Greetings, and welcome to the BRP Group, Inc. First Quarter 2023 Earnings Call. It is now my pleasure to introduce your host, Bonnie Bishop, Executive Director of Investor Relations. Please go ahead, ma'am.

Thank you, operator. Welcome to the BRP Group's First Quarter of 2023 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.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 forward-looking statements in the company's earnings release and to our most recent Form 10-Q, 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 on 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.baldwinriskpartners.com. Also, I would like to remind everyone that effective January 1, 2023, and as reflected in our reporting for the quarter, BRP now operates with 3 segments versus the 4 we have reported on historically, as our legacy Medicare segment was merged into Mainstreet Insurance Solutions. Additionally, our legacy Middle Market segment has been rebranded to Insurance Advisory Solutions, and our legacy Specialty segment has been rebranded to Underwriting, Capacity & Technology Solutions. I will now turn the call over to Trevor Baldwin, Chief Executive Officer of BRP Group.

Thanks, Bonnie. Good afternoon, everyone, and thank you for joining our first quarter earnings call. I will start with a few remarks, followed by Brad who will address select financial and business highlights from the quarter, then Brad, Chris and I will answer questions. We had a strong start to the year, highlighted by organic growth of 23%, building on 16% organic growth in the first quarter of 2022 and representing the highest first quarter organic growth since our IPO, driven by outstanding performance across our business. We achieved total revenue growth of 36% year-over-year, showcasing the continued strong client demand for our advice and solutions across the platform. Adjusted EBITDA was $79 million, in line with our expectations. Insurance Advisory Solutions, formerly Middle Market, had strong organic growth of 14%, benefiting from robust new business and rate and exposure lift that exceeded expectations. Underwriting, Capacity & Technology Solutions, formerly our Specialty segment, grew 56%, and our MGA of the Future platform again performed exceptionally well. Standouts included outstanding growth in our multifamily product suite, continued acceleration in the build-out of our homeowners business and outsized growth from our habitational focused commercial umbrella program that joined MSI via our 2021 partnership with JGS that now fully flows through organic growth. And Mainstreet Insurance Solutions, we saw organic growth of 20% in the first quarter. Additionally, Westwood, which joined in May of 2022 as the largest acquisition in the history of BRP, continues to perform exceptionally well despite headwinds in the U.S. residential real estate market. Through the end of April, which represents their first full year with BRP, Westwood generated approximately $112 million of annualized gross revenue, up 36% from the $82 million run rate that we underwrote at the time of the closing last year. Year 1 of the Westwood partnership has been a significant success and is a testament to the strength of the franchise Alan and his team have built. We believe the Westwood team has a very bright future ahead. Over the past 3 years, we've invested heavily in building capabilities that will power long-term organic growth and free cash flow generation. These investments included the addition of many talented colleagues and a significant technology build-out to position us for a more digital and tech-enabled future. To frame the significance of the scale of these investments, we more than doubled the size of our colleague base over the past 2 years, adding approximately 1,000 net new colleagues per year. As I shared during our call in February, we have concluded this major reinvestment cycle in our business and shortly, we'll have fully absorbed the run rate payroll from prior year headcount growth. While we are just beginning to see the benefits of these investments in our organic growth, we expect to begin seeing these investments earning into our margin and earnings profile this year and believe that the structural advantages these investments have enabled will yield sustainable revenue growth and operational efficiency over the long term. To give you a sense for the more normalized rate of growth in headcount necessary to sustain our top line growth momentum through the first 4 months of 2023, we added a net total of approximately 40 new colleagues, which represents a rate that we believe is sufficient to support our current top line growth trajectory for the next 18 to 24 months. Additionally, we continue to remain opportunistic with respect to the M&A marketplace but reaffirm that we do not currently expect to execute any material partnerships in 2023 as we remain committed to deleveraging and continue to expect the market to soften over the balance of 2023, a trend we are starting to see. Price transparency takes time, and it is our current belief that if we are patient, we will see a better environment into which we can put shareholder capital to work. In summary, we once again delivered high organic growth, a direct result of the value our colleagues continued to deliver clients day in and day out. Despite stress in certain areas of the insurance marketplace, our diversified and resilient business model continues to allow us to execute for all our stakeholders. I'd like to thank our clients for their trust and confidence, and our colleagues who are tirelessly driving the positive client outcomes that result in our strong performance. With that, Brad will detail our financial results.

Thanks, Trevor, and good afternoon, everyone. For the first quarter, we generated revenue growth of 36% to $330 million. We generated organic growth in the first quarter of 23%, with all 3 reporting segments generating double-digit organic growth in the quarter. In Q1, we paid down the revolver by $20 million. Looking through the balance of the year, we expect the combination of our organic growth and continued free cash flow generation will reduce leverage to 4.5x or less back within our stated long-term range. We recorded a GAAP net loss for the first quarter of $25.9 million or $0.24 per fully diluted share. Adjusted net income for the first quarter of 2023, which excludes share-based compensation, amortization and other one-time expenses, was $49.2 million or $0.42 per fully diluted share. A table reconciling GAAP net loss 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 8% to $79 million compared to $73 million in the prior year period. Adjusted EBITDA margin was 24% for the quarter compared to 30% in the prior year period. This margin decline was due to the change of seasonality in our business and recognizing a significant proportion of the approximately $46 million of incremental annualized payroll expense from prior year headcount growth that had not yet been fully absorbed. The changes in seasonality are primarily due to the Westwood partnership as well as large partnerships closed in the fourth quarter of 2021 that have resulted in adjusted EBITDA margin that is now approximately 6 points lower in Q1, in which we expect to be higher for the remaining quarters, resulting in full year margin expansion. For the full year 2023, we now expect organic growth in the mid-teens, higher than our previous guidance of the high end of 10% to 15% and which, based on the performance we are seeing across our business year-to-date, includes an expectation for mid-teens organic growth in Q2. Additionally, we now expect full year revenue of $1.16 billion to $1.19 billion, higher than the previously stated range of $1.14 billion to $1.17 billion, and we are raising our adjusted EBITDA expectations to $255 million to $265 million, up from $250 million to $260 million stated previously. For the second quarter of 2023, we expect adjusted EBITDA to be between $55 million to $60 million, an adjusted EPS of $0.27 to $0.29 per share. These expectations reflect strong growth despite our anticipation of a continued challenging macro backdrop, which includes the potential for ongoing dislocation in the banking system and potential for pullback in credit from impacted institutions as well as higher interest rates relative to recent years. Despite these headwinds, we delivered record first quarter 2023 results, which reinforce our confidence that the investments of the last few years will drive operating leverage, revenue growth and durable cash flow for years to come. We will now take questions. Operator?

The first question we have is from Meyer Shields from KBW.

Trevor, if I could start, you talked about expectations of continued softening. I was hoping you could flesh that out a little bit because while some of that seems to be manifesting, there are also sort of widespread expectations of a reaccelerating hard market in property. I was looking if you could break down what you're seeing right now in that context.

Yes. So the softening was a comment specific to pricing in the M&A marketplace relative to valuation. What I would say about that is that while headline multiples being paid have not really come down meaningfully, what we have seen is that pro forma EBITDA margin that deals are transacting off of has compressed approximately 300 basis points based on the data that we've seen. So while not a headline multiple compression, that is a reduction in price. Regarding insurance pricing, there are some limited pockets of softening in our public D&O and workers' compensation lines, but broadly speaking, the property insurance marketplace is the most challenging our professionals have seen in their career. Insurance lines, generally, are all seeing positive pricing pressure.

Okay. On that last note though, I was hoping you could talk a little bit about the potential for market share gains because of the complexity of the property market. I hear that concept a lot, and I was hoping that you could talk about what's actually going on in the marketplace.

Yes. This is exactly the type of market where we do exceptionally well. Complexity and challenges in the market lend themselves to the benefit of larger, more sophisticated platforms. The depth and breadth of our talent and the sophistication of the tools and resources that we can bring to bear on behalf of our clients make a bigger difference today than they would in a more benign market. That's showing through in our results. The headline organic growth of 23% is up meaningfully year-over-year. When I break down the underlying components of that organic growth, it becomes an even better story. We view there to be four drivers to organic growth. The first and most important is new business—how many new clients you win and the market share you take. When you look at the building blocks of our organic growth of 23.4%, 21.4 points of that 23 came from winning new clients. So the vast majority of our organic growth is being driven by net new client logos, and that's up from 16.4% in the prior year period. Persistency continues to be strong and in line year-over-year, the impact from growth in contingents is relatively nominal, and the impact from rate and exposure was plus 4.1%, up nominally from 4.0% in the prior year period. So I think it's a good story and speaks to the type of market where we can really take share.

The next question we have is from Elyse Greenspan from Wells Fargo.

My first question: Trevor, you mentioned you hired 40 new colleagues to support your growth over the next 18 to 24 months. Does that mean that you don't expect incremental hiring from here because the comment meant to imply that you front-loaded the hiring given the growth that you see in front of you?

Let me parse that. Through April, we've hired net 40 colleagues into the business. That is a good run-rate expectation of the ongoing hiring need of the business in order to support the continued high level of organic growth. By contrast, we are not hiring the net 1,000-plus colleagues a year that we have been for the past 2.5 years. We went through a three-year period of significant reinvestment in talent and technology, building the platform for the future. Our platform is built, our infrastructure is ready. We've been building the solutions, the product sets, the capabilities and the intelligent automations throughout our go-to-market and business processes, and we're ready to scale effectively and efficiently from here.

That's helpful. You gave mid-teens organic growth guidance for the second quarter. Can you give us a sense of what's embedded within that guide for your three segments?

We don't provide guidance at the segment level, Elyse, but what's implicit in that guide is continued high-level performance across all three of our segments. Baked into that guide is the expectation of the continued challenging macro backdrop—the dynamics relative to the banking industry, credit capacity drying up, and interest rates having moved 500 basis points over the past year. There are known impacts and some unknown impacts. Largely, our clients are still performing well. There are pockets of softness in a couple of industry sectors, but all of that's built into the expectations we set for the balance of the year. I think that speaks to the resiliency of this industry and how well positioned our platform is to take share and continue to add value for our clients.

You mentioned you paid down the revolver by $20 million in the quarter. Brad, you usually give a sense of where interest expense should trend at current rates. Do you have a sense—do you want to set expectations there?

Yes. There's been a slight tick up in the rate environment since our last call. At current base rates, we would project net cash interest expense of approximately $105 million to $110 million.

The next question we have is from Adam Klauber from William Blair. Elyse Greenspan, analyst, asked: You mentioned you paid down the revolver by $20 million in the quarter. Brad, you usually give a sense of where interest expense should trend at current rates. Do you have a sense—do you want to set expectations there? Bradford Hale, Chief Financial Officer, answered: Yes. There's been a slight tick up in the rate environment since our last call. At current base rates, we would project net cash interest expense of approximately $105 million to $110 million.

Sorry if you mentioned earlier, but could you discuss how Westwood is going, given it seems like housing and new housing is coming back? If you could give an indication if you haven't, sorry if I missed it.

As I mentioned earlier, through April, Westwood generated approximately $112 million of gross revenue, up about 37% from what we underwrote when we closed that transaction a year ago. Exceptional performance from Alan and the team. We feel really good about how we're positioned and our ability to continue to deliver double-digit growth for the balance of the year. While new home closings are down slightly, our new policies sold are up mid-single digits, largely as a result of an increase in our attachment rate to the new homes sold through our builder partners, as well as new business premium, which is up mid-single digits for that same reason and due to rates being taken in the book. We feel well positioned based on lead flow and would expect the business to continue to perform very strongly through the balance of the year. It speaks to the resilience of our industry, the Westwood platform specifically, and the value they're able to add at the point of transaction, as represented in the increased attachment rates we're seeing to those new homes sold.

You mentioned rates are up in homeowners. Is there a tailwind on the renewal book? Even a ballpark, how much is that helping on the increased premium rates on the renewal book?

There's no doubt it's helping. We're seeing policy-level persistency in the mid- to high-80s. Then we're seeing a low-teens rate impact on the book. When you combine those factors, premium retention on our renewal book is around 100%.

Great. That's a great sign. Switch to margin: any way you can give us direction on which quarters we can expect to be stronger over the next couple of quarters on a margin standpoint?

We'll continue to provide a total EBITDA guide in each of the subsequent quarters similar to what we did on this call. Largely, we do expect margin expansion on the full year and to recover the degradation we saw because of the seasonality in Q1.

Small question: in net income and EBITDA, you had other add-backs of about $12 million this quarter compared to $14 million last quarter. What items are going in there?

What's captured there are one-time costs. We continue to work on an advanced data strategy and have outside temporary help in there, as well as some recruiting fees on significant hires we made throughout Q1, plus some one-time legal fees and other one-time costs.

Regarding cash flow, the first quarter is always a more challenging quarter. Do you think cash flow is going to start turning positive in the next couple of quarters?

Yes. The first quarter is always a little challenging. We have bonus payouts from the prior year and recognized large AR for our employee benefits renewals that occur in Q1, but the associated AP doesn't always show up because those are often directly billed by carriers. You get a timing impact in Q1, which you see across competitors. That's one reason we calculate adjusted free cash flow. Adjusted free cash flow is down about 17% year-over-year, driven entirely by interest. We added a calculation this quarter to show the impact of cash interest on our business. If you back out cash interest, we're actually up about 17% year-over-year, so from a business standpoint we are seeing expanded cash flow. There are some timing differences in Q1.

Should that begin turning around in the second or third quarter, do you think?

We do expect for the full year to generate between $100 million and $120 million of free operating cash flow.

First quarter cash and cash equivalents were around $80 million. What's the minimum amount you'd like to operate with as far as cash and cash equivalents?

Our minimum would be about $60 million that we could operate with comfortably.

Are you expecting that cash balance to come up as cash flow turns positive, or are you looking to other sources?

We'll manage working capital and utilize free cash flow to pay down the revolver, reduce interest expense, and be opportunistic about that.

We can run efficiently from a working capital standpoint, and our intent is to continue to sweep excess free cash flow against the revolver to reduce outstanding debt. We can draw in and out of that working capital line as needed.

Operator Instructions. The next question we have is from Pablo Singzon from JPMorgan.

Trevor, can you flesh out the leverage implicit in the business model today? I presume compensation doesn't track revenue growth one-for-one. Do you expect leverage in the comp line as well as on the OpEx line?

Short answer: yes, we expect leverage in both the compensation and OpEx lines. We've concluded a three-year reinvestment cycle where we built out the talent base and technology infrastructure to deliver durable double-digit organic growth and significant free cash flow and earnings leverage. We are in the early days of earning in that reinvestment, which will occur over roughly three years, and we expect meaningful margin accretion and productivity enhancement as we grow the business on the platform we've built.

Brad, on other expenses and M&A integration expenses, should we assume those persist through 2023 and, if yes, do you have a view on how much?

We are meaningfully down from Q4, but the Q1 amount is a reasonable expectation of the run rate for 2023 in terms of integration and other one-time expenses.

Those costs are expected to come down pretty meaningfully next year, largely tied to the transition of Westwood out of the QBE platform.

How much cash earnouts do you expect to pay out in 2023?

The pure cash earnout we expect to pay in 2023 would be somewhere between $45 million and $50 million.

The next question we have is from Josh Shanker from Bank of America.

Is the seasonality playing out the way you thought it would in terms of adjusted operating margins at the beginning of the year? Is everything going according to plan?

Yes, it is.

Can we look at the Q1 '23 seasonality and use that as a guide for Q1 '24 when thinking about how expenses are earned into revenues?

Yes.

Given the lightness of the margin in Q1, is that because expenses are heavy at Westwood or revenues are lighter than the rest of the year?

It is both.

Which quarter do you expect to have the highest adjusted margins in the year?

We're not going to provide quarter-by-quarter guidance. We'll continue to share our EBITDA and growth expectations for the following quarter on each call.

Operator Instructions. The last question we have is from Weston Bloomer from UBS.

Can you expound on the growth that you saw in Specialty this quarter? I'm not sure if you gave organic specifically for MGA or other lines. Could you break out how much of the business is currently renters today versus other lines of business? At your Investor Day, you said umbrella and residential was around $300 million in premium—any updates there would be great.

Renters represents a minority of the premium and revenue we're generating in the MGA. While renters continues to grow exceptionally well, some recent products we've brought online are growing even faster. This proves our strategy of building a conveyor belt of new products to launch each year to drive a growth factory as we build more proprietary products. I would expect renters to continue to become a smaller proportion of overall premium and revenue but remain a meaningful and important source of growth and value in the MGA overall.

The comment that 21% of the organic growth was from winning new clients—is that broad-based by segment or specialized in one segment or any geographic focus?

That's pretty broad-based. New business contribution to organic growth is a fairly consistent proportion across the segments. The story of our outsized organic growth is that we take market share and win more new business than our peers.

Medicare is now within the broader Mainstreet segment. With Q1 being an active enrollment season, can you give an update on the success of that business?

They had a solid annual enrollment period, and we continue to expect strong results out of that part of the Mainstreet Solutions segment.

There are no further questions at this time. I would now like to turn the floor back over to Trevor Baldwin for closing comments. Please go ahead, sir.

I'd like to thank everyone for joining us on the call this evening. I want to thank our 4,000 colleagues for their commitment, their hard work and dedication to Baldwin Risk Partners. I look forward to speaking with all of you next quarter.

Thank you, sir. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.