BWIN

Greetings, and welcome to The Baldwin Group first quarter 2026 earnings conference call. It is now my pleasure to introduce your host, Ms. Bonnie Bishop, Executive Director, Investor Relations. Thank you, Ms. Bishop. You may begin.

Thank you. Welcome to The Baldwin Group's first quarter 2026 earnings call. Today's call is being recorded. First 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, thank you for joining us to discuss our first quarter results reported earlier today. I'm joined by Brad Hale, Chief Financial Officer, and Bonnie Bishop, Executive Director of Investor Relations. We had a solid start to the year on the heels of closing our partnerships with CAC, Obie, and Capstone in the beginning of January. We delivered total revenue of $532 million, adjusted EBITDA of $137 million, adjusted EBITDA margin of 26%, and adjusted diluted earnings per share of $0.63. Overall, commission and fee organic revenue growth was 3%, and total organic revenue growth was 2%.

Adjusting to the impact of the QBE builder book transition, which we lapped on May 1, continued softness in our Medicare business due to the disruption in the Medicare marketplace, and the procedural change impacting the timing of revenue recognition in IAS, overall organic revenue growth would have been 5%. Layering in the impact of the 3 January partnerships as if they had been owned by Baldwin in both comparable periods, overall organic revenue growth would have been 9%. Collectively, those 3 partnerships grew 27% over Q1 of 2025, a truly remarkable start to the year. In Insurance Advisory Solutions, overall organic revenue growth was 4%, driven by sales velocity of 13% before layering in the results from CAC and Capstone, which compares to 14% in the prior year period.

As a reminder, sales velocity is seasonally lowest in the first quarter as a result of a bulk of our employee benefits renewals booking on 1/1. The impact of rate and exposure in the quarter was a 70 basis point headwind. Including both CAC and Capstone as if those businesses had been owned in the prior year period, organic growth would have been 10%. Combined sales velocity, including the acquired businesses, was 24%. We are incredibly enthused by the early contributions from CAC and Capstone, which delivered the strongest quarterly results in each of their respective histories. CAC generated new business of $38 million in the first quarter, up 39% compared to the same period in the prior year, and total revenue was $92 million, representing growth of 27% in relation to Q1 of 2025.

CAC sales velocity in the quarter was 61% across all product lines and 15% for recurring lines of business. Net growth of transaction-related product lines, which consists primarily of our transaction liability and certain project-specific construction lines of business, was 22%. Going forward, we will report sales velocity on an aggregate basis as well as broken out for recurring lines of business. Separately, we will call out net growth in transaction-related product lines. These transaction-related product lines have some variability quarter to quarter due to the variable nature and timing of transactions and project starts.

CAC's strong growth in the quarter was driven by strong new business across key specialty industry groups, strength in the private equity and transaction liability practices, which supported several marquee transactions at the nexus of the AI infrastructure build-out across the U.S. and globally, as well as strong momentum from cross-sell opportunities between the legacy Baldwin and CAC teams. Our integration work is running ahead of schedule. To date, over $34 million in cost synergies have been actioned, representing nearly 80% of the 3-year $43 million target we laid out on our last call. We expect these to materialize in the P&L throughout the balance of this year in 2027. On the revenue side, in the quarter, we realized $1 million of revenue synergies, and as of today, that number has grown to nearly $3 million, with over $10 million in client cross-sell opportunities being actively worked.

Four months in, we are tracking ahead of plan on every dimension of this powerful business combination. The industrial logic we saw is proving to pull through both more quickly and more significantly than we had anticipated. Moving to our Underwriting, Capacity and Technology Solutions segment, organic revenue growth was 3% in the quarter, with core commissions and fees growing by approximately 6%. Importantly, we recognized a large one-time contingent payment in our real estate investor program in the first quarter of 2025, normalizing for which UCTS organic growth would have been 9% for the quarter. The underlying momentum across the segment remains strong. Our multifamily business grew revenue 10% in the quarter, and Juniper Re grew over 90%, both reflecting the durable scale advantages of our proprietary capacity strategy. We did continue to see pressure in our E&S homeowners book.

The revenue was down roughly 30% in the quarter as we deliberately maintain underwriting discipline in a soft property environment. The transition of our builder book from QBE to BRIE, our inaugural reciprocal insurance exchange, remains on track. BRIE is now licensed in 7 states in position to begin migration of business outside Texas in the back half of the year. Our second proprietary builder program with Hippo and Spinnaker remains on track to launch later this year. Over time, we expect this to materially increase our capture rate of Westwood's builder business into proprietary MSI programs from approximately 30% today. Meaningful multi-year growth opportunity for our MGA and a meaningful expansion of vital insurance capacity for our builder partners and their homebuyer customers.

Our Mainstreet Insurance Solutions segment organic revenue growth was down 5% in quarter, driven primarily by continued year-over-year headwinds from the QBE commission rate reduction at Westwood and softness in our Medicare business. Normalizing for impacts of those two headwinds, overall organic revenue growth was 7%. We fully lapped the QBE impact on May 1 and expect organic growth in our MIS segment to begin ramping again from here. We're also seeing growing momentum in our embedded mortgage businesses, which went live in April with Fairway Independent Mortgage, a top 10 independent mortgage originator in the country. While Fairway has only been live on the platform for 1 month, the early signs are very encouraging. The 3V30 Catalyst program is now fully operational.

In the first quarter, we executed the first phase of role transformation with NIAS and remain on track to deliver $3 million-$5 million in year savings. You can find additional information in the 3V30 Catalyst slide in our earnings supplement. Let me address the question of AI directly because it is increasingly central to how we are running this business and how I expect us to outperform over time. We are leaning into AI with conviction. Over the past several quarters, we have been building our own proprietary AI orchestration layer, enables delivery of fully automated workflows. The early productivity gains from the tools we are deploying internally are running upwards of 80%. We are embedding AI directly into our operating platforms, including VIP, our proprietary operating system supporting the MGA.

We are using AI to elevate and enhance the work our colleagues do every day. Catalyst is the operational expression of this strategy. AI-enabled process redesign, role transformation, and an accelerated path to operating leverage. Said simply, AI is a meaningful tailwind for our business, and we are investing aggressively to capture it. On the question of disintermediation, our thesis is unchanged, and the underlying structural advantages have only strengthened. First, the clients we serve, middle market, upper middle market, and large organizations, have complex multi-location, multifaceted risks that require deep and specialty advisory solutions, human judgment, and a multitude of risk transfer counterparties and vehicles in order to thoughtfully and effectively manage and finance risk. The CAC combination further shifts our center of gravity upmarket away from the account segments most exposed to AI commoditization.

Second, our embedded distribution strategy places insurance at the point of major life and business transactions. In workflows, consumers are unlikely to bypass for a stand-alone insurance buying experience. Third, our UCTS business vertically integrates our platform across the entire value chain. Owning the client relationship, advising on complex risk issues, building proprietary insurance products, and arranging the third-party risk capital that stands behind them. We are the disruptor in this marketplace. The combination of human expertise and judgment, embedded distribution, proprietary product and risk capital formation, and AI-driven productivity is the right architecture for the AI era. As we enter 2026, we are pleased with our first quarter results and confident in our positioning to accelerate performance ratably through the year and beyond. The underlying momentum across our segments is strong.

The idiosyncratic headwinds we have discussed, QBE commission change we have now lapped, the Medicare market disruption, and the IAS revenue recognition procedural change will all be substantially behind us by the end of the second quarter. CAC is exceeding our expectations on both revenue and expense synergy execution. Our Catalyst program is delivering, and we are deploying AI across our platform with real and measurable productivity gains. Quite simply, our business was built for this era. We are leaning in to accelerate our impact and our results. That I want to extend our gratitude to our clients for their continued trust in us to provide strategic guidance, expert insights, and innovative solutions. I want to thank our nearly 5,000 colleagues for their dedication to helping our clients protect what is possible. Now I will turn it over to Brad, who will detail our financial results.

Thanks, Trevor, and good afternoon, everyone. For the first quarter, we generated organic revenue growth of 2% and total revenue of $532.2 million. Looking at the segment level, organic revenue growth was up 4% in IAS, up 3% in UCTS, and down 5% in MIS. Adjusted for the three transitory items Trevor walked through, underlying organic revenue growth would have been 5%. We recorded GAAP net loss for the first quarter of $1.9 million, or GAAP diluted earnings per share of $0.02. Adjusted net income for the first quarter, which excludes share-based compensation, amortization, and other one-time expenses, was $89.3 million or $0.63 per fully diluted share.

A table reconciling GAAP net income attributable to Baldwin to adjusted net income can be found in our earnings release and our Form 10-Q filed with the SEC. Adjusted EBITDA for the first quarter was up 21% at $137.2 million compared to $113.8 million in the prior year period. Adjusted EBITDA margin declined approximately 170 basis points year-over-year to 25.8% for the quarter, compared to 27.5% in the prior year period. The approximately 170 basis point margin decline is fully explained by two items. First, the consolidation of CAC, which has different margin seasonality due to timing and mix of revenues, and second, the UCTS profit-sharing contract Trevor Baldwin mentioned.

Adjusted free cash flow for the first quarter was roughly flat compared to $26 million in Q1 2025. The decrease was driven by working capital timing, which resulted in a $60 million use of cash. More than half of the working capital headwind was from CAC, given a material payout of approximately $40 million in previously accrued cash bonuses and commissions, which Baldwin assumed in the opening balance sheet. As mentioned on the year-end call, we would expect CAC's free cash flow conversion in the year to be better than legacy Baldwin's rate. As such, we expect the timing headwind to reverse in quarters 2 through 4.

It is important to remember that Q1 is expected to be our lowest quarter of free cash flow conversion, given the payout of bonuses as well as the substantial receivables that are built in our employee benefits business, the majority of which renew in January with payment monthly throughout the balance of the year. This was somewhat exacerbated in Q1 2026 because of approximately $15 million of CAC transaction costs, representing a material increase in one-time cash outlay. Our full-year cash flow trajectory remains on track for double-digit growth in 2026. We ended the quarter with net leverage at approximately 4.3 times as we deployed approximately $50 million of our $250 million buyback authorization to repurchase 2.2 million shares.

We will remain prudent in our share repurchase program as we assess overall market conditions and act on market dislocation opportunities relative to other capital allocation alternatives to drive shareholder returns. The January 2026 partnerships with CAC and OBI generated a significant net deferred tax liability, which resulted in a benefit to income tax expense in Q1 of approximately $145 million from the reversal of the majority of our valuation allowance. As an offset to this benefit, we recorded an above-the-line operating expense to establish a liability associated with our tax receivable agreement of approximately $130 million.

Note that the impact of each of these one-time transactions has been removed from adjusted EBITDA and adjusted EPS. We would expect income tax expense/benefit for the balance of 2026 to be minimal, and changes to the TRA liability will largely flow through the balance sheet going forward, with minimal further expected impact on the P&L. There will be no change to the manner in which we calculate the tax impact to adjusted net income in 2026. Looking ahead, our full year consolidated guidance remains unchanged. Despite the challenging market backdrop, we remain confident in our ability to accelerate our total organic growth throughout the year. For the second quarter, we expect revenue of $485 million to $495 million and organic revenue growth in the mid-single digits.

We anticipate adjusted EBITDA between $113 million and $118 million, and adjusted diluted EPS of $0.44 to $0.48 per share. In summary, we are pleased with the quarter, encouraged by the strong contribution from our recent partnerships across both cost savings and revenue synergies, and by the early operational impact of our 3B30 Catalyst program. Organic growth momentum is building, we continue to expect a clear inflection in our financial results in the back half of 2026 as we fully lap the idiosyncratic headwinds of the past year. We remain focused on accelerating execution across our platform, fully integrating our recent partnerships into Baldwin and leveraging new and innovative technology and AI solutions to enhance our client impact and long-term shareholder value creation. We will now take questions. Operator.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. The first question comes from the line of Gregory Peters with Raymond James. Please go ahead.

Well, good afternoon, everyone. For my first question, I'd like to focus on the organic revenue results and then briefly the comments you made about the revenue growth at CAC. I guess one area that caught me by surprise was the result in the UCTS line, which I think you called out there's a one-time item in there. Even on a pro forma basis, it seems like it's tracking lower than I might have envisioned for the year. Maybe you could provide some color there. Just related to your comments around growth, if you could go back and more slowly go through what seems to be some pretty positive indications of growth coming out of CAC, that'd be helpful.

Yeah. Hey, Greg, this is Trevor. Appreciate the question. Let's start with UCTS. I did mention, you know, there was a large one-time contingent item in the prior year period. Normalizing for that, you're looking at 9% organic in the quarter for UCTS. Kind of broadly, what I would say is, we continue to have very strong underlying momentum in the UCTS segment. You know, our multifamily portfolio grew double digits in the quarter. Juniper Re continues to have very strong momentum with growth of over 90%. You know, as kind of broader evidence for that underlying momentum that we're seeing, we do expect organic growth to recover to high single digits for UCTS in Q2 and back into the teens in the back half of the year.

In particular, we're seeing, you know, continued headwinds in our E&S home portfolio as a result of the soft market dynamics. You know, as we push through Q1, you know, the impacts of that in the prior year were already fairly material and so should have less of an impact. Specifically, our E&S home portfolio was down 30% in Q1. We expect it to be down, you know, call it high single digits for the full year, which should give you a sense of some of the recovery that we expect there over the balance of the year. The very high level is the underlying momentum at UCTS continues to be quite strong.

It's a double-digit growth business, combination of a one-time item and kind of an acute prior year period impact from the soft dynamics in E&S home, which normalize through the balance of the year. Now moving on to CAC, when, you know, when we announced that partnership, we did it with a ton of conviction at a time when we realized that it was gonna be a large and unexpected partnership. You know, we had the conviction to do that because of the wisdom that we saw in the industrial logic of the combination, the quality of the people, the scarcity value of the capability set, and how that enables us to continue to grow and strengthen the impact that we can deliver for our clients.

I think specifically I made mention of the CAC team as a Ferrari, we're gonna put them on the track and let them run, they have come out of the gate quite fast. We expected the results to be strong, to be clear, the strength of the results I think even have pleasantly surprised us both in the speed at which they have pulled through and the scale and the size of the momentum and the opportunities that we're seeing worked. You know, that goes across every dimension of the partnership, whether it's the expense synergies that we had identified of approximately $43 million. We've already actioned over $34 million of that well ahead of plan on the revenue synergy side.

What is, you know, typically a fairly long sales cycle, already $1 million of revenue realized in the 1st quarter, and as of today, nearly $3 million, with more than $10 million of active cross-sell opportunities being worked by the combined teams. You know, real strength, you know, not in any one pocket of the CAC business, but just broadly, whether it's the industry practice groups, their legacy middle market business, or their transaction liability group, which has, you know, not only had really growing momentum as they take share in the market, but I think that has strengthened as you've combined them with the legacy Baldwin teams who've been able to leverage those capabilities to drive even more significant impact for our existing clients. It's all incredibly positive.

Great. I think I have to pivot for my follow-up question to the Catalyst Program slide you put in your slide deck. You know, you talk about this initiative in the context of the 3B30, I assume getting to the 30% margin target. Can you walk us through, you know, these run rate annualized savings and the positive payback? Does that get us to that 30% run rate that you're thinking about? Is there some more levers you have to pull that are gonna help you get, you know, get you to your objective?

Yeah. I think this on a standalone basis, Greg, doesn't fully get there, but just regular way operating leverage that's in the business in combination with the Catalyst Program does. You know, as I mentioned in my prepared remarks, the program's live, it's on track, and the early results are quite positive. You may have seen earlier this morning a press release around our expanded partnership with Anthropic's Claude on an enterprise basis, as well as my mention in the prepared remarks around the work we've been doing over the past several quarters to build out our own proprietary orchestration layer, you know, driving real kind of productivity and efficiency into the operations of our business. The early signs are quite positive. I can give you know, a more recent example.

In fact, our product team at MGA recently came together in an effort to build and launch an admitted insurance product, a new product for us. I'd say historically, you know, creating an admitted product requires a series of competitive analyses, rate and product feature determination, and filing creation tasks. It's a process that's historically taken months, you know, 3 on average, and historically requires quite a bit of manual manipulation of documents and data. The product management team leveraged Claude on top of our proprietary data across each phase of the process and significantly compressed the timeline from what would have been months to 3 days.

As you think about how that translates into the velocity of new products that we can bring to market, you know, whether that's the new builder products we expect to come later this year, a mortgage product we're working on, or a manufactured home program we're working on for a number of our property management software clients, the impact will be real and significant. We're quite excited, for what we're seeing there.

Yeah, Greg, I would just add, it's the combination of the Catalyst program, and then as you're aware, we've made some meaningful investments in the business, such as mortgage embedded, in addition to the products that Trevor just highlighted. The maturity of those businesses is also a meaningful driver of that margin expansion towards the 3B30 goal.

Yeah, that makes sense. Thanks for the detail.

Thanks, Greg.

Thank you. Next question comes from the line of Tommy McJoynt with KBW. Please go ahead.

Hey, good evening. You sounded pretty optimistic about the early signs of success around cross-sell with CAC Group. Could you give some examples of where you guys are actually, you know, seeing success there? Is it finding new solutions? Is it taking market share from other brokers? Just maybe elaborate on that point.

Yeah. I'd say it's all of those things, Tommy, and it's going both ways. I can give you know, 2 quick examples off the top of my head. You know, the CAC team has deep industry capabilities across natural resources, across private equity, real estate, and, you know, we've historically had very deep capabilities across construction. 1 of the CAC colleagues brought forth early in the year an opportunity for a large general contractor prospect that historically, they probably wouldn't have pursued because they didn't feel like they had all the right capabilities to really, you know, serve them at the level that CAC looks to serve their clients.

Because of the combination with our platform, they were able to bring in some of our construction professionals and, you know, through an RFP process, we won that client. The incumbent was, you know, a, you know, a top five global broker. Our competition was, you know, both the global broker community as well as the large nationals. You know, it was a standout win and something that, you know, brought a ton of energy and momentum to the team as they saw some of the kind of reverse opportunities that could exist. Similarly, you know, we have at Legacy Baldwin some professionals with deep expertise and strong relationships across private equity and in the M&A universe.

CAC has an incredibly deep bench of talent here, not only on the product side around transaction solutions, but also, you know, broadly across portfolio solutions. The Legacy Baldwin team, you know, had a client that was, you know, entered into a complex cross-border international M&A transaction. You know, I can't get into a ton of detail because of NDAs, but I can just tell you this was a highly complex transaction. The CAC team was able to step in, deliver a set of solutions that helped facilitate a seamless signing of that transaction. It's a, you know, significant six-figure revenue opportunity for an existing client of Baldwin that, you know, otherwise likely would have gone to, you know, one of our global broker competitors. You know, a couple of really exciting opportunities.

The pipeline is quite robust, both, you know, across construction, energy, data center and power generation, as well as kind of broad-based, large upmarket complex opportunities. The momentum continues to build.

Thanks. Just switching gears quickly to one of the headwind one-timers that you've been calling out, the Medicare side. Can you remind us, is the cadence or the seasonality there such that the fourth quarter of 2026 that headwind should abate, or is that more of a 2027 when it loses?

We expect that headwind to largely resolve itself beginning next quarter. While we're not expecting kind of a miraculous turnaround in results, we don't anticipate a meaningful headwind going forward there.

Thanks.

Thank you. Next question comes from the line of Charlie Lederer with BMO Capital Markets. Please go ahead.

Hey, thanks. I just want to go back to UCTS for a second. I know you called out the headwind, you also had a fairly nice tailwind in the earned premium line there. I guess if I exclude that, you know, you were down a little bit more in UCTS. Was that all E&S home and the real estate product? I guess what's gonna drive the improvement over the course of the rest of the year? Thanks.

Yeah. Hey, Charlie Lederer. That's right. We did benefit from continued growth in the multifamily, earned premium in the captive, which we really just view as kind of incremental economics on a high-performing overall program. With that being said, the headwind was, you know, almost entirely the one-time contingent as well as the headwinds in the E&S business. We do expect momentum to pick up across kind of most, if not all, of our product sets over the balance of the year, as evidenced by our confidence in high single-digit OG in Q2 and, you know, returning the team's OG in the back half of the year.

Momentum there is strong and, you know, you've got the nuances of, you know, a lapsed quarter both from kind of where the E&S book stood in the prior year as well as that one-time contingent.

Got it. Thanks. Maybe just on the buybacks. Can you talk about, you know, how motivated you feel now to still buy back shares or, you know, now that the stock is, you know, closer at to peers, maybe it's less of a priority. Thanks.

Yeah. It's, it's Brad. I would say our capital allocation priorities remain intact, right? We've, we've repeated them in the past, but number one, organic investments, two, M&A, followed by buybacks and then dividends or debt paydown. As I spoke with you guys sort of mid-quarter, you know, we're not an indiscriminate buyer. We are thoughtful about the price as we're deploying that capital, but continue to target the best risk-weighted return alternative. To the extent we see dislocation in the price, we'll continue to be active.

Charlie, I mean, put differently, we can continue even at these prices to buy in our own shares at a meaningful discount to what smaller, lower quality private agencies trade for today. We continue to find our stock price attractive.

Thank you.

Thank you. Next question comes from the line of Elyse Greenspan with Wells Fargo. Please go ahead.

Hi. Thanks. I guess my first question will continue there on the buybacks. You guys didn't raise the EPS guide for the year, but you obviously bought back in the Q1, and it sounds like Trevor, right? Based on what you just said, you're open to continuing to buy back your shares. How come you're not raising the EPS guide or is it just the guidance is assuming no additional buyback over the remaining three quarters?

Yeah. Elyse, you know, we're not gonna assume how stock price performance is going forward. To the extent we have the opportunity to buy back shares at an attractive price, that could create some upside. To the extent we don't, that's 'cause we've seen some recovery and kind of trading dynamics.

Thanks. My second question, you know, you guys provided, right, some figures on, you know, on CAC where you know, were insinuating, you know, highlighting good, you know, pretty strong new business growth and revenue growth in the first quarter. On the three deals, right, the revenue and EBITDA contributions that you expect for 2026 haven't changed. It sounds like things are running ahead of expectations, so you're just waiting to update that or is it that, you know, some are running ahead and some are running below plan, relative to the guidance, you've reaffirmed this quarter?

Elyse, I'd say broadly the, you know, 3 partnership businesses are running ahead of plan, but we're 1 quarter in, so it's probably a little early for us to fully extrapolate that. You know, as I mentioned in my prepared remarks, you know, the momentum at CAC is incredibly strong. Some of that momentum's in kind of the transaction liability solutions, where there can be some variability quarter-to-quarter, year-to-year. You know, the pipeline in that part of the business is, you know, frankly at an all-time high, and we continue to take shares, so we feel good about the momentum, but feel like it's a little early in the year to, you know, fully extrapolate that forward into full year expectations.

My last one, just on market impact, I guess. What are you seeing, just from a overall pricing perspective in, like, the property market? We've, you know, heard about some pretty aggressive price declines in that business and how, you know, what are you betting in there, I guess, when we think about, you know, your business over the next 3 quarters?

Yeah. The property market is deeply soft, Elyse. I'd say we're seeing pricing levels that have returned to, call it, circa 2017. You know, for large, shared and layered coastal placements, you know, we're seeing rate decreases, you know, at times at 30%-40%. Frankly, at times things that probably don't make a whole lot of long-term sense, but we're happy to go secure those types of results for our clients who certainly enjoy them. Specific to how we've incorporated that into our expectations, I'd say, you know, we do expect to see a more significant rate and exposure headwind in the second quarter, which is the heaviest quarter for property renewals in the year.

We saw, call it, 70 basis points of headwind in Q1, I expect that to be 400-500 basis points of rate and exposure headwind in Q2. As a result, we do expect our legacy IAS segment to be, call it, roughly flat from an organic standpoint in the second quarter before returning to mid to high single digit OG in the back half of the year as we fully lap the procedural accounting change headwinds. I do think that we'll see, based on what we're staring at today, rate and exposure headwinds in the back half of the year, you know, pretty close to flat. Maybe it's a slight headwind in Q3 and a slight headwind or a tailwind in Q4.

Overall, you know, with the expectation that's of kind of heightened headwinds in Q2, we would expect rate and exposure broadly for the year to be probably 100 to 200 basis points of headwind. All that's fully incorporated into the expectations that we've shared already.

Thank you.

Thank you. Next question comes from the line of Andrew Kligerman with TD Cowen. Please go ahead.

Hey, thanks a lot. Good evening. I want to follow up on the IAS organic growth. You had 4 points in the quarter of organic, and then CAC, if it were normalized, contributed 4 to the overall book. You're looking at if it were just IAS and CAC had been there for over 1 year, you're looking at, I think, you know, well into the double digits, which is fabulous. Your follow-up point was the transaction liability is huge, and that can be a little bit volatile. As I think, you know, and I'm not asking for explicit guidance, but typically when you do an acquisition, you get a good year 1, and you get a similar organic in year 2.

Maybe extracting out the volatility of transaction liability, all else equal, you'd probably be looking at high single into double digits potentially next year once you kinda get a full year on board. Am I thinking about it right with regard to IAS?

Hey, Andrew Kligerman. At a high level, yes, it's a double-digit organic growth business inclusive of CAC and Capstone results, which really frankly a standout outcome in today's market backdrop. Specific to 2027, I think it's definitely a bit early for us to begin opining on how we think about organic growth, you know, to next year. You know, however, what I would say is everything we're seeing from an underlying trends and data set standpoint is very positive. Pipelines are building, cross-sell opportunities are growing. We do expect in the back half of the year legacy IAS organic, you know, to rerate back up into the mid-to-high single digits. And as we look at the momentum for CAC and their historical seasonality, and what their pipelines look like, you know, it's incredibly strong.

Again, early for us to opine on 2027, but, you know, as we sit here with our crystal ball looking into kind of later this year, and frankly even reflecting on the quarter that we're discussing right now, incredibly proud of the results. You know, they are, relative to our peers, a complete standout in the quarter, inclusive of CAC and Capstone, and reflect not only the wisdom of this business combination, but the combined strengths of the organization and how the breadth and depth of capabilities across industry, across product segments enable us to broadly solve our clients' challenges and deliver the most positively meaningful impact for them to help solve their risk issues and protect what's possible and ultimately grow their enterprises. Feeling really good about the momentum.

That's excellent. Following up on kind of capital management, again, correct me if I'm wrong, but it sounds like, I think you answered that. I just want to make sure I heard it right. The intrinsic value of the stock is still attractive here. I just want to make sure I'm right on that. With respect to your leverage, which kind of inched up to 4.3 times, I think part of that is the buyback, which is great in my view. It inched up. I'd like to know where you kind of see leverage playing out toward the end of the year. Do you get to that 3-4 times, or what do you think?

You know, the stock is so attractive that you're willing to kinda let it hover around where it is.

Yeah. We'd continue to expect it to sort of hover in this 4 to 4.5 times range over the intermediate term, particularly as we continue to execute on the buyback program. Of course, as I said before, we're not, you know, price indiscriminate, that story can change, but that would be our current view. Look, we continue to believe that just mechanically deleveraging, you know, 6 months earlier, while our equity trades at this material discount is quite frankly a destruction of shareholder value, not a creation of it. You know, we're comfortable at this spot, particularly if we can, you know, take advantage of market dislocation.

Then just one last quick one. You know, I think you alluded to this before. It doesn't seem like there's any M&As of major size anytime on the kind of near intermediate term horizon, and hence that leverage ratio can hold in the 4.5 zone. Is that the right way to think about it?

Yeah, I think it is, Andrew. The reason for that is it's really difficult for us to find a financially prudent way to structure a deal that makes good financial sense based on where our equity trades today. That plus where leverage sits creates a bit of a hurdle. You know, I think what you've seen certainly as we disclose the results of kind of all 3 former classes of partnerships from the 2020, 2021, and 2022 cohorts at the end of last year is, you know, frankly, I think we've been able to allocate capital to M&A in a way that's created a lot of value for shareholders intrinsically.

You know, while we're very early days, we appear to be off to what feels like a great start with the 2026 class of partnerships. In the confines of kind of our financial leverage policy and objectives to delever over time and subject to, you know, us having a currency that ultimately supports M&A in accretive fashion, we think it's a very good use of capital over time. The circumstances of the here and now, dictate, I'd say, a more narrow set of priorities.

Super helpful. Thank you.

Thank you. Next question comes from the line of Pablo Singzon, J.P. Morgan. Please go ahead.

Hi. Thank you. First, can you unpack what's going on with the E&S Homeowners business? I guess I'm just a bit surprised there. I know it's not the first time you mentioned it, but, you know, it just seems like given what other companies are reporting, pricing and homeowners is not experiencing the same pressure as in personal auto. I'm just wondering, are you dealing with a different set of competitors in that business and that's why you're a little more cautious?

I'd say maybe that's homeowners broadly across kind of admitted in E&S products. You know, E&S Home specifically, we've seen rate come in 40%-50%+. You know, I'd say, you know, we went from 18 months ago writing $13 million-$14 million of new premium a month to over the past 12 months, averaging $2 million-$3 million. What I will say is, as we've continued to tweak our product, we're also in the process of rolling out multiple new E&S Home product variants to better compete in certain pockets of the market that we continue to find attractive. We do expect our new business flow to or success to go up.

We actually saw reflected in March, which had over $4 million of new E&S Home premium booked, which is the highest new business month we've seen in the past 12 months. Now that's 1 month. It's not a trend, we feel like we hit the bottom in Q1, and that you will see us continue to march that back up, both through tweaks to product design and pricing in a prudent manner, as well as the rollout of incremental E&S Home product variants to compete in corners of the market that we continue to find attractive to resume growth.

Thanks, Trevor. Then for my second question, I was wondering if you could talk about the Construction Risk Partners business you had acquired some time ago. I think it's a decent sized portion of IAS, and other brokers have spoken about activity related data center construction and the like. I'm curious if you're getting some benefit from that economic activity today. Thanks.

Yeah. The CRP team, you know, the Baldwin Construction practice, which reflects, you know, the historical Construction Risk Partners business, is the largest and strongest pipeline in the history of our construction business. That's both a combination of an influx of new cross-sell opportunities from our new colleagues and partners at CAC, as well as just a breadth of opportunities at the nexus of the data center and AI infrastructure build-out. What I will say, though, is if you look at the construction market, it's kind of a tale of two cities. Overall expectations for construction spend this year are roughly flat year-over-year, if not modestly down. However, that's being buoyed by significant spending in the data center arena, offset by slowdowns in non-data center AI infrastructure areas of historical construction activity.

What that means is that ultimately we expect those results to be lumpier because the data center opportunities are fewer but larger in scale. We both have some of those wins under our belt as well as multiple kind of very large, multi-billion dollar opportunities in the near to intermediate term pipeline and feel good about how we're positioned to take, you know, frankly, more than our fair share of those wins.

Thank you.

Thank you. Next question comes from the line of Joshua Shanker, Bank of America. Please go ahead.

Yeah, good evening, everybody. I want to point out that 90% growth in Juniper Re and 27% growth in the new partnerships like CAC, it's staggering numbers. It also implies a great deal of contraction about the legacy businesses that are older in the portfolio. If someone wanted to make the argument that Baldwin has bought growth but not long-term runners and is once again buying growth, what's the pushback on that thesis to kind of the stuff you bought before CAC and Juniper Re is now growing more slowly?

Yeah, I mean, the pushback is in the numbers and the expectations that we've already shared, Josh. I think the headwinds have been well discussed. You know, the idiosyncratic drivers from Medicare to the IAS procedural accounting change to the QBE book roll transition to our reciprocal exchange and normalizing, for all three of those, you know, you've got a mid-single-digit growth business in the quarter, and you've got a business that we expect to grow organically, you know, at double-digit rates exiting this year before the impact of the 3 partnerships this year that grew at 27% in the quarter.

While, you know, all businesses have ebbs and flows, and the market impacts here are real, as have been, I'd say, broadly discussed, not only with us but, you know, the industry writ large, I think we're relatively uniquely positioned against our peers to be sitting here talking about a business that's gonna, you know, accelerate to high single-digit and then ultimately double-digit growth by the fourth quarter, despite, you know, no expectation for market headwinds to kind of meaningfully abate.

You still believe if the insurance distribution industry at year-end is growing at mid to low single digits, Baldwin will still be growing at high single digits edging towards double digits?

That's correct.

Okay. Well, I wish you the best of luck there then. Very good.

Thanks, Josh.

Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to hand the floor over to Trevor Baldwin, CEO, for closing comments.

Thank you all for joining us this evening. As I noted at the open, we are pleased with our first quarter and confident in our trajectory through the balance of the year. The momentum here is real. Our embedded distribution, our advisory businesses across our MGA platform as evidenced in the integration of our partnerships. It's the direct result of the work our colleagues are putting in every day. I wanna thank our colleagues for how they show up in support of our clients, one another, and for the firm we are building together. To our clients and insurance company partners, thank you for your continued trust. To our shareholders, thank you for your engagement and support as we continue to deliver against our Catalyst 3B30 goals and objectives. We look forward to speaking with you again next quarter.

Thank you. This concludes our today's teleconference. You may disconnect your lines at this time. Thank you for your participation.