Q3 2025 Earnings Call: Contradictions in IAS Growth, Mainstreet Insurance Recovery, and Organic Growth Drivers

Date of Call: None provided

Financials Results

• Revenue: $365.4M, organic revenue growth 5% in Q3 (adjusted for two temporary items total commissions/fees organic would be ~9%-10%; YTD organic growth ~9% unadjusted, ~11% adjusted)
• EPS: Adjusted net income $36.5M, $0.31 per fully diluted share; GAAP net loss $30.2M, GAAP diluted loss $0.27 per share; YTD adjusted diluted EPS up 11% YOY; Q3 adjusted EPS contracted slightly

Guidance:

• Q4 revenue $345M–$355M and organic growth in mid-single digits
• Q4 adjusted EBITDA $68M–$73M and adjusted diluted EPS $0.28–$0.32
• Preliminary 2026 revenue $1.66B–$1.7B with organic growth in high single digits
• Preliminary 2026 adjusted EBITDA $380M–$400M and adjusted diluted EPS $1.95–$2.10
• Expect double-digit operating free cash flow growth in 2026
• Share buyback plan up to $200M to be considered once net leverage is comfortably under 4x
• 3B30 CADLIST: ~$40M cumulative charges to 2028, ~$50M cumulative savings, $40M run-rate savings by end of 2028

Business Commentary:

• Revenue and Earnings Performance:
• Baldwin Group reported organic revenue growth of 5% in Q3 2025, bringing the year-to-date growth to 9%.
• 
  Adjusted EBITDA was flat year-over-year, with year-to-date adjusted EBITDA growth at 9%.

• The growth was despite headwinds from a procedural accounting change and reduced commission from QBE, which are expected to reverse into tailwinds by the first half of 2026.

• Insurance Advisory Solutions (IIS) Challenges:

• The Insurance Advisory Solutions segment saw flat organic revenue growth, with adjusted EBITDA and adjusted diluted earnings per share contracting slightly in the quarter.

• The main challenges were a procedural accounting change causing a temporary revenue headwind and a 5.7% headwind from rate and exposure changes, particularly in large cat-exposed property and employee benefits due to a soft employment environment.

• Underwriting Capacity and Technology Solutions (UCTS) Growth:

• The Underwriting Capacity and Technology Solutions segment achieved 16% organic revenue growth in Q3, driven by multifamily and commercial umbrella portfolios.

• The growth was offset by underwriting discipline in the E&S homeowners book, which was a 400 basis point drag on growth.

• Embedded Home Insurance Momentum:

• Baldwin's embedded home insurance business continued to expand, with new channel partners and a top 20 mortgage originator going live in Q3.

• The platform drives compelling conversion rates and is expected to contribute significantly to future growth, as it simplifies homeownership journeys through embedded technology.

• Capital Allocation and Shareholder Returns:

• The company plans to implement a share buyback program once net leverage is comfortably under 4 times, with a board authorization for $200 million.
• This strategy highlights Baldwin's commitment to financial flexibility and leveraging market dislocations for shareholder benefit.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly cited 'strong overall results', 'historic high' backlog and top-decile 20% sales velocity; adjusted free cash flow up 26% to $42M; preliminary 2026 outlook targets revenue growth, higher EBITDA and double-digit operating free cash flow, and a $200M buyback plan contingent on leverage.

Q&A:

• Question from Greg Peters (Raymond James): Reconcile strong sales velocity with flat IIS organic; what changes next year?
  Response: Core takeaway: IIS underlying momentum is strong (20% sales velocity, historic backlog); a ~$7M procedural accounting timing change and a -5.7% renewal-premium-change headwind masked double‑digit underlying growth—the accounting timing reverses in 1H26 and RPC should improve into 2026.

• Question from Greg Peters (Raymond James): Are you seeing competitive pressure in UCTS, especially around renters?
  Response: Core takeaway: UCTS competes via an embedded distribution model tied to ERP platforms, not traditional retail renters channels, giving Baldwin a differentiated moat and continued product-specific competitive advantages.

• Question from Charlie Lederer (BMO Capital Markets): What assumptions for attorney-in-fact fees (BREE) and embedded mortgage in 2026 guide?
  Response: Core takeaway: Nominal attorney-in-fact contribution is embedded in 2026 guidance; embedded mortgage revenue shows promising early traction but is not material to 2026 results.

• Question from Charlie Lederer (BMO Capital Markets): Why does IIS appear to accelerate when adjusting for prior pull-forwards and headwinds?
  Response: Core takeaway: Acceleration reflects robust new business wins and sales velocity; the apparent masking is due to renewal premium change headwinds and the accounting timing shift, not a slowdown in pipeline or sales effectiveness.

• Question from Elyse Greenspan (Wells Fargo): What are IIS assumptions in Q4 and for 2026's back-half weighted organic growth?
  Response: Core takeaway: Company will not provide segment-level guidance; they expect mid-single-digit organic in Q4 and high-single-digit organic for 2026 with growth accelerating in H2 as idiosyncratic headwinds lap.

• Question from Pablo Singzon (JPMorgan): Why was employee benefits an ~800bp headwind and why will it recover?
  Response: Core takeaway: Benefits skew to West Coast/tech clients led to exposure-driven weakness; recovery expected as healthcare cost trends push premiums higher, normalizing renewals by early 2026.

• Question from Pablo Singzon (JPMorgan): How long to recoup commission reduction via AIF fees after QBE step-down?
  Response: Core takeaway: Expect ~2–2.5 years from May 1, 2026 to fully convert; AIF fees are earned ratably as policies renew into the reciprocal and are reflected via equity-method earnings (not revenue).

• Question from Andrew Anderson (Jefferies): Does the reciprocal contribute to organic revenue now?
  Response: Core takeaway: No organic revenue benefit; the reciprocal provides earnings via the attorney-in-fact equity-method share (75% of earnings attributable to Baldwin) which impacts EBITDA, not organic revenue.

• Question from Brian Meredith (UBS): How are renewals performing in the reciprocal and why not buy back shares now?
  Response: Core takeaway: Renewals are slightly better than internal assumptions with lower-than-expected cancellations; buybacks are planned but will be considered only once net leverage is comfortably below 4x and weighed against M&A and reinvestment opportunities.

• Question from Tommy McJoynt (KBW): What expense base should be used to assess the $40M run-rate savings and timeline for 3B30?
  Response: Core takeaway: Savings are largely from workforce transformation and technology; 3B30 timeline unchanged and savings ramp to $40M run-rate by end of 2028 (minimal savings in 2025, $3–$5M in 2026, $10–$15M in 2027).

• Question from Pablo Singzon (JPMorgan): Will the converted captive rental program continue to grow and will more conversions occur?
  Response: Core takeaway: Expect continued growth from the captive rental program but at a moderating rate; the captive optimizes economics on a stable program and supplies incremental supplemental/contingent revenues.

Contradiction Point 1

Insurance Advisory Solutions (IAS) Growth Expectations

It involves differing expectations for the growth of the Insurance Advisory Solutions segment, which is a significant component of the company's business.

What are the assumptions for IIS organic growth in Q4 and 2026? - Elyse Greenspan (Wells Fargo)

2025Q3: We expect mid-single-digit growth in Q4 across the business and high single digits for 2026, with acceleration in the back half. - Trevor Baldwin(CEO)

What drove the unexpected organic growth in the Insurance Advisory Solutions segment, and what assumptions underlie the shift to high single-digit growth? - Thomas Patrick McJoynt-Griffith (KBW)

2025Q2: For the full year 2025, we expect IIS organic growth to be in the low to mid-single-digit range. - Trevor Baldwin(CEO)

Contradiction Point 2

Mainstreet Insurance Segment Recovery Expectations

It involves differing expectations for the recovery of the Mainstreet Insurance segment, which is another key part of the company's business.

What are your assumptions for renewal rates in the reciprocal insurance exchange? - Brian Meredith (UBS)

2025Q3: We expect renewals to be better than assumed, with cancellation rates leveling below initial expectations. - Trevor Baldwin(CEO)

What are the challenges in the Mainstreet Insurance segment and expectations for recovery? - Chuck Peters (Raymond James & Associates)

2025Q2: Normalization expected post-2026. - Trevor Baldwin(CEO)

Contradiction Point 3

IS Organic Growth and Sales Velocity

It involves differing explanations for the growth and sales velocity in the IIS and UCTS segments, which are crucial for investor understanding of the company's performance and future prospects.

Can you explain the discrepancy between strong sales growth and flat organic growth in the IIS segment, and how the revenue recognition change impacts this? - Greg Peters (Raymond James)

2025Q3: Sales velocity of 20% in the quarter reflects strong client and prospect value. The procedural accounting change created a $7 million revenue headwind, with no revenue loss, just timing. Renewal premium change was -5.7%, impacting property and casualty, and employee benefits. We expect this to improve incrementally over the coming quarters. IIS is positioned for double-digit growth post these headwinds. - Trevor Baldwin(CEO)

You guided Q2 organic revenue at the low end of the range. The IAS business is underperforming expectations, and you cited project-based headwinds. Could you provide more details on the challenges and when you expect a recovery to stronger performance? - Greg Peters (Raymond James)

2025Q1: This result was not unexpected, as we called out the expectation for single-digit organic growth in IS in the first quarter due to the timing of net new business. We experienced a roughly 800-basis point headwind in the quarter from impact of rate and exposure or renewal premium change. Our property book renewals experienced negative 5% premium change, which compares to positive 21% in the prior year period. In our employee benefits business, renewal premium change was roughly flat compared to the historical trend of three to seven percent, indicating muted hiring trends and a cautious business outlook. Despite these factors, underlying trends in the business remain strong, with sales velocity at 14% and robust new business pipelines. - Trevor Baldwin(CEO)

Contradiction Point 4

Earnings Impact of Renewals vs Organic Growth

It involves differing explanations for the impact of renewals on earnings and organic growth, which are critical for understanding the company's financial performance and growth strategies.

Does the reciprocal insurance exchange impact organic growth? - Andrew Anderson (Jefferies)

2025Q3: There is no benefit to organic growth from the reciprocal insurance exchange. The benefits come through earnings, not organic growth. - Brad Hale(CFO)

Can you provide more details on the project-based challenges affecting the IAS business and when you expect a recovery? - Greg Peters (Raymond James)

2025Q1: In our employee benefits business, renewal premium change was roughly flat compared to the historical trend of three to seven percent, indicating muted hiring trends and a cautious business outlook. - Trevor Baldwin(CEO)

Contradiction Point 5

Organic Growth Drivers in IIS

It involves differing explanations of the drivers for organic growth in the IIS segment, which are crucial for investor expectations and financial forecasting.

Can you explain the impact of the revenue recognition change on IIS's flat organic growth despite strong sales velocity? - Greg Peters (Raymond James)

2025Q3: We expect this to improve incrementally over the coming quarters. IIS is positioned for double-digit growth post these headwinds. - Trevor Baldwin(CEO)

Are producer earn-out contingent incentives being considered for the future? If not, are colleague earn-out incentives one-time? - Joshua Shanker (Bank of America)

2024Q4: Our growth and double-digit growth outlook reflects the strength we've demonstrated in IIS in recent quarters. - Trevor Baldwin(CEO)