The Baldwin Insurance Group 2026 Q2 Earnings Call

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 Baldwin, Chief Executive Officer of the Baldwin Group.

Good afternoon, and thank you for joining us to discuss our second quarter results reported earlier today. I'm joined by Brad Hale, Chief Financial Officer, and Bonnie Bishop, Executive Director of Investor Relations. We saw continued momentum into the second quarter from the strong start to the year. We delivered total revenue of $493 million, adjusted EBITDA of $117 million, adjusted EBITDA margin of 24%, and adjusted diluted earnings per share of $0.48. Total organic revenue growth was 2%. Layering in the impact of the three January partnerships as if they had been owned by the Baldwin Group in the prior comparable period, normalizing for the idiosyncratic headwinds, which we are largely past as of the end of the quarter, total organic revenue growth would've 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 IAS business accelerated in the quarter to 19%, bringing year-to-date sales velocity to 16%. Combined sales velocity, including CAC and Capstone, was 30% for the quarter and 27% year-to-date. Rate and exposure was a headwind of 240 basis points, in line with our expectations. As we've shared previously, we expect Q2 to be at or near the trough for rate and exposure headwinds. The procedural accounting change, which we fully lapped on six-thirty, was 150 basis point headwind.

With respect to client retention, we experienced a 240 basis point headwind in the quarter as a result of structural changes we have executed in the legacy IAS business as a part of our CAC integration work to align compensation plans, go-to-market capabilities, and eliminate redundancies across our platform. These changes have resulted in approximately $8 million of annualized revenue attrition tied to a small group of individuals who were impacted and are no longer with the firm. We anticipate that these changes will impact revenue and organic growth for the legacy IAS business in the back half of the year by approximately $4 million-$5 million. This is more than offset by the realized outperformance across CAC as a result of the go-to-market structural alignment.

In Q2, CAC generated total revenue of $94 million, continuing the strong momentum from the first quarter with growth of 23% in relation to the second quarter of 2025. Year-to-date, CAC has delivered over $80 million of booked new business, up 43% compared to the same period in the prior year. Closed won new business, including future effective dates, is over $100 million. Sales velocity in the quarter was 59% across all product lines and 19% for recurring lines of business, while retention was north of 92%. Net growth of transaction-related product lines, which consist primarily of our transaction liability and certain project-specific lines of business, was 44%.

Our integration work and synergy captures continues to track ahead of schedule. We remain confident in our ability to deliver the synergy targets laid out on slide 14 of our earnings supplement. Taking a step back to look at the underlying momentum in the IAS business, including the contribution from our new partnerships and excluding the idiosyncratic noise associated with the revenue recognition accounting change and integration related revenue impacts, organic revenue growth would have been 8% in the second quarter. We believe this is far more indicative of the organic growth momentum of our IAS franchise. We continue to see impressive trends in new business in IAS. The thesis supporting the CAC merger is playing out in a faster and more meaningful way than we anticipated.

IAS is poised for a step function increase in organic growth in the back half of the year, and we expect continued strength from our newest partners as we leverage our capabilities across the enterprise. Moving to our underwriting capacity and technology solutions segment, organic revenue growth was 6% in the quarter. Including Obie, as if that business had been owned in the prior year period, organic revenue growth was 7%. We saw strong performance across our multifamily, admitted home, and real estate investor products, partially offset by continued softness in our E&S home book and lower reinsurance brokerage revenue at Juniper Re tied to a softer 6/1 renewal pricing environment, which also drove improved commission rates for MIS's E&S homeowners programs that will benefit organic revenue in the back half of the year.

Our inaugural reciprocal insurance exchange, BRE, is now licensed in 13 states, and we have begun migrating business in several states outside of Texas. We're making great progress on our second proprietary builder program with Hippo and Spinnaker, and currently expect that to launch in select states by the end of the year, serving as an exciting growth vector for the business heading into 2027. In our Mainstreet Insurance Solutions segment, organic revenue growth was 4% in the quarter, improving from a decline of roughly 5% in the first quarter as we lapped the QBE commission rate reduction headwind on May 1st. Normalizing to the impacts of QBE and Medicare underperformance, overall organic revenue growth was approximately 10%.

Our embedded mortgage business continues to ramp with Fairway Independent Mortgage, our most recent top 10 independent mortgage originator embedded partner, tracking ahead of plan in its first three months on the platform. Execution of our $3B/30 Catalyst Transformation Program remains on track, and we are beginning to see the flow-through impact associated with the phase 1 actions taken in the first quarter. You can find additional information on slide 13 of our earnings supplement. We believe the timing of this program aligns nicely with the evolution of AI tools, and expect AI to be a meaningful driver of reaching our $3B/30 aspirational goal. In May, we announced our expanded enterprise relationship with Anthropic and our firm-wide rollout of Claude to enhance colleague productivity, streamline complex workflows, and ultimately drive considerable client impact.

While we are still in early innings here, we are already beginning to see measurable results and firmly believe the use of these tools will have profound impacts on our business over the long term. In summary, we are pleased with our second quarter results and the growing momentum that is building in the business as we move past the idiosyncratic headwinds that have persisted over the past 12 months. We are confident that the underlying fundamentals of the business, when combined with what are now tailwinds, will accelerate our performance in the second half of 2026 and beyond. As the insurance market evolves at a rapid pace, we want to thank our nearly 5,000 colleagues for adapting and embracing new technologies as we build a dynamic workplace designed to maximize outcomes for our colleagues, clients, and stakeholders.

Before I turn it over to Brad, I want to acknowledge the rumors in the marketplace around our potential exploration of capital structure alternatives. Consistent with how we've operated in the past, we do not comment on market rumors or speculation and will not be addressing related questions today. With that, I will now turn it over to Brad, who will detail our financial results.

Thanks, Trevor. 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 IIS, 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 one-one 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.