BRP Group, Inc. (NASDAQ:BRP) Q1 2024 Earnings Call Transcript May 7, 2024
BRP Group, Inc. misses on earnings expectations. Reported EPS is $0.3304 EPS, expectations were $0.51. BRP isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, greetings, and welcome to The Baldwin Group First Quarter 2024 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, Bonnie Bishop, Executive Director, Investor Relations. Please go ahead.
Bonnie Bishop: Thank you, operator. Welcome to The Baldwin Group first-quarter 2024 earnings call. Today’s call is being recorded. First quarter financial results, supplemental Information, and 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. 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 on 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 more detailed discussion of these non-GAAP financial measures and historical reconciliations 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.
Trevor Baldwin: Good afternoon and thank you for joining us to discuss our first quarter results reported earlier this afternoon. I’m joined this afternoon by Brad Hale, Chief Financial Officer; and Bonnie Bishop, Executive Director of Investor Relations. Our first-quarter 2024 results represented one of the most complete performances we’ve seen across the business since going public, showcasing broad-based revenue momentum, in tandem with robust margin expansion and improved free cash flow generation in the wake of the expense rationalization initiatives completed in 2023. All three of our segments achieved double-digit organic revenue growth, resulting in overall organic revenue growth of 16%. Adjusted EBITDA grew 29% year-over-year, resulting in an adjusted EBITDA margin of 26.7%, a 280 basis points expansion over the first quarter of 2023, and free cash flow from operations grew 51% in the quarter to $53 million.
As we discussed on our last earnings call, the business is rapidly approaching a real inflection point. We are four quarters away from satisfying substantially all our outstanding earn-out obligations; the result of which, will be a step function increase of our free cash flow profile. We generated organic revenue growth of 11% in the first quarter. This was largely fueled by record new client wins, which were up nearly 90% over the first quarter of 2023, driven by increased collaboration across the firm, made possible by our integrated platform that enabled broad-based accessibility to expertise, pools, and resources. We also saw rate and exposure, which had been a headwind in the fourth quarter, returned to more normalized levels and serve as a slight tailwind for the quarter, albeit down meaningfully from what we saw in the first quarter of 2023.
Our GCTI segment grew organic revenue 21% in the first quarter, driven by continued strength in our multifamily and home products, which has persisted into the second quarter. And growing contribution from the commercial property and high net worth homeowners’ products we launched in late 2023. Our MIS segment had a strong quarter, with organic revenue growth of 24%. The durability of our embedded homebuilder distribution strategy via our Westwood platform, delivered superior new business and retention results, despite continued weakness in housing sales, and our national mortgage and real estate operation continuing to scale rapidly. As we have discussed over the last few quarters, we have implemented strategies and procedures to deepen our focus on efficiency and to simplify and optimize our operating model.
On May 1, we took another meaningful step towards accomplishing that goal, with the announcement of our brand transition to The Baldwin Group. In connection with which, our public entity changed its name from BRP Group, Inc. to The Baldwin Insurance Group, Inc. With our partnership integration work largely complete, a unified go-to-market brand that enables us to more clearly and efficiently convey the capabilities of our firm to all of our stakeholders is a natural evolution. Importantly, we believe the combined brand will yield revenue cost and cultural synergies going forward. As part of our rebranding strategy, we are also changing our Nasdaq ticker symbol to BWIN. The ticker symbol change will take effect on May 20. In summary, we are extremely pleased with our results for the first quarter and for the exciting opportunities that lie ahead for The Baldwin Group.
Our largely completed integration work will now enable us to increasingly leverage the full value of our talent and technology advantages, which have driven our continued industry-leading organic growth and accelerating margin and free cash flow expansion. I want to thank our nearly 4,000 colleagues for their tireless dedication and commitment to all of our stakeholders, as they manage a dynamic insurance marketplace and transformative period for our firm. As the economy remains resilient by many measures, there are still challenges for many of our clients as they navigate economic uncertainties. We are grateful for our clients who placed their trust in us for advice and solutions, which deliver the insurance protection and risk mitigation vital to their businesses and livelihoods.
We continue to work tirelessly on your behalf, simplifying complexity to protect what’s possible. With that, I will turn it over to Brad, who will detail our financial results.
Brad Hale: Thanks, Trevor, and good afternoon, everyone. For the first-quarter, we generated organic revenue growth of 16% and total revenue of $380 million. We generated double-digit organic revenue growth in all three segments, with IS coming in at 11%, UTCS at 21%, and MIS at 24%. We recorded GAAP net income for the first quarter of $39.1 million or GAAP diluted earnings per share of $0.33. Adjusted net income for the first quarter, which excludes share-based compensation, amortization, and other one-time expenses, was $65.3 million or $0.56 per fully diluted share. A table reconciling GAAP net income to adjusted net income can be found in our earnings release and our 10-Q filed with the SEC. Adjusted EBITDA for the first quarter rose 29% to $102 million compared to $79 million in the prior year period.
Adjusted EBITDA margin expanded 280 basis points year-over-year to 26.7% for the quarter, compared to 23.9% in the prior year period. Adjusted EBITDA growth at nearly double the rate of strong organic growth is evidence of the meaningful operating leverage we have in the business across our expense base. Free cash flow from operations for the first quarter was $53.3 million, a 51% increase year over year, a direct reflection of the expense rationalization work we highlighted last quarter, coupled with the continued outsized growth of the business. In the first quarter, we paid $54 million of earnouts in cash, inclusive of amounts reclassified to colleague earn-out incentives. Thus far in the second quarter, we paid an additional $35 million of earn-outs in cash, bringing our remaining estimated undiscounted earn-out obligations to approximately $222 million.
Of note, despite having paid approximately $89 million of cash earn-outs and $21 million of cash bonuses through April 2024, the business has delevered over a quarter turn from where we ended 2023. As discussed on the fourth-quarter earnings call, several of our partnership agreements contain provisions that permit former selling shareholders to allocate portions of the earn-out proceeds to colleagues who meaningfully contributed to the partner firm’s achievement of the earn-out. When this determination is made, we record compensation expense that is an offset to the change in contingent consideration and net neutral to net income. As a result of this practice, we added back $3.6 million of compensation expense in the first quarter associated with colleagues earn out pool.
And based on current estimates, we expect to add back approximately $6 million in the second quarter for earn outs we’ve paid or are coming due. On March 1, we closed on the sale of our Connected Risk Solutions wholesale business to Amlin, generating gross cash proceeds of approximately $59 million. As discussed on our last call, this transaction is expected to be neutral to 2024 adjusted EPS and accretive to both 2024 organic growth and adjusted EBITDA margins. As I mentioned earlier, we ended the first quarter at less than 4.5 times net leverage, down more than a quarter turn from where we ended 2023. By year end, we anticipate having satisfied $130 million of aggregate earn-out obligations, while simultaneously bringing net leverage below four times, the high end of our stated long-term operating range.
Looking ahead, our full year 2024 guidance remains unchanged. We continue to expect revenue of $1.35 billion to $1.4 billion organic growth towards the upper end of our long-term range of 10% to 15%, adjusted EBITDA of $315 million to $330 million, and free cash flow from operations of $165 million to $195 million. For the second quarter of 2024, we expect revenue of $325 million to $335 million in organic revenue growth towards the high end of our 10% to 15% long-term range. We anticipate adjusted EBITDA between $69 million and $74 million and adjusted EPS of $0.3 to $0.34 per share. Of note, based on the expected timing of certain contingent commission revenues and prior year quarterly comparables, we expect the margin accretion implied in our full year guidance to be more heavily weighted towards the first and fourth quarters.
To sum it up, we are thrilled about the strong start to the year and the broad-based momentum we are seeing across all of our operating segments. We are immensely proud of our colleagues, as they continue to persevere through a challenging and uncertain insurance environment. Moreover, thank you to our clients for their trust and confidence in our ability to deliver differentiated advice and solutions. We will now take questions. Operator?
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