Greetings, and welcome to The Baldwin Group's Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. And 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 third quarter 2024 earnings call. Today's call is being recorded. Third 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 and our most recent Form 10-Q, both of which are available on The Baldwin website. During the call today, the company may also discuss certain non-GAAP financial measures. For a more detailed discussion of these non-GAAP financial measures and historical reconciliation to the most closely comparable GAAP measures, please refer to the company's earnings release and supplemental information, both of which have been posted on the company's website at ir.baldwin.com. I will now turn the call over to Trevor Baldwin, Chief Executive Officer, of The Baldwin Group.

Good afternoon, and thank you for joining us to discuss our third 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. The third quarter ended with Hurricane Helene and was quickly followed by Hurricane Milton, marking one of the more intense hurricane seasons in recent history, particularly for Florida's West Coast. With over 1,000 colleagues throughout the state of Florida, we witnessed firsthand in our communities the destruction and loss caused by these two major storms. We worked quickly to assess the safety of our colleagues and simultaneously focused on assisting with the recovery efforts of our clients throughout the affected areas. As we continue to work through the recovery process, I am reminded yet again of the critical role we in the insurance sector play during some of the most challenging moments of our clients' lives. It is during these times when people and businesses have endured catastrophic loss and are dealing with displacement, financial uncertainty, property damage, and overall disruption that our industry steps in to help make people financially whole and get back on their feet. My sincere pride and gratitude extends to our colleagues who are working tirelessly for our clients to provide them with expertise, guidance, and solutions to navigate the aftermath, lead the recovery, and ultimately continue to protect the possible. With that, I'll go through our results for the third quarter where we saw steady momentum across the top-line, while also delivering margin improvement and adjusted free cash flow expansion. Both organic revenue and core commissions and fees revenue grew 14%, a testament to the strong underlying performance we are seeing in the business and the overall resiliency of our business model in the face of increased headwinds from external market dynamics. Year-over-year adjusted EBITDA grew 14% or 18% normalizing for the pro forma impact of the sale of connected risk earlier this year. Adjusted EBITDA margin expanded approximately 60 basis points to 21% and adjusted free cash flow grew 15% to $27.8 million. Year-to-date, we've generated adjusted EBITDA margin accretion of approximately 160 basis points to 24% and adjusted free cash flow of $99.2 million, which is up 31% from the prior year period or up 49% excluding the impact of one-time third-party refinancing costs incurred at the time of our debt refinancing in the second quarter. We remain bullish on the long runway of operating leverage ahead as our business continues to scale. We are now less than two quarters away from satisfying substantially all of our remaining earn-out obligations, which will result in a step-function improvement in our net leverage and adjusted free cash flow profile over the course of 2025 and beyond. Turning to our segment results. In IAS, overall organic revenue growth for the quarter was 7%, bringing the year-to-date total to 9%. Organic commissions and fees revenue was up 6% for the quarter and 10% year-to-date. We absorbed increased headwinds from rate and exposure compression in the third quarter of 4.7% driven by timing-related softness in our construction practice as a result of certain new job starts from our existing clients pushing out, which negatively impacted project-based revenues as well as flat exposure growth in our employee benefits business. This compares to a 1.3% tailwind from rate and exposure in the prior year period, a 600 basis point differential year-over-year. Offsetting those external market-driven headwinds, our internally driven new business production remains industry-leading as sales velocity for the quarter was 22%, a 400 basis point improvement over the third quarter of last year, which brings our year-to-date sales velocity to 21%, a 430 basis point improvement over the prior year period. Client retention was roughly flat year-over-year at approximately 90%. Notably, after generating $30 million of new business in the quarter, a 36% increase over Q3 of last year, our year-to-date new business production through the third quarter stands at $95 million, a 46% increase over the same period last year, and a 7% increase over total new business produced in the entire calendar year of 2023. These outsized results in both sales velocity and absolute new business production, two key indicators of the underlying health of our IAS franchise give us conviction in our double-digit organic growth outlook for the full year and reinforce the resiliency of our business model to outperform through market cycles. Lastly, in the wake of our rebranding this year, we have seen a broad-based acceleration in the recognition and awareness of our reputation among industry-leading talent evidenced by growing success on the advisor hiring front, which we believe will enable us to continue delivering organic growth in our IAS business that out indexes that of our peers for the foreseeable future. Our UCTS segment had a fantastic third quarter with organic revenue growth of 26% and commissions and fees growth of 31%. Our multifamily and home portfolios continue to thrive, generating 26% and 39% organic commissions and fees growth respectively. Additionally, we continue to see growing contributions from our 2023 new product cohort and Juniper Re, both of which individually added 2.5 points to the UCTS total organic growth rate. Our MIS segment delivered total organic revenue growth of 14% and commissions and fees revenue growth of 11% in the face of a moderating personal lines rate and exposure environment and capacity challenges in some key markets such as California. Additionally, Westwood added another major builder partner in the quarter, its seventh in the last 12 months, as our value proposition as the embedded insurance provider of choice to the builder channel continues to be validated in the marketplace. Our national mortgage and real estate operation is making strong progress on the embedded front and remains on track to breakeven on a run rate basis in 2025, which should be a margin tailwind for us in 2026 and beyond. In summary, we are pleased with the strength of our results for the third quarter amidst the evolving market backdrop we're seeing and I remain confident in our ability to continue to deliver outsized organic growth, margin accretion, and expanding free cash flow well into the future. The resiliency of our business model was on full display this quarter, reinforcing our ability to outperform and deliver outsized top and bottom line growth through market and economic cycles. With that, I will turn it over to Brad who will detail our financial results.

Thanks, Trevor, and good afternoon, everyone. For the third quarter, we generated organic revenue growth of 14% and total revenue of $338.9 million. Looking at the segment level, we generated organic revenue growth of 7% at IAS, 26% at UCTS, and 14% at MIS. We recorded GAAP net loss for the third quarter of $14.5 million or GAAP diluted loss per share of $0.13. Adjusted net income for the third quarter, which excludes share-based compensation, amortization, and other one-time expenses, was $38.5 million or $0.33 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 third quarter rose 14% to $72.8 million compared to $64 million in the prior year period. Normalizing for the pro forma impact of the sale of connected risk earlier this year, adjusted EBITDA grew 18%. Adjusted EBITDA margin expanded approximately 60 basis points year-over-year to 21.5% for the quarter, compared to 20.9% in the prior year period. Adjusted free cash flow for the third quarter was $27.8 million, a 15% increase year-over-year, a direct reflection of our continued focus on expense discipline and operating leverage in the business. In the third quarter, we paid $5.5 million of earn-outs in cash inclusive of amounts reclassified to colleague earn-out incentives. In October, we paid an additional $14 million, bringing our year-to-date total cash earn-out spend to $115 million. Our remaining estimated undiscounted earn-out obligations now stand at approximately $194 million. As a reminder, 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 partnered 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 neutral to net income. As a result of this practice, we have added back $4.3 million of compensation expense in the third quarter associated with colleague earn-out incentive payments and based on current estimates expect to add back between $40 million and $50 million of additional colleague earn-out incentive payments in the fourth quarter associated with earn-outs that are coming due. Given the outsized earn-out obligations we expect to settle in the first quarter of 2025, the amount of the colleague earn-out incentive payments will likely be larger than we've experienced in prior quarters, but will be added back consistently with our historical practice. We also wanted to identify a tax-related add back that may surface for the first time in Q4 2024 related to certain payments made in conjunction with our tax receivable agreement between the public company and owners of the LLC. As a reminder, our UP-C structure provides a tax benefit to our Class A common shareholders, a portion of which is shared with the owners of the operating LLC that sits below the public C corp who have redeemed their LLC units for Class A common stock. This flows through our P&L as a cash operating expense, which could be $3 million to $8 million in the fourth quarter and will be added back as a tax-related item. At the end of the third quarter, net leverage stood at 4.2x, a further reduction of nearly a quarter turn from the second quarter, as we continue to make progress towards our goal of bringing net leverage back within our stated long-term range of 3x to 4x by year-end. As Trevor alluded to in his opening remarks, given the near-term rate and exposure trends we're seeing in the business and a cautious view of loss ratio sensitive contingents post the recent hurricane activity, we are taking a more conservative view on our fourth quarter and full year 2024 earnings results. For the fourth quarter of 2024, we expect revenue of $325 million to $335 million and organic revenue growth toward the high end of our 10% to 15% long-term range. We anticipate adjusted EBITDA between $61 million and $66 million and adjusted diluted EPS of $0.25 to $0.29 per share. For the full year 2024, this implies expected adjusted EBITDA of $310 million to $315 million year-over-year margin accretion of approximately 200 basis points and adjusted free cash flow of $140 million to $150 million. Consistent with prior years, we are also sharing a broad initial view of 2025 financial expectations. We preliminarily expect 2025 organic growth towards the mid-point of our 10% to 15% long-term target, margin accretion of approximately 25 basis points to 100 basis points, and continued improvement in adjusted free cash flow conversion. Our initial view reflects expected continued strength in the underlying fundamentals of all three of our segments, the potential for some commission erosion at the MGA and Westwood related to our obligation to help our carrier partners source reinsurance for our builder-focused homeowners program, a degree of conservatism in our rate and exposure assumptions in both IAS and MIS, and an expectation for continued operating leverage and margin accretion from compensation and operating expenses as the business continues to scale. In summary, we are pleased with the performance of the business year-to-date as we work to deliver on our stated goals of reducing net leverage, expanding margins, and maintaining overall double-digit organic growth. And as we march steadily towards a real inflection point in our free cash flow profile starting in the second quarter of next year. As Trevor mentioned, we continue to see incredibly strong internal fundamentals across all three of our segments and feel confident in our ability to generate durable, outsized results for shareholders. We will now take questions.

Thank you. We will now be conducting a question-and-answer session. The first question comes from the line of Tommy McJoynt with KBW. Please go ahead.

Good evening, everyone. I appreciate you taking our questions. There have been some reports regarding Westwood, and it seems you touched on this briefly at the end. We've noticed discussions about possible issues related to underwriting profitability and capacity for Westwood. Can you provide any information regarding Westwood's carrier capacity mix, how long that capacity is contracted for, and also the underwriting profitability of those programs?

Yes. Hey, Tommy, good evening. This is Trevor. Happy to cover all those areas. And we'll just start out by saying we're aware of the report, and I would tell you it contains a number of statements that are factually inaccurate, incomplete, and/or misleading. Let me start with a comment regarding our partner with the builder program, which is QBE. They've been and continue to be a great partner for us. So let's go through a few things here. First, the assertion that our relationship with QBE is definitively ending in May of 2025 is misleading. The initial term for the QBE Program Administrator Agreement, which we signed with QBE at the time that we acquired Westwood with our MGA goes through May of 2025 but extends through May of 2027, with our support helping QBE arrange reinsurance that equally covers the business to be written between May of 2025 and May of 2027, which I would highlight brings the QBE program structure in line with how all of our non-QBE homeowners programs are structured today. We're currently working to arrange the reinsurance program to support that QBE program through May of 2027 and feel good about our execution based on the historical loss ratio performance of this book. Specifically, over the last 10 years, the builder program loss ratio has outperformed a basket of the top 15 largest homeowners writers by an average of 800 basis points of loss ratio per year, and that trend has persisted since the inception of the Program Administrator Agreement when we took over. As Brad mentioned in our prepared remarks, we are preparing for some erosion in program economics in 2025, as a result of our obligation to help QBE arrange this reinsurance cover. While the outcome could vary as we're still six months out from the need for that reinsurance to go live, our best estimate today of the potential impact is $10 million to $15 million of adjusted EBITDA in 2025, which will likely show up both in UCTS and MIS top and bottom line results, but which is already fully contemplated in the initial 2025 financial expectations that Brad discussed in our prepared remarks. I think it's also important to just talk a little bit about the Westwood franchise and how that business has grown and where capacity is coming from that's supporting it. When we closed on Westwood in April of 2022, the QBE program represented roughly 43% of premium enforce. Today, that's 37% as of 9/30, as we've focused less on growing the QBE builder program and more on modernizing forms, increasing rate structures, and preparing that program to successfully enter the third-party reinsurance market. Alternatively, from that non-QBE capacity supporting Westwood was 57% at the time of our acquisition and today is 63%, representing a 76% growth. When you look at what is supporting the growth of Westwood, it's broad-based capacity, and we continue to feel really good and confident about QBE our ability to source reinsurance to support QBE and continue managing that program through May of 2027. I think it's also worth mentioning the topic of the report, probably worth Brad just sharing a few thoughts on some of the allegations around some of the Medicare M&A that was completed. So Brad, do you want to jump in?

Yes. Thanks, Trevor. In the Medicare business, we operate as a national distribution platform on behalf of our health plan partners in what is commonly referred to in the industry as a national Field Marketing Organization or FMO for short. That means our health plan partners delegate to us in part or all of the responsibility for contracting third-party agents and agencies, providing them with ongoing compliance, training and oversight, as well as sales and marketing training and oversight support. From time to time, we acquire these downline agencies in order to control more of the distribution value chain and increase our share of the economics. You can think about this as us vertically integrating ourselves down into the value chain and acquiring agencies and their direct agents who are closest to the plan members we provide advice and enrollment support to. The agents of these third-party Medicare distribution agencies are not employees of Baldwin, and the agencies are in no way controlled by us pre-acquisition. Therefore, we can confirm we've appropriately accounted for these acquisitions under U.S. GAAP. The $1.8 million of earn-outs paid to the acquisitions mentioned in the report, in addition to all of our earn-out payments, are in no way a replacement for or in lieu of compensation; they represent incentive-based, transaction-related payments that are the industry standard in insurance agency acquisitions.

Tommy, any follow-ups?

Yes, just one quick one number. You mentioned the $10 million to $15 million of EBITDA impact. Is it fair to think of that as only a half year or potentially eight months impact, and would there be an additional impact in 2026 over 2025 similarly to that?

Yes. Tommy, that's the right way to think about it. I'd say you should think about it as kind of a one-time impact that clearly, we're able to absorb while still increasing margin and delivering industry-leading kind of mid-teens or solid double-digit organic growth. So we feel really good about how we're positioned for next year.

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

Hi, how are you? So for the IAS, I know you reiterated that staying in the double-digits for the full year, but I guess that kind of implies an acceleration in Q4. So I guess, what gives you kind of the confidence? Because you talked a lot about stuff kind of getting pushed back in terms of construction and all that. But I feel like if it's getting pushed back, it will likely get pushed back even further than Q4. So I guess, have you seen something that maybe gives you a little bit more confidence going into Q4 that you could see that kind of accelerate from here?

Yes. Hey, Hristian, this is Trevor. I'd say three things. One, our expectation assumes the rate and exposure headwinds persist into Q4. With that being said, there are two dynamics that give us confidence around the acceleration in the quarter. One is our visibility into continued really strong new business results and the prior year comp being a relatively easy comp that we're growing off of.

Got it. In terms of a potential macro slowdown, possibly in the first half of next year, have you considered your 2025 guidance? You mentioned that rate and exposure may not decelerate and could stabilize. I'm trying to understand what percentage of your business is affected by macro conditions. I don't recall you specifying what percentage of construction is macro sensitive. Are there any other areas of your business that might experience a slowdown if a mild recession were to occur early next year?

Yes. So I'd say the two areas I'd point out would be construction and employee benefits, which is headcount-centric. Construction across our business is, you can think about it as about a $100 million revenue business. Employee benefits would be about 30% of the overall IAS business. I think what we're seeing in the third quarter is kind of the relative impact you could expect in that type of environment. It's certainly conservatively contemplated that those headwinds persist into 2025 based on the expectations that we've set. Importantly, what I just reinforced for you, Hristian, is we feel really good about the durability of our growth profile, our earnings growth opportunity, and the margin accretion runway we have ahead of us. As a result of how much of our overall growth is driven by net new business, which as you saw in this quarter enabled us to power through those market-driven headwinds. So while there are some impacts, puts, and takes, so to speak, around both insurance and economic cycles, due to the consistent ability we have to deliver outsized new business, we're confident around our ability to kind of grow in an outsized manner through those cycles.

Got you. And one more if I can. I know you previously commented on multiples in the M&A world, I guess. Have you seen any shift? And I know you guys are bringing your leverage down, but I guess if a lower rate environment turns even lower quicker than you guys expected, would you guys return to M&A quicker than you originally expected, or are multiples too high and you'd want to see some contraction there as well?

Yes, based on what we are observing and hearing, multiples remain very high. Our M&A strategy will not be influenced by the current rate environment. Instead, it depends on our financial profile and the strategic value of the businesses we aim to acquire, as well as the capabilities and resources we can contribute. We are committed to enhancing our financial profile, which we expect to see a significant improvement next year. We are enthusiastic about the increasing free cash flow and our ongoing efforts to reduce leverage, as we continue to deliver exceptional growth results, strong margin improvement, and overall solid performance on both the top and bottom lines. Therefore, we do not view M&A as a significant contributor to our results for the next year. As I mentioned previously, I would advise against modeling any actual M&A activity for next year.

Thank you. Next question comes from the line of Gregory Peters with Raymond James. Please go ahead.

Well, good afternoon, everyone. So I want to get back to the margin guidance. I just want to make sure we're picking up all the pieces in the change for the outlook for 2024. The other question I had related to margins in the context of the guidance for 2025 is that with the substantial, let's call it 10% plus organic target for the enterprise for next year, I would anticipate that, I think the low end of your guidance is a 20 basis point margin improvement. That seems kind of light in the context of the growth that you're expecting. So just help us reconcile those two things, please.

Yes. Hey Greg, good evening. So let's take those one at a time. For Q4, there are really two drivers that are causing us to put forth some conservatism in our outlook. One is the kind of rate and exposure headwinds we saw in Q3. We're baking in an expectation for that to persist across our IAS and MIS businesses. The second is an expectation for a one-time, call it $2 million to $3 million top and bottom line impact to contingent loss ratio based profit share contracts related to the recent storm activity. When we look to 2025, you're right, we are outlining an expectation for double-digit organic growth, as we've consistently said we believe our business is capable of and will deliver through market and economic cycles. When you look at the low end of that margin accretion guide at 25 basis points in a vacuum, I would agree with you that is relatively low considering that growth path. However, what that contemplates is a built-in kind of EBITDA headwind associated with our obligation to help QBE source reinsurance to support the builder program beginning in May of 2025, which we've sized right now at $10 million to $15 million. So if you normalize for that, you can think about kind of a more regular way, kind of, year-in, year-out margin accretion expectation.

Fair enough. I know you said it in the comments, but I just want to make sure I got it all.

Yes.

I have a follow-up question regarding organic revenue growth. You've mentioned some of the challenges in IAS. Could you discuss the changes in organic growth, particularly the sequential and annual trends? While the rate of change is gradually decreasing, it's still a strong performance overall. I'm interested in your perspective on the outlook as we make our projections. Is it reasonable to expect that UCTS will eventually align with your target range of 10% to 15%? How are you approaching this?

Yes. So there's a lot there, Greg. Let's start high level, and then we can get into some more granular specifics. When you think about the rate of change in organic, I would tell you it's in the retail businesses, so IAS and MIS, it's entirely driven by change in rate and exposure. I don't have an expectation that you're going to continue to see a rate of change. If anything, I think it would move back up over time. Take IAS as a specific example in the quarter, rate and exposure was a 600 basis point headwind to organic growth in the quarter. Normalizing back to the same, call it 1.3% tailwind that we experienced in last Q3, IAS' organic growth would have been 13% rather than 7%, which is healthy and right square in the middle of our long-term 10% to 15% target. A 1.3% rate and exposure trend is not something I would characterize as unique in nature. When you think about the fundamental ways in which rate and exposure building blocks build, you can think about GDP for the economy largely as a proxy for exposure unit expansion or compression, plus or minus the impact of what's happening with pricing in the economy and then insurance rates. We've certainly over the past few years been in a constructive rate environment that has begun moderating over the past few quarters, which is consistent with what you've probably seen across the industry. I would just point you back to our ability to consistently deliver net new business results that meaningfully exceed industry norms, which leads us to our confidence in our ability to continue to deliver meaningfully outsized organic growth relative to the industry over time. I'd take a similar viewpoint in MIS. We're innovating the way in which personal insurance is consumed and distributed via our embedded strategies. We are the clear leader of embedded insurance solutions at the point of new home sale via our Westwood franchise. New builder leads through that channel were up 13% in the third quarter and 12% year-to-date, which is a proxy for the type of growth we should expect on a unit basis over the next six months to nine months. In our relatively nascent mortgage and real estate-focused business, we're seeing really encouraging trends. Monthly new business policies in the third quarter were up 48% compared to the prior year. Advisor or sales professional productivity was up 20%. As a result of those productivity gains, our average cost per new policy is down 17%. Our average new business revenue on a monthly basis was up 54% in the quarter compared to the prior year. When you look at the change in organic growth for that segment sequentially or year-over-year, it's really a rate and exposure story. We are admittedly coming off historic highs from personal lines rate standards standpoint. But I think we're all clear-eyed around the reality that the combination of evolving weather patterns, continued concentration of building and values being in our riskier coastal areas, as well as legal system abuse and social inflation, all leading to a need for ongoing outsize rate across those lines of business. We feel good about the fundamentals. They're internally driven, and that should position us to grow through the cycles. The UCTS business is taking advantage of secular trends around premium moving out of the traditional insurance company format into delegated authority underwriting constructs. We continue to be focused on launching three to five new products a year. You heard in my prepared remarks, the 2023 slate of new products contributed 2.5 points to organic growth in the quarter, and both our multifamily product line renters, which is our oldest product, was up mid-20s organically and our home product suite was up nearly 40%. I can tell you that's largely driven by non-QBE programs as we continue to constrain the growth of QBE and focus more on product modernization there. We feel really good about how the business is positioned, our ability to drive durable outsized growth, and continue to harvest margin and march down that clear and long path of margin accretion well into the future.

That's a full answer. I appreciate it. Just one minor last question, which is you mentioned customer retention. I think that related to the IAS channel. Can you talk about producer retention? That's another critical variable. How is your producer retention holding up?

Yes. We feel great about our producer retention. We refer to our producers as risk advisors. We track colleague retention, Greg, on a monthly basis. One of the key metrics I pay attention to is our retention of what we call our vanguard colleagues. That's the top third of our colleague population as they rank from a performance basis every year. As of September, our retention of vanguard colleagues was in excess of 95%. You can carry that statistic through to our advisor population, and that is illustrative of the strong retention we're seeing.

Thank you. We will now take our last question from the line of Pablo Singzon with JPMorgan. Please go ahead.

Hi, good evening. So a couple for me. One, can you please explain how the change in QBEs we ensure will result in lower EBITDA for you? Start to hear on how that works.

Yes. Hey, Pablo, this is Trevor. When you look at the way MGA programs are structured, particularly when it's with reinsurance purchased separate from the paper that you're writing the program on, you can think about there being kind of three components of the overall cost structure. There's a fee that goes to the insurance company providing the regulated paper that you file and write the product on. They will typically take some risk on the program as well as part of the reinsurance panel. You can then think of a percentage of the premium dollar that gets paid to the reinsurers for taking the risk on that program. That constitutes your expected losses plus some margin for those risk bearers. Finally, you can think about a fee for claims adjudication, which generally we are the TPA for our programs and adjudicate those claims, so that fee goes to us. You can think about the commission for providing the program administrator services, everything from product development and ongoing filings to underwriting to policy issuance and everything in between. Specific to the QBE program, QBE was writing that net all along and intended from day one, the reason they sold Westwood was to get out of North American personal lines, at least that was communicated at the time. The plan has been all along for that to be a gradual transition into the more traditional program market, whereas in May of 2025, they would transition to being more of a paper provider and us bringing in a panel of third-party reinsurance providers to take the risk. As you've heard from me in the past, when we launch new programs, our economics are not optimized, because you're bringing a new program to the reinsurance market for the first time. You can think about there being a similar dynamic here as we're bringing this program into the reinsurance market for the first time. As a result, there's some conservatism in how people are going to look at expected losses. If we can continue driving industry-leading results and improving overall loss costs over time, those economics have the opportunity to then grow once again over time, similar to the new programs that we launch.

Got it. Makes sense. And then second question, maybe for Brad. I think your cash flow guide for the year used to be 160 to 195, right? And now you're saying 140 or 150. Can you just bridge the gap there? How much of it was 3Q? How much is 4Q? And how are you thinking about conversion in 2025?

Yes. It's a combination of 3Q and 4Q. I'd say you could split it half and half, Pablo. It's really two drivers. One, the revised adjusted EBITDA guidance, which is the starting point for how we calculate and communicate free cash flow. The second being the fact that we took out an additional $100 million opportunistically when the bond markets were quite favorable, and we launched our inaugural bond in May. That has resulted in a higher cash interest expense burden for the year, which is those two are effectively getting you to our revised full year guidance.

Yes. And then just last for me, just a couple of clarifying questions on the rate and exposure comments. First, you talked about the construction book and some timing-related softness there. Are you counting that against the rate and exposure headwind? I think you said 4.7, right? I wasn't sure how you're thinking about that negative this quarter.

Yes. Hey Pablo, you can think about the kind of pushing out of job starts as being probably half of that negative impact on rate and exposure. The other you can think of as being exposure being flat in the employee benefits business. If you normalize those two factors, you bridge back to low-double-digits organic growth in IAS.

Okay. As we look ahead to 2025, Trevor, you mentioned some assumptions regarding potential headwinds from rate and exposure. Could you clarify what your expectations are for the shape of that curve? I believe that 4.7 is a significant headwind. Will it improve in 2025, or will it remain similar? I don't have specific numbers, but how should we approach understanding the progression of that curve in the upcoming quarters?

Yes. Hey Pablo, a couple of things. One, I'd say we're still a little far out to get into specific shapes of rate and exposure impacts quarter by quarter. We'll be prepared to talk more about that as we get back out here on our year-end call. Overall, you can think about the glide path of that impact being most prominent in the beginning of the year when these headwinds from 2024 were not as meaningful and kind of gliding off over the balance of the year. As we bring the call to a close, I wanted to take a moment to reflect on our recent five-year anniversary as a listed company, which was a couple of weeks ago and everything that has been accomplished over that time period. I remember ringing the opening bell at NASDAQ's market site on October 24, 2019, and it feels both like yesterday and a distant memory all at once. In 2019, our debut year in the public markets, we were the first commercial insurance broker to IPO in over 20 years. We had less than 500 colleagues, total revenue of $138 million, adjusted EBITDA of $29 million, and adjusted diluted earnings per share of $0.27. We had generated organic growth of 10%. We're very much a regional business. However, we had a clear vision of who we wanted to become and a strategy to get there. Today, I sit here with immense pride for our team and colleagues across the country as we have more than executed on the five-year vision we set forth at the time of our IPO. Across key business metrics, we have executed well in many ways beyond our own expectations. Today, we have just over 4,000 colleagues, a roughly 8x increase from five years ago. We have LTM revenues of $1.34 billion, a 10x increase. We have LTM adjusted EBITDA of $295 million, a 10x increase. We have LTM adjusted diluted earnings per share of $1.37, an increase of over 5x, resulting in a compound average growth rate of over 40% in our adjusted earnings per share since the IPO. As proud and excited as I am for what we have accomplished over the last five years, I can easily say I'm even more enthused for what lay ahead over the next five and the opportunity that is abound. When we listed in 2019, we in many ways had burned the boats. Scale for us became existential to validate our ability to thrive as a public company. We had to move quickly to acquire scale, build our client capabilities across new markets and specialties, build out the infrastructure to responsibly operate the national public company we were rapidly becoming, all while maintaining and enhancing our industry-leading culture and status as a destination for leading talent. In many ways, as a result of the foundation we have laid, scale we have built, and strength and momentum of our underlying business fundamentals, our most challenging years of execution should be behind us. Going forward, our focus remains on building the preeminent insurance and risk advisory solutions firm, what we refer to sometimes as the broker of the future. While the fundamentals of what got us here, namely industry-leading talent in technology will continue to be critical to our future success, certain of the priorities will evolve. For example, during the past five years, scale in achieving it was existential. Over the next five, operational rigor and efficient execution at scale is critical. Today, I am more excited and confident about the future than I have ever been during our time as a public company. We have a platform that is well built and established. Investments needed for our next phase of growth are incremental rather than the transformational investments made over the last five years to build and establish our baseline infrastructure. We have a margin profile that is far from mature, with no structural differences impeding our ability to achieve peer-level margins or greater over time, providing a very clear and long runway of margin accretion ahead. We have a business at scale that knows how to grow organically at outsized rates realized through internally driven net new business generation, which should result in durability to our outsized growth profile through insurance and economic cycles. We are rapidly approaching a major milestone with less than two quarters until the vast majority of our remaining earn-out liabilities will be settled. In the second quarter of 2025 and beyond, we expect a significant inflection in our free cash flow generation, continued reductions in our debt leverage, and continued industry-leading growth in our top and bottom line, all leading to a rapidly strengthening financial profile. At the Baldwin Group, I can say with pride and confidence, our future is bright. With that context, I thought it would be helpful for me to share the intermediate objectives we are rallying around internally. We have recently rolled out internally our intermediate-term strategic plan with a top-level aspiration we refer to as 3B30 in 5, specifically, our objective is to grow our business to $3 billion of revenue, achieve a 30% margin over the next five years. To be clear, this is not guidance. We have always set internal goals for ourselves more aggressively than the expectations we set externally, and as a result, you should not expect symmetry between the two. But this is what our planning and priorities revolve around achieving internally. We are a competitive group. When we set goals for ourselves, we expect to achieve and exceed them. In closing, I want to take a moment to thank our key stakeholders who have made the last five years possible. We have an amazing team of colleagues and leaders whose passion, grit, and determination enable the amazing results and accomplishments we have discussed today. I want to thank our clients, without whose continued adoption and loyalty our success would not be possible. The insurance company partners we trade with day in and day out, and the communities we live and work in and that have supported our success. I also want to thank our shareholders, many of whom have been with us since our IPO. Notably, among our public insurance broker peers, we rank at the high end of insider ownership with over 40% of our company owned by colleagues and partners. I recognize our journey has not been without twists and turns, trials and tribulations. I am incredibly proud of the results we have achieved thus far. Our story is far from over. Our future is bright, and I can say to you with confidence our best days remain ahead. Thank you, and we look forward to talking with you again on our year-end call.

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