4Q23 Earnings Transcript
Fourth Quarter 2023 Earnings Conference Call
C O R P O R A T E P A R T I C I P A N T S
C O N F E R E N C E C A L L P A R T I C I P A N T S
Sid for
P R E S E N T A T I O N
Operator
Greetings and welcome to
At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host,
Thank you, Operator. Welcome to the
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 ir.baldwinriskpartners.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
1
ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.
1-888-562-02621-604-929-1352www.viavid.com
forward-looking statements in the Company's earnings release and to our most recent Form 10-K, both of which are available on the BRP 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.baldwinriskpartners.com.
I will now tuthe call over to
Good afternoon and thank you for joining us to discuss our fourth quarter results reported earlier today. I am joined this afternoon by
For the fourth quarter, the contributions from the significant investments we made in 2021 and 2022 continued to manifest themselves in a meaningful way, as we generated organic growth of 15%, our 15th straight quarter of double-digit organic growth as a public company.
For the year, we achieved industry-pacing organic growth of 19%, including double-digit organic growth across all three of our segments, grew Adjusted EBITDA by
In IAS, we generated organic growth of 9% in the fourth quarter, in line with expectations we previewed on our third quarter earnings call. As forecasted, while growth was robust in most areas of our IAS platform, we saw select weakness in profit sharing revenue and project-based work in sectors such as construction, where increased client sensitivity to continued higher interest rates and insurance rate increases had an impact in Q4. Despite the headwinds in Q3 and Q4, IAS organic growth for the full year was 12%, in line with our long-term target of 10% to 15%. There will always be puts and takes to the underlying momentum of our end client industry sectors, but early signs are pointing to an ebbing of these negative impacts that persisted during the second half of 2023. Job starts in our construction practice are seeing a normalization as we start the year, and our clients in general across the IAS business are exhibiting resiliency, consistent with the continued growth seen in the broader
Our UCTS segment grew organic revenue 22% in the fourth quarter, due to continued strength in our multifamily, homeowners and commercial umbrella programs, which has persisted into the first quarter, and the commercial property and high net worth homeowners products we launched in late 2023 continue to gain momentum. UCTS organic revenue growth for the year was 31% thanks to broad-based strength across our platform, and due to the significant growth in our homeowners platform in 2023.
Our MIS segment grew revenue 21% organically for the quarter and 23% for the year, thanks to continued strength from Westwood and a growing contribution from our National Mortgage and Real Estate operation. Additionally, investments in our sales and distribution capabilities at Westwood have led to three more Top 35 builders signing with us in the last six months. We expect sustained strength in new business, along with higher attachment rates and meaningful insurance rates to continue to drive momentum for Westwood in 2024.
2
ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.
1-888-562-02621-604-929-1352www.viavid.com
As a part of our efforts to streamline operations, increase margin, and focus on our core businesses, we have executed a definitive agreement for the sale of our wholesale brokerage platform,
As we move forward with our strategic roadmap, we are deepening our focus on efficiency in execution through our recent work to simplify and optimize our operating model and business operations. To that end, in January, we announced the promotions of
In summary, we are proud of the strong results we delivered in 2023. We are executing daily on numerous strategies to drive continued industry-leading organic growth, expanding margin, and growth of our free cash flow, all while building on our unique culture and status as a destination for our industry's most talented professionals.
I want to thank our nearly 4,000 colleagues for their unwavering dedication to all our stakeholders during a challenging year in the insurance marketplace. While growth across the economy still appears resilient, dislocation persists in large portions of the insurance marketplace, impacting many of our clients. I extend my gratitude to our clients for their continued trust in our ability to help them navigate these conditions and deliver innovative and thoughtful solutions.
With that, I will tuit over to Brad who will detail our financial results.
Thanks Trevor, and good afternoon everyone.
For the fourth quarter, we generated organic revenue growth of 15% and total revenue of
We recorded a GAAP net loss for the fourth quarter of
Adjusted EBITDA for the fourth quarter rose 16% to
3
ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.
1-888-562-02621-604-929-1352www.viavid.com
EBITDA for the full year grew 27% over the prior year to
Net cash provided by operating activities in our statement of cash flows was
As a result of our strong organic growth and the absorption of prior year investments, our business is well positioned to accelerate the realization of significant operating leverage in 2024. As a reminder, we absorbed significant expense headwinds in Q1 and Q2 2023 from the roughly 1,000 net new colleagues that joined BRP in 2022. The absence of this headwind, as well as the cost savings initiatives we executed in the fourth quarter to align the growth services support structure with our go-to-market approach and integrated platform, will continue to have a positive impact on margin in 2024 and beyond. In addition, we have completed a substantial portion of our partnership integrations, as a result of which we anticipate meaningfully lower one-time expenses in 2024, which should drive increased free cash flow conversion.
In the fourth quarter we paid
We expect our net leverage will continue to decline through the end of 2024, and our goal is to de-lever to approximately 4x or lower by the end of the year. This target includes 2024 estimated earnout payments of approximately
Also, a few incremental details with respect to our sale of
For the first quarter of 2024, we expect revenue of
As we project 2024 results, I'd like to reiterate our guidance from the third quarter earnings call but make an adjustment for the divestiture of
4
ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.
1-888-562-02621-604-929-1352www.viavid.com
In closing, we are very pleased with our results for the fourth quarter and full year of 2023, are immensely proud of our colleagues for their grit in a year of continued difficulty in the insurance environment, and grateful to our clients for their continued trust and confidence.
We will now take questions. Operator?
Operator
Thank you. We will now be conducting a question-and-answer session. (Operator Instructions)
The first question we have is from
Sid
Hey, good afternoon. This is Sid on for Greg.
Hey, good afternoon Sid.
Sid
Hey. I know you guys called out some headwinds on the IAS segment after the last couple of quarters. Just curious if your 2024 guidance assumes those headwinds persist or if you're expecting some improvements there.
Hey Sid, this is Trevor. A few things. One, specific to the 2024 guidance, it incorporates our expectation for a normalization of the impact of rate and exposure, which is where we see those headwinds show up relative to some of the project revenues mentioned earlier in my prepared remarks.
I think to contextualize the underlying performance of the IAS segment it's important to run through a handful of stats.
When we look at the impact of rate and exposure on our organic growth in the IAS segment for the first half of 2023, it was a 6.6% tailwind. And when we look at the impact of rate and exposure on the IAS segment in the second half of 2023, it was a negative 0.5% headwind. In the fourth quarter specifically, it was a negative 2% headwind. So if you look at the underlying organic growth and you normalize for the amount of transition we saw impact from rate and exposure, the organic growth from the IAS segment apples-to- apples would have been mid teens for the second half of the year and the fourth quarter.
When you look at the underlying momentum that we're seeing in that segment, I would tell you that it's growing. We track a metric called sales velocity which is how we measure new business revenue being generated or won from new clients as a measure of prior year commission and fee revenue. For the full year of 2023 IAS sales velocity was 17%. And more specifically, for the fourth quarter, IAS sales velocity was 21%, a notable uptick as we saw the growth in momentum and new client wins as a result of the investments we've made in talent and capabilities. As that compares to industry average, there's a
5
ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.
1-888-562-02621-604-929-1352www.viavid.com
consulting firm in the industry,
So, a long-winded way of saying we feel like momentum in the IAS business continues to be very strong. We had some idiosyncratic drivers of rate and exposure compression in the back half of 2023 tied to some specific dynamics with particular clients and in client industry sectors, and we believe that's largely behind us. We've seen that as through January with a retuor more normalization of rate and exposure in that part of the business.
Sid
Okay. Thanks, I appreciate it. Then I was hoping maybe-I know this was touched on in the prepared remarks, but hoping you can discuss a little bit more in detail the drivers of the margin expansion embedded in your guidance. I think last quarter Trevor, you mentioned Juniper Re is expected to be negative Adjusted EBITDA in 2024, and hoping maybe you could quantify that and confirm if it's still expected to be EPS accretive in 2025.
Yes. Let me just take those kind of one by one.
From a margin accretion standpoint, it's driven by broad-based discipline and operating effectiveness around payroll, operating expenses and travel and entertainment expense. But, notably, it's driven by us kind of growing into and normalizing the investments that were very significant that we made into talent in our business in 2021 and 2022.
If you look at the magnitude of that difference, when we started 2023, we added 1,000 net colleagues to the business in 2022 and had over
Specific to Juniper, we're very pleased with the progress we're making there. Jeff has recruited in a fantastic team and we fully built out capabilities across reinsurance brokering, actuarial services, cat modeling and operations. We expect that business to begin contributing to revenues in the first quarter.
We do expect that business to have a net loss for the fiscal year 2024, and our base plan is that that business will be EBITDA and EPS positive in 2025, however we continue to evaluate talent investments and opportunities.
In summary, I'd say we have a lot of trust and confidence in Jeff and the team that he's been able to assemble and we're super excited for the contributions they're going to make, both this year and beyond.
Thanks, Sid. Next question from the next analyst, please.
Operator
The next question we have is from
6
ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.
1-888-562-02621-604-929-1352www.viavid.com
Thank you for taking my question. Good afternoon everybody. At higher end of 10% to 15% long term organic revenue guidance is very strong, but it's also lower than it's been in the past. Can you talk about some of the drivers of your outsized organic growth and in retrospect, and what's changing about the outlook to the broader economy that makes you a little more conservative looking forward?
Hey Josh, this is Trevor. As we've talked about in the past, we view there really to be four building blocks to organic growth and it starts with how much of the prior year revenue did you retain, what's the impact from rate and exposure on either expansion or compression of that prior year revenue that renews? Then most importantly, how much new revenue do you win from new clients that you're bringing into the organization?
What's been consistent from us is that the preponderance of our organic growth is driven by our new business generation. Our retention tends to be in line to slightly better than industry average. The impact we have from rate and exposure actually tends to be a bit lower than the industry average. And our new business generation, our sales velocity tends to be significantly higher.
As we think about those metrics for 2024, we're not expecting any kind of material degradation; if anything, I'd say slight improvements in overall revenue retention and client retention. I would say we do anticipate an ebbing of kind of the impacts we've seen from rate overall in our businesses. And I'd say just in general coming off another year where we've had multiple segments with organic growth in excess of 20%, we're not going to plan for kind of hugely outlier performances like that. We expect really strong performance out of all three of our segments. We expect double-digit organic growth out of all three of our segments, but I would say that there is some characteristic conservatism that we're just not going to forecast for 20-plus percent organic growth.
That's understandable. One other question. I was just curious what kind of success have you had onboarding other lines of business besides renters on the MGA of the Future platform?
Josh, a tremendous success. The MGA of the Future platform continues to be just a significant growth driver for us overall with organic growth for 2023 in excess of 30%. And while our renters platform, which is a mature and scaled business continues to perform exceptionally well with growth in excess of 20%, and candidly we're seeing growing momentum there as we head into 2024 with a number of new initiatives relative to expansions into
As we've talked about in the past, when we looked at the lens through which we evaluate new product opportunities, it's where we do we have unique and differentiated distribution? Is there an opportunity to build a product that brings kind of unique end client fit and utility? And importantly, can we see a path to scaling that product line up in excess of
7
ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.
1-888-562-02621-604-929-1352www.viavid.com
And so we could not be more excited about the momentum that we have and the success that we're seeing across the MGA.
Thank you for the answers.
Operator
The new question we have is from
Thanks and good evening or afternoon everyone.
A quick question to begin with. Is there any distinct seasonality in the revenues for earnings of the business being sold to
No, not really, Meyer. It's relative. They have some seasonality month-to-month but if you look quarter-to- quarter it's relatively flat.
Okay. Perfect. I know this obviously isn't going to take care of the entire debt program but are there specific plans for the proceeds?
It provides continued and better financial flexibility, Meyer, and we'll continue to thoughtfully manage our balance sheet to optimize returns.
Okay. Then one last one. If I can follow-up on Josh's question, it seems that there's increasing comfort with
Yes. Those implications are all positive, Meyer. Westwood continues to perform exceptionally well with organic growth in excess of 20%. We added three new Top 35 builders over the past few months as new distribution partners in to the Westwood business. As you know, a big volume of the new homes being built across the
The opening up of the market will be a very good thing for us and should translate into our ability to kind of bring in further capacity into the MGA to continue to kind of meet the needs of our clients.
8
ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.
1-888-562-02621-604-929-1352www.viavid.com
Okay. Fantastic. Thanks so much.
Thanks, Meyer.
Operator
(Operator Instructions)
The next question we have is from
Hi. Good evening. Just a question on margins. If you go by the guidance that you're giving that implied EBITDA margin expansion is the largest on (inaudible)-would be the largest EBITDA expansion that you would have done on an annual basis. Call it, 300 points. It seems like you can explain 80 bps of that from the
Hey Pablo, this is Trevor. I'd say that the answer to your question that you surmised is accurate in that that margin accretion is coming from operating leverage. We're coming out of a couple of years in '21 and '22 where we invested significantly into the business. And as you know, roughly 80% of the expense base in this industry is payroll and so we've done most of the hard work around that as a result of how we managed headcount in 2023 for 2024.
We're not going to provide an outlook on what kind of margin accretion to expect in '25 or beyond, but what I will reiterate is, consistent with what we've said in the past is the margin profile of this business is not any different than that of our peers that operate in the high 20s, low 30s EBITDA margin. If anything, as a result of the utilization of technology and proprietary systems that we have, the hard work that we've done over the past few years to fully integrate our platform, I would suggest that over time our margin profile will be superior to that of our peers.
As a result, we do expect margin accretion for the foreseeable future year in year out; some years that will be more than others. We'll continue to invest in the business and invest in talent in a thoughtful and meaningful way that enables us to continue to remain on the vanguard for our clients and continues to allow us to cultivate our status and reputation as a true destination for the most talented professionals in our industry.
We're incredibly excited about how this business is positioned heading into 2024 and while '23 was a fantastic year, it was also a year that had some challenges and required some tough decisions. We've made those decisions and executed on those actions and positioned our business to really drive very strong and profitable growth in 2024 and beyond.
Okay. Thank you.
9
ViaVid has made considerable efforts to provide an accurate transcription. There may be material errors, omissions, or inaccuracies in the reporting of the substance of the conference call. This transcript is being made available for information purposes only.
1-888-562-02621-604-929-1352www.viavid.com
Attachments
Disclaimer
Verikai Redefines Healthcare Decision-Making with the Unveiling of CaptureHealth and Capture360
AM Best Removes From Under Review With Developing Implications and Affirms Credit Ratings of Validus Reinsurance, Ltd. and Validus Reinsurance (Switzerland) Ltd.
Advisor News
- The modern advisor: Merging income, insurance, and investments
- Financial shocks, caregiving gaps and inflation pressures persist
- Americans unprepared for increased longevity
- More investors will seek comprehensive financial planning
- Midlife planning for women: why it matters and how advisors should adapt
More Advisor NewsAnnuity News
- LIMRA: Annuity sales notch 10th consecutive $100B+ quarter
- AIG to sell remaining shares in Corebridge Financial
- Corebridge Financial, Equitable Holdings post Q1 earnings as merger looms
- AM Best Assigns Credit Ratings to Calix Re Limited
- Transamerica introduces new RILA with optional income features
More Annuity NewsHealth/Employee Benefits News
- SENATE APPROVES BILL TO LIMIT PREMIUM INCREASES, PROTECT ACCESS TO HEALTHCARE
- All about AHCCCS: Navigating Arizona Medicaid’s changing landscape
- GOVERNOR SIGNS BIOMARKER TESTING COVERAGE BILL
- REGULATION OF AI IN PRIOR AUTHORIZATION AND CLAIMS REVIEW: A LOOK AT FEDERAL AND STATE CONSUMER PROTECTIONS
- LEADING HEALTH ORGANIZATIONS URGE NC LAWMAKERS TO RECONSIDER PROPOSAL IMPLEMENTING MEDICAID CUTS
More Health/Employee Benefits NewsLife Insurance News
- 2025 Insurance Abstracts
- AM Best Assigns Credit Ratings to Tokio Marine Newa Insurance Co., Ltd.
- Earnings roundup: Prudential works to save ‘unique’ Japanese market
- How life insurance became a living-benefits strategy
- Financial Focus : Keep your beneficiary choices up to date
More Life Insurance News