reflection of our colleagues who show up every day for our clients, for 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 support as we continue to deliver against our Catalyst 3B30 goals. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.