The Baldwin Insurance Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. The company is an insurance distribution and services business operating through Insurance Advisory Solutions (IAS), Underwriting, Capacity & Technology Solutions (UCTS), and Mainstreet Insurance Solutions (MIS). It changed its name from BRP Group, Inc. to The Baldwin Insurance Group, Inc. effective May 2, 2024; the ticker was scheduled to change from BRP to BWIN on May 20, 2024. Dollar amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Total revenue | $380.4 | $330.4; up 15% |
| Commissions and fees | $378.1 | $329.5; up $48.6 |
| Organic revenue growth | 16% | 23% |
| Operating income | $34.3 | $3.6 |
| Operating margin | 9.0% | 1.1% |
| Net income (loss) | $39.1 | $(25.9) |
| Net income (loss) attributable to Baldwin | $21.6 | $(14.1) |
| Diluted EPS | $0.33 | $(0.24) |
| Adjusted EBITDA and margin | $101.7; 27% | $79.0; 24% |
| Adjusted diluted EPS | $0.56 | $0.42 |
| Operating cash flow | $2.9 | $(14.0) |
| Cash from investing activities | $44.6 | $(5.1) |
| Cash used in financing activities | $(40.2) | $(24.5) |
Revenue growth reflected $53.8 million of organic growth in core commissions and fees, partly offset by lower profit-sharing and other revenue and the loss of Wholesale Business revenue after its sale. Management reported organic revenue growth of 16%, down from 23% in the prior-year quarter. Compensation expense increased 13%, slower than revenue growth; management said fixed-salary leverage was beginning to emerge. Interest expense rose $3.7 million to $31.5 million, primarily due to higher rates.
At March 31, cash and cash equivalents were $112.1 million, with an additional $122.2 million of restricted cash. The company reported $266.0 million of available revolver capacity. Total assets were $3.51 billion and total liabilities were $2.44 billion. Debt included $996.2 million of Term Loan B borrowings and $334.0 million drawn on the revolver; balance-sheet long-term debt was $967.0 million, net of issuance costs. The facilities bear floating rates: 8.94% on the term loan and 8.50% on the revolver at quarter-end. The company was in compliance with its debt covenants.
Management believes cash, operating cash flow and available borrowings will be sufficient for working capital and commitments for the next 12 months and beyond. A 100-basis-point increase in variable rates would add an estimated $13.3 million to annual interest expense. Interest-rate caps cover $1.2 billion of debt, limiting the base rate to 7.00% through November 2025.
Material changes and unusual items
- Wholesale Business sale: Closed March 1, 2024 for approximately $58.9 million, subject to customary adjustments. The company recorded a $36.4 million pretax gain and $54.4 million of net cash proceeds from the divestiture. The business’s results remained in continuing operations through February 29.
- Reported profit benefited materially from the sale: The gain was included in other income, not recurring operating revenue. Adjusted EBITDA excludes the gain; GAAP net income turned positive from a loss in Q1 2023.
- Contingent consideration: The company recorded a $12.7 million fair-value expense, versus $24.8 million in Q1 2023. Earnout liabilities were $235.9 million at quarter-end, with maximum estimated exposure of $547.7 million. An additional $25.0 million settlement was paid in April.
- Cash conversion: Operating cash flow was positive but modest relative to reported net income; receivables increased and contingent earnout payments were significant. Investing cash flow was boosted by the sale proceeds.
- Segment developments: IAS revenue was $222.3 million, up 12%; UCTS revenue was $103.9 million, up 20%; and MIS revenue was $71.7 million, up 23%. Segment reporting was recast for the transfer of FounderShield from UCTS to IAS effective January 1, 2024.
Outlook, commentary and risks
The filing provides no formal quantitative revenue, earnings or cash-flow guidance. Management described continued investment in organic growth, talent, acquisitions and its MGA of the Future platform, which had more than 12 products. It expects interest expense to remain relatively flat or increase slightly in the near term and expects compensation costs to generally rise with revenue. The business is seasonal: management typically sees its highest adjusted EBITDA and margins in Q1 and lowest in Q4.
Key exposures include floating-rate debt, working-capital needs, and the timing and valuation of contingent earnouts, which depend on acquired businesses’ projected performance and other significant unobservable assumptions. The credit agreement is secured by substantially all company assets and imposes financial and other covenants. The company also disclosed a $4.2 million commitment to the University of South Florida through October 2028; management anticipates the chairman will fund half. Ordinary-course legal claims were disclosed, with management stating their resolution is not expected to materially harm financial position, results or liquidity. The company maintains a full valuation allowance against its deferred tax assets at Baldwin.
Most important facts for investors to verify
- How much reported earnings improvement is attributable to the one-time Wholesale Business gain, and whether underlying organic growth sustains or improves from 16%.
- Whether operating cash flow strengthens as receivables and earnout payments affect cash conversion.
- Debt service capacity under floating rates, revolver availability, covenant headroom and the effectiveness and expiration of interest-rate caps.
- Future earnout settlements and changes in contingent-liability estimates, including the maximum stated exposure and cash-versus-stock settlement choices.
- Growth, profitability and intersegment economics across IAS, UCTS and MIS, including the effects of the Wholesale sale and FounderShield segment transfer.
- Assumptions behind adjusted EBITDA, adjusted EPS and other non-GAAP measures, which exclude specified expenses and are not substitutes for GAAP results.